Matterhorn Re Ltd. (Series 2020-4)

Swiss Re has returned to the catastrophe bond market again, with what will be its fifth Matterhorn Re cat bond in around twelve months.

Matterhorn Re Ltd., a Bermuda based special purpose insurer, will look to issue two tranches of Series 2020-4 cat bond notes that will be sold to investors and the proceeds used to collateralise retrocessional reinsurance agreements between the SPI and Swiss Re, we’re told.

The notes target up to $200 million of retro coverage for Swiss Re, evenly split across the two tranches, with the coverage all set to protect Swiss Re against losses from U.S. named storms and hurricanes on an industry loss trigger and per-occurrence basis, we understand. PCS is set to play the role of industry loss data reporting agent.

We’re not completely sure of the covered area for this latest Swiss Re cat bond, but we believe it to be the entire hurricane exposed U.S. coastline (so Gulf, southeast and Florida, and eastern seaboard).

Update: We’re told the coverage is for the entire hurricane exposed U.S. coastline, as above.

Sources said the coverage will run until the end of November 2021, so providing almost two full hurricane seasons of retrocession for Swiss Re.

Matterhorn Re will be issuing $100 million tranches of Class A and Class B notes, with both covering the same layer of risk at an expected loss of 3.24%, we understand.

The Class A notes are being offered to investors with a coupon price guidance range of 10% to 10.75%, while the Class B tranche is structured to be issued at a discount to par, so akin to a zero coupon notes arrangement, with pricing guidance offered at 85% to 86% of par value, which offers a similar yield to Class A.

It’s important to remember that the Class A notes are floating rate and so will also offer a small return off the permitted investments to investors.

Swiss Re opted for this dual approach, of floating rate notes and zero-coupon in the same issuance with its last Matterhorn Re cat bond deal.

Update 1:

Swiss Re has raised the upper-end target for its latest catastrophe bond, with the Matterhorn Re Ltd. (Series 2020-4)  transaction now aiming to secure as much as $275 million of capital markets backed retrocession for the sponsor.

As the deal now stands, with pricing just a day or so away we’re told, the offering features a $50 million to $75 million Class A tranche of notes. This tranche had launched with coupon price guidance in a range from 10% to 10.75%, but we’re told this has tightened towards the bottom-end at between 10% and 10.25%.

Meanwhile, we’re told that the Class B tranche offering, which is structured to be issued at a discount to par, so akin to a zero coupon notes arrangement, is now targeting between $150 million and $200 million of notes. The Class B tranche launched with pricing guidance offered at 85% to 86% of par value, but this has been moved to 86% to 86.25% of par (so a reduced coupon equivalent), we understand.

We’re told this cat bond may now slip into July for settlement and become the first completed issuance of the third-quarter of 2020.

Update 2:

We’re told by sources that the deal has now been priced and will settle on July 1st at $240 million in size for Swiss Re.

The Class A tranche of notes, which had been offered as a $50 million to $75 million tranche will settle at $65 million in size, we’re told.

The Class A notes had launched to investors with coupon price guidance in a range from 10% to 10.75%, but this tightened towards the bottom-end at between 10% and 10.25% and at pricing yesterday we’re told the coupon was fixed at the bottom-end of 10%.

The Class B tranche offering, which is structured to be issued at a discount to par, so akin to a zero coupon notes arrangement, had targeted $150 million to $200 million of notes, but we’re told is now fixed at $175 million in size.

The Class B tranche launched with pricing guidance offered at 85% to 86% of par value, which then moved to 86% to 86.25% of par (so a reduced coupon equivalent), and we’re told eventually priced at 86.25%, so effectively below the initial price guidance range.