US issuers to bid on $2 bln of own auction-rate bonds

WASHINGTON, April 2 (Reuters) - Reassured they will not break federal securities regulations, U.S. municipal bond issuers and conduit borrowers will bid on more than $2.12 billion of their own auction-rate bonds starting this week, Reuters determined from a survey of disclosure notices on Wednesday.

Groups intending to bid include the Los Angeles County Museum of Art, Puerto Rico and hospitals in various states, according to documents released by Digital Assurance Certification and DPC Data, two municipal bond information repositories.

Most will determine the interest rate they will bid using the Securities Industry and Financial Markets Association's municipal swap index rate. Others are setting a floor for the interest rates, such as "not less than 3.70 percent."

Florida's Citizens Property Insurance Corporation intends to bid on $375 million bonds on Friday, the most out of all the issuers so far. It plans to submit bids in auctions at the one-month London Interbank Offered Rate plus 100 basis points.

Auction-rate securities, long-term bonds with interest rates that reset periodically at auction, have become one of the casualties of the country's liquidity and credit crunches. Firms stopped bidding on the bonds earlier this year and, after the auctions failed, the bonds' interest rates defaulted to maximum levels. (For details on the developing secondary market for auction-rate bonds, click on: [ID:nN02383785]

Even when auctions attracted bids, issuers faced unexpectedly high interest rates demanded by investors.

Earlier this year, issuers asked regulators if they could bid on their own securities in order to whisk them out of the market or decrease interest rates. At the end of March, the Securities and Exchange Commission and Treasury Department said they could do so without running afoul of market regulations.

Puerto Rico, which will bid on $50 million of bonds on April 8, plans to offer interest rates of 2.75 percent or the SIFMA index, whichever is higher. According to its notice, the U.S. territory had to pay a much higher 5.63 percent in interest due to an auction on Tuesday in which it did not participate.

The SIFMA Swap Index is a short-term gauge of activity in the variable-rate bond market that is posted weekly. In the last year it has never risen above 4 percent, which should help some of the issuers attain a lower rate. As of March 26, the index stood at 2.21 percent. (Reporting by Lisa Lambert; Editing by Jan Paschal)