Citizens Board of Governors Meeting Report: March 10

On Tuesday, March 10, 2009, Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) met to approve documents for the proposed issuance of up to $2.5 billion in High-Risk Account Series 2009 Bonds (“HRA 2009 Bonds”).  To view the meeting agenda, click here.

Citizens’ financial advisor John Forney, of Raymond James & Associates, gave an overview of the HRA 2009 Bonds.  To view Mr. Forney’s update, click here.

Each year, Citizens develops a liquidity financing program in preparation for hurricane season in order to provide a cash “bridge” from Citizens’ surplus amount to potential reimbursements from the Florida Hurricane Catastrophe Fund (“FHCF”).  The 2009 program was approved by the Board during its January 29, 2009 meeting.  Since then, Citizens has accomplished the following:

• Completed all bond documents;
• Met with rating agencies and bond insurers to present Citizens’ financing plan and credit overview;
• Communicated with the Florida Office of Insurance Regulation (“OIR”) to explain Citizens’ proposed financing and begin the approval process, which the OIR is expected to complete by the end of this week; and
• Solicited formal feedback from, and coordinated with, Citizens’ senior management to determine the best approach to procure the desired amount of liquidity at the lowest possible cost.

Citizens currently has an A2 rating from Moody’s and an A+ rating from Standard & Poor’s.  Chairman James Malone inquired what effect rating agencies’ outlooks have on Citizens’ ability to bond.  Mr. Forney stated that even though Florida and its state-run insurers have been placed on a negative rating outlook, Citizens’ ability to bond has not been affected. 

Mr. Forney stressed that the 2009 program has not been driven by financial turmoil.  Citizens has the highest surplus in its history available for the 2009 hurricane season and, as a result, no assessments are expected to be levied against Floridians in 2009.

Because of the turbulent financial markets, the HRA 2009 Bond resolution and accompanying documents are structured to allow Citizens ample flexibility to pursue different financing structures, depending on market conditions.  Citizens’ financing team anticipates using the following structure:

• Procuring fixed rate, short-term, tax-exempt bonds with one to five-year maturities (the same bond type issued last year) in an amount not to exceed $2.5 billion;
• Issuing bonds in multiple series, with some separation among the series to allow for market absorption. The first series of bonds is expected to be issued in April 2009 after the OIR’s mandatory 30-day appeal period expires. Subsequent bonds will be issued as soon as possible after that, but preferably before the start of hurricane season in June. No HRA 2009 Bonds may be issued after October 31, 2009;
• Providing for the appointment of a successor indenture trustee prior to issuance of the first bond series;
• Delegating authority to the Chairman, upon consultation with Citizens’ Staff, to approve the details of each series of bonds, approve final documentation, select bond insurers or other credit enhancers, and obtain liquidity facilities;
• Authorizing the negotiated sale of HRA 2009 Bonds, including public offering, private placement or exchange for currently outstanding bonds.

To view the Bond Resolution Summary, click here.

Board Member Carlos Lacasa expressed concern regarding the amount of authority delegated to the Chairman and Citizens Staff in the HRA 2009 Bond resolution.  In a worst-case scenario, the Chairman would be authorized to purchase the total bond amount in variable-rate 20-year maturity bonds without consulting the other Board members.  Mr. Forney stated that variable-rate bonds have been the most cost-effective in the past, and that any contracts into which Citizens enters will allow for the conversion from variable to fixed rates.

Sharon Binnun, Citizens’ Chief Financial Officer, reviewed the cost of issuance for HRA 2009 Bonds.  It is anticipated that the cost will be less than one half of one percent of the total amount of bonds issued, with the underwriters’ compensation accounting for a majority of the costs.  All other issuance costs (legal, advisory, trustee, etc.) represent less than two tenths of one percent of the total bond amount.

The Board approved the following documents related to the proposed issuance of HRA 2009 Bonds:

• Bond Resolution, which approves, among other items:
  • Preliminary Official Statement
  • Bond Purchase Agreement
  • Seventh Supplemental Indenture
• Vendors’ Consent Agenda, including the Costs of Issuance

Citizens’ President Scott Wallace advised the Board that reinsurance brokerage issues would be discussed during the next scheduled meeting on Friday, April 3, 2009.  Guy Carpenter has filed an appeal regarding the selection of Aon Benfield as Citizens’ reinsurance broker.  The appeal, if not resolved, could disrupt Citizens’ ability to quickly access the reinsurance markets.  Citizens’ Staff is in the process of exploring a co-brokerage compromise between Guy Carpenter and Aon Benfield for 2009 only.  If the negotiations are successful, the Board will be asked to approve the co-brokerage arrangement at the April meeting.  If not, Guy Carpenter’s appeal will be heard at that time.

The April 3 meeting will be held at the Sheraton Airport Hotel in Dania Beach (near Fort Lauderdale).

Should you have any questions or comments, please contact Colodny Fass.

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