Beazley Insurance DAC became the latest beneficiary of the search for higher yielding assets last week, attracting books of over US$1.5bn for a US$300m 10-year Reg S Tier 2.
The problem of low yields has been particularly acute in Europe, where almost half of investment-grade euro debt now carries a negative yield, according to Tradeweb data. But falling US Treasury yields have also prompted a stampede for assets that offer decent returns.
“We’ve seen quite a few issuers go down the Reg S US dollar route recently, be it insurance companies or banks raising Additional Tier 1,” said a lead DCM banker. He said this proven seam of demand was the reason Beazley had opted for US dollars over sterling, the other option on the table.
Swiss Re was overwhelmed by over US$8bn of demand for a US$1bn perp non-call five the week before last, a deal that came after a US$500m AT1 from Swedbank the previous Thursday that saw books of US$4.75bn.
“If you look at the Treasury curve and what investor expectations around rates are, it’s not really surprising,” the banker said.
Leads JP Morgan Cazenove, Lloyds Bank Corporate Markets Wertpapierhandelsbank and NatWest Markets started marketing at IPTs of 6% area but were able to quickly tighten to 5.625% area (+/-0.125%) and then fix at the tight end of that range.
Ten-year Treasury yields had dropped over 100bp since the start of the year, quoted at 1.50% on Tuesday afternoon when the deal was priced. The five-year was just inside 1.40% from 2.5% in early January.
The Fed lowered rates by 25bp in July for the first time since 2008 and some believe it will cut further at the next meeting in September.
“My perception is that we didn’t see a huge amount of dollar Reg S issuance for a while as many had expected the US to hike rates,” the banker said. “That has changed and is leading to good demand, especially for this type of product, which is very attractive based on where we expecting US rates to go.”
The deal followed investor presentations in Hong Kong, Singapore and London for either a US dollar or sterling trade. Beazley met around 50 accounts.
The transaction will be used to repay a £75m fixed note due 2019 issued by Beazley Ireland Holdings plc and for general corporate purposes as the company looks to grow its business.
“The past nine months have seen a material change in sentiment in our market as heavy claims in numerous lines of business have driven prices higher,” the company said in its half-year results.
It said its 2019 business plan had envisaged rises well below what it had actually seen in the first half of the year.
“We accordingly see opportunities for growth in lines of business such as marine and aviation, as well as property, where margins now look healthier than they have been for some years,” it said.
The transaction emerged as Hurricane Dorian was pounding the Bahamas, before an expected shift towards the US coast. UBS has estimated it could cause industry losses of up to US$25bn. Swiss Re, Lancashire and Beazley have exposure to the US market, according to traders.
“It came up in conversations,” the DCM banker said, “but it’s way too early to tell what the impact is going to be.”