Swiss Re will issue a catastrophe bond deal later this month led by Lehman Brothers, according to a buy-side investor. Called Redwood Capital 2, after the first series issued in December (BW, 12/24/01), the deal size should be approximately $200 million. Goldman Sachs, the other major CAT underwriter, will not be part of this deal, according to this investor. Michael Millette, a v.p. and CAT banker with Goldman, declined comment. The investor adds that the transaction is likely to get an investment-grade rating. At present, only 10% of the $2 billion in outstanding CAT bonds are investment-grade. Five percent of outstanding CAT bonds are rated single-B while the remainder are double-B.
Paul Puelo, senior v.p. with Lehman Brothers, did not comment. Judy Klugman, senior v.p. distribution with Swiss Re, declined comment, invoking Securities And Exchange Commission regulations on privately placed transactions.
CAT bond issuance enables re-insurers like Swiss Re to remove risk from their balance sheets and offers a potentially cheaper cost of funding versus re-insurance premium. Sell-siders note that the CAT pipeline is pretty light so far this year. One of the reasons offered for this is that re-insurance rates did not spike as high as expected in the aftermath of Sept. 11, making bond issuance not as attractive an alternative.