Tough credit terms are continuing to adversely affect the ability of municipal authorities in the US to raise letters of credit (L/Cs).

In one example, the Pittsburgh Water and Sewer Authority (PWSA) has failed to obtain the L/Cs it needed for a US$414 million debt package it has been trying to put together all year because it could not obtain suitable guarantees for part of its debt.

Rate hike

Officials at PWSA now say that nearly half of the complex debt deal that should have been underpinned by guarantees or L/Cs is not in place.

This means the authority must now pay interest rates of 7 per cent as opposed to 4 per cent, which is costing PWSA a massive US$230,000 each week.

Guarantee failure

The authority was close to finalising L/Cs that would have replaced guarantees that are no longer available as a result of the credit crunch.

But at the last minute, Financial Guaranty Insurance, which insures some of the authority's older debt, objected to some of PWSA's terms.

In turn, this has caused banks to review their offers of L/Cs to the authority.

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