Florida Fund's Debt Has `Indeterminate Value,' BlackRock Says
By Darrell Preston and David Evans
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Dec. 5 (Bloomberg) -- Much of the debt held by a $14 billion Florida investment fund for schools and local governments is worth less than face value and the rest is so troubled that its value can't be determined, according to an official at the Wall Street firm hired to turn around the fund.
``I don't think there are very many securities in this market we can liquidate at par,'' or 100 cents on the dollar, Chris Stavrakos, co-managing head of cash management for New York-based BlackRock Inc., said in an interview yesterday.
The more than $2 billion of the worst securities that state officials agreed yesterday to spin off into a second investment pool have an ``indeterminate value,'' he said. Of that, about $867 million is in default, or 6 percent.
Coleman Stipanovich, the executive director of the agency that oversees the fund, resigned yesterday and BlackRock, which invests more than $1.3 trillion in fixed-income and other assets, was named interim manager.
Stipanovich's resignation came after more than $13 billion was pulled from the fund as the extent of the assets in trouble came to light. Investors have been cut off from their funds since Nov. 29, when the State Board of Administration froze withdrawals amid a run on the pool, which was the largest of its kind in the U.S. at $27 billion.
Local governments, school districts and other participants in the pool, a type of money-market fund, will have to wait to find out when and how much they will recover. The investors will temporarily lose access to 14 percent of their cash under BlackRock's plan.
Access to Money
The plan allows for local governments to take out the greater of 15 percent of their holdings or $2 million without penalty. BlackRock executives estimated the fund, called the Local Government Investment Pool, may reopen as soon as tomorrow.
``The plan BlackRock submitted is very responsible,'' Governor Charlie Crist, a Republican, said in an interview after a Cabinet meeting in Tallahassee. ``For those who need money, we can accommodate them.''
Crist, state Chief Financial Officer Alex Sink and Attorney General Bill McCollum are the state board's trustees. BlackRock, hired by the state Nov. 30 to review the fund, had at least six bankers going through its holdings last weekend to develop the plan presented yesterday, Stavrakos said.
The fund owns $175 million of debt issued by Axon Financial, a structured investment vehicle that has defaulted. It also holds $180 million of debt sold by Ottimo Funding, an SIV that had its credit rating slashed to D from C by Standard & Poor's on Nov. 9.
`Nobody Will Buy'
``Nobody will buy that paper,'' Stavrakos said. The fund owns $168 million of short-term debt issued by KKR Atlantic Funding Trust and $356 million from KKR Pacific Funding Trust, securities whose values aren't ``transparent,'' he said.
KKR Atlantic's ratings were cut to D from B by Fitch Ratings on Oct. 8, while KKR Pacific was lowered to D from B on Oct. 2. Fitch said the reduction to default on the debt reflected non-payment under the original terms. The debt was restructured to extend the maturities to February and March, and interest payments are continuing.
State officials have said that under existing law they are unable to guarantee repayment of the funds local governments and schools invested in the pool, according to Bill Montford, chief executive officer of the Florida Association of District School Superintendents. Crist and other state officials didn't discuss the issue yesterday even after investors asked for a guarantee in a document presented at the meeting.
``It isn't going to fly without a guarantee,'' said Wayne Blanton, executive director of the Florida School Boards Association.
To contact the reporters on this story: Darrell Preston in Tallahassee at dpreston@bloomberg.net ; David Evans in Los Angeles at davidevans@bloomberg.net .
Last Updated: December 5, 2007 00:09 EST |
