Sovereign Risk Launches New Capital Markets Product

Bermuda-based Sovereign Risk Insurance, a political risk insurance joint venture between ACE Limited and XL Capital, says it is offering a new political risk insurance product tailored specifically for cross border capital markets transactions.

Sovereign's new capital markets product covers bond offerings by emerging market issuers against currency inconvertibility and currency nontransfer risks in the country of the issuer. The capital markets political risk insurance is designed to enable issuers in emerging markets to achieve higher foreign currency ratings from ratings agencies on the insured bond offerings.

With higher ratings, the issuers will be able to attract funding from a broader range of investors while reducing their financing costs.

Sovereign has per-project limits of $125 million and is able to provide tenors out to 15 years, making this coverage particularly well suited for cross border 144A bond offerings and private placement. ``By adding our political risk coverage to the structure of bond offerings and removing the currency inconvertibility and currency nontransfer risks, many emerging market issuers will now be able to obtain an investment grade rating, regardless of the rating of the issuer's country. This will be a valuable enhancement feature for project and corporate bond issuers in the emerging markets,'' said Price Lowenstein, Sovereign's president and CEO. Sovereign says it is considering several transactions that would benefit from this coverage.

Sovereign was formed in July 1997 to underwrite political risks on behalf of ACE Bermuda and XL. Sovereign's clients include international financial institutions, multinational corporations and national export credit agencies.