Arch MI issues its second mortgage ILN of 2020

Arch Mortgage Insurance Company (Arch MI), a subsidiary of Arch Capital, has obtained over $449 million of indemnity reinsurance on a pool representing approximately $32 billion of mortgages from Bellemeade Re 2020-2, a special purpose reinsurer.

The coverage was obtained by issuing approximately $423 million in bonds and $26 million in direct reinsurance. This transaction covers a portfolio of mortgage insurance policies linked to 117,562 loans and issued by Arch MI and affiliates, primarily in the first five months of 2020.

The mortgage insurance-linked note (MILN) transaction is Arch’s second of 2020. Its earlier MILN, Bellemeade Re 2020-1, was the first mortgage credit risk transfer (CRT) completed by any company in the COVID-19 era. The most senior class M-1A of notes received an A2 rating by Moody’s Investors Service and a BBB (high) from DBRS Morningstar.

The MILN is funding its reinsurance obligations through the issuance of five classes of amortising notes with 10-year legal final maturities.The deal includes just under $92 million class M-1A notes with a coupon equal to one-month Libor plus 230 basis points, and $95.5 million class M-1B notes with a coupon of one-month Libor plus 320 bps.

There are also $128 million class M-1C notes with a coupon equal to one-month Libor plus 400 bps, $89.8 million class M-2 notes with a coupon equal to one-month Libor plus 600 bps and nearly $18 million class B-1 notes with a coupon of one-month Libor plus 850 bps.

An additional $25.7 million was placed with a panel of reinsurers.

Jim Bennison, executive vice president, alternative markets for Arch MI, said: “Investors have gotten much more comfortable with mortgage credit risk over the past several months as the effect of COVID-19 on the housing market becomes clearer.

Investor interest in the deal was incredibly strong, he added, “as reflected in tighter credit spreads and a lower attachment compared to Bellemeade 2020-1.”