Florida corporation picks catastrophe underwriting team.

Navigation: Main page

Author: McEntee, Christopher

ATLANTA -- The Florida Hurricane Catastrophe Finance Corp. yesterday selected a stand-by pool of underwriters to sell its potential several billion dollar revenue bond deal, awarding the much-coveted senior manager's slots to three firms.

Those three are Bear, Stearns & Co, Goldman, Sachs & Co., and Lehman Brothers.

All told, the corporation pre-qualified 16 underwriters to issue its bonds, which will only be sold should hurricane damages drain hefty public and private cash reserves. It got more than 100 proposals before some firms dropped out.

Officials tapped seven national firms in the co-manager category, as well as three minority owned underwriters and three regional firms.

A spot on the syndicate is desirable because of the potential to underwrite the largest municipal bond issue ever. The catastrophe fund is authorized to sell up to $10 billion of tax-free bonds in the event a hurricane strikes wipes out private insurers' reserves and a sizable cash buffer created by the state.

But those are high bars to clear: $3.3 billion of private insurance reserves and $2.5 billion in the state Hurricane Catastrophe Fund's $2.5 billion cash defenses.

The State Board of Administration runs the corporation's day-to-day operations and helped select the winners. The announcement had been scheduled for July 17, but officials said it released the winners early because it was very clear who the best candidates were after proposals came in a month ago.

But even if debt is not issued anytime soon, the lead manager will be compensated to review the program on an ongoing basis.

For example, the top underwriter will take the fund's revenue-collection numbers to analyze how much debt it would support under various interest rate scenarios.

In the event of a sale, the fund would issue bonds through the corporation to provide reinsurance for private insurers. The size of the issue is contingent on how much damage a storm produces.

It appeared as though a top spot was Lehman's to lose because it was formerly the fund's financial adviser, and certainly had the upper hand on knowing how credit ratings were put together.

Some bankers said they were surprised by the announcement because it was not proceeded by interviews, which are commonly the last step before selection of underwriters.

But state officials said written proposals and their rankings by staff drew a very clear distinction between underwriters worthy of the slots and runners-up, so there was no need for interviews.

The best estimate for a financing date would be about six months after a storm hits, because the fund will reimburse insurers based on losses for an entire storm season. Insurers do not submit their loss totals until Dec. 30, so an issue probably would wait until after this date.

Co-managers named yesterday were J.P. Morgan Securities Inc., Morgan Stanley & Co., Merrill Lynch & Co., First Union Capital Markets Corp., PaineWebber Inc., Salomon Smith Barney Inc., and Chase Securities Inc.

Minority owned firms are Loop Capital Markets, Samuel A. Ramirez & Co., and M.R. Beal & Co. The regional companies are SunTrust Equitable Securities, William R. Hough & Co., and First Southwest Co.

PHOTO (BLACK & WHITE): Jack Nicholson, CAT fund director

~~~~~~~~

By Christopher McEntee