Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Lehman Brothers related catastrophe bonds on credit watch


The other major catastrophe to hit the news in the past week is the demise of Lehman Brothers. As a result of the investment bank collapsing, Standard & Poor’s have downgraded four cat bonds which Lehman Brothers subsidiary Lehman Brothers Special Financing acted as swap counterparty on.

The bonds in question are:
– Ajax Re Ltd.’s Class A US$100 million principal at-risk variable-rate notes, Series 1 rated ‘BB’.
– Carillon Ltd.’s Class A-1 US$84.5 million principal at-risk variable-rate notes, Series 1 rated ‘BB-‘.
– Newton Re Ltd.’s Class A US$150 million principal-at-risk variable-rate notes, Series 2008-1 rated ‘BB’.
– Willow Re Ltd.’s $250 million Class B Series 2007-1 principal-at-risk variable rate notes rated ‘BB+’.

As the guarantor of the swap counterparty has become bankrupt that technically means the swap agreements are terminated. Should no one pick up that subsidiary of Lehman (Barclays?) then there is the potential for losses to be passed on to note holders. Should that happen the notes will get downgraded.

While catastrophe bonds may have seemed a safe port in the storm of the credit crunch for investors such as hedge funds, it’s now looking like they may not protect all from the waves washing over the financial markets.

You can read the details on all of these insurance linked security deals and more by visiting our Deal Directory.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis London 2022 - Insurance-linked securities conference in London

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