Item 8.01 Other Events
As previously disclosed, National Mortgage Insurance Corporation (NMIC) entered
into excess-of-loss reinsurance agreements with Oaktown Re Ltd., Oaktown Re II
Ltd. and Oaktown Re III Ltd. (special purpose reinsurance entities collectively
referred to as the Oaktown Re Vehicles) effective May 2, 2017, July 25, 2018 and
July 30, 2019, respectively. We refer to NMIC's reinsurance agreements with and
the insurance-linked note issuances by the Oaktown Re Vehicles individually as
the 2017 ILN Transaction, 2018 ILN Transaction and 2019 ILN Transaction, and
collectively as the ILN Transactions. Each ILN Transaction provides NMIC with
aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage
insurance policies written during a discrete period. The Oaktown Re Vehicles are
required to fully collateralize their outstanding reinsurance coverage amount to
NMIC with funds deposited into segregated reinsurance trust accounts.
Based on delinquency information currently reported to NMIC, the 2018 ILN
Transaction and the 2019 ILN Transaction will be subject to a delinquency
trigger event that is being reported to ILN investors on June 25, 2020. A
delinquency trigger event is defined to occur if, among other things, the
sixty-plus delinquency percentage for the applicable pool of mortgage insurance
policies is greater than or equal to 4.0%. The sixty-plus delinquency percentage
is calculated based on the percentage of mortgage loans in the applicable pool,
based on their adjusted risk in force, that are reported to be 60 or more days
delinquent in payment of principal and interest, including (without duplication)
mortgage loans as to which the related properties are subject to foreclosure
proceedings, mortgage loans as to which the related mortgagors are subject to
bankruptcy proceedings and mortgage loans as to which claims are pending.
In addition, the 2017 ILN Transaction will be subject to a credit enhancement
trigger event that is being reported to ILN investors on June 25, 2020, which is
triggered when the credit enhancement of the reinsurance coverage falls below a
pre-agreed target percentage and the sixty-plus delinquency percentage for the
applicable pool of mortgage insurance policies is greater than or equal to 2.0%.
The amortization of principal for all three of the ILN Transactions will be
suspended upon the occurrence and during the continuation of a trigger event
and, consequently, during such period capital will be preserved in the
applicable reinsurance trust account to collateralize the reinsurance coverage
to NMIC.
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