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Cypen & Cypen
NOVEMBER 15, 2007

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Bloomberg reports that the Florida agency that manages about $50 Billion of short-term investments for the state, school districts and local governments holds $2.2 Billion of debt cut to junk status. The downgrades affect more than 4% of what the Florida State Board of Administration has purchased for the funds, according to a report by the agency’s director, which was delivered at a cabinet meeting yesterday. Some $3.6 Billion, or 7.3%, of the securities may be downgraded by credit-rating agencies, according to the report. Florida rules require that the state’s short-term investments must be top-rated, liquid securities, so taxpayer funds are not placed at risk. The data show 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. Florida’s state funds were affected by bad investments in asset-backed commercial paper, short-term debt sold by financial institutions secured by collateral such as mortgage securities and credit-card receivables. As the value of the collateral dropped, investors were unwilling to reinvest their money when the short-term debt matured, creating a liquidity crisis for financial institutions. Florida’s short-term holdings include $400 Million of Axon Financial Funding LLC debt, which was cut to junk status by Standard & Poor’s on November 9. Others rated below investment grade are $850 Million of KKR Atlantic Funding Trust, which was cut to default by Fitch last month; $577 Million of KKR Pacific Funding Trust debt, cut by Fitch to default last month; and $319 Million of debt issued by Ottimo Funding Ltd., cut to default by S&P on November 9. Below-investment-grade, or junk, debt is rated lower than Baa3 by Moody’s Investor Service and below BBB- by S&P and Fitch. The Florida State Board of Administration said none of its clients have lost money, and it has negotiated to recoup its investments. Even so, SBA said it’s decreasing its investments in asset-backed commercial paper by reinvesting elsewhere. The Florida agency manages $27.3 Billion in a local government investment pool, as well as other short-term investment funds totaling about $50 Billion. (Separately, after meeting with several Wall Street investment management firms last week, Florida Chief Financial Officer, Alex Sink, called for an in-depth analysis of all of the state’s treasury investments.) Hang on to your hat.


Obviously, this issue is quite abbreviated. Last week, your Editor was blessed with his third grandchild, a baby girl. So, a little time off was in order. We hope to recommence a fully-packed issue next week.


Boss : Someone who is early when you are late and late when you are early.


“Never invest in anything that eats or needs repairing.” Billy Rose

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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