Signum Finance mortality linked CDS back on Rating Watch Negative

The Signum Finance Cayman Ltd. Series 2010-09 transaction which provides Goldman Sachs with a mortality hedge for a defined block of life insurance has been put back on a Rating Watch Negative status by Fitch Ratings. We first wrote about this interesting insurance-linked securitization almost a year ago and then updated you on its status in July when the ratings were removed from watch.

The rating on Signum Finance has been driven by the rating that Fitch give to Goldman Sachs. Now, as Goldman Sachs had their ‘A+’ rating put on a negative watch on the 13th October Fitch have passed that negative sentiment on to Signum Finance.

Goldman Sachs act as swap counterparty and issued and managed the collateral assets for the transaction and Goldman Sachs Group act as guarantor for their own Goldman Sachs International in these roles. This presents Goldman Sachs Group as the weakest link in the transaction chain and hence the rating watch.

Fitch Ratings continue to note that the cumulative actual to expected mortality experience of the defined block of life insurance remains within the original modelling expectations.

The transaction saw the issuer, Signum Finance Cayman Ltd., sell $200m of notes to investors, the proceeds of which were used to purchase collateral assets in the form of 15-year senior unsecured bonds issued by Goldman Sachs. Signum Finance also entered into a 15 year mortality swap with Goldman Sachs as counterparty on the deal. Under the mortality swap Signum Finance will provide mortality protection on a defined block of U.S. level-term life insurance policies and will make payments to Goldman Sachs in the event the mortality experience of the block of life policies exceeds a predefined trigger point. Payments from Goldman Sachs to Signum Finance go towards the noteholders premium payments.