LONDON (Reuters) - A $100 million catastrophe bond, issued by Ajax Re and sponsored by Bermuda-based Aspen Insurance Holdings, remains at risk of default in spite of the timely payment of interest that fell due on Monday, credit rating agency Standard & Poor's said.

In a statement, S&P said Ajax Re had made its March 16 interest payment in full, but left the bond's CC rating unchanged.

The rating agency had put the notes on CreditWatch negative on March 4, saying the issuer had given notice it would not have sufficient funds to make the payment.

"Since then, Ajax Re Ltd has informed us that it made the interest payment in full," S&P said.

"Even though the income from the first three months of 2009 would have resulted in a shortfall, there were sufficient funds left in the collateral payment account from the prior three months to make the interest payment in full."

The rating agency, however, said it remained "highly unlikely" that Ajax Re would have sufficient funds to repay the bonds' principal at maturity on May 8.

"Based on the quality of the assets in the collateral trust, we expect significant impairment and therefore principal payment default. The ratings on the notes will be lowered to D if any scheduled principal amount of the notice is not paid," it said.

Issued by Ajax Re in April 2007, the two-year catastrophe bond covers Aspen against losses from earthquakes in California.

It is among four such bonds effectively guaranteed by a unit of Lehman Brothers that were downgraded following the US investment bank's September 15 bankruptcy filing.

One of the bonds, issued by Willow Re with Allstate Corp as ceding insurer, is already in default after Willow failed to make in full a February 2 interest payment.

The deals used a unit of Lehman Brothers as total return swap counterparty, contracted to ensure the collateral backing the bonds was sufficient to meet interest and principal repayments, and to make up any shortfall. When Lehman collapsed, investors were left with direct exposure to market losses on assets held as collateral.

Insurers have used catastrophe bonds since the 1990s to manage their exposure to natural disasters such as hurricanes and earthquakes by transferring potential losses to investment funds. Investors receive a high rate of interest but risk losing part or all of their principal if a catastrophe occurs.