Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Crystal Credit ratings lowered on interest deferment


The beleaguered Crystal Credit catastrophe bond transaction has hit another hurdle as Standard & Poor’s announce that they have downgraded the rating on one tranche of its notes. Crystal Credit is a cat bond type deal which covered a defined portfolio of credit reinsurance treaties for Swiss Re.

The deal has been beset with difficulties due to developing losses. It has been on rating watch and been downgraded by Moody’s in the past (see our previous coverage of Crystal Credit here). Now S&P have announced that they have downgraded it as well.

S&P received information from Crystal Credit that $176,340.32 of an interest payment which was due to Class C note holders on the 31st December 2010 has not been paid and has been deferred to a reserve account. This is effectively a default in payment of interest. As a result, the Class C notes have been downgraded to ‘D’ from ‘CC’ by S&P.

The Crystal Credit transaction was a brave deal at the time given the state of the credit markets and it’s really no surprise that the deal has suffered. It’s also no surprise we haven’t yet seen anyone try to replicate it with another catastrophe bond covering credit reinsurance.

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