John A. CrawfordClerk of the Court
Nassau County Board of County Commissioners
Special MeetingDecember 7, 2008
SBA Investment Pool Crisis
CLERK RESPONSIBILITES
Florida Statutes 28.33 – “The clerk of the circuit court in each
county shall invest county funds in excess of those required to meet
expenses . . . .”
CLERK RESPONSIBILITES Investment Objectives
Resolution No. 95-144, Section II (A)
“The primary objective of the investment activities is the protection of County
Funds.”
CLERK RESPONSIBILITES Investment Objectives
Resolution No. 95-144, Section II (B)
“The investment strategy will provide sufficient liquidity to meet the County’s
operating, payroll, and capital requirements”
CLERK RESPONSIBILITES Investment Objectives
Resolution No. 95-144, Section II (D)
“The Clerk will set procedures to properly diversify the investment portfolio and minimize the inherent risk associated
with investment portfolios”
CLERK RESPONSIBILITES Investment Objectives
Resolution No. 95-144, Section II (C)
“When investing public funds, the Clerk of Circuit Court (Clerk) will strive to
maximize the return on the portfolio, while minimizing investment risk”
SBA Investment Pool Crisis
SBA Investment Pool Crisis SBA Mission Statement
“ The SBA is committed to providing superior investment and trust services while adhering to the highest ethical, fiduciary, and
professional standards. ”
Source: WWW.SBAFLA.COM
SBA Investment Pool Crisis What Happened?
Nov. 14, 2007 - Bloomberg News report reveals:
“Florida Holds $2.2 Billion of Debt Cut to Junk Status”Portion of securities held by SBA in distress or default
“Sub-Prime Mortgage” investments infecting SBA holdings.
Source: David Evans, Bloomberg.com
SBA Investment Pool Crisis What Happened?
SBA Nov. 9, 2007 Report: Update on Sub-Prime Mortgage Meltdown and State Board of Administration Investments
“No client of the SBA has ever lost money in a short-term portfolio, and we remain confident that our portfolios will continue to provide stable returns for clients with
an emphasis on safety and liquidity of principal.”
Source: David Evans, Bloomberg.com
SBA Investment Pool Crisis What Happened?
“ They are supposed to offer daily liquidity for the public sector in much the same way that
money-market funds do for the private sector. They are supposed to invest their
clients’ money in the safest possible securities, good old boring things like U.S.
Treasuries, top-rated commercial paper and certificates of deposit ”
Source: Joe Mysak, Bloomberg.Com
SBA Investment Pool Crisis What Happened?
BLOOMBERG NEWS
“Florida rules require the state's short-term investments to only be top-rated, liquid securities, so taxpayer funds aren't
placed at risk. The data from Florida shows 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.“
By William Selway and David Evans
Florida Holds $2.2 Billion of Debt Cut to Junk Status (Update7)
SBA Investment Pool Crisis What Happened?
“Neither the newsletter nor Stipanovich’stestimony disclosed that the pool owns $650million of certificates of deposit fromCountywide FSB, a unit of Countrywide FinancialCorp., that now amounts to more than 3 percentof the pool’s assets. The bank’s rating was tocut Baal, three levels above junk, by Moodys’ on August16.”
Source: David Evans, Bloomberg.Com
SBA Investment Pool Crisis What Happened?
Joseph Mason, professor of finance at Drexel University states, “ while the State of Florida has a moral duty to cover any losses suffered by the pool participants, its own shaky finances will make that difficult. The fourth most-populous state, hurt by the housing slump, cut its revenue projections by 3.9 percent for the fiscal
year ending June 30, and 5.2 percent for the following year.”
Source: David Evans, Bloomberg.Com
SBA Investment Pool Crisis What Happened?
“the state appears to have breached the trust of the investors by putting money in
new kinds of debt its managers didn’t understand, in their search for higher
yields,”
Source: David Evans, Bloomberg.Com
SBA Investment Pool Crisis Bloomberg News
‘Seat-of-the-Pants'
``Investment of public money needs to be carefully conducted and thoroughly researched,'' said Harvey
Pitt, former chairman of the U.S. Securities and Exchange Commission.
``This is not the place for seat-of-the-pants judgments. It requires a lot more than jumping on the latest investment du jour to improve your results.''
Source: David Evans, Bloomberg.Com
WHO MANAGES SBA?
Who Manages SBA?
What Happened
Nov 9th – 28th: $13,000,000,000 “Run on the SBA bank”
Nov 29th: SBA Trustees implement temporary freeze on LGIP assets.
Dec. 4th: SBA Trustees voted to Spilt $14B LGIP funds into: Fund A – High Grade Investments $12 billion or – 86% - allows 15% or $2 million draw down. Fund B – assets in default, impaired, credit risk. $2 billion or 14%
SBA Investment Pool Crisis What does this mean for Nassau County???
Current Investment: $55.6 million Fund A (86%): $47.8 million Fund B (14%): $ 7.8 million
Withdrawal option Plan A (15% or $2 million): $ 8.1 million
SBA Investment Pool Crisis What does this mean for Nassau County???
Plan A options: Immediately request allowed 15% ($ 8.1 M) (Requested 12/6/07) Remainder has two options:
Upon a schedule TBD by Blackrock or 2% early redemption penalty
Plan B options: Unknown at this time
SBA Investment Pool Crisis Current Impact?
Cash on hand: $ 22.3 m Ad Valorem available*: $ 33.7 m 15% of Plan A: $ 8.1 m
Total for operational needs: $ 64.1 m
*collected through December ’07- 80% collected to date
SBA Investment Pool Crisis Comparative Cash Position
Cash On Hand
2004 Current SBA $ 22.0m $ 55.6m Banks $ 14.3m $ 22.3m
Total $ 36.3m $ 77.9m
Note: All funds; restricted and unrestricted
SBA Investment Pool Crisis Unknowns and Concerns
Inadequate reserves @ SBA? Questionable sub-prime investments? Will large county investors return to
SBA? Under what circumstances, if any,
would we return to the fund? What will be the bottom-line return on
Fund B?
SBA Investment Pool Crisis Options Under Consideration
Letter(s) to Gov/CFO/AG Letter to Auditor General Letter to Legislative Government
Oversight Committee Letter/meet local legislators Litigation-join other investors
SBA Investment Pool Crisis Summary Impact Nassau County
Risk Level- definitely increased Potential Loss– book probable;
actual? Liquidity- Ok for short-term Capital Projects – need solid
estimates and date specific timing for cash flows.
Debt Capacity – uncertainty exists.
SBA Investment Pool CrisisWhat is the next step?
The Clerk’s office will continue to monitor this issue that has been forced upon us by the SBA and its governing Board of Trustees.
We will keep the Board and the tax payers (press releases) informed as future events evolve in solving this issue.
SBA Investment Pool CrisisWhat is the next step?
We will continue to coordinate with the other 1,000 investors (entities) who are in the same “boat” as Nassau County in solving this issue.
We will continue to monitor the County’s cash flow needs for both operational and investment purposes.
We will continue to coordinate with the County Coordinator to ensure that budgetary issues are resolved.
SBA Investment Pool Crisis