A.M. Best Co. has assigned a debt rating of “bb+” to the $200 million Series 2008-1 Class A principal-at-risk variable rate notes (the notes) due August 5, 2011, issued by Topiary Capital Limited (the issuer), a newly created Cayman Islands exempted special purpose company. The rating outlook is stable.
The notes are the first series to be issued under the issuer’s principal-at-risk variable rate note program (the program), and in the future, additional notes may be issued under this program.
The primary business purpose for the creation of the issuer is for the issuance of the notes and the service and performance of various agreements entered into between the issuer and other parties. The agreements include the counterparty contract between the issuer and the counterparty, Platinum Underwriters Bermuda, Ltd. (Platinum); the swap agreement between the issuer and Goldman Sachs International (the swap counterparty); and other related agreements and activities.
Under the counterparty contract, the issuer will provide Platinum with up to $200 million second and subsequent events coverage within any activation period for qualifying U.S. hurricane, U.S. earthquake, Europe windstorm and Japan earthquake events over a three-year period beginning August 2, 2008. The first event activating the notes will be based on an Event Index Value Activation Amount for each of the four risk categories. After an activation event, the notes become “at risk of loss” to a second event within the same 12 month activation period. For second and subsequent events, loss payments will be triggered based on the following: U.S. hurricane and U.S. earthquake events on modified PCS index; European windstorm events on Paradex data from Risk Management Solutions, Inc.; and Japan earthquake events on reports from the Japanese National Research Institute for Earth Science and Disaster Prevention. In exchange for receiving the multi-year coverage, Platinum will make periodic payments to the issuer.
Proceeds from the issuance of the notes will be deposited into a collateral account and will be available to satisfy the obligations of the issuer to Platinum under the related counterparty contract. The payments include loss payments required to be made by the issuer under the counterparty contract, amounts owed to the swap counterparty and payments in respect of the notes issued under an indenture between the issuer, HBSC Bank USA, National Association, the indenture trustee and HSBC Bank plc, the paying agent. All funds in the collateral account will be invested as per the investment guidelines set in the indenture, which governs the selection of the directed investment(s) to be acquired. The notes are with limited recourse to certain assets of the issuer and are without recourse to Platinum or any of its affiliates.
The attachment probability, expected loss and the activation probability for each risk category will be recalculated on an annual basis during the risk period using the latest industry exposure data from Risk Management Solutions, Inc., and risk payout factors from Platinum and shall become effective August 1 of each year.
The assigned rating represents A.M. Best’s opinion as to the issuer’s ability to meet its financial obligations to security holders when due. The rating of the notes takes into consideration a multitude of factors including the annualized modeled attachment probabilities (i.e., the first dollar of loss) of 0.87% as provided by Risk Management Solutions, Inc., the modeling firm and calculation agent involved in the transaction, and a review of the structure and the transaction’s legal documentation. In addition, the rating considers an assessment of (1) Platinum’s ability under the counterparty contract to make periodic payments (spread over LIBOR and expense reimbursements) to the issuer, and (2) the swap counterparty’s ability to meet its obligations under the swap agreement.
For access to special reports, analytical methodologies and transactions relating to structured finance, please visit http://www3.ambest.com/sfc/.
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.
Contacts:
Structured Finance:
Emmanuel
Modu, 908-439-2200, ext. 5356
emmanuel.modu@ambest.com
or
Asha
Attoh-Okine, 908-439-2200, ext. 5716
asha.attoh-okine@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
