Cutting credit

Catastrophe Bonds

p37-manning-jpg

Confidence is returning to the catastrophe bond market. A set of structural enhancements and measures to increase transparency have alleviated investor concerns and led to strong primary issuance. Those concerns had centred on the bankruptcy of Lehman Brothers, which exposed weaknesses in the total return swap (TRS) counterparty and collateral arrangements. Bonds that included Lehman as a counterparty in a TRS suffered downgrades as they failed to meet interest and principal repayments. If th