Florida’s State Board of Administration last week voted to spend $224 million to purchase a put option from Berkshire Hathaway Inc.

Under terms of the put option, Berkshire guarantees to purchase up to $4 billion of tax-exempt bonds issued by the Florida Hurricane Catastrophe Fund Finance Corp. if it needs to issue bonds to pay hurricane-related reinsurance claims.

If sold to Berkshire, the bonds would bear interest at a rate of 6.5% and they would be callable at 10 years. The put option is effective until May 15, 2009.

The SBA, which oversees the so-called Cat Fund, is administered by Gov. Charlie Crist, Chief Financial Officer Alex Sink, and Attorney General Bill McCollum.

While Crist and Sink voted to approve the put option, McCollum voted against it, saying there were conditions that troubled him. He also said he could not justify the expense for a 3% to 4% chance that the Cat Fund would ever need to sell the bonds.

Sink said she also had concerns about the put option deal, but said she realized its necessity after learning that the Cat Fund recently had difficulty selling $625 million of bonds.

“That just gave me a great deal of pause coming into this hurricane season,” Sink said, adding that she felt the state was “backed up against a wall” and needed to act.

The hurricane season began June 1 and runs through November. August through early October is considered the height of the season when tropical storms tend to be more dangerous and more frequent.

“I would rather have that $224 million go to public school teachers, frankly,” Crist said, but “the kind of things that keep you awake at night as a governor are … the risks that may occur.”

The increasing liability of the Cat Fund and volatility of the financial markets in the past year, along with concern about the available bonding capacity, led Cat Fund officials to investigate various products in order to have quick access to cash and bonding capacity should a major storm or storms impact the state.

The put option was the most cost-effective product the Cat Fund’s team of financial experts considered, the agency’s chief operating officer, Jack Nicholson, said in a recent interview.

There are few companies with as much liquidity as Berkshire that could enter into such a deal, he pointed out. “We’re facing a hurricane season that is already in progress,” Nicholson said. “And relying on the financial markets for [bond] capacity is shaky right now.”

The Cat Fund is a state-run program designed to offer low-cost reinsurance to property insurance companies in Florida.

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