WASHINGTON - A handful of issuers or conduit borrowers were among the first to successfully bid on their own auction-rate securities and dramatically lower the high interest rates they were paying, while other issuers indicated in disclosure filings that they intend to bid on their ARS as early as tomorrow.
The bids come after the Securities and Exchange Commission issued guidance March 14 that laid out the circumstances under which an issuer could bid on its own auction-rate securities without triggering enforcement for market manipulation. The SEC said in the guidance that the bids should be disclosed at least two days in advance along with the results of the immediately preceding auction, among other things.
Many issuers had planned to participate in the auctions of their securities two weeks ago but had to postpone their plans for several days as broker-dealers, auction agents, and bond lawyers took steps to make sure they were in full compliance with the SEC's guidance and to formalize internal guidance stipulating the conditions under which they would accept self-bids.
While no comprehensive list of the issuers or borrowers who successfully bid on their bonds last week could be found, the transactions appeared to be associated mostly with health care facilities. They included St. Petersburg, Fla.-based All Children's Hospital Inc., which disclosed on its Web site that it had purchased on Wednesday $37.25 million of the $61.575 million Series 2007A bonds issued on its behalf by the St. Petersburg Health Facilities Authority. All Children's low bid of 2.33% matched the Securities Industry and Financial Markets Association seven-day municipal swap index, and was the auction's clearing rate.
"That was definitely a significant event for us," said Arnold T. Stenberg Jr., senior vice president and chief financial officer of the hospital, which also owns 11 clinics along the Gulf Coast of Florida. Prior to Wednesday's auction, the paper had weekly reset rates of over 10%.
Bryant Miller Olive PC was bond counsel on the auction, Citi was the broker-dealer and Wells Fargo Brokerage Services LLC was the auction agent, Stenberg said, adding that the arrangement, in which the hospital pays itself interest on its own bonds, would provide for complicated accounting until the hospital restructures the debt later in the year.
Meanwhile, in a notice released late Thursday, the Kansas City, Mo.-based Stowers Institute for Medical Research announced that it, along with three sister institutions, had bid on its auction-rate bonds in two separate auctions.
The institutes, which conduct cancer research, on Tuesday purchased $105.975 million of $215 million of Series 2000 medical research facilities bonds issued by the Missouri Health and Education Facilities Authority, with a clearing rate of 3.335%, according to a disclosure notice sent to The Bond Buyer.
The notice said that the institutes, in another auction Wednesday, also purchased $33.3 million of $75 million of the Series 2002 medical research facilities revenue bonds sold by the same issuer, with a clearing rate of 3.428%.
Gilmore & Bell PC was bond counsel on both transactions, JPMorgan was the broker-dealer, and the Bank of New York Trust Co., according to Bill Musgrave, a spokesman for the institutes, who said high interest rates had forced the institutes to pay an additional $3 million in costs since the auction-rate turmoil began more than two months ago.
David A. Welte, legal counsel for the institutes, said in a statement: "The successful auction of these bonds achieved our goal of reducing interest rates to a level closer to where they traditionally traded, which in turn allowed us to stop the unnecessary diversion of our charities' funds away from their intended purpose, the advancement of science."
Meanwhile, at least a dozen other issuers or conduit borrowers disclosed late last week that they intend to bid on their own securities beginning tomorrow, among them the Los Angeles County Museum of Natural History Foundation, which is borrowing through the California Infrastructure and Economic Development Bank; WellSpan Health Obligated Group, borrowing through the General Authority of Southcentral Pennsylvania; and Children's Healthcare of Atlanta Inc., borrowing through the DeKalb County, Ga., Private Hospital Authority.