Radian Guaranty, the US mortgage insurer entity of the Radian Group, has returned to the capital markets in search of collateralised reinsurance with what could be its largest mortgage insurance-linked securities (ILS) issuance since the pandemic outbreak, as it looks to sponsor a nearly $498 million Eagle Re 2021-1 Ltd. transaction.
Radian Guaranty sponsored two mortgage insurance-linked securities (ILS) issuances in 2020, a $488 million Eagle Re 2020-1 transaction just before the COVID-19 pandemic outbreak escalated and more recently a $390.3 million Eagle Re 2020-2 in October.
Now the mortgage insurer is back for its first slice of capital markets backed and fully collateralised mortgage reinsurance, secured using a catastrophe bond like structure, as it targets issuance of nearly $498 million of notes through Bermuda special purpose insurer Eagle Re 2021-1 Ltd., which if successful will be Radian’s fifth mortgage ILS issuance so far.
Issuance of these mortgage insurance-linked notes arrangements already sits at nearly $1.5 billion in 2021. All are detailed in the Artemis Deal Directory, which you can filter to display just mortgage ILS deals.
The latest issuance features a proposed nine tranches, but three of which are exchangeable notes, as one Class M-2 tranche can be exchanged for positions in three sub-classes after the issuance is completed.
In total, across all the tranches, the issuance targets almost $498 million of reinsurance coverage for Radian, with the notes set to be sold to investors, the proceeds used to collateralise reinsurance agreements between Eagle Re 2021-1 Ltd. and Radian Guaranty Inc.
This will be the first Eagle Re mortgage ILS transaction from Radian to have a 12.5-year term, with the notes scheduled for final maturity on October 25th 2033.
Extending the coverage duration, even for these amortising arrangements, is attractive for the US mortgage insurers, as it allows them to lock in reinsurance from the capital markets for even longer.
This is also the first Eagle Re mortgage ILS deal to use the Secured Overnight Financing Rate (SOFR) for the base for its coupon rates, instead of the previously used Libor.
With Libor set for retirement the recent $580 million Bellemeade Re 2021-1 mortgage ILS from Arch Capital Group was the first to use this new benchmark rate.
The Eagle Re 2021-1 Ltd. mortgage ILS transaction is structured as follows, with ratings from DBRS Morningstar and Moody’s:
— $82.96 million Class M-1A (DBRS Morningstar: BBB (sf); Moody’s: A3 (sf))
— $82.96 million Class M-1B (DBRS Morningstar: BBB (low) (sf); Moody’s: Baa1 (sf))
— $165.9 million Class M-1C (Moody’s: Baa3 (sf))
— $110.6 million Class M-2 (Moody’s: Ba3 (sf))
——— $36.9 million Class M-2A (Moody’s: Ba2 (sf))
——— $36.9 million Class M-2B (Moody’s: Ba3 (sf))
——— $36.9 million Class M-2C (Moody’s: B1 (sf))
— $27.7 million Class B-1 (Moody’s: B2 (sf))
— $27.7 million Class B-2 (Moody’s: B3 (sf))
There is another nearly $27.7 million Class B-3 tranche which may be offered after the closing of the first nine tranche issuance, should the sponsor elect to, we understand.
Capital markets backed reinsurance funding, secured through these mortgage ILS deals, has become a key lever for the US mortgage insurance market, helping it to expand while protecting insurer PML’s and as Radian has said before, benefiting from access to capacity that helps ultimately lower its own cost-of-capital.