That exposure is primarily in the form of insured single-name credit default swaps (CDSs) referencing the bank's debt. The notional value of the swaps in the portfolio is $80 million, which Primus has assigned a recovery value of 30-35% based on early market indications, according to a release by the company on September 15.
"Net losses on this single position will significantly hurt Guaranty's quarterly and year-to-date economic results," said S&P in the ratings announcement.
In addition, the company is exposed to Lehman through CDSs it has sold directly to the bank, which it estimated had a market value of $56 million as of September 12.
CDPCs under pressure
The CDPC brigade
The balancing act
The move came as Primus Financial Products, the AAA rated CDPC, revealed it had extensive portfolio exposure to Lehman Brothers. Lehman was forced to file for Chapter 11 bankruptcy protection on September 15.