Catastrophe Call

A call provision in municipal bonds that allows for the early redemption of the instrument if a catastrophic event occurs and severely damages the project financed by the issue. Possible catastrophes will be listed in the bond's indenture and are often callable at par. 



|||Catastrophe calls provide municipalities insurance against natural disasters. For example, let's say an earthquake destroyed a newly constructed bridge. Since the construction cost was financed by a municipal bond issue (with a catastrophe call option) and the bridge's destruction does not allow it to generate the revenue expected to repay the debt, the bonds may be called at par immediately.