By Sarah Mortimer
July 15 New York's Metropolitan Transportation
Authority (MTA), the biggest transportation network in North
America, is selling a $125 million "catastrophe" bond designed
to cover the costs of damage from a future storm or hurricane,
investors said on Monday.
The MTA, which suffered a $5 billion hit from Hurricane
Sandy in October 2012, will be able to offload the risk of
incurring similar storm-related losses to investors, who will
receive a yield in return for agreeing to pick up future repair
New York is preparing for an increase in severe weather
after Sandy caused more than $30 billion of damage in the state.
The city has just announced a $20 billion infrastructure plan to
boost its storm defences, and the state now includes a warning
about severe weather threats in its bond prospectuses.
The MTA bond will be issued by First Mutual Transportation
Assurance Co, a so-called captive insurer, or insurance company
that the MTA set up to sell similar financial instruments to
The MTA, which operates New York City's subway and bus
system, area bridges and tunnels and commuter railroads,
declined to comment, citing legal reasons. Marketing for the
deal is believed to be ongoing.
First Mutual will sell the cat bond through a Bermuda-based
vehicle called MetroCat Re Ltd, which transfers all potential
losses to capital market investors. Investors receive a high
rate of interest but risk losing all or part of their money if a
Standard & Poor's assigned a BB- rating to the notes to be
issued by MetroCat Re 2013 Ltd, the credit rating agency said in
a report issued on Friday.
A 2010 examination of First Mutual conducted by New York
regulators indicated that it had about $1 billion in reinsurance
lined up for property claims. But once that money runs out,
someone else has to step in.
After Hurricane Sandy, the MTA took on short-term debt and
squeezed its already-tight budget to pay for nearly $4.8 billion
of repairs to its infrastructure. It also posted $268 million in
Cat bond sales are expected to hit record levels by the end
of 2013 - at least matching the market record of $7 billion,
according to brokers and reinsurers.
The sector has seen an estimated $4.36 billion of issuance
so far in 2013, according to the Willis Capital Markets and
Advisory, the capital markets arm of reinsurance broker Willis