1.
FLORIDA HOLDS $2.2 BILLION OF JUNK DEBT:
Bloomberg
reports that the Florida agency that manages about $50
Billion
of short-term investments for the state, school districts
and local governments holds $2.2 Billion of debt cut to
junk status. The downgrades affect more than 4% of what
the Florida State Board of Administration has purchased
for the funds, according to a report by the agency’s
director, which was delivered at a cabinet meeting yesterday.
Some $3.6 Billion, or 7.3%, of the securities may be downgraded
by credit-rating agencies, according to the report. Florida
rules require that the state’s short-term investments
must be top-rated, liquid securities, so taxpayer funds
are not placed at risk. The data show how far the effects
of the bursting of the housing bubble are being felt, as
complex investment vehicles once marketed as high-yielding
safe havens are now backed by collateral shunned by investors.
Florida’s state funds were affected by bad investments
in asset-backed commercial paper, short-term debt sold
by financial institutions secured by collateral such as
mortgage securities and credit-card receivables. As the
value of the collateral dropped, investors were unwilling
to reinvest their money when the short-term debt matured,
creating a liquidity crisis for financial institutions.
Florida’s short-term holdings include $400 Million
of Axon Financial Funding LLC debt, which was cut to junk
status by Standard & Poor’s on November 9. Others
rated below investment grade are $850 Million of KKR Atlantic
Funding Trust, which was cut to default by Fitch last month;
$577 Million of KKR Pacific Funding Trust debt, cut by
Fitch to default last month; and $319 Million of debt issued
by Ottimo Funding Ltd., cut to default by S&P on November
9. Below-investment-grade, or junk, debt is rated lower
than Baa3 by Moody’s Investor Service and below BBB-
by S&P and Fitch. The Florida State Board of Administration
said none of its clients have lost money, and it has negotiated
to recoup its investments. Even so, SBA said it’s
decreasing its investments in asset-backed commercial paper
by reinvesting elsewhere. The Florida agency manages $27.3
Billion in a local government investment pool, as well
as other short-term investment funds totaling about $50
Billion. (Separately, after meeting with several Wall Street
investment management firms last week, Florida Chief Financial
Officer, Alex Sink, called for an in-depth analysis of
all of the state’s treasury investments.) Hang on
to your hat.
2. FAMILY NEWS :
Obviously, this issue
is quite abbreviated. Last week, your Editor was blessed
with his third grandchild,
a baby girl. So, a little time off was in order. We hope
to recommence a fully-packed issue next week.
3. DAFFY-NITIONS:
Boss : Someone who is
early when you are late and late when you are early.
4. QUOTE OF THE WEEK:
“Never invest in anything that eats or needs repairing.” Billy
Rose
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