‘Landmark' parametric earthquake catastrophe bond comes to market
A deal to bring a “landmark” parametric catastrophe bond, designed to protect against mortgage default caused by earthquakes and issued by issued by Sierra Ltd on behalf of Bayview's MSR Opportunity Fund (Bayview), has closed bringing $225 million Series 2020-1 principal at-risk variable rate notes to market.
Under the deal, Sierra Ltd, a special purpose vehicle (SPV) based in Bermuda, will issue two classes of principal at-risk variable rate notes. Bayview has a derivative agreement with the SPV, which provides protection on a parametric per occurrence basis against earthquakes. The notes are for a three year period and protection payouts are triggered using US Geological Survey data.
Deal advisors, Swiss Re Capital Markets, the reinsurer’s insurance-linked securities (ILS) division, said the agreement represents the first cat bond issued under Rule 144A with a parametric trigger that covers mortgage default risk as a result of earthquakes in California, Oregon, Washington and South Carolina.
Jean-Louis Monnier, head of Retro & ILS Structuring of Swiss Re's Alternative Capital Partners said: “We're proud to have worked with Bayview in structuring and placing the first parametric catastrophe bond designed to protect against mortgage default caused by earthquakes. Parametric solutions help speed up the claims process, while offering greater transparency to investors. This landmark transaction underscores the potential of the capital markets in helping to reduce the hedging gap and build resilience against uninsured risks prevalent in the U.S. mortgage markets.”
Swiss Re Capital Markets acted as the sole structuring agent and joint-bookrunner.
