Kibou Ltd. (Series 2012-1)

This cat bond is being sponsored by Hannover Re on behalf of their Japanese reinsured beneficiary to the deal, Zenkyoren.

The transaction is being issued by a Caymans Island SPV called Kibou Ltd. which is seeking to issue a single tranche of Series 2012-1 notes exposed to Japanese earthquake risks on a per-occurrence basis.

Kibou Ltd. has been established as a program which will allow for further future cat bond tranches to be issued if desired.

In this transaction $150m of notes will be issued in a single tranche of Series 2012-1 Class A notes. The notes are designed to provide fully collateralized multiyear protection to Hannover Re, and ultimately their reinsured Zenkyoren, on a per occurrence basis. A paremtric index based trigger will be used to measure events against the cat bond using data from Japanese earthquake monitoring network K-Net.

The Kibou Ltd. Series 2012-1 cat bond notes provide protection for earthquake losses above an event index value of 1050 and below an event index value of 1150. A dropdown feature means that if a first event reaches an index value of 270 or greater then the notes will provide coverage for any subsequent events in excess of an event index value of 490 and below a value of 590.

Kibou Ltd. has been specifically structured to be tailored to provide more remote earthquake protection initially.

Additionally, if a qualifying earthquake event happens, the protection will adjust with a higher risk profile. In return for this increased drop-down based cover, investors will receive an increased coupon post-drop-down relative to the initial coupon that the notes pay. The initial coupon paid is Treasury money market funds plus 5%, after a drop-down event that changes to plus 9%. That’s an interesting feature as it should keep investors interest in the bond high even if a first event qualifies.

The deal also allows for a new risk model to be used after a reset if the new model increases the expected loss by more than 10%. An event index value will be calculated using peak ground acceleration data from the Kyoshin K-Net network of earthquake monitoring stations. Tsunami losses are not covered under the terms of the deal.

Update: This deal is likely to upsize before close as it is now targeting between $200m and $300m of cover for Zenkyoren.

Update 2: This deal did upsize as expected to $300m in size.