Mass. Nonprofit Institutions Seek Permission to Bid on Bonds
March 5, 2008 | Read Time: 1 minute
To combat the ongoing credit crunch, nonprofit hospitals and universities in Massachusetts are seeking permission from Congress to bid on their own bonds, giving the organizations a way to avoid increasingly steep interest rates by participating in auctions that set rates on the groups’ securities, The Boston Globe reports.
The auctions, which have worked well until now, have faltered in recent weeks and created millions of dollars of extra borrowing costs at some of the state’s largest institutions. Scared off by the subprime-lending crisis and other economic problems, buyers have stopped bidding in the auctions, causing bonds to be reset at interest rates as high as 20 percent in some cases.
New York Democrat Senator Charles E. Schumer yesterday asked the Securities and Exchange Commission to allow the institutions to bid on their own securities without raising concerns that they are manipulating markets. The bids would allow the nonprofit institutions to avoid high interest rates that occur when auctions fail.
Speaking to reporters after a hearing in Washington yesterday, SEC chairman Christopher Cox said his agency is “looking very carefully at the investor protection aspects” of allowing such bids.
Letting borrowers bid on their own bonds could give them the chance to drive down interest rates artificially, which is why the SEC has not encouraged the practice in the past, the newspaper said.
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