A.M. Best Co. has affirmed the debt ratings on multi-tranche collateralized obligations (CDOs) co-issued by two special purpose vehicles (SPV): Dekania CDO I, Ltd. and Dekania CDO I, Inc. (collectively known as Dekania I) and Dekania CDO II, Ltd. and Dekania CDO II, Inc. (collectively known as Dekania II) (both known as issuers). All companies are domiciled in Grand Cayman, Cayman Islands. The outlook for all ratings is stable. (See below for a detailed listing of the ratings and current note balances outstanding.)

The current principal balance of the rated notes are collateralized by a pool of trust preferred securities, surplus notes and secondary market securities (collectively, the capital securities), primarily issued by small to medium-sized insurance companies. The capital securities are pledged as security to the notes. Interest paid by the issuers of the capital securities are the primary source of funds to pay operating expenses of the issuers and interest on the notes. Repayment of the note principal is primarily funded from the redemption of the capital securities.

These rating actions primarily reflect: (1) the current issuer credit ratings (ICR) of the remaining issuers of the capital securities; (2) in addition to the base stress default assumptions outlined in A.M. Best’s published criteria for rating insurance-related CDOs, a stress of up to 250% on the assumed marginal default rates of insurers (derived from Best’s Idealized Default Rates of Insurers); (3) the amount of capital securities considered to be in distress; (4) recoveries of 0% after defaults of the capital securities; and (5) qualitative factors such as the effect of interest rate spikes; subordination level associated with each rated tranche; the adjacency of very high investment grade ratings to very low non-investment grade ratings in the transaction’s capital structure; the general economic trends for insurers; and the possibility that additional redemptions of highly rated entities will leave lower rated companies in the collateral pools. The ratings and outlook could further be revised (i.e. positive or negative) if there are material changes in the ICR of the remaining insurance carriers and/or an increase in the number of defaulted capital securities.

The following debt ratings have been affirmed:

Dekania CDO I—

— “aaa” on $47.49 million Class A-1 First Priority Senior Secured Floating Rate Notes Due 2034

— “aaa” on $69.00 million Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2034

— “a-” on $40.00 million Class B Third Priority Senior Secured Floating Rate Notes Due 2034

— “c” on $6.00 million Class C-1 Fourth Priority Senior Secured Fixed/Floating Rate Notes Due 2034

— “c” on $30.00 million Class C-2 Fourth Priority Senior Secured Fixed/Floating Rate Notes Due 2034

— “c” on $12.71 million Class D Mezzanine Secured Floating Rate Notes Due 2034

Dekania CDO II—

— “aaa” on $130.36 million Class A-1 First Priority Senior Secured Floating Rate Notes Due 2034

— “aa+” on $42.00 million Class A-2 Second Priority Senior Secured Floating Rate Notes Due 2034

— “bb+” on $60.00 million Class B Third Priority Senior Secured Floating Rate Notes Due 2034

— “b” on $21.20 million Class C-1 Fourth Priority Deferrable Interest Fixed/Floating Rate Notes Due 2034

— “b” on $30.00 million Class C-2 Fourth Priority Deferrable Interest Fixed/Floating Rate Notes Due 2034

— “ccc-” on $13.27 million Class D-1 Mezzanine Secured Deferrable Interest Floating Rate Notes Due 2034

— “ccc-” on $4.42 million Class D-2 Mezzanine Secured Deferrable Interest Floating Rate Notes Due 2034

These are structured finance ratings.

For access to special reports, analytical methodologies and transactions relating to insurance-linked securities, please visit http://www3.ambest.com/sfc/.

The principal criterion used in determining these ratings is “Rating Surplus Note and Insurance Trust-Preferred CDOs.”

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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