LONDON (Reuters) - A second Lehman Brothers-backed catastrophe bond is in default after issuer Ajax Re Ltd. failed to repay principal in full at maturity, according to credit rating agencies.

The $100 million bond, issued in April 2007 to give Bermuda-based Aspen Insurance Holdings Ltd. cover against losses from earthquakes in California, had been expected to default following the collapse of Lehman, its effective guarantor.

Credit rating agency Standard & Poor's (S&P) said in a May 11 statement that it had lowered its rating on the bond to D, signifying default, and withdrawn the rating.

It said Ajax Re had paid all the interest due on the bond, "but the ultimate payment of principal was not made in full on May 8, 2008 due to a shortfall in the realisable value of the collateral assets under the TRS (total return swap)".

S&P had said a default was likely despite a timely payment of interest on March 16.

The deal is among four catastrophe bonds that used a unit of Lehman Brothers as TRS counterparty, contracted to ensure the collateral backing the bonds was sufficient to meet interest and principal repayments, and to make up any shortfall.

When the US investment bank filed for bankruptcy on September 15, investors were left with direct exposure to market losses on the collateral assets, and the bonds were downgraded.

Another of the bonds, issued by Willow Re with Allstate Corp. as ceding insurer, was already in default after Willow failed to make in full a February 2 interest payment. Another rating agency, insurance specialist AM Best, also said it had downgraded the Ajax Re notes to "d" following the failure to fully repay the principal at redemption.

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.