BRADENTON, Fla. — Florida’s Citizens Property Insurance Corp. next week expects to sell up to $900 million of revenue bonds and notes to provide liquidity for the current hurricane season, which began June 1.
The CPIC transaction will be the second-largest bond sale from the Southeast this year, following Georgia’s nearly $1 billion offering this week.
Citizens, a state-run, nonprofit property insurer, will use the proceeds of its sale next week to provide bridge financing immediately after a hurricane to pay claims from its coastal account, if needed.
The coastal account, formerly called the high-risk account, contains wind and multi-peril insurance policies along Florida’s vulnerable coastline.
The offering prices Tuesday for retail investors and Wednesday for institutional buyers.
While the transaction’s structure will be determined at pricing, the insurer’s finance team has been authorized to sell tax-exempt fixed-rate bonds, short-term and floating-rate notes, and taxable floating-rate notes with maturities up to 10 years.
The flexibility to use a variety of modes is designed to create the optimal structure based on investor demand at the time of the sale and achieve the lowest borrowing cost, according to Citizens’ chief financial officer, Sharon Binnun.
Taxable floating-rate notes were not a component of similar deals the agency brought to market the last two years but will be sold if there is investor demand, Binnun said, adding that it is likely most of the transaction will be fixed rate and tax-exempt like deals sold in the past two years.
Binnun said underwriters are optimistic about next week’s sale and noted that CPIC’s recent sales have attracted broad investor support.
The proceeds will be added to other resources to provide “pre-event” liquidity, which would be used like a revolving bank line of credit to pay initial claims in a timely manner after a hurricane strikes.
The agency will repay the draws on pre-event financing with funds on hand and, if needed, assessments on most property insurance policies across the state in addition to those sold by Citizens.
The base of policies on which assessments can be placed is over $30 billion and includes home, auto and commercial policies.
CPIC can also use the assessments to back the sale of “post-event” bonds and use those proceeds to repay draws on the liquidity.
Binnun said the size of this year’s offering is smaller than in recent years because the insurer also has on hand about $7 billion of premiums, reinsurance, debt proceeds from previous bond sales and an increase in year-end surplus funds primarily due to years without storm activity.
Florida has not experienced significant hurricane damage since 2004 and 2005, when both years saw an unprecedented four major hurricanes.
The CPIC bonds received long-term ratings of A-plus from Fitch Ratings and Standard & Poor’s, and A2 from Moody’s Investors Service.
The short-term notes were rated F1-plus by Fitch, SP-1-plus by Standard & Poor’s and MIG-1 by Moody’s.While Fitch and Moody’s assigned stable outlooks to the bonds, Standard & Poor’s assigned a negative outlook.
“The negative outlook is based on the negative outlook on the state of Florida,” said a report by analyst Robin Prunty. “While the rating on [Citizens] is not directly tied to the rating on Florida, the state’s overall credit profile has always been a significant factor for the rating, in our view.”
Prunty said if the state’s rating is lowered, Standard & Poor’s could drop CPIC as well.
Raymond James & Associates Inc. is the agency’s financial adviser.
Citi will be the book-runner on next week’s sale, with Bank of America Merrill Lynch, Goldman, Sachs & Co., JPMorgan and Morgan Stanley as senior managers.
Co-managers will be Loop Capital Markets LLC, Ramirez & Co. and Wells Fargo Securities.
Bond counsel is Squire, Sanders & Dempsey. Disclosure counsel is Bryant, Miller & Olive PA. Underwriters’ counsel is Nabors, Giblin & Nickerson PA.
In each of the past two years, Citizens has sold the largest bond deal in the Southeast: $2.4 billion in 2010 and $1.65 billion in 2009.
Georgia may be the leading contender for the region’s biggest issuance in 2011 after competitively pricing $996.5 million of new and refunding bonds on Tuesday.
“We were very pleased with the rates we attracted,” said Lee McElhannon, director of bond finance with the Georgia State Financing and Investment Commission. “It was a big sale but the market was there to support it.”
In addition to the deal being the largest-ever one-day sale for Georgia, it reaped some record low interest rates, he said.
The $556.6 million new-money portion of the transaction sold as Series A through D.
The bonds, including $77 million of taxable qualified school construction bonds, obtained a blended true interest cost of 3.31%.
Nearly $40 million of Series A five-year bonds achieved a true interest cost of 0.93%, which was up to three basis points lower than a previous record low for the state.
The 20-year Series C bonds also set a record with a true interest cost of 3.45% compared to a previous low of 3.80%.
Georgia also sold all of its Series E-F refunding bonds totaling $439.9 million. They achieved a blended present-value savings of 5.7%, or $18.8 million of refunded par within existing maturities.
McElhannon attributed the success of the sale to the market’s historic low rates and the state’s triple-A marks from all three major rating agencies.