EDF’s Pylon II Capital Ltd. European windstorm catastrophe bond completes at €150m

by Artemis on August 12, 2011

The latest catastrophe bond which provides protection ultimately to a corporate sponsor, Pylon II Capital Ltd., closed yesterday at a target size of €150m. The transaction provides Electricite De France (better known as EDF), one of the largest energy companies in the world and a leader in nuclear power generation, with five years of reinsurance protection against windstorms in France.

The transaction was extremely well received by investors and we are told was oversubscribed, again demonstrating the demand that exists within the insurance-linked securities investment community for opportunities offering diversification. French bank Natixis who were sponsor and counterparty on the transaction entered into a reinsurance agreement with EDF subsidiary Electricite Reseau Distribution France (ERDF) and then issued the cat bond to cover those obligations. This allowed EDF to forego the need to involve a traditional reinsurer and access the capital markets in a more cost effective manner.

Pylon II Capital issued two tranches of notes, €65m of Class A notes which pay a coupon of 5.5% above Libor and €85m of Class B notes which pay 9% above Libor rates. These rates were attractive to investors helping the deal to become fully subscribed rapidly.

Interestingly, Standard & Poor’s have yet to officially approve the preliminary rating that they gave to the deal when it launched in late July (our previous article on this transaction can be found here). In a statement published today S&P said ‘As a result of an administrative oversight regarding Standard & Poor’s SEC Rule 17g(5) related processes, we have postponed issuance of our final rating on the notes until Wednesday August 17, 2011’. S&P also said that they expect the transaction will be given a final rating which is identical to their preliminary rating anyway, which were ‘B+’ for the Class A notes and ‘B-‘ for the Class B.

The two tranches of notes have been listed and approved for trading on the main securities market of the Irish Stock Exchange (announcement here).

Full details on this transaction can be found in our catastrophe bond Deal Directory.

Currently the catastrophe bond pipeline is quiet as all marketed deals are now complete but market sources suggest that other sponsors could seek to issue deals for non-U.S. hurricane perils in the coming weeks. We’ll update you if and when any new cat bonds begin marketing.

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