The World Bank has launched specialised bonds aimed at providing financial support to the Pandemic Emergency Financing Facility (PEF), the insurance mechanism it introduced a year ago to rapidly disburse funding to developing countries facing pandemic risks.
This marks the first time that World Bank bonds are being used to finance efforts against infectious diseases, and the first time that pandemic risk in low-income countries is being transferred to the financial markets. The PEF is to provide more than US$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, which enables the PEF to potentially save millions of lives, was positively received, being oversubscribed by 200%. With such strong demand, the World Bank said it 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.
The bonds and derivatives for the PEF’s “insurance” window were developed by the World Bank Treasury, in cooperation with Swiss Re and Munich Re. AIR Worldwide was the sole modeller, using the AIR Pandemic Model to provide expert risk analysis. Swiss Re Capital Markets is the sole book runner for the transaction. Swiss Re Capital Markets and Munich Re are the joint structuring agents. Munich Re and GC Securities, a division of MMC Securities LLC are co-managers. Swiss Re Capital Markets Limited, Munich Re and GC Securities were also joint arrangers on the derivatives transactions.
Covering six viruses
The World Bank announced the creation of the PEF in May 2016 at the G7 Finance Ministers and Central Governors meeting in Sendai, Japan. The PEF will quickly channel funding to countries facing a major disease outbreak with pandemic potential, covering six viruses that are most likely to cause a pandemic. These include new Orthomyxoviruses (new influenza pandemic virus A), Coronaviridae (SARS, MERS), Filoviridae (Ebola, Marburg) and other zoonotic diseases (Crimean Congo, Rift Valley, Lassa fever).
PEF financing to eligible countries will be triggered when an outbreak reaches predetermined levels of contagion, including number of deaths; the speed of the spread of the disease; and whether the disease crosses international borders. The determinations for the trigger are made based on publicly available data as reported by the World Health Organisation (WHO). A