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11 Feb 2011
USD $108 million of debt securities affected
New York, February 11, 2011 -- Moody's Investors Service announced today that it has upgraded the ratings
of the following notes issued by ALPS Capital II plc (the "Issuer"):
US $90,000,000 Series B Floating Rate Notes due September
30, 2025 (current outstanding balance of $48,125,115.08),
Upgraded to Aa2 (sf); previously on December 15, 2010 A2 (sf)
placed under review for possible further upgrade;
US$30,000,000 Series C Fixed Rate Notes due September
30, 2025, Upgraded to A1 (sf); previously on December
15, 2010 Baa1 (sf) placed under review for possible further upgrade;
US$30,000,000 Series D Fixed Rate Notes due September
30, 2025, Upgraded to Baa1 (sf); previously on December
15, 2010 Ba1 (sf) placed under review for possible further upgrade.
According to Moody's, the rating actions taken on the notes result
primarily from the delevering of the Series A Notes and Series B Notes.
The Series A Notes have been paid in full and the Series B Notes have
been paid down by approximately 47% or $41.9 million
since the rating action in August 2008.
Moody's also notes that the deal has benefited from actuarial experience
of the referenced block of insurance business that is more favourable
than assumed in Moody's previous analysis. Based on the annual
report of the ALPS Capital II plc transaction dated on September 28,
2010, the Subject Business generated $58.8 million
of net cash proceeds to the Issuer for the year ended June 30, 2010,
compared to the original projection of $45.4 million,
or 29.5% more than projected. Cumulatively,
the Subject Business has generated $311.4 million of net
cash proceeds since closing, compared to the original projection
of $274.5 million.
Improvement in the actuarial experience is primarily driven by a favourable
mortality experience and a higher than expected persistency in the Subject
Business, in each case relative to the original projections.
In particular, as of the latest annual report for the year ended
June 30, 2010, mortality was 92% of expected for the
period, and premiums were $4.5 million higher than
ALPS Capital II plc, issued in December 2005, is an Embedded
Value Life-Insurance-Linked Securitization (LILS) backed
by a closed block of life insurance policies. It contains approximately
64% of traditional life Insurance and 36% of non-traditional
life insurance, which includes interest sensitive life (ISL),
fixed deferred annuities (FDA) and corporate owned life insurance (COLI).
The ratings on the notes issued by ALPS Capital II plc were originally
assigned and are monitored by evaluating factors believed to be relevant
to the credit profile of the notes such as (i) the actuarial experience
of the referenced block of insurance business; (ii) risk analysis
and projection performed by Milliman USA, a consulting firm that
specializes in the insurance industry, based on relevant industry
experience for similar products/underwriting; (iii) review of actuarial
report, including actual underlying cash flows; (iv) performance
of invested assets; and (v) other factors believed to be applicable
to the assessment of the creditworthiness of the transaction, such
as a review of the structural, legal, and regulatory risks.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Moody's Investors Service did not receive or take into account a
third-party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
Moody's modeled the transaction under multiple cash flow scenarios,
based on the original actuarial forecast and certain updated assumptions.
The expected losses are determined by assigning weights to each scenario
considered, according to their likelihood of occurrence.
In addition to the base case analysis described above, Moody's also
performed sensitivity analyses to test the impact on all rated notes of
combinations of various stressed assumptions, in terms of interest
rates movements, mortality rates, policy lapse rates,
and asset default rate. Below is a summary of the impact of different
stress scenarios on all rated notes (shown in terms of the number of notches'
difference versus the base case model output, where a positive difference
corresponds to lower expected loss), assuming that all other factors
are held equal:
Scenario considering additional stress on mortality rates, lapse
rates and asset default rate:
Class B: 0
Class C: 0
Class D: 0
Scenario considering additional stress on interest rates, lapse
rates and asset default rate:
Class B: 0
Class C: +1
Class D: +1
Scenario considering additional stress on interest rates and asset default
Class B: 0
Class C: 0
Class D: 0
Scenario considering additional stress on interest rates, mortality
rates and lapse rates:
Class B: -3
Class C: 0
Class D: 0
Moody's notes that the main source of performance uncertainty in
this transaction is the pace of pay downs of the notes from net cash proceeds
generated from the Subject Business, due to continuing favourable
actuarial experience. Whether these pay downs continue at the same
pace or accelerate may have significant impact on the notes' ratings.
The notes' performance may also be impacted by 1) the manager's
investment strategy and behaviour and 2) divergence in legal interpretation
of documentation by different transactional parties due to embedded ambiguities.
Further information on Moody's analysis of this transaction is available
on www.moodys.com. In addition, Moody's publishes
a weekly summary of structured finance credit, ratings and methodologies,
available to all registered users of our web site, at www.moodys.com/SFQuickCheck.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Structured Finance Group
Moody's Investors Service
Ramon O. Torres
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's upgrades the ratings of Insurance-linked Securities issued by ALPS Capital II plc, an Embedded Value Life-insurance transaction
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