What is a New Issue Concession?
The additional spread offered on newly issued cat bonds versus comparable outstanding bonds to attract investor participation.
New Issue Concession
The additional spread offered on newly issued cat bonds versus comparable outstanding bonds to attract investor participation.
How it works in practice
A cat bond sponsor brings a new deal covering California earthquake risk. Comparable bonds in the secondary market trade at a spread of 5.5%. To attract investors to the new, less liquid issue, the sponsor prices the bond at 6.25%. The 0.75% difference is the new issue concession. Once the bond seasons and secondary trading develops, its spread typically tightens toward the level of comparable outstanding issues.
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