Build America Mutual (BAM), a mutual bond insurance company, has announced that it will bolster its claims paying resources by issuing US $100 million of bonds to the capital markets via an insurance-linked securities (ILS) arrangement with Bermudian special purpose insurer (SPI), Fidus Re.
This collateralized reinsurance arrangement will cover losses on a pre-defined portion of BAM’s financial guarantee insurance portfolio, and on an aggregate basis for losses in excess of $165 million.
Fidus Re, which was created solely to provide collateralized reinsurance protection to BAM, will issue a Class A tranche of notes with a twelve-year term.
Seán W. McCarthy, Chief Executive Officer (CEO) of BAM, said: “As a mutual insurer, BAM was designed to generate unparalleled capital strength to support its guaranty and benefit our investors and issuer members. We have delivered on that promise with capital strength well in excess of rating agency and regulatory requirements.
“This transaction, the first of its kind, is a creative way for us to expand that surplus even further at an attractive price, which speaks to the quality of BAM’s insured portfolio and the strength of BAM’s position in the marketplace.”
Robert Cochran, Chairman and Managing Director at BAM, also commented: “Having a stable and durable foundation of financial strength allows BAM to remain focused on our mission: Providing efficient capital markets access to U.S. public sector issuers who finance essential public infrastructure, and serving municipal bond investors with durable ratings, transparency, and protection against default.
“This foundation was built into our structure from day one when BAM was organized as a mutual insurer, has continued as we have grown our capital base organically, and is further enhanced today by the Fidus transaction.”
Headquartered in New York, U.S., BAM is sponsored by the National League of Cities and is a mutual insurer operated for the benefit of its members, which include cities, states, and other municipal entities, and which use BAM’s financial guarantee to lower their cost of borrowing.
