International Bank for Reconstruction and Development Issues $360 Million in “Catastrophe Bonds”

August 4, 2017

S&C client International Bank for Reconstruction and Development (part of the World Bank Group) (IBRD) successfully issued three classes of floating rate catastrophe-linked capital at risk notes under its Global Debt Issuance Facility, with an aggregate nominal amount of $360 million across the three classes. The three classes of notes were designed to provide Mexico with protection against financial losses from earthquakes, Atlantic named storms and Pacific named storms, respectively. In the event of a natural catastrophe that triggers the parametric coverage, the principal amount of the relevant class of bonds will be reduced, and an amount equal to the principal reduction will be made available to the Fund for Natural Disasters, a Mexican federal administrative trust intended to aid populations adversely affected by natural disasters (FONDEN) via a series of risk-transfer agreements between IBRD, Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (Munich Re), one of the world's largest reinsurers, Agroasemex S.A., a Mexican Federal Government insurance company, and FONDEN.

Based on press reports, it appears that the earthquake-related notes will suffer a full loss of their $150 million principal amount as a result of the earthquake experienced by Mexico on September 7.

The S&C team was led by Dennis Sullivan, along with Paul McElroy, Mark Ma and Manon Scales. William Torchiana, Marion Leydier and Roderick Gilman advised on insurance matters. Jeffrey Hochberg and Michael Hogan advised on tax matters.