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03 Dec 2004
MOODY'S ASSIGNS A RATING OF Aa2 TO PASS-THROUGH TRUST SECURITIES ISSUED BY XL FINANCIAL ASSURANCE LINKED TWIN REEFS PASS-THROUGH TRUST
New York, December 03, 2004 -- Moody's Investors Service has assigned a rating of Aa2 to Pass-Through
Trust Securities (Pass-Through Securities) issued by Twin Reefs
Pass-Through Trust (Pass-Through Trust). The Pass-Through
Trust is a Delaware statutory trust that is issuing $200 million
of such Pass-Through Securities. The Pass-Through
Trust will in turn invest the proceeds from its issuance in Twin Reefs
Asset Trust Securities (Asset Securities) issued by Twin Reefs Asset Trust
(Asset Trust), also a Delaware statutory trust. The Asset
Trust will invest the proceeds of its sale in predominantly high quality
commercial paper and will simultaneously enter into a put option agreement
with XL Financial Assurance Ltd. (XLFA) that provides XLFA with
a perpetual put option to sell to the Asset Trust perpetual preferred
shares of XLFA. The Aa2 rating is, therefore, based
on the high quality of commercial paper investments held by the Asset
Trust, coupled with the investment quality of XLFA's preferred shares
given its option to sell such security to the Asset Trust at its sole
discretion at any time. The outlook for the rating is stable.
According to Moody's, the Aa2 rating on the Pass-Through
Securities is supported by eligible asset guidelines stating that,
prior to XLFA exercising its put option, the Asset Trust will invest
in P-1 rated commercial paper or, if unavailable, in
US treasury securities, maturing no later than the collection date
for the next succeeding distribution period (typically 30 days or less).
Additionally, for the Asset Trust to invest in the commercial paper
of any single issuer, the issuer's long-term senior
unsecured rating must be rated A1 or higher by Moody's. Furthermore,
the Asset Trust will limit its investment in a single issuer to a maximum
of 10% of its assets and in a single industry to a maximum of 25%
of its assets. If XLFA chooses to exercise its put option,
the Asset Trust will use the portion of the proceeds attributable to principal
received upon maturity of its then current eligible assets, net
of expenses, to purchase the preferred shares from XLFA.
The Asset Trust will hold the preferred shares and distribute the preferred
dividend when and if declared to the Pass-Through Trust which will
then distribute such dividends to the holders of the Pass-Through
Securities. XLFA has the right to redeem the preferred shares at
any time, and there is no limit to the number of times that XLFA
may put the preferred shares back to the Asset Trust. Any preferred
shares issued by XLFA would be non-cumulative unless XLFA pays
dividends on its common stock or other outstanding preferred shares of
equal or junior rank to the preferred shares, during which time
the dividends on its preferred shares would be cumulative.
Moody's provisional rating assessment of XLFA's preferred
shares should such securities be issued is Aa2, based on XLFA's
Aaa financial strength rating, strong underwriting policies and
high quality reinsured portfolio which consists of generally investment
grade asset backed deals and municipal transactions. In liquidation,
dissolution or winding up of XLFA, the holders of preferred shares
would have rights that are subordinated to general unsecured creditors
including the reinsurance claims, but senior to both the common
stockholders and the holders of the Series A Preferred Shares, of
Twin Reefs Pass-Through Trust and Twin Reefs Asset Trust are newly
organized Delaware statutory trusts (together, the Trusts).
The Trusts are solely responsible for their obligations, and have
been established for the purpose of issuing a series of Pass-Through
Securities and Asset Securities, investing the proceeds in a portfolio
of high quality commercial paper, entering into a put agreement
with XLFA, and at the option of XLFA, purchasing perpetual
preferred shares from XLFA. The Trusts were created as a vehicle
for providing capital support to XLFA by allowing it to obtain immediate
access to new capital at its sole discretion at any time through the exercise
of the put option.
XLFA is a Bermuda-based financial guaranty reinsurance operating
company whose ultimate parent is XL Capital Ltd, an A2 senior unsecured
rated provider of property and casualty and specialty insurance products.
XLFA provides reinsurance primarily to its affiliate company, XL
Capital Assurance Inc. (XLCA), a New York based Aaa-rated
primary financial guaranty company that provides financial guarantees
for municipal, structured finance, and international debt
Financial Institutions Group
Moody's Investors Service
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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