BRADENTON, Fla. - Florida's Citizens Property Insurance Corp. last week postponed pricing of up to $2 billion of short-term, tax-exempt revenue bonds due to increasing Treasury bond yields, the nonprofit insurer's chief financial officer Sharon Binnun said Friday.
Citizens, a state-run insurance agency, expected to sell the bonds with bullet maturities in 2011, 2012, and 2013 in a two-day pricing during the holiday-shortened week.
However, from May 22 to May 29, 10-year Treasury note yields increased 29 basis points to 4.09% from 3.80%. Over the same period, the 2-year Treasury went from 2.41% to 2.70%.
Binnun said because of the increased yield on Treasuries, investors would have wanted higher interest rates for Citizens' bonds and pricing didn't make economic sense for the agency.
"After discussions with our broker-dealers, there's still strong investor interest in Citizens, but we wanted to wait until market conditions improve," she said.
Given ongoing disruptions in the muni market, however, Binnun said it is difficult to know if the current rise in rates is only temporary. The deal was placed on the day-to-day calendar and she hopes pricing can take place in the next week or two.
Binnum said unemployment reports due out this week and other factors - such as concern about the economic downturn and suggestions that there will be no more interest rate cuts in the near term by the Federal Reserve - could continue to influence the short end of the yield curve.
Proceeds of the Series 2008A high-risk account bonds will provide liquidity if needed to pay claims, particularly in the case of a mega-event such as a strong hurricane. Until needed to pay claims, proceeds will be invested in high-grade, tax-exempt securities not subject to the alternative minimum tax.
Binnun said the agency is in a strong financial position and can be flexible on pricing and closing dates. Work on other liquidity measures, such as lines of credit, have been closed or are nearly completed.
"If the market improves on the short yield curve then, hopefully, we will go out with these bonds in the next week or two," Binnun said. "We do expect to complete the financing in the near future but we are exercising patience and flexibility so that we can complete the best possible transaction for Citizens."
