The New York City Health and Hospitals Corp. is considering converting about $397 million of auction-rate securities into a different mode over the next five months, according to a disclosure notice filed last week.

The agency was vague about its intentions.

"No assurance can be given as to when or if any such conversions will be implemented," HHC chief financial officer Marlene Zurack wrote in the notice. The agency did not respond to repeated calls and e-mails for comment.

The corporation manages 11 acute-care hospitals, four skilled nursing facilities, six diagnostic and treatment centers, and more than 80 community clinics in New York City.

The notice, dated March 27, covers seven series of bonds HHC sold in 2002 - Series 2002B through 2002H. Series 2002A, with a par of $192.8 million was sold as fixed rate. The auction-rate securities are insured by Financial Security Assurance Inc. UBS Securities LLC is the remarketing agent.

The bond documents allow for the securities' mode to be converted to fixed- or variable-rate mode under certain conditions.

In addition to the HHC disclosure, last week the Dormitory Authority of the State of New York approved refunding of fixed-rate and converting or refunding of ARS totaling $505 million that DASNY issued on HHC's behalf.

HHC's 2002 ARS series as well as those issued by DASNY did not suffer the extreme interest spikes that some issuers experienced when widespread auction failures began in mid-February. For example, the Port Authority of New York and New Jersey saw one of its series reset at 20% in mid-February when one of its auctions failed.

At the beginning of the year, the different ARS series were resetting at or near 3.5% but toward the end of February and early March, those resets spiked to above 5%, according to Bloomberg LP. The resets have since come down to between 3.62% and 3.97%, depending on the series.

The HHC's 2002 ARS series have maximum reset rates that are set the day of the auction by the auction agent, according to the official statement.

The DASNY-issued ARS were marketed in 2001 in five subseries, which all failed beginning on Feb. 13. Those securities, which were insured by MBIA Insurance Corp., had been resetting at between 2.8% and 3.8% last year but the first failure reset at 3.85%.

HHC has sold $835.7 million of bonds in the past 10 years on its own credit, according to Thomson Financial. The agency marketed that debt in 2003 and 2005.

 

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