MORGAN STANLEY INVESTMENT MANAGEMENT MEZZANO B.V.
(a private company with limited liability incorporated under the laws of The Netherlands having its corporate seat in Amsterdam)
€254,500,000 Class A Senior Floating Rate Notes due 2024
€10,500,000 Class B Deferrable Interest Floating Rate Notes due 2024
€19,250,000 Class C Deferrable Interest Floating Rate Notes due 2024
€10,000,000 Class D Deferrable Interest Floating Rate Notes due 2024
€16,750,000 Class E Deferrable Interest Floating Rate Notes due 2024
€39,450,000 Subordinated Notes due 2024
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Secured by a Portfolio of Collateral Debt Obligations (as defined herein)
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Initial Issue Price of each Class of Notes other than the Class E Notes: 100%
Initial Issue Price of the Class E Notes: 97.25%
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Morgan Stanley Investment Management Mezzano B.V. (the "Issuer") will issue €254,500,000 Class A Senior Floating Rate Notes due 2024 (the "Class A Notes" or the "Senior Notes"), €10,500,000 Class B
Deferrable Interest Floating Rate Notes due 2024 (the "Class B Notes"), €19,250,000 Class C Deferrable Interest Floating Rate Notes due 2024 (the "Class C Notes"), €10,000,000 Class D Deferrable
Interest Floating Rate Notes due 2024 (the "Class D Notes"), €16,750,000 Class E Deferrable Interest Floating Rate Notes due 2024 (the "Class E Notes" and, together with the Class B Notes, the Class C
Notes and the Class D Notes, the "Mezzanine Notes") and €39,450,000 Subordinated Notes due 2024 (the "Subordinated Notes" and, together with the Senior Notes, the Mezzanine Notes and the
Subordinated Notes, the "Notes"). The Notes will be issued and secured pursuant to a Trust Deed to be dated 30 October 2007 between (amongst others) the Issuer and Deutsche Trustee Company Limited
as trustee (the "Trustee"). Each Class of Notes, other than the Subordinated Notes, are together referred to herein as the "Floating Rate Notes". The terms and conditions of the Notes (the "Conditions")
are set out herein under "Conditions of the Notes".
Other than in respect of the initial Interest Accrual Period (as defined below), the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes and Class E Notes will bear interest from the Issue
Date at a floating rate, being; six month EURIBOR + 0.75 per cent. per annum in respect of the Class A Notes, six month EURIBOR + 1.25 per cent. per annum in respect of the Class B Notes, six month
EURIBOR + 2.5 per cent. per annum in respect of the Class C Notes, six month EURIBOR + 4.5 per cent. per annum in respect of the Class D Notes, six month EURIBOR + 7.0 per cent. per annum in
respect of the Class E Notes. Interest will be payable in respect of the Subordinated Notes in accordance with Condition 6(f) (Interest on the Subordinated Notes). Each Class of Floating Rate Notes will
bear interest during the initial Interest Accrual Period at a rate based on the linear interpolation of 6 and 7 months EURIBOR.
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The Notes will be limited recourse debt obligations of the Issuer. Payment of principal and interest on the Class A Notes will be allocated on a pro rata basis and such payments will be senior in right of
payment to such payments on the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Subordinated Notes. Payments of principal and interest on the Class B Notes will be
allocated on a pro rata basis and such payments will be subordinated to payments on the Class A Notes but senior in right of payment to such payments on the Class C Notes, the Class D Notes, the Class E
Notes and the Subordinated Notes. Payments of principal and interest on the Class C Notes will be allocated on a pro rata basis and such payments will be subordinated to payments on the Class A Notes
and the Class B Notes but senior in right of payment to such payments on the Class D Notes, the Class E Notes and the Subordinated Notes. Payments of principal and interest on the Class D Notes will be
allocated on a pro rata basis and such payments will be subordinated to payments on the Class A Notes, the Class B Notes and the Class C Notes but senior in right of payment to such payments on the Class
E Notes and the Subordinated Notes. Payments of Principal and interest on the Class E Notes will be allocated on a pro rata basis and such payments will be subordinated to payments on the Class A Notes,
the Class B Notes, the Class C Notes and the Class D Notes but senior in right of payment to such payments on the Subordinated Notes. Payments of principal and interest on the Subordinated Notes will be
allocated on a pro rata basis and such payments will be subordinated in right of payment to payments in respect of each of the other Class of Notes.
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Class of Notes
Class A
Class B
Class C
Class D
Class E
Subordinated
Initial Aggregate
Principal Amount
Stated Interest Rate1
S&P Rating2
Moody's Rating 2
Stated Maturity
Initial Offer Price3
€254,500,000
€10,500,000
€19,250,000
€10,000,000
€16,750,000
€39,450,000
6-month EURIBOR + 0.75%
6-month EURIBOR + 1.25%
6-month EURIBOR + 2.5%
6-month EURIBOR + 4.5%
6-month EURIBOR + 7.0%
Subordinated Notes share of Available Proceeds
AAA
AA
A
BBBBBN/A
Aaa
Aa2
A2
Baa3
Ba3
N/A
2024
2024
2024
2024
2024
2024
100%
100%
100%
100%
97.25%
100%
1.
The rate of interest of the Notes (other than the Subordinated Notes) for the period from, and including, the Issue Date to, but excluding, the first Payment Date on 15 May 2008 will be
determined through the use of linear interpolation by reference to 6 month and 7 month EURIBOR.
2.
The ratings assigned by S&P to the Class A Notes address the timely payment of interest and the ultimate payment of principal by the Maturity Date. The ratings assigned by S&P to the Class
B Notes, the Class C Notes, the Class D Notes and the Class E Notes address the ultimate payment of principal and interest. The ratings assigned by Moody's to the Notes address the expected
loss posed to investors by the legal final maturity in 2024.
3.
The Arrangers may offer the Notes at other prices as may be negotiated at the time of sale.
Application has been made to the Irish Financial Services Regulatory Authority (the "IFSRA"), as competent authority (the "Competent Authority") under Directive 2003/71/EC (the "Prospectus
Directive"), for this Prospectus to be approved. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on its regulated market. Such approval
relates only to Notes which are to be admitted to trading on the regulated market of the Irish Stock Exchange or other regulated markets for the purposes of Directive 93/22/EEC or which are to be offered to
the public in any Member State of the European Economic Area. It is anticipated that listing will take place on or about the Issue Date. There can be no assurance that such listing will be granted.
The language of the Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them
This document constitutes a prospectus for the purposes of the Prospectus Directive. This document is not a prospectus for the purposes of Section 12(a)(Z) or any other provisions of or rule under the
United States Securities Act of 1933.
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The Notes have not been registered under the United States Securities Act of 1933, as amended (the "Securities Act") and will be offered only: (a) outside the United States in compliance with Regulation S
under the Securities Act ("Regulation S Notes") and (b) within the United States to qualified institutional buyers ("Qualified Institutional Buyers") (as defined in Rule 144A under Securities Act) ("Rule
144A Notes") in reliance on Rule 144A under the Securities Act who are also qualified purchasers ("Qualified Purchasers") for the purposes of Section 3(c)(7) of the United States Investment Company Act
of 1940, as amended (the "Investment Company Act") or, solely in the case of the Subordinated Notes, Qualified Institutional Buyers who are also Qualified Purchasers or institutional "accredited
investors" within the meaning of Rule 5.01(a) 1, 2, 3, 7 and 8 of Regulation D under the Securities Act, which, in either case, are also Qualified Purchasers or a company owned exclusively by Qualified
Purchasers and/or "knowledgeable employees" with respect to the Issuer as defined in Rule 3c-5 under the Investment Company Act ("Knowledgeable Employees"), purchasing for its own account or for the
account of Qualified Institutional Buyers or institutional "accredited investors" which, in either case, are also Qualified Purchasers or a company owned exclusively by Qualified Purchasers and/or
"Knowledgeable Employees" in a transaction exempt from registration under the Securities Act..
The Issuer will not be registered under the Investment Company Act. Interests in the Notes will be subject to certain restrictions on transfer. See "Subscription" and "Transfer Restrictions". Each purchaser
of Notes offered hereby by the Issuer in making its purchase will be deemed to have made and in some cases will be required to affirmatively make certain acknowledgements, representations and
agreements as set out under "Subscription" and "Transfer Restrictions".
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It is a condition of the issue and sale of the Notes that the Notes (except for the Subordinated Notes) be issued with at least the following ratings from Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. ("S&P"): the Class A Notes: "Aaa" from Moody's and "AAA" from S&P; the Class B Notes: "Aa2" from Moody's and
"AA" from S&P; the Class C Notes: "A2" from Moody's and "A" from S&P; the Class D Notes: "Baa3" from Moody's and "BBB-" from S&P and the Class E Notes: "Ba3" from Moody's and "BB-" from
S&P. The ratings assigned to the Senior Notes by S&P address the timely payment of interest and the ultimate payment of principal by the Maturity Date. The ratings assigned to the Mezzanine Notes by
S&P address the ultimate payment of principal and interest. The ratings assigned by Moody's to the Notes address the expected loss posed to investors by the Maturity Date. See "Ratings of the Senior
Notes and the Mezzanine Notes". The Subordinated Notes being offered hereby by the Issuer will not be rated. A security rating is not a recommendation to buy, sell or hold securities and may be subject to
revision, suspension or withdrawal at any time by the applicable rating agency.
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FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS".
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CERTAIN SECURED ASSETS OF THE ISSUER ARE THE SOLE SOURCE OF PAYMENTS ON THE NOTES. THE NOTES DO NOT REPRESENT AN INTEREST IN, OR OBLIGATIONS OF, AND ARE
NOT INSURED OR GUARANTEED BY, ANY OF THE NOTEHOLDERS, THE COLLATERAL MANAGER, THE COLLATERAL ADMINISTRATOR, THE ARRANGERS (AS DEFINED BELOW), THE
TRUSTEE, THE AGENTS OR ANY OF THEIR RESPECTIVE AFFILIATES.
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Lehman Brothers International (Europe) and Lehman Brothers Inc., (together in such Capacities, the "Arrangers") expect to deliver the Notes to purchasers on or about 30 October 2007. The Arrangers
shall underwrite the Notes (other than the Subordinated Notes), and may on-sell any of the Notes (other than the Subordinated Notes) to, or place the Subordinated Notes with, subsequent purchasers, in each
case in individually negotiated transactions at prices other than the initial issue prices set out above.
LEHMAN BROTHERS
This Prospectus is dated 30 October 2007
This Prospectus (the "Prospectus") has been prepared by the Issuer solely for use in connection with
the offering of the Notes described herein and for listing purposes. The Issuer accepts responsibility
for the information contained in this Prospectus (save for the information contained in the sections of
this document headed "Description of the Collateral Manager" and "Description of the Collateral
Administrator"). To the best of the knowledge and belief of the Issuer (which has taken all reasonable
care to ensure that such is the case), the information contained in this Prospectus (save for the
information contained in the sections of this document headed "Description of the Collateral Manager"
and "Description of the Collateral Administrator") is in accordance with the facts and contains no
omission likely to affect the import of such information. The Issuer disclaims any obligation to update
such information and does not intend to do so.
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The Collateral Manager accepts responsibility solely for the information in respect of itself contained in
the section of this document, headed "Description of the Collateral Manager". To the best of the
knowledge and belief of the Collateral Manager (which has taken all reasonable care to ensure that
such is the case), such information in respect of itself is in accordance with the facts and does not omit
anything likely to affect the import of such information. The Collateral Manager does not accept any
responsibility for the accuracy and completeness of any other information contained in this Prospectus
nor otherwise for the structuring and operation of any arrangements relating to the Notes (save for any
such operational arrangements undertaken in its capacity as Collateral Manager) referred to herein.
______________________________
The Collateral Administrator accepts responsibility for the information contained in the section of this
document headed "Description of the Collateral Administrator" and, to the best of the knowledge and
belief of the Collateral Administrator (which has taken all reasonable care to ensure that such is the
case), such information is in accordance with the facts and does not omit anything likely to affect the
import of such information. The Collateral Administrator does not accept any responsibility for the
accuracy and completeness of any other information contained in this Prospectus nor otherwise for the
structuring and operation of any arrangements relating to the Notes (save for any such operational
arrangements undertaken in its capacity as Collateral Administrator) referred to herein.
______________________________
None of the Issuer (with respect only to information in the sections of this document headed
"Description of the Collateral Manager" and "Description of Collateral Administrator"), the
Arrangers, the Trustee, the Collateral Administrator (save as described above), or the Collateral
Manager (save as described above) or any Affiliate or the Agents (as defined below) thereof has
separately verified the information contained in this Prospectus and accordingly none of the Issuer
(with respect only to information in the sections of this document headed "Description of the Collateral
Manager" and "Description of Collateral Administrator"), the Arrangers, the Trustee, the Collateral
Administrator (save as described above) or the Collateral Manager (save as described above) or any
Affiliate or the Agents (as defined below) thereof makes any representation, recommendation or
warranty, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the
information contained in this Prospectus or in any further notice or other document which may at any
time be supplied in connection with the Notes or their distribution or accepts any responsibility or
liability therefor. None of the Arrangers, the Trustee, the Collateral Administrator or the Collateral
Manager or any Affiliate or the Agents (as defined below) thereof undertakes to review the financial
condition or affairs of the Issuer during the life of the arrangements contemplated by this Prospectus
nor to advise any investor or potential investor in the Notes of any information coming to the attention
of the Arrangers, the Trustee, the Collateral Administrator or the Collateral Manager or any Affiliate or
the Agents (as defined below) thereof which is not included in this Prospectus.
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This Prospectus does not constitute an offer of, or an invitation by or on behalf of, the Issuer, the
Arrangers, the Collateral Manager, the Collateral Administrator, the Trustee, the Agents or any
Affiliate (as defined below) thereof or any other person to subscribe for or purchase, any of the Notes
in any jurisdiction by any person to whom it is unlawful to make such an offer or invitation in such
jurisdiction. In particular, the Notes are not being offered or sold to any person in the United Kingdom
except in circumstances which will not result in an offer to the public in the United Kingdom within the
meaning of the UK Financial Services and Markets Act 2000 or otherwise than in accordance with such
legislation and all other applicable laws. The distribution of this Prospectus and the offering of the
ii
Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus
comes are required by the Issuer to inform themselves about and to observe any such restrictions. In
particular, the communication constituted by this Prospectus is directed only at persons who (i) are
outside the United Kingdom and are offered and accept this Prospectus in compliance with such
restrictions or (ii) have professional experience in matters relating to investments or (iii) are persons
falling within Article 49(2)(A) to (D)/Article 19(5) (Investment Professionals) (High Net Worth
Companies, Unincorporated Associations Etc.) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005 or who otherwise fall within an exemption set out in such Order so
that Section 21(1) of the Financial Services and Markets Act 2000 does not apply to the Issuer (all such
persons together being referred to as "relevant persons". This communication must not be acted on or
relied on by persons who are not relevant persons. Any investment or investment activity to which this
communication relates is available only to relevant persons and will be engaged in only with relevant
persons. For a description of certain further restrictions on offers and sales of Notes and the
distribution and issue of this Prospectus and other documents, see "Subscription" and "Transfer
Restrictions".
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In connection with the issue and sale of the Notes, no person is authorised to give any information or to
make any representation not contained in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorised by or on behalf of the Issuer. The
delivery of this Prospectus at any time does not imply that the information contained in it is correct as
at any time subsequent to its date.
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In this Prospectus, unless otherwise specified or the context otherwise requires, all references to
"EUR", "Euro" and "€" are to the single currency introduced in January 1999 pursuant to the Treaty
establishing the European community as amended.
____________________
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN
APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER
421-B OF THE NEW HAMPSHIRE REVISED STATUTES (THE "RSA")
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED
IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE
SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR
EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION
MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY
UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR
GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION.
IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE
PURCHASER,
CUSTOMER,
OR
CLIENT
ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS
PARAGRAPH.
______________________________
INFORMATION AS TO PLACEMENT WITHIN THE UNITED STATES
THE REGULATION S NOTES OF EACH CLASS (OTHER THAN THE CLASS AI NOTES) (THE
"REGULATION S NOTES") SOLD OUTSIDE THE UNITED STATES TO NON-U.S. PERSONS
IN RELIANCE ON REGULATION S ("REGULATION S") UNDER THE SECURITIES ACT
iii
WILL EACH BE REPRESENTED ON ISSUE BY BENEFICIAL INTERESTS IN ONE OR MORE
GLOBAL CERTIFICATES OF SUCH CLASS (EACH, A "REGULATION S GLOBAL
CERTIFICATE" AND TOGETHER, THE "REGULATION S GLOBAL CERTIFICATES"), IN
FULLY REGISTERED FORM, WITHOUT INTEREST COUPONS OR PRINCIPAL RECEIPTS,
WHICH WILL BE DEPOSITED ON OR ABOUT THE ISSUE DATE WITH, AND REGISTERED
IN THE NAME OF BT GLOBENET NOMINEES LIMITED AS NOMINEE FOR DEUTSCHE
BANK AG, LONDON BRANCH, AS COMMON DEPOSITARY FOR EUROCLEAR BANK
S.A./N.V., AS OPERATOR OF THE EUROCLEAR SYSTEM ("EUROCLEAR") AND
CLEARSTREAM BANKING, SOCIÉTÉ ANONYME ("CLEARSTREAM, LUXEMBOURG"). U.S.
PERSONS MAY NOT HOLD AN INTEREST IN A REGULATION S GLOBAL CERTIFICATE.
THE RULE 144A NOTES OF EACH CLASS (OTHER THAN THE AI NOTES) (THE "RULE 144A
NOTES") WILL BE SOLD ONLY TO "QUALIFIED INSTITUTIONAL BUYERS" (AS
DEFINED IN RULE 144A ("RULE 144A") UNDER THE SECURITIES ACT) THAT ARE ALSO
"QUALIFIED PURCHASERS" FOR PURPOSES OF SECTION 3(C)(7) OF THE INVESTMENT
COMPANY ACT. RULE 144A NOTES OF EACH CLASS (OTHER THAN THE CLASS AI
NOTES) WILL EACH BE REPRESENTED ON ISSUE BY BENEFICIAL INTERESTS IN ONE OR
MORE PERMANENT GLOBAL CERTIFICATES OF SUCH CLASS (EACH, A "RULE 144A
GLOBAL CERTIFICATE" AND TOGETHER, THE "RULE 144A GLOBAL CERTIFICATES"),
IN FULLY REGISTERED FORM, WITHOUT INTEREST COUPONS OR PRINCIPAL RECEIPTS,
WHICH WILL BE REGISTERED IN THE NAME OF A NOMINEE FOR THE DEPOSITORY
TRUST COMPANY ("DTC"). OWNERSHIP INTERESTS IN THE REGULATION S GLOBAL
CERTIFICATES AND THE RULE 144A GLOBAL CERTIFICATES (TOGETHER, THE
"GLOBAL CERTIFICATES") WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL
ONLY BE EFFECTED THROUGH, RECORDS MAINTAINED BY EUROCLEAR,
CLEARSTREAM, LUXEMBOURG AND DTC, RESPECTIVELY, AND THEIR RESPECTIVE
PARTICIPANTS. NOTES (OTHER THAN THE CLASS AI NOTES) IN DEFINITIVE
CERTIFICATED FORM WILL BE ISSUED ONLY IN LIMITED CIRCUMSTANCES. IN EACH
CASE, PURCHASERS AND TRANSFEREES OF NOTES WILL BE DEEMED TO HAVE MADE
CERTAIN AND IN SOME CASES WILL BE REQUIRED TO AFFIRMATIVELY MAKE
REPRESENTATIONS AND AGREEMENTS. THE AI NOTES SOLD TO A QIB OR AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 5.01(a) 1, 2,
3, 7 OR 8 OF REGULATION D UNDER THE SECURITIES ACT WHICH IS ALSO A QP OR A
COMPANY OWNED EXCLUSIVELY BY QPs AND/OR KNOWLEDGEABLE EMPLOYEES
WILL BE REPRESENTED ON ISSUE BY DEFINITIVE CERTIFICATES (THE "AI NOTES") IN
FULLY REGISTERED FORM, WITHOUT INTEREST COUPONS OR PRINCIPAL RECEIPTS,
AND REGISTERED IN THE NAME OF THE OWNER THEREOF OR ITS NOMINEE. SEE
"FORM OF THE NOTES", "BOOK-ENTRY CLEARANCE PROCEDURES", "SUBSCRIPTION" AND
"TRANSFER RESTRICTIONS" BELOW.
EXCEPT IN LIMITED CIRCUMSTANCES DESCRIBED UNDER "FORM OF THE NOTES –
EXCHANGE FOR DEFINITIVE CERTIFICATES", NOTES (OTHER THAN THE CLASS AI
NOTES) IN DEFINITIVE FULLY REGISTERED FORM (EACH A "DEFINITIVE
CERTIFICATE") WILL NOT BE ISSUED IN EXCHANGE FOR BENEFICIAL INTERESTS IN
THE GLOBAL CERTIFICATES.
THE ISSUER HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT
COMPANY ACT. EACH PURCHASER OF AN INTEREST IN THE RULE 144A NOTES WILL
BE DEEMED TO HAVE REPRESENTED AND AGREED THAT IT IS A QIB/QP AND WILL
ALSO BE DEEMED TO HAVE MADE THE REPRESENTATIONS SET OUT IN "TRANSFER
RESTRICTIONS" HEREIN.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE NOTES AND THE OFFERING
THEREOF DESCRIBED HEREIN, INCLUDING THE MERITS AND RISKS INVOLVED.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
WITH, OR APPROVED BY, ANY UNITED STATES FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING
OR THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENCE.
iv
THIS PROSPECTUS HAS BEEN PREPARED BY THE ISSUER SOLELY FOR USE IN
CONNECTION WITH THE OFFERING OF THE NOTES DESCRIBED HEREIN (THE
"OFFERING") AND THE ADMISSION TO TRADING OF THE NOTES ON THE REGULATED
MARKET OF THE IRISH STOCK EXCHANGE. EACH OF THE ISSUER AND THE
ARRANGERS RESERVE THE RIGHT TO REJECT ANY OFFER TO PURCHASE THE NOTES IN
WHOLE OR IN PART FOR ANY REASON, OR TO SELL LESS THAN THE STATED INITIAL
PRINCIPAL AMOUNT OF ANY CLASS OF NOTES OFFERED HEREBY. THIS PROSPECTUS IS
PERSONAL TO EACH OFFEREE TO WHOM IT HAS BEEN DELIVERED BY THE ISSUER, THE
INITIAL PURCHASER, OR ANY AFFILIATE THEREOF AND DOES NOT CONSTITUTE AN
OFFER TO ANY OTHER PERSON OR TO THE PUBLIC GENERALLY TO SUBSCRIBE FOR OR
OTHERWISE ACQUIRE THE NOTES. DISTRIBUTION OF THIS PROSPECTUS TO ANY
PERSONS OTHER THAN THE OFFEREE AND THOSE PERSONS, IF ANY, RETAINED TO
ADVISE SUCH OFFEREE WITH RESPECT THERETO IS UNAUTHORISED AND ANY
DISCLOSURE OF ANY OF ITS CONTENTS, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE ISSUER, IS PROHIBITED, SAVE AS OTHERWISE AUTHORISED UNDER "UNITED
STATES FEDERAL INCOME TAXATION — TAX RETURN DISCLOSURE AND INVESTOR LIST
REQUIREMENTS". EACH PROSPECTIVE PURCHASER IN THE UNITED STATES, BY
ACCEPTING DELIVERY OF THIS PROSPECTUS, AGREES TO THE FOREGOING AND TO
MAKE NO COPIES OF THIS PROSPECTUS OR ANY DOCUMENTS RELATED HERETO AND
IF THE OFFEREE DOES NOT PURCHASE THE NOTES OF ANY CLASS OR THE OFFERING IS
TERMINATED, TO RETURN THIS PROSPECTUS AND ALL DOCUMENTS ATTACHED
THERETO TO THE ARRANGERS.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, EACH OFFEREE (AND
EACH EMPLOYEE, REPRESENTATIVE, OR OTHER AGENT OF SUCH OFFEREE) MAY
DISCLOSE TO ANY AND ALL OTHER PERSONS, WITHOUT LIMITATION OF ANY KIND,
THE TAX TREATMENT AND TAX STRUCTURE OF THE TRANSACTIONS DESCRIBED
HEREIN (INCLUDING THE OWNERSHIP AND DISPOSITION OF THE NOTES) AND ALL
MATERIALS OF ANY KIND (INCLUDING OPINIONS OR OTHER TAX ANALYSES) THAT
ARE PROVIDED TO THE OFFEREE RELATING TO SUCH TAX TREATMENT AND TAX
STRUCTURE.
HOWEVER, ANY SUCH INFORMATION RELATING TO THE TAX
TREATMENT OR TAX STRUCTURE IS REQUIRED TO BE KEPT CONFIDENTIAL TO THE
EXTENT REASONABLY NECESSARY TO COMPLY WITH APPLICABLE FEDERAL OR
STATE LAWS.
FOR THE PURPOSES OF THIS PARAGRAPH, THE TERMS "TAX
TREATMENT" AND "TAX STRUCTURE" HAVE THE MEANING GIVEN TO SUCH TERMS
UNDER UNITED STATES TREASURY REGULATION SECTION 1.6011-4(C) AND
APPLICABLE STATE AND LOCAL LAW.
NOTICE TO RESIDENTS OF THE UNITED STATES
THE NOTES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER APPLICABLE
UNITED STATES FEDERAL AND STATE SECURITIES LAWS.
AVAILABLE INFORMATION
To permit compliance with Rule 144A under the Securities Act in connection with the sale of the
Notes, the Issuer will be required to furnish or cause to be furnished, upon request of a holder or
beneficial owner of a Note, to such holder who is a QIB or a prospective investor who is a QIB and is
designated by such holder or beneficial owner the information required to be delivered under Rule
144A(d)(4) under the Securities Act if at the time of the request the Issuer is neither a reporting
company under Section 13 or Section 15(d) of the United States Securities Exchange Act of 1934, as
amended (the "Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act. All information made available by the Issuer pursuant to the terms of this paragraph
may also be obtained during usual business hours free of charge at the office of the Irish Paying Agent
and the Transfer Agent in Ireland.
UNITED KINGDOM SELLING RESTRICTIONS
THE ARRANGERS HAVE REPRESENTED AND AGREED THAT:
v
(A)
(i) IT IS A PERSON WHOSE ORDINARY ACTIVITIES INVOLVE IT IN ACQUIRING,
HOLDING, MANAGING OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR
AGENT) FOR THE PURPOSES OF ITS BUSINESS AND (ii) IT HAS NOT OFFERED OR
SOLD AND WILL NOT OFFER OR SELL THE NOTES OTHER THAN TO PERSONS
WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING, HOLDING,
MANAGING OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AS AGENT) FOR
THE PURPOSES OF THEIR BUSINESSES OR WHO IT IS REASONABLE TO EXPECT
WILL ACQUIRE, HOLD, MANAGE OR DISPOSE OF INVESTMENTS (AS PRINCIPAL
OR AGENT) FOR THE PURPOSES OF THEIR BUSINESSES WHERE THE ISSUE OF
THE NOTES WOULD OTHERWISE CONSTITUTE A CONTRAVENTION OF SECTION
19 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 ("FSMA");
(B)
IT HAS ONLY COMMUNICATED OR CAUSED TO BE COMMUNICATED AND WILL
ONLY COMMUNICATE OR CAUSE TO BE COMMUNICATED AN INVITATION OR
INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITY (WITHIN THE MEANING
OF SECTION 21 OF THE FSMA) RECEIVED BY IT IN CONNECTION WITH THE
ISSUE OR SALE OF THE NOTES IN CIRCUMSTANCES IN WHICH SECTION 21(1) OF
THE FSMA DOES NOT APPLY TO THE ISSUER; AND
(C)
IT HAS COMPLIED AND WILL COMPLY WITH ALL APPLICABLE PROVISIONS OF
THE FSMA WITH RESPECT TO ANYTHING DONE BY IT IN RELATION TO THE
NOTES IN, FROM OR OTHERWISE INVOLVING THE UNITED KINGDOM.
______________________________
NOTICE TO RESIDENTS OF AUSTRALIA
(A)
NEITHER THIS PROSPECTUS NOR ANY OTHER PROSPECTUS OR DISCLOSURE
DOCUMENT IN RELATION TO THE NOTES HAS BEEN LODGED WITH, OR
REGISTERED BY, THE AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION;
(B)
NO OFFER OR INVITATION OF AN OFFER OF THE NOTES FOR ISSUE OR SALE
HAS BEEN MADE OR WILL BE MADE IN AUSTRALIA (INCLUDING AN OFFER OR
INVITATION WHICH IS RECEIVED BY A PERSON IN AUSTRALIA); AND
(C)
NO DISTRIBUTION OR PUBLICATION OF THIS PROSPECTUS OR ANY OTHER
OFFERING MATERIAL OR ADVERTISEMENT RELATING TO THE NOTES IN
AUSTRALIA HAS BEEN MADE OR WILL BE MADE, UNLESS (i) THE MINIMUM
AGGREGATE CONSIDERATION PAYABLE BY EACH OFFEREE IS AT LEAST
A$500,000 (DISREGARDING MONEYS LENT BY THE OFFEROR OR ITS
ASSOCIATES) OR THE OFFER OTHERWISE DOES NOT REQUIRE DISCLOSURE TO
INVESTORS IN ACCORDANCE WITH PART 6D.2 OF THE CORPORATIONS ACT,
AND (ii) SUCH ACTION COMPLIES WITH ALL APPLICABLE LAWS AND
REGULATIONS.
______________________________
NOTICE TO RESIDENTS OF AUSTRIA
THE NOTES MAY ONLY BE OFFERED IN THE REPUBLIC OF AUSTRIA IN COMPLIANCE
WITH THE PROVISIONS OF THE AUSTRIAN CAPITAL MARKET ACT AND OTHER LAWS
APPLICABLE IN THE REPUBLIC OF AUSTRIA GOVERNING THE OFFER AND SALE OF THE
NOTES IN THE REPUBLIC OF AUSTRIA. THE NOTES ARE NOT REGISTERED OR
OTHERWISE AUTHORISED FOR PUBLIC OFFER EITHER UNDER THE CAPITAL MARKET
ACT OR THE INVESTMENT FUND ACT. THE RECIPIENTS OF THIS PROSPECTUS AND
OTHER SELLING MATERIAL WITH RESPECT TO THE NOTES HAVE BEEN INDIVIDUALLY
SELECTED AND IDENTIFIED BEFORE THE OFFER BEING MADE AND ARE TARGETED
EXCLUSIVELY ON THE BASIS OF A PRIVATE PLACEMENT. ACCORDINGLY, THE NOTES
MAY NOT BE, AND ARE NOT BEING, OFFERED OR ADVERTISED PUBLICLY OR OFFERED
SIMILARLY UNDER EITHER THE CAPITAL MARKET ACT OR THE INVESTMENT FUND
ACT. THIS OFFER MAY NOT BE MADE TO ANY OTHER PERSONS THAN THE RECIPIENTS
TO WHOM THIS DOCUMENT IS PERSONALLY ADDRESSED.
vi
______________________________
NOTICE TO RESIDENTS OF BELGIUM
THE OFFER HAS NOT BEEN NOTIFIED TO THE BELGIAN BANKING FINANCE AND
INSURANCE COMMISSION (COMMISSION BANCAIRE, FINANCIÈRE ET DES
ASSURANCES/COMMISSIE BOOR HET BANK- FINANCE- AND ASSURANTIEWEZEN) BY
THE OFFEROR PURSUANT TO ARTICLES 32 AND 52 OF THE BELGIAN LAW OF 16 JUNE
2006 ON THE PUBLIC OFFERING OF FINANCIAL INSTRUMENTS AND THE ADMISSION OF
FINANCIAL INSTRUMENTS TO TRADING ON REGULATED MARKETS (THE "LAW ON
PUBLIC OFFERINGS" NOR BY THE COMPETENT AUTHORITY OF THE HOME MEMBER
STATE OF THE ISSUER PURSUANT TO ARTICLE 38 OF THE LAW ON PUBLIC OFFERINGS.
ACCORDINGLY THE OFFER MAY NOT BE ADVERTISED, THE NOTES MAY NOT BE
OFFERED OR SOLD, AND THIS PROSPECTUS NOR ANY OTHER INFORMATION
CIRCULAR, BROCHURE OR SIMILAR DOCUMENT MAY NOT BE DISTRIBUTED,
DIRECTLY OR INDIRECTLY, TO ANY PERSON IN BELGIUM OTHER THAN (I) ELIGIBLE
QUALIFIED INVESTORS REFERRED TO IN ARTICLE 3.2(A) OF THE LAW ON PUBLIC
OFFERINGS OR (II) INVESTORS WISHING TO ACQUIRE NOTES FOR A TOTAL
CONSIDERATION OF AT LEAST EURO 50,000 (OR ITS EQUIVALENT IN FOREIGN
CURRENCIES) PER TRANSACTION, AS SPECIFIED IN ARTICLE 3.2(C) OF THE LAW ON
PUBLIC OFFERINGS.
ANY OFFER TO SELL OR SALE OF NOTES MUST BE MADE IN COMPLIANCE WITH THE
PROVISIONS OF THE LAW OF JULY 14 1991 ON CONSUMER PROTECTION AND TRADE
PRACTICES (SUR LES PRATIQUES DU COMMERCE ET SUR L'INFORMATION ET LA
PROTECTION DU CONSOMMATEUR/BETREFFENDE DE HANDELSPRAKTIJKEN EN DE
VOORLICHTING EN BESCHERMING VAN DE CONSUMENT), TO THE EXTENT APPLICABLE
PURSUANT TO THE ROYAL DECREE OF DECEMBER 5 2000 RENDANT APPLICABLES AUX
INSTRUMENTS FINANCIERS ET AUX TITRES ET VALEURS CERTAINES DISPOSITIONS DE LA
LOI DU 14 JUILLET 1991 SUR LES PRATIQUES DU COMMERCE ET SUR L'INFORMATION ET
LA PROTECTION DU CONSOMMATEUR/WAARBIJ SOMMIGE BEPALINGEN VAN 14 JULI 1991
BETREFFENDE DE HANDELSPRAKTIJKEN EN DE VOORLICHTING EN BESCHERMING VAN
DE CONSUMENT, VAN TOEPASSING WORDEN VERKLAARD OP FINANCIÈLE
INSTRUMENTEN, EFFECTEN EN WAARDEN.
______________________________
NOTICE TO RESIDENTS OF FRANCE
THIS PROSPECTUS HAS NOT BEEN PREPARED IN CONNECTION WITH A PUBLIC
OFFERING OF FINANCIAL INSTRUMENTS IN FRANCE AND NO PROSPECTUS HAS BEEN
SUBMITTED FOR APPROVAL (VISA) TO THE AUTORITÉ DES MARCHÉS FINANCIERS.
THIS PROSPECTUS CONTAINS INFORMATION RELATING TO AN OFFERING OF NOTES.
THE OFFERING OF THESE NOTES IN FRANCE HAS NOT BEEN AUTHORISED BY THE
AUTORITÉ DES MARCHÉS FINANCIERS. CONSEQUENTLY, THE NOTES ARE NOT BEING
AND MAY NOT BE OFFERED OR SOLD TO ANY PERSON IN FRANCE AND THIS
PROSPECTUS OR ANY INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY
OFFERING MATERIAL RELATING TO THE NOTES, MAY NOT BE DISTRIBUTED OR MADE
AVAILABLE TO ANY PERSON IN FRANCE, UNLESS IN RESPONSE TO AN UNSOLICITED
APPROACH FROM A QUALIFIED INVESTOR, AS DEFINED BY ARTICLE D. 411-1 OF THE
FRENCH MONETARY AND FINANCIAL CODE AND APPLICABLE REGULATIONS
THEREUNDER, ACTING FOR ITS OWN ACCOUNT, UNDER THE CONDITION THAT THE
PROSPECTUS SHALL NOT BE PASSED ON TO ANY PERSON, NOR REPRODUCED (IN
WHOLE OR IN PART) AND THAT THE QUALIFIED INVESTORS UNDERTAKE NOT TO
RESALE, DIRECTLY OR INDIRECTLY, THE NOTES TO THE PUBLIC IN FRANCE, OTHER
THAN IN COMPLIANCE WITH ARTICLES L. 411-1, L. 411-2, L. 412-1 AND L. 621-8 TO L. 6218-3 OF THE FRENCH MONETARY AND FINANCIAL CODE AND, AS THE CASE MAY BE,
ARTICLES 411-57 TO 411-61 OF THE GENERAL REGULATION OF THE AUTORITÉ DES
MARCHÉS FINANCIERS.
______________________________
vii
NOTICE TO RESIDENTS OF HONG KONG
EACH OF THE ARRANGERS HAS REPRESENTED AND AGREED THAT:
(a)
IT HAS NOT OFFERED OR SOLD AND WILL NOT OFFER OR SELL IN HONG KONG
BY MEANS OF ANY DOCUMENT, ANY NOTES OTHER THAN (I) TO
"PROFESSIONAL INVESTORS" AS DEFINED IN THE SECURITIES AND FUTURES
ORDINANCE (CAP.571) OF HONG KONG AND ANY RULES MADE UNDER THAT
ORDINANCE; OR (II) IN OTHER CIRCUMSTANCES WHICH DO NOT RESULT IN
THE DOCUMENT BEING A "PROSPECTUS" AS DEFINED IN THE COMPANIES
ORDINANCE (CAP.32) OF HONG KONG OR WHICH DO NOT CONSTITUTE AN
OFFER TO THE PUBLIC WITHIN THE MEANING OF THAT ORDINANCE; AND
(b)
IT HAS NOT ISSUED OR HAD IN ITS POSSESSION FOR THE PURPOSES OF ISSUE,
AND WILL NOT ISSUE OR HAVE IN ITS POSSESSION FOR THE PURPOSES OF
ISSUE, WHETHER IN HONG KONG OR ELSEWHERE, ANY ADVERTISEMENT,
INVITATION OR DOCUMENT RELATING TO THE NOTES, WHICH IS DIRECTED AT,
OR THE CONTENTS OF WHICH ARE LIKELY TO BE ACCESSED OR READ BY, THE
PUBLIC OF HONG KONG (EXCEPT IF PERMITTED TO DO SO UNDER THE
SECURITIES LAWS OF HONG KONG) OTHER THAN WITH RESPECT TO NOTES
WHICH ARE OR ARE INTENDED TO BE DISPOSED OF ONLY TO PERSONS
OUTSIDE HONG KONG OR ONLY TO "PROFESSION INVESTORS" AS DEFINED IN
THE SECURITIES AND FUTURES ORDINANCE AND ANY RULES MADE UNDER
THAT ORDINANCE.
WARNING: THE CONTENTS OF THIS DOCUMENT HAVE NOT BEEN REVIEWED BY ANY
REGULATORY AUTHORITY IN HONG KONG. YOU ARE ADVISED TO EXERCISE
CAUTION IN RELATION TO THE OFFER. IF YOU ARE IN ANY DOUBT ABOUT ANY OF
THE CONTENTS IN THIS DOCUMENT, YOU SHOULD OBTAIN INDEPENDENT
PROFESSIONAL ADVICE.
______________________________
NOTICE TO RESIDENTS OF IRELAND
EACH OF THE ARRANGERS HAVE REPRESENTED AND AGREED WITH THE ISSUER
THAT: (I) IN RESPECT OF A LOCAL OFFER (WITHIN THE MEANING OF SECTION 38(1) OF
THE INVESTMENT FUNDS, COMPANIES AND MISCELLANEOUS PROVISIONS ACT 2005 OF
IRELAND) OF NOTES IN IRELAND, IT HAS COMPLIED AND WILL COMPLY WITH
SECTION 49 OF THE INVESTMENT FUNDS, COMPANIES AND MISCELLANEOUS
PROVISIONS ACT 2005 OF IRELAND AND (II) AT ALL TIMES:
(a)
IT HAS COMPLIED AND WILL COMPLY WITH ALL APPLICABLE PROVISIONS OF
THE INVESTMENT INTERMEDIARIES ACTS, 1995 TO 2000 OF IRELAND (AS
AMENDED) WITH RESPECT TO ANYTHING DONE BY THEM IN RELATION TO THE
NOTES OR OPERATING IN, OR OTHERWISE INVOLVING, IRELAND AND, IN
CASES WHERE THE MANAGER ACTS UNDER AND WITHIN THE TERMS OF AN
AUTHORISATION TO DO SO FOR THE PURPOSES OF EU COUNCIL DIRECTIVE
93/22/EEC OF 10 MAY 1993 (AS AMENDED OR EXTENDED), IT HAS COMPLIED
WITH ANY CODES OF CONDUCT MADE UNDER THE INVESTMENT
INTERMEDIARIES ACTS 1995 TO 2000, OF IRELAND (AS AMENDED) AND, IN
CASES WHERE THE MANAGER ACTS WITHIN THE TERMS OF AN
AUTHORISATION GRANTED TO IT FOR THE PURPOSES OF EU COUNCIL,
DIRECTIVE 2000/12/EC OF 20 MARCH 2000 (AS AMENDED OR EXTENDED), IT HAS
COMPLIED WITH ANY CODES OF CONDUCT OR PRACTICE MADE UNDER
SECTION 117(1) OF THE CENTRAL BANK ACT, 1989 OF IRELAND (AS AMENDED);
AND
(b)
IT HAS ONLY ISSUED OR PASSED ON, AND IT WILL ONLY ISSUE OR PASS ON, IN
IRELAND OR ELSEWHERE, ANY DOCUMENT RECEIVED BY IT IN CONNECTION
WITH THE ISSUE OF THE NOTES TO PERSONS WHO ARE PERSONS TO WHOM
THE DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR PASSED ON.
viii
______________________________
NOTICE TO RESIDENTS OF ISRAEL
THIS DOCUMENT WILL BE DISTRIBUTED TO ISRAELI RESIDENTS ONLY IN A MANNER
THAT WILL NOT CONSTITUTE AN "OFFER TO THE PUBLIC" IN ACCORDANCE WITH
SECTIONS 15 AND 15A OF THE SECURITIES LAW 1968. SPECIFICALLY, THIS DOCUMENT
MAY ONLY BE DISTRIBUTED TO INVESTORS OF THE TYPES LISTED IN THE FIRST
ADDENDUM OF THE SECURITIES LAW 1968 AND IN ADDITION TO NOT MORE THAN 35
OTHER INVESTORS RESIDENT IN ISRAEL DURING ANY GIVEN 12 MONTH PERIOD.
______________________________
NOTICE TO RESIDENTS OF ITALY
THE OFFER OF THE NOTES HAS NOT BEEN AND WILL NOT BE REGISTERED WITH
CONSOB - COMMISSIONE NAZIONALE PER LE SOCIETÀ E LA BORSA ("CONSOB") UNDER
THE ITALIAN SECURITIES LAW AND, ACCORDINGLY, THE NOTES WILL NOT BE
OFFERED OR SOLD IN A SOLICITATION TO THE PUBLIC, DIRECTLY OR INDIRECTLY, IN
ITALY OR TO, OR FOR THE BENEFIT OF, ANY RESIDENT OF ITALY, AND THE SALE OF
THE NOTES IN ITALY SHALL BE EFFECTED IN ACCORDANCE WITH ALL ITALIAN
SECURITIES, TAX, EXCHANGE CONTROL, AND OTHER APPLICABLE LAWS AND
REGULATIONS.
EACH MANAGER HAS REPRESENTED AND AGREED THAT IT WILL NOT OFFER, SELL, OR
DELIVER ANY OF THE NOTES OR DISTRIBUTE COPIES OF THE PROSPECTUS OR ANY
OTHER DOCUMENT RELATING TO THE NOTES IN ITALY EXCEPT TO QUALIFIED
INVESTORS (OPERATORI QUALIFICATI) AS DEFINED IN ARTICLE 31, SECOND
PARAGRAPH OF CONSOB REGULATION NO. 11522 OF JULY, 1ST 1998, AS AMENDED
("REGULATION NO. 11522"), PURSUANT TO ARTICLES 30 SECOND PARAGRAPH OF
LEGISLATIVE DECREE NO. 58 OF FEBRUARY 24TH 1998, AS AMENDED (THE
"CONSOLIDATED FINANCIAL LAW") AND IN CIRCUMSTANCES WHICH ARE EXEMPT
FROM THE RULES ON PUBLIC OFFERING PURSUANT TO ARTICLE 100 OF THE
CONSOLIDATED FINANCIAL LAW AND ARTICLE 33, FIRST PARAGRAPH, OF CONSOB
REGULATION NO. 11971 OF MAY 14TH 1999, AS AMENDED ("REGULATION NO. 11971").
ANY OFFER, SALE OR DELIVERY OF THE NOTES OR DISTRIBUTION OF COPIES OF THE
PROSPECTUS OR ANY OTHER DOCUMENT RELATING TO THE NOTES IN ITALY MUST
BE: (A) MADE BY AN INVESTMENT FIRM, BANK OR FINANCIAL INTERMEDIARY
PERMITTED TO CONDUCT SUCH ACTIVITIES IN ITALY IN ACCORDANCE WITH THE
CONSOLIDATED FINANCIAL LAW, LEGISLATIVE DECREE NO. 385 OF SEPTEMBER 1ST
1993, AS AMENDED (THE "CONSOLIDATED BANKING ACT"), AND REGULATION NO.
11522; AND (B) IN COMPLIANCE WITH ANY OTHER APPLICABLE LAWS AND
REGULATIONS.
PLEASE NOTE THAT IN ACCORDANCE WITH ARTICLE 100-BIS OF THE CONSOLIDATED
FINANCIAL LAW, CONCERNING THE CIRCULATION OF FINANCIAL PRODUCTS, WHERE
NO EXEMPTION FROM THE RULES ON SOLICITATION OF INVESTMENTS APPLIES, THE
SUBSEQUENT DISTRIBUTION OF THE NOTES ON THE SECONDARY MARKET IN ITALY
MUST BE MADE IN COMPLIANCE WITH THE PUBLIC OFFER AND THE PROSPECTUS
REQUIREMENT RULES PROVIDED UNDER THE CONSOLIDATED FINANCIAL LAW AND
REGULATION NO. 11971. FAILURE TO COMPLY WITH SUCH RULES MAY RESULT IN THE
SALE OF SUCH NOTES BEING DECLARED NULL AND VOID AND IN THE LIABILITY OF
THE INTERMEDIARY TRANSFERRING THE FINANCIAL INSTRUMENTS FOR ANY
DAMAGES SUFFERED BY THE INVESTORS.
THE PLACEMENT OF THE NOTES IN ITALY IS SUBJECT TO THE SUPERVISION OF THE
BANK OF ITALY PURSUANT TO ARTICLE 129 OF THE CONSOLIDATED BANKING ACT
AND THE IMPLEMENTING INSTRUCTIONS OF THE BANK OF ITALY.
______________________________
ix
NOTICE TO RESIDENTS OF JAPAN
THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE FINANCIAL
INSTRUMENTS AND EXCHANGE LAW OF JAPAN ("FIEL"). ACCORDINGLY, THE NOTES
MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN JAPAN OR TO ANY
RESIDENT OF JAPAN EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF, AND OTHERWISE IN COMPLIANCE WITH THE FIEL AND OTHER
RELEVANT LAWS AND REGULATIONS OF JAPAN. IN THIS CLAUSE, "RESIDENT OF
JAPAN" MEANS ANY PERSON RESIDENT IN JAPAN, INCLUDING ANY CORPORATION OR
OTHER ENTITY ORGANIZED UNDER THE LAWS OF JAPAN.
______________________________
NOTICE TO RESIDENTS OF NEW ZEALAND
THE NOTES MAY NOT BE OFFERED, SOLD OR DELIVERED, DIRECTLY OR INDIRECTLY,
NOR MAY ANY PROSPECTUS OR ADVERTISEMENT IN RELATION TO ANY OFFER OF
NOTES BE DISTRIBUTED IN NEW ZEALAND, OTHER THAN:
(i)
(ii)
TO ANY OR ALL OF THE FOLLOWING PERSONS ONLY:
(A)
TO PERSONS WHOSE PRINCIPAL BUSINESS IS THE INVESTMENT OF
MONEY OR WHO, IN THE COURSE OF AND FOR THE PURPOSES OF THEIR
BUSINESS, HABITUALLY INVEST MONEY; AND/OR
(B)
PERSONS WHO ARE EACH REQUIRED TO PAY A MINIMUM
SUBSCRIPTION PRICE OF AT LEAST NZ$500,000 FOR THE NOTES; AND/OR
(C)
ANY OTHER PERSON WHO IN ALL THE CIRCUMSTANCES CAN
PROPERLY BE REGARDED AS HAVING BEEN SELECTED OTHER THAN AS
MEMBERS OF THE PUBLIC; OR
IN OTHER CIRCUMSTANCES WHERE THERE IS NO CONTRAVENTION OF THE
SECURITIES ACT 1978 OF NEW ZEALAND.
______________________________
NOTICE TO RESIDENTS OF PORTUGAL
THE NOTES HAVE NOT BEEN OFFERED, ADVERTISED, SOLD OR DELIVERED AND WILL
NOT BE DIRECTLY OR INDIRECTLY OFFERED, ADVERTISED, SOLD, RE-SOLD, REOFFERED OR DELIVERED IN CIRCUMSTANCES WHICH COULD QUALIFY AS A PUBLIC
OFFER PURSUANT TO THE CÓDIGO DOS VALORES MOBILÁRIOS OR IN CIRCUMSTANCES
WHICH COULD QUALIFY THE ISSUE OF THE NOTES AS AN ISSUE IN THE PORTUGUESE
MARKET. THE NOTES HAVE NOT BEEN DIRECTLY OR INDIRECTLY DISTRIBUTED AND
THIS PROSPECTUS, ANY OTHER DOCUMENT, CIRCULAR, ADVERTISEMENT OR ANY
OFFERING MATERIAL WILL NOT BE DIRECTLY OR INDIRECTLY DISTRIBUTED EXCEPT
IN ACCORDANCE WITH ALL APPLICABLE LAWS AND REGULATIONS.
______________________________
NOTICE TO RESIDENTS OF SWEDEN
THIS PROSPECTUS IS FOR THE RECIPIENT ONLY AND MAY NOT IN ANY WAY BE
FORWARDED TO ANY OTHER PERSON OR TO THE PUBLIC IN SWEDEN. IT HAS NOT
AND WILL NOT BE REGISTERED WITH THE SWEDISH FINANCIAL SUPERVISORY
AUTHORITY PURSUANT TO THE SWEDISH FINANCIAL INSTRUMENTS TRADING ACT
(1991:980, AS AMENDED). ACCORDINGLY, THIS PROSPECTUS MAY NOT BE MADE
AVAILABLE, NOR MAY THE COLLATERALISED DEBT OBLIGATIONS OTHERWISE BE
MARKETED AND OFFERED IN SWEDEN, OTHER THAN IN CIRCUMSTANCES WHICH ARE
DEEMED NOT TO BE AN OFFER TO THE PUBLIC IN SWEDEN UNDER THE FINANCIAL
INSTRUMENTS TRADING ACT.
______________________________
x
NOTICE TO RESIDENTS OF TAIWAN
THE NOTES MAY BE MADE AVAILABLE OUTSIDE TAIWAN FOR THE PURCHASE BY
INVESTORS RESIDING IN TAIWAN (EITHER DIRECTLY OR THROUGH PROPERLY
LICENSED TAIWAN INTERMEDIARIES ACTING ON BEHALF OF SUCH INVESTORS) BUT
MAY NOT BE OFFERED OR SOLD IN TAIWAN.
______________________________
NOTICE TO RESIDENTS OF BAHRAIN
PURCHASE OF THE NOTES IS BY INVITATION ONLY AND NO OFFER WILL BE MADE IN
THE KINGDOM OF BAHRAIN TO THE PUBLIC TO PURCHASE THE SAME. THIS
PROSPECTUS IS INTENDED TO BE READ ONLY BY THE ADDRESSEE AND MUST NOT BE
ISSUED, DELIVERED TO, OR SHOWN TO THE PUBLIC GENERALLY IN THE KINGDOM OF
BAHRAIN.
______________________________
NOTICE TO RESIDENTS OF THE UNITED ARAB EMIRATES
EACH OF THE ARRANGERS HAS REPRESENTED AND AGREED TO THE ISSUER THAT
NOTES HAVE NOT BEEN AND WILL NOT BE OFFERED, SOLD OR PUBLICLY PROMOTED
OR ADVERTISED BY IT IN THE UNITED ARAB EMIRATES OTHER THAN IN COMPLIANCE
WITH ANY LAWS APPLICABLE IN THE UNITED ARAB EMIRATES GOVERNING THE
ISSUE, OFFERING AND SALE OF SECURITIES. THE NOTES AND INTERESTS THEREIN
HAVE NOT BEEN APPROVED AND WILL NOT BE REGISTERED UNDER FEDERAL LAW
NO. 4 OF 2000 CONCERNING THE EMIRATES SECURITIES AND COMMODITIES
AUTHORITY AND THE EMIRATES SECURITY AND COMMODITY EXCHANGE, OR WITH
THE UAE CENTRAL BANK, THE DUBAI FINANCIAL SERVICES AUTHORITY ("DFSA") THE
DUBAI FINANCIAL MARKET, THE ABU DHABI SECURITIES MARKET, THE DUBAI
INTERNATIONAL FINANCIAL EXCHANGE OR WITH ANY OTHER UAE EXCHANGE
FURTHERMORE, THE INFORMATION CONTAINED IN THE PROSPECTUS DOES NOT
CONSTITUTE A PUBLIC OFFER OF SECURITIES IN THE UNITED ARAB EMIRATES IN
ACCORDANCE WITH THE COMMERCIAL COMPANIES LAW (FEDERAL LAW NO. 8 OF
1984 (AS AMENDED)), THE OFFERED SECURITIES RULES OF THE DFSA RULEBOOK, THE
DUBAI INTERNATIONAL FINANCIAL CENTRE ("DIFC") MARKETS LAW 2004 OR
OTHERWISE, IS NOT INTENDED TO BE AN OFFER, OR AN INVITATION TO SUBSCRIBE
FOR OR PURCHASE ANY NOTES. IT IS INTENDED ONLY TO PROVIDE INFORMATION TO
ASSIST POTENTIAL INVESTORS IN DECIDING WHETHER TO SUBSCRIBE FOR OR
PURCHASE NOTES IN ACCORDANCE WITH THE TERMS AND CONDITIONS SPECIFIED BY
THE ARRANGERS.
______________________________
NOTICE TO RESIDENTS OF THE PRINCIPALITY OF MONACO
SALE OF THE NOTES IN THE PRINCIPALITY OF MONACO SHALL BE EFFECTED IN
ACCORDANCE WITH MONACO FINANCIAL SERVICES LEGISLATION.
______________________________
GENERAL NOTICE
EACH PURCHASER OF THE NOTES MUST COMPLY WITH ALL APPLICABLE LAWS AND
REGULATIONS IN FORCE IN EACH JURISDICTION IN WHICH IT PURCHASES, OFFERS OR
SELLS SUCH NOTES OR POSSESSES OR DISTRIBUTES THIS PROSPECTUS AND MUST
OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED FOR THE PURCHASE,
OFFER OR SALE BY IT OF SUCH NOTES UNDER THE LAWS AND REGULATIONS IN
FORCE IN ANY JURISDICTIONS TO WHICH IT IS SUBJECT OR IN WHICH IT MAKES SUCH
PURCHASES, OFFERS OR SALES, AND NONE OF THE ISSUER OR THE ARRANGERS, THE
COLLATERAL MANAGER, THE TRUSTEE (OR ANY OF THEIR AFFILIATES) SPECIFIED
HEREIN SHALL HAVE ANY RESPONSIBILITY THEREFOR.
xi
THE NOTES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
______________________________
STABILISATION NOTICE
IN CONNECTION WITH THIS ISSUE, THE ARRANGERS OR ANY PERSON ACTING FOR THE
ARRANGERS MAY OVER-ALLOT NOTES (PROVIDED THAT THE AGGREGATE PRINCIPAL
AMOUNT OF NOTES ALLOTTED DOES NOT EXCEED 105 PER CENT. OF THE AGGREGATE
PRINCIPAL AMOUNT OF THE NOTES) OR EFFECT TRANSACTIONS WITH A VIEW TO
SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT
WHICH MIGHT OTHERWISE PREVAIL, PROVIDED THAT NONE OF THESE ACTIVITIES
WILL TAKE PLACE IN OR FROM THE NETHERLANDS. HOWEVER, THERE IS NO
ASSURANCE THAT THE ARRANGERS (OR PERSONS ACTING ON BEHALF OF THE
ARRANGERS) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION MAY
BEGIN ON OR AFTER THE ISSUE DATE AND, IF BEGUN, MAY BE ENDED AT ANY TIME,
BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE
OF THE NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "SUBSCRIPTION" BELOW. ANY
STABILISATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE
ARRANGERS (OR PERSON(S) ACTING ON BEHALF OF THE ARRANGERS) IN
ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.
INTERNAL REVENUE SERVICE CIRCULAR 230 DISCLOSURE
PURSUANT TO INTERNAL REVENUE SERVICE CIRCULAR 230, WE HEREBY INFORM
YOU THAT THE DESCRIPTION SET FORTH HEREIN AND UNDER "CERTAIN
EMPLOYEE BENEFIT PLAN CONSIDERATIONS" AND "UNITED STATES TAXATION"
WITH RESPECT TO U.S. FEDERAL TAX ISSUES WAS NOT INTENDED OR WRITTEN TO
BE USED, AND SUCH DESCRIPTION CANNOT BE USED, BY ANY TAXPAYER FOR THE
PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED ON THE
TAXPAYER UNDER THE U.S. INTERNAL REVENUE CODE. SUCH DESCRIPTION WAS
WRITTEN TO SUPPORT THE MARKETING OF THE NOTES BY THE ISSUER. SUCH
DESCRIPTION IS LIMITED TO THE U.S. FEDERAL TAX ISSUES DESCRIBED HEREIN.
IT IS POSSIBLE THAT ADDITIONAL ISSUES MAY EXIST THAT COULD AFFECT THE
U.S. FEDERAL TAX TREATMENT OF AN INVESTMENT IN THE NOTES, OR THE
MATTER THAT IS THE SUBJECT OF THE DESCRIPTION HEREIN, AND SUCH
DESCRIPTION DOES NOT CONSIDER OR PROVIDE ANY CONCLUSIONS WITH
RESPECT TO ANY SUCH ADDITIONAL ISSUES. EACH TAXPAYER SHOULD SEEK
ADVICE BASED ON THE TAXPAYER'S PARTICULAR CIRCUMSTANCES FROM AN
INDEPENDENT TAX ADVISER.
NOTWITHSTANDING ANYTHING IN THIS PROSPECTUS TO THE CONTRARY, EACH
PROSPECTIVE INVESTOR (AND EACH EMPLOYEE, REPRESENTATIVE OR OTHER
AGENT OF EACH PROSPECTIVE INVESTOR) MAY DISCLOSE TO ANY AND ALL
PERSONS, WITHOUT LIMITATION OF ANY KIND, THE TAX TREATMENT AND TAX
STRUCTURE OF AN INVESTMENT IN THE NOTES AND ALL MATERIALS OF ANY
KIND (INCLUDING OPINIONS OR OTHER TAX ANALYSES) THAT ARE PROVIDED TO
THE PROSPECTIVE INVESTOR RELATING TO SUCH TAX TREATMENT AND TAX
STRUCTURE, EXCEPT TO THE EXTENT THAT SUCH DISCLOSURE IS SUBJECT TO
RESTRICTIONS REASONABLY NECESSARY TO COMPLY WITH SECURITIES LAWS.
FOR THESE PURPOSES, THE TAX TREATMENT OF AN INVESTMENT IN THE NOTES
MEANS THE PURPORTED OR CLAIMED U.S. FEDERAL, STATE AND LOCAL INCOME
TAX TREATMENT OF AN INVESTMENT IN THE NOTES. MOREOVER, THE TAX
STRUCTURE OF AN INVESTMENT IN THE NOTES INCLUDES ANY FACT THAT MAY
BE RELEVANT TO UNDERSTANDING THE PURPORTED OR CLAIMED U.S. FEDERAL,
STATE, AND LOCAL INCOME TAX TREATMENT OF AN INVESTMENT IN THE NOTES.
xii
______________________________
IRISH REGULATORY POSITION
Copies of this Prospectus will be filed with and approved by the Irish Financial Services Regulatory
Authority (the "Financial Regulator") as required by the Irish Prospectus (Directive 2003/71/EC)
Regulations 2005 (the "Prospectus Regulations").
The Issuer is not and will not be regulated by the Financial Regulator as a result of issuing the Notes.
Any investment in Notes does not have the status of a bank deposit and is not within the scope of the
deposit protection scheme operated by the Financial Regulator.
________________________________________
See "Index of Defined Terms" for details of the pages on which capitalised terms used herein are
defined.
xiii
TABLE OF CONTENTS
Page
SUMMARY OF TERMS .....................................................................................................................1
RISK FACTORS ...............................................................................................................................23
1.
General ................................................................................................................................23
2.
Relating to the Notes ............................................................................................................24
3.
Relating to the Collateral ......................................................................................................33
4.
Certain Conflicts of Interest ..................................................................................................51
5.
Investment Company Act......................................................................................................55
6.
Certain ERISA Considerations..............................................................................................56
7.
Forced Transfer ....................................................................................................................56
8.
Projections, Forecasts and Estimates .....................................................................................57
9.
Taxation of the Issuer ...........................................................................................................57
10.
United States Tax Treatment of Notes ...................................................................................58
11.
United States Taxation of the Issuer ......................................................................................58
12.
German Banking Act and German Investment Tax Act .........................................................59
13.
Regulation U Requirements ..................................................................................................59
14.
Regulatory Risk in respect of the Collateral Debt Obligations................................................60
CONDITIONS OF THE NOTES........................................................................................................62
1.
Definitions and Interpretation ...............................................................................................63
2.
Form and Denomination, Title, Transfer and Exchange .......................................................104
3.
Status .................................................................................................................................106
4.
Security..............................................................................................................................129
5.
Covenants of and Restrictions on the Issuer.........................................................................133
6.
Interest ...............................................................................................................................135
7.
Redemption and Purchase...................................................................................................141
8.
Payments............................................................................................................................149
9.
Taxation .............................................................................................................................150
10.
Events of Default................................................................................................................151
11.
Enforcement.......................................................................................................................153
12.
Prescription ........................................................................................................................156
13.
Replacement of Definitive Certificates................................................................................156
14.
Meetings of Noteholders, Modification, Waiver and Substitution ........................................156
15.
Indemnification of the Trustee ............................................................................................161
16.
Notices ...............................................................................................................................162
17.
Further Issues .....................................................................................................................162
18.
Governing Law...................................................................................................................162
19.
Third Party Rights ..............................................................................................................163
USE OF PROCEEDS.......................................................................................................................164
FORM OF THE NOTES..................................................................................................................165
BOOK-ENTRY CLEARANCE PROCEDURES ..............................................................................169
RATINGS OF THE SENIOR NOTES AND THE MEZZANINE NOTES........................................174
DESCRIPTION OF THE ISSUER ...................................................................................................175
DESCRIPTION OF THE COLLATERAL MANAGER ...................................................................177
DESCRIPTION OF THE PORTFOLIO ...........................................................................................180
1.
Introduction........................................................................................................................180
2.
Investment Period...............................................................................................................180
3.
Effective Date ....................................................................................................................181
4.
Eligibility Criteria...............................................................................................................182
5.
Portfolio Profile Tests.........................................................................................................184
6.
Management of the Portfolio...............................................................................................186
7.
Treatment of Asset Swap Obligations for Purposes of Rating Agency Tests.........................200
8.
The Collateral Quality Tests ...............................................................................................200
9.
The Moody's Minimum Diversity Test ................................................................................202
10.
The Weighted Average Maturity Test .................................................................................204
11.
The Moody's Maximum Weighted Average Rating Factor Test ...........................................204
12.
The Minimum Weighted Average Spread Test ....................................................................208
13.
The Moody's Minimum Weighted Average Recovery Rate Test ..........................................209
xiv
14.
S&P Minimum Weighted Average Recovery Rate Test .......................................................211
15.
S&P CDO Monitor Test......................................................................................................211
16.
Treatment of Unhedged Collateral Debt Obligations for Test Purposes ................................213
17.
The Coverage Tests ............................................................................................................214
DESCRIPTION OF THE COLLATERAL MANAGEMENT AGREEMENT...................................216
HEDGING ARRANGEMENTS.......................................................................................................222
DESCRIPTION OF THE COLLATERAL ADMINISTRATOR .......................................................226
DESCRIPTION OF THE REPORTS................................................................................................227
TAX CONSIDERATIONS ..............................................................................................................231
ERISA CONSIDERATIONS ...........................................................................................................250
SUBSCRIPTION .............................................................................................................................254
TRANSFER RESTRICTIONS.........................................................................................................260
GENERAL INFORMATION...........................................................................................................275
INDEX OF DEFINED TERMS........................................................................................................278
xv
SUMMARY OF TERMS
The following summary does not purport to be complete and is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus and related documents referred to
herein. Capitalised terms not specifically defined in this summary have the meanings set out in
Condition 1 (Definitions and Interpretation) under "Conditions of the Notes". References to a
"Condition" or "Conditions" are to the specified Condition or Conditions in the "Conditions of the
Notes". For a discussion of certain risk factors to be considered in connection with an investment in the
Notes, see "Risk Factors".
Issuer:
Morgan Stanley Investment Management Mezzano B.V.,
a private company with limited liability (besloten
vennootschap
met
beperkte
aansprakelijkheid)
incorporated under the laws of The Netherlands having
its registered office at Frederik Roeskestraat 123 1HG,
1076 EE Amsterdam, The Netherlands.
Collateral Manager:
Morgan Stanley Investment Management Limited will
manage the Portfolio and perform certain other functions
pursuant to the Collateral Management Agreement. See
"Description of the Collateral Manager", "Description
of the Collateral Management Agreement", "Risk
Factors – 3.19 The Collateral Manager" and "Risk
Factors – 4. Certain Conflicts of Interest".
Collateral Administrator:
Certain administrative functions with respect to the
Collateral, including the calculation of the Collateral
Quality Tests, the Portfolio Profile Tests and Coverage
Tests and the preparation of Reports in respect of the
Collateral will be performed by Deutsche Bank AG,
London Branch (in such capacity, the "Collateral
Administrator").
Trustee:
Pursuant to the Trust Deed, Deutsche Trustee Company
Limited (the "Trustee") will hold the Collateral on trust
for the Secured Parties and will hold the Issuer's
payment and other covenants and obligations under the
Notes on trust for the Noteholders. Subject to the
appointment of a replacement trustee as described
below, under the Trust Deed, the Trustee may resign at
any time on giving not less than three months' prior
written notice to the Issuer without giving any reason
and without being responsible for any liabilities incurred
by reason of such retirement. The holders of the
Controlling Class acting by way of Extraordinary
Resolution may remove the Trustee on not less than 90
days' prior written notice. The Issuer undertakes in the
Trust Deed that, in the event of the Trustee giving notice
of resignation or being removed by Extraordinary
Resolution of the holders of the Controlling Class, it will
use its best efforts to procure that a new trustee is
appointed as soon as reasonably practicable thereafter.
The retirement or removal of the Trustee shall not
become effective until a successor trustee approved by
an Extraordinary Resolution of the holders of the
Controlling Class is appointed.
Arrangers:
Lehman Brothers International (Europe) and Lehman
Brothers Inc.
1
Securities:
€254,500,000 Class A Senior Floating Rate Notes due
2024
€10,500,000 Class B Deferrable Interest Floating Rate
Notes due 2024
€19,250,000 Class C Deferrable Interest Floating Rate
Notes due 2024
€10,000,000 Class D Deferrable Interest Floating Rate
Notes due 2024
€16,750,000 Class E Deferrable Interest Floating Rate
Notes due 2024
€39,450,000 Subordinated Notes due 2024
The Notes will be issued pursuant to the Trust Deed (as
defined below) as entered into between (amongst others)
the Issuer and Deutsche Trustee Company Limited, as
Trustee.
Status:
Each Class of Notes will be limited recourse debt
obligations of the Issuer ranking (save as otherwise
provided below) pari passu amongst each of the Notes
of such Class.
Payments of interest on the Class A Notes will rank
senior in right of payment to any payments of principal
and interest due and payable in respect of the Class B
Notes, the Class C Notes, the Class D Notes, the Class E
Notes and the Subordinated Notes. Other than
redemptions of the Class E Notes that may be made out
of Interest Proceeds in accordance with paragraph (U) of
the Interest Proceeds Priority of Payments, payments of
principal on the Class A Notes will rank senior in right
of payment to any payments of principal due and
payable in respect of the Class B Notes, the Class C
Notes, the Class D Notes, the Class E Notes and the
Subordinated Notes.
Payments of interest on the Class B Notes will be
subordinated in right of payment to any payments of
interest due and payable in respect of the Class A Notes
and payments of principal on the Class B Notes will be
subordinated in right of payment to any payments of
principal and interest due and payable in respect of the
Class A Notes. Payments of interest on the Class B
Notes will rank senior in right of payment to any
payments of principal and interest due and payable in
respect of the Class C Notes, the Class D Notes, the
Class E Notes and the Subordinated Notes. Other than
redemptions of the Class E Notes that may be made out
of Interest Proceeds in accordance with paragraph (U) of
the Interest Proceeds Priority of Payments, payments of
principal on the Class B Notes will rank senior in right
of payment to any payments of principal due and
payable in respect of the Class C Notes, the Class D
Notes, the Class E Notes and the Subordinated Notes.
2
Payments of interest on the Class C Notes will be
subordinated in right of payment to any payments of
interest due and payable in respect of the Class A Notes
and the Class B Notes and payments of principal on the
Class C Notes will be subordinated in right of payment
to any payments of principal and interest due and
payable in respect of the Class A Notes and the Class B
Notes. Payments of interest on the Class C Notes will
rank senior in right of payment to any payments of
principal and interest due and payable on the Class D
Notes, the Class E Notes and the Subordinated Notes
and other than redemptions of the Class E Notes that
may be made out of Interest Proceeds in accordance with
paragraph (U) of the Interest Proceeds Priority of
Payments, payments of principal on the Class C Notes
will rank senior in right of payment to any payments of
principal due and payable in respect of the Class D
Notes, the Class E Notes and the Subordinated Notes.
Payments of interest on the Class D Notes will be
subordinated in right of payment to any payments of
interest due and payable in respect of the Class A Notes
and payments of interest due and payable on the Class B
Notes and the Class C Notes and payments of principal
on the Class D Notes will be subordinated in right of
payment to any payments of principal and interest due
and payable in respect of the Class A Notes and
payments of interest and principal due and payable on
the Class B Notes and the Class C Notes. Payments of
interest on the Class D Notes will rank senior in right of
payment to any payments of principal and interest due
and payable in respect of the Class E Notes and the
Subordinated Notes and other than redemptions of the
Class E Notes that may be made out of Interest Proceeds
in accordance with paragraph (U) of the Interest
Proceeds Priority of Payments, payments of principal on
the Class D Notes will rank senior in right of payment to
any payments of principal due and payable in respect of
the Class E Notes and the Subordinated Notes.
Payments of interest on the Class E Notes will be
subordinated in right of payment to any payments of
interest due and payable in respect of the Class A Notes
and payments of interest due and payable on the Class B
Notes, the Class C Notes and the Class D Notes and
other than redemptions of the Class E Notes that may be
made out of Interest Proceeds in accordance with
paragraph (U) of the Interest Proceeds Priority of
Payments, payments of principal on the Class E Notes
will be subordinated in right of payment to any payments
of principal and interest due and payable in respect of
the Class A Notes and payments of interest and principal
due and payable on the Class B Notes, the Class C Notes
and the Class D Notes. Payments of interest on the
Class E Notes will rank senior in right of payment to any
payments of principal and interest due and payable in
respect of the Subordinated Notes and payments of
principal on the Class E Notes will rank senior in right of
payment to any payments of principal due and payable in
respect of the Subordinated Notes, except as provided in
3
the Conditions.
Use of Proceeds:
The gross proceeds from the issuance of the Notes (other
than the Subordinated Notes) on the Issue Date (prior to
payment of and for provision of future payments of legal
fees, other fees and certain other expenses, including
those associated with admission to the Irish Stock
Exchange) are expected to be approximately
€310,540,000. Net issuance proceeds (after payment of
the Arrangers' fees and expenses, legal fees, other fees
and certain other expenses, including those associated
with admission to the Irish Stock Exchange), will be
applied by the Issuer as follows:
(a)
in payment of all amounts due and payable in
connection with the repayment of a secured
loan facility provided to the Issuer by Lehman
Commercial Paper Inc., UK Branch for the
acquisition of Collateral Debt Obligations prior
to the Issue Date as described herein;
(b)
€3,000,000 to the Interest Account;
(c)
€100,000 to the Expense Reserve Account in
payment from time to time of certain Issuer
expenses; and
(d)
all remaining proceeds to the Additional
Collateral Account for application towards the
purchase of Additional Collateral Debt
Obligations during the Investment Period.
The proceeds from the issuance of the Subordinated
Notes will be deposited into the Subordinated Notes
Additional Collateral Account.
The Arranger's placement fees and expenses, legal fees,
other fees and certain other expenses, including those
associated with admission to the Irish Stock Exchange,
will be deducted from the gross proceeds of the issue of
the Notes. See "Subscription" below.
Priorities of Payment:
Interest Proceeds and Principal Proceeds will be applied
in the payment of interest and principal payable on the
Notes and amounts payable to the other creditors of the
Issuer in accordance with the Priorities of Payment
specified in Condition 3(c) (Pre-Enforcement Priorities
of Payment).
Interest Payments:
Interest in respect of the Notes of each Class will be
payable semi-annually in arrear on 15 May and 15
November of each year (subject to adjustment for nonBusiness Days in accordance with the Conditions),
commencing 15 May 2008, at maturity and upon any
redemption of the Notes (each a "Payment Date") and at
the rates determined under Condition 6 (Interest) and, in
each case, will be paid subject to the Priorities of
Payment.
Subordinated Notes:
In respect of the Subordinated Notes, interest is payable
on an available funds basis out of Interest Proceeds
remaining following prior payment in accordance with
4
the Priorities of Payment of certain fees and expenses
and interest payable in respect of the Senior Notes and
the Mezzanine Notes.
The Issuer (or the Collateral Manager on its behalf) may
instruct the Collateral Administrator to transfer amounts
which would otherwise have been payable as interest on
the Subordinated Notes in accordance with Condition
3(c)(i) (Application of Available Interest Proceeds) (if
applicable) to the Collateral Enhancement Account and
such amounts may be applied in the acquisition of, or
exercise of rights under, Collateral Enhancement
Obligations in accordance with the Collateral
Management Agreement. See Condition 6(f) (Interest on
the Subordinated Notes) and paragraphs (BB), (CC),
(DD) and (EE) of Condition 3(c)(i) (Application of
Available Interest Proceeds).
Diversion of Available Interest
Proceeds and Redemption upon
breach of Coverage Tests:
If either of the Class A Coverage Tests is not met on any
date on which the relevant Class A Coverage Test(s) is
or are required to be satisfied, Available Interest
Proceeds which would otherwise be used to pay, among
other things, interest on the Mezzanine Notes and the
Subordinated Notes shall on the next Payment Date be
used to redeem in accordance with the Note Payment
Sequence the Class A Notes in whole or in part to the
extent required to cause the Class A Coverage Tests to
be satisfied if recalculated immediately following such
redemption and as described in the Conditions, subject to
payment of prior ranking amounts in accordance with
the Priorities of Payment. See Condition 7(c)
(Redemption upon Breach of Coverage Tests) below.
If either of the Class B Coverage Tests is not met on any
date on which the relevant Class B Coverage Test(s) is
or are required to be satisfied, Available Interest
Proceeds which would otherwise be used to pay, among
other things, interest on the Class C Notes shall on the
next Payment Date be applied in accordance with the
Note Payment Sequence to the extent required to cause
the Class B Coverage Tests to be satisfied if recalculated
immediately following such redemption and as described
in the Conditions, subject, in each case, to payment of
prior ranking amounts in accordance with the Priorities
of Payment. See Condition 7(c) (Redemption upon
Breach of Coverage Tests) below.
If either of the Class C Coverage Tests is not met on any
date on which the relevant Class C Coverage Test(s) is
or are required to be satisfied, Available Interest
Proceeds which would otherwise be used to pay, among
other things, interest on the Class D Notes shall on the
next Payment Date be applied in accordance with the
Note Payment Sequence to the extent required to cause
the Class C Coverage Tests to be satisfied if recalculated
immediately following such redemption and as described
in the Conditions, subject, in each case, to payment of
prior ranking amounts in accordance with the Priorities
of Payment See Condition 7(c) (Redemption upon
Breach of Coverage Tests) below.
5
If either of the Class D Coverage Tests is not met on any
date on which the relevant Class D Coverage Test(s) is
or are required to be satisfied, Available Interest
Proceeds which would otherwise be used to pay, among
other things, interest on the Class E Notes shall on the
next Payment Date be applied in accordance with the
Note Payment Sequence to the extent required to cause
the Class D Coverage Tests to be satisfied if recalculated
immediately following such redemption and as described
in the Conditions, subject, in each case, to payment of
prior ranking amounts in accordance with the Priorities
of Payment. See Condition 7(c) (Redemption upon
Breach of Coverage Tests) below.
If either of the Class E Coverage Tests is not met on any
date on which the relevant Class E Coverage Test(s) is
or are required to be satisfied, Available Interest
Proceeds which would otherwise be used to pay, among
other things, interest on the Subordinated Notes shall, on
the next Payment Date be applied to redeem the Class E
Notes to the extent required to cause the Class E
Coverage Tests to be satisfied if recalculated
immediately following such redemption and as described
in the Conditions, subject, in each case, to payment of
prior ranking amounts in accordance with the Priorities
of Payment. See Condition 7(c) (Redemption upon
Breach of Coverage Tests) below.
The Issuer shall be required to satisfy each of (i) the
Class A Interest Coverage Test, the Class B Interest
Coverage Test, the Class C Interest Coverage Test, the
Class D Interest Coverage Test and the Class E Interest
Coverage Test from, and including, the earlier of (a) the
Effective Date and (b) the second Determination Date,
and then each Determination Date thereafter, and (ii) the
Class A Par Value Test, the Class B Par Value Test, the
Class C Par Value Test, the Class D Par Value Test and
the Class E Par Value Test on each Determination Date.
If the Collateral Enhancement Ratio Test is not met on
any Determination Date during the Reinvestment Period,
an amount equal to the lesser of (a) the amount
necessary to cause the Collateral Enhancement Ratio
Test to be met as at such Determination Date if
recalculated following application as provided in this
paragraph, and (b) 50 per cent. of the Available Interest
Proceeds remaining after application in accordance with
paragraphs (A) to (U) (inclusive) of Condition 3(c)(i)
(Application of Available Interest Proceeds), shall be
used for the acquisition of Additional or Substitute
Collateral Debt Obligations or deposited in the Principal
Account or the Subordinated Notes Principal Account,
as applicable, pending reinvestment in Additional or
Substitute Collateral Debt Obligations.
Consequences of Non-Payment of
Interest:
Senior Notes: Non-payment of interest in respect of the
Class A Notes will (upon expiry of the applicable grace
period) constitute an Event of Default pursuant to
Condition 10 (Events of Default), following the
occurrence of which the security over the Collateral may
become enforceable pursuant to the terms of Condition
6
11 (Enforcement).
Mezzanine Notes: For so long as any of the Senior
Notes remain Outstanding, non-payment of interest on
the Mezzanine Notes as a result of the non-availability of
Available Interest Proceeds and/or Available Principal
Proceeds on the relevant Payment Date or due to a
failure to satisfy one or more of the Coverage Tests
applicable to such Class of Notes and the diversion of
Available Principal Proceeds and/or Available Interest
Proceeds towards redemption of the Class A Notes, in
the case of the Class A Coverage Tests, and, thereafter,
the Class B Notes, in the case of the Class B Coverage
Tests, and, thereafter, the Class C Notes, in the case of
the Class C Coverage Tests and, thereafter, the Class D
Notes, in the case of the Class D Coverage Tests, and
thereafter, the Class E Notes, in the case of the Class E
Coverage Tests, as referred to in "Diversion of Available
Interest Proceeds and Redemption upon Breach of
Coverage Tests" above, will not constitute an Event of
Default under the Class B Notes, the Class C Notes, the
Class D Notes and the Class E Notes.
To the extent that interest payments on the Mezzanine
Notes are not made on the relevant Payment Date in
such circumstances, an amount equal to such unpaid
interest will be added to the Principal Amount
Outstanding of the Class B Notes, the Class C Notes, the
Class D Notes and/or the Class E Notes, as applicable,
and, with effect from and including such Payment Date,
interest will accrue on such unpaid amount at the rate of
interest applicable to such Notes. Following redemption
in full of the Class A Notes, non-payment of interest on
the Class B Notes and, following redemption in full
thereof, non-payment of interest on the Class C Notes
and, following redemption in full thereof, non-payment
of interest on the Class D Notes and, following
redemption in full thereof, non-payment of interest on
the Class E Notes shall constitute an Event of Default, in
each case, upon expiry of the applicable grace period as
provided in Condition 10 (Events of Default).
Subordinated Notes: Non-payment of interest on the
Subordinated Notes as a result of the non-availability of
Available Interest Proceeds, including a failure to satisfy
any Coverage Test, will not constitute an Event of
Default in any circumstances.
Principal Repayments:
Subject to more detailed provisions set out in Condition
7 (Redemption and Purchase) and the Priorities of
Payment, principal repayments of the Notes will be
made in the following circumstances:
(a)
on the Maturity Date of the Notes;
(b)
if following the request by the Collateral
Manager within 30 days of the Effective Date
that the Rating Agencies confirm their initial
ratings assigned to the Rated Notes, such
ratings initially assigned are reduced or
withdrawn following such request and have not
7
been reinstated on the Business Day prior to the
next Payment Date;
(c)
upon breach of any relevant Coverage Test
(save for the Collateral Enhancement Ratio
Test);
(d)
at any time prior to the end of the Reinvestment
Period, the Issuer may, in its discretion and
pursuant
to
Condition
7(f)
(Special
Redemption), redeem the Notes out of Principal
Proceeds in accordance with the Note Payment
Sequence;
(e)
pursuant to an optional redemption of the Notes
in full as directed by the Subordinated
Noteholders:
(i)
after expiry of the Non-Call Period; or
(ii)
following the occurrence of a Relevant
Tax Event,
(f)
pursuant to a redemption by refinancing of one
or more Classes of Notes in full after a proposal
by the Issuer to the Subordinated Noteholders
as described in Condition 7(j) (Redemption by
Refinancing) after expiry of the Non-Call
Period;
(g)
after the Reinvestment Period, out of Available
Principal Proceeds other than in the case of
either Unscheduled Principal Proceeds or Sale
Proceeds of certain Collateral Debt Obligations
designated for reinvestment in Substitute
Collateral Debt Obligations by the Collateral
Manager in accordance with the terms of the
Collateral Management Agreement; and
(h)
on any Payment Date, at the option of (i) the
Controlling Class or (ii) the Subordinated
Noteholders in each case acting by way of
Extraordinary Resolution (but in the case of (i),
solely if the Par Value Ratio applicable to the
then Controlling Class is less than 100 per
cent.), in each case following the occurrence of
(x) a Note Tax Event, subject to (i) the Issuer
having failed to change the territory in which it
is resident for tax purposes and (ii) certain
minimum time periods, or (y) an Onshore Tax
Event, or (z) a UK VAT Event,
in each case on a Payment Date (subject to the Priorities
of Payment and save where provided herein) and as
described in further detail below. See Condition 7
(Redemption and Purchase).
Reinvestment Period:
The period from the Issue Date to and including the
Payment Date falling on or about 15 November 2013 (or
if such day is not a Business Day the next following
Business Day).
8
Non-Call Period:
The period from the Issue Date to but excluding the
Payment Date falling on or about 15 November 2011 (or
if such day is not a Business Day the next following
Business Day).
Redemption at Maturity:
Each Class of the Senior Notes and the Mezzanine Notes
will mature at their Principal Amount Outstanding and
the Subordinated Notes will be redeemed at an amount
equal to the remaining Available Principal Proceeds to
be applied towards such redemption pursuant to the
Priorities of Payment, on 15 May 2024 (subject to
adjustment for non-Business Days in accordance with
the Conditions) (the "Maturity Date"), in each case,
unless redeemed or repaid prior thereto. The average
life of each Class of Notes is expected to be shorter than
the number of years from the Issue Date until the
Maturity Date.
Redemption at the Option of the
Controlling Class or Subordinated
Noteholders:
Subject to the provisions of Condition 7(b)(ii)
(Conditions to Optional Redemption), the Notes of each
Class shall be redeemable by the Issuer, in whole but not
in part, at the applicable Redemption Prices (see below),
from the proceeds of liquidation or realisation of the
Collateral on any Payment Date falling on or after expiry
of the Non-Call Period, at the request in writing of the
holders of at least 66⅔ per cent. of the aggregate
Principal Amount Outstanding of the Subordinated
Notes then Outstanding or by way of Special Quorum
Resolution of the Subordinated Noteholders.
The Notes of each Class are subject to redemption at the
request in writing of the holders of more than 50 per
cent. of the aggregate Principal Amount Outstanding of
the Subordinated Notes then Outstanding or by Ordinary
Resolution of the Subordinated Noteholders upon the
occurrence of a "Relevant Tax Event" subject to the
satisfaction of certain conditions set out in Condition
7(b) (Optional Redemption).
The Notes of each Class are also subject to redemption
at the request of either (i) the Controlling Class or (ii) the
holders of the Subordinated Notes in each case acting by
way of Extraordinary Resolution, (but in the case of (i)
solely where the Par Value Ratio applicable to the then
Controlling Class is less than 100 per cent.) in each case
following (x) the occurrence of a "Note Tax Event",
subject to (i) the Issuer having failed to change the
territory in which it is resident for tax purposes and (ii)
certain minimum time periods, or (y) an "Onshore Tax
Event", or (z) a "UK Tax Event".
In addition, any Class of Notes may be redeemed in
whole, but not in part, on any Payment Date after the
Non-Call Period from proceeds received by the Issuer
from a refinancing pursuant to a loan or an issuance of a
replacement Class of Notes, subject to the written
consent of at least 66⅔ per cent. of the aggregate
Principal Amount Outstanding of the Subordinated
Notes or by Special Quorum Resolution of the
Subordinated Noteholders and to the extent and subject
to the restrictions described herein. See Condition (7)(j)
9
(Redemption by Refinancing). The Notes may be
redeemed from such refinancing proceeds to the extent
and subject to the Conditions.
Redemption Prices upon Optional
Redemption:
Class A Notes: Par, together with interest accrued
thereon to the date of redemption.
Class B Notes: Par (including any Deferred Interest),
together with interest accrued thereon to the date of
redemption.
Class C Notes: Par (including any Deferred Interest),
together with interest accrued thereon to the date of
redemption.
Class D Notes: Par (including any Deferred Interest),
together with interest accrued thereon to the date of
redemption.
Class E Notes: Par (including any Deferred Interest),
together with interest accrued thereon to the date of
redemption.
Subordinated Notes: Each Subordinated Note's pro rata
share of the amounts payable pursuant to paragraphs (E)
and (G) of Condition 3(c)(ii) (Application of Principal
Proceeds).
Mandatory Redemption Events:
Priorities of Payment:
The Notes will also be redeemed following any of the
following mandatory redemption events:
(a)
redemption upon breach of the Coverage Tests.
See
Conditions
3(c)
(Pre-Enforcement
Priorities of Payment) and 7(c) (Redemption
upon Breach of Coverage Tests);
(b)
redemption upon rating reduction and
withdrawal. See Condition 7(d) (Redemption
upon Rating Reduction and Withdrawal).
Available Interest Proceeds and Available Principal
Proceeds will be applied on each Payment Date in
accordance with the Priorities of Payment.
Collateral Management Fees
Senior Collateral Management Fee:
The fee payable to the Collateral Manager in arrear equal
to 0.05 per cent. per annum of the CDO Principal
Balance on the first day of the Due Period relating to
such Payment Date in each case, plus any value added
tax in respect thereof and if deferred in accordance with
the Priorities of Payment, interest shall accrue at the rate
of Note EURIBOR. See "Description of the Collateral
Management Agreement - Fees".
Subordinated Collateral Management
Fee:
The fee payable to the Collateral Manager in arrear equal
to 0.53 per cent. per annum of the CDO Principal
Balance on the first day of the Due Period relating to
such Payment Date in each case, plus any value added
10
tax in respect thereof and if deferred in accordance with
the Priorities of Payment, interest shall accrue at the rate
of Note EURIBOR. See "Description of the Collateral
Management Agreement - Fees".
Deferred Collateral Management
Amount:
The Collateral Manager may, in its sole discretion,
designate for deferment and reinvestment for as long as
it elects all or a portion of the Subordinated Collateral
Management Fee which is otherwise due and payable to
it on a Payment Date as specified above, which deferred
amounts will thereafter be designated as Deferred
Collateral Management Amounts and invested in
Substitute Collateral Debt Obligations. Until paid to the
Collateral Manager under the Interest Proceeds Priority
of Payments, interest will accrue on the Deferred
Collateral Management Amounts at the rate of Note
EURIBOR. See "Description of the Collateral
Management Agreement – Fees".
Incentive Management Fee:
The Incentive Management Fee is due and payable to the
Collateral Manager on the first Payment Date on which
the Subordinated Noteholders receive the Subordinated
Note Hurdle Return Amount and on each Payment Date
thereafter and is equal to 20 per cent. of the cash flow, if
any, remaining available for distribution after payments
prior thereto in accordance with the Priorities of
Payment.
"Subordinated Note Hurdle Return Amount" means,
in respect of any Payment Date, an amount, which in
addition to any prior distributions on the Subordinated
Notes gives an internal rate of return (assuming for this
purpose that all Subordinated Notes were purchased on
the Issue Date at a price equal to 100 per cent. of the
principal amount thereof) of 12 per cent. per annum of
the aggregate Principal Amount Outstanding of the
Subordinated Notes for the period from the Issue Date to
the applicable Determination Date.
Security for the Notes:
The Notes will be secured by (amongst other things) a
portfolio of Collateral Debt Obligations which may
consist of:
(a)
senior secured loans, second lien secured loans,
mezzanine loans, structured finance obligations,
project finance securities, finance leases and
high yield bonds (each a "Collateral Debt
Obligation" and together the "Collateral Debt
Obligations") owed by various obligors
denominated primarily in Euro; and/or
(b)
Synthetic Securities and Participations linked to
Collateral Debt Obligations.
The Notes will also be secured by certain other assets of
the Issuer but excluding the Issuer's rights under the
Management Agreement and its rights in respect of
amounts standing to the credit of the Issuer Dutch
Account. See Condition 4(a) (Security).
11
Margin Stock:
Although Margin Stock is not included in the Collateral
that is pledged for the benefit of the holders of Rated
Notes, the Issuer may receive Margin Stock upon
liquidation of Collateral. Consequently, the purchasers
of Rated Notes should consider the possible application
of FRB Regulation U to such purchasers. See
"Description of the Portfolio - Margin Stock".
Purchase of Collateral Debt
Obligations:
A portfolio of debt obligations and debt securities that, at
the time the Issuer enters into a binding commitment in
respect of their acquisition will be required to comply
with the Eligibility Criteria described herein, will be
purchased by the Issuer either (i) prior to the Issue Date
pursuant to Collateral Acquisition Agreements or (ii)
during the Investment Period (as defined below), out of
the net proceeds of the issue of the Notes deposited in
the Additional Collateral Account or the Subordinated
Notes Additional Collateral Account, as applicable, on
the Issue Date, together with the sums standing to the
credit of the Principal Account and the Subordinated
Notes Principal Account from time to time as described
herein. It is anticipated that the Issuer will have
purchased, or have a binding commitment to purchase,
Collateral Debt Obligations selected by the Collateral
Manager with an aggregate principal amount of
approximately €275,000,000 on or about the Issue Date.
The Issuer shall be required to use reasonable
endeavours (subject to the Collateral Manager's
judgement as to appropriate Collateral) to purchase
Collateral Debt Obligations with an aggregate principal
amount of approximately €338,700,000 (the "Target
Par Amount") by the end of the Investment Period. In
addition, any Substitute Collateral Debt Obligations
purchased by the Issuer during or after the Reinvestment
Period will, at the time at which the Issuer enters into a
binding commitment in respect of their acquisition, be
required to satisfy the Eligibility Criteria and the
purchase thereof will be required to satisfy the
Reinvestment Criteria.
It is expected that substantially all of the Collateral Debt
Obligations will have ratings or internal credit ratings
that are below investment grade and accordingly will
have greater credit and liquidity risk than obligations of
investment grade sovereign or corporate entities. See
"Risk Factors".
It is further expected that:
(a)
as at the Effective Date, the aggregate principal
amount of the Collateral Debt Obligations
purchased or committed to be purchased by the
Issuer will be equal to at least 100 per cent. of
the Target Par Amount; and
(b)
the Collateral Quality Tests, the Portfolio
Profile Tests and the Coverage Tests will be
satisfied with respect to the Collateral Debt
Obligations held or committed to be purchased
as at the Effective Date (provided, however,
that the Issuer shall only be required to satisfy
12
the Class A Interest Coverage Test, the Class B
Interest Coverage Test, the Class C Interest
Coverage Test, the Class D Interest Coverage
Test and the Class E Interest Coverage Test on
or after the earlier of the Effective Date and the
second Determination Date). Each of the
Collateral Quality Tests and the Coverage Tests
will be measured on each Measurement Date
occurring on and after the Effective Date and
certain of the Portfolio Profile Tests will be
applicable upon the acquisition by the Issuer of
Substitute Collateral Debt Obligations on and
after the Effective Date. See "Description of the
Portfolio".
Where:
"Collateral Quality Tests" means the Moody's
Minimum Diversity Test, the Weighted
Average Maturity Test, Moody's Maximum
Weighted Average Rating Factor Test, the
Minimum Weighted Average Spread Test, the
Moody's
Minimum
Weighted
Average
Recovery Rate Test, the S&P Minimum
Weighted Average Recovery Rate Test and the
S&P CDO Monitor Test.
"Coverage Tests" means the Class A Par Value
Test, the Class A Interest Coverage Test, the
Class B Par Value Test, the Class B Interest
Coverage Test, the Class C Par Value Test, the
Class C Interest Coverage Test, the Class D Par
Value Test, the Class D Interest Coverage Test,
the Class E Par Value Test, the Class E Interest
Coverage Test and the Collateral Enhancement
Ratio Test.
If the Target Par Amount specified above has not been
achieved on the Effective Date or (except as provided
above) any of the Collateral Quality Tests, the Portfolio
Profile Tests or the Coverage Tests are not satisfied on
such date or the Rating Agencies have not confirmed the
initial ratings of the Notes within 30 days' of the
Effective Date, then an Effective Date Rating
Downgrade shall have occurred and the Investment
Period shall be extended to the earlier to occur of (a)
confirmation from the Rating Agencies that the initial
ratings of any Notes, which have been downgraded as a
result of an Effective Date Rating Downgrade, have been
reinstated and (b) the second Business Day prior to the
next following Payment Date. The Issuer may continue
to purchase Collateral Debt Obligations during this
extended Investment Period in accordance with specified
investment criteria or otherwise subject to Rating
Agency Confirmation. See "Description of the
Portfolio".
Investment Period:
The period of approximately 12 months from and
including the Issue Date or such earlier date as the
Collateral Manager shall declare (the "Investment
Period") subject to extension in accordance with the
13
Collateral Management Agreement.
Collateral Enhancement Obligations:
Collateral Enhancement Obligations comprise warrants
and equity securities (excluding Defaulted Equity
Securities), including, without limitation, warrants
relating to Mezzanine Obligations and any equity
security received upon conversion, exchange or exercise
of an option under, or otherwise in respect of, a
Collateral Debt Obligation, or any warrant or equity
security purchased as part of a unit with such Collateral
Debt Obligation (in all cases excluding the applicable
Collateral Debt Obligation), provided that such
Collateral Enhancement Obligations may not constitute
Margin Stock except as described herein (see
"Description of the Portfolio - Margin Stock"), Dutch
Ineligible Securities or result in the requirement for the
Issuer to make any future payments under the terms
thereof.
The ratings assigned by the Rating Agencies to the
Senior Notes, the Mezzanine Notes (together, the
"Rated Notes") do not take into account the value of
Collateral
Enhancement
Obligations.
Collateral
Enhancement Obligations are excluded from any
determination of satisfaction of the Coverage Tests, the
Collateral Quality Tests or the Portfolio Profile Tests
and neither the Eligibility Criteria nor the Reinvestment
Criteria apply to Collateral Enhancement Obligations.
Collateral Enhancement Obligations will either be
purchased by or on behalf of the Issuer in accordance
with the Collateral Management Agreement as part of a
unit with Collateral Debt Obligations or be purchased
independently out of the Balance standing to the credit
of the Collateral Enhancement Account.
The costs of exercising any option or warrant comprised
in a Collateral Enhancement Obligation shall be payable
out of the Balance standing to the credit of the Collateral
Enhancement Account from time to time (which shall be
funded out of amounts which would otherwise be
payable to the Subordinated Noteholders in accordance
with the Priorities of Payment). See "Description of the
Portfolio – Management of the Portfolio – Collateral
Enhancement Obligations".
Management of Collateral:
The Collateral Manager intends to purchase, on behalf of
the Issuer, Collateral Debt Obligations (including all
Additional Collateral Debt Obligations and Substitute
Collateral Debt Obligations) and will monitor the
performance and credit quality of the Collateral Debt
Obligations on an ongoing basis.
Sale of Collateral Debt Obligations:
Subject to the terms of the Collateral Management
Agreement, the Issuer may sell:
(a)
at any time:
14
(i)
any Defaulted Obligation;
(ii)
any Equity Security, including any
Defaulted Equity Security and Margin
Stock;
(b)
(iii)
any Credit Risk Obligation; and
(iv)
any Credit Improved Obligation;
at any time during the Reinvestment Period:
any Collateral Debt Obligation, provided that
all such sales (measured by reference to the
Aggregate Principal Balance of the Collateral
Debt Obligations sold in that year (each such
year being a year from, but excluding, the
Effective Date or, as the case may be, an
anniversary thereof, to and including the next
succeeding anniversary thereof) (and excluding
any sales pursuant to paragraph (a) above and
any sales of any Withholding Tax Obligations))
do not exceed 20.0 per cent. of the sum of the
CDO Principal Balance, as at the most recent to
have occurred of the Effective Date and each
anniversary thereof,
subject in each case to certain restrictions described
under "Description of the Portfolio – Management of the
Portfolio – Overview" below.
Treatment of Sale Proceeds and
Principal Proceeds:
The proceeds of sale of Collateral Debt Obligations in
the circumstances provided above, together with any
other Principal Proceeds received, will be applied by the
Issuer:
(a)
during the Reinvestment Period: either (i) in
the acquisition of Substitute Collateral Debt
Obligations, subject to satisfaction of the
Reinvestment Criteria (each as described under
"Description of the Portfolio" below) or in
payment into the Principal Account or the
Subordinated Notes Principal Account, as
applicable, pending such reinvestment (save in
the case of the proceeds of sale of any
Collateral
Debt
Obligations
in
the
circumstances provided above which represent
accrued interest which the Collateral Manager
may at its discretion designate as Interest
Proceeds to be paid into the Interest Account
(other than Purchased Accrued Interest)), or (ii)
in payment into the Principal Account or the
Subordinated Notes Principal Account, as
applicable, for application in accordance with
the Priorities of Payment pursuant to a Special
Redemption (as defined in the Conditions);
(b)
following the expiry of the Reinvestment
period:
(i)
15
in the case of Unscheduled Principal
Proceeds and Sale Proceeds of Credit
Risk Obligations and Credit Improved
Obligations, at the discretion of the
Collateral Manager, (x) in the
acquisition of Substitute Collateral
Debt
Obligations,
subject
to
satisfaction of the Reinvestment
Criteria, (y) payment into the Principal
Account or the Subordinated Notes
Principal Account, as applicable,
pending such reinvestment or (z) in
payment into the Principal Account or
the Subordinated Notes Principal
Account,
as
applicable,
for
disbursement on the next following
Payment Date in redemption of each
Class of Notes in accordance with the
Priorities of Payment; or
(ii)
in the case of Principal Proceeds other
than Unscheduled Principal Proceeds
and Sale Proceeds of Credit Risk
Obligations and Credit Improved
Obligations
designated
for
reinvestment by the Collateral
Manager, in payment into the Principal
Account or the Subordinated Notes
Principal Account, as applicable, for
disbursement on the next following
Payment Date in accordance with the
Priorities of Payment.
Treatment of Sale Proceeds and
Investment Gains as Interest
Proceeds:
Subject to the terms of the Collateral Management
Agreement, the Issuer may, in its discretion, designate
any or all accrued interest included in the amount of any
Sale Proceeds received in respect of Collateral Debt
Obligations as Interest Proceeds (provided always that
such Sale Proceeds may not be designated as Interest
Proceeds to the extent that they constituted part of the
principal amount of a Collateral Debt Obligation at the
time it was bought or constitute any accrued interest or
other sum that has, under the terms of such Collateral
Debt Obligation, been capitalised as principal or which
relate to the sale of Margin Stock). In addition, subject to
the satisfaction of certain conditions, the Issuer may, in
its discretion, designate any and all Investment Gains
received in respect of Collateral Debt Obligations as
Interest Proceeds. Thereafter such Sale Proceeds and/or
Investment Gains designated as Interest Proceeds shall
be applied in accordance with the Priorities of Payment
set out in Condition 3(c)(i) (Application of Available
Interest Proceeds).
Treatment of Available Interest
Proceeds:
The Interest Proceeds received will be transferred to the
Interest Account and, on each Payment Date, Available
Interest Proceeds shall be applied subject to and in
accordance with the Priorities of Payment and the other
Conditions. In the event that the Collateral Enhancement
Ratio Test is not satisfied on a Determination Date
during the Reinvestment Period, Available Interest
Proceeds will on the next Payment Date be applied,
subject to and in accordance with the Priorities of
Payment and the other Conditions, in the acquisition of
Substitute Collateral Debt Obligations, subject to
satisfaction of the Reinvestment Criteria (each as
16
described under "Description of the Portfolio" below), or
in payment into the Principal Account or the
Subordinated Notes Principal Account, as applicable,
pending such reinvestment in either case in an amount
equal to the lesser of (i) the amount which would be
sufficient to cause the Collateral Enhancement Ratio
Test to be met if recalculated following such purchase or
deposit, or (ii) 50 per cent. of the Available Interest
Proceeds remaining after application in accordance with
paragraphs (A) to (U) of Condition 3(c)(i) (Application
of Available Interest Proceeds). During the Investment
Period, the Issuer shall pay out of the Additional
Collateral Account, in accordance with the terms of, and
to the extent permitted under, the Collateral
Management Agreement and the Conditions, amounts
required in the acquisition of Additional Collateral Debt
Obligations, including the payment to an Asset Swap
Counterparty in respect of any initial principal exchange
amount payable under an Asset Swap Agreement in
respect of an Asset Swap Obligation which constitutes
an Additional Collateral Debt Obligation.
Accounts:
For the purposes of the Notes, the Issuer shall, prior to
the Issue Date, establish with the Account Bank or the
Custodian (as applicable): the Principal Account, the
Interest Account, the Expense Reserve Account, the
Additional Collateral Account, the Collateral
Enhancement Account, the Payment Account, the
Synthetic Collateral Accounts, the Revolving Reserve
Account, the Retained Portion Account, any Asset Swap
Account, any Counterparty Downgrade Collateral
Account, the Subordinated Notes Collateral Debt
Obligation Account, the Subordinated Notes Additional
Collateral Account, the Subordinated Notes Principal
Account and the Investment Gains Account.
Hedge Agreements:
The Issuer may at any time and, in certain
circumstances, enter into interest rate hedge transactions,
currency hedge transactions, currency swap transactions,
currency options, forward sale agreements, caps or
floors, base rate swaps and/or other swap transactions
pursuant to Form-Approved documentation, in each
case, in order to protect the Issuer against various
general market or specific Collateral interest rate and
currency related risks. See "Hedging Arrangements".
Limited Recourse:
The obligations of the Issuer to pay amounts due and
payable in respect of the Notes and to other Transaction
Creditors at any time shall be limited to the proceeds
available at such time to make such payment in
accordance with the Conditions and the Trust Deed.
Payments on the Notes both prior to and following
enforcement of the security over the Collateral are
subordinated to the prior payment of certain fees and
expenses of the Issuer. The net proceeds of the
realisation of the security over the Collateral following
an Event of Default may be insufficient to pay all
amounts due to the Noteholders after making payments
to other creditors of the Issuer ranking prior to, or pari
passu with, the holders of the relevant Notes. In such
17
circumstances all unsatisfied claims will be extinguished
and the other assets (if any) of the Issuer (including its
rights in respect of the amounts standing to the credit of
the Issuer Dutch Account and the Issuer's rights under
the Management Agreement) will not be available for
recourse. Any such shortfall will be borne by each Class
of Noteholders in inverse order of the Priorities of
Payment.
Furthermore, none of the Noteholders of any Class, the
Trustee or the other Transaction Creditors shall be
entitled to institute or join in any bankruptcy, windingup or liquidation proceedings or other similar
proceedings under any applicable bankruptcy or similar
law (except as provided in the Conditions).
Withholding Tax:
All payments of principal and interest in respect of the
Notes shall be made free and clear of, and without
withholding or deduction for, any taxes, duties,
assessments or governmental charges of whatever nature
imposed, levied, collected, withheld or assessed by or
within The Netherlands, or any political sub-division or
any authority therein or thereof having power to tax,
unless such withholding or deduction is required by law.
For the avoidance of doubt, the Issuer shall not be
required to gross-up any payments made to the
Noteholders and shall withhold or deduct from any such
payments any amounts on account of tax where so
required by law or any relevant taxing authority. Any
such withholding or deduction shall not constitute an
Event of Default under Condition 10(a) (Events of
Default).
The Offering and Eligible Purchasers:
The Notes of each Class will be offered:
(a)
outside of the United States to non-U.S. Persons
(as defined in Regulation S under the Securities
Act) in offshore transactions in reliance on
Regulation S under the Securities Act;
(b)
within the United States to persons, or outside
the United States to U.S. Persons, who are both
"qualified institutional buyers" (as defined in
Rule 144A under the Securities Act ("Rule
144A"), ("QIBs") in reliance on Rule 144A
under the Securities Act and Qualified
Purchasers ("QPs") for purposes of Section
3(c)(7) of the Investment Company Act; and
(c)
solely in the case of certain of the Subordinated
Notes (the "AI Notes"), to a QIB or an
institutional "accredited investor" within the
meaning of Rule 5.01(a) 1, 2, 3, 7 and 8 under
Regulation D under the Securities Act, which,
in either case, is also a QP or a company owned
exclusively by QPs and/or "knowledgeable
employees" with respect to the Issuer as defined
in Rule 3c-5 under the Investment Company
Act
("Knowledgeable
Employees"),
purchasing for its own account or for the
account of a QIB or an institutional "accredited
18
investor" which, in either case, is also a QP or a
company owned exclusively by QPs and/or
Knowledgeable Employees in a transaction
exempt from registration under the Securities
Act.
Authorised Denominations:
The Regulation S Notes of each Class will be issued in
minimum denominations of €100,000 and integral
multiples of €1,000 in excess thereof. The Rule 144A
Notes of each Class will be issued in minimum
denominations of €250,000 and integral multiples of
€l,000 in excess thereof.
The AI Notes will be issued in minimum denominations
of not less than €250,000 and integral multiples of
€1,000 in excess thereof.
Form, Registration and Transfer of
the Notes:
The Regulation S Notes of each Class (other than the AI
Notes) sold outside the United States to non U.S.
Persons in reliance on Regulation S under the Securities
Act (which will be deposited on the Issue Date with
Euroclear and Clearstream, Luxembourg) will each be
represented on issue by beneficial interests in one or
more permanent global certificates of such Class in fully
registered form, without interest coupons or principal
receipts (each, a "Regulation S Global Certificate" and
together, the "Regulation S Global Certificates"). U.S.
Persons may not hold an interest in a Regulation S
Global Certificate at any time. See "Form of the Notes"
and "Book-Entry Clearance Procedures" and "Transfer
Restrictions" below.
The Rule 144A Notes of each Class (other than the AI
Notes) sold in reliance on Rule 144A to U.S. Persons
who are QIBs for the purposes of Rule 144A of the
Securities Act and QPs for the purposes of the
Investment Company Act will each be represented on
issue by beneficial interests in one or more permanent
global certificates of such class (each, a "Rule 144A
Global Certificate" and together, the "Rule 144A
Global Certificates"), in fully registered form, without
interest coupons or principal receipts, which will be
deposited on or about the Issue Date with DTC.
Ownership interests in the Rule 144A Global Certificates
will be shown on, and transfers thereof will only be
effected through records maintained by DTC and its
participants. Purchasers and transferees of Notes will be
deemed to have made certain representations and
agreements.
The AI Notes sold to a QIB or an institutional
"accredited investor" which is also a QP or a company
owned exclusively by QPs and/or Knowledgeable
Employees will be represented on issue by definitive
note certificates (each an "AI Note") in fully registered
form, without interest coupons or principal receipts, and
registered in the name of the owner thereof or its
nominee. See "Form of the Notes", "Book-Entry
Clearance Procedures" and "Transfer Restrictions"
below.
19
The Global Certificates and the Class AI Note will bear
a legend and such Global Certificates or AI Notes, or
any interest therein, may not be transferred except in
compliance with the transfer restrictions set out in such
legend. See "Transfer Restrictions".
No beneficial interest in a Rule 144A Global Certificate
may be transferred to a person who takes delivery
thereof through a Regulation S Global Certificate unless
the transferor provides the Registrar with a written
certification substantially in the form set out in the Trust
Deed regarding compliance with certain of such transfer
restrictions. Any transfer of a beneficial interest in a
Regulation S Global Certificate to a person who takes
delivery through an interest in a Rule 144A Global
Certificate is also subject to certification requirements by
the transferor substantially in the form set out in the
Trust Deed and each purchaser thereof shall be deemed
to represent that such purchaser is a Qualified
Institutional Buyer for the purposes of Rule 144A of the
Securities Act and a Qualified Purchaser for the
purposes of Section 3(c)(7) of the Investment Company
Act. In addition, interests in any of the Regulation S
Notes may not at any time be held by any U.S. Person
(as defined in Regulation S). See "Form of the Notes"
and "Book-Entry Clearance Procedures".
The Trust Deed provides that the Issuer may require the
sale of the Note that has been transferred in breach of
certain of such transfer restrictions. See "Risk Factors –
Investment Company Act" and "Transfer Restrictions".
Except in the limited circumstances described herein,
Notes (other than the AI Notes) in definitive certificated
form ("Definitive Certificates") will not be issued in
exchange for beneficial interests in a Regulation S
Global Certificate or a Rule 144A Global Certificate.
See "Form of Notes – Exchange for Definitive
Certificates" below. Whilst the Notes are Rule 144A
Global Certificates and Regulation S Global Certificates,
the Conditions will be amended as more fully described
under "Form of Notes" below.
Transfers of interests in the Global Certificates and the
AI Notes are subject to certain restrictions and must be
made in accordance with the procedures set forth in the
Trust Deed. See "Form of the Notes", "Book-Entry
Clearance Procedures" and "Transfer Restrictions".
Governing Law:
The Notes, the Trust Deed, the Collateral Management
Agreement, the Agency Agreement and all other
Transaction Documents (save for the Management
Agreement and the Euroclear Pledge Agreement) will be
governed by English law.
Listing and Trading:
Application has been made to the Irish Financial
Services Regulatory Authority, as Competent Authority
under Directive 2003/71/EC, for the Prospectus to be
approved. Application has been made to the Irish Stock
Exchange for the Notes to be admitted to the Official
List and trading on its regulated market. See "General
20
Information". There is currently no market for the Notes
and no assurance can be given that such a market will
develop. See "Risk Factors – Relating to the Notes –
Limited Liquidity and Restrictions on Transfer".
Tax Status:
See "Tax Considerations".
Certain ERISA Considerations:
See "Certain ERISA Considerations" below.
Further issues:
The Issuer may issue and sell additional Notes, and use
the proceeds thereof to purchase Additional Collateral
Debt Obligations and, if applicable, enter into further
interest rate protection transactions and currency swap
transactions, subject to the conditions set out in
Condition 17 (Further Issues). In addition, the Issuer is
entitled to issue a replacement Class of Notes in
connection with a Refinancing as set out in Condition
7(j) (Redemption by Refinancing).
Noteholders should be aware that additional notes that
are treated for non-tax purposes as a single series with
the original Notes may be treated as a separate series for
U.S. federal income tax purposes. In such case, the new
notes may be considered to have been issued with OID
(as defined in "Tax Considerations – U.S. Taxation –
Interest or Discount on the Notes"), which may affect
the market value of the original Notes since such
additional notes may not be distinguishable from the
original Notes.
Ratings:
It is a condition of the issuance of the Notes that the
following Classes of Notes be assigned the following
ratings by Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc. ("S&P") and
Moody's Investors Service, Inc. ("Moody's"):
Class of Notes
S&P
Moody's
Class A Senior
AAA
Aaa
Class B Deferrable Interest
AA
Aa2
Class C Deferrable Interest
A
A2
Class D Deferrable Interest
BBBBaa3
Class E Deferrable Interest
BBBa3
Subordinated
N/A
N/A
Within 30 days following receipt of the Independent
Accountants' Report after the Effective Date, the
Collateral Manager (acting on behalf of the Issuer) will
request the Rating Agencies to confirm their Initial
Ratings in respect of each Class of Rated Notes. See
"Ratings of the Notes".
A security rating is not a recommendation to buy, sell or
hold the Rated Notes and may be subject to revision,
suspension or withdrawal at any time by each Rating
Agency. Credit ratings represent a Rating Agency's
opinion regarding the credit quality of an asset but are
not a guarantee of such quality. There is no assurance
that a rating accorded to any of the Rated Notes will
remain for any given period of time or that the rating
will not be lowered or withdrawn entirely by a rating
agency if, in its judgment, circumstances in the future so
21
warrant. In the event that a rating initially assigned to
the Rated Notes is subsequently lowered for any reason,
no person or entity is obliged to provide any additional
support or credit enhancement with respect to any such
Rated Notes and the market value of such Notes is likely
to be adversely affected. See "Ratings of the Senior
Notes and the Mezzanine Notes ".
22
RISK FACTORS
An investment in the Notes of any Class involves certain risks, including risks relating to the Collateral
securing such Notes and risks relating to the structure and rights of such Notes and the related
arrangements. Prospective investors should carefully consider the following factors, in addition to the
matters set forth elsewhere in this Prospectus, prior to investing in any Notes. Terms not defined in
this section and not otherwise defined above have the meanings set out in Condition 1 of the "Terms
and Conditions of the Notes".
1.
General
1.1
General Investment Risk
It is intended that the Issuer will invest in Collateral Debt Obligations with certain risk
characteristics as described below and subject to the investment policies, restrictions and
guidelines described in "Description of the Portfolio". There can be no assurance that the
Issuer's investments will be successful, that its investment objectives will be achieved, that the
Noteholders will receive the full amounts that they are entitled to be paid under the Conditions
of the Notes at any time by the Issuer or that they will receive any return on their investment in
the Notes. Prospective investors are therefore advised to review this entire Prospectus
carefully and should consider, among other things, the risk factors set out in this section before
deciding whether to invest in the Notes. Except as is otherwise stated below, such risk factors
are generally applicable to all Classes of Notes, although the degree of risk associated with
each Class of Notes will vary in accordance with the position of such Class of Notes in the
Priorities of Payment. See Condition 3(c) (Pre-Enforcement Priorities of Payments) and
Condition 11(c) (Post-Enforcement Priority of Payments). In particular, all payments in
respect of the Class A Notes are generally higher in the Priorities of Payment than those of the
Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Subordinated
Notes. None of the Arrangers, the Trustee, the Collateral Manager or the Collateral
Administrator undertakes to review the financial condition or affairs of the Issuer and none of
the Arrangers, the Trustee or the Collateral Administrator undertakes to review the financial
condition or affairs of the Collateral Manager, in each case, during the life of the arrangements
contemplated by this Prospectus or to advise any investor or potential investor in the Notes of
any information coming to the attention of the Arrangers or the Collateral Manager or the
Trustee or the Collateral Administrator which is not included in this Prospectus.
1.2
Suitability
Prospective purchasers of the Notes of any Class should ensure that they understand the nature
of such Notes and the extent of their exposure to risk, that they have sufficient knowledge,
experience and access to professional advisers to make their own legal, tax, accounting,
regulatory and financial evaluation of the merits and risks of investment in such Notes and that
they consider the suitability of such Notes as an investment in the light of their own
circumstances and financial condition.
1.3
Net Proceeds Less than Aggregate Amount of the Notes
It is anticipated that the net proceeds received by the Issuer on the Issue Date from the
issuance of the Notes will be less than the aggregate Principal Amount Outstanding of the
Notes. Consequently, it is anticipated that on the Issue Date the Collateral would be
insufficient to redeem the Notes in full upon the occurrence of an Event of Default on or about
that date.
1.4
Limited Sources of Funds to Pay Expenses of the Issuer
The funds available to the Issuer to pay its expenses on any Payment Date are limited as
provided in the Priorities of Payment. In the event that such funds are not sufficient to pay the
expenses incurred by the Issuer, the ability of the Issuer to operate effectively may be
impaired, and it may not be able to defend or prosecute legal proceedings brought against it or
which it might otherwise bring to protect its interests or be able to pay the expenses of legal
proceedings being brought against persons it has indemnified.
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2.
Relating to the Notes
2.1
Limited Liquidity and Restrictions on Transfer
Although there is currently a market for notes representing collateralised debt obligations
similar to the Notes (other than the Subordinated Notes), there is currently no market for the
Notes themselves, and the market for notes representing collateralised debt obligations similar
to the Notes is currently very limited. The Arrangers may make a market for the Notes (other
than the Subordinated Notes), but are not obliged to do so, and any such market-making may
be discontinued at any time without notice. There can be no assurance that any secondary
market for any of the Notes will develop or, if a secondary market does develop, that it will
provide the Noteholders with liquidity of investment or that it will continue for the life of such
Notes. Consequently, a purchaser must be prepared to hold such Notes for an indefinite period
of time or until the Maturity Date. In addition, no sale, assignment, participation, pledge or
transfer of the Notes may be effected if, among other things, it would require any of the Issuer,
or any of its officers or directors or the pool of Collateral to register under, or otherwise be
subject to the provisions of, the Investment Company Act or any other similar legislation or
regulatory action in any relevant jurisdiction. Furthermore, the Notes will not be registered
under the Securities Act or any U.S. state securities laws, and the Issuer has no plans, and is
under no obligation, to register the Notes under the Securities Act or similar legislation in
other jurisdictions. The Notes are subject to certain transfer restrictions and can be transferred
only to certain transferees under certain circumstances. See "Subscription and Sale" and
"Transfer Restrictions". Such restrictions on the transfer of the Notes may further limit their
liquidity.
2.2
Optional Redemption and Market Volatility
A form of liquidity for the Subordinated Notes is the optional redemption provision set out in
Condition 7(b)(i) (Redemption at the Option of the Subordinated Noteholders). There can be
no assurance, however, that such optional redemption provision will be capable of exercise in
accordance with the conditions set out in Condition 7(b)(ii) (Conditions to Optional
Redemption) which requires that a calculation as to the amount of Expected Net Proceeds
realisable from the Portfolio in such circumstances be given or, indeed, that such optional
redemption will be exercised by the holders of the Subordinated Notes. The market value of
the Collateral Debt Obligations may fluctuate, with, among other things, changes in prevailing
interest rates, changes in regulations and taxes, foreign exchange rates, general economic
conditions, the conditions of financial markets (particularly the markets for High Yield Bonds,
Senior Secured Loans, Second Lien Loans and Mezzanine Loans), European and international
political events, events in the home countries of the issuers or borrowers of the Collateral Debt
Obligations or the countries in which their assets and operations are based, developments or
trends in any particular industry and the financial condition of such issuers or borrowers. The
public markets for High Yield Bonds, as well as for Senior Secured Loans, Second Lien Loans
and Mezzanine Loans, have experienced periods of volatility and reduced liquidity. The
secondary market for Senior Secured Loans, Second Lien Loans, Mezzanine Loans, Finance
Leases and Structured Finance Securities is limited and is subject to periodic adverse market
sentiment and fluctuations. See "Nature of the Collateral" below. A decrease in the market
value of the Portfolio would adversely affect the amount of proceeds which could be realised
upon liquidation of the Portfolio. Accordingly, (i) the holders of the Subordinated Notes may
be unable to exercise their right of optional redemption set out in Condition 7(b)(i)
(Redemption at the Option of the Subordinated Noteholders) due to the requirement that the
Expected Net Proceeds of liquidation of the Portfolio must meet a certain minimum threshold
amount (essentially, to cover repayment of the Rated Notes and other items ranking in priority
to the Subordinated Notes under the Priorities of Payment) or (ii) if such right is exercised, the
proceeds realised upon liquidation of the Portfolio may not be sufficient to make full
repayment of the Subordinated Notes, or indeed to make any repayment of the Subordinated
Notes, after required payments are made in respect of the Rated Notes and to the other
Transaction Creditors of the Issuer which rank in priority to the holders of the Subordinated
Notes pursuant to the Priorities of Payment.
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2.3
Limited Recourse Obligations
The Notes are limited recourse obligations of the Issuer and are payable solely from amounts
received in respect of the Collateral securing the Notes. Payments on each Class of Note both
prior to and following enforcement of the security over the Collateral are subordinated to the
prior payment of certain taxes, fees and expenses of Transaction Creditors of the Issuer which
rank in priority to the holders of the Subordinated Notes pursuant to the Priorities of Payment
and to payment of principal and interest on prior ranking Classes of Notes. See Condition 4(c)
(Limited Recourse and Non-Petition). None of the Collateral Manager, the Noteholders of any
Class, the Arrangers, the Trustee, the Collateral Administrator, the Custodian, the Managing
Directors, any Agent or any Affiliates of any of the foregoing or any other person or entity
(other than the Issuer) will be obliged to make payments on the Notes of any Class.
Consequently, Noteholders must rely solely on distributions on the Collateral Debt
Obligations and amounts received under the Hedge Transactions from Hedge Counterparties
and other Collateral securing the Notes for the payment of principal, interest and premium, if
any, thereon. There can be no assurance that the distributions on the Collateral Debt
Obligations and amounts received under the Hedge Transactions and other Collateral securing
the Notes will be sufficient to make payments on any Class of Notes after making payments
on more senior Classes of Notes and certain other taxes, fees and expenses of Transaction
Creditors of the Issuer which rank in priority to or pari passu with such Class pursuant to the
Priorities of Payment. If distributions on the Collateral are insufficient to make payments on
the Notes, no other assets of the Issuer (and, in particular, no assets of the Collateral Manager,
the Noteholders, the Arrangers, the Trustee, the Collateral Administrator, the Managing
Directors, any shareholder of the Issuer, the Custodian, any Agent or any Affiliates of any of
the foregoing) will be available for payment of the shortfall and following realisation of the
Collateral and the application of the proceeds thereof in accordance with the Priorities of
Payment, the obligations of the Issuer to pay such shortfall shall be extinguished. Such
shortfall will be borne first by (a) the Subordinated Notes, (b) thereafter, the Class E
Noteholders, (c) thereafter, the Class D Noteholders, (d) thereafter, the Class C Noteholders,
(e) thereafter, the Class B Noteholders, and (f) finally, the Class A Noteholders, in accordance
with the Priorities of Payment.
In addition, at any time while the Notes are Outstanding, none of the Noteholders, the Trustee
nor any other Secured Party (nor any other person acting on behalf of any of them) shall be
entitled at any time to institute against the Issuer, or join in any institution against the Issuer
of, any administration, bankruptcy, reorganisation, arrangement, insolvency, winding-up or
liquidation proceedings or any other proceedings for the appointment of a liquidator or
administrator or a similar official, or other proceedings (provided that, for the avoidance of
doubt, the Trustee may appoint a receiver and/or take other action to realise or enforce the
Security in accordance with the terms of the Trust Deed) under any applicable bankruptcy or
similar law in connection with any obligations of the Issuer relating to the Notes, the Trust
Deed or otherwise owed to the Noteholders, save for lodging a claim by the Trustee (on its
own behalf and on behalf of the other Transaction Creditors) in the liquidation of the Issuer
which is initiated by another party or taking proceedings to obtain a declaration or judgement
as to the obligations of the Issuer nor shall any of them have a claim arising in respect of the
share capital of the Issuer.
2.4
Subordination of the Class B Notes, the Class C Notes, the Class D Notes, the Class E
Notes and the Subordinated Notes and Optional Refinancing
The Class B Notes are fully subordinated to the Class A Notes, the Class C Notes are fully
subordinated to the Class A Notes and the Class B Notes, the Class D Notes are fully
subordinated to the Class A Notes, the Class B Notes and the Class C Notes, the Class E Notes
are fully subordinated to the Class A Notes, the Class B Notes, the Class C Notes and the
Class D Notes and the Subordinated Notes are fully subordinated to the Senior Notes and
Mezzanine Notes. Other than redemptions of the Class E Notes that may be made out of
Interest Proceeds in accordance with paragraph (U) of the Interest Proceeds Priority of
Payments, the payment of principal on any Class of Notes may not be made until all payments
of principal due and payable on any Classes of Notes ranking in priority thereto pursuant to
the Priorities of Payments have been made in full. The payment of interest on any Class of
Notes may not be made until all payments of interest due and payable on any Classes of Notes
25
ranking in priority thereto pursuant to the Priorities of Payment have been made in full. No
payments of interest will be made on the Class B Notes on any Payment Date until all interest
on the Class A Notes have been paid in full. No payments of interest will be made on the
Class C Notes on any Payment Date until interest on the Class A Notes and interest on the
Class B Notes have been paid in full. No payments of interest will be made on the Class D
Notes on any Payment Date until interest on the Class A Notes and interest on the Class B
Notes and the Class C Notes have been paid in full. No payments of interest will be made on
the Class E Notes on any Payment Date until interest on the Class A Notes and interest on the
Class B Notes, the Class C Notes and the Class D Notes have been paid in full.
Payments of interest on the Subordinated Notes will be made by the Issuer to the extent of
available funds and no payments thereon will be made until the payment of certain taxes, fees
and expenses of Transaction Creditors of the Issuer which rank in priority to the holders of the
Subordinated Notes pursuant to the Priorities of Payment have been made and until interest on
the Class A Notes and interest on the Class B Notes, the Class C Notes, the Class D Notes and
the Class E Notes have been paid in full and, subject always (i) to the right of the Issuer to
transfer amounts which would have been payable on the Subordinated Notes to the Collateral
Enhancement Account to be applied in the acquisition or exercise of rights under Collateral
Enhancement Obligations, and (ii) in the event that the Collateral Enhancement Ratio Test is
not satisfied to transfer amounts to the Principal Account to be applied in the acquisition of
Collateral Debt Obligations to the extent necessary to cause such test to be satisfied
immediately following such acquisition or redemption.
The risk of delays in payments or ultimate non-payment of principal and/or interest will be
borne disproportionately by the holders of the Subordinated Notes as compared to the Notes of
each other Class, and as among the holders of the other Classes of Notes will be borne
disproportionately by the holders of more junior Classes of Notes as compared to the more
senior Classes of Notes (determined by reference to their ranking pursuant to the Priorities of
Payment).
In addition, to the extent described herein, payments of interest on the Class B Notes, the Class
C Notes, the Class D Notes and the Class E Notes may be deferred to the extent there are not
sufficient Interest Proceeds and/or Principal Proceeds available to pay such interest in
accordance with the Priorities of Payment and such deferral of interest will not constitute an
Event of Default under the Notes at any time whilst any more senior Classes of Notes remain
Outstanding. Any such deferral of interest will increase the effect of the subordination of the
Subordinated Notes and of the Classes of Notes in respect of which payment was deferred.
The Issuer's ability to make payments of interest and principal in respect of the Subordinated
Notes will be constrained by the terms of the Rated Notes, by the level of distributions
received in respect of the Portfolio and other Collateral securing the Notes (see "Nature of the
Collateral") and, in certain circumstances, by the interest rate mismatch described under
"Interest Rate Risk". If distributions on the Collateral Debt Obligations and amounts received
under the Hedge Transactions and the other Collateral securing the Notes (including, for the
avoidance of doubt, any payments paid pursuant to Hedge Transactions) are insufficient to
make payment on the Subordinated Notes, no other assets will be available for payment of
such deficiency. See "Limited Recourse Obligations" above. No interest or principal may
therefore be payable on the Subordinated Notes during the term of the Subordinated Note.
Non-payment of any Interest Amount due and payable in respect of the Class A Notes on any
Payment Date will constitute an Event of Default (where such non-payment continues for a
period of five days). In such circumstances, the Controlling Class, which will be the Class A
Noteholders, acting by Extraordinary Resolution, may request the Trustee to accelerate the
Notes pursuant to Condition 10 (Events of Default) and acting by Extraordinary Resolution,
may request the Trustee to enforce the security over the Collateral pursuant to Condition 11
(Enforcement).
No payment of principal on the Class B Notes will be made until the Class A Notes have been
paid in full. No payment of principal on the Class C Notes will be made until the Class A
Notes and the Class B Notes have been paid in full. No payment of principal on the Class D
Notes will be made until the Class A Notes, the Class B Notes and the Class C Notes have
been paid in full. Other than payments of principal on the Class E Notes specified in
26
paragraph (U) of the Interest Proceeds Priority of Payments, no payment of principal on the
Class E Notes will be made until the Class A Notes, the Class B Notes, the Class C Notes and
the Class D Notes have been paid in full. No payment out of Principal Proceeds will be made
on the Subordinated Notes until the Rated Notes have been paid in full.
In the event of any redemption in full or acceleration of the Class A Notes, the Class B Notes,
the Class C Notes, the Class D Notes, the Class E Notes and the Subordinated Notes will also
be subject to automatic redemption/acceleration and the Collateral will, in either case, be
liquidated. Liquidation of the Collateral at such time and/or remedies pursued by the Trustee
upon enforcement of the security over the Collateral could be adverse to the interests of the
Class A Noteholders (though, as initial Controlling Class, the Class A Noteholders have
certain rights to direct and/or consent to such enforcement under Condition 11 (Enforcement)),
the Class B Noteholders, the Class C Noteholders, the Class D Noteholders, the Class E
Noteholders or the Subordinated Noteholders, as the case may be. To the extent that any
losses are incurred by the Issuer in respect of any Collateral, such losses will be borne first by
the Subordinated Noteholders, then by the Class E Noteholders, then by the Class D
Noteholders, then by the Class C Noteholders, then by the Class B Noteholders, and, finally,
by the Class A Noteholders. Remedies pursued by the Class A Noteholders or by the Trustee
at their direction or on their behalf, could be adverse to the interests of the Class B
Noteholders, the Class C Noteholders, the Class D Noteholders, the Class E Noteholders and
the Subordinated Noteholders. Remedies pursued by the Class B Noteholders or by the
Trustee at their direction or on their behalf, could be adverse to the interests of the Class C
Noteholders, the Class D Noteholders, the Class E Noteholders, and the Subordinated
Noteholders. Remedies pursued by the Class C Noteholders or by the Trustee at their
direction or on their behalf, could be adverse to the interests of the Class D Noteholders, the
Class E Noteholders and the Subordinated Noteholders. Remedies pursued by the Class D
Noteholders or by the Trustee at their direction or on their behalf, could be adverse to the
interests of the Class E Noteholders and the Subordinated Noteholders. Remedies pursued by
the Class E Noteholders or by the Trustee at their direction or on their behalf, could be adverse
to the interests of the Subordinated Noteholders.
The Trust Deed provides that in the event of any conflict of interest between the Class A
Noteholders, the Class B Noteholders, the Class C Noteholders, the Class D Noteholders, the
Class E Noteholders and the Subordinated Notes, the interests of the Controlling Class will
prevail. If the holders of the Controlling Class do not have an interest in the outcome of the
conflict, the Trustee shall give priority to the interests of (i) the Class A Noteholders over the
Class B Noteholders, the Class C Noteholders, the Class D Noteholders, the Class E
Noteholders and the Subordinated Noteholders; (ii) the Class B Noteholders over the Class C
Noteholders, the Class D Noteholders, the Class E Noteholders and the Subordinated
Noteholders; (iii) the Class C Noteholders over the Class D Noteholders, the Class E
Noteholders and the Subordinated Noteholders; (iv) the Class D Noteholders over the Class E
Noteholders and the Subordinated Noteholders; (v) the Class E Noteholders over the
Subordinated Noteholders. The Trustee shall, provided it has been indemnified and/or secured
to its satisfaction, act in accordance with any resolution of the Controlling Class, given in
accordance with the Trust Deed. In the event that the Trustee receives conflicting or
inconsistent requests from two or more groups of Noteholders (or the holders of another Class
of Notes given priority as described in this paragraph), each representing less than the majority
by principal amount of the Controlling Class (or other Class of Notes given priority as
described in this paragraph), the Trustee shall give priority to the group which holds the
greater amount of principal amount of the Notes of such Class. The Trust Deed provides
further that the Trustee will act upon the directions of the holders of the Controlling Class (or
other Class of Notes given priority as described in this paragraph) in such circumstances, and
shall not be obliged to consider the interests of the holders of any other Class of Notes. See
Condition 14(g) (Entitlement of the Trustee under Conflicts of Interest).
The Conditions provide that any Class of the Notes may be redeemed in whole, but not in part,
on any Payment Date after the Non-Call Period from proceeds received by the Issuer in
connection with a Refinancing, subject to the satisfaction of certain requirements. See
Condition 7(j) (Redemption by Refinancing). Accordingly, a more junior Class of Notes may
be redeemed from such Refinancing proceeds in whole even if a more senior Class of Notes
remains outstanding, although it is expected that such redeemed Class of Notes will be
27
replaced by a refinancing Class of Notes. Holders of Notes that are refinanced (or otherwise
optionally redeemed) may not be able to reinvest the proceeds of such Notes in assets with
comparable interest rates or maturity. An optional redemption from Refinancing proceeds
may also result in a shorter investment than a Noteholder may have anticipated.
2.5
Amount and Timing of Payments
Investment in the Notes of any Class involves a degree of risk arising from fluctuations in the
amount and timing of receipt of the principal and interest on the Collateral Debt Obligations
by or on behalf of the Issuer and the amounts of the claims of creditors of the Issuer ranking in
priority to the holders of each Class of the Notes. In particular, prospective purchasers of such
Notes should be aware that the amount and timing of payments of the principal and interest on
the Collateral Debt Obligations and the amount and timing of any payments pursuant to Hedge
Transactions will depend upon the detailed terms of the documentation relating to each of the
Collateral Debt Obligations and on whether or not any Obligor thereunder defaults in its
obligations.
2.6
Mandatory Redemption of the Class A Notes, the Class B Notes, the Class C Notes, the
Class D Notes and the Class E Notes.
If the Class A Coverage Tests are not satisfied on any Determination Date then, on the
Payment Date following such Determination Date, Interest Proceeds, and thereafter Principal
Proceeds, will be used, subject to the Priorities of Payment, to the extent necessary and
available, to redeem the Class A Notes on a pro rata basis until such Coverage Test is satisfied
if recalculated immediately following such redemption. If the Class B Coverage Tests are not
satisfied on any Determination Date then, on the Payment Date following such Determination
Date, Interest Proceeds, and thereafter Principal Proceeds, will be used, subject to the
Priorities of Payment, to the extent necessary and available, to redeem the Class A Notes on a
pro rata basis and, following redemption in full of all Class A Notes, the Class B Notes on a
pro rata basis until each such Coverage Test is satisfied if recalculated immediately following
such redemption. If the Class C Coverage Tests are not satisfied on any Determination Date,
then, on the Payment Date following such Determination Date, Interest Proceeds, and
thereafter Principal Proceeds, will be used, subject to the Priorities of Payment, to the extent
necessary and available, to redeem the Class A Notes on a pro rata basis and, following
redemption in full of all Class A Notes, the Class B Notes and, following redemption in full
thereof, the Class C Notes, in each case on a pro rata basis until each such Coverage Test is
satisfied if recalculated immediately following such redemption. If the Class D Coverage
Tests are not satisfied on any Determination Date, then, on the Payment Date following such
Determination Date, Interest Proceeds, and thereafter Principal Proceeds, will be used, subject
to the Priorities of Payment, to the extent necessary and available, to redeem the Class A
Notes on a pro rata basis and, following redemption in full of all Class A Notes, the Class B
Notes and, following redemption in full thereof, the Class C Notes and, following redemption
in full thereof, the Class D Notes, in each case on a pro rata basis until each such Coverage
Test is satisfied if recalculated immediately following such redemption. If the Class E
Coverage Tests are not satisfied on any Determination Date, then, on the Payment Date
following such Determination Date, Interest Proceeds will be used, subject to the Priorities of
Payment, to the extent necessary and available, to redeem the Class E Notes on a pro rata
basis until such Coverage Test is satisfied if recalculated immediately following such
redemption.
Under the above arrangements the Issuer may have insufficient cash to make the interest
payments or principal repayments to the Class A Noteholders, the Class B Noteholders, the
Class C Noteholders, the Class D Noteholders, the Class E Noteholders and/or the
Subordinated Noteholders or such arrangements may reduce and/or negate entirely the level of
the returns to the Subordinated Noteholders and, in the case of application of Principal
Proceeds in redemption of the Notes during the Reinvestment Period rather than in
reinvestment in Substitute Collateral Debt Securities, will affect the average lives of the Notes
so redeemed and may also reduce the leverage ratio of the Subordinated Notes to the
Collateral which could adversely impact the level of the returns to the holders of the
Subordinated Notes.
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2.7
Future Ratings of the Rated Notes Not Assured and Limited in Scope
A security rating is not a recommendation to buy, sell or hold securities and may be subject to
revision, suspension or withdrawal by any Rating Agency at any time. Credit ratings represent
a rating agency's opinion regarding the credit quality of an asset but are not a guarantee of
such quality. There is no assurance that a rating accorded to any of the Rated Notes will
remain for any given period of time or that a rating will not be lowered or withdrawn entirely
by a Rating Agency if, in its judgement, circumstances in the future so warrant. In the event
that a rating initially assigned to any of the Rated Notes is subsequently lowered or withdrawn
for any reason, no person or entity is required to provide any additional support or credit
enhancement with respect to any such Notes and the market value of such Notes is likely to be
adversely affected.
2.8
Average Life and Prepayment Considerations
The Maturity Date of the Notes is 15 May 2024 (subject to adjustment for Business Days);
however, the average life of each Class of the Notes is expected to be shorter than the number
of years to their Maturity Date and the principal of the Notes of each Class is expected to be
paid in full prior to the Maturity Date. Average life refers to the average amount of time that
will elapse from the issue date of a Note until the principal amount of such Note will be paid
to the holder. The average lives of the Notes will be determined by the amount and frequency
of principal payments, which are dependent upon, among other things, the amount of
payments received at or in advance of the scheduled maturity of the Collateral Debt
Obligations (whether through sale, maturity, redemption, prepayment, default or other
liquidation or disposition). The actual average lives and actual maturities of the Notes will be
affected by the financial condition of the issuers or borrower of the underlying Collateral Debt
Obligations and the characteristics of such loans or securities, including the existence and
frequency of exercise of any optional or mandatory redemption or prepayment features, the
prevailing level of interest rates, the redemption price, the actual default rate, the actual level
of recoveries on any Defaulted Obligations, the timing of defaults and recoveries,
refinancings, recapitalisations and the frequency of tender or exchange offers for such
Collateral Debt Obligations. Substantially all of the Collateral Debt Obligations may be
subject to optional redemption or prepayment by the issuer or borrower of such loans or
securities. Any disposition of a Collateral Debt Obligation may change the composition and
characteristics of the Portfolio and the rate of payment thereon and, accordingly, may affect
the actual average lives of the Notes. The rate and timing of future defaults and the amount
and timing of any cash realisation from Defaulted Obligations also will affect the maturity and
average lives of the Notes. The ability of the Collateral Manager to reinvest any Principal
Proceeds in the manner described under "Description of the Portfolio – Management of the
Portfolio" and the decisions made regarding whether or not to reinvest such proceeds will also
affect the average lives of the Notes. In particular, the average lives of the Class E Notes will
be affected by their potential redemption from time to time in the circumstances described
above in "Risk Factors - Subordination of the Class B Notes, the Class C Notes, the Class D
Notes, the Class E Notes and the Subordinated Notes and Optional Refinancing".
2.9
Noteholders' Resolutions
The Trust Deed includes provisions for the passing of Resolutions (whether at a Noteholders'
meeting by way of vote or by written resolution) of the Noteholders in respect of (among any
other matters) amendments to the Conditions of the Notes and/or the Transaction Documents.
Such provisions include, among other things, (i) quorum requirements for the holding of
Noteholders' meetings and (ii) voting thresholds required to pass Resolutions at such meetings
(or through written resolutions). In the event that a meeting of the Noteholders is called to
consider a Resolution, the determination as to whether the requisite number of Notes have
been voted in favour of such Resolution will be made by reference to the percentage which the
Notes voted in favour represent of the total amount of Notes held or represented by any person
or persons entitled to vote which are present at such meeting and not by the Principal Amount
Outstanding of all such Notes, or Classes of Notes which are entitled to be voted in respect of
such Resolution. This means that a lower percentage of Noteholders may pass a Resolution
which is put to a meeting of Noteholders than would be required for a written resolution in
respect of the same matter. There are, however, quorum provisions which provide that a
29
minimum number of Noteholders representing a minimum amount of the Principal Amount
Outstanding of the applicable Class or Classes of Notes be present at any meeting to consider
an Extraordinary Resolution or Ordinary Resolution. Except as provided below in regard to
Special Quorum Matters, the quorum required for a meeting of Noteholders (other than an
adjourned meeting or a meeting of a particular Class) is two or more persons holding or
representing not less than (i) in the case of an Ordinary Resolution, 10 per cent. and (ii) in the
case of an Extraordinary Resolution, 50 per cent., in each case of the aggregate Principal
Amount Outstanding of the relevant Class of Notes. In both cases, the quorum is less at an
adjourned meeting. The voting threshold at any Noteholders' meeting is (i) in the case of an
Ordinary Resolution, more than 50 per cent. and (ii) in the case of an Extraordinary
Resolution, 66⅔ per cent., in each case of the aggregate Principal Amount Outstanding of the
Notes of each Class of those Notes represented at the meeting. Accordingly, given the above
referenced quorum levels, it is likely that, at any meeting of the Noteholders, an Ordinary
Resolution may be passed with less than 50 per cent. and an Extraordinary Resolution may be
passed with less than 66⅔ per cent., in each case of the aggregate Principal Amount
Outstanding of all of the Noteholders of the applicable Class.
The quorum required for a meeting of Noteholders (including an adjourned meeting) to
consider the optional redemption of the Notes in certain circumstances or to consider the
removal or replacement of the Collateral Manager (the "Special Quorum Matters") is two or
more persons holding or representing at least 66⅔ per cent. of the aggregate Principal Amount
Outstanding of the relevant Class of Notes. Further, in order to sanction any of the Special
Quorum Matters at a meeting, at least 66⅔ per cent. of the aggregate Principal Amount
Outstanding of the Notes represented at such meeting of each relevant Class must vote in
favour of such resolution. Accordingly, given these more stringent quorum and voting
requirements, a higher level of Noteholder participation will be necessary to approve any of
the Special Quorum Matters than is required to approve those matters requiring only an
Ordinary Resolution or an Extraordinary Resolution of the relevant Class of Notes. See
Condition 14 (Meetings of Noteholders, Modification, Waiver and Substitution).
Certain entrenched rights relating to the Terms and Conditions of the Notes including the
currency thereof, Payment Dates applicable thereto, the Priorities of Payment, the provisions
relating to quorums and the percentages of votes required for the passing of an Extraordinary
Resolution, cannot be amended or waived by Ordinary Resolution but require an
Extraordinary Resolution. It should however be noted that amendments may still be effected
and waivers may still be granted in respect of such provisions in circumstances where not all
Noteholders agree with the terms thereof and any amendments or waivers once passed in
accordance with the provisions of the Terms and Conditions of the Notes and the provisions of
the Trust Deed will be binding on all such dissenting Noteholders. In addition to the Trustee's
right to agree to changes to the Transaction Documents to correct a manifest error, or to
changes which, in its opinion, are not materially prejudicial to the interests of the Noteholders
of any Class without the consent of the Noteholders, modifications may also be made and
waivers granted in respect of certain other matters, subject to the prior consent of the Trustee
but without the consent of the Noteholders as set out in Condition 14(e) (Modification and
Waiver).
2.10
Voting Rights upon an Event of Default and Enforcement
If an Event of Default occurs and is continuing, the Trustee may, at its discretion and shall, at
the request of the Controlling Class acting by Extraordinary Resolution and provided it has
been indemnified and/or secured to its satisfaction, give notice to the Issuer that all the Notes
are to be immediately due and payable. At any time after a notice of acceleration has been
given to the Issuer in respect of the Notes, the Trustee may, at its discretion, institute such
proceedings against the Issuer as it may think fit to enforce the terms of the Trust Deed and the
Notes and pursuant and subject to the terms of the Trust Deed and the Notes, realise and/or
otherwise liquidate or sell the Collateral in whole or in part and/or take such action as may be
permitted under applicable laws against any Obligor in respect of the Collateral and/or take
any other action to enforce the security over the Collateral, in each case, without any liability
as to the consequence of any action and without having regard to the effect of such action on
individual Noteholders of any Class; provided, however, that prior to such enforcement, the
Trustee must either have determined that the anticipated proceeds realised from such
30
enforcement actions (after deducting any expenses incurred in connection therewith) would be
sufficient to discharge in full all amounts due and payable in respect of all Classes of Notes
(other than the Subordinated Notes) (including, without limitation, Deferred Interest on the
Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes) and all amounts
payable in priority thereto pursuant to the Priorities of Payment or shall have been directed to
take such enforcement action by the holders of at least 66⅔ per cent. of the Principal Amount
Outstanding of each Class of Notes (or, in respect of certain payment defaults relating only to
the Class A Notes, by the holders of at least 66⅔ per cent. of the Principal Amount
Outstanding of the Class A Notes). See Conditions 10 (Events of Default) and 11
(Enforcement).
The requirements described above could result in the Controlling Class being unable to
procure enforcement of the security over the Collateral in circumstances in which they desire
such enforcement and may also result in enforcement of such security in circumstances where
the proceeds of liquidation thereof would be insufficient to ensure payment in full of all
amounts due and payable in respect of the Senior Notes and Mezzanine Notes in accordance
with the Priorities of Payment and/or at a time when enforcement thereof may be adverse to
the interests to certain Classes of Notes and, in particular, the Subordinated Notes.
2.11
Volatility of the Subordinated Notes
The Subordinated Notes represent a highly leveraged investment in the underlying Collateral
Debt Obligations. Accordingly, it is expected that changes in the market value of the
underlying Collateral Debt Obligations, which are subject to credit, liquidity, interest rate and
other risks, will lead to greater changes in the market value of the Subordinated Notes.
Utilisation of leverage is a speculative investment technique and involves certain risks to
investors and will generally magnify the Subordinated Noteholders' opportunities for gain and
risk of loss.
2.12
Currency of Payments in respect of Rule 144A Notes
Noteholders should be aware that interests in the Rule 144A Notes (other than Subordinated
Notes) are held by a nominee for DTC and all payments in respect of such Rule 144A Notes
will be made in U.S. dollars. A holder of an interest through DTC in such Rule 144A Notes
may make an application to DTC to have payment or payments under such Rule 144A Notes
made in Euro.
2.13
German Investment Tax Act
The German Investment Tax Act (Investmentsteuergestz) (the "Investment Tax Act") applies
only (i) to "Units" (Investmentanteile) in investment funds held by investors who are resident
in Germany for German tax purposes, (ii) to an investor holding Units through a permanent
establishment (or a permanent representative) in Germany or (iii) to an investor (other than a
foreign credit institution or a foreign financial services institution) physically presenting Units
at the office of a German Disbursing Agent (as defined below) (an "over-the-counter
transaction" – Tafelgeschäft). A "German Disbursing Agent" means a German credit
institution or a German financial services institution each as defined in the German Banking
Act (Kreditwesengesetz), including a German branch of a non-German credit institution or a
non-German financial services institution, but excluding a non-German branch of a German
credit institution or a German financial services institution.
The Issuer has been advised that the Notes should not qualify as "units" in a foreign
investment fund for the following reason:
Based on a circular of the German Federal Ministry of Finance (Bundesministerium der
Finanzen) dated 2 June 2005 (BStBl. I 2005 page 728 (732), sec. 6), the Notes will not be
classified as "units in a foreign investment fund" if "according to the contractual conditions
(Vertragsbedingungen), in addition to the substitution of debt securities for the purpose of
ensuring size, maturity profile and risk structure only up to 20 per cent. per annum of the
assets (Vermögen) of the Issuer may, be traded on a discretionary basis by the Issuer".
31
As set out in paragraph 6.2 of the section entitled "Description of the Portfolio", the following
rule is provided for:
"The sum of the aggregate of the Principal Balance of the Collateral Debt Obligations
(excluding any Credit Improved Obligations, Credit Risk Obligations, Equity Securities,
Defaulted Obligations or Withholding Tax Obligations) sold in that year (each such year being
a year from, but excluding, the Effective Date or, as the case may be an anniversary thereof,
to, but including, the next succeeding anniversary thereof) when aggregated with the Principal
Balances of the Collateral Debt Obligations (excluding any sales of any Credit Improved
Obligations, Credit Risk Obligations, Equity Securities, Defaulted Obligations and
Withholding Tax Obligations) to be sold does not exceed 20 per cent. of the sum of the CDO
Principal Balance as at the most recent to have occurred of the Effective Date and each
anniversary thereof."
There is no guidance as to how the tax authorities would apply the 20 per cent. threshold in
detail and in particular whether they would include the dispositions of Credit Improved
Obligations within the 20 per cent. threshold. Accordingly, the Issuer believes that good
arguments exist that the rules taken from the Prospectus should comply with the rules
established by the tax authorities in the above circular; however, no assurance can be given
that the Investment Tax Act will not be applicable to the Class E Notes and the Subordinated
Notes.
The Issuer has been advised that the tax authorities would be expected to follow the above
interpretation issued by the German Federal Ministry of Finance. The tax authorities may,
however, change their position with effect for the future or, although this is considered
unlikely, with retroactive effect. Furthermore, there is no case law on this issue and the
German courts may or may not share the view expressed by the German Federal Ministry of
Finance, if the issue were ever brought to court.
The Issuer will use its reasonable efforts to comply with the minimum statutory reporting and
publication requirements of the Investment Tax Act for "semi-transparent" funds (the
"Minimum Reporting Requirements") provided always that (i) compliance with such
Minimum Reporting Standards is not, in the opinion and at the entire discretion of the Issuer,
Collateral Administrator or of the Collateral Manager, unduly onerous; (ii) the Issuer may
satisfy such Minimum Reporting Requirements by providing the requisite financial
information (upon such information being made available to it) to a professional German tax
adviser (the "German Tax Adviser") with instructions to such adviser to re-format the
relevant information as required as well as to certify the re-formatted information and to
publish such information in the Electronic Federal Gazette in accordance with section 5 of the
Investment Tax Act on behalf of the Issuer, and (iii) none of the Issuer, the Trustee, the
Collateral Manager, the Collateral Administrator or any of the Agents or Affiliates thereof
shall have any liability whatsoever for any such information prepared and/or published by the
German Tax Adviser under the Minimum Reporting Requirements or for any tax
consequences to any Noteholder or other party. The Issuer believes that, in consequence of
compliance with such Minimum Reporting Requirements, investors holding Notes which are
subject to the Investment Tax Act will not be subject to the lump-sum taxation provisions of
section 6 of the Investment Tax Act, but that in principle the rules for semi-transparent funds
will apply. Under the rules of the Investment Tax Act for semi-transparent funds, the Issuer's
taxable earnings (e.g. payments of interest received) are in principle taxed in the hands of
investors. Certain earnings retained by the Issuer (e.g. retained interest income) (if any) would
be deemed to be distributed to investors holding Notes which are subject to the Investment
Tax Act at the end of the Issuer's financial year in which the income was earned by the Issuer.
Therefore, a tax liability for investors could arise before payments have actually been
received.
However, if the Issuer does not comply with the Minimum Reporting Requirements, or if the
German tax authorities do not accept the validity of such reporting, the investors holding
Notes which are subject to the Investment Tax Act will be subject to the adverse lump-sum
taxation provisions of section 6 of the Investment Tax Act pursuant to which the higher of (i)
distributions on such Notes, the interim profit (Zwischengewinn) and 70 per cent. of the
annual increase in the market price of such Notes and (ii) six per cent. of the market price of
32
such Notes at the end of every calendar year, (the "Assumed Profits") would be taxed. The
interim profit represents mainly interest accrued or received by an investment fund (within the
meaning of the Investment Tax Act) but not yet distributed or attributed to the investors in the
fund.
Where units to which the Investment Tax Act applies are kept in a custodial account
maintained with a German Disbursing Agent, such German Disbursing Agent would be
required to withhold tax at a rate of 30 per cent. (plus solidarity surcharge thereon at a rate of
5.5 per cent.) not only of the gross amount of interest paid, but in addition at the point of time
the units are sold or redeemed by the Issuer also of the aggregate amount of income deemed to
have accrued to investors holding units which are subject to the Investment Tax Act and not
yet otherwise subject to taxation. In the case of an over-the-counter transaction, such
withholding tax is levied at the rate of five per cent. (plus solidarity surcharge thereon at a rate
of 5.5 per cent.).
Moreover, there is a risk that investments made by or on behalf of the Issuer qualify as Units
in foreign investment funds (within the meaning of the Investment Tax Act) which do not
satisfy the Minimum Reporting Requirements and therefore qualify as "non-transparent"
sub-funds. In this case the Issuer may be deemed to have earned Assumed Profits from these
investments according to the lump-sum taxation provisions of section 6 of the Investment Tax
Act and such Assumed Profits may accordingly be attributed to investors holding Notes which
are subject to the Investment Tax Act, resulting in adverse tax and liquidity consequences for
such investors.
Investors should be aware that there are a number of uncertainties regarding the interpretation
of the tax provisions contained in the Investment Tax Act (including those relating to the
Minimum Reporting Requirements). Prospective German investors in the Notes are urged to
seek independent tax advice and to consult their professional advisers as to the legal and tax
consequences that may arise from the application of the Investment Tax Act to the Notes and
neither the Issuer nor any other party accepts any responsibility in respect of the German tax
position of the Notes or the holders of the Notes.
This section should be read in conjunction with the section entitled "Taxation in Germany –
Investors subject to the German Investment Tax Act".
3.
Relating to the Collateral
3.1
The Portfolio
The decision by any prospective holder of Notes to invest in such Notes should be based,
among other things, on the Eligibility Criteria which each Collateral Debt Obligation is
required to satisfy when the Issuer enters into a binding commitment to purchase, as disclosed
in this Prospectus, and on the Portfolio Profile Tests, Collateral Quality Tests, Coverage Tests
and Target Par Amount that the Portfolio is required to satisfy as at the Effective Date and
thereafter. In addition, the Collateral Quality Tests and Coverage Tests will be tested on each
Measurement Date occurring on and after the Effective Date (provided, however, that the
Class A Interest Coverage Test, the Class B Interest Coverage Test, the Class C Interest
Coverage Test, the Class D Interest Coverage Test or the Class E Interest Coverage Test will
be tested on and after the earlier of the Effective Date and the second Determination Date) and
the Portfolio Profile Tests will be required to be satisfied in respect of the acquisition of
Collateral Debt Obligations on and after the Effective Date to the extent required in the
Reinvestment Criteria. Although each Collateral Debt Obligation is required to satisfy the
Eligibility Criteria (as determined by the Collateral Manager in accordance with the Collateral
Management Agreement) on the date the Issuer enters into a binding commitment to purchase
an obligation, this Prospectus does not contain any information regarding the individual
Collateral Debt Obligations on which the Notes will be secured from time to time and,
Collateral Debt Obligations may, subsequent to purchase, no longer satisfy the Eligibility
Criteria. Purchasers of any of the Notes will not have an opportunity to evaluate for
themselves the relevant economic, financial and other information regarding the investments
to be made by the Issuer and, accordingly, will be dependent upon the judgement and ability
of the Collateral Manager in selecting investments for purchase by the Issuer over time. No
33
assurance can be given that the Collateral Manager, on behalf of the Issuer, will be successful
in obtaining suitable investments or that, if such investments are made, the objectives of the
Issuer will be achieved.
Neither the Issuer nor the Arrangers nor the Collateral Manager (other than to the extent
necessary to determine if the Collateral Debt Obligation satisfies the Eligibility Criteria) nor
any of their Affiliates have made any investigation into the Obligors of the Collateral Debt
Obligations and prospective purchasers of the Notes may not rely on such parties having made
any such investigations. The value of the Portfolio may fluctuate from time to time (as a result
of substitution or otherwise) and none of the Issuer, the Trustee, the Arrangers, the Custodian,
the Collateral Manager, the Collateral Administrator, any Hedge Counterparty, the Agents or
any of their Affiliates are under any obligation to maintain the value of the Collateral Debt
Obligations at any particular level. None of the Issuer, the Trustee, the Custodian, the
Collateral Manager, the Collateral Administrator, any Hedge Counterparty, the Arrangers, the
Agents or any of their Affiliates has any liability to the Noteholders as to the amount or value
of, or any decrease in the value of, the Collateral Debt Obligations from time to time.
3.2
Nature of Non-Investment Grade Collateral; Defaults
The Issuer will invest in a portfolio of Collateral Debt Obligations consisting, at the time of
acquisition, of predominantly Senior Secured Loans and a limited percentage of Mezzanine
Obligations, Second Lien Loans, Structured Finance Obligations, Project Finance Securities,
Finance Leases, High Yield Bonds and Synthetic Securities as well as certain other
investments, all of which will have greater credit and liquidity risk than investment grade
sovereign or corporate bonds or loans. The Collateral is subject to, amongst other risks, credit,
liquidity, interest rate and exchange risks.
The market value of the Collateral Debt Obligations will generally fluctuate with, among other
things, changes in prevailing interest rates, periods of adverse performance of the relevant
Obligor, general economic conditions, operational risks, structural risks, the condition of
certain financial markets, international political events, developments or trends in any
particular industry, secondary market demand for the purchase of such Collateral Debt
Obligations, changes in relevant legislation and regulation and the financial condition of the
borrowers or issuers, as the case may be, of the Collateral Debt Obligations. The lower rating
of below investment grade loans or bonds reflects a greater possibility that adverse changes in
the financial condition of an obligor or in general economic conditions or both may impair the
ability of the relevant borrower or issuer, as the case may be, to make payments of principal or
interest. See "Description of the Portfolio".
A decrease in the market value of the Collateral Debt Obligations would adversely affect the
Sale Proceeds that could be obtained upon the sale of the Collateral Debt Obligations and
could, ultimately, affect the ability of the Issuer to effect an optional redemption of the Notes
or pay the principal of the Notes upon a liquidation of the Collateral Debt Obligations
following the occurrence of an Event of Default.
The offering of the Notes has been structured so that the Notes can withstand certain assumed
losses relating to defaults on the underlying Collateral Debt Obligations. See "Ratings of the
Notes". There is no assurance that actual losses will not exceed such assumed losses. If any
losses exceed such assumed levels, payments on the Notes could be adversely affected by such
defaults. The amount which defaults on the Collateral Debt Obligations adversely affect each
Class of Notes will be directly related to the level of subordination thereof pursuant to the
Priorities of Payment. The risk that payments on the Notes could be adversely affected by
defaults on the related Collateral Debt Obligations will increase to the extent that the Portfolio
of Collateral Debt Obligations is concentrated in any one obligor, industry, region or country
as a result of the increased potential for correlated defaults in respect of a single issuer or
within a single industry, region or country as a result of downturns relating generally to such
industry, region or country. To the extent that a default occurs with respect to any Collateral
Debt Obligation securing the Notes and the Issuer or the Trustee, sells or otherwise disposes of
such Collateral Debt Obligation, it is likely that the proceeds of such sale or disposition will be
less than the unpaid principal and interest thereon. In addition, the Issuer may incur additional
expenses to the extent it seeks recoveries upon the default of a Collateral Debt Obligation or
34
participates in the restructuring of a Collateral Debt Obligation. Even in the absence of a
default with respect to any of the Collateral Debt Obligations, the potential volatility and lack
of liquidity of the European market at any time will vary and may cause the market value of
Collateral Debt Obligations to vary substantially from the price at which such Collateral Debt
Obligations were initially purchased and from the principal amount of such Collateral Debt
Obligations. Accordingly, no assurance can be given as to the amount of proceeds of any sale
or disposition of a certain principal amount of Collateral Debt Obligations at any time, or that
the proceeds of any such sale or disposition would be sufficient to repay a corresponding par
amount of principal and of interest on the Notes after, in each case, paying all amounts
payable prior thereto pursuant to the Priorities of Payment. Moreover, there can be no
assurance as to the timing of any recovery.
The financial markets may experience substantial fluctuations in prices for Senior Secured
Loans, Second Lien Loans, Mezzanine Loans, High Yield Bonds, Structured Finance
Obligations, Finance Leases and limited liquidity for such obligations. No assurance can be
made that the conditions giving rise to such price fluctuations and limited liquidity will not
occur, subsist or become more acute following the Issue Date. During periods of limited
liquidity and higher price volatility, the Issuer's ability to acquire or dispose of Collateral Debt
Obligations at a price and time that the Issuer deems advantageous may be impaired. As a
result, in periods of rising market prices, the Issuer may be unable to participate in price
increases fully to the extent that it is either unable to dispose of Collateral Debt Obligations
whose prices have risen or to acquire Collateral Debt Obligations whose prices are increasing;
the Issuer's inability to dispose fully and promptly of Collateral Debt Obligations in declining
markets may conversely cause the net asset value of the Portfolio to decline. A decrease in the
market value of the Collateral Debt Obligations would also adversely affect the proceeds of
sale that could be obtained upon the sale of the Collateral Debt Obligations and could
ultimately affect the ability of the Issuer to pay in full or redeem the Notes. Accordingly, no
assurance can be given as to the amount of proceeds of any sale or disposition of such
Collateral Debt Obligations at any time, or that the proceeds of any such sale or disposition
would be sufficient to repay a corresponding par amount of principal and interest on the Notes
after, in each case, paying all amounts payable prior thereto pursuant to the Priorities of
Payment. Moreover, there can be no assurance as to the timing of any recoveries received in
respect of Defaulted Obligations.
3.3
Acquisition of Collateral Debt Obligations during the "Warehousing Period" and Target
Par Amount
From time to time during a "warehousing period" prior to the Issue Date the Issuer has
purchased or entered into certain agreements to purchase Collateral Debt Obligations
comprising a substantial portion of the Portfolio, and will use the proceeds of the issuance of
the Notes to repay amounts owing pursuant to a secured loan facility provided to the Issuer by
Lehman Commercial Paper Inc., UK Branch used to finance the purchase of such Collateral
Debt Obligations (as well as for payment of any trades settling on the Issue Date). The prices
paid for Collateral Debt Obligations purchased during such "warehousing period" reflect the
market value of certain of such Collateral Debt Obligations on the date the Issuer purchased or
committed to purchase such obligations, and the market value of such Collateral Debt
Obligations on the Issue Date (depending on market conditions and certain other factors) is
likely to be less than the purchase price paid for such Collateral Debt Obligations during the
"warehousing period".
In addition, although such Collateral Debt Obligations are required to satisfy the Eligibility
Criteria at the time of entering into a binding commitment to purchase them, it is possible that
such obligations may no longer satisfy such Eligibility Criteria after entry into such binding
commitment due to intervening events. However, the requirement that the Eligibility Criteria
be satisfied applies only at the time that any commitment to purchase a Collateral Debt
Obligation is entered into and any failure by such obligation to satisfy the Eligibility Criteria at
a later stage will not result in any requirement to sell it or take any other action.
The Target Par Amount means an amount of Collateral Debt Obligations acquired by, or on
behalf of, the Issuer up to the end of the Investment Period having an Aggregate Principal
Balance of approximately €338,700,000 (provided that for the purposes of determining the
35
Aggregate Principal Balance in connection with the Target Par Amount any prepayments or
repayments of Collateral Debt Obligations or sales of Credit Risk Obligations, in each case,
subsequent to the Issue Date shall be disregarded and no Collateral Debt Obligation will be
treated as a Defaulted Obligation). As discussed below, the accumulation of Collateral Debt
Obligations equal to at least the Target Par Amount is one of the requirements for the
transaction becoming "effective" by determining the Effective Date.
3.4
Considerations Relating to the Investment Period
During the Investment Period, the Issuer will seek to acquire additional Collateral Debt
Obligations in order to satisfy each of the Coverage Tests, Collateral Quality Tests, Portfolio
Profile Tests and the Target Par Amount requirement as at the Effective Date (provided,
however, that the Issuer shall only be required to satisfy the Class A Interest Coverage Test,
the Class B Interest Coverage Test, the Class C Interest Coverage Test, the Class D Interest
Coverage Test and the Class E Interest Coverage Test on or after the earlier of the Effective
Date and the second Determination Date). See "Description of the Portfolio". The ability to
satisfy such tests and requirement will depend on a number of factors beyond the control of
the Issuer and the Collateral Manager, including the availability of obligations that satisfy the
Eligibility Criteria and other Portfolio-related requirements in the primary and secondary loan
markets and the bond markets, the condition of the financial markets, general economic
conditions and international political events. Therefore, there can be no assurance that such
tests and requirements will be met. To the extent it is not possible to purchase such additional
Collateral Debt Obligations, the level of income receivable by the Issuer on the Collateral and
therefore its ability to meet its interest payment obligations under the Notes, together with the
weighted average lives of the Notes, may be adversely affected. Such inability to invest may
also shorten the weighted average lives of the Rated Notes as it may lead to early redemption
of the Rated Notes. In addition, the ability of the Issuer to enter into additional Asset Swap
Transactions on or about the date of the acquisition of Asset Swap Obligations will also
depend upon a number of factors outside the control of the Collateral Manager, including its
ability to identify a suitable Asset Swap Counterparty with whom the Issuer may enter into
Asset Swap Transactions. Any failure by the Issuer to acquire such additional Collateral Debt
Obligations and/or enter into required Asset Swap Transactions could result in the nonconfirmation or downgrade or withdrawal by any Rating Agency of its Initial Rating of any
Class of Notes. Such downgrade or withdrawal may result in the redemption of the Notes,
shortening the weighted average lives of the Rated Notes and reducing the leverage ratio of the
Subordinated Notes to the other Classes of Notes which could adversely affect the level of
returns to the holders of the Subordinated Notes. Any such redemption of the Notes may also
adversely affect the risk profile of Classes of Notes to the extent that the amount of excess
spread capable of being generated in the transaction reduces as the result of redemption of the
most senior ranking Classes of Notes (in accordance with the Note Payment Sequence) which
bear a lower rate of interest than the remaining Classes of Rated Notes which are not
redeemed.
3.5
Nature of the Collateral
The Portfolio on which the Notes are secured will comprise mainly Senior Secured Loans and
a limited portion will consist of Second Lien Loans, Mezzanine Obligations, Finance Leases,
Structured Finance Obligations and High Yield Bonds of (or, in the case of High Yield Bonds,
issued by) a variety of Obligors with a principal place of business in a Non-Emerging Market
Country which are primarily rated below investment grade. Specifically, the Portfolio Profile
Tests provide that as of the Effective Date (and thereafter, to the extent required under the
Reinvestment Criteria). The Issuer will invest in a Portfolio consisting of Senior Secured
Loans, Second Lien Loans, Mezzanine Obligations, Finance Leases, Structured Finance
Obligations and High Yield Bonds. The Portfolio Profile Tests provide that at any time (a) not
less than 82.5 per cent. of the CDO Principal Balance must consist of Senior Secured Loans;
(b) not more than 17.5 per cent. of the CDO Principal Balance may consist of Mezzanine
Obligations and/or Second Lien Loans and/or High Yield Bonds, provided that not more than
5.0 per cent. of the CDO Principal Balance may consist of High Yield Bonds; (c) not more
than 5.0 per cent. of the CDO Principal Balance may consist of Structured Finance
Obligations; (d) not more than 5.0 per cent. of the CDO Principal Balance may consist of
Finance Leases; (e) not more than 5.0 per cent. of the CDO Principal Balance may consist of
36
Project Finance Securities; and (f) not more than 5.0 per cent. of the CDO Principal Balance
may consist of PIK Securities.
Senior Secured Loans, Second Lien Loans and Mezzanine Obligations are of a type generally
incurred by the Obligors thereunder in connection with highly leveraged transactions, often
(although not exclusively) to finance internal growth, acquisitions, mergers and/or stock
purchases. As a result of, among other things, the additional debt incurred by the Obligor in
the course of such a transaction, the Obligor's creditworthiness is often judged by the rating
agencies to be below investment grade.
Senior Secured Loans are typically at the most senior level of the capital structure with Second
Lien Loans and Mezzanine Obligations being subordinated thereto or to any other senior debt
of the Obligor. Senior Secured Loans are often secured on shares in certain group companies
and may also be secured by specific collateral or guarantees, including but not limited to,
trademarks, patents, accounts receivable, inventory, equipment, buildings, real estate,
franchises and common and preferred stock of the Obligor and its subsidiaries although the
security granted in respect of some Senior Secured Loans may be limited to share security
over the Obligor group and some senior loans may also be unsecured. Second Lien Loans are
Collateral Debt Obligations which would be Senior Secured Loans except that the rights of the
lender in respect of the security therefor are expressed to rank second to the prior ranking
claim of another lender or lenders. In continental Europe security is often limited to shares in
certain group companies, accounts receivable, bank account balances and intellectual property
rights. This security may well not be perfected. Mezzanine Obligations often have the benefit
of a second (or, if Second Lien Loans feature in the capital structure, third) charge over such
assets on which more senior ranking obligations are secured. Senior Secured Loans usually
have shorter terms than more junior obligations and often require mandatory prepayments
from excess cash flow, asset dispositions, proceeds from insurance and warranty claims as
well as securitisation and receivables financing and offerings of debt and/or equity securities
on a priority basis.
Mezzanine Obligations and Second Lien Loans generally take the form of medium-term loans
repayable shortly (perhaps six months or one year) after the senior loans of the Obligor
thereunder. Because they are only repayable after the senior debt of an Obligor (and interest
payments may be blocked to protect the position of senior debt interest in certain
circumstances), they may carry a higher rate of interest to reflect the greater risk of their not
being repaid. Due to the greater risk associated with Mezzanine Obligations and Second Lien
Loans as a result of their subordination below senior debt of an Obligor, mezzanine lenders
may be granted share options, warrants or higher cash paying instruments or payments in kind
by the Obligor which can be exercised in certain circumstances, principally being immediately
prior to the Obligor's shares being sold or floated in an initial public offering. These are
generally included herein as Collateral Debt Obligations.
The majority of Senior Secured Loans, Second Lien Loans and Mezzanine Obligations bear
interest based on a floating rate index, for example EURIBOR, a certificate of deposit rate
offered by a financial institution, a prime or base rate (each as defined in the applicable loan
agreement) or other similar indices, which may reset daily (as most prime or base rate indices
do) or offer the borrower a choice of one, two, three, six, nine or twelve month interest and
rate reset periods. The purchaser of an interest in a Senior Secured Loan, Mezzanine
Obligation or Second Lien Loan may receive certain syndication or participation fees in
connection with its purchase. Other fees payable in respect of a Senior Loan, Mezzanine
Obligation or Second Lien Loan, which are separate from interest payments on such loan, may
include facility commitment, waiver, amendment and prepayment fees.
Risks Associated with Senior Secured Loans, Second Lien Loans and Mezzanine
Obligations
In addition to the limited liquidity and restrictions on transfer of the Notes, there is generally
limited liquidity with respect to Senior Secured Loans, Second Lien Loans and Mezzanine
Obligations. The Obligor under a leveraged loan often provides the lenders thereunder with
extensive information about its business, which is not generally available to the public.
Because of the provision of such confidential information, the unique and customised nature
37
of a loan agreement, and the private syndication of the loan, leveraged loans are generally not
easily purchased or sold as publicly traded securities, and historically the trading volume in the
loan market has been small relative to, for example, the high yield bond market.
Senior Secured Loans, Second Lien Loans and Mezzanine Obligations also generally provide
for restrictive covenants designed to limit the activities of the Obligors thereunder in an effort
to protect the rights of lenders to receive timely payments of interest on, and repayment of
principal of, the loans, though the amount and degree of restrictiveness may vary significantly
from loan to loan, and some may in fact be "covenant-lite". Such covenants may include
restrictions on dividend payments, specific mandatory minimum or maximum financial ratios,
limits on total debt and other financial tests. A breach of covenant (after giving effect to any
cure period) under a Senior Loan, a Second Lien Loan or Mezzanine Obligation which is not
waived by the lending syndicate is normally an event of default which allows the syndicate to
demand immediate repayment in full of the outstanding loan.
As noted above with regard to leveraged loans, in order to induce banks and institutional
investors to invest in a Senior Secured Loan, Second Lien Loan or Mezzanine Obligation, and
to obtain a favourable rate of interest, an Obligor under such an obligation often provides the
investors therein with extensive information about its business, which is not generally
available to the public. Historically, investors in or lenders under European Senior Secured
Loans, Second Lien Loans and Mezzanine Obligations have been predominantly commercial
banks and investment banks. The range of investors for such loans has broadened to include
money managers, insurance companies, hedge funds, arbitrageurs, bankruptcy investors and
mutual funds seeking increased potential total returns and collateral managers of trusts or
special purpose companies issuing collateralised bond and loan obligations. As secondary
market trading volumes increase, new loans are frequently adopting more standardised
documentation to facilitate loan trading which may improve market liquidity. However, the
secondary trading market for loans is presently somewhat illiquid and there can be no
assurance that future levels of supply and demand in loan trading will provide the degree of
liquidity required to dispose of Collateral Debt Obligations at favourable secondary market
prices. This means that such assets may be subject to greater disposal risk in the event that
such assets are sold following enforcement of the security over the Collateral or otherwise.
Increased Risks for Mezzanine Obligations and Second Lien Loans The European market
for Mezzanine Obligations and Second Lien Loans is generally less liquid than that for Senior
Secured Loans, resulting in increased disposal risk for such obligations.
The rights of holders of Second Lien Loans and Mezzanine Obligations in any security
granted by an Obligor are subordinated to the rights therein of holders of Senior Secured
Loans. In addition to the subordination in respect of such security, the right to repayment by
the holders of Mezzanine Obligations is subordinated to the right of repayment by the holders
of Senior Secured Loans and potentially to other indebtedness of the relevant Obligor. These
structural features, when combined with the fact that Second Lien Loans and Mezzanine
Obligations generally have contractual stand-still provisions or longer maturities than such
other indebtedness and will generally only have a second (or third) ranking security interest
over any security granted in respect thereof, increase the risk of non payment of Mezzanine
Obligations and Second Lien Loans in an enforcement situation.
Mezzanine Obligations and Second Lien Loans also generally involve greater credit and
liquidity risks than those associated with investment grade corporate obligations and Senior
Secured Loans. They are often entered into in connection with leveraged acquisitions or
recapitalisations in which the Obligors thereunder incur a substantially higher amount of
indebtedness than the level at which they previously operated and, as referred to above, sit at a
subordinated level in the capital structure of such companies. Mezzanine Obligations and
Second Lien Loans may provide that all or part of the interest accruing thereon will not be
paid on a current basis but will be deferred.
Defaults and Recoveries There is limited historical data available as to the levels of defaults
and/or recoveries that may be experienced on Senior Secured Loans, Mezzanine Obligations
and Second Lien Loans and no assurance can be given as to the levels of default and/or
recoveries that may apply to any Senior Secured Loans, Mezzanine Obligations and Second
38
Lien Loans purchased by the Issuer. Although any particular Senior Secured Loan, Second
Secured Lien Loan, Mezzanine Obligation often will share many similar features with other
loans and obligations of its type, the actual terms of any particular Senior Secured Loan and/or
Mezzanine Obligation and/or Second Lien Loan will have been a matter of negotiation and
will thus be unique. Any particular loan or obligation may contain terms that are not standard
and that provide less protection to creditors than might be expected, including in respect of
covenants, events of default, security or guarantees. The leveraged credit markets are
constantly evolving. There has been a trend of less protection for creditors in terms of
covenants and other terms than has historically been the case and the Collateral Manager may
select Collateral Debt Obligations that provide less protection for creditors in the event of a
default than is customary. Recoveries on both Senior Secured Loans, Mezzanine Obligations
and Second Lien Loans may also be affected by the different bankruptcy regimes applicable in
different jurisdictions and the enforceability of claims against the Obligors thereunder. See
"Insolvency Considerations relating to Collateral Debt Obligations" below.
The European Second Lien Loan market in particular is a relatively new market, which has not
yet been exposed to a full credit cycle. Accordingly, the market has not yet experienced a
credit down-turn and the effects this may have on default rates and the ability of second lien
finance providers to protect their investments in a default situation. Furthermore, the holders
of Senior Secured Loans and Mezzanine Obligations are more diverse than ever before,
including not only banks and specialist finance providers but also potentially alternative
investment managers, specialist debt and distressed debt investors and other financial
institutions. The increasing diversification of the investor base has also been accompanied by
an increase in the use of hedges, swaps and other derivative instruments to protect against or
spread the economic risk of defaults. All of these developments may further increase the risk
that historical recovery levels will not be realised. The returns on Senior Secured Loans
and/or Mezzanine Obligations therefore may not adequately reflect the risk of future defaults
and the ultimate recovery rates.
A non investment grade loan or debt obligation or an interest in a non investment grade loan is
generally considered speculative in nature and may become a Defaulted Obligation for a
variety of reasons. Upon any Collateral Debt Obligation becoming a Defaulted Obligation,
such Defaulted Obligation may become subject to either substantial workout negotiations or
restructuring, which may entail, among other things, a substantial reduction in the interest rate,
a substantial writedown of principal and a substantial change in the terms, conditions and
covenants with respect to such Defaulted Obligation. In addition, such negotiations or
restructuring may be quite extensive and protracted, and therefore may result in uncertainty
with respect to ultimate recovery on such Defaulted Obligation. The liquidity of Defaulted
Obligations may be limited, and to the extent that Defaulted Obligations are sold, it is highly
unlikely that the proceeds from such sale will be equal to the amount of unpaid principal and
interest thereon. Furthermore, there can be no assurance that the ultimate recovery on any
Defaulted Obligation will be at least equal either to the minimum recovery rate assumed by the
Rating Agencies in rating the Notes or any recovery rate used in the analysis of the Notes by
investors in determining whether to purchase the Notes.
Prepayment Risk Loans are generally prepayable in whole or in part at any time at the option
of the Obligor thereof at par plus accrued and unpaid interest thereon. Prepayments on loans
may be caused by a variety of factors, which are difficult to predict. Accordingly, there exists
a risk that loans purchased at a price greater than par may experience a capital loss as a result
of such a prepayment. In addition, Principal Proceeds received upon such a prepayment are
subject to reinvestment risk. Any inability of the Issuer to reinvest such Principal Proceeds in
Collateral Debt Obligations with comparable interest rates that satisfy the Reinvestment
Criteria may adversely affect the timing and amount of payments and distributions received by
the Noteholders and the yield to maturity of the Notes. There can be no assurance that the
Issuer will be able to reinvest Principal Proceeds in Collateral Debt Obligations with
comparable interest rates that satisfy the Reinvestment Criteria or (if it is able to make such
reinvestments) as to the length of any delays before such investments are made.
Credit Risk Risks applicable to Senior Secured Loans, Second Lien Loans and Mezzanine
Obligations also include the possibility that earnings of the Obligor may be insufficient to
meet its debt service obligations thereunder and the declining creditworthiness and potential
39
for insolvency of the Obligor of such loans during periods of rising interest rates and economic
downturn. An economic downturn could severely disrupt the market for leveraged loans and
adversely affect the value thereof and the ability of the Obligor thereunder to repay principal
and interest.
3.6
Risks associated with Investments in High Yield Bonds
The Issuer may invest up to a maximum of 5.0 per cent. of the CDO Principal Balance at any
time in High Yield Bonds. Such securities are not generally exchange traded and, as a result,
these instruments trade in a smaller secondary market than exchange-traded bonds. In
addition, the Issuer may invest in bonds of issuers that do not have publicly traded equity
securities, making it more difficult to hedge the risks associated with such investments. High
Yield Bonds that are below investment-grade or unrated face ongoing uncertainties and
exposure to adverse business, financial or economic conditions which could lead to the issuer's
inability to meet timely interest and principal payments. High Yield Bonds may be unsecured
and may be subordinate to other obligations of the applicable Obligor and generally involve
greater credit and liquidity risks than those associated with investment grade corporate
obligations.
They are often issued in connection with leveraged acquisitions or
recapitalisations in which the obligors thereunder incur a substantially higher amount of
indebtedness than the level at which they previously operated. The market values of certain of
these lower-rated and unrated debt securities tend to reflect individual corporate developments
to a greater extent than do higher-rated securities, which react primarily to fluctuations in the
general level of interest rates, and tend to be more sensitive to economic conditions than are
higher-rated securities. As a result (and as noted above), the market prices of such securities
can be subject to abrupt and erratic market movements and changes in liquidity and aboveaverage price volatility, and the spread between the bid and asked prices of such securities
may be greater than those prevailing in other securities markets. Companies that issue such
securities are often highly leveraged and may not have available to them more traditional
methods of financing. Overall declines in below investment-grade securities and other
markets may adversely affect such issuers by inhibiting their ability to refinance their debt at
maturity. It is also possible that a major economic recession or other more narrow event (such
as, for example, the current sub-prime mortgage downturn) could severely disrupt the market
for such securities and may have an adverse impact on the value of such securities. In
addition, any such economic downturn could adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon and increase the incidence of default of
such securities. The potentially concentrated nature of the Issuer's investment programme
could magnify the effects of such risks.
The lower rating of securities in the high yield sector reflects a greater possibility that adverse
changes in the financial condition of an issuer thereof, or in general economic conditions
(including a sustained period of rising interest rates or an economic downturn), or both, may
affect the ability of such issuer to make payments of principal and interest on its debt. Many
issuers of High Yield Bonds are highly leveraged, and specific developments affecting such
issuers, including reduced cash flow from operations or inability to refinance debt at maturity,
may also adversely affect such issuers' ability to meet their debt service obligations. There can
be no assurance as to the levels of defaults and/or recoveries that may be experienced on the
High Yield Bonds in the Portfolio.
High Yield Bonds have historically experienced greater default rates than investment-grade
securities. Although several studies have been made of historical default rates in the U.S. and
European high yield markets, such studies do not necessarily provide a basis for drawing
definitive conclusions with respect to default rates and, in any event, do not necessarily
provide a basis for predicting future default rates in any of the high yield markets which may
exceed the hypothetical default rates assumed by investors in determining whether to purchase
the Notes.
European High Yield Bonds may be subordinated structurally, as opposed to contractually, to
senior secured debt holders. Structural subordination takes place when a high yield bond
investor lends to a holding company whose primary asset is ownership of a cash-generating
operating company or companies. The debt investment of the high yield bond investor is
serviced by passing the revenues and tangible assets from the operating companies upstream
40
through the holding company (which typically has no revenue-generating capacity of its own)
to the bondholders. In the absence of inter company guarantees, such a process leaves the
high yield bond investors deeply subordinated to secured and unsecured creditors of the
operating companies and means that investors therein will not necessarily have access to the
same security package as the senior lenders (even on a second priority charge basis) or be able
to participate directly in insolvency proceedings or pre-insolvency discussions relating to the
operating companies within the group. While this structure is being used less frequently in
Europe, it is nevertheless more common in Europe than the U.S.
In the case of High Yield Bonds issued by issuers with their principal place of business in
Europe, structural subordination of High Yield Bonds, coupled with the relatively shallow
depth of the European high yield market, leads European High Yield Bonds defaults to realise
lower average recoveries than their U.S. counterparts. Another factor affecting recovery rates
for European High Yield Bonds is the bankruptcy regimes applicable in different European
jurisdictions and the enforceability of claims against the high yield bond issuer (see the section
of these Risk Factors headed "3.15 Insolvency Considerations relating to Collateral Debt
Obligations" below). It must be noted, however, that the overall probability of default (based
on credit rating) remains the same for both U.S. and European credits. It is the severity of the
effect of any default that differs between the two markets as a result of the aforementioned
factors.
In addition to the characteristics described above, High Yield Bonds will frequently have call
or redemption features that permit the issuer thereof to redeem such obligations prior to the
final maturity date. If such a call or redemption were exercised by an issuer during a period of
declining interest rates, the Issuer may only be able to replace such called obligation with a
lower yielding obligation or be obliged to pay a premium for a similarly yielding obligation,
thus decreasing the net investment income from the Portfolio.
3.7
Participations and Assignments
The Issuer may acquire interests in Collateral Debt Obligations which are loans either directly
(by way of novation or assignment) or indirectly (by way of sub-participation). Each
institution from which such an interest is acquired is referred to herein as a "Selling
Institution". Interests in loans acquired directly by way of novation or assignment are
referred to herein as "Assignments". Interests in loans acquired indirectly by way of
participation or sub-participation are referred to herein as "Participations", but excludes those
sub-participations in respect of which the Issuer has security over the Collateral Debt
Obligation to which the Participation relates (which shall be treated for all purposes as a direct
holding of such Collateral Debt Obligation).
The purchaser of an Assignment typically succeeds to all the rights of the assigning Selling
Institution and becomes entitled to the benefit of the loans and the other rights of the Selling
Institution in respect of the loan agreement including the right to the benefit of any security
granted in respect of the loan interest transferred. The loan agreement usually contains
mechanisms for the transfer of the benefit of the loan and the security relating thereto. The
efficacy of these mechanisms is rarely tested, if ever, and there is debate amongst counsel in
continental jurisdictions over their effectiveness. With regard to some of the loan agreements,
security will have been granted over assets in different jurisdictions. Some of the jurisdictions
depending on the mechanism for transfer will require registrations, filings and/or other
formalities to be carried out not only in relation to the transfer of the loan but also with respect
to the transfer of the benefit of the security.
In the case of an Assignment, the Issuer, as an assignee, will generally have the direct right to
receive from the borrower all payments of principal and interest to which the assignee is
entitled, provided that notice of such Assignment has been given to the borrower. As a
purchaser of an Assignment, the Issuer typically will have voting rights ranking pari passu
with the other lenders of the same tranche of debt under the applicable loan agreement and
will have the right to vote. Typically, decisions of lenders to waive enforcement of breaches
of covenants and other matters require specific majorities (sometimes 66⅔ per cent. of those
voting or some other proportion). The Issuer will generally also have the same rights as other
lenders to enforce compliance by the borrower with the terms of the loan agreement, to set off
41
claims against the borrower and to have recourse to collateral supporting the loan. As a result,
following completion of the transfer formalities, the Issuer will generally not bear the credit
risk of the Selling Institution and the insolvency of the Selling Institution should have little
effect on the ability of the Issuer to continue to receive payment of principal or interest from
the borrower. The Issuer will, however, assume the credit risk of the borrower.
Participations by the Issuer in a Selling Institution's portion of the loan typically results in a
contractual relationship only with such Selling Institution and not with the borrower under
such loan; a participation does not transfer any of the seller's rights, remedies or obligations
against the borrower to the purchaser, but is an entirely separate back-to-back non-recourse
funding arrangement. The Issuer would, in such case, only be entitled to receive payments of
principal and interest to the extent that the Selling Institution has received such payments from
the borrower. In purchasing Participations, the Issuer generally will have no direct right to
enforce compliance by the borrower with the terms of the applicable loan agreement, nor any
rights of set off against the obligor and the Issuer may not directly benefit from the collateral
supporting the loan in respect of which it has purchased a Participation. The Issuer may have
contractual rights with the Selling Institution requiring the Selling Institution to take certain
action against the borrower in certain circumstances. However, this is not equivalent to the
Issuer itself having direct rights against the borrower. As a result, the Issuer will assume the
credit risk of both the borrower and the Selling Institution selling the Participation. In the
event of the insolvency of the Selling Institution selling a Participation, the Issuer may
experience delays in receiving payments made to the Selling Institution by the borrower and
may be treated as a general creditor of the Selling Institution and may not benefit from any setoff between the Selling Institution and the borrower and the Issuer may suffer a loss to the
extent that the borrower sets-off claims against the Selling Institution. If the Issuer is treated
as a general creditor of the Selling Institution, it may not have any exclusive or senior claim
with respect to the Selling Institution's interest in, or to have the collateral securing, the loan in
question. The Issuer may purchase a Participation from a Selling Institution that does not
itself retain any economic interest in the loan and therefore may have limited interest in
monitoring the terms of the loan agreement and the continuing creditworthiness of the
borrower, although there may be mechanisms requiring the Selling Institution to consult with
the Issuer and to exercise a relevant proportion of its vote in accordance with the directions.
When the Issuer holds a Participation in a loan, it generally will not have the right to
participate directly in any vote to waive enforcement of any covenants breached by an
Obligor. However, most participation agreements provide that the Selling Institution may not
vote in favour of any amendment, modification or waiver that forgives principal or interest,
reduces principal or interest that is payable, postpones any payment of principal (other than a
mandatory prepayment) or interest or release substantially all of the collateral without the
consent of the participant at least to the extent the participant would be affected by any such
amendment, modification or waiver. A Selling Institution voting in connection with a
potential waiver of a restrictive covenant may have interests which are different from those of
the Issuer and such Selling Institutions may not be required to consider the interest of the
Issuer in connection with the exercise of its votes. Assignments and Participations are sold
strictly without recourse to the Selling Institutions in respect of any failures by the borrower
under the underlying loan to make any payments due under such loan and the Selling
Institution will generally make no representations or warranties about the underlying loan, the
borrowers thereunder, the documentation or any collateral securing the loans. In addition, the
Issuer will be bound by provisions of the underlying loan agreements, if any, that require the
preservation of the confidentiality of information provided by the borrower.
Additional risks are therefore associated with the purchase of Participations by the Issuer as
opposed to Assignments. The Portfolio Profile Tests (subject to certain other restrictions)
provide that the CDO Principal Balance of Collateral Debt Obligations that are (i)
Participations (entered into with an individual Selling Institution and, for avoidance of doubt,
excluding Secured Participations) or Synthetic Securities (entered into with a Synthetic
Counterparty) must not represent more than a specified percentage of the CDO Principal
Balance and (ii) Synthetic Securities together with Participations (for avoidance of doubt,
excluding Secured Participations) must not represent more than a specified percentage (in
aggregate) of the CDO Principal Balance. The specified percentages vary according to the
ratings of the Selling Institutions or Synthetic Counterparties involved. The various
42
percentage levels are given in a Bivariate Risk Table which is set out in "Description of the
Portfolio" below.
3.8
Structured Finance Obligations
The Issuer may invest up to a maximum of 5.0 per cent. of the CDO Principal Balance at any
time in Structured Finance Obligations. Structured Finance Obligations may present risks
similar to those of the other types of Collateral Debt Obligations in which the Issuer may
invest and, in fact, the risks may be of greater significance in the case of Structured Finance
Obligations. Moreover, investing in Structured Finance Obligations may entail a variety of
unique risks. Among other risks, Structured Finance Obligations may be subject to
prepayment risk, credit risk, liquidity risk, market risk, structural risk, legal risk and interest
rate risk (which may be exacerbated if the interest rate payable on a Structured Finance
Obligation changes based on multiples of changes in interest rates or inversely to changes in
interest rates). In addition, certain Structured Finance Obligations (particularly subordinated
collateralised loan or bond obligations) may provide that non-payment of interest is not an
event of default in certain circumstances and the holders of the securities will therefore not
have available to them any associated default remedies. During the period of non-payment,
unpaid interest will generally be capitalised and added to the outstanding principal balance of
the relating security. Furthermore, the performance of a Structured Finance Obligation will be
affected by a variety of factors, including its priority in the capital structure of its issuer, the
availability of any credit enhancement, the level and timing of payments and recoveries on and
the characteristics of the underlying receivables, loans, or other assets that are being
securitised, bankruptcy remoteness of those assets from the originator or transferor, the
adequacy of and ability to realise on any related collateral, and the skill of the manager of the
Structured Finance Obligation and, if required to be sold, certain market and liquidity risks for
securities of its type at the time of sale. In addition, Structured Finance Obligations may
involve initial and ongoing expenses above the costs associated with the related direct
investments.
3.9
Synthetic Securities
In addition to the credit risks associated with holding loans referenced by Synthetic Securities,
the Issuer will also be subject to the credit risk of the applicable Synthetic Counterparty. The
Issuer will have a contractual relationship with the relevant Synthetic Counterparty only, and
not with the Reference Obligor of the Reference Obligation (in each case as defined in the
relevant Synthetic Security). The Issuer generally will have no right directly to enforce
compliance by the Reference Obligor with the terms of the Reference Obligation nor any
rights of set-off against the Reference Obligor, nor have any voting rights with respect to the
Reference Obligation. The Issuer will not directly benefit from the collateral supporting the
Reference Obligation and will not have the benefit of the remedies that would normally be
available to a holder of such Reference Obligation. In addition to the risks described above, in
the event of the insolvency of the Synthetic Counterparty, the Issuer will be treated as a
general unsecured creditor of such Synthetic Counterparty, and will not have any claim with
respect to the Reference Obligation. Consequently, the Issuer will be subject to the credit risk
of the Synthetic Counterparty as well as that of the Reference Obligor. As a result,
concentrations of Synthetic Securities in any one Synthetic Counterparty subject the Notes to
an additional degree of risk with respect to defaults by such Synthetic Counterparty as well as
by the Reference Obligor. Although the Collateral Manager will not perform independent
credit analyses of the Synthetic Counterparties on behalf of the Issuer, any such Synthetic
Counterparty, or an entity guaranteeing such Synthetic Counterparty, individually and in the
aggregate will be required to satisfy the applicable Required Ratings thereto. The Rating
Agencies may downgrade any of the Rated Notes if the Synthetic Counterparty is not in
compliance with the Required Ratings set forth herein. The Portfolio Profile Tests also
impose restrictions on the level of exposure to the credit of Synthetic Counterparties by
reference to the rating thereof and on the percentage of the Portfolio that may comprise
Synthetic Securities (both collateralised and uncollateralised). It is expected that the
Arrangers and/or one or more of their Affiliates, with acceptable credit support arrangements,
if necessary, may act as Synthetic Counterparties with respect to all or a portion of the
Synthetic Securities, which may create certain conflicts of interest. In addition, one or more
Affiliates of the Collateral Manager, with acceptable credit support arrangements, may, if
43
necessary, act as a Synthetic Counterparty with respect to all or a portion of the Synthetic
Securities, which may create certain conflicts of interest. See "Certain Conflicts of Interest"
below. As well, the Issuer may, subject to Rating Agency Confirmation, enter into Synthetic
Securities with any of the market makers in respect of a credit default swap index (including,
without limitation, the iTraxx LevX Credit Default Swap Index) pursuant to which the Issuer
will sell credit protection to such Synthetic Counterparties on each of the Reference Entities
which comprise such index from time to time.
Whilst the returns on a Synthetic Security will generally reflect those of the related Reference
Obligation as a result of the terms of the Synthetic Security and the assumption of the credit
risk of the applicable Synthetic Counterparty, a Synthetic Security may have a different
expected return, a different (and potentially greater) probability of default, a different (and
potentially greater) expected loss characteristic following a default and a different (and
potentially lower) expected recovery following default. Additionally, the terms of a Synthetic
Security may provide for different maturities, payment dates, interest rates, interest rate
references and credit exposures and non-credit related exposures to obligations of the Issuer
other than the Reference Obligation relating thereto.
Generally, upon the occurrence of certain specified Credit Events under a Synthetic Security
relating to the credit of the applicable Reference Obligor, the relevant Synthetic Security will
become repayable and its terms will permit or require the relevant Synthetic Counterparty to
satisfy its repayment obligations under the Synthetic Security in such circumstances by
delivering to the Issuer a principal amount of Reference Obligations or other Deliverable
Obligations of the applicable Reference Obligor or cash in an amount equal to the current
market value of a principal amount of the Reference Obligations or such Deliverable
Obligations of the Reference Obligor equal to the original principal amount of the applicable
Synthetic Security. Such amounts may be significantly less than the original principal amount
of such Synthetic Security or, in certain circumstances, equal to zero.
Prospective investors in the Notes should also note that a Reference Obligation does not need
to satisfy the Eligibility Criteria relating to the currency of a denomination. A Synthetic
Security which is a Defaulted Obligation will generally be settled either by a cash settlement
or a physical settlement. The Issuer may be required upon a Credit Event to take delivery of a
non-Euro denominated obligation of a currency other than euros, exposing the Issuer to
exchange rate risk.
3.10
Collateral Enhancement Obligations
All funds required in respect of the purchase price of any Collateral Enhancement Obligations
and all funds required in respect of the exercise price of any rights or options thereunder, may
only be paid out of the Balance standing to the credit of the Collateral Enhancement Account
at the relevant time (including, as described below, Interest Proceeds). Such Balance shall be
comprised of all Distributions and Sale Proceeds received in respect of Collateral
Enhancement Obligations from time to time (referred to herein as "Collateral Enhancement
Obligation Proceeds") together with all other sums deposited therein from time to time which
will comprise interest and/or principal otherwise payable in respect of the Subordinated Notes
which the Issuer determines shall be paid into the Collateral Enhancement Account pursuant to
the Priorities of Payment rather than being paid to the Subordinated Notes.
The Issuer is under no obligation whatsoever to exercise its discretion to take any of the
actions described above and there can be no assurance that the Balance standing to the credit
of the Collateral Enhancement Account will be sufficient to fund the exercise of any right or
option under any Collateral Enhancement Obligation at any time. The ability of the Issuer to
exercise any rights or options under any Collateral Enhancement Obligation will be dependent
upon there being sufficient amounts standing to the credit of the Collateral Enhancement
Account to pay the costs of any such exercise (including, as described above, Interest
Proceeds). Failure to exercise any such right or option may result in a reduction of the returns
to the Subordinated Notes (and, potentially, Noteholders of other Classes).
44
Furthermore, all Collateral Enhancement Obligation Proceeds will be deposited into the
Collateral Enhancement Account and may at the discretion of the Issuer be transferred to the
Interest Account or the Principal Account.
Collateral Enhancement Obligations and any income or return generated thereby are not taken
into account for the purposes of determining satisfaction of, or required to satisfy, any of the
Coverage Tests, Portfolio Profile Tests or Collateral Quality Tests.
3.11
Counterparty Risk
Participations, Synthetic Securities and Hedge Transactions involve the Issuer entering into
contracts with counterparties. Pursuant to such contracts, the counterparties agree to make
payments to the Issuer under certain circumstances as described therein. The Issuer will be
exposed to the credit risk of the counterparty in respect of any such payments. Each
counterparty is required to have a rating not lower than the applicable Required Rating.
In the event that a Hedge Counterparty is subject to a rating withdrawal or downgrade by the
Rating Agencies to below the applicable Required Rating, there will be a termination event
under the applicable Hedge Agreement unless, within 30 days of such rating withdrawal or
downgrade such Hedge Counterparty either transfers its obligations under the applicable
Hedge Agreement to a replacement counterparty with the requisite ratings, obtains a guarantee
of its obligations by a guarantor with the requisite ratings, collateralises its obligations in a
manner satisfactory to the Rating Agencies or employs some other such strategy as may be
approved by the Rating Agencies.
Similarly, the Issuer will be exposed to the credit risk of the Account Bank and the Custodian
to the extent of, respectively, all cash of the Issuer held in the Accounts and all securities of
the Issuer held by the Custodian.
In the event that the Account Bank or the Custodian is subject to a rating withdrawal or
downgrade by the Rating Agencies to below the applicable Required Rating, the Issuer shall,
at the cost of the Account Bank or Custodian, as the case may be, (such costs to be limited to
administrative costs only) use its reasonable endeavours to procure the appointment of a
replacement Account Bank or Custodian, as the case may be, with the applicable Required
Rating and which is acceptable to the Trustee within 30 days of such withdrawal or
downgrade.
3.12
Concentration Risk
The Issuer will invest in a Portfolio consisting of Senior Secured Loans, Second Lien Loans,
Mezzanine Obligations, Finance Leases, Structured Finance Obligations and High Yield
Bonds. The Portfolio Profile Tests provide that at any time (a) not less than 82.5 per cent. of
the CDO Principal Balance must consist of Senior Secured Loans; (b) not more than 17.5 per
cent. of the CDO Principal Balance may consist of Mezzanine Obligations and/or Second Lien
Loans and/or High Yield Bonds, provided that not more than 5.0 per cent. of the CDO
Principal Balance may consist of High Yield Bonds; (c) not more than 5.0 per cent. of the
CDO Principal Balance may consist of Structured Finance Obligations; (d) not more than 5.0
per cent. of the CDO Principal Balance may consist of Finance Leases; (e) not more than 5.0
per cent. of the CDO Principal Balance may consist of Project Finance Securities; and (f) not
more than 5.0 per cent. of the CDO Principal Balance may consist of PIK Securities.
Although no significant concentration with respect to any particular Obligor, industry or
country is expected to exist at the Effective Date, the concentration of the Portfolio in any one
Obligor would subject the Notes to a greater degree of risk with respect to defaults by such
Obligor, and the concentration of the Portfolio in any one industry would subject the Notes to
a greater degree of risk with respect to economic downturns relating to such industry. This
risk is mitigated by the Portfolio Profile Tests. See "The Portfolio - Portfolio Profile Tests".
3.13
Currency Risk
It is anticipated that up to 30 per cent. of the Aggregate Principal Balance may consist of
Collateral Debt Obligations not denominated in Euro (the "Non-Euro Currencies"). To the
45
extent more than 5.0 per cent. of the Aggregate Principal Balance is comprised of Unhedged
Collateral Debt Obligations, the Issuer will be required to enter into (to the extent of such
excess) a Form-Approved Asset Swap Transaction with an Asset Swap Counterparty which
will effect a perfect asset swap of such Collateral Debt Obligation into Euro and, thereafter,
until such time as the related Asset Swap Transaction is terminated, such swapped Collateral
Debt Obligation will constitute and be treated for all purposes as a Euro-denominated Asset
Swap Obligation under the Conditions. In addition, following the purchase of any Unhedged
Collateral Debt Obligations, if the Aggregate Principal Balance of the Portfolio is less than the
Target Par Amount (with Unhedged Collateral Debt Obligations converted into Euro at the
applicable Spot Rate), then the Issuer or the Collateral Manager on behalf of the Issuer shall
immediately enter into associated Asset Swap Transactions in respect of such Unhedged
Collateral Debt Obligations.
The Issuer may also determine to enter into Asset Swap Transactions and/or Currency Hedge
Transactions in other circumstances in order to mitigate currency risk as more particularly
described in the hedging policies specified in the Collateral Management Agreement.
However, there is no assurance that the Collateral Debt Obligations and Eligible Investments,
together with any such Asset Swap Agreements and/or Currency Hedge Agreements, will in
all circumstances generate the relevant sufficient Interest Proceeds and Principal Proceeds
required in Euro to make timely or ultimate payments on the Notes.
The Issuer's ongoing payment obligations under such Asset Swap Transactions and/or
Currency Hedge Transactions (including termination payments) may be significant. The
payments associated with such hedging arrangements generally rank senior to payments on the
Notes.
The Issuer will depend upon any Asset Swap Counterparty and a Currency Hedge
Counterparty to perform its obligations under the relevant Asset Swap Transactions and
Currency Hedge Transactions. If an Asset Swap Counterparty or a Currency Hedge
Counterparty defaults or becomes unable to perform due to insolvency or otherwise, the Issuer
may not receive payments it would otherwise be entitled to from such Counterparty to cover
its foreign exchange exposure.
3.14
Interest Rate Risk
The Floating Rate Notes bear interest at floating rates based on EURIBOR. It is possible that
Collateral Debt Obligations may bear interest at fixed rates or a floating rate other than
EURIBOR and there is no requirement that any amount or portion of Collateral Debt
Obligations securing the Notes must bear interest on a particular basis, save for the Portfolio
Profile Test which requires that not more than 5.0 per cent. of the CDO Principal Balance may
comprise Collateral Debt Obligations which bear interest at a fixed rate.
In addition, any payments of principal or interest received in respect of Collateral Debt
Obligations and not otherwise reinvested during the Reinvestment Period in Substitute
Collateral Debt Obligations will generally be invested in Eligible Investments until shortly
before the next Payment Date. There is no requirement that such Eligible Investments bear
interest on a particular basis, and the interest rates available for such Eligible Investments are
inherently uncertain. As a result of these factors, it is expected that there will be a
fixed/floating rate mismatch and/or a floating rate basis mismatch between the Notes and the
underlying Collateral Debt Obligations and Eligible Investments. Such mismatch may be
material and may change from time to time as the composition of the related Collateral Debt
Obligations and Eligible Investments change and as the liabilities of the Issuer accrue or are
repaid. As a result of such mismatches, changes in the level of EURIBOR could adversely
affect the ability to make payments on the Notes. There can be no assurance that the
Collateral Debt Obligations and the Eligible Investments will in all circumstances generate
sufficient Interest Proceeds to make timely payments of interest on the Notes.
The Notes are also subject to a timing mismatch between the Floating Rate Notes and the
underlying Collateral Debt Obligations as the interest rates on Collateral Debt Obligations
46
may adjust more frequently or less frequently, on different dates and based on different indices
than the interest on the Floating Rate Notes.
On the Issue Date, €3,000,000 will be deposited into the Interest Account from the proceeds of
the notes in order to mitigate the risk of insufficient Interest Proceeds being available on the
first Payment Date to make payments on the Notes. In addition, pursuant to the Collateral
Management Agreement, the Issuer is authorised to enter into Interest Rate Hedge
Transactions in order to mitigate such interest rate mismatch from time to time, subject to
receipt in each case of Rating Agency Confirmation in respect thereof. Notwithstanding any
Interest Rate Hedge Transactions entered into, there can be no assurance that the Collateral
Debt Obligations and Eligible Investments securing the Notes will in all circumstances
generate sufficient Interest Proceeds to make timely payments of interest on the Notes or that
any particular levels of return will be generated on the Subordinated Notes. The Issuer will
depend on each Interest Rate Hedge Counterparty to perform its obligations under any Interest
Rate Hedge Transaction to which it is party. If any Interest Rate Hedge Counterparty, defaults
or becomes unable to perform due to insolvency or otherwise, the Issuer may not receive
payments it would otherwise be entitled to from such Interest Rate Hedge Counterparty to
cover its interest rate risk exposure. The Issuer will be required to make payments to the
Interest Rate Hedge Counterparty under one or more Interest Rate Hedge Agreements on each
Payment Date and/or upon termination of such Interest Rate Hedge Agreement or upon any
reduction of the notional amount thereunder. The payments associated with such hedging
arrangements generally rank senior to payments on the Notes.
3.15
Insolvency Considerations relating to Collateral Debt Obligations
Collateral Debt Obligations may be subject to various laws enacted for the protection of
creditors in the countries of the jurisdictions of incorporation of Obligors and, if different, in
which the Obligors conduct business and in which they hold the assets, which may adversely
affect such Obligors' abilities to make payment on a full or timely basis. These insolvency
considerations will differ depending on the country in which each Obligor is located or
domiciled or, to the extent that Council Regulation No 1346/2000 of 29 May 2000 applies, has
its centre of main interest and may differ depending on whether the Obligor is a non-sovereign
or a sovereign entity. In particular, it should be noted that a number of continental European
jurisdictions operate "debtor-friendly" insolvency regimes which would result in delays in
payments under Collateral Debt Obligations where obligations thereunder are subject to such
regimes, in the event of their insolvency.
The different insolvency regimes applicable in the different jurisdictions result in a
corresponding variability of recovery rates for Senior Secured Loans, Mezzanine Obligations,
High Yield Bonds, Structured Finance Securities and Finance Leases entered into by Obligors
in such jurisdictions. No reliable historical data for such recovery rates is available.
3.16
Reinvestment Risk; Uninvested Cash Balances
To the extent the Collateral Manager maintains cash balances invested in short term Eligible
Investments instead of higher yielding Collateral Debt Obligations, Portfolio income will be
reduced which will result in reduced amounts available for payment on the Notes. In general,
the larger the amount and the longer the time period during which cash and Eligible
Investments remain uninvested in Collateral Debt Obligations the greater the adverse impact
on Portfolio income which will reduce amounts available for payment on the Notes and in
particular, the Subordinated Notes. The extent to which cash and Eligible Investments remain
uninvested will be subject to a variety of factors, including future market conditions and is
difficult to predict.
During the Reinvestment Period and, to the limited extent described more fully herein, after
the Reinvestment Period, the Collateral Manager (acting on behalf of the Issuer) may dispose
of certain Collateral Debt Obligations and reinvest the Sales Proceeds thereof, together with
Scheduled Principal Proceeds and Unscheduled Principal Proceeds received in Substitute
Collateral Debt Obligations subject to compliance with the Reinvestment Criteria and certain
other conditions. The exercise by the Collateral Manager of its discretion in disposing of such
Collateral Debt Obligation and purchasing Substitute Collateral Debt Obligations in
47
compliance with the Reinvestment Criteria and such other requirements will expose the Issuer
to the market conditions prevailing at the time of such sale and reinvestment. Such actions
during periods of adverse market conditions may result in unfavourable changes in the
characteristics and quality of the Portfolio and may result in a decrease in the overall yield on
the Portfolio, adversely affecting the Issuer's ability to make payments on the Notes. The
income generated by any Substitute Collateral Debt Obligations will depend, among other
factors, on the price paid therefore and the availability of investments satisfying the
Reinvestment which are acceptable to the Issuer or the Collateral Manager (acting on behalf of
the Issuer). The need to satisfy such Reinvestment Criteria and the other trading criteria
specified in the Collateral Management Agreement and to identify acceptable investments may
require the purchase of Substitute Collateral Debt Obligations with lower yields than those
initially acquired or require that any Principal Proceeds received be maintained temporarily in
cash or Eligible Investments, which may reduce the yield on the Collateral. Additionally, due
to the significant restrictions imposed by the Collateral Management Agreement on the
Collateral Manager's ability to buy and sell Collateral Debt Obligations, during certain periods
or in certain circumstances, the Collateral Manager may be unable as a result of such
restrictions to buy or sell securities or to take other actions which they might consider to be in
the best interests of the Issuer and the Noteholders. Further, Obligors of Collateral Debt
Obligations may be more likely to exercise any rights they may have to redeem such
obligations when interest rates or spreads are declining. The impact, including any adverse
impact, of such disposal or potential reinvestment on the holders of the Subordinated Notes
will be magnified by the leveraged nature of the Subordinated Notes. See "Description of the
Portfolio" below.
3.17
Lender Liability Considerations; Equitable Subordination
In recent years, a number of judicial decisions in the United States and other jurisdictions have
upheld the right of borrowers to sue lenders or bondholders on the basis of various evolving
legal theories (collectively, termed "lender liability"). Generally, lender liability is founded
upon the premise that an institutional lender or bondholder has violated a duty (whether
implied or contractual) of good faith and fair dealing owed to the borrower or issuer or has
assumed a degree of control over the borrower or issuer resulting in the creation of a fiduciary
duty owed to the borrower or issuer or its other creditors or shareholders. Although it would
be a novel application of the lender liability theories, the Issuer may be subject to allegations
of lender liability. However, the Issuer does not intend to engage in, and the Collateral
Manager does not intend to act on behalf of the Issuer with respect to any, conduct that would
form the basis for a successful cause of action based upon lender liability.
In addition, under common law principles that in some cases form the basis for lender liability
claims, if a lender or bondholder (a) intentionally takes an action that results in the undercapitalisation of a borrower to the detriment of other creditors of such borrower, (b) engages in
other inequitable conduct to the detriment of such other creditors, (c) engages in fraud with
respect to, or makes misrepresentations to, such other creditors or (d) uses its influence as a
stockholder to dominate or control a borrower to the detriment of other creditors of such
borrower, a court may elect to subordinate the claim of the offending lender or bondholder to
the claims of the disadvantaged creditor or creditors, a remedy called "equitable
subordination". Because of the nature of the Collateral Debt Obligations, the Issuer may be
subject to claims from creditors of an Obligor that Collateral Debt Obligations issued by such
Obligor that are held by the Issuer should be equitably subordinated. However, the Issuer does
not intend to engage in, and the Collateral Manager does not intend to act on behalf of the
Issuer with respect to, any conduct that would form the basis for a successful cause of action
based upon the equitable subordination doctrine described above.
The preceding discussion is based upon principles of United States federal and state laws.
Insofar as Collateral Debt Obligations that are obligations of non-United States Obligors are
concerned, the laws of certain foreign jurisdictions may impose liability upon lenders or
bondholders under factual circumstances similar to those described above, with consequences
that may or may not be analogous to those described above under United States federal and
state laws.
48
3.18
Changes in Tax Law; No Gross-Up; General
At the time when they are acquired by the Issuer, it is anticipated that payments of interest on
the Collateral Debt Obligations either will not be reduced by any withholding tax imposed by
any jurisdiction or, if and to the extent that any such withholding tax does apply, the relevant
Obligor will be obliged to gross-up such interest payments to the Issuer in an amount equal to
the full amount of such withholding tax. Under the Portfolio Profile Tests not more than 5.0
per cent. of the CDO Principal Balance may consist of Collateral Debt Obligations in respect
of which withholding tax is deducted and which is not grossed-up or recoverable under
applicable double tax treaty relief. However, there can be no assurance that, as a result of any
change in any applicable law, rule or regulation or interpretation thereof, the payments on the
Collateral Debt Obligations might not in the future become subject to withholding tax or
increased withholding rates in respect of which the relevant Obligor will be free of any
obligation to make gross-up payments to the Issuer. In such circumstances, the Issuer may be
able, but will not be obliged, to take advantage of (a) a double taxation treaty between The
Netherlands and the jurisdiction from which the relevant payment is made, (b) the current
applicable law in the jurisdiction of the borrower or (c) the fact that the Issuer has taken a
Participation in such Collateral Debt Obligation from a Selling Institution which is able to pay
interest payable under such Participation on a grossed-up basis if paid in the ordinary course of
its business. In the event that the Issuer receives any interest payments on any Collateral Debt
Obligation net of any applicable withholding tax, the Coverage Tests and Collateral Quality
Tests will be determined by reference to such net receipts. Such tax would also reduce the
amounts available to make payments on the Notes. There can be no assurance that remaining
payments on the Collateral Debt Obligations would be sufficient to make timely payments of
interest, principal on the Maturity Date and other amounts payable in respect of the Notes of
each Class.
Although no withholding tax is currently imposed on payments of interest on the Notes, there
can be no assurance that the law will not change. For example, see "Tax Considerations". In
the event that any withholding tax is imposed on payments of interest on any Class of Notes,
the Issuer will not "gross-up" payments to the holders of such Notes and no Event of Default
shall occur as a result of any such withholding or deduction. In the event of the occurrence of
(a) a Note Tax Event pursuant to which any payment on the Notes of any Class becomes
properly subject to any withholding tax or deduction on account of tax, or (b) an Onshore Tax
Event pursuant to which the Issuer becomes subject to the payment of U.S. or United
Kingdom tax, or (c) a UK VAT Event pursuant to which the Issuer becomes subject to
reimburse the Collateral Manager for the payment of value added tax in relation to the services
provided by the Collateral Manager to the Issuer under the Transaction Documents, the Notes
may be redeemed in whole but not in part at the direction of the holders of (i) the Controlling
Class (but solely when the Par Value Ratio applicable to the then Controlling Class is less than
100 per cent.) or (ii) the holders of the Subordinated Notes, in each case acting by
Extraordinary Resolution, subject to certain conditions, including a threshold test pursuant to
which determination is made as to whether the anticipated proceeds of liquidation of the
security over the Collateral would be sufficient to pay all amounts due and payable on the
Rated Notes in such circumstances in accordance with the Priorities of Payment. In the case
of such redemption at the direction of the holders of the Controlling Class or the Subordinated
Noteholders, there can be no assurance that the proceeds of such redemption would be
sufficient to make payments of all amounts payable in respect of the Notes of each Class.
The value added tax treatment applicable to the provision of services of parties to the
Transaction Documents depends, inter alia, on the location of the relevant contracting parties,
general EU law and the local enactment of that law in the relevant EU member states. It
should be noted that as the interpretation of EU law is still evolving in this area, it is therefore
possible that the value added tax treatment could change over time.
3.19
The Collateral Manager
The Collateral Manager is given authority in the Collateral Management Agreement to act as
Collateral Manager to the Issuer in respect of the Portfolio pursuant to and in accordance with
the parameters and criteria set out in the Collateral Management Agreement. See "Description
of the Portfolio" and "Description of the Collateral Management Agreement". The powers
49
and obligations of the Collateral Manager in relation to the Portfolio include effecting, on
behalf of the Issuer, (a) the acquisition of Collateral Debt Obligations; and (b) the sale of
certain of the loans and securities and other Collateral Debt Obligations in the Portfolio during
the Reinvestment Period (subject to certain limits), following the Reinvestment Period for
specific purposes and, at any time, upon the occurrence of certain events (including a
Collateral Debt Obligation becoming a Defaulted Obligation, a Credit Improved Obligation or
a Credit Risk Obligation), in accordance with the provisions of the Collateral Management
Agreement. See "Description of the Portfolio".
The performance of any investment in the Notes will be dependent in part on the ability of the
Collateral Manager to monitor the Portfolio and effect sales and acquisitions of Collateral
Debt Obligations and the performance of the Collateral Manager of its obligations under the
Collateral Management Agreement. The loss by the Collateral Manager of a number of its
employees responsible for managing the Portfolio could (if the Collateral Manager's Affiliates
do not transfer or second persons of appropriate experience and expertise to replace such
individuals or if such individuals are not otherwise replaced by the Collateral Manager or any
of its Affiliates) have a material adverse effect on the ability of the Collateral Manager to
perform its obligations under the Collateral Management Agreement.
Although the professional staff of the Collateral Manager will devote as much time to the
Issuer as the Collateral Manager deems appropriate to perform its duties in accordance with
the Collateral Management Agreement, the Collateral Manager is not required to devote all of
its time to the management of the Portfolio and plans to continue to advise and/or manage
other investment funds in the future.
In addition, the liability of the Collateral Manager under the Collateral Management
Agreement is limited. See "Description of the Collateral Management Agreement".
The Collateral Manager may under certain circumstances resign as described herein under
"Description of the Collateral Management Agreement". However, subject to and in
accordance with the terms of the Collateral Management Agreement, such resignation will not,
except in limited circumstances, be effective unless and until the Issuer, or, under certain
circumstances, the Collateral Manager on its behalf, has appointed a Successor Collateral
Manager (as defined below) (see "Description of the Collateral Management Agreement"
below).
Prior investment results and returns achieved for accounts managed by the Collateral Manager
are not likely to be indicative of the Issuer's investment results. In addition, the nature of, and
risks associated with, the Collateral Debt Obligations to be acquired by the Issuer may differ
materially from those investments and strategies undertaken historically by the Collateral
Manager, including by reason of the diversity and other parameters required by the Collateral
Management Agreement. There can be no assurance that the Issuer's investments will perform
as well as the past investments for any such accounts.
3.20
Security; Fixed Charge
The Collateral Debt Obligations which are securities will be held by the Custodian. The
Custodian will hold certain of the securities (i) through its accounts with Euroclear,
Clearstream, Luxembourg or DTC as appropriate, and (ii) through its sub-custodians who will
in turn hold such Collateral Debt Obligations which are securities both directly and through
any appropriate clearing system. Those securities held in clearing systems will not be held in
special purpose accounts and will be fungible with other securities from the same issue held in
the same accounts on behalf of the other customers of the Custodian or its sub-custodian, as
the case may be. A first fixed charge over such Collateral Debt Obligations which are
securities, other than Dutch Ineligible Securities, will be created under English law pursuant to
the Trust Deed on the Issue Date and will take effect as a security interest over the right of the
Issuer to require delivery of equivalent securities from the Custodian in accordance with the
terms of the Agency Agreement (as defined in "Terms and Conditions of the Notes") which
may expose the Secured Parties to the insolvency of the Custodian or its Sub-Custodian.
50
The Collateral Debt Obligations which are securities held by the Custodian on behalf of the
Issuer through its account with Euroclear will also be the subject of a commercial pledge
under Belgian law created by the Issuer pursuant to the Euroclear Pledge Agreement on the
Issue Date. The effect of this security interest will be to enable the Custodian, on
enforcement, to sell the securities in the pledged account on behalf of the Trustee. The
Euroclear Pledge Agreement will not entitle the Trustee to require delivery of the relevant
securities from the depositary or depositaries that have physical custody of such securities or
allow the Trustee to dispose of such securities directly.
However, the charge created pursuant to the Trust Deed and the security created by the
Euroclear Pledge Agreement may be insufficient or ineffective to secure the Collateral Debt
Obligations which are securities for the benefit of Noteholders, particularly in the event of any
insolvency or liquidation of the Custodian or any sub-custodian that has priority over the right
of the Issuer to require delivery of such assets from the Custodian in accordance with the
terms of the Agency Agreement. Any risk of loss arising from any insufficiency or
ineffectiveness of the security for the Notes will be borne by the Noteholders without recourse
to the Issuer, the Trustee, the Arrangers, the Collateral Manager, the Collateral Administrator,
the Custodian or any other party.
In addition, custody and clearance risks may be associated with Collateral Debt Obligations
which are securities that do not clear through DTC, Euroclear or Clearstream, Luxembourg.
There is a risk, for example, that such securities could be counterfeit, or subject to a defect in
title or claims to ownership by other parties.
Although the security constituted by the Trust Deed over the Collateral held from time to time
(including the security over the Accounts other than any Synthetic Collateral Account or the
Counterparty Downgrade Collateral Account) is expressed to take effect as fixed security, it
may (as a result of the substitutions of Collateral Debt Obligations contemplated by the
Collateral Management Agreement and the payments to be made from such Accounts in
accordance with the Conditions and the Trust Deed) take effect as a floating charge which, in
particular, would rank after a subsequently created fixed security interest and will be subject to
matters which are given priority over a floating charge by operation of law. However, the
Issuer has covenanted not to create any such subsequent security interests without the consent
of the Trustee.
3.21
Performance of Third Parties
The performance of any investment in the Notes will be in part dependent upon the
performance by the Collateral Administrator and the Collateral Manager of their respective
obligations under the Collateral Management Agreement, the performance by the Trustee and
the Agents of their respective obligations as described in the Transaction Documents and the
performance of their obligations by certain other parties, such as any Interest Rate Hedge
Counterparties, any Asset Swap Counterparty, any Currency Hedge Counterparty and the
Custodian.
Notwithstanding that such performance is contractually required, no assurance can be given
with respect to the performance of such obligations.
3.22
Governing Law of Portfolio
The Trust Deed is governed by English law. Some of the Collateral Debt Obligations may be
obligations governed by laws of jurisdictions other than England and which may require
different and/or additional procedures and/or documentation to create or perfect any security
interest.
4.
Certain Conflicts of Interest
Various potential and actual conflicts of interest may arise from the overall management,
investment and other activities of the Collateral Manager, its Affiliates and their clients and
from the conduct by the Arrangers and their Affiliates of other transactions with the Issuer,
including, without limitation, acting as counterparty with respect to Hedge Transactions,
Participations and Synthetic Securities or as party to or in connection with the investment of
51
any funds in Eligible Investments (including those managed by the Collateral Manager or its
Affiliates) or the ownership of any Subordinated Notes. The following briefly summarises
some of these conflicts, but is not intended to be an exhaustive list of all such conflicts.
The Collateral Manager and/or its Affiliates and their clients (including other CLOs managed
by the Collateral Manager) may invest in loans and securities that would be appropriate as
security for the Notes. Such investments may be the same as, similar or different from those
made on behalf of the Issuer. The Collateral Manager and its Affiliates may also have
ongoing relationships with, render services to or engage in transactions with, companies or
other funds managed by the Collateral Manager whose loans and securities are pledged to
secure the Notes and may own equity or debt securities issued by issuers of and other obligors
of Collateral Debt Obligations. As a result, officers or Affiliates of the Collateral Manager
may possess material non-public confidential information relating to issuers of Collateral Debt
Obligations which is not known to the individuals at the Collateral Manager responsible for
monitoring the Collateral Debt Obligations and performing the other obligations under the
Collateral Management Agreement. In addition, Affiliates and clients of the Collateral
Manager may invest in loans and securities that are senior, junior, pari passu in ranking to, or
have interests different from or adverse to, the Collateral Debt Obligations that are pledged to
secure the Notes. The Collateral Manager and/or its Affiliates may at certain times be
simultaneously seeking to purchase or dispose of investments for its or their own account, for
the Issuer, for any similar entity for which it either serves as manager or adviser and for their
clients or Affiliates. It is intended that all Collateral Debt Obligations will be purchased and
sold on behalf of the Issuer on terms prevailing in the market. Neither the Collateral Manager
nor any of its Affiliates is under any obligation to offer investment opportunities of which they
have become aware to the Issuer or to account to the Issuer (or share with the Issuer or inform
the Issuer of) any such transaction or any benefit received by them from any such transaction.
Furthermore, the Collateral Manager and/or its Affiliates may make an investment on behalf
of any account that they manage without offering the investment opportunity to or making any
investment on behalf of the Issuer. The Collateral Manager and/or its Affiliates have no
affirmative obligation to offer any investments to the Issuer or to inform the Issuer of any
investments before offering any investments to other funds or accounts that the Collateral
Manager and/or its Affiliates manage. Furthermore, Affiliates of the Collateral Manager may
make an investment on their own behalf without offering the investment opportunity to, or the
Collateral Manager making any investment on behalf of, the Issuer. Affirmative obligations
may exist or may arise in the future, whereby Affiliates of the Collateral Manager are obliged
to offer certain investments to funds or accounts that such Affiliates manage or advise before
or without the Collateral Manager offering those investments to the Issuer. Affiliates of the
Collateral Manager have no affirmative obligation to offer any investments to the Issuer or to
inform the Issuer of any investments before engaging in any investments for themselves. The
Collateral Manager will endeavour to resolve conflicts with respect to investment
opportunities in a manner which it deems equitable to the extent possible under the prevailing
facts and circumstances. Although the professional staff of the Collateral Manager will devote
as much time to the Issuer as the Collateral Manager deems appropriate to perform its duties in
accordance with the Collateral Management Agreement, those staff may have conflicts in
allocating their time and services among the Issuer and the Collateral Manager's other
accounts.
While any Notes are Outstanding, no removal, termination or resignation of the Collateral
Manager shall be effective unless (a) a Successor Collateral Manager has agreed in writing to
assume all of the Collateral Manager's duties and obligations pursuant to the Collateral
Management Agreement and (b) the appointment of such Successor Collateral Manager is
consented to by (i) a Special Quorum Resolution of, or by the holders of at least 66⅔ per cent.
of the aggregate Principal Amount Outstanding of, the Controlling Class within 30 days after
notice of such proposed Successor Collateral Manager has been provided to such Noteholders,
and (ii) a Special Quorum Resolution of, or by the holders of at least 66⅔ per cent. of the
aggregate Principal Amount Outstanding of, the Subordinated Notes within 30 days after
notice of such proposed Successor Collateral Manager has been provided to such Noteholders.
Notwithstanding the foregoing, the Collateral Manager may resign immediately if the Issuer or
the Portfolio become subject to registration under the Investment Company Act 1940. In
addition, no removal, resignation or termination of the Collateral Manager while any Notes are
52
Outstanding will be effective until the appointment by the Issuer of a successor collateral
manager (the "Successor Collateral Manager") that is an established institution which (A)
has demonstrated (or has employees that have demonstrated) an ability to professionally and
competently perform duties similar to those imposed upon the Collateral Manager under the
Collateral Management Agreement and with a substantially similar (or better) level of
expertise, (B) has all of the required consents, authorisations or licenses and has the capacity,
including the Dutch regulatory capacity to act as Collateral Manager under the Collateral
Management Agreement, as successor to the Collateral Manager thereunder in the assumption
of all of the responsibilities, duties and obligations of the Collateral Manager thereunder, (C)
will not cause the Issuer or the Portfolio to become required to register under the provisions of
the Investment Company Act of the United States, (D) the Issuer is satisfied that the
performance of its duties as Collateral Manager under the Collateral Management Agreement
will not cause the Issuer to become subject to tax in any jurisdiction where such Successor
Collateral Manager is established or doing business, and (E) Rating Agency Confirmation in
respect of such appointment has been obtained. If no Successor Collateral Manager has been
appointed within 120 days or if the Collateral Manager has resigned as a result of it becoming
illegal for the Collateral Manager to carry on its duties under the Collateral Management
Agreement or the Collateral Manager ceases to be authorised by the FSA, the Collateral
Manager shall be entitled to appoint a Successor Collateral Manager which satisfies the
criteria listed in (A) through (E) herein. See "Description of the Collateral Management
Agreement" below.
The Collateral Manager, acting on behalf of the Issuer, may effect transactions between the
Issuer and other entities (including other issuers of Collateral Debt Obligations) in respect of
which the Collateral Manager acts as investment manager or adviser. The Collateral Manager,
on behalf of the Issuer, may conduct principal trades with itself and its Affiliates, subject to
applicable law. The Collateral Manager may also effect client cross transactions where the
Collateral Manager causes a transaction to be effected between the Issuer and another account
managed or advised by it or any of its Affiliates. Client cross transactions may enable the
Collateral Manager to purchase or sell a block of loans and securities for the Issuer at a set
price and possibly avoid an unfavourable price movement that may be created through
entrance into the market with such purchase or sell order. In addition, without the prior
authorisation of the Issuer, the Collateral Manager may enter into agency cross transactions
where any of its Affiliates acts as broker for the Issuer and for the other party to the
transaction, in which case any such Affiliate will receive commissions from, and have a
potentially conflicting division of loyalties and responsibilities regarding, both parties to the
transaction.
The Arrangers and their Affiliates may have underwritten or be acting as agent or lender in
respect of certain of the Collateral Debt Obligations, may have ongoing relationships
(including, without limitation, the provision of investment banking, commercial banking,
brokerage activities and advisory services or engaging in securities trading or derivatives
transactions) with issuers whose debt obligations constitute Collateral Debt Obligations and
may own either equity securities or debt obligations (including the debt obligations which
constitute Collateral Debt Obligations) issued by such issuers. In the ordinary course of such
business, the Arrangers or their Affiliates may at any time hold long or short positions, and
may trade or otherwise effect transactions, for their own account or the accounts of customers,
in debt or equity securities of entities that may be involved in the transactions contemplated
hereby. In particular, the Arrangers or their Affiliates may deal in investments as principal or
agent for more than one party or may make recommendations to buy or sell a designated
investment in which such Arranger or an Affiliate may have a long or short position or in
which one of such Arranger or an Affiliate's customers has given instructions to buy or sell.
The Arrangers and their Affiliates may also have ongoing relationships (including, without
limitation, the provision of investment banking, commercial banking and advisory services or
engaging in securities or derivatives transactions) with the Collateral Manager and purchasers
of the Notes. The Arrangers and their Affiliates and clients may also invest in debt obligations
that have interests different from or adverse to the debt obligations that constitute Collateral
Debt Obligations.
53
It is expected that the Issuer will not rely upon the judgement or advice of the Arrangers or
their Affiliates in relation to the selection of Collateral Debt Obligations for acquisition.
Further, each of the Issuer and the Collateral Manager may not rely on any communication
(written or oral) of the Arrangers or their Affiliates as investment advice or as a
recommendation to acquire a Collateral Debt Obligation; it being understood that information
and explanations related to the terms and conditions of a Collateral Debt Obligation shall not
be considered investment advice or a recommendation to acquire that Collateral Debt
Obligation.
Each of the Issuer and the Collateral Manager has an affirmative obligation to ensure that
neither the Arrangers nor their Affiliates is an advisor as to legal, tax, accounting or regulatory
matters in any jurisdiction. It is expected that the Issuer, or the Collateral Manager on its
behalf, shall consult with its own advisors concerning such matters and shall be responsible for
making its own independent investigation and appraisal of the transactions contemplated
hereby and in the other Transaction Documents, and neither the Arrangers nor their Affiliates
shall have responsibility or liability to the Issuer, the Collateral Manager, or any other person
with respect thereto. Also it is expected that any communication (written or oral) received by
the Issuer or the Collateral Manager from either the Arrangers or their Affiliates shall not be
deemed to be an assurance or guarantee or warranty as to (i) the performance of any individual
Collateral Debt Obligation or the performance of the entire portfolio of Collateral Debt
Obligations, (ii) the losses that may be suffered in respect thereto or (iii) the satisfaction of the
Eligibility Criteria by any Collateral Debt Obligations.
The Arrangers or their affiliates may not act as a fiduciary or agent for or an adviser to the
Issuer, the Collateral Manager, any Noteholder, any other party, any counterparty in respect of
any loans or any other person.
The Arrangers and their respective Affiliates may own, from time to time, significant amounts
of the Notes of any Class. It is expected that the Arrangers or their Affiliates will have entered
into Collateral Acquisition Agreements with the Issuer, underwritten or placed certain of the
Collateral Debt Obligations at original issuance, will own equity or other loans and securities
of Obligors of Collateral Debt Obligations and will have provided investment banking
services, advisory, banking and other services to issuers of Collateral Debt Obligations. In
addition, the Collateral Manager and/or its Affiliates may have, respectively, underwritten,
purchased, syndicated or acted as agent under, originated, or placed certain of the Collateral
Debt Obligations at original issuance, may own equity of other loans and securities of
Obligors of Collateral Debt Obligations and may have provided investment advice, collateral
management services, investment banking services, advisory, banking and other services to
issuers of Collateral Debt Obligations. From time to time, the Collateral Manager may, on
behalf of the Issuer, purchase or sell Collateral Debt Obligations through the Arrangers or their
Affiliates. The Issuer may invest in the loans and securities of companies affiliated with the
Arrangers, the Collateral Manager or their respective Affiliates or companies in which the
Arrangers, the Collateral Manager or their respective Affiliates have an equity or participation
interest. In addition, the Arrangers and their Affiliates may invest in debt obligations that have
interests different from or adverse to the debt obligations that constitute Collateral Debt
Obligations. The purchase, holding and sale of such investments by the Issuer may enhance
the profitability of the Arrangers', the Collateral Manager's or their respective Affiliates' own
investments in such companies. The Arrangers do not take any responsibility for and have no
obligations in respect of the Issuer. In addition, it is expected that the Arrangers or one or
more of their Affiliates thereof may also act as counterparty with respect to one or more
Synthetic Securities or Participations or act as Hedge Counterparty with respect to one or more
Hedge Transactions. It is possible that one or more Affiliates of the Collateral Manager may
also act as counterparty with respect to one or more Synthetic Securities, Participations or
Hedge Transactions. This may result in a conflict of interest between the Collateral Manager
in its role as such and any Affiliate thereof acting as a counterparty under one or more such
instruments as a result of the Collateral Manager's position as collateral manager on behalf of
the Issuer in respect of such instruments and the authority delegated to it to take action on the
Issuer's behalf in respect of such instruments.
There is no limitation or restriction on the Collateral Manager, the Arrangers or any of their
respective Affiliates with regard to acting as collateral manager or in another or similar role to
54
other parties or persons. This and other future activities of the Collateral Manager, the
Arrangers and/or their respective Affiliates may give rise to additional conflicts of interest.
Amounts payable to the Collateral Manager and/or any Hedge Counterparty may be payable in
whole or in part on a subordinated or contingent basis or solely or primarily from Available
Interest Proceeds or Available Principal Proceeds, in each case as specified in the Conditions
of the Notes. In certain circumstances, such payment arrangements could create a conflict of
interest between the Collateral Manager or the Hedge Counterparty in either of the capacities
referred to above and the holders of one or more Classes of Notes.
In certain circumstances, the Trustee, the Collateral Manager or its Affiliates or both may
receive compensation in connection with the investment of assets in certain Eligible
Investments from the managers of such Eligible Investments. In addition, the Issuer may from
time to time invest in Eligible Investments issued by, arranged by or underwritten by the
Collateral Manager, the Arrangers or their Affiliates.
Save as provided below, there will be no restriction on the ability of the Arrangers, the
Trustee, the Collateral Manager, the Collateral Administrator, any Hedge Counterparty or any
of their respective Affiliates or employees to purchase Notes of any Class (either upon initial
issuance or through secondary transfers) and to exercise any voting rights to which such Notes
are entitled. The interests of such holders may differ from those of other holders.
On the Issue Date, one or more Affiliates and certain employees of such Affiliates of the
Collateral Manager may purchase a portion of the Subordinated Notes. Such Subordinated
Notes may be sold by such party or parties to related and unrelated parties at any time after the
Issue Date. Subordinated Notes held by the Collateral Manager and its Affiliates will have no
voting rights with respect to any vote to remove the Collateral Manager for cause and will be
deemed not to be Outstanding in connection with any such vote. However, Subordinated
Notes held by the Collateral Manager and its Affiliates will have voting rights with respect to
other matters as to which the holders of Subordinated Notes are entitled to vote, including
removal of the Collateral Manager without cause and the appointment of any Successor
Collateral Manager.
In addition to the Collateral Manager's or Affiliates' purchase of a portion of the Subordinated
Notes on the Issue Date as described above, certain amounts payable to the Collateral Manager
(the Subordinated Collateral Management Fee and the Incentive Management Fee) are payable
on a subordinated basis. In providing management services, such factors could create an
incentive for the Collateral Manager to seek to maximise the return on the Portfolio so as to
increase the amount of payments to it by way of the Subordinated Collateral Management Fee
and the Incentive Management Fee or as a Noteholder. However, the management of the
Portfolio by the Collateral Manager is governed by its fiduciary obligations and its internal
policies as well as by the requirement that it complies with the investment guidelines and its
other obligations set out in the Collateral Management Agreement.
5.
Investment Company Act
The Issuer has not registered with the United States Securities and Exchange Commission (the
"SEC") as an investment company pursuant to the Investment Company Act, in reliance on an
exception under Section 3(c)(7) of the Investment Company Act for investment companies (a)
whose outstanding securities are beneficially owned only by "qualified purchasers" and certain
transferees thereof identified in Rule 3c-6 under the Investment Company Act and (b) which
do not make a public offering of their securities in the United States.
If the SEC or a court of competent jurisdiction were to find that the Issuer or the pool of
Collateral is required, but in violation of the Investment Company Act had failed, to register as
an investment company, possible consequences include, but are not limited to, the following:
(i) the SEC could apply to a district court to enjoin the violation; (ii) investors in the Issuer
could sue the Issuer and recover any damages caused by the violation; and (iii) any contract to
which the Issuer is a party that is made in, or whose performance involves violation of the
Investment Company Act would be unenforceable by any party to the contract unless a court
were to find that under the circumstances enforcement would produce a more equitable result
55
than non-enforcement and would not be inconsistent with the purposes of the Investment
Company Act. Should the Issuer be subjected to any or all of the foregoing, the Issuer would
be materially and adversely affected.
Other than in respect of the Subordinated Notes offered in reliance on Regulation D, each
initial purchaser of an interest in a Rule 144A Note and each transferee of an interest in a Rule
144A Note will be deemed to represent at the time of purchase that, among other things, the
purchaser is a QIB/QP. Where the interest in a Subordinated Note offered in reliance on
Regulation D is being purchased, each initial purchaser of such interest will represent at the
time of purchase that, among other things, the purchaser is a QIB or an "accredited investor"
within the meaning of Rule 5.01(a) 1, 2, 3, 7 or 8 of Regulation D under the Securities Act that
is also a QP or a company owned exclusively by QPs and/or Knowledgeable Employees.
Where the interest in a Subordinated Note offered in reliance on Regulation D is being
transferred, each transferee of such interest will represent at the time of purchase that, among
other things, the transferee is a QIB or an "accredited investor" within the meaning of Rule
5.01(a) 1, 2, 3, 7 or 8 of Regulation D under the Securities Act that is also a QP or a company
owned exclusively by QPs and/or Knowledgeable Employees.
6.
Certain ERISA Considerations
Under a regulation of the U.S. Department of Labor, if certain employee benefit plans or other
retirement arrangements subject to the U.S. Employee Retirement Income Security Act of
1974, as amended, ("ERISA") or Section 4975 of the U.S. Internal Revenue Code of 1986, as
amended, (the "Code") or entities whose underlying assets are treated as assets of such plans
or arrangements (collectively, "Plans") invest in the Class E Notes or the Subordinated Notes,
the assets of the Issuer could be considered to be assets of such Plans and certain of the
transactions contemplated under such Notes could be considered "prohibited transactions"
under Section 406 of ERISA or Section 4975 of the Code. See "United States ERISA
Considerations" below.
7.
Forced Transfer
Other than in respect of the Subordinated Notes offered in reliance on Regulation D, each
initial purchaser of an interest in a Rule 144A Note and each transferee of an interest in a Rule
144A Note will be deemed to represent at the time of purchase that, among other things, the
purchaser is a QIB/QP. Where the interest in a Subordinated Note offered in reliance on
Regulation D is being purchased, each initial purchaser of such will represent at the time of
purchase that, among other things, the purchaser is a QIB or an "accredited investor" within
the meaning of Rule 5.01(a) 1, 2, 3, 7 or 8 of Regulation D under the Securities Act that is also
a QP or a company owned exclusively by QPs and/or Knowledgeable Employees. Where the
interest in a Subordinated Note offered in reliance on Regulation D is being transferred, each
transferee of such interest will represent at the time of purchase that, among other things, the
transferee is a QIB or an "accredited investor" within the meaning of Rule 5.01(a) 1, 2, 3, 7 or
8 of Regulation D under the Securities Act that is also a QP or a company owned exclusively
by QPs and/or Knowledgeable Employees.
The Trust Deed provides that if, notwithstanding the restrictions on transfer contained therein,
the Issuer determines that (1) any holder of an interest in a Rule 144A Note is a U.S. Person as
defined under Regulation S under the Securities Act (a "U.S. Person") and is not both a QIB
and a Qualified Purchaser at the time it acquires an interest in a Rule l44A Note; (2) any
holder of a Class E Note or Subordinated Note has made or is deemed to have made an ERISA
related representation that is false or misleading or if the beneficial ownership of such holder
of a Class E Note or Subordinated Note causes a violation of the 25 per cent. limitation set
forth in such representations or (3) any holder of an interest in a Subordinated Note is not a
QIB or an institutional "accredited investor" within the meaning of Rule 5.01(a), 1, 2, 3, 7 or 8
of Regulation D under the Securities Act and in either case a QP or a company owned
exclusively by QPs and/or Knowledgeable Employees (any such person, a "Non-Permitted
Holder"), the Issuer shall, promptly after determination that such person is a Non-Permitted
Holder by the Issuer or the Trustee (and notice by the Trustee to the Issuer, if the Trustee
makes the discovery), send notice to such Non-Permitted Holder demanding that such NonPermitted Holder transfer its interest to a person that is not a Non-Permitted Holder within 30
56
days of the date of such notice. If such Non-Permitted Holder fails to effect the transfer
required within such 30-day period, (a) upon direction from the Issuer or the Collateral
Manager on its behalf, the Registrar, on behalf of and at the expense of the Issuer, shall cause
that such beneficial interest be transferred in a commercially reasonable sale to a person or
entity that certifies to the Trustee and the Issuer, in connection with such transfer, that such
person or entity is not a Non-Permitted Holder and (b) pending such transfer, no further
payments will be made in respect of such beneficial interest. The Issuer or the Registrar may
select the purchaser by soliciting one or more bids from one or more brokers or other market
professionals that regularly deal in securities similar to such Rule 144A Notes or AI Notes, as
applicable, and selling such Notes to the highest such bidder. However, the Issuer or the
Registrar may select a purchaser by any other means determined by it in its sole discretion.
Each Noteholder and each other Person in the chain of title from the permitted Noteholder to
the Non-Permitted Holder by its acceptance of an interest in such Rule 144A Notes or AI
Notes, as applicable, agrees to co-operate with the Issuer and the Registrar to effect such
transfers. The proceeds of such sale, net of any commissions, expenses and taxes due in
connection with such sale shall be remitted to the selling Noteholder. The terms and
conditions of any sale hereunder shall be determined in the sole discretion of the Issuer, or the
Registrar, subject to the transfer restrictions set out herein, and neither the Issuer nor the
Registrar shall be liable to any Person having an interest in the Notes sold as a result of any
such sale or the exercise of such discretion. The Issuer and the Registrar reserve the right to
require any holder of Notes to submit a written certification substantiating that it is not a NonPermitted Holder. If such holder fails to submit any such requested written certification on a
timely basis, the Issuer and the Registrar have the right to assume that the holder of the Notes
from whom such a certification is requested is a Non-Permitted Holder. Furthermore, the
Issuer and the Registrar reserve the right to refuse to honour a transfer of beneficial interests in
a Rule 144A Note or an AI Note (as applicable) to any person who is not a Non-Permitted
Holder.
8.
Projections, Forecasts and Estimates
Projections, forecasts and estimates provided to prospective purchasers of the Notes herein are
forward looking statements. Projections are necessarily speculative in nature, and it can be
expected that some or all of the assumptions underlying the projections will not materialise or
will vary significantly from actual results. Accordingly, the projections are only estimates.
Actual results may vary from the projections, and the variations may be material.
Some important factors that could cause actual results to differ materially from those in any
forward looking statements include changes in interest rates, currency exchange rates, market,
financial or legal uncertainties, the timing of acquisitions of the Collateral Debt Obligations,
differences in the actual allocation of the Portfolio among asset categories from those
assumed, mismatches between timing of accrual and receipt of Interest Proceeds from the
Portfolio and the effectiveness of any Interest Rate Hedge Agreements, among others.
None of the Issuer, the Arrangers, the Collateral Manager, the Collateral Administrator, the
Trustee, any Interest Rate Hedge Counterparty, the Account Bank or any of their respective
Affiliates has any obligation to update or otherwise revise any projections, including any
revisions to reflect changes in economic conditions or other circumstances arising after the
date hereof or to reflect the occurrence of unanticipated events, even if the underlying
assumptions do not come to fruition.
9.
Taxation of the Issuer
The Managing Directors intend to conduct the affairs of the Issuer in such a manner as to
minimise (save for the minimum profit to be retained by the Issuer for Dutch tax purposes) so
far as they consider reasonably practicable, taxation suffered by the Issuer. This will include
conducting the affairs of the Issuer so that, to the extent that it is within the capacity of the
Managing Directors and the Issuer, the Issuer is at all times resident in the Netherlands for
taxation purposes. Accordingly, the Issuer should not be subject to United Kingdom tax on
income other than on United Kingdom source income withheld at source or subject to United
Kingdom corporation tax as a result of carrying on a trade through a United Kingdom
permanent establishment. No assurances can be made, however, that the Managing Directors
57
will be successful in managing the affairs of the Issuer so as to minimise its taxation, or that
changes in tax law, regulations or interpretations will not subject the Issuer to UK or other
taxes. There can be no assurance, however, that the Issuer's income (particularly any U.S.
Source Income it may derive) will not become subject to net income or withholding taxes in
the United States or other countries as a result of unanticipated activities by the Issuer,
changes in law, contrary conclusions by relevant tax authorities or other causes.
10.
United States Tax Treatment of Notes
Since the Issuer will be a passive foreign investment company, a U.S. Person holding
Subordinated Notes may be subject to additional taxes unless it elects to treat the Issuer as a
qualified electing fund and to recognise currently its proportionate share of the Issuer's
income. In order to comply with such election such U.S. Holder must receive certain
information from the Issuer ("QEF Information"). The Collateral Manager (on behalf of the
Issuer) will use reasonable endeavours to provide the QEF Information if requested by a U.S.
Holder. The Issuer shall take reasonable efforts to procure the Collateral Administrator to
produce (on behalf of the Issuer) any supplemental report required in respect of the Collateral
pursuant to the requirements of the German tax authorities to the extent that such requirements
apply to a German investor in the Notes. All reasonable expenses incurred by the Collateral
Manager or the Collateral Administrator in supplying "tax information" for Noteholders will
be paid by the Issuer up to an amount of €10,000 per annum (such amount to include all
amounts in respect of fees and expenses incurred by the Investment Manager or the Issuer in
the same year in the preparation, provision or validation of data for purposes of all Noteholder
tax jurisdictions) as set out in the definition "Administration Expenses" (or such other higher
amount as reasonably determined by the Collateral Manager). If such expenses exceed this
limit, the Investment Manager or as the case may be the Collateral Administrator will not be
obliged to provide such information unless and until it has been reimbursed upfront and in full
by the relevant Noteholder for any such excess. The Issuer is under no obligation to supply
U.S. Holders with the QEF Information or supplemental reports in respect of German tax
requirements or incur costs above the limit permitted above and as a result, the Issuer cannot
ensure that such information will be made available (see "Tax Considerations").
The Issuer also may be a controlled foreign corporation, in which case U.S. Persons holding
Subordinated Notes could be subjected to different tax treatments. See "Tax Considerations"
below.
The Issuer intends to treat the Class A Notes, the Class B Notes, the Class C Notes, the Class
D Notes, and the Class E Notes, and the Trust Deed requires that holders agree to treat the
Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, and the Class E
Notes, as debt of the Issuer for U.S. Federal, state and local income and franchise tax purposes
except (x) as otherwise required by applicable law, (y) to the extent a holder makes a
protective QEF election or (z) to the extent that a holder files certain United States tax
information returns required only of certain equity owners with respect to various reporting
requirements under the Code (as defined herein). It is possible that the treatment of the Class
A Notes, the Class B Notes, the Class C Notes, the Class D Notes, and the Class E Notes as
debt of the Issuer could be challenged by the U.S. Internal Revenue Service. If such a
challenge were successful, the Class A Notes, the Class B Notes, the Class C Notes, the Class
D Notes, and the Class E Notes would be treated as equity interests in the Issuer, and the U.S.
Federal income tax consequences of investing in the Class A Notes, the Class B Notes, the
Class C Notes, the Class D Notes, and the Class E Notes would be the same as those of having
invested in the Subordinated Notes without electing to treat the Issuer as a qualified electing
fund. See " Tax Considerations" below.
11.
United States Taxation of the Issuer
The Issuer does not expect that its activities will cause it to be treated as engaged in the
conduct of a trade or business within the United States for U.S. federal income tax purposes (a
"U.S. Trade or Business"); however, there can be no assurance that the U.S. Internal Revenue
Service (the "IRS") will agree. If the IRS were to successfully assert that the Issuer is
engaged in the conduct of a U.S. Trade or Business, there could be material adverse financial
consequences to the Issuer and to persons who hold the Notes. In such a case, part or all of the
58
income and gains of the Issuer could be subject to United States income tax and additional
branch profits tax which would reduce or even eliminate cash available for distribution to the
holders of the Notes. In addition, if the Issuer is treated as engaged in a U.S. Trade or
Business, in some circumstances payments by the Issuer under the Notes could be subject to
U.S. withholding tax.
12.
German Banking Act and German Investment Tax Act
There is currently legal uncertainty in the Federal Republic of Germany as to whether
collateralised debt obligation ("CDO") transactions involve activities requiring a licence under
the German Banking Act (Kreditwesengesetz-KWG) on the basis that they constitute "banking
business" and also as to the treatment of CDO transactions under the regulatory regime of the
German Investment Tax Act (Investmentgesetz-InvG) (see paragraph 2.14 above). In
particular, the German regulator recently broadly interpreted the banking business of principal
broking (Finanzkommissionsgeschäft) under the German Banking Act as including cases
where a German or foreign company invests in financial instruments for the economic interest
of German investors. Should it be determined that activities involved in CDO transactions are
subject to licence requirements under the German Banking Act or that they should be
regulated under the German Investment Tax Act, the German regulator could impose sanctions
on certain of the parties involved, including the Issuer, including the immediate cessation of
the business operations and prompt liquidation of the transactions conducted.
13.
Regulation U Requirements
Regulation U governs certain credit secured, directly or indirectly, by Margin Stock that is
extended by Persons other than securities broker-dealers (such Persons, "Regulation U
Lenders"). Under current interpretations of Regulation U by the Board of Governors of the
Federal Reserve Systems ("FRB") and its staff, the purchase of a debt security, such as the
Notes, in a private placement is treated as an extension of credit. Among other things,
Regulation U generally imposes certain limits on the amount of credit that Regulation U
Lenders may extend for the purpose, whether immediate, incidental or ultimate, of buying or
carrying Margin Stock ("Purpose Credit"). Regulation U Lenders are not subject to the
Regulation U credit limits with respect to extensions of credit that are not Purpose Credit.
Regulation U also requires certain Regulation U Lenders (other than Persons that are banks
within the meaning of Regulation U) to register with the FRB. Qualified Institutional Buyers
purchasing debt securities in a transaction in compliance with Rule 144A are generally not
required to register with the FRB where the proceeds of the securities are not Purpose Credit.
In addition, non-U.S. Persons that do not have a principal place of business in a Federal
Reserve District of the FRB are also generally not required to register with the FRB under
Regulation U.
With respect to the Rated Notes, the provisions of the Collateral Management Agreement are
intended to provide that, for purposes of Regulation U, the proceeds of such Notes are not
used in a manner that would cause such Notes to be Purpose Credit and that such Notes
therefore are not subject to the credit limits of Regulation U; however, such result is not
guaranteed. In addition, although any Margin Stock received by the Issuer is not included in
the Collateral that is pledged for the benefit of the holders of the Rated Notes, purchasers of
the Rated Notes also should consider whether for purposes of Regulation U they could be
deemed to be indirectly secured by Margin Stock and therefore Regulation U Lenders subject
to the registration and credit requirements of Regulation U. These registration requirements
should not in any event apply to U.S. Persons purchasing under Rule 144A (to the extent that
the Rated Notes are not Purpose Credit) or non-U S. Persons purchasing in reliance on
Regulation S that do not have a principal place of business in a Federal Reserve District of the
FRB. Purchasers of Rated Notes subject to the registration requirements of Regulation U, as
well as any purchasers of such Notes that are banks within the meaning of Regulation U, may
be subject to certain additional requirements under Regulation U. If a purchaser of Rated
Notes does not comply with any applicable Regulation U requirements, such failure may result
in a violation of Regulation U and such violation, among other things, could affect the
enforceability of such Notes. Purchasers of the Rated Notes should consult their own legal
advisors as to Regulation U and its application to them. Under the Trust Deed, each purchaser
59
of an interest in a Rated Note will be deemed to have represented that either (x) such
purchaser's principal place of business is not located within any Federal Reserve District of the
FRB or (y) such purchaser has satisfied and will satisfy any applicable registration or other
requirements of the FRB including, without limitation, Regulation U, in connection with its
acquisition of the Rated Notes, as applicable.
With respect to the Subordinated Notes, the provisions of the Trust Deed are intended to
provide that, for purposes of Regulation U, such Subordinated Notes are not secured directly
or indirectly by any Margin Stock held by the Issuer because under the Trust Deed (i) no
Margin Stock or any other assets are pledged to the Subordinated Notes, and (ii) the Issuer is
not permitted to hold Margin Stock in excess of ten per cent. of the CDO Principal Balance;
however, such result is not guaranteed. If the Subordinated Notes are not secured directly or
indirectly by Margin Stock, the purchase of such Subordinated Notes would not cause the
purchaser to become a Regulation U Lender. However, if an investor or any Affiliate thereof
holds Subordinated Notes at the same time as it (or an Affiliate) holds Rated Notes, there is
some risk that the Subordinated Notes could be viewed for purposes of Regulation U as being
indirectly secured by any Margin Stock held by the Issuer (at least to the extent that the Rated
Notes themselves could be viewed for purposes of Regulation U as being indirectly secured by
Margin Stock). If the Subordinated Notes are deemed indirectly secured by Margin Stock
(whether because the relevant holder or its Affiliate also owns Rated Notes, or for any other
reason), holders of such Notes might be deemed to be in violation of Regulation U and such
violation, among other things, could affect the enforceability of the relevant Notes. Investors
should consult with their own legal advisors regarding Regulation U and its application to
them prior to purchasing Subordinated Notes and prior to holding (directly or through an
Affiliate) Subordinated Notes at the same time as Rated Notes.
In addition, the FRB's Regulation X generally prohibits certain Persons from receiving credit
outside of the United States to purchase or carry United States securities or within the United
States to purchase or carry any securities ("securities credit") in excess of the credit
limitations of Regulation U, whether or not the party extending the securities credit is subject
to Regulation U. If any Noteholder is deemed to have extended securities credit to the Issuer
in violation of the credit limits of Regulation U (e.g. in cases where such Noteholder (or its
Affiliates) hold Subordinated Notes at the same time as the Rated Notes, as discussed above),
the Issuer also could be viewed as having violated the FRB's Regulation X, even if such
Noteholder is not subject to Regulation U.
Violations of Regulations U and X generally constitute violations of the Exchange Act, under
which they are promulgated. No opinion, no-action position or other approvals have been
obtained from the FRB or the SEC (the latter of which has responsibility for enforcing
Regulations U and X) with respect to the status of the Notes under Regulations U and X. If a
Noteholder or the Issuer were deemed to have violated Regulation U or as applicable, possible
consequences would include, but are not limited to, the following (i) the SEC could apply to a
district court to enjoin the violation or seek other relief or penalties (ii) other investors in the
Issuer could sue the relevant Noteholder or the Issuer for any damages caused by the violation
or (iii) the Notes that involve the violation of the margin requirements may be unenforceable.
14.
Regulatory Risk in respect of the Collateral Debt Obligations
In many jurisdictions, especially in continental Europe, engaging in lending activities "in"
certain such jurisdictions, whether conducted via the granting of loans, purchases of
receivables, discounting of invoices, guarantee transactions or otherwise (collectively,
"Lending Activities") is generally considered a regulated financial activity and, accordingly,
must be conducted in compliance with applicable local banking laws. In many such
jurisdictions, there is comparatively little statutory, regulatory or interpretive guidance issued
by the competent authorities or other authoritative guidance as to what constitutes the conduct
of Lending Activities "in" such jurisdictions. As such, Collateral Debt Obligations may be
subject to these local law requirements. Moreover, these regulatory considerations may differ
depending on the country in which each obligor is located or domiciled, on the type of obligor
and other considerations. Therefore, at the time when Collateral Debt Obligations are acquired
by the Issuer, there can be no assurance that, as a result of the application of regulatory law,
rule or regulation or interpretation thereof by the relevant governmental body or agency, or
60
change in such application or interpretation thereof by such governmental body or agency,
payments on the Collateral Debt Obligations might not in the future be adversely affected as a
result of such application of regulatory law or that the Issuer might not become subject to
proceedings or action by the relevant governmental body or agency, which if determined
adversely to the Issuer, may adversely affect its ability to make payments in respect of the
Notes and the regulators in such jurisdiction could, to the extent they have authority to do so,
impose sanctions on certain of the parties involved, including the Issuer, seeking the
immediate cessation of such parties' activities in that jurisdiction, liquidation of the
transactions conducted by it in that jurisdiction or with investors in or from that jurisdiction
and even the imposition of criminal sanctions.
The Issuer and the Collateral Manager shall use commercially reasonable endeavours to
ascertain the withholding tax position on payments of interest on Collateral Debt Obligations
(including whether interest payments will be paid gross or net and if net, whether there is an
obligation to gross-up) at the time when they are acquired by the Issuer.
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CONDITIONS OF THE NOTES
The following are the conditions of each of the Class A Notes, the Class B Notes, the Class C Notes, the
Class D Notes, the Class E Notes and the Subordinated Notes substantially in the form in which they
will be endorsed on such Notes if issued in definitive certificated form and which will be incorporated
by reference into the Global Certificates of each Class representing the Notes subject to the provisions
of such Global Certificates, some of which will modify the effect of these Conditions. See "Form of the
Notes – Amendments to Conditions".
The issue of €254,500,000 Class A Senior Floating Rate Notes due 2024 (the "Class A Notes" or the
"Senior Notes"), €10,500,000 Class B Deferrable Interest Floating Rate Notes due 2024 (the "Class B
Notes"), €19,250,000 Class C Deferrable Interest Floating Rate Notes due 2024 (the "Class C Notes"),
€10,000,000 Class D Deferrable Interest Floating Rate Notes due 2024 (the "Class D Notes"),
€16,750,000 Class E Deferrable Interest Floating Rate Notes due 2024 (the "Class E Notes" and,
together with the Class B Notes, the Class C Notes and the Class D Notes the "Mezzanine Notes") and
€39,450,000 Subordinated Notes due 2024 (the "Subordinated Notes") and, together with the Senior
Notes, the Mezzanine Notes and the Subordinated Notes, the "Notes") of Morgan Stanley Investment
Management Mezzano B.V. (the "Issuer") was authorised by resolution of the board of Managing
Directors of the Issuer dated on or about 25 October 2007. The Notes are constituted by and issued
pursuant to a Trust Deed (together with any other security documents entered into in respect of the
Notes (including the Euroclear Pledge Agreement, the "Trust Deed") dated 30 October 2007 between
(amongst others) the Issuer, the Collateral Manager and Deutsche Trustee Company Limited, in its
capacity as trustee (the "Trustee" which expression shall include all persons for the time being the
trustee or trustees under the Trust Deed) for the Noteholders (as defined in Condition 1 (Definitions
and Interpretations).
These Conditions include summaries of and are subject to, the detailed provisions of the Trust Deed
(which includes the forms of the Certificates representing the Notes). In addition to the Trust Deed, the
following agreements have been entered into in relation to the Notes: (a) an Agency Agreement dated
30 October 2007 (the "Agency Agreement") between, the Issuer, Deutsche Bank (Luxembourg) S.A.
as exchange agent (in such capacity, the "Exchange Agent") and as registrar (in such capacity, the
"Registrar" which term shall include any successor or substitute registrar appointed pursuant to the
terms of the Agency Agreement), Deutsche Bank Trust Company Americas as U.S. paying agent (in
such capacity, the "U.S. Paying Agent"), NCB Stockbrokers Limited as Irish paying agent (in such
capacity, the "Irish Paying Agent"), each of Deutsche Bank AG, London Branch as transfer agents, (in
such capacity, the "Transfer Agents"), Deutsche Bank AG, London Branch as account bank (in such
capacity, the "Account Bank"), as principal paying agent (in such capacity, the "Principal Paying
Agent"), as collateral administrator (in such capacity, the "Collateral Administrator") and as
custodian (in such capacity, the "Custodian") (which terms shall include any successor or substitute
Irish paying agent, transfer agent, account bank, principal paying agent or custodian, respectively,
appointed pursuant to the terms of the Agency Agreement or any successor Collateral Administrator
appointed pursuant to the terms of the Collateral Management Agreement), the Collateral Manager and
the Trustee (b) a Collateral Management Agreement dated 30 October 2007 (the "Collateral
Management Agreement") between Morgan Stanley Investment Management Limited as the
Collateral Manager (in such capacity the "Collateral Manager"), (which term shall include any
Successor Collateral Manager appointed pursuant to the terms of the Collateral Management
Agreement), the Issuer and the Collateral Administrator, (c) the Collateral Acquisition Agreements (as
defined in Condition 1 (Definitions and Interpretation)) entered into on or about the Issue Date; (d) any
Asset Swap Agreements between the Issuer and each Asset Swap Counterparty entered into on or about
the Issue Date; (e) a management agreement between the Issuer, the Managing Directors and the
Administrator entered into on or about the Issue Date (the "Management Agreement"); (f) a letter of
undertaking between, inter alia, the Managing Directors, the Administrator and the Foundation entered
into on or about the Issue Date (the "Letter of Undertaking"); (g) a subscription agreement dated on
or about 30 October 2007 (the "Subscription Agreement") between Lehman Brothers International
(Europe) and Lehman Brothers Inc. (together in such capacities, the "Arrangers") and the Issuer; (h)
any Interest Rate Hedge Agreements dated the Issue Date between the Issuer and the Interest Rate
Hedge Counterparty; (i) a master definitions agreement between the Issuer, the Trustee, the Collateral
Manager, the Collateral Administrator, the Arrangers, the Custodian, the Account Bank, the Transfer
Agent, the Principal Paying Agent, the Registrar, the Exchange Agent, the U.S. Paying Agent, the DTC
Custodian, the Irish Paying Agent and the Irish Listing Agent entered into on or about the Issue Date
(the "Master Definitions Agreement"); and (j) a Belgian law pledge agreement dated on or about the
62
Issue Date and entered into between (amongst others) the Issuer and the Trustee (the "Euroclear
Pledge Agreement"). Copies of the Transaction Documents entered into are available for inspection
during usual business hours at the principal office of the Principal Paying Agent (being at Winchester
House, 1 Great Winchester Street, London EC2N 2DB) and at the specified offices of the Transfer
Agents for the time being. The holders of each Class of Notes are entitled to the benefit of, are bound
by and are deemed to have notice of, all the provisions of the Trust Deed and are deemed to have notice
of all the provisions of the Agency Agreement and the Collateral Management Agreement applicable to
them.
1.
Definitions and Interpretation
"Accounts" means, collectively, the Principal Account, the Interest Account, the Collateral
Enhancement Account, the Additional Collateral Account, the Expense Reserve Account, the Payment
Account, the Synthetic Collateral Accounts, the Revolving Reserve Account, the Retained Portion
Account, any Asset Swap Account, any Counterparty Downgrade Collateral Account, the Subordinated
Notes Collateral Debt Obligation Account, the Subordinated Notes Additional Collateral Account, the
Subordinated Notes Principal Account, the Custody Accounts and the Investment Gains Account.
"Additional Collateral Account" means the interest bearing account of the Issuer with the Account
Bank denominated in Euro, the Balance in which may be applied in the acquisition of Additional
Collateral Debt Obligations during the Investment Period in accordance with the Collateral
Management Agreement.
"Additional Collateral Debt Obligation" means a Collateral Debt Obligation purchased by the Issuer
(out of the Balance standing to the credit of the Additional Collateral Account or the Subordinated
Notes Additional Collateral Account from time to time) during the Investment Period in accordance
with the provisions of the Collateral Management Agreement, which is not purchased in substitution
for a Collateral Debt Obligation previously forming part of the Collateral.
"Administrative Expenses" means amounts due and payable by the Issuer in the following order of
priority:
(a)
to the independent accountants, agents and counsel appointed to advise the Issuer or its agents
on matters specifically arising under or to the counterparties under the Transaction
Documents, including amounts payable to the Agents (other than the Custodian, the Collateral
Manager and the Collateral Administrator) pursuant to the Agency Agreement (including
indemnities provided for therein) but excluding any amounts payable in respect of the Notes);
(b)
to the Custodian pursuant to the Agency Agreement (including indemnities provided for
therein);
(c)
to the Collateral Administrator pursuant to the Collateral Management Agreement (including
indemnities provided for therein);
(d)
to any Rating Agency which may from time to time be requested to assign (i) a rating to each
of the Rated Notes as the case may be, or (ii) a confidential credit estimate to any of the
Collateral Debt Obligations, for such fees and expenses (including surveillance fees) in
connection with any such rating or confidential credit estimate including, in each case, the
ongoing monitoring thereof or for any other services related to the issue of Notes;
(e)
to the Administrator and the Managing Directors pursuant to the Management Agreement;
(f)
to the Collateral Manager or any of its Affiliates pursuant to the Collateral Management
Agreement (including any indemnified amounts and any value added tax (together with
interest and penalties) (if any)) for which the Collateral Manager or the Issuer is liable to
account in respect of any part of the Collateral Management Fee for which value added tax
was not invoiced on or before the Payment Date on which the related fee was first payable
under the Collateral Management Agreement), but excluding any Collateral Management
Fees;
63
(g)
to any Person in respect of any governmental fee or charge (excluding, for the avoidance of
doubt, any taxes payable to any tax authority or any amount comprising, resulting from, or
referable to, any tax liability);
(h)
in respect of any third party portfolio management software, to providers of data and
information services or for subscription services;
(i)
to any other Person in respect of any other fees, expenses or indemnities permitted under these
Conditions, the Transaction Documents or any other documents delivered pursuant to or in
connection with the Notes or the sale thereof, including, without limitation, an amount up to
€10,000 per annum in respect of fees and expenses reasonably incurred by the Issuer (in its
sole and absolute discretion) in assisting in the preparation, provision or validation of data for
purposes of Noteholder tax jurisdictions;
(j)
to the Irish Stock Exchange, or such other stock exchange upon which any of the Notes are
listed from time to time;
(k)
to the payment of any amounts due and payable by the Issuer to any Selling Institution
pursuant to any Participation Agreement after the date of entry into any Participation;
(l)
to the payment of any amounts of fees and expenses due and payable by the Issuer to any
seller of a Collateral Debt Obligation pursuant to any Collateral Acquisition Agreement after
the date of entry into any such Collateral Acquisition Agreement; and
(m)
to the payment of any amounts necessary to ensure the orderly dissolution of the Issuer,
in each case, together with any value added tax due and payable in respect thereof and provided,
however, that "Administrative Expenses" shall not include any Trustee Fees and Expenses or amounts
due or accrued with respect to the actions taken on or in connection with the Issue Date, the latter being
payable out of the proceeds of the issue of the Notes.
"Administrator" means ATC Financial Services B.V.
"Affiliate" or "Affiliated" means with respect to a Person, (a) any other Person who, directly or
indirectly, is in control of, or controlled by, or is under common control with, such Person or (b) any
other Person who is a director, officer or employee (i) of such Person, (ii) of any subsidiary or parent
company of such Person or (iii) of any Person described in clause (a) above. For the purposes of this
definition, control of a Person shall mean the power, direct or indirect, (A) to vote more than 50 per
cent. of the securities having ordinary voting power for the election of directors of such Person, or (B)
to direct or cause the direction of the management and policies of such Person whether by contract or
otherwise. The Issuer shall be deemed to have no Affiliates.
"Agent" means each of the Registrar, the Transfer Agents, the Principal Paying Agent, the other Paying
Agents, the Exchange Agent, the Account Bank, and the Custodian and each of their permitted
successors or assigns.
"Aggregate Principal Balance" means the aggregate of the Principal Balances of all Collateral Debt
Obligations and, when used with respect to some portion of the Collateral Debt Obligations, means the
aggregate of the Principal Balances of such Collateral Debt Obligations, in each case, as at the date of
determination.
"AI Notes" means any Subordinated Notes offered in the United States in reliance on Regulation D
under the Securities Act.
"Arrangers" means Lehman Brothers International (Europe) and Lehman Brothers Inc.
"Asset Swap Account" means the account of the Issuer with the Account Bank into which amounts
received in respect of Asset Swap Obligations shall be paid and out of which amounts payable to an
Asset Swap Counterparty pursuant to any Asset Swap Transaction shall be paid.
"Asset Swap Agreement" means any 1992 ISDA Master Agreement (Multi-Currency Cross Border)
or 2002 ISDA Master Agreement (or such other ISDA pro forma Master Agreement as may be
64
published by ISDA from time to time) and the schedule relating thereto entered into between the Issuer
and an Asset Swap Counterparty, including any guarantee thereof and any credit support annex entered
into pursuant to the terms thereof together with each confirmation entered into thereunder in respect of
an Asset Swap Transaction, under which the initial exchange will be made to fund the Issuer's
acquisition of the related Non-Euro Obligation and the payments made to the Issuer in respect thereof
at maturity and periodic interest payments made to the Issuer will be converted at the exchange rate
specified for such transaction and including any Replacement Asset Swap Agreement entered into and
replacement thereof provided always that each such Asset Swap Agreement will either be FormApproved or shall be in a form in respect of the terms of which Rating Agency Confirmation has been
received.
"Asset Swap Counterparty" means each financial institution with which the Issuer enters into the
Asset Swap Agreement or any permitted assignee or successor thereto under the terms of the related
Asset Swap Agreement in each case, which satisfies the applicable Required Rating (taking into
account any guarantor thereof) and which has the regulatory capacity, as a matter of Dutch law, to enter
into derivative transactions with residents domiciled in the Home Jurisdiction.
"Asset Swap Counterparty Principal Exchange Amounts" means each initial, interim and final
principal or exchange amount scheduled to be paid by the Issuer to an Asset Swap Counterparty
pursuant to the terms of an Asset Swap Transaction, and excluding any Scheduled Asset Swap Issuer
Payments.
"Asset Swap Issuer Principal Exchange Amounts" means each initial, interim and final principal or
exchange amount scheduled to be paid by an Asset Swap Counterparty to the Issuer pursuant to the
terms of an Asset Swap Transaction, and excluding any Scheduled Asset Swap Counterparty Payments.
"Asset Swap Obligation" means a Senior Secured Loan, High Yield Bond, Second Lien Loan or
Mezzanine Obligation which is denominated in a currency other than Euro (or in one of the predecessor
currencies of those EU member states which have adopted the Euro as their currency) that, as at the
date of the binding commitment to purchase such obligation satisfies each of the Eligibility Criteria
(save for that relating to its currency of denomination) and in respect of which an Asset Swap
Agreement has been entered into, together with its related Asset Swap Transaction.
"Asset Swap Replacement Payment" means any amount payable to the Asset Swap Counterparty by
the Issuer upon entry into a Replacement Asset Swap Agreement which is replacing an Asset Swap
Agreement which has been terminated.
"Asset Swap Replacement Receipt" means any amount payable to the Issuer by an Asset Swap
Counterparty upon entry into a Replacement Asset Swap Agreement which is replacing an Asset Swap
Agreement which has been terminated.
"Asset Swap Termination Payment" means any amount payable by the Issuer to an Asset Swap
Counterparty upon termination (in whole or in part) of an Asset Swap Agreement excluding Asset
Swap Counterparty Principal Exchange Amounts as described therein.
"Asset Swap Termination Receipt" means any amount payable by the Asset Swap Counterparty to
the Issuer upon termination of an Asset Swap Agreement in whole or in part excluding Asset Swap
Issuer Principal Exchange Amounts as described therein.
"Asset Swap Transaction" means, in respect of each Asset Swap Obligation, the currency swap
transaction or foreign exchange transaction entered into in respect thereof pursuant to the Collateral
Management Agreement and under the Asset Swap Agreement, including each Replacement Asset
Swap Transaction entered into in replacement therefor.
"Asset Swap Transaction Exchange Rate" means the rate of exchange set out in the relevant Asset
Swap Agreement or Currency Hedge Agreement, as the case may be, provided that if there is no
applicable Asset Swap Agreement or Currency Hedge Agreement then the rate of exchange will be the
exchange rate quoted at 11:00 a.m. London time on the relevant date of quotation (or such other time or
times as may be required or convenient for giving effect to the transactions contemplated by the Trust
Deed or the other Transaction Documents) by such international financial institution selected by the
Collateral Manager for the exchange of one currency for another and, if no such rate of exchange is
available, the rate of exchange will be as reasonably determined by the Collateral Manager.
65
"Authorised Integral Denomination" means in respect of the Notes issued in reliance on Rule 144A
or Regulation S or AI Notes, integral multiples of €1,000.
"Authorised Officer" means, with respect to the Issuer, any Managing Director or any duly authorised
attorney of the Issuer or agent who is authorised to act for the Issuer in matters relating to, and binding
upon, the Issuer, as notified in writing to the Trustee. For the avoidance of doubt, neither the Collateral
Manager nor any of its officers or employees are or will be Authorised Officers of the Issuer.
"Available Interest Proceeds" means the aggregate Interest Proceeds available on any Payment Date.
"Available Principal Proceeds" means the aggregate Principal Proceeds available on any Payment
Date.
"Available Proceeds" means Available Interest Proceeds and/or Available Principal Proceeds, as
appropriate.
"Balance" means on any date, with respect to any Account, cash and Eligible Investments, the
aggregate of:
(a)
the current balance of any cash, demand deposits, time deposits, certificates of deposit, federal
funds and commercial bank money market accounts;
(b)
the principal amount outstanding of any interest-bearing corporate and government securities,
money market accounts and repurchase obligations;
(c)
the purchase price, up to an amount not exceeding the face amount thereof, of any noninterest-bearing government and corporate securities, commercial paper and certificates of
deposit; and
(d)
the purchase price, up to an amount not exceeding the net asset value thereof, of any funds
investing in the money markets,
provided that in the event that a default as to payment of principal and/or interest has occurred
(disregarding any applicable grace period under the terms thereof) and is continuing in respect of any
Eligible Investment or any obligation of the obligor thereunder which is senior or equal in right of
payment to such Eligible Investment, such Eligible Investment shall have the value of the lower of its
Moody's Collateral Value or S&P Collateral Value for the purpose of calculating the Balance standing
to the credit of any account.
"Business Day" means (save to the extent otherwise defined in the applicable Condition) a day:
(a)
on which the TARGET System is open;
(b)
on which commercial banks and foreign exchange markets settle payments in London and
New York (other than a Saturday or a Sunday or a public holiday); and
(c)
for the purposes of the definition of Presentation Date, in relation to any place, on which
commercial banks and foreign exchange markets settle payments in that place.
"CCC Market Value" means, in respect of any CCC Obligation, an amount in Euros, which is the
lowest of:
(a)
its Market Value;
(b)
(i) 100 per cent. plus its Moody's Recovery Rate, (ii) divided by two, and (iii) multiplied by
the outstanding principal balance (if necessary, converted into Euro at the applicable Asset
Swap Transaction Exchange Rate); and
(c)
(i) 100 per cent. plus its S&P Recovery Rate, (ii) divided by two, and (iii) multiplied by the
outstanding principal balance (if necessary, converted into Euro at the applicable Asset Swap
Transaction Exchange Rate).
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"CCC Obligation" means a Collateral Debt Obligation (other than a Defaulted Obligation and Current
Pay Obligations) which has (a) a Moody's Rating Factor of 4080 or higher or (b) an S&P Rating of
"CCC+" or less.
"CDO Principal Balance" means, as at any Measurement Date, the amount equal to the aggregate of
the following amounts, as at such Measurement Date:
(a)
the Aggregate Principal Balance of all Collateral Debt Obligations, save that:
(i)
(ii)
(b)
with regard to Defaulted Obligations:
(A)
for the purpose of calculating the Aggregate Principal Balance for the purposes
of the Portfolio Profile Tests and for the Collateral Quality Tests in each case
where such is specifically provided, the Principal Balance of each Defaulted
Obligation shall be excluded; provided, however, that for the purpose of the
Collateral Quality Test entitled "S&P CDO Monitor Test", the Principal Balance
of Defaulted Obligations shall be included but shall be equal to its S&P
Collateral Value;
(B)
for the purpose of calculating the Aggregate Principal Balance for the purposes
of the Coverage Tests, the Principal Balance of a Defaulted Obligation will be
(A) in the case of any Defaulted Obligation that has been a Defaulted Obligation
for no more than 30 days, the lower of (x) the outstanding Principal Balance of
such Collateral Debt Obligation (or, in the case of a Zero-Coupon Security, the
accreted value thereof at the time of default) and (y) the lower of (x) the
Moody's Recovery Rate and (y) the S&P Recovery Rate of such Defaulted
Obligation, multiplied by its outstanding principal amount, and (B) in the case
of any Defaulted Obligation that has been a Defaulted Obligation for more than
30 days, the lower of (x) the Market Value of such Defaulted Obligation and (y)
the lower of (I) the Moody's Recovery Rate and (II) the S&P Recovery Rate of
such Defaulted Obligation, multiplied by its outstanding principal amount;
(C)
for all purposes other than as set forth in paragraphs (A) and (B) above (and
other than in respect of the calculation of the Collateral Management Fees), for
the purpose of calculating the Aggregate Principal Balance, the Principal
Balance of each Defaulted Obligation shall be the lower of its S&P Collateral
Value and its Moody's Collateral Value; and
the Principal Balance of each Current Pay Obligation (A) which has a Moody's Rating
of at least "Caa1" and a Market Value of at least 80 per cent. of its Principal Balance
shall be 100 per cent. of its outstanding principal amount; (B) which has a Moody's
Rating of at least "Caa2" and a Market Value of at least 85 per cent. of its Principal
Balance shall be 100 per cent. of its outstanding principal amount; and (C) to which
neither of (A) or (B) are applicable shall be 95 per cent. of the Market Value of such
Current Pay Obligation, multiplied by its outstanding principal amount; and
the Balances standing to the credit of the Principal Account, the Subordinated Notes Principal
Account, the Additional Collateral Account and the Subordinated Notes Additional Collateral
Account.
"Class A Coverage Tests" means the Class A Par Value Test and the Class A Interest Coverage Test.
"Class A Floating Rate of Interest" has the meaning given thereto in Condition 6 (Interest).
"Class A Interest Coverage Ratio" means, as at any Measurement Date, the ratio (expressed as a
percentage) obtained by dividing the Interest Coverage Numerator by the sum of the scheduled interest
payments due and payable on the Class A Notes on the next following Payment Date relating to such
Measurement Date.
"Class A Interest Coverage Test" means the test which shall be satisfied if as at any Measurement
Date the Class A Interest Coverage Ratio is at least equal to the percentage specified in the definition of
"Coverage Test".
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"Class A Margin" has the meaning given thereto in Condition 6 (Interest).
"Class A Noteholders" means the registered holders of the Class A Notes from time to time.
"Class A Par Value Ratio" means, as at any Measurement Date the ratio (expressed as a percentage)
obtained by dividing the amount equal to the CDO Principal Balance (less the Par Value Test Excess
Adjustment Amount) by the aggregate Principal Amount Outstanding of the Class A Notes.
"Class A Par Value Test" means the test which will be satisfied if as at any Measurement Date, the
Class A Par Value Ratio is at least equal to the percentage specified in the definition of "Coverage
Test".
"Class B Coverage Tests" means the Class B Par Value Test and the Class B Interest Coverage Test.
"Class B Floating Rate of Interest" has the meaning given thereto in Condition 6 (Interest).
"Class B Interest Coverage Ratio" means, as at any Measurement Date, the ratio (expressed as a
percentage) obtained by dividing the Interest Coverage Numerator by the sum of the scheduled interest
payments due and payable on the Class A Notes and the Class B Notes on the next following Payment
Date relating to such Measurement Date.
"Class B Interest Coverage Test" means the test which shall be satisfied if as at any Measurement
Date the Class B Interest Coverage Ratio is at least equal to the percentage specified in the definition of
"Coverage Test".
"Class B Margin" has the meaning given thereto in Condition 6 (Interest).
"Class B Noteholders" means the registered holders of the Class B Notes from time to time.
"Class B Par Value Ratio" means, as at any Measurement Date, the ratio (expressed as a percentage)
obtained by dividing the amount equal to the CDO Principal Balance (less the Par Value Test Excess
Adjustment Amount) by the aggregate Principal Amount Outstanding of the Class A Notes and the
Class B Notes.
"Class B Par Value Test" means the test which will be satisfied if as at any Measurement Date, the
Class B Par Value Ratio is at least equal to the percentage specified in the definition of "Coverage
Test".
"Class C Coverage Tests" means the Class C Par Value Test and the Class C Interest Coverage Test.
"Class C Floating Rate of Interest" has the meaning given thereto in Condition 6 (Interest).
"Class C Interest Coverage Ratio" means, as at any Measurement Date, the ratio (expressed as a
percentage) obtained by dividing the Interest Coverage Numerator by the sum of the scheduled interest
payments due and payable on the Class A Notes, the Class B Notes and the Class C Notes on the next
following Payment Date relating to such Measurement Date.
"Class C Interest Coverage Test" means the test which shall be satisfied if as at any Measurement
Date, the Class C Interest Coverage Ratio is at least equal to the percentage specified in the definition
of "Coverage Test".
"Class C Margin" has the meaning given thereto in Condition 6 (Interest).
"Class C Noteholders" means the registered holders of the Class C Notes from time to time.
"Class C Par Value Ratio" means, as at any Measurement Date, the ratio (expressed as a percentage)
obtained by dividing the CDO Principal Balance (less the Par Value Test Excess Adjustment Amount)
by the aggregate Principal Amount Outstanding of the Class A Notes, the Class B Notes and the Class
C Notes.
"Class C Par Value Test" means the test which shall be satisfied if, as at any Measurement Date, the
Class C Par Value Ratio is at least equal to the percentage specified in the definition of "Coverage
Test".
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"Class D Coverage Tests" means the Class D Par Value Test and the Class D Interest Coverage Test.
"Class D Floating Rate of Interest" has the meaning given thereto in Condition 6 (Interest).
"Class D Interest Coverage Ratio" means, as at any Measurement Date, the ratio (expressed as a
percentage) obtained by dividing the Interest Coverage Numerator by the sum of the scheduled interest
payments due and payable on the Class A Notes, the Class B Notes, the Class C Notes and the Class D
Notes on the next following Payment Date relating to such Measurement Date.
"Class D Interest Coverage Test" means the test which shall be satisfied if as at any Measurement
Date, the Class D Interest Coverage Ratio is at least equal to the percentage specified in the definition
of "Coverage Test".
"Class D Margin" has the meaning given thereto in Condition 6 (Interest).
"Class D Noteholders" means the registered holders of the Class D Notes from time to time.
"Class D Par Value Ratio" means, as at any Measurement Date, the ratio (expressed as a percentage)
obtained by dividing the CDO Principal Balance (less the Par Value Test Excess Adjustment Amount)
by the aggregate Principal Amount Outstanding of the Class A Notes, the Class B Notes, the Class C
Notes and the Class D Notes.
"Class D Par Value Test" means the test which shall be satisfied if, as at any Measurement Date, the
Class D Par Value Ratio is at least equal to the percentage specified in the definition of "Coverage
Test".
"Class E Coverage Tests" means the Class E Par Value Test and the Class E Interest Coverage Test.
"Class E Floating Rate of Interest" has the meaning given thereto in Condition 6 (Interest).
"Class E Interest Coverage Ratio" means, as at any Measurement Date, the ratio (expressed as a
percentage) obtained by dividing the Interest Coverage Numerator by the sum of the scheduled interest
payments due and payable on the Class A Notes, the Class B Notes, the Class C Notes, the Class D
Notes and the Class E Notes on the next following Payment Date relating to such Measurement Date.
"Class E Interest Coverage Test" means the test which shall be satisfied if as at any Measurement
Date, the Class E Interest Coverage Ratio is at least equal to the percentage specified in the definition
of "Coverage Test".
"Class E Margin" has the meaning given thereto in Condition 6 (Interest).
"Class E Noteholders" means the registered holders of the Class E Notes from time to time.
"Class E Par Value Ratio" means, as at any Measurement Date, the ratio (expressed as a percentage)
obtained by dividing the CDO Principal Balance (less the Par Value Test Excess Adjustment Amount)
by the aggregate Principal Amount Outstanding of the Class A Notes, the Class B Notes, the Class C
Notes, the Class D Notes and the Class E Notes.
"Class E Par Value Test" means the test which will be satisfied as at any Measurement Date following
the Reinvestment Period if, on such Measurement Date, the Class E Par Value Ratio is at least equal to
the percentage specified in the definition of "Coverage Test".
"Class of Notes" means each of the classes of Notes being (a) the Class A Notes, (b) the Class B Notes,
(c) the Class C Notes, (d) the Class D Notes, (e) the Class E Notes and (f) the Subordinated Notes, and
"Class" and "Class of Noteholders" shall be construed accordingly.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Collateral" means the property, assets, rights and benefits described in Condition 4(a) (Security)
which are charged and assigned by the Issuer to the Trustee from time to time for the benefit of the
Secured Parties pursuant to the Trust Deed and the Euroclear Pledge Agreement or other security
document.
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"Collateral Acquisition Agreements" means each of the agreements entered into by the Issuer in
relation to the purchase by the Issuer of Senior Secured Loans, High Yield Bonds, Structured Finance
Obligations, Finance Leases, Project Finance Securities and Mezzanine Obligations prior to and/or on
or about the Issue Date, together with any other agreements entered into by or on behalf of the Issuer
from time to time for the acquisition of Collateral Debt Obligations thereafter.
"Collateral Debt Obligation" means any debt obligation or debt security which the Collateral
Manager has determined in accordance with the Collateral Management Agreement satisfies the
Eligibility Criteria at the time a binding commitment was made to acquire such obligation or security
(in the case of Synthetic Securities and Asset Swap Obligations, to the extent required to do so) and
which is purchased and held by or on behalf of the Issuer from time to time. References to Collateral
Debt Obligations shall include any Asset Swap Obligations, but shall not include Collateral
Enhancement Obligations, Eligible Investments, Margin Stock or Equity Securities. For the avoidance
of doubt, the failure by any obligation to satisfy the Eligibility Criteria at any time after the time a
binding commitment was made to acquire such obligation or security shall not cause such obligation or
security to cease to constitute a Collateral Debt Obligation. For the purposes of the Portfolio Profile
Tests and the Collateral Quality Tests a debt obligation or debt security satisfying the Eligibility
Criteria at the time a binding commitment to purchase such obligation or security is entered into shall
be counted as a Collateral Debt Obligation from the time such binding commitment is entered into and
a Collateral Debt Obligation in respect of which the Issuer has entered into a binding commitment to
sell shall be excluded.
"Collateral Enhancement Account" means an interest bearing account in the name of the Issuer and
held with the Account Bank, the Balance of which from time to time may be applied in the acquisition
of Collateral Enhancement Obligations by, or on behalf of, the Issuer in accordance with the Collateral
Management Agreement and into which the proceeds of any sale of, or Distributions in respect of,
Collateral Enhancement Obligations, together with certain other amounts, may be deposited from time
to time.
"Collateral Enhancement Obligation" means any warrant or equity security excluding Defaulted
Equity Securities but including without limitation, warrants relating to Mezzanine Obligations and any
equity security received upon conversion or exchange of, or exercise of an option under, or otherwise
in respect of a Collateral Debt Obligation, or any warrant or equity security purchased as part of a unit
with a Collateral Debt Obligation (in all cases excluding the applicable Collateral Debt Obligation),
provided that no Collateral Enhancement Obligation may be a Dutch Ineligible Security or result in the
requirement for the Issuer to make any future payments under the terms thereof.
"Collateral Enhancement Ratio" means as of any Measurement Date during the Reinvestment Period,
the ratio (expressed as a percentage) obtained by dividing (a) the CDO Principal Balance less the Par
Value Test Excess Adjustment Amount by (b) the aggregate Principal Amount Outstanding of the
Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes.
"Collateral Enhancement Ratio Test" means the test which is met on any Determination Date if the
Collateral Enhancement Ratio at such Determination Date is greater than or equal to the percentage
specified in the definition of "Coverage Test".
"Collateral Funded Amount" means, with respect to any Delayed Drawdown Obligation or Revolving
Collateral Obligation (excluding any Synthetic Security referenced thereto) at any time, the aggregate
principal amount of advances or other extensions of credit to the extent funded thereunder by the Issuer
that are outstanding at such time.
"Collateral Management Fee" means each of the Senior Collateral Management Fee, the
Subordinated Collateral Management Fee and the Incentive Management Fee.
"Collateral Quality Tests" means the Collateral Quality Tests set out in the Collateral Management
Agreement being each of the following:
(a)
so long as any Notes rated by S&P are Outstanding:
(i)
(as of the Effective Date and until the end of the Reinvestment Period) the S&P CDO
Monitor Test; and
70
(ii)
(b)
(c)
the S&P Minimum Weighted Average Recovery Rate Test;
so long as any Notes rated by Moody's are Outstanding:
(i)
the Moody's Minimum Diversity Test;
(ii)
the Moody's Maximum Weighted Average Rating Factor Test; and
(iii)
the Moody's Minimum Weighted Average Recovery Rate Test;
at all times:
(i)
the Minimum Weighted Average Spread Test; and
(ii)
the Weighted Average Maturity Test,
each as defined in the Collateral Management Agreement.
"Conditions" means these terms and conditions, being the terms and conditions of the Notes.
"Controlling Class" means the Class A Notes then Outstanding or, if no Class A Notes remain
Outstanding, the Class B Notes then Outstanding or, if no Class B Notes remain Outstanding, the Class
C Notes then Outstanding, or if no Class C Notes remain Outstanding, the Class D Notes then
Outstanding, or if no Class D Notes remain Outstanding, the Class E Notes then Outstanding or if no
Class E Notes remain Outstanding, the Subordinated Notes then Outstanding.
"Counterparty Downgrade Collateral" means any cash and/or securities delivered to the Issuer as
collateral for the obligations of a Hedge Counterparty under a Hedge Transaction.
"Counterparty Downgrade Collateral Account" means an interest bearing account of the Issuer with
the Custodian into which all Counterparty Downgrade Collateral is to be deposited.
"Coverage Test" means each of the Class A Par Value Test, the Class A Interest Coverage Test, the
Class B Par Value Test, the Class B Interest Coverage Test, the Class C Par Value Test, the Class C
Interest Coverage Test, the Class D Par Value Test, the Class D Interest Coverage Test, the Class E Par
Value Test, the Class E Interest Coverage Test and the Collateral Enhancement Ratio Test.
Coverage Test and Ratio
Class A Par Value Ratio
Class A Interest Coverage Ratio
Class B Par Value Ratio
Class B Interest Coverage Ratio
Class C Par Value Ratio
Class C Interest Coverage Ratio
Class D Par Value Ratio
Class D Interest Coverage Ratio
Class E Par Value Ratio
Class E Interest Coverage Ratio
Collateral Enhancement Ratio
Percentage at which Test is satisfied
118.09%
120.00%
115.81%
120.00%
110.16%
110.00%
108.11%
105.00%
104.41%
102.00%
105.41%
"Credit Event" with respect to a Synthetic Security or a Credit-Linked Obligation will have the
meaning specified therein.
"Credit Improved Obligation" means any Collateral Debt Obligation which in the Collateral
Manager's judgement has improved in credit quality since the date on which such Collateral Debt
Obligation was purchased and, unless the holders of the majority of the aggregate Principal Amount
Outstanding of the Controlling Class of Notes have voted to suspend this proviso, if:
(a)
the ratings of any of the Senior Notes have been reduced by at least one sub-category from
those in existence at the Issue Date or are withdrawn by either Rating Agency; or
71
(b)
the ratings of any of the Mezzanine Notes have been reduced by at least two rating subcategories from those in existence at the Issue Date or are withdrawn by either Rating Agency,
then
(i)
the public credit rating or confidential credit estimate of such Collateral Debt Obligation must
have been upgraded by at least one rating sub-category by the applicable Rating Agency or put
on a watch list for possible upgrade by any nationally recognised investment rating agency; or
(ii)
the obligor in respect of such Collateral Debt Obligation has shown improved financial results;
or
(iii)
the obligor in respect of such Collateral Debt Obligation has raised equity capital or other
capital which has significantly improved the liquidity or credit standing of such obligor; or
(iv)
such Collateral Debt Obligation has increased in price to 100.5 per cent. or more of the
original purchase price thereof; or
(v)
(1) in the case of a Senior Secured Loan, a Mezzanine Obligation or a Second Lien Loan, the
spread over the applicable reference rate for such Collateral Debt Obligation has been
decreased since the date of purchase by (a) 0.25 per cent. or more (in the case of a Senior
Secured Loan, a Mezzanine Obligation or a Second Lien Loan with a spread (prior to such
decrease) less than or equal to 2.00 per cent.), (b) 0.375 per cent. or more (in the case of a
Senior Secured Loan, a Mezzanine Obligation or a Second Lien Loan with a spread (prior to
such decrease) greater than 2.00 per cent. but less than or equal to 4.00 per cent.), (c) 0.50 per
cent. or more (in the case of a Senior Secured Loan, a Mezzanine Obligation or a Second Lien
Loan with a spread (prior to such decrease) greater than 4.00 per cent.) due, in each case, to an
improvement in the related borrower's financial ratios or financial results in accordance with
the Underlying Instrument or (2) with respect to a Senior Secured Loan, a Mezzanine
Obligation or a Second Lien Loan, such Collateral Debt Obligation changed in price during
the period from the date on which it was purchased by the Issuer to the date of determination
by a percentage either more positive, or less negative, as the case may be, than the percentage
change in any index selected by the Collateral Manager (acting on behalf of the Issuer)
(including any index created by the Collateral Manager, provided that upon such application
of any such index the Collateral Manager shall provide the Rating Agencies with a description
of the methodology of any such index together with any other information relating to such
index as either Rating Agency may reasonably require) that is representative of the underlying
credit, as determined in the sole discretion of the Collateral Manager (acting on behalf of the
Issuer), plus 1.00 per cent. over the same period,
in each case, since the date on which such Collateral Debt Obligation was purchased by the Issuer and
provided further that a Synthetic Security shall constitute a Credit Improved Obligation in the event
that either the Synthetic Security itself constitutes a Credit Improved Obligation or the Reference
Obligation to which such Collateral Debt Obligation is linked would constitute a Credit Improved
Obligation if it were itself a Collateral Debt Obligation.
"Credit-Linked Obligation" means a Synthetic Security that is one or more swap transactions,
securities or instruments that, taken together:
(a)
are classified as debt for U.S. federal income tax purposes; and
(b)
provide for:
(i)
periodic cash payments from the Synthetic Counterparty to the Issuer calculated at a
stated rate or spread on an amount stated therein;
(ii)
early termination, redemption or maturity thereof upon the occurrence of a Credit
Event;
(iii)
upon such early termination, redemption or maturity as a result of a Credit Event:
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(iv)
(A)
a final cash settlement payment (or release of Synthetic Collateral by the Issuer
to the Synthetic Counterparty or by the Synthetic Counterparty to the Issuer in a
stated amount calculated by reference to the change in the market value thereof)
or the market value or a stated reference price of the related Reference
Obligation at the time of termination, redemption or maturity; and/or
(B)
physical delivery by the Synthetic Counterparty to the Issuer of one of more
Deliverable Obligations; and
if no Credit Event has occurred, a final cash settlement payment or return of Synthetic
Collateral, as applicable, by the Synthetic Counterparty to the Issuer (or, in the case of
Clause (B) below, by the Issuer to the Synthetic Counterparty, if applicable) in a stated
amount equal to:
(A)
an initial payment or initial posting of Synthetic Collateral, as applicable, if any,
made by the Issuer to the Synthetic Counterparty at the time of purchase thereof
or other stated amount if there is no early termination; or
(B)
a termination amount or redemption payment determined in accordance with a
specified methodology if an early termination, redemption or maturity occurs
for any reason other than as a result of a Credit Event.
"Credit Risk Obligation" means any Collateral Debt Obligation (other than a Defaulted Obligation)
which, in the Collateral Manager's judgement, has declined in credit quality or has a risk of declining in
credit quality and, with a lapse of time, becoming a Defaulted Obligation or which has otherwise been
so designated by the Collateral Manager, provided however that, unless the holders of the majority of
the aggregate Principal Amount Outstanding of the Controlling Class of Notes have voted to suspend
this proviso, if:
(a)
the ratings of any of the Senior Notes assigned by Moody's have been reduced by at least one
sub-category from those in existence at the Issue Date or are withdrawn by Moody's;
(b)
or the ratings of any of the Mezzanine Notes assigned by Moody's have been reduced by at
least two rating sub-categories from those in existence at the Issue Date or are withdrawn by
Moody's, then:
(i)
the public credit rating or confidential credit estimate of such Collateral Debt
Obligation must have been downgraded by at least one sub-category by Moody's or put
on a list for possible downgrade by Moody's since the date of acquisition thereof; or
(ii)
if the Collateral Debt Obligation is a Structured Finance Obligation, the issuer thereof
has failed any of its Coverage Tests or is paying interest "in kind"; or
(iii)
(1) in the case of a Senior Secured Loan, a Mezzanine Obligation or a Second Lien
Loan, the spread over the applicable reference rate for such Collateral Debt Obligation
has been increased since the date of purchase by (a) 0.25 per cent. or more (in the case
of a Senior Secured Loan, a Mezzanine Obligation or a Second Lien Loan with a
spread (prior to such increase) less than or equal to two per cent.), (b) 0.375 per cent. or
more (in the case of a Senior Secured Loan, a Mezzanine Obligation or a Second Lien
Loan with a spread (prior to such increase) greater than two per cent. but less than or
equal to four per cent.), (c) 0.50 per cent. or more (in the case of a Senior Secured
Loan, a Mezzanine Obligation or a Second Lien Loan with a spread (prior to such
increase) greater than four per cent.) due, in each case, to a deterioration in the related
borrower's financial ratios or financial results in accordance with the Underlying
Instrument or (2) with respect to Senior Secured Loan, a Mezzanine Obligation or a
Second Lien Loan, such Collateral Debt Obligation changed in price during the period
from the date on which it was purchased by the Issuer to the date of determination by a
percentage either more negative, or less positive, as the case may be, than the
percentage change in any index selected by the Collateral Manager (acting on behalf of
the Issuer) (including any index created by the Collateral Manager, provided that upon
such application of any such index the Collateral Manager shall provide the Rating
Agencies with a description of the methodology of any such index together with any
73
other information relating to such index as either Rating Agency may reasonably
require) that is representative of the underlying credit, as determined in the sole
discretion of the Collateral Manager (acting on behalf of the Issuer) less one per cent.
over the same period,
provided further that a Synthetic Security shall constitute a Credit Risk Obligation in the event that
either the Synthetic Security itself constitutes a Credit Risk Obligation or the Reference Obligation to
which such Collateral Debt Obligation is linked would constitute a Credit Risk Obligation if it were
itself a Collateral Debt Obligation.
"Currency Hedge Agreement" means any 1992 ISDA Master Agreement (Multi-Currency Cross
Border) or 2002 ISDA Master Agreement (or such other ISDA pro forma Master Agreement as may be
published by ISDA from time to time) and the schedule relating thereto entered into between the Issuer
and a Currency Hedge Counterparty, including any guarantee thereof and any credit support annex
entered into pursuant to the terms thereof and together with each confirmation entered into thereunder
in respect of a Currency Hedge Transaction and including any Replacement Currency Hedge
Agreement entered into and replacement thereof provided always that each such Currency Hedge
Agreement will either be Form-Approved or otherwise be in a form in respect of the terms of which
Rating Agency Confirmation has been received.
"Currency Hedge Counterparty" means any financial institution which, at the time it enters into a
Currency Hedge Agreement, satisfies the applicable Required Rating and which has the regulatory
capacity, as a matter of Dutch law, to enter into derivative transactions with residents domiciled in the
Home Jurisdiction.
"Currency Hedge Replacement Receipt" means any amount payable by the Currency Hedge
Counterparty to the Issuer upon entry into a Replacement Currency Hedge Agreement which is
replacing a Currency Hedge Agreement which has been terminated.
"Currency Hedge Termination Payment" means any amount payable by the Issuer to a Currency
Hedge Counterparty upon termination (in whole or in part) of a Currency Hedge Agreement.
"Currency Hedge Termination Receipt" means any amount payable by the Currency Hedge
Counterparty to the Issuer upon termination of a Currency Hedge Agreement in whole or in part.
"Currency Hedge Transaction" means a currency hedge transaction (including any currency options
and any forwards) or foreign exchange transaction entered into in respect thereof under a Currency
Hedge Agreement, including each Replacement Currency Swap Transaction entered into in
replacement therefor.
"Currency Swap Termination Payment" means, collectively, (a) any Currency Hedge Termination
Payment and (b) any Asset Swap Termination Payment.
"Currency Swap Termination Receipt" means, collectively, (a) any Currency Hedge Termination
Receipt and (b) any Asset Swap Termination Receipt.
"Current Pay Obligation" means a Collateral Debt Obligation that would otherwise be a Defaulted
Obligation which is designated as such by the Collateral Manager at the relevant time and as to which
(i) no principal and interest payments are due and unpaid and the Collateral Manager reasonably
expects that future principal and interest payments due will be paid in cash, (ii) if the Obligor of such
Collateral Debt Obligation is subject to a bankruptcy proceeding, a bankruptcy court has authorised the
payment of principal and interest due and payable on such Collateral Debt Obligation, and (iii) (A) the
Collateral Debt Obligation has a rating of at least Caa2 or CCC and the Market Value is equal to or
greater than 80 per cent. of its current outstanding Principal Balance if it has a rating of at least Caa1 or
CCC or 85 per cent. of its current outstanding Principal Balance if it has a rating of at least Caa2 or
CCC, provided always that no more than five per cent. of the CDO Principal Balance (for the
avoidance of doubt, less any amount of Collateral Debt Obligations that are defined with respect to (B)
as follows) may be comprised of Current Pay Obligations that have a rating of at least Caa2 or CCC or
(B) the Collateral Debt Obligation has a Market Value that is equal to or greater than 80 per cent. of its
current outstanding Principal Balance and does not have a rating of at least Caa2 or CCC, provided
always that no more than five per cent. of the CDO Principal Balance at any time may be comprised of
Current Pay Obligations that do not have a rating of at least Caa2 or CCC. For the avoidance of doubt,
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a Collateral Debt Obligation that has a Market Value of less than 80 per cent. of its current outstanding
Principal Balance shall not be deemed to be a Current Pay Obligation.
"Custody Accounts" means the securities accounts established for the Issuer and identified as subledgers of the global custody account of the Custodian, into which certain Collateral Debt Obligations
owned by the Issuer shall be deposited from time to time, and which shall at all times be held and
administered outside The Netherlands in accordance with the provisions of the Agency Agreement
which term shall include, without limitation, the Euroclear Collateral Account, the Subordinated Notes
Collateral Debt Obligation Account, the Synthetic Collateral Account, any Counterparty Downgrade
Collateral Account (if required) and the cash accounts relating to such custody accounts (if any).
"Defaulted Equity Security" means any Equity Security or non-debt security delivered to the Issuer
upon acceptance of an Offer in respect of a Defaulted Obligation, including, without limitation, Margin
Stock.
"Defaulted Hedge Termination Payment" means any amount payable by the Issuer to a Hedge
Counterparty upon termination of any Hedge Transaction in respect of which the Hedge Counterparty
was the "Defaulting Party" or sole "Affected Party" (as such terms are defined in the applicable
Hedge Agreement).
"Defaulted Obligation" means a Collateral Debt Obligation (other than a Current Pay Obligation or a
DIP Collateral Obligation, neither of which shall be deemed a Defaulted Obligation) in respect of
which the Collateral Manager, or as to which the Collateral Manager has actual knowledge that:
(a)
it is in default in accordance with its terms as a result of non-payment of principal and/or
interest and has been in default for the lesser of three calendar days and any applicable grace
period (unless the Collateral Manager certifies in writing that in its reasonable judgement such
non-payment is minor or technical in nature and can be remedied within such grace period),
until such time that such default is cured or waived;
(b)
any administration, bankruptcy, insolvency or receivership proceeding has been initiated in
connection with the Obligor of such Collateral Debt Obligation and, except in the case of
voluntary proceedings, such proceeding remains unstayed and undismissed for at least 60
days;
(c)
a Collateral Debt Obligation which is subject to a Distressed Exchange which has become
binding upon the holders of such Collateral Debt Obligations generally;
(d)
it ranks pari passu with, or is subordinated to, another Senior Secured Loan, High Yield Bond,
Second Lien Loan, Mezzanine Obligation, Finance Lease or Structured Finance Obligation of
the same obligor, which obligation (A) satisfies the criteria in (a) above, and (B) is a full
recourse obligation;
(e)
it (i) for so long as any Notes rated by S&P are Outstanding, is rated "D" or "SD" by S&P (or
as to which S&P has withdrawn its rating and prior to such withdrawal such Collateral Debt
Obligation had a rating of "D" or "SD"), (ii) for so long as any Notes rated by Moody's are
Outstanding, has a public rating of "Ca" or less by Moody's or, with respect to a Structured
Finance Obligations, (x) has a Moody's Rating of "Ca" or below or (y) has an S&P Rating of
"CC" or below (or as to which S&P has withdrawn its rating and prior to such withdrawal such
Structured Finance Security had a rating of "CC" or lower);
(f)
it is a PIK Security under which cash payment of interest thereon has been deferred in
accordance with the terms thereof for (a) the lesser of a continuous period of more than two
payment periods with respect to such PIK Security, and (b) 12 months, which deferral is
continuing; or
(g)
it is a Participation in a loan or other debt security (a) that would, if such loan or other debt
security were a Collateral Debt Obligation, constitute a "Defaulted Obligation" (a "Defaulted
Participation Security"); or (b) other than with respect to a Defaulted Participation Security,
where the Selling Institution has defaulted in the performance of any of its payment
obligations under the related participation agreement,
75
provided that:
(i)
a Synthetic Security shall be considered a Defaulted Obligation if the Reference Obligation to
which such Synthetic Security is linked would constitute a Defaulted Obligation, (if it were
itself a Collateral Debt Obligation), or it is a Synthetic Security in respect of which a Synthetic
Counterparty Default has occurred;
(ii)
any such Collateral Debt Obligation which has been exchanged for or converted into another
security of the same obligor which is a Current Pay Obligation, shall not be considered a
Defaulted Obligation; and
(iii)
notwithstanding the foregoing, the Collateral Manager may declare any Collateral Debt
Obligation to be a Defaulted Obligation if, in the Collateral Manager's reasonable business
judgement, the credit quality of the issuer or obligor of such Collateral Debt Obligation has
significantly deteriorated such that the Collateral Manager has a reasonable expectation of
payment default as of the next scheduled payment date with respect to such Collateral Debt
Obligation.
"Deferred Collateral Management Amount" means such amount of the Subordinated Collateral
Management Fee otherwise accrued and payable to the Collateral Manager on any Payment Date in
accordance with the Priorities of Payment that the Collateral Manager has, in its sole discretion,
designated for reinvestment by providing written notice thereof to the Collateral Administrator not later
than one Business Day prior to the relevant Determination Date of the amounts so designated and
which designated amounts shall: (a) be used to purchase Substitute Collateral Debt Obligations or
deposited in the Principal Account pending reinvestment in Substitute Collateral Debt Obligations, (b)
be payable pro rata to the Collateral Manager and any former collateral managers or advisers by
reference to the period of time that such entity was the "Collateral Manager" and (c) continue to
constitute Deferred Collateral Management Amounts until such time as the Collateral Manager
otherwise advises the Collateral Administrator in writing no later than one Business Day prior to the
relevant Determination Date. For the avoidance of doubt, the Collateral Manager may only elect to
defer amounts that would have been paid if no deferrals had taken place on the relevant Payment Date.
Interest on Subordinated Collateral Management Fees which have been designated as Deferred
Collateral Management Amounts shall accrue at the rate of Note EURIBOR.
"Deferred Interest" has the meaning given thereto in Condition 6(c) (Deferral of Interest).
"Definitive Certificate" means a certificate representing one or more Notes in definitive, fully
registered form.
"Delayed Drawdown Collateral Obligation" means a Collateral Debt Obligation that (a) requires the
Issuer to make one or more future advances to the borrower under the Underlying Instruments relating
thereto either in Euro or, if not in Euro, the Issuer has entered into an Asset Swap Transaction with
respect thereto, (b) specifies a maximum amount that can be borrowed on one or more borrowing dates,
(c) does not permit the re-borrowing of any amount previously repaid, (d) only requires the Issuer to
provide future advance in the currency in which such Delayed Drawdown Collateral Obligation is
denominated and (e) does not involve a borrower resident in The Netherlands who or which is not
acting in the conduct of a business or profession; but any such Collateral Debt Obligation will be a
Delayed Drawdown Collateral Obligation only until all commitments to make advances to the
borrower expire or are terminated or reduced to zero and only to the extent of any unfunded
commitment of the Issuer under the Underlying Instrument.
"Delayed Settlement Compensation" has the meaning ascribed to it in the Loan Market Association's
standard terms and conditions for par trade transactions.
"Deliverable Obligation" means a debt obligation or other security that is or may be delivered to or by
the Issuer upon the occurrence of certain Credit Events under a Synthetic Security where "physical
settlement" applies and that satisfies the definition of "Collateral Debt Obligation" at the time of entry
into such Synthetic Security; provided that in the event that delivery of such Deliverable Obligation by
the Issuer is not possible in accordance with the terms of such Synthetic Security, the alternative cash
settlement amount specified therein may be applicable and with respect to any Credit-Linked
Obligation, such security may, if specified therein, (i) consist of a class of securities or indebtedness of
76
a specific seniority or a specific issuance of outstanding securities and/or (ii) be subject to replacement
with other obligations of the issuer of such security upon specified Conditions.
Notwithstanding any provision to the contrary contained herein, the Issuer may accept the delivery of
an obligation that does not, at the time of such delivery, meet the requirements set forth in the
definition of "Deliverable Obligation".
"Determination Date" means the last Business Day of each Due Period, or in the event of any
redemption of the Notes, following the occurrence of an Event of Default, the applicable Redemption
Date.
"DIP Collateral Obligation" means a loan that is:
(a)
an obligation of a debtor in possession as described in Section 1107 of the Bankruptcy Code
(or a trustee if appointment of a trustee has been ordered);
(b)
paying interest on a current basis;
(c)
rated by Moody's and S&P (or at least has an estimated rating by S&P at the time of
purchase); and
(d)
approved by an order of the United States Bankruptcy Court, the United States District Court
or any other court of competent jurisdiction, the enforceability of which order is not subject to
any pending contested matter or proceeding. The order must provide in effect that:
(i)
the DIP loan is secured by liens on the debtor's otherwise unencumbered assets;
(ii)
the DIP loan is secured by liens of equal or senior priority on property of the debtor's
estate that is otherwise subject to a lien;
(iii)
the DIP loan is secured by junior liens on the debtor's encumbered assets and is fully
secured based upon a current valuation or appraisal report; or
(iv)
if the DIP loan or any portion thereof is unsecured, the repayment of such DIP loan
retains priority over all other administrative expenses.
"Discount Obligation" means (a) in the case of any Collateral Debt Obligation (other than High Yield
Bonds), any such Collateral Debt Obligation acquired by, or on behalf of, the Issuer for a purchase
price (excluding accrued interest thereon) of less than 85 per cent. of the principal amount of such
Collateral Debt Obligation, and (b) in the case of any High Yield Bonds, any High Yield Bond
acquired by, or on behalf of, the Issuer for a purchase price (excluding accrued interest thereon) of less
than 80 per cent. of the principal amount of such High Yield Bond, in each case, provided that such
Collateral Debt Obligation shall cease to be a Discount Obligation where the Market Value thereof
determined in accordance with either clause (a)(i) to (iv) of such definition for any period of 30
consecutive Business Days equals or exceeds 90 per cent. of the principal amount of such Collateral
Debt Obligation (as certified by the Collateral Manager to the Issuer, Trustee and Collateral
Administrator).
"Distressed Exchange" means any distressed exchange or other debt restructuring where the Obligor
of such Collateral Debt Obligation has offered the class of holders of the Collateral Debt Obligation
generally a new obligation or package of obligations which in the judgement of the Collateral Manager
should constitute a Defaulted Obligation as a result of such new obligation or package of obligations
either (a) amounting to a diminished financial obligation, or (b) having the purpose of helping the
obligor of such Collateral Debt Obligation to avoid a payment default.
"Distribution" means any payment of principal or interest or any dividend or premium or other amount
or asset paid or delivered on or in respect of any Collateral Debt Obligation, any Collateral
Enhancement Obligation, any Synthetic Collateral, any Equity Security, any Eligible Investment or any
Asset Swap Obligation.
"DTC" means the Depository Trust Company.
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"Due Date" means each date on which a Distribution is due and payable on, or in respect of, a
Collateral Debt Obligation.
"Due Period" means, with respect to any Payment Date, the period commencing on the day
immediately following the eighth Business Day prior to the preceding Payment Date (or on the Issue
Date, in the case of the Due Period relating to the first Payment Date) and ending on the eighth
Business Day prior to such Payment Date (or, in the case of the Due Period applicable to the Payment
Date which is the Maturity Date or the Redemption Date of any Note, ending on the day preceding
such Payment Date) both inclusive.
"Dutch Ineligible Security" means any and all:
(a)
securities or interests in securities which are bearer instruments (effecten aan toonder)
physically located in The Netherlands or registered shares (aandelen op naam) in a
Netherlands corporate entity where the Issuer owns such bearer instruments or registered
shares directly and in its own name; or
(b)
securities or interests in securities, the purchase or acquisition of which by or on behalf of the
Issuer would cause the breach of applicable Dutch selling or transfer restrictions or of
applicable Dutch laws relating to the offering of securities or of collective investment
schemes; or
(c)
obligations or instruments which are convertible into or exchangeable for the securities
referred to in (a) above.
"Effective Date" means the first Business Day following the end of the Investment Period (prior to any
extension thereof) or, if earlier, the date specified as such by the Collateral Manager in accordance with
the terms of the Collateral Management Agreement.
"Effective Date Rating Downgrade" means either (a)(i) the initial ratings of the Rated Notes are
downgraded or withdrawn by the Rating Agencies or (ii) either of the Rating Agencies notifies the
Issuer or the Collateral Manager on behalf of the Issuer that such Rating Agency intends to downgrade
or withdraw its initial ratings of the Rated Notes, in each case, upon request for confirmation thereof to
the Rating Agencies by the Collateral Manager, acting on behalf of the Issuer, within 30 days following
the Effective Date pursuant to the terms of the Collateral Management Agreement or (b) the Effective
Date Required Ratings are not satisfied on the Effective Date.
"Effective Date Required Ratings" means, as at the Effective Date (unless each Rating Agency
waives any such requirement at the request of the Collateral Manager), each of the Portfolio Profile
Tests, Collateral Quality Tests and the Coverage Tests being satisfied on such date (provided, however,
that the Issuer shall only be required to satisfy the Class A Interest Coverage Test, the Class B Interest
Coverage Test, the Class C Interest Coverage Test, the Class D Interest Coverage Test and the Class E
Interest Coverage Test on or after the earlier of the Effective Date and the second Determination Date),
and the Issuer having acquired or entered into binding commitments to acquire Collateral Debt
Obligations the Aggregate Principal Balance of which equals or exceeds the Target Par Amount by
such date provided that for the purposes of determining the Aggregate Principal Balance in connection
with the Target Par Amount any prepayments or repayments of Collateral Debt Obligations or sales of
Credit Risk Obligations, in each case, subsequent to the Issue Date shall be disregarded and no
Collateral Debt Obligation will be treated as a Defaulted Obligation.
"Eligibility Criteria" means the criteria set out in Schedule 4 (Eligibility Criteria) to the Collateral
Management Agreement which each Collateral Debt Obligation is required to satisfy at the time the
Issuer enters into a binding commitment to acquire each such Collateral Debt Obligation.
"Eligible Investments" means any investment denominated in the currency of the relevant account that
is also the currency of a Non-Emerging Market Country, the acquisition (including the manner of
acquisition), ownership, enforcement or disposition of which will not cause the Issuer to be treated as
engaged in a trade or business within the United States for U.S. federal income tax purposes, that are
acquired and held in a manner that does not violate the investment restrictions set forth in the Collateral
Management Agreement and the nature of which do not violate the investment restrictions set forth in
the Collateral Management Agreement, and in the event that it is an obligation of a company
incorporated in, or a sovereign issuer of the United States, is Registered at the time it is acquired, is not
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a security that has an "r" or "t" subscript from S&P and is one or more of the following obligations or
securities, including, without limitation, any Eligible Investments for which the Custodian, the Trustee
or the Collateral Manager or an Affiliate of any of them provides services:
(a)
direct obligations of, and obligations the timely payment of principal of and interest under
which is fully and expressly guaranteed by, a Qualifying Country or any agency or
instrumentality of a Qualifying Country, the obligations of which are fully and expressly
guaranteed by a Qualifying Country;
(b)
demand and time deposits in, certificates of deposit of and bankers' acceptances issued by any
depository institution or trust company (including the Account Bank) incorporated under the
laws of a Qualifying Country which is subject to supervision and examination by
governmental banking authorities so long as the commercial paper and/or the debt obligations
of such depository institution or trust company (or, in the case of the principal depository
institution in a holding company system, the commercial paper or debt obligations of such
holding company) at the time of such investment or contractual commitment providing for
such investment have, for so long as there are Rated Notes which are Outstanding:
(c)
(i)
a long-term debt credit rating of at least "Aa2" from Moody's and at least "AAA" from
S&P (the "E1 Minimum Long-Term Rating"); or
(ii)
a short-term debt rating of P-1 from Moody's, "A-1" from S&P (the "E1 Minimum
Short-Term Rating"), provided that no more than 20 per cent. of the Principal Balance
of such Eligible Investments can consist of commercial paper and short-term debt
obligations with a short-term credit rating equal to "A-1" from S&P and a maturity of
no longer than 30 days provided that such Eligible Investment may be rolled over in
accordance with its terms subject, in all respects, to the requirements of this paragraph
(b)(ii),
subject to Rating Agency Confirmation, unleveraged repurchase obligations with respect to:
(i)
any obligation described in paragraph (a) above; or
(ii)
any other security issued or guaranteed by an agency or instrumentality of a Qualifying
Country, in either case entered into with a depository institution or trust company
(acting as principal) described in paragraph (b) above or entered into with a corporation
(acting as principal) whose long-term debt obligations are rated not less than the E1
Minimum Long-Term Rating or whose short-term debt obligations are rated not less
than the E1 Minimum Short-Term Rating at the time of such investment; provided, that
if such security has a maturity of longer than 91 days, the issuer thereof must also have
at the time of such investment a long-term credit rating of not less than the E1
Minimum Long-Term Rating,
(d)
securities bearing interest or sold at a discount issued by any corporation incorporated under
the laws of a Qualifying Country that have a credit rating of not less than the E1 Minimum
Long-Term Rating at the time of such investment or contractual commitment providing for
such investment;
(e)
commercial paper or other short-term obligations having at the time of such investment a
credit rating of not less than the E1 Minimum Short-Term Rating and that either are bearing
interest or are sold at a discount from the face amount thereof and have a maturity of not more
than 183 days from their date of issuance; provided, that if such security has a maturity of
longer than 91 days, the issuer thereof must also have, at the time of such investment, a longterm credit rating of not less than the E1 Minimum Long-Term Rating;
(f)
off-shore funds or funds established in any Qualifying Country investing in, among other
assets, transferable listed securities and/or the money markets rated, at all times, not less than
"AAAm" or "AAAm-G" by S&P and "Aaa" and "MRI+" by Moody's; and
(g)
any other investment similar to those described in paragraphs (a) to (f) (inclusive) above:
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(i)
in respect of which Rating Agency Confirmation has been received that entry into such
investment and its inclusion in the Portfolio will not cause the reduction or withdrawal
of the then current ratings of any Rated Notes; and
(ii)
which has, in the case of an investment with a maturity of longer than 91 days, a longterm credit rating not less than the E1 Minimum Long-Term Rating or, in the case of
investment with a maturity of 91 days or less, a short-term credit rating of not less than
the E1 Minimum Short-Term Rating,
in each case and, subject as provided below, at the time the Issuer enters into a binding
commitment to buy and, in each case, with a Stated Maturity (giving effect to any applicable
grace period) no later than the second Business Day immediately preceding the next Payment
Date; provided however, that Eligible Investments shall not include Dutch Ineligible
Securities, any mortgage backed security, interest-only security, security subject to
withholding, capital gains or similar taxes, security purchased at a price in excess of 100 per
cent. of par, security whose repayment is subject to substantial non-credit related risk, each as
determined by the Collateral Manager in its discretion or security whose rating is on watch for
downgrade. For Eligible Investments in which amounts on deposit in the Additional Collateral
Account, Synthetic Collateral Accounts, Revolving Reserve Account or Counterparty
Downgrade Collateral Account are invested, such Eligible Investments must by its terms
mature overnight.
"Enforcement Actions" is as defined in Condition 11(b) (Enforcement).
"Equity Security" means (a) any equity security or other security that is not eligible for purchase by
the Issuer as a Collateral Debt Obligation and is received with respect to a Collateral Debt Obligation
or (b) any security purchased as part of a "unit" with a Collateral Debt Obligation and that itself is not
eligible for purchase by the Issuer as a Collateral Debt Obligation and, for avoidance of doubt, includes
a Defaulted Equity Security, Margin Stock and, to the extent applicable, a Collateral Enhancement
Obligation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Debt Notes" means the Class A Notes, the Class B Notes, the Class C Notes and the Class D
Notes.
"ERISA Limited Notes" means the Class E Notes and the Subordinated Notes.
"Euroclear" means Euroclear Bank S.A./N.V.
"Euroclear Collateral" means the Collateral Debt Obligations and Eligible Investments from time to
time credited to the Euroclear Collateral Account by or for the account of the Pledgor which are held in
Euroclear from time to time; if Euroclear Collateral are part of a series of securities which at any time
are exchanged into other securities or gives rise to the distribution of other securities or rights thereto,
then such other securities shall also constitute Euroclear Collateral and are subject to the Euroclear
Pledge Agreement.
"Euroclear Collateral Account" means the securities account that the Custodian may from time to
time designate and notify to the Issuer and the Trustee held in Euroclear in the name of the Custodian
into which the Euroclear Collateral will be deposited and credited from time to time in accordance with
the provisions of the Transaction Documents.
"Euroclear Pledge Agreement" means the Belgian law pledge agreement dated 30 October 2007
between the Issuer and the Trustee.
"Euro Equivalent" means in the case of amounts denominated in a currency other than Euro standing
to the credit of an Asset Swap Account, an Interest Account, the Principal Account or the Subordinated
Notes Principal Account, as applicable, which are scheduled to be paid by the Issuer under an Asset
Swap Transaction or a Currency Hedge Transaction on the next following Payment Date, an amount
expressed in Euro calculated using any applicable Asset Swap Transaction Exchange Rate on the
relevant date.
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"Euro-zone" has the meaning given thereto in Condition 6 (Interest).
"Event of Default" means each of the events defined as such in Condition 10(a) (Events of Default).
"Exchanged Credit Risk Obligation" means a Credit Risk Obligation, the Sale Proceeds of which are
used to purchase another Credit Risk Obligation in accordance with the Collateral Management
Agreement.
"Exchanged Defaulted Obligation" means a Defaulted Obligation, the Sale Proceeds of which are
used to purchase another Defaulted Obligation in accordance with the Collateral Management
Agreement.
"Exchanged Obligation" means an Exchanged Defaulted Obligation or an Exchanged Credit Risk
Obligation.
"Expense Reserve Account" means an interest bearing account in the name of the Issuer, held with the
Account Bank, the amounts standing to the credit of which from time to time may be applied in
accordance with paragraph (D) of the Interest Proceeds Priority of Payments.
"Extraordinary Resolution" means, in relation to any Class of Noteholders, a written resolution of, or
resolution passed (at a meeting of such Class of Noteholders duly convened and held in accordance
with the Trust Deed) by, the Noteholders of such Class holding in aggregate at least 66⅔ per cent. of
the aggregate Principal Amount Outstanding of such Class of Notes represented at the meeting and
which, for avoidance of doubt, shall not include a Special Quorum Resolution.
"Finance Lease" means any lease agreement or other agreement entered into with any Person (other
than any Dutch resident lessee that is a consumer or a retail lessee) in connection with and evidencing a
transaction pursuant to which the obligations of the lessee to pay rent or other amounts under any lease
of (or other arrangement conveying the right to use) property are on a triple net basis and would be
required under generally accepted accounting principles to be classified and accounted for as a finance
lease on the balance sheet of such lessee; but only if such lease provides for the unconditional
obligation of the lessee to pay the economic equivalent of a stated amount of principal no later than a
stated maturity date, together with interest thereon (which interest may be imputed); the obligations of
the lessee in respect of such lease are fully secured, directly or indirectly, by the property that is the
subject of such lease; at the time of purchase such Finance Lease is rated by S&P and S&P shall have
assigned an S&P Recovery Rate or Moody's shall have assigned a Moody's Recovery Rate equal to, in
respect of Moody's only, its recovery rate for senior secured obligations and the payment of such
obligation is not subject to any material non-credit related risk.
"Floating Rate Notes" means the Class A Notes, the Class B Notes, the Class C Notes, the Class D
Notes and the Class E Notes.
"Form-Approved" means swap documentation the form and structure of which conform (save for
agreed trade specific details such as the amount and timing of periodic payments, the name of the
Reference Obligation and Reference Obligor, the notional amount, the effective date, the termination
date and other consequential and immaterial changes) to a form approved by the Rating Agencies from
time to time.
"Foundation" means Stichting Morgan Stanley Investment Management Mezzano, a foundation
(stichting) established under the laws of The Netherlands.
"Hedge Agreement" means any Asset Swap Agreement, Currency Hedge Agreement or Interest Rate
Hedge Agreement.
"Hedge Counterparty" means any Asset Swap Counterparty, Currency Hedge Counterparty or
Interest Rate Hedge Counterparty.
"Hedge Transaction" means any Asset Swap Transaction, Currency Hedge Transaction or Interest
Rate Hedge Transaction.
"High Yield Bond" means:
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(a)
a subordinated debt security which, on acquisition by the Issuer, is either rated below
investment grade by at least one internationally recognised credit rating agency (provided that,
if such debt security is, at any time following acquisition by the Issuer, no longer rated by at
least one internationally recognised credit rating agency as below investment grade it will not,
as a result of such change in rating, fall outside this definition) or which is a high yielding debt
security, in each case as determined by the Collateral Manager, excluding any debt security
which is secured directly on, or represents the ownership of, a pool of consumer receivables,
auto loans, auto leases, equipment leases, home or commercial mortgages, corporate debt or
sovereign debt obligations or similar assets, including, without limitation, collateralised bond
obligations, collateralised loan obligations or any similar security and is not a loan or a
Structured Finance Obligation; or
(b)
a Synthetic Security, the Reference Obligation applicable to which is a high-yield bond of the
type described in paragraph (a) above.
"Home Jurisdiction" means, The Netherlands or, in the event that the place of residence of the Issuer
is changed in accordance with Condition 14(e) (Substitution), the jurisdiction of the new place of
residence of the Issuer.
"Incentive Management Fee" means the incentive management fee due and payable to the Collateral
Manager on the first Payment Date on which the Subordinated Noteholders receive the Subordinated
Note Hurdle Return Amount and on each Payment Date thereafter and is equal to 20 per cent. of the
cash flow, if any, remaining available for distribution after payments prior thereto in accordance with
the Priorities of Payments.
"Interest Account" means the Issuer's account into which Interest Proceeds are to be credited.
"Interest Accrual Period" means the period from, and including, the Issue Date to, but excluding, the
first Payment Date and each successive period from, and including, each Payment Date to, but
excluding, the following Payment Date.
"Interest Amount" means the amount of interest payable by the Issuer in respect of each Class of
Notes in accordance with Conditions 6(e) (Floating Rate Interest on Class A Notes, Class B Notes,
Class C Notes, Class D Notes and Class E Notes) and 6(f) (Interest on the Subordinated Notes), as
applicable.
"Interest Coverage Numerator" means, on any particular Measurement Date:
(a)
the Balance standing to the credit of the Interest Account and the Expense Reserve Account
and the Retained Portion Release Amount in respect of the next succeeding Payment Date;
(b)
plus the scheduled interest payments (and any commitment fees due but not yet received in
respect of any Revolving Obligations or Delayed Drawdown Collateral Obligations) due but
not yet paid (in each case regardless of whether the applicable Due Date has yet occurred) in
the Due Period in which such Measurement Date occurs on:
(i)
the Collateral Debt Obligations (save for any Asset Swap Obligations) excluding (x)
interest on any Collateral Debt Obligation to the extent that such Collateral Debt
Obligation does not provide for the scheduled payment of interest in cash by its terms
and (y) any amounts expected to be withheld at source or otherwise deducted in respect
of taxes plus any amounts expected to be reimbursed in respect of taxes withheld at
source or otherwise deducted; and
(ii)
the Principal Account, the Subordinated Notes Principal Account, the Interest Account,
the Additional Collateral Account, the Subordinated Notes Additional Collateral
Account, the Collateral Enhancement Account, the Retained Portion Account and any
Asset Swap Account,
but excluding:
(i)
accrued and unpaid interest on Defaulted Obligations unless amounts exceeding 100
per cent. of the principal amount of such Defaulted Obligations are actually paid;
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(ii)
any amounts, to the extent that such amounts if not paid will not give rise to a default
under the relevant Collateral Debt Obligation (including any PIK interest which has
been deferred in respect of any Mezzanine Obligation);
(iii)
interest on any Collateral Debt Obligation which has not paid cash interest on a current
basis in respect of the lesser of (A) twelve months and (B) its two most recent interest
periods;
(iv)
any scheduled interest payments as to which the Issuer or the Collateral Manager has
actual knowledge that such payment will not be made;
(v)
any Purchased Accrued Interest; and
(vi)
any Interest Proceeds which the Collateral Manager reasonably believes will be
deposited into a Retained Portion Account,
(c)
plus any Scheduled Interest Rate Hedge Counterparty Payments due and payable from the
Interest Rate Hedge Counterparty to the Issuer on or before the Business Day prior to the
Payment Date relating to the Due Period in which such Measurement Date occurs (regardless
of whether the scheduled date for payment has yet occurred), but excluding any such payments
as to which the Issuer or the Collateral Manager has actual knowledge that such payment will
not be made;
(d)
plus scheduled periodic payments payable to the Issuer under any Asset Swap Transaction or
Currency Hedge Transaction due and payable but not yet paid (regardless of whether the
scheduled date for payment has yet occurred) in the Due Period in which such Measurement
Date falls, but excluding any such payments as to which the Issuer or the Collateral Manager
has actual knowledge that such payment will not be made;
(e)
minus any Scheduled Interest Rate Hedge Issuer Payments, any Scheduled Currency Swap
Issuer Payments, any other amounts payable pursuant to paragraphs (A) to (F) (inclusive) of
Condition 3(c)(i) (Application of Available Interest Proceeds) on the following Payment Date
and any amounts due and payable but not yet paid in the Due Period in which such
Measurement Date falls under Condition 3(i)(B)(V) (Interest Account);
(f)
in relation to any Unhedged Collateral Debt Obligation, Method 1 or Method 2 as the case
may be, as set out in the Collateral Management Agreement,
with amounts in (a) to (f) (inclusive) above converted into Euro to the extent necessary at the
applicable Spot Rate.
"Interest Determination Date" shall have the meaning specified in Condition 6(e) (Floating Rate
Interest on Class A Notes, Class B Notes, Class C Notes, Class D Notes and Class E Notes).
"Interest Proceeds" means all amounts paid, or payable into the Interest Account from time to time
and, with respect to any Payment Date, means all such amounts actually received by or on behalf of the
Issuer during the related Due Period, together with any Scheduled Interest Rate Hedge Counterparty
Payments payable on or before the Business Day prior to such Payment Date and any other amounts to
be disbursed out of the Payment Account as Interest Proceeds on such Payment Date pursuant to
Condition 3(i) (Accounts).
"Interest Proceeds Priority of Payments" means the priority of payments in respect of Interest
Proceeds set out in Condition 3(c)(i) (Application of Available Interest Proceeds).
"Interest Rate Hedge Agreement" means the 1992 ISDA Master Agreement (Multi-Currency CrossBorder) or 2002 ISDA Master Agreement (Multi-Currency Cross-Border) (or such other ISDA pro
forma Master Agreement as may be published by ISDA from time to time) and the Schedule relating
thereto, entered into between the Issuer and the Interest Rate Hedge Counterparty including any
guarantee thereof and any credit support annex entered into pursuant to the terms thereof and together
with each confirmation entered into by the Issuer from time to time in connection with the Issuer's
payment obligations under the Notes evidencing the Interest Rate Hedge Transactions, as amended,
supplemented or replaced from time to time including any Replacement Interest Rate Hedge
83
Agreement entered into in replacement thereof, provided always that each such Interest Rate Hedge
Agreement will be Form-Approved or otherwise in a form in respect of the terms of which Rating
Agency Confirmation has been received.
"Interest Rate Hedge Counterparty" means any financial institution which, at the time it enters into
an Interest Rate Hedge Agreement, satisfies the applicable Required Rating and which has the
regulatory capacity, as a matter of Dutch law, to enter into derivative transactions with residents
domiciled in the Home Jurisdiction.
"Interest Rate Hedge Replacement Receipt" means any amount payable to the Issuer by any Interest
Rate Hedge Counterparty upon entry into a Replacement Interest Rate Hedge Agreement which is
replacing an Interest Rate Hedge Agreement which has been terminated following the occurrence of an
"Event of Default" or "Termination Event" thereunder.
"Interest Rate Hedge Termination Payment" means any amount payable by the Issuer to an Interest
Rate Hedge Counterparty upon termination of the applicable Interest Rate Hedge Agreement in whole
or in part other than a Defaulted Hedge Termination Payment.
"Interest Rate Hedge Termination Receipt" means an amount payable by an Interest Rate Hedge
Counterparty to the Issuer upon termination of an Interest Rate Hedge Agreement in whole or in part
following the occurrence of an "Event of Default" or "Termination Event" thereunder.
"Interest Rate Hedge Transaction" means each interest rate swap or protection transaction (including,
without limitation, basis rate swaps) entered into pursuant to all Interest Rate Hedge Agreement.
"Intermediary Obligation" means an interest in a loan which is structured to be acquired indirectly by
lenders therein at or prior to primary syndication thereof, including pursuant to a collateralised deposit
or guarantee, a sub-participation, a credit default swap or other arrangement which has the same
commercial effect and which, in each case, is 100 per cent. collateralised by such lenders.
"Investment Company Act" means the United States Investment Company Act of 1940, as amended.
"Investment Gain" means in respect of any Collateral Debt Obligation which is repaid, prepaid,
redeemed or sold, the excess (if any) of the Principal Proceeds received in respect thereof over the
amount paid by the Issuer upon acquisition of such Collateral Debt Obligation, in each case net of any
expense incurred in connection with any acquisition or repayment, prepayment, redemption or sale
thereof, provided that where this calculation results in a negative number the Investment Gain shall be
deemed to be zero.
"Investment Gain Account" means the interest bearing account of the Issuer with the Account Bank
into which the Investment Gain is to be paid.
"Investment Period" means the period from and including the Issue Date to but excluding the Payment
Date falling on or about 12 months after the Issue Date provided that such period shall be extended in
the event that an Effective Date Rating Downgrade shall have occurred to the earlier to occur of (a)
confirmation from the Rating Agencies that the initial ratings of any Notes which have been
downgraded as a result of an Effective Date Rating Downgrade have been reinstated, and (b) the
second Business Day prior to the next following Payment Date.
"Issue Date" means 30 October 2007 (or such other date as may shortly follow such date as may be
agreed between the Issuer, the Arrangers and the Collateral Manager).
"Issuer Dutch Account" means an account in the name of the Issuer with Deutsche Bank AG at its
Amsterdam Branch, The Netherlands.
"Knowledgeable Employee" means a "knowledgeable employee" with respect to the Issuer within the
meaning of Rule 3c-5 under the Investment Company Act.
"Letter of Undertaking" means the letter dated on or about the Issue Date from, among others, the
Issuer and the Managing Directors to the Arrangers and the Trustee.
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"Long-Dated Obligation" means a Collateral Debt Obligation the stated maturity (or, in respect of
Structured Finance Obligations, Project Finance Securities and Finance Leases, the expected final
payment date) of which falls beyond the Maturity Date (but not more than two years beyond such
Maturity Date).
"Management Agreement" means, the management agreement relating to the Issuer dated on or about
the Issue Date between the Issuer, the Administrator and the Managing Directors.
"Managing Directors" means Mr. D. P. Stolp, Mr. J. H. Scholts and Mr. A. G. M. Nagelmaker or such
other person(s) who may be appointed as Managing Director of the Issuer from time to time.
"Margin Stock" is as defined under Regulation U issued by The Board of Governors of the Federal
Reserve System.
"Market Value" means a percentage, being (a) in respect of any Collateral Debt Obligation (save for
any Asset Swap Obligation) or Eligible Investment on any date of determination, (i) the price obtained
from an independent pricing service selected by the Collateral Manager; (ii) if (i) above is not
available, then the average of the bid side market prices offered by three nationally recognised
independent brokers in the United Kingdom (or, in the case of Collateral Debt Obligations in respect of
which the Obligor is resident outside of the United Kingdom, three internationally recognised
independent brokers) which, in each case, have significant experience in trading such Collateral Debt
Obligations, selected by the Collateral Manager; (iii) if the determination of only two such independent
brokers is available, then the lower of the bid side prices of such independent brokers, (iv) if the
determination of only one such independent broker is available, then the bid side price of such
independent broker and (v) if none of (i) to (iv) (inclusive) apply, then the lower of (1) an estimate by
the Collateral Manager based on its reasonable commercial judgement, in line with market practice, of
the price likely to be obtained in the market on an arm's length transaction and (2) the higher of (A) 70
per cent. of the par value of such Collateral Debt Obligation and (B) the S&P Recovery Rate of such
Collateral Debt Obligation, and (b) in respect of any Asset Swap Obligation, the market value of the
applicable Collateral Debt Obligation determined as provided in paragraphs (a)(i) to (iv) (inclusive)
above, multiplied by the Asset Swap Transaction Exchange Rate or, if no such market value can be
obtained under paragraphs (a)(i) to (iv) (inclusive) above, then the lower of (1) an estimate by the
Collateral Manager based on its reasonable commercial judgement, in line with market practice, of the
price likely to be obtained in the market on an arm's length transaction and (2) the higher of (A) 70 per
cent. and (B) the S&P Recovery Rate of such Collateral Debt Obligation (in each case multiplied by the
Asset Swap Transaction Exchange Rate).
"Master Definitions Agreement" means the agreement between the Issuer, the Trustee, the Collateral
Manager, the Collateral Administrator, the Arrangers, the Custodian, the Account Bank, the Transfer
Agent, the Principal Paying Agent, the Registrar, the Exchange Agent, the U.S. Paying Agent, the DTC
Custodian, the Irish Paying Agent and the Irish Listing Agent dated on or about the Issue Date.
"Maturity Date" means, in respect of each Class of Notes, 15 May 2024, or in the event that such day
is not a Business Day, the next following Business Day.
"Measurement Date" means (a) subject as provided below, the Effective Date; (b) the date on which
any of the following occurs: a substitution (which shall include both the date on which the Collateral
Debt Obligation which is being replaced is sold and the date on which the Issuer entered into a binding
commitment to purchase the new Substituted Collateral Debt Obligation, if these are not the same); a
Collateral Debt Obligation becomes a Defaulted Obligation; or the date of acquisition of any
Additional Collateral Debt Obligation; (c) each Determination Date; (d) the last Business Day of any
month and (e) with reasonable (and not less than two Business Days') notice, any Business Day
requested by either Rating Agency. For the avoidance of doubt, (i) each of the Portfolio Profile Tests,
the Collateral Quality Tests and (except as provided in (ii) below) the Class A Par Value Test, the Class
B Par Value Test, the Class C Par Value Test, the Class D Par Value Test and the Class E Par Value
Test will be measured on each Measurement Date and the Euro Equivalent of all non-Euro amounts
will be used in calculating the Coverage Tests on any Measurement Date and (ii) the Issuer shall only
be required to satisfy the Class A Interest Coverage Test, the Class B Interest Coverage Test, the Class
C Interest Coverage Test, the Class D Interest Coverage Test and the Class E Interest Coverage Test on
or after the earlier of the Effective Date and the second Determination Date.
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"Method 1" has the meaning given to it in the Collateral Management Agreement.
"Method 2" has the meaning given to it in the Collateral Management Agreement.
"Mezzanine Notes" means, collectively, the Class B Notes, the Class C Notes, the Class D Notes and
the Class E Notes which are Outstanding from time to time.
"Mezzanine Obligation" means a collateral debt obligation (which may, in the discretion of the
Collateral Manager, include a Project Finance Security or a Finance Lease) which is:
(a)
a second or third secured mezzanine loan or other debt obligation, as determined by the
Collateral Manager (excluding High Yield Bonds) or a Participation therein;
(b)
a Synthetic Security, the Reference Obligation applicable to which is a loan or other debt
obligation of the type described in (a) above or a Participation therein; and/or
(c)
an Asset Swap Obligation, the Collateral Debt Obligation of which is, other than in relation to
its currency of denomination, a Mezzanine Obligation of the type described in paragraph (a)
above.
"Minimum Denomination" means (a) in respect of Regulation S Notes of each Class, €100,000, (b) in
respect of Rule 144A Notes of each Class, €250,000 and (c) in respect of the AI Notes, €250,000.
"Monthly Report" means the monthly report defined as such in the Collateral Management Agreement
which is prepared by the Collateral Administrator on behalf of the Issuer and deliverable to the Issuer,
the Arrangers, the Trustee, the Collateral Manager and the Rating Agencies and, upon request therefor
in accordance with Condition 4(f) (Information Regarding the Portfolio), to any Noteholder, which
shall include information regarding the status of the Collateral Debt Obligations pursuant to the
Collateral Management Agreement.
"Moody's" means Moody's Investors Service Inc. and any successor or successors thereto.
"Moody's Collateral Value" means, in the case of any applicable Collateral Debt Obligation, the
lower of:
(a)
its Market Value; and
(b)
the relevant Moody's Recovery Rate,
multiplied by its outstanding principal amount (in the case of any Collateral Debt Obligations subject to
an Asset Swap Obligation, converted into Euros at the applicable Asset Swap Transaction Exchange
Rate), provided that if the Market Value cannot be reasonably determined, the Market Value shall be
deemed to be for this purpose the relevant Moody's Recovery Rate (in the case of any Collateral Debt
Obligations subject to an Asset Swap Obligation, converted into Euros at the applicable Asset Swap
Transaction Exchange Rate).
"Moody's Rating" is as defined in the Collateral Management Agreement.
"Moody's Recovery Rate" means in respect of each Collateral Debt Obligation, the recovery rate
determined in accordance with the Collateral Management Agreement or as so advised by Moody's.
"Non-Call Period" means the period from the Issue Date to but excluding the Payment Date on 15
November 2011 (or, if such date is not a Business Day, the next following Business Day).
"Non-Emerging Market Country" means the United Kingdom (including the Channel Islands),
Ireland, France, Spain, Portugal, Italy, The Netherlands, Luxembourg, Belgium, Germany, Austria,
Liechtenstein, Norway, Sweden, Denmark, Finland, Switzerland, Cayman Islands, Canada, the United
States of America, any country which is or becomes a member of the European Union after the Issue
Date and which has a long term sovereign debt rating from Moody's of at least "Aa2", any country, the
foreign currency issuer credit rating of which is rated, at the time of acquisition of the relevant
Collateral Debt Obligation, at least "AA-" by S&P and the foreign currency sovereign debt rating of
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which is at least "Aa2" by Moody's and/or any other country in respect of which a Rating Agency
Confirmation is received.
"Note EURIBOR" means at any Measurement Date, the current EURIBOR rate on the Notes.
"Note Payment Sequence" means the application of Interest Proceeds in accordance with the Interest
Proceeds Priority of Payments or the application of Principal Proceeds in accordance with the Principal
Proceeds Priority of Payments, as applicable, in the following order:
(a)
to the redemption of the Class A Notes (on a pro rata and pari passu basis) at the applicable
Redemption Price in whole or in part until the Class A Notes have been fully redeemed;
(b)
to the redemption of the Class B Notes (on a pro rata and pari passu basis) at the applicable
Redemption Price in whole or in part until the Class B Notes have been fully redeemed;
(c)
to the redemption of the Class C Notes (on a pro rata and pari passu basis) at the applicable
Redemption Price in whole or in part until the Class C Notes have been fully redeemed;
(d)
to the redemption of the Class D Notes (on a pro rata and pari passu basis) at the applicable
Redemption Price in whole or in part until the Class D Notes have been fully redeemed; and
(e)
to the redemption of the Class E Notes (on a pro rata and pari passu basis) at the applicable
Redemption Price in whole or in part until the Class E Notes have been fully redeemed,
provided that, for the purposes of any redemption of the Notes in accordance with the Note Payment
Sequence following any breach of the Coverage Tests (save for the Collateral Enhancement Ratio Test
and payments out of Available Interest Proceeds in respect of the redemption of the Class E Notes
following a breach of the Class E Coverage Tests), the Note Payment Sequence shall terminate
immediately after the payment of such Class of Notes as is required to be made in accordance with the
Priorities of Payment.
"Note Tax Event" means, at any time, the introduction of a new, or any change in, any home
jurisdiction or foreign tax statute, treaty, regulation, rule, ruling, practice, procedure or judicial decision
or interpretation (whether proposed, temporary or final) which results in (or would on the next Payment
Date result in) any payment of principal or interest on the Class A Notes, the Class B Notes, the Class
C Notes, the Class D Notes, the Class E Notes (other than a payment in respect of Deferred Interest)
and/or the Subordinated Notes becoming properly subject to any withholding tax or deduction in
circumstances in which the Issuer would be required to arrange for the substitution of a company
incorporated in another jurisdiction as the principal obligor under the Notes pursuant to Condition 9
(Taxation).
"Note Valuation Report" means the quarterly report defined as such in the Collateral Management
Agreement which is prepared by the Collateral Administrator (in consultation with the Collateral
Manager) on behalf of the Issuer and is deliverable to the Issuer, the Trustee, the Collateral Manager
and the Rating Agencies for each such quarterly period following the first Payment Date and, upon
request therefor in accordance with Condition 4(f) (Information Regarding the Portfolio), to any
Noteholder, which shall include information regarding the status of the Collateral Debt Obligations
pursuant to the Collateral Management Agreement.
"Noteholders" means the Class A Noteholders, the Class B Noteholders, the Class C Noteholders, the
Class D Noteholders, the Class E Noteholders and the Subordinated Noteholders.
"Obligor" means, in respect of a Collateral Debt Obligation, the borrower thereunder or issuer thereof
or, in either case, the guarantor thereof including in respect of any Synthetic Security where the context
requires the borrower, issuer or guarantor under the Reference Obligation(s) under such Synthetic
Security and for any Asset Swap Transaction the borrower, issuer or guarantor for the relevant Asset
Swap Obligation.
"Offer" means with respect to any Collateral Debt Obligation (a) any offer by the obligor under such
obligation or by any other Person made to all of the creditors of such obligor in relation to such
obligation to purchase or otherwise acquire such obligation (other than pursuant to any redemption in
accordance with the terms of the related Underlying Instruments) or to convert or exchange such
87
obligation into or for cash, securities or any other type of consideration or (b) any solicitation by the
issuer of such obligation or any other Person to amend, modify or waive any provision of such
obligation or any related Underlying Instrument.
"Onshore Tax Event" means either:
(a)
a final determination by a taxing authority or court of competent jurisdiction that the Issuer is
engaged in a trade or business in the United States; or
(b)
a determination by a tribunal or court of competent jurisdiction that the Issuer is, for United
Kingdom tax purposes, either resident in the United Kingdom or carrying on a trade in the
United Kingdom through a United Kingdom permanent establishment and subject to United
Kingdom corporation tax on the profits on that trade.
"Ordinary Resolution" means, in relation to any Class of Noteholders, a written resolution of, or
resolution passed (at a meeting of such Class of Noteholders duly convened and held in accordance
with the Trust Deed) by, the Noteholders of such Class holding in aggregate more than 50 per cent. of
the aggregate Principal Amount Outstanding of such Class of Notes represented at the meeting.
"Outstanding" means in relation to the Notes of any Class, as of any date of determination, all of the
Notes of such Class issued other than:
(a)
those Notes which have been redeemed with the exception of Subordinated Notes in relation
to which amounts of Interest Proceeds and Principal Proceeds have, or may, become payable;
(b)
those Notes in respect of which the date for redemption in accordance with the relevant
Conditions has occurred and the redemption moneys (including premium (if any) and all
interest payable in respect thereof and any interest payable under the relevant Conditions after
such date) have been duly paid to the Trustee or to the Principal Paying Agent in the manner
provided in the Agency Agreement (and where appropriate notice to that effect has been given
to the relative Noteholders in accordance with Condition 16 (Notices)) and remain available
for payment against presentation of the relevant Notes;
(c)
those Notes which have become void under Condition 12 (Prescription); and
(d)
Notes represented by any Global Certificate to the extent that such Global Certificate shall
have been exchanged for Notes represented by Definitive Certificates pursuant to its
provisions;
provided that:
(i)
for each of the following purposes, namely:
(A)
the right to attend and vote at any meeting of the Noteholders of a Class;
(B)
the determination of how many and which of the relevant Notes are for the time
being Outstanding for the purpose of clause 7.2 (Enforcement) of the Trust Deed
and Conditions 10 (Events of Default) and 11 (Enforcement);
(C)
any discretion, power or authority (whether contained in this Trust Deed or
vested by operation of law) which the Trustee is required, expressly or
implicitly, to exercise in or by reference to the interests of the Noteholders or
any of them; and
(D)
the determination (where relevant) by the Trustee whether any event,
circumstance, matter or thing is, in its opinion, materially prejudicial to the
interests of the Noteholders of any Class,
those Notes (if any) which are for the time being held by, for the benefit of, or on
behalf of, the Issuer and not cancelled shall (unless and until ceasing to be so held) be
deemed not to remain Outstanding. The Trustee shall be entitled to assume that there
88
are no such holdings except to the extent it is otherwise expressly aware and shall not
be bound or concerned to make any enquiry; and
(ii)
for the purpose of votes required in connection with the termination of the appointment
of the Collateral Manager pursuant to clause 10.2 (Termination of Collateral Manager
Without Cause) or clause 10.3 (Termination of Collateral Manager with Cause) of the
Collateral Management Agreement, those Notes (if any) which are for the time being
held by, for the benefit of, or on behalf of, the Collateral Manager shall (unless and
until ceasing to be so held) be deemed not to remain Outstanding. The Trustee shall be
entitled to assume that the Collateral Manager or its Affiliates hold €7,761,000
principal amount of Subordinated Notes but no other Notes except to the extent it is
otherwise expressly aware thereof and shall not be bound or concerned to make any
enquiry.
"Par Value Test Excess Adjustment Amount" means, on any date of determination, the sum of:
(a)
(b)
(c)
the amount equal to the product of:
(i)
the excess, if any, of (x) the Aggregate Principal Balance of all CCC Obligations as of
such date over (y) an amount equal to 5.0 per cent. of the CDO Principal Balance; and
(ii)
one minus the weighted average of the CCC Market Values of CCC Obligations having
an Aggregate Principal Amount equal to the excess amount determined under
paragraph (a)(i) above (such Aggregate Principal Balance to be comprised of CCC
Obligations having the lowest CCC Market Values as of such date);
the amount equal to the product of:
(i)
the Aggregate Principal Balance of all Discount Obligations as of such date; and
(ii)
one minus the weighted average of the purchase prices (as a percentage of the principal
amount of the relevant Discount Obligation, expressed as a decimal amount, as
determined by the Collateral Administrator) paid by, or on behalf of, the Issuer
(excluding accrued interest thereon) of all Discount Obligations; and
the amount equal to the product of:
(i)
the Aggregate Principal Balance of each of the Long-Dated Obligations as of such date;
and
(ii)
in respect of each Long-Dated Obligation, one minus the lowest of (I) the Market Value
of such Long-Dated Obligation, (II) the applicable S&P Recovery Rate of such LongDated Obligation and (III) the applicable Moody's Recovery Rate of such Long-Dated
Obligation,
provided that, in respect of any Collateral Debt Obligation to which more than one of paragraphs (a),
(b) and (c) apply, such Collateral Debt Obligation shall be included in whichever of paragraphs (a), (b)
and (c) above would result in the highest Par Value Test Excess Adjustment Amount (and, for the
avoidance of doubt, in only one of paragraph (a), (b) or (c)).
"Participation" means an interest in relation to a Mezzanine Obligation, Second Lien Loan or Senior
Secured Loan acquired indirectly by the Issuer (by way of participation or sub-participation) from a
Selling Institution and excludes Secured Participations which shall, for the purposes of the Bivariate
Risk Table (as defined in the Collateral Management Agreement) and the definitions of Senior Secured
Loan, Second Lien Loan and Mezzanine Obligation only, include Intermediary Obligations.
"Participation Agreement" means an agreement between the Issuer and a Selling Institution in
relation to the purchase by the Issuer of a Participation.
"Payment Account" means the account of the Issuer into which amounts shall be transferred by the
Trustee on the Business Day prior to each Payment Date from (to the extent applicable) the other
89
Accounts and out of which the amounts required to be paid on each Payment Date shall be paid as
provided in the Priorities of Payment.
"Payment Date" means 15 May and 15 November in each year commencing on 15 May 2008, the
Maturity Date and any Redemption Date. If any Payment Date would otherwise fall on a day which is
not a Business Day, it shall be postponed to the next following day that is a Business Day.
"Permitted Currencies" means Euro, United States Dollars, Sterling, Danish Kroner, Norwegian
Kroner, Swedish Kroner and Swiss Francs (each, a "Permitted Currency").
"Person" means an individual, corporation (including a business trust), partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof), unincorporated association
or government or any agency or political subdivision thereof.
"PIK Security" means any debt security (other than any Mezzanine Obligation which by its terms
provides for the deferral of interest) which, by its terms, may pay interest thereon other than on a
current basis and which is not a Dutch Ineligible Security.
"Portfolio" means the Collateral Debt Obligations, Collateral Enhancement Obligations, Equity
Securities and Eligible Investments held by or on behalf of the Issuer from time to time.
"Portfolio Profile Tests" means the Portfolio Profile Tests defined as such in the Collateral
Management Agreement.
"Post-Enforcement Priority of Payments" means following the enforcement of security over the
Collateral, the priority of payments set out in Condition 11(c) (Post-Enforcement Priority of
Payments).
"Potential Event of Default" means any condition, event or act which, with the lapse of time and/or
the issue, making or giving of any notice, certification, declaration and/or request and/or the taking of
any similar action and/or the fulfilment of any similar condition, would constitute an Event of Default.
"Pre-Enforcement Priority of Payments" means prior to enforcement of security over the Collateral
in the case of Interest Proceeds, the Interest Proceeds Priority of Payments and in the case of Principal
Proceeds, the Principal Proceeds Priority of Payments.
"Presentation Date" means a day which is a Business Day in the jurisdiction in which the account
specified by the payee is open and in which the Note is presented for payment.
"Principal Account" means the Issuer's account into which principal proceeds (other than principal
proceeds of the Subordinated Notes Collateral Debt Obligations) and designated interest proceeds in
respect of all Collateral Debt Obligations (other than Asset Swap Obligations) shall be credited.
"Principal Amount Outstanding" of a Note of any Class on any date shall be:
(a)
the initial principal amount thereof on such date, plus
(b)
in the case of the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes,
any Deferred Interest which has been capitalised pursuant to Condition 6(c) (Deferral of
Interest), less
(c)
the aggregate of all principal payments or redemption payments pursuant to Condition 7
(Redemption and Purchase) which in the case of the Class B Notes, the Class C Notes, the
Class D Notes and the Class E Notes shall, for the avoidance of doubt, include those interest or
principal payments or redemption payments allocated to the repayment of any of the Deferred
Interest referred to in paragraph (b) above.
"Principal Balance" means, with respect to any Collateral Debt Obligation, Eligible Investment or
Equity Security or Margin Stock as of any date of determination, the principal amount outstanding
thereof (excluding any interest capitalised pursuant to the terms of such Collateral Debt Obligation,
Eligible Investment or Equity Security other than any Purchased Accrued Interest in respect of any
Collateral Debt Obligation and, with respect to a Mezzanine Obligation, any such other interest
90
capitalised pursuant to the terms thereof which is paid for with Principal Proceeds on the date of
acquisition of such Mezzanine Obligation), provided however that:
(a)
the Principal Balance of any Equity Security or Margin Stock shall be deemed to be zero;
(b)
the Principal Balance of any Collateral Debt Obligation that is a Synthetic Security shall be
deemed to be the principal or notional amount of such Synthetic Security, unless the Collateral
Manager determines otherwise and the Rating Agencies confirm that such determination will
not adversely affect the ratings assigned to the Rated Notes;
(c)
the Principal Balance of any cash shall be the amount of such cash;
(d)
the Principal Balance of any Revolving Obligation and Delayed Drawdown Collateral
Obligation as of any date of determination shall be the outstanding principal amount of such
Revolving Obligation or Delayed Drawdown Collateral Obligation, plus any undrawn
commitments that have not been irrevocably reduced with respect to such Revolving
Obligation or Delayed Drawdown Collateral Obligation;
(e)
the Principal Balance of any Asset Swap Obligation shall be an amount in Euro equal to the
principal amount outstanding of the related Collateral Debt Obligation converted into Euro at
the Asset Swap Transaction Exchange Rate;
(f)
the Principal Balance of a PIK Security the interest of which has not been paid on its most
recent interest payment date or within the previous annual period, but which (for the avoidance
of doubt) is not a Defaulted Obligation, shall be deemed to be its outstanding principal amount
excluding any interest accrued but not paid thereon which has been capitalised;
(g)
subject to the other provisions of this definition, the Principal Balance of any Zero-Coupon
Security which, by its terms, does not at any time pay interest thereon, shall be deemed to be
the accreted value of such Collateral Debt Obligation as at the date of its acquisition by the
Issuer; and
(h)
the Principal Balance of any Unhedged Collateral Debt Obligations, will be determined by
reference to either Method 1 or, as the case may be, Method 2 provided that (A) the Principal
Balance of an Unhedged Collateral Debt Obligation which remains unhedged for over six
months from the date of acquisition thereof shall be zero, or (B) where the aggregate Principal
Balance of Unhedged Collateral Debt Obligations exceeds five per cent. of the Aggregate
Principal Balance (for these purposes, taking into consideration 100 per cent. of the
outstanding principal amount of Unhedged Collateral Debt Obligations) the Principal Balance
of each Unhedged Collateral Debt Obligation which exceeds such five per cent. limit, shall be
zero, and (C) for the purpose of calculating the Sales Proceeds, Principal Proceeds and the
Aggregate Principal Balance following a prepayment, repayment or sale of such Unhedged
Collateral Debt Obligation for the purpose of paragraph 6.6.(c)(i) and paragraph 6.6.(d)(i) of
the Reinvestment Criteria, such reductions (calculated by reference to either Method 1 or
Method 2, as the case may be) to the Principal Balance of an Unhedged Collateral Debt
Obligation shall not apply.
"Principal Proceeds" means (a) all amounts paid or payable into the Principal Account or the
Subordinated Notes Principal Account, as applicable, from time to time and (b) with respect to any
Payment Date, all amounts received by or on behalf of the Issuer during the related Due Period and
(without double counting) any other amounts to be disbursed out of the Payment Account as Principal
Proceeds on such Payment Date pursuant to Condition 3(c)(ii) (Application of Principal Proceeds).
"Principal Proceeds Priority of Payments" means the priority of payments in respect of Principal
Proceeds set out in Condition 3(c)(ii) (Application of Principal Proceeds).
"Priorities of Payment" means, the Pre-Enforcement Priority of Payments and the Post-Enforcement
Priority of Payments as set out in Condition 3(c) (Pre-Enforcement Priority of Payments) and
Condition 11(c) (Post-Enforcement Priorities of Payment) respectively.
"Project Finance Security" means:
91
(a)
(b)
a Collateral Debt Obligation which is rated by S&P (and to the extent), in the reasonable
business judgement of the Collateral Manager, should be considered a "project finance
security" that is a non-recourse loan obligation (or a Participation therein) provided to a nonoperating obligor in connection with the financing of the future construction of a new plant(s)
by a utility company and which is structured to be repaid solely from the cashflows generated
by such new plant(s) or the financing of the future construction of schools or jails and which is
structured to be repaid solely from the cashflows generated by such schools or jails or a
Collateral Debt Obligation under which such obligor is obliged to make payments that depend
(except for rights or other assets designed to assure the servicing or timely distribution of
payments) solely on revenues arising from the infrastructure assets to be constructed, in each
case, to generate:
(i)
the sale of products, such as electricity, water, gas, oil, products of mining or waste
generated by one or more infrastructure assets in the utility industry by a special
purpose entity; or
(ii)
use fees charged in respect of one or more highways, bridges, tunnels, pipelines or
other similar infrastructure assets by a special purpose entity; and/or
an Asset Swap Obligation, the Collateral Debt Obligation of which is, other than in relation to
its currency of denomination, a loan of the type described in (a) above.
"pro rata basis" means an allocation of amounts payable:
(i)
in the case of amounts of interest payable among different Classes of Notes, by
reference to the respective amounts of interest payable on such Classes of Notes;
(ii)
in the case of amounts of principal payable among different Classes of Notes, by
reference to the respective Principal Amount Outstanding of such Classes of Notes;
(iii)
in the case of a single Class, by reference to the respective Principal Amount
Outstanding of each Note of such Class; and
(iv)
in the case of any other amounts, by reference to the respective amounts payable.
"Purchased Accrued Interest" means accrued interest included in the purchase price of a Collateral
Debt Obligation which was paid for from the Additional Collateral Account, the Subordinated Notes
Additional Collateral Account, the Principal Account or the Subordinated Notes Principal Account.
"Purchased Credit Risk Obligation" means a Credit Risk Obligation purchased with all or a portion
of the Sale Proceeds of another Credit Risk Obligation in accordance with the Collateral Management
Agreement.
"Purchased Defaulted Obligation" means a Defaulted Obligation purchased with all or a portion of
the Sale Proceeds of another Defaulted Obligation in accordance with the Collateral Management
Agreement.
"Purchased Obligation" means a Purchased Defaulted Obligation or a Purchased Credit Risk
Obligation.
"QIB" or "Qualified Institutional Buyer" means a Person who is a qualified institutional buyer as
defined in Rule 144A under the Securities Act.
"QIB/QP" means a Person who is both a QIB and a QP.
"Qualified Purchaser" or "QP" means a Person who is a qualified purchaser as defined in Section
2(a)(51)(A) of the Investment Company Act.
"Qualifying Country" means any of Austria, Belgium, Canada, Cayman Islands, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Liechtenstein, Luxembourg, The Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland, the United Kingdom (including the Channel Islands) and the
United States, in each case for so long as such country has a country ceiling for foreign currency bonds
92
or bank deposits of at least "Aa2" or above by Moody's and a foreign currency issuer credit rating of at
least "AA-" by S&P (and such other country or countries as may be agreed to from time to time by the
Issuer and the Collateral Manager, and in respect of which Rating Agency Confirmation has been
obtained).
"Rated Notes" means, so long as any Notes of the relevant Class Remain Outstanding, the Class A
Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes.
"Rating Agencies" means Moody's and S&P, or if at any time Moody's or S&P ceases to provide
rating services, any other nationally recognised investment rating agency selected by the Issuer and
satisfactory to the Trustee (a "Replacement Rating Agency"). In the event that at any time a Rating
Agency is replaced by a Replacement Rating Agency, references to rating categories of the original
Rating Agency in these Conditions, the Trust Deed and the Collateral Management Agreement shall be
deemed instead to be references to the equivalent categories of the relevant Replacement Rating
Agency as of the most recent date on which such other rating agency published ratings for the type of
security in respect of which such Replacement Rating Agency is used.
"Rating Agency Confirmation" means with respect to any specified action or determination, receipt
by the Issuer or the Trustee of written confirmation by the Rating Agencies (or as applicable one
Rating Agency), for so long as the Rated Notes are Outstanding and rated by the Rating Agencies (or
such Rating Agency), that such specified action or determination will not result in the reduction or
withdrawal of its then-current ratings on such Rated Notes.
"Record Date" has the meaning given thereto in Condition 8(a) (Method of Payment).
"Redemption Date" means each date specified for a redemption of the Notes of a Class pursuant to
Condition 7 (Redemption and Purchase) or the date on which the Notes of such Class are accelerated
pursuant to Condition 10 (Events of Default) in each case, if such day is not a Business Day the next
following Business Day.
"Redemption Determination Date" has the meaning given thereto in Condition 7(b)(ii) (Conditions to
Optional Redemption).
"Redemption Notice" means a redemption notice in the form available from any of the Transfer
Agents which has been duly completed by a Noteholder and which specifies, amongst other things, the
applicable Redemption Date.
"Redemption Price" means, when used with respect to:
(a)
any Class A Note, Class B Note, Class C Note, Class D Note or Class E Note to be redeemed
pursuant to Condition 7(a) (Final Redemption), Condition 7(b) (Optional Redemption),
Condition 7(c) (Redemption Upon Breach of Coverage Tests), Condition 7(d) (Redemption
Upon Rating Reduction and Withdrawal), Condition 7(e) (Redemption Following Expiry of the
Reinvestment Period), Condition 7(f) (Special Redemption), Condition 7(g) (Redemption
Following Certain Tax Events) or Condition 10 (Events of Default), 100% of the Principal
Amount Outstanding of the Class A Note, Class B Note, Class C Note, Class D Note or Class
E Note, respectively, to be redeemed, together with interest accrued thereon to the date of
redemption;
(b)
any Subordinated Note to be redeemed pursuant to Condition 7(a) (Final Redemption),
Condition 7(b) (Optional Redemption), Condition 7(c) (Redemption Upon Breach of Coverage
Tests), Condition 7(d) (Redemption Upon Rating Reduction and Withdrawal), Condition 7(e)
(Redemption Following Expiry of the Reinvestment Period), Condition 7(f) (Special
Redemption), Condition 7(g) (Redemption following Certain Tax Events) or Condition 10
(Events of Default), such Subordinated Note's pro rata share (calculated in accordance with
paragraphs (E) and (G) of the Principal Proceeds Priority of Payments set out in Condition
3(c)(ii) (Application of Principal Proceeds)) of the aggregate proceeds of liquidation of the
Collateral or realisation of the security thereover in such circumstances, remaining following
application thereof in accordance with the Priorities of Payment;
provided that, in the event that the Notes become subject to redemption in whole (but not in part)
pursuant to more than one of Condition 7(b) (Optional Redemption) due to the occurrence of a
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Relevant Tax Event, Condition 7(b) (Optional Redemption) other than due to the occurrence of a
Relevant Tax Event, Condition 7(c) (Redemption Upon Breach of Coverage Tests), Condition 7(d)
(Redemption Upon Rating Reduction and Withdrawal), Condition 7(e) (Redemption following Expiry of
the Reinvestment Period), Condition 7(f) (Special Redemption), Condition 7(g) (Redemption Following
Certain Tax Events) or Condition 10 (Events of Default), the Redemption Price applicable upon
redemption thereof shall be that which relates to the redemption of the Notes which would occur first in
time pursuant to the relevant provisions thereof.
"Reference Banks" has the meaning given thereto in Conditions 6(e) to (k), inclusive.
"Reference Obligation" means a debt obligation to which a Synthetic Security is linked that is not
itself a Synthetic Security and which satisfies the definition of "Collateral Debt Obligation" at the time
that the Synthetic Security is entered into.
"Reference Obligor" means any reference obligor specified in a Synthetic Security.
"Register" has the meaning given in Condition 2(b) (Title to the Registered Notes).
"Registered" means, with respect to any debt obligation, a debt obligation issued after 18 July 1981
and that is in registered form for the purposes of the Code.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Notes" means Notes offered for sale to non-U.S. Persons outside the United States in
offshore transactions under Regulation S of the Securities Act.
"Reinvestment Criteria" means the Reinvestment Criteria specified in the Collateral Management
Agreement.
"Reinvestment Period" means the period from and including the Issue Date to and including the
Payment Date on 15 November 2013 (or, if such day is not a Business Day, the next following
Business Day).
"Relevant Date" means whichever is the later of (a) the date on which any payment first becomes due
and (b) if the full amount payable has not been received by the Paying Agent or the Registrar (as
applicable) on or prior to such due date, the date on which the full amount having been so received,
notice to that effect shall have been given to the Noteholders in accordance with Condition 16
(Notices).
"Relevant Tax Event" has the meaning given thereto in Condition 7(b)(i) (Redemption at the Option of
the Subordinated Noteholders).
"Replacement Asset Swap Agreement" means any replacement asset swap transaction entered into by
the Issuer upon termination of an existing Asset Swap Agreement on substantially the same terms as
such existing Asset Swap Agreement, that preserves for the Issuer the economic effect of the
terminated Asset Swap Agreement and all Asset Swap Transactions thereunder, subject to such
amendments as may be agreed by the Trustee and in respect of which Rating Agency Confirmation has
been obtained.
"Replacement Asset Swap Transaction" any asset swap transaction entered into by the Issuer in
replacement of, and on substantially the same terms as an existing Asset Swap Transaction pursuant to
a Replacement Asset Swap Agreement.
"Replacement Currency Hedge Agreement" means any currency hedge agreement entered into by
the Issuer upon termination of an existing Currency Hedge Agreement on substantially the same terms
as such existing Currency Hedge Agreement, that preserves for the Issuer the economic effect of the
terminated Currency Hedge Agreement and all Currency Hedge Transactions thereunder, subject to
such amendments as may be agreed by the Trustee and in respect of which Rating Agency
Confirmation has been obtained.
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"Replacement Currency Hedge Transaction" means any currency hedge transaction entered into by
the Issuer in replacement of, and on substantially the same terms as, an existing Currency Hedge
Transaction pursuant to a Replacement Currency Hedge Agreement.
"Replacement Currency Swap Agreement" means, collectively, (a) any Replacement Asset Swap
Agreement and (b) any Replacement Currency Hedge Agreement.
"Replacement Currency Swap Transaction" means, collectively, (a) any Replacement Asset Swap
Transaction and (b) any Replacement Currency Hedge Transaction.
"Replacement Interest Rate Hedge Agreement" means any Interest Rate Hedge Agreement entered
into by the Issuer upon termination of the existing Interest Rate Hedge Agreement on substantially the
same terms as such existing Interest Rate Hedge Agreement, that preserves for the Issuer the economic
effect of the terminated Interest Rate Hedge Agreement and all Interest Rate Hedge Transactions
thereunder, subject to such amendments as may be agreed by the Trustee and in respect of which
Rating Agency Confirmation has been received.
"Replacement Interest Rate Hedge Transaction" means an interest rate swap or protection
transaction entered into by the Issuer in replacement of, and on substantially the same terms as, an
existing Interest Rate Hedge Transaction pursuant to a Replacement Interest Rate Hedge Agreement.
"Report" means each Monthly Report and/or Note Valuation Report.
"Required Ratings" means:
(a)
in the case of the Account Bank and the Principal Paying Agent, long-term and short-term
senior unsecured debt ratings of at least "A1" and "P-1", respectively, from Moody's and a
short-term senior unsecured debt rating of at least "A-1" from S&P;
(b)
in the case of any Interest Rate Hedge Counterparty (or any guarantor thereof) and Custodian
or Sub-Custodian, long-term and short-term senior unsecured debt ratings of at least "A2" and
"P-1", respectively, from Moody's and short-term senior unsecured debt rating of at least "A1" from S&P;
(c)
in the case of any Asset Swap Counterparty or Currency Hedge Counterparty (or any
guarantor thereof), long-term and short-term senior unsecured debt ratings of at least "A2" and
"P-1", respectively, from Moody's and short-term senior unsecured debt ratings of at least "A1" from S&P; and
(d)
in the case of any Selling Institution or Synthetic Counterparty, short-term senior unsecured
debt rating of not lower than "A-1" from S&P and a long-term senior unsecured debt rating of
not lower than "A3" from Moody's.
"Retained Portion" means a portion of Interest Proceeds received in respect of Collateral Debt
Obligations that provide for (i) annual interest payments, in the Due Period in which such annual
interest payments are received, in an amount equal to 50 per cent. of such annual interest payments, and
(ii) interest payments on a basis other than annually but less frequently than semi-annually, in the Due
Period in which such interest payments are received, equal to a portion of such interest payments
which, in the reasonable judgement of the Collateral Manager, is equal to the excess of the interest
payments attributable to the semi-annually Due Period in which they are received and which should be
retained and allocated in respect of another Due Period, to the extent that:
(a)
the retention of the Retained Portion will not result in a breach of any of the Coverage Tests;
(b)
such Retained Portion is not required to redeem all or any part of the Notes pursuant to
Condition 7 (Redemption and Purchase); and
(c)
the retention of such Retained Portion would not otherwise cause either (i) a deferral of
interest pursuant to Condition 3(c)(i) (Application of Available Interest Proceeds) or (ii) an
Event of Default due to the failure to pay interest on any Class of Note pursuant to the
Priorities of Payment on such Payment Date pursuant to Condition 10(a)(i) (Non-payment of
Interest) to occur.
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"Retained Portion Account" means the interest bearing account of the Issuer with the Account Bank
into which the Retained Portion (if any) shall be paid on the Business Day prior to each Payment Date
and out of which any Retained Portion Release Amount shall be payable in accordance with Condition
3(i)(I) (Retained Portion Account).
"Retained Portion Release Amount" means the proportion, as determined below, of a Retained
Portion received in respect of Collateral Debt Obligations deposited in a Retained Portion Account
pending transfer to the Payment Account in accordance with Condition 3(i)(I) (Retained Portion
Account) in respect of Collateral Debt Obligations paying (a) annual interest payments: in respect of
the Due Period immediately following the Due Period in which the relevant annual interest payments
were received by the Issuer, 50 per cent. of each such annual interest payment, and (b) interest
payments on a basis other than annually but less frequently than semi-annually, in respect of each Due
Period following the Due Period in which the relevant interest payments were received by the Issuer,
an amount of such interest payments equal to the lesser of any remaining Retained Portion thereof and
a portion thereof which, in the reasonable judgement of the Collateral Manager, is the equivalent of a
semi-annually interest payment under the related Collateral Debt Obligation (each such amount, the
"Minimum Retained Portion Release Amount") provided that if, on a Determination Date, the
Collateral Administrator determines that:
(a)
upon application of amounts representing the Minimum Retained Portion Release Amount on
the next following Payment Date in accordance with the Priorities of Payment any of the
Coverage Tests would not be satisfied;
(b)
the aggregate Minimum Retained Portion Release Amounts, together with all other amounts
available to the Issuer for such purpose, will be insufficient to redeem all or any part of the
Notes as required by Condition 7 (Redemption and Purchase); or
(c)
on the Payment Date on which such Minimum Retained Portion Release Amount is to be
applied, either (i) a deferral of interest pursuant to Condition 3(c)(i) (Application of Available
Interest Proceeds) would occur or (ii) an Event of Default due to the failure to pay interest on
any Class of Note pursuant to the Priorities of Payment on such Payment Date pursuant to
Condition 10(a)(i) (Non-payment of Interest) would occur,
then the "Retained Portion Release Amount" shall be the lesser of (x) such amount as is required to
satisfy the requirements of or prevent the occurrence of the events referred to in paragraphs (a) to (c)
(inclusive) above such that such provisos would not apply and (y) the aggregate Balances of the
Retained Portion Account; and provided further that in the event that the Retained Portion Release
Amount determined by reference to paragraphs (a) to (c) (inclusive) is (1) less than the Minimum
Retained Portion Release Amount, then the Retained Portion Release Amount shall be the Minimum
Retained Portion Release Amount or (2) greater than the Minimum Retained Portion Release Amount,
subject always to the Collateral Administrator determining that the requirements of paragraphs (a) to
(c) (inclusive) above apply (in which case the Retained Portion Release Amount will be the lesser of
(x) such amount as is required to satisfy the requirements of paragraphs (a) to (c) (inclusive) above
such that such provisos would not apply and (y) the aggregate balance of the Retained Portion
Account), the Retained Portion Release Amount calculated in respect of the next following Payment
Date (and the Payment Date thereafter, if necessary) shall be reduced on a pro rata basis by an
aggregate amount equal to the amount by which the first-mentioned Retained Portion Release Amount
exceeded the Minimum Retained Portion Release Amount.
"Revolving Commitment Amount" means, (a) with respect to any Revolving Obligation (excluding a
Synthetic Security referenced thereto) or Delayed Drawdown Collateral Obligation, the maximum
aggregate outstanding principal amount (whether at the time funded or unfunded) of advances or other
extensions of credit at any one time outstanding that the Issuer could be required to make to the Obligor
under the Underlying Instruments relating thereto or to a funding bank in connection with any ancillary
facilities related thereto and (b) with respect to any Revolving Obligation that is a Synthetic Security,
the maximum aggregate net amount (whether at the time funded or unfunded) that the Issuer could be
required to pay to the related Synthetic Counterparty thereunder.
"Revolving Obligation" means any Collateral Debt Obligation (other than a Delayed Drawdown
Collateral Obligation) that is a loan (including, without limitation, revolving loans, funded and
unfunded portions of revolving credit lines and letter of credit facilities, unfunded commitments under
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specific facilities and other similar loans and investments) that pursuant to the terms of its Underlying
Instruments may require one or more future advances to be made to the borrower by the Issuer either in
Euro or another Permitted Currency (however, if not in Euro, the Issuer has entered into an Asset Swap
Transaction in respect thereof), only requires the Issuer to provide future advance in the currency in
which such Revolving Obligation is denominated and does not involve a borrower resident in The
Netherlands who or which is not acting in the conduct of a business or profession; but any such
Collateral Debt Obligation will be a Revolving Obligation only until all commitments to make
advances to the borrower expire or are terminated or reduced to zero.
"Revolving Reserve Account" means the interest bearing account of the Issuer with the Account Bank
into which amounts equal to the Unfunded Amounts in respect of Revolving Obligations and Delayed
Drawdown Collateral Obligations and certain principal payments received in respect of Revolving
Obligations and Delayed Drawdown Collateral Obligations, are paid.
"Rule 144A" means Rule 144A of the Securities Act.
"Rule 144A Notes" means Notes offered for sale within the United States to persons, or outside the
United States to U.S. Persons, who in either case are Qualified Institutional Buyers (as defined in Rule
144A under the Securities Act) who are also Qualified Purchasers (for the purposes of Section 3(c)(7)
of the Investment Company Act) in reliance on Rule 144A under the Securities Act and Section 3(c)(7)
under the Investment Company Act.
"S&P" means Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. and
any successor or successors thereto.
"S&P's Collateral Value" means, in the case of any applicable Collateral Debt Obligation, the lower
of:
(a)
its Market Value; and
(b)
the relevant S&P Recovery Rate,
multiplied by its outstanding principal amount (in the case of any Collateral Debt Obligations subject to
an Asset Swap Obligation, converted into Euros at the applicable Asset Swap Transaction Exchange
Rate), provided that if the Market Value cannot be reasonably determined, the Market Value shall be
deemed to be for this purpose the relevant S&P Recovery Rate (in the case of any Collateral Debt
Obligations subject to an Asset Swap Obligation, converted into Euros at the applicable Asset Swap
Transaction Exchange Rate).
"S&P Rating" is as defined in the Collateral Management Agreement.
"S&P Recovery Rate" means in respect of each Collateral Debt Obligation, the recovery rate
determined in accordance with the Collateral Management Agreement or as so advised by S&P.
"Sale Proceeds" means (a) in the case of any Collateral Debt Obligation (save for any Collateral Debt
Obligation in respect of which an Asset Swap Transaction has been entered into), Collateral
Enhancement Obligation or Equity Security all proceeds received upon the sale thereof (excluding
accrued interest designated as Interest Proceeds by the Collateral Manager but including any fees and
Purchased Accrued Interest) and any Distribution received upon liquidation of Synthetic Collateral in
the event that the Synthetic Security or the Synthetic Counterparty's security interest is terminated or
released by the Issuer or sold or assigned, in each case pursuant to the Collateral Management
Agreement, and (b) in the case of any Asset Swap Obligation, all amounts in Euro (or other currencies,
if applicable) payable to the Issuer by the applicable Asset Swap Counterparty in exchange for payment
by the Issuer of the sale proceeds of any Collateral Debt Obligation as described in paragraph (a)
above, under the related Asset Swap Transaction together with any other proceeds of sale in relation to
the Asset Swap Obligation not paid to the Asset Swap Counterparty and all Currency Swap
Termination Receipts, in each case net of any amounts expended by or payable by the Collateral
Manager or the Collateral Administrator (in each case, on behalf of the Issuer) in connection with such
sale or other disposition.
"Scheduled Asset Swap Counterparty Payments" means with respect to any Asset Swap
Transaction, the periodic amounts in the nature of coupon (and not principal) scheduled to be paid to
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the Issuer by the applicable Asset Swap Counterparty pursuant to the terms of such Asset Swap
Transaction, excluding any termination payments payable upon termination in whole or in part of the
Asset Swap Agreement.
"Scheduled Asset Swap Issuer Payments" means with respect to any Asset Swap Transaction, the
periodic amounts in the nature of coupon (and not principal) scheduled to be paid by the Issuer to the
applicable Asset Swap Counterparty pursuant to the terms of such Asset Swap Transaction, excluding
any termination payments payable upon termination in whole or in part of the Asset Swap Agreement.
"Scheduled Currency Hedge Counterparty Payments" means with respect to any Currency Hedge
Transaction, the periodic amounts scheduled to be paid to the Issuer by the applicable Currency Hedge
Counterparty pursuant to the terms of such Currency Hedge Transaction, excluding any termination
payments payable upon termination in whole or in part of the Currency Hedge Agreement.
"Scheduled Currency Hedge Issuer Payments" with respect to any Currency Hedge Transaction, the
periodic amounts scheduled to be paid by the Issuer to the applicable Currency Hedge Counterparty
pursuant to the terms of such Currency Hedge Transaction, excluding any termination payments
payable upon termination in whole or in part of the Currency Hedge Agreement.
"Scheduled Currency Swap Counterparty Payments" means, collectively, (a) any Scheduled Asset
Swap Counterparty Payments and (b) any Scheduled Currency Hedge Counterparty Payments.
"Scheduled Currency Swap Issuer Payments" means, collectively, (a) any Scheduled Asset Swap
Issuer Payments and (b) any Scheduled Currency Hedge Issuer Payments.
"Scheduled Interest Rate Hedge Counterparty Payments" means with respect to any Interest Rate
Hedge Transaction, the amounts scheduled to be paid to the Issuer by the applicable Interest Rate
Hedge Counterparty pursuant to the terms of such Interest Rate Hedge Transaction, excluding any
termination payments payable upon termination in whole or in part of the Interest Rate Hedge
Agreement.
"Scheduled Interest Rate Hedge Issuer Payments" means with respect to any Interest Rate Hedge
Transaction, the amounts scheduled to be paid by the Issuer to the applicable Interest Rate Hedge
Counterparty pursuant to the terms of such Interest Rate Hedge Transaction, excluding any termination
payments payable upon termination in whole or in part of the Interest Rate Hedge Agreement.
"Scheduled Principal Proceeds" means:
(a)
in the case of any Collateral Debt Obligation save for any Asset Swap Obligation, scheduled
principal repayments received by the Issuer (including scheduled amortisation, instalment or
sinking fund payments);
(b)
in the case of any Asset Swap Obligation, scheduled final and interim payments in the nature
of principal payable to the Issuer by the applicable Asset Swap Counterparty under the related
Asset Swap Transaction; and
(c)
in the case of any Synthetic Security, any Synthetic Collateral relating thereto (or any amount
received upon liquidation thereof) to which the Issuer is entitled upon expiration or
termination of such Synthetic Security at its scheduled maturity.
"Second Lien Loan" means a Collateral Debt Obligation (which may, in the discretion of the
Collateral Manager, include a Project Finance Security or a Finance Lease) which (i) is not (and by its
terms is not permitted to become) subordinate in right of payment to any other debt for borrowed
money incurred by the Obligor under the loan, other than a Senior Secured Loan, and any other
comparable debt obligation as determined by the Collateral Manager in its reasonable business
judgement and (ii) is secured by a valid and perfected security interest or lien on specified collateral
securing the Obligor's obligations under such loan, which security interest or lien is not subordinate to
the security interest or lien securing any other debt for borrowed money other than a Senior Secured
Loan on such specified collateral, provided, however, that with respect to (i) and (ii) above, such right
of payment, security interest or lien may be subordinate to customary permitted liens, such as but not
limited to, tax liens.
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"Secured Participation" means a Participation in respect of which the Issuer has security over the
Collateral Debt Obligation to which such Participation relates and which shall be treated as a direct
holding of such Collateral Debt Obligation.
"Secured Party" means each of the Noteholders, the Collateral Manager, the Collateral Administrator,
the Administrator, the Trustee, the Arrangers, the Agents, the Interest Rate Hedge Counterparty, each
Currency Hedge Counterparty and each Asset Swap Counterparty.
"Securities Act" means the United States Securities Act of 1933, as amended.
"Security" means the charges, mortgages, assignments, pledges and any other security interests created
by the Trust Deed and the Euroclear Pledge Agreement.
"Selling Institution" means an institution which meets the Required Ratings and from which a
Participation is acquired.
"Senior Collateral Management Fee" means, in respect of each Payment Date, the semi-annual fee
payable to the Collateral Manager for services rendered and performance of its obligations under the
Collateral Management Agreement, payable in arrear equal to 0.05 per cent. per annum of the CDO
Principal Balance on the first day of the Due Period relating to such Payment Date.
"Senior Fee Cap" means, in respect of each Payment Date, an amount in Euro equal to 0.10 per cent.
per annum of the aggregate of the Principal Balances of all the Collateral Debt Obligations as at the
Determination Date immediately preceding such Payment Date.
"Senior Notes" means the Class A Notes which are Outstanding from time to time.
"Senior Secured Loan" means:
(a)
a Collateral Debt Obligation (which may be a Revolving Obligation or Delayed Drawdown
Obligation) that is a secured senior loan obligation or other comparable debt obligation as
determined by the Collateral Manager in its reasonable business judgement which is secured
by a valid first priority security interest over or lien on (i) fixed assets of the Obligor or
guarantor thereof if and to the extent a security interest over or lien on fixed assets is
permissible under applicable law (save in the case of assets so numerous or diverse that the
failure to take such security is consistent with reasonable secured lending practices) or (ii) 80
per cent. of the equity interest in the stock of the entity owning such fixed assets; or a
Participation therein;
and
(b)
no other obligation of the Obligor has any higher priority security interest in such fixed assets
or stock referred to in (a) above; or
(c)
a Synthetic Security, the Reference Obligation applicable to which is a senior loan obligation
of the type described in paragraph (a) above; or
(d)
an Asset Swap Obligation, the Non-Euro Obligation of which is, other than in relation to its
currency of denomination, a senior loan obligation of the type described in paragraph (a)
above.
"Special Quorum" has the meaning given to it in Condition 14(b) (Quorum).
"Special Quorum Matters" has the meaning given to it in Condition 14(b) (Quorum).
"Special Quorum Resolution" means a written resolution, or a resolution passed at a meeting duly
convened at which the Special Quorum requirement of such Noteholders is satisfied, of the holders of
at least 66⅔ per cent. of the aggregate Principal Amount Outstanding of the relevant Class of Notes.
"Special Redemption" has the meaning given to it in Condition 7(f) (Special Redemption).
"Special Redemption Amount" has the meaning given to it in Condition 7(f) (Special Redemption).
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"Special Redemption Date" has the meaning given to it in Condition 7(f) (Special Redemption).
"Spot Rate" means the exchange rate quoted at 11:00 a.m. London time on the relevant date of
quotation (or such other time or times as may be required or convenient (in the Collateral
Administrator's opinion) for giving effect to the transactions contemplated by the Trust Deed or the
other Transaction Documents) by such international financial institution selected by the Collateral
Manager for the exchange of one Permitted Currency for another.
"Stated Maturity" means, with respect to any Collateral Debt Obligation or Eligible Investment, the
date specified in such obligation as the fixed date on which the final payment or repayment of principal
of such obligation is due and payable or, in the case of any Synthetic Security, the scheduled date of
termination of such instrument or agreement provided that, if such date is not a Business Day, the next
following Business Day.
"Structured Finance Obligation" means a non-recourse or limited-recourse collateralised loan
obligation or whole-business securitisation issued by a special purpose vehicle and secured solely by
the assets thereof which, for avoidance of doubt, shall not include any such collateralised loan
obligation or whole-business securitisation managed by the Collateral Manager or any of its Affiliates
or any Synthetic Securities or Project Finance Securities.
"Subordinated Collateral Management Fee" means, in respect of each Payment Date, the semiannual fee payable to the Collateral Manager for services rendered and performance of its obligations
under the Collateral Management Agreement, payable in arrear equal to 0.53 per cent. per annum of the
CDO Principal Balance on the first day of the Due Period relating to such Payment Date.
"Subordinated Note Interest" has the meaning given to it in Condition 6(f) (Interest on the
Subordinated Notes).
"Subordinated Noteholders" means the registered holders of the Subordinated Notes from time to
time.
"Subordinated Notes Additional Collateral Account" means the interest bearing account of the
Issuer established at the Account Bank into which the Subordinated Notes Proceeds will be deposited
on the Issue Date, the Balance of which may, among other things, be applied in the acquisition of
Additional Collateral Debt Obligations during the Investment Period in accordance with the Collateral
Management Agreement.
"Subordinated Notes Collateral Debt Obligation Account" means the account of the Issuer
established with the Custodian into which the Subordinated Notes Collateral Debt Obligations shall be
deposited from time to time in accordance with the Collateral Management Agreement.
"Subordinated Notes Collateral Debt Obligations" means Collateral Debt Obligations that (i) were
purchased on or prior to the Issue Date and were designated by the Collateral Manager as Subordinated
Notes Collateral Debt Obligations or (ii) are purchased after the Issue Date with Subordinated Notes
Proceeds; provided, however, that no Asset Swap Obligations are included as Subordinated Notes
Collateral Debt Obligations and that the amount of the Collateral Debt Obligations (measured by the
Issuer's acquisition cost, including any purchased interest) to be designated as Subordinated Notes
Collateral Debt Obligations by the Collateral Manager will not exceed the Subordinated Notes
Proceeds.
"Subordinated Note Hurdle Return Amount" means, in respect of any Payment Date, an amount
which in addition to any prior distributions on the Subordinated Notes gives an internal rate of return
(assuming for this purpose that all Subordinated Notes were purchased on the Issue Date at a price
equal to 100 per cent. of the principal amount thereof) of 12 per cent. per annum on the aggregate
Principal Amount Outstanding of the Subordinated Notes for the period from the Issue Date to the
applicable Determination Date.
"Subordinated Notes Principal Account" means the interest bearing account of the Issuer established
with the Account Bank or further or other account so named or redesignated and in respect of which the
Issuer will procure that amounts are credited and/or debited in accordance with Condition 3(i)(N)
(Subordinated Notes Principal Account).
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"Subordinated Notes Proceeds" means proceeds from the issuance of the Subordinated Notes on the
Issue Date.
"Subscription Agreement" means the agreement dated 30 October 2007 between the Arrangers and
the Issuer.
"Substitute Collateral Debt Obligation" means a Collateral Debt Obligation purchased in substitution
for a previously held Collateral Debt Obligation pursuant to the terms of the Collateral Management
Agreement and the purchase of which satisfies the Reinvestment Criteria and Eligibility Criteria
immediately after such purchase.
"Synthetic Collateral" means any collateral required to be delivered by the Issuer and deposited in a
Synthetic Collateral Account as security for its obligations to any Synthetic Counterparty under any
Synthetic Security pursuant to the terms thereof provided that Synthetic Collateral will consist of
Eligible Investments which by their terms mature overnight unless Rating Agency Confirmation is
received in respect thereto, but may not include Margin Stock. References to the price payable upon the
acquisition of or entry into of a Synthetic Security acquired or entered into by the Issuer on an
unfunded basis shall be deemed to be the aggregate principal amount of Synthetic Collateral required to
be delivered by the Issuer to the applicable Synthetic Counterparty.
"Synthetic Collateral Accounts" means the accounts in the name of the Issuer held with the Custodian
into which the Synthetic Collateral is to be deposited.
"Synthetic Counterparty" means any counterparty under a Synthetic Security or any guarantor of any
such entity or, in the case of a Synthetic Security that represents an ownership interest in one or more
assets held by the issuer of such Synthetic Security, any entity required to make payments on any such
asset which meets the Required Ratings at the time of entry into such Synthetic Security and, in the
case of a Synthetic Security which is a swap transaction, has the regulatory capacity, as a matter of
Dutch law, to enter into derivatives transactions with Dutch residents.
"Synthetic Counterparty Default" means, in the case of any Synthetic Security (a) the long-term debt
obligations of the Synthetic Counterparty (or the guarantor of its obligations) cease to be rated by either
of the Rating Agencies, or (b) the occurrence and continuation of a default by the Synthetic
Counterparty in the performance of any of its payment obligations (beyond any applicable grace period
and subject to the Collateral Manager certifying that such non-payment is minor or technical in nature
and can be remedied within such period), until such time that such default is cured or waived, or (c) the
long-term debt obligations of the Synthetic Counterparty (or the guarantor of its obligations) are rated
"D" or "SD" by S&P.
"Synthetic Security" means any swap transaction, debt security, security issued by a trust or similar
vehicle or other investment (including a Credit-Linked Obligation) purchased from or entered into by
the Issuer with a Synthetic Counterparty (in respect of which, if such Synthetic Security is a credit
default swap, the Issuer is the credit protection seller), the returns on which (as determined by the
Collateral Manager) are linked to the credit performance of Reference Obligation(s) and/or Reference
Obligor(s) (either individually or collectively pursuant to a credit default swap index), but which may
provide for a different maturity, payment schedule, interest rate, credit exposure or other credit or noncredit related characteristics than such Reference Obligation and/or Reference Obligors; and that meets
the following requirements:
(a)
it will not constitute a commodity option, leverage transaction or futures contract that is
subject to the jurisdiction of the U.S. Commodities Futures Trading Commission;
(b)
its documentation will provide non-petition and limited recourse protection with respect to the
Issuer and if the Issuer provides Synthetic Collateral thereunder, the Synthetic Security will
provide that the recourse of the Synthetic Counterparty will be limited to such Synthetic
Collateral or, if no such Synthetic Collateral is provided, the recourse of the Synthetic
Counterparty will be limited to the notional amount of such Synthetic Security;
(c)
Rating Agency Confirmation from S&P and Moody's is received for the purchase of such
Synthetic Security unless it is a Form-Approved Synthetic Security;
(d)
any Credit Event thereunder is limited to either "bankruptcy" and/or "failure to pay";
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(e)
if the Reference Obligation is a Senior Secured Loan, the Deliverable Obligation must be a
Senior Secured Loan that ranks at least pari passu with the Reference Obligation;
(f)
if the Synthetic Security is a credit default swap, it must require physical settlement or, at the
option of the Collateral Manager, cash settlement; and
(g)
it will not constitute a Dutch Ineligible Security.
For purposes of the Coverage Tests, the definition of Collateral Debt Obligation, and clause (h) of the
Eligibility Criteria and clauses (f), (g), (h), (i), (j), (k), (l) and (q) of the Portfolio Profile Test and the
Collateral Quality Tests (other than the Moody's Minimum Diversity Test), a Synthetic Security will be
included as a Collateral Debt Obligation having the relevant characteristics of the Synthetic Security
and not of the related Reference Obligation (provided, that (x) the maturity of a Credit-Linked
Obligation will be the stated date of the final payment as described in subclause (b)(iv) of the definition
of Credit-Linked Obligation and (y) with respect to the S&P CDO Monitor Test, the industry
characteristic of a Synthetic Security will be that of the related Reference Obligation).
For purposes of the Moody's Minimum Diversity Test, clause (c) of the Eligibility Criteria and clauses
(b), (c), (d), (e), (m), (n), (o), (p), (s) to (y) (inclusive) of the Portfolio Profile Test, a Synthetic Security
will be included as a Collateral Debt Obligation having the relevant characteristics of the related
Reference Obligation (and the issuer of such Synthetic Security will be deemed to be the issuer of the
related Reference Obligation) and not of the Synthetic Security.
For purposes of determining the S&P Rating of a Synthetic Security, the Synthetic Security will be
deemed to have a rating equal to the S&P rating of such Synthetic Security or, if such Synthetic
Security is not rated by S&P, the S&P Rating thereof as may be assigned by S&P upon the request of
the Issuer or the Collateral Manager. The Moody's Rating of a Synthetic Security will be assigned by
Moody's on a case-by-case basis.
The interest rate or coupon of a fixed rate Synthetic Security will be a fraction, expressed as a
percentage and annualized, the numerator of which is the current stated periodic payments scheduled to
be received by the Issuer from the related Synthetic Counterparty (in the case of a Credit-Linked
Obligation, as described in clause (b)(i) of the definition thereof) and the denominator of which is the
notional balance of such Synthetic Security. The interest rate or spread of a floating rate Synthetic
Security will be a fraction, expressed as a percentage and annualized, the numerator of which is the
current stated periodic spread over EURIBOR scheduled to be received by the Issuer from the related
Synthetic Counterparty and the denominator of which is the notional balance of such Synthetic Security
(in the case of a Credit-Linked Obligation, as described in subclause (b)(i) of the definition thereof).
For the avoidance of doubt, an Asset Swap Obligation and an Intermediary Obligation shall not
constitute a Synthetic Security. Any reference in these Conditions or any Transaction Document to
"interest" shall, unless the context requires otherwise, include scheduled periodic payments under any
Synthetic Security.
"TARGET System" means the Trans-European Automated Real-Time Gross Settlement Express
Transfer System (or, if such system ceases to be operative, such other system (if any) identified by the
Issuer or the Collateral Manager on behalf of the Issuer and approved by the Trustee to be a suitable
replacement).
"Transaction Creditors" means each of the Secured Parties, the Managing Directors and any other
Person to whom the Issuer owes any obligations from time to time.
"Transaction Documents" means the Trust Deed, the Agency Agreement, the Subscription
Agreement, the Euroclear Pledge Agreement, the Collateral Management Agreement, any Asset Swap
Agreement, any Currency Hedge Agreement, any Interest Rate Hedge Agreement, the Collateral
Acquisition Agreements, the Participation Agreements, the Management Agreement, the Letter of
Undertaking, the Master Definitions Agreement and any documents supplemental or ancillary thereto.
"Transferable Margin Stock" means (a) any Collateral Debt Obligation that has not been designated
as a Subordinated Notes Collateral Debt Obligation that becomes a Margin Stock, or (b) any Margin
Stock that is received by the Issuer in respect of a Collateral Debt Obligation that has not been
designated as a Subordinated Notes Collateral Debt Obligation.
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"Trustee Fees and Expenses" means the fees and expenses and any other amounts (including any
indemnity payments) payable to the Trustee (on behalf of itself and, if applicable, any agent, delegate,
custodian, nominee or receiver) in each case pursuant to the terms of the Trust Deed from time to time.
"UK VAT Event" means an event whereby the Collateral Manager will be required by HM Revenue &
Customs on or after the Issue Date to account for any value added tax in relation to services provided
by the Collateral Manager to the Issuer pursuant to the Transaction Documents, such requirement to
account for value added tax is to be confirmed to be correct by an opinion of a legal adviser located in
the United Kingdom and acceptable to the Trustee, and the Collateral Manager notifies in writing the
Issuer, the Collateral Administrator and the Trustee that it wishes such event to be treated as a UK
VAT Event.
"Underlying Instruments" means a trust deed or other agreement or instrument pursuant to which a
Collateral Debt Obligation has been issued or created and each other agreement that governs the terms
of, or secures the obligations represented by, such Collateral Debt Obligation or under which the
holders or creditors under such Collateral Debt Obligation are the beneficiaries.
"Unfunded Amount" means, with respect to any Revolving Obligation or Delayed Drawdown
Collateral Obligation, the excess, if any, of (i) the Revolving Commitment Amount under such
Revolving Obligation or Delayed Drawdown Collateral Obligation, as the case may be, at such time
over (ii) the Collateral Funded Amount thereof at such time.
"Unhedged Collateral Debt Obligation" means any Collateral Debt Obligation which is: (i)
purchased by the Issuer in the general syndication of such Collateral Debt Obligation, (ii) denominated
in a Permitted Currency (other than Euro) and (iii) not already an Asset Swap Obligation which may be
purchased by the Collateral Manager, on behalf of the Issuer, subject to certain conditions including,
without limitation, that the Collateral Enhancement Ratio Test and the Coverage Tests are satisfied, in
each case, both before and after such acquisition.
"Unscheduled Principal Proceeds" means:
(a)
with respect to any Collateral Debt Obligation other than an Asset Swap Obligation, principal
repayments prior to the Stated Maturity thereof including but not limited to those received as a
result of optional redemptions, prepayments (including any acceleration) or Offers (excluding
any premia or make whole amounts in excess of the principal amount of such Collateral Debt
Obligation or any Offers received in connection with a Defaulted Obligation), and any other
unscheduled principal payments with respect to Collateral Debt Obligations (to the extent not
included in Sale Proceeds);
(b)
with respect to any Asset Swap Obligation, any amounts payable to the Issuer by the
applicable Asset Swap Counterparty in exchange for payment by the Issuer of any
unscheduled principal proceeds received in respect of any Collateral Debt Obligation, as
described in paragraph (a) above, under the related Asset Swap Transaction;
(c)
Synthetic Collateral (or any amount received upon liquidation thereof) that ceases to be
subject to the applicable Synthetic Counterparty's security interest on termination (but not
expiration) of such Synthetic Security other than at the option of the Issuer (other than
Synthetic Collateral received in connection with a Defaulted Obligation); and
(d)
Currency Swap Termination Receipts, in each of the following cases: (i) where an Asset Swap
Agreement has been terminated and the Issuer, following consultation with the Collateral
Manager, determines not to replace such Asset Swap Agreement and Rating Agency
Confirmation is received in respect of such determination; (ii) where termination of the Asset
Swap Agreement or Currency Hedge Agreement occurs on a Redemption Date pursuant to
Conditions 7(a) (Final Redemption), 7(b) (Optional Redemption) or 10 (Events of Default).
"U.S. Person" has the meaning given thereto in Regulation S.
"U.S. Source Income" means income that is treated for U.S. income tax purposes as being from
sources within the United States.
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"Withholding Tax Obligation" means a Collateral Debt Obligation if (a) any payments thereon to the
Issuer are subject to withholding tax imposed by any jurisdiction after applying all applicable tax
treaties, and (b) under the Underlying Instrument with respect to such Collateral Debt Obligation, the
issuer of or counterparty with respect to such Collateral Debt Obligation is not required to make "grossup" payments to the Issuer that cover the full amount of such withholding tax on an after-tax basis.
"Zero-Coupon Security" means a security that, at the time of determination, does not make periodic
payments of interest, provided, however, that a Zero-Coupon Security shall not include a security that
is a PIK Security.
2.
Form and Denomination, Title, Transfer and Exchange
(a)
Form and Denomination: The Notes are in definitive fully registered form, without interest
coupons or principal receipts attached, in an Authorised Integral Denomination. A Definitive
Certificate will be issued to each Noteholder in respect of its registered holding or holdings of
Notes. Each Definitive Certificate will be numbered serially with an identifying number
which will be recorded in the Register which the Issuer shall procure to be kept by the
Registrar.
(b)
Title to the Registered Notes: Title to the Notes passes upon registration of transfers in the
Register of Notes in accordance with the provisions of the Agency Agreement and the Trust
Deed. Notes will be transferable only on the books of the Registrar and its agents. The
registered holder of any Note will (except as otherwise required by law) be treated as its
absolute owner for all purposes (whether or not it is overdue and regardless of any notice of
ownership, trust or any interest in it, any writing on it, or its theft or loss) and no person will
be liable for so treating such holder.
(c)
Transfer: One or more Notes may be transferred in whole or in part in nominal amounts equal
to the applicable Minimum Denomination and integral multiples of any Authorised Integral
Denomination in excess thereof only upon the surrender, at the specified office of the
Registrar or any Transfer Agent, of the Definitive Certificate representing such Note(s) to be
transferred, with the form of transfer endorsed on such Definitive Certificate duly completed
and executed and together with such other evidence as the Registrar or Transfer Agent may
reasonably require. In the case of a transfer of part only of a holding of Notes represented by
one Definitive Certificate, a new Definitive Certificate will be issued to the transferee in
respect of the part transferred and a further new Definitive Certificate in respect of the balance
of the holding not transferred will be issued to the transferor.
(d)
Delivery of New Certificates: Each new Definitive Certificate to be issued pursuant to
Condition 2(c) (Transfer) will be available for delivery within seven Business Days of receipt
of such form of transfer or of surrender of an existing Definitive Certificate upon partial
redemption. Delivery of new Definitive Certificate(s) shall be made at the specified office of
the Transfer Agent or of the Registrar, as the case may be, to whom delivery or surrender shall
have been made or, at the option of the holder making such transfer or surrender as aforesaid
and as specified in the form of transfer or surrender or otherwise in writing, shall be mailed by
pre-paid first class post at the risk of the holder entitled to the new Definitive Certificate to
such address as may be so specified. In this Condition 2(d) (Delivery of New Certificates)),
"Business Day" means a day, other than a Saturday or Sunday, on which banks are open for
business in the place of the specified office of the applicable Transfer Agent and the Registrar.
(e)
Transfer Free of Charge: Transfer of Notes and Definitive Certificates representing such
Notes in accordance with this Condition 2 will be effected without charge by or on behalf of
the Issuer, the Registrar or the Transfer Agents, but upon payment (or the giving of such
indemnity as the Registrar or the relevant Transfer Agent may require in respect thereof) of
any tax or other governmental charges which may be imposed in relation to it.
(f)
Closed Periods: No Noteholder may require the transfer of a Note to be registered (i) during
the period of 15 calendar days ending on the due date for redemption (in full of that Note or
(ii) during the period of seven calendar days ending on (and including) any Record Date.
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(g)
Regulations Concerning Transfer and Registration: All transfers of Notes and entries on the
Register will be made subject to the detailed regulations concerning the transfer of Notes
scheduled to the Trust Deed, including without limitation, that a transfer of Notes in breach of
certain of such regulations will not be recognised by the Issuer, the Trustee and the Registrar
and such transfer will not operate as a transfer of any rights to the transferee. The regulations
may be changed by the Issuer in any manner which is reasonably required by the Issuer (after
consultation with the Trustee) to reflect changes in legal requirements or in any other manner
which, in the opinion of the Issuer (after consultation with the Trustee and subject to not less
than 60 days' notice of any such change having been given to the Noteholders in accordance
with Condition 16 (Notices)), is not prejudicial to the interests of the holders or the relevant
Class of Notes. A copy of the current regulations will be sent by the Registrar to any
Noteholder who so requests.
(h)
Forced Transfer of Certain Notes:
(i)
If the Issuer or the Registrar determines at any time that any holder of (I) a Rule 144A
Note is not a QIB/QP or (II) an AI Note is not a QIB or an institutional "accredited
investor" within the meaning of Rule 5.01(a), 1, 2, 3, 7 or 8 of Regulation D under the
Securities Act and in either case is also a QP or a company owned exclusively by QPs
and/or knowledgeable employees as defined in Rule 3c-5 under the Investment
Company Act ("Knowledgeable Employees") with respect to the Issuer or (III) a
Subordinated Note has made or been deemed to have made an ERISA related
representation that is false or misleading regarding the beneficial ownership of such
Notes that causes a violation of the 25 per cent. limitation (any such person, a "NonPermitted Holder"), the Issuer or the Registrar shall promptly direct such holder to
sell or transfer its Notes outside the United States to a non-U.S. Person or within the
United States to a Person that is not a Non-Permitted Holder within 14 days following
receipt of such notice.
(ii)
If such holder fails to sell or transfer its Notes within such period, such holder shall be
required by the Issuer or the Registrar to sell such Rule 144A Notes or AI Notes or
Subordinated Notes (as applicable) to a purchaser selected by the Issuer or the Registrar
on such terms as the Issuer or the Registrar may choose, subject to the transfer
restrictions set out herein, and pending such transfer no further payments will be made
in respect of such Rule 144A Notes or such AI Notes or Subordinated Notes. The
Issuer or the Registrar may select the purchaser by soliciting one or more bids from one
or more brokers or other market professionals that regularly deal in securities similar to
such Rule 144A Notes or AI Notes or Subordinated Notes, as applicable, and selling
such Notes to the highest such bidder. However, the Issuer or the Registrar may select
a purchaser by any other means determined by it in its sole discretion. Each
Noteholder and each other Person in the chain of title from the permitted Noteholder to
the Non-Permitted Holder by its acceptance of an interest in such Rule 144A Notes or
AI Notes or Subordinated Notes, as applicable, agrees to co-operate with the Issuer and
the Registrar to effect such transfers. The proceeds of such sale, net of any
commissions, expenses and taxes due in connection with such sale shall be remitted to
the selling Noteholder. The terms and conditions of any sale hereunder shall be
determined in the sole discretion of the Issuer, or the Registrar, subject to the transfer
restrictions set out herein, and neither the Issuer nor the Registrar shall be liable to any
Person having an interest in the Notes sold as a result of any such sale or the exercise of
such discretion. The Issuer and the Registrar reserve the right to require any holder of
Notes to submit a written certification substantiating that it is not a Non-Permitted
Holder. If such holder fails to submit any such requested written certification on a
timely basis, the Issuer and the Registrar have the right to assume that the holder of the
Notes from whom such a certification is requested is a Non-Permitted Holder.
Furthermore, the Issuer and the Registrar reserve the right to refuse to honour a transfer
of beneficial interests in a Rule 144A Note or an AI Note or a Subordinated Note (as
applicable) to any person who is not a Non-Permitted Holder.
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3.
Status
(a)
Status: The Notes of each Class constitute direct, general, secured, unconditional obligations
of the Issuer, recourse in respect of which is limited in the manner described in Condition 4(c)
(Limited Recourse and Non-Petition). The Notes of each Class are secured in the manner
described in Condition 4 (Security) and, within each Class, shall at all times rank pari passu
and without any preference amongst themselves.
(b)
Relationship Among the Classes: The Notes of each Class are constituted by the Trust Deed
and are secured on the Collateral as further described in the Trust Deed. Payments of interest
on the Class A Notes will rank senior in right of payment to payments of principal and interest
in respect of each other Class of Notes. Other than redemptions on the Class E Notes that may
be made out of Interest Proceeds in accordance with paragraph (U) of the Interest Proceeds
Priority of Payments, payments of principal on the Class A Notes will rank senior in right of
payment to payments of principal in respect of each other Class of Notes. Payments of interest
on the Class B Notes will be subordinated in right of payment to any payments of interest on
the Class A Notes and payments of principal on the Class B Notes will be subordinated in
right of payment to payments of principal and interest in respect of the Class A Notes.
Payments of interest on the Class B Notes will rank senior in right of payment to payments of
principal and interest on the Class C Notes, the Class D Notes, the Class E Notes and the
Subordinated Notes and other than redemptions of the Class E Notes that may be made out of
Interest Proceeds in accordance with paragraph (U) of the Interest Proceeds Priority of
Payment, payments of principal on the Class B Notes will rank senior in right of payment to
payments of principal on the Class C Notes, the Class D Notes, the Class E Notes and the
Subordinated Notes. Payments of interest on the Class C Notes will be subordinated in right
of payment to any payments of interest on the Class A Notes and the Class B Notes and
payments of principal on the Class C Notes will be subordinated in right of payment to
payments of principal and interest on the Class A Notes and the Class B Notes. Payments of
interest on the Class C Notes will rank senior in right of payment to payments of principal and
interest on the Class D Notes, the Class E Notes and the Subordinated Notes and (other than
redemptions of the Class E Notes that may be made out of Interest Proceeds in accordance
with paragraph (U) of the Interest Proceeds Priority of Payments), payments of principal on
the Class C Notes will rank senior in right of payment to payments of principal on the Class D
Notes, the Class E Notes and the Subordinated Notes. Payments of interest on the Class D
Notes will be subordinated in right of payment to payment of interest on the Class A Notes,
the Class B Notes and the Class C Notes and payments of principal on the Class D Notes will
be subordinated in right of payment to payments of principal and interest on the Class A
Notes, the Class B Notes and the Class C Notes. Payments of interest on the Class D Notes
will rank senior in right of payment to payments of principal and interest on the Class E Notes
and the Subordinated Notes and (other than redemptions of the Class E Notes that may be
made out of Interest Proceeds in accordance with paragraph (U) of the Interest Proceeds
Priority of Payments), payments of principal on the Class D Notes will rank senior in right of
payment to payments of principal on the Class E Notes and the Subordinated Notes. Payments
of interest on the Class E Notes will be subordinated in right of payment to payments of
interest on the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes and
(other than redemptions of the Class E Notes that may be made out of Interest Proceeds in
accordance with paragraph (U) of the Interest Proceeds Priority of Payments), payments of
principal on the Class E Notes will be subordinated in right of payment to payments of
principal and interest on the Class A Notes, the Class B Notes, the Class C Notes and the Class
D Notes. Payments of interest on the Class E Notes will rank senior in right of payment to
payments of principal and interest on the Subordinated Notes and payments of principal on the
Class E Notes will rank senior in right of payment to payments of principal on the
Subordinated Notes. Principal Proceeds shall be applied in redemption of the Subordinated
Notes on any Payment Date following expiration of the Non-Call Period in accordance with
paragraphs (B), (E), and (G) of Condition 3(c)(ii) (Application of Principal Proceeds) on an
available funds basis. Interest Proceeds shall be applied in payment of interest on the
Subordinated Notes on each Payment Date in accordance with paragraphs (CC), (EE) of
Condition 3(c)(i) (Application of Available Interest Proceeds) on an available funds basis.
Payment of principal and interest on the Subordinated Notes will be subordinated in right of
payment to such payments in respect of the Senior Notes and the Mezzanine Notes.
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Save to the extent provided otherwise below, no amount of principal (excluding Deferred
Interest) in respect of the Class B Notes shall become due and payable until redemption and
payment in full of the Class A Notes, no amount of principal (excluding Deferred Interest) in
respect of the Class C Notes shall become due and payable until redemption and payment in
full of the Class A Notes and the Class B Notes, no amount of principal (excluding Deferred
Interest) in respect of the Class D Notes shall become due and payable until redemption and
payment in full of the Class A Notes and the Class B Notes and the Class C Notes, no amount
of principal (excluding Deferred Interest) in respect of the Class E Notes shall become due and
payable until redemption or payment in full of the Class A Notes, the Class B Notes, the Class
C Notes and the Class D Notes and no amount of principal in respect of the Subordinated
Notes shall become due and payable or be paid until redemption and payment in full of each of
the other Classes of Notes.
Notwithstanding the above, in the event of any failure to satisfy the Class A Coverage Tests on
any date on which such tests are required to be satisfied (as set forth below), Available Interest
Proceeds and Available Principal proceeds will be applied in redemption of the Notes on the
next following Payment Date in accordance with the Note Payment Sequence, until such Class
A Coverage Tests are satisfied if recalculated immediately following such redemption. In the
event of any failure to satisfy the Class B Coverage Tests on any date on which such tests are
required to be satisfied (as set forth below), Available Interest Proceeds and Available
Principal Proceeds will be applied in redemption of the Notes on the next following Payment
Date in accordance with the Note Payment Sequence, until such Class B Coverage Tests are
satisfied if recalculated immediately following such redemption. In the event of any failure to
satisfy the Class C Coverage Tests on any date on which such tests are required to be satisfied
(as set forth below), Available Interest Proceeds and Available Principal Proceeds will be
applied in redemption of the Notes on the next following Payment Date in accordance with the
Note Payment Sequence, until such Class C Coverage Tests are satisfied if recalculated
immediately following such redemption. In the event of any failure to satisfy the Class D
Coverage Tests on any date on which such tests are required to be satisfied (as set forth below)
Available Interest Proceeds and Available Principal Proceeds will be applied in redemption of
the Notes on the next following Payment Date in accordance with the Note Payment Sequence
until such Class D Coverage Tests are satisfied if recalculated immediately following such
redemption. In the event of any failure to satisfy the Class E Coverage Tests on any date on
which such tests are required to be satisfied (as set forth below), Available Interest Proceeds
will be applied in redemption of the Class E Notes until such Class E Coverage Tests are
satisfied if recalculated immediately following such redemption and, if the Class E Coverage
Tests are not satisfied following the application of all such Available Interest Proceeds,
Available Principal Proceeds will be applied in redemption of the Notes on the next following
Payment Date, in accordance with the Note Payment Sequence until the Class E Coverage
Tests are satisfied if recalculated immediately following such redemption.
(c)
Pre-Enforcement Priorities of Payment:
The Collateral Administrator shall, on behalf of the Issuer, prior to the enforcement of security
in accordance with Condition 11 (Enforcement), instruct the Account Bank to disburse (i)
Available Interest Proceeds transferred to the Payment Account on any Payment Date by
reference to the amount of each item in accordance with the Priorities of Payment in Condition
3(c)(i) (Application of Available Interest Proceeds) below and (ii) Available Principal
Proceeds transferred to the Payment Account on any Payment Date by reference to the amount
of each item in accordance with the Priorities of Payment in Condition 3(c)(ii) (Application of
Principal Proceeds) below (the "Pre-Enforcement Priority of Payments").
(i)
Application of Available Interest Proceeds: Subject to paragraph (iii) (Determination
of Amounts) below, Available Interest Proceeds shall be applied in the following order
of priority:
(A)
first to the payment of taxes owing by the Issuer accrued in respect of the related
Due Period (other than Dutch corporate income tax in relation to the amounts
equal to the minimum profit referred to below) as certified by an Authorised
Officer of the Issuer to the Trustee, if any; and second to the payment of
107
amounts equal to the minimum profit required to be retained by the Issuer for
Dutch tax purposes from time to time, for deposit into the Issuer Dutch Account;
(B)
to the payment to the Trustee of accrued and unpaid Trustee Fees and Expenses
pursuant to the Trust Deed in respect of the related Due Period, including any
applicable value added tax thereon in aggregate up to an amount equal to the
Senior Fee Cap;
(C)
to the payment on a pro rata and pari passu basis of Administrative Expenses
and (if any) to the payment of any value added tax due and payable in respect
thereof up to an amount equal to the Senior Fee Cap, less the amounts paid
pursuant to paragraph (B) above (if any);
(D)
to the payment into the Expense Reserve Account of an amount equivalent to
the greater of (x) zero and (y) the lesser of (1) the Senior Fee Cap less any
amounts paid pursuant to paragraphs (B) and (C) above (if any) and (2)
€100,000;
(E)
to the payment on a pro rata basis to the Collateral Manager of the Senior
Collateral Management Fee due and payable on such Payment Date and any
value added tax in respect thereof (whether payable by the Collateral Manager
or directly to the relevant taxing authority by the Issuer) and, thereafter, to the
payment of any Senior Collateral Management Fee due and payable but not paid
pursuant to this paragraph (E) on any prior Payment Date (together with accrued
interest at the rate of Note EURIBOR) and to the payment of any value added
tax in respect thereof (whether payable by the Collateral Manager or directly by
the Issuer to the relevant taxing authority) excluding for the avoidance of doubt,
any payments of value added tax made under paragraphs (C) above and (Y)
below;
(F)
to the payment on a pro rata basis of (x) any Scheduled Interest Rate Hedge
Issuer Payments and (y) any Scheduled Currency Swap Issuer Payments due
and payable under any Hedge Transaction, in the case of an Asset Swap
Transaction to the extent not paid from funds available in the account applicable
to the related Asset Swap Transaction within the Asset Swap Account;
(G)
to the payment on a pro rata basis of (x) any Interest Rate Hedge Termination
Payments and (y) any Currency Swap Termination Payments (in the case of an
Asset Swap Transaction, to the extent not paid out of funds available in the
account applicable to the related Asset Swap Transaction with the Asset Swap
Account), in each case (1) excluding Defaulted Hedge Termination Payments
and (2) due and payable on or prior to such Payment Date;
(H)
to the payment on a pro rata basis of the Interest Amounts due and payable on
the Class A Notes in respect of the Interest Accrual Period ending on such
Payment Date (together with any default interest that is due and payable in
respect of the Class A Notes as at such Payment Date);
(I)
in the event that either of the Class A Coverage Tests is not satisfied on the
related Determination Date, to the payment in accordance with the Note
Payment Sequence to the extent necessary to cause the Class A Coverage Tests
to be met if recalculated immediately following such redemption; provided,
however, that the Class A Interest Coverage Test shall not apply until the earlier
of (A) the Effective Date and (B) the second Determination Date, and then each
Determination Date thereafter;
(J)
to the payment on a pro rata basis of the Interest Amounts due and payable on
the Class B Notes in respect of the Interest Accrual Period ending on such
Payment Date (for the avoidance of doubt, including interest accrued on
Deferred Interest in respect of the Class B Notes that has been capitalised);
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(K)
to the payment on a pro rata basis of any Deferred Interest on the Class B Notes
which is due and payable pursuant to Condition 6(c) (Deferral of Interest);
(L)
in the event that either of the Class B Coverage Tests is not satisfied on the
related Determination Date, to the payment in accordance with the Note
Payment Sequence to the extent necessary to cause the Class B Coverage Tests
to be met if recalculated immediately following such redemption, provided,
however, that the Class B Interest Coverage Test shall not apply until the earlier
of (A) the Effective Date and (B) the second Determination Date, and then each
Determination Date thereafter;
(M)
to the payment on a pro rata basis of the Interest Amounts due and payable on
the Class C Notes in respect of the Interest Accrual Period ending on such
Payment Date (for the avoidance of doubt, including interest accrued on
Deferred Interest in respect of the Class C Notes that has been capitalised);
(N)
to the payment on a pro rata basis of any Deferred Interest on the Class C Notes
which is due and payable pursuant to Condition 6(c) (Deferral of Interest);
(O)
in the event that either of the Class C Coverage Tests is not satisfied on the
related Determination Date, to the payment in accordance with the Note
Payment Sequence to the extent necessary to cause the Class C Coverage Tests
to be met if recalculated immediately following such redemption, provided,
however, that the Class C Interest Coverage Test shall not apply until the earlier
of (A) the Effective Date and (B) the second Determination Date, and then each
Determination Date thereafter;
(P)
to the payment on a pro rata basis of the Interest Amounts due and payable on
the Class D Notes in respect of the Interest Accrual Period ending on such
Payment Date (for the avoidance of doubt, including interest accrued on
Deferred Interest in respect of the Class D Notes that has been capitalised);
(Q)
to the payment on a pro rata basis of any Deferred Interest on the Class D Notes
which is due and payable pursuant to Condition 6(c) (Deferral of Interest):
(R)
in the event that either of the Class D Coverage Tests is not satisfied on the
related Determination Date, to the payment in accordance with the Note
Payment Sequence to the extent necessary to cause the Class D Coverage Tests
to be met if recalculated immediately following such redemption, provided,
however, that the Class D Interest Coverage Test shall not apply until the earlier
of (A) the Effective Date and (B) the second Determination Date, and then each
Determination Date thereafter;
(S)
to the payment on a pro rata basis of the Interest Amounts due and payable on
the Class E Notes in respect of the Interest Accrual Period ending on such
Payment Date (for the avoidance of doubt, including interest accrued on
Deferred Interest in respect of the Class E Notes that has been capitalised);
(T)
to the payment on a pro rata basis of any Deferred Interest on the Class E Notes
which is due and payable pursuant to Condition 6(c) (Deferral of Interest);
(U)
in the event that either of the Class E Coverage Tests is not satisfied on the
related Determination Date, to the payment to the Class E Noteholders on a pro
rata basis on account of the applicable Redemption Price of the Class E Notes to
the extent necessary to cause the Class E Coverage Tests to be met if
recalculated immediately following such redemption, provided, however, that
the Class E Interest Coverage Test shall not apply until the earlier of (A) the
Effective Date and (B) the second Determination Date, and then each
Determination Date thereafter;
(V)
provided that no Effective Date Rating Downgrade has occurred, in the event
that on any Payment Date after giving effect to the payment of all amounts
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payable in respect of (A) through (U) (inclusive) above, the Collateral
Enhancement Ratio Test has not been met on the related Determination Date
during the Reinvestment Period an amount equal to the lesser of (a) the amount
necessary to cause the Collateral Enhancement Ratio Test to be met as at such
Determination Date if recalculated immediately following application as
provided in this paragraph and (b) 50 per cent. of the Available Interest
Proceeds remaining after application in accordance with paragraphs (A) to (U)
(inclusive) above shall be applied, at the discretion of the Collateral Manager
(acting on behalf of the Issuer), either for the acquisition of Substitute Collateral
Debt Obligations or deposited in the Principal Account or the Subordinated
Notes Principal Account, as applicable, pending reinvestment in Substitute
Collateral Debt Obligations;
(W)
on the Payment Date following the Effective Date and each Payment Date
thereafter to the extent required, in the event of the occurrence of an Effective
Date Rating Downgrade which is continuing on the second Business Day prior
to such Payment Date, to redeem the Notes in accordance with the Note
Payment Sequence or, if earlier, until an Effective Date Rating Downgrade is no
longer continuing;
(X)
to the payment of Trustee Fees and Expenses (if any) (including to the payment
of any value added tax due and payable in respect thereof) to the extent not paid
pursuant to paragraph (B) above;
(Y)
to the payment on a pro rata and pari passu basis of Administrative Expenses
(including to the payment of any value added tax due and payable in respect
thereof) to the extent not paid pursuant to paragraph (C) above;
(Z)
to the payment on a pro rata basis to the Collateral Manager and any previous
Collateral Manager of (i) the Subordinated Collateral Management Fee due on
such Payment Date which has not been designated for reinvestment by the
Collateral Manager as Deferred Collateral Management Amounts, together with
any value added tax in respect thereof (whether payable by the Collateral
Manager or by the Issuer directly to the relevant taxing authority) and,
thereafter, to the payment on a pro rata basis of any due and unpaid
Subordinated Collateral Management Fee not paid pursuant to this paragraph
(Z) on any prior Payment Date (together with accrued interest at the rate of Note
EURIBOR and any value added tax in respect thereof (whether payable by the
Collateral Manager or by the Issuer directly to the relevant taxing authority))
excluding for the avoidance of doubt, any payments of value added tax made
under paragraphs (C) above and (Y) above and (ii) any Deferred Collateral
Management Amount which has been designated for reinvestment by the
Collateral Manager in respect of a previous Payment Date and not subsequently
paid to the Collateral Manager plus any interest thereon which has accrued at the
rate of Note EURIBOR, together with any value added tax in respect thereof
(whether payable by the Collateral Manager or by the Issuer directly to the
relevant tax authority) excluding for the avoidance of doubt, any payments of
value added tax made under paragraphs (C) above and (Y) above;
(AA) to the payment on a pro rata basis of any Defaulted Hedge Termination
Payments due to any Hedge Counterparty, save in the case of an Asset Swap
Transaction only to the extent not paid out of funds available in the account
applicable to such Asset Swap Transaction within the Asset Swap Account;
(BB) at the discretion of the Collateral Manager acting on behalf of the Issuer, other
than on the Payment Date on which the Subordinated Notes are to be redeemed
and paid in full, to the payment into the Collateral Enhancement Account up to a
maximum aggregate amount (taking into account all payments to the Collateral
Enhancement Account on any prior Payment Date) equal to the aggregate of (i)
€1,000,000 and (ii) the aggregate of all amounts that have been transferred from
the Collateral Enhancement Account to the Interest Account pursuant to
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paragraph (II) of Condition 3(i)(D) (Collateral Enhancement Account) and
paragraph (11) of Condition 3(i)(B) (Interest Account);
(CC) until the Subordinated Note Hurdle Return Amount has been reached (after
taking into account all prior distributions to Subordinated Noteholders and any
distributions to be made to Subordinated Noteholders on such Payment Date)
the balance, if any, towards payment of Subordinated Note Interest;
(DD) when the Subordinated Note Hurdle Return Amount has been reached (after
taking into account all prior distributions to Subordinated Noteholders and any
distributions to be made to Subordinated Noteholders on such Payment Date) to
(x) the Collateral Manager in respect of the Incentive Management Fee and (y)
any value added tax in respect thereof (whether payable by the Collateral
Manager or indirectly to the relevant taxing authority by the Issuer); and
(EE) thereafter, the balance, if any, to the holders of the Subordinated Notes.
(ii)
Application of Principal Proceeds
Principal Proceeds shall be applied in the following order of priority:
(A)
(1)
during the Reinvestment Period to the payment on a sequential basis of
the amounts referred to in paragraphs (A) through (T) (inclusive) and
(W) of the Interest Proceeds Priority of Payments, but only to the extent
not paid in full thereunder; and
(2)
after expiry of the Reinvestment Period, to the payment on a sequential
basis of the amounts referred to in paragraphs (A) through (J) (inclusive),
(L), (M), (O), (P), (R), (S) and (W) of the Interest Proceeds Priority of
Payments, but only to the extent not paid in full thereunder;
(B)
to payment in accordance with the Note Payment Sequence (1) in an amount
equal to the Special Redemption Amount (if any) applicable to such Payment
Date if it is a Special Redemption Date and then (2) in an amount equal to all
remaining Principal Proceeds in the event of any redemption of the Notes
pursuant to Condition 7(b) (Optional Redemption) or 7(g) (Redemption
Following Certain Tax Events);
(C)
(i)
during the Reinvestment Period, either to the purchase of Substitute
Collateral Debt Obligations or to the Principal Account pending
reinvestment in Substitute Collateral Debt Obligations at a later date;
(ii)
after the end of the Reinvestment Period, all Principal Proceeds (other
than those permitted to be and actually designated for reinvestment in
accordance with the terms of the Collateral Management Agreement), in
redemption of the Notes in accordance with the Note Payment Sequence
(including, for the avoidance of doubt, any Deferred Interest);
(D)
to the payment on a sequential basis of the amounts referred to in paragraphs
(X) through (AA) (inclusive) of the Interest Proceeds Priority of Payments, but
only to the extent not paid in full thereunder;
(E)
until the Subordinated Note Hurdle Return Amount has been reached (after
taking into account all prior distributions to the Subordinated Noteholders and
any distributions to be made to Subordinated Noteholders on such Payment
Date), the balance, if any, on a pro rata basis to the payment of principal on the
Subordinated Notes;
(F)
when the Subordinated Note Hurdle Return Amount has been reached (after
taking into account all prior distributions to the Subordinated Noteholders and
any distributions to be made to Subordinated Noteholders on such Payment
Date) to the Collateral Manager in respect of the Incentive Management Fee and
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any value added tax in respect thereof (whether payable by the Collateral
Manager or directly to the relevant taxing authority by the Issuer); and
(G)
(iii)
(d)
thereafter, on a pari passu basis, the balance, if any, in payment to the
Subordinated Noteholders.
Determination of Amounts: The calculation of any Coverage Test on any
Determination Date shall be made after giving effect to all payments required to be
made pursuant to each of the paragraphs set out in the Priorities of Payments, as
applicable, which are payable on the Payment Date immediately following such
Determination Date. In addition, in determining the amount of any disbursement to be
made pursuant to Condition 3(c)(i) (Application of Available Interest Proceeds) and
Condition 3(c)(ii) (Application of Principal Proceeds) above, as the case may be, the
Collateral Administrator on behalf of the Issuer shall procure that no such disbursement
shall be made in the event that it would cause any Coverage Test referred to in any
paragraph with a higher priority to be breached, if recalculated on a pro forma basis,
taking into account such disbursement.
Non-payment of Amounts: Save in the case of (and, in each case, following any applicable
grace period) payments of interest on the Class A Notes pursuant to paragraph (H) of
Condition 3(c)(i) (Application of Available Interest Proceeds), or following redemption and
payment in full of the Class A Notes, payment of interest on the Class B Notes pursuant to
paragraph (J) of Condition 3(c)(i) (Application of Available Interest Proceeds), or following
redemption and payment in full of the Class B Notes, payment of interest on the Class C Notes
pursuant to paragraph (M) of Condition 3(c)(i) (Application of Available Interest Proceeds), or
following redemption and payment in full of the Class C Notes, payment of interest on the
Class D Notes pursuant to paragraph (P) of Condition 3(c)(i) (Application of Available Interest
Proceeds), or following redemption and payment in full of the Class D Notes, payment of
interest on the Class E Notes pursuant to paragraph (S) of Condition 3(c)(i) (Application of
Available Interest Proceeds), or non-payment in full of the principal amount of any Class of
Notes on any Redemption Date, failure on the part of the Issuer to pay any of the amounts
referred to in Conditions 3(c)(i) (Application of Available Interest Proceeds) and 3(c)(ii)
(Application of Principal Proceeds) to the Noteholders by reason solely of the fact that there
are insufficient funds standing to the credit of the Payment Account shall not constitute an
Event of Default pursuant to Condition 10 (Events of Default).
Subject always, in the case of Interest Amounts payable in respect of the Class B Notes, the
Class C Notes, the Class D Notes or the Class E Notes, to Condition 6(c) (Deferral of
Interest), in the event of non-payment of any amounts referred to in Conditions 3(c)(i)
(Application of Available Interest Proceeds) and 3(c)(ii) (Application of Principal Proceeds)
on any Payment Date (including any Deferred Interest payable in respect of the Class B Notes,
the Class C Notes, the Class D Notes or the Class E Notes), such amounts shall remain due
and shall be payable on each subsequent Payment Date in the orders of priority provided for in
this Condition. References to the amounts referred to in Conditions 3(c)(i) (Application of
Available Interest Proceeds) and 3(c)(ii) (Application of Principal Proceeds) shall include any
amounts thereof not paid when due in accordance with this Condition on any preceding
Payment Date. For the avoidance of doubt, the Collateral Administrator shall use the Euro
Equivalent for all non-Euro amounts in calculating the Coverage Tests on any Determination
Date.
(e)
Determination and Payments of Amounts: The Collateral Administrator will on each
Determination Date in consultation with the Collateral Manager calculate the amounts payable
on the applicable Payment Date pursuant to Conditions 3(c)(i) (Application of Available
Interest Proceeds) and 3(c)(ii) (Application of Principal Proceeds) and will notify the Issuer
of such amounts. The Collateral Administrator will notify the Issuer and the Trustee of such
amounts in the Note Valuation Report relating to such Determination Date. The Account Bank
(acting upon the Note Valuation Report compiled by the Collateral Administrator on behalf of
the Issuer) shall on behalf of the Issuer not later than 12.00 noon (London time) on the
Business Day preceding each Payment Date cause the Balances standing to the credit of the
Accounts, to the extent required to pay the amounts referred to in paragraphs (i) and (ii) of
Condition 3(c) (Pre-Enforcement Priorities of Payment), which are payable on such Payment
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Date to be transferred to the Payment Account subject to and in accordance with Condition
3(i) (Accounts).
(f)
De Minimis Amounts: The Collateral Administrator may, in its absolute discretion and on
behalf of the Issuer, adjust the amounts required to be applied in payment of principal on the
Senior Notes, the Mezzanine Notes and the Subordinated Notes from time to time pursuant to
the Priorities of Payment so that the amount to be so applied in respect of each Senior Note,
Mezzanine Note and Subordinated Note is a whole amount, not involving any fraction of a
Euro.
(g)
Publication of Amounts: The Collateral Administrator will cause details as to the amounts of
interest and principal paid and any amounts of interest payable but not paid on each Payment
Date in respect of the Notes to be notified to the Trustee, the Registrar, the Principal Paying
Agent and the Irish Stock Exchange by no later than the Business Day following the
applicable Determination Date and the Registrar shall procure that details of such amounts are
notified to the Noteholders of each Class in accordance with Condition 16 (Notices) as soon as
possible after notification thereof to the Registrar in accordance with the above but in no event
later than (to the extent applicable) the second Business Day after the last day of the applicable
Due Period.
(h)
Notifications to be Final: All notifications, opinions, determinations, certificates, quotations
and decisions given, expressed, made or obtained for the purposes of the provisions of this
Condition will (in the absence of wilful default, bad faith or manifest error) be binding on the
Issuer, the Collateral Administrator, the Trustee, the Registrar, the Transfer Agents and all
Noteholders and (in the absence as referred to above) no liability to the Issuer or the
Noteholders shall attach to the Collateral Administrator in connection with the exercise or
non-exercise by it of its powers, duties and discretions under this Condition.
(i)
Accounts: The Issuer shall, prior to the Issue Date, establish the following accounts with the
Account Bank:
(A)
the Principal Account;
(B)
the Interest Account;
(C)
the Additional Collateral Account;
(D)
the Collateral Enhancement Account;
(E)
the Payment Account;
(F)
the Revolving Reserve Account;
(G)
any Asset Swap Account;
(H)
the Retained Portion Account;
(I)
the Investment Gains Account;
(J)
the Subordinated Notes Additional Collateral Account;
(K)
the Subordinated Notes Principal Account; and
(L)
the Expense Reserve Account.
In addition, the Synthetic Collateral Accounts, and the Subordinated Notes Collateral Debt
Obligation Account shall be established by the Issuer on the Issue Date with the Custodian.
Any Counterparty Downgrade Collateral Account (if required) may also be established by the
Issuer with the Custodian. The Account Bank shall at all times be a financial institution which
is not resident in The Netherlands but which has the Required Ratings. In the event that the
long-term senior unsecured debt or short-term unsecured debt ratings of the Account Bank is
downgraded below the Required Ratings or such ratings are withdrawn, the Issuer shall, at the
113
cost (such costs to be limited to administrative costs only) of the downgraded Account Bank,
use reasonable endeavours to procure that a replacement Account Bank, which is acceptable to
the Trustee and which satisfies the Required Ratings, is appointed within 30 calendar days of
such downgrade in accordance with the provisions of the Agency Agreement and the Issuer
shall notify the Rating Agencies of such actions as it takes in regard to appointing such
replacement Account Bank.
All interest accrued on any of the Accounts from time to time shall be paid into the Interest
Account. The Balances standing to the credit of the Accounts (other than the Payment
Account) from time to time may be invested by the Issuer in Eligible Investments and, for the
avoidance of doubt, the Balance standing to the credit of any Account shall include any such
Eligible Investments from time to time.
(A)
Principal Account
The Issuer will procure that the following amounts are paid into the Principal Account
promptly upon receipt thereof:
(1)
all principal payments received during the related Due Period in respect of any
Collateral Debt Obligation (save for any Asset Swap Obligation and any
Subordinated Notes Collateral Debt Obligations), Equity Security and Eligible
Investment including, without limitation, Scheduled Principal Proceeds,
Unscheduled Principal Proceeds and any par accretion amounts received in
respect of Mezzanine Obligations in accordance with the terms of such
Mezzanine Obligations, other than any such payments received in respect of any
Revolving Obligation or Delayed Drawdown Collateral Obligation, to the extent
required to be paid into the Revolving Reserve Account;
(2)
payments received by the Issuer from an Asset Swap Counterparty under any
Asset Swap Transactions in respect of any initial principal exchange amount in
respect of an Asset Swap Obligation which constitutes a Substitute Collateral
Debt Obligation;
(3)
all principal payments received in respect of any Synthetic Collateral following
its release from the security interest of the applicable Synthetic Counterparty (to
the extent not included in Sale Proceeds);
(4)
any premium receivable upon redemption of any Collateral Debt Obligation
(save for any Asset Swap Obligation and any Subordinated Notes Collateral
Debt Obligation) at maturity or otherwise or upon exercise of any put or call
option in respect thereof which is above the Principal Balance of any such
Collateral Debt Obligation;
(5)
all fees and commissions (such as syndication fees) received in connection with
the purchase or sale of any Collateral Debt Obligation (save for any
Subordinated Notes Collateral Debt Obligation) to the extent not paid into the
Interest Account pursuant to Condition 3(i)(B) (Interest Account) provided that
where such amount relates to any fee or commission in relation to a Defaulted
Obligation then the Collateral Manager must treat such fee or commission as
Principal Proceeds unless the total sum of the fees and amounts received in
connection thereof exceeds the principal amount (including Purchased Accrued
Interest) of such Collateral Debt Obligation, in which case the excess may at the
discretion of the Collateral Manager, be paid into the Interest Account;
(6)
all amendment, consent and waiver fees, all late payment fees and all other fees
and commission received in connection with any Collateral Debt Obligation
(save for any Subordinated Notes Collateral Debt Obligation) to the extent not
paid into the Interest Account pursuant to Condition 3(i)(B) (Interest Account);
(7)
Sale Proceeds received in respect of Collateral Debt Obligations, Equity
Securities and Eligible Investments (other than Asset Swap Obligations,
Defaulted Obligations, Subordinated Notes Collateral Debt Obligations),
114
including Purchased Accrued Interest, other interest that has been capitalised as
principal and any stamp duty or stamp duty reserve tax which was paid by the
Issuer at the time of purchase of such Collateral Debt Obligation, but excluding
any Sale Proceeds representing other accrued interest which is designated by the
Collateral Manager as Interest Proceeds;
(8)
all Distributions and Sale Proceeds in relation to a Defaulted Obligation (save
for any Subordinated Notes Collateral Debt Obligation), save that to the extent
that the aggregate of these amounts in respect of a Defaulted Obligation exceeds
100 per cent. of the principal amount (including Purchased Accrued Interest,
other interest that has been capitalised as principal and any stamp duty or stamp
duty reserve tax that was paid by the Issuer at the time of purchase of such
Collateral Debt Obligation) of such Defaulted Obligation, the excess may be
designated by the Collateral Manager as Interest Proceeds;
(9)
the net proceeds of enforcement of the Security over the Collateral;
(10)
all amounts received by the Issuer from the Interest Rate Hedge Counterparty
upon any reduction at the option of the Issuer of the notional amount of the
Interest Rate Hedge Agreement;
(11)
Interest Rate Hedge Replacement Receipts and Interest Rate Hedge Termination
Receipts, to the extent provided pursuant to paragraphs (IV) and (VI) of
Condition 3(i)(B) (Interest Account) respectively;
(12)
amounts transferred to the Principal Account from any Asset Swap Account
pursuant to paragraphs (2) and (3) of Condition 3(i)(H) (Asset Swap Account)
below;
(13)
amounts to be deposited in the Principal Account in accordance with the
paragraph (V) of Condition 3(c)(i) (Application of Available Interest Proceeds)
for the purposes of investment in Substitute Collateral Debt Obligations;
(14)
all additional Deferred Collateral Management Amounts payable into the
Principal Account on any Payment Date;
(15)
all amounts payable out of the Collateral Enhancement Account pursuant to
paragraph (II) of Condition 3(i)(D) (Collateral Enhancement Account);
(16)
all amounts of principal received by the Issuer in respect of any Unhedged
Collateral Debt Obligation shall be converted by the Collateral Administrator
into Euro at the applicable Spot Rate;
(17)
all other amounts received by the Issuer in respect of Collateral Debt
Obligations (save for any Asset Swap Obligation and any Subordinated Notes
Collateral Debt Obligation) which do not constitute Interest Proceeds or are not
otherwise required to be deposited in another Account pursuant to the
Conditions;
(18)
Currency Hedge Replacement Receipts and Currency Hedge Termination
Receipts to the extent provided pursuant to paragraphs (VIII) and (X) of
Condition 3(i)(B) (Interest Account) respectively;
(19)
all amounts payable out of the Additional Collateral Account pursuant to
paragraph (6) of Condition 3(i)(C) (Additional Collateral Account);and
(20)
all amounts payable out of the Subordinated Notes Additional Collateral
Account pursuant to paragraph (5) of Condition 3(i)(M) (Subordinated Notes
Additional Collateral Account) for reinvestment in Substitue Collateral Debt
Obligations.
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The Issuer shall procure payment of the following amounts (and shall ensure that
payment of no other amount is made) out of the Principal Account:
(I)
on the Business Day prior to each Payment Date, the Balance standing to the
credit of the Principal Account to the Payment Account to the extent required
for disbursement pursuant to Condition 3(c)(ii) (Application of Principal
Proceeds) save for:
(i)
amounts deposited after the end of the related Due Period;
(ii)
amounts which the Collateral Manager, acting on behalf of the Issuer, is
permitted to and has designated for reinvestment in Substitute Collateral
Debt Obligations pursuant to the Collateral Management Agreement,
provided that if, in the reasonable business judgement of the Collateral
Manager, a material amount of funds has been on deposit in the Principal
Account for a continuous period of 12 months due solely to a lack of
reinvestment opportunities, such funds may not be retained in the
Principal Account pursuant to this paragraph (ii) and shall be paid to the
Payment Account to the extent required for disbursement as specified
above; and
(iii)
at any time in accordance with the terms of, and to the extent permitted
under, the Collateral Management Agreement, amounts applied in the
posting of Synthetic Collateral upon the acquisition of any Synthetic
Security by the Issuer;
and the amounts retained in accordance with paragraphs (ii) and (iii) above may
be used by the Issuer for the purposes and in the manner specified therein,
provided that on the occurrence and during the continuation of an Effective Date
Rating Downgrade no amounts may be applied under paragraphs (i), (ii) and
(iii) above;
(II)
payment to an Asset Swap Counterparty by the Issuer in respect of any initial
principal exchange amount payable under an Asset Swap Obligation which
constitutes a Substitute Collateral Debt Obligation;
(III)
all interest accrued on the Principal Account to the Interest Account;
(IV)
amounts required for the purchase of Notes pursuant to Condition 7(i)
(Purchase of Notes by the Issuer) subject to the receipt of any Rating Agency
Confirmation required pursuant to Condition 7(i)(i)(D) (Senior Notes and
Mezzanine Notes);
(V)
at any time (provided that if such sums are required to be disbursed on any
Payment Date, such will be disbursed as Interest Proceeds), save in the event
that paragraphs (2)(a) to (c) (inclusive) of Condition 3(i)(H) (Asset Swap
Account) applies, any amount payable by the Issuer upon entry into of a
Replacement Asset Swap Agreement in accordance with the terms of the
Collateral Management Agreement to the extent not paid from funds available
within the Asset Swap Account to the related Hedge Transaction;
(VI)
amounts equal to the Unfunded Amounts of any Revolving Obligations or
Delayed Drawdown Collateral Obligations which are required to be deposited in
the Revolving Reserve Account; and
(VII) at any time following an Asset Swap Obligation becoming a Defaulted
Obligation, any amount payable by the Issuer to the Asset Swap Counterparty to
the extent that any payment has been made by the Asset Swap Counterparty
prior to the relevant Asset Swap Obligation related to such Asset Swap
Agreement becoming a Defaulted Obligation and in respect of which a
corresponding payment had not been made by the Issuer and to the extent not
116
paid from funds available within the Asset Swap Account to the related Hedge
Transaction.
(B)
Interest Account
The Issuer will procure that the following amounts are paid into the Interest
Account promptly upon receipt thereof:
(1)
on the Issue Date, €3,000,000;
(2)
all cash payments of interest in respect of the Collateral Debt Obligations
(except in respect of any Asset Swap Obligations and excluding, for the
avoidance of doubt, any Purchased Accrued Interest in respect of any
Collateral Debt Obligation or any par accretion amount received in
respect of any Mezzanine Obligation in accordance with the terms of
such Mezzanine Obligation) and Eligible Investments and, in respect of
any Synthetic Collateral, following its release from the security interest
of the applicable Synthetic Security Counterparty (and to the extent not
included in Sale Proceeds);
(3)
all coupon or other periodic payments and any other payments each in
the nature of interest received in respect of any Synthetic Security;
(4)
all interest accrued in respect of the Balance standing to the credit of each
of the Accounts from time to time:
(5)
all scheduled commitment fees received by the Issuer in respect of any
Revolving Obligations or Delayed Drawdown Collateral Obligations;
(6)
all amounts received by the Issuer in respect of interest paid in respect of
any collateral deposited by the Issuer with a third party as security for
any reimbursement or indemnification obligations to any other lender
under a Revolving Obligation or a Delayed Drawdown Collateral
Obligation in an account established pursuant to an ancillary facility;
(7)
all amendment and waiver fees, all late payment fees and all other fees
and commission received in connection with any Collateral Debt
Obligations and Eligible Investments (other than (i) fees and
commissions received in connection with the purchase or sale of any
Collateral Debt Obligations or Subordinated Notes Collateral Debt
Obligations which shall, in each case, be paid into the Interest Account
and constitute Interest Proceeds or into the Principal Account and shall
constitute Principal Proceeds at the discretion of the Collateral Manager
acting in accordance with the Collateral Management Agreement; and
(ii) fees and commissions forming part of Principal Proceeds;
(8)
all amounts transferred to the Interest Account from the Asset Swap
Account, at the discretion of the Collateral Manager pursuant to
paragraph (4) of Condition 3(i)(H) (Asset Swap Account);
(9)
in relation to Sale Proceeds (other than in respect of Subordinated Notes
Collateral Debt Obligations and Asset Swap Obligations) (i) all accrued
interest and (ii) for Defaulted Obligations amounts exceeding 100 per
cent. of the principal amount of such Defaulted Obligation, in each case
only to the extent designated as Interest Proceeds by the Collateral
Manager pursuant to the Collateral Management Agreement and
excluding any Purchased Accrued Interest and an amount equal to any
stamp duty which was paid by the Issuer at the time of purchase of such
Collateral Debt Obligation if the Collateral Manager determines that such
amounts should constitute Interest Proceeds;
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(10)
all amounts payable out of the Collateral Enhancement Account pursuant
to paragraph (II) of Condition 3(i)(D) (Collateral Enhancement
Account);
(11)
any fees and commissions (such as syndication fees) received in
connection with the purchase or sale of any Collateral Debt Obligation
(other than Subordinated Notes Collateral Debt Obligations, Defaulted
Obligations and Asset Swap Obligations) which the Collateral Manager
determines shall be paid into the Interest Account and treated as Interest
Proceeds;
(12)
all amounts payable to the Issuer by the Interest Rate Hedge
Counterparty under any Interest Rate Hedge Agreement or Interest Rate
Hedge Transaction, including any Interest Rate Hedge Termination
Receipts, any Interest Rate Hedge Replacement Receipts and any
Scheduled Interest Rate Hedge Counterparty Payments;
(13)
all amounts payable to the Issuer by the Currency Hedge Counterparty
under any Currency Hedge Agreement or Currency Hedge Transaction,
including any Currency Hedge Termination Receipts, any Currency
Hedge Replacement Receipts and any Scheduled Currency Hedge
Counterparty Payments;
(14)
all amounts reimbursed in respect of taxes withheld at source. or
otherwise deductible to the extent that such withholding or other
deduction related to interest payments or payments in the nature of
interest;
(15)
all interest received from an Unhedged Collateral Debt Obligation shall
be converted by the Collateral Administrator into Euro at the applicable
Spot Rate;
(16)
any Delayed Settlement Compensation received in respect of the
acquisition of any Collateral Debt Obligations; and
(17)
all amounts payable out of the Additional Collateral Account pursuant to
paragraph (6) of Condition 3(i)(C) (Additional Collateral Account);and
(18)
all amounts payable out of the Subordinated Notes Additional Collateral
Account pursuant to paragraph (5) of Condition 3(i)(M) (Subordinated
Notes Additional Collateral Account).
The Issuer shall procure payment of the following amounts out of the Interest
Account and shall ensure that payment of no other amounts is made out of the
Interest Account:
(I)
whilst any Senior Notes or Mezzanine Notes are Outstanding, each
Retained Portion if required by and in accordance with the definition of
Retained Portion;
(II)
on the Business Day prior to each Payment Date, the Balance standing to
the credit of the Interest Account to the Payment Account to the extent
required for disbursement pursuant to Condition 3(c)(i) (Application of
Available Interest Proceeds) (including any Scheduled Interest Rate
Hedge Counterparty Payments and save for amounts deposited after the
end of the related Due Period and any amounts representing Interest Rate
Hedge Termination Receipts, Currency Hedge Termination Receipts,
Interest Rate Hedge Replacement Receipts and Currency Hedge
Replacement Receipts standing to the credit of the Interest Account and
pending application pursuant to paragraphs (IV), (V), (VI), (VIII), (IX)
and (X) below);
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(III)
at any time, in the case of any Interest Rate Hedge Termination Receipts
paid into the Interest Account, in payment of amounts payable by the
Issuer upon entry into of a Replacement Interest Rate Hedge Agreement
in accordance with the Collateral Management Agreement;
(IV)
at any time, in the case of any Interest Rate Hedge Replacement Receipts
paid into the Interest Account, in payment of such amount to the
Principal Account to the extent that such amount exceeds the sum
required to make any Interest Rate Hedge Termination Payment under
the Interest Rate Hedge Agreement being replaced;
(V)
at any time, in payment by the Issuer:
(VI)
(i)
to any Interest Rate Hedge Counterparty, in connection with the
entry into of a Replacement Interest Rate Hedge Agreement to the
extent such amounts exceed any Interest Rate Hedge Termination
Receipts payable by the Interest Rate Hedge Counterparty to the
Issuer under the Interest Rate Hedge Agreement replaced; or
(ii)
in payment of any costs associated with the entry into of
additional Interest Rate Hedge Agreements following the Issue
Date by the Collateral Manager on behalf of the Issuer in
accordance with the Collateral Management Agreement;
in the case of any Interest Rate Hedge Termination Receipts paid into the
Interest Account, in the event that:
(i)
the Issuer, acting on the advice of the Collateral Manager,
determines not to replace the Interest Rate Hedge Agreement and
Rating Agency Confirmation is received in respect of such
determination; or
(ii)
termination of the Interest Rate Hedge Agreement under which
such Interest Rate Hedge Termination Receipts are payable occurs
on a Redemption Date; or
(iii)
to the extent that such Interest Rate Hedge Termination Receipts
are not required for application towards costs of entry into a
Replacement Interest Rate Hedge Agreement,
in payment of such amounts (save for accrued interest thereon) to the
Principal Account;
(VII) at any time, in the case of any Currency Hedge Termination Receipts
paid into the Interest Account, in payment of amounts payable by the
Issuer upon entry into of a Replacement Currency Hedge Agreement in
accordance with the Collateral Management Agreement;
(VIII) at any time, in the case of any Currency Hedge Replacement Receipts
paid into the Interest Account, in payment of such amount to the
Principal Account to the extent that such amount exceeds the sum
required to make any Currency Hedge Termination Payment under the
Currency Hedge Agreement being replaced;
(IX)
at any time, in payment by the Issuer:
(i)
to any Currency Hedge Counterparty in connection with the entry
into of a Replacement Currency Hedge Agreement to the extent
such amounts exceed any Currency Hedge Termination Receipts
payable by the Currency Hedge Counterparty to the Issuer under
the Currency Hedge Agreement replaced; or
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(ii)
(X)
in payment of any costs associated with the entry into of
additional Currency Hedge Agreements following the Issue Date
by the Collateral Manager on behalf of the Issuer in accordance
with the Collateral Management Agreement;
in the case of any Currency Hedge Termination Receipts paid into the
Interest Account, in the event that:
(i)
the Issuer, acting on the advice of the Collateral Manager,
determines not to replace the Currency Hedge Agreement and
Rating Agency Confirmation is received in respect of such
determination; or
(ii)
termination of the Currency Hedge Agreement under which such
Currency Hedge Termination Receipts are payable occurs on a
Redemption Date; or
(iii)
to the extent that such Currency Hedge Termination Receipts are
not required for application towards costs of entry into a
Replacement Currency Hedge Agreement,
in payment of such amounts (save for accrued interest thereon) to the Principal
Account.
(C)
Additional Collateral Account
The Issuer shall procure that the proceeds of the issue of the Notes (other than
Subordinated Notes Proceeds) remaining, after (i) repayment of the aggregate
financing cost incurred by the Issuer on or prior to the Issue Date in respect of
the purchase of Collateral Debt Obligations, (ii) payment of €3,000,000 to the
Interest Account on the Issue Date and (iii) €100,000 to the Expense Reserve
Account on the Issue Date in payment from time to time of certain Issuer
expenses, are paid into the Additional Collateral Account on the Issue Date. The
Issuer shall also ensure that the payments from each Asset Swap Counterparty to
the Issuer in respect of any initial principal exchange amount payable under an
Asset Swap Agreement in respect of an Asset Swap Obligation which
constitutes an Additional Collateral Debt Obligation is deposited into the
Additional Collateral Account.
The Issuer shall procure payment of the following amounts (and shall ensure
that payment of no other payment is made) out of the Additional Collateral
Account:
(1)
during the Investment Period in accordance with the terms of, and to the
extent permitted under, the Collateral Management Agreement, amounts
required in the acquisition of Additional Collateral Debt Obligations,
including the payment to an Asset Swap Counterparty by the Issuer in
respect of any initial principal exchange amount payable under an Asset
Swap Agreement in respect of an Asset Swap Obligation which
constitutes an Additional Collateral Debt Obligation;
(2)
on the Business Day prior to each Payment Date, to the Payment
Account as Principal Proceeds for application in accordance with the
Priorities of Payment set out in Condition 3(c)(ii) (Application of
Principal Proceeds) to the extent required in order to procure that the
Class A Coverage Tests, the Class B Coverage Tests, the Class C
Coverage Tests, the Class D Coverage Tests and the Class E Coverage
Tests would each be satisfied if recalculated immediately following such
application, to the extent only that all other amounts required to be
transferred to the Payment Account in accordance with this Condition
3(i) (Accounts) for application on such Payment Date in accordance with
Condition 3(c)(i) (Application of Available Interest Proceeds) and
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3(c)(ii) (Application of Principal Proceeds) would be insufficient to
cause each such Coverage Test to be satisfied upon recalculation
immediately following such application;
(D)
(3)
in the event of the occurrence of an Effective Date Rating Downgrade,
the Balance standing to the credit of the Additional Collateral Account
will, on the Business Day prior to the Payment Date falling immediately
after the Effective Date be transferred as Principal Proceeds to the
Payment Account and shall be applied in redemption of the Senior Notes
and the Mezzanine Notes in accordance with the Priorities of Payment to
the extent necessary to cause such ratings to be reinstated to the extent
only that all other amounts required to be transferred to the Payment
Account in accordance with this Condition 3(i) (Accounts) for
application on such Payment Date in accordance with Condition 3(c)(i)
(Application of Available Interest Proceeds) and 3(c)(ii) (Application of
Principal Proceeds) would be insufficient to cause such ratings to be
reinstated following such application;
(4)
any remaining fees, costs and expenses incurred by the Issuer in
connection with the issue of the Notes which remain unpaid;
(5)
all interest accrued on the Additional Collateral Account to the Interest
Account; and
(6)
upon confirmation by the Rating Agencies of the ratings assigned to the
Senior Notes and the Mezzanine Notes after the Effective Date, the
Balance standing to the credit of the Additional Collateral Account, at the
discretion of the Collateral Manager, acting on behalf of the Issuer, may
be transferred to the Interest Account (provided that not more than 1% of
the CDO Principal Balance may be transferred to the Interest Account)
or, respectively, to the Principal Account for reinvestment in Substitute
Collateral Debt Obligations or the Subordinated Notes Principal Account
for reinvestment in Subordinated Notes Collateral Debt Obligations.
Collateral Enhancement Account
The Issuer will procure that the following amounts are paid into the Collateral
Enhancement Account:
(1)
on each Payment Date, all amounts of interest payable in respect of the
Subordinated Notes which the Collateral Manager determines at its
discretion shall be applied in payment into the Collateral Enhancement
Account pursuant to paragraph (BB) of Condition 3(c)(i) (Application of
Available Interest Proceeds) subject to the limit specified in such
paragraph; and
(2)
all Distributions and Sale Proceeds (including any proceeds of
liquidation) received in respect of the Collateral Enhancement
Obligations.
The Balance standing to the credit of the Collateral Enhancement Account from
time to time may be applied (in whole or in part) by the Collateral Manager,
acting on behalf of the Issuer:
(I)
in the acquisition of any Collateral Enhancement Obligations or the
exercise of any rights thereunder in accordance with the Collateral
Management Agreement;
(II)
at any time at the discretion of the Collateral Manager, acting on behalf
of the Issuer, in transfer to the Interest Account or the Principal Account;
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(III)
in the event of an Effective Date Rating Downgrade on the Business Day
prior to the next Payment Date after the Effective Date, in payment into
the Payment Account for distribution as Principal Proceeds in accordance
with Condition 7(d) (Redemption Upon Rating Reduction and
Withdrawal); and
(IV)
on the Business Day prior to the Maturity Date or any Payment Date on
which the Subordinated Notes are to be redeemed in full, in payment into
the Payment Account for distribution on such Payment Date as Interest
Proceeds in accordance with Condition 3(c)(ii) (Application of Principal
Proceeds).
Amounts may not be paid out of the Collateral Enhancement Account in any
other circumstances save for interest accrued on the Balance thereof from time
to time which shall be transferred to the Interest Account.
(E)
Payment Account
The Issuer will procure that on the Business Day prior to each Payment Date the
Balance standing to the credit of the Interest Account, the Principal Account and
the Subordinated Notes Principal Account, and, to the extent applicable, the
Balance standing to the credit of the Additional Collateral Account, the
Subordinated Notes Additional Collateral Account, the Retained Portion
Account, the Asset Swap Account, the Investment Gains Account, the
Revolving Reserve Account, the Expense Reserve Account and the Collateral
Enhancement Account which are required to be transferred to the Payment
Account pursuant to paragraphs (A) to (E) (inclusive) and (G), (H), (I), (J), (M),
(N) and (O) of this Condition 3(i) (Accounts) are so transferred, and, on such
Payment Date, the Collateral Administrator, acting on behalf of the Issuer, shall
disburse such amounts in accordance with the Priorities of Payment. No
amounts shall be transferred to or withdrawn from the Payment Account at any
other time or in any other circumstances, save that all interest accrued on the
Payment Account shall be credited to the Interest Account.
(F)
Synthetic Collateral Accounts
The Issuer shall procure that sums and/or securities posted by the Issuer as
Synthetic Collateral to secure the Issuer's obligations under a Synthetic Security
pursuant to the terms of such Synthetic Security are paid into the Synthetic
Collateral Accounts.
The Issuer shall procure payment of the following amounts (and shall ensure
that payment of no other amount is made) out of the Synthetic Collateral
Accounts:
(1)
all principal payments received in respect of any Synthetic Collateral to
the extent no longer subject to the security interest of the applicable
Synthetic Counterparty to the Principal Account;
(2)
all payments in the nature of interest received by the Issuer in respect of
any Synthetic Collateral promptly to the Interest Account;
(3)
in payment of any amounts due and payable by the Issuer under any
Synthetic Security;
(4)
for the purpose of investment in Eligible Investments provided such
Eligible Investments may be converted to cash and returned to the Issuer
within one Business Day without penalty and such investment is made
only to the extent permitted by, and in accordance with, the Collateral
Management Agreement; and
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(5)
(G)
all interest accrued on the Synthetic Collateral Accounts to the Interest
Account.
Revolving Reserve Account
The Issuer shall procure the following amounts are paid into the Revolving
Reserve Account:
(1)
upon the acquisition by or on behalf of the Issuer of any Revolving
Obligation or Delayed Drawdown Collateral Obligation, an amount equal
to the amount which would cause the Balance standing to the credit of
the Revolving Reserve Account to be at least equal to the combined
aggregate principal amounts of the Unfunded Amounts under each of the
Revolving Obligations or Delayed Drawdown Collateral Obligations
(which Unfunded Amounts will be treated as part of the purchase price
for the related Revolving Obligation or Delayed Drawdown Collateral
Obligation) less amounts posted as collateral for any Unfunded Amounts
pursuant to paragraph (I) below (and which do not constitute Funded
Amounts);
(2)
all principal payments received by the Issuer in respect of any Revolving
Obligation to the extent that the amount of such principal payments may
be re-borrowed under such Revolving Obligation; and
(3)
all repayments of collateral to the Issuer originally paid by the Issuer
pursuant to (I) below.
The Issuer shall procure payment of the following amounts (and shall ensure
that no other amounts are paid) out of the Revolving Reserve Account:
(H)
(I)
all amounts required to fund any drawings under any Delayed Drawdown
Collateral Obligation or Revolving Debt Obligation or (subject to Rating
Agency Confirmation) required to be deposited in the Issuer's name with
any third party as collateral for any reimbursement or indemnification
obligations of the Issuer owed to any other lender under such Revolving
Obligation or Delayed Drawdown Collateral Obligation (subject to such
security documentation as may be agreed between such lender, the
Collateral Manager (acting on behalf of the Issuer) and the Trustee);
(II)
(x) at any time at the direction of the Collateral Manager (acting on
behalf of the Issuer) or (y) upon the sale (in whole or in part) of a
Revolving Collateral Debt Obligation or the reduction, cancellation or
expiry of any commitment of the Issuer to make future advances or
otherwise extend credit thereunder, any excess of (a) the amount standing
to the credit of the Revolving Reserve Account, over (b) the sum of the
Unfunded Amounts of all Revolving Obligations and Delayed Drawdown
Collateral Obligations, after taking into account such sale or such
reduction, cancellation or expiry of commitment, to the Principal
Account or the Subordinated Notes Principal Account, as applicable; and
(III)
all interest accrued on the Balance standing to the credit of the Revolving
Reserve Account from time to time (including capitalised interest
received upon the sale, maturity or termination of any Eligible
Investment) to the Interest Account.
Asset Swap Account
Subject as otherwise provided in Condition 3(i)(A) (Principal Account),
Condition 3(i)(B) (Interest Account) and Condition 3(i)(C) (Additional
Collateral Account) the Issuer will procure that all amounts received in respect
of (i) any Asset Swap Obligations (including all Sale Proceeds relating thereto),
and (ii) Asset Swap Transactions (including all Asset Swap Replacement
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Receipts) are paid into the Asset Swap Account in the currency of receipt
thereof.
The Issuer will procure payment of the following amounts (and shall ensure that
payment of no other amount is made) out of the Asset Swap Account:
(1)
at any time, all amounts payable by the Issuer to the Asset Swap
Counterparty under any Asset Swap Transaction;
(2)
at any time, any amount payable by the Issuer upon entry into a
Replacement Asset Swap Agreement in accordance with the Collateral
Management Agreement up to an amount equal to the Asset Swap
Termination Receipts received by the Issuer upon termination of the
Asset Swap Agreement which is being replaced, except for:
(a)
in the event that the Issuer, following consultation with the
Collateral Manager, determines not to replace an Asset Swap
Agreement or certain transactions thereunder and Rating Agency
Confirmation is received in respect of such determination; or
(b)
if an Asset Swap Agreement is terminated on a Redemption Date
pursuant to Conditions 7(a) (Final Redemption), 7(b) (Optional
Redemption) or 10 (Events of Default) and Asset Swap
Termination Receipts are payable on a Redemption Date; or
(c)
to the extent that such Asset Swap Termination Receipts are not
required for application towards the costs of entry into a
Replacement Asset Swap Agreement,
the Balance in the case of paragraphs (a) to (c) (inclusive) above standing
to the credit of the Asset Swap Account that comprises Asset Swap
Termination Receipts in relation to the Asset Swap Agreement being
terminated and transferred to the Principal Account in accordance with
paragraph (12) of Condition 3(i)(A) (Principal Account);
(3)
on the Business Day prior to any Redemption Date in the event of
redemption of the Notes in whole, all amounts standing to the credit of
the Asset Swap Account received by the Issuer under any Asset Swap
Obligation other than any periodic payments or other payments in the
nature of interest, to the extent not subject to the terms of an Asset Swap
Agreement, shall be transferred to the Principal Account for
disbursement as Principal Proceeds in accordance with Condition 3(c)(ii)
(Application of Principal Proceeds); and
(4)
all other amounts on account of interest received in respect of Asset
Swap Obligations (including accrued interest included in the amount of
any Sale Proceeds received in respect of an Asset Swap Obligation) and
interest accrued on the Asset Swap Account to the extent not subject to
the terms of an Asset Swap Agreement to the Interest Account.
Pursuant to the Collateral Management Agreement, the Issuer may enter into
foreign exchange transactions to convert any non-Euro amounts which are
payable into the Principal Account or Interest Account into Euro on the date of
receipt thereof.
(I)
Retained Portion Account
The Issuer shall procure that each Retained Portion (if any) is paid from the
Interest Account into the Retained Portion Account on the Business Day prior to
each Payment Date. The Issuer shall procure the payment of the following
amounts (and shall ensure that payment of no other amount is made) out of the
Retained Portion Account as follows:
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(J)
(1)
the Retained Portion Release Amount to the Payment Account on the
Business Day immediately prior to the related Payment Date, to be
distributed as Interest Proceeds or, as the case may be, Principal Proceeds
in accordance with the Priorities of Payment; and
(2)
all interest accrued on the Retained Portion Account to the Interest
Account.
Investment Gains Account
The Issuer shall procure that all Investment Gains designated as such by the
Collateral Manager acting on behalf of the Issuer are paid into the Investment
Gains Account.
Provided that the Class D Par Value Ratio is at least equal to 115.11 per cent.
following such designation, on each Determination Date amounts standing to
the credit of the Investment Gain Account shall be applied, at the discretion of
the Collateral Manager, either as Interest Proceeds to be paid into the Interest
Account or as Principal Proceeds to be paid into the Principal Account. If the
Class D Par Value Ratio is below 115.11 per cent. on any Determination Date or
if any amounts standing to the credit of the Investment Gains Account are not
otherwise applied as Interest Proceeds, all such amounts shall, on the applicable
Determination Date, be applied as Principal Proceeds and paid into the Principal
Account.
(K)
Counterparty Downgrade Collateral Accounts
The Issuer will procure that all Counterparty Downgrade Collateral pledged
pursuant to a Hedge Agreement shall be deposited in the Counterparty
Downgrade Collateral Account relating to each relevant Hedge Counterparty.
All Counterparty Downgrade Collateral deposited from time to time in any
Counterparty Downgrade Collateral Account shall be held and released pursuant
to the terms of the applicable Hedge Agreement. Upon any default by a Hedge
Counterparty under a Hedge Agreement, the Issuer or the Collateral Manager,
on its behalf, shall promptly exercise its remedies under the related agreement,
including liquidating the related Counterparty Downgrade Collateral,
whereupon such Counterparty Downgrade Collateral shall be transferred to the
Principal Account in an amount agreed pursuant to the related Hedge
Agreement.
(L)
Subordinated Notes Collateral Debt Obligation Account
The Issuer shall procure that all Subordinated Notes Collateral Debt Obligations
acquired by the Issuer from time to time shall be deposited into the
Subordinated Notes Collateral Debt Obligation Account. All such Subordinated
Notes Collateral Debt Obligations deposited from time to time in the
Subordinated Notes Collateral Debt Obligation Account shall be held on trust
pursuant to the Trust Deed and shall be dealt with in accordance with the terms
of the Collateral Management Agreement.
(M)
Subordinated Notes Additional Collateral Account
The Issuer shall procure that the Subordinated Notes Proceeds are paid into the
Subordinated Notes Additional Collateral Account on the Issue Date.
The Issuer shall procure payment of the following amounts (and shall ensure
that payment of no other payment is made) out of the Subordinated Notes
Additional Collateral Account:
(1)
during the Investment Period in accordance with the terms of, and to the
extent permitted under, the Collateral Management Agreement, amounts
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required in the acquisition of Additional Collateral Debt Obligations that
are designated as Subordinated Collateral Debt Obligations;
(N)
(2)
on the Business Day prior to each Payment Date, to the Payment
Account as Principal Proceeds for application in accordance with the
Priorities of Payment set out in Condition 3(c)(ii) (Application of
Principal Proceeds) to the extent required in order to procure that the
Class A Coverage Tests, the Class B Coverage Tests, the Class C
Coverage Tests, the Class D Coverage Tests and the Class E Coverage
Tests would each be satisfied if recalculated immediately following such
application, to the extent only that all other amounts required to be
transferred to the Payment Account in accordance with this Condition
3(i) (Accounts) (including, for avoidance of doubt, any amounts required
to be transferred from the Additional Collateral Account) for application
on such Payment Date in accordance with Condition 3(c)(i) (Application
of Available Interest Proceeds) and 3(c)(ii) (Application of Principal
Proceeds) would be insufficient to cause each such Coverage Test to be
satisfied upon recalculation immediately following such application;
(3)
in the event of the occurrence of an Effective Date Rating Downgrade,
the Balance standing to the credit of the Subordinated Notes Additional
Collateral Account will, on the Business Day prior to the Payment Date
falling immediately after the Effective Date be transferred as Principal
Proceeds to the Payment Account and shall be applied in redemption of
the Senior Notes and the Mezzanine Notes in accordance with the
Priorities of Payment to the extent necessary to cause such ratings to be
reinstated to the extent only that all other amounts required to be
transferred to the Payment Account in accordance with this Condition
3(i) (Accounts) (including, for avoidance of doubt, any amounts required
to be transferred from the Additional Collateral Account) for application
on such Payment Date in accordance with Condition 3(c)(i) (Application
of Available Interest Proceeds) and 3(c)(ii) (Application of Principal
Proceeds) would be insufficient to cause such ratings to be reinstated
following such application;
(4)
all interest accrued on the Subordinated Notes Additional Collateral
Account to the Interest Account; and
(5)
upon confirmation by the Rating Agencies of the ratings assigned to the
Senior Notes and the Mezzanine Notes after the Effective Date, the
Balance standing to the credit of the Subordinated Notes Additional
Collateral Account, at the discretion of the Collateral Manager, acting on
behalf of the Issuer, may be transferred to the Interest Account (provided
that not more than 1% of the CDO Principal Balance may be transferred
to the Interest Account) or, respectively, to the Principal Account for
reinvestment in Substitute Collateral Debt Obligations or the
Subordinated Notes Principal Account for reinvestment in Subordinated
Notes Collateral Debt Obligations.
Subordinated Notes Principal Account
The Issuer will procure that the following amounts are paid into the
Subordinated Notes Principal Account promptly upon receipt thereof:
(1)
all principal payments received during the related Due Period in respect
of any Subordinated Notes Collateral Debt Obligation including, without
limitation, Scheduled Principal Proceeds, Unscheduled Principal
Proceeds and any par accretion amounts received in respect of
Mezzanine Obligations in accordance with the terms of such Mezzanine
Obligations, other than any such payments received in respect of any
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Revolving Obligation or Delayed Drawdown Collateral Obligation, to
the extent required to be paid into the Revolving Reserve Account;
(2)
any premium receivable upon redemption of any Subordinated Notes
Collateral Debt Obligation at maturity or otherwise or upon exercise of
any put or call option in respect thereof which is above the Principal
Balance of any such Collateral Debt Obligation;
(3)
all fees and commissions (such as syndication fees) received in
connection with the purchase or sale of any Subordinated Notes
Collateral Debt Obligation, save for any such fees and commissions
which the Collateral Manager determines shall be paid into the Interest
Account provided that where such amount relates to any fee or
commission in relation to a Defaulted Obligation then the Collateral
Manager must treat such fee or commission as Principal Proceeds;
(4)
all amendment, consent and waiver fees, all late payment fees and all
other fees and commission received in connection with any Subordinated
Notes Collateral Debt Obligation;
(5)
Sale Proceeds received in respect of Subordinated Notes Collateral Debt
Obligations (other than Defaulted Obligations which were initially
Subordinated Notes Collateral Debt Obligations), including Purchased
Accrued Interest and interest that has been capitalised as principal, but
excluding any Sale Proceeds representing other accrued interest which is
designated by the Collateral Manager as Interest Proceeds;
(6)
all Distributions and Sale Proceeds in relation to a Defaulted Obligation
which was initially a Subordinated Notes Collateral Debt Obligation,
save that to the extent that the aggregate of these amounts in respect of
such Defaulted Obligation exceeds 100 per cent. of the principal amount
(including Purchased Accrued Interest and interest that has been
capitalised as principal and any stamp duty or stamp duty reserve tax that
was paid by the Issuer at the time of purchase of such Collateral Debt
Obligation) of such Defaulted Obligation, the excess may be designated
by the Collateral Manager as Interest Proceeds; and
(7)
all other amounts received by the Issuer in respect of Subordinated Notes
Collateral Debt Obligations which do not constitute Interest Proceeds or
are not otherwise required to be deposited in another Account pursuant to
the Conditions;
(8)
amounts to be deposited in the Subordinated Notes Principal Account in
accordance with paragraph (V) of Condition 3(c)(i) (Application of
Available Interest Proceeds) for the purposes of reinvestment in
Substitute Collateral Debt Obligations;
(9)
all amounts payable out of the Additional Collateral Account pursuant to
paragraph (6) of Condition 3(i)(C) (Additional Collateral Account);and
(10)
all amounts payable out of the Subordinated Notes Additional Collateral
Account pursuant to paragraph (5) of Condition 3(i)(M) (Subordinated
Notes Additional Collateral Account) for reinvestment in Subordinated
Notes Collateral Debt Obligations.
The Issuer shall procure payment of the following amounts (and shall ensure
that payment of no other amount is made) out of the Subordinated Notes
Principal Account:
(I)
on the Business Day prior to each Payment Date, the Balance standing to
the credit of the Subordinated Notes Principal Account to the Payment
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Account to the extent required for disbursement pursuant to Condition
3(c)(ii) (Application of Principal Proceeds) save for:
(i)
amounts deposited after the end of the related Due Period;
(ii)
amounts which the Collateral Manager, acting on behalf of the
Issuer, is permitted to and has designated for reinvestment in
Substitute Collateral Debt Obligations that are Subordinated
Notes Collateral Debt Obligations pursuant to the Collateral
Management Agreement, provided that if, in the reasonable
business judgement of the Collateral Manager, a material amount
of funds have been on deposit in the Principal Account for a
continuous period of 12 months due solely to a lack of
reinvestment opportunities, such funds may not be retained in the
Principal Account pursuant to this paragraph (ii) and shall be paid
to the Payment Account to the extent required for disbursement as
specified above; and
(iii)
at any time in accordance with the terms of, and to the extent
permitted under, the Collateral Management Agreement, amounts
applied in the acquisition of Substitute Collateral Debt
Obligations that are designated as Subordinated Notes Collateral
Debt Obligations or the posting of Synthetic Collateral that is
designated as Subordinated Notes Collateral Debt Obligations
upon the acquisition of any Synthetic Security by the Issuer;
and the amounts retained in accordance with paragraphs (ii) and (iii)
above may be used by the Issuer for the purposes and in the manner
specified therein and provided that on the occurrence and during the
continuation of an Effective Date Rating Downgrade no amounts may be
applied under paragraphs (ii) and (iii) above;
(O)
(II)
all interest accrued on the Subordinated Notes Principal Account to the
Interest Account;
(III)
amounts required for the purchase of Notes pursuant to Condition 7(i)
(Purchase of Notes by the Issuer) subject to the receipt of any Rating
Agency Confirmation required pursuant to Condition 7(i)(i)(D) (Senior
Notes and Mezzanine Notes); and
(IV)
amounts equal to the Unfunded Amounts of any Revolving Obligations
or Delayed Drawdown Collateral Obligations which constitute
Subordinated Notes Collateral Debt Obligations which are required to be
deposited in the Revolving Reserve Account.
Expense Reserve Account
The Issuer shall procure that the following amounts are paid into the Expense
Reserve Account promptly on receipt thereof:
(1)
on the Issue Date, €100,000; and
(2)
on each Payment Date the relevant amounts to be paid pursuant to
paragraph (D) of the Interest Proceeds Priority of Payments and
paragraph (A) of the Principal Proceeds Priority of Payments.
The Issuer shall procure payment of the following amounts (and shall ensure
that no other payment is made) out of the Expense Reserve Account:
(I)
at any time by the Collateral Administrator to the payment of Trustee
Fees and Expenses and Administrative Expenses which have accrued and
become payable prior to any Payment Date, to the extent applicable,
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upon receipt of invoices therefor from the relevant creditor, provided
that, in respect of each day where payment hereunder is required to be
made, the order of payment as referred to in the definition of
"Administrative Expenses" in Condition 1 (Definitions and
Interpretation) shall not apply if such payment is to be made to a single
creditor but shall apply if such payment is to be made to more than one
creditor and provided further that no such payment hereunder shall be
made during the period between the Determination Date (inclusive) and
the immediately following Payment Date; and
(II)
on the Business Day prior to each Payment Date the Balance standing to
the credit of the Expense Reserve Account to the Payment Account for
disbursement as Available Interest Proceeds in accordance with
Condition 3(c)(i) (Application of Available Interest Proceeds).
4.
Security
(a)
Security: Pursuant to the Trust Deed, the obligations of the Issuer under the Notes of each
Class and the Transaction Documents are secured in favour of the Trustee for the benefit of
the Secured Parties by:
(i)
an assignment by way of first fixed security of the Issuer's rights, title and interest
(present and future) in respect of all Senior Secured Loans, Mezzanine Obligations,
Second Lien Loans, High Yield Bonds, Collateral Enhancement Obligations,
Structured Finance Obligations, Project Finance Securities, Finance Leases, Equity
Securities (other than Margin Stock) Participations, Synthetic Securities, Swapped
Defaulted Obligations, Exchanged Obligations, PIK Securities, Zero Coupon
Securities, DIP Collateral Obligations and Eligible Investments from time to time
(where such obligations are contractual rights other than contractual rights the
assignment of which is not practicable or would require consent of a third party and
other than such right, title and interest as is effectively and validly pledged under the
Euroclear Pledge Agreement) including, without limitation, all moneys received in
respect thereof; all dividends and distributions paid or payable thereon, all property
paid, distributed, accruing or offered at any time on, to or in respect of or in
substitution therefor and the proceeds of sale, repayment and redemption thereof;
(ii)
a first fixed charge and first priority security interest granted over the Issuer's rights,
title and interest (present and future) in respect of all Senior Secured Loans, Mezzanine
Obligations, Second Lien Loans, High Yield Bonds, Equity Securities (other than
Margin Stock), Collateral Enhancement Obligations, Structured Finance Obligations,
Project Finance Securities, Finance Leases, Participations, Synthetic Securities,
Swapped Defaulted Obligations, Exchanged Obligations, PIK Securities, Zero Coupon
Securities, DIP Collateral Obligations and Eligible Investments from time to time
(where such obligations are securities or contractual rights not assigned by way of
security pursuant to paragraph (i) above), including, without limitation, all moneys
received in respect thereof, all dividends and distributions paid or payable thereon, all
property paid, distributed, accruing or offered at any time on, to or in respect of or in
substitution therefor and the proceeds of sale, repayment and redemption thereof;
(iii)
a first fixed charge and a first priority security interest over all rights, title and interest
(present and future) of the Issuer in respect of each of the Accounts (other than any
Counterparty Downgrade Collateral Account, Synthetic Collateral Accounts and all
interest accrued and other moneys received in respect thereof) and all moneys from
time to time standing to the credit of the Accounts (other than the Synthetic Collateral
Accounts, any Counterparty Downgrade Collateral Account and the debts represented
thereby and including, without limitation, all interest accrued and other moneys
received in respect thereof);
(iv)
a first fixed charge and first priority security interest, or an assignment by way of
security (where applicable rights are contractual rights) subject to any prior security
interest of any Synthetic Counterparty, over all rights, title and interest (present and
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future) of the Issuer in respect of any Synthetic Collateral including, without limitation,
all moneys received in respect thereof; all dividends and distributions paid or payable
thereon, all property paid, distributed, accruing or offered at any time on, to or in
respect of or in substitution therefor and the proceeds of sale, repayment and
redemption thereof and over the Synthetic Collateral Accounts and all moneys from
time to time standing to the credit of the Synthetic Collateral Accounts and the debts
represented thereby;
(v)
a first fixed charge and first priority security interest (where the applicable assets are
securities) over or an assignment by way of security (where the applicable rights are
contractual rights) of all present and future rights of the Issuer in respect of any
Counterparty Downgrade Collateral including, without limitation, all moneys received
in respect thereof, all dividends and distributions paid or payable thereon, all property
paid, distributed, accruing or offered at any time on, to, in respect of or in substitution
therefor and the proceeds of sale, repayment and redemption thereof and over the
Counterparty Downgrade Collateral Account and all moneys from time to time
standing to the credit of the Counterparty Downgrade Collateral Account and the debts
represented thereby, subject, in each case, to the rights of any Hedge Counterparty to
require payment or delivery of any such Counterparty Downgrade Collateral pursuant
to the terms of the applicable Hedge Agreement;
(vi)
an assignment by way of first fixed security of the Issuer's rights, title and interest
(present and future) against the Custodian under the Agency Agreement and a first
fixed charge over the Custody Accounts (including each cash account relating to the
Custody Accounts, any cash held therein and the debt represented thereby);
(vii)
an assignment by way of first fixed security of all of the Issuer's rights, title and interest
(present and future) under any Asset Swap Agreement, any Currency Hedge
Agreement and any Interest Rate Hedge Agreement (including the Issuer's rights under
any guarantee or credit support annex entered into pursuant thereto provided that such
assignment shall not in any way restrict the release of collateral granted thereunder in
whole or in part at any time pursuant to the terms thereof);
(viii) an assignment by way of first fixed security of the Issuer's rights, title and interest
(present and future) under the Collateral Management Agreement;
(ix)
a first fixed charge over all moneys held from time to time by the Principal Paying
Agent or Transfer Agents on behalf of the Issuer for payment of principal, interest or
other amounts on the Notes (if any);
(x)
an assignment by way of first fixed security of the Issuer's rights, title and interest
(present and future) under the Agency Agreement;
(xi)
an assignment by way of first fixed security of the Issuer's rights, title and interest
(present and future) under the Collateral Acquisition Agreements and the Participation
Agreements; and
(xii)
a floating charge over the whole of the Issuer's undertaking and assets to the extent that
such undertaking and assets are not subject to any other security referred to in this
Condition 4 (Security), the Trust Deed or the Euroclear Pledge Agreement;
excluding, for the purposes of (i) to (xii) (inclusive) above and paragraphs (1), (2) and (3)
below, (a) any and all assets, property or rights which are located in, or governed by the laws
of, The Netherlands (except for contractual rights or receivables (rechten of vorderingen op
naam) which are to be assigned or charged to the Trustee), (b) any and all Dutch Ineligible
Securities, (c) the Issuer's rights under the Management Agreement, (d) the Issuer's rights in
respect of any and all amounts standing to the credit of the Issuer Dutch Account and (e) any
Margin Stock.
The Issuer may from time to time grant security:
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(1)
by way of a first priority security interest to a Synthetic Counterparty over the
Synthetic Collateral deposited by the Issuer in the Synthetic Collateral Accounts as
security for the Issuer's obligations under a collateralised Synthetic Security entered
into with such Synthetic Counterparty;
(2)
by way of first priority security interest over amounts representing all or part of the
Unfunded Amount of any Revolving Obligation or Delayed Drawdown Collateral
Obligation and deposited in its name with a third party as security for any
reimbursement or indemnification obligation of the Issuer owed to any other lender
under such Revolving Obligation or Delayed Drawdown Collateral Obligation, subject
to the terms of Condition 3(i)(G) (Revolving Reserve Account); and
(3)
subject to receipt of Rating Agency Confirmation, in connection with Collateral Debt
Obligations in which the Issuer enters into an Intermediary Obligation directly or
indirectly by way of a funded participation in relation to which the Issuer or a financial
institution may act as credit support provider (the "Credit Support Provider") and
may participate by way of guarantee to a fronting bank (a "Fronting Bank") in respect
of an underlying loan, collateralised by a deposit placed with the Fronting Bank, which
may be by way of a first priority security interest in respect of such deposit to secure all
or part of the liabilities of the Obligor in respect of such loan to the Fronting Bank
which the Credit Support Provider has agreed to guarantee or undertake to pay, and
provided further that the amount of the guarantee or undertaking to pay is not greater
than the amount of collateral placed on deposit by the Credit Support Provider with the
Fronting Bank.
Pursuant to the Trust Deed, if, for any reason, the purported assignment by way of security of,
and/or the grant of first fixed charge over, the property, assets, rights and/or benefits described
in paragraphs (i) to (xii) (inclusive) above is found to be ineffective in respect of any such
property, assets, rights and/or benefits (together, the "Affected Collateral"), the Issuer shall,
to the extent permitted by Dutch mandatory law, hold the benefit of the Affected Collateral
and any sums received in respect thereof or any security interest, guarantee or indemnity or
undertaking of whatever nature given to secure such Affected Collateral (together, the "Trust
Collateral") on trust for the Trustee and shall (i) account to the Trustee for or otherwise apply
all sums received in respect of such Trust Collateral as the Trustee may direct (provided that,
subject to these Conditions and the terms of the Collateral Management Agreement, if no
Event of Default has occurred and is continuing, the Issuer shall be entitled to apply the
benefit of such Trust Collateral and such sums in respect of such Trust Collateral received by
it and held on trust under this paragraph without prior direction from the Trustee), (ii) exercise
any rights it may have in respect of the Trust Collateral at the direction of the Trustee and (iii)
at its own cost take such action and execute such documents as the Trustee may in its sole
discretion require.
Pursuant to the Euroclear Pledge Agreement, the Issuer has also created a Belgian law pledge
in favour of the Trustee over the Issuer's entitlements to the Collateral Debt Obligations from
time to time held in Euroclear.
All deeds, documents, assignments, instruments, bonds, notes, negotiable instruments, papers
and any other instruments comprising, evidencing, representing and/or transferring the
Portfolio will be deposited with or held by or on behalf of the Custodian in accordance with
the Agency Agreement until the security over such obligations is irrevocably discharged in
accordance with the provisions of the Trust Deed. In the event that the long-term senior
unsecured debt or the short-term senior unsecured debt of the Custodian is rated below the
applicable Required Ratings or such Required Ratings are withdrawn, the Issuer shall use
reasonable endeavours to procure that a replacement custodian is appointed within 30 calendar
days who is acceptable to the Trustee and whose long-term senior unsecured debt and shortterm senior unsecured debt is rated not less than the applicable Required Ratings, in
accordance with the provisions of the Agency Agreement.
Pursuant to the terms of the Trust Deed, the Trustee is exempt from any liability in respect of
any loss or theft of the Collateral, from any obligation to insure the Collateral and from any
claim arising from the fact that the Collateral is held in a clearing system or in safe custody by
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the Custodian, a bank or other custodian. The Trustee has no responsibility for the
management of the Portfolio by the Collateral Manager or to supervise the administration of
the Portfolio by the Collateral Administrator or any other party and is entitled to rely on the
certificates or notices of any relevant party without further enquiry. The Trust Deed also
provides that the Trustee shall accept without investigation, requisition or objection such right,
benefit, title and interest, if any, as the Issuer may have in and to any of the Collateral and is
not bound to make any investigation into the same or into the Collateral in any respect.
(b)
Application of Proceeds upon Enforcement: The Trust Deed provides that the net proceeds of
realisation of, or enforcement with respect to, the security over the Collateral constituted by
the Trust Deed and the Euroclear Pledge Agreement shall be applied in accordance with the
Priorities of Payment.
(c)
Limited Recourse and Non-Petition: If the net proceeds of realisation of the security
constituted by the Trust Deed and the Euroclear Pledge Agreement upon enforcement thereof
in accordance with Condition 11 (Enforcement) and the provisions of the Trust Deed and the
Euroclear Pledge Agreement are less than the aggregate amount payable in such circumstances
by the Issuer in respect of the Notes and to the other Transaction Creditors (such negative
amount being referred to herein as a "shortfall"), the obligations of the Issuer in respect of the
Notes of each Class and its obligations to the other Transaction Creditors in such
circumstances will be limited to such net proceeds which shall be applied in accordance with
the Priorities of Payment. In such circumstances, the Issuer shall not be obliged to pay and the
other assets (if any) of the Issuer (including the Issuer's rights in respect of amounts standing
to the credit of the Issuer Dutch Account and the Issuer's rights under the Management
Agreement) will not be available for payment of such shortfall which shall be borne by the
Transaction Creditors in accordance with the Priorities of Payment (applied in reverse order),
the rights of the Transaction Creditors to receive any further amounts in respect of such
obligations shall be extinguished and none of the Noteholders of each Class or the other
Transaction Creditors may take any further action to recover such amounts. None of the
Noteholders of any Class or the other Transaction Creditors (nor any other person acting on
behalf of any of them) shall be entitled at any time to institute against the Issuer, or join in any
institution against the Issuer of, any bankruptcy, reorganisation, arrangement, insolvency,
winding-up or liquidation proceedings or other proceedings (provided that, for the avoidance
of doubt, the Trustee may appoint a receiver and/or take other action to realise or enforce the
Issuer Security in accordance with the terms of the Trust Deed) under any applicable
bankruptcy or similar law in connection with any obligations of the Issuer relating to the Notes
of any Class, the Trust Deed or otherwise owed to the Transaction Creditors, save for lodging
a claim by the Trustee (acting on its own behalf and on behalf of the other Transaction
Creditors) in the liquidation of the Issuer which is initiated by another non-affiliated party or
taking proceedings to obtain a declaration as to the obligations of the Issuer.
None of the Trustee, the Managing Directors, the Arrangers, the Collateral Manager, the
Collateral Administrator or the Custodian and its Agents has any obligation to any Noteholder
of any Class for payment of any amount by the Issuer in respect of the Notes of such Class.
(d)
Management of the Portfolio: The Collateral Manager is required to manage the Portfolio and
act in specific circumstances in relation to the Portfolio on behalf of the Issuer pursuant to the
terms of, and subject to the parameters set out in, the Collateral Management Agreement. The
duties of the Collateral Manager in managing the Portfolio include (among other things): (i)
the identification and assessment of the Collateral Debt Obligations to be purchased on or
about the Issue Date (subject to and in accordance with the Collateral Management
Agreement); (ii) the acquisition on behalf of the Issuer during the Investment Period of
Additional Collateral Debt Obligations pursuant to the Collateral Management Agreement;
(iii) the investment in Eligible Investments; (iv) the sale of certain of the Collateral Debt
Obligations during the Reinvestment Period and thereafter, (v) in certain circumstances the
acquisition of Substitute Collateral Debt Obligations, and (vi) the entry into Hedging
Transactions by the Issuer. The Collateral Manager is required to monitor the Collateral Debt
Obligations with a view to seeking to determine whether any Collateral Debt Obligation has
converted into, or been exchanged for, a Defaulted Equity Security or become a Credit
Improved Obligation, Defaulted Obligation or Credit Risk Obligation, provided that, if it fails
to do so, except by reason of acts constituting bad faith, wilful misconduct or negligence in the
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performance of its obligations, no Noteholder, shall have any recourse against any of the
Issuer, the Collateral Manager, the Collateral Administrator, the Custodian, the Registrar or
the Trustee for any loss suffered as a result of such failure.
(e)
Exercise of Rights in Respect of the Portfolio: Pursuant to, and subject as provided in, the
Collateral Management Agreement, the Issuer authorises the Collateral Manager, prior to
enforcement of the security over the Collateral, to exercise all rights and remedies of the Issuer
in its capacity as a holder of, or person beneficially entitled to, the Portfolio. In particular, the
Collateral Manager is authorised to attend and vote at any meeting of holders of, or other
persons interested or participating in, or entitled to the rights or benefits (or a part thereof)
under, the Portfolio and to give any consent, waiver, indulgence, time or notification, make
any declaration or agree any composition, compounding or other similar arrangement with
respect to any Collateral Debt Obligations forming part of the Portfolio.
(f)
Information Regarding the Portfolio: The Issuer shall procure that a Monthly Report and
Note Valuation Report, as well as the Issuer's audited annual accounts and such other
correspondence as is reasonably requested by the Collateral Manager will be made available
(as and when required pursuant to the Collateral Management Agreement and upon the
provision of such information to the Collateral Administrator) to any Noteholder that provides
evidence that it is the holder of any Class of Note. Each Noteholder that has previously
provided evidence that it is the holder of a Note may at any time be requested by the Trustee
or of the Collateral Manager to reconfirm that it continues to be the holder of a Note. If such
evidence has not been provided by a Noteholder to the reasonable satisfaction of the Collateral
Administrator within 45 days of any such request such Noteholder will have no further right to
obtain either the Monthly Report or the Note Valuation Report.
5.
Covenants of and Restrictions on the Issuer
(a)
Covenants of the Issuer: As more fully described in the Trust Deed, for so long as any of the
Notes remains Outstanding, the Issuer covenants to the Trustee, on behalf of the holders of
such Outstanding Notes that it will, among other things:
(i)
take such steps as are reasonable to enforce all its rights:
(A)
under the Trust Deed;
(B)
in respect of the Collateral;
(C)
under the Agency Agreement;
(D)
under the Collateral Management Agreement;
(E)
under the Management Agreement;
(F)
under the Collateral Acquisition Agreements;
(G)
under any Hedge Agreements; and
(H)
under the Euroclear Pledge Agreement.
(ii)
comply with its obligations under the Notes and each of the Transaction Documents;
(iii)
keep proper books of account in accordance with its obligations under the laws of The
Netherlands;
(iv)
at all times maintain its residence for the purposes of taxation outside the United
Kingdom and the United States and will not establish a branch, agency or place of
business or register as a company in the United Kingdom, or the United States;
(v)
pay its debts generally as they fall due;
(vi)
do all such things as are necessary to maintain its corporate existence and operate in
accordance with its constituent documents;
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(vii)
use its best endeavours to obtain and maintain a listing of the Outstanding Notes on the
Irish Stock Exchange. If however, it is unable to do so, having used such endeavours,
or if the maintenance of such listing is agreed by the Trustee to be unduly onerous and
the Trustee is satisfied that the interests of the holders of the Outstanding Notes would
not thereby be materially prejudiced, the Issuer will instead use all reasonable
endeavours promptly to obtain and thereafter to maintain a listing for such Notes on
such other stock exchange(s) as it may (with the approval of the Trustee) decide or
failing such decision as the Trustee may determine;
(viii) supply such information to each Rating Agency as it may reasonably request; and
(ix)
(b)
use its reasonable efforts to ensure that its "centre of main interests" (as that term is
referred to in Article 3(1) of Council Regulation (EC) No. 1346/200 on Insolvency
Proceedings) is and remains at all times in The Netherlands and will not establish or
open any branch offices or other permanent establishments (within the meaning of
Council Regulation (EC) No. 1346/2000 on Insolvency Proceedings) anywhere in the
world.
Restrictions on the Issuer: As more fully described in the Trust Deed, for so long as any of
the Notes remains Outstanding, save as contemplated in the Transaction Documents, the Issuer
covenants to the Trustee on behalf of the holders of such Outstanding Notes that (to the extent
applicable) it will not, without the prior written consent of the Trustee, among other things:
(i)
sell, factor, discount, transfer, assign, lend or otherwise dispose of any of its right, title
or interest in or to the Collateral, other than to the extent permitted by and in
accordance with the Collateral Management Agreement, nor will it create or permit to
be outstanding any mortgage, pledge, lien, charge, encumbrance or other security
interest over the Collateral nor will it take any action to impair the ranking, validity or
effectiveness of the security under the Trust Deed other than in accordance with the
Trust Deed and the Euroclear Pledge Agreement or other Transaction Document or
other than in respect of Synthetic Collateral;
(ii)
sell, factor, discount, transfer, assign, lend or otherwise dispose of, nor create or permit
to be outstanding any mortgage, pledge, lien, charge, encumbrance or other security
interest over any of its other property or assets or any part thereof or interest therein
other than in accordance with the Trust Deed and the Euroclear Pledge Agreement or
other Transaction Document or other than in respect of Synthetic Collateral;
(iii)
take any voluntary steps to commence winding-up other than in accordance with the
Transaction Documents;
(iv)
engage in any business other than:
(A)
acquiring and holding any property, assets or rights that are capable of being
effectively charged in favour of the Trustee or that are capable of being held on
trust by the Issuer in favour of the Trustee under the Trust Deed and/or the
Euroclear Pledge Agreement;
(B)
issuing and performing its obligations under the Notes;
(C)
entering into, exercising its rights and performing its obligations under or
enforcing its rights under the Trust Deed and/or any other Transaction
Document; or
(D)
performing any act incidental to any of the above;
(v)
amend any term or condition of the Notes of any Class (save in accordance with these
Conditions and the Trust Deed);
(vi)
agree to any amendment to any provision of or grant any waiver or consent under the
Trust Deed and/or any other Transaction Document;
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(vii)
incur any indebtedness for borrowed money other than in respect of the Notes
(including the issuance of any additional Notes pursuant to Condition 17 (Further
Issues)), or any other document entered into in connection with the Notes or the sale
thereof, including in respect of a Synthetic Security in respect of which Synthetic
Collateral has been provided or as otherwise permitted pursuant to the Trust Deed;
(viii) amend its constitutional documents (subject, in all cases, to receipt of Rating Agency
Confirmation);
(ix)
have any employees (for the avoidance of doubt, the Managing Directors do not
constitute employees of the Issuer);
(x)
enter into any reconstruction, amalgamation, merger or consolidation;
(xi)
convey or transfer all or a substantial part of its properties or assets (in one or a series
of transactions) to any person, otherwise than as contemplated in these Conditions and
except for any distributions of dividends to an amount not exceeding the credit balance
from time to time of the Issuer Dutch Account;
(xii)
issue any shares (other than such shares as are in issue as at the Issue Date) or redeem
or purchase any of its issued share capital;
(xiii) otherwise than as contemplated in these Conditions, the Trust Deed or the Agency
Agreement, as the case may be, release from or terminate the appointment of the
Custodian or the Account Bank under the Agency Agreement or the appointment of the
Collateral Manager or the Collateral Administrator under the Collateral Management
Agreement;
(xiv) enter into any lease in respect of, or own, premises;
(xv)
use its reasonable efforts to ensure that its "centre of main interest" (within the meaning
of Council Regulation (EC) No. 1346/2000 on Insolvency Proceedings) is and remains
in The Netherlands and will not establish or open any branch offices or other
permanent establishments (within the meaning of Council Regulation (EC) No.
1346/2000 on Insolvency Proceedings) anywhere in the world;
(xvi) enter into any material agreement or contract with any Person (other than an agreement
on customary market terms, which terms do not contain the provisions below and other
than in respect of the Collateral) unless such contract or agreement contains "limited
recourse" and "non-petition" provisions in substantially the same form as set out in
Condition 4(c) (Limited Recourse and Non-Petition); or
(xvii) at all times ensure that each of its Managing Directors is an Independent Director
(where "Independent Director" means a duly appointed member of the board of
directors of the Issuer who has not been, at the time of such appointment or at any time
in the five years preceding such appointment, (a) a direct or indirect legal or beneficial
owner in the Collateral Manager or any of its Affiliates (excluding de minimis
ownership interests), (b) a creditor, employee, officer, director, family member,
manager, or contractor of the Collateral Manager or any of its Affiliates, or (c) a person
who controls (whether directly, indirectly, or otherwise) the Collateral Manager or any
of its Affiliates or any creditor, employee, officer, director, manager, or contractor of
the Collateral Manager or any of its Affiliates).
6.
Interest
(a)
Payment Dates:
(i)
Interest Payable on Class A Notes, Class B Notes, Class C Notes, Class D Notes and
Class E Notes: Interest on the Class A Notes, the Class B Notes, the Class C Notes, the
Class D Notes and the Class E Notes will be payable semi-annually (or, in the case of
the interest accrued during the initial Interest Accrual Period, for the period from (and
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including) the Issue Date to (but excluding) the Payment Date falling on or about 15
May 2008) in arrear on each Payment Date.
(ii)
(b)
(c)
Interest Payable on Subordinated Notes: The Subordinated Note Interest will be
payable in respect of the Class C Subordinated Notes on an available funds basis in
accordance with the Priorities of Payment on each Payment Date.
Interest Accrual:
(i)
Senior Notes and Mezzanine Notes: Class A Notes, Class B Notes, Class C Notes,
Class D Notes and Class E Notes bear interest on their Principal Amount Outstanding
from (and including) the Issue Date. Each Class A Note, Class B Note, Class C Note,
Class D Note and Class E Note will cease to bear interest from the due date for
redemption unless, upon due presentation, payment of principal is improperly withheld
or refused. In such event, it shall continue to bear interest in accordance with this
Condition 6 (Interest) (both before and after judgement) until whichever is the earlier
of (i) the day on which all sums due in respect of such Note up to that day are received
by or on behalf of the relevant Noteholder and (ii) the day seven days after the
Principal Paying Agent has notified the Noteholders of such Class of Notes in
accordance with Condition 16 (Notices) of receipt of all sums due in respect of all the
Notes of such Class up to that seventh day (except to the extent that there is failure in
the subsequent payment to the relevant holders under these Conditions).
(ii)
Subordinated Notes: The Subordinated Notes bear interest on an available funds basis
on their Principal Amount Outstanding from (and including) the Issue Date as set out in
Condition 6(f) (Interest on the Subordinated Notes). Interest shall cease to be payable
in respect of each Subordinated Note upon the date that all of the Collateral has been
realised and no Interest Proceeds or Principal Proceeds remain available for distribution
in accordance with the Priorities of Payment and no Balance remains in respect of the
Collateral Enhancement Account.
Deferral of Interest
(i)
Mezzanine Notes: For so long as any of:
(A)
the Class A Notes remain Outstanding, the Issuer shall, and shall only be
obliged to, pay any Interest Amount payable in respect of any of the Mezzanine
Notes;
(B)
the Class B Notes remain Outstanding, the Issuer shall, and shall only be
obliged to, pay any Interest Amount payable in respect of any of the Class C
Notes, the Class D Notes and the Class E Notes;
(C)
the Class C Notes remain Outstanding, the Issuer shall, and shall only be
obliged to, pay any Interest Amount payable in respect of the Class D Notes and
the Class E Notes;
(D)
the Class D Notes remain Outstanding, the Issuer shall, and shall only be
obliged to, pay any Interest Amount payable in respect of the Class E Notes,
in full on any Payment Date to the extent that there are Available Interest Proceeds or
Available Principal Proceeds available for payment thereof in accordance with the
Priorities of Payment. For so long as any of the Class A Notes, the Class B Notes, the
Class C Notes, the Class D Notes or the Class E Notes, as the case may be, remain
Outstanding, an amount of interest equal to any shortfall in payment of the Interest
Amount due and payable in respect of any Classes of Notes specified in sub-paragraphs
(A) to (D) (inclusive) above (as applicable) (other than the Class A Notes) on any
Payment Date (each such amount being referred to as "Deferred Interest") shall be
deferred and shall, with effect from and including such Payment Date, be added to the
aggregate principal amount of the Notes of the applicable Class Outstanding and the
principal amount of each such Note shall be increased by the amount of its pro rata
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share of such Deferred Interest which shall itself bear interest in accordance with these
Conditions from such date.
(ii)
(d)
Subordinated Notes: For so long as any of the Senior Notes and Mezzanine Notes
remain Outstanding, the Issuer shall, and shall only be obliged to, pay any Interest
Amount payable in respect of the Subordinated Notes on any Payment Date to the
extent that there are Interest Proceeds or Principal Proceeds available for payment
thereof in accordance with the Priorities of Payment.
Payment of Deferred Interest
Deferred Interest in respect of any Class B Note, Class C Note, Class D Note and Class E Note
shall only become payable by the Issuer in accordance with, respectively, paragraphs (K), (N),
(Q) and (T) of Condition 3(c)(i) (Application of Available Interest Proceeds) to the extent that
Interest Proceeds during or after the Reinvestment Period or Principal Proceeds during the
Reinvestment Period are available to make such payment in accordance with the Priorities of
Payment. For the avoidance of doubt any Deferred Interest that is not paid in accordance with
the preceding sentence shall remain part of the aggregate principal amount of the applicable
Class of Notes.
(e)
Floating Rate Interest on Class A Notes, Class B Notes, Class C Notes, Class D Notes and
Class E Notes
(i)
The rate of interest from time to time (the "Floating Rate of Interest") in respect of
the Class A Notes (the "Class A Floating Rate of Interest"), the Class B Notes (the
"Class B Floating Rate of Interest"), the Class C Notes (the "Class C Floating Rate
of Interest"), the Class D Notes (the "Class D Floating Rate of Interest") and the
Class E Notes (the "Class E Floating Rate of Interest") will be determined by the
Collateral Administrator on the following basis:
(A)
On the second Business Day before the beginning of each Interest Accrual
Period (each, an "Interest Determination Date"), the Collateral Administrator
will determine as at 11:00 a.m. (Brussels time) on the Interest Determination
Date in question the offered rate for six-month Euro deposits ("EURIBOR"), or
in the case of the initial Interest Accrual Period a straight-line interpolation of
the offered rate for 6 month and 7 month Euro deposits. Such offered rate will in
each case be that which appears on the display (for three-month deposits, or the
straight-line interpolation of such rates, as applicable) appearing on the Reuters
Screen EURIBOR06 Page (or such successor display page that has been
officially designated by the Reuters service or, if the Reuters service has not
officially designated a successor display page, the successor display page, if
any, designated by the relevant information vendor or provider). The Class A
Floating Rate of Interest for such Interest Accrual Period shall be the aggregate
of' the Class A Margin (as defined in this Condition below), if any, and the rate
which so appears; the Class B Floating Rate of Interest for such Interest Accrual
Period shall be the aggregate of the Class B Margin (as defined in this Condition
below), if any, and the rate which so appears; the Class C Floating Rate of
Interest for such Interest Accrual Period shall be the aggregate of the Class C
Margin (as defined in this Condition below), if any, and the rate which so
appears; the Class D Floating Rate of Interest for such Interest Accrual Period
shall be the aggregate of the Class D Margin (as defined in this Condition
below), if any, and the rate which so appears; the Class E Floating Rate of
Interest for such Interest Accrual Period shall be the aggregate of the Class E
Margin (as defined in this Condition below), if any, and the rate which so
appears; all as calculated and determined by the Collateral Administrator.
(B)
If the offered rate so appearing is replaced by the corresponding rates of more
than one bank then paragraph (A) shall be applied, with any necessary
consequential changes, to the arithmetic mean (rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point (with 0.000005 being
rounded upwards)) of the rates (being at least two) which so appear, as
137
determined by the Collateral Administrator. If for any other reason such offered
rate does not so appear, or if the relevant page is unavailable, the Collateral
Administrator will request each of four major banks in the Euro-zone interbank
market acting in each case through its principal Euro-zone (as defined in this
Condition below) office (the "Reference Banks") to provide the Collateral
Administrator with its offered quotation to prime banks for Euro deposits in the
Euro-zone interbank market for a period of six months (or, in the case of the
initial Interest Accrual Period, a straight line interpolation of the offered
quotation for 6 month and 7 month Euro deposits) as at 11.00 a.m. (Brussels
time) on the Interest Determination Date in question. The Class A Floating Rate
of Interest for such Interest Accrual Period shall be the aggregate of the Class A
Margin (if any) and the arithmetic mean (rounded, if necessary, to the nearest
one hundred-thousandth of a percentage point (with 0.000005 being rounded
upwards)) of such quotations (or of such of them. being at least two, as are so
provided); the Class B Floating Rate of Interest for such Interest Accrual Period
shall be the aggregate of the Class B Margin (if any) and the arithmetic mean
(rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point (with 0.000005 being rounded upwards)) of such quotations (or of such of
them, being at least two, as are so provided); the Class C Floating Rate of
Interest for such Interest Accrual Period shall be the aggregate of the Class C
Margin (if any) and the arithmetic mean (rounded, if necessary, to the nearest
one hundred-thousandth of a percentage point (with 0.000005 being rounded
upwards)) of such quotations (or of such of them, being at least two, as are so
provided); the Class D Floating Rate of Interest for such Interest Accrual Period
shall be the aggregate of the Class D Margin (if any) and the arithmetic mean
(rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point (with 0.000005 being rounded upwards)) of such quotations (or of such of
them. being at least two, as are so provided); the Class E Floating Rate of
Interest for such Interest Accrual Period shall be the aggregate of the Class E
Margin (if any) and the arithmetic mean (rounded, if necessary, to the nearest
one hundred-thousandth of a percentage point (with 0.000005 being rounded
upwards)) of such quotations (or of such of them, being at least two, as are so
provided) all as calculated and determined by the Collateral Administrator.
(C)
If on any Interest Determination Date one only or none of the Reference Banks
provides such quotation, the Class A Floating Rate of Interest, the Class B
Floating Rate of Interest, the Class C Floating Rate of Interest, the Class D
Floating Rate of Interest and the Class E Floating Rate of Interest respectively,
for the next Interest Accrual Period shall be the rate per annum which the
Collateral Administrator determines to be the arithmetic mean (rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point (with
0.000005 being rounded upwards)) of the rates quoted by major banks in the
Euro-zone selected by the Collateral Administrator at approximately 11:00 a.m.
(Brussels time) on the relevant Interest Determination Date for loans in Euros to
leading European banks for a period of six months (or, in the case of the initial
Interest Accrual Period, a straight-line interpolation of the offered quotation for
6 month and 7 month Euro loans) plus: in the case of the Class A Floating Rate
of Interest, the Class A Margin (if any); in the case of the Class B Floating Rate
of Interest, the Class B Margin (if any); in the case of the Class C Floating Rate
of Interest, the Class C Margin (if any); in the case of the Class D Floating Rate
of Interest, the Class D Margin (if any); and in the case of the Class E Floating
Rate of Interest, the Class E Margin (if any).
(D)
Where:
"Euro-zone" means the region comprised of Member States of the European
Union that have adopted the single currency in accordance with the Treaty
establishing the European Community, as amended;
"Class A Margin" means 0.75% per annum;
138
"Class B Margin" means 1.25% per annum;
"Class C Margin" means 2.5% per annum;
"Class D Margin" means 4.5% per annum; and
"Class E Margin" means 7.0% per annum.
(ii)
Determination of Floating Rate of Interest and Calculation of Interest Amount: The
Collateral Administrator will, as soon as practicable after 11.00 a.m. (London time) on
each interest Determination Date, but in no event later than the second Business Day
after such date, determine:
(A)
the Class A Floating Rate of Interest, the Class B Floating Rate of Interest, the
Class C Floating Rate of Interest, the Class D Floating Rate of Interest and the
Class E Floating Rate of Interest; and
(B)
the Interest Amount (as defined below) payable in respect of Class A Notes,
Class B Notes, Class C Notes, Class D Notes and the Class E Notes in such
Interest Accrual Period.
The amount of interest (including any interest on Deferred Interest) (the "Interest
Amount") payable in Euro in respect of each Minimum Denomination or Authorised
Integral Denomination applicable to the Class A Notes, the Class B Notes, the Class C
Notes, the Class D Notes and the Class E Notes for each shall be calculated by
applying: the Class A Floating Rate of Interest, in the case of the Class A Notes; the
Class B Floating Rate of Interest, in the case of the Class B Notes; the Class C Floating
Rate of Interest, in the case of the Class C Notes; the Class D Floating Rate of Interest,
in the case of the Class D Notes; and the Class E Floating Rate of Interest, in the case
of the Class E Notes, in each case, to such Minimum Denomination or Authorised
Integral Denomination, as applicable, of the relevant Class on the first day of the
relevant Interest Accrual Period and by multiplying the product of such calculation by
the actual number of days in the Interest Accrual Period concerned divided by 360 and
rounding the resultant figure to the nearest €0.01 (€0.005 being rounded upwards),
provided that for the avoidance of doubt, holders of the Class A Notes, the Class B
Notes, the Class C Notes, the Class D Notes or the Class E Notes, as the case may be,
shall only be entitled to receive interest on the Principal Amount Outstanding from
time to time in respect of such Notes;
(iii)
Reference Banks and Collateral Administrator: The Issuer will procure that, so long
as any Class A Note, Class B Note, Class C Note, Class D Note or Class E Note
remains Outstanding;
(A)
a Collateral Administrator shall be appointed and maintained for the purposes of
determining the Floating Rate of Interest payable in respect of the Class A
Notes, Class B Notes, Class C Notes, Class D Notes and/or Class E Notes, as
applicable; and
(B)
in the event that the Class A Floating Rate of Interest, Class B Floating Rate of
Interest, Class C Floating Rate of Interest, Class D Floating Rate of Interest
and/or the Class E Floating Rate of Interest is to be calculated by reference to
rates quoted by Reference Banks pursuant to paragraph (B) of Condition 6(e)(i)
(Floating Rate Interest on Class A Notes, Class B Notes, Class C Notes, Class D
Notes and Class E Notes), that the number of Reference Banks required
pursuant to such Condition are appointed.
If the Collateral Administrator is unable or unwilling to continue to act as the Collateral
Administrator hereunder or fails duly to establish the Class A Floating Rate of Interest,
the Class B Floating Rate of Interest, the Class C Floating Rate of Interest, the Class D
Floating Rate of Interest and/or the Class E Floating Rate of Interest for any Interest
Accrual Period, the Issuer shall (with the prior approval of the Trustee) appoint some
139
other leading bank to act as such in its place. The Collateral Administrator may not
resign its duties without a successor having been so appointed.
(f)
Interest on the Subordinated Notes: Interest Proceeds payable in respect of the Subordinated
Notes (the "Subordinated Note Interest") shall be payable on an available funds basis as
provided in paragraphs (CC) and (EE) of Condition 3(c)(i) (Application of Available Interest
Proceeds) and paragraph (E) of Condition 3(c)(ii) (Application of Principal Proceeds). The
Collateral Administrator will, on each Determination Date, calculate the Interest Amount
payable in respect of the Subordinated Note Interest in respect of each €1,000 in original
principal amount of the Subordinated Notes for the relevant Interest Accrual Period. Amount
payable in respect of the Subordinated Note Interest on each Payment Date in respect of each
€1,000 in original principal amount of the Subordinated Notes will be calculated by
multiplying the amount of Interest Proceeds to be applied in payment of Subordinated Note
Interest on the Subordinated Notes on such Payment Date pursuant to paragraphs (CC) and
(EE) of Condition 3(c)(i) (Application of Available Interest Proceeds) and paragraphs (E) and
(G) of Condition 3(c)(ii) (Application of Principal Proceeds) by a fraction equal to €1,000
divided by the aggregate original Principal Amount Outstanding of the Subordinated Notes.
Notwithstanding any other provisions of the Conditions of the Notes or the Trust Deed, all
references herein and therein to any Class of the Subordinated Notes being redeemed in full or
at their Principal Amount Outstanding shall be deemed to be amended to the extent required to
ensure that a minimum of €1 principal amount of each such Class of Notes remains
Outstanding at all times and any amounts which are to be applied in redemption of such Notes
pursuant hereto which are in excess of the Principal Amount Outstanding thereof minus €1,
shall constitute interest on the Subordinated Notes payable in respect of such Notes and shall
not be applied in redemption of the Principal Amount Outstanding thereof, provided always
however that such a minimum of €1 shall no longer remain Outstanding and each such Class
of Notes shall be redeemed in full on the date on which all of the Collateral securing the Notes
has been realised and is to be finally distributed to the Noteholders.
(g)
Publication of Floating Rates of Interest and Interest Amounts: the Collateral Administrator
will cause the above Floating Rates of Interest and the Interest Amounts payable in respect of
each Class of Notes for each Interest Accrual Period and Payment Date and any Deferred
Interest in respect of any Class of Notes to be notified to each of the Paying Agent, the
Account Bank, the Registrar, the Trustee, the Collateral Manager and the Irish Stock
Exchange as soon as possible after their determination by the Collateral Administrator but in
no event later than the fourth Business Day following determination by the Collateral
Administrator, and the Principal Paying Agent shall cause each such rate, amount and date to
be notified to the Noteholders of each Class in accordance with Condition 16 (Notices) as soon
as possible following notification to the Principal Paying Agent but in no event later than the
third Business Day after such notification. The Interest Amounts, Payment Date and any
Deferred Interest in respect of the Class B Notes, Class C Notes, Class D Notes and Class E
Notes so published may subsequently be amended (or appropriate alternative arrangements
made with the consent of the Trustee by way of adjustment) without notice in the event of an
extension or shortening of the Interest Accrual Period. If any of the Notes become due and
payable under Condition 10 (Events of Default), interest shall nevertheless continue to accrue
and be calculated as previously by the Collateral Administrator in accordance with this
Condition but no publication of the applicable Interest Amounts shall be made unless the
Trustee so determines.
(h)
Determination or Calculation by Trustee: If the Collateral Administrator does not at any time
for any reason so determine any of the Floating Rates of Interest applicable to the Senior
Notes or the Mezzanine Notes or calculate the Interest Amounts payable in respect of the
Senior Notes or the Mezzanine Notes or the Subordinated Notes for an Interest Accrual Period
it shall notify the Trustee and the Trustee (or a person appointed by it for the purpose)
thereafter shall do so and such determination or calculation shall be deemed to have been
made by the Collateral Administrator and shall be binding on the Noteholders. In doing so, the
Trustee, or such person appointed by it, shall apply the foregoing provisions of this Condition.
with any necessary consequential amendments, to the extent that, in its opinion, it can do so,
and, in all other respects it shall do so in such manner as it shall deem fair and reasonable in all
the circumstances and in reliance on such persons as it has appointed for such purpose. The
140
Trustee shall have no liability to any person in connection with any determination or
calculation it is required to make pursuant to this Condition 6(h) (Determination or
Calculation by Trustee).
(i)
Notifications, etc. to be Final: All notifications, opinions, determinations, certificates,
quotations and decisions given, expressed, made or obtained for the purposes of the provisions
of this Condition, whether by the Reference Banks (or any of them), the Collateral
Administrator or the Trustee, will (in the absence of wilful default, bad faith or manifest error)
be binding on the Issuer, the Reference Banks, the Collateral Administrator, the Trustee, the
Registrar, the Transfer Agents and all Noteholders and (in the absence as referred to above) no
liability to the Issuer or the Noteholders of any Class shall attach to the Reference Banks or the
Collateral Administrator and, in any event no liability will attach to the Trustee in connection
with the exercise or non-exercise by them of their powers, duties and discretions under this
Condition.
7.
Redemption and Purchase
(a)
Final Redemption: Save to the extent previously redeemed and cancelled, the Notes of each
Class will be redeemed on the Maturity Date of such Notes. In the case of a redemption
pursuant to this Condition 7(a) (Final Redemption), the Senior Notes and the Mezzanine Notes
will be redeemed at their applicable Redemption Price and the Subordinated Notes will be
redeemed at an amount equal to the remaining Principal Proceeds to be applied towards such
redemption pursuant to paragraphs (E) and (G) of Condition 3(c)(ii) (Application of Principal
Proceeds). Notes may not be redeemed other than in accordance with this Condition 7
(Redemption and Purchase) and the Issuer shall procure that notice of such redemption shall
be given to the Noteholders and Rating Agencies in accordance with Condition 16 (Notices).
(b)
Optional Redemption
(i)
Redemption at the Option of the Subordinated Noteholders: Subject to the provisions
of Condition 7(b)(ii) (Conditions to Optional Redemption), the Class A Notes, the
Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the
Subordinated Notes shall be redeemable by the Issuer, in whole but not in part, at the
applicable Redemption Prices, from the proceeds of liquidation or realisation of the
Collateral (subject to the establishment of a reasonable reserve (as determined by the
Trustee in its discretion) following consultation with the Collateral Administrator for
all administrative and other fees and expenses payable in such circumstances in
accordance with paragraph (B) of the Interest Proceeds Priority of Payments prior to
the payment of the principal of the Senior Notes and the Mezzanine Notes, which
reserve shall be distributed on the applicable Redemption Date) (x) commencing on the
Payment Date following the expiry of the Non-Call Period (a "Post Non-Call
Redemption"), or (y) on any Payment Date falling after the occurrence of a Relevant
Tax Event (a "Relevant Tax Event Redemption"), at the request in writing of the
holders of at least 66⅔ per cent. of the aggregate Principal Amount Outstanding of the
Subordinated Notes then Outstanding or by Special Quorum Resolution of the
Subordinated Noteholders, in the case of a Post Non-Call Redemption, or at the request
in writing of the holders of more than 50 per cent. of the aggregate Principal Amount
Outstanding of the Subordinated Notes then Outstanding or by Ordinary Resolution of
the Subordinated Noteholders, in the case of a Relevant Tax Event Redemption, in each
case, as evidenced by duly completed Redemption Notices in accordance with the
procedures described in paragraph (ii) (Conditions to Optional Redemption) below. The
Issuer shall procure that notice of such redemption, including the applicable
Redemption Date, shall be given to the Noteholders in accordance with Condition 16
(Notices). The Trustee shall have no liability to any person in connection with the
establishment of any reserve made by it pursuant to this Condition 7(b)(i) (Redemption
at the Option of the Subordinated Noteholders).
A "Relevant Tax Event" shall have occurred in the event that the aggregate of the
Gross Up Tax Amounts and Tax Charges is equal to or greater than six per cent. of the
aggregate interest payments on all of the Collateral Debt Obligations during any Due
Period, where:
141
(ii)
(A)
"Gross Up Tax Amounts" means, in relation to any portion of any payment due
from any issuer or obligor under any Collateral Debt Obligation which, due to
the introduction of a new, or any change in, home jurisdiction or foreign tax
statute, treaty, regulation, rule, ruling, practice, procedure or judicial decision or
interpretation, becomes properly subject to the imposition of home jurisdiction
or foreign withholding tax which withholding tax is not compensated for by a
"gross-up" provision in the terms of the Collateral Debt Obligation, the gross-up
amount which would be required to cover any shortfall in such Due Period; and
(B)
"Tax Charges" means any taxes for which the Issuer becomes liable to any
competent taxation authority in such Due Period which are in excess of any
taxes known on the Issue Date to be payable by the Issuer at any time.
Conditions to Optional Redemption: Following receipt of confirmation from the
Registrar of receipt of a direction from the requisite percentage of Subordinated
Noteholders to exercise any right of optional redemption pursuant to this Condition, the
Collateral Administrator shall, as soon as practicable, and in any event not later than
seven Business Days prior to the scheduled Redemption Date the "Redemption
Determination Date") calculate the "Redemption Threshold Amount" which amount
shall be the aggregate of the amounts which would be due and payable on redemption
of the Notes on the scheduled Redemption Date pursuant to Condition 11
(Enforcement) which rank in priority to payments in respect of the Subordinated Notes
in accordance with the Priorities of Payment.
The Notes shall not be optionally redeemed pursuant to paragraph (i) (Redemption at
the Option of the Subordinated Noteholders) above unless not less than seven nor more
than 15 Business Days before the scheduled Redemption Date the Collateral Manager,
on behalf of the Issuer, has certified to the Trustee (which shall be entitled to rely on
such certificate without further enquiry) in a form satisfactory to the Trustee that the
Expected Net Proceeds from either (i) (A) the entry into a binding agreement or
binding agreements on or prior to the Redemption Date with a financial institution or
financial institutions which has a short-term credit rating of "P-l" from Moody's and, if
the liquidation period shall be limited to no more than 15 days, "A-1" from S&P or, if
the liquidation period shall be limited to more than 15 days but no more than 30 days,
"A-1+" from S&P and/or (B) (subject in each case to Rating Agency Confirmation) one
or more funds or other investment vehicles established for the purpose of acquiring
assets similar to the Portfolio or (ii) the liquidation of the Portfolio (calculated as
provided below) which shall be received in immediately available funds no later than
one Business Day prior to the scheduled Redemption Date plus, in each case the other
amounts specified in the definition of "Expected Net Proceeds", will equal or exceed
the applicable Redemption Threshold Amount.
The "Expected Net Proceeds" resulting from any such proposed (i) entry into of a
binding agreement with a financial institution or (ii) liquidation of the Portfolio shall be
the sum of:
(a)
in respect of each Collateral Debt Obligation in the Portfolio, the following:
(i)
in the case of entry into a binding agreement with a financial institution
(including for the avoidance of doubt any entity or institution which has
issued or is to issue notes secured on a portfolio of collateral loan or debt
securities) which (or whose guarantor under such obligations) has a
short-term credit rating from each of Moody's and S&P, respectively, as
described above (or, if no such rating is available from Moody's or S&P,
as the case may be, has a long-term credit rating from Moody's of "Aa3"
or as the case may be, S&P of "AA-", or if neither such rating is available
from such Rating Agency, in respect of which Rating Agency
Confirmation has been received), the purchase price payable in respect
thereof under such agreement with a financial institution; and
142
(ii)
in the case of a liquidation where no binding agreement has been entered
into or in respect of which agreement Rating Agency Confirmation has
not been received, either:
(A)
the Market Value thereof if such Collateral Debt Obligations are
to be sold on the Business Day of the certification; or
(B)
the percentage of the Market Value thereof set out in the
applicable column of the table below based upon the period of
time between the certification and the expected date of sale,
in each case multiplied by the outstanding principal amount thereof;
(b)
the sum of the Balances of the Accounts (other than the Counterparty
Downgrade Collateral Accounts, except to the extent not payable to any entity
other than the Issuer); and
(c)
amounts scheduled to be received under any Interest Rate Hedge Agreement
and/or Asset Swap Agreement prior to the Redemption Date.
Number of Business Days Between
Certification and Expected Sale
(iii)
Collateral Type
0 to 2
3 to 5
6 to 15
Loans (other than loans with
Market Value of less than 90% of
the Principal Balance thereof)
93%
92%
88%
Loans with a Market Value of less
than 90% of the Principal Balance
thereof
80%
73%
60%
High Yield Bonds rated at least
"B2" by Moody's
89%
85%
75%
High Yield Bonds rated "B3" or
lower by Moody's
75%
65%
45%
Mechanics of Redemption: Following calculation by the Collateral Administrator of
the applicable Redemption Threshold Amount, the Collateral Administrator shall make
such other calculations as it is required to make pursuant to the Collateral Management
Agreement and shall notify the Issuer, the Trustee, the Collateral Manager, the Irish
Stock Exchange and the Noteholders (in accordance with Condition 16 (Notices)) of
such amount.
To exercise this option in respect of a Post Non-Call Redemption, the holders of at least
66⅔ per cent. of the aggregate Principal Amount Outstanding of the Subordinated
Notes then Outstanding, and to exercise this option in respect of a Relevant Tax Event
Redemption, the holders of more than 50 per cent. of the aggregate Principal Amount
Outstanding of the Subordinated Notes then Outstanding, must deliver duly completed
Redemption Notices not more than 40 nor less than 30 Business Days prior to the
applicable Redemption Date. No Redemption Notice so delivered may be withdrawn
without the prior consent of the Issuer. The Registrar shall copy each Redemption
Notice received to each of the Issuer, the Trustee, the Collateral Administrator and the
Collateral Manager. In the event that the holders of less than the requisite aggregate
Principal Amount Outstanding of the Subordinated Notes deliver such Redemption
Notices, the Collateral Administrator shall, no later than 25 Business Days prior to the
applicable Redemption Date, notify the Issuer, the Trustee, the Collateral Manager, the
Irish Stock Exchange and the Noteholders (in accordance with Condition 16 (Notices))
143
of such failure to exercise the option and all such Redemption Notices shall be returned
to such Noteholders.
The Collateral Administrator shall notify the Issuer, the Rating Agencies, the Trustee,
the Collateral Manager and the Noteholders upon satisfaction of any of the conditions
set out in paragraph (ii) above and the Collateral Manager shall arrange for liquidation
and/or realisation of the Collateral on behalf of the Issuer in accordance with the
Collateral Management Agreement. The Issuer shall deposit, or cause to be deposited,
the funds required for an optional redemption of the Notes in accordance with
Condition 7(b) (Optional Redemption) in the Payment Account on or before the
Business Day prior to the applicable Redemption Date. Principal Proceeds and Interest
Proceeds received in connection with such redemption shall be payable in accordance
with the Priorities of Payment.
(c)
Redemption upon Breach of Coverage Tests:
(i)
Class A Notes: If either of the Class A Coverage Tests is not met on any Determination
Date on which the relevant Class A Coverage Test(s) is or are required to be satisfied,
Interest Proceeds transferred to the Payment Account immediately prior to the related
Payment Date, net of amounts payable pursuant to paragraphs (A) to (H) (inclusive) of
Condition 3(c)(i) (Application of Available Interest Proceeds), will be used to redeem
on the related Payment Date, in accordance with the Note Payment Sequence, the Class
A Notes, until each such Class A Coverage Test is satisfied, if recalculated immediately
following such redemption and, to the extent that either of such Class A Coverage
Tests is not satisfied immediately following the payment of such Interest Proceeds,
Principal Proceeds transferred to the Payment Account (including, if necessary,
amounts transferred from the Additional Collateral Account and the Subordinated
Notes Additional Collateral Account) immediately prior to the related Payment Date
will be used, in accordance with paragraph (A) of Condition 3(c)(ii) (Application of
Principal Proceeds) to redeem on the related Payment Date, in accordance with the
Note Payment Sequence, the Class A Notes, in whole or in part, until each such Class
A Coverage Test is satisfied if recalculated immediately following such redemption.
(ii)
Class B Notes: If either of the Class B Coverage Tests is not met on any Determination
Date on which the relevant Class B Coverage Test(s) is or are required to be satisfied,
Interest Proceeds transferred to the Payment Account immediately prior to the related
Payment Date, net of amounts payable pursuant to paragraphs (A) to (K) (inclusive) of
Condition 3(c)(i) (Application of Available Interest Proceeds) will be used to redeem
on the related Payment Date, in accordance with the Note Payment Sequence, the Class
A Notes and the Class B Notes until each such Class B Coverage Test is satisfied, if
recalculated immediately following such redemption and, to the extent that either of
such Class B Coverage Tests is not satisfied immediately following the payment of
such Interest Proceeds, Principal Proceeds transferred to the Payment Account
(including, if necessary, amounts transferred from the Additional Collateral Account
and the Subordinated Notes Additional Collateral Account) immediately prior to the
related Payment Date will be used, in accordance with paragraph (A) of Condition
3(c)(ii) (Application of Principal Proceeds) to redeem on the related Payment Date, in
accordance with the Note Payment Sequence, the Class A Notes and the Class B Notes,
in whole or in part, until each such Class B Coverage Test is satisfied if recalculated
immediately following such redemption.
(iii)
Class C Notes: If either of the Class C Coverage Tests is not met on any Determination
Date on which the relevant Class C Coverage Test(s) is or are required to be satisfied,
Interest Proceeds transferred to the Payment Account immediately prior to the related
Payment Date, net of amounts payable pursuant to paragraphs (A) to (N) (inclusive) of
Condition 3(c)(i) (Application of Available Interest Proceeds), will be used to redeem
on the related Payment Date, in accordance with the Note Payment Sequence, the Class
A Notes, the Class B Notes and the Class C Notes until each such Class C Coverage
Test is satisfied, if recalculated immediately following such redemption and, to the
extent that either of such Class C Coverage Tests is not satisfied immediately following
the payment of such Interest Proceeds, Principal Proceeds transferred to the Payment
144
Account (including, if necessary, amounts transferred from the Additional Collateral
Account and the Subordinated Notes Additional Collateral Account) immediately prior
to the related Payment Date will be used in accordance with paragraph (A) of
Condition 3(c)(ii) (Application of Principal Proceeds) to redeem on the related
Payment Date in accordance with the Note Payment Sequence, the Class A Notes, the
Class B Notes and the Class C Notes, in whole or in part, until each such Class C
Coverage Test is satisfied if recalculated immediately following such redemption.
(iv)
Class D Notes: If either of the Class D Coverage Tests is not met on any Determination
Date on which the relevant Class D Coverage Test(s) is or are required to be satisfied,
Interest Proceeds transferred to the Payment Account immediately prior to the related
Payment Date, net of amounts payable pursuant to paragraphs (A) to (Q) (inclusive) of
Condition 3(c)(i) (Application of Available Interest Proceeds), will be used to redeem
on the related Payment Date, in accordance with the Note Payment Sequence, the Class
A Notes, the Class B Notes, the Class C Notes and the Class D Notes until each such
Class D Coverage Test is satisfied, if recalculated immediately following such
redemption and, to the extent that either of such Class D Coverage Tests is not satisfied
immediately following the payment of such Interest Proceeds, Principal Proceeds
transferred to the Payment Account (including, if necessary, amounts transferred from
the Additional Collateral Account and the Subordinated Notes Additional Collateral
Account) immediately prior to the related Payment Date will be used in accordance
with paragraph (A) of Condition 3(c)(ii) (Application of Principal Proceeds) to redeem
on the related Payment Date, in accordance with the Note Payment Sequence, the Class
A Notes, the Class B Notes, the Class C Notes and the Class D Notes, in whole or in
part, until each such Class D Coverage Test is satisfied if recalculated immediately
following such redemption.
(v)
Class E Notes: If either of the Class E Coverage Tests is not met on any Determination
Date on which the Class E Coverage Test(s) is or are required to be satisfied, Interest
Proceeds transferred to the Payment Account immediately prior to the related Payment
Date, net of amounts payable pursuant to paragraphs (A) to (T) (inclusive) of Condition
3(c)(i) (Application of Available Interest Proceeds), will be used to redeem on the
related Payment Date, the Class E Notes until each such Class E Coverage Test is
satisfied, if recalculated immediately following such redemption.
(d)
Redemption Upon Rating Reduction and Withdrawal: In the event that an Effective Date
Rating Downgrade has occurred and is continuing on the Business Day prior to the Payment
Date next following the Effective Date, Interest Proceeds and thereafter Principal Proceeds
will be applied on such Payment Date and each Payment Date thereafter to redeem the Senior
Notes and the Mezzanine Notes in full or in part in accordance with the Priorities of Payment
and the Note Payment Sequence or, if earlier, until the Rating Agencies confirm that each such
rating is reinstated.
(e)
Redemption Following Expiry of the Reinvestment Period: Following expiry of the
Reinvestment Period, the Issuer shall, on each Payment Date occurring thereafter, apply
Principal Proceeds received in the related Due Period (other than Unscheduled Principal
Proceeds and Sales Proceeds of Credit Risk Obligations and Credit Improved Obligations
which the Collateral Manager at its discretion, acting on behalf of the Issuer, has designated
for reinvestment) to redeem the Class A Notes, the Class B Notes. the Class C Notes, the Class
D Notes and the Class E Notes, in accordance with the Principal Proceeds Priority of
Payments and the Note Payment Sequence and, following redemption in full thereof, to
redeem the Subordinated Notes.
(f)
Special Redemption: Principal repayments on the Notes shall be made in accordance with the
Principal Proceeds Priority of Payments and the Note Payment Sequence if (in the case of the
Sale Proceeds of Defaulted Obligations and Equity Securities designated by the Collateral
Manager during the Reinvestment Period for reinvestment prior to the end of the Reinvestment
Period) the Collateral Manager (acting on behalf of the Issuer) has been unable within the
maximum reinvestment period available to the Collateral Manager to identify Additional
Collateral Debt Obligations that are deemed appropriate by the Collateral Manager (acting on
behalf of the Issuer in its discretion which meet the Eligibility Criteria or, to the extent
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applicable, the Reinvestment Criteria, in sufficient amounts to permit the investment or
reinvestment of all or a portion of the funds then in the Principal Account and the
Subordinated Notes Principal Account, in each case that are to be invested in Additional
Collateral Debt Obligations (a "Special Redemption"). On the first Payment Date following
the Due Period in which such maximum reinvestment period has expired (a "Special
Redemption Date"), the funds in the Principal Account and the Subordinated Notes Principal
Account, in each case representing Principal Proceeds which cannot be reinvested in
Additional Collateral Debt Obligations or Substitute Collateral Debt Obligations and which
the Collateral Manager has designated for such Special Redemption (the "Special
Redemption Amount") will be applied in accordance with paragraph (B) of the Principal
Proceeds Priority of Payments and the Note Payment Sequence. Notice of payments pursuant
to this Condition 7(f) (Special Redemption) shall be given in accordance with Condition 16
(Notices) not less than seven Business Days prior to the applicable Special Redemption Date
to each Noteholder affected thereby and to each Rating Agency. For the avoidance of doubt,
the exercise of a Special Redemption shall be at the sole and absolute discretion of the Issuer
and neither the Issuer nor the Collateral Manager shall be under any obligation to, or have any
responsibility for, any Noteholder or any other person for the exercise or non-exercise (as
applicable) of such Special Redemption.
(g)
(h)
Redemption Following Certain Tax Events:
(i)
Upon the occurrence of a Note Tax Event, the Issuer shall, subject to and in accordance
with Condition 9 (Taxation), use all reasonable efforts to change the territory in which
it is resident for tax purposes to another jurisdiction which, at the time of such change,
would not give rise to a Note Tax Event. Upon the earlier of (a) the date upon which
the Issuer notifies (or procures the notification to) the Noteholders that it is not able to
effect such change of residence and (b) the date which is 90 days from the date upon
which the Issuer first becomes aware of or is notified of the same by any other party of
such Note Tax Event (provided that such 90 day period shall be extended by a further
90 days in the event that during the former period the Issuer has notified (or procured
the notification of) the Noteholders that, based on advice received by it, it expects that
it shall have changed its place of residence by the end of the latter 90 day period),
either (i) the Controlling Class (but solely when the Par Value Ratio applicable to the
then Controlling Class is less than 100 per cent.) or (ii) the Subordinated Noteholders,
in each case, acting by Extraordinary Resolution may elect that the Notes of each Class
are redeemed, in whole but not in part, on any Payment Date thereafter, at their
respective Redemption Prices in accordance with the Priorities of Payment and the
Note Payment Sequence, in which case the Issuer shall so redeem the Notes on such
terms.
(ii)
Subject to the provisions of Condition 7(b)(ii) and (iii) (Mechanics of Redemption),
upon the occurrence of an Onshore Tax Event or a UK Vat Event, either (i) the
Controlling Class (but solely when the Par Value Ratio applicable to the then
Controlling Class is less than 100 per cent.) or (ii) the Subordinated Noteholders, in
each case, acting by Extraordinary Resolution may elect that the Notes of each Class
are redeemed, in whole but not in part, on any Payment Date thereafter, at their
respective Redemption Prices in accordance with the Priorities of Payment and the
Note Payment Sequence, in which case the Issuer shall so redeem the Notes on such
terms. For avoidance of doubt, in addition to the conditions precedent specified above,
any right of redemption under this Condition 7(g)(ii) is subject to the Expected Net
Proceeds being at least equal to the applicable Redemption Threshold Amount, which
calculations (and notification thereof) shall be undertaken by the Collateral
Administrator in the same manner (and to the same parties) as specified in Condition
7(b)(ii) above.
Redemption: All Notes in respect of which any notice of redemption is given under this
Condition 7 (Redemption and Purchase) shall be redeemed on the Redemption Date at their
applicable Redemption Prices in accordance with the Priorities of Payment and the Note
Payment Sequence and to the extent specified in such notice and in accordance with the
requirements of this Condition.
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(i)
Purchase of Notes by the Issuer:
(i)
Senior Notes and Mezzanine Notes: The Issuer may at any time purchase Senior Notes
or Mezzanine Notes in the open market or in privately negotiated transactions or
otherwise, at a price not exceeding 100 per cent. of their respective principal amounts
plus accrued interest; provided however that no such Note shall be purchased unless:
(A)
(ii)
(1)
in the case of Class B Notes, all the Class A Notes have been redeemed
in full;
(2)
in the case of Class C Notes, all the Class A Notes and the Class B Notes
have been redeemed in full;
(3)
in the case of Class D Notes, all the Class A Notes, the Class B Notes
and the Class C Notes have been redeemed in full; and
(4)
in the case of Class E Notes, all the Class A Notes, the Class B Notes, the
Class C Notes and the Class D Notes have been redeemed in full;
(B)
after giving effect to such purchase, the Coverage Tests (save to the extent no
longer applicable following redemption and payment in full of the Class of
Notes to which any such tests relate) will be maintained or improved, as notified
by the Collateral Administrator to the Trustee;
(C)
the Collateral Administrator notifies to the Trustee in writing that an amount
sufficient to pay interest on the Class A Notes, or in the event that the Class A
Notes have been redeemed in full, the Class B Notes, or in the event that the
Class B Notes have been redeemed in full, on the Class C Notes, or in the event
that the Class C Notes have been redeemed in full, on the Class D Notes, or in
the event that the Class D Notes have been redeemed in full, on the Class E
Notes, not so purchased on the next Payment Date and all amounts required to
be paid on such Payment Date prior to such interest in accordance with the
Priorities of Payment is standing to the credit of the Interest Account and
Retained Portion Account:
(D)
the Issuer and the Trustee have received Rating Agency Confirmation in respect
of such purchase;
(E)
the Collateral Manager has taken reasonable efforts to select Collateral Debt
Obligations to sell in connection with such purchase so that the aggregate
market values of all the Collateral Debt Obligations comprising the Portfolio
following such purchase is not materially reduced; and
(F)
such purchase is permitted under all laws and regulations applicable to the
Issuer.
Subordinated Notes: The Issuer may at any time purchase Subordinated Notes in the
open market or in privately negotiated transactions or otherwise provided however that
no Subordinated Note shall be purchased unless all the Senior Notes and the Mezzanine
Notes have been redeemed in full.
Notwithstanding any other provisions of the Conditions of the Notes or the Trust Deed,
all references herein and therein to the Subordinated Notes being redeemed in full or at
their Principal Amount Outstanding shall be deemed to be amended to the extent
required to ensure that a minimum of €1 principal amount of such Class of Notes
remains Outstanding at all times and any amounts which are to be applied in
redemption of such Notes pursuant hereto which are in excess of the Principal Amount
Outstanding thereof minus €1, shall constitute interest on the Subordinated Notes
payable in respect of such Notes and shall not be applied in redemption of the Principal
Amount Outstanding thereof, provided always however that such a minimum of €1
shall no longer remain Outstanding and such Class of Notes shall be redeemed in full
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on the date on which all of the Collateral securing the Notes has been realised and is to
be finally distributed to the Noteholders.
(iii)
(j)
Conditions to Purchase: The Issuer shall use either cash amounts standing to the credit
of the Principal Account, the Subordinated Notes Principal Account, the Additional
Collateral Account or the Subordinated Notes Additional Collateral Account on the
date of purchase or may sell one or more Collateral Debt Obligations, Eligible
Investments, Collateral Enhancement Obligations and/or Equity Securities and use the
Sale Proceeds thereof to acquire any Notes to be purchased pursuant to this Condition 7
(Redemption and Purchase), provided that the Collateral Manager may not sell (and the
Trustee shall not be required to release) a Collateral Debt Obligation, Eligible
Investment, Collateral Enhancement Obligation and/or Equity Security pursuant to this
Condition 7 (Redemption and Purchase) unless the Collateral Manager certifies to the
Trustee that:
(A)
the Sale Proceeds from the sale of such Collateral Debt Obligations, Eligible
Investments, Collateral Enhancement Obligations and/or Equity Securities
(based on commitments to purchase such Collateral Debt Obligations, Eligible
Investments, Collateral Enhancement Obligation and/or Equity Securities
received by the Issuer) together with all or part of the amounts standing to the
credit of the Principal Account and/or the Additional Collateral Account and/or
the Subordinated Notes Principal Account and/or the Subordinated Notes
Additional Collateral Account to be applied towards such purchase will be
sufficient to pay the purchase price of such Notes;
(B)
in the case of any purchase of Subordinated Notes only, the market value of the
Collateral Debt Obligations, Eligible Investments, Collateral Enhancement
Obligations and/or Equity Securities to be sold in such circumstances (as
determined by the Collateral Manager in its absolute discretion) does not exceed
the pro rata share of all Collateral Debt Obligations, Eligible Investments,
Collateral Enhancement Obligations and Equity Securities forming part of the
Collateral at such time which is allocable to the Subordinated Notes to be
purchased (such allocation to be determined by reference to the percentage
which the Principal Amount Outstanding of the Subordinated Notes to be
purchased bear to the aggregate Outstanding Principal Amount of all
Subordinated Notes then Outstanding immediately prior to purchase thereof);
and
(C)
such sale would not result in a failure of any of the Coverage Tests if measured
immediately after the sale.
Redemption by Refinancing: In addition to Condition 7(i) (Purchase of Notes by the Issuer),
any Class of the Rated Notes may be redeemed in whole, but not in part, on any Payment Date
after the Non-Call Period from the proceeds received by the Issuer in connection with a
Refinancing (as defined below) if the Issuer proposes to the Subordinated Noteholders in
writing (with a copy to the Trustee and the Rating Agencies) at least 60 days prior to the
Payment Date fixed by the Issuer (and notified to the Trustee) for such redemption (such date,
the "Refinancing Date") to redeem such Notes, by obtaining an issuance of a replacement
class of notes, the terms of which issuance will be negotiated by the Collateral Manager, on
behalf of the Issuer, from one or more financial institutions or purchasers (which may included
the Collateral Manager or its Affiliates) selected by the Collateral Manager (a refinancing
provided pursuant to such issuance, a "Refinancing"), and such proposal is approved in
writing by the holders of at least 66⅔ per cent. of the Principal Amount Outstanding of the
Subordinated Notes then Outstanding or by a Special Quorum Resolution of the Subordinated
Noteholders prior to the Refinancing Date. The Issuer will obtain a Refinancing only if the
Collateral Manager and Collateral Administrator determine and certify to the Trustee that: (i)
Rating Agency Confirmation with respect to such Refinancing has been obtained; (ii) the sum
of (A) the proceeds from the Refinancing, (B) the amount on deposit in the Collateral
Enhancement Account, (C) the Deferred Management Amount on such Refinancing Date and
(D) the balance of Interest Proceeds available for distribution after the payment of all amounts
required to be paid pursuant to paragraphs (A) to (G) (inclusive) of Condition 3(c)(i)
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(Application of Available Interest Proceeds) on such Refinancing Date will be at least
sufficient to pay the applicable Redemption Price plus any administrative expenses of the
Issuer related to the Refinancing; (iii) the interest rate payable in respect of the obligations
providing the Refinancing is less than the interest rate payable on the Notes being refinanced;
(iv) the principal amount of any obligations providing the Refinancing is no greater than the
principal amount of the Notes being redeemed with the proceeds of such obligations; (v) the
stated maturity of the obligations providing the Refinancing is no earlier than the Stated
Maturity of the Notes being refinanced; (vi) the proceeds of the Refinancing will be used (to
the extent necessary) to redeem the applicable Notes; (vii) the agreements relating to the
Refinancing contain limited-recourse and no-petition provisions substantially similar to those
applicable to the Notes being redeemed, as set forth in the Trust Deed; and (viii) the expenses
in connection with the Refinancing have been paid or will be adequately provided for in a
reserve account. Any proceeds received in respect of the Refinancing will not constitute
Interest Proceeds or Principal Proceeds but will be applied directly on the related Refinancing
Date pursuant to the Trust Deed to redeem the Notes being refinanced without regard to the
Priorities of Payment; provided that to the extent that any such proceeds are not applied to
redeem the Notes being refinanced, such proceeds will be treated as Principal Proceeds.
(k)
Cancellation: All Notes redeemed in full or purchased in accordance with this Condition 7
(Redemption and Purchase) will be cancelled and may not be reissued or resold.
(l)
Notice of Partial Redemption: The Issuer shall procure that the Irish Stock Exchange is
notified of any partial redemption of the Notes, including details of the principal amount of
each Class of Notes Outstanding following any such partial redemption.
8.
Payments
(a)
Method of Payment: Payments of principal upon final redemption in respect of each Note will
be made against presentation and surrender (or, in the case of part payment only, endorsement)
of such Note at the specified office of the Principal Paying Agent by Euro cheque drawn on a
bank in Europe. Payments of interest on each Note and, prior to redemption in full thereof,
principal in respect of each Note, will be made by cheque drawn on a bank in Europe in Euro
and posted on the Business Day immediately preceding the relevant due date to the holder (or
to the first named of joint holders) of the Note appearing on the Register at the close of
business on the fifteenth day before the relevant due date (the "Record Date") at his address
shown on the register on the Record Date. Upon application of the holder to the specified
office of the Registrar or any Transfer Agent not less than five Business Days before the due
date for any payment in respect of a Note, the payment may be made (in the case of any final
payment of principal against presentation and surrender (or, in the case of part payment only
of such final payment, endorsement) of such Note as provided above) by wire transfer in
immediately available funds on the due date to a Euro account maintained by the payee with a
bank in Europe.
(b)
Payments Subject to Fiscal Laws: All payments are subject in all cases to the Priorities of
Payment, any applicable fiscal or other laws, regulations and directives, but without prejudice
to the provisions of Condition 9 (Taxation). No commission shall be charged to the
Noteholders.
(c)
Payments on Business Days: Where payment is to be made by transfer to a registered
account, payment instructions (for value the due date or, if that is not a Business Day, for
value the first following day which is a Business Day) will be initiated and, where payment is
to be made by cheque, the cheque will be mailed, on the Business Day preceding the due date
for payment.
Noteholders will not be entitled to any interest or other payment for any delay after the due
date in receiving the amount due if the due date is not a Business Day or if a cheque mailed in
accordance with this Condition 8(c) arrives after the due date for payment.
(d)
Registrar and Transfer Agents: The names of the initial Registrar and Transfer Agents and
their initial specified offices are set out below. The Issuer reserves the right at any time with
the approval of the Trustee to vary or terminate the appointment of the Registrar and any
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Transfer Agent and appoint additional or other Agents, provided that it will maintain (i) a
Registrar with the capability of maintaining the Register outside the United Kingdom and (ii) a
Transfer Agent having specified offices in either at least one major North American city or at
least two major European cities, in each case, approved by the Trustee and shall at all times
procure that it shall at all times maintain a Custodian, Account Bank, Collateral Manager and
Collateral Administrator. The Issuer will also maintain a Paying Agent and a Transfer Agent
in a European member state that is not obliged to withhold or deduct tax pursuant to the EU
Directive on the Taxation of Savings Income (Directive 2003/48/EC) or any other directive
implementing the conclusion of the ECOFIN Council meeting of 26-27 November 2000, any
law implementing or complying with, or introduced in order to comply with, such directive, or
the Luxembourg law of 25 December 2005 on the introduction of a discharging withholding
tax on certain interest generated by savings, in each case as approved by the Trustee. Notice of
any change in any Agent or their specified offices or in the Custodian, Account Bank,
Collateral Manager or Collateral Administrator will promptly be given to the Noteholders by
the Issuer in accordance with Condition 16 (Notices).
9.
Taxation
All payments of principal and interest in respect of the Notes shall be made free and clear of, and
without withholding or deduction for, any taxes, duties, assessments or governmental charges of
whatever nature imposed, levied, collected, withheld or assessed by or within The Netherlands, or any
political sub-division or any authority therein or thereof having power to tax, unless such withholding
or deduction is required by law. For the avoidance of doubt, the Issuer shall not be required to gross up
any payments made to Noteholders of any Class and shall withhold or deduct from any such payments
any amounts on account of tax where so required by law or any relevant taxing authority. Any such
withholding or deduction shall not constitute an Event of Default under Condition 10(a) (Events of
Default).
Subject as provided below, if the Issuer satisfies the Trustee that it has or will on the occasion of the
next payment due in respect of the Notes of any Class become obliged by Dutch law to withhold or
account for tax so that it would be unable to make payment of the full amount then due, the Issuer (with
the consent of the Trustee and save as provided below) shall use all reasonable endeavours to arrange
for the substitution of a company incorporated in another jurisdiction approved by the Trustee as the
principal obligor under the Notes of such Class and the Transaction Documents, or to change its tax
residence to another jurisdiction approved by the Trustee, subject to receipt by the Trustee of Rating
Agency Confirmation in respect of such substitution or change (subject to receipt of such information
and/or opinions as the Rating Agencies may require).
Notwithstanding the above, if the Issuer has or will become obliged by Dutch law to withhold or
account for tax, as referred to in this Condition 9 (Taxation):
(a)
due to any present or former connection of any Noteholder (or between a fiduciary, settlor,
beneficiary, member or shareholder of such Noteholder if such Noteholder is an estate, a trust,
a partnership, or a corporation) with The Netherlands (including without limitation, such
Noteholder (or such fiduciary, settlor, beneficiary, member of shareholder) being or having
been a citizen or resident thereof or being or having been engaged in a trade or business or
present therein or having had a permanent establishment therein) otherwise than by reason
only of the holding of any Note or receiving principal or interest in respect thereof;
(b)
by reason of the failure by the relevant Noteholder to comply with any applicable procedures
required to establish non-residence or other similar claim for exemption from such tax or to
provide information concerning nationality, residency or connection with The Netherlands;
(c)
in respect of a payment to an individual which is required to be made pursuant to EU Directive
on the Taxation of Savings Income (Directive 2003/48/EC) or any law implementing or
complying with, or introduced in order to conform to, such Directive;
(d)
as a result of presentation for payment by or on behalf of a Noteholder who would have been
able to avoid such withholding or deduction by presenting the relevant Note to another
Transfer Agent in a Member State of the European Union; or
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(e)
any combination of the immediately preceding clauses (a) through (d) (inclusive),
the requirement to substitute the Issuer as the principal obligor and/or change its residence for taxation
purposes shall not apply.
10.
Events of Default
(a)
Events of Default: The occurrence of any of the following events shall constitute an "Event of
Default":
(i)
Non-payment of Interest: the Issuer fails to pay any interest in respect of any Class A
Notes when the same becomes due or payable or, following redemption and payment in
full of the Class A Notes, the Issuer fails to pay any interest on any Class B Notes when
the same becomes due and payable or, following redemption in full of the Class B
Notes, the Issuer fails to pay any interest on any Class C Notes when the same becomes
due and payable or, following redemption in full of the Class C Notes, the Issuer fails
to pay interest on any Class D Notes when the same becomes due and payable or,
following redemption in full of the Class D Notes, the Issuer fails to pay interest on any
Class E Note when the same becomes due and payable, (save, in each case, as the result
of any deduction therefrom or the imposition of withholding thereon in the
circumstances described in Condition 9 (Taxation)), provided that any such failure to
pay such interest continues for a period of five days;
(ii)
Non-payment of Principal: without prejudice to Condition 3(d) (Non-payment of
Amounts), the Issuer fails to pay any principal when the same becomes due and payable
on any Note on any Redemption Date;
(iii)
Default under Priorities of Payment: the Issuer fails on any Payment Date to disburse
amounts available in the Payment Account in accordance with the Priorities of
Payment, which failure (save for such failure as described in paragraphs (i) and (ii)
above) continues for a period of five days;
(iv)
Collateral Debt Obligations: on the latest Measurement Date after the Effective Date,
in the event that the Class A Par Value Ratio is less than 100 per cent.;
(v)
Breach of Other Obligations: without prejudice to Condition 3(d) (Non-payment of
Amounts), (i) the Issuer does not perform or comply with any other material covenant,
warranty or other agreement of the Issuer under the Notes, the Trust Deed, the Agency
Agreement, the Euroclear Pledge Agreement, the Collateral Management Agreement
(other than a covenant, warranty or other agreement a default in the performance or
breach of which is dealt with elsewhere in this Condition 10(a) (Events of Default) and
other than the failure to meet any Collateral Quality Test, Portfolio Profile Test or any
Coverage Test) and such non-performance or non-compliance is in the opinion of the
Trustee, materially prejudicial to the interests of the holders of any Class of Notes, or
(ii) any representation, warranty or statement of the Issuer made in the Trust Deed or in
any certificate or other writing delivered pursuant thereto or in connection therewith
ceases to be correct in all material respects when the same shall have been made, and,
in each case, the continuation of such default, breach or failure for a period of 30 days
(or 15 days, in the case of any default, breach or failure of representation or warranty in
respect of the Collateral) after notice thereof shall have been given by registered or
certified mail or overnight courier, to the Issuer by the Trustee specifying such default,
breach or failure and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder;
(vi)
Insolvency Proceedings: proceedings are initiated against the Issuer under any
applicable liquidation, insolvency, bankruptcy, composition, reorganisation or other
similar laws (together, "Insolvency Law"), or a receiver, trustee, administrator,
custodian, conservator or other similar official (a "Receiver" (and for the avoidance of
doubt the Receiver does not include the Trustee or Custodian) is appointed in relation
to the Issuer or in relation to the whole or any substantial part of the undertaking or
assets of the Issuer; or a winding up petition is presented in respect of or a distress or
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execution or other process is levied or enforced upon or sued out against the whole or
any substantial part of the undertaking or assets of the Issuer and, in any of the
foregoing cases except in relation to the appointment of a Receiver, is not discharged
within 30 days; or the Issuer becomes or is, or could be deemed by law or a court to be,
insolvent or bankrupt or unable to pay its debts, or initiates or consents to judicial
proceedings relating to itself under any applicable Insolvency Law, or seeks the
appointment of a Receiver, or makes a conveyance or assignment for the benefit of its
creditors generally or otherwise becomes subject to any reorganisation or
amalgamation (other than on terms previously approved in writing by the Trustee); or
(vii)
Illegality: it is or will become unlawful for the Issuer to perform or comply with any
one or more of its obligations under the Notes.
A failure to make any payments which would otherwise constitute an Event of Default under
(i), (ii) and/or (iii) above shall not constitute an Event of Default if the Issuer has confirmed in
writing to the Paying Agents and the Trustee that such failure to pay is the result, directly or
indirectly, of any bank system or administrative failure and such failure is remedied within
five days of the due date for payment of such amount.
(b)
(c)
Acceleration
(i)
If an Event of Default occurs and is continuing the Trustee, at its discretion, may and, if
requested in writing by at least 66⅔ per cent. of the aggregate Principal Amount
Outstanding of the holders of the Controlling Class at such time, or as so directed by an
Extraordinary Resolution of the holders of the Controlling Class, shall at such time (in
each case subject to being indemnified and/or secured to its satisfaction, against all
liabilities, proceedings, claims and demands to which it may thereby become liable and
all costs, charges and expenses which may be incurred by it in connection therewith),
give notice to the Issuer that all the Notes are immediately due and payable (a "Notice
of Acceleration").
(ii)
Upon any Notice of Acceleration being given to the Issuer in accordance with
paragraph (i) of this Condition 10(b) (Acceleration), all of the Notes shall immediately
become due and repayable at their applicable Redemption Prices.
(iii)
No such Notice of Acceleration shall be required in the case of the Event of Default
referred to in Condition 10(a)(vi) (Insolvency Proceedings), the occurrence of which
shall result in automatic acceleration of the Notes in accordance with this Condition.
Curing of Default: At any time after a Notice of Acceleration has been given and prior to
enforcement of the Security pursuant to Condition 11 (Enforcement), the Trustee, at its
discretion may or, if requested in writing by the holders of at least 50 per cent. of the
aggregate Principal Amount Outstanding or by Ordinary Resolution of the Controlling Class at
such time, shall, (in each case, subject to being indemnified and/or secured to its satisfaction
against all liabilities, proceedings, claims and demands to which it may thereby become liable
and all costs, charges and expenses which may be incurred by it in connection therewith)
rescind and annul such Notice of Acceleration and its consequences but only if:
(i)
the Issuer has paid or deposited with the Trustee a sum sufficient to pay:
(A)
all overdue payments of interest and principal on the Notes (other than the
Subordinated Notes) then due (other than as a result of the acceleration);
(B)
all due but unpaid taxes owing by the Issuer as certified by an Authorised
Officer of the Issuer to the Trustee;
(C)
all unpaid Administrative Expenses and Trustee Fees and Expenses;
(D)
any unpaid Senior Collateral Management Fee; and
(E)
all amounts due and payable under any Asset Swap Agreement and any Interest
Rate Hedge Agreement; and
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(ii)
the Trustee has determined that all Events of Default, other than the non-payment of the
interest in respect of, or principal of, the Notes that have become due solely by such
acceleration, have been cured or waived.
Any previous rescission and annulment of a Notice of Acceleration shall not prevent the
subsequent acceleration of the Notes if the Trustee at its discretion accelerates or if the Trustee
is subsequently requested or directed to accelerate the Notes in accordance with paragraph
(b)(i) above or upon subsequent automatic acceleration in accordance with paragraph (b)(iii)
above (as the case may be).
(d)
Restriction on Acceleration of Notes: No acceleration of the Notes shall be permitted
pursuant to this Condition by the holders of any Class of Notes other than the Controlling
Class as provided in Condition 10(b) (Acceleration).
(e)
Notification and Confirmation of No Default: The Issuer shall promptly notify the Trustee,
the Collateral Manager and the Rating Agencies upon becoming aware of the occurrence of an
Event of Default or Potential Event of Default. The Trust Deed contains provisions for the
Issuer to provide written confirmation to the Trustee and the Rating Agencies on an annual
basis or on request that no Event of Default or Potential Event of Default has occurred and that
no other matter which is required (pursuant thereto) to be brought to the Trustee's attention has
occurred.
11.
Enforcement
(a)
Security Becoming Enforceable: The Security shall become enforceable upon an acceleration
of any of the Notes pursuant to Condition 10(b) (Acceleration).
(b)
Enforcement: The Trustee may at any time at its discretion and without notice but subject to
being indemnified and/or secured to its satisfaction against all liabilities, proceedings, claims
and demands to which it may thereby become liable and all costs, charges and expenses which
may be incurred by it in connection therewith, institute such proceedings against the Issuer or
any other party to a Transaction Document as it may think fit to enforce the terms of the Trust
Deed, the Euroclear Pledge Agreement, the Notes or any other Transaction Document and
pursuant and subject to the terms of the Trust Deed at any time after the Security has become
enforceable, realise and/or otherwise liquidate the Collateral and/or take such action as may be
permitted under applicable laws against any obligor in respect of the Collateral and/or take any
other action to enforce the Security (such actions in respect of the Collateral and the Security
and any other enforcement action that would involve a monetary claim together, the
"Enforcement Actions") in each case without any liability as to the consequence of any
action and without having regard (save to the extent provided in Condition 14(g) (Entitlement
of the Trustee under Conflicts of Interest)) to the effect of such action on individual
Noteholders of any Class or any other Secured Party provided however that:
(i)
no such Enforcement Actions may be taken by the Trustee unless:
(A)
it determines following consultation with the Collateral Manager or an
independent investment banking firm of international reputation (on whose
opinion it may rely) that the anticipated proceeds realised from such
Enforcement Actions (after deducting any reasonable expenses incurred in
connection therewith) would be sufficient to discharge in full all amounts due
and payable in respect of all Classes of Notes (including, without limitation,
Deferred Interest on the Class B Notes, the Class C Notes, the Class D Notes
and the Class E Notes) and all amounts payable in priority thereto pursuant to
the Priorities of Payment (such determination being an "Enforcement
Threshold Determination"); or
(B)
(1) it has received a request to take such Enforcement Action either in writing
by the holders of at least 66⅔ per cent. of the aggregate Principal Amount
Outstanding of each Class of Notes then Outstanding or by an Extraordinary
Resolution of the holders of each such Class of Notes then outstanding voting
separately, or (2) when the Notes have been accelerated as a result of the
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occurrence of an event specified in paragraph (i) or (ii) of Condition 10(a)
(Events of Default) or as a result of the occurrence of the event specified in
paragraph (iv) of Condition 10(a) (Events of Default) to the extent that the Class
A Par Value Ratio has been less than 100 per cent. for a continuous period of
three months; and
(ii)
the Trustee shall not be bound (A) to take any Enforcement Action unless directed to
do so in accordance with proviso (i)(B) above and is indemnified and/or secured to its
satisfaction against all liabilities, proceedings, claims and demands to which it may
thereby become liable and all costs, charges and expenses which may be incurred by it
in connection therewith or (B) to take any other action under the Notes, the Trust Deed
or any other Transaction Document unless it is requested to do so in writing by at least
66⅔ per cent. in aggregate Principal Amount Outstanding of the holders of each Class
of Notes then Outstanding or directed by an Extraordinary Resolution of the holders of
each Class of Notes and in each case the Trustee is indemnified and/or secured to its
satisfaction against all liabilities, proceedings, claims and demands to which it may
thereby become liable and all costs, charges and expenses which may be incurred by it
in connection therewith.
Following redemption and payment in full of the Senior Notes and the Mezzanine
Notes, the Trustee shall (provided it is indemnified and/or secured to its satisfaction
against all liabilities, proceedings, claims and demands to which it may thereby become
liable and all costs, charges and expenses which may be incurred by it in connection
therewith) if so directed, act upon the written directions of the holders of more than 50
per cent. in aggregate Principal Amount Outstanding of the Subordinated Notes then
Outstanding or as directed by an Extraordinary Resolution of the holders of the
Subordinated Noteholders.
(c)
Post-Enforcement Priority of Payments
The net proceeds of enforcement of the security over the Collateral shall be credited to the
Payment Account or such other account as the Trustee may direct and shall be distributed in
accordance with the following priority of payments (the "Post-Enforcement Priority of
Payments"):
(A)
to the payment of taxes owing by the Issuer (other than Dutch corporate income tax in
relation to the amounts equal to the minimum profit referred to below) as certified by
an Authorised Officer of the Issuer to the Trustee, if any, and thereafter to the payment
of amounts equal to the minimum profit required to be retained by the Issuer for Dutch
tax purposes from time to time;
(B)
to the payment of accrued and unpaid Trustee Fees and Expenses;
(C)
to the payment on a pro rata and pari passu basis of Administrative Expenses save for
any indemnities under item (i) of the definition thereof;
(D)
to the payment to the Collateral Manager of (i) the Senior Collateral Management Fee
due and payable on such Payment Date and (ii) thereafter, to the payment of any unpaid
Senior Collateral Management Fee and accrued interest at the rate of Note EURIBOR
together with, in each case any value added tax thereon (whether payable by the
Collateral Manager or directly by the Issuer to the relevant taxing authority);
(E)
to the payment on a pro rata basis of any Interest Rate Hedge Termination Payments,
any Currency Swap Termination Payments and any Asset Swap Termination Payments
due to any Hedge Counterparty other than Defaulted Hedge Termination Payments;
(F)
to the payment on a pro rata and pari passu basis of all amounts of interest accrued but
unpaid and principal in respect of the Class A Notes;
(G)
to the payment on a pro rata basis of all amounts of interest accrued but unpaid and
principal (for the avoidance of doubt including any Deferred Interest on the Class B
Notes) in respect of the Class B Notes;
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(H)
to the payment on a pro rata basis of all amounts of interest accrued but unpaid and
principal (for the avoidance of doubt including any Deferred Interest on the Class C
Notes) in respect of the Class C Notes;
(I)
to the payment on a pro rata basis of all amounts of interest accrued but unpaid and
principal (for the avoidance of doubt including any Deferred Interest on the Class D
Notes) in respect of the Class D Notes;
(J)
to the payment on a pro rata basis of all amounts of interest accrued but unpaid and
principal (for the avoidance of doubt including any Deferred Interest on the Class E
Notes) in respect of the Class E Notes;
(K)
to the payment of any Defaulted Hedge Termination Payments due to any Hedge
Counterparty;
(L)
to the payment to the Collateral Manager of (i) the Subordinated Collateral
Management Fee and (ii) thereafter, to the payment of any unpaid Subordinated
Collateral Management Fee and accrued interest at the rate of Note EURIBOR together
with, in each case any value added tax thereon (whether payable by the Collateral
Manager or directly by the Issuer to the relevant taxing authority);
(M)
to the payment on a pro rata basis to the Collateral Manager and any previous
Collateral Manager of any Deferred Collateral Management Amount which has been
designated for reinvestment by the Collateral Manager in respect of a previous Payment
Date and not subsequently paid to the Collateral Manager plus any interest thereon
which has accrued at the rate of Note EURIBOR, together with any value added tax in
respect thereof (whether payable by the Collateral Manager or by the Issuer directly to
the relevant tax authority);
(N)
when the Subordinated Note Hurdle Return Amount has been reached (after taking into
account all prior distributions to Subordinated Noteholders and any distributions to be
made to Subordinated Noteholders on such Payment Date) to the Collateral Manager in
respect of the Incentive Management Fee and any value added tax in respect thereof
(whether payable by the Collateral Manager or indirectly to the relevant taxing
authority by the Issuer); and
(O)
any remaining Available Interest Proceeds and Available Principal Proceeds to the
payment to the Subordinated Noteholders on a pro rata and pari passu basis.
(d)
Only Trustee to Act: Only the Trustee may pursue the remedies available under the Trust
Deed to enforce the rights of the Noteholders or of any of the other Secured Parties under the
Trust Deed and the Notes and no Noteholder or other Secured Party (except the Trustee) may
proceed directly against the Issuer or any of its assets unless the Trustee, having become
bound to proceed in accordance with the terms of the Trust Deed, fails or neglects to do so
within a reasonable period and such failure or neglect is continuing. After realisation of the
Security and distribution of the net proceeds in accordance with the Priorities of Payment, no
Noteholder or other Transaction Creditor (except the Trustee) may take any further steps
against the Issuer to recover any sum still unpaid in respect of the Notes or the Issuer's
obligations to such Transaction Creditor and all claims against the Issuer to recover any sum
still unpaid in respect of the Notes or the Issuer's obligations to such Transaction Creditor and
all claims against the Issuer in respect of such sums unpaid shall be extinguished.
(e)
Sale of Collateral: Following enforcement of the Collateral or to realise the Collateral prior to
the due date for redemption of the Notes following any redemption pursuant to Condition 7,
the Collateral Manager or the Trustee shall request from each of three major investment banks
in the London market and the lead manager/arranger of such Collateral Debt Obligation a
quote for the market value of each Collateral Debt Obligation that is being realised from the
Collateral. The Collateral Manager or the Trustee, as the case may be, shall use all reasonable
efforts to have obtained at least two firm bids for each such Collateral Debt Obligation from
third parties within ten Business Days of such requests. The Collateral Manager or the Trustee,
as the case may be, shall sell each such Collateral Debt Obligation to the highest firm bidder,
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provided always that, the Collateral Manager shall be entitled to purchase such Collateral Debt
Obligation on the day on which such firm bidder would purchase it at no less than the highest
firm bid received in respect of such Collateral Debt Obligation.
(f)
Purchase of Collateral by Noteholders: Upon any sale of any part of the Collateral following
the Security becoming enforceable, whether made under the power of sale under the Trust
Deed or by virtue of judicial proceedings, any Noteholder may bid for and purchase the
Collateral or any part thereof and, upon completion of such sale, may hold, retain, possess or
dispose of such property in its or their own absolute right without accountability. In addition,
any purchaser in any such sale which is a Noteholder may surrender Notes held by it in place
of payment of the purchase price for such Collateral where the Trustee has calculated that the
amount payable to such Noteholder in respect of such Notes pursuant to the Priorities of
Payment on the next following Payment Date out of the net proceeds of such sale is equal to or
exceeds the purchase moneys so payable for such Collateral and the amount owing by the
Issuer to such Noteholder on account of interest and/or principal under such Notes (as
determined by the Trustee) shall be reduced by the equivalent amount on such Payment Date.
12.
Prescription
Claims in respect of principal and interest payable on redemption in full of the relevant Notes will
become void unless made within a period of five years, in the case of interest, and ten years, in the case
of principal, from the appropriate Relevant Date.
13.
Replacement of Definitive Certificates
If any Definitive Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the
specified office of any Transfer Agent, subject in each case to all applicable laws and Irish Stock
Exchange requirements, upon payment by the claimant of the expenses incurred in connection with
such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer
may require (provided that the requirement is reasonable in the light of prevailing market practice).
Mutilated or defaced Definitive Certificates must be surrendered before replacements will be issued.
14.
Meetings of Noteholders, Modification, Waiver and Substitution
(a)
Meetings of Noteholders: The Trust Deed contains provisions for convening meetings of the
Noteholders of each Class and of passing resolutions in writing to consider matters affecting
the interests of such Noteholders, including, without limitation, the sanctioning by
Extraordinary Resolution of the Noteholders of a Class or by the applicable Noteholders
resolving in writing on a modification of certain of these Conditions or certain provisions of
the Trust Deed. The provisions in this Condition 14 are descriptive of the detailed provisions
of the Trust Deed.
Matters may be approved by Noteholders by way of Ordinary Resolution or Extraordinary
Resolution, in each case, either acting together or, to the extent specified in any applicable
Transaction Document, as a Class of Noteholders acting independently. Such resolutions can
be effected either at a duly convened meeting of the applicable Noteholders or by the
applicable Noteholders resolving in writing, in each case, in at least the minimum percentages
specified in the definition of "Extraordinary Resolution" and "Ordinary Resolution"
respectively. Meetings of the Noteholders may be convened by the Issuer or the Trustee or
they shall convene a meeting if requested by one or more Noteholders holding not less than
ten per cent. of the aggregate Principal Amount Outstanding of the Outstanding Notes of the
relevant Class, subject to certain conditions including minimum notice periods.
Any resolution of Noteholders duly passed shall be binding on all Noteholders entitled to vote
on such resolution (regardless of Class and regardless of whether or not a Noteholder was
present at the meeting at which such resolution was passed).
The Trustee may, in its discretion, determine that any proposed Ordinary Resolution or
Extraordinary Resolution affects only the holders of one or more Classes of Notes, in which
event the required quorum and minimum percentage voting requirements of such Ordinary
Resolution or Extraordinary Resolution shall be determined by reference only to the holders of
that Class or Classes of Notes and not the holders of any other Notes as set forth below.
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(b)
Quorum: Subject as provided below, the quorum for any meeting convened to consider an
Ordinary Resolution of the Noteholders of such class will be two or more persons holding or
representing greater than 10 per cent. in Principal Amount Outstanding of the Notes of such
Class, or at any adjourned meeting two or more persons holding or representing Notes of such
Class whatever the Principal Amount Outstanding of the Notes held or represented and the
quorum for any meeting convened to consider an Extraordinary Resolution of the Noteholders
of such Class will be two or more persons holding or representing greater than 50 per cent. in
Principal Amount Outstanding of the Notes of such Class, or at any adjourned meeting two or
more persons holding or representing Notes of such Class whatever the Principal Amount
Outstanding of the Notes held or represented. The quorum (a "Special Quorum") for any
meeting (adjourned or otherwise) (i) of the Subordinated Noteholders convened to consider
the optional redemption of the Notes pursuant to Condition 7(b) or Condition 7(j), or (ii) of the
Controlling Class of Notes convened to consider the removal (other than for cause) of the
Collateral Manager or (iii) the Controlling Class of Notes and the Subordinated Noteholders
convened to consider the removal of the Collateral Manager for cause or the replacement of
the Collateral Manager (together, the "Special Quorum Matters") shall, in each case, be two
or more persons holding or representing at least 66⅔ per cent. in aggregate Principal Amount
Outstanding of the Notes of such Class.
(c)
Extraordinary Resolutions: An Extraordinary Resolution will be required to sanction the
following proposals, in addition to any other matter specified in the Trust Deed, the Collateral
Management Agreement or the relevant Transaction Document requiring sanction by way of
Extraordinary Resolution:
(i)
the exchange or substitution for the Notes of the relevant Class, or the conversion of the
Notes of the relevant Class into, shares, bonds or other obligations or securities of the
Issuer or (except as provided in Condition 14(f) (Substitution)) any other entity;
(ii)
change the earliest date on which any Notes may be optionally redeemed as described
in Condition 7(b) or Condition 7(j);
(iii)
the modification of the timing and/or determination of the amount of interest, principal
or other amounts payable in respect of the Notes of the relevant Class from time to
time:
(iv)
the adjustment of the Principal Amount Outstanding of the Notes of the relevant Class
other than in connection with redemption pursuant to these conditions or a further issue
of Notes pursuant to Condition 17 (Further Issues);
(v)
a change in the currency of payment of the Notes of the relevant Class or any other
amounts payable under the Priorities of Payment;
(vi)
any change in the Priorities of Payment or in the calculation or determination of any
amounts payable thereunder including, without limitation, the Collateral Management
Fees;
(vii)
the modification of the provisions concerning the quorum required at any meeting of
Noteholders of the relevant Class or the majority required to pass a resolution or any
other provision of these Conditions which requires the written consent of the holders of
a requisite Principal Amount Outstanding of the Notes of any Class Outstanding;
(viii) the modification of any provision relating to the security over the Collateral constituted
by the Trust Deed and the Euroclear Pledge Agreement except as contemplated by
these Conditions, the Trust Deed and the Euroclear Pledge Agreement;
(ix)
any modification of this Condition 14 (Meetings of Noteholders, Modifications and
Substitution);
(x)
the amendment of any provision of the Trust Deed to impose any material and adverse
restriction on the transferability of any Regulation S Global Certificate or any interest
therein, except for amendments (x) required by, or reflecting changes in, applicable law
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or regulation, or (y) relating to the manner and/or mechanics of the transfer of any such
Regulation S Global Certificate or any interest therein;
(xi)
any requirement of a Noteholder to contribute or pay additional funds (in excess of the
purchase price paid by any such Noteholder for the relevant Note or an interest therein)
in respect of any liability of such holder to a third party, other than such liabilities as
are described in the Trust Deed;
(xii)
any authority, direction or sanction required to be given by Extraordinary Resolution;
(xiii) to appoint any persons (whether Noteholders or not) as a committee or committees to
represents the Noteholders' interests and to confer on them any powers or discretions
which the Noteholders could themselves exercise by Extraordinary Resolution;
(xiv) to approve a new Trustee and to remove a Trustee;
(xv)
subject to Condition 14(f) (Substitution) and the Trust Deed to approve the substitution
of any entity for the Issuer (or any previous substitute) as principal debtor under the
Trust Deed;
(xvi) to discharge or exonerate the Trustee from any liability in respect of any act or
omission for which it may be or become responsible under the Trust Deed or the Notes;
or
(xvii) any other matter set out in the Trust Deed or any other Transaction Document which
specifies that an Extraordinary Resolution is required in respect thereof.
In addition, a Special Quorum Resolution of the relevant Class or each of the relevant Classes
is required in order to sanction any of the Special Quorum Matters.
In furtherance of the above:
Except as otherwise provided for in the Conditions of the Notes and/or the Transaction
Documents (for the avoidance of doubt, including (i) the rights of the Subordinated
Noteholders to cause the Notes to be redeemed pursuant to Condition 7 (Redemption and
Purchase) without the requirement for the consent or approval of any other Class of Notes and
all other rights vested in the Subordinated Noteholders pursuant to the Conditions and/or the
Transaction Documents which are exercisable by the Subordinated Noteholders without the
requirement for the consent or the approval of any other Class of Notes and (ii) Conditions
11(b)(i)(B) (Enforcement) and 11(b)(ii)(B) (Enforcement) where the holders of each Class of
Notes are required to request that the Trustee takes the action referred to therein):
(1)
(2)
an Extraordinary Resolution passed at any meeting of holders of any Class of
Notes shall not be effective for any purpose unless either:
(A)
the Trustee is of the opinion that it would not be materially prejudicial to
the interests of the holders of each of the more senior ranking Class of
Notes (if any) then Outstanding; or
(B)
it is sanctioned by an Extraordinary Resolution of the holders of each
such more senior ranking Class of Notes (if any).
an Extraordinary Resolution passed at any meeting of holders of any Class of
Notes shall be binding on the holders of any more junior ranking Class of Notes
irrespective of the effect upon them, except in the case of an Extraordinary
Resolution to sanction a modification of these Conditions, the Trust Deed or any
other Transaction Document or a waiver or authorisation of any breach or
proposed breach of these Conditions, the Trust Deed or any other Transaction
Document, which will not take effect unless either:
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(3)
(A)
the Trustee is of the opinion that it would not be materially prejudicial to
the interests of the Noteholders of each of the more junior ranking Class
of Notes (if any) then Outstanding; or
(B)
it is sanctioned by an Extraordinary Resolution of the holders of each
such more junior ranking Class of Notes (if any).
a Special Quorum Resolution passed at any meeting of the holders of the
relevant Class of Notes shall be binding on all other Classes of Notes save for
any other Class that is required to pass a Special Quorum Resolution for the
same purpose.
(d)
Written Resolutions: The Trust Deed provides that an Ordinary Resolution in writing signed
by, or on behalf, of the holders of more than 50 per cent., or an Extraordinary Resolution or
Special Quorum Resolution, in writing signed by, or on behalf, of the holders of not less than
66⅔ per cent., in each case, in Principal Amount Outstanding of Notes of a Class then
Outstanding including, in each case, the holders who for the time being are entitled to receive
notice of a meeting, shall for all purposes be as valid and effective as an Ordinary Resolution
or Extraordinary Resolution or Special Quorum Resolution, respectively, passed at a meeting
of Noteholders of that Class duly convened and held. Any resolution in writing may be
contained in one document or in several documents in like form each signed by or on behalf of
one or more of the relevant Noteholders and the date of such resolution in writing shall be the
date on which the latest such document is signed.
(e)
Modification and Waiver: The Trust Deed and the Collateral Management Agreement both
provide that, without the consent of the Noteholders, and without any requirement for the
Trustee to consult the Noteholders concerning such amendments to the extent they fall within
the paragraphs below, the Issuer may amend, modify, supplement and/or waive the relevant
provisions of the Trust Deed and/or the Collateral Management Agreement and/or any other
Transaction Document (subject to the consent of the other parties thereto) (as applicable), for
any of the following purposes:
(i)
to add to the covenants of the Issuer or the Trustee for the benefit of the Noteholders or
to surrender any right or power in the Trust Deed or the Collateral Management
Agreement (as applicable) conferred upon the Issuer;
(ii)
to charge, convey, transfer, assign, mortgage or pledge any property to or with the
Trustee;
(iii)
to correct or amplify the description of any property at any time subject to the security
of the Trust Deed (including the Euroclear Pledge Agreement), or to better assure,
convey and confirm unto the Trustee any property subject or required to be subject to
the security of the Trust Deed (and including, without limitation, any and all actions
necessary or desirable as a result of changes in law or regulations) or subject to the
security of the Trust Deed (including the Euroclear Pledge Agreement) any additional
property;
(iv)
to evidence and provide for the acceptance of appointment under the Trust Deed by a
successor Trustee subject to and in accordance with the terms of the Trust Deed and to
add to or change any of the provisions of the Trust Deed as shall be necessary to
facilitate the administration of the trusts under the Trust Deed by more than one
Trustee, pursuant to the requirements of the relevant provisions of the Trust Deed;
(v)
to make such changes as shall be necessary or advisable in order for the Notes to be (or
to remain) listed on the Irish Stock Exchange or any other exchange;
(vi)
save as contemplated pursuant to Condition 14(f) (Substitution) below, to take any
action advisable to prevent the Issuer from becoming subject to withholding or other
taxes, fees or assessments;
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(vii)
to take any action advisable to prevent the Issuer from being treated as engaged in a
United States trade or business or otherwise be subject to United States federal, state or
local income tax on a net income basis;
(viii) to enter into any additional agreements not expressly prohibited by the Trust Deed or
the Collateral Management Agreement (as applicable);
(ix)
to evidence any waiver by any Rating Agency as to any requirement (or condition in
the Trust Deed or Collateral Management Agreement (as applicable)), of such Rating
Agency, subject to receipt of Rating Agency Confirmation;
(x)
to modify the calculation of any of the Collateral Quality Tests (including amending
the S&P Test Matrices and the Moody's Test Matrices), the Portfolio Profile Tests or
the Coverage Tests subject to receipt of Rating Agency Confirmation;
(xi)
to make any other modification of any of the provisions of the Trust Deed or any other
Transaction Document which, in the opinion of the Trustee, is of a formal, minor or
technical nature or is made to correct a manifest error or cure any ambiguity;
(xii)
to make any other modification (save as otherwise provided in the Trust Deed or any
other Transaction Document), and/or give any waiver or authorisation of any breach or
proposed breach, of any of the provisions of the Trust Deed or any other Transaction
Document which, in the opinion of the Trustee, is not materially prejudicial to the
interests of the Noteholders of any Class;
(xiii) subject to Rating Agency Confirmation, to accommodate, modify or amend existing
and/or Replacement Hedge Agreements; and
(xiv) to modify the restrictions on and procedures for resales and other transfers of Notes to
reflect any changes in applicable law or regulation (or the interpretation thereof) or to
enable the Issuer to rely upon any exemption from registration under the Securities Act
or the Investment Company Act or applicable Dutch or Irish banking or securities laws
or to remove restrictions on resale and transfer to the extent not required thereunder or
to modify the restrictions on the Notes related to ERISA or otherwise to make any such
modifications to the restrictions on and procedures for resales and other transfers of
Notes as shall be necessary or advisable.
Any such modification, authorisation or waiver shall be binding on all Noteholders and shall
be notified to the Rating Agencies and, unless the Trustee otherwise agrees, to the Noteholders
as soon as practicable in accordance with Condition 16 (Notices). The Trustee shall receive at
least 21 calendar days' notice of any modification, waiver or authorisation and may, in
connection with such request, procure such professional assistance, including legal opinions,
from such professional advisors as it may think fit, the cost of which shall be treated as Trustee
Fees and Expenses.
(f)
Substitution: The Trust Deed contains provisions permitting the Trustee to agree, subject to
such amendment of the Trust Deed and, for so long as any of the Notes are listed on the Irish
Stock Exchange, compliance with the rules of the Irish Stock Exchange (including, without
limitation, the provision of notice of such substitution of the Issuer to the Irish Stock Exchange
and the preparation of a supplemental Prospectus in accordance with the rules of the Irish
Stock Exchange), and such other conditions as the Trustee may require, but without the
consent of the Noteholders of any Class, to the substitution of any other company in place of
the Issuer, or of any previous substituted company, as principal debtor under the Trust Deed
and the Notes of each Class, if required pursuant to Condition 9 (Taxation) set forth above. In
the case of such a substitution the Trustee may agree, without the consent of the Noteholders,
but subject to receipt by the Trustee of Rating Agency Confirmation (on the basis of such
information and/or opinions as the Rating Agencies may require), to a change of the law
governing the Notes and/or the Trust Deed, provided that such change would not in the
opinion of the Trustee be materially prejudicial to the interests of the Noteholders of any
Class. Any substitution agreed by the Trustee pursuant to this Condition 14(f) (Substitution)
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shall be binding on the Noteholders, and shall be notified to the Noteholders as soon as
practicable in accordance with Condition 16 (Notices).
The Trustee may, subject to the satisfaction of certain conditions, including receipt by the
Trustee of Rating Agency Confirmation (on the basis of such information and/or opinions as
the Rating Agencies may require), agree to a change in the place of residence of the Issuer for
taxation purposes without the consent of the Noteholders of any Class, provided the Issuer
does all such things as the Trustee may require in order that such change in the place of
residence of the Issuer pursuant to Condition 9 (Taxation) set forth above is fully effective and
complies with such other requirements which are in the interests of the Noteholders as it may
reasonably direct.
The Trustee may, in connection with such request, procure such professional assistance,
including legal opinions, from such professional advisors as it may think fit, the cost of which
shall be treated as Trustee Fees and Expenses.
lf, pursuant to this Condition 14(f) (Substitution), either (i) another company is substituted in
place of the Issuer or any previously substituted company or (ii) the residence of the Issuer is
changed, then references to "Dutch" and "The Netherlands" in Condition 9 (Taxation) shall
also be deemed to include references to the jurisdiction in which the company that is being
substituted for the Issuer (or any previously substituted company) is incorporated, domiciled
or resident for tax purposes and to any jurisdiction to which the residence of the Issuer is
changed.
(g)
Entitlement of the Trustee under Conflicts of Interest: In connection with the exercise of its
trusts, powers, duties and discretions (including but not limited to those referred to in this
Condition), the Trustee shall have regard to the interests of each Class of Noteholders as a
class and shall not have regard to the consequences of such exercise for individual
Noteholders of such Class and the Trustee shall not be entitled to require, nor shall any
Noteholder be entitled to claim, from the Issuer, the Trustee or any other person any
indemnification or payment in respect of any tax consequence of any such exercise upon
individual Noteholders except to the extent already provided for in Condition 9 (Taxation).
Where in the opinion of the Trustee there is a conflict between the interests of different
Classes of Noteholders, the Trustee shall give priority to the interests of the holders of the
Controlling Class, whose interests shall prevail and shall act in accordance with the directions
of such Noteholders. If the holders of the Controlling Class do not have an interest in the
outcome of the conflict, the Trustee shall give priority in the following descending order to the
interests of (i) the Class A Noteholders over the Class B Noteholders, the Class C
Noteholders, the Class D Noteholders, the Class E Noteholders and the Subordinated
Noteholders, (ii) the Class B Noteholders over the Class C Noteholders, the Class D
Noteholders, the Class E Noteholders and the Subordinated Noteholders (iii) the Class C
Noteholders over the Class D Noteholders, the Class E Noteholders and the Subordinated
Noteholders, (iv) the Class D Noteholders over the Class E Noteholders and the Subordinated
Noteholders and (v) the Class E Noteholders over the Subordinated Noteholders. In the event
that the Trustee shall receive conflicting or inconsistent requests from two or more groups of
holders of a Class, each representing less than the majority by principal amount of the relevant
Class, the Trustee shall give priority to the group which holds the greater amount of Notes
Outstanding of such Class. The Trustee shall not be obliged to consider the interests of the
holders of any other Class of Notes.
15.
Indemnification of the Trustee
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from
responsibility in certain circumstances, including provisions relieving it from instituting proceedings to
enforce repayment or to enforce the security constituted by or pursuant to the Trust Deed, unless
indemnified and/or secured to its satisfaction against all liabilities, proceedings, claims and demands to
which it may thereby become liable and all costs, charges and expenses which may be incurred by it in
connection therewith. The Trustee is entitled to enter into business transactions with the Issuer and any
entity related to the Issuer without accounting for any profit. The Trustee is exempted from any liability
in respect of any loss or theft of the Collateral from any obligation to insure, or to monitor the
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provisions of any insurance arrangements in respect of, the Collateral (for the avoidance of doubt, the
Trustee is not under any such obligation under the Trust Deed) and from any claim arising from the fact
that the Collateral is held by the Custodian or is otherwise held in safe custody by a bank or other
custodian. The Trustee shall not be responsible for the performance by the Custodian of any of its
duties under the Agency Agreement or for the performance by the Collateral Manager or the Collateral
Administrator of any of their duties under the Collateral Management Agreement or for the
performance by any other person appointed by the Issuer in relation to the Notes. The Trustee shall not
have any responsibility for the administration, management or operation of the Collateral including the
request by the Collateral Manager to release any of the Collateral from time to time.
16.
Notices
Notices to Noteholders will be valid if posted to the address of such Noteholder appearing in the
Register at the time of publication of such notice by pre-paid, first class mail or such other method as
may be agreed among the Issuer, the Trustee and the Collateral Manager and (for so long as the Notes
are listed on the Irish Stock Exchange and the rules of the Irish Stock Exchange so require) shall be
sent to the Company Announcements Office of the Irish Stock Exchange. Any such notice shall be
deemed to have been given three days (in the case of inland mail) or seven days (in the case of overseas
mail) after the date of despatch thereof to the Noteholders.
17.
Further Issues
In addition to the rights of the Issuer to issue Notes pursuant to Condition 7(j) (Redemption by
Refinancing), the Issuer may from time to time subject to the prior consent of the majority of the
Controlling Class, acting by Ordinary Resolution and to the prior written consent of the Collateral
Manager and receipt of Rating Agency Confirmation, create and issue further securities having the
same terms and conditions as a Class of Notes Outstanding in all respects (or in all respects except for
the first payment of interest thereon) which shall be consolidated and form a single series with the
Outstanding Notes of such Class, and may use the proceeds of sale thereof to purchase additional
Collateral Debt Obligations, provided the following conditions are met:
(a)
the terms of the Notes issued are identical to the terms of previously issued Notes of the Class
of which such Notes are a part (save for the first payment of interest on them);
(b)
none of the ratings of any of the Rated Notes have decreased or been withdrawn since the
Issue Date and the Issuer and the Trustee receive Rating Agency Confirmation in respect of
such additional issuance;
(c)
any such further issue of Notes does not result in a breach by the Issuer of the laws and
regulations (including, without limitation, the banking and securities laws and regulations) of
The Netherlands;
(d)
the Trustee has been fully indemnified and/or secured to its satisfaction against all liabilities,
proceedings, claims and demands to which it may thereby become liable and all costs, charges
and expenses which may be incurred by it in connection with any such further issue; and
(e)
the net proceeds of issue of any such additional Subordinated Notes will be (i) invested in
Subordinated Notes Collateral Debt Obligations or (ii) paid into the Interest Account and used
to make payments on any Payment Date in accordance with the Priorities of Payment or,
pending such investment or payment, deposited in the Subordinated Notes Principal Account
and invested in Eligible Investments.
References in these Conditions to the "Notes" include (unless the context requires otherwise) any other
securities issued pursuant to this Condition and forming a single series with the Notes. Any further
securities forming a single series with Notes constituted by the Trust Deed or any deed supplemental to
it shall, and any other securities may (with the consent of the Trustee), be constituted by a deed
supplemental to the Trust Deed.
18.
Governing Law
(a)
Governing Law: The Trust Deed and each Class of Notes are governed by and shall be
construed in accordance with English law.
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(b)
Jurisdiction: The courts of England are to have jurisdiction to settle any disputes which may
arise out of or in connection with the Notes, and accordingly any legal action or proceedings
arising out of or in connection with the Notes ("Proceedings") may be brought in such courts.
The Issuer has in the Trust Deed irrevocably submitted to the jurisdiction of such courts and
waives any objection to Proceedings in any such courts whether on the ground of venue or on
the ground that the Proceedings have been brought in an inconvenient forum. This submission
is made for the benefit of each of the Noteholders and the Trustee and shall not limit the right
of any of them to take Proceedings in any other court of competent jurisdiction nor shall the
taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any
other jurisdiction (whether concurrently or not).
(c)
Agent for Service of Process: The Issuer appoints ATC Capital Markets (UK) Ltd. as its agent
in England to receive service of process in any Proceedings in England based on any of the
Notes. If for any reason the Issuer does not have such agent in England, it will promptly
appoint a substitute process agent and notify the Trustee and the Noteholders of such
appointment. Nothing herein shall affect the right to service of process in any other manner
permitted by law.
19.
Third Party Rights
No person shall have any rights to enforce any term or condition of the Notes under the Contracts
(Rights of Third Parties) Act 1999 but this does not affect any right or remedy of a third party which
exists or is available apart from under that Act.
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USE OF PROCEEDS
The gross proceeds from the issuance of the Notes (other than the Subordinated Notes) on the Issue
Date (prior to payment of and for provision of future payments of legal fees, other fees and certain
other expenses, including those associated with admission to the Irish Stock Exchange) are expected to
be approximately €310,540,000. Net issuance proceeds (after payment of the Arrangers' fees and
expenses, legal fees, other fees and certain other expenses, including those associated with admission to
the Irish Stock Exchange), will be applied by the Issuer as follows:
(a)
in payment of all amounts due and payable in connection with the repayment of a secured loan
facility provided to the Issuer by Lehman Commercial Paper Inc., UK Branch for the
acquisition of Collateral Debt Obligations prior to the Issue Date as described herein;
(b)
€3,000,000 to the Interest Account;
(c)
€100,000 to the Expense Reserve Account in payment from time to time of certain Issuer
expenses; and
(d)
all remaining proceeds to the Additional Collateral Account for application towards the
purchase of Additional Collateral Debt Obligations during the Investment Period.
The proceeds from the issuance of the Subordinated Notes will be deposited into the Subordinated
Notes Additional Collateral Account.
The Arranger's placement fees and expenses, legal fees, other fees and certain other expenses,
including those associated with admission to the Irish Stock Exchange, will be deducted from the gross
proceeds of the issue of the Notes. See "Subscription" below.
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FORM OF THE NOTES
References below to Notes and to the Regulation S Global Certificates and the Rule 144A Global
Certificates (together, the "Global Certificates" and the Definitive Certificates representing such Notes
are to each respective Class of Notes, except as otherwise indicated. The Notes will be issued pursuant
to the Trust Deed.
1.
Initial Issue of Notes
The Regulation S Notes of each Class (other than the AI Notes) will be represented on issue by a
Regulation S Global Certificate deposited on their issue date with and registered in the name of BT
Globenet Nominees Limited as common depositary for Euroclear and Clearstream, Luxembourg (each,
a "Regulation S Global Certificate"). Beneficial interests in a Regulation S Global Certificate may be
held only through Euroclear or Clearstream, Luxembourg at any time. See "Book-Entry Interests".
Beneficial interests in a Regulation S Global Certificate may not be held by or on behalf of a U.S.
Person (as defined in Regulation S under the Securities Act) at any time. By acquisition of a beneficial
interest in a Regulation S Global Certificate, the purchaser thereof will be deemed to represent, among
other things, that it is not a U.S. Person, and that, if in the future it determines to transfer such
beneficial interest, it will transfer such interest only to a person whom the seller reasonably believes (a)
in the case of a purchaser who takes delivery in the form of an interest in a Regulation S Global
Certificate, to be a non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904
of Regulation S, (b) in the case of a purchaser who takes delivery in the form of an interest in a Rule
144A Global Certificate, to be a U.S. Person that is a QIB/QP who takes delivery in the form of an
interest in a Rule 144A Global Certificate and (c) otherwise in accordance with the Trust Deed and
applicable securities laws. See "Transfer Restrictions".
The Rule 144A Notes of each Class (other than the AI Notes) will be represented by a Rule 144A
Global Certificate deposited on their issue date with Deutsche Bank Trust Company Americas as
custodian (the "DTC Custodian") for and registered in the name of a nominee of DTC (each a "Rule
144A Global Certificate"). A beneficial interest in a Rule 144A Global Certificate may only be held
through DTC at any time. See "Book-Entry Clearance Procedures". By acquisition of a beneficial
interest in a Rule 144A Global Certificate, the purchaser thereof will be deemed to represent, amongst
other things, that it is a QIB and a QP for the purposes of Section 3(c)(7) of the Investment Company
Act) and that, if in the future it determines to transfer such beneficial interest, it will transfer such
interest only to a person whom the seller reasonably believes (a) in the case of a purchaser who takes
delivery in the form of an interest in a Regulation S Global Certificate, to be a non-U.S. Person in an
offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, (b) in the case of a
purchaser who takes delivery in the form of an interest in a Rule 144A Global Certificate, to be a U.S.
Person that is a QIB/QP who takes delivery in the form of an interest in a Rule 144A Global
Certificate, and (c) otherwise in accordance with the Trust Deed and applicable securities laws.
The AI Notes sold to U.S. Persons that are QIBs or institutional "accredited investors" within the
meaning of Rule 5.01(a) 1, 2, 3, 7 or 8 of Regulation D under the Securities Act which are also QP's or
companies owned exclusively by QPs and/or "knowledgeable employees" with respect to the Issuer as
defined in Rule 3c-5 of the Investment Company Act ("Knowledgeable Employees"), purchasing for
its own account or for the account of a QIB or an institutional "accredited investor" which, in either
case, is also a QP or a company owned exclusively by QPs and/or Knowledgeable Employees, in a
transaction exempt from registration under the Securities Act (the "Definitive Certificates") will be
represented on issue by definitive note certificates in fully registered form without interest coupons or
principal receipts, and registered in the name of the owner thereof or its nominee. The AI Notes will be
subject to certain restrictions on transfer as set forth under "Transfer Restrictions".
Interests in Global Certificates and Definitive Certificates related thereto will be subject to certain
restrictions on transfer set forth therein and in the Trust Deed and as set forth in Rule 144A and the
Investment Company Act and the Notes will bear the applicable legends regarding the restrictions set
forth under "Transfer Restrictions". In the case of each Class of Notes, an interest in a Regulation S
Global Certificate may be transferred to a person who takes delivery in the form of an interest in a Rule
144A Global Certificate in denominations greater than or equal to the Authorised Integral
Denominations applicable to interests in such Rule 144A Global Certificate only upon receipt by the
Transfer Agent/Registrar of a written certification (in the form provided in the Trust Deed) to the effect
that the transferor reasonably believes that the transferee is a QIB for the purposes of Rule 144A who is
165
also a QP for purposes of Section 3(c)(7) of the Investment Company Act and that such transaction is
in accordance with any applicable securities laws of any state of the United States or any other
jurisdiction. In the case of each Class of Notes, an interest in the Rule 144A Global Certificates may
be transferred to a person who takes delivery in the form of an interest in a Regulation S Global
Certificate only upon receipt by the Registrar/Transfer Agent of a written certification (in the form
provided in the Trust Deed) from the transferor to the effect that the transfer is being made to a nonU.S. Person and in accordance with Regulation S under the Securities Act.
Any interest in a Regulation S Global Certificate that is transferred to a person who takes delivery in
the form of an interest in a Rule 144A Global Certificate will, upon transfer, cease to be an interest in
such Regulation S Global Certificate and become an interest in the Rule 144A Global Certificate, and,
accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to
beneficial interests in a Rule 144A Global Certificate for as long as it remains such an interest. Any
beneficial interest in a Rule 144A Global Certificate that is transferred to a person who takes delivery
in the form of an interest in a Regulation S Global Certificate will, upon transfer, cease to be an interest
in a Rule 144A Global Certificate and become an interest in the Regulation S Global Certificate and,
accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to
beneficial interests in a Regulation S Global Certificate for so long as it remains such an interest. No
service charge will be made for any registration of transfer or exchange of Notes, but the Transfer
Agent may require payment of a sum sufficient to cover any tax or other governmental charge payable
in connection therewith.
Except in the limited circumstances described below, owners of beneficial interests in Global
Certificates will not be entitled to receive physical delivery of certificated Notes. The Notes are not
issuable in bearer form.
In the case of the AI Notes, any interest in such Notes may only be transferred upon receipt by the
Registrar of a written confirmation (in the form provided in the Trust Deed) to the effect that the
transferor reasonably believes that the transferee is a QIB or an institutional "accredited investor"
within the meaning of Rule 5.01(a) 1, 2, 3, 7 and 8 of Regulation D under the Securities Act, which, in
either case, is also a QP or a company owned exclusively by QPs and/or "knowledgeable employees"
with respect to the Issuer as defined in Rule 3c-5 under the Investment Company Act
("Knowledgeable Employees"), purchasing for its own account or for the account of a QIB or an
institutional "accredited investor" which, in either case, is also a QP or a company owned exclusively
by QPs and/or "Knowledgeable Employees", in a transaction exempt from registration under the
Securities Act. Class AI Notes may not be transferred for an interest in the Subordinated Global
Certificate.
2.
Amendments to Conditions
Each Global Certificate contains provisions that apply to the Notes that they represent, some of which
modify the effect of the Conditions of the Notes in definitive form (see "Conditions of the Notes"). The
following is a summary of those provisions:
·
Payments. Payments of principal and interest in respect of Notes represented by a Global
Certificate will be made against presentation and, if no further payment falls to be made in
respect of the relevant Notes, surrender of such Global Certificate to or to the order of the
Principal Paying Agent or such other Transfer Agent as shall have been notified to the relevant
Noteholders for such purpose. On each occasion on which a payment of interest (unless the
Notes represented thereby do not bear interest) or principal is made in respect of the relevant
Global Certificate, the Registrar shall note the same in the Register and cause the aggregate
principal amount of the Notes represented by a Global Certificate to be decreased accordingly.
·
Notices. So long as any Notes are represented by a Global Certificate and such Global
Certificate is held on behalf of a clearing system, notices to Noteholders may be given by
delivery of the relevant notice to that clearing system for communication by it to entitled
account holders in substitution for delivery thereof as required by the Conditions of such
Notes provided that such notice is also sent to the Company Announcements Office of the
Irish Stock Exchange for so long as the rules of the Irish Stock Exchange require. Any such
notice shall be deemed to be given on the date on which it is given to such clearing system.
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·
Prescription. Claims against the Issuer in respect of principal and interest on the Notes while
the Notes are represented by a Global Certificate will become void unless presented for
payment within a period of ten years (in the case of principal) and five years (in the case of
interest) from the date on which any payment first becomes due.
·
Meetings. The holder of each Global Certificate will be treated as being two persons for the
purposes of any quorum requirements of, or the right to demand a poll at, a meeting of
Noteholders and, at any such meeting, the holder of each Global Certificate will be treated as
having one vote in respect of each €1 of original principal amount of Notes for which the
relevant Global Certificate may be exchanged.
·
Trustee's Powers. In considering the interests of Noteholders while the Global Certificates are
held on behalf of a clearing system, the Trustee may have regard to and shall be entitled (but
not bound) to rely on any information provided to it by such clearing system or its operator as
to the identity (either individually or by category) of its account holders with entitlements to
each Global Certificate and may consider such interests as if such account holders were the
holders of any Global Certificate.
·
Cancellation. Cancellation of any Note required by the Conditions to be cancelled will be
effected by reduction in the principal amount of the Notes on the Register, with a
corresponding notation made on the applicable Global Certificate.
·
Optional Redemption.
The Subordinated Noteholders' options in Condition 7(b)(i)
(Redemption at the Option of the Subordinated Noteholders) may be exercised by the holder
of any Global Certificate representing Subordinated Notes giving notice to the Registrar of the
principal amount of Subordinated Notes in respect of which the option is exercised and
presenting such Global Certificate for endorsement of exercise within the time limit specified
in Condition 7(b)(i) (Redemption at the Option of the Subordinated Noteholders).
3.
Exchange for Definitive Certificates
3.1
Exchange
Each Global Certificate will be exchangeable, free of charge to the holder, on or after its Definitive
Exchange Date (as defined below), in whole but not in part, for certificates in definitive registered form
("Definitive Certificates") if (i) the Common Depositary or the DTC Custodian notifies the Issuer that
it is at any time unwilling or unable to continue as Common Depositary or the DTC Custodian, as the
case may be, and a successor Common Depositary or DTC Custodian, as the case may be, is not
appointed by the Issuer within 90 days, (ii) a the Rule 144A Global Certificate is held (directly or
indirectly) on behalf of DTC, or in the case of the Regulation S Global Certificate, Euroclear,
Clearstream, Luxembourg or an alternative clearing system and any such clearing system is closed for
business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or
announces its intention to permanently cease business or does in fact do so and no alternative
satisfactory to the Trustee is available or (iii) a Global Certificate is held on behalf of DTC and DTC
notifies the Issuer and it is unable to continue as depositary with respect to the relevant Global
Certificates or DTC ceases to be a "Clearing System" registered under the Exchange Act or is at any
time no longer eligible, or is unwilling or unable to continue to act as such, and the Issuer is unable to
locate a qualified successor within 90 days of receiving notice of such ineligibility on the part of DTC.
The Registrar will not register the transfer of, or exchange of interests in, a Global Certificate for
Definitive Certificates for a period of 15 calendar days ending on the date for any payment of principal
or interest in respect of the Notes.
If only one of the Global Certificates (the "Exchanged Global Certificate") becomes exchangeable for
Definitive Certificates in accordance with the above paragraphs, transfers of Notes may not take place
between, on the one hand, persons holding Definitive Certificates issued in exchange for beneficial
interests in the Exchanged Global Certificate and, on the other hand, persons wishing to purchase
beneficial interests in the other Global Certificate.
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"Definitive Exchange Date" means a day falling not less than 30 days after that on which the notice
requiring exchange is given and on which banks are open for business in the city in which the specified
office of the Registrar and any Transfer Agent is located.
3.2
Delivery
In such circumstances, the relevant Global Certificate shall be exchanged in full for Definitive
Certificates and the Issuer will, at the cost of the Issuer (but against such indemnity as the Registrar or
any relevant Transfer Agent may require in respect of any tax or other duty of whatever nature which
may be levied or imposed in connection with such exchange), cause sufficient Definitive Certificates to
be executed and delivered to the Registrar for completion, authentication and dispatch to the relevant
Noteholders. A person having an interest in a Global Certificate must provide the Registrar with (a) a
written order containing instructions and such other information as the Issuer and the Registrar may
require to complete, execute and deliver such Certificates and (b) in the case of a Rule 144A Global
Certificate, a fully completed, signed certification substantially to the effect that the exchanging holder
is not transferring its interest at the time of such exchange or, in the case of simultaneous sale pursuant
to Rule 144A, a certification that the transfer is being made in compliance with the provisions of Rule
144A. Definitive Certificates issued in exchange for a beneficial interest in a Rule 144A Global
Certificate shall bear the legends applicable to transfers pursuant to Rule 144A, as set out under
"Transfer Restrictions".
3.3
Legends
The holder of a Definitive Certificate or a AI Note may transfer the Notes represented thereby in whole
or in part in the applicable Minimum Denomination by surrendering it at the specified office of the
Registrar or any Transfer Agent, together with the completed form of transfer thereon. Upon the
transfer, exchange or replacement of a Definitive Certificate or a AI Note bearing the legend referred to
under "Transfer Restrictions", or upon specific request for removal of the legend on a Definitive
Certificate or a AI Note, as the case may be, the Issuer will deliver only Definitive Certificates that bear
such legend. or will refuse to remove such legend, as the case may be, unless there is delivered to the
Issuer and the Registrar such satisfactory evidence, which may include an opinion of counsel, as may
reasonably be required by the Issuer that neither the legend nor the restrictions on transfer set forth
therein are required to ensure compliance with the provisions of the Securities Act and the Investment
Company Act.
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BOOK-ENTRY CLEARANCE PROCEDURES
The information set out below has been obtained from sources that the Issuer believes to be reliable,
but prospective investors are advised to make their own enquiries as to such procedures. In particular,
such information is subject to any change in or reinterpretation of the rules, regulations and
procedures of DTC, Euroclear or Clearstream, Luxembourg (together, the "Clearing Systems")
currently in effect and investors wishing to use the facilities of any of the Clearing Systems are
therefore advised to confirm the continued applicability of the rules, regulations and procedures of the
relevant Clearing System. The Issuer accepts responsibility solely for the correct reproduction of the
information contained in this Section. None of the Issuer, the Trustee, the Arrangers, the Collateral
Manager or any Agent party to the Agency Agreement (or any Affiliate of any of the above, or any
person by whom any of the above is controlled for the purposes of the Securities Act), will have any
responsibility for the performance by the Clearing Systems or their respective direct or indirect
participants or accountholders of their respective obligations under the rules and procedures
governing their operations or for the sufficiency for any purpose of the arrangements described below.
1.
Euroclear, Clearstream, Luxembourg and DTC
Custodial and depositary links have been established between Euroclear and Clearstream, Luxembourg
and DTC to facilitate the initial issue of the Notes and cross-market transfers of the Notes associated
with secondary market trading. (See "Settlement and Transfer of Notes").
2.
Euroclear and Clearstream Luxembourg
Euroclear and Clearstream, Luxembourg each hold securities for their customers and facilitate the
clearance and settlement of securities transactions through electronic book-entry transfer between their
respective accountholders. Indirect access to Euroclear and Clearstream, Luxembourg is available to
other institutions which clear through or maintain a custodial relationship with an accountholder of
either system. Euroclear and Clearstream, Luxembourg provide various services including safekeeping,
administration, clearance and settlement of internationally-traded securities and securities lending and
borrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securities markets in
several countries through established depositary and custodial relationships. Euroclear and Clearstream,
Luxembourg have established an electronic bridge between their two systems across which their
respective customers may settle trades with each other. Their customers are world-wide financial
institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing
corporations. Investors may hold their interests in such Global Certificates directly through Euroclear
or Clearstream, Luxembourg if they are accountholders ("Direct Participants") or indirectly
("Indirect Participants" and together with Direct Participants, "Participants") through organisations
which are accountholders therein.
3.
DTC
DTC has advised the Issuer as follows: DTC is a limited purpose trust company organised under the
laws of the State of New York, a "banking organisation" under the laws of the State of New York, a
member of the U.S. Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between Participants through electronic
computerised book-entry changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organisations. Indirect access to DTC is available to
others, such as banks, securities brokers, dealers and trust companies, that clear through or maintain a
custodial relationship with a DTC direct participant, either directly or indirectly.
Investors may hold their interests in a Rule 144A Global Certificate directly through DTC if they are
participants ("Direct Participants") in the DTC system, or indirectly through organisations which are
Direct Participants in such system ("Indirect Participants" and together with Direct Participants,
"Participants").
DTC has advised the Issuer that it will take any action permitted to be taken by a holder of Notes
(including, without limitation, the presentation of Global Certificates for exchange as described under
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"Form of the Notes - Exchange for Definitive Certificates" above) only at the direction of one or more
Direct Participants and only in respect of such portion of the aggregate principal amount of the relevant
Rule 144A Global Certificates, as applicable as to which such participant or participants has or have
given such direction. However, in the circumstances described under "Form of the Notes – Exchange
for Definitive Certificates" above, DTC will surrender the relevant Rule 144A Global Certificates in
exchange for individual Definitive Certificates (which will bear the legend applicable to transfers
pursuant to Rule 144A).
4.
Book-Entry Ownership
Each Regulation S Global Certificate will have an ISIN and a Common Code and will be registered in
the name of BT Globenet Nominees Limited as nominee for Deutsche Bank AG, London Branch, as
common depositary on behalf of, Euroclear and Clearstream, Luxembourg.
Each Rule 144A Global Certificate will have a CUSIP number and will be deposited with Deutsche
Bank Trust Company Americas as custodian (the "DTC Custodian") for and registered in the name of
a nominee of DTC. The DTC Custodian and DTC will electronically record the principal amount of the
Notes held within the DTC System.
5.
Payments on Global Certificates
Payments of any amounts owing in respect of the Global Certificates will be made by the Issuer in
Euro, to the Registrar. The Registrar will, in turn, make such payments to the common depositary for
Euroclear or Clearstream, Luxembourg (or its nominee) or DTC (or its nominee), as the case may be,
which will distribute such payments to Participants in accordance with their procedures.
Under the terms of the Trust Deed, the Issuer and the Trustee will treat the registered holder of the
Global Certificates (e.g. the common depositary for Euroclear or Clearstream, Luxembourg (or its
nominee) or DTC (or its nominee)) as the owner thereof for the purposes of receiving payments and for
all other purposes. Consequently, none of the Issuer, the Trustee or any agent of the Issuer or the
Trustee has or will have any responsibility or liability for:
(a)
any aspect of the records of Euroclear or Clearstream, Luxembourg, DTC or any Direct
Participant or Indirect Participant relating to or payments made on account of an ownership
interest in a Global Certificate (a "Book-Entry Interest") or for maintaining, supervising or
reviewing any of the records of Euroclear or Clearstream, Luxembourg, DTC or any Direct
Participant or Indirect Participant relating to or payments made on account of a Book-Entry
Interest; or
(b)
Euroclear or Clearstream, Luxembourg, DTC or any Direct Participant or Indirect Participant.
Payments by Participants to owners of Book-Entry Interests in the Global Certificates held through
these Participants are the responsibility of such Participants, as is now the case with securities held for
the accounts of customers registered in "street name".
Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or DTC as the holder
of a Note represented by a Global Certificate must look solely to Euroclear, Clearstream, Luxembourg
or DTC (as the case may be) for his share of each payment made by the Issuer to the holder of such
Global Certificate (save in the case of payments other than in U.S. Dollars outside DTC, as referred to
below) and in relation to all other rights arising under the Global Certificate, subject to and in
accordance with the respective rules and procedures of Euroclear, Clearstream, Luxembourg or DTC
(as the case may be). The Issuer expects that, upon receipt of any payment in respect of Notes
represented by a Global Certificate, the common depositary by whom such Note is held, or nominee in
whose name it is registered, will (save as provided below in respect of the Rule 144A Global
Certificates) immediately credit the relevant Participants' or accountholders' accounts in the relevant
Clearing System with payments in amounts proportionate to their respective beneficial interests in the
principal amount of the relevant Global Certificate as shown on the records of the relevant Clearing
System or its nominee. The Issuer also expects that payments by Direct Participants in any Clearing
System to owners of beneficial interests in any Global Certificate held through such Direct Participants
in any Clearing System will be governed by standing instructions and customary practices. Save as
aforesaid, such persons shall have no claim directly against the Issuer in respect of payments due on the
Notes for so long as the Notes are represented by such Global Certificate and the obligations of the
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Issuer will be discharged by payment to the registered holder, as the case may be, of such Global
Certificate in respect of each amount so paid. None of the Issuer, the Trustee or any Agent will have
any responsibility or liability for any aspect of the records relating to or payments made on account of
ownership interests in any Global Certificate or for maintaining,. supervising or reviewing any records
relating to such ownership interests.
6.
Settlement and Transfer of Notes
Subject to the rules and procedures of each applicable Clearing System, purchases of Notes held within
a Clearing System must be made by or through Direct Participants, which will receive a credit for such
Notes on the Clearing System's records. The ownership interest of each actual purchaser of each such
Note (the "Beneficial Owner") will in turn be recorded on the Direct and Indirect Participant's records.
Beneficial Owners will not receive written confirmation from any Clearing System of their purchase,
but Beneficial Owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant
through which such Beneficial Owner entered into the transaction. Transfers of ownership interests in
Notes held within the Clearing System will be effected by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in such Notes, unless, and, until interests in any Global Certificate held within
a Clearing System are exchanged for Definitive Certificates.
No Clearing System has knowledge of the actual Beneficial Owners of the Notes held within such
Clearing Systems and their records will reflect only the identity of the Direct Participants to whose
accounts such Notes are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance
of notices and other communications by the Clearing Systems to Direct Participants, by Direct
Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial
Owners will be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Book-Entry Interests owned through Euroclear and Clearstream, Luxembourg accounts will follow the
settlement procedures applicable to conventional Eurobonds in registered form. Book-Entry Interests
will be credited to the securities custody accounts of Euroclear and Clearstream, Luxembourg holders
on the business day following the settlement date against payment for value on the settlement date.
The laws of some states in the United States require that certain persons take physical delivery in
definitive form of securities. Consequently, the ability to transfer interests in a Global Certificate to
such persons may be limited. Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, the ability of a person having an interest in a Rule 144A Global
Certificate to pledge such interest to persons or entities that do not participate in DTC, or otherwise
take actions in respect of such interest, may be affected by a lack of a physical certificate in respect of
such interest.
7.
Secondary Market Trading
The Book-Entry Interests will trade through Participants of Euroclear and Clearstream, Luxembourg
and will settle in same-day funds.
Since the purchase determines the place of delivery, it is important to establish at the time of trading of
any Book-Entry Interests where both the purchaser's and seller's accounts are located to ensure that
settlement can be made on the desired value date.
Trading between Euroclear and/or Clearstream, Luxembourg Participants
Secondary market sales of book-entry interests in the Notes held through Euroclear or Clearstream,
Luxembourg to purchasers of book-entry interests in the Notes held through Euroclear or Clearstream,
Luxembourg will be conducted in accordance with the normal rules and operating procedures of
Euroclear and Clearstream, Luxembourg and will be settled using the procedures applicable to
conventional eurobonds.
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Trading between DTC Participants
Secondary market sales of book-entry interests in the Notes between DTC participants will occur in the
ordinary way in accordance with DTC rules and will be settled using the procedures applicable to
United States corporate debt obligations in DTC's Same-Day Funds Settlement ("SDFS") system in
same-day funds, if payment is effected in U.S. Dollars, or free of payment, if payment is not effected in
U.S. Dollars. Where payment is not effected in U.S. Dollars, separate payment arrangements outside
DTC are required to be made between the DTC participants.
Trading between DTC seller and Euroclear/Clearstream, Luxembourg purchaser
When book-entry interests in Notes are to be transferred from the account of a DTC participant holding
a beneficial interest in a Rule 144A Global Certificate to the account of a Euroclear or Clearstream,
Luxembourg accountholder wishing to purchase a beneficial interest in a Regulation S Global
Certificate (subject to the certification procedures provided in the Agency Agreement), the DTC
participant will deliver instructions for delivery to the relevant Euroclear or Clearstream, Luxembourg
accountholder to DTC by 12 noon, New York time, on the settlement date. Separate payment
arrangements are required to be made between the DTC participant and the relevant Euroclear or
Clearstream, Luxembourg participant. On the settlement date, the custodian of the Rule 144A Global
Certificate will instruct the Registrar to (i) decrease the amount of Notes registered in the name of the
nominee of DTC and evidenced by the Rule 144A Global Certificate of the relevant Class and (ii)
increase the amount of Notes registered in the name of the nominee of the common depositary for
Euroclear and Clearstream, Luxembourg and evidenced by the Regulation S Global Certificate. Bookentry interests will be delivered free of payment to Euroclear or Clearstream, Luxembourg, as the case
may be, for credit to the relevant accountholder on the first business day following the settlement date.
Trading between Euroclear/Clearstream, Luxembourg, seller and DTC purchaser
When book-entry interests in the Notes are to be transferred from the account of a Euroclear or
Clearstream, Luxembourg accountholder to the account of a DTC participant wishing to purchase a
beneficial interest in the Rule 144A Global Certificate (subject to the certification procedures provided
in the Agency Agreement), the Euroclear or Clearstream, Luxembourg participant must send to
Euroclear or Clearstream, Luxembourg delivery free of payment instructions by 7.45 p.m., Brussels or
Luxembourg time, one Business Day prior to the settlement date. Euroclear or Clearstream,
Luxembourg, as the case may be, will in turn transmit appropriate instructions to the common
depositary for Euroclear and Clearstream, Luxembourg and the Registrar to arrange delivery to the
DTC participant on the settlement date. Separate payment arrangements are required to be made
between the DTC participant and the relevant Euroclear or Clearstream, Luxembourg accountholder, as
the case may be. On the settlement date, the common depositary for Euroclear and Clearstream,
Luxembourg will (a) transmit appropriate instructions to the custodian of the Rule 144A Global
Certificate who will in turn deliver such book-entry interests in the Notes free of payment to the
relevant account of the DTC participant and (b) instruct the Registrar to (i) decrease the amount of
Notes registered in the name of the nominee of the common depositary for Euroclear and Clearstream,
Luxembourg and evidenced by the Regulation S Global Certificate and (ii) increase the amount of
Notes registered in the name of the nominee of DTC and evidenced by the Rule 144A Global
Certificate.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of beneficial interests in Global Certificates among participants and
accountholders of DTC, Clearstream, Luxembourg and Euroclear, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be discontinued at any
time. None of the Issuer, the Trustee or any Agent will have any responsibility for the performance by
DTC, Clearstream, Luxembourg or Euroclear or their respective Direct or Indirect Participants of their
respective obligations under the rules and procedures governing their operations.
Pre-issue Trades Settlement
It is expected that delivery of Notes will be made against payment therefor on the Issue Date thereof,
which could be more than three Business Days following the date of pricing. Under Rule 15c6-1 of the
U.S. Securities and Exchange Commission under the Exchange Act, trades in the United States
secondary market generally are required to settle within three Business Days ("T+3"), unless the parties
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to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Notes in the
United States on the date of pricing or the next succeeding Business Days until three days prior to the
relevant Issue Date will be required, by virtue of the fact the Notes initially will settle beyond T+3, to
specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement.
Settlement procedures in other countries will vary. Purchasers of Notes may be affected by such local
settlement practices and purchasers of Notes who wish to trade Notes between the date of pricing and
the relevant Issue Date should consult their own adviser.
Currency of Payments in respect of the Rule 144A Notes
Subject to the following paragraph, while interests in the Rule 144A Notes are held by a nominee for
DTC, all payments in respect of such Rule 144A Notes will be made in U.S. Dollars. As determined by
the Exchange Agent under the terms of the Agency Agreement, the amount of U.S. Dollars payable in
respect of any particular payment under the Rule 144A Notes will be equal to the amount of Euros
otherwise payable exchanged into U.S. Dollars at the Euro/U.S. Dollar rate of exchange determined by
the Exchange Agent on the day which is one Business Day prior to the relevant payment date, less any
costs incurred by the Exchange Agent for such conversion (to be shared pro rata among the holders of
the Rule 144A Notes accepting U.S. Dollar payments in proportion to their respective holdings), all as
set out in more detail in the Agency Agreement.
Notwithstanding the above, the holder of an interest through DTC in a Rule 144A Note may make
application to DTC to have a payment or payments under such Rule 144A Notes made in Euros by
notifying the DTC participant through which its book-entry interest in the Rule 144A Global Certificate
is held on or prior to the record date of (a) such investor's election to receive payment in Euros, and (b)
wire transfer instructions to an account entitled to receive the relevant payment. Such DTC participant
must notify DTC of such election and wire transfer instructions on or prior to the third New York
Business Day after the record date for any payment of interest and on or prior to the twelfth New York
Business Day prior to the payment of principal. DTC will notify the Registrar of such election and wire
transfer instructions on or prior to the fifth New York Business Day after the record date for any
payment of interest and on or prior to the tenth New York Business Day prior to the payment of
principal. If complete instructions are received by the DTC participant and forwarded by the DTC
participant to DTC and by DTC to the Registrar on or prior to such date, such investor will receive
payments in Euros, otherwise only U.S. Dollar payments will be made by the Principal Paying Agent.
All costs of such payment by wire transfer will be borne by holders of book-entry interests receiving
such payments by deduction from such payments.
In this paragraph "New York Business Day" means any day on which commercial banks and foreign
exchange markets settle payments in New York City.
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RATINGS OF THE SENIOR NOTES AND THE MEZZANINE NOTES
It is a condition of the issuance and offering that the Notes (except for the Subordinated Notes) be
issued with at least the following ratings assigned by Moody's and S&P: Class A Notes: "Aaa" from
Moody's and "AAA" from S&P; Class B Notes: "Aa2" from Moody's and "AA" from S&P; Class C
Notes: "A2" from Moody's and "A" from S&P; Class D Notes: "Baa3" from Moody's and "BBB-" from
S&P and Class E Notes: "Ba3" from Moody's and "BB-" from S&P.
Moody's
The ratings assigned to the Rated Notes by Moody's are based upon its assessment of the probability
and extent to which the Collateral Debt Obligations will provide sufficient funds to pay each such Class
of Rated Notes, based largely upon Moody's statistical analysis of historical default and recovery rates
on debt obligations with various ratings, the asset and interest coverage required for the relevant Class
of Notes and the eligibility criteria that the Collateral Debt Obligations are required to satisfy
individually and as a whole.
Moody's ratings address expected loss of the Rated Notes. Moody's analyses the likelihood that each
Collateral Debt Obligation will default, based on historical default rates for similar debt obligations, the
historical volatility of such default rates and an additional default assumption to account for future
fluctuations in default as well as historically observed recovery rates. Moody's then calculates the
expected loss of the Rated Notes, taking into account the Priorities of Payment (including the
satisfaction of the Coverage Tests) and the credit quality of the Portfolio (as determined through the
Collateral Quality Tests and Portfolio Profile Tests).
In addition, Moody's ratings take into account qualitative features of a transaction, including the
experience of the Collateral Manager, the legal structure and the risks associated with such structure
and other factors that they deem relevant.
In addition, a portion of the Collateral Debt Obligations will not be rated by Moody's but will be
assigned a rating pursuant to the methodology described herein. See "Description of the Collateral
Quality Tests - Moody's Maximum Weighted Average Rating Factor Test".
The Issuer will request Moody's confirmation, within 30 days after the Effective Date, that the ratings
assigned by Moody's on the Issue Date to each of the Rated Notes, have not been reduced or
withdrawn. See "Risk Factors - Relating to the Notes - Future Ratings of the Notes Not Assured and
Limited in Scope".
S&P
S&P's credit rating analysis includes the application of its dynamic, analytical computer model, as it
may be modified by S&P from time to time (the "S&P CDO Monitor"), which is used to estimate the
default rate the portfolio is likely to experience. The S&P CDO Monitor will be provided by S&P to
the Collateral Manager on the Effective Date. The S&P CDO Monitor calculates the cumulative
default rate of a pool of Collateral Debt Obligations and Eligible Investments consistent with a
specified benchmark rating level based upon S&P's proprietary corporate debt default studies.
The S&P CDO Monitor recognises and analyses the effects of substituting Collateral Debt Obligations,
investments of Principal Proceeds in Eligible Investments, rating changes on Collateral Debt
Obligations and amortisation and payment of Collateral Debt Obligations. In addition to the other
constraints set out herein, any purchase or sale of a Collateral Debt Obligation must satisfy or not
worsen the S&P CDO Monitor Test, except that Credit Risk Obligations and Defaulted Obligations
may also be sold regardless whether such sale satisfies or improves the S&P CDO Monitor Test.
In addition to its quantitative tests, S&P's ratings take into account qualitative features of a transaction,
including the legal structure and the risks associated with such structure, such rating agency's view as
to the quality of the participants in the transaction and other factors that it deems relevant.
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DESCRIPTION OF THE ISSUER
1.
General
The Issuer was incorporated as a private company with limited liability (besloten vennootschap met
beperkte aansprakelijkheid) under the laws of The Netherlands on 26 February 2007 for an unlimited
duration. The authorised share capital of the Issuer is €18,000 divided into 18 shares with a nominal
value of €1,000 each ("Issuer Shares").
The entire issued share capital is owned by Stichting Morgan Stanley Investment Management
Mezzano, a foundation (stichting) established under the laws of The Netherlands. Stichting Morgan
Stanley Investment Management Mezzano was incorporated by ATC Management B.V., which is also
the sole director of Stichting Morgan Stanley Investment Management Mezzano.
The Issuer's registered office is situated at Frederik Roeskestraat 123 1HG, 1076 EE Amsterdam, The
Netherlands. Its corporate seat is in Amsterdam and its correspondence address is at its registered
office. The Issuer is registered with the Trade Register of the Chamber of Commerce and Industry in
Amsterdam under number 34267956. The Issuer's telephone number is +31 (0)20 577 1177. The Issuer
has been established as a special purpose vehicle.
2.
Capitalisation and Indebtedness
The following table sets forth the capitalisation and indebtedness of the Issuer as at the date of this
Prospectus adjusted for the issue of the Notes on the Issue Date:
Share Capital
Issued Shares (18 Ordinary Shares of €1,000 each) ……………………………...
Indebtedness
Class A Notes ………………………………………………………………….....
Class B Notes ……………………………………………………………………..
Class C Notes ……………………………………………………………………..
Class D Notes……………………………………………………………………..
Class E Notes ……………………………………………………………………..
Subordinated Notes .………………………………………………………………
Total Capitalisation ……………………………………………………………..
€18,000
€254,500,000
€10,500,000
€19,250,000
€10,000,000
€16,750,000
€39,450,000
€350,450,000
€350,468,000
Save as disclosed herein, the Issuer has no loan capital outstanding, has not created shares which have
not been allotted and has no term loans and no other borrowings or indebtedness in the nature of
borrowings nor any contingent liabilities or guarantees.
3.
Business
The Issuer has entered into a management agreement dated on or about the Issue Date pursuant to
which the Managing Directors of the Issuer specified below will provide management and certain
administrative services to the Issuer.
The objects of the Issuer, as stated in Article 2 of its Articles of Association, are as follows:
(a)
to raise funds through, inter alia, borrowing under loan agreements, the issuance of bonds,
notes and other debt instruments, the use of financial derivatives or otherwise and to invest
and apply funds obtained by the Issuer in, inter alia, (interests in) loans, bonds, debt
instruments, shares, warrants and other similar securities and also financial derivatives;
(b)
to grant security for the Issuer's obligations and debts;
(c)
to enter into agreements, including, but not limited to, financial derivatives (such as interest
and/or currency exchange agreements) in connection with the objects mentioned under (a) and
(b); and
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(d)
to enter into agreements, including, but not limited to, bank securities and cash administration
agreements, asset management agreements and agreements creating security in connection
with the objects mentioned under (a), (b) and (c) above.
Pursuant to the Conditions of the Notes, the business of the Issuer is restricted to issuing the Notes and
acquiring, holding and disposing of the Portfolio in accordance with the Conditions of the Notes and
the Collateral Management Agreement, entering into the Trust Deed, the Agency Agreement, the
Collateral Management Agreement, the Management Agreement, the Collateral Acquisition
Agreements and any Asset Swap Agreements and Interest Rate Hedge Agreements and exercising the
rights and performing the obligations under each such agreement and all other transactions incidental
thereto. The Issuer may declare dividends in so far as its net assets are greater than its share capital
together with its statutory reserves. The Issuer will not have any subsidiaries and, save in respect of the
fees and expenses generated in connection with the issue of the Notes (referred to below), the Issuer
will not accumulate any surpluses.
The assets of the Issuer will consist of the Portfolio held from time to time, the Balances standing to the
credit of the Accounts (other than any Counterparty Downgrade Collateral Accounts) and the benefit of
the Agency Agreement, the Collateral Management Agreement, the Collateral Acquisition Agreements,
the Interest Rate Hedge Agreement and any Asset Swap Agreements entered into by or on behalf of the
Issuer from time to time, the sum of €18,000 representing its issued and paid-up capital and the
remainder of the amounts standing to the credit of the Issuer Dutch Account. The only assets of the
Issuer available to meet claims of the holders of the Notes and the other Secured Parties are the assets
comprised in the Collateral.
The Notes are obligations of the Issuer alone and not of the Managing Directors, the Trustee, the
Custodian, the Collateral Manager or any obligor under any part of the Portfolio. Furthermore, they are
not obligations of, or guaranteed in any way by, the Arrangers.
The Issuer was incorporated with a view to being a special purpose vehicle for the purpose of issuing
asset backed securities.
4.
Managing Directors
The Managing Directors of the Issuer as at the date of this Prospectus are D. P. Stolp, J. H. Scholts and
A. G. M. Nagelmaker.
Each of the directors' business address is at Frederik Roeskestraat 123, 1076 EE Amsterdam, The
Netherlands.
5.
Financial Statements
The auditors of the Issuer are PriceWaterhouseCoopers Accountants N.V. of Thomas R. Malthusstraat
5, 1066 JR Amsterdam, The Netherlands, who are chartered accountants and are members of the
Koninklijk Nederlands Instituut van Registeraccountants and registered auditors qualified in practise in
The Netherlands.
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DESCRIPTION OF THE COLLATERAL MANAGER
The information appearing in this section has been prepared by Morgan Stanley Investment
Management Limited. a private company with limited liability incorporated under the laws of England
and Wales ("MSIM") and has not been independently verified by the Arrangers. Accordingly,
notwithstanding anything to the contrary herein, none of the Arrangers or any of their respective
affiliates assumes any responsibility for the accuracy, completeness or applicability of such
information.
General
Pursuant to a collateral management agreement to be entered into between the Issuer and MSIM (as
amended from time to time, the "Collateral Management Agreement"), the Issuer has appointed
MSIM as the collateral manager (the "Collateral Manager") with respect to the Collateral. Pursuant to
the Collateral Management Agreement, the Collateral Manager has full discretionary authority with
respect to the Collateral and, in particular, is solely responsible for making specific decisions to
purchase or sell Collateral Debt Obligations, in each case subject to, and as permitted by, the Collateral
Management Agreement. In addition, the Collateral Manager may employ Affiliates and third parties to
render advice (including investment advice), to provide services, to arrange for trade execution and
other assistance to the Issuer and to perform any of its duties under the Collateral Management
Agreement; provided, however, that the Collateral Manager will not be relieved of any of its duties
under the Collateral Management Agreement regardless of the performance of any services by
Affiliates or third parties.
MSIM is authorised by the Financial Services Authority under the Financial Services and Markets Act
2000 (reference no. 121920) to conduct its regulated activities in the United Kingdom. MSIM offers
investment management services to a client base that includes governments, institutions, corporations
and other entities and individuals. MSIM employs approximately 337 personnel in the United
Kingdom and, as of 30 June 2007, MSIM, together with its affiliated asset management companies, had
approximately $549.2 billion in assets under management, with approximately $360.9 billion in assets
under management for institutional accounts. MSIM is an investment advisor or sub-advisor for clients
who have, or may in the future have, investment strategies similar to that of the Issuer. Morgan Stanley
is the direct parent of MSIM. See "Risk Factors - Certain Conflicts of Interest".
Personnel
The names of the principal personnel of MSIM who are expected to be involved in the selection of the
Collateral Debt Obligations and the names of the principal personnel of MSIM and its Affiliates who
are expected to be involved in the provision of ancillary and support services to MSIM in respect of the
Collateral Debt Obligations and, in each case, their principal occupations in recent years are listed
below. These individuals are expected to work together with, and rely on, the recommendations and
analysis of other members of the Senior Loan Group (as defined below).
Morgan Stanley Investment Management Inc., a Delaware corporation ("MSIMI"), is an Affiliate of
MSIM and is an investment adviser registered with the SEC under the Investment Advisers Act.
MSIMI offers investment management services to a client base that includes governments, institutions,
corporations and other entities and individuals. MSIMI employs approximately 2687 personnel in the
United States and, as of 30 June 2007, MSIMI, together with its affiliated asset management
companies, had approximately $549.2 billion in assets under management, with approximately $360.9
billion in assets under management for institutional accounts. MSIMI is an investment advisor or subadvisor for clients who have, or may in the future have, investment strategies similar to that of the
Issuer. Morgan Stanley is the direct parent of MSIMI and is a Delaware corporation.
The senior loan group of MSIMI (the "Senior Loan Group"), currently consists of 32 investment
professionals including six portfolio managers, 21 analysts, three traders, three investment relations
professionals and is augmented by an additional team of ten operations personnel. The Senior Loan
Group currently manages approximately $11.100 billion of loan assets as of 31 August 2007 across
four retail loan funds (Morgan Stanley Prime Income Trust, Van Kampen Dynamic Credit
Opportunities Fund, Van Kampen Senior Income Trust and Van Kampen Senior Income Fund), third
party separate accounts, four active CLOs (Morgan Stanley Investment Management Coniston BV,
Morgan Stanley Investment Management Croton, Ltd, Morgan Stanley Investment Management Garda
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BV, and MSIM Peconic Bay, Ltd and the remaining assets in Van Kampen CLO II (in some instances
through its Affiliate, Van Kampen Asset Management).
Although the individuals listed below, which include certain members of the Senior Loan Group,
expect to devote as much of their time to the Collateral Manager in connection with the provision of
services to the Issuer as in their judgment is reasonably required, they will also be providing services to
others and will be engaged in other business in which the Issuer has no interest. There can be no
assurance that the individuals listed below will continue to be employed by MSIM, MSIMI or Morgan
Stanley or will continue to provide services to MSIM or be involved in the management of the
Collateral Debt Obligations and in carrying out the other obligations of MSIM under the Collateral
Management Agreement during the entire term thereof.
Howard Tiffen
Mr. Tiffen is a Managing Director of Morgan Stanley and heads the Senior Loan Group. He joined
Morgan Stanley in 1999 and has over 35 years of investment experience. Prior to joining the firm, he
served as Senior Portfolio Manager for Senior Loans at Pilgrim Investments from 1995 to 1999. He
has also held various positions with Bank of America (1982-1995) in its lending and capital markets
divisions, Wells Fargo Bank (1980-1982), Wardley Limited (1974-1980) and Barclays Bank (19661974). Howard obtained a B.S. in history from Northwestern University. He is an Associate of the
Chartered Institute of Bankers. Mr Tiffen has announced that he may retire during the course of next
year.
Kevin Egan, CPA
Mr. Egan is an Executive Director of Morgan Stanley and manages structured products in the Senior
Loan Group. He joined the firm in 1998 and has 21 years of financial industry experience. Prior to
joining MSIM in 1998, Mr. Egan was a Vice President in The Industrial Bank of Japan, Ltd's Media
and Communications Finance Group from 1996 to 1998. Prior to that, he served in IBJ's Corporate
Credit Group (1991-1996), most recently as Vice President and Senior Credit Officer. From 1986 to
1989, Mr. Egan was a Senior Auditor with the accounting firm of KPMG. Mr. Egan graduated from
Georgetown University in 1986 with a BSBA in Accounting and received an MBA in Finance from the
Wharton School of the University of Pennsylvania in 1991.
Elizabeth Bodisch
Ms. Bodisch is a Vice President of Morgan Stanley and a trader for the Senior Loan Group. She joined
the firm in 1999 and has 11 years of investment industry experience. Prior to joining the firm, Ms.
Bodisch held positions including operations manager at Sterling Asset Management, and section head
in fund accounting for Dean Witter InterCapital. Ms Bodisch holds a B.S. in accounting from the
University of Scranton. She is a member of the Loan Sales and Trading Association.
John Hayes
Mr. Hayes is an Executive Director of Morgan Stanley and a portfolio manager for institutional
accounts in the Senior Loans group. He joined the firm in 2000 and has over 21 years of investment
industry experience. Prior to his current role, Mr. Hayes was an analyst in Senior Loans. Prior to
joining the firm, Mr. Hayes was a credit specialist at Bank of America. Previously, he worked for the
National Association of Securities Dealers as a securities examiner. Mr. Hayes received a B.S. in
finance from the University of Illinois and an M.B.A. in finance from DePaul University.
Alberto Avanzo
Mr. Avanzo is an Executive Director of Morgan Stanley and head of the European Senior Loans group.
Mr. Avanzo joined Morgan Stanley in 2006 and has 25 years of industry related experience. Prior to
joining the firm, he was an executive director in the global specialised finance division of WestLB AG
in London (2005-2006). Prior to this, he worked at SanPaolo IMI S.p.A. (1997-2005) as head of
Leveraged Finance, and before that as co-head of the Capital Markets and Debt Finance Division at
SanPaolo Finance S.p.A. (1988-1997). Mr. Avanzo received a law degree from Trieste University,
Italy in 1979 and an M.B.A from Bocconi University, Milan in 1982.
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Michael Craig CFA
Mr. Craig is a Vice President of Morgan Stanley and an analyst for European Senior Loans. Mr. Craig
joined Morgan Stanley in 2006 and has six years of investment experience. Prior to joining the firm,
Mr. Craig worked at Citigroup (2000-2006) for their European leveraged finance global portfolio
management group. Previously, he worked for Ernst & Young (1998-2000) as a tax consultant.
Mr. Craig received a Bachelor of Management Studies and a Bachelor of Laws from University of
Waikato in 1997. He holds the Chartered Financial Analyst designation and is a member of the CFA
Institute since 2004.
Greig Morrish
Mr. Morrish is a Vice President of Morgan Stanley, a member of European Senior Loans and an
assistant portfolio manager. He joined Morgan Stanley in 2006 and has six years of investment
experience. Prior to joining the firm, Mr. Morrish worked at MetLife Investments Ltd (2003-2006),
where he was responsible for a portfolio of debt instruments including senior loans, second lien loans,
mezzanine loans, high yield and investment grade bonds, private placements, CDS and structured credit
products. Mr. Morrish has also worked for Citigroup Global Corporate Investment Bank (2001-2003)
as part of the Consumer and Healthcare coverage team. He holds an MA in Natural Sciences from St.
Catharine's College of Cambridge University (2001).
William Housey, CFA
Mr. Housey is a Vice President of Morgan Stanley and an analyst in the Senior Loan Group's structured
products management team. He joined the firm in 1999 and has ten years of investment experience.
Mr. Housey has been with the Senior Loan Group since 2000. Before joining Morgan Stanley,
Mr. Housey worked at H&R Black Financial Advisors. He received a B.S. in finance from Eastern
Illinois University and an M.B.A. in Finance, and Management, and Strategy from the Kellogg School
of Business. Mr. Housey holds the Chartered Financial Analyst designation. Mr. Housey is a member
of the CFA Institute and the CFA Society of Chicago.
Ryan Kommers
Mr. Kommers is Assistant Manager of Structured Products in the Senior Loan Group. He joined the
firm in 1998 and has ten years of experience in the financial industry. Prior to his current role,
Mr. Kommers was an operations specialist for the Senior Loan Group. He holds a B.A. in history from
University of Illinois.
Nuno Caetano, CFA
Mr. Caetano is a Vice-President of Morgan Stanley and an analyst for European Senior Loans. He
joined Morgan Stanley in 2006 and has six years' investment experience. Prior to joining the firm,
Mr. Caetano worked at Citigroup Global Markets Limited for their European leveraged finance global
portfolio management group (2005-2006). While at Citigroup, Mr. Caetano also worked as an associate
in the European Deal Structuring and Origination team at Citigroup (2003-2004), as an associate
banker in Citigroup's Global Relationship Bank (2002) and a warrants analyst (2001). He received a
B.Sc. in Business Administration and an M.Sc. in Corporate Finance from Universidade Catolica
Portuguesa. Mr. Caetano also holds the Chartered Financial Analyst designation and is a member of
the CFA Institute.
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DESCRIPTION OF THE PORTFOLIO
Capitalised terms which are used in this section and not defined in this section shall have the meanings
given to them in Condition 1 (Definitions and Interpretation) under "Conditions of the Notes".
1.
Introduction
Pursuant to the Collateral Management Agreement, the Collateral Manager is required to act as the
Issuer's Collateral Manager in respect of the Portfolio, to act in specific circumstances in relation to the
Portfolio on behalf of the Issuer and to carry out the duties and functions described below. Pursuant to
the Collateral Management Agreement, the Collateral Administrator is required to perform certain
calculations in relation to the Portfolio on behalf of the Issuer.
A portfolio selected by the Collateral Manager, on behalf of the Issuer, which may consist of Senior
Secured Loans, Mezzanine Obligations, Second Lien Loans, High Yield Bonds, Structured Finance
Obligations, Project Finance Securities, Finance Leases and Synthetic Securities will be purchased by
the Issuer (i) on or prior to the Issue Date and (ii) during the Investment Period out of the net proceeds
of the issue of the Notes deposited in the Additional Collateral Account or the Subordinated Notes
Additional Collateral Account, as applicable, on the Issue Date and sums standing to the credit of the
Principal Account and the Subordinated Notes Principal Account (including any Interest Proceeds
directed for reinvestment) as described herein. For the avoidance of doubt, the Collateral Manager shall
also have the right to purchase and dispose of Eligible Investments on behalf of the Issuer in
accordance with the Collateral Management Agreement.
All references herein to the acquisition or purchase of Collateral Debt Obligations, Additional
Collateral Debt Obligations and Substitute Collateral Debt Obligations shall also be deemed to include
the acquisition or purchase by the Issuer of Synthetic Collateral as and to the extent required in
connection with its acquisition of Synthetic Securities.
2.
Investment Period
It is anticipated that the Issuer will have purchased, or entered into binding commitments to purchase,
Collateral Debt Obligations selected by the Collateral Manager, on behalf of the Issuer, with an
Aggregate Principal Balance of approximately €275,000,000 on or about the Issue Date. The Issuer
will use its reasonable endeavours (subject to the Collateral Manager's judgment as to appropriate
Collateral) to purchase Additional Collateral Debt Obligations out of the Balance standing to the credit
of the Additional Collateral Account and the Subordinated Notes Additional Collateral Account after
the Issue Date with the intent that:
(a)
the Aggregate Principal Balance of Collateral Debt Obligations purchased or committed to be
purchased is equal to or greater than approximately €338,700,000 (the "Target Par Amount")
as of the Effective Date (as defined below) provided that for the purpose of this test any
repayments or prepayments of Collateral Debt Obligations or sales of Credit Risk Obligations,
in each case, subsequent to the Issue Date shall be disregarded and no Collateral Debt
Obligation will be treated as a Defaulted Obligation;
(b)
the Collateral Quality Tests and the Coverage Tests (determined by reference to Collateral
Debt Obligations either purchased or in respect of which there is a binding commitment to
purchase but excluding those with respect to which there is a binding commitment to sell) are
satisfied on each Measurement Date falling on or after the Effective Date, in the case of the
Coverage Tests, to the extent required to be so satisfied on the applicable Measurement Date
and, in the case of the Collateral Quality Tests, to the extent required under the Reinvestment
Criteria in order to purchase Additional Collateral Debt Obligations or Substitute Collateral
Debt Obligations (provided, however, that the Issuer shall only be required to satisfy the Class
A Interest Coverage Test, the Class B Interest Coverage Test, the Class C Interest Coverage
Test, the Class D Interest Coverage Test and the Class E Interest Coverage Test on or after the
earlier of the Effective Date and the second Determination Date); and
(c)
the Portfolio Profile Tests (determined by reference to Collateral Debt Obligations either
purchased or in respect of which there is a binding commitment to purchase but excluding
those with respect to which there is a binding commitment to sell) are satisfied on each
Measurement Date falling on or after the Effective Date, to the extent required to be so
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satisfied under the Reinvestment Criteria in order to purchase Additional Collateral Debt
Obligations or Substitute Collateral Debt Obligations.
Each Additional Collateral Debt Obligation purchased by, or on behalf of, the Issuer during the
Investment Period will be required to satisfy the Eligibility Criteria (as of the date the binding
commitment to purchase is entered into).
3.
Effective Date
The first Business Day following the end of the Investment Period (prior to any extension thereof as
described below) shall be the "Effective Date", unless the Issuer is able to purchase Collateral Debt
Obligations with an Aggregate Principal Balance equal to or greater than the Target Par Amount prior
to the expiration of the Investment Period, in which case, the Collateral Manager may declare the
Effective Date as set forth in the Collateral Management Agreement.
Within 45 days after the Effective Date the independent accountants appointed by the Issuer in
accordance with the Collateral Management Agreement shall issue an Independent Accountants' Report
confirming details of the Aggregate Principal Balance of the Collateral Debt Obligations purchased or
committed to be purchased (but excluding those committed to be sold by the Issuer) as at the Effective
Date and the computations and results of the Portfolio Profile Tests, the Collateral Quality Tests and
the Coverage Tests by reference to such Collateral Debt Obligations on the Effective Date, copies of
which shall be forwarded to the Issuer, the Trustee, the Collateral Manager, the Collateral
Administrator and the Rating Agencies (provided, however, that the Issuer shall only be required to
satisfy the Class A Interest Coverage Test, the Class B Interest Coverage Test, the Class C Interest
Coverage Test, the Class D Interest Coverage Test and the Class E Interest Coverage Test on or after
the earlier of the Effective Date and the second Determination Date).
Within 30 days of the Effective Date, the Collateral Manager shall request that the Rating Agencies
confirm the initial ratings assigned to each of the Rated Notes. In the event that as a result of such
request (a) (i) the initial ratings of the Rated Notes are downgraded or withdrawn by the Rating
Agencies or (ii) either of the Rating Agencies notifies the Issuer or the Collateral Manager on behalf of
the Issuer that such Rating Agency intends to downgrade or withdraw its initial ratings of the Rated
Notes or (b) the Effective Date Required Ratings are not satisfied on the Effective Date, an Effective
Date Rating Downgrade shall have occurred. In the event of an occurrence of an Effective Date Rating
Downgrade, the Investment Period shall be extended to the earlier to occur of (a) confirmation from the
Rating Agencies that such ratings have been reinstated and (b) the second Business Day prior to the
next following Payment Date. The Collateral Manager, acting on behalf of the Issuer, may prepare and
present a plan to the Rating Agencies setting forth various matters including (A) the proposed timing
and the manner of acquisition of Collateral Debt Obligations that will satisfy the Collateral Quality
Tests and the Coverage Tests; (B) the proposed sale of a portion of the Portfolio; (C) (subject to the
approval of the holders of the Controlling Class at such time) the proposed amendments to the
Collateral Quality Tests, the Coverage Tests, the Portfolio Profile Tests or the Reinvestment Criteria;
(D) the proposed extension of the Effective Date; and (E) the proposed payment of principal of and
accrued interest on the Notes (any such repayment of principal of the Notes in the order of seniority
among the relevant classes of Notes). The Issuer may continue to purchase Additional Collateral Debt
Obligations selected by the Collateral Manager during such extended Investment Period out of the
Balance standing to the credit of the Additional Collateral Account and the Subordinated Notes
Additional Collateral Account in accordance with the investment criteria specified in the Collateral
Management Agreement or otherwise subject to receipt of Rating Agency Confirmation.
Upon confirmation by the Rating Agencies of the ratings assigned to the Senior Notes and the
Mezzanine Notes after the Effective Date, the Balance standing to the credit of the Additional
Collateral Account and the Subordinated Notes Additional Collateral Account, in each case, at the
discretion of the Collateral Manager, acting on behalf of the Issuer, may be transferred to the Interest
Account (provided that not more than 1% of the CDO Principal Balance may be transferred to the
Interest Account) or, respectively, to the Principal Account for reinvestment in Substitute Collateral
Debt Obligations or the Subordinated Notes Principal Account for reinvestment in Subordinated Notes
Collateral Debt Obligations.
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4.
Eligibility Criteria
Each Collateral Debt Obligation shall, at the time of entering into a binding commitment to acquire
such obligation, be required to satisfy each of the Eligibility Criteria set out below (collectively, the
"Eligibility Criteria") (save, in the case of each Synthetic Security, for those set out in paragraph (a)
which must be satisfied by the Reference Obligation to which it is linked):
(a)
it is a Senior Secured Loan, a Mezzanine Obligation, a Second Lien Loan, a High Yield Bond,
a Structured Finance Obligation, a Project Finance Security, a Finance Lease or a Synthetic
Security;
(b)
it is either (i) denominated in Euro (or is denominated in one of the predecessor currencies of
those EU Member States which have adopted the Euro as their currency) or (ii) is denominated
in United States Dollars, Sterling, Danish Krone, Norwegian Krone, Swedish Krona or Swiss
Francs and is not convertible into or payable in any other currency and (other than in respect
of Unhedged Collateral Debt Obligations pursuant to paragraph (z) of the Portfolio Profile
Tests set out below which must be purchased from the Primary Market) the Issuer, at the date
of acquisition thereof, enters into an Asset Swap Transaction with a notional amount in Euro
equal to the aggregate principal amount of such obligation and otherwise complies with the
requirements set out in respect of the non-Euro denominated Collateral Debt Obligations in the
Collateral Management Agreement;
(c)
it is an obligation of an Obligor having a principal place of business or significant operations
in a Non-Emerging Market Country (as determined by the Collateral Manager, acting on
behalf of the Issuer) and, if the Obligor or Obligors is or are resident in The Netherlands, it or
they must be acting in the conduct of a business or profession;
(d)
it is not a Defaulted Obligation, a Credit Risk Obligation (other than a Swapped Defaulted
Obligation or an Exchanged Defaulted Obligation or an Exchanged Credit Risk Obligation,
which may be purchased or exchanged (as applicable) in accordance with the requirements set
out under section 6.6 (Reinvestment Criteria) below) or, unless permitted pursuant to Rating
Agency Confirmation, a Current Pay Obligation;
(e)
it is not the subject of an offer of exchange, conversion or tender by its issuer, for cash,
securities or any other type of consideration (other than for an obligation which is an eligible
Collateral Debt Obligation meeting the Eligibility Criteria);
(f)
it is capable of being sold, novated, assigned or participated to the Issuer without any breach
of applicable selling or transfer restrictions or of any legal or contractual provisions and all
rights in relation thereto and the security (or the commercial benefit thereof) in relation
therewith can be transferred to the Issuer;
(g)
it is rated by S&P and Moody's or is assigned or otherwise has an S&P Rating and a Moody's
Rating (including, for the avoidance of doubt, an interim S&P Rating or Moody's Rating
pending receipt of the final such rating) and does not have a "p", "pi", "q", "r" or "t" subscript
unless S&P otherwise consents in writing;
(h)
except in the case of PIK Securities, Zero Coupon Securities and securities where all the
interest is deferrable, it is an obligation that pays interest no less frequently than annually;
(i)
it is not convertible into equity and is not a Margin Stock (as defined under Regulation U
issued by The Board of Governors of the Federal Reserve System);
(j)
it is not a lease other than a Finance Lease;
(k)
it has an S&P Rating of at least "CCC";
(l)
it has a Moody's Rating of at least "Caa2";
(m)
its acquisition by the Issuer will not result in the imposition of ad valorem stamp duty or stamp
duty reserve tax payable by the Issuer, unless it is either paid in full by the Obligor or is
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included for all purposes as constituting part of the purchase price of such Collateral Debt
Obligation;
(n)
it is not a security whose repayment is subject to substantial non-credit related risk as
determined by the Collateral Manager or to the non-occurrence of certain catastrophes or
which is a catastrophe bond;
(o)
upon acquisition, both (i) the Collateral Debt Obligation is capable of being, and will be, the
subject of a first fixed charge or first priority security interest or other arrangement having
similar commercial effect in favour of the Trustee for the benefit of the Secured Parties
pursuant to the Trust Deed (or any deed or document supplemental thereto) and (ii) (subject to
(i) above) following notification by the Issuer (or the Collateral Manager on behalf of the
Issuer) to the Trustee that any Collateral Debt Obligation is a bond that is not held through
Euroclear, the Issuer shall have taken such action as the Trustee may require to create and
perfect such security interest;
(p)
it is not a Dutch Ineligible Security;
(q)
it does not provide for the imposition of any present or future, actual or contingent, monetary
liabilities or monetary obligations of the Issuer for future advances other than those (i) which
may arise at its option; or (ii) which are fully collateralised (which collateralisation may be by
way of deposit of an amount with a third party and which must be in an amount which is not
less than 100 per cent. of the Issuer's unfunded principal payment obligations in respect
thereof); or (iii) which are owed under a Participation or a Synthetic Security and which are
subject to limited recourse provisions similar to those set out in the Trust Deed; or (iv) which
are owed to the agent bank or letter of credit or guarantor fronting or syndicate member bank
in relation to the performance of its duties under a syndicated Senior Secured Loan, Second
Lien Loan or Mezzanine Obligation or High Yield Bond or to other syndicate bank members
as a result of any pro rata sharing or from other trust or similar arrangements which apply to
payments received by a syndicate bank member which are required to be shared between the
syndicate bank members; or (v) which may arise as a result of an undertaking to participate in
a financial restructuring of a Collateral Debt Obligation where such undertaking is envisaged
in the initial underlying documents for such Collateral Debt Obligation, does not require the
advance of any new funds by the Issuer and is contingent upon the redemption in full of such
Collateral Debt Obligation on or before the time by which the Issuer is obliged to enter into
the restructured Collateral Debt Obligation and where the restructured Collateral Debt
Obligation meets the Eligibility Criteria;
(r)
its Stated Maturity (or, in respect of Structured Finance Obligations, Project Finance Securities
and Finance Leases, the expected final payment date) is not later than the Maturity Date, save
where it is a Long-Dated Obligation (as defined under Section 5 (Portfolio Profile Tests)
below);
(s)
it is not an obligation in respect of which interest payments are scheduled to decrease
(although interest payments may decrease due to unscheduled events such as a decrease of the
index relating to a Floating Rate Collateral Debt Obligation, the change from a default rate of
interest to a non default rate, an improvement in the Obligor's financial condition, as a result of
the satisfaction of contractual conditions set out in the relevant documentation for such
obligation or otherwise);
(t)
it is an obligation where there is a fixed payment of outstanding principal at maturity and
where at least the majority consent of the affected lenders is required to reduce the amount of
principal repayments owed or decrease the interest rate applicable (save for default interest
and for changes envisaged or encompassed by procedures in the underlying documents in
place at the purchase of such obligation) provided that the majority referred to above in this
sub-paragraph (t) will be at least 66⅔ per cent. unless otherwise notified to the Rating
Agencies and the Rating Agencies give a Rating Agency Confirmation in respect of such other
percentage;
(u)
it is an obligation (i) the ownership, enforcement or disposition of which will not cause the
Issuer to be treated as engaged in a trade or business within the United States for U.S. federal
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income tax purposes and (ii) the acquisition, holding and nature of which does not violate the
investment restrictions set forth in clause 7.4 (Investment Restrictions) of the Collateral
Management Agreement;
(v)
if the Aggregate Principal Balance of the Portfolio at the time of the Collateral Manager
entering into a binding commitment to purchase such Collateral Debt Obligation is less than
the Target Par Amount, it is not an Unhedged Collateral Debt Obligation; and
(w)
it is an obligation or security that is paying interest currently as at the date of entry by the
Issuer into the commitment to purchase such obligation or security.
The subsequent failure of any Collateral Debt Obligation to satisfy any of the Eligibility Criteria shall
not prevent any obligation which would otherwise be a Collateral Debt Obligation from being a
Collateral Debt Obligation so long as such obligation satisfied the Eligibility Criteria when the Issuer
entered into a binding agreement to purchase such obligation.
For purposes of the Eligibility Criteria, the definition set out below shall have the following meaning:
"Primary Market" means, in respect of acquisition of a Collateral Debt Obligation, such Collateral
Debt Obligation was acquired within 3 months of the date of syndication thereof.
5.
Portfolio Profile Tests
The Collateral Debt Obligations in aggregate shall be required to satisfy each of the Portfolio Profile
Tests on the Effective Date and thereafter, to the extent required to do so in connection with a
reinvestment under the Reinvestment Criteria on the date of purchase (or commitment to purchase) of
an Additional Collateral Debt Obligation or Substitute Collateral Debt Obligation. The Portfolio Profile
Tests are as follows:
(a)
Collateral Debt Obligations with an Aggregate Principal Balance of at least 82.5 per cent. of
the CDO Principal Balance consist of Collateral Debt Obligations that are Senior Secured
Loans (which term, for the purposes of this paragraph, shall comprise (i) the Aggregate
Principal Balance of Collateral Debt Obligations which are Senior Secured Loans, and (ii) the
Balance standing to the credit of the Principal Account, the Subordinated Notes Principal
Account, the Additional Collateral Account and the Subordinated Notes Additional Collateral
Account, in each case as of the relevant Measurement Date;
(b)
on the Issue Date, not more than 17.5 per cent. of the CDO Principal Balance may consist of
Mezzanine Obligations, Second Lien Loans and/or High Yield Bonds;
(c)
the Aggregate Principal Balance of any single Obligor under a Senior Secured Loan may not
be more than 2.5 per cent. of the CDO Principal Balance, with the exception that the
Aggregate Principal Balance of a Senior Secured Loan of any five single Obligors may not
each be more than 3.0 per cent. of the CDO Principal Balance, provided that, for the purposes
of this paragraph (c), any Senior Secured Loan of any Affiliate of an Obligor shall also be
included in such calculation, provided, however, that an Affiliate of an Obligor that is in a
different industry from such Obligor may be treated as a separate Obligor subject to Rating
Agency Confirmation;
(d)
the Aggregate Principal Balance of Mezzanine Obligations or Second Lien Loans of any
single Obligor or High Yield Bonds of any single Obligor may not be more than 1.5 per cent.
of the CDO Principal Balance, provided that, (a) for the purposes of this paragraph (d), any
Mezzanine Obligation or Second Lien Loans of any Affiliate of an Obligor or any High Yield
Bond of any Affiliate of an Obligor shall also be included in such calculation, provided,
however, that an Affiliate of an Obligor that is in a different industry from such Obligor may
be treated as a separate Obligor subject to Rating Agency Confirmation and (b) that the
Aggregate Principal Balance of Mezzanine Obligations or Second Lien Loans of any two
Obligors may, in each case, not be more than 2.5 per cent. of the CDO Principal Balance;
(e)
not more than 5.0 per cent. of the CDO Principal Balance may consist of High Yield Bonds;
(f)
not more than 20.0 per cent. of the CDO Principal Balance may consist of Participations;
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(g)
not more than 20.0 per cent. of the CDO Principal Balance may consist of Synthetic Securities
and Participations;
(h)
not more than 5.0 per cent. of the CDO Principal Balance may consist of Unfunded Amounts
under Revolving Obligations and/or Delayed Drawdown Collateral Obligations;
(i)
not more than 5.0 per cent. of the CDO Principal Balance may consist of Collateral Debt
Obligations that are Fixed Rate Collateral Debt Obligations;
(j)
at least 95.0 per cent. of the CDO Principal Balance must consist of Collateral Debt
Obligations that are Floating Rate Collateral Debt Obligations (which term, for the purposes of
this paragraph (j), shall comprise the aggregate of (i) the Aggregate Principal Balance of the
Floating Rate Collateral Debt Obligations, and (ii) the Balances standing to the credit of the
Principal Account, the Subordinated Notes Principal Account, the Additional Collateral
Account and the Subordinated Notes Additional Collateral Account at the relevant
Measurement Date);
(k)
the limits specified in the Bivariate Risk Table determined by reference to the Moody's
Ratings and S&P Ratings of Selling Institutions and Synthetic Counterparties are not
exceeded;
(l)
not more than 5.0 per cent. of the CDO Principal Balance may consist of PIK Securities;
(m)
not more than 5.0 per cent. of the CDO Principal Balance may consist of Zero-Coupon
Securities;
(n)
not more than 5.0 per cent. of the CDO Principal Balance may consist of PIK Securities and/or
Zero-Coupon Securities;
(o)
not more than 5.0 per cent. of the CDO Principal Balance may consist of Current Pay
Obligations;
(p)
not more than 30.0 per cent. of the CDO Principal Balance may consist of Collateral Debt
Obligations denominated in a currency other than Euro;
(q)
not more than 0.0 per cent. of the CDO Principal Balance may consist of Long-Dated
Obligations subject to change upon receipt of Rating Agency Confirmation;
(r)
not more than 5.0 per cent. of the CDO Principal Balance may consist of DIP Collateral
Obligations;
(s)
not more than 5.0 per cent. of the CDO Principal Balance may consist of CCC Obligations;
(t)
not more than 5.0 per cent. of the CDO Principal Balance may consist of Finance Leases;
(u)
not more than 5.0 per cent. of the CDO Principal Balance may consist of Project Finance
Securities;
(v)
not more than 5.0 per cent. of the CDO Principal Balance may consist of Structured Finance
Obligations;
(w)
not more than 5.0 per cent. of the CDO Principal Balance may consist of Collateral Debt
Obligations paying interest less frequently than semi-annually and no less frequently than
annually;
(x)
not more than 5.0 per cent. of the CDO Principal Balance may consist of Withholding Tax
Obligations;
(y)
not more than 5.0 per cent. of the CDO Principal Balance may consist of Project Finance
Securities and/or Structured Finance Obligations;
(z)
not more than 5.0 per cent. of the Aggregate Principal Balance will consist of Unhedged
Collateral Debt Obligations (for these purposes, taking into consideration 100 per cent. of the
185
notional amount of such Unhedged Collateral Debt Obligations converted at the applicable
Spot Rate); and
(aa)
not more than 2.5 per cent. of the CDO Principal Balance may consist of Exchanged Defaulted
Obligations and/or Exchanged Credit Risk Obligations.
Unless otherwise specified, the percentage requirements applicable to different types of Collateral Debt
Obligations specified in the Portfolio Profile Tests shall be determined by reference to the Aggregate
Principal Balance of such type of Collateral Debt Obligations, excluding Defaulted Obligations.
Obligations which are to constitute Collateral Debt Obligations in respect of which the Issuer has
entered into a binding commitment to purchase but which have not yet settled shall be included as
Collateral Debt Obligations in the calculation of the Portfolio Profile Tests at any time as if such
purchase had been completed and obligations which are to constitute Collateral Debt Obligations in
respect of which the Issuer has entered into a binding commitment to sell but which have not yet settled
shall be excluded as Collateral Debt Obligations in the calculation of the Portfolio Profile Tests at any
time as if such sale had been completed. For the purposes of the Collateral Quality Tests and Portfolio
Profile Tests, "Fixed Rate Collateral Debt Obligation" means a Collateral Debt Obligation, the
interest or coupon payable in respect of which is calculated by reference to a fixed rate (including any
Floating Rate Collateral Debt Obligation that earns a fixed rate of interest, and excluding any Fixed
Rate Collateral Debt Obligation that earns a floating rate of interest, in each case, after giving effect to
any applicable Interest Rate Hedge Transaction) and "Floating Rate Collateral Debt Obligation"
means a Collateral Debt Obligation, the interest or coupon payable in respect of which is calculated by
reference to a floating rate or index (including any Fixed Rate Collateral Debt Obligation that earns a
floating rate of interest, and excluding any Floating Rate Collateral Debt Obligation that earns a fixed
rate of interest, in each case, after giving effect to any applicable Interest Rate Hedge Transaction).
Synthetic Securities may be treated as either Fixed Rate Collateral Debt Obligations or Floating Rate
Collateral Debt Obligations as determined by the Collateral Manager subject to Rating Agency
Confirmation. When calculating the Portfolio Profile Tests the applicable percentages shall be rounded
up to the second decimal place.
6.
Management of the Portfolio
6.1
Overview
The Collateral Manager will, acting on behalf of the Issuer, purchase Collateral Debt Obligations
(including all Additional Collateral Debt Obligations and Substitute Collateral Debt Obligations) and
will monitor the performance and credit quality of the Collateral Debt Obligations on an ongoing basis.
The Collateral Manager, acting on behalf of the Issuer, is permitted in certain circumstances and
subject to certain requirements set forth in the Collateral Management Agreement (including
calculations by the Collateral Administrator), all as further described below, to sell Collateral Debt
Obligations and Equity Securities and to reinvest the Sale Proceeds thereof in Substitute Collateral
Debt Obligations. The Collateral Administrator shall calculate and shall provide the result of its
calculations in respect of the relevant criteria which are required to be satisfied in connection with any
such sale or reinvestment, following written request by the Collateral Manager, which request shall
specify all necessary details of the Collateral Debt Obligation or Equity Security to be sold and the
proposed Substitute Collateral Debt Obligations to be purchased.
Sale of Collateral Debt Obligations: Subject to the terms of the Collateral Management Agreement,
the Issuer may sell:
(a)
at any time:
(i)
any Defaulted Obligation;
(ii)
any Equity Security, including any Defaulted Equity Security and Margin Stock;
(iii)
any Credit Risk Obligation; and
(iv)
any Credit Improved Obligation;
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(b)
at any time during the Reinvestment Period: any Collateral Debt Obligation provided that all
such sales (measured by reference to the Aggregate Principal Balance of the Collateral Debt
Obligations sold in that year (each such year being a year from, but excluding, the Effective
Date or, as the case may be, an anniversary thereof, to and including, the next succeeding
anniversary thereof) (and excluding any sales pursuant to paragraph (a) above and any sales of
any Withholding Tax Obligations)) do not exceed 20.0 per cent. of the sum of the CDO
Principal Balance as at the most recent to have occurred of the Effective Date and each
anniversary thereof, provided that, for the purpose of calculating the limitation under this
paragraph (b), the amount of any Collateral Debt Obligation sold will be reduced to the extent
of any binding commitments to purchase Collateral Debt Obligations of the same Obligor (that
are pari passu with such sold Collateral Debt Obligation) occurring within 20 Business Days
of such sale (determined based on the date of the relevant trade confirmation or allocation date
and in any event, the Issuer shall prior to the Maturity Date sell any Long-Dated Obligations
(other than Long-Dated Defaulted Obligations the value of which has been reduced to zero).
In addition, the Collateral Management Agreement will require the Issuer to promptly sell any
Collateral Debt Obligation (other than a Defaulted Equity Security) of which it becomes aware did not
satisfy the Eligibility Criteria at the time at which the Issuer entered into a binding commitment for its
purchase unless the Collateral Manager reasonably believes that the failure to satisfy any such
Eligibility Criteria may be cured within a reasonable period thereafter.
Treatment of Sale Proceeds and Principal Proceeds: The proceeds of sale of Collateral Debt
Obligations in the circumstances provided above, together with any other Principal Proceeds received,
will be applied by the Collateral Administrator, acting on behalf of the Issuer, subject to and in
accordance with the Priorities of Payment:
(a)
during the Reinvestment Period: either (i) in the acquisition of Substitute Collateral Debt
Obligations, subject to satisfaction of the Reinvestment Criteria and other conditions (as
described further below) or in payment into the Principal Account, or the Subordinated Notes
Principal Account, as applicable, pending such reinvestment (save in the case of the proceeds
of sale of any Collateral Debt Obligations which represent Investment Gains or accrued
interest which the Collateral Manager may at its discretion designate as Interest Proceeds
provided that the Class D Par Value Ratio is at least equal to 115.11 per cent. following such
designation to be paid into the Interest Account, other than any Purchased Accrued Interest or
such other interest capitalised pursuant to the terms of any Mezzanine Obligation which is
paid for with Principal Proceeds on the date of acquisition of such Mezzanine Obligation) or
(ii) in payment into the Principal Account , or the Subordinated Notes Principal Account, as
applicable, for application in accordance with the Principal Proceeds Priority of Payments
pursuant to a Special Redemption,
(b)
following the expiry of the Reinvestment Period:
(i)
in the case of Unscheduled Principal Proceeds and Sale Proceeds of Credit Risk
Obligations and Credit Improved Obligations designated for reinvestment by the
Collateral Manager, either, at the discretion of the Collateral Manager (but subject to
paragraphs 6.3 (Sale of Credit Improved Obligations) and 6.4 (Sale of Credit Risk
Obligations) below, as applicable), in the acquisition of Substitute Collateral Debt
Obligations, subject to satisfaction of the Reinvestment Criteria and other conditions
(as described further below) or payment into the Principal Account or the Subordinated
Notes Principal Account, as applicable, pending such reinvestment, or if not so
designated for reinvestment by the Collateral Manager, in payment into the Principal
Account or the Subordinated Notes Principal Account, as applicable, for disbursement
on the next following Payment Date in accordance with the Principal Proceeds Priority
of Payments; and
(ii)
in the case of Principal Proceeds other than Unscheduled Principal Proceeds and Sale
Proceeds of Credit Risk Obligations and Credit Improved Obligations designated for
reinvestment by the Collateral Manager, in payment into the Principal Account or the
Subordinated Notes Principal Account, as applicable, for disbursement on the next
following Payment Date in accordance with the Principal Proceeds Priority of
Payments.
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Treatment of Interest Proceeds: In the event that the Collateral Enhancement Ratio Test is not
satisfied on a Determination Date, Available Interest Proceeds will on the next Payment Date be
applied, subject to and in accordance with the Priorities of Payment and the Conditions, in the
acquisition of Substitute Collateral Debt Obligations, subject to the satisfaction of the Reinvestment
Criteria, or in payment into the Principal Account pending such reinvestment in either case in an
amount equal to the lesser of (i) the amount necessary to cause the Collateral Enhancement Ratio Test
to be met if recalculated following application as provided in this paragraph or (ii) 50 per cent. of the
Available Interest Proceeds remaining after application in accordance with the Interest Proceeds
Priority of Payment.
6.2
Sales during the Reinvestment Period
The Collateral Manager, acting on behalf of the Issuer, may dispose of any Collateral Debt Obligation
during the Reinvestment Period which is not a Credit Improved Obligation, a Credit Risk Obligation, a
Defaulted Obligation or an Equity Security (which are permitted to be sold in the circumstances
described in Sections 6.3 (Sale of Credit Improved Obligations), 6.4 (Sale of Credit Risk Obligations)
and 6.5 (Sale of Defaulted Obligations and Equity Securities) below) and reinvest the Sale Proceeds
thereof in Substitute Collateral Debt Obligations, such sale and reinvestment being subject to:
(a)
except in respect of the sale of any Withholding Tax Obligations, no Event of Default having
occurred which is continuing;
(b)
except in respect of the sale of any Withholding Tax Obligations, the ratings assigned to the
Senior Notes not having been reduced by one or more rating sub-category and the ratings
assigned to any Class of the Mezzanine Notes not having been reduced by two or more rating
sub-categories from those assigned on the Issue Date, or in any such case, not having been
withdrawn by the Rating Agencies and such ratings reduction or withdrawal is continuing;
(c)
the Collateral Manager using reasonable efforts to reinvest the Sale Proceeds of the Collateral
Debt Obligations in Substitute Collateral Debt Obligations within 180 calendar days of the
receipt of such Sale Proceeds (subject to its judgement as to the availability of appropriate
collateral);
(d)
receipt by the Collateral Manager from the Collateral Administrator of certain calculations, the
results of which illustrate that:
(i)
the sum of the aggregate of the Principal Balance of the Collateral Debt Obligations
(excluding any Credit Improved Obligations, Credit Risk Obligations, Equity
Securities, Defaulted Obligations or Withholding Tax Obligations) sold in that year
(each such year being a year from, but excluding, the Effective Date or, as the case may
be an anniversary thereof, to, but including, the next succeeding anniversary thereof)
when aggregated with the Principal Balances of the Collateral Debt Obligations
(excluding any sales of any Credit Improved Obligations, Credit Risk Obligations,
Equity Securities, Defaulted Obligations and Withholding Tax Obligations) to be sold
does not exceed 20.0 per cent. of the sum of the CDO Principal Balance as at the most
recent to have occurred of the Effective Date and each anniversary thereof; and
(ii)
the various tests and ratios specified in paragraphs (a), (c) or (d), as applicable, of the
Reinvestment Criteria are satisfied; and
(e)
the Collateral Manager reasonably believing that the Collateral Debt Obligation to be
purchased will satisfy the Eligibility Criteria and that, where applicable, it reasonably believes
that the Sale Proceeds of the Collateral Debt Obligation sold can be reinvested in Collateral
Debt Obligations with an aggregate Principal Balance equal to or greater than the Principal
Balance of the Collateral Debt Obligation sold within 180 calendar days of the receipt of such
Sale Proceeds.
6.3
Sale of Credit Improved Obligations
Credit Improved Obligations may be sold by the Issuer at any time subject to no Event of Default
having occurred which is continuing.
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The Issuer may apply the Sale Proceeds thereof to the purchase of Substitute Collateral Debt
Obligations or in payment into the Principal Account or the Subordinated Notes Principal Account, as
applicable, pending such reinvestment, such reinvestment being subject to:
(a)
the Collateral Manager using reasonable efforts to reinvest the Sale Proceeds of such Credit
Improved Obligations in one or more Substitute Collateral Debt Obligations within 180
calendar days of the receipt of such Sale Proceeds;
(b)
the Collateral Manager reasonably believing that the Sale Proceeds of the Credit Improved
Obligation sold can be reinvested in Substitute Collateral Debt Obligations with an aggregate
Principal Balance equal to or greater than the Principal Balance of the Credit Improved
Obligation sold;
(c)
the Collateral Manager having received from the Collateral Administrator the results of its
calculations which illustrate that the various tests and ratios specified in paragraphs (a) or (d),
as applicable, of the Reinvestment Criteria would be satisfied immediately after such
reinvestment; and
(d)
the Collateral Manager reasonably believing that the Collateral Debt Obligation to be
purchased will satisfy the Eligibility Criteria.
If such reinvestment conditions are not satisfied, such Sale Proceeds shall be disbursed in accordance
with Condition 7(f) (Special Redemption).
In addition to the above, the Sale Proceeds of Credit Improved Obligations may, at the discretion of the
Collateral Manager, acting on behalf of the Issuer, be deposited in the Principal Account or the
Subordinated Notes Principal Account, as applicable, and disbursed in accordance with the Principal
Proceeds Priority of Payments on the first Payment Date following such sale.
6.4
Sale of Credit Risk Obligations
Credit Risk Obligations may be sold at any time by the Issuer.
The Collateral Manager, acting on behalf of the Issuer, may apply the Sale Proceeds thereof to
reinvestment in Substitute Collateral Debt Obligations or in payment into the Principal Account or the
Subordinated Notes Principal Account, as applicable, pending such reinvestment, such reinvestment
being subject to:
(a)
the Collateral Manager using reasonable efforts to reinvest the Sale Proceeds of such Credit
Risk Obligations in one or more Substitute Collateral Debt Obligations not later than 180
calendar days following the sale of such Credit Risk Obligation;
(b)
the reinvestment of such Sale Proceeds being made in Substitute Collateral Debt Obligations
with an aggregate Principal Balance at least equal to or greater than such Sale Proceeds;
(c)
the Collateral Manager having received from the Collateral Administrator the results of its
calculations which illustrate that the various tests and ratios specified in paragraphs (a) or (c),
as applicable, of the Reinvestment Criteria would be satisfied immediately after such
reinvestment;
(d)
the Collateral Manager reasonably believing that the Collateral Debt Obligation to be
purchased will satisfy the Eligibility Criteria; and
(e)
no Event of Default having occurred which is continuing.
If such reinvestment conditions are not satisfied, such Sale Proceeds shall be disbursed in accordance
with Condition 7(f) (Special Redemption).
In addition to the above, the Sale Proceeds of any Credit Risk Obligations may, at the discretion of the
Collateral Manager, acting on behalf of the Issuer, be deposited in the Principal Account or the
Subordinated Notes Principal Account, as applicable, and disbursed in accordance with the Principal
Proceeds Priority of Payments on the first Payment Date following such sale.
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6.5
Sale of Defaulted Obligations and Equity Securities
Defaulted Obligations and Equity Securities may be sold by the Issuer at any time.
During the Reinvestment Period, the Collateral Manager, acting on behalf of the Issuer, may apply the
Sale Proceeds thereof to reinvestment in Substitute Collateral Debt Obligations or in payment into the
Principal Account or the Subordinated Notes Principal Account, as applicable, pending such
reinvestment, such reinvestment being subject to:
(a)
the Collateral Manager using reasonable efforts to reinvest the Sale Proceeds of such
Defaulted Obligations and Equity Securities in one or more Substitute Collateral Debt
Obligations not later than 180 calendar days following the sale of such Defaulted Obligations
and Equity Securities;
(b)
the Collateral Manager having received from the Collateral Administrator calculations which
illustrate that the various tests and ratios specified in paragraphs (a) or (c) of the Reinvestment
Criteria would be satisfied immediately after such reinvestment;
(c)
the Collateral Manager reasonably believing that the Collateral Debt Obligation to be
purchased will satisfy the Eligibility Criteria; and
(d)
no Event of Default having occurred that is continuing.
If such reinvestment conditions are not satisfied prior to the end of the Reinvestment Period, such Sale
Proceeds shall be disbursed in accordance with Condition 7(f) (Special Redemption).
In addition to the above, the Sale Proceeds of any Defaulted Obligation or Equity Security may, at the
discretion of the Collateral Manager, acting on behalf of the Issuer, and shall, following the end of the
Reinvestment Period, be deposited in the Principal Account or the Subordinated Notes Principal
Account, as applicable, and disbursed in accordance with the Principal Proceeds Priority of Payments
and the Note Payment Sequence on the first Payment Date following such sale in accordance.
In addition, (a) at any time that the aggregate amount of Margin Stock held by the Issuer exceeds 10
per cent. of the CDO Principal Balance, the Collateral Manager will sell such excess in accordance
with the above provisions and (b) the Collateral Manager will sell any Transferable Margin Stock not
transferred to the Subordinated Notes Collateral Debt Obligation Account within 45 days of receipt.
6.6
Reinvestment Criteria
Pursuant to the Collateral Management Agreement and subject to and in accordance with the Priorities
of Payment, (i) during the Reinvestment Period any Principal Proceeds (including Scheduled Principal
Proceeds and Unscheduled Principal Proceeds) may, at the discretion of the Collateral Manager, acting
on behalf of the Issuer, be reinvested in Substitute Collateral Debt Obligations and (ii) after the end of
the Reinvestment Period, Unscheduled Principal Proceeds and Sale Proceeds from the sale of Credit
Improved Obligations and Credit Risk Obligations may, at the discretion of the Collateral Manager, be
reinvested by the Collateral Manager, acting on behalf of the Issuer, in Substitute Collateral Debt
Obligations if, in each case, immediately after such reinvestment after the Effective Date, the criteria
set out below (the "Reinvestment Criteria") are satisfied. The Reinvestment Criteria are as follows:
(a)
each of the Coverage Tests, the Collateral Quality Tests and the Portfolio Profile Tests are
satisfied immediately following such reinvestment (except that the Issuer shall only be
required to satisfy the Class A Interest Coverage Test, the Class B Interest Coverage Test, the
Class C Interest Coverage Test, the Class D Interest Coverage Test and the Class E Interest
Coverage Test on or after the earlier of the Effective Date and the second Determination Date)
or, if any of such tests were not satisfied immediately prior to such reinvestment, each such
test is maintained or improved immediately following such reinvestment, provided, however,
that with respect to the reinvestment of Principal Proceeds attributable to Defaulted
Obligations, the Coverage Tests must be satisfied immediately following such reinvestment,
and in each case, each such test shall be calculated by reference to their respective levels
immediately prior to the applicable sale or repayment or prepayment of the relevant Collateral
Debt Obligations (save that this paragraph (a) shall not apply in respect of the S&P CDO
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Monitor Test in the case of the reinvestment of Sale Proceeds from Credit Risk Obligations
and Defaulted Obligations);
(b)
the Substitute Collateral Debt Obligation to be purchased satisfies the Eligibility Criteria;
(c)
in the case of Collateral Debt Obligations purchased with the Sale Proceeds of Defaulted
Obligations or Credit Risk Obligations immediately following such purchase either:
(d)
(i)
the Aggregate Principal Balance of all Substitute Collateral Debt Obligations purchased
with such Sale Proceeds is at least equal to or greater than the Sale Proceeds from such
sale; or
(ii)
the Class D Par Value Ratio is greater than 115.11 per cent.;
in the case of any purchase of Collateral Debt Obligations other than in (c) above either:
(i)
the Aggregate Principal Balance of all Substitute Collateral Debt Obligations purchased
with such Sale Proceeds or Principal Proceeds is at least equal to or greater than the
Aggregate Principal Balance of the Collateral Debt Obligations sold; or
(ii)
the Class D Par Value Ratio is greater than 115.11 per cent.;
provided that after the end of the Reinvestment Period, the following additional criteria must
be satisfied:
(i)
the Moody's Maximum Weighted Average Rating Factor Test and the Weighted
Average Maturity Test will have been satisfied after giving effect to such reinvestment;
(ii)
the Class D Par Value Ratio is at least 111.61 per cent.;
(iii)
each of the Class A Notes will have maintained a rating of "AAA" by S&P and "Aaa"
by Moody's and the Class B Notes will have maintained a rating of "AA" by S&P and
"Aa2" by Moody's, and the Rating Agencies will not have downgraded or withdrawn
that rating or any rating of the Mezzanine Notes, by more than one rating subcategory;
(iv)
each of the Coverage Tests must be met immediately before and immediately after such
reinvestment;
(v)
the Portfolio Profile Tests are satisfied or, if any such limitation is not satisfied, in the
case of each limitation (i) in respect of which an upper limit is applicable, the relevant
concentration is no greater, and (ii) in respect of which a lower limit is applicable, the
relevant concentration is no lesser, after giving effect to such reinvestment;
(vi)
such Substitute Collateral Debt Obligation(s) have the same or a higher S&P Rating as
the Collateral Debt Obligation sold and the same or a shorter Stated Maturity;
(vii)
the acquisition of such Collateral Debt Obligation will not result in more than five per
cent. of the CDO Principal Balance consisting of Collateral Debt Obligations which
have a Moody's Rating of "Caal" or lower;
(viii) the Collateral Manager reasonably believing that no Event of Default has occurred that
is continuing at the time of such reinvestment; and
(ix)
in relation to the purchase of Unhedged Collateral Debt Obligations, the Aggregate
Principal Balance is greater than the Target Par Amount.
Notwithstanding the restrictions above, (x) a Defaulted Obligation (a "Purchased Defaulted
Obligation") may be purchased with all or a portion of the Sale Proceeds of another Defaulted
Obligation (an "Exchanged Defaulted Obligation") and (y) a Credit Risk Obligation (a
"Purchased Credit Risk Obligation") may be purchased with all or a portion of the Sale
Proceeds of another Credit Risk Obligation (an "Exchanged Credit Risk Obligation"), if:
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(i)
when compared to the Exchanged Obligation, the Purchased Obligation (A) is issued
by a different Obligor, (B) but for the fact that such debt obligation is a Defaulted
Obligation or Credit Risk Obligation, such Purchased Obligation would otherwise
qualify as a Collateral Debt Obligation and (C) the expected recovery rate of such
Purchased Obligation, as determined by the Collateral Manager in good faith, must be
no less than the expected recovery rate of the Exchanged Obligation;
(ii)
the Principal Balance of the Purchased Obligation is equal to or greater than the Sale
Proceeds from the sale of such Exchanged Obligation and the purchase price of such
Purchased Obligation is at least equal to 65 per cent. of its Principal Balance;
(iii)
the Collateral Manager has determined that:
(iv)
(A)
at the time of the purchase, (i) the Purchased Obligation is no less senior in right
of payment vis-à-vis its related Obligor's outstanding indebtedness than the
seniority of the Exchanged Obligation and (ii) each of the S&P Rating and
Moody's Rating, if any, of the Purchased Obligation is the same or better
respective rating, if any, of the Exchanged Obligation;
(B)
after giving effect to the purchase, (i) each of the Coverage Tests is satisfied, (ii)
the CDO Principal Balance will not be reduced and (iii) each of the Moody's
Maximum Weighted Average Rating Factor Test, the S&P Minimum Weighted
Average Recovery Rate Test, the Moody's Minimum Diversity Test, the
Moody's Minimum Weighted Average Recovery Rate Test and the Weighted
Average Maturity Test will be satisfied, or if not satisfied, at least as close to
being satisfied after giving effect to such purchase (or commitment to purchase)
as immediately prior to such purchase (or commitment to purchase);
(C)
both prior to and after giving effect to such purchase, the purchase would satisfy
the Portfolio Profile Test or, if any Portfolio Profile Test was not satisfied prior
to such exchange, such Portfolio Profile Test will be at least as close to being
satisfied as immediately prior to such exchange;
(D)
the period for which the Issuer held the Exchanged Defaulted Obligation will be
included for all purposes in the Collateral Management Agreement when
determining the period for which the Issuer holds the Purchased Defaulted
Obligation for purposes of the period described above under "Sale of Collateral
Debt Obligations";
(E)
the Exchanged Obligation was not previously a Purchased Obligation; and
such purchase of the Purchased Obligation will not, when taken together with all other
Purchased Obligations at any time acquired by the Issuer, cause the Aggregate
Principal Balance of all of the Purchased Obligations at any time acquired by the Issuer
to exceed ten per cent. of the CDO Principal Amount as at the Effective Date.
Notwithstanding any of the Reinvestment Criteria restrictions described above, the Collateral
Manager may, on behalf of the Issuer, exchange a Defaulted Obligation for another Defaulted
Obligation (a "Swapped Defaulted Obligation") for so long as at the time of or in connection
with such exchange:
(i)
such Swapped Defaulted Obligation is issued by the same Obligor as the Defaulted
Obligation (or an Affiliate of or successor to such Obligor or an entity that succeeds to
substantially all of the assets of such Obligor) and, in the case of such Swapped
Defaulted Obligation, ranks in right of payment no more junior than the Defaulted
Obligation for which it was exchanged; provided that if the Issuer is also required to
pay an amount for such Swapped Defaulted Obligation, the Issuer shall only use
Interest Proceeds to effect such payment and only for so long as, after giving effect to
such purchase, there would be sufficient Interest Proceeds to pay all amounts required
to be paid pursuant to the Priorities of Payment prior to distributions to holders of the
Subordinated Notes on the next succeeding Payment Date;
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(ii)
if any Coverage Test is satisfied immediately prior to such exchange then it must still
be satisfied immediately after such exchange or if any Coverage Test is not satisfied
immediately prior to such exchange, then such Coverage Test is at least as close to
being satisfied after such exchange as immediately prior to such exchange;
(iii)
it must have a Moody's Rating and an S&P Rating no less than the Defaulted
Obligation for which it was exchanged;
(iv)
the Market Value of such Swapped Defaulted Obligation must be equal to or higher
than the Market Value of the Defaulted Obligation for which it was exchanged;
(v)
the expected recovery rate of such Swapped Defaulted Obligation, as determined by the
Collateral Manager, must be no less than the expected recovery rate of the Defaulted
Obligation for which it was exchanged;
(vi)
as determined by the Collateral Manager, if any of the Portfolio Profile Tests was
satisfied prior to such exchange, it must still be satisfied immediately following such
exchange and if any of the Portfolio Profile Tests was not satisfied immediately
following such exchange, then any such Portfolio Profile Test is at least as close to
being satisfied as immediately prior to such exchange;
(vii)
after giving effect to the purchase, the Moody's Minimum Weighted Average Recovery
Rate Test will be satisfied, or if not satisfied, at least as close to being satisfied after
giving effect to such purchase (or commitment to purchase) as immediately prior to
such purchase (or commitment to purchase);
(viii) the period for which the Issuer held the Defaulted Obligation which was exchanged
will be included for all purposes in the Collateral Management Agreement when
determining the period for which the Issuer holds the Swapped Defaulted Obligation
pursuant to the Collateral Management Agreement; and
(ix)
6.7
no more than one Swapped Defaulted Obligation may be exchanged for a Defaulted
Obligation during each Interest Accrual Period.
Designation for Reinvestment
The Collateral Manager will notify the Issuer and the Collateral Administrator of the details of all
Unscheduled Principal Proceeds and Sale Proceeds which it has designated for reinvestment upon
receipt thereof and will confirm the extent to which such amounts remain designated for reinvestment
two Business Days prior to each Determination Date.
The Collateral Manager (acting on behalf of the Issuer) may direct that the proceeds of sale of any
Collateral Debt Obligation which represents accrued interest be designated as Interest Proceeds and
paid into the Interest Account save for (i) Purchased Accrued Interest and (ii) any interest received in
respect of any Collateral Debt Obligation for so long as it is a Defaulted Obligation.
In addition, provided that the Class D Par Value Ratio is at least equal to 115.11 per cent. following
such designation, on each Determination Date amounts standing to the credit of the Investment Gain
Account shall be applied, at the discretion of the Collateral Manager, either as Interest Proceeds to be
paid into the Interest Account or as Principal Proceeds to be paid into the Principal Account. If the
Class D Par Value Ratio is below 115.11 per cent. on any Determination Date or if any amounts
standing to the credit of the Investment Gains Account are not otherwise applied as Interest Proceeds,
all such amounts shall, on the applicable Determination Date, be applied as Principal Proceeds and paid
into the Principal Account.
6.8
Collateral Enhancement Obligations
The Issuer may from time to time purchase Collateral Enhancement Obligations independently or as
part of a unit with Collateral Debt Obligations being so purchased, provided that such Collateral
Enhancement Obligations may not constitute Margin Stock (except as otherwise permitted under the
Collateral Management Agreement) and may not constitute Dutch Ineligible Securities. The amounts
which may be applied in the acquisition of Collateral Enhancement Obligations shall be limited to the
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Balance standing to the credit of the Collateral Enhancement Account from time to time. The Collateral
Manager acting on behalf of the Issuer may sell Collateral Enhancement Obligations at any time and
shall procure that the proceeds of sale thereof together with all other Distributions received in respect
of Collateral Enhancement Obligations are paid into the Collateral Enhancement Account.
6.9
Exercise of Warrants and Options
The Issuer may at any time exercise a warrant or option attached to a Collateral Debt Obligation or
comprised in a Collateral Enhancement Obligation and shall request the Trustee to instruct the Account
Bank to make any necessary payment pursuant to a duly completed Issuer Order.
6.10
Current Pay Obligations
The Collateral Manager may, at any time with notice to the Collateral Administrator, reclassify a
Collateral Debt Obligation which becomes a Defaulted Obligation as a Current Pay Obligation, if it
meets the definition of Current Pay Obligation. The Collateral Manager may at any time with notice to
the Collateral Administrator classify a Current Pay Obligation as no longer being a Current Pay
Obligation, which for the avoidance of doubt will result in such Collateral Debt Obligation becoming a
Defaulted Obligation (unless such obligation has been cured of such default).
6.11
Margin Stock
The Trust Deed and the Collateral Management Agreement prohibit the Issuer from purchasing Margin
Stock. However, the Issuer may receive Margin Stock in connection with a default, workout,
restructuring, plan or reorganisation or similar event as part of an exchange of, or distribution on, a
Collateral Debt Obligation. In such cases, the Collateral Management Agreement does not permit the
Issuer to hold Margin Stock except to the extent that (a) the value of all Margin Stock held by the
Issuer does not exceed ten per cent. of the CDO Principal Balance and (b) such Margin Stock can be
attributed to the Subordinated Notes Proceeds, in accordance with the Collateral Management
Agreement. Accordingly, the ability of the Issuer to acquire or hold many types of convertible
securities and securities with equity features will be restricted by the limitations imposed on the Issuer's
ability to acquire or hold Margin Stock.
The Agency Agreement provides that the Account Bank and/or the Custodian will be required to
segregate on its books and records Subordinated Notes Collateral Debt Obligations (and the proceeds
thereof). In the event that any Collateral Debt Obligation that is not a Subordinated Notes Collateral
Debt Obligation becomes Margin Stock or Margin Stock is received in exchange for a Collateral Debt
Obligation that is not a Subordinated Notes Collateral Debt Obligation, the Collateral Manager will be
required to sell such Collateral Debt Obligation to the extent required under the Collateral Management
Agreement or, subject to the conditions set forth in the Collateral Management Agreement, may
transfer such Margin Stock into the Subordinated Notes Collateral Debt Obligation Account in
exchange for one or more non-Margin Stock Subordinated Notes Collateral Debt Obligation.
Regulation U governs certain extensions of credit by Regulation U Lenders. Under current
interpretations of Regulation U by the FRB and its staff, the purchase of debt securities such as the
Notes in a private placement constitutes an extension of credit. Among other things, Regulation U
generally imposes certain limits on the amount of Purpose Credit that Regulation U Lenders may
extend that is secured directly or indirectly by Margin Stock. Regulation U also requires certain
Regulation U Lenders (other than Persons that are banks within the meaning of Regulation U) to
register with the FRB. Qualified Institutional Buyers purchasing debt securities in a transaction in
compliance with Rule 144A are generally not required to register with the FRB where the proceeds of
the securities are not Purpose Credit. In addition, non-U.S. Persons that do not have a principal place of
business in a Federal Reserve District of the FRB also are generally not required to register with the
FRB under Regulation U.
The provisions of the Trust Deed and the Collateral Management Agreement are intended to provide
that for purposes of Regulation U (a) the proceeds of the Notes are not used in a manner that would
cause such Notes to be Purpose Credit, although the purchasers of such Notes should consider whether
they are subject to registration requirements under Regulation U to the extent that they do not purchase
their Notes under Rule 144A and have a principal place of business in the United States, and (b) the
purchasers of Subordinated Notes are not Regulation U Lenders because no Margin Stock or any other
194
assets are pledged to the Subordinated Notes and, under the Trust Deed, the Issuer is not permitted to
hold Margin Stock in excess of ten per cent. of the CDO Principal Balance; however, such results are
not guaranteed. See "Risk Factors - Regulation U Requirements".
Purchasers of the Notes that are subject to the registration requirements of Regulation U, as well as any
purchasers of the Notes that are banks within the meaning of Regulation U, may be subject to certain
additional requirements under Regulation U. If the registration or other requirements of Regulation U
are applicable to a purchaser of the Notes and such purchaser does not comply with such requirements,
such failure may result in a violation of Regulation U and such violation, among other things, could
affect the enforceability of such Notes. See "Risk Factors - Regulation U Requirements". Any
purchaser of the Notes that is a bank or that is already registered with the FRB as a Regulation U
Lender, generally must obtain from any Person to whom they extend credit secured by Margin Stock a
Federal Reserve Form U-I (for bank lenders) or Form G-3 (for non-bank lenders). Purchasers of the
Rated Notes may obtain a Form U-I or G-3, as applicable, executed by the Issuer from the Issuer or
(after the Issue Date) the Collateral Administrator, for execution and retention by such purchasers.
Each purchaser of Notes will be responsible for its own compliance with Regulation U, including the
filing by the purchaser of any required registration or annual filings under Regulation U, and
purchasers of the Notes should consult with their own legal advisors as to Regulation U and its
application to them. Purchasers of the Notes not otherwise exempt from registering with the FRB will
be deemed to have covenanted and agreed that if such purchaser is not registered with the FRB on or
prior to the date of their purchase, such purchaser will, within the required time period, register with the
FRB.
6.12
Redemption or Purchase of the Notes
In the event of an optional redemption of the Notes in whole or upon receipt of notification from the
Trustee of the enforcement of the security over the Collateral or the purchase of the Notes of any Class
by the Issuer, the Issuer will (at the direction of the Trustee following the enforcement of such
security), as far as practicable, arrange for liquidation of the Collateral in order to procure that the
proceeds thereof are in immediately available funds by the Business Day prior to the applicable
Redemption Date or date of purchase and sell all or part of the Portfolio, as applicable, without regard
to the foregoing limitations, subject always to any limitations or restrictions set out in the Conditions of
the Notes and the Trust Deed.
6.13
Block Trades
The requirements set out in this Section 6 (Management of the Portfolio) shall be deemed to be
satisfied upon any sale and/or purchase of Collateral Debt Obligations over a period of three days in the
event that such Collateral Debt Obligations satisfy such requirements in aggregate rather than on an
individual basis.
6.14
Eligible Investments
The Collateral Manager shall have the right, on behalf of the Issuer, from time to time to purchase
Eligible Investments out of the Balances standing to the credit of the Accounts (excluding the Payment
Account), provided that no such Eligible Investment may be purchased at a price above par.
6.15
Synthetic Securities
The Issuer may from time to time acquire Collateral Debt Obligations which are Synthetic Securities. A
Synthetic Security is a security denominated in Euro which may be a swap transaction including,
without limitation, a credit default swap, Credit-Linked Obligation, total return swap, debt security,
security issued by a trust or similar vehicle or other investment (excluding any equity investment)
purchased from or entered into by the Issuer with a Synthetic Counterparty (in respect of which, in the
case of Synthetic Securities which are credit default swaps, the Issuer is the credit protection seller), the
returns on which (as determined by the Collateral Manager) are linked to the credit and/or price
performance of a Reference Obligation or Reference Obligor which satisfy the specified Eligibility
Criteria but which may provide for a different maturity, currency, payment dates, interest rate, credit
exposure or other credit or non-credit related characteristics than such Reference Obligation or
Reference Obligor. The Issuer may, subject to Rating Agency Confirmation, enter into Synthetic
Securities with any of the market makers in respect of a credit default swap index (including, without
195
limitation, the iTraxx LevX Credit Default Swap Index) pursuant to which the Issuer will sell credit
protection to such Synthetic Counterparties on each of the Reference Entities which comprise such
index from time to time. In each case, the liability of the Issuer under a Synthetic Security will not
exceed the notional amount of such swap transaction.
The entry into, or acquisition of, any Synthetic Security will be subject to Rating Agency Confirmation
(other than Form-Approved) so long as the Rated Notes are Outstanding. For the avoidance of doubt,
an Asset Swap Obligation shall not constitute a Synthetic Security.
As part of the acquisition or entry into of a Synthetic Security, the Issuer will be required to provide
Synthetic Collateral to the applicable Synthetic Counterparty the principal amount of which is not less
than 100 per cent. of the notional amount of such swap transaction or, if less, an amount sufficient to
meet any payment obligations of the Issuer to the applicable Synthetic Counterparty thereunder and
will be deposited in the Synthetic Collateral Account as security for its payment obligations to the
Synthetic Counterparty under the Synthetic Security. If the Issuer provides such Synthetic Collateral,
the Synthetic Security will provide that the recourse of the Synthetic Counterparty will be limited to
such Synthetic Collateral. Subject as provided below, the Issuer may purchase such Synthetic
Collateral provided that it satisfies the Eligibility Criteria (provided that such Synthetic Collateral may
not include Margin Stock or any Dutch Ineligible Securities). For the purposes of the Collateral
Management Agreement, the purchase price of any Collateral Debt Obligation that is a Synthetic
Security shall include the principal amount of any Synthetic Collateral required to be posted. If so
required, the Issuer shall grant a first priority security interest in such Synthetic Collateral to the related
Synthetic Counterparty and a first priority security interest to the Trustee for the benefit of the Secured
Parties in respect of its rights of redemption and shall cause the Synthetic Counterparty holding such
Synthetic Collateral to be notified of and acknowledge such security interest. Synthetic Collateral (or
any amount received upon liquidation thereof) which ceases to be subject to the first priority security
interest of a Synthetic Counterparty upon expiration, redemption, termination, or sale of a Synthetic
Security shall be deemed to constitute:
(i)
Sale Proceeds in the event that the Synthetic Security was sold, assigned or terminated
at the option of the Issuer, or
(ii)
Unscheduled Principal Proceeds in the event that the Synthetic Security was subject to
an early termination other than by or on behalf of the Issuer or following a credit event;
or
(iii)
Scheduled Principal Proceeds in the event that the Synthetic Security expires at its
scheduled maturity.
Interest (or amounts equivalent thereto) received on the Synthetic Collateral shall constitute Interest
Proceeds and shall be payable into the Interest Account. Upon any release of Synthetic Collateral from
the first priority security interest in favour of the applicable Synthetic Counterparty upon termination or
sale of such Synthetic Security or otherwise, such Synthetic Collateral will (a) if in the form of cash, be
payable into the Principal Account and applied in accordance with the Conditions, (b) to the extent that
it satisfies the Eligibility Criteria, at the discretion of the Collateral Manager, be retained and shall
constitute a Collateral Debt Obligation or (c) in all other circumstances be sold as soon as reasonably
practicable.
For purposes of the Coverage Tests, the definition of "Collateral Debt Obligation", and clause (h) of
the Eligibility Criteria and clauses (f), (g), (h), (i), (j), (k), (l), (q) and (r) of the Portfolio Profile Test
and the Collateral Quality Tests (other than the Moody's Minimum Diversity Test), a Synthetic
Security will be included as a Collateral Debt Obligation having the relevant characteristics of the
Synthetic Security and not of the related Reference Obligation (provided, that (x) the maturity of a
"Credit-Linked Obligation" will be the stated date of the final payment as described in subclause
(b)(iv) of the definition of Credit-Linked Obligation and (y) with respect to the S&P CDO Monitor
Test, the industry characteristic of a Synthetic Security will be that of the related Reference
Obligation).
For purposes of the Moody's Minimum Diversity Test, clause (c) of the Eligibility Criteria and clauses
(b), (c), (d), (e), (m), (n), (o), (p), (s) to (y) (inclusive) of the Portfolio Profile Test, a Synthetic Security
will be included as a Collateral Debt Obligation having the relevant characteristics of the related
196
Reference Obligation (and the issuer of such Synthetic Security will be deemed to be the issuer of the
related Reference Obligation) and not of the Synthetic Security.
For purposes of determining the S&P Rating of a Synthetic Security, the Synthetic Security will be
deemed to have a rating equal to the S&P Rating of such Synthetic Security or, if such Synthetic
Security is not rated by S&P, the S&P Rating thereof as may be assigned by S&P upon the request of
the Issuer or the Collateral Manager.
The entry into, or acquisition of, any Synthetic Security will, save in the case of Form-Approved
Synthetic Securities, be subject to receipt of Rating Agency Confirmation and subject to, at the time
such Synthetic Security is acquired:
(a)
the percentage of the CDO Principal Balance that represents a Synthetic Security issued by
any individual Synthetic Counterparty (except as determined by the Collateral Manager
subject to Rating Agency Confirmation) when combined with the percentage of the CDO
Principal Balance that represents Participations entered into by the Issuer with such Synthetic
Counterparty in its capacity as a Selling Institution not exceeding the individual and aggregate
third party credit exposure limits set out in the Bivariate Risk Table set out in the Collateral
Management Agreement and replicated below determined by reference to the credit rating of
such Synthetic Counterparty (or any guarantor thereof) (and taking the lowest rating assigned
thereto by any Rating Agency); and
(b)
the percentage of the CDO Principal Balance that represents Synthetic Securities and
Participations (except as determined by the Collateral Manager subject to Rating Agency
Confirmation) entered into by the Issuer with Synthetic Counterparties or Selling Institutions
(or any guarantor thereof) having the same credit rating (taking the lowest rating assigned
thereto by any Rating Agency) will not exceed the aggregate percentage set forth in the
Bivariate Risk Table for such credit rating.
6.16
Participations
The Issuer may from time to time acquire an exposure to Collateral Debt Obligations from Selling
Institutions by way of Participation provided that:
(a)
at the time such Participation is acquired, the percentage of the CDO Principal Balance that
represents Participations entered into by the Issuer with a single Selling Institution (except as
determined by the Collateral Manager subject to Rating Agency Confirmation) when
combined with the percentage of the CDO Principal Balance that represents Uncollateralised
Synthetic Securities entered into by the Issuer with such Selling Institution will not exceed the
individual and aggregate percentages set forth in the Bivariate Risk Table determined by
reference to the credit rating of such Selling Institution (or any guarantor thereof):
(b)
at the time such Participation is acquired, the percentage of the CDO Principal Balance that
represents Participations (except as determined by the Collateral Manager subject to Rating
Agency Confirmation) entered into by the Issuer with Selling Institutions (or any guarantor
thereof) and that represents Uncollateralised Synthetic Securities entered into with Synthetic
Counterparties, each having the same credit rating (taking the lowest rating assigned thereto
by any Rating Agency), will not exceed the aggregate third party credit exposure limit set
forth in the Bivariate Risk Table for such credit rating; and
(c)
in the case of a Participation, the Selling Institution of which derives its interest therein from
another Selling Institution, it receives Rating Agency Confirmation with respect thereto,
and for the purpose of determining the foregoing, account shall be taken of each sub-participation from
which the Issuer, directly or indirectly derives its interest in the relevant Collateral Debt Obligation.
"Uncollateralised Synthetic Security" means a Synthetic Security (other than a single name OTC
credit default swap) that is issued by a corporate entity that (i) is not a special purpose vehicle or a trust
and (ii) has a short-term senior unsecured debt rating of "P-1" by Moody's and (iii) a long-term issuer
rating of "A" by S&P and (iv) is not secured by any collateral.
197
If the Selling Institution selling the Participation continues, after such sale, to derive its interest through
a participation or series of participations then:
6.17
(i)
for the purposes of paragraphs (a) and (b) above, each entity (excluding the relevant
borrower) through which such Selling Institution, directly or indirectly, derives its
interest in the relevant Collateral Debt Obligation shall be treated as a Selling
Institution; and
(ii)
the relevant Collateral Debt Obligation shall be treated as a single Participation (with a
Principal Balance equal to that of the relevant Participation) entered into by Issuer with
a Selling Institution having a credit rating prescribed by the relevant Rating Agency as
the combined rating with respect to the combination of the ratings of the entities
(excluding the relevant borrower) from whom the Issuer, directly or indirectly, derives
its interest in the relevant Collateral Debt Obligation.
Revolving Obligations and Delayed Drawdown Collateral Obligations
The Issuer may acquire Collateral Debt Obligations which are Revolving Obligations or Delayed
Drawdown Collateral Obligations from time to time.
Each Revolving Obligation and Delayed Drawdown Collateral Obligation will, pursuant to its terms,
require the Issuer to make one or more future advances or other extensions of credit (including
extensions of credit made on an unfunded basis pursuant to which the Issuer may be required to
reimburse the provider of a guarantee or other ancillary facilities made available to the obligor thereof
in the event of any default by the obligor thereof in respect of its reimbursement obligations in
connection therewith) in the currency in which such Revolving Obligation or Delayed Drawdown
Collateral Obligation is denominated. Such Revolving Obligations and Delayed Drawdown Collateral
Obligations may or may not provide that it may be repaid and reborrowed from time to time by the
Obligor thereunder. Upon acquisition of any Revolving Obligations and Delayed Drawdown Collateral
Obligations, the Issuer shall be required pursuant to the Collateral Management Agreement to deposit
into the Revolving Reserve Account and shall maintain from time to time in the Revolving Reserve
Account amounts equal to the combined aggregate principal amounts of the Unfunded Amounts under
each of the Revolving Obligations and Delayed Drawdown Collateral Obligations. To the extent
required and provided that Rating Agency Confirmation is obtained, the Issuer, or the Collateral
Manager acting on its behalf, may direct that amounts standing to the credit of the Revolving Reserve
Account be deposited with a third party from time to time as collateral for any reimbursement or
indemnification obligations owed by the Issuer to any other lender in connection with a Revolving
Obligation or a Delayed Drawdown Collateral Obligation and upon receipt of an Issuer Order (as
defined in the Collateral Management Agreement), such amounts shall automatically be released from
the security granted thereover pursuant to the Trust Deed. If the advances or extensions of credit
required to be made by the Issuer under the Revolving Obligation or Delayed Drawdown Collateral
Obligation is denominated in a currency other than Euro, the Issuer will be required to enter into an
Asset Swap Transaction in respect of such Collateral Debt Obligation on or about the date of its
acquisition.
6.18
Purchase of Collateral Debt Obligations
The Collateral Debt Obligations will be purchased by the Collateral Manager (or as directed by the
Collateral Manager) acting on behalf of the Issuer. It is anticipated that either the Collateral Manager
will purchase Collateral Debt Obligations in the primary or secondary market on behalf of the Issuer
from dealers unaffiliated with the Collateral Manager or from Affiliates of the Collateral Manager, or
will sell Collateral Debt Obligations to the Issuer from its inventory or the inventories of its Affiliates
or other funds managed by the Collateral Manager so long as internal procedures are followed. See
"Risk Factors - Certain Conflicts of Interest".
6.19
Bivariate Risk Table
The following is the Bivariate risk table (the "Bivariate Risk Table") and as referred to in "Portfolio
Profile Tests", "Characteristics of Synthetic Securities" and "Participations" above in respect of Selling
Institutions and Synthetic Counterparties.
198
(a)
With respect to any Participation or Synthetic Security, a criterion that will be met if
immediately after giving effect to such acquisition, (x) the percentage of the CDO Principal
Balance that consists in the aggregate of (A) Participations with Selling Institutions, and (B)
Synthetic Securities with Synthetic Counterparties that have the same or a lower credit rating,
does not exceed the "aggregate percentage limit" set forth below for such credit rating, and (y)
the percentage of the CDO Principal Balance that consists individually of such Participations
and Synthetic Securities does not exceed the "individual percentage limit" set forth below for
the credit rating of such Selling Institution or Synthetic Counterparty, as applicable;
Long-Term Senior
Unsecured Debt
Rating of Selling
Institution/Synthetic
Counterparty*
*
**
***
(b)
(c)
Long-Term Senior
Unsecured Debt Rating
of Selling
Institution/Synthetic
Counterparty*
Individual Selling
Institution/Synthetic
Counterparty Third
Party Credit Exposure
Limit**
Aggregate Selling
Institution/Synthetic
Counterparty Third Party
Credit Exposure Limit
Moody's
S&P
Aaa
AAA
20%
20%
Aa1
AA+
10%
20%
Aa2
AA
10%
20%
Aa3
AA10%
20%
A1
A+
5%
15%
A2
A
5%
10%
Synthetic Counterparties of Uncollateralised Synthetic Securities only.
As a percentage of the CDO Principal Balance and in respect of the individual third party credit exposure, such limit
shall be determined by reference to the credit exposure to an individual third party with a rating level, as indicated in
the Bivariate Risk Table.
As a percentage of the CDO Principal Balance and in respect of the aggregate third party credit exposure limit, such
limit shall be determined by reference to the aggregate third party credit exposure of all such counterparties which
shares the same or lower rating level, as indicated in the Bivariate Risk Table.
In addition to the foregoing, the Issuer may acquire or enter into an additional ten per cent. in
CDO Principal Balance of Participations or Synthetic Securities and shall be deemed to satisfy
the above to the extent that the agreements governing such Participations or Synthetic
Securities shall, at minimum, permit (except to the extent Rating Agency Confirmation is
received) the Issuer to terminate without loss such agreement (at the related Selling
Institution's or Synthetic Counterparty's sole expense) if the related Selling Institution or
Synthetic Counterparty fails to take any one of the actions set forth below within 30 calendar
days after its failure to have either (x) a rating of its short-term senior unsecured debt
obligations of at least "P-l" or a rating of its long-term senior unsecured debt obligations of at
least "Al" by Moody's, or (y) a rating of its short-term senior unsecured debt obligations of at
least "A-1" or a rating of its long-term senior unsecured debt obligations of at least "AA-" by
S&P:
(A)
at no cost to the Issuer, such Person assigns the agreements governing such
Participation Interest or Synthetic Security to another Person that satisfies the
ratings set forth in clause (a) above (or, if such other Person does not satisfy
such ratings then an Affiliate of such other Person that satisfies such ratings has
absolutely and unconditionally guaranteed (in a form that satisfies each of the
Rating Agencies' then publicly available rating criteria) such other Person's
obligations under such underlying agreements); or
(B)
at no cost to the Issuer, such Person causes its obligations in respect of such
Participation Interest or Synthetic Security to be absolutely and unconditionally
guaranteed (in a form that satisfies each of the Rating Agencies' then publicly
available rating criteria) by an Affiliate that satisfies the ratings set forth above
in this clause (b).
To the extent the CDO Principal Balance of the Participations or Synthetic Securities exceeds
the "aggregate percentage limit" specified in clause (a) above, the Collateral Manager, on
behalf of the Issuer, may select which of such Participations or Synthetic Securities shall
satisfy clause (a) or (b) of this definition.
199
7.
Treatment of Asset Swap Obligations for Purposes of Rating Agency Tests
For the purposes of the Coverage Tests, the Collateral Quality Tests (other than the Moody's Minimum
Diversity Test, the Moody's Minimum Weighted Average Recovery Rate Test, the Moody's Maximum
Weighted Average Rating Factor Test and the S&P Minimum Weighted Average Recovery Rate Test)
and the Portfolio Profile Tests, an Asset Swap Obligation shall be included as a Collateral Debt
Obligation having the relevant characteristics of the related Asset Swap Transaction and not of the
related Collateral Debt Obligation, unless the Collateral Manager (acting on behalf of the Issuer)
determines otherwise and receives Rating Agency Confirmation in respect of such determination.
For the purposes of other than the Moody's Minimum Diversity Test, the Moody's Minimum Weighted
Average Recovery Rate Test, the Moody's Maximum Weighted Average Rating Factor Test and the
S&P Minimum Weighted Average Recovery Rate Test, an Asset Swap Obligation shall be included as
a Collateral Debt Obligation having the relevant characteristics of the related Collateral Debt
Obligation and not of the related Asset Swap Transaction, unless the Issuer, following consultation
with the Collateral Manager, determines otherwise and receives Rating Agency Confirmation.
8.
The Collateral Quality Tests
The Collateral Quality Tests will be used primarily as the criteria for purchasing Collateral Debt
Obligations. The Collateral Quality Tests will consist of:
(a)
(b)
(c)
so long as any Notes rated by S&P are Outstanding:
(i)
(as of the Effective Date and until the end of the Reinvestment Period) the S&P CDO
Monitor Test; and
(ii)
the S&P Minimum Weighted Average Recovery Rate Test;
so long as any Notes rated by Moody's are Outstanding:
(i)
the Moody's Minimum Diversity Test;
(ii)
the Moody's Maximum Weighted Average Rating Factor Test; and
(iii)
the Moody's Minimum Weighted Average Recovery Rate Test;
at all times:
(i)
the Minimum Weighted Average Spread Test; and
(ii)
the Weighted Average Maturity Test;
each as defined in the Collateral Management Agreement.
The Collateral Administrator will (subject to the proviso below) carry out the calculations required for
the Collateral Quality Tests on each Measurement Date on or after the Effective Date.
For the purposes of the Collateral Quality Tests, a zero value shall be assigned to any Unhedged
Collateral Debt Obligation where (a) such Unhedged Collateral Debt Obligation is unhedged after six
months from the date of acquisition thereof or (b) the aggregate Principal Balance of Unhedged
Collateral Debt Obligations exceeds 5.0 per cent. of the Aggregate Principal Balance (for these
purposes, taking into consideration 100 per cent. of the outstanding principal amount of Unhedged
Collateral Debt Obligations) and, for the avoidance of doubt, a zero value shall be assigned to each of
the Unhedged Collateral Debt Obligation which exceeds such 5.0 per cent. limit.
"Measurement Date" means (a) subject as provided below, the Effective Date; (b) the date on which
any of the following occurs: a substitution (which shall include both the date on which the Collateral
Debt Obligation which is being replaced is sold and the date on which the Issuer entered into a binding
commitment to purchase the new Substituted Collateral Debt Obligation, if these are not the same); a
Collateral Debt Obligation becomes a Defaulted Obligation; or the date of acquisition of any
Additional Collateral Debt Obligation; (c) each Determination Date; (d) the last Business Day of any
month and (e) with reasonable (and not less than two Business Days') notice, any Business Day
200
requested by either Rating Agency. For the avoidance of doubt, (a) each of the Portfolio Profile Tests,
the Collateral Quality Tests and (except as provided in (b) below) the Coverage Tests will only be
measured on each Measurement Date occurring on or after the Effective Date and the Euro Equivalent
of all non-Euro amounts will be used in calculating the Coverage Tests on any Measurement Date and
(b) the Issuer shall only be required to satisfy the Class A Interest Coverage Test, the Class B Interest
Coverage Test, the Class C Interest Coverage Test, the Class D Interest Coverage Test and the Class E
Interest Coverage Test on or after the earlier of the Effective Date and the second Determination Date.
Moody's Test Matrix
Subject to the provisions provided below, on or after the Effective Date, the Collateral Manager will
have the option to elect which of the cases set forth in the matrix to be set out in the Collateral
Management Agreement (the "Moody's Test Matrix") shall be applicable for purposes of the Moody's
Maximum Weighted Average Rating Factor Test, the Moody's Minimum Diversity Test, the Moody's
Minimum Weighted Average Recovery Rate Test and the Minimum Weighted Average Spread Test.
For any given case:
(1)
the applicable Moody's Test Matrix for performing the Moody's Minimum Diversity Test will
be the Moody's Test Matrix in which the elected case is set out;
(2)
the applicable row and column for performing the Moody's Maximum Weighted Average
Rating Factor Test will be the row and column in which the elected case is set out in the
applicable Moody's Test Matrix;
(3)
the applicable row for performing the Minimum Weighted Average Spread Test will be the
row in which the elected test is set out; and
(4)
the applicable column for performing the Moody's Minimum Weighted Average Recovery
Rate Test will be the column in which the elected case is set out.
On the Effective Date, the Collateral Manager will be required to elect which case shall apply initially.
Thereafter, on ten Business Days' notice to the Issuer, the Trustee, the Collateral Administrator and
Moody's, the Collateral Manager may elect to have a different case apply, provided that the Moody's
Minimum Diversity Test, the Moody's Maximum Weighted Average Rating Factor Test, the Moody's
Minimum Weighted Average Recovery Rate Test and the Minimum Weighted Average Spread Test
applicable to the case to which the Collateral Manager desires to change are satisfied. To determine the
case, the Collateral Manager may interpolate between two adjacent rows or two adjacent columns or
two adjacent matrices within the same applicable scenario, on a straight-line basis and round the results
to two decimal points.
In no event will the Collateral Manager be obliged to elect to have a different case apply. Additional
cases may be added to the Moody's Test Matrix subject to Rating Agency Confirmation from Moody's.
S&P Tests Matrix
Subject to the provisions provided below, on and after the Effective Date, the Collateral Manager,
acting on behalf of the Issuer, will have the option to elect which of the cases (the "Break-even Rate
Cases") set forth in the matrix set out in the Collateral Management Agreement (the "S&P Tests
Matrix") shall be applicable for purposes of the S&P Minimum Weighted Average Recovery Rate Test
and the Minimum Weighted Average Spread Test and, based on the selection of the Collateral Manager
(on behalf of the Issuer), S&P will provide the Collateral Manager (on behalf of the Issuer) on the
Effective Date and from time to time thereafter until the end of the Reinvestment Period with the
applicable CDO Monitor in connection with the S&P CDO Monitor Test. For any given case:
(1)
the applicable row and column for performing the S&P Minimum Weighted Average
Recovery Rate Test will be the row and column in which the elected case is set out; and
(2)
the applicable row for determining the Minimum Weighted Average Spread will be the row in
which the elected case is set out.
On the Effective Date, the Collateral Manager, acting on behalf of the Issuer, will be required to elect
which Break-even Rate Case shall apply initially. Thereafter, on five Business Days' notice to the
201
Issuer, the Trustee, the Collateral Administrator and S&P, the Collateral Manager (on behalf of the
Issuer) may elect to have a different Break-even Rate Case apply, provided that the S&P Minimum
Weighted Average Recovery Rate Test and the Minimum Weighted Average Spread Test applicable to
the Break-even Rate Case to which the Collateral Manager (on behalf of the Issuer) desires to change
are satisfied. In no event will the Issuer or the Collateral Manager (on behalf of the Issuer) be obliged
to elect to have a different Break-even Rate Case apply.
Additional cases may be added to the S&P Tests Matrix subject to Rating Agency Confirmation from
S&P.
9.
The Moody's Minimum Diversity Test
The "Moody's Minimum Diversity Test" will be satisfied as at any Measurement Date (from and
including the Effective Date) if the Diversity Score equals or exceeds the number set forth in the
applicable Moody's Test Matrix based upon the option chosen by the Collateral Manager as currently
applicable to the Portfolio.
The "Diversity Score" is a single number that indicates collateral concentration and correlation in
terms of both issuer and industry concentration and correlation. It is similar to a score that Moody's
uses to measure concentration and correlation for the purposes of its ratings. A higher Diversity Score
reflects a more diverse portfolio in terms of the issuer and industry concentration.
The Diversity Score for the Collateral Debt Obligations is calculated by summing each of the Industry
Diversity Scores which are calculated as follows, provided that no Defaulted Obligations shall be
included in the calculation of the Diversity Score or any component thereof:
(a)
an "Average Principal Balance" is calculated by summing the Obligor Principal Balances
and dividing by the sum of the aggregate number of Obligors represented;
(b)
an "Obligor Principal Balance" is calculated for each Obligor represented in the Collateral
Debt Obligations by summing the Principal Balances of all Collateral Debt Obligations
(excluding Defaulted Obligations) issued by such Obligor, provided that if a Collateral Debt
Obligation has been sold or is the subject of an optional redemption or Offer, and the Sale
Proceeds or Unscheduled Principal Payments from such event have not yet been reinvested in
Substitute Collateral Debt Obligations or distributed to the Noteholders or the other creditors
of the Issuer in accordance with the Priorities of Payment, the Obligor Principal Balance shall
be calculated as if such Collateral Debt Obligation had not been sold or was not subject to
such an optional redemption or Offer;
(c)
an "Equivalent Unit Score" is calculated for each Obligor by taking the lesser of (i) one and
(ii) the Obligor Principal Balance for such Obligor divided by the Average Principal Balance;
(d)
an "Aggregate Industry Equivalent Unit Score" is then calculated for each of the 34
Moody's industrial classification groups by summing the Equivalent Unit Scores for each
obligor in the industry; and
(e)
an "Industry Diversity Score" is then established by reference to the Diversity Score Table
shown below for the related Aggregate Industry Equivalent Unit Score. If the Aggregate
Industry Equivalent Unit Score falls between any two such scores shown in the table below,
then the Industry Diversity Score is the lower of the two Diversity Scores in the table.
For purposes of calculating the Diversity Score:
(i)
Obligors that are Affiliates with one another will be considered one Obligor, provided,
however, that an Affiliate of an Obligor that is in a different industry from such Obligor
will be treated as a separate Obligor from such Obligor if Rating Agency Confirmation
has been obtained from Moody's. If Moody's modifies its industrial classification
groups, the Collateral Manager may elect to have any or all of the Collateral Debt
Obligations reallocated among such modified industrial classification groups for
purposes of determining the Industry Diversity Score and the Diversity Score;
202
(ii)
a Synthetic Security shall be included as a Collateral Debt Obligation having the
relevant characteristics of the related Reference Obligation and its Reference Obligor
(as applicable) and not of the Synthetic Security, unless the Collateral Manager
determines otherwise and receives Rating Agency Confirmation in respect of such
determination; and
(iii)
all Structured Finance Obligations that are collateralised loan obligations shall be
excluded.
Diversity Score Table
Aggregate
Industry
Equivalent
Unit Score
0.0000
0.0500
0.1500
0.2500
0.3500
0.4500
0.5500
0.6500
0.7500
0.8500
0.9500
1.0500
1.1500
1.2500
1.3500
1.4500
1.5500
1.6500
1.7500
1.8500
1.9500
2.0500
2.1500
2.2500
2.3500
2.4500
2.5500
2.6500
2.7500
2.8500
2.9500
3.0500
3.1500
3.2500
3.3500
3.4500
3.5500
3.6500
3.7500
3.8500
3.9500
4.0500
4.1500
4.2500
4.3500
4.4500
4.5500
4.6500
4.7500
4.8500
4.9500
Industry
Diversity
Score
0.0000
0.1000
0.2000
0.3000
0.4000
0.5000
0.6000
0.7000
0.8000
0.9000
1.0000
1.0500
1.1000
1.1500
1.2000
1.2500
1.3000
1.3500
1.4000
1.4500
1.5000
1.5500
1.6000
1.6500
1.7000
1.7500
1.8000
1.8500
1.9000
1.9500
2.0000
2.0333
2.0667
2.1000
2.1333
2.1667
2.2000
2.2333
2.2667
2.3000
2.3333
2.3667
2.4000
2.4333
2.4667
2.5000
2.5333
2.5667
2.6000
2.6333
2.6667
Aggregate
Industry
Equivalent
Unit Score
5.0500
5.1500
5.2500
5.3500
5.4500
5.5500
5.6500
5.7500
5.8500
5.9500
6.0500
6.1500
6.2500
6.3500
6.4500
6.5500
6.6500
6.7500
6.8500
6.9500
7.0500
7.1500
7.2500
7.3500
7.4500
7.5500
7.6500
7.7500
7.8500
7.9500
8.0500
8.1500
8.2500
8.3500
8.4500
8.5500
8.6500
8.7500
8.8500
8.9500
9.0500
9.1500
9.2500
9.3500
9.4500
9.5500
9.6500
9.7500
9.8500
9.9500
10.0500
Aggregate
Industry
Equivalent
Unit Score
Industry
Diversity
Score
2.7000
2.7333
2.7667
2.8000
2.8333
2.8667
2.9000
2.9333
2.9667
3.0000
3.0250
3.0500
3.0750
3.1000
3.1250
3.1500
3.1750
3.2000
3.2250
3.2500
3.2750
3.3000
3.3250
3.3500
3.3750
3.4000
3.4250
3.4500
3.1750
3.5000
3.5250
3.5500
3.5750
3.6000
3.6250
3.6500
3.6750
3.7000
3.7250
3.7500
3.7750
3.8000
3.8250
3.8500
3.8750
3.9000
3.9250
3.9500
3.9750
4.0000
1.0100
203
10.1500
10.2500
10.3500
10.4500
10.5500
10.6500
10.7500
10.8500
10.9500
11.0500
11.1500
11.2500
11.3500
11.4500
11.5500
11.6500
11.7500
11.8500
11.9500
12.0500
12.1500
12.2500
12.3500
12.4500
12.5500
12.6500
12.7500
12.8500
12.9500
13.0500
13.1500
13.2500
13.3500
13.4500
13.5500
13.6500
13.7500
13.8500
13.9500
14.0500
14.1500
14.2500
14.3500
14.4500
14.5500
14.6500
14.7500
14.8500
14.9500
15.0500
15.1500
Industry
Diversity
Score
4.0200
4.0300
4.0400
4.0500
4.0600
4.0700
4.0800
4.0900
4.1000
4.1100
4.1200
4.1360
4.1400
4.1500
4.1600
4.1700
4.1800
4.1900
4.2000
4.2100
4.2200
4.2300
4.2400
4.2500
4.2600
4.2700
4.2800
4.2900
4.3000
4.3100
4.3200
1.3300
4.3400
4.3500
4.3600
4.3700
4.3800
4.3900
4.4000
4.4100
4.4200
4.4300
4.4400
4.4500
4.4600
4.4700
4.4800
4.4900
4.5000
4.5100
4.5200
Aggregate
Industry
Equivalent
Score
15.2500
15.3500
15.4500
15.5500
15.6500
15.7500
15.8500
15.9500
16.0500
16.1500
16.2500
16.3500
16.4500
16.5500
16.6500
16.7500
16.8500
16.9500
17.0500
17.1500
17.2500
17.3500
17.4500
17.5500
17.6500
17.7500
17.8500
17.9500
18.0500
18.1500
18.2500
18.3500
18.4500
18.5500
18.6500
18.7500
18.8500
18.9500
19.0500
19.1500
19.2500
19.3500
19.1500
19.5500
19.6500
19.7500
19.8500
19.9500
Industry
Diversity
Score
4.5300
1.5400
1.5500
4.5600
4.5700
4.5800
4.5900
4.6000
4.6100
4.6200
4.6300
4.6400
4.6500
4.6600
4.6700
4.6800
4.6900
4.7000
4.7100
4.7200
4.7300
4.7400
4.7500
4.7600
4.7700
4.7800
4.7900
4.8000
4.8100
4.8200
4.8300
4.8400
4.8500
4.8600
4.8700
4.8800
4.8900
4.9000
4.9100
4.9200
4.9300
4.9400
4.9500
4.9600
1.9700
4.9800
4.9900
5.0000
10.
The Weighted Average Maturity Test
The "Weighted Average Maturity Test" means a test which will be satisfied as at any Measurement
Date from (and including) the Effective Date, if the Portfolio Weighted Average Maturity is on or
before 30 October 2018.
"Portfolio Weighted Average Maturity" is, as of any date of determination, the date calculated by
adding the Weighted Average Maturity of the Collateral Debt Obligations to the Issue Date.
The "Weighted Average Maturity" of the Collateral Debt Obligations as of any date of determination
shall be expressed as a number of months from the Issue Date and calculated by (i) summing the
products obtained by multiplying (a) the Principal Balance (or portion thereof) of each Collateral Debt
Obligation (excluding Defaulted Obligations) that is then held by the Issuer and that matures or
amortises on any date subsequent to such date of determination by (b) the number of months from the
Issue Date to the date of such maturity or amortisation (ii) dividing such sum by the sum of (a) the
Aggregate Principal Balance (excluding Defaulted Obligations) and (b) the balance standing to the
credit of the Additional Collateral Account, the Subordinated Notes Additional Collateral Account, the
Principal Account and the Subordinated Notes Principal Account.
11.
The Moody's Maximum Weighted Average Rating Factor Test
The "Moody's Maximum Weighted Average Rating Factor Test" will be satisfied as of any
Measurement Date (from and including the Effective Date) if the Moody's Average Portfolio Rating on
such Measurement Date is equal to or less than the Maximum Moody's Weighted Average Rating
Factor as of such Measurement Date.
The "Moody's Average Portfolio Rating" is determined by (i) summing the products obtained by
multiplying the Principal Balance of each Collateral Debt Obligation, excluding Defaulted Obligations,
by its corresponding Moody's Rating Factor or Implied Moody's Rating Factor (as applicable), (ii)
dividing such sum by the aggregate Principal Balances of all Collateral Debt Obligations, excluding
Defaulted Obligations, and (iii) rounding the result up to the nearest whole number.
The "Maximum Moody's Weighted Average Rating Factor" as of any Measurement Date, will be
equal to the number set forth in the column headed "Maximum Weighted Average Rating Factor" in
the Moody's Test Matrix based upon the option chosen by the Collateral Manager as currently
applicable to the Portfolio.
The "Moody's Rating" of any Collateral Debt Obligation will be determined as follows:
(a)
(b)
for any Collateral Debt Obligation:
(i)
if the Obligor in respect of such Collateral Debt Obligation has a corporate family
rating from Moody's then the Moody's Rating of such Collateral Debt Obligation shall
be such rating;
(ii)
if (i) above does not apply then if the Obligor in respect of such Collateral Debt
Obligation has a senior unsecured obligation publicly rated by Moody's, then the
Moody's Rating of such Collateral Debt Obligation shall be such rating; and
(iii)
if neither (i) nor (ii) above applies, then if the Obligor in respect of such Collateral Debt
Obligation has no senior unsecured obligation publicly rated by Moody's, but the
Collateral Debt Obligation itself is publicly rated, and is a Senior Loan then the
Moody's Rating of such Collateral Debt Obligation shall be one sub-category below
such rating. If such Collateral Debt Obligation is not a Senior Loan and if it is itself
publicly rated, then the Moody's Rating of such Collateral Debt Obligation shall be
such rating; and
if paragraph (a) above does not apply to such Collateral Debt Obligation, the Moody's Rating
shall be determined pursuant to (i) or (ii) of this paragraph (b), at the option of the Issuer, or
the Collateral Manager acting on behalf of the Issuer:
204
(i)
(ii)
the confidential credit estimate assigned to such Collateral Debt Obligation by Moody's
upon the request of the Issuer or the Collateral Manager on behalf of the Issuer which
shall be the Moody's corporate family rating thereof, provided that until such credit
estimate is assigned, such Collateral Debt Obligation shall be deemed to have the
following Moody's Rating (unless or until paragraph (a) above or paragraph (b)(ii)
below applies to such Collateral Debt Obligation):
(A)
(1) if neither the Obligor nor any of its Affiliates is subject to reorganisation or
bankruptcy proceedings, (2) no debt securities or obligations of the Obligor are
in default, (3) neither the Obligor nor any of its Affiliates has defaulted on any
debt during the past two years, (4) the Obligor has been in existence for the past
five years, (5) the Obligor is current on any cumulative dividends, (6) the fixed
charge ratio for the Obligor exceeds 125 per cent. for each of the past two fiscal
years and for the most recent quarter, (7) the Obligor had a net profit before tax
in the past fiscal year and the most recent quarter and (8) the annual financial
statements of the Obligor are unqualified and certain by a firm of independent
certified public accountants of international reputation and quarterly statements
are unaudited but signed by a corporate officer, "B3"; or
(B)
(1) if neither the Obligor nor any of its Affiliates is subject to reorganisation or
bankruptcy proceedings and (2) no debt security or obligation of the Obligor has
been in default during the past two years, "Caa2"; or
(C)
a debt security or obligation of the Obligor has been in default during the past
two years, "Ca"; or
if the Collateral Debt Obligation is rated by S&P, then the implied Moody's rating (the
"Implied Moody's Rating") of such Collateral Debt Obligation will be:
(A)
one sub-category below the issuer rating assigned by S&P if the Obligor of such
Collateral Debt Obligation is rated "BBB-" or better by S&P; and
(B)
two sub-categories below the Moody's equivalent of the issuer rating assigned
by S&P if the Obligor of such Collateral Debt Obligation is rated lower than
"BBB-" by S&P.
Notwithstanding the foregoing: (A) no more than 20 per cent. of the Collateral Debt Obligations may
be given an Implied Moody's Rating based on a rating given by S&P as provided in paragraph (b)
above, (B) no Collateral Debt Obligation may be given an Implied Moody's Rating based on a rating
given by S&P as provided in paragraph (b) above if the Obligor under such Collateral Debt Obligation
has no outstanding debt that is currently paying a coupon, (C) no Structured Finance Obligation,
Finance Lease, Project Finance Security or Synthetic Security may be given an Implied Moody's
Rating based on a rating given by S&P as provided in paragraph (b) above, and (D) if the Collateral
Debt Obligation is a CCC Obligation and has a Moody's Rating Factor assigned to it which falls
between two Moody's Ratings, the Moody's Rating applicable thereto shall be the Moody's Rating with
the higher Moody's Rating Factor.
If the public credit rating or confidential credit estimate of any Collateral Debt Obligation or Obligor
thereof has been placed on credit watch for possible downgrade by Moody's (or, in the case of a rating
derived pursuant to paragraph (b)(ii) above, S&P), the Moody's Rating shall be one subcategory below
the Moody's Rating as otherwise determined in accordance with this definition (two subcategories
below in the case of any Structured Finance Obligation) until such time as the Collateral Debt
Obligation is no longer on credit watch for possible downgrade; or if the public credit rating or
confidential credit estimate of any Collateral Debt Obligation or Obligor thereof has been placed on
credit watch for possible upgrade by Moody's, the Moody's Rating shall be one subcategory above the
Moody's Rating as otherwise determined in accordance with this definition (two subcategories above in
the case of any Structured Finance Obligation), until such time as the Collateral Debt Obligation is no
longer on credit watch for possible upgrade.
If at any time Moody's ceases to provide rating services, references to rating categories of Moody's
shall be deemed instead to be references to the equivalent categories of any other rating agency selected
205
by the Collateral Manager acting on behalf of the Issuer (with written notice to the Trustee), as of the
most recent date on which such other rating agency and Moody's as the case may be, published rating
for the type of security in respect of which such alternative rating agency is used.
The "Moody's Rating Factor" of any Collateral Debt Obligation will mean the number assigned under
the Moody's Rating Factor Table below or any other numbers as communicated by Moody's to the
Moody's Rating of such Collateral Debt Obligation (including, for the avoidance of doubt, any Implied
Moody's Rating Factor determined in accordance with the definition of "Moody's Rating" as set out
above), excluding any Synthetic Security or Project Finance Security, for which a Moody's Rating
Factor will be allocated by Moody's upon Rating Agency Confirmation and subject as provided below
in respect of Structured Finance Obligations which constitute collateralised loan obligations.
Moody's Rating Factor Table
Rating
Rating Factor
Rating
Rating Factor
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
1
10
20
40
70
120
180
260
360
610
Ba1
Ba2
Ba3
B1
B2
B3
Caa1
Caa2
Caa3
Ca
940
1,350
1,766
2,220
2.720
3,490
4,770
6,500
8,070
10,000
The Moody's Rating Factor for Structured Finance Obligations which constitute collateralised loan
obligations (each, a "CLO Tranche") shall be determined as follows:
Moody's Rating of such
CLO Tranche
´ 55 per cent
(1 - R)
Where R will be the percentage assigned under the table below (or any other percentage or number
communicated by Moody's):
Place in Capital Structure of
CLO Tranche in related CLO
Transaction
Min % (exc)
70%
19%
5%
2%
0%
Max %
100%
70%
10%
5%
2%
Initial Moody's Rating of CLO Tranche
Aaa
80%
70%
60%
50%
30%
Aa
75%
60%
50%
40%
25%
A
60%
55%
45%
35%
20%
Baa
50%
45%
35%
30%
15%
Ba
45%
35%
25%
20%
10%
B
30%
25%
15%
10%
4%
The "S&P Rating" of any Collateral Debt Obligation will be determined as follows:
(a)
if there is an issuer credit rating of the issuer of such Collateral Debt Obligation, or of the
guarantor who unconditionally and irrevocably guarantees such Collateral Debt Obligation,
then the S&P Rating of such issuer, or the guarantor, shall be such rating (regardless of
whether there is a published rating by S&P on the Collateral Debt Obligation of such issuer
held by the Issuer); or
(b)
the Collateral Manager must notify S&P that an asset subject to a credit estimate will be/has
been bought and submit all the necessary information to produce a credit estimate and:
206
(i)
pending the receipt of a credit estimate, the asset can be carried at any rating believed
by the Collateral Manager to be commercially reasonable for such asset;
(ii)
if the Collateral Manager submits all necessary information within 30 days of
acquisition of the asset, the asset may continue to be carried at the rating proposed by
the Collateral Manager in (i) above until S&P assigns a different rating; and
(iii)
if the Collateral Manager does not submit all necessary information within 30 days of
acquisition of the asset, S&P will endeavour to produce a credit estimate as soon as
reasonably practicable upon receipt of all necessary information. However, if S&P is
not able to perform a credit estimate after 90 days of acquisition of the asset by the
Collateral Manager the asset will be carried at a rating of "CCC-" until S&P is able to
provide a credit estimate; provided that the Collateral Manager may request an
extension to the 90 day period which will enable the asset to be carried at the rating
proposed by the Collateral Manager. For the avoidance of doubt, S&P is not obligated
to allow such extension.; or
(c)
with respect to any Collateral Debt Obligation that is a Synthetic Security, the S&P Rating of
the issuer or the guarantor of such Collateral Debt Obligation or, if the issuer or the guarantor
of such Collateral Debt Obligation is not rated by S&P, the S&P Rating of such Synthetic
Security shall be the rating assigned thereto by S&P in connection with the acquisition thereof
by the Issuer upon the request of the Issuer or the Collateral Manager; or
(d)
with respect to any Collateral Debt Obligation that is a Structured Finance Obligation, the
S&P Rating of such Collateral Debt Obligation shall be (i) the public rating assigned thereto
by S&P, or (ii) the rating assigned in connection with the acquisition thereof by the Issuer
upon request of the Issuer or the Collateral Manager; or
(e)
with respect to any Current Pay Obligation that is rated "D" or "SD", the S&P Rating of such
Current Pay Obligation will be "CCC-"; or
(f)
if there is no credit rating of the issuer of such Collateral Debt Obligation but another security
or obligation of the issuer is rated by S&P and neither the Issuer nor the Collateral Manager
obtains an S&P Rating for such Collateral Debt Obligation pursuant to (b) above, then the
S&P Rating of such Collateral Debt Obligation shall be determined as follows: (i) if there is a
rating on a senior secured obligation of the issuer, then the S&P Rating of such Collateral Debt
Obligation shall be one subcategory below such rating if such Collateral Debt Obligation is a
senior secured or senior unsecured obligation of the issuer; (ii) if there is a rating on a senior
unsecured obligation of the issuer, then the S&P Rating of such Collateral Debt Obligation
shall equal such rating if such Collateral Debt Obligation is a senior secured or senior
unsecured obligation of the issuer; and (iii) if there is a rating on a subordinated obligation of
the issuer, and if such Collateral Debt Obligation is a senior secured or senior unsecured
obligation of the issuer, then the S&P Rating of such Collateral Debt Obligation shall be one
subcategory above such rating, if such rating is higher than "BB+", and shall be two subcategories above such rating, if such rating is "BB +" or lower; or
(g)
if there is no issuer credit rating published by S&P and such Collateral Debt Obligation is not
rated by S&P, and no other security or obligation of the issuer is rated by S&P and neither the
Issuer nor the Collateral Manager on behalf of the Issuer obtains an S&P Rating for such
Collateral Debt Obligation pursuant to (b) above, then the S&P Rating of such Collateral Debt
Obligation may be determined using any one of the methods provided below:
(i)
if such Collateral Debt Obligation is publicly rated by Moody's, then the S&P Rating of
such Collateral Debt Obligation will be (A) one subcategory below the S&P equivalent
of the public rating assigned by Moody's if such Collateral Debt Obligation is rated
"Baa3" or higher by Moody's and (B) two subcategories below the S&P equivalent of
the public rating assigned by Moody's if such Collateral Debt Obligation is publicly
rated "Ba1" or lower by Moody's provided, however, that (x) an S&P Rating may only
be derived under this paragraph (i) from a Moody's public rating or a Moody's Rating
and may not be derived from any Moody's confidential credit rating or credit estimate
(y) no Synthetic Security may be deemed to have an S&P Rating based on a Moody's
207
Rating and (z) the Aggregate Collateral Balance of the Collateral Debt Obligations that
may be deemed to have an S&P Rating based on a rating assigned by Moody's as
provided in this paragraph (i) may not exceed 20% of the Aggregate Collateral
Balance; or
(ii)
if such Collateral Debt Obligation is not publicly rated by Moody's but a security with
the same ranking (a "parallel security") is publicly rated by Moody's, then the S&P
Rating of such parallel security will be determined in accordance with the methodology
set out in paragraph (i) above,
and the S&P Rating of such Collateral Debt Obligation will be determined in accordance with
the methodology set out in clause (f) above (for such purposes treating the parallel security as
if it were rated by S&P at the rating determined pursuant to either paragraph (i) or paragraph
(ii) above); or
(h)
if no S&P Rating has been determined from any of the foregoing paragraphs and if (i) neither
the Issuer nor any of its Affiliates is subject to reorganisation or bankruptcy proceedings and
(ii) no debt securities or obligations of the issuer have been in default during the past two
years, the S&P Rating of such Collateral Debt Obligations will be "CCC-" except for the
purposes of the CDO Monitor Test where it will be treated as having a S&P Rating of "CCC-";
or
(i)
if no S&P Rating has been determined from any of the foregoing paragraphs and if a debt
security or obligation of the issuer has been in default during the past two years, the S&P
Rating of such Collateral Debt Obligation will be "D".
12.
The Minimum Weighted Average Spread Test
The "Minimum Weighted Average Spread Test" will be satisfied if, as at any Measurement Date
from (and including) the Effective Date, the Weighted Average Spread as at such Measurement Date
equals or exceeds the Minimum Weighted Average Spread as at such Measurement Date.
The "Minimum Weighted Average Spread", as of any Measurement Date, will be equal to the
number set forth in the row headed "Minimum Weighted Average Spread" in respectively the Moody's
Test Matrix and the S&P Tests Matrix based upon the option chosen by the Collateral Manager as
currently applicable to the Portfolio.
The "Weighted Average Spread" is determined as the sum of:
(a)
the products obtained by multiplying the Principal Balance of each Floating Rate Collateral
Debt Obligation, (excluding Asset Swap Obligations, Zero-Coupon Securities, Defaulted
Obligations, Delayed Drawdown Collateral Obligations and Revolving Obligations) by the
margin (expressed in percentage) over EURIBOR or any other applicable floating rate of
interest, as applicable, which is payable in respect of such Collateral Debt Obligation (net of
any withholding taxes not subject to an applicable gross-up obligation) due on the date of
determination;
(b)
the products obtained by multiplying the Principal Balance of each Floating Rate Asset Swap
Obligation (excluding Defaulted Obligations, Delayed Drawdown Collateral Obligations,
Revolving Obligations and Zero-Coupon Securities), by the margin (expressed in percentage)
over EURIBOR or any other applicable floating rate of interest, as applicable, which is
payable by the applicable Asset Swap Counterparty to the Issuer under the Asset Swap
Transaction relating thereto;
(c)
the aggregate of the products obtained by multiplying the Principal Balance of each Fixed
Rate Collateral Debt Obligation (excluding Asset Swap Obligations, Zero-Coupon Securities,
Defaulted Obligations, Delayed Drawdown Collateral Obligations and Revolving
Obligations), by the positive difference if any between the fixed rate coupon thereof and the
Swap Rate thereof;
(d)
the aggregate of the products obtained by multiplying the Principal Balance of each Fixed
Rate Asset Swap Obligation (excluding Defaulted Obligations, Delayed Drawdown Collateral
208
Obligations, Revolving Obligations and Zero-Coupon Securities), by the positive difference if
any between the amount payable by the applicable Asset Swap Counterparty to the Issuer
under the Asset Swap Transaction relating thereto and the Swap Rate thereof;
(e)
the product obtained by multiplying (i) the aggregate of each Unfunded Amount held by the
Issuer as at such Measurement Date in respect of which a commitment fee is receivable by the
Issuer by (ii) the current per annum rate payable by way of such commitment fee in respect of
each such Unfunded Amount;
(f)
in the case of Unhedged Collateral Debt Obligations, (x) the Relevant Percentage (as specified
in either Method 1 or Method 2 as the case may be) of the current per annum rate at which it
pays a floating rate of interest in excess of EURIBOR or such other floating rate index upon
which such Unhedged Collateral Debt Obligation bears interest and (y) the Relevant
Percentage (as specified in either Method 1 or Method 2 as the case may be) of the current per
annum rate at which it pays a fixed rate of interest in excess of the applicable Swap Rate at
such Measurement Date; and
(g)
the product obtained by multiplying (i) the aggregate of each Collateral Funded Amount held
by the Issuer as at such Measurement Date by (ii) the current per annum rate in excess of
EURIBOR or such other floating rate index applicable to each such Collateral Funded Amount
as at such Measurement Date,
dividing such sum by the lesser of (x) the Target Par Amount and (y) aggregate Principal Balance of all
Fixed Rate Collateral Debt Obligations and Floating Rate Collateral Debt Obligations, including Asset
Swap Obligations, Delayed Drawdown Collateral Obligations and Revolving Obligations but excluding
Zero-Coupon Securities and Defaulted Obligations and rounding the result up to the nearest basis point,
provided that the amounts described in (g) above and the Principal Balances of all Unhedged Collateral
Debt Obligations included in the amount by which such sum is divided as described above shall be zero
where (x) such Unhedged Collateral Debt Obligation remains unhedged for a period of over six months
from the date of acquisition thereof or (y) the aggregate Principal Balance of Unhedged Collateral Debt
Obligations exceeds five per cent. of the Aggregate Principal Balance (for these purposes, taking into
consideration 100 per cent. of the Principal Balance of Unhedged Collateral Debt Obligations). For the
purposes of this definition the coupon payable to the Issuer shall be excluded from the calculation to
the extent that the Issuer or the Collateral Manager has actual knowledge or expects that the next
payment of interest due on such Collateral Debt Obligation will not be made by the Obligor thereon.
"Swap Rate" means, as at any date of determination and in respect of any Fixed Rate Collateral Debt
Obligation or Fixed Rate Asset Swap Obligation, a rate equal to the prevailing swap rate with a
maturity equal to the Average Life of such Fixed Rate Collateral Debt Obligation or Fixed Rate Asset
Swap Obligation or the prevailing rate according to any Interest Rate Hedge Transaction relating to the
relevant Fixed Rate Collateral Debt Obligation or Fixed Rate Asset Swap Obligation, as the case may
be.
The "Average Life" means in respect of any Collateral Debt Obligation, as of any date of
determination, its expected remaining average life as determined by the Collateral Manager based on
the Collateral Debt Obligation's principal repayment schedule.
13.
The Moody's Minimum Weighted Average Recovery Rate Test
The "Moody's Minimum Weighted Average Recovery Rate Test" will be satisfied, as at any
Measurement Date from (and including) the Effective Date, if the Weighted Average Moody's
Recovery Rate is greater than or equal to the number set forth in the applicable Moody's Test Matrix
based upon the option chosen by the Collateral Manager as currently applicable to the Portfolio.
The "Weighted Average Moody's Recovery Rate" means, as of any Measurement Date, the number,
expressed as a percentage, obtained by summing the products obtained by multiplying the outstanding
Principal Balance of each Collateral Debt Obligation (excluding Defaulted Obligations and for
Synthetic Securities including the applicable notional amount of the Reference Obligation thereto) by
its corresponding Moody's Recovery Rate and dividing such sum by the Aggregate Principal Balance
(excluding Defaulted Obligations and for Synthetic Securities including the applicable notional amount
of the Reference Obligation thereto) and rounding to the nearest 0.1 per cent., provided that if Moody's
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confirms in writing that the Moody's Recovery Rate for a particular Class of Collateral Debt
Obligations or a particular Collateral Debt Obligation shall be greater or lower than indicated in the
Collateral Management Agreement, such higher or lower Moody's Recovery Rate shall be used. For
purposes of determining the Moody's Recovery Rate applicable to a particular Collateral Debt
Obligation, the Collateral Manager shall determine whether such Collateral Debt Obligation is a
Mezzanine Obligation in the form of a subordinated bond, a loan other than a Senior Secured Loan or
Second Lien Loan based on its reasonable judgment and specific guidelines set forth in the Collateral
Management Agreement.
"Moody's Recovery Rate" means, in relation to each Collateral Debt Obligation, either (a) the
Moody's Recovery Rate allotted to such Collateral Debt Obligation in the Moody's Recovery Rate
Table below, by reference to whether it is a Mezzanine Obligation in the form of a subordinated bond,
a loan other than a Senior Secured Loan (including any Mezzanine Obligation in the form of a loan and
any Second Lien Loan) or a Senior Secured Loan and, in each case, the Associated Country of such
Collateral Debt Obligation; or (b) in respect of Collateral Debt Obligations to which (a) herein is not
applicable, the Moody's Recovery Rate specified in the Collateral Management Agreement, provided
that in respect of Finance Leases, Structured Finance Obligations, Synthetic Securities and Project
Finance Securities, the Moody's Recovery Rate shall be the recovery rate notified thereto by Moody's.
Moody's Recovery Rate Table
Obligor Category
_________________
Tier A1
Tier A2
Tier B
Tier C
Tier D
USA/Canada
Mezzanine Obligations in
the form of subordinated
bonds
______________________
All loans except Senior
Secured Loans (including
any Mezzanine Obligation
in the form of a loan and
any Second Lien Loan)
_____________________
Senior Secured Loans
___________________
20%
10%
20%
15%
10%
22.5%
45%
25%
45%
35%
25%
50%
65%
75%
65%
50%
35%
70%
______________
1
For Collateral Debt Obligations with a Moody's Rating of "Baa2" or above.
2
For Collateral Debt Obligations with a Moody's Rating below "Baa2".
"Obligor Category" means, in respect of any Collateral Debt Obligation, one of Tier A, Tier B, Tier C,
Tier D, or USA /Canada, each as defined below, according to the Associated Country of the Collateral
Debt Obligation.
"Tier A" means, in respect of a Collateral Debt Obligation, Australia, The Netherlands, the United
Kingdom or the Channel Islands.
"Tier B" means, in respect of a Collateral Debt Obligation, Germany, Ireland, Sweden or Switzerland.
"Tier C" means, in respect of a Collateral Debt Obligation, Austria, Belgium, Denmark, Finland,
France, Iceland, Liechtenstein, Luxembourg, Norway or Spain.
"Tier D" means, in respect of a Collateral Debt Obligation, Greece, Italy or Portugal.
"USA/Canada" means, in respect of a Collateral Debt Obligation, Canada or the USA.
Determination of Associated Country
The "Associated Country" of a Collateral Debt Obligation shall be the applicable country determined
in good faith by the Collateral Manager applying the Determination Criteria provided always that
should Moody's assign a country to the Obligor in respect of the Collateral Debt Obligation then such
country shall be the Associated Country for the purposes of this definition.
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"Determination Criteria" means for determining a country in relation to a Collateral Debt Obligation
either (a) the jurisdiction of incorporation of the Obligor in respect of such Collateral Debt Obligation
or (b) where the Collateral Manager in good faith reasonably determines that the laws of another
jurisdiction would primarily govern the allocation of the greatest amount of the economic value which
would be recovered to the benefit of holders of the relevant Collateral Debt Obligation in the case of
bankruptcy, insolvency, winding-up or similar event in respect of such Obligor and/or its Security
Affiliates, such other jurisdiction.
"Security Affiliates" means Affiliates of the Obligor in respect of a Collateral Debt Obligation whose
assets secure, directly or indirectly, such Collateral Debt Obligation.
14.
S&P Minimum Weighted Average Recovery Rate Test
The "S&P Minimum Weighted Average Recovery Rate Test" will be satisfied as at any
Measurement Date from (and including) the Effective Date if the S&P Weighted Average Recovery
Rate is greater than or equal to the percentage specified in the applicable S&P Tests Matrix. For the
purpose of this test, all Collateral Debt Obligations which are Defaulted Obligations shall be excluded.
If the S&P issue rating of such Collateral Debt Obligation which is a security is the same as or one subcategory below the S&P issuer rating of the Obligor thereunder such Collateral Debt Obligation shall
be deemed to be a "Senior Unsecured Debt Security" or if it is two or more sub-categories below the
S&P issuer rating of the Obligor thereunder such Collateral Debt Obligation shall be deemed to be a
"Subordinated Debt Security". Further, a senior loan shall be considered unsecured for the purpose of
the S&P Minimum Weighted Average Recovery Rate Test unless such senior loan is a secured senior
loan obligation or other comparable debt obligation as determined by the Collateral Manager in its
reasonable business judgement and (A) secured by (i) assets of the Obligor or guarantor if and to the
extent security over fixed assets is permissible under applicable law (save in the case of assets so
numerous or diverse that the failure to take such security is consistent with reasonable secured lending
practices), and otherwise (ii) by controlling equity interests in the shares of an entity owning such fixed
assets and (B) no other obligation of the Obligor has any higher priority security interest in such assets
or shares.
"S&P Weighted Average Recovery Rate" means as of any Measurement Date, the number (expressed
as a percentage) obtained by summing the products obtained by multiplying the Principal Balance of
each Collateral Debt Obligation by its S&P Recovery Rate, dividing such sum by the Aggregate
Principal Balance of all Collateral Debt Obligations and rounding up to the nearest 0.1 per cent. For
purposes of this rate, the Principal Balance of a Defaulted Obligation will be deemed to be its
outstanding principal amount.
The "S&P Recovery Rate" means in respect of each Collateral Debt Obligation, the recovery rate
determined in accordance with the Collateral Management Agreement or as so advised by S&P
15.
S&P CDO Monitor Test
The "S&P CDO Monitor Test" will be satisfied on any date from the Effective Date until the end of
the Reinvestment Period if, after giving effect to the purchase or sale of a Collateral Debt Obligation,
the Class A Loss Differential of the Proposed Portfolio is positive on such date. The S&P CDO
Monitor Test will be considered to be "improved" if each of the Class A Loss Differential, the Class B
Loss Differential, the Class C Loss Differential, the Class D Loss Differential and the Class E Loss
Differential of the Proposed Portfolio is greater than the Class A Loss Differential, the Class B Loss
Differential, the Class C Loss Differential, the Class D Loss Differential and the Class E Loss
Differential of the Current Portfolio respectively. The S&P CDO Monitor Test shall not apply until the
later of (a) the Effective Date and (b) the receipt by the Collateral Manager of the CDO Monitor from
S&P. If, on any date, as disclosed in the Issuer's most recent Monthly Report (as defined in
"Description of the Reports – Monthly Reports"), more than 20 per cent. of the CDO Principal Balance
consists of Uncollateralised Synthetic Securities and Participations with counterparties rated "AA-" by
S&P or below then the Collateral Manager (on behalf of the Issuer) shall notify S&P and request that
S&P modify the CDO Monitor accordingly.
The "Class A Loss Differential" is, at any time, the rate calculated by subtracting the Class A Scenario
Loss Rate (as defined below) from the Class A Break-even Loss Rate (as defined below) at such time.
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The "Class A Scenario Loss Rate" is, as of any date of determination, an estimate of the cumulative
default rate for the Current Portfolio or the Proposed Portfolio, as applicable, consistent with a rating of
"AAA" assigned to the Senior Notes by S&P, determined by application of the S&P CDO Monitor on
such date.
The "Class A Break-even Loss Rate" is, as of any date of determination, the maximum percentage of
defaults which the Current Portfolio or the Proposed Portfolio, as applicable, can sustain, as determined
by S&P, through application of the S&P CDO Monitor, which after giving effect to S&P's assumptions
on recoveries and timing and to the Priorities of Payment, will result in sufficient funds remaining for
the payment of the Class A Notes in full by their stated maturity and the timely payment of interest on
the Class A Notes.
The "Class B Loss Differential" is, at any time, the rate calculated by subtracting the Class B Scenario
Loss Rate (as defined below) from the Class B Break-even Loss Rate (as defined below) at such time.
The "Class B Scenario Loss Rate" is, as of any date of determination, an estimate of the cumulative
default rate for the Current Portfolio or the Proposed Portfolio, as applicable, consistent with a rating of
"AA" assigned to the Class B Notes by S&P, determined by application of the S&P CDO Monitor on
such date.
The "Class B Break-even Loss Rate" is, as of any date of determination, the maximum percentage of
defaults which the Current Portfolio or the Proposed Portfolio, as applicable, can sustain, as determined
by S&P, through application of the S&P CDO Monitor, which after giving effect to S&P's assumptions
on recoveries and timing and to the Priorities of Payment, will result in sufficient funds remaining for
the payment of the Class B Notes in full by their stated maturity and the timely payment of interest on
the Class B Notes.
The "Class C Loss Differential" is, at any time, the rate calculated by subtracting the Class C Scenario
Loss Rate (as defined below) from the Class C Break-even Loss Rate (as defined below) at such time.
The "Class C Scenario Loss Rate" is, as of any date of determination, an estimate of the cumulative
default rate for the Current Portfolio or the Proposed Portfolio, as applicable, consistent with a rating of
"A" assigned to the Class C Notes by S&P, determined by application of the S&P CDO Monitor on
such date.
The "Class C Break-even Loss Rate" is, as of any date of determination, the maximum percentage of
defaults which the Current Portfolio or the Proposed Portfolio, as applicable, can sustain, as determined
by S&P, through application of the S&P CDO Monitor, which after giving effect to S&P's assumptions
on recoveries and timing and to the Priorities of Payment, will result in sufficient funds remaining for
the payment of the Class C Notes in full by their stated maturity and the ultimate payment of interest on
the Class C Notes.
The "Class D Loss Differential" is, at any time, the rate calculated by subtracting the Class D Scenario
Loss Rate (as defined below) from the Class D Break-even Loss Rate (as defined below) at such time.
The "Class D Scenario Loss Rate" is, as of any date of determination, an estimate of the cumulative
default rate for the Current Portfolio or the Proposed Portfolio, as applicable, consistent with a rating of
"BBB-" assigned to the Class D Notes by S&P, determined by application of the S&P CDO Monitor on
such date.
The "Class D Break-even Loss Rate" is, as of any date of determination, the maximum percentage of
defaults which the Current Portfolio or the Proposed Portfolio, as applicable, can sustain, as determined
by S&P, through application of the S&P CDO Monitor, which after giving effect to S&P's assumptions
on recoveries and timing and to the Priorities of Payment, will result in sufficient funds remaining for
the payment of the Class D Notes in full by their stated maturity and the ultimate payment of interest
on the Class D Notes.
The "Class E Loss Differential" is, at any time, the rate calculated by subtracting the Class E Scenario
Loss Rate (as defined below) from the Class E Break-even Loss Rate (as defined below) at such time.
The "Class E Scenario Loss Rate" is, as of any date of determination, an estimate of the cumulative
default rate for the Current Portfolio or the Proposed Portfolio, as applicable, consistent with a rating of
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"BB-" assigned to the Class E Notes by S&P, determined by application of the S&P CDO Monitor on
such date.
The "Class E Break-even Loss Rate" is, as of any date of determination, the maximum percentage of
defaults which the Current Portfolio or the Proposed Portfolio, as applicable, can sustain, as determined
by S&P, through application of the S&P CDO Monitor, which after giving effect to S&P's assumptions
on recoveries and timing and to the Priorities of Payment, will result in sufficient funds remaining for
the payment of the Class E Notes in full by their stated maturity and the ultimate payment of interest on
the Class E Notes.
The "Current Portfolio" means the portfolio (measured by Aggregate Principal Balance) of Collateral
Debt Obligations and Eligible Investments existing prior to the sale, maturity or other disposition of a
Collateral Debt Obligation or prior to the purchase of a Collateral Debt Obligation, as the case may be.
The "Proposed Portfolio" means the portfolio (measured by Aggregate Principal Balance) of
Collateral Debt Obligations, Substitute Collateral Debt Obligations and Eligible Investments resulting
from the sale or other disposition of a Collateral Debt Obligation and/or a proposed acquisition of a
Substitute Collateral Debt Obligation from Principal Proceeds, as the case may be.
For the purposes of the S&P CDO Monitor Test should a Collateral Debt Obligation consist of a debt
security issued in connection with the securitisation of the cash flows of a corporate obligor or any
similar security the Obligor for such Collateral Debt Obligation shall be determined by reference to the
source of such cash flows.
16.
Treatment of Unhedged Collateral Debt Obligations for Test Purposes
Upon the first instance that an Unhedged Collateral Debt Obligation is purchased, for the purposes of
the determination of the Coverage Tests and the Minimum Weighted Average Spread Test, the
Collateral Manager shall elect to treat such obligation in accordance with either Method 1 or Method 2.
For the avoidance of doubt such election shall apply for all subsequent purchases of Unhedged
Collateral Debt Obligations.
Method 1
For the purposes of the Par Value Tests and paragraph (a) of the Reinvestment Criteria, when an
Unhedged Collateral Debt Obligation is purchased, the Principal Balance of such Collateral Debt
Obligation shall be 70 per cent. of the outstanding principal amount of such obligation (where such
obligation is denominated in Sterling), or 50 per cent. of the outstanding principal amount of such
obligation (where such obligation is denominated in any other Permitted Currency) (converted in each
case at the then prevailing Spot Rate).
For the purposes of the Interest Coverage Numerator (as used in the Class A Interest Coverage Test, the
Class B Interest Coverage Test, the Class C Interest Coverage Test, the Class D Interest Coverage Test
and the Class E Interest Coverage Test) scheduled interest payments due in respect of any Unhedged
Collateral Debt Obligation shall be 85 per cent. of such payments.
For the purposes of the definition of Weighted Average Spread as used in the Minimum Weighted
Average Spread Test, the Relevant Percentage will be 85 per cent.
Method 2
For the purposes of the Par Value Tests, the Collateral Enhancement Ratio Test and paragraph (a) of
the Reinvestment Criteria when an Unhedged Collateral Debt Obligation is purchased, the Principal
Balance of such Collateral Debt Obligation shall be determined on a weekly basis and is equal to 85 per
cent. of the outstanding principal amount of such obligation (converted at the then prevailing Spot
Rate). To the extent that on any Measurement Date, the Aggregate Principal Balance is less than the
Target Par Amount the Issuer will either sell such obligation or enter into an Asset Swap Transaction in
relation to it.
For the purposes of the Interest Coverage Numerator (as used in the Class A Interest Coverage Test, the
Class B Interest Coverage Test, the Class C Interest Coverage Test, the Class D Interest Coverage Test
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and the Class E Interest Coverage Test) scheduled interest payments due in respect of any Unhedged
Collateral Debt Obligation shall be 70 per cent. of such payments.
For the purposes of the definition of Weighted Average Spread as used in the Minimum Weighted
Average Spread Test, the Relevant Percentage will be 70 per cent.
17.
The Coverage Tests
The Coverage Tests will consist of the Class A Par Value Test, the Class A Interest Coverage Test, the
Class B Par Value Test, the Class B Interest Coverage Test, the Class C Par Value Test, the Class C
Interest Coverage Test, the Class D Par Value Test, the Class D Interest Coverage Test, the Class E Par
Value Test, the Class E Interest Coverage Test and the Collateral Enhancement Ratio Test.
The Coverage Tests will be used primarily to determine whether interest may be paid on the Mezzanine
Notes and the Subordinated Notes. The Coverage Tests will also be used to determine whether
Principal Proceeds (with the exception of the Collateral Enhancement Ratio Test and the Class E
Coverage Tests) and, to the extent needed, funds which would otherwise be used to pay interest on the
Mezzanine Notes and the Subordinated Notes must instead be used to pay principal of the Class A
Notes and, to the extent applicable, the Class B Notes, the Class C Notes, the Class D Notes and the
Class E Notes, in each case, to the extent necessary to cause the Coverage Tests relating to the relevant
Class or Classes of Notes to be met. For avoidance of doubt, the Class E Par Value Test and the Class
E Interest Coverage Test will be used to determine whether funds which would otherwise be used to
pay, among other things, interest on the Subordinated Notes (up to a maximum of 100 per cent. of such
funds available) will be used to redeem the Class E Notes but only to the extent necessary to cause the
Class E Par Value Test to be met or, if less, to redeem the remaining Class E Notes. The Collateral
Enhancement Ratio Test will be used to determine whether funds which would otherwise be used to
pay interest on the Subordinated Notes (up to a maximum of 50 per cent. of such funds available) may
be reinvested in Substitute Collateral Debt Obligations to the extent necessary to cause the Collateral
Enhancement Ratio Test to be met.
Except as provided below, measurement of the degree of compliance with the Coverage Tests will be
required as of each Measurement Date (from and including the Effective Date).
Each of the Class A Par Value Test, the Class A Interest Coverage Test, the Class B Par Value Test, the
Class B Interest Coverage Test, the Class C Par Value Test, the Class C Interest Coverage Test, the
Class D Par Value Test, the Class D Interest Coverage Test, the Class E Par Value Test, the Class E
Interest Coverage Test and the Collateral Enhancement Ratio shall be satisfied on a Measurement Date
if the corresponding Par Value Ratio or Interest Coverage Ratio (as the case may be) is at least equal to
the percentage specified in the table below in relation to that Coverage Test. The Issuer shall be
required to satisfy each of (i) the Class A Interest Coverage Test, the Class B Interest Coverage Test,
the Class C Interest Coverage Test, the Class D Interest Coverage Test and the Class E Interest
Coverage Test from, and including, the earlier of (a) the Effective Date and (b) the second
Determination Date, and then each Determination Date thereafter, and (ii) the Par Value Tests on each
Determination Date.
For purposes of the Coverage Tests, a zero value shall be assigned to any Unhedged Collateral Debt
Obligation where (a) such Unhedged Collateral Debt Obligation remains unhedged for a period of over
six months from the date of acquisition thereof or (b) the aggregate Principal Balance of Unhedged
Collateral Debt Obligations exceeds 5.0 per cent. of the Aggregate Principal Balance (for these
purposes, taking into consideration 100 per cent. of the Principal Balance of Unhedged Collateral Debt
Obligations).
214
Coverage Test and Ratio
Class A Par Value Ratio
Class A Interest Coverage Ratio
Class B Par Value Ratio
Class B Interest Coverage Ratio
Class C Par Value Ratio
Class C Interest Coverage Ratio
Class D Par Value Ratio
Class D Interest Coverage Ratio
Class E Par Value Ratio
Class E Interest Coverage Ratio
Collateral Enhancement Ratio
Percentage at which Test is satisfied
118.09%
120.00%
115.81%
120.00%
110.16%
110.00%
108.11%
105.00%
104.41%
102.00%
105.41%
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DESCRIPTION OF THE COLLATERAL MANAGEMENT AGREEMENT
Pursuant to the Collateral Management Agreement, the Issuer has appointed the Collateral Manager to
manage the Portfolio.
The investment management functions described herein will be performed by the Collateral Manager
pursuant to authority granted to the Collateral Manager by the Issuer under the Collateral Management
Agreement. The Collateral Management Agreement contains procedures whereby the Collateral
Manager will have discretionary authority on behalf of the Issuer in relation to the composition and
management of the Portfolio.
Fees
The Collateral Manager shall, subject to Condition 4(c) (Limited Recourse and Non-Petition) under
"Conditions of the Notes", be paid the Senior Collateral Management Fee and the Subordinated
Collateral Management Fee (in each case, plus any value added tax in respect thereof) in arrear on each
Payment Date in accordance with the Priorities of Payment. Any Senior Collateral Management Fee or
Subordinated Collateral Management Fee not paid on the Payment Date on which it is due will be
added to the Senior Collateral Management Fee or Subordinated Collateral Management Fee, as the
case may be, due on the next occurring Payment Date together with interest accrued on any such
unpaid amount at the rate of Note EURIBOR.
In addition to the above, the Collateral Manager shall be paid a performance related fee, the "Incentive
Management Fee" (plus any value added tax in respect thereof). The Incentive Management Fee is due
and payable on the first Payment Date on which the Subordinated Noteholders receive the
Subordinated Note Hurdle Return Amount and on each Payment Date thereafter and is equal to 20 per
cent. of the cash flow, if any, remaining available for distribution after payments prior thereto in
accordance with the Priorities of Payment.
Termination and Resignation
Automatic Termination Subject to any right of the Collateral Manager to resign (as provided below)
or assign its obligations under the Collateral Management Agreement the Collateral Management
Agreement shall be automatically terminated by the Issuer in the event that: (a) the Issuer determines in
good faith that the Issuer or the Portfolio has become required to register as an investment company
under the provisions of the Investment Company Act by virtue of any action taken by the Collateral
Manager, and the Issuer notifies the Collateral Manager of such requirement; (b) all amounts owing
under or in respect of the Notes and all other amounts owing to the Secured Parties are repaid in full
and the Trust Deed is terminated in accordance with its terms; or (c) the Portfolio is liquidated and the
proceeds of such liquidation are distributed as provided for in the Trust Deed. For the avoidance of
doubt, any such immediate removal will not in any way prejudice the effectiveness of any trades or
other transactions that the Collateral Manager initiated, on behalf of the Issuer, prior to such removal,
even if not yet settled.
Removal without Cause Under the Collateral Management Agreement, the Collateral Manager may be
removed without cause upon 90 days' prior written notice by the Issuer or the Trustee, in each case, as
directed by a Special Quorum Resolution of the holders of the Controlling Class, in the event that on
the most recent Measurement Date after the Effective Date, the Class A Par Value Ratio is less than
100 per cent. or in the event that an Event of Default specified in Condition 10(a)(i) (Non-payment of
Interest) or (ii) (Non-payment of Principal) has occurred and is continuing.
Removal with Cause In addition, the Collateral Manager may be removed for cause upon 30 days'
prior written notice by the Trustee as directed by a Special Quorum Resolution of either the holders of
the Controlling Class or the Subordinated Noteholders (voting at separate meetings). In determining
whether the holders of the requisite percentage of Notes have given any such direction, notice or
consent to remove the Collateral Manager for cause, Notes owned by the Collateral Manager or any
Affiliate thereof shall be disregarded and deemed not to be Outstanding and as further described under
"No Voting Rights" below.
For purposes of the Collateral Management Agreement, "cause" shall mean any one of the following
events: (a) wilful violation by the Collateral Manager of any material obligation by which it is bound
under or pursuant to the Collateral Management Agreement, (b) breach by the Collateral Manager of
216
any material provision of the Collateral Management Agreement and failure to cure such breach within
30 days of its becoming aware of, or its receiving notice from the Trustee of, such breach and provided
that such breach has had, or could not reasonably be expected not to have a material adverse effect on
Holders of the Senior Notes and Mezzanine Notes, (c) certain events of bankruptcy or insolvency in
respect of the Collateral Manager, (d) the occurrence of an act by the Collateral Manager that
constitutes fraud or criminal activity in the performance of its obligations under the Collateral
Management Agreement or the Collateral Manager is found guilty of a criminal offence which
materially adversely affects the Collateral Manager's ability to perform its obligations under the
Collateral Management Agreement, (e) the failure of any representation or warranty made or delivered
in writing by the Collateral Manager in or pursuant to the Collateral Management Agreement to be
correct in any material respect when made and such failure (i) has a material adverse effect on any
Class of Noteholders and (ii) if such failure can be cured, no correction is made for a period of 45 days
after the Collateral Manager becomes aware or receives notice from the Trustee of such failure or
(f) the Collateral Manager ceasing to be permitted to act as such under the laws of the United Kingdom
or to render cross border securities services into The Netherlands and has not obtained the same within
30 days of the same being required.
Resignation The Collateral Manager (i) may resign upon 45 days' written notice to the Issuer (with a
copy to the Trustee) or (ii) may resign upon such shorter notice as may be necessary in the event there
is a change in law or the application of any applicable law which makes it illegal for the Collateral
Manager to carry on its duties under the Collateral Management Agreement or it ceases to be
authorised by the Financial Services Authority (unless such authorisation is not required for the lawful
performance by the Collateral Manager of its obligations under the Collateral Management Agreement)
or (iii) shall either immediately resign or assign and/or novate its rights or obligations to an Affiliate
under the Collateral Management Agreement in the circumstances where the Issuer or the Portfolio has
become required to register as an investment company under the provisions of the Investment
Company Act and the Collateral Manager has, in good faith, determined that it would be adversely
affected thereby and, in the case of (ii) and (iii) herein, such resignation shall take effect on the
termination of such shorter notice or immediately, as applicable, whether or not a replacement
Collateral Manager has been appointed. The Issuer will notify the Noteholders of any such resignation.
Replacement Collateral Manager While any Notes are Outstanding, no removal, termination or
resignation of the Collateral Manager shall be effective (except in the circumstances described above
where it has become illegal for the Collateral Manager to carry on its duties under the Collateral
Management Agreement or the Collateral Manager ceases to be authorised by the FSA or the Issuer or
the Portfolio has become required to register as an investment company under the provisions of the
Investment Company Act) unless (a) a successor collateral manager (the "Successor Collateral
Manager") has agreed in writing to assume all of the Collateral Manager's duties and obligations
pursuant to the Collateral Management Agreement and (b) the Successor Collateral Manager is
consented to by (i) a Special Quorum Resolution or a written resolution of the holders of at least 66⅔
per cent. of the aggregate Principal Amount Outstanding of the Controlling Class then Outstanding
within 30 days after notice and (ii) a Special Quorum Resolution or a written resolution of the holders
of at least 66⅔ per cent. of the aggregate Principal Amount Outstanding of the Subordinated Notes then
Outstanding within 30 days after notice. The Successor Collateral Manager appointed by the Issuer
must be an institution which (A) has demonstrated (or has employees that have demonstrated) the
ability to professionally and competently perform duties similar to those imposed upon the Collateral
Manager under the Collateral Management Agreement and with a substantially similar (or better) level
of expertise, (B) has all of the required consents, authorisations or licenses and the capacity including
the Dutch regulatory capacity to act as Collateral Manager under the Collateral Management
Agreement, as successor to the Collateral Manager thereunder in the assumption of all of the
responsibilities, duties and obligations of the Collateral Manager thereunder, (C) will not cause the
Issuer or the Portfolio to become required to register as an investment company under the provisions of
the Investment Company Act, (D) the Issuer is satisfied that the performance of its duties as Collateral
Manager under the Collateral Management Agreement will not cause the Issuer to become subject to
tax in any jurisdiction where such Successor Collateral Manager is established or doing business, and
(E) notice in respect of such appointment has been obtained. If no Successor Collateral Manager has
been appointed by the Issuer within 120 days or if the Collateral Manager has resigned as a result of it
becoming illegal for the Collateral Manager to carry on its duties under the Collateral Management
Agreement or the Collateral Manager ceases to be authorised by the FSA or the Issuer or the Portfolio
has become required to register as an investment company under the provisions of the Investment
217
Company Act, the Collateral Manager shall appoint a Successor Collateral Manager which satisfies the
criteria listed in (A) through (E) (inclusive) above and which is not one of its Affiliates, failing which,
the Trustee shall be entitled (but not obliged) to appoint a Successor Collateral Manager (on behalf of
the Issuer) (and shall incur no liability for failing to so appoint a Collateral Manager) in each case,
subject to the requirements relating to any Successor Collateral Manager in (A) to (E) (inclusive) in the
paragraph above and subject to (i) a Special Quorum Resolution or a written resolution of the holders
of at least 66⅔ per cent. of the aggregate Principal Amount Outstanding of the Controlling Class then
Outstanding and (ii) a Special Quorum Resolution or a written resolution of the holders of at least 66⅔
per cent. of the aggregate Principal Amount Outstanding of the Subordinated Notes then Outstanding
approving the appointment of the Successor Collateral Manager within 30 days of such appointment.
Until such removal, termination or resignation of the Collateral Manager becomes effective as
contemplated above, the Collateral Manager agrees that (i) it will not direct or cause the Issuer to
acquire any Collateral Debt Obligation (except for trades initiated prior to such removal, termination or
resignation) and (ii) the only types of Collateral Debt Obligations that the Collateral Manager may
direct the Issuer to sell are Withholding Tax Obligations, Equity Securities, Margin Stock, Defaulted
Obligations and Credit Risk Obligations (in addition to any trades initiated prior to such removal,
termination or resignation).
Assignment
The Collateral Manager may not assign its rights or responsibilities (including an "assignment" for the
purposes of the Investment Advisers Act of 1940) under the Collateral Management Agreement
without (a) a Rating Agency Confirmation and (b) the consent of the holders of the Subordinated Notes
and the holders of the Controlling Class, in each case, acting by Ordinary Resolution. Notwithstanding
the foregoing, the Collateral Manager will be permitted (without the consent of any Noteholders or the
Issuer or the Trustee or the Collateral Administrator) upon ten days' prior written notice to the Rating
Agencies and the Issuer, to assign or novate any or all of its rights or obligations under the Collateral
Management Agreement to an Affiliate so long as such Affiliate (A) has demonstrated (or has
employees that have demonstrated) an ability to professionally and competently perform duties similar
to those imposed upon the Collateral Manager under the Collateral Management Agreement and with a
substantially similar (or better) level of expertise, (B) has all necessary consents, authorisations or
licenses and has the capacity including the Dutch regulatory capacity to act as Collateral Manager
under the Collateral Management Agreement, as successor to the Collateral Manager thereunder in the
assumption of all of the responsibilities, duties and obligations of the Collateral Manager thereunder,
(C) will not cause the Issuer to become required to register under the provisions of the Investment
Company Act, (D) the Issuer is satisfied that the performance of its duties as Collateral Manager under
the Collateral Management Agreement will not cause the Issuer to become subject to tax in any
jurisdiction where such Affiliate is established or doing business and (E) Rating Agency Confirmation
in respect of such assignment has been obtained.
In addition, the Collateral Manager may employ Affiliates and third parties to render advice (including
investment advice), to provide services, to arrange for trade execution and other assistance to the Issuer
and to perform any of its duties under the Collateral Management Agreement; provided, however, that
the Collateral Manager will not be relieved of any of its duties under the Collateral Management
Agreement regardless of the performance of any services by Affiliates or third parties.
Further, the Collateral Manager has agreed to grant the Issuer a non-exclusive royalty free licence
pursuant to which the Issuer may, at no cost, use the names "Morgan Stanley Investment Management"
and "Mezzano" for so long as Morgan Stanley Investment Management Limited is the Collateral
Manager. Accordingly, in the event that Morgan Stanley Investment Management Limited ceases to be
the Collateral Manager, the Issuer may be required to change its name.
Holding of Notes by the Collateral Manager
The Collateral Manager or any one or more of its Affiliates or one or more funds managed by it or one
or more of its Affiliates intend to subscribe for at least €7,761,000 aggregate principal amount of
Subordinated Notes on the Issue Date but will not be required to retain such Subordinated Notes or any
other Notes thereafter.
No Voting Rights
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Any Notes held by or on behalf of the Collateral Manager and its Affiliates will have no voting rights
with respect to any vote (or written direction or consent) to remove the Collateral Manager for cause
and will be deemed not to be Outstanding in connection with any such vote(s). For the avoidance of
doubt, any Notes held by or on behalf of the Collateral Manager or any of its Affiliates will have voting
rights with respect to any other vote (written direction or consent), including, without limitation, any
vote to appoint a Successor Collateral Manager.
In respect of any Notes held by the Collateral Manager on behalf of its clients in circumstances where
the Collateral Manager has been authorised by such client(s) to cast its/their votes on its/their behalf,
such Notes will have voting rights with respect to any vote (or written direction or consent) to remove
the Collateral Manager for cause and will be deemed to be Outstanding in connection with any such
vote(s) provided that the Collateral Manager votes in accordance with the respective specific written
instructions of such clients. For the avoidance of doubt, subject to the preceding sentence, any Notes
held by the Collateral Manager on behalf of its clients will have voting rights with respect to any vote
(written direction or consent), including, without limitation, any vote to remove the Collateral Manager
or to appoint a Successor Collateral Manager.
The Trustee is entitled to assume that the Collateral Manager has voted in accordance with the specific
written instructions of its clients as described above without any further enquiry.
Liability of the Collateral Manager
The Collateral Manager assumes, and, will have, no express or implied obligation or responsibility
under the Collateral Management Agreement, the Trust Deed (including the Conditions) or any other
transaction document or otherwise to any person other than the Issuer and, to the extent provided in the
Collateral Management Agreement, the Collateral Administrator, with respect to which, the Collateral
Manager assumes, and will have, no express or implied obligation or responsibility other than to render
to it the specific services required to be rendered by the Collateral Manager under the Collateral
Management Agreement as expressly provided therein and subject to the standard of care described
therein. In particular, the Collateral Manager, its members, managers, directors, officers, employees,
Affiliates and Agents (a) will not be responsible for any action or inaction of the Issuer, the Trustee, the
Collateral Administrator or any other person in following or declining to follow any (i) direction or
instruction of the Collateral Manager given by it pursuant to the authority, discretions and functions
granted to it under the Collateral Management Agreement, or (ii) any recommendation or advice which
may be given by the Collateral Manager in connection with matters relating to the Collateral
Management Agreement and the transactions contemplated therein, (b) does not assume any fiduciary
duty or other implied duty or responsibility with regard to the Issuer, or any other person, or otherwise,
(c) does not guarantee, represent, warrant or otherwise assume any responsibility for the performance
of the Notes or any of the assets comprising the Portfolio or that sufficient funds will be available on
each Payment Date to satisfy the Issuer's payment obligations and (d) does not guarantee, represent,
warrant or otherwise assume any responsibility for the performance by any third party of any contract
entered into on behalf of the Issuer under the Collateral Management Agreement, the Trust Deed or any
other transaction document. In performing any calculations or making any determinations in
connection with its portfolio management functions, the Collateral Manager will be entitled to rely on
information regarding the Portfolio furnished to it by the Collateral Administrator and, subject to its
standard of care, any other party.
The Collateral Manager and its Affiliates and each of their respective directors, employees, officers,
shareholders and agents will not be liable (whether directly or indirectly, in contract, in tort or
otherwise) to the Issuer, its shareholders or creditors (including, but not limited to, the Trustee, the
Noteholders, the Collateral Administrator and any other Secured Party) or any other Person for losses,
claims, damages costs, expenses (including, but not limited to, legal costs and expenses), demands or
liabilities of any nature whatsoever (or actions in respect thereof) (collectively, "Losses") incurred by
any such person that arise out of, in relation to or in connection with any act or omission in the
performance by the Collateral Manager of its functions under or in connection with the Collateral
Management Agreement, except that nothing shall relieve the Collateral Manager from any liability to
the Issuer, its shareholders or creditors (including, but not limited to, the Trustee, the Noteholders, the
Collateral Administrator and any other Secured Party) or any other Person in respect of any direct
Losses (to the exclusion of any consequential, special, punitive or indirect losses which term shall
include without limitation any consequential or indirect economic losses or any loss of turnover, profits
or business) incurred by the Issuer, its shareholders or creditors (including, but not limited to, the
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Trustee, the Noteholders, the Collateral Administrator and any other Secured Party) or any other Person
as a result of the Collateral Manager's own acts or omissions constituting fraud, wilful misconduct,
negligence or bad faith in the performance of its duties under the Collateral Management Agreement
(subject to the standard of care set out therein for the purpose of establishing such fraud, wilful
misconduct, negligence or bad faith and except where such losses are as a result of the fraud, bad faith,
wilful misconduct or negligence of the Collateral Administrator or the Issuer, as the case may be).
Nothing herein shall give rise to any claim against, or liability by, the Collateral Manager for
exemplary or punitive damages.
Without prejudice to the generality of the foregoing, the Collateral Manager will incur no liability to
the Issuer, its shareholders or creditors (including, but not limited to, the Trustee, the Noteholders, the
Collateral Administrator and any other Secured Party) or any other Person in acting upon any signature,
instrument, statement, settlement, notice, resolution, request, direction, consent, order, certificate,
report, opinion, bond or other document or paper (whether received in electronic form or otherwise)
reasonably believed by it to be genuine and to have been signed or originated by the proper party or
parties.
Issuer's Indemnity
The Issuer shall indemnify and hold harmless (the Issuer in such case, the "Indemnifying Party") the
Collateral Manager, the Collateral Administrator, their directors, officers, shareholders, agents and
Affiliates (such parties collectively in such case, the "Indemnified Parties") from and against any and
all expenses reasonably incurred, losses, damages, liabilities, demands, charges and claims of any
nature whatsoever (including reasonable legal fees), in respect of or arising from any acts or omissions
of any Indemnified Party made in good faith in the performance of its duties under the Collateral
Management Agreement and not constituting fraud, bad faith, wilful misconduct or negligence of its
obligations thereunder.
It is accepted and understood that the Collateral Manager is not responsible for the structuring and
operation of the offering of Notes (the "Transaction") or the operation of the Issuer (save for the
activities undertaken hereunder by the Collateral Manager). Nonetheless if the Collateral Manager
incurs any liability in respect of the Transaction other than as a result of any breach by the Collateral
Manager of the provisions of the Collateral Management Agreement or arising from any actions or
omissions of the Collateral Manager which constitute fraud, bad faith, wilful misconduct or negligence
of its obligations thereunder, the Issuer agrees to indemnify and hold harmless the Indemnified Parties
from and against any losses, claims, damages or liabilities (or actions in respect thereof, including
reasonable legal fees and expenses of defending itself against any claim in connection with the exercise
or performance of any of its powers or duties under the Collateral Management Agreement) relating to,
arising out of or in connection with the Transaction.
Delegation
The Collateral Management Agreement shall not be delegated or assigned by the Collateral
Administrator, in whole or in part, without the prior written consent of the Issuer, the Trustee and the
Collateral Manager. The obligations of the Collateral Administrator under the Collateral Management
Agreement may not be delegated, in whole or in part, without the prior written consent of the Issuer,
the Trustee and notwithstanding any such consent, no delegation of duties by the Collateral
Administrator, as applicable, shall relieve it from any liability hereunder. The Collateral Manager may
not assign its rights or responsibilities (including an "assignment" for the purposes of the Investment
Advisers Act of 1940) under the Collateral Management Agreement without (a) a Rating Agency
Confirmation and (b) the consent of the holders of the Subordinated Notes and the holders of the
Controlling Class, in each case, acting by Ordinary Resolution. Notwithstanding the foregoing, the
Collateral Manager will be permitted (without the consent of any Noteholders or the Issuer or the
Trustee or the Collateral Administrator) upon ten days' prior written notice to the Rating Agencies and
the Issuer, to assign or novate any or all of its rights or obligations under the Collateral Management
Agreement to an Affiliate so long as such Affiliate (A) has demonstrated (or has employees that have
demonstrated) the ability to professionally and competently perform duties similar to those imposed
upon the Collateral Manager under the Collateral Management Agreement and with a substantially
similar (or better) level of expertise, (B) has all necessary consents, authorisations or licenses and has
the capacity including the Dutch regulatory capacity to act as Collateral Manager under the Collateral
Management Agreement, as successor to the Collateral Manager hereunder in the assumption of all of
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the responsibilities, duties and obligations of the Collateral Manager hereunder, (C) will not cause the
Issuer to become required to register under the provisions of the Investment Company Act, (D) the
Issuer is satisfied based on an opinion of recognised legal advisers chosen by the Collateral Manager
but acceptable to the Trustee (acting reasonably) that the performance of its duties as Collateral
Manager under the Collateral Management Agreement will not cause the Issuer to become subject to
tax in any jurisdiction where such Affiliate is established or doing business and (E) Rating Agency
Confirmation in respect of such assignment has been obtained. An Affiliate shall include any person
established from time to time in connection with any re organisation or restructuring of the Collateral
Manager group to carry out the investment management or other regulated activities of the Collateral
Manager. Any assignee shall execute and deliver to the Issuer an appropriate agreement naming such
assignee as Collateral Manager whereby such assignee undertakes to assume the rights and obligations
of the Collateral Manager under the Transaction Documents. Upon the execution and delivery of such
a counterpart by the assignee, the Collateral Manager shall be released from further obligations
pursuant to the Collateral Management Agreement, except with respect to its obligations under clause 9
of the Collateral Management Agreement (Limits on Responsibility of the Collateral Manager) arising
prior to such assignment and except with its obligations under clause 35 (Limited Recourse) of the
Collateral Management Agreement. The Issuer's obligations to the Collateral Manager pursuant to
clause 8 (Fees and Expenses of the Collateral Manager) of the Collateral Management Agreement shall
survive such assignment and shall remain enforceable by the Person that was the Collateral Manager
immediately prior to such assignment. No change in control of the Collateral Manager, including any
change in control resulting from a direct or indirect transfer or hypothecation of voting securities of the
Collateral Manager, shall be treated as an assignment for purposes of the Collateral Management
Agreement.
The Collateral Management Agreement shall not be assigned or transferred by the Issuer without the
prior written consent of the Collateral Manager and the Trustee, except in the case of assignment or
transfer by the Issuer (i) to an entity which is a successor to the Issuer permitted under the Trust Deed,
in which case such successor organisation shall be bound hereunder and by the terms of said
assignment in the same manner as the Issuer is bound thereunder or (ii) by way of security to the
Trustee as contemplated by clause 5 (Security) of the Trust Deed. In the event of any assignment or
transfer by the Issuer, the Issuer shall use its best efforts to cause its successor to execute and deliver to
the Collateral Manager such documents as the Collateral Manager shall consider reasonably necessary
to effect fully such assignments.
In addition, the Collateral Manager may employ Affiliates and third parties to render advice (including
investment advice), to provide services, to arrange for trade execution and other assistance to the Issuer
and to perform any of its duties under this Agreement provided, however, that the Collateral Manager
shall not be relieved of any of its duties under the Collateral Management Agreement regardless of the
performance of any services by Affiliates or third parties.
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HEDGING ARRANGEMENTS
The following is a summary of the principal terms of the interest rate, asset swap and currency hedging
transactions (each, respectively, an "Interest Rate Hedge Transaction" or an "Asset Swap
Transaction" or a "Currency Hedge Transaction") that may be entered into by the Issuer in
accordance with the provisions of the Collateral Management Agreement and the Trust Deed. The
following is a summary only and should not be relied upon as an exhaustive description of the detailed
provisions of the Collateral Management Agreement or the terms of the hedging arrangements.
Notwithstanding the following description of the hedging arrangements, under the Collateral
Management Agreement, "Hedge Agreement" is used broadly to include any option agreement,
forward contract or similar agreement, contract or arrangement for the purpose of hedging any basis or
timing risk with respect to any assets owned or to be acquired by the Issuer or any liability or liabilities
by the Issuer incurred after the Issue Date.
Interest Rate Hedging
The Collateral Manager may arrange for the Issuer to enter into Form-Approved Interest Rate Hedge
Agreements and/or Interest Rate Hedge Transactions from time to time in order to manage interest rate
risks in connection with the Issuer's issuance of, and making of payments on, the Notes and ownership
and disposition of the Collateral Debt Obligations with such Interest Rate Hedge Counterparties as it
may elect in its sole discretion. Form-Approved Interest Rate Hedge Agreements will only relate to
those Interest Rate Hedge Transactions entered into by the Issuer which (a) relate to the swapping of a
fixed rate coupon applicable to one specific fixed rate Collateral Debt Obligation for a floating rate, (b)
have an initial notional amount equal to the par value of such Collateral Debt Obligation and which
notional amount will reduce concurrently with any reductions in the par value of such Collateral Debt
Obligation, (c) have a maturity date which corresponds to the stated maturity date of the related
Collateral Debt Obligation and (d) does not require the Issuer to make any initial payments to the
applicable Interest Rate Hedge Counterparty (unless such payment constitutes part of the purchase
price of the related Fixed Rate Collateral Debt Obligation) or to make any termination payments in the
event of a default or early prepayment in whole of such Collateral Debt Obligation. Rating Agency
Confirmation must be obtained in respect of any other type of Interest Rate Hedge Agreement.
All payments due to any Interest Rate Hedge Counterparty under any Interest Rate Hedge Agreement
(other than termination payments) shall be made from Interest Proceeds on each Payment Date prior to
payments on the Notes in accordance with the Priorities of Payment. All termination payments due to
any Interest Rate Hedge Counterparty under any Interest Rate Hedge Agreement shall be paid from
Interest Proceeds and/or Principal Proceeds on each Payment Date in accordance with the Priorities of
Payment.
Asset Swaps
It is anticipated that up to 5.0 per cent. of the Aggregate Principal Balance may consist of Unhedged
Collateral Debt Obligations acquired on the Primary Market denominated in currencies other than Euro
(the "Non-Euro Currencies"), provided that, either:
(i)
the Collateral Manager, on behalf of the Issuer, enters into an Asset Swap Transaction that
matches the asset to be hedged in terms of notional, interest payments and maturity or use its
best efforts to sell or hedge such Unhedged Collateral Debt Obligations within six months of
the settlement date of acquisition thereof (for the avoidance of doubt, if not sold, the Collateral
Manager will still have to use best efforts to sell or hedge after the six-month period); or
(ii)
if following the acquisition, the aggregate Principal Balance of Unhedged Collateral Debt
Obligations would be greater than 5.0 per cent. of the Aggregate Collateral Balance (for these
purposes, taking into consideration 100 per cent. of the Principal Balance of Unhedged
Collateral Debt Obligations) on the date of settlement of the acquisition of such obligation, the
Collateral Manager, on behalf of the Issuer, enters into an Asset Swap Transaction.
Notwithstanding the above, the Collateral Manager, on behalf of the Issuer, may not purchase
Unhedged Collateral Debt Obligations if (i) the Collateral Enhancement Ratio Test or any of the
Coverage Tests are not met, in each case, both before and after such acquisition or (ii) the Aggregate
Principal Balance of the Portfolio is less than the Target Par Amount.
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An Unhedged Collateral Debt Obligation shall be marked to market (converted into its Euro equivalent
using the prevailing spot rate of exchange) no less frequently than weekly and each time the Collateral
Enhancement Ratio Test is calculated. If the Collateral Enhancement Ratio Test is not satisfied, the
Collateral Manager shall either (a) enter into an Asset Swap Transaction or (b) sell the asset to the
extent Sale Proceeds (Euro equivalent converted using the prevailing spot rate of exchange) is greater
than or equal to 85 per cent. of the Unhedged Collateral Debt Obligation Threshold Balance.
For purposes of the above, the following shall have the following meaning:
"Primary Market" means, in respect of acquisition of a Collateral Debt Obligation, such Collateral
Debt Obligation was acquired within 3 months of the date of syndication thereof.
"Unhedged Collateral Debt Obligation Threshold Balance" is 100 per cent. of the Principal Balance
of the Unhedged Collateral Debt Obligation, converted at its Euro equivalent using the Spot Rate at the
time of purchase.
Following the purchase of any Unhedged Collateral Debt Obligations, if the Aggregate Principal
Balance of the Portfolio is less than the Target Par Amount, then the Issuer or the Collateral Manager
on behalf of the Issuer shall immediately enter into associated Asset Swap Transactions in respect of
such Unhedged Collateral Debt Obligations.
Any Asset Swap Transaction shall be subject to receipt of Rating Agency Confirmation unless it is a
Form-Approved Hedge Agreement and the Asset Swap Counterparty shall satisfy the applicable
Required Rating (taking into account any guarantor thereof) and shall have the Dutch regulatory
capacity to enter into derivatives transactions with Dutch residents.
Currency Hedging
The Issuer may, subject to Rating Agency Confirmation, enter into one or more Currency Hedge
Transactions with one or more Currency Hedge Counterparties from time to time. The currency
hedging procedures which the Issuer will follow are intended, together with the Asset Swap
Agreements, to provide at least the minimum protection required by the Rating Agencies as determined
by their multiple stressed scenarios in respect of any potential currency exposure.
Standard Terms of Hedge Agreements
Each Hedge Agreement entered into by or on behalf of the Issuer shall contain the following standard
provisions, save to the extent that any material change thereto is agreed by the Issuer, the applicable
Hedge Counterparty and the Collateral Manager and subject to receipt of Rating Agency Confirmation
in respect thereof.
Limited Recourse
The obligations of the Issuer under each Hedge Agreement will be limited to the proceeds of
enforcement of the Collateral pursuant to Condition 4(c) (Limited Recourse and Non-Petition) as
applied in accordance with the Priorities of Payment set out in Condition 3(c) (Pre-Enforcement
Priorities of Payment).
Counterparties
Rating Downgrade Requirements
In the event that any Rated Notes remain Outstanding and the applicable ratings of the Interest Rate
Hedge Counterparty or any Asset Swap Counterparty or any Currency Hedge Counterparty (each, a
"Swap Counterparty") at any time fall below the applicable Required Rating or are withdrawn, the
applicable Swap Counterparty shall, within the relevant period specified in the relevant Hedge
Agreement, take such steps (such as the posting of collateral with the Issuer or the transfer of its rights
and obligations under the Interest Rate Hedge Transaction or any Asset Swap Transaction or the
Currency Hedge Transaction to which it is party (each a "Swap Transaction") to another entity) as
required by the terms of the relevant Swap Transaction.
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The Swap Counterparties may be Affiliates of the Arrangers and/or Affiliates of the Collateral
Manager, which arrangements may create certain conflicts of interest. See "Risk Factors – Certain
Conflicts of Interest".
Termination
Each Interest Rate Hedge Agreement, Currency Hedge Agreement and Asset Swap Agreement may
terminate by its terms, whether or not the Notes have been paid in full prior to such termination, upon,
among other events, the earlier to occur of:
(a)
certain events of bankruptcy, insolvency, receivership or reorganisation of the Issuer or the
related Swap Counterparty;
(b)
failure on the part of the Issuer or the related Swap Counterparty to make any payment under
the applicable Interest Rate Hedge Agreement, Currency Hedge Agreement or Asset Swap
Agreement within the applicable grace period; and
(c)
an "Illegality" or "Tax Event", as defined in each Interest Rate Hedge Agreement, Currency
Hedge Agreement and Asset Swap Agreement.
A termination of an Interest Rate Hedge Agreement, Currency Hedge Agreement or Asset Swap
Agreement does not constitute an Event of Default under the Notes. Upon any such termination the
Collateral Manager, acting on behalf of the Issuer, shall use reasonable efforts to enter into a substitute
Interest Rate Hedge Agreement together with substitute Interest Rate Hedge Transactions thereunder
(within ten Business Days of the related termination) (each, a "Replacement Interest Rate Hedge
Agreement") or (within ten days of the related termination) a substitute Asset Swap Agreement
together with substitute Asset Swap Transactions thereunder on similar terms (each, a "Replacement
Asset Swap Agreement") or (within ten Business Days of the related termination) a substitute
Currency Hedge Agreement together with substitute Currency Hedge Transactions thereunder on
similar terms (each, a "Replacement Currency Hedge Agreement"), to the extent that the Issuer is
able to enter into such agreements in each case, subject to Rating Agency Confirmation unless a FormApproved Hedge Agreement is used. The Issuer will not enter into such replacement hedging
arrangements except to the extent it is required to do so (see "Description of the Portfolio"). If the
Issuer is unable to obtain a Replacement Interest Rate Hedge Agreement together with substitute
Interest Rate Hedge Transactions thereunder or a Replacement Asset Swap Agreement together with
substitute Asset Swap Transactions thereunder or a Replacement Currency Hedge Agreement together
with substitute Currency Hedge Transactions thereunder on terms reasonably acceptable to it, interest
due on the Notes will be paid from amounts received on the Collateral Debt Obligations without the
benefits of such Interest Rate Hedge Transactions or Asset Swap Transactions or Currency Hedge
Transactions. There can be no assurance that such amounts will be sufficient to provide for the full
payment of interest on the Notes at the applicable interest rates. The repayment in full of the Notes
shall be an additional termination event under the Interest Rate Hedge Agreements, Currency Hedge
Transactions and Asset Swap Agreements.
In addition, in order to liquidate the Collateral following an Event of Default, the Interest Rate Hedge
Agreement(s) must be terminated and proceeds from such liquidation may not be sufficient to pay any
termination payment owing to the Interest Rate Hedge Counterparty in addition to all amounts owing
under the Notes. As a result, the Issuer may be unable to satisfy its obligations in respect of the Notes
in full following the making of such termination payment(s) even though there may have been
sufficient funds for them to do so if such termination payment had not been required.
Transfer and Modification
The Issuer may not modify any Hedge Transaction without Rating Agency Confirmation in relation to
such modification, save in the case of any Hedge Transaction to the extent it would constitute a FormApproved Hedge following such modification. A Swap Counterparty may only assign its obligations
under a Hedge Agreement as specified under the related Hedge Agreement and in accordance with the
Collateral Management Agreement.
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Governing Law and Withholding Tax
The payments to be made to the Issuer by a Hedge Counterparty will not be subject to any withholding
tax at the date on which such Agreement is entered into and each Interest Rate Hedge Agreement, each
Currency Hedge Agreement, each Asset Swap Agreement together with each Interest Rate Hedge
Transaction, Currency Hedge Transaction and Asset Swap Transaction thereunder will be governed by,
and construed in accordance with, the laws of England.
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DESCRIPTION OF THE COLLATERAL ADMINISTRATOR
General
Deutsche Bank AG, London Branch ("Deutsche Bank") will, under the terms of the Collateral
Management Agreement, act as the Collateral Administrator.
In the United Kingdom, Deutsche Bank has been authorised to accept deposits, and is regulated by, the
Financial Services Authority and is subject to the Conduct of Business Rules.
Termination and Resignation of Appointment of the Collateral Administrator
Pursuant to the terms of the Collateral Management Agreement the appointment of the Collateral
Administrator may be terminated (a) without cause at any time upon 45 days' prior written notice by
the Issuer or the Trustee at its discretion or acting upon the directions of the holders of a majority in
aggregate Principal Amount Outstanding of each Class of Notes (subject to being indemnified and/or
secured to its satisfaction) or (b) with cause by the Issuer or the Trustee at its discretion or acting upon
the directions of the holders of a majority in principal amount of each Class of Notes. In addition the
Collateral Administrator can resign its appointment without cause on 45days' written notice and with
cause on ten days' prior written notice. No termination or resignation of the Collateral Administrator
will be effective until a successor collateral administrator has been appointed.
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DESCRIPTION OF THE REPORTS
1.
Monthly Reports
The Collateral Administrator shall, not later than the tenth Business Day after the last Business Day of
each month (excluding any month in which a Note Valuation Report (as defined below) is to be
prepared) commencing in January 2008, on behalf of the Issuer and in consultation with the Collateral
Manager, compile and make available on the Collateral Administrator's internet website to the Trustee,
the Collateral Manager, the Arrangers, the Issuer, the Irish Listing Agent and the Rating Agencies and,
upon written request therefor in the form set out in the Agency Agreement certifying that it is a holder
of a beneficial interest in any Note, to such holder and or designee of such holder, a monthly report (the
"Monthly Report"), which shall contain the information set out below with respect to the Portfolio,
calculated by the Collateral Administrator as of the last Business Day of such month. In addition, the
Collateral Administrator, on behalf of the Issuer, will be responsible for delivering an electronic copy
of the information contained in the Monthly Report, on each date the Monthly Report is distributed, to
any publishers of financial data designated for receipt of such information by the Issuer or the
Collateral Manager from time to time. In addition, for so long as any of the Notes are Outstanding, the
Monthly Report will be available for inspection at the offices of, and copies thereof may be obtained
free of charge upon request from, the Irish Listing Agent.
Portfolio
(i)
the aggregate of the Principal Balances of, respectively, the Collateral Debt Obligations,
Eligible Investments, Unhedged Collateral Debt Obligations and Collateral Enhancement
Obligations;
(ii)
the identity of, the annual interest rate, Stated Maturity, obligor, industry, the principal
balance, country of issuer, the S&P industry code, Moody's rating and S&P rating (in the case
of private, shadow or credit estimate, such rating should be disclosed with an asterisk) of, each
Collateral Debt Obligation and Collateral Enhancement Obligation and details of whether such
obligation is Synthetic Security;
(iii)
the identity of, respectively, any Collateral Debt Obligations and Collateral Enhancement
Obligations that were released for sale or other disposition or that were acquired since the date
of determination of the last Monthly Report;
(iv)
the purchase or sale price of each Collateral Debt Obligation and Collateral Enhancement
Obligations acquired and/or sold since the date of determination of the last Monthly Report
and the identity of the purchasers or sellers thereof, if any, that are Affiliated with the Issuer or
the Collateral Manager; and
(v)
subject to any confidentiality obligations binding on the Issuer, the identity of each Collateral
Debt Obligation that became a Defaulted Obligation or that experienced a rating change since
the last such report;
Accounts
(vi)
the Balances standing to the credit of each of the Accounts; and
(vii)
the purchase price, Balance, annual interest rate, Stated Maturity, obligor and rating of each
Eligible Investment purchased with funds from any Account;
Interest Rate Hedge, Currency Hedge Transactions and Asset Swap Transactions
(viii)
the outstanding notional amount of each Hedge Transaction and any other material
information pertaining to such Hedge Transactions, including their maturity dates and strike
prices, and the then current Moody's Rating and, if applicable, S&P Rating in respect of each
Hedge Counterparty and whether it satisfies the Required Ratings; and
(ix)
the amount scheduled to be received and paid by the Issuer pursuant to each Hedge
Transaction on or before the next Payment Date;
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Coverage Tests and Collateral Quality Tests
(x)
the Class A Par Value Ratio, the Class B Par Value Ratio, the Class C Par Value Ratio, the
Class D Par Value Ratio, the Class E Par Value Ratio and a statement as to whether each of
the Class A Par Value Test, the Class B Par Value Test, the Class C Par Value Test, the Class
D Par Value Test and the Class E Par Value Test is satisfied;
(xi)
the Class A Interest Coverage Ratio, the Class B Interest Coverage Ratio, the Class C Interest
Coverage Ratio, the Class D Interest Coverage Ratio and the Class E Interest Coverage Ratio
and a statement as to whether each of the Class A Interest Coverage Test, the Class B Interest
Coverage Test, the Class C Interest Coverage Test, the Class D Interest Coverage Test and the
Class E Interest Coverage Test is satisfied;
(xii)
the Collateral Enhancement Ratio and a statement as to whether the Collateral Enhancement
Ratio Test is satisfied;
(xiii)
the Moody's Average Portfolio Rating and a statement as to whether the Moody's Maximum
Weighted Average Rating Factor Test is satisfied;
(xiv)
the Diversity Score and, for (1) each Monthly Report prepared during the Reinvestment Period
and (2) so long as any Notes rated by Moody's are Outstanding, a statement as to whether the
Moody's Minimum Diversity Test is satisfied;
(xv)
the Weighted Average Maturity and a statement as to whether the Weighted Average Maturity
Test is satisfied;
(xvi)
the result obtained upon calculation of the Weighted Average Spread and a statement as to
whether each Minimum Weighted Average Spread Test is satisfied;
(xvii)
so long as any Notes rated by Moody's are Outstanding, the Weighted Average Moody's
Recovery Rate and a statement as to whether the Moody's Minimum Weighted Average
Recovery Rate Test is satisfied;
(xviii)
the S&P Weighted Average Recovery Rate and a statement as to whether the S&P Weighted
Average Recovery Rate Test is satisfied; and
(xix)
a statement as to whether the S&P CDO Monitor Test is satisfied (if applicable);
Portfolio Profile Tests
(xx)
in respect of each Portfolio Profile Test, a statement as to whether such test is satisfied,
together with details of the result of the calculations required to be made in order to make such
determination;
(xxi)
the identity and Moody's Rating and S&P Rating of each Synthetic Counterparty and Selling
Institution, together with any changes in the identity of such entities since the date of
determination of the last Monthly Report and details of the aggregate amount of, respectively
Synthetic Securities and Participations entered into with each such entity;
(xxii)
in respect of the Bivariate Risk Table, a statement as to whether or not the limits specified
therein have been satisfied; and
(xxiii)
any applicable rate of withholding tax on payments under any Collateral Debt Obligations.
2.
Note Valuation Report
The Collateral Administrator, on behalf of the Issuer, shall render a report (the "Note Valuation
Report"), prepared in consultation with the Collateral Manager as of each Determination Date, and
delivered to the Collateral Manager, the Arrangers, the Issuer, the Trustee, any holder of a beneficial
interest in any Note and/or a designee of such holder (upon written request therefor in the form set out
in the Agency Agreement certifying that it is such a holder) and the Rating Agencies not later than the
second Business Day preceding the related Payment Date. Upon receipt of each Note Valuation Report,
228
the Collateral Administrator, in the name and at the expense of the Issuer, shall notify the Irish Stock
Exchange, not later than two Business Days prior to a Payment Date, of the aggregate Outstanding
Principal Amount of the Notes of each Class after giving effect to the principal payments, if any, on the
next Payment Date. In addition, for so long as any of the Notes are Outstanding, the Note Valuation
Report will be available for inspection at the offices of, and copies thereof may be obtained free of
charge upon request from, the Irish Listing Agent. The Note Valuation Report shall contain the
following information:
Portfolio
(i)
the aggregate of the Principal Balances of, respectively, the Collateral Debt Obligations,
Eligible Investments and Collateral Enhancement Obligations as of the close of business on
such Determination Date;
(ii)
a list of, respectively, the Collateral Debt Obligations, Eligible Investments and Collateral
Enhancement Obligations indicating the Principal Balance and obligor of each;
(iii)
subject to any confidentiality obligations binding on the Issuer, the identity of each Collateral
Debt Obligation that became a Defaulted Obligation or that experienced a rating change since
the last such report; and
(iv)
the information required pursuant to "Monthly Reports – Portfolio" above;
Notes
(v)
the aggregate principal amount of the Notes of each Class Outstanding and such aggregate
amount as a percentage of the original aggregate amount of the Notes of such Class
Outstanding at the beginning of the Due Period, the amount of principal payments to be made
on the Notes of each Class on the next Payment Date, and the aggregate amount of the Notes
of each Class Outstanding and such aggregate amount as a percentage of the original
aggregate amount of the Notes of such Class Outstanding after giving effect to the principal
payments, if any, on the next Payment Date;
(vi)
the estimated interest payment payable in relation to the Subordinated Notes on the next
Payment Date based on projected scheduled interest payments on the Collateral Debt
Obligations included in the Collateral, less projected estimated amounts payable pursuant to
paragraphs (A) to (BB) (inclusive) and (DD) of Condition 3(c)(i) (Application of Available
Interest Proceeds) and paragraphs (A) to (D) (inclusive) and (F) of Condition 3(c)(ii)
(Application of Principal Proceeds) on such Payment Date; and
(vii)
the interest payable in respect of each Class of Notes on the related Payment Date (in the
aggregate and by Class) including EURIBOR and the Class A Floating Rate of Interest, the
Class B Floating Rate of Interest, the Class C Floating Rate of Interest, the Class D Floating
Rate of Interest and the Class E Floating Rate of Interest;
Payment Date Payments
(viii)
the amounts payable pursuant to Condition 3(c)(i) (Application of Available Interest Proceeds)
and Condition 3(c)(ii) (Application of Principal Proceeds) of the Conditions of the Notes on
the related Payment Date;
(ix)
the Trustee Fees and Expenses and Administrative Expenses payable on the related Payment
Date on an itemised basis; and
(x)
any Scheduled Interest Counterparty Payments, Scheduled Currency Swap Counterparty
Payments, Asset Swap Counterparty Principal Exchange Amounts or Currency Swap
Termination Receipt payable by a Swap Counterparty on or immediately prior to the related
Payment Date;
229
Accounts
(xi)
the Balances standing to the credit of each of the Interest Account and the Principal Account
immediately after all payments and deposits to be made on the next Payment Date:
(xii)
the Balance standing to the credit of each of the other Accounts at the end of the related Due
Period;
Coverage Tests, Collateral Quality Tests and Portfolio Profile Tests
(xiii)
the information required pursuant to paragraphs (x) to (xxiii) (inclusive) of Paragraph 1
(Monthly Reports);
(xiv)
the information required pursuant to "Monthly Reports – Interest Rate Hedge, Currency Hedge
Transactions and Asset Swap Transactions" above.
The Note Valuation Report shall include a reminder that each holder of a beneficial interest in a Rule
144A Note must be able to make the representations set out herein under "Transfer Restrictions – Rule
144A Notes".
In order to obtain a Monthly Report, a Note Valuation Report, the Issuer's audited annual accounts
and/or certain other correspondence each Noteholder will be required to provide evidence that it is
currently the holder of one or more Notes. Each Noteholder that has previously provided evidence that
it is the holder of a Note may at any time be requested by the Trustee or the Collateral Manager to
reconfirm that it continues to be the holder of such Note. If such evidence has not been provided by a
Noteholder to the reasonable satisfaction of the Collateral Administrator within 45 days of any such
request such Noteholder will have no further right to obtain either the Monthly Report or the Note
Valuation Report.
In addition to the above, the Issuer shall use reasonable endeavours to produce any supplemental report
required in respect of the Collateral pursuant to the requirements of the German tax authorities to the
extent that such requirements apply to a German investor in the Notes, provided always that the
production of such a report is not, in the opinion of the Issuer, Collateral Administrator or the
Collateral Manager, unduly onerous and the Issuer will not be required to incur costs above an amount
of €10,000 per annum as set out in the definition of Administrative Expenses as set forth in the Trust
Deed. In addition, the Collateral Administrator shall provide the Issuer with such other information
relating to the Portfolio as the Issuer may reasonably request and which is in the Collateral
Administrator's possession, in order for the Issuer to satisfy its obligation to make certain filings of
information with the Dutch Central Bank.
Each Monthly Report and Note Valuation Report shall state that it is for informational purposes only,
that certain information included in the report is estimated, approximated or projected and that the
report is provided without any representations or warranties as to accuracy or completeness and that
none of the Collateral Manager, the Issuer, the Trustee or the Collateral Administrator will have any
liability for such estimates, approximations or projections.
230
TAX CONSIDERATIONS
General
The following is a summary based on present law of certain Dutch income tax consideration, and U.S.
federal income tax considerations and German income tax considerations for prospective purchasers of
the Notes. It addresses only purchasers that buy in the original offering at the original offering price
and hold the Notes as capital assets. The discussion is a general summary. It is not a substitute for tax
advice. The discussion does not consider the circumstances of particular purchasers, some of which
(such as banks, insurance companies, dealers, tax exempt organizations or persons holding the Notes as
part of a hedge, straddle, conversion, integrated or constructive sale transaction) are subject to special
tax regimes. It also does not address purchasers that buy Notes, in an additional issuance or otherwise,
after the Issue Date.
Dutch Taxation
The comments below are of a general nature based on taxation law and practice in The Netherlands as
at the date of this Prospectus and are subject to any changes therein. They relate only to the position of
persons who are absolute beneficial owners of the Notes. The following is a general description of
certain tax considerations relating to the Notes. It does not purport to be a complete analysis of all tax
considerations relating to the Notes and so should be treated with appropriate caution. In particular, it
does not take into consideration any tax implications that may arise upon a substitution of the Issuer.
Prospective investors should consult their own professional advisors concerning the possible tax
consequences of purchasing, holding and/or selling Notes and receiving payments of interest, principal
and/or other amounts under the Notes under the applicable laws of their country of citizenship,
residence or domicile.
The Issuer has been advised that under the existing laws of The Netherlands:
Withholding Tax
All payments of interest and principal by the Issuer under the Notes can be made free of withholding or
deduction for any taxes of whatsoever nature imposed, levied, withheld or assessed by The Netherlands
or any political subdivision or taxing authority thereof or therein.
Taxes on Income and Capital Gains
A holder of a Note who derives income from a Note or who realises a gain on the disposal or
redemption of a Note will not be subject to Dutch taxation on such income or capital gain unless:
(a)
the holder is, or is deemed to be, resident in The Netherlands or, where the holder is an
individual, such holder has elected to be treated as a resident of The Netherlands; or
(b)
such income or gain is attributable to an enterprise or part thereof which is either effectively
managed in The Netherlands or carried on through a permanent establishment (vaste
inrichting) or a permanent representative (vaste vertegenwoordiger) in The Netherlands; or
(c)
the holder is an individual and such income or gain qualifies as income from activities that
exceed normal active portfolio management in The Netherlands.
Gift, Estate or Inheritance Taxes
Dutch gift, estate or inheritance taxes will not be levied on the occasion of the transfer of a Note by
way of gift by, or on the death of, a holder, unless:
(a)
the holder is, or is deemed to be, resident in The Netherlands for the purpose of the relevant
provisions; or
(b)
the transfer is construed as an inheritance or as a gift made by, or on behalf of, a person who,
at the time of the gift or death, is, or is deemed to be, resident in The Netherlands for the
purpose of the relevant provisions; and
231
(c)
such Note is attributable to an enterprise or part thereof which is either effectively managed in
The Netherlands or carried on through a permanent establishment or a permanent
representative in The Netherlands.
Value Added Tax
There is no Dutch value added tax payable in respect of payments in consideration for the issue of the
Notes or in respect of the payment of interest or principal under the Notes or the transfer of a Note,
provided that Dutch value added tax may, however, be payable in respect of fees charged for certain
services rendered to the Issuer, if for Dutch value added tax purposes such services are rendered, or are
deemed to be rendered, in The Netherlands and an exemption from Dutch value added tax does not
apply with respect to such services.
Other Taxes and Duties
There is no Dutch registration tax, stamp duty or any other similar tax duty payable in The Netherlands
in respect of or in connection with the execution, delivery and/or enforcement by legal proceedings
(including any foreign judgment in the courts of The Netherlands) of the Notes or the performance of
the Issuer's obligations under the Notes.
Residence
A holder of a Note will not be treated as a resident of The Netherlands by reason only of the holding of
a Note or the execution, performance delivery and/or enforcement of the Notes.
Taxation in Germany
The information contained in this section is not intended as tax advice and does not purport to describe
all of the tax considerations that may be relevant to a prospective purchaser of the Notes. It is based
upon German tax laws (including tax treaties) in effect and applied as of the date hereof, which are
subject to change, potentially with retroactive effect. It should be read in conjunction with the section
entitled "Risk Factors — German Investment Tax Act."
Prospective purchasers of the Notes are advised to consult their own tax advisers as to the tax
consequences, under German tax laws and the tax laws of the country in which they are resident,
of purchasing, holding and disposing of the Notes and receiving payments under the Notes.
The Issuer has been advised that the Notes should not qualify as "units" in a foreign investment fund
for the following reason:
Based on a circular of the German Federal Ministry of Finance (Bundesministerium der Finanzen)
dated 2 June 2005 (BStBl. I 2005 page 728 (732), sec. 6), the Notes will not be classified as "units in a
foreign investment fund" if "according to the contractual conditions (Vertragsbedingungen), in addition
to the substitution of debt securities for the purpose of ensuring size, maturity profile and risk structure
only up to 20 per cent. per annum of the assets (Vermögen) of the Issuer may, be traded on a
discretionary basis by the Issuer".
As set out in paragraph 6.2 of the section entitled "Description of the Portfolio", the following rule is
provided for:
"The sum of the aggregate of the Principal Balance of the Collateral Debt Obligations (excluding any
Credit Improved Obligations, Credit Risk Obligations, Equity Securities, Defaulted Obligations or
Withholding Tax Obligations) sold in that year (each such year being a year from, but excluding, the
Effective Date or, as the case may be an anniversary thereof, to, but including, the next succeeding
anniversary thereof) when aggregated with the Principal Balances of the Collateral Debt Obligations
(excluding any sales of any Credit Improved Obligations, Credit Risk Obligations, Equity Securities,
Defaulted Obligations and Withholding Tax Obligations) to be sold does not exceed 20 per cent. of the
sum of the CDO Principal Balance as at the most recent to have occurred of the Effective Date and
each anniversary thereof."
There is no guidance as to how the tax authorities would apply the 20 per cent. threshold in detail and
in particular whether they would include the dispositions of Credit Improved Obligations within the 20
232
per cent. threshold. Accordingly, the Issuer believes that good arguments the rules taken from the
Prospectus should comply with the rules established by the tax authorities in the above circular
however no assurance can be given that the Investment Tax Act will not be applicable to the Class E
Notes and the Subordinated Notes.
The Issuer has been advised that the tax authorities would be expected to follow the above
interpretation issued by the German Federal Ministry of Finance. The tax authorities may, however,
change their position with effect for the future or, although this is considered unlikely, with retroactive
effect. Furthermore, there is no case law on this issue and the German courts may or may not share the
view expressed by the German Federal Ministry of Finance, if the issue were ever brought to court.
Investors subject to the German Investment Tax Act
If the German Investment Tax Act applies then it will apply to an investor holding "units"
(Investmentanteile) which fall within the scope of the Investment Tax Act if (i) such an investor is
resident in Germany for German tax purposes or (ii) such an investor is not resident in Germany for
German tax purposes but holds such units through a permanent establishment (or a permanent
representative) in Germany or (iii) such an investor (other than a foreign credit institution or a foreign
financial services institution) physically presents such units at the office of a German Disbursing Agent
(as defined below) (an "over-the-counter transaction" – Tafelgeschäft) (all such investors together,
the "Investors Subject to the Investment Tax Act"). A "German Disbursing Agent" means a
German credit institution or a German financial services institution each as defined in the German
Banking Act (Kreditwesengesetz), including a German branch of a non-German credit institution or a
non-German financial services institution, but excluding a non-German branch of a German credit
institution or a German financial services institution.
The Issuer will use its reasonable efforts to comply with the minimum statutory reporting and
publication requirements of the Investment Tax Act (if applicable) for "semi-transparent" funds (the
"Minimum Reporting Requirements") provided always that (i) compliance with such Minimum
Reporting Requirements is not, in the opinion and at the entire discretion of the Issuer or Collateral
Manager in consultation with the Collateral Administrator, unduly onerous, (ii) the Issuer may satisfy
such Minimum Reporting Requirements by providing the requisite financial information (upon such
information being made available to it) to a professional German tax adviser with instructions to such
adviser to re-format the relevant information as required as well as to certify the re-formatted
information and to publish such information in the Electronic Federal Gazette in accordance with
Section 5 of the Investment Tax Act on behalf of the Issuer and (iii) neither the Issuer, the Trustee, the
Collateral Administrator, the Collateral Manager nor any Agent shall have any liability whatsoever for
any such information prepared and/or published under the Minimum Reporting Requirements or for
any tax consequences to any Noteholder or other party. It is believed that, in consequence of
compliance with such Minimum Reporting Requirements, investors holding Notes which are subject to
the Investment Tax Act will not be subject to the lump-sum taxation provisions of section 6 of the
Investment Tax Act, but that in principle the rules for semi-transparent funds will apply. Under the
rules of the Investment Tax Act for semi-transparent funds, the Issuer's taxable earnings (e.g. payments
of interest received) are in principle taxed in the hands of investors. Certain earnings retained by the
Issuer (e.g. retained interest income) (if any) would be deemed to be distributed to investors holding
Notes which are subject to the Investment Tax Act at the end of the Issuer's financial year in which the
income was earned by the Issuer. Therefore, a tax liability for investors could arise before payments
have actually been received.
Where units to which the Investment Tax Act applies are kept in a custodial account maintained with a
German Disbursing Agent, such German Disbursing Agent would be required to withhold tax at a rate
of 30 per cent. (plus solidarity surcharge thereon at a rate of 5.5 per cent.) not only of the gross amount
of interest paid, but in addition at the point of time the units are sold or redeemed by the Issuer also of
the aggregate amount of income deemed to have accrued to investors holding units which are subject to
the Investment Tax Act and not yet otherwise subject to taxation. In the case of an over-the-countertransaction, such withholding tax is levied at the rate of 35 per cent. (plus solidarity surcharge thereon
at a rate of 5.5 per cent.).
However, if the Issuer does not comply with the Minimum Reporting Requirements, or if the German
tax authorities do not accept the validity of such reporting, the investors holding Notes which are
subject to the Investment Tax Act will be subject to the adverse lump-sum taxation provisions of
233
section 6 of the Investment Tax Act pursuant to which the higher of (i) distributions on such Notes, the
interim profit (Zwischengewinn) and 70 per cent. of the annual increase in the market price of such
Notes and (ii) 6 per cent. of the market price of such Notes at the end of every calendar year, (the
"Assumed Profits") would be taxed. The interim profit represents mainly interest accrued or received
by an investment fund (within the meaning of the Investment Tax Act) but not yet distributed or
attributed to the investors in the fund.
Moreover, there is a risk that investments made by or on behalf of the Issuer qualify as units in foreign
investment funds (within the meaning of the Investment Tax Act) which do not satisfy the Minimum
Reporting Requirements and therefore qualify as "non-transparent" (sub-) funds. In this case the Issuer
may be deemed to have earned Assumed Profits from these investments according to the lump-sum
taxation provisions of section 6 of the Investment Tax Act and such Assumed Profits may accordingly
be attributed to investors holding units which are subject to the Investment Tax Act, resulting in
adverse tax and liquidity consequences for such investors.
Investors should be aware that there are a number of uncertainties regarding the interpretation of the tax
provisions contained in the Investment Tax Act (including those relating to the Minimum Reporting
Requirements).
Taxation of investors tax resident in Germany and not subject to the Investment Tax Act
Payments of interest (including accrued interest) on Notes not falling within the scope of the
Investment Tax Act paid to an investor who is resident in Germany for German tax purposes (a
"German Investor") is subject to corporate income tax (Körperschaftsteuer) or income tax
(Einkommensteuer) (plus in both cases a solidarity surcharge thereon at a rate of 5.5 per cent.) and, if
the Notes are held as business assets, to trade tax (Gewerbesteuer) in Germany.
Any gains realized upon a sale or partial or final redemption of Notes (including accrued interest) over
their current book value or otherwise realized ("Capital Gains") by a German Investor who holds
Notes as business assets are subject to income tax or corporate income tax (plus a solidarity surcharge
thereon at a rate of 5.5 per cent.) and, if the Notes form part of a permanent establishment maintained
in Germany by the German Investor, to trade tax. Tax treaties concluded by Germany generally permit
German tax authorities to impose a tax on such Capital Gains in this situation.
In case of German individual Investors who hold Notes as part of their private assets and to the extent
the Notes qualify as financial innovations in the meaning of the German Income Tax Act
(Einkommensteuergesetz), any gains realised upon a sale or partial or final redemption of Notes
(including accrued interest) over their acquisition costs or otherwise realised are subject to income tax
(plus a solidarity surcharge thereon at a rate of 5.5 per cent.).
To the extent Notes held by German individual Investors as part of their private assets do not qualify as
financial innovations, gains realised upon a sale or partial or final redemption of Notes (including
accrued interest) or otherwise realised are not subject to German income tax provided the individual
investor has held the Notes for a period of more than one year.
If the Notes are held in a custodial account which the German Investor maintains with a German
Disbursing Agent, a 30 per cent. (or 35 per cent. in the case of over-the-counter transactions
(Tafelgeschäft)) withholding tax on interest payments (Zinsabschlagsteuer) plus a 5.5 per cent.
solidarity surcharge thereon, will be levied. Withholding tax on interest is also imposed on interest
which has accrued up to the sale, transfer or redemption of Notes and been credited separately
(Stückzinsen).
Withholding tax and a solidarity surcharge on interest payments (including accrued interest) are
credited as prepayments against the German income or corporate income tax and the solidarity
surcharge liability of the German Investor. Where interest (including accrued interest) is subject to
withholding tax, the Issuer is not required to gross up any payments made to a German Investor or to
otherwise compensate or indemnify such German Investor for withholding taxes levied in connection
with the Notes.
Where Capital Gains are taxable in Germany and the German Investor keeps the Notes in a custodial
account maintained with a German Disbursing Agent, withholding tax is deducted at a rate of 30 per
cent. (plus a solidarity surcharge thereon at a rate of 5.5 per cent.) of the amount by which the proceeds
234
from the sale or redemption of the Notes exceed the purchase price paid by such German Investor. This
is the case provided that since acquisition such Notes have been held by the German Disbursing Agent
in a custodial account; where the Notes have not been so held, withholding tax is deducted at a rate of
30 per cent. (plus a solidarity surcharge thereon at a rate of 5.5 per cent.) based on 30 per cent. of the
proceeds derived from the sale or redemption of the Notes. In the case of over-the-counter transactions,
withholding tax will be levied at a rate of 35 per cent. (plus solidarity surcharge thereon at a rate of 5.5
per cent.). Withholding tax is credited against the final liability of the German Investor to income tax or
corporate income tax. The Issuer is not required to gross up any payments made to a German Investor
or to otherwise compensate or indemnify such German Investor for withholding taxes levied in
connection with Capital Gains.
On May 25, 2007 the German Federal Parliament (Bundestag) approved a tax reform bill presented by
the German government. According to the tax reform bill a flat rate settlement tax (Abgeltungssteuer)
on investment income and private capital gains will be introduced as an element of the said tax reform.
The flat tax would be levied as a withholding tax, inter alia, on interest income and capital gains from
the disposal of securities including full risk notes held as non-business assets, irrespective of any
holding period. The flat tax would satisfy any income tax liability of the investor in respect of such
investment income or private capital gains. The tax would be levied at a rate of 25 per cent. (plus 5.5
per cent. solidarity surcharge thereon and, if applicable, church tax) of the relevant gross income.
However, taxpayers may apply for a tax assessment i.e. to include all investment income and private
capital gains in their taxable income if the resulting tax would be lower. The latter would be the case if
the personal income tax rate of the investor were to be lower than the flat tax rate. However, even if
this were to be the case, the investment income and private capital gains would have to be taken into
account at their gross amount, i.e. any income-related expenses except for a small lump-sum tax
allowance would not be deductible from the investor's tax base.
According to the tax reform bill, the flat rate settlement tax would take effect from January 1, 2009. A
decision by the German Parliament of the Federal States (Bundesrat) is scheduled for July 6, 2007.
Taxation of investors not tax resident in Germany and not subject to the Investment Tax Act.
Payments of interest (including accrued interest) on Notes not falling within the scope of the
Investment Tax Act paid to an investor who is not resident in Germany for tax purposes (a "Foreign
Investor") and Capital Gains realised by a Foreign Investor are subject to German taxation and in
certain cases also to German withholding tax if the Notes form part of the business assets of a
permanent establishment (including a permanent representative) maintained in Germany by the Foreign
Investor or if a Foreign Investor physically presents the Notes at the office of a German Disbursing
Agent (an over-the-counter transaction).
United States Federal Income Taxation
In General
The following summary describes the principal U.S. federal income tax consequences of the purchase,
ownership and disposition of the Notes to investors that acquire the Notes at original issuance for an
amount equal to the "Issue Price" of the relevant Class of Notes (for purposes of this section, with
respect to each such Class of Notes, the first price at which a substantial amount of Notes of such Class
are sold to the public (excluding bond houses, brokers, underwriters, placement agents, and
wholesalers) is referred to herein as the "Issue Price"). This summary does not purport to be a
comprehensive description of all the tax considerations that may be relevant to a particular investor's
decision to purchase the Notes. In addition, this summary does not describe any tax consequences
arising under the laws of any state, locality or taxing jurisdiction other than the United States federal
income tax laws. In general, the summary assumes that a holder holds a Note as a capital asset and not
as part of a hedge, straddle, or conversion transaction, within the meaning of Section 1258 of the Code.
______________________________
The advice below was not written and is not intended to be used and cannot be used by any taxpayer
for purposes of avoiding United States federal income tax penalties that may be imposed. The advice is
written to support the promotion or marketing of the transaction. Each taxpayer should seek advice
based on the taxpayer’s particular circumstances from an independent tax advisor.
235
The foregoing language is intended to satisfy the requirements under the new regulations in Section
10.35 of Circular 230.
______________________________
This summary is based on the U.S. tax laws, regulations (final, temporary and proposed),
administrative rulings and practice and judicial decisions in effect or available on the date of this
Prospectus. All of the foregoing are subject to change or differing interpretation at any time, which
change or interpretation may apply retroactively and could affect the continued validity of this
summary.
This summary is included herein for general information only, and there can be no assurance that the
U.S. Internal Revenue Service (the "IRS") will take a similar view of the U.S. federal income tax
consequences of an investment in the Notes as described herein. ACCORDINGLY, PROSPECTIVE
PURCHASERS OF THE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO U.S.
FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES, AND THE POSSIBLE APPLICATION OF STATE, LOCAL,
FOREIGN OR OTHER TAX LAWS. IN PARTICULAR, NO REPRESENTATION IS MADE AS
TO THE MANNER IN WHICH PAYMENTS UNDER THE NOTES WOULD BE
CHARACTERIZED BY ANY RELEVANT TAXING AUTHORITY.
As used in this section, the term "U.S. Holder" includes a beneficial owner of a Note that is, for U.S.
federal income tax purposes, a citizen or individual resident of the United States of America, an entity
treated for United States federal income tax purposes as a corporation or a partnership created or
organized in or under the laws of the United States of America or any state thereof or the District of
Columbia, an estate the income of which is includable in gross income for U.S. federal income tax
purposes regardless of its source, or a trust if, in general, a court within the United States of America is
able to exercise primary supervision over its administration and one or more U.S. Persons have the
authority to control all substantial decisions of such trust, and certain eligible trusts that have elected to
be treated as United States persons. This summary assumes that a U.S. Holder has a U.S. Dollar
functional currency and the Issuer has a non-U.S. Dollar functional currency. This summary also does
not address the rules applicable to certain types of investors that are subject to special U.S. federal
income tax rules, including but not limited to, dealers in securities or currencies, traders in securities,
financial institutions, U.S. expatriates, tax-exempt entities (except with respect to specific issues
discussed herein), charitable remainder trusts and their beneficiaries, insurance companies, persons or
their qualified business units whose functional currency is not the U.S. Dollar, persons that own
(directly or indirectly) equity interests in holders of Notes and subsequent purchasers of the Notes.
Purchasers of Notes may be required to pay stamp taxes and other charges, in accordance with the laws
and practices of the country of purchase, in addition to the Issue Price of each Note.
Tax Treatment of the Issuer
The Code and the Treasury regulations promulgated thereunder provide a specific exemption from net
income-based U.S. federal income tax to non-U.S. corporations that restrict their activities in the
United States to trading in stocks and securities (and any other activity closely related thereto) for their
own account, whether such trading (or such other activity) is conducted by the corporation or its
employees or through a resident broker, commission agent, custodian or other agent. See "Description
of the Portfolio — 6. Management of the Portfolio". This particular exemption does not apply to nonU.S. corporations that are engaged in activities in the United States other than trading in stocks and
securities (and any other activity closely related thereto) for their own account or that are dealers in
stocks and securities.
The Issuer intends to rely on the above exemption and does not intend to operate so as to be subject to
U.S. federal income taxes on its net income. Although no activity closely comparable to that
contemplated by the Issuer has been the subject of any Treasury regulation, administrative ruling or
judicial decision, under current law and assuming compliance with the Issuer's relevant governing
documents, the Trust Deed, the Collateral Management Agreement, the Agency Agreement and other
related documents, the Issuer believes that its permitted activities will not cause it to be engaged in a
trade or business in the United States, and consequently, the Issuer's profits will not be subject to U.S.
federal income tax on a net income basis. However, if the IRS were to successfully assert that the
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Issuer were engaged in a United States trade or business and the Issuer had taxable income that was
effectively connected with such U.S. trade or business, the Issuer would be subject under the Code to
the regular U.S. corporate income tax on such effectively connected taxable income (and possibly to
the 30 per cent. branch profits tax as well). The imposition of such taxes would materially affect the
Issuer's financial ability to make payments with respect to the Notes and could materially affect the
yield of the Notes. In addition, the imposition of such taxes could constitute a Relevant Tax Event.
Legislation recently proposed in the United States Senate would, for tax years beginning at least two
years after its enactment, tax a corporation as a U.S. corporation if the equity of that corporation is
regularly traded on an established securities market and the management and control of the corporation
occurs primarily within the United States. It is unknown whether this proposal will be enacted in its
current form and, whether if enacted, the Issuer would be subject to its provisions. However, upon
enactment of this or similar legislation, the Issuer will be permitted, with an opinion of counsel, to take
such action as it deems advisable to prevent the Issuer from being subject to such legislation. These
actions could include removing some Classes of Notes from listing on a stock exchange.
Generally, foreign currency gains are sourced to the residence of the recipient. Thus, foreign currency
gains of a non-U.S. corporation are generally treated as foreign source income. However, if for this
purpose a non-United States corporation has a principal place of business in the United States (the
"U.S. business"), even if the corporation has another principal place of business outside the United
States, generally any foreign currency gain properly reflected as income of the U.S. business is treated
as U.S. source income. Any U.S. source foreign currency gains that are not derived from the sale of
property are subject to U.S. withholding tax. A non-U.S. corporation could be considered to have a
U.S. business for this purpose even if it does not have any income effectively connected to a United
States trade or business for purposes of being subject to U.S. taxation on its net income. The Issuer
intends to take the position that none of its foreign currency gains will be subject to U.S. withholding
tax. However, the application of these rules is unclear and the activities of the Issuer could cause it to
have foreign currency gains subject to U.S. withholding tax. In addition, the imposition of such taxes
could constitute a Relevant Tax Event .
United States Withholding Taxes Although, based on the foregoing, the Issuer is not expected to be
subject to U.S. federal income tax on a net income basis, income derived by the Issuer may be subject
to withholding taxes imposed by the United States or other countries. Generally, U.S. source interest
income received by a foreign corporation not engaged in a trade or business within the United States is
subject to U.S. withholding tax at the rate of 30 per cent. of the amount thereof. The Code provides an
exemption (the "portfolio interest exemption") from such withholding tax for interest paid with
respect to certain debt obligations issued after 18 July 1984, unless the interest constitutes a certain
type of contingent interest or is paid to a 10 per cent. shareholder of the payor, to a controlled foreign
corporation related to the payor, or to a bank with respect to a loan entered into in the ordinary course
of its business. In this regard, the Issuer does not anticipate acquiring a Collateral Debt Obligation
unless the payments thereon are exempt from U.S. withholding taxes at the time of purchase or
commitment to purchase (with the exception of any commitment fees and any other similar fees
(including, without limitation, certain payments on obligations or securities that include a participation
in or that support a letter of credit) associated with Revolving Obligations or Delayed Drawdown
Collateral Obligations and fees from a borrower for a synthetic letter of credit loan) or the Obligor is
required to make "gross-up" payments that offset fully any such tax on any such payments. Any
commitment fees and any other similar fees (including, without limitation, certain payments on
obligations or securities that include a participation in or that support a letter of credit) associated with
Revolving Obligations or Delayed Drawdown Collateral Obligations and fees from a borrower for a
synthetic letter of credit loan can be subject to U.S. withholding tax, which would reduce the Issuer's
net income from such activities. However, the Issuer does not anticipate that it will otherwise derive
material amounts of any other items of income that would be subject to U.S. withholding taxes.
Accordingly, subject to the foregoing qualifications, income derived by the Issuer will be free of or
fully "grossed up" for any material amount of U.S. withholding tax. However, there can be no
assurance that income derived by the Issuer will not generally become subject to U.S. withholding tax
as a result of a change in U.S. tax law or administrative practice, procedure, or interpretations thereof.
Any change in U.S. tax law or administrative practice, procedure, or interpretations thereof resulting in
the income of the Issuer becoming subject to U.S. withholding taxes could constitute a Relevant Tax
Event or a Note Tax Event. It is also anticipated that the Issuer will acquire Collateral Debt
Obligations that consist of obligations of non-U.S. issuers. In this regard, the Issuer does not anticipate
acquiring a Collateral Debt Obligation unless the payments thereon are not subject to foreign
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withholding tax (with the exception of any commitment fees and any other similar fees (including,
without limitation, certain payments on obligations or securities that include a participation in or that
support a letter of credit) associated with Revolving Obligations or Delayed Drawdown Collateral
Obligations and fees from a borrower for a synthetic letter of credit loan) or the Obligor of the
Collateral Debt Obligation is required to make "gross-up" payments.
Prospective investors should be aware that, under certain U.S. Treasury regulations, the IRS may
disregard the participation of an intermediary in a "conduit" financing arrangement and the conclusions
reached in the immediately preceding paragraph assume that such U.S. Treasury regulations do not
apply. Those U.S. Treasury regulations could require withholding of U.S. federal income tax from
payments to the Issuer of interest on the Collateral Debt Obligations. In order to prevent "conduit"
classification, each Non-U.S. Holder and beneficial owner of a Class E Note or a Subordinated Note
that is acquiring, directly or in conjunction with affiliates, more than 331/3 per cent. of the principal
amount outstanding of any such Class of Notes will make, or will be deemed to make, a representation
to the effect that it is not an Affected Bank. "Affected Bank" means a "bank" for purposes of Section
881 of the Code (including an entity controlled by such bank or acting on behalf of such bank) where
such bank neither (x) meets the definition of a U.S. Holder nor (y) is entitled to the benefits of an
income tax treaty with the United States under which withholding taxes on interest payments made by
obligors resident in the United States to such bank are reduced to zero per cent.
Tax Treatment of U.S. Holders of the Senior Notes and the Deferrable Interest Notes
Treatment of the Notes (other than the Subordinated Notes) The Issuer expects the Notes to be treated
as debt for U.S. federal income tax purposes when issued. Although the Subordinated Notes are
denominated as debt, based on the capital structure of the Issuer and the characteristics of the
Subordinated Notes, it is likely that the Subordinated Notes would be treated as equity for U.S. federal
income tax purposes. This summary assumes that the foregoing treatment of each Class of Notes is
correct. For the remainder of this discussion on "Tax Considerations", the term "Notes" refers to the
Notes (other than the Subordinated Notes). The Subordinated Notes are discussed below under "Tax
Treatment of U.S. Holders of Subordinated Notes". Further, the Issuer will treat, and each holder and
beneficial owner of a Note (by acquiring such Note or an interest in such Note) will agree to treat, such
Note as debt for U.S. federal income tax purposes except (x) as otherwise required by applicable law,
(y) to the extent a holder makes a protective QEF election (as described below under "—Tax Treatment
of U.S. Holders of Subordinated Notes—Investment in a Passive Foreign Investment Company"), or (z)
to the extent that a holder files certain United States tax information returns required of only certain
equity owners with respect to various reporting requirements under the Code (as described below under
"—Transfer Reporting Requirements" and "—Tax Return Disclosure and Investor List Requirements").
With regard to the characterisation for U.S. federal income tax purposes of the Notes issued after the
Initial Issue Date, prospective investors should note that the characterisation of an instrument as debt or
equity for U.S. federal income tax purposes is highly factual and must be based on the applicable law
and the facts and circumstances existing at the time such instrument is issued and material changes
from those existing on the Initial Issue Date (e.g. a material decline in the value of the Issuer's assets, a
material adverse change in the Issuer's ability to repay the Notes previously issued, and/or a material
decline in the proportion of the Subordinated Notes) could affect the characterisation of the Notes
issued after (but not before) such changes. Additionally, no ruling will be sought from the IRS
regarding this, or any other, aspect of the U.S. federal income tax treatment of the Notes. Accordingly,
there can be no assurance that the IRS will not contend, and that a court will not ultimately hold, that
one or more Classes of the Notes (e.g. the Class E Notes because of their place in the capital structure
of the Issuer) are equity in the Issuer. Recharacterisation of a Class of Notes, particularly the Class E
Notes because of their place in the capital structure, may be more likely if a single investor or a group
of investors that holds all of the Subordinated Notes also holds all of the more senior Class of Notes in
the same proportion as the Subordinated Notes are held. If any of the Classes of the Notes were treated
as equity in, rather than debt of, the Issuer for U.S. federal income tax purposes, U.S. Holders of such
Notes would be subject to taxation under rules substantially the same as those set forth below under
"Tax Treatment of U.S. Holders of Subordinated Notes" which could cause adverse tax consequences
upon sale, exchange, redemption, retirement or other taxable disposition of, or the receipt of certain
types of distributions on, the Notes of such Class or Classes by a U.S. Holder of such Notes.
In this regard, any U.S. Holder of a Note that treats such Note as equity in the Issuer for U.S. federal
income tax purposes, inconsistently with the Issuer's treatment of such Notes for such purposes, is
required to disclose such treatment on its U.S. federal income tax return. Additionally, if a U.S. Holder
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of a Note treats such Note as debt of the Issuer for U.S. federal income tax purposes, consistently with
the Issuer's treatment of such Note for such purposes, it is unclear whether such U.S. Holder will be
able to make a protective QEF election (described below in "Tax Treatment of U.S. Holders of
Subordinated Notes—Investment in a Passive Foreign Investment Company") in anticipation of any
possible recharacterisation of such Note as equity in the Issuer.
Interest or Discount on the Notes in U.S. Dollars Subject to the discussion below, U.S. Holders of
Class A Notes generally will include in gross income payments of stated interest received on the Class
A Notes , in accordance with their usual method of accounting for U.S. federal income tax purposes, as
ordinary interest income from sources outside the United States.
If the Issue Price of the Notes is less than such Notes' respective "stated redemption price at maturity"
by more than a de minimis amount, U.S. Holders will be considered to have purchased such Notes with
original issue discount ("OID"). The respective stated redemption price at maturity of such Notes will
be the sum of all payments to be received on such Notes, other than payments of stated interest which
is unconditionally payable in money at least annually during the entire term of a debt instrument
("Qualified Stated Interest"). Prospective U.S. Holders of the Class B Notes, the Class C Notes, the
Class D Notes and the Class E Notes (the "Deferrable Interest Notes") should note that, because
interest on the Deferrable Interest Notes is not unconditionally payable in money on each Payment
Date (and, therefore, will not be Qualified Stated Interest), all of the stated interest payments on the
Deferrable Interest Notes will be included in the stated redemption prices at maturity of such Notes,
and must therefore be accrued by U.S. Holders pursuant to the rules described below.
A U.S. Holder of such Class of Notes issued with OID will be required to accrue and include in gross
income the sum of the daily portions of total OID on such Notes for each day during the taxable year
on which the U.S. Holder held such Notes, generally under a constant yield method, regardless of such
U.S. Holder's usual method of accounting for U.S. federal income tax purposes. In addition, U.S.
Holder should include any de minimis OID in gross income proportionately as stated principal
payments are received. Such de minimis OID should be treated as gain from the sale or exchange of
property and may be eligible as capital gain if the Note is a capital asset in the hands of the U.S.
Holder.
In the case of Notes that provide for a floating rate of interest, the amount of OID to be accrued over
the term of such Notes will be based initially on the assumption that the floating rate in effect for the
first accrual period of the Notes will remain constant throughout their term. To the extent such rate
varies with respect to any accrual period, such variation will be reflected in an increase or decrease of
the amount of OID accrued for such period. Under the foregoing method, U.S. Holders of the
Deferrable Interest Notes may be required to include in gross income increasingly greater amounts of
OID and may be required to include OID in advance of the receipt of cash attributable to such income.
The Issuer intends to treat a Class of Notes issued with more than de minimis OID as being subject to
rules prescribed by Section 1272(a)(6) of the Code using an assumption as to the prepayments on such
Class of Notes, as discussed below under "Tax Considerations—OID on the Notes". A prepayment
assumption applies to debt instruments if payment under such debt instruments may be accelerated by
reason of prepayments of other obligations securing such debt instruments.
OID on the Notes The following discussion will apply to a Class of Notes if it is issued with more
than de minimis OID. Because principal repayments on these Notes are subject to acceleration, the
method by which OID on such Notes is required to be accrued is uncertain. For purposes of accruing
OID on these Notes under such circumstances, the Issuer intends to treat these Notes as being subject to
the "prepayment assumption method" prescribed by Sections 1271 through 1273 and 1275 of the Code.
These rules require that the amount and rate of accrual of OID be calculated based on a prepayment
assumption and the anticipated reinvestment rate, if any, relating to the Notes and prescribe a method
for adjusting the amount and rate of accrual of the discount where the actual prepayment rate differs
from the prepayment assumption. Under the Code, the prepayment assumption must be determined in
the manner prescribed by the Treasury regulations, which have not yet been issued. The legislative
history provides, however, that Congress intended the Treasury regulations to require that the
prepayment assumption be the prepayment assumption that is used in determining the initial offering
price of the Notes. The Issuer intends to assume that the Collateral Debt Obligations will not prepay.
No representation is made that the Notes will prepay at the prepayment assumption or at any other rate.
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The IRS issued final regulations in June 1996 governing the calculation of OID on instruments having
contingent interest payments. These Treasury regulations specifically do not apply for purposes of
calculating OID on debt instruments subject to Section 1272(a)(6) of the Code such as the Notes.
Additionally, the Treasury regulations do not contain provisions specifically interpreting Section
1272(a)(6) of the Code. The Issuer intends to base its computations on Section 1272(a)(6) of the Code
and the Treasury regulations as described in this Prospectus. However, because no regulatory guidance
currently exists under Section 1272(a)(6) of the Code, there can be no assurance that this methodology
represents the correct manner of calculating OID. If the IRS were to successfully contend that another
method of accruing OID with respect to these Notes is appropriate, the U.S. federal income tax
consequences to a U.S. Holder of such Notes could be adverse or more favourable. One such
alternative method of accruing OID may be the non contingent bond method that governs contingent
payment debt obligations. Such method could affect the amount and character of the gain or loss
recognised upon a disposition of a Note.
A subsequent purchaser of a Note issued with OID who purchases such Note at a cost less than the
remaining stated redemption price at maturity will also be required to include in gross income the sum
of the daily portions of OID on such Note. In computing the daily portions of OID for a subsequent
purchaser of a Note (as well as an initial purchaser that purchases at a price higher than the adjusted
Issue Price, but less than the stated redemption price at maturity), however, the daily portion is reduced
by the amount that would be the daily portion for the day (computed in accordance with the rules set
forth above) multiplied by a fraction, the number of which is the amount, if any, by which the price
paid by the U.S. Holder for such Note exceeds the following amount:
•
the sum of the Issue Price plus the aggregate amount of OID that would have been includible
in the gross income of an original U.S. Holder (who purchased the Note at the Issue Price),
less
•
any prior payments included in the stated redemption price at maturity,
and the denominator of which is the sum of the daily portions for such Note for all days beginning on
the date after the purchase date and ending on the maturity date computed under the prepayment
assumption.
A U.S. Holder who pays a premium for a Note (i.e., purchases the Note for an amount greater than the
stated redemption price at maturity) may elect to amortize such premium under a constant yield method
over the life of such Note. The amortizable amount for any accrual period would offset the amount of
interest that must be included in the gross income of a U.S. Holder in such accrual period. The U.S.
Holder's basis in such Note would be reduced by the amount of amortization. It is not clear whether the
prepayment assumption would be taken into account in determining the life of such Note for the timing
of the amortization of such premium for this purpose.
If the U.S. Holder acquires a Note at a discount to the adjusted Issue Price of the Note that is greater
than a specified de minimis amount, such discount is treated as market discount. Absent an election to
accrue into income currently, the amount of accrued market discount on a Note is included in income
as ordinary income when principal payments are received or the U.S. Holder disposes of the Note.
Market discount is accrued rateably unless the U.S. Holder elects to use a constant yield method for
accrual. For this purpose, the term "rateably" may be based on the term of the Note or a U.S. Holder
may be permitted to accrue market discount in proportion to interest on Notes issued without OID or in
proportion to OID on Notes issued with OID.
As a result of the complexity of the OID rules, each U.S. Holder of the Notes should consult its own
tax advisor regarding the impact of the OID rules on its investment in such Notes.
Election to Treat All Interest as OID The OID rules permit a U.S. Holder of a Note to elect to accrue
all interest, discount (including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If an election to treat all interest as OID were to be made
with respect to a Note with market discount, the U.S. Holder of such Note would be deemed to have
made an election to include in income currently market discount with respect to all other debt
instruments having market discount that such U.S. Holder acquires during the year of the election or
thereafter. Similarly, a U.S. Holder that makes this election for a Note that is acquired at a premium
will be deemed to have made an election to amortize bond premium with respect to all debt instruments
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having amortizable bond premium that such U.S. Holder owns or acquires. The election to accrue
interest, discount and premium on a constant yield method with respect to a Note cannot be revoked
without the consent of the IRS.
Disposition of the Notes In general, a U.S. Holder of a Note initially will have a basis in such Note
equal to the cost of such Note to such U.S. Holder, (i) increased by any amount includible in income by
such U.S. Holder as OID with respect to such Note (and as market discount if such U.S. Holder elected
to accrue market discount currently on the Note), and (ii) reduced by any amortised premium and by
payments on such Note, other than payments of stated interest on a Class A Note. Upon a sale,
exchange, redemption, retirement or other taxable disposition of a Note, a U.S. Holder will generally
recognize gain or loss equal to the difference between the amount realized on the sale, exchange,
redemption, retirement or other taxable disposition (other than amounts attributable to accrued interest
on a Class A Note , which will be taxable as described above) and the U.S. Holder's tax basis in such
Note. Except to the extent of accrued interest or market discount not previously included in income,
gain or loss from the disposition of a Note generally will be long-term capital gain or loss if the U.S.
Holder held the Note for more than one year at the time of disposition, provided that such Note is held
as a "capital asset" (generally, property held for investment) within the meaning of Section 1221 of the
Code, except to the extent of accrued market discount not previously included in income.
However, if the IRS or a court determines that the Notes constitute contingent payment debt obligations
subject to the non contingent bond method, then a U.S. Holder generally will have a basis in such Note
equal to the cost of such Note to such U.S. Holder (i) increased by OID accrued with respect to such
Note (determined without regard to adjustments made to reflect the differences between actual and
projected payments), and (ii) reduced by the amount of any non-contingent payments and the projected
amount of any contingent payments previously made on such Note. Any gain recognized on the sale,
exchange, redemption, retirement or other taxable disposition of such Note will be treated as ordinary
interest income. Further, in such a case, any loss will be treated as ordinary loss to the extent of prior
interest inclusions with respect to such Note, reduced by the total net negative adjustments that the U.S.
Holder has taken into account as ordinary loss with respect to such Note; any remaining loss will be a
capital loss.
In certain circumstances, U.S. Holders that are individuals may be entitled to preferential treatment for
net long-term capital gains; however, the ability of U.S. Holders to offset capital losses against ordinary
income is limited.
Any gain recognized by a U.S. Holder on the sale, exchange, redemption, retirement or other taxable
disposition of a Note generally will be treated as from sources within the United States assuming that
such Notes are not held by a U.S. Holder through a non-U.S. branch.
Payments of Interest and OID in Non-U.S. Dollar Currency A U.S. Holder with a U.S. Dollar
functional currency that uses the cash method of accounting for U.S. federal income tax purposes and
receives a payment of interest on a Note (other than OID) denominated in Euro ("Non-U.S. Dollar
Currency") will be required to include in gross income the U.S. Dollar value of the payment in NonU.S. Dollar Currency on the date such payment is received (based on the U.S. Dollar spot rate for the
Non-U.S. Dollar Currency on the date such payment is received) regardless of whether the payment is
in fact converted to U.S. Dollars at that time. No exchange gain or loss will be recognized with respect
to the receipt of such payment.
A U.S. Holder that uses the accrual method of accounting for U.S. federal income tax purposes, or that
otherwise is required to accrue interest prior to receipt, will be required to include in gross income the
U.S. Dollar value of the amount of interest income that has accrued and is otherwise required to be
taken into account with respect to a Note during an accrual period. The U.S. Dollar value of such
accrued interest income will be determined by translating such interest income at the average U.S.
Dollar exchange rate for Non-U.S. Dollar Currency in effect during the accrual period or, with respect
to an accrual period that spans two taxable years, the partial period within the taxable year. A U.S.
Holder may elect, however, to translate such accrued interest income using the U.S. Dollar spot rate for
the Non-U.S. Dollar Currency on the last day of the accrual period or, with respect to an accrual period
that spans two taxable years, on the last day of the taxable year. If the last day of an accrual period is
within five Business Days of the date of receipt of the accrued interest, a U.S. Holder may translate
such interest using the U.S. Dollar spot rate on the date of receipt. The above election must be applied
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consistently to all debt instruments from year to year and may not be changed without the consent of
the IRS. Prior to making such an election, a U.S. Holder should consult its own tax advisor.
A U.S. Holder that uses the accrual method of accounting for U.S. federal income tax purposes may
recognize exchange gain or loss with respect to accrued interest income on the date the payment of
such income is received. The amount of any such exchange gain or loss recognized will equal the
difference, if any, between the U.S. Dollar value of the payment in Non-U.S. Dollar Currency received
(based on the U.S. Dollar spot rate for the Non-U.S. Dollar Currency on the date such payment is
received) with respect to such accrued interest and the U.S. Dollar value of the income inclusion with
respect to such accrued interest (computed as determined above). Any such exchange gain or loss will
be treated as ordinary income or loss, but generally will not be treated as an adjustment to interest
income, and will generally be treated as U.S. source income or loss, respectively.
The Issuer intends to take the position that OID for any accrual period on a Note will be determined in
Non-U.S. Dollar Currency and then translated into U.S. Dollars in the same manner as stated interest
accrued by an accrual basis U.S. Holder, as described above. As described above, however, the
treatment of Notes issued with OID is subject to uncertainty, and it is possible that different rules
would apply. Applying this method, all payments on a Note (other than payments of Qualified Stated
Interest) will generally be viewed first as payments of previously-accrued OID (to the extent thereof),
with payments attributed first to the earliest-accrued OID, and then as payments of principal. Upon
receipt of a payment attributable to OID (whether in connection with a payment of interest or on the
sale, exchange, redemption, retirement or other taxable disposition of a Note), a U.S. Holder may
recognize exchange gain or loss as described above with respect to accrued interest income. Any such
exchange gain or loss will be treated as ordinary income or loss, but generally will not be treated as an
adjustment to interest income, and will generally be treated as U.S. source income or loss, respectively.
Receipt of Non-U.S. Dollar Currency Non-U.S. Dollar Currency received as payment on a Note or on
a sale, exchange, redemption, retirement or other taxable disposition of a Note will have a tax basis
equal to its U.S. Dollar value at the time such payment is received or at the time of such sale, exchange,
redemption, retirement or other taxable disposition, as the case may be. Non-U.S. Dollar Currency that
are purchased will generally have a tax basis equal to the U.S. Dollar value of Non-U.S. Dollar
Currency on the date of purchase. Any exchange gain or loss recognized on a sale, exchange,
redemption, retirement or other taxable disposition of the Non-U.S. Dollar Currency (including its use
to purchase Notes or upon exchange for U.S. Dollars) will be ordinary income or loss and will
generally be treated as U.S. source income or loss, respectively.
Foreign Currency Gain or Loss on Purchase or Disposition A U.S. Holder that purchases the Notes
with Non-U.S. Dollar Currency generally will recognize exchange gain or loss in an amount equal to
the difference (if any) between the U.S. Dollar fair market value of Non-U.S. Dollar Currency used to
purchase the Notes determined at the spot rate of exchange in effect on the date of purchase of the
Notes and such U.S. Holder's tax basis in the Non-U.S. Dollar Currency. If a U.S. Holder receives
Non-U.S. Dollar Currency on a sale, exchange, redemption, retirement or other taxable disposition of a
Note, the amount realized will be based on the U.S. Dollar value of the Non-U.S. Dollar Currency on
the date the payment is received or the date of disposition of the Note. Any gain or loss realized upon
the sale, exchange, redemption, retirement or other taxable disposition of the Note that is attributable to
fluctuations in currency exchange rates will be exchange gain or loss. Any gain or any loss attributable
to fluctuations in exchange rates will equal the difference between the U.S. Dollar value of the
principal amount of the Note, determined on the date such payment is received or such Note is disposed
based on the U.S. Dollar spot rate for the Non-U.S. Dollar Currency on such date and the U.S. Dollar
value of principal amount of such Note, determined on the date the U.S. Holder acquired such Note
based on the U.S. Dollar spot rate for the Non-U.S. Dollar Currency on such date. Such exchange gain
or loss will be recognized only to the extent of the total gain or loss realized by the U.S. Holder on the
sale, exchange, redemption, retirement or other taxable disposition of such Note. Any exchange gain
or loss will be treated as ordinary income or loss, but generally will not be treated as an adjustment to
interest income, and will generally be treated as U.S. source income or loss, respectively.
As a result of the uncertainty regarding the U.S. federal income tax consequences to U.S. Holders with
respect to the Notes and the complexity of the foregoing rules, each U.S. Holder of a Note is urged to
consult its own tax advisor regarding the U.S. federal income tax consequences to the Holder of the
purchase, ownership and disposition of such Note.
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Alternative Characterization of the Notes. U.S. Holders should recognize that there is some
uncertainty regarding the appropriate classification of instruments such as the Notes. It is possible, for
example, that the IRS may contend that a Class of Notes should be treated as equity interests (or as part
debt, part equity) in the Issuer. Such a recharacterization might result in material adverse U.S. federal
income tax consequences to U.S. Holders. If U.S. Holders of a Class of the Notes were treated as
owning equity interests in the Issuer, the U.S. federal income tax consequences to U.S. Holders of such
recharacterized Notes would be as described under "—Tax Treatment of U.S. Holders of Subordinated
Notes", "—Transfer Reporting Requirements" and "—Tax Return Disclosure and Investor List
Requirements." In order to avoid the application of the PFIC rules, each U.S. Holder of a Note should
consider whether to make a qualified electing fund election provided in Section 1295 of the Code on a
"protective" basis (although such protective election may not be respected by the IRS because current
regulations do not specifically authorize that particular election). See "—Investment in a Passive
Foreign Investment Company". Further, U.S. Holders of any Class of Notes that may be
recharacterized as equity in the Issuer should consult with their own tax advisors with respect to
whether, if they owned equity in the Issuer, they would be required to file information returns in
accordance with sections 6038, 6038B, and 6046 of the Code (and, if so, whether they should file such
returns on a protective basis.
Tax Treatment of U.S. Holders of Subordinated Notes
Investment in a Passive Foreign Investment Company The Issuer will constitute a passive foreign
investment company ("PFIC") and the Subordinated Notes will be treated as equity in the Issuer for
U.S. tax purposes. Accordingly, U.S. Holders of Subordinated Notes (other than certain U.S. Holders
that are subject to the rules pertaining to a controlled foreign corporation with respect to the Issuer,
described below) will be considered U.S. shareholders in a PFIC. In general, a U.S. Holder of a PFIC
may desire to make an election to treat the Issuer as a qualified electing fund ("QEF") with respect to
such U.S. Holder. Generally, a QEF election should be made with the filing of a U.S. Holder's federal
income tax return for the first taxable year for which it held the Subordinated Notes. If a timely QEF
election is made for the Issuer, an electing U.S. Holder will be required in each taxable year to include
in gross income (i) as ordinary income, such holder's pro rata share of the Issuer's ordinary earnings
and (ii) as long-term capital gain, such holder's pro rata share of the Issuer's net capital gain, whether
or not distributed and translated into U.S. Dollars using the average U.S. Dollar exchange rate for the
Non-U.S. Dollar Currency for the Issuer's taxable year. In determining the Issuer's ordinary earnings,
the OID interest that accrues on the Notes may be expensed by the Issuer (whether or not the OID is de
minimis). A U.S. Holder will not be eligible for the dividends received deduction with respect to such
income or gain. In addition, any losses of the Issuer in a taxable year will not be available to such U.S.
Holder and may not be carried back or forward in computing the Issuer's ordinary earnings and net
capital gain in other taxable years. An amount included in an electing U.S. Holder's gross income
should be treated as income from sources outside the United States for U.S. foreign tax credit limitation
purposes. However, if U.S. Holders collectively own (directly or constructively) 50 per cent. or more
(measured by vote or value) of the Subordinated Notes, such amount will be treated as income from
sources within the United States for such purposes to the extent that such amount is attributable to
income of the Issuer from sources within the United States. If applicable to a U.S. Holder of
Subordinated Notes, the rules pertaining to a controlled foreign corporation, discussed below, generally
override those pertaining to a PFIC with respect to which a QEF election is in effect.
In certain cases in which a QEF does not distribute all of its earnings in a taxable year, U.S.
shareholders may also be permitted to elect to defer payment of some or all of the taxes on the QEF's
income subject to an interest charge on the deferred amount. In this respect, prospective purchasers of
Subordinated Notes should be aware that it is expected that the Collateral Debt Obligations may be
purchased by the Issuer with substantial OID, the cash payment of which may be deferred, perhaps for
a substantial period of time, and the Issuer may use interest and other income from the Collateral Debt
Obligations to purchase additional Collateral Debt Obligations or to retire the Notes. As a result, the
Issuer may have in any given year substantial amounts of earnings for U.S. federal income tax purposes
that are not distributed on the Subordinated Notes. Thus, absent an election to defer payment of taxes,
U.S. Holders that make a QEF election with respect to the Issuer may owe tax on significant "phantom"
income.
In addition, it should be noted that if the Issuer invests in obligations that are not in registered form for
U.S. federal income tax purposes, a U.S. Holder making a QEF election (i) may not be permitted to
take a deduction for any loss attributable to such obligations when calculating its share of the Issuer's
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earnings and (ii) may be required to treat income attributable to such obligations as ordinary income
even though the income would otherwise constitute capital gains. The Issuer is not restricted from
investing in obligations that are not in registered form for U.S. federal income tax purposes.
The Issuer will provide, upon request, all information and documentation that a U.S. Holder making a
QEF election is required to obtain for U.S. federal income tax purposes.
A U.S. Holder of Subordinated Notes (other than certain U.S. Holders that are subject to the rules
pertaining to a controlled foreign corporation with respect to the Issuer, described below) that does not
make a timely QEF election will be required to report any gain on disposition of any Subordinated
Notes as if it were an excess distribution, rather than capital gain, and to compute the tax liability on
such gain and any excess distribution received with respect to the Subordinated Notes as if such items
had been earned rateably over each day in the U.S. Holder's holding period (or a certain portion
thereof) for the Subordinated Notes. The U.S. Holder will be subject to tax on such items at the highest
ordinary income tax rate for each taxable year, other than the current year of the U.S. Holder, in which
the items were treated as having been earned, regardless of the rate otherwise applicable to the U.S.
Holder. Further, such U.S. Holder will also be liable for an additional tax equal to interest on the tax
liability attributable to income allocated to prior years as if such liability had been due with respect to
each such prior year. For purposes of these rules, gifts, exchanges pursuant to corporate
reorganizations and use of the Subordinated Notes as security for a loan may be treated as a taxable
disposition of the Subordinated Notes. Very generally, an "excess distribution" is the amount by which
distributions during a taxable year with respect to a Subordinated Note exceed 125 per cent. of the
average amount of distributions in respect thereof during the three preceding taxable years (or, if
shorter, the U.S. Holder's holding period for the Subordinated Note). In addition, a stepped-up basis in
the Subordinated Note upon the death of an individual U.S. Holder may not be available.
In many cases, application of the tax on gain on disposition and receipt of excess distributions will be
substantially more onerous than the treatment applicable if a timely QEF election is made.
ACCORDINGLY, U.S. HOLDERS OF THE SUBORDINATED NOTES SHOULD CONSIDER
CAREFULLY WHETHER TO MAKE A QEF ELECTION WITH RESPECT TO THE
SUBORDINATED NOTES AND THE CONSEQUENCES OF NOT MAKING SUCH AN
ELECTION.
Investment in a Controlled Foreign Corporation The Issuer may be classified as a controlled foreign
corporation ("CFC"). In general, a foreign corporation will be classified as a CFC if more than 50 per
cent. of the shares of the corporation, measured by reference to combined voting power or value, is
owned (actually or constructively) by "U.S. Shareholders". A U.S. Shareholder, for this purpose, is any
U.S. Person that possesses (actually or constructively) ten per cent. or more of the combined voting
power (generally the right to vote for directors of the corporation) of all classes of shares of a
corporation. Although the Subordinated Notes do not vote for directors of the Issuer, it is possible that
the IRS would assert that the Subordinated Notes are de facto voting securities and that U.S. Holders
possessing (actually or constructively) ten per cent. or more of the total stated amount of outstanding
Subordinated Notes are U.S. Shareholders. If this argument were successful and Subordinated Notes
representing more than 50 per cent. of the voting power or value of the Issuer's equity are owned
(actually or constructively) by such U.S. Shareholders, the Issuer would be treated as a CFC.
If the Issuer were treated as a CFC, a U.S. Shareholder of the Issuer would be treated, subject to certain
exceptions, as receiving a deemed dividend at the end of the taxable year of the Issuer in an amount
equal to that person's pro rata share of the subpart F income (as defined below) of the Issuer. Such
deemed dividend would be treated as income from sources within the United States for U.S. foreign tax
credit limitation purposes to the extent that it is attributable to income of the Issuer from sources within
the United States. Among other items, and subject to certain exceptions, "subpart F income" includes
dividends, interest, annuities, gains from the sale or exchange of shares and securities, certain gains
from commodities transactions, certain types of insurance income and income from certain transactions
with related parties. It is likely that, if the Issuer were to constitute a CFC, all or most of its income
would be subpart F income and, in general, if the Issuer's subpart F income exceeds 70 per cent. of its
gross income, the entire amount of the Issuer's income will be subpart F income. In addition, special
rules apply to determine the appropriate exchange rate to be used to translate such amounts treated as a
dividend and the amount of any foreign currency gain or loss with respect to distributions of previously
taxed amounts attributable to movements in exchange rates between the times of deemed and actual
distributions. U.S. Holders should consult their tax advisors regarding these special rules.
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If the Issuer were treated as a CFC, a U.S. Shareholder of the Issuer which made a QEF election with
respect to the Issuer would be taxable on the subpart F income of the Issuer under rules described in the
preceding paragraph and not under the QEF rules previously described. As a result, to the extent
subpart F income of the Issuer includes net capital gains, such gains will be treated as ordinary income
of the U.S. Shareholder under the CFC rules, notwithstanding the fact that the character of such gains
generally would otherwise be preserved under the QEF rules.
Furthermore, if the Issuer were treated as a CFC and a U.S. Holder were treated as a U.S. Shareholder
therein, the Issuer would not be treated as a PFIC or a QEF with respect to such U.S. Holder for the
period during which the Issuer remained a CFC and such U.S. Holder remained a U.S. Shareholder
therein (the "qualified portion" of the U.S. Holder's holding period for the Subordinated Notes). If the
qualified portion of such U.S. Holder's holding period for the Subordinated Notes subsequently ceased
(either because the Issuer ceased to be a CFC or the U.S. Holder ceased to be a U.S. Shareholder), then
solely for purposes of the PFIC rules, such U.S. Holder's holding period for the Subordinated Notes
would be treated as beginning on the first day following the end of such qualified portion, unless the
U.S. Holder had owned any Subordinated Notes for any period of time prior to such qualified portion
and had not made a QEF election with respect to the Issuer. In that case, the Issuer would again be
treated as a PFIC which is not a QEF with respect to such U.S. Holder and the beginning of such U.S.
Holder's holding period for the Subordinated Notes would continue to be the date upon which such
U.S. Holder acquired the Subordinated Notes, unless the U.S. Holder made an election to recognize
gain with respect to the Subordinated Notes and a QEF election with respect to the Issuer.
Indirect Interests in PFICs and CFCs If the Issuer owns a Collateral Debt Obligation or a Defaulted
Equity Security issued by a non-U.S. corporation that is treated as equity for U.S. federal income tax
purposes, U.S. Holders of the Subordinated Notes could be treated as owning an indirect equity interest
in a PFIC or a CFC and could be subject to certain adverse tax consequences.
In particular, if the Issuer owns equity interests in PFICs ("Lower-Tier PFICs"), a U.S. Holder of the
Subordinated Notes would be treated as owning directly the U.S. Holder's proportionate amount (by
value) of the Issuer's equity interests in the Lower-Tier PFICs. A U.S. Holder's QEF election with
respect to the Issuer would not be effective with respect to such Lower-Tier PFICs. However, a U.S.
Holder would be able to make QEF elections with respect to such Lower-Tier PFICs if the Lower-Tier
PFICs provide certain information and documentation to the Issuer in accordance with applicable
Treasury regulations. However, there can be no assurance that the Issuer would be able to obtain such
information and documentation from any Lower-Tier PFIC, and thus there can be no assurance that a
U.S. Holder would be able to make or maintain a QEF election with respect to any Lower-Tier PFIC.
If a U.S. Holder does not have a QEF election in effect with respect to a Lower-Tier PFIC, as a general
matter, the U.S. Holder would be subject to the adverse consequences described above under "Tax
Considerations - Investment in a Passive Foreign Investment Company" with respect to any excess
distributions made by such Lower-Tier PFIC to the Issuer, any gain on the disposition by the Issuer of
its equity interest in such Lower-Tier PFIC treated as indirectly realized by such U.S. Holder, and any
gain treated as indirectly realized by such U.S. Holder on the disposition of its equity in the Issuer
(which may arise even if the U.S. Holder realizes a loss on such disposition). Such amount would not
be reduced by expenses or losses of the Issuer, but any income recognized may increase a U.S. Holder's
tax basis in its Subordinated Notes. Moreover, if the U.S. Holder has a QEF election in effect with
respect to a Lower-Tier PFIC, the U.S. Holder would be required to include in income the U.S.
Holder's pro rata share of the Lower-Tier PFIC's ordinary earnings and net capital gain as if the U.S.
Holder's indirect equity interest in the Lower-Tier PFIC were directly owned, and it appears that the
U.S. Holder would not be permitted to use any losses or other expenses of the Issuer to offset such
ordinary earnings and/or net capital gains, but recognition of such income may increase a U.S. Holder's
tax basis in its Subordinated Notes.
Accordingly, if any of the Collateral Debt Obligations or Defaulted Equity Securities are treated as
equity interests in a PFIC, such U.S. Holders could experience significant amounts of phantom income
with respect to such interests. Other adverse tax consequences may arise for such U.S. Holders that are
treated as owning indirect interests in CFCs. U.S. Holders should consult their own tax advisors
regarding the tax issues associated with such investments in light of their own individual
circumstances.
Distributions on the Subordinated Notes The treatment of actual distributions of cash on the
Subordinated Notes, in very general terms, will vary depending on whether a U.S. Holder has made a
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timely QEF election as described above. See "Tax Considerations—Investment in a Passive Foreign
Investment Company". If a timely QEF election has been made, distributions should be allocated first
to amounts previously taxed pursuant to the QEF election (or pursuant to the CFC rules, if applicable)
and to this extent will not be taxable to U.S. Holders. Distributions in excess of amounts previously
taxed pursuant to a QEF election (or pursuant to the CFC rules, if applicable) will be taxable to U.S.
Holders as ordinary income upon receipt to the extent of any remaining amounts of untaxed current and
accumulated earnings and profits of the Issuer. Distributions in excess of any current and accumulated
earnings and profits will