Downgraded But ‘Innovative’ Calabash Cat Bond Matures

Calabash Re III – a $100 catastrophe bond pumped up for its “innovative” collateral but ultimately downgraded because of “Hurricane RMS” – has matured, leaving long-time sponsor ACE without a current bond in the market.

Both Calabash’s $86 million Class A and its $14 million Class B notes matured and were canceled Tuesday, according to a filing with the Cayman Islands Stock Exchange.

Calabash Re III was issued in 2009, covering ACE North America and Swiss Re for U.S. hurricane and earthquake risk. Although the third of the series, Calabash Re III was touted creating several industry firsts, including using floating rate notes issued by the International Bank for Reconstruction and Development of the World Bank Group as collateral.

The structure was in response to the 2009 collapse of Lehman Brothers when its bankruptcy impaired several catastrophe bonds, forcing issuers to seek low yielding but highly-rated assets.

The bond was also one of six insurance-linked securities tranches that were downgraded by Standard & Poor’s following the release of Risk Management Solution’s version 11 hurricane model.  Calabash Re III’s 2009-1 Class A notes were downgraded to ‘B+’ from ‘BB-” last year after the rating agency determined the bond was at a greater risk of loss because of changes on the model.

Swiss Re acted as bookrunner on the bond.

Emails to ACE for comment were not returned.

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