AM Best


A.M. Best Rates Tarrytownsecond, Series 2003-1 - Bonds Collateralized by Life Insurance Policies


CONTACTS:

Analyst(s)

Emmanuel Modu

(908) 439-2200, ext. 5356

emmanuel.modu@ambest.com

Richard Major

(908) 439-2200, ext. 5755

richard.major@ambest.com

Public Relations

Jim Peavy

(908) 439-2200, ext. 5644

james.peavy@ambest.com

Rachelle Striegel

(908) 439-2200, ext. 5378

rachelle.striegel@ambest.com


FOR IMMEDIATE RELEASE

OLDWICK, N.J. - JANUARY 20, 2004 12:00 AM (EST)
A.M. Best Co. has assigned a debt rating of "aa-" to $63 million of Class A Asset-Backed Bonds, Series 2003-1 (the bonds) with an interest rate of 7% per annum maturing on December 15, 2011, and issued by a bankruptcy remote special purpose vehicle, Tarrytownsecond, LLC (the Issuer). An A.M. Best debt rating is an opinion as to an issuer's ability to meet its financial obligations to security holders when due.

The bonds will be collateralized by approximately $195 million in face value of life insurance polices (life settlements) purchased from individuals with life expectancies ranging from 48 months to 84 months. The life settlements are purchased from elderly individuals who are not deemed to be terminally ill by a physician, although such insureds often suffer from one or more medical conditions that require ongoing medical attention or treatment. Purchases of the life settlements will be made through licensed providers.

Although the ultimate maturity date of the bonds is December 15, 2011, the bonds have a yearly sinking-fund payment schedule, which commences on the third year and ends on the maturity date. The Issuer is required to repay principal and pay accrued interest according to the sinking-fund schedule only if sufficient funds are available. All unpaid principal and accrued interest must be paid by December 15, 2011, in order to avoid an event of default.

The rating on this transaction was based on a representative portfolio provided by Seabury Insurance Services I, LLC, the collateral manager. After the 180-day ramp up period specified in the indenture or after the collateral manager has concluded its purchase of life settlements, the transaction will be re-evaluated to confirm that the purchased life settlements conform to the restrictions specified in the legal documents and/or communicated to A.M. Best.

Major considerations in rating the bonds included the transaction structure, diversity of diseases in the life settlement pool, mortality risk of the insured individuals, the credit risk of insurance companies backing the life settlements and assumed associated recoveries of covered benefits and the modeling of the transaction.

Due diligence-A.M. Best evaluated the collateral manager's simulation model, which produced multiple cash flow scenarios on the transaction. Specifically, A.M. Best considered the soundness of the model inputs, assumptions, simulation process and other significant components. In addition, A.M. Best replicated major components of the collateral manager's model output by using its proprietary Monte Carlo life settlement simulation model. A.M. Best concluded that the default probability associated with the bonds is within the threshold established for a debt rating of "aa-".

Further, A.M. Best evaluated the outputs of various scenarios, which included stress on life expectancies, insurance benefit recoveries, insurance company impairments, potential premium increases on certain types of life insurance policies and the residual value of life settlement policies. A.M. Best is satisfied that the various stress scenarios produced acceptable default probabilities for the "aa-"rating.

Documentation-A.M. Best reviewed all the legal documentation related to the transaction, and A.M. Best relies on certain legal and tax opinions concerning the Issuer and other parties associated with the transaction.

Ongoing monitoring-A.M. Best will maintain ongoing monitoring on the transaction until the bonds mature. Regular reports detailing the performance of the life settlement pool will be analyzed, and regular contact will be maintained with the collateral manager and trustee to ensure that material changes with regards to mortality assumptions, life settlement acquisition costs and other factors are communicated and assessed for their impact on the "aa-" rating assigned to the bonds.

For a list of A.M. Best's debt ratings, please visit debt.



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