144A cat bond
A catastrophe note issued under US Rule 144A, tradable among qualified investors and carrying a full prospectus.
April 1990: the SEC adopted Rule 144A, which allows resale of unregistered securities among qualified institutional buyers, QIBs. The public cat bond market was built on it. A 144A cat bond is issued without registration. It carries a detailed offering circular and a risk analysis from an independent modeler, sometimes a rating. And it can be resold: market makers quote it, and an investor can exit before maturity. Paper that cannot be resold demands an illiquidity premium and only draws buyers able to lock up capital for three years; 144A widens the buyer base and brings down the spread required. The trade-off is time and fixed costs: full documentation, independent modeling, a rating where needed. That rarely makes sense below about a hundred million. Hence the lighter private formats, for small or unusually structured deals, which do not trade.
A 250 million dollar 144A issue in 2026 takes four months to prepare and about 1.6 million dollars of fixed costs, that is 64 basis points of principal. The note then trades in the secondary market at an average bid-ask spread of 70 basis points. A 30 million private deal by the same sponsor takes five weeks for 210,000 dollars of costs, but cannot be resold.
144A cat bond, Rule 144A catastrophe bond, public cat bond
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