The Florida state investment fund is in trouble because of losses in paper from SIVs, KKR Financial, Countrywide and others.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aPnDWh8v8p3g -------------------------------snip The Jefferson County school district was forced to take out a short-term loan to cover payroll for the 220 teachers and other employees in the system after $2.7 million it held in the pool was frozen yesterday. At least five other districts also obtained last-minute loans, said Wayne Blanton, executive director of the Florida School Boards Association. ``The unthinkable and the unimaginable have just happened here in Florida,'' said Hal Wilson, chief financial officer of the Jefferson County school district, located 30 miles (48 kilometers) east of the state capital Tallahassee. ``What we just experienced here is a classic run-on-the bank meltdown.'' Florida's State Board of Administration, manager of the Local Government Investment Pool, halted withdrawals yesterday at an emergency meeting after $12 billion was pulled out this month from participants. Governments from Orange County, home of Disney World, to Pompano Beach asked for their money back following disclosures that the fund held $1.5 billion of downgraded and defaulted debt. ...................... Standard & Poor's yesterday said it contacted state officials about whether the fund holds any money for debt service payments by local governments and whether that cash will be made available. The credit-rating company said it hadn't yet received information and was monitoring the situation. The Florida fund had invested $2 billion in structured investment vehicles, or SIVs, and other debt tainted by the collapse of the subprime mortgage market, state records show. Connecticut, Maine, Montana and King County, Washington, are among other governments holding similar investments, in smaller quantities, in some cases prompting redemptions. In Montana, school districts, cities and counties withdrew $247 million from the state's $2.4 billion investment pool in the past three days. The fund's executive director in a Nov. 28 memo said the pool held $90 million in an SIV issued by Axon Financial that was downgraded to D, or default, by S&P earlier this week. Billions in Redemptions The Local Government Investment Pool had $3.5 billion of withdrawals yesterday alone, said Coleman Stipanovich, executive director of the State Board of Administration, at yesterday's special meeting in Tallahassee. The board manages the fund along with other short-term investments and the state's $137 billion pension fund. The board is considering ways to shore up the fund, including obtaining credit protection for $1.5 billion of downgraded and defaulted holdings hurt by the subprime market collapse. In voting for the suspensions, officials sought to stem the flood of money leaving the pool and avoid losses on forced sales of assets. The investment pool's debt holdings that were downgraded below its minimum standards have a face value amounting to about 10 percent of the pool. Officials disclosed the investments in a report delivered to Crist Nov. 14 following a month of inquiries by Bloomberg News. ........... Downgraded Debt The fund's $900 million of asset-backed commercial paper that was downgraded to default amounts to 6 percent of its assets. Another $650 million, or 4 percent, is invested in certificates of deposit at Countrywide Bank FSB, a unit of Countrywide Financial Corp. The bank's rating was cut to Baa1, three levels above junk status, by Moody's Investors Service on Aug. 16. The pool owns $168 million of debt from KKR Atlantic Funding Trust cut to D from B by Fitch Ratings on Oct. 8. It also has $356 million issued by KKR Pacific Funding Trust, cut to D from B by Fitch Ratings on Oct. 2. Fitch said the cut to default on the debt reflected non-payment under the original terms. The debt was restructured to extend the maturities to February and March, and interest payments are continuing. Default Rating Florida's pool has $180 million of paper from Ottimo Funding, cut to D from C by S&P on Nov. 9. S&P said an auction of Ottimo's collateral ``did not generate cash proceeds'' to repay the asset-backed commercial paper. The pool also holds $175 million of short-term debt issued by Axon Financial Funding, the SIV also held by Montana. It was cut to D from C by S&P this week. S&P said Axon failed to pay liabilities maturing Nov. 26, causing an ``automatic liquidation event.''
