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Reinsurance Group of America Prices Baby Bonds

Giant reinsurance company Reinsurance Group of America Inc has priced a new giant issue of baby bonds (subordinated debentures) with a maturity date in 2052.

The issue starts with a fixed rate of 7.125% until 2027 after which it will reset to the 5 year treasury plus a spread of 3.456%. The issue will reset every 5 years after that.

The issue has an early call option available to the company starting in October, 2027.

The company has 2 other outstanding baby bonds which can be seen here. The company intends to call the RZA issue with proceeds from this offering–and in fact has already announced the redemption here.

The final prospectus can be found here.

Eugene was on this one.

16 thoughts on “Reinsurance Group of America Prices Baby Bonds”

  1. Reinsurance Group of America Prices 7.125% Baby Bonds; CUSIP 759351885 last trade I saw was $25.64. I had an order in all day at $25.25 and did not execute.
    Money does not buy you happiness, but lack of money certainly buys you misery. I am Azure

  2. Question for anyone—why is the rate so high? Possibly because management believes that 5 years from now the reset rate will result in a much lower rate? Is there something I’m missing?

    1. Thinking about insurance companies in general, they all heavily rely in fixed income securities in their investment portfolios, don’t they? To generalize, they don’t trade them but hold to maturity as a way of attempting to match p future liabilities… Doesn’t that mean that given the explosive increase in interest rates this quarter that they will most likely be prone to headline sized potential drops in income due to being forced to report marked to market numbers? They’ll be not terribly meaningful numbers but they will be headline numbers so maybe that’s been taken into consideration in the pricing of this issue….. This is absolutely based on personal opinion only. No fact was harmed in producing this.

      1. I also wonder why it is so high. I posted a comparison on “Headlines of Interest” to the recent issue by VLY. RGA, with significantly higher credit ratings, is paying well more than VLY – some, but I don’t think all, of which can be explained by the longer maturity for the RGA notes. I don’ know.
        The unrealized (but not unreal) loss in value of holdings doesn’t appear directly in the income statement or calculation of EPS. It is, in effect, a direct charge against the book common equity. As I mentioned before, if the second half of this year is like the first, their book common equity is pretty much obliterated.

    1. 2WR, Is there any reason to tender? Doesn’t it make more sense to just sit tight and wait for the call?

      1. K – It depends on whether or not you expect RGA to come through with a call after the tender and then just how quickly it’ll happen if you do… if you think they’ll announce a call immediately after the tender and it closes essentially 30 days after, then it’s essentially a wash because you’re being paid a 20 cent premium to tender that’s made up in additional accrued over the 30 more days if it”s called… So imho, only if you think RGA will drag itrs feet in announcing a call after the tender does it not make sense to tender… . Personally, I’ve seen this kind of structure before and never remember running into a foot dragger. I’m tendering unless MR Market pays above tender price by Wednesday. It’s truly pennies either way but if you sell at 25.20 in the market, you lose out on a couple of pennies of accrued you’ll get pain on 9/26 (calculated only to 9/22).

      2. kapil – I posted some of this before. It depends how quickly RGA calls the remaining shares. I am betting they do not wait long and hence I am tendering my shares

        The tender offer may be a few pennies better.

        RZA is now earning 7.66257% from 9/15 forward

        The tender offer says they will pay $25.20 plus accrued interest til 9/23
        so 7 days interest based on a 360 day year = 3.7 cents – thus $25.237/share

        If they issue a 30 day notice on 9/23 to call the remaining RZA shares that is 38 days of interest from 9/15 or 20.22 cents

        If the call is delayed a week then you could earn more interest not tendering but it’s a minimal difference either way (assuming they call as they have stated they will)

  3. Tim – I think you have the wrong ticker in the chart. RZA is the existing issue that has a tender offer and then likely call out on it

    1. Thanks Maverick61–can’t get through a single chart without an error I guess.

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