JACKSONVILLE, Fla. - In today's uncertain bond market, Florida issuers should carefully consider insurance costs, expect rating changes, and have flexible financial plans, experts advised here yesterday.

Their comments came in several of the final sessions at the Florida Government Finance Officers Association annual conference, where the impact of bond insurer downgrades due to the subprime meltdown were hot topics.

Several months ago there were seven triple-A-rated insurers and now there are two, noted Ritesh Patel, a bond attorney with Nabors, Giblin & Nickerson.

The downgrades, Patel said, are causing bonds to trade off in the secondary market and some issuers are being forced to fully fund debt service reserves as premiums have risen.

In January, the cost of some insurance premiums for a standard certificate of participation transaction soared as high as 70 to 75 basis points, up from historical lows of 20 to 25 basis points, Patel said. Some premiums have now dropped to around 30 to 40 basis points, he added.

Insurance costs have tripled for some fixed-rate deals due to the limited availability of triple-A insurance, another expert said.

Dealing with market uncertainties and insurer downgrades requires understanding of the issues and the need for good financial plans, advised John Hearn, chief financial officer for the Orlando Utilities Commission. Issuers should be ready to revise their finance plans as conditions warrant, he added.

"I think the message is, ratings move around and we need to expect that," said Kelly McGary, a senior director at Fitch Ratings.

Some issuers may want to consider strategies such as selling debt competitively, qualifying insurers, and offering insurance at the bidder's option, suggested outgoing FGFOA president Mark Fostier, assistant comptroller for Orange County.

While the cost of insurance must be weighed, some issuers may consider selling without the credit enhancement, according to Francine Ramagila, director of administration and financial services for the village of Wellington.

"I look at going to the market without insurance," Ramagila said. "I think you're going to see that as a trend."

 

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