Despite inclement conditions the first time around, J.P. Morgan & Co. and Union Bank of Switzerland are counting on the winds being in their favor as they syndicate a $1.5 billion refinancing for the Florida Residential Joint Underwriting Association.
The lead banks, which each underwrote $250 million of the transaction, held a meeting at J.P. Morgan headquarters Thursday for commitments to the loan for the joint underwriting association, a group formed in 1993 after the devastation from Hurricane Andrew forced some insurance companies flee the state.
The original loan came to market both during hurricane season in 1995 and at the same time as a $1 billion Chase-led loan for a similar insurer against catastrophes, the Florida Windstorm Underwriters Association.
Bankers insist that the financial strength of the residential underwriters group and the lack of a competing transaction make the new deal an easier sell.
"There's nothing clouding the lender's view," said Richard Herder, a vice president in the loan syndication group at J.P Morgan.
Bankers on the original deal said that commitments of $125 million were allocated $116 million, which made the original deal a challenge.
But the climate is decidedly different this time around, said the lead bankers, which should give the transaction a more favorable reception.
To begin with, the leaders are giving banks three and a half weeks to commit to the transaction.
The longer deadline is just one of a host of changes to the loan.
Instead of providing the first dollars in the event of a hurricane, the new loan stipulates that the underwriting association can exhaust other resources first. These include: a new $300 million pre-event bond issue, which J.P. Morgan is planning to start marketing the week of Feb. 24; a catastrophic reimbursement fund; and a regular assessment fund.
Officials at J.P. Morgan estimate the amount of capital available from these three sources at $1.5 billion.
Andrew Brown, a relationship manager at J.P. Morgan, said that the underwriting association has already levied and collected two regular assessments totaling approximately $40 million.
"Psychologically, this is comforting to the banks because it demonstrates that assessments can be levied and collected. They've proven that they can do it," said Mr. Brown.
Jay Newman Jr., an executive director for the underwriting association, said that the insurer is aiming to secure as much as $3 billion in total financial resources.
Part of this, he said, is a freeing up of capital from the catastrophe fund, which was constrained under terms of the earlier loan.
The syndication strategy is different for this loan, as the lead banks have invited a larger group of financial institutions to participate.
Additionally, UBS hopes to bring in a broad-based constituency of European banks.
"We are pleased to have a very credible joint arranger in this transaction that brings substantial resources and commitment and UBS has fulfilled that role," said Mr. Herder.
"They have a good reputation in the market among European and other international banks."
Managing agent commitment levels were reduced to $100 million from $125 million.
"Given the structural changes in the transaction, improved financial condition of the JUA, and investment grade ratings on the note issue, there was considerable interest in the managing agent tier," said Mr. Herder. "Therefore, we set a by-invitation-only $100 million level."
For $100 million commitment, banks receive a participation fee of 25 basis points; for a $75 million commitment, the banks get 20 basis points; at $50 million, 12.5 basis points; and at $25 million, 10 basis points.
The deal received some support from bankers who attended the meeting. "You'd have to conclude that the transaction was improved from the previous one," said a lender.
"The pricing is in line with the market," he said. The banker also said that he was comforted knowing that the underwriting association is putting the mechanism in place to issue bonds, which would provide long-term financing.
"In the event that they have to issue bonds, we know they can," he said.
