Ever since the Lehman Brothers issues the catastrophe bond market has been haunted by the fallout. Now with the market seemingly well on the way back to full health Lehman is still making its presence felt as catastrophe bond deals which used their facilities for a total return swap continue to suffer.
Carillon Ltd., a $150m catastrophe bond deal from Munich Re which protected it against U.S. hurricanes, has had its ratings lowered by Standard & Poor’s after it failed to make payment on its principal in full on the due date. The value of the collateral assets under the total return swap were not enough to make full payment. Lehman Brothers Special Financing was the total return swap counterparty in this transaction.
Carillon managed to pay its quarterly interest payments throughout the last year, even being removed from Credit Watch by S&P as a result. However it seems the collateral value has deteriorated enough to cause this default on final payment.