Bonanza Re Ltd. (Series 2020-2)

Bonanza Re Ltd., a Bermuda domiciled special purpose insurer (SPI), will look to issue three tranches of Series 2020-2 notes for its second deal of the year.

All three tranches of notes will be sold to investors and the proceeds by used to collateralize underlying reinsurance agreements between Bonanza Re Ltd. and the ceding insurer, so the insurance entities owned by ARX Holding.

A currently $100 million Class A tranche of notes will provide U.S. named storm reinsurance protection on a per-occurrence and indemnity trigger basis, covering four wind seasons, coming on-risk from June 1st 2021 and running until the end of December 2024.

As yet unsized Class B and Class C tranches of notes will provide annual aggregate reinsurance protection on an indemnity basis, covering losses from U.S. named storms, severe thunderstorms, winter storms, wildfires, earthquakes across just a one year term, running through calendar year 2021.

The Class A notes, the per-occurrence and U.S. wind only exposed layer of this cat bond transaction, will have an initial expected loss of 1.04% and are being offered to investors with a coupon guidance range of 4.5% to 5%.

We’re told these Class A notes cover a percentage of a wide, $400 million layer of the ARX Holding reinsurance tower, alongside the $200 million 2020-1 cat bond, so there is plenty of room for them to upsize to as much as double the $100 million launch size.

The Class B notes, which are the first single year, multi-peril and annual aggregate layer of this transaction, have an initial expected loss of 0.36% and are structured as zero-coupon, discount notes. They are offered to investors with pricing in a range of 90% to 88% of par, which equates to a roughly 10% to 12% coupon, we understand.

The Class C tranche, the second single year, multi-peril and annual aggregate layer, are a little riskier with an initial expected loss of 1.13%. This tranche is also structured as zero-coupon notes, and are offered with price guidance in a range from 86% to 84% of par, so a rough coupon equivalent of 14% to 16%.

It will be interesting to see how these annual aggregate layers are embraced by the ILS fund market and how much coverage they eventually provide to American Strategic and its parent holding company.

Update 1:

This Bonanza Re 2020-2 catastrophe bond could as much as triple in size, as the target for the issuance has lifted to $300 million.

At the same time the riskiest Class C tranche of notes has been dropped from the issuance.

The Class A tranche has now doubled in size from $100 million to $200 million, providing per-occurrence and U.S. wind only coverage. The notes were first offered to investors with a coupon guidance range of 4.5% to 5%, but this guidance has now been fixed at the mid-point at 4.75%.

The Class B tranche of notes, which will provide annual aggregate reinsurance protection on an indemnity basis, covering losses from U.S. named storms, severe thunderstorms, winter storms, wildfires, earthquakes across just a one year term, running through calendar year 2021, has now been sized at between $75 million and $100 million and the pricing has now been fixed at the high-end of guidance at 88% of par, so a roughly 12% coupon equivalent.

Update 2:

In the end the Class A tranche doubled in size to $200m, while the pricing settled at the initial mid-point of 4.75%.

The Class B tranche upsized to $95 million, while the pricing for this layer settled at 88% of par, so a roughly 12% coupon equivalent.