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Florida Insurer Sets $2B

BRADENTON, Fla. - To prepare for the six-month-long hurricane season, which starts June 1, Florida's Citizens Property Insurance Corp. this week expects to price $2 billion or more of fixed-rate, tax-exempt revenue bonds and notes.

Proceeds of the Series 2009A-1 bonds and Series 2009A-2 notes will be used to provide liquidity for the nonprofit agency's high-risk account, for upcoming hurricane seasons. The amount of each series to be sold was still being determined yesterday, but Citizens is authorized to sell up to $2.5 billion of debt.

Book-runner Goldman, Sachs & Co. plans to begin pricing limited amounts of each maturity tomorrow to retail investors and the balance on Thursday when the deal will open to institutional investors.

The deal is structured as Series 2009A-1 bonds with maturities in three, five, and seven years, and Series 2009A-2 notes with one-year maturities not subject to redemption prior to maturity that should be attractive to retail investors, said Sharon Binnun, chief financial officer for Citizens, who talked to investors in an Internet roadshow last Thursday.

"Based upon all the discussions with individual investors, and the response to the roadshow, we really do expect strong demand," Binnun said yesterday. "I think the feedback we've gotten from our underwriters is that this will be very attractive to the retail market."

Citizens' preliminary bond offering document indicates that debt payments will not be insured. However, since publication of the document the agency has received a commitment from Assured Guaranty Corp. to insure $200 million of debt "if it makes economic sense for us to use it," Binnun said.

"If we do take advantage of the insurance it will be for the three, five, and seven-year bonds," she said.

Citizens is a state-run, nonprofit company that insures residential property across the state.

This week's sale, however, is to provide liquidity only for the high-risk account. The HRA provides wind-only residential insurance coverage for damage caused by hurricanes, tornadoes, windstorms, and hail in portions or all of 29 of Florida's 35 coastal counties as well as all of Monroe County, which includes the Florida Keys, and Port Canaveral.

Proceeds of the 2009A bonds and notes will be invested in non-AMT, tax-exempt securities pending the need to pay any claims and other liabilities and expenses. The state has not experienced a major hurricane for several years, leaving Citizens in good financial shape, Binnun said.

In rating this week's deal, Moody's Investors Service changed its credit outlook to negative from stable while assigning a long-term rating of A2 to the 2009A-1 bonds and a short-term rating of MIG-1 to the 2009A-2 notes.

Standard & Poor's assigned its A-plus long-term rating to 2009A-1 bonds and a SP-1-plus short-term rating to the 2009A-2 notes. The agency maintained the negative outlook it placed on Citizens in January. At the time, Standard & Poor's said the negative outlook was due to increasing economic and financial pressures affecting Florida that could leave the state more vulnerable to costs associated with a major hurricane.

Moody's said it placed a negative outlook on Citizens bonds because of uncertainty around the private insurance market, the potential for Citizens' risk to increase through the sale of additional policies, political interference - including freezing of Citizens rates in recent years - and the potential effect of limited access to the debt market.

Florida's largest home insurer - State Farm Florida - announced in January it would pull out of Florida's residential market but it will continue to offer auto and health insurance. State officials are working to place State Farm policies with other private companies.

Along with Goldman Sachs on this week's deal are Citi, JPMorgan, Loop Capital Markets LLC, Merrill Lynch & Co., Morgan Stanley, and Wachovia Bank NA.

Raymond James & Associates Inc. is financial adviser.

Squire, Sanders & Dempsey LLP is bond counsel. Bryant Miller Olive PA is disclosure counsel. Foley & Lardner LLP is underwriters' counsel.

In addition to this week's offering, Citizens also plans to purchase liquidity from banks for its personal and commercial lines, which provide property insurance for single-family homes, mobile homes, tenants, condominiums, apartment buildings, and related associations.

In two weeks, Citizens expects to close on a $400 million line of credit with a small syndicate of banks for the personal and commercial lines, Binnun said.

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