HURRICANES NOT LIKELY TO
DAMAGE CREDIT IN FLORIDA
Florida's four hurricanes this summer resulted in record property
damage, but they are not likely to damage credit quality.
In quick succession, Hurricanes Charley, Frances, Ivan and Jeanne
attacked Florida, hitting both sides of the peninsula and the Panhandle.
Estimates of property damages run in the $20+ billion range. If
history is a guide, the impact on tax-exempt bond repayment and
credit ratings should be minimal.
Mobile homes, private housing and businesses usually suffer the
most, with insurance proceeds and federal aid available to pay for
much of the rebuilding. Insurers of real property will see the greatest
credit impact, although reinsurance by the Florida Hurricane Catastrophe
Fund will mitigate these losses to a degree.
The fund, established following Hurricane Andrew in 1992, had net
assets of $4.9 billion at June 30, 2003, and $9 billion in bonding
authorization prior to the last two hurricanes. The state-run Citizens
Property Insurance Company, which has both bonding and assessment
capacity, also will absorb a portion of damage claims.
S&P reaffirms state's GO rating
Despite this year's record damages, little impact is expected for
issuers of tax-exempt bonds. Already, Standard & Poor's (S&P)
reaffirmed the state of Florida's general obligation rating at "AA+"
at the end of September citing the possibility of short-term economic
disruption while recognizing the state's overall economic and financial
strength.
Transportation bonds, such as those issued by the Santa Rosa Bay
Bridge Authority or the Florida Turnpike Enterprise, are unlikely
to see their ratings changed. In the case of Santa Rosa, the bridge
is back in service after a short closure for limited damage. The
state is responsible for repairs, maintenance and making up the
shortfall of revenues due to the current moratorium on tolls. Other
state transportation projects are covered by the same policy.
Our survey also reveals that health care issuers, such as Orlando
Regional Medical Center, sustained minor damages and expect minimal
financial impact. Once again, insurers will be on the hook.
Assuming this "freak" hurricane season will produce no
further impacts on the Florida peninsula, it is likely that the
state's economy will feel the effects of the hurricanes, both negatively
and positively. While substantial economic activity was reduced,
rebuilding will provide a stimulus. The effect on bondholders is
likely to be felt indirectly through a short-term slowdown in growth
in assessed valuations. But general obligation bonds, which depend
on property taxes for payment, are the strongest credit sector with
multiple payment sources available.
S&P commented in 2002 that natural disasters rarely affect
bond ratings since substantial resources from the federal government,
local government rainy day funds and insurance typically make up
for incurred losses. While Florida has had a season for the record
book, we see no reason to differ with S&P's conclusion.
ANALYST CERTIFICATION
SEC Regulation AC
I, Jay H. Abrams, hereby certify that the views expressed in this
research report accurately reflect my personal views about the subject
securities and issuers. I also certify that no part of my compensation
was, is, or will be, directly or indirectly, related to the specific
recommendations or view expressed in this report.
10/07/2004
About Dr. Abrams
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