I admit that when reading a Newscorp paper one should expect this and it has been a primary complaint of mine about the Wall Street Journal since Newscorp bought it.
But today, they slanted the news on something near and dear to my heart. The definition of a defaulted bond.
The facts were reported correctly. A Catastrophe Bond that protected an insurance company from loss claims arising from property damage caused by tornados is about to have principal reduced to pay such claims arising from the heavy tornado damage this past spring.
What I object to is that the WSJ repeatedly called this a default. My definition of a default is when a contractual payment is not made. The contract in this case says that the bond trustee will pay the insurance company the value of principal that the claims represent and the holders of the bond will have their principal value reduced. That is the deal and there is no failure to follow the contract. Therefore, it is not a default.
I never allowed Catastrophe bonds is my portfolios because you cannot predict the weather and no interest coupon compensates you for a loss of principal. Usually a loss of principal is a default but in this case it is not. Buyer beware of investment bankers promising you a good return on a portfolio of risks when you cannot assess the risk.
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