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Cat Fund Team Seeks Liquidity

BRADENTON, Fla. - The Florida Hurricane Catastrophe Fund has selected a 23-member financial services team that today begins fast-tracking a finance plan to provide the state-run, nonprofit reinsurer with up to $3 billion, or possibly more, of liquidity for the hurricane season that begins June 1.

The team was presented yesterday to Gov. Charlie Crist, the state's elected chief financial officer, Alex Sink, and Attorney General Bill McCollum, who are trustees of the State Board of Administration which oversees the Cat Fund.

"I've heard kicked around, at least I've kicked around, the notion of [spending] $150 million to $200 million, which might supply us with $2 billion to $3 billion of additional reserves for catastrophic coverage for Florida," Crist said.

The team, which includes investment banks, bond and disclosure counsel, and others today begins a series of intensive conferences to determine how much liquidity the agency needs to fulfill its obligations during the upcoming hurricane season, SBA interim executive director Bob Milligan told Crist.

"This is on a fast track with a goal of presenting to the trustees a proposal not later than 10 June," Milligan said. "I think it's important to let these teams do their jobs and come back on the 10th with ... proposals."

The Cat Fund, a nonprofit, tax-exempt entity operated by the state that provides low-cost reinsurance to private property insurers, solicited proposals from firms to provide investment banking services, bank liquidity and credit support services, reinsurance intermediary services, as well as bond, tax, and disclosure counsel services.

It is expected that the team will be in place for at least the next five years, giving the Cat Fund access to the world financial and reinsurance markets. The team will work on structuring various products, including creative and flexible custom financing products, to meet the Cat Fund's liquidity needs.

One major part of the financial services team, however, is missing.

Only two firms, JPMorgan Chase Bank and UBS Investment Bank, showed interest in providing bank liquidity and credit support services.

UBS also submitted a proposal to provide investment banking services and had been ranked in the top three.

The Swiss banking giant, which announced May 6 that it would close or sell most of its municipal bond business, withdrew both of its proposals to the Cat Fund.

Milligan did not say why UBS withdrew. Yesterday, he did not recommend any firm to provide bank liquidity and credit support services, nor did he address what action the Cat Fund might take to provide those services.

The agency did not respond to requests for further information about why so little interest was shown in providing credit enhancement services, although there have been concerns about capacity for such services as issuers convert troubled auction-rate securities to other modes.

The Cat Fund last year was authorized to pay out up to $54.2 billion for reinsurance claims, nearly all of which would come from tax-exempt bond financing if needed to pay claims over several hurricane seasons. The fund is designed to provide low-cost reinsurance as one method of keeping private insurers in the hurricane-prone state. The liquidity program is designed to give the fund ready access to cash in case it needs to pay claims quickly.

The Cat Fund's new investment banking team include co-senior managers Goldman, Sachs & Co., JPMorgan, Citi, and Lehman Brothers, and co-managers Morgan Stanley, Merrill Lynch & Co., Banc of America Securities LLC, Wachovia Securities, and RBC Capital Markets. Regional co-managers are Depfa First Albany Securities LLC, Morgan Keegan & Co., SunTrust Robinson Humphrey Inc., and Ramirez & Co. Small co-managers are Loop Capital Markets LLC, BB&T Capital Markets, M.R. Beal & Co., and Siebert Brandford Shank & Co.

Bond and special tax counsel is Nabors Giblin & Nickerson PA. Disclosure counsel is Bryant Miller Olive PA. Reinsurance intermediary services will be provided by Benfield Inc., Aon Re Global, U.S. RE Corp., and Guy Carpenter & Co.

The Cat Fund's financial adviser, Raymond James & Associates Inc., was selected last year.

 

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