One of the interesting features of Munich Re’s Queen Street II Capital Ltd. catastrophe bond transaction is the collateral arrangements. The Queen Street II deal is still marketing at the moment but they have already established a fund to manage the investment collateral that the transaction will utilise.
The fund, named MEAG Queen Street II, was created as a special fund under German law dedicated to a single institutional investor. Its strategy will be to invest solely in securities and counterparties with a Standard & Poor’s rating of at least ‘A-1’ and plans to only invest in short-dated U.S. Treasury bills. The fund is being managed by MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH a subsidiary of Munich Re.
So proceeds from the sale of the notes issued by Queen Street II Capital Ltd. will be invested in highly rated assets and securities which will then be managed through the establishment of the MEAG Queen Street II fund by Munich Re.
S&P says that this investment strategy should enable the fund to maintain strong credit quality standards and they’ve given the fund a principal stability fund rating of ‘AAAm’.