Oaktown Re Ltd. (Series 2017-1)

Oaktown Re Ltd. has been formed as a Bermuda special purpose insurer to issue mortgage linked ILS notes for the sponsor and the issuer is selling three tranches of notes to investors in order to collateralize the underlying excess of loss mortgage reinsurance arrangement between itself and National Mortgage Insurance Corp.

Oaktown Re is issuing $211.32 million of notes which are being sold to third-party capital market investors and each of the three tranches of notes have now been priced.

A $98.616 million Class M-1 tranche of notes will offer investors a coupon of 2.25% above one-month Libor. A similarly sized $98.616 million Class M-2 tranche will pay investors a 4% above Libor coupon. Finally, a $14.088 million Class B-1 tranche of notes will pay investors 5.75% above Libor.

Interestingly, all three tranches of notes have a ten-year term, so the protection is perhaps the longest on record in the ILS or catastrophe bond market, outside of life insurance related risks.

Further details on the tranches are not available, but the way the pricing rises suggests a tiered approach to coverage with the M-1 tranche the lowest risk, M-2 mid-risk and the B-1 tranche the highest risk of the offering.

The unregistered private offering of notes by Oaktown Re Ltd. will provide National Mortgage Insurance Corporation with $211.32 million of fully-collateralized excess of loss reinsurance protection once the deal has completed, which is expected to be on the 2nd May 2017.

The reinsurance protection provided by the Oaktown Re issue will cover an existing portfolio of mortgage insurance policies underwritten by National Mutual Insurance policies from 2013 through 2016.

We understand that Aon Insurance Managers is acting as the insurance manager for the Oaktown Re mortgage ILS deal, having also done so for the only previous mortgage ILS transactions, the Bellemeade deals issued for sponsor United Guaranty.