The first catastrophe bond for Jamaica, which as we were first to report ten days ago launched as a $175 million IBRD CAR 130 transaction with the support of the World Bank, is now said by our sources to have a chance of closing a little larger, at $185 million in size.
The $175 million or greater catastrophe bond seeks a capital markets backed source of named tropical storm and hurricane disaster insurance protection for the government of Jamaica, on a parametric trigger basis.
As we’d also reported recently, important grant agreements had been signed and as a result the first catastrophe bond for Jamaica was expected imminently.
That proved correct, when our sources told us the deal had been launched to investors ten days ago and we reported on the structure being offered and the protection it will afford to Jamaica’s government.
As a reminder, the World Bank is set to issue the catastrophe bond on behalf of the Caribbean country, through the International Bank for Reconstruction and Development’s (IBRD) Global Debt Issuance Facility.
The cat bond issuance is taking place via the World Bank’s IBRD Capital-At-Risk Notes program and a single class of notes will be issued and sold to ILS investors, in order to collateralize an underlying swap, or risk transfer, agreement that provides the resulting disaster insurance protection to the Government of Jamaica.
So, the World Bank’s IBRD is the issuer of the catastrophe bonds, while the Government of Jamaica will be the beneficiary of an underlying catastrophe risk transfer agreement between it and the Bank that facilitates the disaster insurance protection.
The series 130 Capital-At-Risk notes set to be issued and sold to investors will cover losses from named storms on a per-occurrence basis, so tropical storms and hurricanes, that have a sufficiently low minimum central pressure and breach a parametric box structure.
The named storm and hurricane protection will run across almost three hurricane seasons, with the notes maturity set for December 2023.
The trigger is designed such that the structure will have a linear sliding scale of payout amounts, with the minimum payout being 30% of the cat bond’s principal, running up to a full 100% payout.
At launch, the single tranche of notes were sized at $175 million, with an initial expected loss of 1.52% and the notes were offered to investors with coupon price guidance in a range from 3.75% to 4.5%.
But now, sources told us that the deal is being marketed to target up to $185 million of protection for Jamaica, while the coupon guidance has been narrowed to a 4.4% to 4.5% risk margin, so at or near the upper-end of guidance.
As we’d said before, this transaction is being marketed as a sustainable development bond offering, which perhaps surprisingly does not seem to have raised demand too much.
But then, with hurricane season underway and Jamaica actually having been closely passed by one storm already, it’s perhaps no surprise cat bond investors are a little conservative in their response to this deal, given the timing and the forecasts for an active hurricane season.
We will update you once the transactions’ final size and pricing is known.