ATLANTA -- Florida's Legislature passed a bill late Friday clearing the way for sale of up to $500 million of tax-exempt revenue bonds to cover claims on insurers forced into liquidation by Hurricane Andrew.
The bond issue, to be sold by Homestead, Fla., will enable the Florida Insurance Guaranty Association, a nonprofit group that covers such claims, to replenish reserves that now stand at about $15 million.
Since Hurricane Andrew swept through South Florida on Aug. 24, seven insurers have been forced into liquidation, leaving behind about $500 million in unpaid claims owed to 16,000 policyholders.
"We've sent a message to the people of Dade County who lost so much in the rage of Hurricane Andrew," Gov. Lawton Chiles said in a statement following passage of the bill. "Very simply, the message is: ~You are the priority for all of us. Your problems are our problems.'" Dade County, in the state's south, suffered the brunt of the storm.
James McClelland, a spokesman for Chiles, said the governor would sign the legislation soon.
Clifford Hinkle, special consultant to the insurance association, said yesterday that a single bond issue of about $500 million could be sold by Homestead as early as mid-January.
As an alternative, he said, a somewhat smaller bond issue could be sold next month, followed by another borrowing later in 1993. Those issues would total about $500 million.
He said an underwriting syndicate for the long-term financing would probably be chosen next week.
Last week, a list of 18 prospective lead managers for the bond issue was narrowed to four: Bear, Stearns & Co.; Kidder, Peabody & Co.; Lehman Brothers; and Smith Barney, Harris Upham & Co.
In the meantime, Hinkle said, about $100 million of debt would be issued by Homestead in a bond anticipation note to help the association begin immediate repayment of claims. This financing, which would have a final maturity no more than 60 days from issuance, could be sold as early as late this week by an underwriter to be chosen in the next few days, he said.
"The Ban will help us begin to pay the backlog of claims while preparing in an orderly way for the bond issue," Hinkle said.
Fred W. Baggett, a partner at Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel in Tallahassee, bond counsel to the issuer, said yesterday he has no qualms about the tax-exempt status of any debt sold to help the insurance association meet its obligations.
"At this point, given the clear public purpose, we would feel very comfortable signing off [on a tax exemption] on it," Baggett said. "In fact, this seems to me about as justified a use of tax-exempts as you are going to find."
The legislation approved Friday sets a cap of $500 million on the amound of bonds that can be sold to replenish the insurance association's coffers. The bill also stipulates that debt service on the bonds be covered by an increase in the assessment the association currently levies on property and casualty insurance policies sold in Florida.
That assessment, now at 2%, will be raised to 4%, generating about $70 million in new annual revenues for the association.
Proceeds from the borrowing, however, may be used only to pay claims on an insurance company whose insolvency is caused by Hurricane Andrew, as determined by the insurance association's board. To be eligible for coverage, an insurer must have been declared insolvent by March, 1993.
Under the bill, any Florida municipal government "substantially affected" by Hurrican Andrew can sell the bonds for the insurance association. But the issuer is not permitted to pledge its own funds or taxing powers to the financing.
In addition, the bill stipulates that 20% of all the professional work on the financing -- including underwriting, financial advisory, and bond counsel service -- must be given to minority-owned firms.
The legislation does not set any limits on the term of the increased assessment or the maturity of the bonds.
Before ending their three-day special session Friday, Florida law-makers also created a trust fund to be used for hurricane-related relief and expenses. The fund will commit about $500 million in extra sales tax revenues that state finance officials expect to be generated as storm victims spend their insurance reimbursements.