Florida plans $2.5 billion bond offering to fund insurance claims payouts

Historically low taxable municipal bond rates have Florida planning to make a $2.25 billion offering that a Florida official called a very attractive opportunity for investors.

The Florida State Board of Administration Finance Corp. presented a fixed-rate deal with $750 million offered in series maturing in 2025, 2027 and 2030. But demand could cause the offer to be increased and those maturities dates could get restructured, Ben Watkins, a member of the corporation's board and director of Florida's Division of Bond Finance, told Bond Buyer.

"I think it'll be a very attractive opportunity for investors because historically the credit spreads have not reflected the underlying credit quality," Watkins said, Bond Buyer reported.

The state’s hurricane insurance markets will get a boost by capitalizing programs.

Bond sales proceeds will provide capital for the Florida Hurricane Catastrophe Fund and the state-owned Citizens Property Insurance Corp. to pay claims. The private property insurance market gets lower cost reinsurance from the state-run, tax-exempt trust fund Cat Fund. Citizens Property serves as an insurer of last resort for Florida homeowners.

Investment income on unspent bond proceeds, reinsurance premiums secure the bonds. Also securing the bonds are the emergency assessments of up to 10% on most property and casualty insurance policies in the state.

Some investors don’t recognize the link to the Cat Fund and don't understand the issuer's name, Watkins said.

 “This is fundamentally a muni credit secured by taxes on insurance policies," he told Bond Buyer.

Investment management firms and other institutional investors are typical buyers of the corporation’s bonds, Watkins told Bond Buyer.

Sarasota, Florida-headquartered Cumberland Advisors, has bought the corporation's bonds in the past, Patricia Healy, senior vice president of research and portfolio manager, said, and may be interested in these offerings.

"It would depend on final pricing because it always comes down to that and where it falls out relative to other structures," Healy told Bond Buyer. "We're fine with the credit [but] it could come rich."

Watkins has spoken to investors about selling debt after Hurricane Laura struck Lake Charles, Louisiana.

"Some of the questions have been around greater hurricane activity and all that, but that's only the noise around the credit and that's why we're endeavoring to tell the story because the credit structure is strong," he told Bond Buyer. He doesn’t expect pricing problems with the deal.

The bonds have been assigned stable outlooks. Fitch Ratings and S&P Global Ratings rated the bonds AA, and Moody’s Investors rated them Aa3.