Fitch upgrades Belize Sovereign Investments III (Cayman) Limited’s ratings

Fitch Ratings has taken the following rating action on the notes issued by Belize Sovereign Investments III (Cayman) Limited (BSI; the issuer):

–$85.7 million notes upgraded to ‘A+’ from ‘A’; Outlook Stable.

The rating action follows the timely payment of the notes by Steadfast Insurance Company (Steadfast; Zurich Insurance Company Ltd.) on Sept. 20, 2012, as well as the recent upgrade of Steadfast’s Insurer Financial Strength rating to ‘AA-’, Outlook Stable in August 2012.

The rating of the notes addresses the timely payment of interest and principal on a semi-annual basis.

Repayment of the notes is backed by two restructured government of Belize (GOB) sovereign obligations and benefits from two insurance policies underwritten by Steadfast. The two GOB obligations have an insurance policy which directly covers any non-payment by the GOB. Payments from the GOB on the underlying notes will pass through to the BSI trust to cover payments on the BSI notes. The amortization schedules are identical.

Insurance policies such as those supporting this transaction allow lowly rated sovereigns to achieve higher ratings by mitigating various sovereign risks.

Transactions in emerging markets have utilized various types of political risk insurance covering narrowly defined risks such as transfer and convertibility to more extensive coverage such as the non-payment of a sovereign obligation.

The more complete coverage of non-payment benefits the BSI transaction by allowing it to be rated more in line with the credit quality of Steadfast.

In addition, the BSI policies provide for a straight forward claims-paying process with limited conditionality and termination events.

The transaction faced the first test to these insurance policies when the GOB defaulted on a $23 million payment due Aug. 20, 2012; the portion owed to the BSI noteholders was approximately $3.6 million.

The performance of the transaction hinged on compensation by Steadfast as a result of the transaction parties executing their respective responsibilities in a timely manner, which included claim submission, review, and payment.

The GOB made a partial payment of approximately $11.7 million after the 30-day grace period ended on Sept. 19, 2012.

The trust was compensated by Steadfast under the insurance policy and BSI noteholders were paid in full Sept. 21, 2012. The insurance policies contain only one exclusion and the claims paying process is straightforward with limited potential for timing delays.

Zurich Insurance Company Ltd. is the primary operating entity of the Zurich Financial Services group and acts as a holding company for the insurance operating subsidiaries. The group has focused on insurance since 2002 and has a strongly developed insurance franchise.

Additional information is available at ‘’. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.


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