After Milton, Florida likely to issue more CAT fund bonds: Moody's

Hurricane Milton caused more damage that will require reimbursement from the Florida Hurricane Catastrophe Fund than Hurricane Helene did, and Moody's Ratings believes the state may need to sell bonds to replenish the fund in the spring.

Florida now estimates Hurricane Milton will require a $4.5 billion draw on the CAT fund, compared to an estimated $100 million draw for Hurricane Helene, according to a post to the Municipal Securities Rulemaking Board's EMMA web site Wednesday. The CAT fund has $6 billion and access to $2 billion to $3 billion of pre-event bond proceeds.

However, the state estimates Milton's impact on the fund could increase to $5.8 billion and Helene's impact could climb to $441 million.

"Based on current modeled losses, the [CAT fund] expects that loss reimbursement payments from Hurricanes Helene and Milton will be paid from existing internal resources and will not require assessments or financings," Florida said in its post.

Faced with these substantial hits, Florida is likely to issue bonds in the spring to expand its pre-event bond proceeds to prepare for another Milton-sized hurricane, said Moody's Vice President Denise Rappmund.

Ben Watkins, director of the Florida Division of Bond Finance, said it's "too early to assess the need" for a bond issuance.

The state government also said the hurricanes' impact on the general fund is an estimated $2.3 billion.

"The state has sufficient reserves and liquidity to fund disaster response efforts in advance of future Federal Emergency Management Agency reimbursements," according to the EMMA posting. "Future expenditures associated with hurricanes Helene and Milton and FEMA reimbursements for such expenditures [are] unknown."

Florida can manage near-term estimated hurricane costs, said Fitch Ratings Director Tammy Gamerman said, "and has access to ample liquidity, including $500 million in its Emergency Preparedness and Response Fund, which was created to provide immediate funding for emergency events prior to FEMA reimbursements.

But, longer-term, with hurricanes' "frequency and intensity" expected to increase, Fitch expects ongoing challenges involving insurance accessibility and affordability in Florida, which could hinder overall economic growth over time," Gamerman said. "Recent hurricanes will also test Florida's legislative and regulatory tort reforms and will likely limit potential for property insurance rate declines in the near term."

Florida is rated triple-A by Moody's, S&P Global Ratings and Fitch. The CAT fund is rated Aa3 by Moody's and AA by Fitch and KBRA.

John Mousseau, president of Cumberland Advisors, said he expects the storms' hit to Florida's general fund will exceed $2.3 billion.

"If Florida, particularly west coast communities, face a long contracted downward market in housing (have seen some front edge of this already), then this might become a state and local government issue away from the insurers," Mousseau said.

He said the storms may lead bond insurers to increase what they charge for insurance to some local governments and could cause the state to impose a small income tax.

"Affordability and desirability of Florida are longer-term concerns tempered by weather and low-tax environment," said Patricia Healy, senior vice president at Cumberland.

Many condos in the state are older and in poor condition, she said, and more frequent storms often lead to damages that result in assessments that people on fixed incomes can't afford.

These residents often resort to sales at depressed prices, while some condos are sold to developers, "which could result in fewer affordable housing units," Healy said.

Buyers are eschewing 30-plus-year-old condos, which depresses their value, she added.

Separately, Moody's put Asheville, North Carolina's water revenue bonds' Aa1 rating on review for downgrade Thursday. Milton hit Asheville hard and two months of water revenue are expected to be lost, Moody's said. The review affects $90 million of debt.