Coupon price guidance for the $200 million Bonanza Re Ltd. (Series 2016-1) catastrophe bond issuance, that is being marketed to investors on behalf of sponsor and ceding insurer American Strategic Insurance Group, has dropped to below the initial range once again reflecting strong investor demand.
The Bonanza Re 2016-1 cat bond sees American Strategic returning to the capital markets for its second issuance, as it seeks a new source of collateralised reinsurance protection.
Having previously sponsored the much-discussed Gator Re Ltd. cat bond, this second issuance sees American Strategic seeking $200 million of fully collateralised reinsurance coverage using a top and drop indemnity structure, to provide per-occurrence reinsurance protection against U.S. named storm and severe thunderstorm risks.
Investors appear to have been receptive to American Strategic’s second cat bond issue. Sources told us that the price guidance has been lowered to below the initial range on both tranches of Bonanza Re Series 2016-1 notes.
When the transaction launched earlier this month, a $150m tranche of Class A notes,, which will provide reinsurance cover against both U.S. named storm and thunderstorm losses, were being offered to investors with price guidance of between 4% and 5%.
This tranche has had its price guidance updated and lowered, with the notes now offered to investors with coupon guidance of 3.75% to 4%, we understand.
The second tranche, a $50m Class B U.S. named storm only tranche of notes, are riskier and had price guidance at launch of between 5.5% and 6%.
This tranche has had its coupon guidance lowered as well, with the Class B Bonanza Re notes now offered to investors with guidance of 5% to 5.5%.
The reduction in pricing can reflect a number of deal factors, such as investors growing confidence in the top and drop structure this cat bond uses, greater confidence in the sponsor American Strategic and of course the increasingly strong appetite in the capital markets for catastrophe bond investments.
It’s likely that the appetite for investing in new cat bonds is the main reason, once again reflecting the opportunity that ceding companies could have to source reinsurance from the capital markets right now.
However after the Gator Re cat bond experience at least ILS investors now have an understanding of American Strategic’s ability to report claims in a timely manner which is also important and could help to make investor demand a little higher for this issue.
The Bonanza Re cat bond will be marketed into this week, with pricing anticipated in a weeks time we understand.
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