Global reinsurance firm Swiss Re has raised the upper-end target for its latest catastrophe bond, with the Matterhorn Re Ltd. (Series 2020-4) transaction now aiming to secure as much as $275 million of capital markets backed retrocession for the sponsor.
Swiss Re returned to the catastrophe bond market recently for what will be its fourth cat bond issuance of 2020 and fifth under the Matterhorn Re series, as the company demonstrates its growing commitment to sourcing retro reinsurance protection from insurance-linked securities (ILS) investor sources.
This latest Matterhorn Re cat bond launched with a target to secure $200 million of retro coverage for Swiss Re, evenly split across two tranches of notes.
The coverage from the 2020-4 Matterhorn Re deal is designed to protect Swiss Re against losses from U.S. named storms and hurricanes on an industry loss trigger and per-occurrence basis until the end of November 2021, so providing almost two full hurricane seasons of retrocession for Swiss Re.
Now, we understand from sources that Swiss Re is looking to upsize the transaction, if the pricing is sufficiently attractive.
As a result, the deal is now being marketed as an up to $275 million issuance, across the two tranches, which would be a nearly 38% increase from its launch.
Both tranches of notes cover the same layer of risk for Swiss Re, with an initial expected loss of 3.24%.
As the deal now stands, with pricing just a day or so away we’re told, the offering features a $50 million to $75 million Class A tranche of notes. This tranche had launched with coupon price guidance in a range from 10% to 10.75%, but we’re told this has tightened towards the bottom-end at between 10% and 10.25%.
Meanwhile, we’re told that the Class B tranche offering, which is structured to be issued at a discount to par, so akin to a zero coupon notes arrangement, is now targeting between $150 million and $200 million of notes. The Class B tranche launched with pricing guidance offered at 85% to 86% of par value, but this has been moved to 86% to 86.25% of par (so a reduced coupon equivalent), we understand.
With this issuance it seems Swiss Re is testing out the different payment structures, to see what can deliver greatest value. It has to be remembered that with the coupon based Class A notes there is likely a return from invested collateral assets to also consider, where as there may not be with the zero coupon Class B tranche. As a result, it’s challenging to compare.
We’re told this cat bond may now slip into July for settlement and become the first completed issuance of the third-quarter of 2020. With pricing set for later this week, we hope to have closing details in the coming days.