Green Fields II Capital Ltd. (Series 2013-1)

Green Fields Capital II Limited is an Irish domiciled SPV. In this transaction it will issue a single tranche of Series 2013-1 Class A notes, which has a preliminary size of €150m, with the aim of collateralizing the counterparty reinsurance agreement with Swiss Re who then ultimately provide the reinsurance protection to Groupama.

With this cat bond Groupama is looking for a multi-year source, of fully collateralized reinsurance protection for certain French windstorm risks.

The transaction will provide cover for some of Groupama’s residential, commercial, industrial and agricultural book of business across all of France.

The notes will be exposed to losses from windstorms affecting the covered area of France and Corsica.

The deal will have a 3 and a half year term to the end of December 2016.

The deal will provide Groupama with coverage for French windstorm risks on a per-occurrence basis and will use an industry loss index trigger based on Cresta zone level European windstorm loss data from PERILS AG for the covered area.

Much of the risk is in western France, as you might expect given European windstorms tendencies to travel in across the Bay of Biscay before hitting west or northwest France. By line of business, agricultural and residential lines make up the bulk of the expected losses, accounting for 84% of the first years expected loss.

The transaction uses an index trigger with an attachment level of 573m index points and an exhaustion level of 745m index points.

The single tranche of notes has an attachment probability of 1.08%, an exhaustion probability of 0.66% and an expected loss of 0.85%. We’re told that the notes are being marketed with a coupon guidance price range of 2.75% to 3.25%.

The transaction features a variable reset mechanism, which allows for the one year probability of attachment to be reset to a maximum of 1.6%. That would mean that the interest spread paid to investors would be changed so investors would be compensated for an increased, or reduced, risk of attachment.

Green Fields II Capital will deposit the proceeds from the sale of the notes into a separate collateral account. It will then invest the collateral in European Bank for Reconstruction and Development Notes which are putable on the defined payment dates.

We understand that when the risk modeller for this cat bond, RMS, ran historical storms through its model to analyse the potential for the notes to be triggered, none of the historical windstorms reached the index trigger point. We’re also told that simulated modelling showed that it could take a significant windstorm loss in France to breach the trigger on this deal, hence the relatively low coupon.

Update: This deal increased in size by almost 87% to €280m (US$365m). At the same time the price guidance was reduced to the bottom end of the original range, 2.75%, an 8.3% drop in pricing from the original mid-point.