Still No Buyers For State Student-Loan Bonds

By Beacon Staff

HELENA – Efforts failed again on Wall Street to resell $233.4 million in bonds previously issued by the Montana Higher Education Student Assistance Corp. to finance student loans.

Failed auctions over the past week included $181.5 million in previously issued tax-exempt MHESAC-issued bonds, and $51.9 million in taxable bonds.

It was the second go-around for the auction bonds, which failed to resell 28 days ago, said Jim Stipcich, chief executive officer of MHESAC’s business manager, the Student Assistance Foundation.

“These are the first of the previously issued MHESAC auction bonds to cycle through the auctions for the second time,” Stipcich told Montana’s Lee Newspapers in Sunday’s editions. “Some of the tax-exempt bonds will cycle through for the second time next week as a result of their 35-day cycle.”

As of Friday, auctions of $1.29 billion of MHESAC’s previously issued bonds have failed to resell over the past month because of the credit and liquidity squeeze on Wall Street. Most bonds sold in auctions used to finance student loans, hospitals, museums and other public needs in a number of states have failed to resell over the past month.

These so-called auction-rate bonds, sold in $100,000 units, are considered long-term debt, but they roll over every 35 days when interest rates are reset to match the market rate.

The same institutional investors who owned the bonds can repurchase them at the new interest rate, and the cycle continues. However, they also can choose not to re-buy the bonds and can sell them to another institutional investor at an interest rate set by a preset formula based on certain market indices.

But few institutional investors on Wall Street are repurchasing the bonds, and these investors can’t find anyone to buy them.

Over the past month, only $30 million of previously issued MHESAC taxable bonds were resold at auction-rate auctions. And auctions on more than $1 billion worth of other bonds previously issued by MHESAC have failed.

Despite the difficulties, Stipcich again said students shouldn’t be affected this fall.

“We would like to emphasize that MHESAC has financing in place for Montana students for next fall: $175 million for the 2008-2009 academic year; and we do not anticipate any impact on the availability of such MHESAC funds for providing student loans to Montanans,” Stipcich said.

While MHESAC has nearly $1.3 billion of its debt in auction bonds, it has $900 million of its portfolio in other investments.

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