This won’t surprise anyone who has been following the catastrophe bond market in recent weeks, the latest cat bond in the market, Pelican Re Ltd. Series 2013-1, has seen its pricing drop during marketing and is likely to upsize to $140m before it closes. Following the trend for recent transactions the Pelican Re 2013 cat bond looks set to secure sponsor Louisiana Citizens Property Insurance Corporation a larger and cheaper slice of reinsurance cover.
According to sources we’ve spoken with today the Pelican Re 2013 cat bond is being marketed with the potential for it to upsize from its original $100m to a newly marketed figure of $140m. This is slightly unusual as normally we just hear that a deal ‘has’ upsized, where as in this case we’re being told by sources that there is a strong likelihood that Pelican Re will increase in size to $140m before close. Given the cat bond market environment in recent weeks and the appetite of investors we’d imagine that means upsizing is almost a given.
We would imagine that the reason that it is now being marketed with a ‘potential’ to upsize to $140m is because Louisiana Citizens is restricted by its risk transfer budget and so will likely increase the deal in size just as much as the pricing will allow. Given that this cat bond is now also being marketed with a reduced coupon we feel it’s likely that the sponsor will benefit from a larger transaction.
The Pelican Re 2013 cat bond launched with pricing guidance of 7% to 7.5%. We’re told that has now dropped to a coupon guidance range of 6.5% to 7%.
As we explained in this article on the deal just over a week ago this transaction features a novel on-request drop-down facility that will enable the sponsor to adjust exactly where the coverage sits in its overall reinsurance program. This feature promises to make the coverage more flexible for the sponsor, as it allows them to reset the attachment point and move the coverage down its reinsurance tower, making the attachment probability higher and also raising the coupon paid to investors at the same time.
To facilitate this the Pelican Re 2013 cat bond launched with a maximum possible coupon price range of 10% to 10.75%. This range has been lowered inline with the reduction in the initial coupon guidance, and now sits at 9.75% to 10% we understand.
So this is just the latest cat bond to have a chance of securing its sponsor a larger layer of reinsurance protection at a more attractive price, by having the potential to upsize and its price guidance dropping.
Update, 25th April: The pricing on this cat bond dropped again.
We’ll update you as the deal progresses to market. We understand that Pelican Re Ltd. Series 2013-1 is expected to price next week and settle the week after. You can read all about the transaction in our article on the novel drop-down feature and in our catastrophe bond Deal Directory.