The expiration of the law that allowed New York industrial development agencies to sell bonds to finance civic facilities on behalf of nonprofit institutions has put some of those borrowers with outstanding bonds in auction-rate mode in a difficult position.
"They are stuck," said Brian McMahon, executive director of the New York State Economic Development Council, a trade group representing IDAs. "In some cases they can patch together some short-term solutions but it's still costly, and much more costly than had they had the option to refinance projects through an IDA."
The law expired for the second time in less than 12 months on Jan. 31 after neither the state Senate nor Assembly were able to reach a compromise on IDA reform legislation. The law expired in July but a compromise extension was in force until it lapsed in January. The sticking point has been a provision in the Assembly's bill that would require prevailing wages to be paid on construction projects using IDA bonds. The Senate objects to that provision.
While not speaking specifically about higher education institutions with debt issued through an IDA, Standard & Poor's managing director Mary Peloquin-Dodd said that some New York institutions with auction-rate debt are turning to banks.
"What we are seeing some New York institutions do is a current redemption where they try to take out some of that debt with bank loans," she said.
The IDA law expiration could drive some business toward the Dormitory Authority of the State of New York. DASNY has received inquiries about possible refinancings from three nonprofits in the past three weeks due to the combination of the expiration of the law and turmoil in the auction-rate market, spokesman Marc Violette said.
Auctions of New York Law School's $135 million par of auction-rate securities failed in mid-February, resetting to a maximum fail rate of 12%, according to the New York City Industrial Development Agency, which issued the bonds in 2006. The bonds are insured by Ambac Assurance Corp. Repeated calls to New York Law School were not returned.
"If and when IDA has its civic facility authority restored, we will be able to assist parties interested in refunding existing auction bonds to replace them with non-auction rate securities," city IDA executive director Maureen Babis said in a statement.
Phone calls to several other institutions with outstanding bonds issued by other IDAs in the state in auction-rate mode and their respective IDAs were not returned yesterday.
Syracuse University saw interest rates on two $40 million par series of auction-rate bonds issued on its behalf by the Syracuse Industrial Development Agency spike in the middle of last month. The university's Series 2005A reset at 3.6% on Jan. 4, but spiked to 11.9% on March 15, according to Bloomberg data. Those bonds reset to 5% last week. The other series, 2005B followed a similar trajectory, starting the year at 3.55%, shooting up to 9% in mid-February and resetting to 6% yesterday. The university disclosed on Friday that it intends to redeem the series A bonds at the end of the month. Those bonds were insured by CIFG Assurance North America Inc.
St. Lawrence University sold $20.9 million of bonds in auction rate mode in 2005 through the St. Lawrence County Industrial Development Agency. Those bonds reset at 3.7% in the first week of January according to Bloomberg data. Last week that rate reset at 5.46% The bonds are insured by MBIA Insurance Corp.
The Rensselaer Polytechnic Institute saw interest rates on series of bonds issued at a par of $50 million auction-rate mode in January through the Troy Industrial Development Agency rise as well. In January those bonds' initially priced at 2.25% and reset at 1.9% but last week had reset higher at 3%, according to Bloomberg data. Those bonds are enhanced with a letter of credit from Bank of America NA.