“We continue to believe in the merits of this compelling opportunity and are pleased to be making this revised offer,” said Marc Grandisson, President and Chief Executive Officer of Arch. The transaction is expected to close in the first quarter of 2021 and remains subject to customary closing conditions, including regulatory and shareholder approval.įollowing this announcement, Arch will assign its interests and obligations under the merger agreement to a newly formed entity of which Arch will own approximately 40%, and funds managed by Warburg Pincus LLC (“Warburg Pincus”) and Kelso & Company (“Kelso”) will each own approximately 30%. This revised all-cash consideration is valued at approximately $700 million and represents a premium of approximately 96% to Watford’s unaffected closing common share price on September 8, 2020, the last trading day prior to media reports about the possibility of a transaction between Watford and Arch. (NASDAQ: WTRE) (“Watford”) today announced a revised definitive agreement under which Arch will acquire all of the common shares of Watford for an increased price of $35.00 per share. (NASDAQ: ACGL) (“Arch” or “the Company”) and Watford Holdings Ltd. PEMBROKE, Bermuda-(BUSINESS WIRE)-Arch Capital Group Ltd. Watford Shareholder Enstar Group to Support Revised Transaction ![]() Some issuers have been buying back their bonds at a premium to par mostly, according to BofA Securities.Warburg Pincus and Kelso & Company to Join Arch Capital Group as Investment Partners in Watford Holdings Transaction Old deals no longer provide as much relief as they used to given the changes, so issuers have been slowly buying them back. The market’s tentative comeback attracted buyers such as Ares Management Corp and Blackstone Inc this year, Bloomberg reported in October, drawn by yields that range from high single digits to mid-double digits.įor insurance linked securities, trading volumes, though usually fairly low, will remain below previous levels for now for those bonds, one holder of the securities predicted, asking not to be identified as they weren’t authorised to speak publicly.Įven before the S&P ratings changes that became effective last month, the US$7.5bil market where insurers sell the risk tied to mortgage insurance debt had been going through changes this year.įor some insurers, the S&P changes may end up reducing the role of credit risk transfer (CRT) bonds in managing their capital. More banks have been selling credit risk transfer notes to effectively offload exposure from pools of loans, such as auto debt. ![]() “The decision took the market by surprise as those bonds were typically trading above par,” said Pratik Gupta, mortgage backed security strategist at Bank of America in an interview.Ī representative for Arch Capital declined to comment beyond the public statement, while a spokesperson for S&P also declined to comment. Bonds that traded for as much as about 106 cents on the dollar were bought back at face value. The company elected to call the debt because it became less effective at reducing its capital requirements under S&P’s new guidelines. On Monday, Nov 20, soon before the US Thanksgiving holiday, Arch Capital announced it was calling eight securities. ![]() Selling these insurance-linked securities had lowered its capital requirements for ratings purposes.īut S&P Global Ratings last month simplified its capital requirements for mortgage insurance, in a way that limited the benefits of structured reinsurance, which is essentially what insurance-linked securities offer. “There’s going to be a question for what qualifies as callable.”Īrch Capital provided insurance for mortgages and sold bonds that allowed it to share some of that risk with investors: holders of the notes would take losses if enough homeowners defaulted on their loans. “Bond buyers need to look at the documents closely,” said Ben Hunsaker, head of structured credit at Beach Point Capital Management. Investors were reminded that they need to look carefully at when their credit risk transfer bonds can be pulled away from them at face value, potentially handing them losses. ![]() More financial institutions including banks are looking to use bonds to shift credit risk to other investors, and cut their capital requirements in the process. The implications of Arch’s move could be felt widely. NEW YORK: A normally sedate part of the debt markets used by the finance industry to transfer mortgage default risk has been roiled after insurer Arch Capital Group Ltd called US$1.7bil of the securities at par when they had been trading at a premium.
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