The $100m of still outstanding catastrophe bond notes from the loss-facing MultiCat Mexico Ltd. (Series 2012-1) Class C cat bond deal have been priced by brokers back at around the 50 cents on the dollar mark, reflecting the increasing likelihood that the tranche only faces a 50% default.
After the impact of hurricane Patricia which looked likely to cause a total loss of the MultiCat Mexico Class C notes, due to the record intensity of the storm, the price of the notes in the secondary market dropped to as low as 4.25 cents on the dollar.
There were even a number of trades that went through at this low level as speculative investors essentially bet that the notes would not face a total loss. More trades took place around 9 cents on the dollar and later the notes recovered a little ground, to around the 20 cents mark.
Those speculators must be rubbing their hands after yesterday’s news showed that the likelihood has shifted towards the notes only facing a 50% loss. Anyone who bought at the lowest levels stands to profit greatly should that be the final determination.
As of today, Friday 5th February 2016, the notes are now being offered by secondary market cat bond trading desks at around the 50 cents on the dollar point, according to sources, reflecting the feeling that a 50% loss of principal is the most likely outcome.
Of course it is not yet certain, the final calculation agent report is required before the fate of the notes can really be understood by investors in the cat bond tranche.
But yesterday’s news seems to have been sufficient to encourage brokers to mark up the positions in their pricing sheets and as a result most ILS and cat bond fund managers holding the notes will be doing the same today.
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