A.M. Best Downgrades and Affirms Debt Ratings on Three Trust Preferred CDO Transactions

OLDWICK, N.J.--(Business Wire)--
A.M. Best Co. has downgraded the ratings on six tranches of debt totaling $198.2
million and has affirmed the ratings of sixteen additional debt tranches
totaling $599.6 million. The outlook for all ratings is stable. (See below for a
detailed listing of the companies and ratings.)

These rating actions were taken on three specific multi-tranche collateralized
debt (CDO) transactions co-issued by six special purpose vehicles (SPV)
(issuers): I-Preferred Term Securities I, Ltd., I-Preferred Term Securities I,
Inc., I-Preferred Term Securities III, Ltd., I-Preferred Term Securities III,
Inc., I-Preferred Term Securities IV, Ltd. and I-Preferred Term Securities IV,
Inc. All are domiciled in the Cayman Islands.

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 U.S. insurance entities
and in one of the transactions, depository taking institutions. The capital
securities are pledged as security to the notes. Interest paid by the issuers of
the capital securities is the primary source of funds to pay ongoing operating
expenses of the issuer and interest on the notes. Repayment of the note
principal is funded primarily from the redemption of the capital securities.

Major considerations in rating the notes include collateral default risk and
associated recoveries; structural protection through the "waterfall" and other
mechanisms; stress testing of various risk factors (e.g., default risk of
insurers, default matrix, etc.), counterparty swaps and interest rate hedging
protection; legal documentation and ongoing monitoring of the transaction.
Additional stressing may be further imposed on each analysis to reflect A.M.
Best`s current view of applicable risk factors, economic/market conditions and
applicable insurance sectors.

The rating actions reflect (1) capital securities activity in each of the pools
including number of reported "defaulted securities," the number of capital
securities in deferred interest mode (i.e., the issuer of the capital securities
has elected to defer making interest payments) and redemptions; (2) increased
stress upon credit support/enhancement mechanisms within each of the pools; and
(3) current issuer credit ratings (ICR) of the individual insurance companies.
In certain stress scenarios, factors (i.e., rating outlook or rating modifiers)
that indicate the potential future rating direction over the near and
intermediate term of the insurers were factored into the analyses. Collection of
both principal and outstanding unpaid interest on capital securities categorized
as "defaulted securities" is less than certain, and therefore, adversely affects
the amount of cash flow available to service liabilities of the issuers. Reduced
subordination levels-credit support/enhancement for the various individual debt
tranches of the three transactions-resulting from the termination (i.e.,
defaults, early terminations, etc. of capital securities) are under stress,
subjecting the lower rated tranches of each of the SPVs to greater risk. In
addition, rising defaults and early redemption activity decrease the
availability of excess spread (i.e., interest not directed towards specific
payments), which also is a credit enhancement to the various tranches of debt.

A.M. Best continues to maintain a stable outlook on the U.S. property/casualty
sector and a negative outlook on the life/health sector. Other than rating
affirmations, A.M. Best expects to continue its current trend of issuing more
negative ratings (e.g., downgrades/outlook revisions) than positive ratings
(e.g., upgrades/outlook revisions) over the intermediate term. Primary factors
contributing to the negative rating actions are the continued and/or lingering
impact of the economic downturn, continued volatility in the financial markets
and resulting ongoing portfolio investment losses (both realized and
unrealized). A.M. Best expects that both the number and frequency of financially
impaired insurance companies will rise from the low levels experienced over the
last several years. As such, A.M. Best considered the impact on the ratings of
the securities due to a substantial increase in overall insurance company
impairments.

The following debt ratings have been affirmed:

I-Preferred Term Securities I-

-- "aaa" on $25.8 million floating rate Class A-1 senior notes, due 2032

-- "aaa" on $12.0 million floating rate Class A-2 senior notes, due 2032

-- "aaa" on $24.0 million floating rate Class A-3 senior notes, due 2032

I-Preferred Term Securities III-

-- "aaa" on $97.1 million floating rate Class A-1 senior notes, due 2033

-- "aaa" on $40.0 million floating rate Class A-2 senior notes, due 2033

-- "aaa" on $15.0 million floating rate Class A-3 senior notes, due 2033

-- "aaa" on $10.0 million floating rate Class A-4 senior notes, due 2033

-- "bbb-" on $51.0 million floating rate Class B-1 mezzanine notes, due 2033

-- "bbb-" on $27.7 million floating rate Class B-2 mezzanine notes, due 2033

-- "bbb-" on $57.5 million floating rate Class B-3 mezzanine notes, due 2033

-- "b+" on $24.5 million floating rate Class C mezzanine notes, due 2033

I-Preferred Term Securities IV-

-- "aaa" on $145.5 million floating rate Class A-1 senior notes, due 2034

-- "aa" on $37.0 million floating rate Class A-2 senior notes, due 2034

-- "aa" on $13.9 million floating rate Class A-3 senior notes, due 2034

-- "b-" on $12.5 million floating rate Class C mezzanine notes, due 2034

-- "ccc-" on $6.2 million floating rate Class D subordinate notes, due 2034

The following debt ratings have been downgraded:

I-Preferred Term Securities I-

-- to "b" from "bb" on $40.6 million floating rate Class B-1 mezzanine notes,
due 2032

-- to "b" from "bb" on $33.2 million floating rate Class B-2 mezzanine notes,
due 2032

-- to "b" from "bb" on $28.2 million floating rate Class B-3 mezzanine notes,
due 2032

-- to "ccc" from "b" on $16.0 million floating rate Class C mezzanine notes, due
2032

I-Preferred Term Securities IV-

-- to "bb-" from "bb" on $54.7 million floating rate Class B-1 mezzanine notes,
due 2034

-- to "bb-" from "bb" on $25.5 million floating rate Class B-2 mezzanine notes,
due 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 principal methodologies used in determining these ratings, including any
additional methodologies and factors that may have been considered, can be found
at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating
organization dedicated to serving the financial and health care service
industries, including insurance companies, banks, hospitals and health care
system providers. For more information, visit www.ambest.com.

A.M. Best Co.
Structured Finance
Emmanuel Modu, 908-439-2200, ext. 5356
emmanuel.modu@ambest.com
or
Elmo Chin, 908-439-2200, ext. 5227
elmo.chin@ambest.com
or
Public Relations
Jim Peavy, 908-439-2200, ext. 5644
james.peavy@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
rachelle.morrow@ambest.com

Copyright Business Wire 2009