'Pandemic bond' investors face big losses due to the coronavirus outbreak
Stock markets have been very volatile since the outbreak rapidly gained pace this month, with the Dow having its worst decline on Monday since the "Black Monday" crash 30 years ago.
Interest payments: Class A dishes out interest payments of 6.5% plus 6-month U.S. dollar Libor rate. Class B pays out 11.10% plus 6-month U.S. dollar Libor rate. These interest payments are funded by donor countries including Japan and Germany. If that payout is triggered, that's when investors stand to lose their money. For investors of Class A notes, that loss is 16.67% of their principal amount, while those invested in Class B notes stand to lose everything.
"Similar to other catastrophe bonds, defining parametric triggers is not an easy task and IBRD pandemic bonds are no exception," said DBRS Morningstar, pointing to its 400-page prospectus. "Another objection from public health experts is that pandemic bonds are not designed to help poor countries prevent an outbreak as funding might be available too late."
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