IBRD CAR 120

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IBRD CAR 120 – At a glance:

  • Issuer: IBRD CAR 120
  • Cedent / sponsor: Republic of Peru
  • Placement / structuring agent/s: Swiss Re Capital Markets and Aon Securities are joint structuring agents and joint bookrunners. Citigroup are joint bookrunner.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: Peru earthquake
  • Size: $200m
  • Trigger type: Parametric
  • Ratings: NR
  • Date of issue: Feb 2018

IBRD CAR 120 – Full details:

This is the first catastrophe bond issuance that will provide insurance protection to the Republic of Peru. It was issued as part of a multi-country cat bond offering from issuer the World Bank’s International Bank for Reconstruction and Development, featuring five tranches as IBRD CAR’s 116, 117, 118, 119, 120, covering the four Pacific Alliance countries (Chile, Colombia, Mexico, Peru) against earthquake losses on a parametric basis.

This Peru earthquake cat bond is being issued through the International Bank for Reconstruction and Development (IBRD) global debt facility, while the beneciciary of the parametric insurance coverage is the Republic of Peru.

The IBRD will issue one series of catastrophe-linked Capital At Risk notes (CAR Series 120) through its debt issuance facility, which will be sold to qualified investors and insurance-linked securities (ILS) specialists, to provide the reinsurance capital to back the earthquake protection. The IBRD will enter into a risk transfer agreement directly with the Republic of Peru.

The issuance is preliminarily sized at $175 million of coverage for the Republic of Peru, which on a parametric basis would be a sizeable source of disaster recovery financing should any qualifying major earthquakes occcur.

The single tranche of IBRD Peru earthquake-linked capital-at-risk notes will provide the Republic of Peru with per-occurrence protection across a three year period, with maturity scheduled for February 2021.

The $175m of IBRD Peru earthquake-linked capital-at-risk Series 120 Class A notes have a modelled attachment probability of 7.14%, a modelled expected loss of 5% and are being offered to investors with a risk margin (effective coupon) of between 7% and 7.75%, we understand.

The earthquake-linked notes can be triggered with a range of payout amounts, set at 30%, 70% or 100% of principal, depending on various parameters associated with an earthquake event, including the magnitude, epicenter location, depth etc.

Update 1:

Finally, the IBRD CAR 120 offering of Peru earthquake linked notes, that will directly protect the Republic of Peru, launched seeking $175 million of risk transfer capacity, but are now targeting $200 million, we’re told. The pricing for the Peru earthquake cat bond tranche was launched at 7% and 7.75%, but again the pricing has dropped to a range of 6% to 7%.

Update 2:

This series of Peruvian earthquake cat bond notes priced at $200 million in size and with the coupon equivalent risk margin at the low-end of already reduced guidance, at 6%.

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