CHICAGO - The Missouri Higher Education Loan Authority is considering the purchase - at a discounted rate - of about $30 million of senior lien auction-rate securities that are part of its outstanding $3.5 billion ARS portfolio.

The authority, in a notice dated May 7 that was filed with municipal repositories and posted on the authority's Web site at under the Investor Information heading of the About Us section at www.mohela.com, informs investors that it is considering bids on a "limited number of taxable senior auction-rate bonds through online trading portals."

"MOHELA will purchase the auction bonds only if the purchase price is at a discount to par," the notice reads. No bids would be submitted by the authority before May 14. The agency said factors such as the asking price, maturity, and failed auction interest rate would influence its decision on what bonds to bid on if it chooses to move forward with the plan.

The authority said it would not purchase any bonds directly from bondholders, limiting the transactions to secondary market trading portals. The agency is registered with Restricted Securities Trading Network at www.restrictedsecurities.net, but reported that it may register with additional portals.

The agency would not tap general funds to cover the cost of the potential purchase, according to the notice. "MOHELA presently anticipates that it will be using its restricted funds within the resolution trust estate ... for any purchases of the auction bonds," the notice reads.

The $3.5 billion of ARS include a mix of senior and subordinate debt with the senior securities carrying top ratings from Fitch Ratings and Moody's Investors Service and the subordinate bonds carrying mid-level single A ratings. The top ratings on the senior debt are because those securities are backed by loans guaranteed through various federal student loan programs.

While rates began to rise last August as the credit crunch heightened liquidity concerns, the authority began experiencing widespread auction failures in February as investors stopped bidding on the securities and auction agents, faced with their own liquidity concerns.

The possible purchase by MOHELA is just one of a series of options under consideration by the authority to address the collapse of the auction-rate market. Other options include the possible restructuring of its debt and the possible sale of certain loans that secure bonds, according to past notices.

Although $30 million represents just a small chunk of the authority's auction-rate holdings, MOHELAis the first issuer to make a public statement about the possible repurchase of some of its auction-rate securities in the secondary market, according to the Restricted Securities Trading Network. Such outright purchases can be difficult for student loan agencies that typically have little cash on hand.

"They know there a lot of holders with a need for capital," said the network's Barry Silbert, who added that the firm is in "discussions" with several other issuers about possible secondary market purchases of their ARS.

MOHELA reported its first loss ever for the first quarter of 2008, although officials have said in published reports that it should end the year in the black. In a move aimed at helping the agency improve its balance sheet, the Missouri House and Senate recently approved legislation expanding the federal loan programs MOHELA can originate.

Some lawmakers believe that if the authority was not required to sell $350 million in assets under a previously approved plan pushed by Gov. Matt Blunt to fund higher education projects, the agency would have had more flexibility to navigate through the current credit crisis.

President Bush also recently signed legislation that will allow the Department of Education to temporarily purchase loans held by student loan lenders, a move that supporters of the measure said would help mitigate a looming student lending crisis.

 

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