The New York City Housing Development Corp. plans to get out of the auction-rate securities market completely through a series of redemptions and remarketings that began last month. However, one bond issue presents an as yet unresolved hiccup.

The corporation plans to remarket auction-rate bonds on three HDC-financed projects next week as variable-rate demand obligations. The three projects are: 2 Gold, which has $162 million tax-exempt Liberty bonds and $53.9 million of taxable bonds outstanding; 90 Washington, which has $74.8 million of tax-exempt bonds; and Royal Charter, which is staff and student housing for the New York-Presbyterian Hospital and has $89.2 million of tax-exempt bonds and $6.3 million of taxable bonds. All of these series experienced failed auctions last month. The HDC issues tax-exempt and taxable financing for affordable housing projects in New York City.

The bonds for the three projects, which were originally issued as multi-modal, will be tendered and then replaced with new bonds that will be reoffered. The bonds were enhanced with a Fannie Mae credit enhancement instrument that will be amended to allow the mode change, obviating the need for the HDC to find another liquidity provider.

Fannie Mae will exit the auction-rate market by the end of the month, spokesman Jon Searles said yesterday. The HDC already converted auction-rate securities on the Related-Westport project last month that had been refunded in 2004 at par of $130 million.

Meanwhile, the corporation is trying to resolve a hiccup by finding a way to remarket an issue of bonds for an unfinished project that has tax-credits associated with it. Last month the Internal Revenue Service said that issuers could convert to another interest rate mode without causing a reissuance if it was permitted by the bond documents.

"This particular bond series was not issued multi-modal and so to convert it would create a reissuance and a reissuance has a possible negative impact on tax credits," said HDC general counsel Richard Froehlich. "We're trying to avoid reissuance. So we're trying to come up with a structure that doesn't create a reissuance."

Froehlich, who declined to identify the bonds in question, said there was ambiguity in the law that allows tax credits to be utilized as of right only when the issuance uses private activity bond volume cap and the project is completed. A reissuance would not use private activity bond volume cap. "We disagree with this distinction," he said.

In addition, the HDC also plans to redeem this month five series of multi-family housing revenue bonds in auction-rate mode using its corporate reserves. The bonds were issued on the corporation's open resolution which pools financings for many projects. These are: series 2005B with a $48.4 million principal; series 2005E with a $27.7 million principal; series 2005F with a $2.7 million principal; series 2005I with a $3.4 million principal; and series 2006G-2, which sold at a par of $17.7 million.

The HDC used the bonds being redeemed as a short-term instrument for its open resolution and is now looking at ways to replace that instrument. The corporation plans to begin using variable-rate demand obligations using a liquidity facility provided by Dexia Credit Local and is in talks with the Federal Home Loan Bank of New York to directly sell the bank taxable bonds to that would be pegged to an index, Froehlich said. The HDC hopes to sell $100 million of bonds to the Home Loan Bank and $200 million of VRDOs using Dexia, he said.

Home Loan Bank spokesman Eric Amig declined to comment on whether the bank was in discussions with the HDC. Amig said the bank had been in discussions with the HDC in the past but would not say what the content of those discussions were.

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