It was another week of failed auctions for the auction bonds previously issued by the Montana Higher Education Student Assistance Corp. to finance student loans.

A total of $439.6 million of tax-exempt and taxable bonds previously issued by MHESAC failed, said Jim Stipcich, president and chief executive officer of MHESAC’s business manager, the Student Assistance Corp. These are the second failed auctions for all of these bonds, he said Friday.

A total of $1.26 billion of MHESAC bonds owned by bondholders have failed in auctions since Feb. 11, some more than once.

MHESAC, a nonprofit corporation, is among many nonprofit and for-profit companies nationally that have been left reeling since mid-February by Wall Street’s credit and liquidity crisis. Other state student loan organizations, hospitals, museums and other nonprofits have been caught up in the same squeeze.

Despite the problems, Stipcich said students don’t have to worry about loans next fall.

“We would like to emphasize that MHESAC has financing in place for FFELP (Federal Family Education Loan Program) loans for Montana students next fall — $175 million for the 2008-09 academic year,” he said.

He said MHESAC underwrites FFELP student loans for 85 percent of Montana college students.

This week, $308.3 million in tax-exempt auction bonds and $131.3 million in taxable auction previously issued by MHEASAC were unsuccessful. Interest rates on the taxable auction bonds were reset at rates between 1.1 percent and 4.2 percent or less than the previous interest rates of 4.3 percent to 4.6 percent.

These auction rate bonds, sold in $100,000 units, are considered long-term debt, but they roll over every 28-35 days when their interest rates are reset to match current market rates. The institutional investors that bought the bonds can re-buy them at the new interest rates. If they opt against that, they can sell them to another institutional investor at an interest rate determined by a preset formula based on market indices.

Since mid-February, however, few institutional investors have re-purchased the bonds, and they can’t find any sellers.

Commissioner of Higher Education Sheila Stearns, MHESAC’s president and a nonvoting board member, said she doesn’t foresee the Wall Street credit and liquidity crisis being turned around soon.

“It’s going to take months,” she said. “We’ll have to see what the country does in stabilizing its capital markets and the availability of capital, whether it’s for mortgages or loans.”

“If it doesn’t settle down, it could have ill effects,” she added.

MHESAC has the money secured for student loans for the 2008-09 school year, Stearns said, and its underlying assets are sound.

She said it may take until after the presidential election and Congress reconvenes for the federal government takes action.

“Everybody knows the whole subprime mortgage capital is affecting everything,” she said.

Stipcich has said MHESAC continues to work to find ways to restructure a significant part of the outstanding auction rate

securities.

Its ability to do so depends upon a number of factors, including the availability of certain financing vehicles, if applicable, and related liquidity and credit enhancement facilities, he said. Besides the $1.26 billion in auction bonds, MHESAC has $900 million in debt that is not invested in auction rate bonds. Of that, $725 million is in fixed-rate bonds, or bonds financed at a fixed spread over a given index. The remaining $175 million is invested in variable-rate demand notes issued in December 2007 that require a third party to buy them if sellers want to sell them and other buyers don’t surface.