Fitch Affirms All Classes of Two Insurance TruPS CDOs

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the ratings on all classes and revised the Rating Outlook on four classes of notes from two collateralized debt obligations (CDOs) backed by trust preferred securities (TruPS) and surplus notes issued by insurance companies. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The collateral balance in both transactions remained the same as last review with each portfolio consisting of only 20 or fewer performing issuers. The credit quality of these two collateral portfolios remained stable with the current average credit quality at 'BB/BB+' compared to 'BB-/BB+' at last review. This is supported by relatively stable performance, with only one new cure, and no new deferrals or defaults observed across the two transactions since Fitch's last review. All coverage tests in the two CDOs continue to pass, further reflecting the stable credit performance of the underlying portfolios.

In ICONS, an additional rating driver is the ability of the non-deferrable classes A and B to continue to pay timely interest due to an outsized interest rate swap and volatility of interest collections. However, Fitch believes interest shortfall is unlikely in the near term, as the notes continue to benefit from a forward turbo and are able to withstand higher rating stresses with regard to principal coverage.

In InCaps I, the optimal principal distribution amount (OPDA) was exhausted because of one new cure representing 10% of the total collateral balance since last review. Consequently, the B-1 and B-2 notes no longer receive the entire amount of excess interest proceeds, but only 20%, with the remaining 80% redirected to the income notes. The Outlook revision to Negative from Stable reflects the significant decrease of excess spread proceeds to the B-1 and B-2 notes, notably reducing deleveraging of the classes.

Fitch has marked the Class II combination notes in ICONS as paid in full based on the flow of funds to underlying class D and Equity note components. The notes were rated to a 3% coupon.

Fitch does not rate the Preference Shares in ICONS and Income Notes in InCapS I.

RATING SENSITIVITIES

Changes in the rating drivers described above could lead to rating changes in the TruPS CDO notes. To address potential risks of adverse selection and increased portfolio concentration Fitch applied a sensitivity scenario, as described in the criteria.

For non-deferrable notes, Fitch performs analysis of notes' interest sensitivity to additional defaults and deferrals, as described in the criteria. The outcome of this analysis is considered in determining appropriate rating levels for non-deferrable notes.

DUE DILIGENCE USAGE

No third-party due diligence was reviewed in relation to this rating action.

Fitch has affirmed the following ratings and revised Outlooks as indicated:

ICONS, Ltd./Corp. (ICONS)

--$61,421,305 class A notes at 'BBBsf', Outlook to Stable from Negative;

--$37,824,347 class B notes at 'BBsf', Outlook to Stable from Negative;

--$6,679,638 class C-1 notes at 'Bsf', Outlook Stable;

--$16,699,094 class C-2 notes at 'Bsf', Outlook Stable;

--$5,009,728 class C-3 notes at 'Bsf', Outlook Stable;

--$16,699,094 class D notes at 'CCCf';

--Class II combination notes paid in full.

InCapS Funding I Ltd./Corp. (InCapS I)

--$31,459,208 class B-1 notes at 'Bsf'; Outlook to Negative from Stable;

--$47,665,466 class B-2 notes at 'Bsf'; Outlook to Negative from Stable;

--$15,000,000 class C notes at 'CCCsf'.

Additional information is available at www.fitchratings.com.

Sources of Information:

The information used to assess these ratings was sourced from trustee reports, collateral manager reporting web sites and the public domain.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 18 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884963

Global Rating Criteria for CLOs and Corporate CDOs (pub. 28 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=885653

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=883130

Surveillance Criteria for Trust Preferred CDOs (pub. 05 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878874

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1010042

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010042

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160805005659/en/

Fitch Ratings
Primary Analyst
Todor Sapundzhiev
Analyst
+1-312-368-3198
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Committee Chairperson
Alina Pak
Senior Director
+1-312-368-3184
or
Media Relations:
Hannah James, +1 646-582-4947
[email protected]

Source: Fitch Ratings

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