Investor Information
Analyst Communications/PresentationsUpdate
Q&A Regarding Effect of Hurricane Katrina on FSA
September 13, 2005
1. What is FSA's exposure to the areas affected by Hurricane Katrina?
FSA's total public finance net par exposure to counties designated by FEMA for both public and individual assistance is approximately $1.8 billion.
FSA's Public Finance Exposure in Counties Designated by FEMA for Both Public and Individual Assistance(1)
Net Par as of August 31, 2005 ($000)
|
Bond Type |
Alabama |
Greater New |
Other Louisiana |
Mississippi |
Total |
|
General obligation |
$ 144,279 |
$ 141,885 |
$ 281,993 |
$ 376,685 |
$944,842 |
|
Leases and |
15,247 |
150,483 |
102,485 |
887 |
269,102 |
|
University-public |
0 |
0 |
0 |
15,273 |
15,273 |
|
University-private |
0 |
0 |
0 |
0 |
0 |
|
Municipal utility |
81,743 |
0 |
48,999 |
132,332 |
263,074 |
|
Investor-owned utilities |
0 |
0 |
12,782 |
0 |
12,782 |
|
Transportation |
0 |
34,003 |
0 |
0 |
34,003 |
|
Health care |
0 |
91,086 |
120,213 |
39,949 |
251,248 |
|
Other |
0 |
42,878 |
0 |
0 |
42,878 |
|
Grand Total |
$241,270 |
$460,334 |
$566,472 |
$565,126 |
$1,833,202 |
(1) As of September 9, 2005. Certain columns do not sum due to rounding.
(2) Includes Jefferson, Orleans and St. Bernard parishes.
2. What percentage of your total exposure does this represent?
Less than 0.5%.
3. What is your total exposure to FEMA-designated counties, including those designated for public assistance only?
FSA's Public Finance Exposure in Counties Designated by FEMA for Public or Individual Assistance(1)
Net Par as of August 31, 2005 ($000)
|
Bond Type |
Alabama |
Greater New |
Other Louisiana |
Mississippi |
Total |
|
General obligation |
$ 313,737 |
$ 141,885 |
$ 454,990 |
$ 402,895 |
$1,313,507 |
|
Leases and |
53,402 |
150,483 |
109,256 |
887 |
314,028 |
|
University-public |
0 |
0 |
0 |
15,273 |
15,273 |
|
University-private |
0 |
0 |
0 |
0 |
0 |
|
Municipal utility |
281,479 |
0 |
69,058 |
132,332 |
482,869 |
|
Investor-owned utilities |
0 |
0 |
12,782 |
0 |
12,782 |
|
Transportation |
31,548 |
34,003 |
22,441 |
0 |
87,992 |
|
Health care |
8,529 |
91,086 |
140,965 |
39,949 |
280,529 |
|
Other |
0 |
42,878 |
0 |
0 |
42,878 |
|
Grand Total |
$688,695 |
$460,334 |
$809,492 |
$591,337 |
$2,549,858 |
(1) As of September 9, 2005. Certain columns do not sum due to rounding.
(2) Includes Jefferson, Orleans and St. Bernard parishes.
4. Do you expect to incur losses related to the storm?
It is too early to determine the effect the storm will have on the underlying credit quality of these exposures. We are monitoring the situation very closely. It will take some time to make a full assessment, as we need to be sensitive to the needs and priorities of the people trying to recover from this disaster.
FSA-insured bonds are protected by various sources of support that would be invoked before FSA would incur losses. These sources include access to pledged taxes or revenues, reserve funds, property and casualty insurance and state and federal monies.
5. Have any debt service or principal payments been missed?
We have not received notice of a payment default. However, there could be interruption of payments as people struggle to recover operations, and we stand ready to make any scheduled payments upon an issuer default.
6. What are your largest specific exposures?
Public finance exposures greater than $50 million of net par, as of August 31, 2005, in FEMA Public or Individual Assistance-designated disaster areas are:
|
|
County/Parish |
State |
Net Par Outstanding ($MM) |
|
Jefferson County, Sewer System |
Jefferson |
Alabama |
$151.8 |
|
City of New Orleans General Obligations |
Orleans |
Louisiana |
121.8 |
|
Jackson City Water and Sewer |
Hinds |
Mississippi |
119.8 |
|
Franciscan Missionaries of Our Lady Hospital |
East Baton Rouge |
Louisiana |
82.7 |
|
Jefferson County Board of Education |
Jefferson |
Alabama |
81.6 |
|
East Jefferson General Hospital |
Jefferson |
Louisiana |
58.6 |
|
Orleans Levee District General Obligations |
Orleans |
Louisiana |
54.7 |
|
City of Jackson General Obligations |
Hinds |
Mississippi |
52.6 |
|
St. Tammany Parish School District General Obligations |
St. Tammany |
Louisiana |
51.7 |
Current information: Franciscan Missionaries is up and running and taking patients from New Orleans. Power has been restored to East Jefferson hospital, and it has asked its doctors and nurses to return to work. Utilities have generally been restored in all but Orleans, St. Bernard and Jefferson parishes.
7. What categories of transactions do you consider to be the highest risk?
Our first focus is on site-specific facilities, such as hospitals and airports. We only have a few of these, the exposures are modest, and most of these facilities are already operating. We will monitor these issuers closely and provide whatever assistance we can. The next concern is the immediate, and then long-term, impact on the local economy, keeping in mind that these are generally 30-year bond financings. We expect that the region will experience disruption and uncertainty in the short-term but will rebuild and recover in the mid- to-longer-term.
8. Does FSA have sufficient liquidity to cover claims on the affected exposure?
Yes. FSA is obligated to make payments as scheduled, not on an accelerated basis, and only a small portion of total debt service will be due in the next six months. In addition to reserves and other structural supports within the transactions themselves, our liquidity sources include our high-quality, liquid investment portfolio as well as a $150 million bank liquidity facility available to pay claims. FSA's total claims-paying resources total approximately $5.5 billion.
9. What is the impact of the storm on FSA's asset-backed transactions?
FSA's asset-backed transactions are generally backed by pools of geographically diverse assets. A review of this portfolio shows no unusual concentrations in affected areas.
10. What has been your experience in similar situations in the past?
While this is the most severe storm situation that has occurred in recent history, in other cases, such as the five hurricanes that hit Florida in 2004, an influx of funds from the federal government and private insurance paid the cost to repair and rebuild damaged infrastructure. Bond insurers experienced no losses related to the Florida hurricanes. Additionally, in some storm disasters, there has been increased employment and economic growth due to the rebuilding.
Forward-Looking Statements
The Company relies on the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. This safe harbor requires that the Company specify important factors that could cause actual results to differ materially from those contained in forward-looking statements made by or on behalf of the Company. Accordingly, forward-looking statements by the Company and its affiliates are qualified by reference to the following cautionary statements.
In its filings with the SEC, reports to shareholders, press releases and other written and oral communications, the Company from time to time makes forward-looking statements. Such forward-looking statements include, but are not limited to:
- projections of revenues, income (or loss), earnings (or loss) per share, dividends, market share or other financial forecasts
- statements of plans, objectives or goals of the Company or its management, including those related to growth in adjusted book value or return on equity, and
- expected losses on, and adequacy of loss reserves for, insured transactions.
Words such as "believes," "anticipates," "expects," "intends" and "plans" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
The Company cautions that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in forward-looking statements made by the Company. These factors include:
- changes in capital requirements or other criteria of securities rating agencies applicable to FSA
- competitive forces, including the conduct of other financial guaranty insurers
- changes in domestic or foreign laws or regulations applicable to the Company, its competitors or its clients
- changes in accounting principles or practices that may result in a decline in securitization transactions or affect the Company's reported financial results
- an economic downturn or other economic conditions (such as a rising interest rate environment) adversely affecting transactions insured by FSA or its investment portfolio
- inadequacy of reserves established by the Company for losses and loss adjustment expenses
- disruptions in cash flow on FSA-insured structured transactions attributable to legal challenges to such structures
- downgrade or default of one or more of FSA's reinsurers
- the amount and nature of business opportunities that may be presented to the Company
- market conditions, including the credit quality and market pricing of securities issued
- capacity limitations that may impair investor appetite for FSA-insured obligations
- market spreads and pricing on insured credit default swap exposures, which may result in gain or loss due to mark-to-market accounting requirements
- prepayment speeds on FSA-insured asset-backed securities and other factors that may influence the amount of installment premiums paid to FSA, and
- changes in the value or performance of strategic investments made by the Company.
The Company cautions that the foregoing list of important factors is not exhaustive. In any event, such forward-looking statements made by the Company speak only as of the date on which they are made, and the Company does not undertake any obligation to update or revise such statements as a result of new information, future events or otherwise.