Investment Strategy in Crisis 2008

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					John A. Crawford
Clerk of the Court


  SBA Investment Pool Crisis


           Nassau County
   Board of County Commissioners
           Special Meeting
             December 7, 2008
 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 Holds $2.2 Billion of Debt Cut to Junk Status (Update7)


  “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
     SBA Investment Pool Crisis
         What Happened?

“Neither the newsletter nor Stipanovich’s
testimony disclosed that the pool owns $650
million of certificates of deposit from
Countywide FSB, a unit of Countrywide Financial
Corp., that now amounts to more than 3 percent
of the pool’s assets. The bank’s rating was to
cut Baal, three levels above junk, by Moodys’ on August
16.”


                                     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 Crisis
      What 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 Crisis
       What 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

				
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