Standard & Poor’s Ratings Services has assigned its “AA-” rating to Florida Hurricane Catastrophe Fund (FHCF), Florida’s $2 billion revenue bonds series 2013A. The outlook is stable, according to the ratings firm.
S&P said the bond proceeds are to provide pre-event financing to augment liquidity to meet the FHCF’s contractual liabilities in the event of a hurricane in the 2013-2014 or future contract years.
S&P said its ratings reflect its assessment of:
- Ongoing state oversight from, among others, Florida’s governor, CFO, attorney general, and the legislature since the FHCF’s creation as a state trust fund in 1993;
- The strength of Florida’s economy, which S&P believes continues to have healthy long-term growth prospects and continues its slow recovery from a severe and prolonged recession;
- A broad statewide assessment base supporting the bonds;
- A strong credit structure supporting the bonds, which includes an additional bonds test of 1.25x maximum annual debt service and a rate covenant of 1.25x annual debt service; and
- The FHCF’s statutory ability to limit reimbursements if it has insufficient funds or capacity, despite the existence of reimbursement contracts with participating insurers.
S&P said that in its opinion, partially offsetting the credit strengths are:
- The ability and willingness of the FHCF to support potentially high annual assessments from all statutory entities authorized to collect in Florida (this has been tested in a limited way in the past couple of years);
- Sensitivity to insurance rates and charges throughout Florida;
- The risk exposure of both the FHCF and Citizens’ Property Insurance Corp. (A+), which S&P believes would translate into significant increased bonding and assessments if hurricane and storm activity were frequent and severe; and
- A history of legislative action that expanded the FHCF’s optional coverage in 2007, which from a credit standpoint substantially increased the FHCF’s risk and liability exposure. While the 2007 expanded coverage expires this year and is expected to be selected marginally this year based on pricing, S&P believes there could be changes in the future that affect the liability exposure. It noted that no changes are being considered at this time.
S&P said the rating reflects its view of the statewide assessment base that supports the debt outstanding.
“The stable outlook reflects what we view as the sizable resources available to fund bonds outstanding and a significant emergency assessment base that secures the bonds,” said Standard & Poor’s Robin Prunty. “While our rating on the FHCF is not directly tied to our rating on Florida, the state’s overall credit profile has always been a significant factor for the rating, in our opinion.
“We do not expect to raise the rating in the two-year outlook horizon due to the potential for significant additional debt if hurricanes were to make landfall in Florida.”
Earlier this year, Cat Fund Executive Director Jack Nicholson said the Cat Fund currently has $8.5 billion in cash and an estimated bonding capacity of $7 billion for a total of $15.5 billion. However, that still leaves it short by $1.5 billion to meet its first storm obligations and potentially on the hook for another $11 billion.
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