S&P Rates Gold Eagle Capital 2001's Securities 'BB+'.Business Editors & Analysts NEW YORK--(BUSINESS WIRE)--Standard & Poor's June 13, 2001--Standard & Poor's has assigned its double-'B'-plus rating to two classes of floating-rate securities issued by Gold Eagle Capital 2001 Ltd. (Gold Eagle): $116.4 million in floating-rate modeled index linked notes and $3.6 million in floating-rate Class B shares, both of which are due April 7, 2002. The payouts of these notes are linked to a modeled index of insurance-industry losses resulting from the occurrence of earthquakes in the midwestern U.S. or hurricanes on the East or Gulf Coasts. The rating is based on the transaction structure and Risk Management Solutions's (RMS) analysis of wind patterns over the Gulf and East coasts of the U.S. and the seismo-geological structure underlying the central U.S. This is the second capital markets catastrophe bond catastrophe bond A debt security with a payoff tied to the relative severity of a natural disaster such as a hurricane or earthquake. Bondholders are paid with insurance premiums but may have to accept reduced principal repayment in the event the specified transaction sponsored by American Re Capital Markets Inc. (ARCM ARCM (Brit) n abbr (= Associate of the Royal College of Music) → Qualifikationsnachweis in Musik ), an indirect subsidiary of German reinsurer re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. Munchener Ruckversicherungs-Gesellschaft AG (Munich Re Munich Re AG, in German Münchener Rück AG (ISIN: DE0008430026), is the world's second largest reinsurance company with over 5,000 customers in 160 countries and has its headquarters in Munich, Germany. ). Munich Re is the world's largest reinsurer based on net premiums written and has an outstanding reputation. The securities provide one-year, fully collateralized insurance cover of portions of earthquake and wind exposures held by affiliates of ARCM. Those risks have been transferred to the holders of the notes through an ISDA-based index swap Index swap A swap of a market index for some other asset, such as a stock-for-stock or debt-for-stock swap. with Gold Eagle, a newly established, Bermuda tax-exempt limited liability company. The parent of ARCM is double-'A' rated American Re Corp. (ARC). The ratings on the securities reflect the fully collateralized index swap payments (which are, in effect, insurance premiums) due from ARCM, the total return swap Total Return Swap Any swap in which the non-floating rate side is based on the total return of an equity or fixed income instrument with a life longer than the swap. Notes: Total return swaps are most common in equity or physical commodity markets. guarantee provided by Merrill Lynch Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675 ), through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related products and services on a global basis. & Co. Inc. (Merrill Lynch; double-'A'-minus financial strength rating), and Standard & Poor's review of the results of RMS's peril modeling. RMS has calculated the probability of attachment of the notes as 1.18%, and their probability of exhaustion equals 0.51%. The probability of attachment of the preference shares is also 1.18%, notwithstanding that the preference shares are structurally subordinated to the notes. Gold Eagle is a Bermuda tax-exempt limited liability company whose common shares are held in a purpose trust. The $120 million security proceeds have been placed in a collateral account and invested in high-quality assets with a final maturity of up to 15 years. Gold Eagle will swap the total return of this account with a counterparty guaranteed by Merrill Lynch in exchange for LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). minus 1.33%, an initial payment of $1.335 million, and a principal guarantee. This transaction provides indexed cover for insured losses caused by quakes originating in the New Madrid Seismic Zone The New Madrid Seismic Zone, also known as the Reelfoot Rift or the New Madrid Fault Line, is a major seismic zone in the Southern United States and Midwestern United States streching to the southwest from New Madrid, Louisiana Territory (now Missouri). (the Mississippi Valley) or hurricanes affecting the East or Gulf Coasts. The securities may be exhausted by either peril. The sponsor, ARCM, will make periodic payments to Gold Eagle under an ISDA-based index swap at the annual rate of 7.1002% of outstanding note and share principal. The sum of the periodic payments under the index swap and the total return swap are sufficient to pay the coupon on the notes of LIBOR plus 5.50%, the dividend on the shares of LIBOR plus 7.00%, and the operational expenses of the issuer. Standard & Poor's has reviewed the structure of the various corporate entities involved in the transaction and determined that they meet Standard & Poor's criteria for special-purpose vehicles and that the trust has been appropriately structured to provide a security interest to the noteholders. The preference shareholders will not have a security interest in the collateral account and could, therefore, be liable for indemnities and other extraordinary liabilities for which the notes have no liability. The RMS models will be escrowed and will not change to reflect subsequent developments in scientific understanding of the covered perils. In addition, the notional portfolio of exposures will be fixed and will not be changed to reflect changes in ARC's actual exposures. Finally, because payments to ARCM under the ISDA-based contract depend on RMS's estimates of industry-wide peril losses, they might not be directly correlated to any loss actually incurred by ARC. The Munich Re Group consists of Munich Re and its subsidiaries engaged in reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. , primary insurance, and asset management. In 2000, Munich Re, incorporated in Munich in 1880, underwrote euro 10.955 billion in gross premiums in its property/casualty, life, and health reinsurance lines. In 1999 Munich Re Group had gross premiums of EUR EUR In currencies, this is the abbreviation for the Euro. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 27.413 billion on a consolidated basis. At the close of 1999, Munich Re Group had total assets of EUR179.88 billion and shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. of EUR18.454 billion, each on a consolidated basis. As of Nov. 14, 2000, Munich Re had a market capitalization Market Capitalization A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. of EUR64.753 million. The notes were structured by American Re Securities Corp., which also co-underwrote them with Lehman Brothers Inc. and Merrill Lynch, Standard & Poor's said. -- CreditWire Copyright 2001, Standard & Poor's Ratings Services |
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