A $414 million debt package that the Pittsburgh Water and Sewer Authority has tried all year to shore up has just sprung a $230,000-a-week leak.

Authority officials said yesterday that nearly half of the complex debt deal is no longer subject to guarantees or letters of credit, which has the effect of boosting interest rates from around 4 percent to 7 percent.

The net result of the increased interest rate, which took effect yesterday, means the authority must pay an additional $230,000 a week in debt.

Though officials hope they can patch up the problem within days or weeks, there are no guarantees, they said.

"This is, I think, at best a terrible situation, but the people who are working on it are doing their best for the ratepayers," said Patrick Dowd, a board member and city councilman who has been questioning the stability of the deal since March.

It threatens to exacerbate a $3 million-plus budget gap.

"We're looking at a bottom line that isn't where we want it to be," Mr. Dowd said.

The debt deal went off kilter during the global financial meltdown last year, and its problems came to a head in December, when Dexia Credit Local warned that it would not renew guarantees on portions totalling $195 million. Debt payments stabilized this year, and the authority was close to finalizing letters of credit with banks that would replace Dexia's guarantees.

But as a deadline for securing the letters of credit neared, Financial Guaranty Insurance Co., which insures some of the authority's older debt, protested some of the terms. The company feared that agreements between the authority and the bank would put it in a poor legal position if the authority went bankrupt, according to authority Executive Director Michael Kenney.

Negotiations between all of the parties continue, said the authority's financial adviser, Jason DiMartini of PNC Capital Markets. "I think we're very close," he said, to a deal that would promptly eliminate $170,000 of the $230,000 a week in added interest payments. Most of the remaining $60,000 in new weekly costs could be dealt with soon after.

He declined to detail the authority's Plan B, should negotiations fail.

Most of the debt package, about $290 million, represents old debt that was refinanced. Another $100 million was for capital improvement funds and the remainder is for fees and other costs associated to the debt package.

The debt package has been controversial from the beginning because it involves complex swaps under which parties pay each other different amounts depending on market conditions, and under which the authority can be forced to pay multi-million-dollar termination fees.

Two weeks ago, debt rating agency Moody's Investors Service assigned a negative outlook to the debt package, indicating that it may face a downgrade. Moody's analyst John Medina said that was done because the agency believes that the debt package "doesn't provide a lot of cushion" for investors should market fluctuations again create problems.

Mr. Kenney said that in the short term, the higher payments won't cripple the authority, or force a rate increase.

Still, the authority faces a deficit this year that exceeds $3 million.

Mr. Kenney said the authority is on track to pay around $1.5 million more than budgeted toward its debt, and to get $2.5 million less than expected in interest on its savings. It is also getting $1.5 million less than forecast in revenue, but has more-than-offset that by spending around $2.5 million less than planned.

The authority is drawing down on $40 million in reserves, and still has a comfortable cash cushion, he said.

The board briefly discussed reopening the budget, and Mr. Dowd volunteered to craft new policies on how to handle deficits.

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