IBRD Funding Program

Capital at Risk Notes

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February 7, 2018

Facilitating the Largest Transfer of Sovereign Risk

  • The World Bank Capital at Risk Notes program facilitates risk transfer solutions for the World Bank and its clients using the capital markets. Under this program, the World Bank issues notes where some or all of the investors’ principal may be at risk, such as catastrophe bonds ('cat bonds'). Capital at Risk Notes are issued under the World Bank’s Global Debt Issuance Facility and receive the same tax and securities law exemptions, but they may not be assigned any security rating or may be assigned a lower security rating than the Facility. 

    Benefits to Investors

    • Potential Yield enhancement
    • Opportunity to include new perils and regions to diversify portfolios

    Examples of Capital at Risk Notes issues

    AmountCoupon or TypeLaunch 
    Date
    Maturity 
    Date
    Other Information

    USD 30 million

    6M LIB +6.3%
    (floored at 6.5%)

    6/30/14

    3/7/17

     

    Redemption Amount: The nominal amount reduced by all principal reductions as a result of applicable Caribbean tropical cyclone or earthquake events (as defined in the terms of the notes). ISIN US45905UPP39

     

     


In June 2017, the World Bank launched specialized bonds aimed at providing financial support to the Pandemic Emergency Financing Facility (PEF), a facility created by the World Bank to channel surge funding to developing countries facing the risk of a pandemic.

This was the first time that World Bank bonds were used to finance efforts against infectious diseases, and the first time that pandemic risk in low-income countries was transferred to the financial markets.

The PEF will provide more than $500 million to cover developing countries against the risk of pandemic outbreaks over the next five years, through a combination of bonds and derivatives priced today, a cash window, and future commitments from donor countries for additional coverage.

The transaction in June 2017, that enables PEF to potentially save millions of lives, was oversubscribed by 200% reflecting an overwhelmingly positive reception from investors and a high level of confidence in the new World Bank sponsored instrument. With such strong demand, the World Bank was able to price the transaction well below the original guidance from the market. The total amount of risk transferred to the market through the bonds and derivatives is $425 million.





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