PennUnion Re cat bond grows to $275m for Amtrak

by Artemis on October 6, 2015

According to sources the first catastrophe bond from passenger railway company Amtrak has increased in size, with the PennUnion Re Ltd. (Series 2015-1) parametric cat bond looking set to complete later this week at $275m, up 38% from its initial marketed size.

At the same time as the upsize the cat bonds pricing has settled right at the bottom end of the coupon guidance range, which signals a good result for Amtrak as it effectively means a lower rate-on-line for the insurance or risk transfer protection.

The PennUnion Re cat bond was launched to the market in mid-September and saw the rail company seeking a source of U.S. named storm surge, wind and also earthquake cover in the key areas where it operates and has infrastructure.

While the PennUnion Re cat bond covers surge, wind and quake, the majority of the expected loss contribution is for storm surge, suggesting that what Amtrak really fears is a storm similar to Sandy and the impact to its infrastructure and revenues that could cause.

PennUnion Re Ltd. is a Bermudian SPI established for the purpose of issuing catastrophe bond notes for Amtrak. PennUnion Re will seek to issue a single tranche of at least $200m of Series 2015-1 Class A notes which will be sold to ILS investors. The sale of the notes will fully-collateralize a reinsurance agreement between the SPI and Passenger Railroad Insurance (Amtrak’s own captive-style insurance vehicle), which will in turn provide the insurance protection to Amtrak.

Interestingly, the PennUnion Re deal had been expected to complete last week, but the approach and uncertainty in hurricane Joaquin’s forecast path caused the deal to be delayed. The cat bond has now been priced and the deal is expected to close later this week, we’re told.

When the PennUnion Re cat bond deal launched, offering $200m of notes to investors, the coupon price guidance was a range of 4.5% to 5.25%. Sources said that the pricing was finalised at the lowest end of this guidance, at 4.5% which is a drop of almost -8% from the mid-point of guidance.

The now $275m of Series 2015-1 Class A notes to be issued by PennUnion Re Ltd. have an initial expected loss of 1.97%, which means the coupon will provide investors a multiple of 2.28 times the EL at the base case. A sensitivity case multiple would be a little lower at 2.19x’s the sensitivity case EL of 2.05%.

Amtrak will be pleased with the successful cat bond issuance, the railroad firm’s first visit to the ILS market, with this transaction now set to provide it with a highly responsive $275m source of disaster insurance protection.

The PennUnion Re Ltd. (Series 2015-1) catastrophe bond completes later this week and we have update you if any commentary is released by the deal participants.

You can read all about this and every other cat bond in the Artemis Deal Directory.

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