LADWP now targets $100m wildfire protection at lower pricing with 123 Lights Re cat bond

The Los Angeles Department of Water and Power (LADWP), the largest municipal utility operating in the United States, has scaled back its latest catastrophe bond issuance, with the company now targeting $100 million of wildfire protection from its 123 Lights Re Ltd. (Series 2025-1) deal, down from earlier guidance of up to $150 million, Artemis has learned.

At the same time, we understand that the price guidance for the 123 Lights Re cat bond notes has fallen to the bottom end of the initial range.

The LADWP first ventured into the cat bond market in 2020 to secure $50 million of cover from a Power Protective Re Ltd. (Series 2020-1) deal, a transaction that utilised a parametric trigger.

The utility then returned to the market in 2021, securing $30 million of wildfire protection with a Power Protective Re Ltd. (Series 2021-1) issuance, a transaction that utilised an indemnity trigger.

Read about all of the LADWP’s catastrophe bonds in our extensive Deal Directory.

Then just last month, the utility returned to the cat bond market for its third time, with the company initially looking to secure between $100 million and $150 million of wildfire protection.

Now, we’re told that the target size has been revised to just $100 million, so the low-end of the utility’s original target.

As we’ve previously explained, for its third catastrophe bond sponsorship, the LADWP’s new 123 Lights Re Ltd. transaction will feature a different trigger arrangement, this time using a county-weighted industry loss index trigger.

Just like its previous two cat bonds, the municipal utility is again looking to secure catastrophe insurance for wildfire risks in the region of California where it operates, as its infrastructure is exposed to wildfires.

As we’ve highlighted with its previous deals, the LADWP’s infrastructure could also ignite wildfires, so we assume there is an element of wildfire liability protection as one of the driving motives for this third visit to the catastrophe bond market.

This cat bond will provide the LADWP with coverage on a county-weighted industry loss index basis for wildfire events in the state of California over a roughly three year term until the end of August 2028.

The now $100 million in Series 2025-1 notes that are being offered by Bermuda based company 123 Lights Re Ltd, come with an initial modelled attachment point of 2.76%, and an initial modelled expected loss of 2.02%.

The notes were first offered to cat bond investors with price guidance for an initial risk interest spread of between 11% and 12%, but we are now told that the guidance has been revised to 11%, so the bottom-end of the initial range.

This update suggests that the LADWP is prioritising price over size with its third catastrophe bond issuance, looking for strong execution in the market.

It’s important to note that the deal is not finalised yet, and it could still grow again, however that tends to be a rarer occurrence after a cat bond deal has been updated.

As a reminder, you can read all about this 123 Lights Re Ltd. (Series 2025-1) catastrophe bond and every other cat bond deal in the extensive Artemis Deal Directory.