OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has upgraded the debt ratings on three tranches and affirmed the debt ratings on four additional tranches on a multi-tranche collateralized debt obligation (CDO) co-issued by two bankruptcy remote special purpose vehicles: I-Preferred Term Securities IV, Ltd. (Cayman Islands) and I-Preferred Term Securities IV, Inc. (Delaware) (collectively known as I-Preferred Term Securities IV and issuers). The outlook for all ratings is stable. (See below for a detailed listing of the debt ratings.)
The principal balance of the rated notes are collateralized by a pool of trust preferred securities, surplus notes and secondary market securities (collectively, the capital securities), primarily issued by small to medium-sized insurance companies and a few deposit taking institutions. The capital securities are pledged as security to the notes. Interest paid by the issuers of the capital securities are the primary source of funds to pay operating expenses of the issuers and interest on the notes. Repayment of the note principal is primarily funded from the redemption of the capital securities.
These rating actions primarily reflect: (1) the current issuer credit ratings (ICR) of the remaining issuers of the capital securities and the number of terminated capital securities; (2) a stress of up to 250% on the assumed marginal default rates of insurers (derived from Best’s Idealized Default Rates of Insurers); (3) the amount of capital securities considered to be in distress; (4) recoveries of 0% after the default of the capital securities; and (5) qualitative factors such as the effect of interest rate spikes; subordination level associated with each rated debt tranche; the adjacency of very high investment grade ratings to very low non-investment grade ratings in the transaction’s capital structure; and the possibility that additional redemptions of highly-rated entities will leave lower-rated companies in the collateral pool.
The debt ratings could be upgraded or downgraded and/or the outlook revised if there are material changes in the ICRs of the remaining insurance carriers, an increase in the number of defaulted capital securities or significant termination of the number of existing capital securities.
The following debt ratings have been upgraded:
I-Preferred Term Securities IV—
-- to “aa-” from “a” on
162.50 million Floating Rate Class A-1 Senior Notes Due June 24, 2034
--
to “bbb” from “bb+” on $37.00 million Floating Rate Class A-2 Senior
Notes Due June 24, 2034
-- to “bbb” from “bb+” on $13.90 million
Fixed/Floating Rate Class A-3 Senior Notes Due June 24, 2034
The following debt ratings have been affirmed:
I-Preferred Term Securities IV—
-- “c” on $54.65 million
Floating Class B-1 Mezzanine Notes Due June 24, 2034
-- “c” on
$25.50 million Fixed/Floating Class B-2 Mezzanine Notes Due June 24, 2034
--
“c” on $12.45 million Floating Class C Mezzanine Notes Due June 24, 2034
--
“c” on $6.20 million Floating Rate Class D Subordinate Notes Due June
24, 2034
These are structured finance ratings.
For access to special reports, analytical methodologies and transactions relating to insurance-linked securities, please visit http://www3.ambest.com/sfc/.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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