CAVENDISH OPPORTUNITY INVESTMENTS LIMITED

Transcription

1 143,550,000 Series 1 Participating Notes due 2015 (the "Series 1 Participating Notes") issued pursuant to the Multi-Issuer Secured Note Programme (the Programme) CAVENDISH OPPORTUNITY INVESTMENTS LIMITED Cavendish Opportunity Investments Limited (the "Company") (incorporated in Ireland with limited liability under the Companies Acts with company number ) SERIES 1 PARTICIPATING NOTES PROSPECTUS Arranged by: AE Global Investment Solutions Limited Bessborough House 17 Cavendish Square London W1G 0PH United Kingdom Authorised and regulated by the Financial Services Authority. The date of this Series Prospectus is 10 July 2008 This Series Prospectus (the Series Prospectus ) constitutes the prospectus for the purposes of the Directive 2003/71/EC (the Prospectus Directive ). Application has been made to the Irish Financial Services Regulatory Authority (the Financial Regulator ), as competent authority under the Prospectus Directive for the Series Prospectus to be approved. This Series Prospectus, under which the Series 1 Participating Notes are issued should be read in conjunction with the Base Prospectus dated 9 July 2008 (the "Base Prospectus"). Application has been made to the Irish Stock Exchange for the Series 1 Participating Notes to be admitted to the official list and to trading on its regulated market. There can be no assurance that such listing will be approved or maintained. A copy of the Series Prospectus will be filed with the Irish Companies Registration Office within 14 days of approval as required by Regulation 38(1)(b) of S.I. No 324 Prospectus (Directive 2003/71/EC) Regulations 2005 (the "Irish Prospectus Regulations").

2 Terms defined in the Base Prospectus shall have the same meaning in this Series Prospectus. This Series Prospectus is to be read in conjunction with the Base Prospectus. THE NOTES WILL BE OBLIGATIONS SOLELY OF THE ISSUER AND WILL NOT BE GUARANTEED BY, OR BE THE RESPONSIBILITY OF, ANY OTHER ENTITY. Save as provided herein, the Issuer accepts responsibility for the information contained in this Series Prospectus. To the best of the knowledge and belief of the Issuer (which has taken all reasonable care to ensure that this is the case), the information contained in this Series Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. The delivery of this Series Prospectus at any time does not imply any information contained herein is correct at any time subsequent to the date hereof. AE Global Investment Solutions Limited (the Manager") accepts responsibility for the information contained in the sections headed "Investment Opportunity" and The Manager. To the best of the knowledge and belief of the Manager (who 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. Neither the Manager nor any of its Affiliates (as defined below) accepts any responsibility for the accuracy and completeness of any other information contained in this document. The distribution of this Series Prospectus and the offering or sale of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Series Prospectus comes are required by the Issuer and the Arranger to inform themselves about and to observe any such restriction. The Arranger is acting exclusively on behalf of the Issuer in connection with the issue of the Notes and will not regard any other person as its customer or be responsible to any other person for providing the protections afforded to customers of the Arranger or for advising any such person in relation to the Notes. Defined terms used in this Series Prospectus shall, except where otherwise defined herein or in the Base Prospectus have the meanings set forth in the "Master Definitions Schedule" as set out in the attached Appendix 1. Error! Unknown document property name.

3 Table of Contents 1 Incorporation by Reference Terms and Conditions of the Series 1 Participating Notes Portfolio Eligibility Criteria and Concentration Limitations Investment Opportunity The Manager Key Person Provisions Appointment of Noteholder Committee Other Transaction Parties Principal Agreements Transfer Restrictions Listing and General Information...34 Appendix 1 (Master Definitions Schedule)...37 Appendix 2 (Form of Monthly Report) 54 3

4 1 Incorporation by Reference This Series Prospectus should be read and construed in conjunction with the Base Prospectus dated 10 July 2008 relating to the Programme which has been published prior to the Series Prospectus and that has been approved by the Financial Regulator and filed with it and shall be deemed to be incorporated in, and form part of, this Series Prospectus, save that any statement contained in any of the documents incorporated by reference in, and forming part of, this Series Prospectus shall be deemed to be modified or superseded for the purpose of this Series Prospectus to the extent that a statement contained herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this Series Prospectus. This Series Prospectus must be read in conjunction with the Base Prospectus and full information on the Issuer and the Notes is only available on the basis of the combination of the provisions set out within this document and the Base Prospectus. Upon the oral or written request therefor, the Issuer will make available a copy of this Series Prospectus (and any documents incorporated by reference in this Series Prospectus) free of charge, at the specified offices of the Issuer. Written or oral requests for such documents should be directed to the specified office of the Issuer. Supplements If at any time the Issuer shall be required to prepare a supplemental prospectus pursuant to the Irish Prospectus Regulations and/or Article 16 of the Prospectus Directive, the Issuer will prepare and make available an appropriate amendment or supplement to this Series Prospectus which shall constitute a supplemental prospectus as required by the Financial Regulator and the Irish Prospectus Regulations and the Prospectus Directive. 4

5 2 Terms and Conditions of the Series 1 Participating Notes THE PARTIES: "Issuer" "Manager" THE OFFERED NOTES: "Series 1 Participating Notes" Cavendish ABS Opportunity Investments Ltd, a company incorporated under the laws of Ireland. AE Global Investment Solutions Limited, a company incorporated under the laws of England and Wales. The offered notes shall comprise a programme issuance from the Programme and will consist of 143,550,000 Series 1 Participating Notes due 2015 (the "Series 1 Participating Notes"). The Series 1 Participating Notes will rank pari passu and without preference among themselves for all purposes. The Series 1 Participating Notes are tradeable without restriction, subject at all times to applicable law. "ISIN CODE" "Issue Size" Series 1 Participating Notes: XS ,550,000 "Issue Price" % "Form of Notes" The Series 1 Participating Notes will be represented initially by a temporary global note in bearer form (the Temporary Global Note ), without coupons or talons, which will be deposited on the Issue Date with a common depositary for Euroclear and Clearstream, Luxembourg. Interests in the Temporary Global Note relating to the Series 1 Participating Notes will be exchangeable for interests in a permanent global note relating to the Series 1 Participating Notes in bearer form (each a Permanent Global Note ) without coupons or talons, 40 calendar days after the Issue Date provided certification of non-u.s. beneficial ownership by the Noteholders of the Series 1 Participating Notes has been received. The Permanent Global Notes will also be deposited with the common depositary. Series 1 Participating Notes in definitive form (each a Definitive Note ) will be issued only in certain limited circumstances. Unless Series 1 Participating Notes in definitive form are so issued and for so long as the Global Notes remain in effect, the Series 1 Participating Notes will be transferable in accordance with the rules and procedures for the time being of Euroclear and Clearstream, Luxembourg. "Minimum Holdings" "Minimum The Series 1 Participating Notes will be issued to investors only in minimum holdings of 100,000. The Series 1 Participating Notes will be issued in minimum denominations 5

6 Denomination" of 50,000. "Distributions" "Distribution Dates" Prior to the end of the Reinvestment Period, all amounts that would otherwise be available for distribution shall roll-up and be re-invested in the Portfolio (or held in a designated reinvestment account (the Reinvestment Account )) (save where, in the Manager s sole judgement, an insufficient quantity of Portfolio Collateral is available for the purposes of reinvestment in which case distributions will be made pro rata to the Series 1 Participating Notes). See section "Waterfall" below. Quarterly. The 15th day of August, November, February and May in each year commencing in August 2008, as well as the Maturity Date and the Redemption Date, in each case, to the extent not a Business Day, adjusted in accordance with the Modified Following Business Day Convention. It is anticipated that payments of principal and interest on the Series 1 Participating Notes will be made only on the Redemption Date in connection with the realisation of the Portfolio. "Status" "Collateral" The Series 1 Participating Notes (and the Senior Funding Notes (as defined below), if any) will be limited recourse debt obligations of the Issuer, secured by the Collateral. The Notes will be secured in favour of the Trustee for the benefit of the secured parties by security over: (a) (b) the Portfolio Collateral and Eligible Investments purchased by the Issuer; the Accounts of the Issuer (including, but not limited to, the Reinvestment Account, the Principal Collections Account, the Interest Collections Account, the Uninvested Proceeds Account, the Revolving Reserve Account and the Performance Fee Account); and (c) "Issue Date" 10 July an assignment by way of security of various of the Issuer s other rights and certain of the agreements described herein or related thereto. "Reinvestment Period" "Interest" A period of approximately 4 years concluding on 31 July 2012 (unless extended pursuant to an Auction Call Extension). The Series 1 Participating Notes do not have a specified rate of interest. Interest shall be payable in respect of the Series 1 Participating Notes on an available funds basis in arrears on each Distribution Date and shall continue to be so payable in accordance with the Priorities of Payment notwithstanding the redemption in full of any Series 1 Participating Notes at their applicable Redemption Prices. Interest will cease to be payable in respect of each Series 1 Participating Note upon the date that all of the Collateral has been realised and no 6

7 "Prescription" "Auction Call" "Auction Call Extension" "Optional Redemption" Interest Proceeds or Principal Proceeds remain available for distribution in accordance with the Priorities of Payment. If the aggregate of income and gains earned by the Issuer during an accounting period exceeds the costs and expenses of the Issuer for that accounting period, such excess shall accrue as additional interest on the Series 1 Participating Notes but such excess amount shall only be payable as interest on the Series 1 Participating Notes on any Distribution Date after payment in full of all amounts payable by the Issuer pursuant to the relevant Priorities of Payment on such Distribution Date. Claims against the Issuer for payment in respect of the Series 1 Participating Notes, receipts and coupons (which, for this purpose, shall not include talons) shall be prescribed and become void unless made within 10 years (in the case of principal) or five years (in the case of interest) from the appropriate relevant payment date in respect thereof. On the expiry of the Reinvestment Period, the Manager will use commercially reasonable efforts to arrange the sale of the Portfolio in accordance with the provisions of Collateral Management Agreement. The Manager will solicit bids for the Portfolio from at least two bona fide bidders as described below. The Manager and its affiliates, along with entities for whom the Manager acts as investment manager, will be entitled to bid for the Portfolio in whole or in part, subject to certain conditions. By notice to the Issuer prior to the expiry of the Reinvestment Period, Participating Noteholders holding at least 80% in aggregate principal amount of the Series 1 Participating Notes then outstanding may extend the Reinvestment Period for further periods of up to two years, subject to any such extension of the Reinvestment Period expiring no later than 31 July, In addition, the Manager may request the Noteholder Committee to consider a request to postpone the auction call upon the expiry of the Reinvestment Period, which such postponement would require the approval of a majority of the Noteholder Committee provided always that the Noteholder Committee will have been considered to have approved the request for postponement which is referred to it and to which it does not respond within 10 Business Days of written notification thereof pursuant to the terms of the Collateral Management Agreement. The Series 1 Participating Notes may be redeemed by way of optional redemption by the Issuer, in whole but not in part, from the proceeds of liquidation or realisation of the Collateral: (a) at the Manager s sole discretion; and (b) upon the occurrence of certain tax events including inter alia, where the Issuer is finally determined for United Kingdom tax purposes to be resident in the United Kingdom or carrying on a trade through a United Kingdom permanent establishment and therefore subject to United Kingdom corporation tax on profits of that trade. 7

8 "Redemption Date" The earlier to occur of: (a) 31 July 2015; (b) the redemption in full of the Series 1 Participating Notes by way of Optional Redemption or the redemption following the end of the Reinvestment Period as described herein; and "Further Issuance of Series 1 Participating Notes" "Repurchase of Series 1 Participating Notes" "Event of Default" (c) the date of the realisation of the security over the Collateral in the event that the Series 1 Participating Notes are accelerated following the occurrence of an Event of Default. Subject to approval by 80% in aggregate principal amount of the Participating Noteholders, additional tranches of the Series 1 Participating Notes may be issued, and the Issuer will use the proceeds thereof to (amongst other things) purchase additional Portfolio Collateral. The Participating Noteholders shall have pre-emption rights in relation to any further issuance of tranches of the Series 1 Participating Notes. The Issuer, at the discretion of the Manager, may repurchase or redeem up to 15% of the aggregate initial principal amount of the Series 1 Participating Notes on the open market provided that such repurchase or redemption is made at a price less than the then current net asset value as calculated by the Calculation Agent pursuant to the terms of the Calculation Agency Agreement. Any Series 1 Participating Notes so repurchased shall be cancelled. the occurrence of any of the following events shall constitute an Event of Default: (i) Non-Payment of Interest: failure by the Issuer to pay any interest amounts on the Series 1 Participating Notes when the same becomes due and payable or the Issuer fails to pay any interest on the Senior Funding Notes (if any) when the same becomes due and payable; (ii) Non-Payment of Principal: failure by the Issuer to pay any principal when the same becomes due and payable on any of the Notes provided that, in each case, such failure to pay such amount continues for a period of 5 Business Days; (iii) Default under Priorities of Payment: failure by the Issuer to disburse, out of amounts available in the Payment Account, any other amount in accordance with the Priorities of Payment and which failure (save for such failure as described in paragraphs (i) and (ii) above) continues for a period of at least 10 Business Days; (iv) Breach of Other Obligations: breach of any other obligations of the Issuer under the Notes or under any Transaction Document to which the Issuer is a party (other than a covenant, warranty or other default, in the performance or breach of which is dealt with elsewhere under this definition of Event of Default ) which continues for 30 Business Days after the Trustee has given written notice of it to the Issuer, certifying that the default is, in its opinion, materially prejudicial to the interests of the holders of the Senior Funding Notes (if any) or, following redemption in full of the Senior 8

9 Funding Notes (if any), the holders of the Series 1 Participating Notes at such time; (v) Insolvency Proceedings: proceedings are initiated against the Issuer under any applicable liquidation, insolvency, examination, bankruptcy, composition, reorganisation or other similar laws (together, Insolvency Law ), or a receiver, trustee, administrator, administrative receiver, examiner, custodian, conservator or other similar official (a Receiver ) is appointed in relation to the Issuer or in relation to the whole or a substantial part of the undertaking or assets of the Issuer; or a windingup petition is presented in respect of, or a winding-up order is applied for, or a distress or execution or other process is levied or enforced upon or sued out against the whole or a 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 twenty Business 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 when due, or initiates or consents to 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 the Issuer becomes subject to a moratorium or other similar procedure; or (vi) Illegality: it is or will become unlawful for the Issuer to perform or comply with any one or more of its material obligations under the Series 1 Participating Notes. "Governing Law" "Listing" "Ratings" "Clearing" "Eligible Purchasers" Irish law Irish Stock Exchange None Euroclear and Clearstream The Series 1 Participating Notes will be offered 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. FEES AND EXPENSES: "Initial Fee" "Annual Fee" "Performance Fee" An Initial Fee of 250,000 will be payable to the Manager. An Annual Fee of 1.25% per annum of the initial principal amount issued of the Series 1 Participating Notes (including, for the avoidance of doubt, the initial principal amount of any Series 1 Participating Notes issued after the Issue Date) will be payable to the Manager. Annual fees are to be paid quarterly in arrears. A Performance Fee of 20% of all amounts available to be distributed to Participating Noteholders after the Benchmark Return has been reduced to 9

10 zero. The amount payable in relation to the Performance Fee shall be paid in accordance with the Priority of Payments into the Performance Fee Account on each Distribution Date. On any Distribution Date (including the Redemption Date) on which the amounts on deposit in the Performance Fee Account (excluding interest accrued thereon) exceed the amount of the Performance Fee calculated as of such date, the excess shall be withdrawn from the Performance Fee Account and paid to the Interest Collections Account. On the Redemption Date, the Performance Fee shall be paid to the Manager from amounts on deposit in the Performance Fee Account. The Benchmark Return shall be a notional amount (which may not be less than zero) equal to: (1) on the Issue Date, the initial aggregate principal amount of the Series 1 Participating Notes; (2) on the first Distribution Date, equal to the initial aggregate principal amount of the Series 1 Participating Notes (i) increased by one month Euribor thereon for the period from the Issue Date to such Distribution Date, compounded monthly and (ii) reduced by all distributions of principal or interest made to holders of the Series 1 Participating Notes under the Priority of Payments on such Distribution Date; and (3) on all subsequent Distribution Dates, an amount equal to the Benchmark Return determined on the immediately preceding Distribution Date, (i) increased by one month Euribor thereon for the period from the preceding Distribution Date to such Distribution Date, compounded monthly and (ii) reduced by all distributions of principal or interest made to holders Series 1 Participating Notes under the Priority of Payments on such Distribution Date. For the purposes of calculating the Benchmark Return, (i) all distributions to Noteholders on any Distribution Date shall be deemed applied firstly to accrued uncompounded Euribor on the notional amount, and then to the notional amount.; and (ii) one month Euribor shall be reset on the last day of each month, modified in accordance with the Modified Following Business Day Convention, except that one month Euribor for the period from the Issue Date until 15 August 2008 shall be percent per annum. In the event that additional tranches of Series 1 Participating Notes are issued, the Performance Fee in respect thereof for each such additional tranche of Series 1 Participating Notes, if any, will be calculated separately from those of the initial Series 1 Participating Notes. "Initial set up Expenses" Borne by the Manager. THE PORTFOLIO: "Portfolio" The Portfolio Collateral and Eligible Investments held by or on behalf of the Issuer from time to time. 10

11 Portfolio Collateral "Use of Proceeds" Ramp-Up Period Ramp-Up Date "Leverage" "Currency Hedging" "Interest Rate Hedging" The diversified pool of Collateral Debt Securities purchased by the Issuer (or on its behalf) on the Issue Date and from time to time thereafter. The net proceeds from the issuance of the Notes on the Issue Date after payment of applicable fees and expenses are expected to be approximately 143,300,000 (the Issue Proceeds ). Such proceeds will be deposited in the Principal Collections Account for transfer to the Uninvested Proceeds Account. The period beginning on the Issue Date and ending on, but excluding, the Ramp-up Date. The date falling on the first anniversary of the Issue Date (or, if such day is not a Business Day, the next succeeding Business Day). The Issuer may, with the Manager s approval, issue a class of notes or loans which will be senior to the Series 1 Participating Notes and secured on the Portfolio on a limited recourse basis (the "Senior Funding Notes", and, together with the Series 1 Participating Notes, the "Notes"). The aggregate principal amount of the Senior Funding Notes will not exceed 66% of the nominal value of the assets comprising the Portfolio immediately following the issuance of the Senior Funding Notes. The minimum term of the Senior Funding Notes shall be the shorter of (i) 24 months and (ii) the period from issuance to the occurrence of the Redemption Date, whichever is shorter. The Senior Funding Notes shall be repayable out of the proceeds of (a) the realisation of the Portfolio or (b) if such Senior Funding Notes mature prior to the Redemption Date, the issuance of further Senior Funding Notes. No Senior Funding Notes will be issued on the Issue Date. Senior Funding Notes issued subsequently shall be offered initially to the Participating Noteholders pro rata to their holdings of the Series 1 Participating Notes. Any Senior Funding Notes not thereby subscribed may be placed by the Arranger with other investors. There is no assurance that the Arranger will be successful in arranging the placement of the Senior Funding Notes on behalf of the Issuer or the refinancing of Senior Funding Notes at maturity thereof and the Issuer is not at any time obliged to issue Senior Funding Notes. Subject as provided above, the terms and conditions of the Senior Funding Notes, if any, issued by the Issuer shall be determined in the Manager s sole discretion provided that, solely to the extent that the proposed terms thereof provide for a spread in excess of 200 basis points over Euribor, the approval of the Noteholder Committee (as defined below) shall be required as a pre-condition to such issuance of Senior Funding Notes. The Issuer will be required to hedge the expected cashflows from non-euro denominated Collateral Debt Securities through vanilla currency swaps, balance guaranteed currency swaps or portfolio level currency hedges or otherwise as the Manager may determine in its sole discretion. Fixed rate Collateral Debt Securities (and floating rate Collateral Debt Securities where the applicable reset period for such Collateral Debt 11

12 "Credit Hedging" "Reporting" Securities is longer than one year) shall be swapped to Euribor pursuant to the terms of interest rate hedge agreements, the terms of which shall be determined in the Manager's sole discretion. The Issuer may write credit protection on asset backed securities ("ABS") up to an amount equal to 10% of the initial aggregate principal amount of the Notes. The Issuer may buy credit protection up to an amount equal to 25% of the initial aggregate principal amount of the Notes. Any ABS the subject of such Credit Hedging arrangements shall satisfy the Eligibility Criteria save to the extent that references thereunder to "purchased" shall be construed as "becoming subject to the terms of such Credit Hedging arrangements" and as may otherwise be provided under the Eligibility Criteria. On a monthly basis the Calculation Agent will provide a report in the form set out under Form of Monthly Report in the attached Appendix 2 (the Monthly Report ). On a quarterly basis the Manager will provide a report (the Payment Date Report ) stating the aggregate non-default cash flow projection of the Portfolio. It is expected that a market price service, such as MarkiT or Euroabs, will be utilised for reporting. In the event that such a service is not available the Calculation Agent or, as the case may be, the Manager may use theoretical models or the original asset price when valuing a Collateral Debt Security. Investors should note that such prices may not be representative on the realisation of the Portfolio. The Calculation Agent or, as the case may be, the Manager shall have the right to change the way Monthly Reports and Payment Date Reports are distributed in order to make such distribution more convenient and/or more accessible to the above parties (provided that, for so long as the Series 1 Participating Notes are listed on the Irish Stock Exchange, such distributions will comply with any applicable rules thereof) and the Calculation Agent or, as the case may be, the Manager shall provide timely and adequate notification to all above parties regarding any such changes. In no event will the Calculation Agent, the Manager or the Cash Manager be liable for any dissemination of reports required hereunder and investors should note that such reports are for information purposes only and, accordingly, neither the Calculation Agent, the Manager nor the Cash Manager shall make any representation or warranty or otherwise bear any liability of any kind in connection with any such reports. 12

13 Priorities of Payment: "Interest Waterfall" The Cash Manager shall direct, on behalf of the Issuer, on each Distribution Date the disbursement of Interest Proceeds and Principal Proceeds transferred to the Payment Account (other than amounts representing collateral posted by any Currency Hedge Counterparty to the extent that such amounts have not been released to the Issuer pursuant to the terms of the relevant Currency Hedge Agreement) on the Business Day prior thereto, in accordance with the following Priorities of Payment as calculated by the Calculation Agent pursuant to the terms of the Calculation Agency Agreement on each Determination Date. On each Distribution Date, Interest Proceeds shall be applied in the following order of priority (the Interest Waterfall ): (A) to the payment of: (i) any taxes owed by the Issuer to the Irish tax authorities required to be paid by the Issuer; and (ii) thereafter, (x) accrued and unpaid Administrative Expenses and (y) on a pari passu and pro rata basis of Trustee and Agents Fees and Expenses, in each case plus any value added tax thereon, if applicable; (B) (C) (D) (E) (F) (G) to the payment of the Annual Fee due and payable (plus any value added tax thereon (if applicable) on such Distribution Date (including any Annual Fee (plus any value added tax thereon (if applicable) not paid on any prior Distribution Date); to the payment on a pari passu and pro rata basis of termination payments payable to any Swap Counterparty under any applicable Swap Agreement arising other than as a result of (a) an event of default under any such Swap Agreement for which the applicable Swap Counterparty is the defaulting party or (b) a termination event under any Swap Agreement for which the applicable Swap Counterparty is the sole Affected Party (as defined in the applicable Swap Agreement); to the payment of interest due and payable in respect of the Senior Funding Notes (if any) in relation to the Interest Accrual Period ending prior to such Distribution Date, pro rata; to the extent not paid under paragraph (B) of the Principal Waterfall, to the payment of principal due and payable in respect of the Senior Funding Notes on such Distribution Date, pro rata; in the sole discretion of the Manager (acting on behalf of the Issuer), to the payment to the Principal Collections Account of an amount equal to any investment losses or shortfalls (as determined by the Manager) incurred on the Portfolio during the Interest Accrual Period ending prior to such Distribution Date; to the payment to the Principal Collections Account of an amount equal to any amounts paid pursuant to paragraph (A) of the Principal Waterfall on any preceding Distribution Date to the 13

14 extent not previously reimbursed under this paragraph (G); (H) (I) (J) prior to the conclusion of the Reinvestment Period, at the sole discretion of the Manager (acting on behalf of the Issuer), in payment to the Reinvestment Account; to the payment, pari passu and on a pro rata basis, of the cost of (i) entry into any Replacement Swap Agreement to the extent not paid out of termination payments received by the Issuer on termination of an existing Swap Agreement and (ii) any termination payments payable to a Swap Counterparty under an applicable Swap Agreement as a result of (a) an event of default under such Swap Agreement for which the Swap Counterparty is the defaulting party or (b) a termination event under a Swap Agreement for which the Swap Counterparty is the sole Affected Party (as defined in the applicable Swap Agreement); to the payment to the Performance Fee Account of an amount equal to (i) the Performance Fee (if any) calculated as of such Distribution Date (plus any value added tax thereon (if applicable) less (ii) the amount of funds on deposit in the Performance Fee Account on such Distribution Date prior to such payment; and (K) to the payment of all remaining amounts as interest on the Series 1 Participating Notes on a pro rata basis (determined upon redemption in full thereof by reference to the proportion that the principal amount of the Series 1 Participating Notes bore to the principal amount outstanding of the Series 1 Participating Notes immediately prior to the redemption thereof). "Principal Waterfall" On each Distribution Date, Principal Proceeds shall be applied in the following order of priority (the Principal Waterfall ): (A) (B) (C) (D) (E) (F) to the payment of the amounts referred to in paragraphs (A) to (D) (inclusive) of the Interest Waterfall in the priority set out therein and to the extent not paid in full thereunder; to the payment of principal of the Senior Funding Notes (if any) due and payable on such Distribution Date on a pro rata basis; prior to the conclusion of the Reinvestment Period, at the sole discretion of the Manager (acting on behalf of the Issuer), in payment to the Reinvestment Account; to the payment to the Interest Collections Account of an amount equal to any amounts paid pursuant to paragraph (E) of the Interest Waterfall on any preceding Distribution Date to the extent not previously reimbursed under this paragraph (D); in the sole discretion of the Issuer (acting on the advice of the Manager), to the prepayment of the Senior Funding Notes (if any), until redeemed in full; to the payment to the Interest Collections Account of an amount 14

15 equal to the aggregate of any amounts paid pursuant to paragraph (H) of the Interest Waterfall on any preceding Distribution Date to the extent not previously reimbursed under this paragraph (F); (G) (H) to the payment of the amounts referred to in paragraphs (I) and (J) (inclusive) of the Interest Waterfall in the priority set out therein and to the extent not paid in full thereunder; on each Distribution Date falling on or after the expiry of the Reinvestment Period and each Distribution Date thereafter, to redeem the Series 1 Participating Notes in whole in part on a pro rata and pari passu basis, until redeemed in full; and THE ACCOUNTS OF THE ISSUER (I) on the Redemption Date, to the payment of all remaining amounts as interest on the Series 1 Participating Notes on a pro rata basis (determined upon redemption in full thereof by reference to the proportion that the principal amount of the Series 1 Participating Notes bore to the principal amount outstanding of the Series 1 Participating Notes immediately prior to the redemption thereof). Prospective investors are advised that it is anticipated that payments of principal and interest on the Series 1 Participating Notes and the Performance Fee will be made primarily on the Redemption Date in connection with the realisation of the Portfolio. The Issuer shall, prior to the Issue Date, establish accounts with BNP Paribas Securities Services, Luxembourg branch (the Account Bank ) and may in addition establish such currency accounts as may be required from time to time in connection with the acquisition of non-euro denominated Collateral Debt Securities (collectively, the Accounts ). The Issuer, at the direction of the Manager, may invest the balances standing to the credit of the Accounts in Eligible Investments from time to time. The Issuer will establish the Accounts as follows with the parties specified, each of which shall be governed in accordance with the provisions of the Cash Management Agreement: (i) an interest bearing account ( Interest Collections Account ) held with the Account Bank to which Interest Proceeds are to be transferred promptly upon receipt thereof. Payments are to be made from the Interest Collections Account to the Payment Account by the Cash Manager as directed by the Calculation Agent; (ii) an interest bearing account ( Principal Collections Account ) held with the Account Bank to which Principal Proceeds are to be transferred promptly upon receipt thereof. Payments are to be made from the Principal Collections Account to the Payment Account by the Cash Manager as directed by the Calculation Agent; (iii) An interest bearing account ( Payment Account ) held with the Account Bank. Payments are to be made from the Payment Account in accordance with the Priorities of Payment by the Cash Manager as directed by the Calculation Agent; 15

16 (iv) An interest bearing account ("Reinvestment Account") held with the Account Bank. Amounts standing to the credit of the Reinvestment Account may be applied to (i) the purchase of Collateral Debt Securities and of Eligible Investments, (ii) at the discretion of the Issuer, in prepayment of the Senior Funding Notes, if any and/or (iii) in payment to the Payment Account for distribution as Principal Proceeds pursuant to the Priorities of Payment or in transfer to the Interest Collections Accounts (in reimbursement of previous transfers from that account); (v) An interest bearing account ( Revolving Reserve Account ) held with the Account Bank into which amounts equal to the Unfunded Amounts in respect of Revolving Collateral Debt Securities acquired by (or on behalf of) the Issuer and certain principal payments received in respect of Revolving Collateral Debt Securities are paid. The Issuer shall only withdraw amounts from the Revolving Reserve Account to the extent that (a) the Issuer is obliged pursuant to the terms of an applicable Revolving Collateral Debt Security to make payment of all or part of the applicable Unfunded Amount pursuant to the terms thereof or (b) such Revolving Collateral Debt Security has been sold or otherwise disposed of by the Issuer, redeemed in full by the underlying obligor thereof or otherwise, pursuant to the terms of such Revolving Collateral Debt Security, the Issuer is unconditionally no longer subject to an obligation to advance Unfunded Amounts to the underlying obligor of such Revolving Collateral Debt Security pursuant to the terms thereof; (vi) An interest bearing account ( Uninvested Proceeds Account ) held with the Account Bank to which the proceeds of issuance of the Series 1 Participating Notes and the Senior Funding Notes (if any) are to be transferred following their initial deposit in the Principal Collections Account. Payments are to be made from the Uninvested Proceeds Proceeds Account to the Reinvestment Account by the Cash Manager as directed by the Manager; (vii) An interest bearing account ( Performance Fee Account ) held with the Account Bank to which the Performance Fee (if any) shall be paid on any Distribution Date (save for the Redemption Date) pursuant to the Priority of Payment. Payments of the balance standing to the credit of the Performance Fee Account (and interest accrued thereon) are to be made from the Performance Fee Account to the Manager in accordance with Performance Fee, above. 16

17 3 Acquisitions and Disposals, Portfolio Eligibility Criteria and Concentration Limitations Acquisition and Disposal of Collateral Debt Securities 3.1 Acquisition Requirements Any acquisition of a Collateral Debt Security by the Manager on behalf of the Issuer will be subject to the requirements that: (a) (b) (c) (d) (e) (f) such Collateral Debt Security satisfies the Eligibility Criteria and the Concentration Limits are satisfied, maintained or improved as a result of the purchase of such Portfolio Collateral; no Event of Default shall have occurred and be continuing, provided that the Manager may acquire a Collateral Debt Security on behalf of the Issuer, subject to and in accordance with the terms of the Collateral Management Agreement, which is the subject of a commitment entered into prior to the receipt of notice by the Manager of the occurrence of an Event of Default; the Manager is not prohibited from trading in such Collateral Debt Security in accordance with applicable law; such Collateral Debt Security is a qualifying asset for the purposes of section 110 of the Irish Taxes Consolidation Act, 1997; such acquisition is made on an arm s length basis and for fair market value; and there are sufficient funds standing to the credit of the Reinvestment Account, the Principal Collection Account or the Interest Collections Account (to the extent a transfer would be made to the Reinvestment Account on the next Distribution Date to fund the acquisition of that asset (including in the case of a Revolving Collateral Debt Obligation, to fund the deposit of the required Revolving Reserve Account Amount). 3.2 Discretionary Disposal Subject to the terms of the Collateral Management Agreement, the Manager may dispose of any Collateral Debt Security at any time during the Reinvestment Period. 3.3 Disposal Following Optional Redemption of the Notes Following the issue of any notice of an optional redemption of the Notes in accordance with the terms and conditions of the Series 1 Participating Notes, the Manager, acting on behalf of the Issuer, shall, on behalf of the Issuer, dispose or cause the disposal of the Collateral Debt Securities and/or Eligible Investments in the open market or otherwise, provided that: (a) the Sale Proceeds therefrom are used to pay all amounts as the case may be, to redeem the Notes (in whole but not in part) and to pay all amounts ranking in priority thereto in accordance with the Priorities of Payments; and (b) following receipt of such notifications from the Calculation Agent pursuant to Clause 10 (Realisation of Collateral) of the Calculation Agency Agreement the Manager shall, at least 5 Business Days before the proposed Redemption Date, on behalf of the Issuer, have certified to the Trustee (who shall rely on such certification without further enquiry) in form satisfactory to the Trustee that the Manager (on behalf of the Issuer) has entered into a binding agreement or agreements to sell or otherwise dispose of, not later than the Business Day immediately preceding the proposed Redemption Date, upon the payment in immediately available funds, all or part of the Portfolio and that the net proceeds of the sale thereof, Error! Unknown document property name.

18 (c) together with amounts realisable from Eligible Investments maturing on or prior to the proposed Redemption Date and amounts standing to the credit of the Accounts, is at least equal to the principal amount outstanding of the Notes plus, in the case of the Senior Funding Notes (if any), accrued interest thereon together with any amounts payable in seniority thereto pursuant to the Priorities of Payment; and notify the Issuer (who shall procure that notice thereof is given to the Noteholders pursuant to Condition 18 (Notices)), the Cash Manager and the Trustee that the conditions of paragraph (b) above have (or have not) been satisfied (as the case may be). Upon any sale of all or any part of the Portfolio for the purposes of this paragraph 3 (Disposal Following Option Redemption of the Notes), the Manager shall forward an Issuer Order to the Trustee pursuant to which the Trustee shall (in reliance on such Issuer Order and without liability in respect of any loss occasioned thereby or further enquiry) release the relevant Portfolio Collateral pursuant to the terms of the Trust Deed and the Manager shall direct that the Sale Proceeds thereof are credited to the Payment Account for application in redemption of the Notes. The Manager shall only sell any Portfolio Collateral pursuant to this paragraph 3 (Disposal Following Optional Redemption of the Notes) at a price which it reasonably believes to be close to the highest available price (at such time as the price is negotiated and having regard to all of the circumstances then persisting in the market or otherwise) for such Portfolio Collateral. 3.4 Disposal following Conclusion of the Reinvestment Period Following the conclusion of the Reinvestment Period, the Manager on behalf of the Issuer shall use all commercially reasonable efforts to procure the liquidation of the Portfolio of Collateral Debt Securities and Eligible Investments so that the proceeds thereof are available in immediately available funds not later than one Business Day prior to the scheduled Redemption Date. 3.5 Enforcement of Security Upon receipt of notification from the Trustee of the enforcement by the Trustee of the security over the Portfolio Collateral following the occurrence of an Event of Default, the Manager shall, if so instructed by the Trustee in accordance with the Collateral Management Agreement, realise the Portfolio to the extent required by the Trustee and at the direction of the Trustee. 3.6 Revolving Collateral Debt Securities The Manager (acting on behalf of the Issuer) may from time to time acquire Collateral Debt Securities which are Revolving Collateral Debt Securities. Each Revolving Collateral Debt Security will, pursuant to its terms, require the Issuer to make one or more future advances in Euro. Such Revolving Collateral Debt Securities may provide that it may be repaid and reborrowed from time to time by the obligor thereunder. Upon acquisition of any Revolving Collateral Debt Security, the Issuer shall deposit into the Revolving Reserve Account and shall maintain therein from time to time the an amount equal to the aggregate principal amounts of the Unfunded Amounts under each of the Revolving Collateral Debt Securities (the Revolving Reserve Account Amount ). To the extent required under the terms of any Revolving Collateral Debt Security, the Manager (acting on behalf of the Issuer) 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 in respect of the obligations of the Issuer to the obligor under the applicable Revolving Collateral Debt Security and upon receipt of an Issuer Order the Trustee shall release such amounts from the security granted thereover pursuant to the Trust Deed. The Issuer shall not make a withdrawal of any amount comprising the Revolving Reserve Account Amount from the Revolving Reserve Account save to the extent that (a) the Issuer is obliged pursuant to the terms of an applicable Revolving Collateral Debt Security to make payment of all or part of the applicable Unfunded Amount pursuant to the terms thereof or (b) the elected Revolving Collateral Debt Security has been sold or otherwise disposed of by the Issuer, redeemed in full by the 18

19 underlying obligor thereof or otherwise, pursuant to the terms of such Revolving Collateral Debt Security, the Issuer is unconditionally no longer subject to an obligation to advance Unfunded Amounts to the underlying obligor of such Revolving Collateral Debt Security pursuant to the terms thereof. 3.7 Collateral Debt Security Eligibility Criteria Each Collateral Debt Security (and any Reference Obligation relating to any Credit Default Swap save to the extent that references to "purchased" in connection with a Reference Obligation shall be construed as "becoming subject to the terms of such Credit Hedging arrangements") shall, as at the date of acquisition by the Issuer thereof, be required to satisfy each of the Eligibility Criteria (collectively, the Eligibility Criteria ) (and any other criteria which the Noteholder Committee may agree with the Manager from time to time) set out below: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) it is a Collateral Debt Security; it is denominated in euro and is not convertible into or payable in any other currency or, if not denominated in euro, is denominated in the lawful currency of any European Economic Area Country, Swiss Francs, U.S. Dollars, Canadian Dollars, New Zealand Dollars or Australian Dollars that will be hedged pursuant to a Currency Hedge Agreement; it is an obligation issued by an issuer incorporated or organised under the laws of the United States, the Cayman Islands, Jersey, Australia, Singapore, Hong Kong, New Zealand, the British Virgin Islands, Bermuda, Guernsey, Canada, Switzerland or a member state of the European Union; it is an obligation capable of being sold, assigned or participated to the Issuer free of any encumbrances; save for where it is a Revolving Collateral Debt Security, it is not an obligation pursuant to which future advances may be required to be made by the Issuer; upon acquisition, it is an obligation capable (or in the case of a Reference Obligation the subject of Credit Hedging arrangements, the related Credit Default Swap is capable) of being, and will be, the subject of a first fixed charge or first priority security interest in favour of the Trustee for the benefit of the Secured Parties pursuant to the Trust Deed; it is not, at the time it is purchased, known to the Manager (after making all reasonable enquiries) to be an obligation the acquisition of which by the Issuer will result in a breach of applicable selling restrictions or a breach of contractual restriction on transfer; it will not result in the imposition of any present or future, actual or contingent, monetary liabilities or obligations on the Issuer (other than with respect to Revolving Collateral Debt Securities); it is not an obligation which at the time of purchase, is the subject of an offer of exchange, conversion or tender by its obligor, for securities or any other type of consideration (other than cash); it is not a US asset-backed security, nor does the underlying portfolio thereof comprise entirely or substantially of US asset-backed securities; it is not an obligation convertible into equity at the option of the obligor thereof; and (l) it is a qualifying asset (as defined in Section 110 of the Irish Taxes Consolidation Act, 1997). The failure by any Collateral Debt Security to satisfy the Eligibility Criteria at any time after its acquisition shall not cause any obligation which would otherwise be a Collateral Debt Security not to be a Collateral Debt Security so long as such obligation was a Collateral Debt Security satisfying the Eligibility Criteria when purchased by or on behalf of the Issuer or, if earlier, the Issuer (or the Manager on behalf of the Issuer) enters into a binding commitment to acquire such Collateral Debt Security. 19

20 3.8 Concentration Limitations The Issuer, upon the recommendation of the Manager pursuant to the terms of the Collateral Management Agreement, may purchase Portfolio Collateral only if the following criteria (collectively, the Concentration Limitations ) are satisfied, maintained or improved as a result of the purchase of such Portfolio Collateral on the day of purchase of such Portfolio Collateral: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) the acquisition value of fixed rate Collateral Debt Securities comprised in the Portfolio shall not exceed 20% of the aggregate acquisition value of the Portfolio; the acquisition value of Collateral Debt Securities originated or serviced by a single originator comprised in the Portfolio shall not exceed 20% of the aggregate acquisition value of the Portfolio; the weighted average life of the Portfolio shall not exceed 8 years weighted by the acquisition value of the Collateral Debt Securities comprised in the Portfolio; the minimum number of obligors of Collateral Debt Securities comprised in the Portfolio shall be 10; the acquisition value of Collateral Debt Securities of any one single obligor comprised in the Portfolio shall not exceed 10% of the aggregate acquisition value of the Portfolio. the acquisition value of Collateral Debt Securities comprised in the Portfolio with more than an exposure of 10 per cent. or more to US asset-backed securities comprised in the Portfolio shall not exceed 0.0% of the aggregate acquisition value of the Portfolio; the acquisition value of Collateral Debt Securities comprised in the Portfolio issued by an issuer incorporated or organised under the laws of a country that is not a member state of the European Union shall not exceed 10% of the aggregate acquisition value of the Portfolio; the acquisition value of Collateral Debt Securities which are not rated by any of Moody's, Fitch or S&P shall not to exceed 10% of the aggregate acquisition value of the Portfolio; the aggregate principal amount of Reference Obligations on which the Issuer writes credit protection pursuant to the terms of Credit Default Swaps may not exceed 10% of the initial aggregate principal value of the Notes; and the aggregate principal amount of Reference Obligations on which the Issuer buys credit protection pursuant to the terms of Credit Default Swaps may not exceed 25% of the initial aggregate principal value of the Notes. The Calculation Agent will measure the Concentration Limitations on each Measurement Date from and including the Ramp-up Date. For the purposes of measuring the Concentration Limitations, the Issuer s exposure under any net long Credit Default Swaps will be deemed to be the nominal amount outstanding of the relevant Reference Obligation in respect of such Credit Default Swap. Notwithstanding the foregoing, the Portfolio may not satisfy the aforementioned Concentration Limitations to the extent that the Noteholder Committee confirm such exceptions. 3.9 Other Matters Relating to the Eligibility Criteria and the Concentration Limitations In connection with the above calculations, the Issuer, the Manager, the Calculation Agent, the Cash Manager and the Trustee may rely exclusively on reports relating to any Collateral Debt Security delivered to the Issuer, the Manager or the Trustee by the underlying issuer or obligor, trustee, servicer or collateral manager of such Collateral Debt Security. For the avoidance of doubt if the Issuer has previously entered into a commitment to acquire an obligation or security for inclusion in the Portfolio then the Issuer need not comply further with any of the Eligibility Criteria or Concentration Limitations on the date of such acquisition if the Issuer complied with each of the Eligibility Criteria and Concentration Limitations on the trade date on which the Issuer entered into such commitment. 20