Best Puts Lehman Linked Cat Bonds Under Review – Negative

A.M. Best Co. has placed the debt ratings of “bb” on Series 2008-1, Class A $150 million principal at-risk variable rate notes of Newton Re Limited, “bb+” on Class B Series 2007-1, $250 million principal at-risk variable rate notes of Willow Re Ltd. and “b+” on Series 1, Class A $100 million principal at-risk variable rate notes of Ajax Re Ltd. (all of Cayman Islands) under review with negative implications.

Best has also affirmed the debt ratings of “bb+” on Series 2007-1, Class A $87.5 million principal at-risk variable rate notes and “bb-“on Series 2007-1, Class B $137.5 million principal at-risk variable rate notes of Newton Re Limited. The outlook on both ratings is stable.

Best explained that the “rating actions reflect the uncertainty of Lehman Brothers Special Financing Inc., the swap counterparty in each of the catastrophe bonds, to meet its obligation under the swap agreement. Lehman Brothers Holdings Inc. (LBHI), the guarantor of Lehman Brothers Special Financing Inc. filed a petition of bankruptcy under Chapter 11 of the U.S. Bankruptcy Code on September 15, 2008. This resulted in a notice of event of default under the swap agreement.”

Best said it would “continue to evaluate the impact of the early termination of the swap agreement, the close out levels in accordance with the terms of the agreement and the effort to replace the swap counterparty.”

Source: A.M. Best – www.ambest.com