Zurich Emerging Markets Solutions (ZEMS), the political risk and trade credit insurance unit of Zurich North America, has structured an insurance policy to facilitate a capital markets transaction in Brazil for Unibanco. ZEMS provided political risk insurance to support a US$200mn, 10-year bond issue for Brazil’s third largest private sector bank.
The Unibanco issue represented ZEMS second capital markets transaction in Brazil in 2003. Earlier in the year, it provided political risk insurance coverage for a successful bond issue by AmBev, Brazil’s largest beverage company.
According to Daniel Riordan, executive vice-president and managing director of ZEMS, “Political risk insurance coverage is a key component of capital markets transactions that investors in emerging markets are increasingly utilising to safeguard their transactions. This transaction continues to demonstrate the growing acceptance of PRI, especially at this time of investor interest in this region, in obtaining investment grade or above ratings, as well as our market leadership in this area.”
The Unibanco bond was rated by Moody’s at Baa1, well above Moody’s B2 foreign currency rating for Brazil. Citibank was the transaction’s lead arranger. Willis, out of New York, was the insurance broker.
The ZEMS policy protects against certain political risks, including currency inconvertibility and expropriation of funds. The policy provides coverage for up to one year of bond interest payments. A reserve fund was established at closing that contains an amount equal to six months of additional interest. The reserve fund and the PRI policy combine to provide a total of 18 months of protection against political risk events.
Unibanco is Brazil’s oldest private sector bank and ranks third in terms of Brazilian GAAP assets, loans, deposits and stockholders” equity. Its business comprises retail and wholesale banking, insurance and wealth management.