External events — like the bankruptcy of a major employer, extreme weather, or the spill of an environmental hazard — can have dramatic effects on the financial stability of nearby populations and governments. In this series, ICE Climate uses our geospatial library for the municipal bond market to analyze municipal bond exposure to several different kinds of geographically defined events.
Here we look at municipal bond exposure to a destructive tornado swarm.
On the night of April 27, 2024, a line of storms swept across Oklahoma, producing over 30 recorded tornados and heavy rain across the state.1 At least four people were killed and many more injured. Oklahoma Governor Kevin Stitt said in a news conference the following day that in the town of Sulphur, about 80 miles south of Oklahoma City, “it seems like every business downtown has been destroyed.”
In other parts of the country, flash floods, wildfires, and hurricanes have had similarly sudden impacts, destroying the lives and homes of many within the space of a few hours. After these events, affected communities may face fiscal distress in the longer term. Paradise, the California town nearly destroyed by the 2018 Camp Fire, was close to defaulting on its loans in 2022, despite an over $200 million settlement from utility provider PG&E,3 and ultimately did default in 2023. This dynamic represents a challenge for municipal bond market investors, especially those interested in mitigating climate risk.
ICE Climate can help inform municipal bond market participants about exposure to these sorts of hazards. In addition to identifying the municipalities and securities that may be exposed, we can also assess the degree of this potential exposure — the number of people living or working within exposed areas,4 as well as the number of exposed buildings and the value of those buildings. For example, Garfield County Independent School District Number 42 North Enid (otherwise known as Chisholm Public Schools) overlapped with four separate observed tornado events on the night of April 27 in Oklahoma. The alert that was the smallest in terms of area (Alert A, Figure 1) overlapped with the part of the district that was more densely populated and built up, leading to more buildings and people being exposed than during another event (Alert B, Figure 1) that was larger in absolute area, but impacted a less dense part of the district.
Figure 1. The four observed National Weather Service tornado alerts that overlapped with the boundary of School District Number 42 North Enid (otherwise known as Chisholm Public Schools). The smaller alert, Alert A, exposed more buildings and people in the district than Alert B, which was larger in absolute area but overlapping with a smaller portion of the District. Source: ICE as of 6/01/2024.
Figure 2. (Top) National Weather Service tornado events in Oklahoma on the night of April 27-28, 2024. (Bottom) Map of obligor footprints with outstanding debt and areas less than 2,000 square miles within Oklahoma that also overlap with these alert areas. Source: ICE as of 12/01/2024.
Statewide, there were 216 unique obligors located within Oklahoma with geospatial footprints that overlap with these tornado footprints. Combined, these entities carry over $10 billion in outstanding debt associated with over 2,500 individual securities.
These totals do not include issuers that are defined by point locations — entities like hospital systems and charter schools. Many of these systems have dozens or even hundreds of hospitals or schools in their systems that are geographically distributed across the country. Ascension Health Alliance, for example, has dozens of locations across the eastern U.S., including a few that were exposed to the April tornado events in Oklahoma (Figure 3).
Figure 3. The locations for Ascension Health Alliance are spread across the eastern half of the United States, including locations in Oklahoma exposed to the April tornado swarm. Source: ICE as of 12/01/2024.
When all obligors that have at least one location exposed to this tornado swarm are included in the total, over $18 billion in outstanding debt was exposed to this destructive tornado swarm.
Going forward, ICE Climate’s new Hazard Watch tool enables this kind of exposure mapping and assessment for flooding, hurricanes, and wildfires across the United States. The tool allows clients and other stakeholders to understand their exposure to extreme weather events and other natural hazards.
1 The April 27-28 Tornado Outbreak and Flash Flooding Event, National Weather Service. Available at: https://www.weather.gov/oun/events-20240427
2 Salahieh, N & Shackleford, R (29 Apr 2024). At least 4 killed in Oklahoma tornado outbreak, as threat of severe storms continues from Missouri to Texas. Available at: https://www.cnn.com/2024/04/28/weather/plains-midwest-storms-tornadoes-climate-sunday/index.html
3 Wirz M & Gillers H (22 Jul 2022). Paradise, the Wildfire-Ravaged California Town, Warns of Municipal Bond Default. The Wall Street Journal. Available at: https://www.wsj.com/articles/paradise-the-wildfire-ravaged-california-town-warns-of-municipal-bond-default-11658493581
4 The numbers of people within the area at 2:00 AM and 2:00 PM.