Florida Hurricane Insurer Plans $1.5B Issue in May to Early June

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BRADENTON, Fla. — Florida Citizens Property Insurance Corp. will sell up to $1.5 billion of bonds, the agency’s Board of Governors decided Thursday.

Proceeds will be used to provide liquidity to pay hurricane-related property insurance claims, if needed, during the upcoming June-through-November hurricane season. The bonds are expected to be sold by early June.

Though the final structure of the deal has not been set, financial advisor John Forney with Raymond James and Associates Inc. said low interest rates likely will favor tax-exempt bonds as the most cost-effective form of financing.

“That’s where we think the bulk of investor’s interest will be,” he said.

The state-run, nonprofit Citizens issued $900 million of tax-exempt bonds in 2011 in various modes and maturities ranging from under a year to nine years. Proceeds provided liquidity for the agency’s coastal account, formerly known as the high-risk account, which provides wind and hail policies along Florida’s vulnerable coastline. The agency also sold similarly structured bonds in 2010.

This year’s offering will provide liquidity for personal and commercial accounts, which provide property coverage for all perils except wind storms.

The personal line includes homes, mobile homes and individual condominiums, while the commercial account covers condominium associations, apartment buildings and residential home association buildings.

The personal and commercial accounts currently have 981,928 policies in effect, with exposure of $275.02 trillion.

Forney said it was believed that tax-exempt interest rates were at all-time lows last year “but rates have continued to go down.”

The upcoming transaction is expected to be structured with maturities between one and 10 years, and the finance team will have flexibility to issue variable-rate and taxable bonds if market conditions warrant.

The bond issue must be approved by the state’s Office of Insurance Regulation. That approval will be followed by a 30-day appeal period. If no one appeals, the bonds can be priced.

Forney said presentations about the upcoming deal have been to rating agencies.

The current ratings for Citizens’ personal and commercial account are A2 by Moody’s Investors Service and A-plus by Standard & Poor’s.

Citizens, the largest property insurer in Florida, has begun an aggressive program to lower its exposure after experiencing significant growth in its personal account the last few years. Those policies grew to more than one million by the end of last year from 609,652 at the end of 2009.

One board member was concerned about whether actions to “shrink” the agency presented a disclosure issue with regard to the upcoming bond sale. However, Forney said that is not a concern since legislation creating Citizens contains a non-impairment provision that prevents any action that would tamper with the security of outstanding bonds.

The board also approved a nine-member syndicate on Thursday.

Wells Fargo Securities was eliminated as a co-manager at the firm’s request, according to Sharon Binnun, Citizens’ chief financial officer.

Wells Fargo “indicated that they desire to focus as investor in our bonds, which is very positive for us,” Binnun said.

Senior underwriters for the upcoming deal are Bank of America Merrill Lynch, Citi, Goldman, Sachs & Co., JPMorgan and Morgan Stanley. Co-managers are Jefferies & Co., Loop Capital Markets LLC, Ramirez & Co. and RBC Capital Markets.

Squire, Sanders & Dempsey is bond counsel. Bryant, Miller & Olive PA is disclosure counsel.

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