Fermat & Hudson Structured lead on $79.5m private debt for Heritage

by Artemis on December 13, 2016

The trend of insurance and reinsurance linked investment managers looking to access returns through insurance private debt provision continues, with two ILS managers leading a $79.5 million private debt issuance for U.S. primary property and casualty insurance group Heritage Insurance Holdings, Inc.

The two ILS managers involved are well-known largely catastrophe bond focused investment manager Fermat Capital Management and the firm established by ex-Goldman Sachs structured finance head Mike Millette, Hudson Structured Capital Management.

The pair, alongside other unnamed financial institutions, have provided a portion of the capital to back Heritage’s private placement of $79.5 million of its senior secured notes, which are due in 2023.

The senior secured private debt notes are expected to yield three month LIBOR plus 8.75% to the investors and the transaction is expected to close at the end of this week, Heritage said today.

The proceeds of the sale of the private debt will be used to enable Heritage to participate opportunistically in mergers and acquisitions and make other strategic investments, as well as for general corporate purposes.

Bruce Lucas, Heritage Chairman and CEO, commented on the announcement; “I am thrilled to partner with our lenders in the largest debt transaction for the Florida property insurance industry this year. We view the commitment by Fermat and HSCM Bermuda, who we believe are two of the most trusted names in the reinsurance industry, as another testament to the strength of our company.

“We remain growth oriented and focused on opportunities for strategic expansion. We anticipate this loan transaction will enable us to continue strategic M&A and generate higher returns for our shareholders. We have consistently stated our preference to avoid shareholder dilution and to fund our capital needs by adding some leverage to our capital structure. This transaction fulfills this goal and allows the company to seek higher returns for shareholders while bolstering our capital position for our policyholders.”

Funds managed by both Fermat Capital Management, LLC and HSCM Bermuda Management Company (the Bermuda domiciled unit of Hudson Structured) entered into a definitive purchase agreement for the notes with Heritage today.

This is the first insurance private debt deal that we’ve covered which has had either Fermat or Hudson Structured involved and perhaps signals an increasing interest in this way of accessing returns from the insurance or reinsurance market among the ILS management community.

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