Pylon Ltd.

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Pylon Ltd. – At a glance:

  • Issuer: Pylon Ltd.
  • Cedent / sponsor: Electricité de France (EDF)
  • Placement / structuring agent/s: Arranged by CDC IXIS Capital Markets and placed jointly with Swiss Re Capital Markets.
  • Risk modelling / calculation agents etc: RMS
  • Risks / perils covered: European windstorm
  • Size: $228m
  • Trigger type: Parametric index
  • Ratings: S&P: Class A - 'BBB+', Class B - 'BB+'
  • Date of issue: Dec 2003
  • Artemis.bm news coverage: Articles discussing Pylon Ltd. from Artemis.bm

Pylon Ltd. – Full details:

The Pylon Ltd securitization covers damage from windstorm for major European electricity supplier, Electricité de France.

This innovative securitization is the first for a European corporate and the first such deal worldwide to cover transmission and distribution (T&D) risk.

RMS created a parametric index for the Pylon Ltd transaction. The index is based on recorded windspeeds, and is weighted to match the regional variations in vulnerability to wind-related damage for the protected network.

The bond uses a parametric trigger, meaning that the bond’s payout will not match EdF’s exposure or losses exactly. Instead, it is triggered when wind speeds across France exceed certain levels according to the index. The index is weighted to reflect EdF’s exposure across the country. The index is weighted most heavily towards the south-west of the country and is based on data provided by Météo-France, the French meteorological office.

This €190m (US$228m) five-year deal has two tranches. The first, worth Eu120m, will pay out the first time the index is triggered. Investors will then lose their capital according to a sliding scale depending on the severity of the storms. This tranche is rated Ba1 by Moody’s, BB+ by Standard & Poor’s (S&P) and has an expected loss of 54 basis points (bp). A second Eu70m tranche will only pay out if the first tranche has already been triggered, its capital exhausted and a second event occurs during the five years the bonds are outstanding. This tranche is rated A2 by Moody’s, BBB+ by S&P and has an expected loss of 2bp.
This is the first catastrophe bond to be issued in euros alone.

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