Wall Street auctions continue to fail for auction-rate bonds previously issued by the Montana Higher Education Student Assistance Corp. to finance student loans, just as they have for billions of dollars of similar bonds already issued by other nonprofit groups.

Over the past two weeks, auctions involving $783 million of the MHESAC's outstanding auction bonds have failed, including $116 million on Thursday because of the credit and liquidity crunch on Wall Street. What that means is that these auction bonds, previously issued by MHESAC and which roll over every 35 days, have not been able to be resold to bondholders.

The Wall Street Journal this week reported that auctions on some $60 billion of auction-rate bonds didn't draw enough investor interest.

"Clearly we remain concerned over the failure of the auctions," said Jim Stipcich, chief executive officer of MHESAC's business manager, Student Assistance Foundation.

More auctions of the previously issued MHESAC bonds are set for Tuesday, Wednesday and Thursday.

Some $1.1 billion of MHESAC's $2 billion portfolio is invested in auction-rate bonds issued between 1995 and 2006, he said. MHESAC is now looking for ways to refinance a significant portion of its outstanding auction rate bonds, Stipcich said.

Auction bonds, issued in $100,000 units and sold to institutional investors, are considered long-term debt, but they roll over every 35 days, with interest rates reset to match the current rate. The same institutional investors that hold the bonds usually buy them again, with the interest rate adjusted. They do, however, have the option to sell the bonds to someone else through a third-party. Stipcich said the interest rate on bonds after a failed auction is determined by a preset formula based on market indices.

What's been happening on Wall Street, not only with the MHESAC outstanding bonds, but with billions of dollars of bonds used for student loans in other states, hospitals, museums and schools, is that no one is buying them. As a result, the current bond holders are required to keep them, even if they don't want them. In some cases, they, by contract, are paid a higher interest rate because of the failed auction.

"Recent press articles have been interpreted by some to mean that MHESAC has been unsuccessfully trying to sell bonds," Stipcich said Friday. "That is not the case.

"Rather what has been happening is the auctions that have recently been unsuccessful are of auction bonds issued by MHESAC between 1995 and 2006 and are not related to financings that are already in place that are expected to be used to provide funds for student loans for Montanans for academic year '08-'09," he said.

The Wall Street Journal, Bloomberg News and other national media have been reporting about the failed bond auctions in the student loan industry and other asset classes financed by auction bonds.

On Friday, the Wall Street Journal reported that regulators and lawyers "are closely watching the collapsing auction-rate securities market to assess the damage and consider actions on behalf of investors or issuers who claim they didn't understand what could go wrong."

Stipcich said that MHESAC already has in place $175 million in financing for student loans for Montana students for the upcoming 2008-09 school year.

He added, "And we do not anticipate any impact on the availability of such MHESAC funds for providing student loans to Montanans."

Montana's senior auction bonds retain the highest possible ratings from national rating agencies, despite the current unrest in the auction market, Stipcich said.

He emphasized that the auction failures don't mean MHESAC is having trouble selling its bonds. Its last effort to sell bonds occurred in December 2007 without problems, Stipcich said, and it has not tried to sell bonds since then.

Of the remaining $900 million in MHESAC debt, $725 million is invested in fixed-rate bonds or bonds financed at a fixed rate over a given index, he said. The remaining $175 million has been 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 are unavailable.

Montana Commissioner of Higher Education Sheila Stearns, the president but nonvoting member of MHESAC's board, said earlier this week the MHESAC board is consulting with financial and legal advisers around the country about restructuring its debt.

"I think the MHESAC board is very confident in the long-term future and the fact it will have funds for student loans in the meantime," she said Wednesday.