State Guarantee Schemes

Transcription

1 State Guarantee Schemes A Transaction Manager s Guide January 2009

2 Table of Contents Contents Page United Kingdom... 1 Ireland... 7 The Netherlands Federal Republic of Germany Portugal The United States of America France i

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4 United Kingdom The 2008 Credit Guarantee Scheme (the Scheme ) forms part of the UK Government s measures announced on 8 October 2008 to ensure the stability of the financial system and to protect ordinary savers, depositors, businesses and borrowers. In summary, these measures are intended to: (a) (b) (c) provide sufficient liquidity in the short term; make available new capital to UK banks and building societies to strengthen their resources, permitting them to restructure their finances, while maintaining their support for the real economy; and ensure that the banking system has the funds necessary to maintain lending in the medium term. 1 When is the Scheme Available? The access and eligibility criteria (including explanation of the application process and fees) for the Scheme can be found here (the Scheme Rules ). The UK Debt Management Office s (the DMO ) market notice summarising the access and eligibility criteria can be found here. The DMO s market notice dated 15 December 2008 on proposed changes to the Scheme (including an amendment to the fee calculation) can be found here. The DMO s market notice dated 19 January 2009 on the extension of the drawdown window for the Scheme can be found here. Eligible Institutions Initially, Abbey National plc, Bank of Scotland plc, Barclays Bank PLC, HSBC Bank plc, Lloyds TSB Bank plc, Nationwide Building Society, The Royal Bank of Scotland plc and Standard Chartered Bank (see here) are eligible institutions ( Eligible Institutions ). For other financial institutions to become Eligible Institutions, they must make a written request to the DMO. Annex 2 to the Scheme Rules requires applicants to: (ii) be (a) an authorised UK deposit-taker (including a UK incorporated subsidiary of a foreign institution) which, in the view of The Commissioners of Her Majesty s Treasury ( HM Treasury ), has a substantial business in the UK or (b) a UK building society. Any other UK incorporated bank (including a UK subsidiary of a foreign institution) may apply to take part in the Scheme. In reviewing these applications, the UK Government will give due regard to an institution s role in the UK banking system and in the overall economy; and have raised, or committed to raise within a required timeframe, Tier 1 capital in the amount and in the form the UK Government considers appropriate, whether by UK Government subscription or from other sources. A financial institution satisfying the Annex 2 eligibility criteria can become an Eligible Institution by delivering: a duly completed and signed application form in the form of Annex 1 to the Scheme Rules to the DMO; 1

5 (ii) (iii) an executed deed of counter-indemnity in the form of Annex 6 to the Scheme to HM Treasury; 1 and a legal opinion in respect of the executed counter-indemnity from its external legal advisers to HM Treasury. Successful applicants will be given an institution certificate in the form of Annex 3 to the Scheme Rules. Please note that no more than one member of a corporate group may be an Eligible Institution under the Scheme (typically the primary UK deposit-taker). The scale of each participating institution s access to the Scheme will be based, at the discretion of HM Treasury, on an institution s sterling eligible liabilities as calculated by the Bank of England. New additions to the list of Eligible Institutions will only become public once they issue Guaranteed Securities. Each Eligible Institution must, within six months of 13 October 2008, submit to HM Treasury a plan for maintaining or restoring the capacity of the Eligible Institution to borrow in the wholesale financial markets without the benefit of the Scheme Guarantee, on the terms set out in the rules of the Scheme. Eligible Securities Pursuant to Annex 4 to the Scheme Rules, Eligible Securities must: (ii) (iii) (iv) (v) be plain vanilla, non-complex certificates of deposit, commercial paper or senior unsecured bonds and notes (whether stand-alones or draw downs); be denominated in sterling, euro or US dollars; be issued after 13 October 2008 but before 9 April 2009 (subject to extension in respect of refinancings) and within 30 days of the date of the eligibility certificate relating to such liability; have a scheduled maturity date falling before 13 April 2012, subject to any later date permitted by HM Treasury; and not contain any event of default constituted by cross-default or cross-acceleration or right of prepayment by the issuer (except a prepayment right for tax reasons). 2 3 In addition, the proceeds of the issue must be applied to refinance liabilities of the Eligible Institution (or of a company which is directly or indirectly wholly owned by the Eligible Institution and incorporated in the United Kingdom), which mature after the date of commencement of the Scheme. Please note that, according to the DMO s market notice summarising the access and eligibility criteria, Eligible Securities must have a maximum tenor of three years If the Eligible Institution has a parent holding company, HM Treasury is likely to require the parent holding company to be an additional counter indemnifier on a joint and several basis. On 15 December 2008, the DMO in its market notice proposed certain changes to the Scheme including allowing Eligible Securities to be denominated in yen, Australian dollars, Canadian dollars or Swiss francs; and (ii) rollovers up to a Scheme end date of 9 April We understand that the DMO will amend the Scheme Rules in due course. On 19 January 2009, the DMO in its market notice extended the drawdown window for the Scheme from 9 April 2009 to 31 December

6 2 What does the Scheme Guarantee say? The full text of the Deed of Guarantee dated 13 October 2008 (as amended by a Supplemental Deed dated 20 October 2008 and a Second Supplemental Deed dated 6 February 2009) (the Scheme Guarantee ) is available here. Unless otherwise defined herein, the following expressions have the following meanings: Eligibility Certificate means a certificate in the form of Annex 5 to the Scheme Rules. Eligible Securities means securities which satisfy the requirements of Annex 4 to the Scheme Rules. Guaranteed Securities means Eligible Securities issued by an Eligible Institution in respect of which HM Treasury has issued an Eligibility Certificate. The Scheme Guarantee is a one-off guarantee from HM Treasury to all holders of Guaranteed Securities - there are no separate guarantees for each issue. HM Treasury s obligation to pay holders of Guaranteed Securities is triggered by the failure of the issuer to make a payment of principal or interest within any applicable grace period. For an issue of securities to become Guaranteed Securities, the securities must be Eligible Securities; and (ii) the issuer (which must be an Eligible Institution) must apply for, and HM Treasury must issue, an Eligibility Certificate prior to their issuance. The Scheme Guarantee terminates at midnight on 13 April 2014 (but without prejudice to the rights of any holder of Guaranteed Securities in respect of any subsisting Guaranteed Liability (as defined in the Scheme Guarantee)). HM Treasury will cease to be guarantor for an issue of Guaranteed Securities if, without the consent of HM Treasury, there is (among other things) a variation, amendment, waiver or restatement to the terms of those Guaranteed Securities (Clause 2.2). 3 Points arising from the Scheme Guarantee Differences when compared to Standard Guarantees The Scheme Guarantee is a one-off guarantee from HM Treasury to all holders of Guaranteed Securities - there are no separate guarantees for each issue. An Eligibility Certificate must be issued in respect of a particular issue of Eligible Securities if they are to benefit from the Scheme Guarantee. HM Treasury will cease to be guarantor for an issue of Guaranteed Securities if, without the consent of HM Treasury, there is (among other things) a variation, amendment, waiver or restatement to the terms of those Guaranteed Securities (Clause 2.2) - see Other Points of Practice Issuance Structure below. The Scheme Guarantee is contractual: it was not given under HM Treasury s statutory powers. Therefore, until HM Treasury issues an opinion stating it has the power to enter into the Scheme Guarantee, any enforceability opinion given by a law firm will be caveated. This cannot be disclosed in the offering document (see Disclosure Issues below). 3

7 Disclosure Issues Disclosure of the Scheme Guarantee in the offering document/final terms is prescribed by Annex 8 to the Scheme Rules to be the following: The Commissioners of Her Majesty s Treasury have unconditionally and irrevocably guaranteed the due payment of all sums due and payable by [ISSUER] under the [TRUST DEED] [and] [DEBT INSTRUMENTS]. The Commissioners obligations in that respect are contained in a deed of guarantee dated 13 October 2008, the form of which is available at The DMO does not permit the inclusion of any risk factor in the offering document relating to the Scheme or the Scheme Guarantee. 4 Eligibility Certificate Application Process As mentioned above, for an issue of Eligible Securities to become Guaranteed Securities, the Eligible Institution must apply for, and HM Treasury must issue, an Eligibility Certificate prior to their issuance. The DMO requires the following to be delivered to it prior to the issue of an Eligibility Certificate: (ii) (iii) an application by the issuer in the form of Annex 1 to the Scheme Rules; a legal opinion in respect of the valid, binding and enforceable nature of the obligations under the relevant Guaranteed Securities from the Eligible Institution s external legal counsel (in the case of a programme, the opinion can take the form of the most recent opinion issued to the arranger on the establishment or update of the programme - and once that opinion has been delivered, there is no need to deliver any further legal opinions to the DMO). The opinion(s) should cover the jurisdiction of the Eligible Institution s incorporation and the governing law of the Guaranteed Securities; and a counter-signed fee letter in the form of Annex 7 to the Scheme Rules (the determination of the amount of the fee and payment provisions are set out in Scheme Rule 7). The Eligible Institution can only issue securities which conform to the description in the Eligibility Certificate (i.e. once the Eligibility Certificate is issued, you cannot change the currency, extend the maturity, increase the principal amount or increase the coupon etc. - see Scheme Rule 5.5). 5 Transaction Documents Save for obtaining an Eligibility Certificate, the usual documentation is required for a drawdown or stand-alone issue of Guaranteed Securities. However, please note the following: 4

8 Offering Document/Supplement Issues which benefit from the Scheme Guarantee are exempt from the Prospectus Directive, and it is therefore not necessary to have an approved prospectus for them. An Eligible Institution can either create a new programme for issues which benefit from the Scheme or make such issues on a stand-alone basis; or (ii) amend its existing programme to provide for the possibility of issues which benefit from the Scheme. In the case of above, the new programme or stand-alone issue will be outside the scope of the Prospectus Directive and the offering document will not need to be reviewed by the UK Listing Authority (the UKLA ) (any listed drawdowns would be treated as issues guaranteed by a sovereign (see below)) and disclosure on the Eligible Institution can be limited (or even omitted). In the case of (ii) above, the supplement to the existing base prospectus would need to be approved by the UKLA. The supplement would (among other things) include the limited disclosure on the Scheme Guarantee and a discussion on the withholding tax position on claims made under the Scheme Guarantee. Amendments to the trust deed and other programme agreements would need to be considered. In the case of and (ii) above, the UKLA will require the relevant base prospectus/supplement to make clear that any government guaranteed issues are outside the scope of the Prospectus Directive and that the UKLA will not have approved any base prospectus in connection with such issues. The offering document must be reviewed by the DMO. If final terms are used, reference to the exempt offering document is required by the UKLA. Conditions Precedent In our experience: (ii) law firms have not opined on the enforceability of the Scheme Guarantee, and comfort letters have not been delivered, on either Regulation S or Rule 144A transactions. There has also been no due diligence or disclosure on HM Treasury (the limited disclosure on the Scheme Guarantee has been sufficient); and 10b-5 letters have not been delivered on Rule 144A transactions. 6 Other Points of Practice Post-issuance Disclosure Eligible Institutions must, within three business days of the issue of the Eligible Security, notify the DMO in writing of the details set out in Scheme Rule 11.5 (including its ISIN, principal amount and maturity date). Streamlined Application Process For commercial paper and certificates of deposit, Eligible Institutions may have agreed a streamlined process for obtaining Eligibility Certificates with the DMO. This should be checked with the relevant Eligible Institution and/or the DMO. 5

9 Issuance Structure The Scheme applies to plain vanilla, non-complex instruments only, which does not include fixed-to-floating or index-linked securities and instalment notes. However, Guaranteed Securities may be issued at a discount. As the proceeds of each issue of Guaranteed Securities must be used to refinance liabilities of the relevant Eligible Institution or its UK subsidiaries, the position of the Eligible Institution in the relevant group is important (e.g. where the proposed Eligible Institution is an operating subsidiary or finance vehicle, the proceeds cannot be used to refinance liabilities of an intermediate or ultimate parent company or sister companies (save with HM Treasury consent) 4 ). In order to ensure compliance with Clause 2.2 of the Scheme Guarantee, the trust deed for each issue of Guaranteed Securities will usually require HM Treasury s consent for variations, amendments, waivers, etc. to the terms and conditions. This is also usually added to the offering document (e.g. under other information in the final terms). Tap Issues The Eligibility Certificate will cover both the temporary and permanent ISINs. Listing Guaranteed Securities are treated as issues guaranteed by a sovereign by the UKLA and no 48-hour documents are required. For each issue of Guaranteed Securities under a new stand-alone programme, Eligible Institutions need to deliver a Form 1 to the London Stock Exchange and an Application for Admission to the Official List and the final terms to the UKLA by 2 p.m. on the day before closing. For each issue of Guaranteed Securities under an amended programme, Eligible Institutions just need to deliver the final terms as usual to the UKLA by 2 p.m. on the day before closing. 7 State Aid The European Commission made announcements relating to the Scheme on 13 October 2008 (see here) and 23 December 2008 (see here). 8 Contacts If you have any questions or need any additional information, please feel free to contact any of the following or one of your usual Linklaters contacts: Carson Welsh: carson.welsh@linklaters.com Richard Levy: richard.levy@linklaters.com Ben Dulieu: ben.dulieu@linklaters.com 4 As at the date of this Memorandum, HM Treasury had not granted any such consent. 6

10 Ireland The Credit Institutions (Financial Support) Scheme 2008 (the Scheme ) forms part of the Irish Government s measures announced on 30 September 2008 and 9 October 2008 to ensure the stability of the financial system and to protect ordinary savers, depositors, businesses and borrowers during the Scheme Period (as defined below). In summary, these measures are intended to: (a) (b) (c) (d) maintain financial stability in the best interests of the public and the economy of the Irish State; remedy a serious disturbance in the economy by safeguarding the financial system and economy of the Irish State; provide lasting systemic stability in the banking system and ensuring its long-term sustainability; and minimise the potential cost to the Irish Exchequer and taxpayers (in particular, where the Scheme Guarantee (as defined below) is called upon and a payment is made but the financial support cannot be recouped in full from the Covered Institution (as defined below) to which it was provided, the principle is that it would be recouped in full from the Covered Institutions by the Irish State over time in a manner consistent with their long-term viability and sustainability). 1 When is the Scheme Available? The Credit Institutions (Financial Support) Act 2008 (the Act ) provides the statutory authority for the Scheme and can be found here. Secondary legislation, in the form of a statutory instrument (the Instrument ), sets out the access and eligibility criteria for the Scheme in greater detail and can be found here. The Scheme is limited by reference to named participating institutions and by reference to the types of liability covered (see below). Covered Institutions The Scheme is only open to systemically important credit institutions and certain named subsidiaries of such credit institutions. Following Ministerial Orders pursuant to Section 6(1) of the Act made on 24 October and 5 November 2008 (see here) (and the execution of a guarantee acceptance deed (in the form to be specified by the Minister of Finance) by certain credit institutions (and their subsidiaries (as required)), the following credit institutions and subsidiaries are covered institutions ( Covered Institutions ) for the purposes of the Scheme: (ii) (iii) (iv) Allied Irish Banks, p.l.c. and its subsidiaries AIB Mortgage Bank, AIB Bank (CI) Limited, AIB Group (UK) plc and Allied Irish Banks North America Inc.; Anglo Irish Bank Corporation plc and its subsidiary Anglo Irish Bank Corporation (International) plc; The Governor and Company of the Bank of Ireland and its subsidiaries Bank of Ireland Mortgage Bank, ICS Building Society and Bank of Ireland (I.O.M.) Limited; EBS Building Society; 7

11 (v) (vi) (vii) Irish Life & Permanent plc and its subsidiary Irish Permanent (IOM) Limited; Irish Nationwide Building Society and its subsidiary Irish Nationwide (I.O.M.) Limited; and Postbank Ireland Limited. The Irish Department of Finance (the DoF ) has clarified that branches of Covered Institutions will benefit from the Scheme Guarantee. Covered Liabilities Pursuant to Paragraph 10 of the Schedule to the Instrument (the Schedule ), the following liabilities are covered by the Scheme ( Covered Liabilities ): (ii) (iii) (iv) all retail and corporate deposits (to the extent not covered by existing deposit protection schemes in Ireland or any other jurisdiction); interbank deposits; senior unsecured debt; covered bonds (including asset covered securities); and (v) dated subordinated debt (Lower Tier 2). However, Covered Liabilities does not include intra-group borrowing and debt due to the European Central Bank arising from Eurosystem monetary operations. 2 What does the Scheme Guarantee say? The DoF market notice summarising the state guarantee (the Scheme Guarantee ) can be found here. All Covered Liabilities issued by Covered Institutions will be guaranteed by the Minister of Finance during the period 30 September 2008 to 29 September 2010 (inclusive) (the Scheme Period ) (whether issued prior to the announcement of the Scheme or after it or maturing during the Scheme Period or after it). The Scheme Guarantee is unconditional, irrevocable and ensures timely payment of the Covered Liabilities of the Covered Institutions during the Scheme Period. In the event of any default by a Covered Institution in respect of a Covered Liability, the Minister for Finance will pay to the relevant creditor, on demand, an amount equal to the unpaid Covered Liabilities. No call can be made on the Scheme Guarantee after 29 September 2010, even with respect to Covered Liabilities which fall due prior to that date. The Scheme Guarantee does not affect any other rights or claims of creditors. Under Paragraph 13 of the Schedule, the Minister of Finance may revoke the Scheme Guarantee (in whole or in part) in relation to a Covered Institution if: the Covered Institution is acquired by or merges with another institution or person not themselves benefiting from this Scheme, subject to the Minister of Finance s discretion, after consultation with the Governor of the Central Bank and Financial Services Authority of Ireland (the Governor ) and the Irish Financial Services Regulatory Authority (the Financial Regulator ); 8

12 (ii) (iii) (iv) in the Minister of Finance s opinion (after consultation with the Governor and the Financial Regulator) the Covered Institution is in material breach of its obligations under the Scheme; the Minister of Finance, after consultation with the Governor and the Financial Regulator, is of the opinion that the matters set out in Section 2(1) of the Act no longer apply (namely (a) there is a serious threat to the stability of credit institutions in Ireland generally, or would be such a threat if those functions were not performed; (b) the performance of those functions is necessary, in the public interest, for maintaining the stability of the financial system in Ireland; and (c) the performance of those functions is necessary to remedy a serious disturbance in the economy of Ireland); or the Covered Institution, with the consent of the Minister of Finance, withdraws from the Scheme. Should an institution be removed from the Scheme, all of its fixed term Covered Liabilities outstanding at that time will continue to have the full benefit of the Scheme Guarantee to 29 September 2010 or their maturity, whichever is the earlier. All Covered Liabilities, including on-demand deposits, will be protected by notice of at least 90 days prior to any Covered Institution being removed from the Scheme. 3 Points arising from the Scheme Guarantee Differences/Defects when compared to Standard Guarantees The Scheme Guarantee is a statutory guarantee and therefore can be revoked or amended at any time by an Act of Parliament. All Covered Liabilities issued by Covered Institutions will be guaranteed by the Minister of Finance during the Scheme Period (whether issued prior to the announcement of the Scheme or after it or maturing during the Scheme Period or after it). No call on the Scheme Guarantee can be made after 29 September 2010, even with respect to Covered Liabilities which fall due prior to that date. Consideration should therefore be given as to whether new issues of Covered Liabilities should mature prior to 29 September 2010 in order to allow holders to call on the Scheme Guarantee (if necessary). Disclosure Issues Disclosure of the Scheme in the offering document/final terms is prescribed by the DoF. Please contact the DoF for the latest version of the disclosure guidelines (which includes a draft section on the Guarantee; (ii) a risk factor on the Act; and (iii) a disclaimer for the inside cover of the offering document). Before issuing any Covered Liabilities, the Covered Institution should contact the Markets Supervision Department of the Financial Regulator (markets@financialregulator.ie) on an informal basis. 9

13 4 Application Process Covered Institutions do not need to apply for a particular issue of securities to be covered by the Scheme Guarantee. Under the Scheme, Covered Institutions must pay a quarterly charge to the Exchequer for the benefit of the Scheme Guarantee. The estimated aggregate cost of the Scheme Guarantee over the next two years is expected to be approximately 1 billion. The aggregate amount of the charge is based on the increased debt servicing costs that Ireland will bear as a result of providing the Scheme Guarantee. The individual charge that each Covered Institution will pay is expected to be based, in part, on its long-term credit rating and, as such, its risk profile. Covered Institutions will be prohibited from passing the costs of the guarantee to their customers in an unwarranted fashion. By executing a guarantee acceptance deed, a Covered Institution will agree to indemnify the Minister of Finance in respect of any payments made, or costs incurred, by the Minister of Finance under the guarantee provided to the Covered Institution. However, Covered Institutions will not be required to cross-indemnify any Covered Institutions outside their own group. 5 Transaction Documents The usual documentation is required for a drawdown or stand-alone issue of Covered Liabilities. However, please note the following in relation to the offering document: A prospectus is not required where a Covered Institution proposes to offer Covered Liabilities and/or seek admission to trading of those Covered Liabilities on a regulated market, which do not mature after the expiry of the Scheme (i.e. 29 September 2010) (see here). The Financial Regulator recommends that those Covered Liabilities should be offered for sale in the form of a stand-alone offering document that does not refer to a base prospectus or other document previously approved under the Prospectus (Directive 2003/71/EC) Regulations 2005 (S.I. No. 324 of 2005) (the Regulations ). The Financial Regulator also recommends that, where a Covered Institution does not prepare a stand-alone offering document, it should review how the final terms/offering document for such securities reads when read with the relevant base prospectus, in order to ensure that there is no suggestion (explicitly or implicitly) that the Financial Regulator has approved any documentation as complying with the Regulations insofar as it relates to such securities. Where such a suggestion might arise, the base prospectus should be supplemented to clarify the position. A prospectus is required where a Covered Institution proposes to offer securities (which are Covered Liabilities) to the public where those securities are due to mature after the expiry of the Scheme (e.g. Lower Tier 2 issues). The disclosure requirements set out in the Regulations will apply to a prospectus or base prospectus supplement, where the original prospectus or base prospectus so supplemented was published in connection with an issue of Covered Liabilities. 10

14 6 Other Points of Practice Issuance Structure The Covered Liabilities of a subsidiary of any parent credit institution which is not regulated by the Financial Regulator (being a subsidiary which is a Covered Institution) shall include only such Covered Liabilities of that subsidiary: which relate to its own business; and (ii) in respect of which there is no recourse to any other entity within or outside its group, and shall not include liabilities which, in the absence of the Scheme Guarantee, would normally be those of other members of the Covered Institution s group. In light of Irish common law, the trust deed for each issue of Guaranteed Securities will usually require the Financial Regulator s and/or the DoF s consent for variations, amendments, waivers, etc. to the terms and conditions. This is also usually added to the offering document (e.g. under other information in the final terms). Lower Tier 2 Debt Paragraph 11 of the Schedule states that the Minister of Finance shall impose specific restrictions on a Covered Institution in respect of dated subordinated debt (Lower Tier 2) covered by the Scheme Guarantee, so as to prevent the unwarranted expansion of capital and lending activity during the guarantee period. Such restrictions shall include (but are not limited to) those set out at Paragraphs 36 to 43 of the Schedule. Please also note that the Financial Regulator shall require that where new dated subordinated debt is covered by the Scheme Guarantee, the Covered Institution benefiting from such a financing will also maintain at least the solvency ratio initially obtained when the relevant financing takes place during the whole duration of the Scheme Period. 7 State Aid The European Commission made an announcement on the Scheme on 12 October 2008 (see here). 11

15 The Netherlands The 2008 Credit Guarantee Scheme of the State of the Netherlands (the Scheme ) forms part of the Dutch Government s measures announced on 13 October 2008 to improve the financing of financial institutions, thereby safeguarding corporate and household loans. 1 When is the Scheme Available? The Scheme rules (as amended and restated on 11 November 2008, 21 November 2008 and 27 November 2008) (the Scheme Rules ) can be found here. Eligible Banks Only financial institutions that qualify as eligible banks ( Eligible Banks ) may participate in the Scheme. An Eligible Bank must: (ii) (iii) (a) be a bank (as defined in Section 1:1 of the Dutch Financial Supervision Act (Wet op het financieel toezicht) (the Financial Supervision Act )), (b) have its seat in the Netherlands, (c) be authorised to perform its banking activities pursuant to Section 2:12(1), 2:13(1) or 3:111(1) of the Financial Supervision Act and (d) be registered in the register as referred to in Section 1:107(2)(a) of the Financial Supervision Act; have (in the State of the Netherlands (the Guarantor ) opinion) a substantial business in the Netherlands; and have a solvency ratio which is to the Guarantor s satisfaction, taking into account the requirements of the Financial Supervision Act and any agreement of the bank with, or any directive or request to the bank from, the Dutch Central Bank. No banks have been pre-selected as Eligible Banks. Banks that consider themselves to be Eligible Banks must: (ii) deliver a duly completed and signed application form to the Treasury Agency of the State of the Netherlands (the Dutch State Treasury Agency ) for each Eligible Debt Instrument (as defined below) which they want to benefit from the Scheme; and through the application form (a) subject themselves to the Scheme Rules, (b) make the representations contained in Schedule 7 to the Scheme Rules and (c) agree to the undertakings set out in Schedule 8 to the Scheme Rules. The Guarantor will consider the application and whether the applicant qualifies as an Eligible Bank and may require: (ii) (iii) proof, in form and substance satisfactory to the Guarantor, that the bank qualifies as an Eligible Bank and the relevant debt instrument qualifies as an Eligible Debt Instrument; an indemnity in the form of Schedule 5 to the Scheme Rules from any group company of the Eligible Bank; and any authorisation, document or opinion the Guarantor considers necessary or desirable. 12

16 Please note that no more than one member of a corporate group may be an Eligible Bank under the Scheme, save where the Guarantor determines otherwise. Eligible Debt Instruments Pursuant to Schedule 2 of the Scheme Rules, Eligible Debt Instruments must: be non-complex senior unsecured debt instruments on standard market terms and fall within one of the following categories: (a) (b) (c) certificates of deposit; commercial paper; or medium term notes which by their terms are expressed to be redeemed in one single payment (bullet) and which carry interest at a fixed or floating rate; (ii) have an issue date falling on or after 23 October 2008 and before 31 December 2009 (the Final Application Date ); (iii) have a tenor of no less than three months and no more than three years; 5 (iv) (v) be denominated in sterling, euro or US dollars; and not contain any event of default constituted by cross-default or cross-acceleration or right of prepayment by the issuer. The proceeds of the issue of the Eligible Debt Instrument must be (and must be expressed to be) applied towards refinancing any debt instruments or other borrowings of the relevant Eligible Bank with a schedule maturity date falling on or after 23 October In addition, the Guarantor must be satisfied that the Eligible Debt Instrument fits within the liquidity requirements of the Eligible Bank (having taken into account the refinancing profile and the structure of the balance sheet of the relevant Eligible Bank). Notwithstanding the foregoing, the Guarantor may (in its discretion) determine that any debt or borrowing of an Eligible Bank which does not qualify as certificates of deposit, commercial paper or medium term notes, but which otherwise meets the criteria of Schedule 2 to the Scheme Rules, qualifies as an Eligible Debt Instrument. In that case, the Guarantor may impose additional conditions. 2 What does the Scheme Guarantee say? Scheme Rule 5 sets out the terms of the guarantee (the Scheme Guarantee ). Unless otherwise defined herein, the following expressions have the following meanings: Eligible Debt Instrument means securities which satisfy the requirements of Schedule 2 to the Scheme Rules or have been accepted as such. Guarantee Certificate means a certificate in the form of Schedule 4 to the Scheme Rules. Guaranteed Debt Instrument means Eligible Debt Instruments issued by an Eligible Bank, in respect of which the Guarantor has issued a Guarantee Certificate. 5 On 16 January 2009, the Dutch Ministry of Finance indicated that it was considering extending the maximum tenor to five years. As at 27 January 2009, no change had been made to the Scheme Rules. 13

17 The Scheme Guarantee is a guarantee from the Guarantor to all holders of a particular Guaranteed Debt Instrument - each Eligible Debt Instrument will require a separate Guarantee Certificate. For an issue of securities to become Guaranteed Debt Instruments, the securities must be Eligible Debt Instruments and (ii) the issuer (which must be an Eligible Bank) must obtain a Guarantee Certificate prior to their issuance. The Guarantor s obligation to pay holders of Guaranteed Debt Instruments is triggered by the failure of the issuer (and anyone else, for instance a guarantor) to make a payment of principal or interest within any applicable grace period. Please note that default interest which is due pursuant to the terms and conditions of the Guaranteed Debt Instrument is not covered. Instead, the Guarantor will pay interest on the overdue amount at a rate per annum equal to the Euro Overnight Index Average as calculated by the European Central Bank. The Scheme Guarantee creates a secondary obligation of the Guarantor and under Dutch law would qualify as a surety (borgtocht). The Guarantor, however, expressly waives any defences it might invoke as a surety. The Guarantor further expressly confirms that a breach of representation or undertaking by an Eligible Bank or an indemnity provider does not affect the Scheme Guarantee. The Scheme Guarantee has no express termination date, although it is expected to terminate on 31 December 2012 (the Final Application Date plus three years (the maximum tenor of any Guaranteed Debt Instrument)). Termination of the Scheme Guarantee will not bar claims for any amounts owed by an Eligible Bank after 31 December 2012 to the extent those amounts became due before that date. Holders of Guaranteed Debt Instruments (or the relevant trustee on their behalf) may only demand payment from the Guarantor if they deliver a notice of demand (in the form of Schedule 6 to the Scheme Rules) to the Guarantor (at the Dutch State Treasury Agency). In addition, the Guarantor may require proof that (a) the claimant is a holder of a Guaranteed Debt Instrument (or the relevant trustee, as the case may be) and (b) the claimed amount is due and remains outstanding. 3 Points arising from the Scheme Guarantee Differences/Defects when compared to Standard Guarantees The Scheme Guarantee is a guarantee from the Guarantor to all holders of a particular Guaranteed Debt Instrument - each Eligible Debt Instrument will require a separate Guarantee Certificate. Coverage of an Eligible Debt Instrument under the Scheme Guarantee needs to be applied for (see below). A debt instrument will cease to be a Guaranteed Debt Instrument if it is not issued within 30 days of the Guarantee Certificate relating to it (Scheme Rule 5.5.2(a)). A debt instrument will cease to be a Guaranteed Debt Instrument if any term of that debt instrument is amended, supplemented or restated or waived (Scheme Rule 5.5.2(b)) (the original ability of the Guarantor to give its consent to amendments was, we understand at the request of rating agencies, removed in the most recent version of the Scheme Rules). 14

18 Any claims of an Eligible Bank on a group company which have arisen in respect of the Guaranteed Debt Instrument (a Junior Claim ) are subordinated to claims of the Guarantor on such group company and unless the Guarantor directs otherwise no payment may be made in relation to those claims. The Guarantor may, for instance, also collect the Junior Claim and discharge, settle or waive any claim or dispute relating to a Junior Claim. Disclosure Issues Disclosure of the Scheme Guarantee in any offering document or other document or announcement is prescribed by Schedule 10 to the Scheme Rules to be (substantially) the following: The State of the Netherlands has unconditionally and irrevocably guaranteed the due payment of all amounts in principal and interest due by [ISSUER] under the [DEBT INSTRUMENTS] according and subject to the Rules governing the 2008 Credit Guarantee Scheme of the State of the Netherlands, and (ii) the Guarantee Certificate issued under those Rules in respect of the [DEBT INSTRUMENTS]. Those Rules and that Guarantee Certificate are available at If a description as set out above is included, the offering document, other document or announcement may also incorporate the Scheme Rules and the relevant Guarantee Certificate by reference and (ii) include a factual description or summary of the Scheme Rules or the Scheme Guarantee in respect of the relevant Guaranteed Debt Instrument. If a description or summary as set out in (ii) above is included, such description or summary must be true and accurate and not misleading and the following disclaimer must (substantially) be used in the document: The State of the Netherlands has neither reviewed this [OFFER OR OTHER DOCUMENT] nor verified the information contained in it, and the State of the Netherlands makes no representation with respect to, and does not accept any responsibility for, the contents of this [OFFER OR OTHER DOCUMENT] or any other statement made or purported to be made on its behalf in connection with [ISSUER] or the [issue and offering] of the [DEBT INSTRUMENTS]. The State of the Netherlands accordingly disclaims all and any liability, whether arising in tort or contract or otherwise, which it might otherwise have in respect of this [OFFER OR OTHER DOCUMENT] or any such statement. 4 Guarantee Certificate Application Process As mentioned above, for an issue of Eligible Debt Instruments to become Guaranteed Debt Instruments, the Eligible Bank must apply for a Guarantee Certificate prior to their issuance. The Dutch State Treasury Agency requires that a duly completed and signed application form in the form of Schedule 3 to the Scheme Rules is delivered to it before the Final Application Date. The Guarantor may then require the following to be delivered to it prior to the issue of a Guarantee Certificate: proof that the bank qualifies as an Eligible Bank and proof that the relevant debt instrument qualifies as an Eligible Debt Instrument; 15

19 (ii) (iii) an executed indemnity in the form of Schedule 5 to the Scheme Rules of any group company of the Eligible Bank designated by the Guarantor in respect of the relevant Eligible Debt Instrument (an Indemnification Provider ); and any authorisation or other document, opinion or assurance which the Guarantor considers to be necessary or desirable in connection with the relevant Eligible Debt Instrument or its designation as a Guaranteed Debt Instrument. An application form may not relate to more than one issue of Eligible Debt Instruments. By delivering the application form and, if applicable, the executed indemnity, the Eligible Bank and any relevant Indemnification Provider will be deemed to: (ii) make the representations contained in Schedule 7 to the Scheme Rules on (a) the date of the application form or executed indemnity (as the case may be) and (b) if the relevant Eligible Debt Instrument becomes a Guaranteed Debt Instrument, on the date the Guaranteed Debt Instrument is issued; and agree to the undertakings contained in Schedule 8 to the Scheme Rules and such other undertakings and obligations set out in the Scheme Rules. Please note that the Guarantor may require additional representations and/or undertakings pursuant to Scheme Rule 7.3. Importantly, on the basis of the same Rule 7.3, the Guarantor may also (in its discretion) vary or waive any one or more representations or undertakings. 6 Each Eligible Bank at whose request an Eligible Debt Instrument has been designated as a Guaranteed Debt Instrument shall pay to the Guarantor a fee in respect of that Guaranteed Debt Instrument. The amount of the fee shall be determined in accordance with Schedule 9 to the Scheme Rules. If the Guarantor determines that the conditions set out in Scheme Rule have been satisfied, it shall, subject to Scheme Rule 3.4.2, designate the relevant Eligible Debt Instrument as a Guaranteed Debt Instrument by issuing a Guarantee Certificate (in the form of Schedule 4 to the Scheme Rules) in respect of that Eligible Debt Instrument. An Eligible Bank can only issue securities which conform to the description in the relevant Guarantee Certificate (i.e. once the Guarantee Certificate is issued for such securities, you cannot change the currency, extend the maturity, increase the principal amount or increase the coupon etc. - see Scheme Rule 5.5.1). A debt instrument will cease to be a Guaranteed Debt Instrument if (a) it is not issued within 30 days of the Guarantee Certificate relating to it (the Cut-off Date ) (Scheme Rule 5.5.2(a)); or (b) any term of that debt instrument is amended, supplemented or restated or waived (Scheme Rule 5.5.2(b)). Failure to issue the Guaranteed Debt Instrument by the Cut-off Date will result in the Eligible Bank paying a termination fee. The amount of the termination fee shall be determined in accordance with Schedule 9 to the Scheme Rules. 6 It is likely that Eligible Banks that have used the Dutch State s 20 billion recapitalisation scheme will try to obtain waivers from some of the undertakings. 16

20 5 Transaction Documents Save for obtaining a Guarantee Certificate, the usual documentation is required for a drawdown or stand-alone issue of Guaranteed Debt Instruments. However, please note the following: Issues which benefit from the Scheme Guarantee are, as far as the Netherlands is concerned, exempt from the Prospectus Directive as unconditionally and irrevocably guaranteed by a Member State of the European Economic Area. It is therefore not necessary to produce a publicly obtainable prospectus that has been approved by the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten) (the AFM ). It is noted that this does not mean that other competent authorities will or can adopt the same view; they will have to make their own assessment as to whether the Scheme Guarantee creates an unconditional and irrevocable guarantee by a Member State of the European Economic Area. An Eligible Bank can either create a new programme for issues which benefit from the Scheme or make such issues on a stand-alone basis or (ii) amend its existing programme to provide for the possibility of issues which benefit from the Scheme. In the case of above, the new programme or stand-alone issue will (from a Dutch perspective) be outside the scope of the Prospectus Directive and the offering document will not need to be reviewed by the AFM (any Amsterdam listed drawdowns would be treated as issues guaranteed by a sovereign) and disclosure on the Eligible Bank can be limited (or even omitted). In the case of (ii) above, the supplement to the existing base prospectus would need to be approved by the AFM. The supplement would (among other things) include disclosure on the Scheme Guarantee, as set out in Points arising from the Scheme Guarantee Disclosure Issues above, and the withholding tax position on claims made under the Scheme Guarantee. Amendments to programme agreements would need to be considered. A copy of the issue documentation needs to be delivered to the Guarantor postissuance and may need to be delivered prior to issuance. No Eligible Bank may promote itself or its business, or that of any other person, by reference to the Scheme, the Scheme Rules, the Scheme Guarantee or any Guarantee Certificate other than in accordance with Schedule 10 to the Scheme Rules. 6 Other Points of Practice Post-issuance Disclosure Each Eligible Bank which issues any Guaranteed Debt Instrument must, within three business days of such issue, notify the Guarantor of the details set out in Rule 4 of the Scheme Rules, such as issue date, maturity date, principal amount and interest rate (including its ISIN code (if any) and the gross proceeds), and must at the same time deliver to the Guarantor a copy of the documentation for that Guaranteed Debt Instrument. Issuance Structure 17

21 The Scheme applies to plain vanilla, non-complex instruments only, which does not include fixed-to-floating or index-linked securities and instalment notes. However, Guaranteed Debt Instruments may be issued at a discount. Although the proceeds of each issue of Guaranteed Debt Instruments must, according to Schedule 2 to the Scheme Rules, be (and must be expressed to be) used to refinance liabilities of the relevant Eligible Bank, the fact that Junior Claims are contemplated by the Scheme Rules implies that the proceeds may be on-lent to group companies. In connection with any on-lending it is important to confirm with the Dutch State Treasury Agency that this is indeed allowed in the specific circumstances and whether or not a borrowing group company would in that case need to become an Indemnification Provider. 7 State Aid The European Commission issued an announcement relating to the Scheme on 31 October 2008 (see here). 8 Contacts If you have any questions or need any additional information, please feel free to contact any of the following or one of your usual Linklaters contacts: Pim Horsten: pim.horsten@linklaters.com Alexander Harmse: alexander.harmse@linklaters.com 18

22 Federal Republic of Germany The Financial Market Stabilisations Fund (Sonderfonds Finanzmarktstabilisierung) ( SoFFin ) forms part of the German Government s measures announced in October 2008 to ensure the stability of the financial system and to protect ordinary savers, depositors, businesses and borrowers during the Fund Period (as defined below). 1 When is the Scheme Available? The Financial Market Stability Act (Finanzmarktstabilisierungsgesetz) (the Act ) provides the statutory authority for SoFFin and can be found here (an English translation can be found here). The Financial Market Stability Fund Regulation (Finanzmarktstabilisierungsfonds Verordnung) (the Ordinance ) sets out the access and eligibility criteria for the Fund in greater detail and can be found here (as at the date of this Memorandum, no English translation was available). Eligible Institutions For institutions to become eligible institutions ( Eligible Institutions ), they must make a written application to SoFFin. Article 1 Section 2(1) of the Act requires applicants to be: (ii) (iii) (iv) (v) (vi) German credit institutions (Kreditinstitute) within the meaning of the German Banking Act (Kreditwesengesetz); financial services providers (Finanzdienstleistungsinstitute) within the meaning of the German Banking Act (Kreditwesengesetz); German insurance companies and pensions funds (Pensionsfonds) within the meaning of the German Insurance Supervisory Act (Versicherungsaufsichtsgesetz); German investment management companies (Kapitalanlagegesellschaften) within the meaning of the German Investment Act (Investmentgesetz); operators of securities and commodities exchanges; and certain parent companies of the aforementioned entities. As at the date of this Memorandum, only German credit institutions have applied for a SoFFin guarantee (each a Guarantee ). Eligible Securities Pursuant to Article 1 Section 6(1) of the Act in connection with Section 2 of the Ordinance, securities must: have an issue date falling on or after 18 October 2008 and before 31 December 2009 (the Fund Period ); and (ii) have a tenor of no more than three years, 7 in order to become SoFFin eligible ( Eligible Securities ). Eligible Securities which have the benefit of a Guarantee are referred to herein as Guaranteed Securities. 7 We understand that the German Government is discussing extending the maximum tenor to five years with the EU Commission. As at 27 January 2009, no change had been made to the Act or the Ordinance. 19

23 Please note that, according to Paragraph 21 of the communication of the EU Commission, dated 27 October 2008 approving the Act (the Communication ) (see here (as at the date of this Memorandum, no English translation was available)), Guarantees may only be granted until 28 April After this date, Guarantees may only be granted if the financial markets crisis continues and the German Government has notified the EU Commission that SoFFin will continue to be utilised. In practice, only plain vanilla debt securities are eligible. If Eligible Securities are denominated in a currency other than euro, no Guarantee will be given unless SoFFin can hedge its currency exposure, with the relevant Eligible Institution bearing any associated costs. 2 Application Process An Eligible Institution must make an application to SoFFin in order to receive a Guarantee for an issue of Eligible Securities. The Eligible Institution and SoFFin must enter into an Agreement for the Granting of Guarantees (the Agreement ) in the form provided by SoFFin. The Agreement sets out (amongst other things) SoFFin s fee for providing the Guarantee (the Fee ), any duties imposed by SoFFin on the Eligible Institution, other covenants imposed on the Eligible Institution and termination rights. By way of example, SoFFin has imposed the following duties on Eligible Institutions: (ii) (iii) an obligation on the shareholders to recapitalise the relevant Eligible Institution (the minimum core capital ratio required in practice is 8 per cent.); the provision of a restructuring plan. Although Paragraph 24 of the Communication requires a restructuring plan to be submitted to the EU Commission by the relevant Eligible Institution within six months of the date on which SoFFin makes a payment under the relevant Guarantee, SoFFin has in practice required a (separate) restructuring plan to be provided to it within a fixed period; and adjustment of the business model and the spin-off of bad assets to ensure the long-term survival of the Eligible Institution. SoFFin has also imposed wide-ranging information covenants for its benefit. Failure by the Issuer to comply with the duties and covenants imposed leads to: (ii) a right for SoFFin to terminate the Agreement (however, this will not affect the validity of any Guarantees already given thereunder); and in individual cases, hefty contractual penalties on the Issuer. The Fee must comply with the rates approved by the EU Commission in the Communication. The Agreement will contain a standard form of drawdown notice (which must be submitted to SoFFin each time the relevant Eligible Institution wants to issue Guaranteed Securities) and a form of Guarantee to be issued by SoFFin. There is no right to require SoFFin to enter into the Agreement or to grant an individual Guarantee. However, SoFFin is required to duly exercise its discretion and grant equal treatment in its administrative practices. 20