The Internal Revenue Service is conducting a random audit of $350.5 million of electric and gas systems revenue refunding bonds issued by San Antonio in 2003.

The city disclosed in a material event notice filed with the nationally recognized repositories this week that the IRS had notified it about the audit in a Jan. 25 letter.

Currently about $195 million of the bonds are outstanding and will mature on Feb. 1 in each of the years between 2009 and 2011, and on Feb. 1, 2013, the city said in the notice.

The transaction appears to involve a forward delivery agreement, under which San Antonio's City Public Service Board was able to achieve debt service savings by paying a forward fee in June 2003 to lock in advantageous interest rates on the bonds, which were not actually delivered until November 2003.

The bonds were underwritten by UBS PaineWebber Inc., now UBS Securities LLC.

Fulbright & Jaworski LLP and Escamilla & Poneck Inc. were co-bond counsel.

The CPS board plans to provide the IRS with a complete transcript of the financing documents tomorrow, according to the notice. CPS officials could not be reached for comment. q

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