For a third week, the historic and unprecedented events in the credit markets have delayed Florida financings because the bond market is essentially closed, Ben Watkins, director of the Division of Bond Finance, told Gov. Charlie Crist and the state’s elected Cabinet members on Tuesday.
“Currently the municipal market for all practical purposes is frozen. It’s closed,” Watkins said, reporting on how the problem is affecting the state’s ability to issue debt.
“We have delayed ... financings just in general. There are no new-money borrowings of any significance that have been taking place over the last few weeks,” he said. “We are beginning our third week of the freezing of the municipal market.”
The volatility is indicative of liquidations by investors, Watkins explained, calling the situation the latest chapter in the problems that have swept through the credit markets for more than a year now.
While the state only has $100 million of its $21 billion debt in variable-rate mode, Watkins said variable rates reset at 8% last week, while two weeks ago they reset at 5%. Normally those rates run between 1.5% and 2%. With such limited exposure in variable rates, Watkins said Florida’s portfolio is very manageable.
Other issuers with more substantial variable-rate exposure may experience more significant financial consequences from increased borrowing costs, he noted.
“We have experienced this before, this temporary freezing of the credit markets, where issuers didn’t have access to borrowing money,” Watkins said, referring to the initial meltdown in February with the collapse of the auction-rate market. “It took a couple of weeks in that instance for the market to regain its footing … then our ability to access the credit markets [resumed] to borrow for the bond programs we administer.”
Watkins, whose division sells most of the bonds issued by the state, said debt sales are planned only when money is needed to begin projects. As a result, he said, Florida is not in danger of delaying financings in a way that will ultimately delay projects.
“It’s not creating a problem for us currently, but if this goes on for an extended period of time we will be challenged to have access to the credit markets to borrow money to fund the projects for schools and roads and acquire environmentally sensitive lands,” Watkins said.
“I have confidence in the resiliency of our markets and that they will, in fact, return to normal at some point. The uncertainty is I don’t see clearly what the catalyst for stability and the return to normalcy will be.”
He said he was hopeful and looking for a solution from Washington to provide some stability to the credit markets.