Florida’s Citizens latest Everglades Re II Ltd. (Series 2015-1) catastrophe bond has now been priced. The cat bond has now upsized by 20% to $300m, while the final pricing almost reached the top of the expanded guidance, as Citizens finalised a $3.9B risk transfer programme for 2015.
When the Everglades Re II cat bond was launched a fortnight ago the single tranche of Series 2015-1 Class A notes with a preliminary size of $250m. With the issuance Citizens was seeking to grow the capital markets contribution to its efforts to become better protected and reduce the need for assessments on taxpayers after major hurricanes.
The cat bond will provide a source of fully-collateralized reinsurance protection for Florida named storm risks (so covering tropical storms and hurricanes) on an annual aggregate basis and using an indemnity trigger. Losses from both personal and commercial residential property exposures in the Florida Citizens coastal account are to be covered over a three-year period.
The deal launched with pricing guidance in a range of 4% to 4.5%, but that price range was subsequently expanded, providing investors more room to indicate interest at a higher coupon, with a new guidance range indicating a potential yield from 4% to 5.25%.
Artemis understands that this was another example of investor push-back on a cat bond that they felt was being marketed at too low a price for the underlying risks. More details on that can be found in our previous article here.
At final pricing the $300m tranche of Everglades Re II cat bond notes have been priced at 5.15%, we understand. With an expected loss of 1.31% at the base case and 1.55% on a sensitivity case basis, that will provide a multiple of 3.9x EL at the base case and 3.3x at the sensitivity case.
So the investor push-back resulted in a coupon for this cat bond that is .65% above the initial guidance range. Someone was being very bullish with the launch guidance it seems, but Florida Citizens did the right thing and came to a pricing indication that investors were comfortable with.