BRADENTON, Fla. — Citizens Property Insurance Corp. — with $2 billion tied up in Florida’s troubled local government investment pool — said late Tuesday it is not faced with liquidity problems. Some smaller government entities in Florida, however, say they could face a cash squeeze, given that they have limited access to their investments with the pool since state officials halted withdrawals from the fund late last week.State-run Citizens has more than 1.4 million policyholders and insures more than $500 trillion in property. It has about $5 billion of outstanding debt. In a statement released Tuesday night, Citizens stressed that it has ample liquidity to meet bond payments and said it was disappointed with a plan announced by state officials earlier in the day to allow only limited withdrawals from the fund.Citizens’ investment represents about 14% of the pool’s holdings, making it the largest investor in the pool.Citizens’ primary sources of cash include bond proceeds and operating funds, which must be reasonably liquid so the massive insurer can pay claims. In total, its cash and investments amount to approximately $10.2 billion, of which $5.1 billion is from bond proceeds and $5.1 billion is operating funds. Only about $104 million of bond proceeds are invested with the LGIP, while about $1.98 billion of operating funds have been placed with the LGIP.The State Board of Administration suspended withdrawals from the pool after shareholders — local governments and school districts around the state — withdrew about $10 billion over the course of several weeks in reaction to reports about pool investments linked to distressed subprime mortgage securities.Once the largest such pool in the nation, the fund has been reduced to $14 billion due to the recent spate of withdrawals. The pool is not backed by the state or currently rated. It is seeking a triple-A rating to promote shareholder confidence as part of its restructuring plan. The pool is overseen by the SBA, which consists of Gov. Charlie Crist, Chief Financial Officer Alex Sink, and Attorney General Bill McCollum.On Tuesday, the SBA approved a restructuring plan devised by BlackRock Inc. segregating $12 billion in highly rated investments, to be called Fund A, from about $2 billion of investments in stressed securities, to be placed in Fund B. Shareholders, for now, will have limited access to Fund A, and cannot withdraw from Fund B. Citizens did remove approximately $800 million from the pool before withdrawals were halted last week, agency spokesman Rocky Scott said yesterday. Citizens has about $3 billion in other SBA investment accounts not affected by the restrictions on the pool, Scott said.In a statement, Citizens CFO Sharon Binnun said the agency is disappointed in recent developments that have led to the temporary freezing of assets in the LGIP and the adoption of a restructuring plan that would provide limited short-term liquidity and uncertain recovery of all principal.“The challenges presented by the LGIP restructuring and the other downgraded investments managed by the SBA are not insignificant; however, in the short term, they present no liquidity concerns related to Citizens’ ability to pay operating expenses or debt service,” Binnun said. “Citizens has ample liquidity from other sources, including invested assets outside the LGIP and monthly operating cash flow.”Citizens investments in the pool have not raised any credit issues so far. The agency’s $1.06 billion of tax-exempt senior-secured revenue bonds sold in February are rated A3 by Moody’s Investors Service and A-plus by Standard & Poor’s. Its $950 million of taxable auction-rate bonds sold in June are rated A2 by Moody’s and A-plus by Standard & Poor’s. Citizens sold additional debt last year and has approximately $5 billion outstanding. “We’ve been in regular contact regarding Citizens,” said Standard & Poor’s analyst Robin Prunty. “Because they haven’t had a hurricane event in the last two seasons, their liquidity is in a pretty strong position now.”Prunty said the agency would keep an eye on Citizens’ investments in the pool and how successful the state’s restructuring efforts are in preserving all shareholders investments.The SBA’s actions, halting massive withdrawals that threatened to destabilize the pool and restructuring it, were positive first steps, said Moody’s analyst John Incorvaia. Since this is the time when property taxes filter into local governments and school districts, those funds should provide some relief since shareholders currently have limited access to funds in the pool, Incorvaia said.“Our concern still remains on small participants in the pool who have everything in the SBA,” said Incorvaia. “They may work out things for this month, but certainly next month some can be expected to be challenged to meet some obligations.”Incorvaia said Moody’s is in touch with issuers about its rates. In addition, the agency is conducting a survey of all states and expects to report soon on the status of other such funds.Florida pool shareholders today or tomorrow are expected to gain access to Fund A. However, they will be restricted to withdrawing 15% of their funds or $2 million, whichever is greater.Some small cities invest all their funds in the SBA because they do not have the resources to manage investments internally or hire outside managers. Green Cove Springs, a city of 7,000 residents about 30 miles south of Jacksonville, had hoped to withdraw $960,000 from a sinking fund in the SBA pool in order to double up on a debt payment Jan. 1. That would have allowed the city to pay off its debt early and make plans for $4 million of private placements next year for utility capital improvements, said Sue Heath, the city’s finance director and assistant city manager.Under the pool’s new withdrawal restrictions, the city will be able to make the Jan. 1 payment of $480,000 but would be short $80,000 of what it needs to make both final payments, so the city will have to determine if its has the funds internally, Heath said. The city withdrew $10 million from the pool, everything but what was in the sinking fund, in the last two weeks “because we had heard there were some issues with investments that were not up to par,” Heath said. However, the city is concerned about its $40,000 interest payment for November. All interest payments for the month may be used to help stabilize Fund B, instead of distributed to shareholders. “We count of that interest for daily operations,” Heath said. While there is widespread concern around the state about how shareholders ultimately will fare, many support efforts to restructure the pool instead of liquidate it.“We think for 25 years it’s been an incredible investment vehicle for government in Florida,” said Todd Hutchison, finance director for Alachua County, home of the state’s flagship college — the University of Florida. “We do hope the pool survives.”Alachua did not draw down the $165 million it had invested in the pool before withdrawals were frozen. But even with limited access to its funds, the county faces no liquidity problems and will make all payroll, contract, and debt service payments, Hutchison said. The SBA’s action to restructure the pool was a “first step” toward protecting it, he said.

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