Standard & Poor's has assigned credit ratings to variable-rate notes issued by Queen Street, under its principal at-risk variable-rate note program.
Munich Re entered into counterparty contracts with Queen Street to gain a source of multiyear coverage for losses due to European windstorms.
A ‘BB+’ rating was given to €70 million series 1 class A principal at-risk variable rate notes due 21 March, 2011.
A ‘B’ rating was given to €100 million series 1 class B principal at-risk variable rate notes due 21 March, 2011.
Queen Street is a special-purpose Cayman Islands exempted company whose ordinary shares are held in a charitable trust.
The rating is based on the modeled probability of attachment and the structural analysis. A proprietary model from EQECAT was used to determine the attachment probability of the notes.
When assigning its rating, Standard & Poor's relied on the results determined the EQECAT software, WORLDCAT Enterprise, version 3.10.
With the proceeds from the sale of the notes, Queen Street has entered into total return swaps with the London branch of Deutsche Bank.
Interest on the deposit will be paid quarterly and based on three-month Euro Interbank Offered Rate (EURIBOR).
Queen Street will use the premium it receives under the counterparty contract, combined with the payments it receives under the bank deposit, to make the scheduled interest payments to the noteholders.
Both classes of notes have attachment and exhaustion points calibrated on a parametric basis. The annualized attachment probability is 1.46% for the class A notes and 4.12% for the class B notes.
If the U.K. Meteorological Office, the reporting agency, reports a European windstorm event then EQECAT will use a formula defined in the transaction documents to calculate if there are any losses to the notes.
The parametric index value of each windstorm will be calculated using peak-gust wind speeds in excess of 29 meters per second, at least four of the 216 Europe Qualified Recording stations.
The class A notes have a per-event threshold index value of 110.38 and a limit of 820.70. The index value of each windstorm between these points is fed into an aggregate formula, which has an attachment point of 809.67 and a limit of 878.90.
It would need at least two windstorm events to breach the aggregate attachment point. The class A notes can be considered a parametric equivalent of an aggregate excess of loss reinsurance contract.
The class B notes simply have attachment and exhaustion points of 820.70 and 990.80, respectively. They are akin to a parametric risk excess reinsurance contract.
The notes cover Germany (62.75% of total insured values), France (16.70%), U.K. (14.76%), excluding the Isle of Man, the Channel Islands and the area north of 55 degrees latitude, which is in the border area between England and Scotland.
They also cover The Netherlands, Belgium, Denmark, Ireland, and Luxemburg.
Munich Re will pay Queen Street's upfront and ongoing expenses in connection with this security issuance.
