Florida Workers’ Compensation Joint Underwriting Association Investment Committee retains bonds, seeks exit strategy for existing investment manager

After a careful review of its investment portfolio, the Florida Workers’ Compensation Joint Underwriting Association (“FWCJUA”) Investment Committee (“Committee”) voted today, February 10, 2012, to continue holding all existing portfolio investments, even though some bonds it contains have been downgraded.

The Committee also instructed FWCJUA Executive Director Laura Torrence to come up with an exit strategy for the purpose of severing the relationship with the FWCJUA’s investment manager Cutwater Investor Services Corporation.

During a review of the FWCJUA investment portfolio, the Committee agreed to continue holding all existing bonds.  Highlights of the review follow:

• The Hewlett Packard bonds and HP Enterprise bonds, both rated BBB+, became non-compliant with the FWCJUA’s investment policy in November 2011 when they were downgraded. Out of the $1.175 million in HP bonds owned by the FWCJUA, $1 million of that amount matures in March 2012. The remaining $175,000 matures in August 2013, it was noted.
• CitiGroup Inc. bonds were downgraded by Standard & Poors from A- to BBB+ in November 2011. This bond matures in six months and is meeting all its obligations, Ms. Torrence pointed out. It was noted that further downgrades are possible before these bonds mature.
• BellSouth Corporation’s bond rating from Moody’s was withdrawn in December 2011 because insufficient information was available to Moody’s to assess Bellsouth’s standalone credit worthiness because it is not unconditionally and irrevocably guaranteed by AT&T. Although Cutwater recommended the sale of the BellSouth bonds, Committee members disagreed.
• Amgen bond is currently being held as an exception to the FWCUA’s investment policy, but continues to maintain stable ratings since it was downgraded, it was noted.

During discussion, several issues were raised regarding Cutwater’s performance.

Ms. Torrence said she would like to have time to negotiate a reasonable exit strategy. Eventually a new Request for Proposal will have to be created to solicit a new vendor, she said.  The concern is to facilitate this without having a gap in services, she added.

A representative from Cutwater assured the Committee they would put forth their best efforts in the meantime to make sure the FWCJUA’s portfolio is safe and compliant.

The Committee agreed that Ms. Torrence should assemble a suggested approach and report back to the Committee with her ideas.

With no further business before the Committee, the meeting was adjourned.

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