Yesterday we wrote that AIG’s latest catastrophe bond transaction, Tradewynd Re Ltd. (Series 2013-2), had grown to $180m, one tranche was withdrawn and pricing tightened. Today the deal is said to have jumped in size to $400m, while pricing was set at the top of the tightened range.
Update: Scroll to bottom for updated pricing which we were informed of after this article was originally published.
The Tradewynd Re 2013-2 cat bond launched with a size expectation of at least $100m, featuring four tranches of notes two of which were 1-year duration, while the other two were 3-year duration notes. The transaction covers multiple-perils and a very diverse book of business, including some unusual commercial risks and lines of business which are less common and less well-modelled in the ILS market.
One of the 1-year tranches was withdrawn, while the deal grew in size to $180m, we were told yesterday. That $180m has now jumped in size by 122% to now offer $400m of notes through the remaining three tranches. At the same time the pricing has been fixed to the top of the tightened range we discussed yesterday.
For AIG this is looking like an extremely successful catastrophe bond issuance, with investor demand having fully supported its desire to offload a diverse book of business to ILS investors. The fact the deal has grown by 300% from launch and the pricing remains just below the middle of the originally marketed range shows that AIG and its bookrunners judged the market’s appetite for this complex slice of risk extremely well.
Sources tell us the deal now looks like this:
The Class 1-A tranche, a 1-year protection, has more than tripled from the preliminary size of $30m we reported yesterday to $100m we understand. These notes launched with coupon guidance range of 6% to 6.75% , that range tightened to 6% to 6.25% yesterday and today price guidance was set at 6.25%.
The Class 3-A tranche, a 3-year cover, had a preliminary size of $75m yesterday, but has more than doubled to $160m in size. These cover the same layer of risk as the Class 1-A notes. This tranche was launched with a price guide range of 6.25% to 7%, which tightened to 6.25% to 6.5%, and has now been set at 6.5%.
Finally, the Class 3-B tranche, also a three-year cover, which had a preliminary size of $75m has almost doubled to $140m. This tranche would have provided cover for the same layer as the withdrawn Class 1-B notes. The price guidance for these notes when the deal launched was 7% to 7.75%, but tighten to 7% to 7.25%, and today we understand has been set at 7.25%.
We suspected that AIG was once again testing the water with its latest cat bond, taking a soft approach to gauge investor appetite before upsizing it to secure as much cover as it can. That strategy appears to have worked well for the insurer and the cat bond market has clearly learnt to appreciate the complex nature of the covered business in the Tradewynd Re deals.
Yesterday we said that this deals successful passage to market would signify another level of acceptance of risk among ILS investors. The fact that it has grown in size so much, while still offering attractive pricing shows that the market is perhaps ready to accept more complex risk such as this on a more frequent basis and it will be interesting to see whether others try to emulate it in future.
The other interesting point well worth mentioning here is that if Tradewynd Re 2013-2 successfully completes at $400m and the deal closes this side of the new year, that means that 2013 cat bond issuance will reach the magic $7 billion (in fact $7.09 billion) according to our Deal Directory, another great milestone for the cat bond and ILS market in 2013.
Final pricing for this transaction is expected tomorrow, we understand.
Update: Pricing declined again as follows before the end of Tuesday. Class 1-A pricing stayed at 6.25%, Class 3-A dropped to 6.25% and Class 3-B dropped to 7%.
You can read full details on Tradewynd Re Ltd. (Series 2013-2) in our Deal Directory, including details on the risks included and each tranches attachment and expected loss, and the entry will be updated as information becomes available.