The New York State Environmental Facilities Corp. plans to sell as much as $285 million of debt later this month in what state sources say will be the largest revolving-fund bond issue in its history.

The revolving fund helps municipalities finance projects mandated under state and federal environmental laws, and nearly all local issuers use the fund's subsidy.

Under the bonding method, the corporation sells bonds on behalf of a municipality, which must then pay debt service on the securities.

Issuers, ranging from the New York City Municipal Water Finance Authority to the city of Auburn, N.Y., receive a 50% reduction in their interest costs using this financing method because the corporation is funded with state and federal money.

In the upcoming deal, scheduled for sale in mid-November, the corporation will sell bonds for 41 municipalities. Two of the largest, Nassau County, N.Y., and Auburn, N.Y., will receive proceeds of about $65 million and $50 million, respectively.

The corporation has named Bear, Stearns & Co. as the issue's senior manager, and Goldman, Sachs & Co. as its co-senior manager.

The revolving fund program has been in existence for about four years. In the past, large deals would finance projects for about 20 municipalities, and the transaction size would range from $50 million to $100 million.

Now the rush is on to tap into the corporation's financing mechanism before part of the subsidy fades away. State sources say the 1992 law that allows the corporation to subsidize 50% of a municipality's interest costs expires at the end of the year. If the law is not renewed by the state legislature, the subsidy will fall to 33%.

The corporation has so far issued $2.2 billion of debt that translates into loans for municipalities. In next month's deal, the corporation will finance 59 projects.

In September, Moody's Investors Service assigned an Aa rating to the corporation's most recent issue. In a release, Moody's said "high-quality credit strength is provided through several layers of security," including debt service reserves and pledges by the municipalities for the repayment of the loans.

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