A.M. Best has affirmed the debt rating on multi-tranche
collateralized debt obligation (CDO) co-issued by two bankruptcy remote
special purpose vehicles: InCapS Funding II, Ltd. (Cayman
Islands) and InCapS Funding II Corp. (Delaware) (collectively
known as InCapS II and issuers). The outlook for the rating is stable.
(See below for a detailed listing of the rating.)
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. 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
notes principal is primarily funded from the redemption of the capital
This rating action primarily reflect: (1) the current issuer credit
ratings (ICRs) of the remaining issuers of the 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)
recoverie of 0% after the defaults of the capital securities; and (5)
qualitative factors such as the effect of interest rate spikes;
subordination levels associated with each rated 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 rating 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
and/or additional capital security redemptions.
The following debt rating has been affirmed:
InCapS Funding II, Ltd. and InCapS Funding II Corp.---
"aa+" on $50.50 million Class A-2 Floating Rate Senior Notes Due 2034
This is a structured finance rating.
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.
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS
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