MTA Bond Tied to Storm Surge a Big Hit

Catastrophe Bond Grows 60 Percent

Friday, July 26, 2013 - 02:51 PM

sandy, montague, greenpoint, tunnel, tube, mta, subway Damaged components on display at the June MTA board meeting (Kate Hinds)

Investors are betting against another Sandy-sized storm hitting New York City. The first ever bond tied to storm surge levels around New York city generated so much market interest that the bond has grown by 60%.

The MTA first marketed the bond to investors its preliminary size was $125-million. That’s what MTA wanted in protection from storm surge.

But investors were so interested in getting in on the bond, the MTA increased the size, to $200m, so the transaction will provide $200m of reinsurance and pay-out $200m if triggered by a high water mark. 

The MTA first marketed the bond to investors earlier this month. Its preliminary size was $125-million. But investors were so interested in getting in on the bond, the MTA increased its size to $200-million.

If storm surge levels go above the stated water levels during a named storm, the investors will have to pay that amount to the MTA. If there's no storm event, the MTA is on the hook to give the investors a return of about 4.5% on the bonds.

"Investors feel that the return the notes offer is worth it for the level of risk," said Steve Evans, owner of the online reinsurance site Artemis.

"They feel that they will be compensated sufficiently to make it worth assuming the risk of the waters breaching the trigger levels."

The bond was the first of its kind tied to water levels, and the first ever floated by a transit organization. The MTA was out about $5-billion from Sandy.

The MTA won't comment on the bond.




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Comments [1]

TOM from Brooklyn


Jul. 29 2013 10:25 AM

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