Municipal Single Issue ARS

Despite the illiquidity faced by many ARS investors, there have been a number of positive liquidity related developments, including a number of bond refinancing announcements and bond redemptions. As of June 1, it is estimated that more than $63 billion of the $165 billion municipal ARS outstanding at the start of the year have been refinanced, allowing many investors to receive par value for their holdings. High penalty rates have also attracted alternative investors, resulting in success in about half the auctions.

However, some municipal issuers continue to experience higher than anticipated borrowing costs from failed auctions and are very interested in restructuring their outstanding ARS debt. The solutions will require that the municipal issuers secure alternative funding sources – which will likely take time to accomplish. As a result, each borrower's situation is unique and the liquidity resolution timetable is uncertain.

Refinancing Efforts

Many municipal ARS issuers have in fact begun to redeem their ARS bonds and convert them to more traditional weekly Variable Rate Demand Note (VRDN) structures backed by a bank letter of credit (LOC). This instrument requires the bank issuing the LOC to provide ultimate liquidity and therefore, makes the VRDNs eligible for purchase by money market funds. To date there have been several billion dollars of these refinancing transactions. Some prominent examples include:

• New York City Water: Over $500 million
• Indiana Finance Authority: $210 million
• Miami Dade Expressway: $164 million

Raymond James’ public finance professionals have been working to complete similar municipal debt conversions and we expect this refinancing activity to increase in the coming months. Two such conversions are in process:

• City of Reno/Washoe Medical Center: 759836DX4 $44mm 6/23/08
• City of Reno/Washoe Medical Center: 759836DN6 $34,350m 6/23/08
• City of Reno/Washoe Medical Center: 759836DW6 $30mm 6/23/08
• N. Brevard/Parrish Medical Center: 657815AA4 $53,395m Early to mid July
• N. Brevard/Parrish Medical Center: 657815AB2 $32,275m Early to mid July

For a more complete overview of ARS, refer to this webpage: http://raymondjames.com/auction_rate_preferred.htm

Jefferson County AL Sewer Bond Information

Question and answer updates that address what's happened recently with the outstanding auction rate bonds for Jefferson County AL Sewer:
06/06/08
03/10/08

Issuer Notices

On March 14, 2008 SIFMA issued the following statement on the Securities and Exchange Commission's guidance regarding dealer and issuer involvement in the auction rate securities market:

“SIFMA commends the SEC for its quick response and recognition of the importance of providing participants in the auction rate securities market with clarification on its views regarding dealers and issuers involvement in auctions,” said Tim Ryan, president & CEO of SIFMA. “Specifically, we are pleased that the SEC granted a ‘no action’ position in the event that municipal issuers, conduit borrowers and participating dealers participate in bids for municipal auction rate securities, providing this activity is adequately disclosed. We believe this action will alleviate some of the recent dislocation in the auction rate securities markets.”