#323
Pandemic Bonds
Published:
Feb 15, 2020
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After the Ebola epidemic in 2017, the World Bank issued $320m worth of pandemic bonds to fund the relief efforts. The bonds paid out high-interest rates to investors, but holders of the instrument could lose all their money if there was a pandemic. Once triggered, the money would go to the World Bank.
Investors initially thought it was an attractive investment, as the FT calculated the riskier tranche, activated with only 250 deaths, paid 11.5% over Libor and had an “expected loss” of only 7.7%. The less risky tranche which required 2,500 deaths, only paid 6.9% over Libor, compared with an expected loss of 3.6%.
Now, with the Coronavirus claiming over 1,300 lives since the end of 2019, the bonds are on the edge of default. According to the World Bank, the funds can only be released for non-flu epidemics 12 weeks after the "start of the event," leaving funds locked up until late March.
We are likely to see more pandemic bonds, despite questions to its efficacy. As insurance people will tell you: nothing is uninsurable, you just need more data.
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Pandemic Bonds
Catastrophes and correlations - The problem with a global pandemic bond for financial investors is that it's correlated, as the market goes down so do the value of the bonds. “Catastrophe bonds" for hurricanes and earthquakes are uncorrelated. Read more
Coronavirus strikes World Bank’s 2017 catastrophe bonds - The World Bank launched a $320m catastrophe bond issue in 2017 to back its Pandemic Emergency Financing Facility. Originally scheduled to mature in July this year, they are teetering on the edge of default because of Coronavirus. Read more
Pandemic stress-tests China’s fragile financial system - The central bank has slashed money-market lending rates, and banks have been told to extend the terms of loans. Pessimists say the crisis could be the catalyst for a long-awaited collapse of the country's over-indebted financial markets. Read more
Industry News
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Select Financings
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Elliptic - London based cryptocurrency monitoring startup has raised an additional $5m from Wells Fargo Strategic Capital, bringing the size of its Series B to a total of $28m. Read more
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iDonate - Texas based digital giving software raised $8.7m in Series B funding led by PerformanceEdge Partners. Read more
Liwwa - Jordan based SME lending marketplace raised $6m in equity funding led by Dutch Entrepreneurial Development Bank FMO. Read more
Nova Credit - San Francisco based cross-border credit reporting platform raised $50m in Series B funding led by Kleiner Perkins. Read more
Ramp - New York based corporate credit card provider has raised $25m in Series A funding led by Founders Fund. Read more
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