The second parametric earthquake catastrophe bond Sierra Ltd. (Series 2021-1), sponsored by specialist mortgage security focused investment manager Bayview Asset Management, LLC, has now been successfully upsized to $200 million, while pricing for each of the two tranches of notes has settled at the bottom end of reduced guidance.
The upsizing and low pricing of this latest parametric catastrophe bond deal is a sign of elevated investor appetite for new cat bond opportunities at this time.
Bayview returned to the catastrophe bond market earlier this month, sponsoring its second transaction to secure an expanded source of parametric insurance protection from the capital markets for its Cayman Islands based Bayview MSR Opportunity Master Fund, LP mortgage focused investment strategy.
At first this cat bond was marketed as a $150 million issuance, seeking collateralized insurance and reinsurance protection for the mortgage investor.
But with demand for cat bond investments currently high, it has now successfully been upsized to $200 million, we’re told.
At the same time as increasing in size, the pricing has now been fixed for each of the two tranches of notes at the bottom-end of a the already reduced coupon guidance.
At the level the coupons have settled, this cat bonds coverage now looks cheaper than Bayview’s first cat bond from a year ago.
More details on the transaction can be found in our Deal Directory.
Sierra Ltd., a Bermuda domiciled special purpose insurer (SPI), is going to issue and sell to investors two classes of catastrophe bond notes.
The proceeds from this sale will be used to collateralize underlying insurance or reinsurance like risk transfer agreements between the counterparty mortgage investment fund and Sierra Ltd.
The notes will provide the mortgage investment fund with now $200 million of earthquake insurance protection across the U.S. states of California, Oregon, South Carolina and Washington, with coverage on a parametric trigger and per-occurrence basis across a three year term.
The Class A notes were first pitched at $100 million in size, but have now been successfully increased to $150 million.
In terms of pricing, the Class A notes that have an expected loss of 0.79% were first offered to investors with a coupon in a range from 3% to 3.25%, but the price guidance was then reduced, to 2.7% to 3%.
We’re now told the $150 million of Class A notes have been priced at the low-end, at 2.7%, representing a 14% decline in pricing from the initial mid-point during marketing.
The riskier Class B tranche of notes are still a $50m million issuance, with an initial expected loss of 2.71%. This tranche were first offered with coupon price guidance of 5.25% to 5.75%, but that was reduced to 4.75% to 5.25%.
We’re now told this $50 million Class B tranche of notes have been priced at the low-end of reduced guidance as well, with a coupon of 4.75% and so representing a 14% drop in pricing from the initial mid-point.
The two tranches of notes have the same initial expected loss as 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%, which means this new Sierra parametric cat bond has priced around 17% lower than a deal issued a year earlier.
It’s important to note, we’re not privy to enough information about this cat bond transaction to know what differences there may be in the covered risks, or exposures, that could warrant such a drop in pricing.
But it is clear that, changes in the terms and coverage aside, the strong appetite of investors and ILS funds has been very supportive of strong execution for Bayview Asset Management for this its second catastrophe bond.