Cabinet Hears SBA Recommendations, Approves Plan

On December 4, 2007, a member of this Firm attended a meeting of the Florida Cabinet and State Board of Administration (“SBA”) in Tallahassee, Florida.  During the meeting, several insurance and related matters were discussed. 

Below is a brief summary of the pertinent activities that took place during the Financial Services Commission/Department of Financial Services meeting.

The Cabinet approved one agenda item relating to the My Safe Florida Home Program Advisory Council Appointments.  The Cabinet approved four appointments: (1) a representative selected by the Florida Bankers Association, (2) a representative selected by the Florida Home Builders Association, (3) a representative selected by the Florida Insurance Council, and (4) a state university faculty member.

Proceeding to the Florida Office of Insurance Regulation agenda, the Cabinet approved for final adoption amendments to Chapter 69W-600, Florida Administrative Code, relating to securities regulation.  The proposed rules reduce fingerprint processing fees and update registration requirements relating to associated persons to comply with statutory changes.

Next, the Cabinet, acting as the State Board of Administration considered a request to approve a plan relating to the Local Government Investment Pool (“LGIP”). 

The SBA heard from BlackRock Financial Services, Inc. (“BlackRock”) and LGIP participants.  BlackRock was chosen by the SBA to develop the plan, which is intended to safeguard the assets and provide liquidity for the LGIP. Also, the LGIP Advisory Committee was established and engaged as part of the process to recommend a plan to achieve LGIP objectives.

A representative from the Florida League of Cities (“League”) spoke on behalf of the LGIP Advisory Committee (“Committee”). The Committee is comprised of representatives from, among others, the Court Clerks, Cities, Counties, Citizens Property Insurance Corporation (“Citizens”), Local School Boards, and School Superintendents.  The representative presented the League’s recommendations to the SBA with the goal of re-establishing trust and confidence in the LGIP. 

The seven main provisions include:  (1) requesting the state to provide 100 percent guarantee of the fund assets; (2) continuation of an independent financial advisory firm; (3) providing a plan for a new portfolio; (4) support for a Fund A (less risk) and Fund B (more risk) composition as recommended by BlackRock; (5) opposing a redemption fee; (6) promoting increased state communications between the SBA and the pool participants; and (7) establishing a permanent investment advisory board committee. 

CFO Sink commended those working on the Committee for their solutions.

Next, individual pool participants provided comments on the plan recommended by BlackRock.  A representative from Citizens, the largest pool participant, emphasized the need to provide participants with a full return, with interest, of their equity invested.  Others supported some elements of the plan, but had concerns with other portions, particularly with the redemption fee provision. 

Next, representatives from BlackRock presented the company’s recommendations.  It was noted that since November 29, 2007, BlackRock had analyzed all of the securities in the portfolio.  Also, the representatives stated that BlackRock’s plan provides the cash for participants who need the funds now, given that the company is not recommending wholesale liquidation.

Other details discussed regarding the recommended approach attempt to allow time to work out problems and maximize the value of the LGIF include:  

• Investing 86 percent of the fund in Fund A- high quality, AAA-rated securities; 
• Investing 14 percent in Fund B- which is everything else, including the defaulted securities; 
• Gradually open Fund A:  On day one, open about $2 billion and allow fund participants to withdraw the greater of $2 million or 15 percent of their total participation; 
• Arrange public/private partnership to allow participants to use their funds as collateral; and 
• Allow fund participants to redeem additional amounts with a redemption fee (starting at 2 percent).  However, new deposits would not be subject to fee.

It was noted that the 15 percent or $2 million take out provisions would cover approximately 50 percent of the fund participants’ liquidity needs.

Following the presentations and discussion, the CFO offered the following motions:

1.  Allow BlackRock to serve as the Interim Fund Manager.

2.  Authorize the SBA to pursue a Request for Proposal for a permanent Fund Manager.

3.  Pursue the creation of Fund A and Fund B and open the assets beginning Thursday, December 6, 2007.

4.  Encourage BlackRock to work with financial institutions in their management of the Fund.

The motions passed without objection.

Finally, as reported earlier by this Firm, SBA Executive Director Coleman Stipanovich announced his retirement following seven years of service.

For your information, the Cabinet agenda, BlackRock LGIP report and other LGIP documents are available for review at https://www.sbafla.com/pool/. 

The above information is a brief summary of the events and activities that took place during the Cabinet and SBA meetings.  Should you have any questions regarding the above matters, please feel free to contact this office.