Ajax Re catastrophe bond makes interest payment but remains at risk

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The Ajax Re catastrophe bond deal (one of those affected by Lehmans collapse) sponsored by Aspen Insurance Holdings Ltd. has managed to make it’s latest interest payment in time. The interest payment was due yesterday (Monday) and was paid as expected say Standard & Poor’s. Despite this fact S&P say the Ajax Re cat bond remains at risk of default and so the ratings remain unchanged at ‘CC’ and the deal is still on CreditWatch negative.

The Ajax Re notes were originally put on CreditWatch with negative implications because the issuer informed S&P that they were unlikely to make the forthcoming coupon interest payment. It seems that the collateral account contained sufficient funds to make the payment in full.

Ajax Re remains at risk as S&P fear they will not have the funds available at maturity, due May 8th 2009, to repay the principal. ‘Based on the quality of the assets in the collateral trust we expect significant impairment and therefore principal default’ says S&P. This statement shows how important it is that cat bond issuers are working to improve the quality of assets used and optimise the way deals are structured. These enhancements need to continue if issues such as this are to be avoided in future.

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