The first full catastrophe bond issuance sponsored by Bermudian reinsurance group Validus Holdings is set to achieve efficient execution, as the marketed size of the deal has now been increased by 23% to $400 million, while the coupon price guidance has been reduced, falling to below the originally marketed ranges.
The Tailwind Re Ltd. (Series 2017-1) cat bond transaction from Validus was launched to the market earlier this month and sees the reinsurer looking to secure a portion of its catastrophe reinsurance and retrocession from the capital markets in its first full 144a securitisation.
The Tailwind Re 2017-1 deal will provide retrocession and reinsurance to Validus companies including its reinsurer Validus Re, Talbot Underwriting and its syndicate at Lloyd’s of London, insurer Western World, and other subsidiaries.
The cat bond will secure Validus a source of collateralized reinsurance and retro, covering it against certain losses from the multiple perils of U.S., Canada, Puerto Rico and U.S. Virgin Islands named storms and earthquakes, on an annual aggregate basis and using industry loss triggers.
At launch the Tailwind Re cat bond issuance was offering $325 million of notes to capital market investors across three tranches of risk.
We’re told that the issuance size has been increased by roughly 23%, with all of the three tranches upsizing, to now offer $400 million of notes to the ILS investor and fund community.
At the same time as upsizing, all three of the tranches on offer from Tailwind Re have seen their coupon price guidance reduced, falling to below the bottom end of the original launch ranges for each of the classes of notes.
The Class A tranche of Series 2017-1 notes from Tailwind Re were launched to investors as a $125 million offering, but this tranche has now grown to $150 million we understand. This tranche, with an initial expected loss of 3.41%, were offered to ILS investors with price guidance of 7.75% to 8.5%, but this has now fallen to 7.25% to 7.75%.
The Class B tranche of notes were also launched at $125 million, but have now been upsized to offer $150 million of notes to investors. A little riskier with an initial expected loss of 4.43%, these notes were marketed to cat bond investors with price guidance of 9.5% to 10.25%, but that has now dropped to 9% to 9.5%.
The final Class C tranche are the riskiest and launched as a $75 million offering, but this has now grown to a $100 million layer of risk. These notes have an initial expected loss of 5.64% and were offered to cat bond investors with coupon price guidance of 11.5% to 12.5%. Here the spread guidance has again dropped to below the initial range, falling to 11% to 11.5%, we’re told.
So all three tranches of Tailwind Re cat bond notes have increased in size and the coupon for each looks set to come in at least at the bottom of guidance, perhaps below it.
Once again, this reflects keen pricing in the catastrophe bond market and efficient execution. All of the cat bonds that have been marketed since the major hurricanes of the third-quarter have priced more keenly than perhaps would have been anticipated, with risk adjusted pricing only rising by single digits at best.
For Validus, this looks set to be a successful first trip to the catastrophe bond market, with an enlarged and lower priced transaction looking the likely outcome for the reinsurer.
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