Janet Babin, Host, WNYC News
Janet Babin is a host and reporter at WNYC.
In the first move of its kind by any U.S. transit agency, New York's MTA is is selling a "catastrophe bond" to investors so that it gets paid if there’s a Sandy-style storm over the next 3 years.
The MTA suffered $5 billion worth of damage during Sandy. And although the authority was able to get almost all lines running within a week, salt water so degraded some of its tunnels and signals that one tunnel is slated to be shut down for more than a year for repairs.
Now, the MTA is getting creative in financing another potential catastrophe -- it's offering high-interest bonds that will pay out to investors only if there isn't another Sandy.
The bond is tied to storm surge at Battery Park, Sandy Hook, Rockaway Inlet, East Creak and Kings Point. If the water gets above a certain level, investors will have to pay out. The bond will help the MTA to manage its flooding risk over the next 3 years.
This is the first time a transit organization has sold a bond linked to flooding, and it’s thought to be the first catastrophe bond tied to storm surge.
“It’s very creative,” said Frank Nutter, President of the Reinsurance Association of America.
If there is a flood event from a named storm that reaches a certain level, investors in the MTA bond will have to pay 100-percent of their principal to the MTA.
In exchange, the investors get a bond that’s disconnected from the stock market and the general economy.
The MTA isn’t commenting on the bond while it’s for sale.