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Londons cobalt underwriting boosts islamic insurance capacity

´╗┐London-based Cobalt Underwriting said it was signing the European unit of QBE to its sharia-compliant insurance platform, helping address capacity constraints in the takaful (Islamic insurance) industry. The Cobalt platform is part of a range of initiatives aimed at boosting London's credentials in the Islamic finance industry, which follow religious guidelines such as a ban on interest and pure monetary speculation. Cobalt will has increased its capacity to underwrite property risks to $425 million from $300 million, construction to $160 million from $100 million and an additional $50 million for casualty risks, the firm said in a statement."It has long been our intention to broaden the range of products we offer since our launch last year, and we will continue to do so," said Cobalt chief executive Richard Bishop. The platform uses a syndication model to help spread risk across a panel of underwriters, allowing multiple insurers to pool their capacity while each can subscribe to the desired level of risk though individual Islamic windows.

The risk is priced by a lead insurer and other firms must then subscribe under similar terms, a similar approach to the subscription model used in London's Lloyds insurance market.

CAPACITY Cobalt, formed with capital from Capita insurance services and the Bank of London and The Middle East, hopes to address gaps in the takaful and re-takaful sectors. Takaful is based on the concept of mutuality, where a company oversees a segregated pool of funds contributed by policy holders.

The firm seeks to underwrite large transactions of no less than $30 million in value, and further capacity could be added for other risks including trade finance, Islamic finance institutions, energy and aviation. Operators in the takaful sector, which has its core markets in the Gulf and southeast Asia, have been limited in their ability to take on large commercial risks partly due to a lack of scale. Reinsurance options are also scarce, with some takaful firms forced to reinsure through conventional lines, a practice allowed under the concept of darura, or extreme necessity. Industry purists, however, are increasingly challenging whether the darura concept is still applicable in today's market and are encouraging alternatives.

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Lpc leverage levels hit post crisis high in europes loan market

´╗┐Nov 17 Leverage levels are hitting post-crisis highs in Europe's leveraged loan market as borrowers tap into a wave of liquidity from lenders competing to get on a limited number of deals. Banks and institutional investors have had very little opportunity to put new money to work in 2016, hit by a flood of refinancings and repricings, in light of a limited number of event-driven deals. In a bid to put cash to work, they are the accepting more aggressive loans. Around 20 banks are chasing a potential financing to back BC Partner's bid for German bandage and plaster cast maker BSN Medical and are offering financing packages totalling 8.0 times debt to Ebitda, comprising 7.25 times through loans with an extra 0.75 times turn of leverage through PIK notes. Senior leverage on top end deals in Europe's leveraged loan market is now regularly hitting 5 to 5.5 times debt to Ebitda."The market is very aggressive. Leverage is hitting 7 to 8 times on the top end deals and regularly 5 to 5.5 times through the senior. It is where you have to play if you want to stay in the game," a senior leveraged finance banker said.

It isn't just the western European loans that are pulling in the aggressive terms -- total leverage on a Z5.14bn (US$1.24bn) loan backing Cinven, Permira and Mid Europa's acquisition of Polish e-commerce businesses Allegro and Ceneo is cited at 6.5 times. In order to compete with strategic buyers, private equity firms are offering increasingly higher valuations. The aggressive financings and high leverage levels are still being underpinned with large equity cheques. Allergo's transaction is underpinned by an equity cheque in excess of 60%.

BIG APPETITE Banks are able to offer such high leverage because they are confident they can sell the financings. High European CLO issuance coupled with new managed accounts and increasing appetite from banks for term loans, means there are a growing number of buyers hungry for the paper.

"The likelihood you get stuck with a deal is very unlikely," the senior leveraged finance banker said. The buyers are more focused on the credits than the high leverage levels, low pricing or aggressive documentation that accompanies them, several bankers said."The market would be prepared to push back if it felt it had got it wrong but it is also prepared to be sanguine and more tolerant of high leverage on good deals," a syndicate head said. It is expected that an introduction of leverage lending guidelines in Europe, similar to those in the US, would calm things down and will create a natural cap. It is already affecting some banks questioning whether to underwrite anything over 6 times leveraged."The market is very aggressive and I don't see that changing rapidly in 2017. The market will continue to see pressure for aggressive leverage. As long as the market is artificially supported by the ECB we won't see a change. There will be a transition period and leverage guidelines in Europe will calm things down. It will have an impact on the market," the senior leveraged finance banker said.