Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Kelvin Ltd.

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Kelvin Ltd. – At a glance:

  • Issuer: Kelvin Ltd.
  • Cedent / sponsor: Koch Energy Trading, Inc.
  • Placement / structuring agent/s: Goldman Sachs
  • Risk modelling / calculation agents etc: RMS
  • Risks / perils covered: Temperature risks
  • Size: $50m
  • Trigger type: Unknown
  • Ratings: ?
  • Date of issue: Nov 1999

Kelvin Ltd. – Full details:

3-year transaction transfering to investors the risk associated with certain levels of annual losses across a fixed portfolio of 28 weather derivative contracts, each is based on temperature experience at one of 19 weather stations throughout the U.S.

Securities were offered to investors in two tranches, First Event Senior Notes and Second Event Senior Notes, by special-purpose Cayman Islands company Kelvin Ltd.

The transaction covered a portion of a portfolio of $140m of warm winter swaps, $94m of cold winter swaps, $66.5m of cool summer swaps and $41m other weather contracts.

In the event of seasonal perturbations in daily temperature at the 19 locations, the collateral accounts backing the notes will be used to make payments to Koch Energy Trading, under a weather portfolio swap.

The first event senior notes paid investors a coupon of 15.8%, the second event notes a coupon of 8.7%.

The rationale behind the transaction was to protect Koch’s energy and agricultural portfolio, protection it against excessive cold in the winter and excessive heat in the summer, as well as using it as a capital tool to enhance capacity to deliver customer solutions.

The transaction paid out $5.1 million to Koch after extreme cold temperatures in the U.S. winter of 2000/01 caused the trigger to be breached.

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