Regional News

Florida's Citizens Plans Up to $2B Sale

BRADENTON, Fla. - Florida's Citizens Property Insurance Corp. this week expects to hold a two-day pricing of $1.5 billion to $2 billion of fixed-rate, tax-exempt revenue bonds in what will be the state's largest-ever issuance of such debt.

Proceeds of the Series 2008A high-risk account bonds will provide liquidity if needed to pay claims. Until needed to pay claims, proceeds will be invested in high-grade, tax-exempt securities not subject to the alternative minimum tax. Investment proceeds will pay as much interest on the bonds as possible, but Citizens will also use premiums and other revenues to pay interest and principal.

The deal is expected to be structured without a call or a put with bullet maturities in 2011, 2012, and 2013. Retail investors will get first crack at the bonds tomorrow, with institutional pricing on Thursday.

Only $350 million of the par amount sold is expected to be insured by triple-A rated Financial Security Assurance Inc. and that is expected to reduce the cost of the financing, according to Citizens' chief financial officer, Sharon Binnun.

"At this point we do not expect to have other insurance," Binnun said in an interview Thursday. "We're evaluating whether having [additional] insurance will reduce the cost of the financing."

Citizens is reviewing bids from Ambac AssuranceCorp. and MBIA Insurance Corp. Both Ambac and MBIA lost their gilt-edged status in the subprime debacle when Fitch Ratings dropped them to AA from AAA. Both insurers have negative outlooks from all three major rating agencies.

This will be the first time Citizens will use fixed-rate, tax-exempt bond proceeds for pre-event liquidity. In the past, the agency has issued taxable debt for its liquidity needs, but this week's transaction is expected to broaden the universe of interested investors.

"Underwriters are working with a large number of investors who are interested in the short end of the curve," Binnun said. "Citizens is flexible in terms of coupon structure and we expect a very strong demand for this financing."

Moody's Investors Service upgraded to A2 from A3 its rating on the high-risk account bonds, while Standard & Poor's maintained its A-plus rating. The A2 and A-plus, respectively, were assigned to the Series 2008A bonds. Fitch was not asked to rate the deal.

The tax-exempt bonds will replace some of the $4.75 billion of taxable auction-rate securities the agency was forced to buy back during that market's meltdown. As of last Wednesday, the agency had redeemed all of the outstanding auction-rate securities, Binnun said.

Like many other issuers of auction-rate debt, Citizens suffered high interest rates and failed auctions when investors failed to bid on the securities - a situation sparked by the subprime crisis, not because of the underlying credit.

"Citizens credit was discussed by Warren Buffet when auction-rate securities were going crazy," Binnun said. "He actually indicated he had evaluated Citizens credit and found it to be outstanding. He even bought some of our auction-rate securities."

Buffett's remarks have been repeated in Citizens' board meetings, in an investor-relations conference call last Thursday, and even in a written presentation to investors.

Citizens "was set up to take care of hurricane insurance, and it's backed by premium taxes, and if they have a big hurricane and the fund becomes inadequate, they raise the premium taxes," Buffett was quoted as saying in the April 11 edition of Fortune magazine. "There's nothing wrong with the credit."

John Forney, Citizens' financial adviser with Raymond James & Associates Inc., mentioned Buffett's praise during a call with prospective investors last week. He also stressed that Citizens' "ace in the hole" is its ability to assess, or essentially tax, nearly all property and casualty insurance policies in Florida to pay its debt.

The state-run, nonprofit agency has about 1.22 million total policies and is Florida's largest property insurer.

This week's sale is only to provide liquidity for faster claim processing, if needed, on windstorm policies. Citizens had 446,181 windstorm policies as of Dec. 31, which are the only policies in the high-risk account.

Four senior underwriters were originally selected to head up this week's sale. But UBS Securities LLC was removed from the team after the firm announced it was exiting the municipal bond business, Binnun said.

Merrill Lynch & Co. was moved up from a co-manager's position to the senior manager team to join Citi, Goldman, Sachs & Co., and Morgan Stanley.

Morgan Keegan & Co. was added to the co-manager's team along with Banc of America Securities LLC, JPMorgan, and Wachovia Capital Markets.

Citizens bond counsel is Squire, Sanders & Dempsey LLP. Bryant Miller Olive PA is disclosure counsel. Nabors, Giblin & Nickerson PA is underwriters' counsel.



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