According to a recent report by Bloomberg News, states, cities, hospitals, and other municipal borrowers have now refinanced approximately $96.2 billion of their $166 billion in auction rate bonds, which amounts to about 58% of all auction-rate bonds. The current $3 billion a week average rate of municipal bond refinancing has slowed a bit from the $5.5 billion a week average in April and May.

Bond dealers stopped supporting the Auction Rate Securities (ARS) market in mid-February amid a lack of demand, sending average interest costs to a record high and leaving investors unable to readily sell their holdings. The auction-rate market began the year with $330 billion of long-term bonds or preferred shares, with interest reset typically every seven, 28 or 35 days through a dealer-run bidding process. Besides municipal bonds, student-loan-backed debt and preferred shares of closed-end mutual funds made up most of the rest of the debt.

Municipalities that still have weekly auction-rate debt are paying an average 3.20 percent, down from a record 6.89 percent on Feb. 20, based on data compiled for the Securities Industry and Financial Markets Association.

States that have recently refinanced or are planning to do so in the near future include New Jersey, which plans to refinance $343 million of auction-rate securities. If the deal goes through, New Jersey will only have about $350 million left in ARS debt, down from the $3.37 billion it had earlier this year. Meanwhile, Delaware recently refinanced $358 million of its ARS debt and the city of Cleveland, Ohio, recently refinanced $288 million of ARS in July.

Among municipal ARS auctions that are still being conducted, roughly 60 percent are failing on any given day. Almost all of the auctions for student loan debt and closed-end shares have been unsuccessful since February 2008. At least 22 ARS class actions have been filed in 2008, primarily targeting the broker-dealers that marketed the ARS.