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Owner of Tokyo Disneyland Sells Quake Bonds

<i> From Bloomberg News</i>

Oriental Land Co., the Japanese owner and operator of Tokyo Disneyland, sold $200 million of bonds to help insure the company against the risk that an earthquake could damage its theme park.

The sale is the first catastrophe-related bond by a company outside the insurance industry, investors and analysts said. Other companies may seek to sell similar bonds to reduce their exposure to losses from earthquakes or industrial accidents such as oil spills.

“The applications are fairly broad for those companies that have large concentrations of value at risk,” said Andy Kaiser, managing director and head of risk markets at Goldman, Sachs & Co., which managed the sale, in New York. Oriental Land sold the bonds to a broad range of investors, including mutual funds, banks and hedge funds, he said.

Insurers pioneered the market in catastrophe bonds and have sold $4 billion of securities to reduce their exposure to losses from the most expensive disasters, such as earthquakes and hurricanes in densely populated areas. Securities firms hope the market will grow faster in coming years as insurers turn to the capital markets to balance their risks.

The Oriental Land securities also help protect against the risk that the company could have difficulty borrowing after a severe earthquake. Previous catastrophe bonds protected against either disaster losses or the risk that borrowing would be difficult, though not both.

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The Oriental Land bonds were split evenly between two classes. The first will pay 3.1 percentage points over the six-month London Interbank Offered Rate, or LIBOR, if a strong quake doesn’t occur in the next five years.

If a quake strikes, Oriental Land will receive a payment of as much as $100 million, depending on the severity of the quake and its proximity. That money will come from investors in the first bond class, who risk losing some or all of their principal and interest.

For Oriental Land to receive money, a quake within 6.2 miles of the park must register a minimum 6.5 on the Japan Meteorological Agency’s quake scale. A quake within 31 miles must top 7.1, and within 46.6 miles the minimum is 7.6.

The notes, issued through Cayman Islands-based Concentric Ltd., were rated Ba1 by Moody’s Investors Service Inc. and BB+ by Standard & Poor’s Corp. and Duff & Phelps Credit Rating Co.

Proceeds from the second bond class will provide emergency financing.

The five-year notes pay 0.75 percentage points over the six-month LIBOR, and their maturity may be extended to eight years if triggered by an earthquake.

The notes were rated A by Standard & Poor’s and Duff & Phelps.

Cayman Islands-based Circle Maihama Ltd. sold the securities and will be committed to buy a $100-million five-year bond from Oriental Land if a large quake occurs.


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