New York Law School may bid on at least half of its $135 million of outstanding auction-rate securities this week, the school disclosed last week.

The amount represents a big increase in the school's bidding on its own auctions, which it began this month with a single $15 million bid on April 9, but one which is in keeping with its stated intention of bringing down interest rates and holding at least 90% of its ARS.

"The school expects to bid for up to $67,500,000 of bonds at an annual interest rate which is not less than the most recently published Securities Industry and Financial Markets Association municipal swap index rate," the school's treasurer, Fred DeJohn, said last week in a letter.

The letter, which was posted on Digital Assurance Certification LLC's Web site, referred to one of two series of securities sold in 2006 through the New York City Industrial Development Agency to finance acquisition and construction costs for a new building.

In a letter dated April 4, dean Richard Matasar stated that the school intends, once it has purchased some of the securities, to "submit 'hold' orders in future auctions, until such time as it redeems the bonds or converts the interest rate mode for the bonds, or until it chooses to sell the bonds in a future auction."

Issuers and conduit borrowers began bidding on their on ARS last month following the release of guidance from the Securities Exchange Commission that allowed for bidding on one's own ARS provided a number of conditions were met. Those included disclosure of the intent to bid two days prior to the auction and disclosure of the results of the preceding auction.

Neither Matasar nor DeJohn responded to repeated calls for comment.

Both series of ARS, which reset weekly and carry Ambac Assurance Corp. insurance, failed at auction on Feb. 13 and 14, sending interest rates up to a maximum failure rate of 12%. The school's auctions did not fail after "mid-February," IDA spokeswoman Janel Patterson said.

While many issuers and borrowers have dealt with the collapse of the auction-rate market by refunding ARS into fixed- or variable-rate demand bonds, the school was unable to do so because the law allowing New York IDAs to sell bonds for civic facilities on behalf of nonprofits expired on Jan. 31.

Four other borrowers, including the private school Horace Mann, have auction-rate securities issued by IDA outstanding.

The school obtained waivers from the IDA in order to buy its bonds, but the nature and terms of those waivers are unclear. Patterson refused to provide information about the waivers, stating that a freedom of information law request would need to be submitted before the IDA would consider a request for that information. Patterson said that the waiver went into effect on April 7 and that it did not require board approval.

Winston & Strawn LLP is bond counsel. UBS Securities LLC and Goldman, Sachs & Co. are broker-dealers on the ARS. Although the disclosure documents identify UBS as the broker-dealer for the auctions, a person on the UBS trading desk said Goldman Sachs was lead broker on one of the auctions last week. Goldman spokesman Michael DuVally did not clear the matter up, stating, "We're not going to comment or provide any guidance on that."

According to disclosure, the broker-dealer signaled its intent to support all the auctions held in the first half of the month by submitting bids for the entirety of the outstanding bonds for each auction since the beginning of the month. With one exception, those broker-dealer bids this month were always higher than the clearance rates.

The school has not had trouble finding bidders with 26 bids totaling $90.7 million for an auction last week of the Series A bonds for which a $44.9 million hold order had been place on the $67.5 million of securities.

It is not clear whether the school's bidding on its own bonds had any impact on driving down interest rates. Interest rates on the Series A securities reset at 5% on April 2, before the school beginning participating in the auction. The clearance rate dropped to 4% at the April 9 auction, when the school bid 1.89% on $15 million of ARS. But the rate climbed back up to 5% last week when the school bid again, this time at 1.8% on $15 million of ARS.

The Series B bonds tell a similarly inconclusive story. Those securities reset at 6% on April 3 and then plummeted to 4.75% at the next auction, for which the school had announced its intent to bid on the securities but in fact did not place a bid. Results from last week's Series B auction were not available at press time.

The school, which is in lower Manhattan and has about 1,400 students, ran a large surplus in the fiscal year ending 2007 as it took in revenue of $94.4 million and had total expenses of $61.8 million, according to audited financial statements.


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