Tag Archives: losses

World Bank pandemic bond under pressure as coronavirus spreads

By Karin Strohecker

LONDON (Reuters) – A World Bank bond designed to deliver funding to help the world’s poorest countries to tackle fast-spreading diseases has lost half its value as the coronavirus outbreak in China has fanned fears that investors could face hefty losses.

After the 2013-2016 Ebola outbreak that ravaged Sierra Leone, Guinea and Liberia and killed at least 11,300 people, the World Bank launched bond and insurance instruments under its Pandemic Emergency Financing umbrella in 2017 to establish a mechanism that would speedily deploy funds where needed.

However, the World Bank’s two so-called pandemic bonds came under scrutiny after the second-worst Ebola outbreak on record.

The 2018 epidemic in the Democratic Republic of Congo raged for about a year and killed more than 2,000 people, but it failed to trigger the release of funds to help affected countries.

The bonds, issued by the World Bank’s International Bank for Reconstruction and Development (IBRD), offer investors high coupons in return for the risk of having to forgo some or all their money in the event of pandemic outbreaks of a number of infectious diseases, with the funds channeled instead to countries in need of aid.

With the coronavirus outbreak having infected more than 74,000 people and claimed more than 2,000 lives, prices for the IBRD pandemic bond with the highest investment risk – the Class B notes – have come under increasing pressure.

PRICE SLIDE

Losses to investors depend on the number of deaths and geographical spread. In the most extreme case, a global outbreak – defined as more than 2,500 deaths across more than eight countries with a certain number of fatalities in each country – will wipe out the bondholder’s entire investment.

Offer prices quoted by one broker have slipped as low as 45 cents in the dollar, while another is quoting 62.5 cents, market sources said. In the midst of the 2018 Ebola outbreak the bond traded at a little more than 70 cents.

“The market is clearly starting to price in a chance that the tranche most at risk could be affected,” said an investor who holds some of the World Bank’s pandemic debt.

“We all get the feeling that epidemics have become more and more frequent – we had SARS and Ebola and swine flu all within a short space of time.”

The bonds issued by the IBRD are not only aimed at providing relief for outbreaks of coronavirus or Ebola, but also for pandemics caused by infectious diseases such as Marburg, Crimean-Congo hemorrhagic fever or Lassa fever.

Both of the bonds are often closely held and largely illiquid. Filings show that the riskiest of the two <XS164110150=>, maturing on June 15, is held by asset managers including Baillie Gifford, Amundi and Oppenheimer.

The second of the bonds – a $225 million issue <XS164110117=> – is also exposed to a coronavirus outbreak but considered less at risk because its different trigger criteria means bondholders face a loss of 16.7%.

UNDER FIRE

For all the good intentions and the prospect that a payout to poor countries might be on the cards, the bonds remain under fire for failing to deliver sufficient or timely aid.

One point of contention is the length of time before a payout is triggered. In the case of a coronavirus outbreak for the Class B notes, this is 84 days from when the World Health Organization (WHO) publishes its first “situation report”. In the current outbreak, that would be in mid-April.

Think tanks and some policymakers say the focus should be on shoring up healthcare systems and early detection facilities in vulnerable parts of the world that are already overburdened with cases of Ebola, measles, malaria and other deadly diseases.

“The money for these bonds could have been better spent in providing the WHO with funds or help strengthen healthcare provisions in poor countries at risk,” said Bodo Ellmers, director of sustainable development finance at Global Policy Forum, an independent policy watchdog.

“It was an ideology-driven idea to get the private sector involved in humanitarian and emergency finance – and I think we have to say this has failed.”

The World Bank declined to comment.

(Reporting by Karin Strohecker; Editing by David Goodman)

Uncovered losses hurt U.S. small business in wake of 2017 storms: Fed

FILE PHOTO: The corner stone of the New York Federal Reserve Bank is seen surrounded by financial institutions in New York City, New York, U.S., March 25, 2015. REUTERS/Brendan McDermid/File Photo

By Reade Levinson

(Reuters) – Small businesses in the United States struggled with uninsured damages and lost revenue following a record-breaking year of hurricanes and wildfires, according to a Federal Reserve survey published on Tuesday.

The report by the Dallas, New York, Richmond, and San Francisco Fed banks examined 1,800 businesses with fewer than 500 employees in zip codes with disasters designated by the Federal Emergency Management Agency. It found, 40 percent of small firms in these areas had natural-disaster related losses, and 35 percent lost more than $25,000 in revenues.

The report paints a worrisome picture for local economies after a record-breaking year of weather and climate-related disasters that cost the United States an estimated $306 billion in 2017, the third-warmest year on record, according to the U.S. National Oceanic and Atmospheric Administration.

To see the report,  click here  .

“Small businesses are primary drivers of job growth and their ability to rebound from disasters is critical to regional economic recovery,” said Claire Kramer Mills, assistant vice president at the New York Fed.

Small businesses employ half of private-sector workers and are the primary creators of new jobs in the United States, according to a 2015 U.S. Census Bureau study.

The survey found last year’s storms hit minority communities particularly hard. Some 54 percent of Hispanic-owned firms in affected areas reported natural disaster-related losses, compared to 40 percent of White-owned firms and 35 percent of Black or African American-owned firms.

The storms hit lodging and retail businesses hardest. Some 52 percent of leisure and hospitality firms and 47 percent of retail firms in affected areas reported natural disaster-related losses, the highest shares of all industries.

Small and young businesses are especially vulnerable to extreme weather and other natural disasters compared to their larger counterparts. Financing options are limited: federal relief funds can take months to reach communities and few small business are insured against such storms.

The report found firms’ insurance holdings did not match the sources of their losses, which stemmed more from disrupted business than from damaged assets. Sixty-five percent of disaster-affected firms cited loss of power or utilities as the source of their losses. However, only 17 percent of affected firms had business disruption insurance at the time of the disaster.

Federal Reserve Bank officials who worked on the report said local governments can help bridge this insurance gap by helping business understand their vulnerabilities and purchase the relevant coverage beforehand.

(Reporting by Reade Levinson in New York; Editing by Lisa Shumaker and Nick Zieminski)