New York subway buys $125mn cat bond
Nine months after the devastation inflicted by Superstorm Sandy, the New York Metropolitan Transportation Authority (MTA) is gearing up to issue the first cat bond to cover storm surge.
GC Securities and Goldman Sachs are advising on Metrocat Re, which is looking to raise $125mn.
MTA subsidiary First Mutual Transportation Assurance will be the beneficiary of the three-year deal, which carries a parametric trigger based on storm surge levels recorded in various areas of New York, including the Bronx and Queens.
The Metrocat bond is heavily weighted towards Battery Park, which forms part of three districts in the cover's zone A area, alongside Sandy Hook and Rockaway Inlet. Zone B comprises Kings Point and East Creek.
The binary Metrocat deal would trigger in full if the index value for zone A is above 8.5 feet or if the index value for zone B is above 15.5 feet.
RMS has provided modelling on the transaction using its updated Version 13 product.
Metrocat Re has a sensitivity-case expected loss of 1.71 percent and initial pricing guidance has been set at 500-550 basis points above the benchmark Treasury Money Market rates.
Hurricane Sandy is the only historic event that would have triggered the bond.
The MTA estimated that Sandy would cost the organisation $5bn in total damages. It is expected to claim back the bulk of its $1.075bn insurance cover from insurers. However, it is understood that the programme's top layer, which pays out on losses above $800mn, did not include flood cover.
Standard & Poor's has given the deal a preliminary rating of BB-.