Vega Capital Ltd. (Series 2008-1)

This three-year aggregate bond protects Swiss Re against an accumulation of events from U.S. hurricane, California earthquake, European windstorm, Japanese typhoon and Japanese earthquake.

Structured as $21m Class A notes, $22.5m Class B notes, $63.9 million unrated class C and $42.6 million unrated class D. Class A notes have been rated ‘A-’ and Class B ‘BBB’ by Standard and Poor’s.

The deal uses a reserve account as a buffer to protect the noteholders; Standard & Poor’s credit analyst Cameron Heath said “The class A and B noteholders will not suffer any losses of repayment amount from the first three events to occur over the life of the transaction, even if the transaction suffers the maximum losses possible from those three.”

Annualized probability of attachment is 0.075% for the class A notes and 0.227% for the class B notes.
The model used involves scheduled quarterly reserve payments totaling more than $69 million into a reserve account. Losses from events will eat into the collateral from the reserve account that has built up, then from each layer of notes in reverse order (D to A).

Losses will be calculated using the Property Claim Services (PCS) Industry Index to calculate losses from a U.S. hurricane event; parametric indices for European windstorm, California earthquake, and Japanese typhoon; and a modeled loss for Japanese earthquake.

Swiss Re entered into the counterparty contract with Vega Capital, a Cayman Islands based SPV, which issued the notes. Vega Capital will enter into a total return swap with BNP Paribas.