The targeted size of the second parametric earthquake catastrophe bond for specialist mortgage security focused investment manager Bayview Asset Management, LLC looks like it could increase in size by as much as one-third, with the upper target for the Sierra Ltd. (Series 2021-1) cat bond deal now lifted to $200 million.
Bayview returned to the catastrophe bond market earlier this month, with its second transaction that looks to secure a source of parametric insurance protection from the capital markets for its Cayman Islands based Bayview MSR Opportunity Master Fund, LP mortgage focused investment strategy.
When the deal launched it was seeking a $150 million source of collateralized insurance and reinsurance protection for the mortgage investor, but with demand for cat bond investments currently high it looks like the issuance will benefit from this and upsize, we’re told
In addition, it looks like the issuance will benefit from investor appetite on the pricing side as well, with both tranches of notes to be issued by Sierra Ltd. in the 2021-1 cat bond now set to price at the bottom of initial guidance, or even below it, sources explained.
More details on the transaction can be found in our Deal Directory, but to summarise.
The Sierra Ltd. Bermuda domiciled special purpose insurer (SPI) will issue two classes of catastrophe bond notes, that will be sold to investors and the proceeds used to collateralize underlying insurance or reinsurance like risk transfer agreements between the counterparty investment fund and Sierra.
As we’ve noted before, these Sierra Ltd. cat bonds are particularly interesting as no fronting reinsurance counterparty is used. Instead the risk transfer contract is directly between the Bermuda SPI and the cedent, in this case a Cayman Islands investment fund.
This Sierra 2021-1 catastrophe bond targets parametric earthquake insurance protection across the U.S. states of California, Oregon, South Carolina and Washington, for Bayview’s mortgage investment fund, with coverage on a parametric trigger and per-occurrence basis across a three year term.
For this second issuance, Sierra Ltd. was aiming to issue a $100 million Class A tranche of notes, but we’re now told that this tranche is targeting from that $100 million up to $150 million in terms of size.
The Class A notes will have an expected loss of 0.79% and were first offered to investors with a coupon in a range from 3% to 3.25%, but the price guidance has now been lowered, to 2.7% to 3%.
The Class B tranche of notes, which are riskier, continue to target a $50m million issuance, with an initial expected loss of 2.71%. This tranche were first offered to investors with coupon price guidance of 5.25% to 5.75%, but this has now also been reduced to 4.75% to 5.25%.
As we said before, these expected loss figures are the same as for the first Bayview sponsored catastrophe bond, the $225 million Sierra Ltd. (Series 2019-1) deal.
That first Sierra cat bond saw its Class A notes price at 3.25% and Class B notes price at 5.75%, so now whatever happens it looks like this second Sierra Ltd. catastrophe bond will price lower than the first.