S&P withdraws Ballantyne Re Reg XXX life securitization ratings

It’s no surprise to read that Standard & Poor’s has withdrawn the majority of the ratings it held on Scottish Re’s 2006 Ballantyne Re Plc Regulation XXX type life insurance-linked securities (ILS), as it no longer sees the market interest in maintaining the ratings.

This is unsurprising since Scottish Re’s life ILS deal has been considered stricken and likely to default for a number of years, having been badly impacted by the quality of the underlying collateral assets which were hit during the financial crisis years.

To refresh your memories, the Ballantyne Re issuance Regulation XXX type life insurance linked transaction had been finding it increasingly difficult to pay investors interest payments and was considered unlikely to repay principal either.

The life ILS transaction saw huge mark-to-market losses on the assets in the underlying collateral accounts, leading to regular failures to make good on interest payments, resulting in downgrades from ratings agencies and an understanding that default was likely.

Ballantyne Re had much of its notes collateral invested in a portfolio of residential mortgage-backed securities (RMBS) and other asset backed securities (ABS) but theses faced mark-to-market losses and extremely poor performance. As a result Ballantyne Re’s liabilities exceeded the current book value of its assets by a significant margin.

The collateral was invested in assets such as subprime residential mortgage-backed securities, losing lost significant value during the 2007/8 financial crisis and making interest payments are were near impossible to make.The sponsor Scottish Re itself took to making up missing interest on the payments for some time to attempt to meet obligations to the deals investors.

Standard & Poor’s which rated the Ballantyne Re notes and maintained an unsolicited rating on them even after Scottish Re requested they be withdrawn, has now decided to withdraw the majority as “there is no longer significant market interest” in them.

That’s unsurprising, as while there will still be holders of the Ballantyne Re notes they are not making interest payments and principal default is deemed likely, hence the rating serves little purpose now.

This means that the situation surrounding the notes has not changed, they are still considered stricken, likely to default and therefore a rating provides little additional value as default appears certain still.

S&P said that it will maintain a rating on the $500m Class A-2 Series B notes that have a financial guaranty policy in place from Assured Guaranty (UK) Ltd.

The Ballantyne Re XXX life insurance securitization was an interesting transaction, coming in at around $2.1 billion in total across multiple tranches of notes. Ballantyne Re is a special purpose vehicle from Ireland. It was established to enter into a reinsurance agreement and conduct activities related to the notes’ issuance. Ballantyne Re issued the various tranches of notes to finance excess reserve requirements under Regulation XXX for the block of business ceded under the reinsurance agreement with Scottish Re.

Also read our older articles on the Ballantyne Re deal:

– Ballantyne Re Reg XXX life securitization investors facing losses: Fitch (July 2013)

– Ballantyne Re life insurance securitization default almost inevitable (Sept 2011)

– Loss faced by Ballantyne Re life securitization investors becomes clearer (Aug 2012)