31 March 2021ILS

Arch MI secures $643m of indemnity reinsurance via its first SOFR-linked Bellemeade Re deal

Arch Mortgage Insurance Company (Arch MI) has secured over $643 million of indemnity reinsurance on a pool representing approximately $38 billion of mortgages from Bellemeade Re 2021-1, a special purpose reinsurer.

The coverage was obtained by issuing approximately $580 million in bonds and $64 million in direct reinsurance. It largely covers a portfolio of MI policies issued by Arch MI and affiliates from September through November 2020.

The deal is Arch’s first mortgage insurance-linked note (MILN) of 2021 and the 15th Bellemeade transaction since the programme’s inception in 2015. It is also the first MILN to use the Secured Overnight Financing Rate (SOFR) as the benchmark rate for pricing — replacing the long-standing use of the London Inter-Bank Offered Rate (LIBOR).

Bellemeade Re 2021-1 is funding its reinsurance obligations through the issuance of five classes of amortising notes with 10-year legal final maturities.

The senior M-1A class received an A1 rating from Moody’s Investor Service and BBB (high) from DBRS Morningstar, while the M1B class received an A3 from Moody’s and BBB from DBRS Morningstar. The M-1C, M-2 and B-1 received Baa3, Ba3 and B3 ratings, respectively from Moody’s but were not rated by DBRS Morningstar.

Arch also created a B2 class of notes for this transaction that it will not issue at this time.

Pricing detail for the five classes of offered notes is below:

Arch issued $188.8 million in class M-1A notes with a coupon equal to one-month SOFR plus 175 basis points and $118.2 million in class M-1B notes with a coupon equal to one-month SOFR plus 220 basis points. There were $138.6 million of class M-1C notes with a coupon equal to one-month SOFR plus 295 basis points, and $112 million class M-2 notes with a coupon equal to one-month SOFR plus 485 basis points. It issued $21.3 million in class B-1 notes with a coupon equal to one-month SOFR plus 675 basis points. A total of $63.9 million was placed with a panel of reinsurers.

Jim Bennison, Arch MI’s executive vice president of alternative markets, said attracting nearly 30 investors to its first Bellemeade transaction of the year demonstrated the maturity of the programme.

“As the leader in the space, it is important to demonstrate a seamless transition from LIBOR to SOFR to establish a precedent that we expect other MILN issuers to follow,” he said.

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