According to market sources, Tradewynd Re Ltd. (Series 2014-1), the latest catastrophe bond issuance to be sponsored by global insurance firm American International Group (AIG), has increased in size by 67% to now offer $500m of notes to investors.
AIG’s seventh cat bond issue since 2010, Tradewynd Re 2014-1 launched about a fortnight ago and saw AIG seeking a $300m source of fully-collateralized reinsurance protection across three tranches of notes, all of which are structured on an indemnity and per-occurrence trigger basis. Two of the tranches provide their cover over a three-year risk period, while one has a one-year risk period.
All three tranches of notes will provide AIG with reinsurance cover for named storm risks (so tropical storms and hurricanes) across the U.S., Canada, Mexico, most of the Caribbean, Gulf of Mexico and the District of Colombia and earthquake risks across the U.S., Canada, Mexico, most of the Caribbean and the District of Colombia.
When the deal launched all three tranches of notes were sized at $100m each. Now, we understand that the one-year risk period Class 1-B tranche of notes remain at $100m, the Class 3-A tranche of notes with a three-year risk period also stay at $100m in size, but the other three-year tranche, the Class 3-B notes has been increased in size to $300m.
The Class 3-B notes which have upsized significantly are the tranche which, as we explained in our earlier article on this deal, if eroded would be replaced by the 3-A notes which have a drop-down feature.
In terms of pricing, the Class 1-B notes launched with price guidance of 6.5% to 7.5%, but are now offered at 6.75% to 7%. The Class 3-A tranche, which sit higher up and feature the drop-down, launched with guidance of 4.75% to 5.5%, which has narrowed to 5% to 5.12%. Finally, the Class 3-B notes which has upsized to $300m and sit beneath 3-A, launched with guidance of 6.5% to 7.5%, but are now offered with tightened guidance of 6.75% to 7%.
So the pricing on all three tranches looks set to settle around the mid-point of the initial launch coupon guidance range, demonstrating again that investors are setting their price limits on recent cat bonds as the majority price towards the middle, or even upper end of guidance.
Fitch Ratings has now assigned preliminary ratings to the three tranches of notes to be issued by Tradewynd Re. Fitch has assigned the Class 1-B notes a rating of (B)sf, Class 3-A (BB-)sf and Class 3-B (B)sf.
This cat bond is scheduled to be priced by the end of this week, we understand, while completion will be in the next fortnight.
Including all cat bonds currently still being marketed or yet to complete and taking into account the upsizing of this deal and others, we now see (based on our figures and all deals we’ve covered this year) the year-end total for 2014 catastrophe bond issuance reaching $8.543 billion, which if every deal completes successfully means that 2014 will definitely be a record year.