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Philippines cat bond marked down for total loss after typhoon Noru


The notes associated with the remaining $97.5 million of principal from the Philippines governments World Bank issued IBRD CAR 123-124 catastrophe bond that is exposed to tropical cyclones have now been marked down implying a total loss is expected by the market after super typhoon Noru, Artemis has learned.

super-typhoon-noru-2022As we reported earlier this week, the Bureau of the Treasury of the Republic of the Philippines issued a notice to request its World Bank issued catastrophe bond undergo another event calculation process following super typhoon Noru.

We’d already seen two cat bond fund managers say that the severity of typhoon Noru, known locally in the Philippines as typhoon Karding, implied holders of the cat bond might face another loss of principal after the storm.

Now, we’ve seen a number of secondary market cat bond pricing sheets that have all slashed the bid pricing on the outstanding $97.5 million of notes exposed to Philippines storms to almost zero.

Which means the market is implying a loss of the full $97.5 million as the likely outcome, although it’s important to note that being a modelled loss trigger, the actual fate of this cat bond won’t be fully understood until the requested calculation report arrives in the coming weeks.

The remaining $97.5 million of notes from the Class B tropical cyclone exposed notes of the Philippines cat bond are marked down for bids of below 5 cents on the dollar across all sheets we’ve seen, as low as zero on one. Prior to typhoon Noru they were marked at just below par, in the high 90’s.

Meaning the cat bond broking desks suspect a loss of principal will be the final outcome after Noru and are expecting this will result in a 100% draw-down of the remaining $97.5 million.

As a reminder,the Philippines catastrophe bond has already paid out US $52.5 million from the cat bonds principal after typhoon Rai (Odette), a 35% payout from the at that stage $150 million of Class B cyclone risk exposed cat bond notes.

Following the typhoon Rai payout, the Philippines government still has $97.5 million in catastrophe bond principal outstanding to provide cyclone protection against future storms and it is this principal that is now at-risk from losses due to super typhoon Noru.

Depending on the calculated modelled loss amount, following any tropical cyclone event that is thought to have the potential to trigger the Class B notes (or earthquake for the Class A notes that are also still outstanding), the principal of a tranche can be reduced by 0%, 35%, 70%, or 100%.

So, it is the severity of a catastrophe that denotes how large a payout comes due, meaning we’ll need to wait for the final determination from risk modeller Verisk (AIR).

That will take some weeks and we’ll update you when we hear more on the fate of the Philippines tropical cyclone cat bond notes.

It’s important to also say, that as the cat bond broking desks can’t possibly know the output of the modelled loss calculation process yet, they are making a best-effort assessment of the possible ramifications of typhoon Noru for the cat bond notes. Therefore, it does remain possible the payout could be at a lower level than 100%.

But, at the moment, cat bond fund managers will likely mark these notes as if they are facing a 100% trigger event from super typhoon Noru, which would result in a full payout of the remaining $97.5 million to the Philippines government, to aid in the recovery from the storm’s impacts.

You can read all about the landmark Philippines catastrophe bond, the IBRD CAR 123-124 issuance, in our comprehensive catastrophe bond Deal Directory that features details on more than 850 cat bond transactions.

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