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CDO backed by insurance company surplus notes gets rated, listed


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CDO backed by insurance company surplus notes gets rated, listed

Moody'son March 30 assigned ratings to two classes of notes issued by a static cash flowCDO backed by an EJF Capital LLC-managedpool primarily consisting of insurance company surplus notes and trust preferredsecurities.

The agencyrates the $216 million in Trust Preferred Insurance Note Securitization 2016-1 classA senior-secured floating-rate notes due 2034 at Aa3 (sf) and the $18 million inclass B mezzanine deferrable floating-rate notes due 2034 at Baa3 (sf). The ratingsare consistent with the provisional grades that Moody's revealed Feb. 17.

Moody'ssaid in a release that its ratings "address the expected losses posed to noteholders"and that they reflect "the risks due to defaults on the underlying portfolioof assets, the transaction's legal structure and the characteristics of the underlyingassets."

The IrishStock Exchange in a March 30 notice approved the admission of the class A notesto the "official list" for trading on its global exchange market.

, Trust PreferredInsurance Note Securitization 2016-1 disclosed the various obligations it expectedto purchase on the transaction's closing date in an exhibit to a Form ABS 15-G filedFeb. 2 with the SEC. The pool as it was outlined in that document was expected tocontain surplus notes, trust preferred securities and senior notes associated withapproximately 40 small to midsized insurance companies and/or insurance holdingcompanies with maturity dates ranging from Dec. 4, 2032, to June 30, 2034, and spreadsover LIBOR ranging from 350 basis points to 425 basis points.

The underlyingobligations were associated with operating companies and/or their parents that maintainedA.M. Best financial strength ratings ranging from a low of B to a high of A as ofthe Nov. 20, 2015, cutoff date. Two of the entities did not have A.M. Best financialstrength ratings, according to the filing. Trust Preferred Insurance Note Securitization2016-1 has not submitted any additional filings to the SEC since Feb. 2.

The loneB-rated company in the pool as of the cutoff date as displayed in the exhibit tothe 15-G filing, Public Service MutualHolding Co. unit PublicService Insurance Co., has since been downgraded by A.M. Best to B- and revealed a series of intended to assure itslong-term health. The Feb. 2 filing shows Public Service Insurance Co. under itsname as of the original date of issuance of surplus notes due Oct. 29, 2033: PublicService Mutual Insurance Co. The company converted to a stock insurer in 2012, changingits name and state of domicile in the process.

PublicService Insurance reported $52 million in face amount of surplus notes, of which$15 million pertained to the FTN Financial Capital Markets — and Keefe Bruyette& Woods Inc. — underwritten surplus note due October 2033, according to thenotes to its 2015 annual statement. The company may make payments of principal andinterest on its outstanding surplus notes only with the prior approval of the IllinoisDepartment of Insurance. The exhibit to the Trust Preferred Insurance Note Securitization2016-1 15-G ascribed a "new notional" amount of $11 million to the applicablesurplus note, which carries a LIBOR spread of 395 basis points.

Moody'snoted in the March 30 release that the underlying portfolio primarily includes obligationsof insurance companies that it does not rate.

"Moody'sassesses the default probability of insurance company obligors that do not havepublic ratings through credit assessments provided by its insurance team based onthe credit analysis of the underlying insurance companies' annual statutory financialreports," the rating agency said. "Moody's assumed a fixed recovery rateof 10% for these obligations."

TrustPreferred Insurance Note Securitization 2016-1 as previously outlined was to includetwo unrated classes of preferred stock in the amounts of $43.8 million and $69.8million.

EJF Capitaldid not immediately return a message seeking comment.