Bermudian insurer Axis Capital has taken advantage of a cheap borrowing market and doubled its syndicated credit agreement to $1.5 billion. Roger Thompson, treasurer at Axis, said he has never seen so much cheap banking capacity for insurers. The company decided to renew its credit agreements partly because of the cheaper financing deals that its Bermudian competitors had done with their banks. "It was crazy for us not to have done it," said Thompson. Axis will use the financing to pay claims and to support its growing U.S. subsidiaries.
The financing consists of an unsecured, five-year, $500 million revolving credit facility priced at LIBOR plus 37.5 basis points, and an unsecured, five-year, $1 billion letter of credit facility, which has a drawdown fee of 37.5 basis points and an un-drawn fee of 8 basis points. The credit agreement replaces an unsecured, three-year, $300 million revolver priced at LIBOR plus 50 basis points, and an unsecured, three-year, $450 million letter of credit facility, which had a drawdown fee of 50 basis points and a un-drawn fee of 10 basis points.
JPMorgan and Barclays Bank lead the credit. In all, 16 banks took part in the syndication. The company chose JP Morgan and Barclays because of its prior relationships with the banks as well as the large amount both banks were willing to commit.
Axis entered the credit agreement shortly before Hurricane Katrina, which could be the insurance industry's largest loss, according to some modeling agencies' estimates. The small amount of losses the industry has incurred in the past few years has attracted banks to lend to the industry. But this may change because of recent hurricane losses. "The timing was fortunate," said Thompson. "Some banks are probably reconsidering their exposure after Katrina."