SBA Approves Additional $5 Billion in FHCF Liquidity

The Florida’s State Board of Administration (“SBA”) held a meeting today, Tuesday, July 17, 2007 to approve a measure that would allow the Florida Hurricane Catastrophe Fund (“FHCF”) to provide an additional $5 billion in liquidity through taxable floating rate notes. 

John Forney, an advisor to the FHCF from Raymond James, reported to the SBA that the FHCF would have approximately $5.2 billion of liquidity resources this year, but that the obligations of the FHCF could be as high as $28 billion.  After exploring several different financing mechanisms, the FHCF recommended floating rate notes based on the costs, pricing certainly and flexibility.  These notes base their interest rate on the London Interbank Offered Rate (“LIBOR”) plus a certain spread.

FHCF officers requested that the SBA approve this type of pre-event liquidity program to increase the amount of time the FHCF may prepare and execute post-event financing, if needed.  The additional liquidity would provide a cash buffer until the FHCF is able to secure post-event financing. 

FHCF advisors and officers suggested this may be necessary due to the increase in liability of the FHCF. FHCF advisors suggest an additional $5 billion would be an adequate amount of additional liquidity. 

Attorney General Bill McCollum emphasized that this was not a risk-shifting mechanism, but instead a mechanism to allow the FHCF to pay claims expeditiously.  Providers for this program will be recommended to the SBA by a “procurement committee.” FHCF officials hope to have the program in place no later than September 1, 2007.

The SBA unanimously approved the proposal.  The SBA is comprised of the Governor, the Chief Financial Officer, and the Attorney General.

Should you have any questions or comments, please do not hesitate to contact this office.