Law School ARS Conversion

The New York Law School plans to convert its outstanding auction-rate securities into variable-rate demand bonds before the end of the month, according to a resolution passed by the issuer’s board last week.

The law school sold $135 million of bonds through the New York City Industrial Development Agency in 2006 to finance the acquisition of land and construction of a new building in lower Manhattan.

The conversion will trigger a mandatory tender on the bonds and will terminate insurance by Ambac Assurance Corp. The VRDBs will be remarketed in either weekly or daily mode, according to the resolution.

The law school secured liquidity in the form of letters of credit from three banks: JPMorgan Chase Bank will provide an LOC on about $67.5 million of bonds; RBS Citizens Bank NA will provide an LOC on about $20 million of bonds; and Allied Irish Banks Plc will provide an LOC on about $47.5 million.

The law school’s ARS failed at auction in February amid widespread market disruption and spiked to a 12% maximum failure rate. The school began bidding on its own auctions in April, successfully driving interest rates below 2%.

Winston & Strawn LLP is bond counsel. It was not clear last week what firm would remarket the VRDBs. UBS Securities LLC and Goldman, Sachs & Co. have been broker-dealers on the ARS.

Due to the expiration of the state law that allows IDAs to sell bonds to finance civic facilities, the law school did not have the option of refunding the ARS through the IDA, though it would have the option to refund its ARS through the New York City Capital Resources Corp. in the future, pending approval of recent changes to the CRC’s incorporation documents by the state attorney general. 

The law school declined to comment.

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