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.