Derivative Fitch Affirms InCapS Funding I, Ltd. /Corp.

NEW YORK -- Derivative Fitch affirms four classes of notes issued by InCapS Funding I, Ltd. /Corp. (InCapS I). These affirmations are the result of Derivative Fitch's review process and are effective immediately:

--$201,033,952 class A notes at 'AAA';

--$49,500,000 class B-1 notes at 'A-';

--$75,000,000 class B-2 notes at 'A-';

--$15,000,000 class C notes at 'BBB'.

InCapS I is a collateralized debt obligation (CDO), which closed May 22, 2003. InCapS I is a static pool composed of insurance trust preferred securities, senior notes, and surplus notes. Included in this review, Derivative Fitch performed an analysis of the collateral included in the portfolio.

The CDO has recently experienced the default of one asset with a notional value of $15 million (4.15%) and the distressed sale of another asset representing $13.5 million of the portfolio. A third $15 million asset, which was previously deferring on its interest payments, has resumed interest payments and has re-entered the performing pool. The net effect of this activity has led to minimal deterioration in credit enhancement due to recovery proceeds of the deferring asset and re-entry to the performing pool of the third asset. Certain protective features embedded in the structure also aid overall performance. InCapS I includes a structural feature that traps 50% of excess spread up to the amount of any defaulted or deferring security, and then applies the proceeds to the redemption of the most senior notes outstanding. To date, approximately $6.8 million of the class A notes has been redeemed as a result of this feature.

The senior subordinate principal coverage test failed on Feb. 24, 2006 and $1.8 million of the class A notes were redeemed to cure the test. According to the Aug. 24, 2006 trustee report, the senior principal coverage test ratio is stable at 174.7%, and continues to pass its performance test trigger of 125.0%. The senior subordinate principal coverage test also passes its performance test trigger of 106.0% with a ratio of 108.9%.

The rating of the class A notes addresses the likelihood that investors will receive timely payments of interest as well as ultimate payment of principal by the stated maturity date. The ratings of the class B-1, B-2, and C notes address the likelihood that investors will receive ultimate payment of interest and principle by the stated maturity date.

As a result of this analysis, Derivative Fitch has determined that the current ratings assigned to the A, B-1, B-2 and C notes still reflect the current risk to noteholders. Derivative Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Derivative Fitch web site at www.derivativefitch.com. For more information on Fitch's approach to rating CDOs of trust preferred securities, see the special report, 'Rating Criteria for US Bank and Insurance Trust Preferred CDOs' dated Feb. 2, 2005 and available on Fitch's web site.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.