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Bellemeade Re 2019-2 Ltd.

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Bellemeade Re 2019-2 Ltd. – At a glance:

  • Issuer: Bellemeade Re 2019-2 Ltd.
  • Cedent / sponsor: Arch Capital Group Ltd.
  • Placement / structuring agent/s: Credit Suisse is sole bookrunner.
  • Risk modelling / calculation agents etc: N/A
  • Risks / perils covered: Mortgage insurance risks
  • Size: $621m
  • Trigger type: Indemnity
  • Ratings: Morningstar: M-1A - "A"; M-1B - "A1"; M-1C - "BBB-"; M-2 - "BB-"; B-1 - "BB-"
  • Date of issue: Apr 2019

Bellemeade Re 2019-2 Ltd. – Full details:

Bellemeade Re 2019-2 Ltd. is a Bermuda domiciled special purpose insurer established for the sole purpose of issuing mortgage insurance-linked securities (ILS).

Bellemeade Re 2019-2 will seek to issue five tranches of mortgage ILS notes that will each be sold to investors and their proceeds used to collateralize underlying mortgage reinsurance agreements between the SPI and Arch Capital entities.

This Bellemeade Re 2019-2 issuance will see Arch Capital looking to secure just slightly over $621 million of fully collateralized mortgage reinsurance from the capital markets.

The transaction will feature a $133.1m Class M-1A tranche, a $133.1 million Class M-1B tranche, a $168.56 million Class M-1C tranche, a $164.13 million Class M-2 tranche and a $22.18 million Class B-1 tranche.

Class M-1A is the least risky and then the exposure to noteholders rises as you move down the tranches from there. Morningstar has rated the notes: M-1A – “A”; M-1B – “A1”; M-1C – “BBB-“; M-2 – “BB-“; B-1 – “BB-“.

The transaction will cover a percentage of the risk for a pool of relatively recently originated mortgage-insurance policies linked to residential loans, none of which have been reported as in default as of the cut-off date.

“The balance of the insured mortgage loans covered by the policies is $35.58 billion, and the aggregate of the mortgage-insurance policy coverage amount is $8.87 billion,” rating agency Morningstar explained.

The reinsurance provided by Bellemeade Re 2019-2 will provide indemnity based protection for $621 million of the mortgage insurance policy coverage amount, while the remainder will either be retained by Arch Capital or perhaps traditional reinsured alongside this latest mortgage ILS deal.

The $621 million of mortgage ILS notes issued by Bellemeade Re 2019-2 will be exposed to the risk of reinsured losses on the portfolio of mortgage insurance policies. The policies have all been issued by Arch Mortgage Insurance Co. and United Guaranty Residential Insurance Co., which are the ceding insurers for the purposes of the transaction.

The riskiest tranche of notes have a lower attachment point than the previous Bellemeade Re deal, while the portfolio of mortgage loans have been seasoned for fewer months than recent mortgage ILS deals.

It’s a stark contrast to Arch’s previous mortgage ILS deal, which featured much older mortgage insurance policies, with much longer seasoning term.

This is now Arch Capital Group’s eighth issuance of mortgage insurance-linked securities (or insurance-linked notes) under the Bellemeade Re series of transactions. Including this new $621 million arrangement, Arch Capital will have ceded $3.46 billion of mortgage insurance risks to capital market investors, providing significant reinsurance coverage to its rapidly expanding mortgage book.

Including this latest Bellemeade ILS transaction, which is Arch’s 8th in the series, the company has benefitted from aggregate reinsurance coverage of approximately $3.5 billion through the capital markets deals.

Bellemeade Re 2019-2 Ltd. has issued and sold five classes of amortizing notes with 10-year legal final maturities to capital market investors, with the proceeds from the sale collateralizing the underlying reinsurance obligations between the special purpose insurer (SPI) and Arch.

The transaction featured five classes of notes:

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  • $133,076,000 class M-1A notes with a coupon equal to one-month LIBOR plus 100 basis points.
  • $133,076,000 class M-1B notes with a coupon equal to one-month LIBOR plus 145 basis points.
  • $168,563,000 class M-1C notes with a coupon equal to one-month LIBOR plus 200 basis points.
  • $164,127,000 class M-2 notes with a coupon equal to one-month LIBOR plus 310 basis points.
  • $22,180,000 class B-1 notes with a coupon equal to one-month LIBOR plus 410 basis points.
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