IPO Preview: Blue Capital Reinsurance Holdings Ltd.

Nov. 6.13 | About: Blue Capital (BCRH)

Based in Pembroke, Bermuda, Blue Capital Reinsurance Holdings Ltd. (NYSE:BCRH) scheduled a $125 million IPO on the NYSE, with a market capitalization of $175 million at a price range midpoint of $20 for Thursday, November 7, 2013.

13 operating company IPOs scheduled for this week. The full IPO calendar can be found at IPOpremium.

F-1 filed October 29, 2013

Manager, Joint managers: Deutsche Bank, Barclays, Keefe Bruyette Woods, Raymond James, UBS Investment Bank, RBC Capital Markets

Co-Manager: Sterne Agee

Summary

BCRH is a newly formed Bermuda reinsurance holding company seeking primarily to offer collateralized reinsurance in the property catastrophe market.

As a newly formed reinsurance holding company, BCRH has a fresh, clean balance sheet with no legacy issues.

Pre-IPO, BCRH is a wholly subsidiary of Montpelier Re Holdings Ltd. (NYSE:MRH)

Valuation

BCRH is priced at one times book value, with no operations prior to the IPO.

Conclusion

The rating on BCRH is avoid. Newly formed reinsurance companies typically show losses for the first year or so while they are starting up operations, then they often move to profitability, partially as a result of having no legacy (write-off) issues.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

BCRH is a newly formed Bermuda reinsurance holding company seeking primarily to offer collateralized reinsurance in the property catastrophe market.

Its principal objective is to pay dividends by underwriting a diversified portfolio of short-tail reinsurance contracts and investing in insurance-linked securities with what it believes to be attractive risk and return characteristics.

BCRH will seek to provide its shareholders with the opportunity to own an alternative asset class whose returns BCRH believes have historically been largely uncorrelated to those of other asset classes, such as global equities, bonds and hedge funds.

Managed by Montpelier Re, $1.39 billion market cap

Subsidiaries of Montpelier Re Holdings Ltd. will manage BCRH's reinsurance underwriting decisions and will provide BCRH with the services of its Chief Executive Officer and its interim Chief Financial Officer.

Montpelier is a global provider of property catastrophe and short-tail reinsurance solutions, and provides customized and innovative insurance and reinsurance solutions to the global marketplace.

As of September 30, 2013, Montpelier had total assets of $3,977 million and total shareholders' equity of $1,695 million. BCRH intends to leverage Montpelier's reinsurance underwriting expertise and infrastructure to conduct BCRH's business.

Montpelier Reinsurance Ltd., a wholly owned subsidiary of Montpelier, has agreed to purchase 2,500,000 common shares through a concurrent private placement upon completion of this offering. Following the completion of this offering and the concurrent private placement, Montpelier will own approximately 29% of BCRH's outstanding shares, or 26% if the underwriters' option to purchase additional shares is fully exercised.

Dividend policy

Subject to the discretion of its board of directors, BCRH currently intends to distribute a minimum of 90% of its Distributable Income, as defined in "Dividend Policy," in the form of cash dividends to its common shareholders.

BCRH intends to make regular quarterly dividend payments, supplemented by a special dividend to meet its dividend payout target for each fiscal year.

BCRH expects that in most years the sum of its regular quarterly dividend payments will be less than 90% of its Distributable Income.

Competition

BCRH considers its primary competitors to include: Aeolus Capital Management, CatCo, Credit Suisse Asset Management, Leadenhall Capital, Lloyd's of London, Nephila Capital Ltd., Pillar Capital, RenaissanceRe Holdings Ltd. (NYSE:RNR) and Validus Holdings Ltd (NYSE:VR), and side cars and other vehicles managed or sponsored by any of these competitors.

5% stockholders

Pre-IPO, BCRH is a wholly owned subsidiary of Montpelier Re Holdings Ltd.

Use of proceeds

BCRH expects to net $175 million from its IPO, including sale of 6.25 million shares to the public and 2.5 million shares to Montpelier Re Holdings .

BCRH expects to deploy most of the net proceeds of this offering and the concurrent private placement during the nine-month period following the completion of this offering. BCRH will retain the remainder of the proceeds, which it expects will be sufficient to fund its ongoing operations for at least 15 months following the completion of the IPO.

Disclaimer: This BCRH IPO report is based on a reading and analysis of BCRH's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.