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World Bank issues cat bonds to provide Mexico $360M in financial protection

The World Bank Groups International Bank for Reconstruction and Development, or IBRD, said it issued catastrophe bonds which will provide $360 million in financial protection for Mexico against losses from tropical cyclones and earthquakes.

The bonds were issued in three different structures to provide coverage against three types of disasters: earthquakes, Atlantic tropical cyclones and Pacific tropical cyclones, the World Bank said. Annual bond coupons fall between 4.12% above the six-month U.S. dollar Libor benchmark to 8.92 percent above it, the bank said, depending on the bond class.

Two of the bond types mature Dec. 20, 2019 while the other one matures Aug. 11, 2020, all of which are subject to extension and to early mandatory redemption.

Bond proceeds will be made available to the Mexican Fund for Natural Disasters, or FONDEN, under the occurrence of a coverage-eligible natural disaster. The earthquake or tropical cyclone should meet the parametric criteria for location and severity set in the bond terms for the payouts to be made.

The payouts will be passed on by IBRD to FONDEN through the intermediation of German reinsurance Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft, or Munich Re, and Mexico-based insurance firm Agroasemex SA.

GC Securities, a division of MMC Securities LLC, is the sole book runner for the transaction.

GC Securities and Munich Re acted as joint structuring agents. GC Securities and Munich Re Capital Markets GmbH, a wholly owned affiliate of Munich Re, acted as joint managers.

The bonds were issued under IBRD's "capital at risk" notes program, created in 2014.