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A.M. Best Assigns Ratings to Emerson Reinsurance Ltd.'s Senior Secured Credit Facilities
OLDWICK, N.J.-(Business Wire)-August 21, 2007 - A.M. Best Co. has assigned the following debt ratings to the senior secured credit facilities due December 2011 of Emerson Reinsurance Ltd. (issuer), a newly created Cayman Islands exempted, limited life special purpose Class B insurer: The outlook for all ratings is stable. -0- *T Senior Secured Series A Loans $185 million "a" Senior Secured Series B Loans $140 million "bbb-" Senior Secured Series C Loans $130 million "bb+" Senior Secured Series D Loans $ 45 million "bb-" *T
The primary business purpose for the creation of the issuer is for the issuance of the loans and the service and performance of various agreements entered into, including four reinsurance agreements (applicable to each series of loans) between the issuer and CIG Reinsurance Ltd. and New Castle Reinsurance Company Ltd. (collectively, cedants), which are class 4 insurance companies organized under the laws of Bermuda; the swap agreement between the issuer and the swap counterparty; and other covenants.
Under each reinsurance agreement, the issuer provides the cedants with annual aggregate indemnity protection with a limit of up to the principal amount of the corresponding series of loans, when annual aggregate insured losses in the defined business portfolio during a three-year period beginning June 2007 meet or exceed specific attachment points. In exchange for receiving the multi-year reinsurance coverage, the cedants will make periodic premium payments to the issuer. The attachment and exhaustion points for each reinsurance agreement will be recalculated on July 15 of 2008 and 2009 based on the cedants' updated portfolio.
Proceeds from the issuance of each series of loans will be deposited into separate collateral trust accounts and will be available to satisfy the obligations of the issuer. This includes loss payments required to be made by the issuer under the reinsurance agreements, amounts owed to the swap counterparty and payments in respect of the loans issued under a credit agreement between the issuer and lenders. All funds in the collateral trust accounts will be invested as per the investment guidelines set forth in the collateral trust agreements, which govern the selection of the directed investment(s) to be acquired. The loans are with limited recourse to certain assets of the issuer and are without recourse to the cedants.
The assigned ratings represent A.M. Best's opinion as to the issuer's ability to meet its financial obligations to security holders when due. The ratings take into consideration a multitude of factors including the applicable covered perils; the annualized modeled attachment probability (i.e., the first dollar of loss) of 0.007% for Series A Loans, 0.156% for Series B Loans, 0.904% for Series C Loans, and 1.4% for Series D Loans as provided by the cedants; an overview of the cedants' underwriting policies; and a review of the structure and the legal documentation provided by the cedants. In addition, the ratings take into consideration an assessment of the cedants' underwriting and management experience and ability to assess the annual modeled probability of attachment.
Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.
