S&P Lowers Ratings on 6 Cat Bonds; Puts 4 on CreditWatch/Negative

Standard & Poor’s Ratings Services announced that it has lowered its ratings on six natural peril catastrophe bonds issued in 2007 and 2008, as listed below.

The bulletin said: “We lowered our ratings by one notch to reflect the adjusted probability of attachment for each bond that resulted from applying our criteria to the information we recently received in the annual reset reports.

“In addition, we placed our ratings on four catastrophe bonds, all related to the Residential Reinsurance 2007 Ltd. issuance, on CreditWatch with negative implications. We are awaiting updated occurrence and aggregate exceedence probability curves from the transaction modeling agent, AIR.

“Because the notes will mature on June 7, 2010, and there are no subsequent portfolio resets, the passage of time during the remaining risk period has lowered the probability of attachment. Given the information we have, if we do lower the ratings, it likely would be by one notch for the class 2, 3, and 4 notes and up to two notches for the class 5 notes. We expect to receive the updated curves shortly and will then resolve the CreditWatch.

“The criteria article “Methodology And Assumptions For Rating Natural Catastrophe Bonds,” published by S&P on May 12, 2009 “provides indicative stress levels that we apply to each transaction’s occurrence (or aggregate) exceedence probability curve. Applying these stress levels, which per our criteria can vary from the indicative levels, to the applicable occurrence (or aggregate) exceedence curves generated a probability of attachment greater than in the annual reset reports presented to Standard & Poor’s. As a result, the adjusted probability of attachment on each bond, when compared with the default table used to rate natural peril catastrophe bonds, indicates a rating different than the current rating.”

“The ratings on the remaining natural peril catastrophe bonds for which we have received reset reports are not affected.

Ratings Lowered:
— Caelus Re Ltd. Series 2008-1 Class A to BB from BB+
— Carillon Ltd. Series 2 Class E to B- fom B
— East Lane Re II Ltd. Series 2008-1 Class C to CCC+ from B-
— East Lane Re Ltd. Series 2007-1 Class B to BB from BB+
— Residential Reinsurance 2008 Ltd. Class 1 to BB- from BB
— Residential Reinsurance 2008 Ltd. Class 2 to B- from B

Ratings Placed On CreditWatch Negative:
— Residential Reinsurance 2007 Ltd. Class 2 B+/Watch Neg B+
— Residential Reinsurance 2007 Ltd. Class 3 B/Watch Neg B
— Residential Reinsurance 2007 Ltd. Class 4 BB+/Watch Neg BB+
— Residential Reinsurance 2007 Ltd. Class 5 BB+/Watch Neg BB+

Source: Standard & Poor’s – www.standardandpoors.com