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Climate Risk (non-)Disclosure of the Week: 7/27-7/31

By August 13, 2020 No Comments

In the Negotiated Sales analyses we previously provided to clients for the week of July 27th, the St Tammany Parish Wide School District No 12, LA had the second highest climate risk of all the issuers coming to market through that channel for this week. With that sale completing on July 29th we can now take a look inside the Preliminary Official Statement, found here, to see if the climate risk inherent to the issuer is disclosed and discussed.

Across all school districts nationally St Tammany No 12 is at the 98th percentile for property value at risk and GDP impairment risk. Drilling down by peril, the national percentiles for property value at risk are 94th, 97th and 97th for inland flood, hurricane flood, and hurricane storm surge, respectively.

Of course, it’s not news to anyone that the greater New Orleans area has seen its share of climate event history. St Tammany itself caught its share of Katrina-related impact, with over 48,000 residential structures impacted, causing $1.45 billion in damages. That said, other flood events, in August 2016, for example, have caused major disruptions, damages, and economic impacts to St. Tammany Parish, with repeated widespread flooding from rainfall and riverine exceedances, waves, and storm surge. The most recent event in May 2020 impacted the Bedico Creek neighborhood which was inundated with what was described as “record-setting flooding”. Not surprisingly, given all these events, St Tammany has the 15th highest NFIP claims per capita per year across the cohort of counties nationally, at an astounding $174,066/capita/year since the year 2000. 

The Preliminary OS itself has little mention of flood risk with “flood” and “climate” not appearing once in the entire document. “Hurricane” appears once in Appendix B when discussing a key access bridge that needed to be replaced after Katrina at the cost of $800 million and over a six year period after the event. That’s it as far as disclosure of past events and any mention of mitigation or adaptation efforts.

The climate changed conditioned probability of another hurricane impacting St Tammany by 2030 is 18-19%, with the average precipitation from such an event projected to cause equivalent value property losses of 19% of the aggregate property value in the district. The probability of a Category 2 or higher event is 12% probability over the same time period, the hurricane storm surge from which brings with it 24% equivalent loss on property value. These numbers, and the overall risk profile of St Tammany, are substantially higher than both Orleans and Jefferson Parishes. The former has flood defenses that are substantially better than in St Tammany’s given the follow-on from Katrina and its impact on New Orleans, while the latter shows up on the NFIP CRS scale with a score of 5, a couple of meaningful notches higher than St Tammany. As a final data point on the economic resiliency of the parish, we are about to publish preliminary results of our analysis of uninsured flood risk across the US and St Tammany is very high on this metric. Our data indicates that as much as 98% of the residential property value in St Tammany is uninsured for flood, an exposure that will place tremendous burden on other wallets and, even if those other sources come through, will place massive burden on residents while they wait for the partial payments to come through. We’ll be publishing a summary document of this study in the coming weeks.

We’re certainly hopeful that the high risk communicated in our Negotiated Sales analysis was useful as part of client’s consideration of the corresponding municipal bonds, a series with maturities stretching out to 2033. Hopefully, the above provides some further weight and guidance to how documents clients evaluate and the analysis and data risQ provides can be overlaid as part of a given investment decision.

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