Citizens Finance and Investment Committee, Board of Governors Meeting Report: January 25
Jan 29, 2010
The Citizens Property Insurance Corporation (“Citizens”) Finance and Investment Committee (“Committee”) met on Monday, January 25, 2010 to discuss Citizens’ 2010 pre-event liquidity financing plan (“plan”). To access the agenda and meeting materials, click here.
The plan, which was approved during the December 11, 2009 Board of Governors (“Board”) meeting, will not include procurement of any outside credit for Citizens’ Personal or Commercial Lines Accounts (collectively “PLA/CLA”) and will include an issuance of $2.4 billion in High-Risk Account (“HRA”) Series 2010 Bonds.
Based on the plan, Citizens’ financing team has structured its 2010 Bond Resolution and supporting documents in a way that will afford opportunities to pursue different types of financing, depending upon market conditions between now and the beginning of the 2010 hurricane season.
Citizens’ financing team anticipates:
- A total debt issuance of $2 billion;
- The bulk of the bond portion of the financing (approximately $1.5 billion) to be issued using fixed rate, tax-exempt bonds, with maturities ranging from three to seven years;
- A single bond issuance to take place in March 2010; and
- Procurement of a $400 million bank line of credit to be executed simultaneously with the bond issuance.
The plan allows for different structures (taxable bonds, variable rate bonds) if market conditions are more favorable for those alternatives. The HRA 2010 Bond proceeds will be invested in short-term liquid assets.
To implement the plan, Citizens’ Staff recommended the utilization of its five senior money managers (Citi, Goldman Sachs, JP Morgan, Merrill Lynch and Morgan Stanley), as well as its co-managers (First Southwest, Jeffries, Loop Capital, Ramirez, RBC Capital, Siebert Brandford Shank and Wells Fargo).
During discussion, Committee member William Corry indicated that he felt misled by Citizens’ management, because he was told that only two bond managers (JP Morgan and Goldman Sachs) would be utilized. Mr. Corry also expressed that, since it appeared as though Citizens’ management has already commenced implementation of the financing program without the Board’s final permission, Citizens’ management team is managing the public’s money improperly.
The Board engaged in a lengthy discussion of whether the release of Staff recommendations to bond managers prior to final Board approval was tantamount to an improper public release of information. The Board also discussed whether this sequence of events constituted a breach of public trust. Ultimately, the Board voted to approve the 2010 pre-event liquidity financing program and its accompanying documents. Mr. Corry voted against the decision.
The meeting was then adjourned.
Citizens Board of Governors Meeting Report: January 25
Citizens 2010 pre-event liquidity financing and the August 2010 expiration of its Tallahassee office space lease were the focus of the January 25 Board of Governors (“Board”) meeting.
Board Chairman James Malone opened the meeting by addressing the controversy related to Citizens’ recent emergency contract with Inspection Depot for the wind mitigation credit inspection program currently in progress. Chairman Malone explained that the contract is not valued at $60 million, as some media outlets have reported. He clarified that Citizens entered into the contract on an emergency basis in an effort to mitigate the impact of fraud on policyholders as quickly as possible by circumventing the lengthy request for proposal (“RFP”) process.
Now, a formal RFP for inspection management services will be issued during the second quarter of 2010 on a non-emergency basis and will serve to limit the length of the Inspection Depot contract already in place.
2010 Pre-Event Liquidity Financing
Board members inquired whether finance underwriters might take different action if Citizens’ bonds were to mature within three to seven years, rather than in 15 years. John Forney from Raymond James assured the Board that the financing method ultimately used will represent the best option for Citizens.
Board members asked whether the bond financing flexibility options in Citizens’ financing program that were discussed during the January 25 Finance and Investment Committee meeting should be amended to allow a Board vote. It was determined that this type of vote would inhibit Citizens’ ability to act quickly in procuring the best financing options.
A representative from the Florida Office of Insurance Regulation who participated in the meeting advised that financing information is exempt from the public record until it is finalized. Further, if a Board meeting were to be held, during which the proposed financing was discussed, this information would become part of the public record and could complicate contract negotiations.
Chairman Malone mentioned that, during the January 25 Finance and Investment Committee meeting, Board member William Corry had indicated displeasure with Citizens’ practice of making companies aware of Staff recommendations before those recommendations are approved by the Board. Mr. Corry clarified that he did not support the Finance and Investment Committee vote to approve the 2010 pre-event liquidity financing plan because certain banks have already commenced action upon the plan without having received final Board approval. Mr. Corry reiterated his sentiment that he was misled to believe that only two bond managers would be utilized in managing the plan.
After lengthy debate, the Board voted on whether to approve the 2010 liquidity financing program and its accompanying documents. The vote was tied, with Carol Everhart, Carlos Lacasa and William Corry voting against the decision. Thus, the issue was tabled until it could be reviewed by the two absent Board members, Allan Katz and Tom Lynch.
Tallahassee Office Space
Citizens’ current leases of Tallahassee office space expire on August 31, 2010. A law passed in 2009 requires Citizens to lease state-owned office space, if available. However, the Florida Department of Management Services (“DMS”) has indicated that no State-owned space is available in Tallahassee for Citizens’ lease.
Until State-owned space is available, Citizens’ Staff recommended that two seven-year leases be entered into to accommodate Citizens’ needs in Tallahassee. Both leases will contain the required DMS six-month notice of cancellation provision, should State-owned office space become available. To view the Tallahassee office space contract summary, click here.
During discussion, Board members debated whether it would be in Citizens’ best interest to purchase build-to-suit office space as permitted by law, rather than continue to lease office space. Mr. Lacasa requested an analysis on the currently-available build-to-suit office space in Tallahassee, because, based on rough information he said he had gathered, build-to-suit space would save Citizens money and would benefit the State by adding to its list of owned properties.
The Board approved the recommended office space lease with Carlos Lacasa and William Corry voting against it.
Allan Katz joined the meeting at that point and a re-vote was taken on the 2010 liquidity financing program. Mr. Katz voted for the measure, which resulted in its passage (4-3).
With Mr. Lacasa and Mr. Corry dissenting, the Board also approved the consent agenda, which included the contract summaries for the Tallahassee office space and the 2010 High-Risk Account bond vendors. Bond insurance was determined to be exempt from the competitive solicitation process. To view the consent agenda, click here.
The meeting was then adjourned.
Should you have any questions or comments, please contact Colodny Fass.