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State functionaries are starting to
investigate the auction-rate chemical bond marketplace as failures that pushed
interest rates for some borrowers as high as 20 percentage show no
signs of slowing.

Massachusetts Secretary of State said March
28 he is probing Zurich-based , in New
York, of Charlotte, North Carolina, and
other traders over how they marketed the securities. The same
day, UBS cut the value of auction bridge debt held by its clients by
about 5 percent.

More than 60 percentage of the auction bridges for debt sold by
cities, colleges, pupil loaners and closed-end funds failed
since February 13, after traders that supported the marketplace for more
than two decennaries stopped command for chemical bonds investors didn't
want.

on chemical bonds auctioned weekly averaged 6.56 percentage as of
March 19, up from 3.55 percentage the former year, according to a
Securities Industry and Financial Markets Association index.

''It's outrageous,'' said Rory Burnett, finance manager of
Vernon, California's least integrated city. Located four
miles south of business district Los Angeles, Vernon lost $7 million
since mid-February on auction-rate chemical bonds the industrial enclave
sold to cut adoption costs for powerfulness works and natural gas
contracts.

Interest on some of the $482 million issued by the
municipality climbed as high as 18 percentage since Feb. Fifteen from as
low as 4.5 percent.

Subpoenas, Testimony

Auction-rate chemical bonds have got rates determined through bidding
run by traders every seven, 28 or 35 days. When there aren't
enough buyers, the auction bridge neglects and involvement is put at a
predetermined degree set in written documents when the chemical bonds were issued.

Galvin issued subpoena ad testificandums for written documents and testimony on
practices the houses used to marketplace the debt after receiving
complaints from investors who couldn't sell the securities.

''My business office have received phone calls from people who thought they
were investing in safe, liquid investings only to happen that
they had, in fact, purchased auction-market securities that are
now frozen and they cannot acquire their money out,'' Galvin said in
a statement.

Merrill Lynch spokesman Mark Herr said the company doesn't
comment on regulating matters. UBS spokesman Doug Esther Morris and
Bank of United States spokeswoman Shirley Norton declined to comment.

'The Right Thing'

UBS informed its clients of the decreases on March 28. A
spokeswoman for the firm, Michelle Creeden, said the move was
''the right thing to do'' and ''given current market
dislocations, this is the adjacent logical measure for any committed
wealth manager.''

Municipal borrowers are exiting the market, which once had
$330 billion outstanding, information compiled by Bloomberg show. Issuers converted as much as $30 billion of the debt to escape
soaring interest, said , a senior portfolio manager
at BNY Andrew Mellon Wealth Management in Boston.

About $6 billion of municipal chemical bonds are scheduled for sale
this week, including trades to replace auction bridge debt, Bloomberg
data show.

Vernon converted about $190 million of auction bridge debt last
week that financed a natural gas supply contract to fixed-rate
bonds, said of the city's Los Angeles-based
financial adviser, Chemical Bond Logistix LLC. The metropolis programs to redeem
the remaining auction-rate bonds, backed by electricity sales,
with hard cash by mid-April, helium said.

Stanford Penalized

Stanford University in Palo Alto, California, replaced $188
million in auction bridge debt the hebdomad of March 3 by merchandising taxable
commercial paper, or debt owed in nine calendar months or less.

Rates on the two series of tax-exempt enslaveds reached 8
percent last month, from about 3 percentage in January, Bloomberg
data show. Leland Stanford have another $133 million in auction bridge debt
outstanding that it bes after to replace, said , the university's senior manager of finance.

San Bernardino County in Southern Golden State bes after to sell
$160 million of nonexempt pension duty debt with fixed rates
to replace auction bridge debt. Rates on some of the chemical bonds soared to
14.9 percentage March 26, from 3.7 percentage on Feb. 11.

''To travel from a large problem, to pricing a refunding trade in
only 50 years have been a hard task, but we're pleased to be
in the marketplace early with an offering that volition resoluteness the
county's exposure to the irrational rates that we are
experiencing in the auction-rate markets,'' said Gary McBride,
the county's deputy sheriff administrative officer.

Ascension Health, the biggest U.S. non-profit-making hospital
network, began converting all of its $1.4 billion of auction
rate debt with a $326 million chemical bond trade last week. The remainder
continues this week, and will reason in April or May with
conversions to variable-rate demand obligations.

Oregon's most thickly settled city, programs to sell $554
million of fixed-rate enslaveds collectible from sewerage system gross on
April 3 through competitory command among underwriters. The
money raised will fund healthful sewerage and storm-water drainage
improvements, wage off debt sold a decennary ago and refinance $150
million of auction-rate securities sold in 2003.

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