Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Lehman linked cat bonds removed from credit watch after interest payment


Three of the natural catastrophe bonds which were downgraded due to the collapse of Lehman Brothers have been removed from CreditWatch with negative implications by Standard & Poor’s after interest payments were made as scheduled.

Ajax Re, Carillon Ltd and Newton Re were all downgraded and put on CreditWatch as there were fears over the ability for interest payments to be fulfilled. The first interest point was the 15th December when a payment was made. The next interest payment due date is the 15th March 2009 and these notes will be watched closely to see if the payment is made. The notes risk being downgraded to ‘D’ if a payment is missed.

The lack of a total-return swap counterparty after the demise of Lehman means these notes are at risk as the cash flow on the assets in the collateral account are not necessarily matched to those on the notes and any default in payment could result in a shortfall.

Read the full ratings report from S&P here (login required).

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