The Florida Hurricane Catastrophe Fund Finance Corporation and Florida Affordable Housing Guaranty Fund had their ratings affirmed in separate rating actions by Moody’s and Standard & Poor’s. The two specialized state funds are important instruments of public policy in the state.
The Florida Hurricane Catastrophe Fund Finance Corporation (Catfund), with $4.97 billion of bonds and notes outstanding, saw its “Aa3” long-term rating affirmed by Moody’s based on strong finances and structural protections for bondholders. The Catfund reinsures property insurers above certain levels of claims they are required to pay. Bondholders of the Catfund are required to be paid from Catfund revenues prior to paying claims. Revenues consist of reimbursement premiums, emergency assessments and a 1% emergency assessment levied on most insurance policies of all types issued in the state.
Further, the fund’s exposure to claims is limited to its claims paying capacity, thereby insuring long term fund stability.
The Catfund was established in the early 1990s after the devastation of Hurricane Andrew. Insurers are required to participate in the Catfund and choose from several claims coverage levels. Should a pre-determined level of paid claims be reached, the Catfund reimburses the insurer for claims paid above this designated level. Bonds and notes are issued to provide funding for claims in the event of a major hurricane. Revenues flowing into the fund are then used to pay debt service. The Catfund is limited to $23 billion of hurricane claims in 2009-2010.
Standard & Poor’s has also affirmed its “A+” rating and “Stable” Outlook on the Florida Affordable Housing Guarantee Fund. This fund, also established in the early 1990s, guarantees mortgages on both single-family homes and multi-family apartment complexes that meet criteria of serving the need for affordable housing in the state. By providing insurance on the mortgages for such projects, the fund has stimulated the construction of reasonably priced housing in many areas of Florida where it would otherwise not be available.
The Florida Housing Finance Corporation (Florida Housing) administers the program, which is funded through a pledge of documentary stamp tax receipts collected on the sale of all homes in the state. The fund, according to S&P, had approximately $797 million of exposure and $386 million in cash and investments at year end 2008.
S&P noted that collections of the stamp tax have slowed below prior levels and that a limited number of claims have been filed for the first time last year. However, new guarantees have been put on hold to counter the fall in stamp tax receipts, and the claims are expected to be shared with the federal government. Currently, 29 multifamily projects that have issued bonds either directly by Florida Housing, or locally through housing finance authorities, carry the “A+” rating assigned by S&P. The strong rating enhancement provided by the fund has allowed these projects to be financed at low rates and reach a broader investor audience than would have been possible otherwise.
The structural and financial strengths exhibited by these funds in a time of fiscal difficulty are indicative of thoughtful approaches to achieving public policy goals while utilizing the tax exempt and taxable bond markets to raise capital with strong credit protections for investors. These two funds have served to keep Florida homeowners insured despite the risk of natural disaster, and have provided a means to finance affordable housing without the need to directly appropriate the state’s general funds.
Bondholders can derive comfort from the affirming actions of the nation’s two largest rating agencies in regard to the outstanding debt of these important funds.