The Benu Capital Limited extreme mortality catastrophe bond, which is being brought to market on behalf of sponsoring insurer AXA Global Life, looks like it may upsize due to investor demand while the pricing indication has moved towards the upper end of guidance.
AXA’s mortality cat bond launched almost a fortnight ago, with SPI Benu Capital Limited looking to issue two tranches of mortality-linked ILS notes totaling €250m, in order to collateralize a mortality reinsurance agreement with AXA Global Life.
The Benu Capital mortality cat bond will provide AXA Global Life with excess mortality protection for France, Japan and the U.S. over a five-year period from January 2015 to the end of 2019, with the trigger for the notes based on a mortality index.
Now, according to sources, the Benu Capital mortality cat bond looks like it may increase in size before completion.
When the deal launched the Class A tranche of notes were sized at €150m. We’re now told that the latest marketing materials show this tranche as sized at €120m to €150m, depending on demand.
Meanwhile the Class B tranche of notes, which launched at €100m, are now offered with an expected size somewhere in the range of €130m to €160m, so look certain to grow.
So between the two tranches that should still ensure a total deal size of at least €250m, in fact we’re told that is now the minimum target, but with a good chance that investor demand could lift the deal above that size by its completion. It could get as large as €310m if both tranches hit the upper end of those ranges.
It’s worth noting that the Class B notes are the riskier of the two, so will pay a higher coupon, demonstrating that investors continue to have more appetite for the higher yielding tranches of notes as this tranche is certain to upsize according to the numbers above.
In terms of pricing, the Class A tranche launched with price guidance of 2.15% to 2.65% and the latest materials have moved that up towards the upper end at 2.55%.
The Class B, riskier tranche of mortality cat bond notes, launched with price guidance of 2.9% to 3.5% and these too have moved above the mid-point, towards the upper end, with price guidance now listed as 3.35%.
This perhaps shows investors unwillingness to continue to come down the yield curve, even when it is a remote risk as these mortality bonds are. Investors still seem to have minimum return requirements, especially in terms of the spread above expected loss.
The Class A notes have an initial base expected loss of 0.64%, which with pricing at 2.55% would provide a multiple of nearly 4x and a spread above expected loss of 1.91%.
Class B has an initial base expected loss of 1.33%, which with pricing at 3.35% would mean a multiple of 2.5x and a spread above expected loss of 2.02%.
Standard & Poor’s has given the Class A tranche a preliminary rating of ‘BB+sf’ and the Class B tranche ‘BBsf’.
The Benu Capital mortality catastrophe bond is expected to price this week and settle by the end of this week, after which AXA Global Life will have a new multi-year source of fully-collateralized extreme mortality reinsurance protection.
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