The targeted maximum size for the catastrophe bond issuance that will transfer risk for the World Bank designed Pandemic Emergency Financing Facility (PEF) has dropped slightly to $350 million through the International Bank for Reconstruction and Development issued IBRD CAR 111-112 capital at risk notes.
Yesterday we reported that the targeted size had increased to as much as $400 million, as the World Bank supported pandemic cat bond issuance aimed to maximise the amount of coverage it could secure from the capital markets for the Pandemic Emergency Financing Facility (PEF).
The initial launch of this cat bond saw a $100 million preliminary target set for this IBRD debt issuance of two series of catastrophe-linked Capital At Risk notes (CAR Series 111 and CAR Series 112), which have been marketed to qualified investors and insurance-linked securities (ILS) specialists.
That target increased to a range of $175 million to as much as $400 million, as the issuers looked to capitalise on investor demand for the pandemic cat bond notes. At the same time the price guidance for both tranches of notes being issued had fallen to below the at-launch marketed range.
Now, the targeted size range has narrowed to $175 million up to $350 million, we understand, while the spread guidance has dropped even further, now sitting well below where the initial pricing had been mooted.
The Series 111 Class A tranche of notes had launched targeting at least $75 million of coverage linked to the outbreak of pandemic flu or coronavirus events, but that target increased to $150 million to $200 million of cover. We’re now told this Class A tranche is aiming for $150m to $250m of notes issued. On pricing, this tranche launched with price guidance of 7.25% to 8%, which then fell to 7% to 7.25%, but has now dropped even further to 6.9% to 7%.
The Series 112 Class B tranche aimed for $25 million of cover or greater initially, a target that rose to $25 million and $150 million. This tranche is now aiming for between $25m and $100m in size, we’re told. The initial price guidance was between 12.25% to 13%, which was then lowered and tightened to 11.75% to 12.25%, but has now dropped again and narrowed to 11.5% to 11.75% we understand.
The pricing for these notes is encouraging as it signals acceptance from the ILS and catastrophe bond investor community for the concept and structure of these pandemic risk linked notes.
That could allow the transaction to be added to in future, as the PEF increases in size and the facilities need for risk transfer increases.
This IBRD CAR 111-112 catastrophe bond transaction will provide parametric risk transfer to back the Pandemic Emergency Financing Facility (PEF), with any payouts linked to the occurrence of specific pandemics to provide the needed liquidity and capital to help stricken countries or regions in their response and recovery.
Any payout would be based on a parametric trigger for both tranches of notes, linked to World Health Organisation (WHO) reported deaths and cases from pandemics that hit the covered area, which for some perils is global, others a subset of countries. The coverage is per occurrence and will run for a three-year term.
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