Investors in the Crystal Credit Ltd. catastrophe bond type transaction, which securitizes payments related to an indemnity-based excess-of-loss retrocession agreement between Swiss Re and Crystal Credit covering a defined portfolio of credit reinsurance treaties, are facing losses. An update issued today by ratings agency Standard & Poor’s confirms that investors in two tranches of Crystal Credit notes will not receive back their full principal when the deal matures.
The claims experience on the underlying reinsurance treaties has always been pointing towards default and loss of investor principal and this latest update confirms that and reveals more detail on the level of losses investors are facing.
S&P say that they have received information that €37,027.17 (17%) of interest payments that were due on Dec. 31, 2010 to the Crystal Credit Ltd. Class B noteholders will be deferred to a reserve account. These monies are put into the reserve account so they are available to pay losses at the deals final maturity.
Aggregate ceded losses now stand at €771m which is €42m over the €729m trigger point for the Class B notes. S&P say that they anticipate that investors will receive back less than half their principal at final maturity. As a result they have downgraded the Class B notes to ‘D’.
The Class C notes are a total loss as the aggregate loss trigger point was at €666m. S&P have downgraded the Class C notes rating to ‘D’ after the interest due to Class C noteholders was also put into a reserve account.
There is a chance that the Class B notes could also become a total loss as there is still time for losses to develop further. We’ll update you should that happen.
The Class A tranche of notes were redeemed in full by Swiss Re back in April 2011 as it was deemed that they were unlikely to face losses.