Andover’s Locke Tavern Re cat bond size target narrows at ~17% price drop

The Andover Companies, a large mutual insurance group in the Northeast US, is seeking even more favourable execution for its debut Locke Tavern Re Ltd. (Series 2023-1) catastrophe bond issuance, with the size target narrowed towards the upper-end, while a second update to spread guidance suggests a ~17% price drop is possible.

For a first time sponsor of catastrophe bonds, the Andover Companies will be delighted with the reception it has received from the cat bond investor community.

When it first came to market in late February, the insurance group was aiming to secure $125 million of collateralized and multi-year reinsurance from this Locke Tavern Re cat bond.

Then, we reported earlier this week that the Locke Tavern Re cat bond had a new and higher target for between $125 million and $175 million of reinsurance for the sponsor, while at the same time the price guidance had been reduced.

Now, sources have told us the target size for the issuance has been narrowed towards the upper-end of that range, with between $150 million and $175 million of reinsurance sought from the Locke Tavern Re cat bond by the Andover Companies.

In addition, the pricing guidance has dropped further, pointing to a chance of particularly strong execution for the sponsor.

The cat bond notes Locke Tavern Re Ltd. will issue have an initial base expected loss of 0.919% and were first offered to cat bond funds and investors with spread guidance in a range from 5.5% to 6.25%, with that guidance subsequently narrowed and lowered to between 5% and 5.5% earlier this week.

Now, that price guidance has been slashed again, with the notes now offered with a spread of between 4.75% and 5%, at which level the drop in price would be around 17% from the initial mid-point of guidance.

Meaning the Andover Companies could secure its first cat bond as much as 40% larger than its initial target, with pricing around 17% lower than initially anticipated.

Of course, it’s important to look at the multiple-at-market, which at the mid-point of the new lower guidance, a spread of 4.875%, would still be 5.3 times the base expected loss.

The market is running at an average multiple of just over 5 times EL at this stage of the year, so with this being a northeast risk, rather than southeast, the covered perils are US named storm, severe thunderstorm, winter storm, earthquake across a range of northeast US states, that multiple appears aligned with other recent issues, despite the chance of a significant price drop.

You can read all about this new Locke Tavern Re Ltd. (Series 2023-1) catastrophe bond, as well as details on over 900 other cat bond transactions in the extensive Artemis Deal Directory.