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Climate Risk (non-)Disclosure of the Week: 9/28 to 10/2

By October 8, 2020 No Comments

Last week, we took a deeper look at the Village of Freeport, in Nassau County, NY. We figured we would keep looking to see if any issuer in and around Nassau is paying any attention to climate risk, and we didn’t have to wait long to find the next non-disclosing proponent. The Massapequa Union Free School District, NY sold $21M of bonds, with $10M of that being a series out to 2035 with a 2028 call. The OS can be found here.

Always easiest to start with the risQ analysis and see if the risks are material before digging too much into an Official Statement and public domain evidence of climate risk. Massapequa UFSD is in the 99th percentile of school districts nationally in terms of Property VaR. Around 80% of that risk profile is from coastal flood risk covering the spectrum from sunny day tidal flooding to extreme nor’easters and Superstorm Sandy’s of the world. Even a 100 year coastal flood event has a robust 34% Property VaR. The residual risk is all inland flood driven.

Looking at the OS, and as for the Village of Freeport last week, “flood” is not mentioned once. Neither is “climate”. “Mitigate”, or variants thereof, register but only in the context of COVID-19 and cybersecurity. In this OS, you won’t even find a mention of “Sandy”. All of this is pretty remarkable given recent history. Per the Wall St Journal, “Sandy caused damage to about 4,000 homes, flooding several major roads and upending trees, power lines and utility poles” across the district. At a lower severity, but more consistent cadence, tropical storms will often make their way up the coast bringing storm surge with it, a risk profile that grows in severity when occurring at high tide.

We can also revisit some statistics from last week when thinking of the legacy risks in evidence. NFIP claims/capita/per year in Nassau County as a whole are at the 99th percentile nationally, but with FEMA maps still underestimate flood risk by close to 40%. For context, some 4,700 homes and businesses in New York and New Jersey are classified as “severe and repetitive loss” properties by the government, meaning they flooded at least twice over a 10-year period and suffered extensive damages. Massapequa makes the top 30 in terms of homes in N.Y. and N.J. with the most damage from repeated flooding, taking 8 slots and totaling $5,745,606.14 in paid costs. Insurance won’t keep things whole as the the flood insurance take-up rate for the county is only 39%. Remarkably, the property owners in the statistics above are not required to make any long-term improvements to prevent flooding from happening again. From a population perspective, climate events have caused a 5% drop in population across the county in the 2012-2018 period, in the worst 8% of counties nationally. Might be just as well that the longer maturity CUSIPs are callable much earlier for everyone’s sake, and especially given the lack of evidence of any mitigation in the OS or anywhere else. There is no mention in the NFIP’s Community Rating Survey of either Nassau County nor the Town of Massapequa, meaning there are no flood insurance discounts to be had by residents and neither jurisdiction has engaged in nationally recognized flood mitigation programs.

Naturally, we’re hopeful that flood mitigation efforts are in fact under way at the speed and scale the problem dictates, but the absence of evidence to that effect and the absence of discussion and disclosure in the OS don’t fill us with confidence and challenge every premise of ESG sensibilities.

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