New York’s MTA Obtains $200M of Protection With Catastrophe Bonds

August 1, 2013

The Metropolitan Transportation Authority, which suffered $4.8 billion in damage from Superstorm Sandy last year, obtained $200 million of protection with bonds designed to guard against wreckage linked to storm surges.

A Nov. 5, 2012, file photo of MTA employees using a pump train to pump seawater out of the L train's tunnel under the East River. Credit: MTA of the State of New York/Wikimedia
New York City’s subway operator is paying less than the cost of traditional property coverage by buying protection from MetroCat Re Ltd., a Bermuda-based special-purpose insurer that issued the three-year securities, the MTA said in a statement on July 31.

The bonds yield 4.5 percentage points more than three-month Treasury bills, according to data compiled by Bloomberg.

After Sandy struck New York on Oct. 29, triggering a tidal surge that inundated rail stations and tunnels, it became “exceedingly difficult for the MTA to obtain insurance,” Thomas Prendergast, chairman and chief executive officer of the authority, said in the statement. “But as a result of this savvy and novel reinsurance arrangement, we are now in a stronger position should our area, God forbid, face another large-scale storm-surge event within the next three years.”

Bond investors would stand to lose money on the notes, rated BB- at Standard & Poor’s, if future storm surges exceed certain thresholds that Sandy would have breached, triggering payments to the MTA’s First Mutual Transportation Assurance Co., according to a July 12 report from S&P analyst Gary Martucci.

–Editors: Alan Goldstein, Mitchell Martin

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