Fitch Ratings Downgrades Kelvin, Ltd. Senior Notes.Business Editors CHICAGO--(BUSINESS WIRE)--March 13, 2002 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has downgraded the senior notes issued by Kelvin kelvin, abbr. K, official name in the International System of Units (SI) for the degree of temperature as measured on the Kelvin temperature scale. A unit of measurement of temperature. , Ltd. (Kelvin) due to a loss payment made by Kelvin under a weather portfolio swap. Kelvin's First Event Weather-Linked Fixed Rate Senior Notes (First Event Notes) were downgraded to 'DD' from 'B-' and its Second Event Weather-Linked Fixed Rate Senior Notes (Second Event Notes) were downgraded to 'B-' from 'BBB-'. Kelvin is a special-purpose Cayman Islands Cayman Islands (kā`mən), British dependency (2005 est. pop. 44,300), 100 sq mi (259 sq km), comprising three islands in the West Indies. company whose operations are limited to issuing notes and entering into a weather portfolio swap with Koch Energy Trading, Inc., a subsidiary of Koch Industries Koch Industries, Inc. (pronounced "koke") is a private corporation based in Wichita, Kansas. According to Forbes Magazine, it is the largest privately owned company in the world by revenue (surpassing Cargill in 2005 with the acquisition of Georgia-Pacific), with subsidiaries , Inc. (Koch). Kelvin effectively securitized securitized Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds. a portfolio of weather derivative Weather Derivative An instrument used by companies to hedge against the risk of weather-related losses. The investor who sells a weather derivative agrees to bear this risk for a premium. If nothing happens, the investor makes a profit. contracts and placed the associated risk with investors in the capital markets. Performance of the two note classes depends on the actual temperature experience in specific U.S. locations over specific periods of time. The weather derivative contracts covered by the weather portfolio swap include call options, put options and swaps, and are based on heating degree days Heating degree day (HDD) and cooling degree day (CDD) are quantitative indices demonstrated to reflect demand for energy to heat or cool houses and businesses. These indices are derived from daily temperature observations and power demand. , cooling degree days and average temperature degree days. During the second of three annual risk periods, losses on the derivative portfolio exceeded a pre-defined trigger value, which resulted in a loss payment from Kelvin to Koch. As the result of this loss payment, holders of the First Event Notes received no interest payment for the second annual risk period and, additionally, lost 22.1% of their principal balance. The rating actions are based on the First Event Notes' loss of interest and partial loss of principal. The First Event Notes' 'DD' rating reflects an expected recovery of between 50% and 90% of original principal. Since the First Event Notes have suffered a partial loss (a first event), the Second Event Notes are now partially exposed to loss in the third annual risk period. The Second Event Notes' 'B-' rating reflects the increased probability of a loss to those notes now that the first event has occurred.
Entity/Issue/Type Action Rating/Outlook
Kelvin, Ltd.
-- First Event Weather-Linked Fixed Rate Sr Notes Downgrade 'DD';
-- Second Event Weather-Linked Fixed Rate Sr Notes Downgrade
'B-'.
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