International Bank for Reconstruction and Development Issues $1.36 Billion in Five Classes of Earthquake Catastrophe Bonds

February 7, 2018

S&C client International Bank for Reconstruction and Development (part of the World Bank Group) (IBRD) successfully issued five classes of earthquake catastrophe bonds, with an aggregate principal amount of $1.36 billion, under its Global Debt Issuance Facility. Each class of bonds (in conjunction with one or more risk transfer agreements) is designed to provide a country with protection against financial losses from earthquakes—two classes for Mexico, and one class each for Chile, Colombia and Peru. In the event of an earthquake that meets the parametric trigger conditions with respect to any class of the bonds, the principal amount of that class will be reduced, and an amount equal to such principal reduction will be made available to the government of the relevant country or, in the case of Mexico, to the Fund for Natural Disasters, a federal administrative trust intended to aid populations adversely affected by natural disasters (FONDEN), via country-specific risk-transfer arrangements.

The issuance is the largest sovereign risk insurance transaction to date and the second-largest issuance in the history of the catastrophe bond market. It is the first time that Chile, Colombia and Peru have, directly or indirectly, accessed the capital markets to obtain insurance for natural disasters. This issuance also marks IBRD's largest catastrophe bond transaction to date and brings the total amount of catastrophe bond transactions facilitated by IBRD to nearly $4 billion. S&C represented IBRD in each of its prior catastrophe bond offerings, including the August 2017 offering of catastrophe bonds designed to provide Mexico with protection against financial losses from earthquakes, Atlantic-named storms and Pacific-named storms, and the July 2017 offering of catastrophe bonds linked to pandemics triggered by specified viruses.

The S&C team was led by Dennis Sullivan, along with Paul McElroy, Mark Ma and Manon Scales. Jeffrey Hochberg and Michael Hogan advised on tax matters, Precious Nwankwo advised on ERISA matters and Kirsten Rodger advised on matters of European law.