WASHINGTON (Map, News) - The D.C. government faces at least two months of steep interest payments after the rate on $25 million in bonds tied to the construction of Nationals Park rose to a staggeringly high figure.

The interest rates on the so-called “auction-rate securities” held by the District as part of its stadium bond package shifted in mid-March from 4.75 percent to 14 percent, Bloomberg News reported this week.

The nearly 10-point difference will cost the city about $200,000 a month until it finds a way to refinance or convert to another security, Lasana Mack, the District’s treasurer, told The Examiner on Tuesday.

“This crisis has developed over the last couple of months, with these bonds resetting at high rates,” Mack said.

Investors long regarded the long-term securities as “highly liquid,” Mack said, because their variable interest rates reset every time they went to auction — in the District’s case every 35 days. But Wall Street has recently lost confidence in the insurers that back these bonds, spurring failed auctions and soaring interest rates.

The market was blindsided by the collapse in auction-rate securities, which affect about $200 billion in overall debt, said Matt Fabian, managing director with Concord, Mass.-based Municipal Market Advisors. Fabian said he attended a conference in December that featured an address by a D.C. finance official, who at the time confessed to “monitoring the situation.”

“No one in the industry would have advised them to restructure at that point,” Fabian said. “No banker understood the magnitude back then.”

D.C. holds roughly $550 million in general obligation auction-rate debt that it has used to finance the city’s capital improvements program, Mack said. The interest rates on those have reset to levels ranging from 3 percent to 10 percent, but the stadium bonds have a weaker credit rating so their interest rate shot higher.

D.C. is in the process of converting or refunding all of its auction-rate securities “in order to resolve the issue of the abnormally high interest rates,” Mack said. The treasurer expects to get it done by May.

“It’s not like we’ve been just sitting around watching it,” he said.

mneibauer@dcexaminer.com