SUBJECT TO COMPLETION AND AMENDMENT, dated June 4, 2007
PROSPECTUS SUPPLEMENT DATED June [•], 2007
(to Prospectus dated May 23, 2007)
The information in this preliminary prospectus supplement is not complete and may be amended. A registration statement relating to these securities has been filed with and declared effective by the Securities and Exchange Commission. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell these securities and are not a solicitation of an offer to buy these securities in any state where such offer or sale is not permitted.
$[•] Issue 2007-2 Notes
HOLMES MASTER ISSUER PLC
Issuing Entity
| HOLMES FUNDING LIMITED | ABBEY NATIONAL plc |
| Depositor | Sponsor, Seller, Servicer, Cash Manager and Account Bank |
The offering in respect of the issue 2007-2 notes comprises the following series and classes of issuing entity notes:
| Series | Class | Initial Principa lAmount | Interest Rate | Price to Public per Note | Net Proceeds to Issuing Entity per Class of Notes | Underwriters' Management and Underwriting Fee | Underwriters' Selling Commission | Scheduled Redemption Dates | Final Maturity Date | ||||||||||
| Series 1 | Class A1 | $[•] | [One]-month USD-LIBOR [+][-] [•] per cent. | [100] per cent. | $[•] | [•] per cent. | [•] per cent. | [April 2008 and July 2008] | [July 2021] | ||||||||||
| Series 2 | Class A1 | $[•] | [Three]-month USD-LIBOR +[•] per cent. | [100] per cent. | $[•] | [•] per cent. | [•] per cent. | [April 2010] | [July 2020] | ||||||||||
| Series 3 | Class A1 | $[•] | [Three]-month USD-LIBOR +[•] per cent. | [100] per cent. | $[•] | [•] per cent. | [•] per cent. | [April 2011, July 2011 and October 2011] | [July 2021] | ||||||||||
| Series 4 | Class A | $[•] | [Three]-month USD-LIBOR +[•] per cent. | [100] per cent. | $[•] | [•] per cent. | [•] per cent. | [July 2012] | [July 2020] | ||||||||||
| Series 1 | Class B | $[•] | [Three]-month USD-LIBOR +[•] per cent. | [100] per cent. | $[•] | [•] per cent. | [•] per cent. | [April 2008 and July 2008] | [July 2040] | ||||||||||
| Series 2 | Class B1 | $[•] | [Three]-month USD-LIBOR +[•] per cent | [100] per cent. | $[•] | [•] per cent. | [•] per cent. | [July 2010] | [July 2040] | ||||||||||
| Series 2 | Class M1 | $[•] | [Three]-month USD-LIBOR +[•] per cent | [100] per cent. | $[•] | [•] per cent. | [•] per cent. | [July 2010] | [July 2040] | ||||||||||
| Series 1 | Class C | $[•] | [Three]-month USD-LIBOR +[•] per cent | [100] per cent. | $[•] | [•] per cent. | [•] per cent. | [April 2008 and July 2008] | [July 2040] | ||||||||||
| Series 2 | Class C1 | $[•] | [Three]-month USD-LIBOR +[•] per cent | [100] per cent. | $[•] | [•] per cent. | [•] per cent. | [July 2010] | [July 2040] |
The above series and classes of 2007-2 notes (the offered notes) are part of the issue 2007-2 notes of Holmes Master Issuer PLC.
Interest on the offered notes (other than the series 1 class A1 notes) will be paid on the 15th day of each of January, April, July and October beginning in [October] 2007. Interest on the series 1 class A1 notes will be paid on the 15th day of each month beginning in [July] 2007 (unless a trigger event or enforcement of the issuing entity security occurs, in which case interest will be paid on the 15th day of each of January, April, July and October). Principal of the offered notes shall be paid, if due and payable, on the 15th day of each of January, April, July and October for the relevant series and class of offered notes.
You should review and consider the discussion under “Risk factors” beginning on page S-[•] in this prospectus supplement and on page 45 of the accompanying prospectus before you purchase any issuing entity notes.
Application will be made to the Financial Services Authority in its capacity as competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000 for the offered notes during the period of twelve months from the date of this prospectus supplement to be admitted to the official list maintained by the UK Listing Authority. Application will also be made to the London Stock Exchange for such notes to be admitted to trading on the London Stock Exchange's Gilt Edged and Fixed Interest Market.
The offered notes are not insured or guaranteed by any United States, United Kingdom or any other governmental agency or instrumentality, including the Federal Deposit Insurance Corporation. The offered notes are obligations of Holmes Master Issuer PLC only and are not obligations of the sponsor, the depositor, any of their affiliates or any other person or entity. The primary asset securing the offered notes is a loan made by Holmes Master Issuer PLC to Holmes Funding Limited, which in turn is secured by a beneficial interest in a portfolio of residential mortgage loans secured by properties located in England, Wales and Scotland.
The offered notes will have the benefit of certain internal credit support, such as the availability of reserve funds and subordination of certain note classes to other note classes as described under “Summary of Transaction” in this prospectus supplement and under “Credit structure” and “Risk factors” in the accompanying prospectus.
The offered notes will also have the benefit of the following derivative instruments: (i) an interest rate swap agreement entered into between Abbey Financial Markets, as interest rate swap provider, and Holmes Funding Limited and (ii) issuing entity swap agreements to be entered into between Holmes Master Issuer PLC and [•] as issuing entity swap provider in respect of the series 1 offered notes, [•] as issuing entity swap provider in respect of the series 2 offered notes, [•] as issuing entity swap provider in respect of the series 3 offered notes and [•] as issuing entity swap provider in respect of series 4 offered notes.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the offered notes or determined that this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offence.
The underwriters or affiliates of certain underwriters will pay and subscribe for the offered notes at the price per note stated in the table above. The net proceeds payable to the issuing entity from the sale of the offered notes is expected to be approximately $[•].
| Underwriters | ||
| HSBC | LEHMAN BROTHERS | MERRILL LYNCH & CO. |
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Important notice about information presented in this prospectus supplement and the accompanying prospectus
We provide information to you about the offered notes in two separate documents that progressively provide more detail: this prospectus supplement and the accompanying prospectus. This prospectus supplement provides the specific terms of the offered notes. The accompanying prospectus provides general information about each series and class of notes issued by Holmes Master Issuer PLC, including information on the mortgages trust and the master intercompany loan, which is essential to understanding how principal of and interest on the offered notes is expected to be paid. Most of the information provided in the accompanying prospectus does not appear in this prospectus supplement.
The prospectus supplement contains information about the series and classes of notes offered hereby that supplements the information contained in the accompanying prospectus, and you should rely on that supplementary information contained in this prospectus supplement for the particular terms of the offered notes. Consequently, you should carefully read both the accompanying prospectus and this prospectus supplement before you purchase any of the offered notes.
In deciding whether to purchase any offered notes you should rely solely on the information contained in this prospectus supplement and the accompanying prospectus, including information incorporated by reference. We have not authorised anyone to give you different information about the offered notes. The information in this prospectus supplement and the accompanying prospectus is only accurate as of the dates on their respective covers.
This prospectus supplement may be used to offer and sell the offered notes only if accompanied by the prospectus.
Neither this prospectus supplement nor the accompanying prospectus contains all of the information included in the registration statement. The registration statement also includes copies of the various material agreements and other documents referred to in this prospectus supplement and the accompanying prospectus. You may obtain copies of these documents for review. See “Incorporation of certain information by reference” and “Where investors can find more information” in the accompanying prospectus.
We include cross-references in this prospectus supplement and in the accompanying prospectus to captions in these documents where you can find further related information. The preceding Table of Contents and the Table of Contents included in the accompanying prospectus provide the pages on which these captions are located.
To facilitate your review of this prospectus supplement and the accompanying prospectus we have included definitions of certain defined terms used in this prospectus supplement and the accompanying prospectus under the caption “Glossary” in the accompanying prospectus, beginning on page 259.
References in this prospectus supplement to we, us or the issuing entity mean Holmes Master Issuer PLC and references to you mean each potential investor in the offered notes.
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Some of the statements contained or incorporated by reference in this prospectus supplement and the accompanying prospectus consist of forward-looking statements relating to future economic performance or projections and other financial items. These statements can be identified by the use of forward-looking words such as “may”, “will”, “should”, “expects”, “believes”, “anticipates”, “estimates”, “assumed characteristics”, “structuring assumptions”, “prepayment assumption” or other comparable words.
Forward-looking statements are subject to a variety of risks and uncertainties that could cause actual results to differ from the projected results. Those risks and uncertainties include, among others, general economic and business conditions, competition, changes in political, social and economic conditions, regulatory initiatives and compliance with governmental regulations, customer preferences and various other matters, many of which are beyond our control.
Because we cannot predict the future, what actually happens may be very different from what we predict in our forward-looking statements.
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This summary highlights selected information from this prospectus supplement and does not contain all of the information you may need to make an informed investment decision. To understand all of the terms of an offering of the offered notes, you should read this entire prospectus supplement and the accompanying prospectus before you purchase any offered notes.
| Issuing entity | Holmes Master Issuer PLC, also referred to in this prospectus supplement as the issuing entity. |
| The offered notes are part of the notes to be issued by the issuing entity on the closing date (the issue 2007-2 notes). The offered notes are solely our obligations and are not obligations of the sponsor, the depositor, any of their affiliates or any other person or entity. |
| The issue 2007-2 notes also include other series and classes (and sub-classes) of notes, which are not being offered hereby. The series and classes (and sub-classes) of the issue 2007-2 notes not offered hereby are described below under “- Other issuing entity notes”. Only the offered notes are being offered pursuant to the accompanying prospectus and this prospectus supplement. Any information contained in this prospectus supplement with respect to the notes other than the offered notes is provided only to permit a better understanding of the offered notes. |
| We expect to issue in the future other series of issuing entity notes of various classes. These issuing entity notes may have interest rates, interest payment dates, repayment terms and other characteristics that differ from the offered notes. You will not receive prior notice of any future issuance of issuing entity notes and will not be asked for your consent to such issuance. However, any future issuance of issuing entity notes, as well as material changes to the solicitation, credit-granting, underwriting, origination or pool selection criteria used to originate or select new loans to be sold to the mortgages trust, will be reported in our periodic reports on Form 10-D. You may access such reports as described under “Where investors can find more information” in the accompanying prospectus. |
| Sponsor | Abbey |
| Seller, originator, servicer and cash manager | Abbey |
| Funding swap provider | Abbey Financial Markets |
| Depositor | Holmes Funding Limited, also referred to in this prospectus supplement as Funding. |
| Funding security trustee | The Bank of New York, London Branch |
| Issuing entity security trustee and note trustee | The Bank of New York, London Branch |
| Issuing entity swap provider | See “Issuing entity swap provider” in this prospectus supplement for information. |
| Closing date | On or about June [•], 2007. |
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date and monthly in arrear on the 15th day of each calendar month (in the case of the series 1 class A1 notes) in each year up to and including the final maturity date or, following the earlier of the occurrence of a trigger event or enforcement of the issuing entity security, the 15th day of each of January, April, July and October in each year up to and including the final maturity date (or, in each case, if such day is not a business day, the next succeeding business day) (each, an interest payment date). |
| All offered notes will accrue interest at the annual rate specified on the cover of this prospectus supplement up to (but excluding) the interest payment date designated as the step-up date (the step-up date) of each relevant series and class of notes. The step-up date for all classes of offered notes (other than the series 4 class A notes) is the interest payment date falling in [October 2011]. The step-up date for the series 4 class A notes is the interest payment date falling in [July 2012]. From and including the step-up date of each relevant series and class of notes, the offered notes will accrue interest at an annual rate as follows: |
| Series | Class | Interest rate | |||
| Series 1 | Class A1 | [Three]-month USD-LIBOR + [•] per cent. | |||
| Series 2 | Class A1 | [Three]-month USD-LIBOR + [•] per cent. | |||
| Series 3 | Class A1 | [Three]-month USD-LIBOR + [•] per cent. | |||
| Series 4 | Class A | [Three]-month USD-LIBOR + [•] per cent. | |||
| Series 1 | Class B | [Three]-month USD-LIBOR + [•] per cent. | |||
| Series 2 | Class B1 | [Three]-month USD-LIBOR + [•] per cent. | |||
| Series 2 | Class M1 | [Three]-month USD-LIBOR + [•] per cent. | |||
| Series 1 | Class C | [Three]-month USD-LIBOR + [•] per cent. | |||
| Series 2 | Class C1 | [Three]-month USD-LIBOR + [•] per cent. |
| Interest will accrue on the offered notes from the closing date and will be calculated on the basis of a day count fraction of actual/360. |
| On the second London business day prior to the start of each interest period (an interest determination date), the rate of interest payable in respect of each class of offered notes will be determined by the agent bank as follows: |
| (a) | in respect of the first interest period, (i) for the offered notes which are the series 1 class A1 notes, the linear interpolation of the arithmetic mean of the offered quotations to leading banks for three-week dollar deposits and the arithmetic mean of the offered quotations to leading banks for one-month dollar deposits (in each case rounded upwards, if necessary, to five decimal places), and (ii) for all other classes of the offered notes, the linear interpolation of the arithmetic mean of the offered quotations to leading banks for three-month dollar deposits and the arithmetic mean of the offered quotations to leading banks for four-month dollar deposits (in each case rounded upwards, if necessary, to five decimal places); and |
| (b) | in respect of subsequent interest periods, for each class of offered notes, the offered quotations to leading banks for US dollar deposits for a period equal to the relevant interest period or, |
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| following the earlier to occur of the enforcement of the issuing entity security or a trigger event, three-month USD LIBOR. |
| Principal of the offered notes may be repaid earlier than expected if a trigger event or a note event of default occurs in respect of these notes. See “Maturity and repayment considerations” in this prospectus supplement and “The mortgages trust – Mortgages trust allocation and distribution of principal receipts prior to the occurrence of a trigger event” and “The mortgages trust – Mortgages trust allocation and distribution of principal receipts and retained principal receipts after the occurrence of a trigger event” in the accompanying prospectus. |
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| Issuing Entity Notes – Payment”, “– Interest”, “– Diagram of the priority of payments by the issuing entity and subordination relationships”, “– Payment and ranking of the issuing entity notes”, “– Intercompany loans” and “– The previous issuing entities, new issuing entities and new funding entities” in the accompanying prospectus. |
| As described in “Credit structure” in the accompanying prospectus, the offered notes will have the benefit of the first reserve fund, the second reserve fund, the mortgages trustee GIC account, the Funding GIC account, the Funding reserve fund and, in certain circumstances, a Funding liquidity reserve fund. It is also anticipated that the Funding available revenue receipts will exceed the interest and fees payable to the issuing entities. |
| Required subordinated percentage | For the purposes of calculating the required subordinated amount for each class of offered notes, the class A required subordinated |
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| percentage is [•]%, the class B required subordinated percentage is [•]%, the class M required subordinated percentage is [•]% and the class C required subordinated percentage is [•]%. |
| Funding reserve fund required amount | £[•]. |
| First reserve fund | As at the closing date, the definition of first reserve fund additional required amount will be an amount equal to the sum of the first reserve fund required amount and (a) if an arrears trigger event has occurred under item (i) only of the arrears trigger event definition, £20,000,000, (b) if an arrears trigger event has occurred under item (ii) only of the arrears trigger event definition, £20,000,000, or (c) if an arrears trigger event has occurred under both items (i) and (ii) of the arrears trigger event definition, £40,000,000. |
| As at the closing date, the definition of first reserve fund required amount will be £40,000,000, but if on the interest payment date falling in October 2007, Holmes Financing (No. 2) PLC exercises its option to redeem the previous notes issued by it (other than the series 1 class A previous notes), then the first reserve fund required amount will decrease (subject to rating agency approval) by an additional amount of approximately £4,250,000. If on the interest payment date falling in April 2008, Holmes Financing (No. 6) PLC exercises its option to redeem the previous notes issued by it (other than the series 1 class A previous notes and the series 2 class A previous notes), then the first reserve fund required amount will decrease (subject to rating agency approval) by an additional amount of approximately £35,000,000. If, on the interest payment date falling in April 2008, Holmes Financing (No. 7) PLC exercises its option to redeem the previous notes issued by it (other than the series 1 class A previous notes and the series 2 class A previous notes), then the first reserve fund required amount will decrease (subject to rating agency approval) by an additional amount of approximately £17,000,000. If, on the interest payment date falling in January 2009, Holmes Financing (No. 8) PLC exercises its option to redeem the previous notes issued by it (other than the series 1 class A previous notes), then the first reserve fund required amount and the first reserve fund additional required amount will decrease (subject to rating agency approval) by an additional amount of approximately £48,000,000. If, on the interest payment date falling in October 2010, Holmes Financing (No. 9) PLC exercises its option to redeem the previous notes issued by it (other than the series 1 class A previous notes), then the first reserve fund required amount and the first reserve fund additional required amount will each decrease (subject to rating agency approval) by an additional amount of approximately £63,000,000. If, on the interest payment date falling in October 2010, Holmes Financing (No. 10) PLC exercises its option to redeem the previous notes issued by it (other than the series 1 class A previous notes), then the first reserve fund required amount and the first reserve fund additional required amount will each decrease (subject to rating agency approval) by an additional amount of approximately £57,000,000. If, by the interest payment date falling in October 2010, the issuing entity exercises its option to redeem the notes that it issued on 28 November 2006 (the issue 2006-1 notes), then the first reserve fund required amount and the first reserve fund additional required amount will each decrease (subject to rating agency approval) by an additional amount of approximately £55,750,000. If, on the interest payment date falling in October 2012, the issuing entity exercises its option to redeem the notes that it issued on 28 March 2007 (the issue 2007-1 notes), then the first reserve fund required amount and the first reserve fund additional required amount will each decrease (subject to rating agency approval) by an additional amount of approximately £71,000,000. If, on the interest payment date falling in [July 2012], the issuing entity exercises its option to redeem the issue 2007-2 notes issued by it, then the first reserve fund required amount and the first reserve fund |
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| additional required amount will each decrease (subject to rating agency approval) by an additional amount of approximately [•]. |
| Second reserve fund | On the closing date, the second reserve fund means the reserve fund established on 29 November 2000 and funded from excess Funding available revenue receipts, as described further in “Credit structure – Second reserve fund” in the accompanying prospectus, and further funded on 5 July 2001 from part of the proceeds of the previous BB term advance. On the closing date, the second reserve fund required amount shall be an amount calculated in accordance with the formula set out in “Credit structure – Second reserve fund” in the accompanying prospectus. |
| Arrears trigger event | As at the closing date, arrears trigger event means either (i) the outstanding principal balance of the loans in arrears for more than 90 days divided by the outstanding principal balance of all of the loans in the mortgages trust (expressed as a percentage) exceeds 2 per cent. or (ii) if the issuing entity, any new issuing entity or any previous issuing entity does not exercise its option to redeem the issuing entity notes, any new notes or any previous notes (other than pursuant to condition 5.5 (Optional redemption for tax and other reasons) or condition 5.6 (Optional redemption for implementation of EU Capital Requirements Directive) of the issuing entity notes or any equivalent conditions of any new notes or any previous notes and other than the post-enforcement call option) on the relevant step-up date pursuant to the terms and conditions of the issuing entity notes, any new notes or any previous notes. |
| Non-asset trigger event and seller share event | For the purposes of paragraph (d) of the definition of non-asset trigger event and clause (a)(ii) of the definition of seller share event, the aggregate outstanding balance of loans comprising the trust property must be: (i) in respect of the period up to but excluding the interest payment date occurring in [April 2011], not less than £[31,000,000,000]; and (ii) thereafter, not less than £0. See “The mortgages trust – Cash management and allocation of trust property – principal receipts” in the accompanying prospectus. |
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| • | on any interest payment date on which the aggregate principal amount outstanding of that series and class of offered notes and all other classes of the same series of issue 2007-2 notes is less than 10 per cent. of the initial outstanding principal amount of such series of issue 2007-2 notes; or |
| • | on the interest payment dates falling on the step-up date set forth under “Interest” in this prospectus supplement in relation to such series and class of notes and once a step-up date has occurred in relation to that series and class of note, on any interest payment date thereafter. |
| Further, we may redeem the offered notes for tax and other reasons and in certain other circumstances as more fully described under “Terms and conditions of the US notes – 5. Redemption, purchase and cancellation” in the accompanying prospectus. |
| Regulatory call option | If new laws, regulations, rules or best practices are introduced or there are changes in laws, regulations, rules or best practices which cause an adverse effect on Abbey’s regulatory capital position and/or the regulatory capital treatment for Abbey of the issue 2007-2 notes or an adverse financial or economic effect on Abbey if it maintains its then current regulatory capital position and/or its regulatory capital treatment of the issue 2007-2 notes, Abbey has the right to require noteholders to sell to Abbey or otherwise allow Abbey to be substituted as the holder of issue 2007-2 notes. This regulatory call option may only be exercised if the regulatory event occurs on or after specified interest payment dates. The regulatory call may be exercised in relation to all or only certain series or classes of issue 2007-2 notes. The consideration payable by Abbey on exercise of the right shall be the applicable redemption amount (determined in accordance with condition 5.7) and accrued but unpaid interest. |
| The regulatory call is an entitlement but not an obligation of Abbey. The exercise of the regulatory call by Abbey is not a certain event. Any decision by Abbey to exercise the regulatory call in relation to a series or class of issue 2007-2 notes will be made having regard to all relevant facts and circumstances at the time. Investors should not regard the regulatory call as support by Abbey for any series or class of issue 2007-2 or as implying any moral or other obligation on the part of Abbey to exercise it. This regulatory call option is set forth in more detail under “Terms and conditions of the US notes” in this prospectus supplement. |
| Note events of default | The offered notes are subject to certain events of default described under “Terms and Conditions of the US notes – 9. Events of Default” in the accompanying prospectus. |
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| Limited recourse | The primary sources of payment for principal of or, interest on, the offered notes are: |
| • | repayments of principal of, or interest on, the relevant issue 2007-2 term advances of the master intercompany loan; and |
| • | funds in the issuing entity transaction account that are allocable to the offered notes. |
| The seller may assign new loans and their related security to the mortgages trustee in order to increase or maintain the trust property. The seller may also increase the size of the trust property from time to time in connection with an issue of new notes by us, the proceeds of which are applied ultimately to fund the acquisition (by assignment in the case of English and Welsh loans and Scottish declaration of trust in the case of Scottish loans) of the new loans and their related security by the mortgages trustee, or to comply with the seller’s obligations under the mortgage sale agreement as described under “Assignment of the loans and their related security – Assignment of loans and their related security to the mortgages trustee” in the accompanying prospectus. |
| When new loans are assigned to the mortgages trustee, the trust property will increase accordingly. Depending on the circumstances, the increase in the trust property may result in an increase in the seller share of the trust property and/or the Funding share of the trust property. For a description of how adjustments are made to the seller share of the trust property and the Funding share of the trust property, see “The mortgages trust” in the accompanying prospectus. |
| As at the closing date for the offered notes, the minimum seller share will be approximately £[2,300,000,000]. |
| In the mortgage sale agreement, the seller has undertaken in respect of each series to use all reasonable efforts to offer to assign to the mortgages trustee, and the mortgages trustee has undertaken to use all reasonable efforts to acquire from the seller and hold in accordance with the terms of the mortgages trust deed, until the earlier of the interest payment date occurring in [April 2011] (or a later date as may be notified by Funding) and the occurrence of a trigger event, sufficient new loans and their related security so that the aggregate outstanding principal balance of loans in the mortgages trust is not less than £[31,000,000,000] (or another amount notified by Funding to the seller). See “Assignment of the loans and their related security |
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| – Assignment of loans and their related security to the mortgages trustee” in the accompanying prospectus. |
| The aggregated outstanding current balance of loans in the portfolio as of the cut-off date was £[55,587,937,185]. See Annex A-1 to this prospectus supplement for detailed statistical and other information on the loans. |
| Amounts held in alternative accounts do not have the benefit of a guaranteed investment contract, but following their receipt, are transferred into the mortgages trustee GIC account on a regular basis and, in any event, no later than the next business day after they are deposited in the relevant alternative account. |
| All amounts held by Funding are deposited in the Funding GIC account in the first instance. The Funding GIC account is maintained with the Funding GIC provider. This account is subject to a guaranteed investment contract on terms that the Funding GIC provider agrees to pay a variable rate of interest, on funds held in the Funding GIC account, based on LIBOR for three-month sterling deposits. |
| Abbey is both the mortgages trustee GIC provider and the Funding GIC provider. |
| Series | Class | Initial principal amount | ||
| Series 1 | Class A2 | €[•] | ||
| Series 2 | Class A | CAD$[•] | ||
| Series 3 | Class A2 | €[•] | ||
| Series 3 | Class A3 | £[•] | ||
| Series 2 | Class B2 | €[•] | ||
| Series 2 | Class B3 | £[•] |
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| Series | Class | Initial principal amount | ||
| Series 2 | Class M2 | €[•] | ||
| Series 2 | Class M3 | £[•] | ||
| Series 2 | Class C2 | €[•] | ||
| Series 2 | Class C3 | £[•] |
| Any information contained in this prospectus supplement with respect to the issuing entity notes other than the offered notes is provided only to permit a better understanding of the offered notes. |
| As of the closing date, the aggregate principal amount outstanding of issuing entity notes issued by us (converted, where applicable, into sterling at the applicable specified currency exchange rate), including the offered notes, will be: |
| £[•] |
| As used herein, specified currency exchange rate means, in relation to a series and class of issuing entity notes, the exchange rate specified in the issuing entity swap agreement relating to such series and class of issuing entity notes or, if the related issuing entity swap agreement has been terminated, the applicable spot rate. |
| As of the date of this prospectus supplement, the aggregate principal amount outstanding of notes issued by each previous issuing entity identified below and the issuing entity (converted, where applicable, into sterling at the applicable currency exchange rate) is: |
| (1) | Holmes Financing (No. 1) PLC, £[904,000,000]; |
| (2) | Holmes Financing (No. 2) PLC, £[333,600,000]; |
| (3) | Holmes Financing (No. 3) PLC, £0; |
| (4) | Holmes Financing (No. 4) PLC, £0; |
| (5) | Holmes Financing (No. 5) PLC, £0; |
| (6) | Holmes Financing (No. 6) PLC, £[1,386,129,000]; |
| (7) | Holmes Financing (No. 7) PLC, £[657,750,000]; |
| (8) | Holmes Financing (No. 8) PLC, £[2,003,494,745]; |
| (9) | Holmes Financing (No. 9) PLC, £[2,750,000,000]; |
| (10) | Holmes Financing (No. 10) PLC, £[3,929,840,000]; and |
| (11) | Holmes Master Issuer PLC, £[9,132,000,000]. |
| For a description of the previous issuing entities, see “Summary of the issuing entity notes – The previous issuing entities, new issuing entities and new Funding entities” in the accompanying prospectus and “Description of the previous issuing entities, the previous notes and the previous intercompany loans” in Annex D to this prospectus supplement. |
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| Stock Exchange for such notes to be admitted to trading on the London Stock Exchange’s Gilt Edged and Fixed Interest Market. |
| Ratings | It is a condition of the issuance of the offered notes that they be assigned on the closing date the following ratings by S&P, Moody’s and Fitch, respectively: |
| Class | Ratings | ||
| Class A | [AAA/Aaa/AAA] | ||
| Class B | [AA/Aa3/AA] | ||
| Class M | [A/A2/A] | ||
| Class C | [BBB/Baa2/BBB] |
| See “Summary of the issuing entity notes – Issuance” and “Risk factors – Ratings assigned to the notes may be lowered or withdrawn after you purchase the issuing entity notes, which may lower the market value of the issuing entity notes” in the accompanying prospectus. |
| To hedge its exposure against the possible variance between the foregoing interest rates, Funding has entered into an interest rate swap agreement with the Funding swap provider. See “The swap agreements – The Funding swap” in the accompanying prospectus. |
| Denominations | The offered notes will be issued in minimum denominations of $100,000 and integral multiples of $1,000 in excess thereof. |
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| trustee acting in its capacity as trustee of the mortgages trust, Funding and the issuing entity will not be subject to US federal income tax as a result of their contemplated activities. See “United States taxation” in the accompanying prospectus. |
| Against delivery of the offered notes (i) the underwriters will pay to the lead underwriters the gross underwriting proceeds for the offered notes and (ii) the lead underwriters will pay to us or to a third party, as directed by us, the gross underwriting proceeds for the offered notes. |
| Class of notes | CUSIP | ISIN | Common code | ||||||
| series 1 | class A1 | [•] | US[•] | [•] | |||||
| series 2 | class A1 | [•] | US[•] | [•] | |||||
| series 3 | class A1 | [•] | US[•] | [•] | |||||
| series 4 | class A | [•] | US[•] | [•] | |||||
| series 1 | class B | [•] | US[•] | [•] | |||||
| series 2 | class B1 | [•] | US[•] | [•] | |||||
| series 2 | class M1 | [•] | US[•] | [•] | |||||
| series 1 | class C | [•] | US[•] | [•] | |||||
| series 2 | class C1 | [•] | US[•] | [•] |
| Funding, on behalf of the issuing entity, will file with the Securities and Exchange Commission (the SEC) annual reports on Form 10-K, periodic reports on Form 10-D and reports on Form 8-K about the mortgages trust. See “Where investors can find more information” in the accompanying prospectus. |
S-17
The principal risks associated with an investment in the offered notes are set out in the “Risk factors” section of the accompanying prospectus. These risks are material to an investment in the offered notes and in the issuing entity. If you are considering purchasing any of the offered notes, you should carefully read and consider all the information contained in this prospectus supplement and the accompanying prospectus (including the “Risk factors” section) prior to making any investment decision.
S-18
Unless otherwise stated in this prospectus supplement, any conversions of sterling into US dollars have been made at the rate of £1 = US$1.9862, which was the closing buying rate in the City of New York for cable transfers in sterling per US$1.00 as certified for customs purposes by the Federal Reserve Bank of New York on May 15, 2007. Use of this rate does not mean that sterling amounts actually represent those US dollar amounts or could be converted into US dollars at that rate at any particular time.
References throughout this prospectus supplement to £, pounds or sterling are to the lawful currency for the time being of the United Kingdom of Great Britain and Northern Ireland.
References throughout this prospectus supplement to $, US$, USD, US dollars or dollars are to the lawful currency of the United States of America.
Sterling/US dollar exchange rate history |
| Years ended 31 December | ||||||||||||||
| Period ended May 15, 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||
| Last(1) | 1.9862 | 1.9586 | 1.7188 | 1.9160 | 1.7842 | 1.6095 | 1.4543 | |||||||
| Average(2) | 1.9662 | 1.8434 | 1.8204 | 1.8330 | 1.6347 | 1.5025 | 1.4396 | |||||||
| High | 2.0061 | 1.9794 | 1.9292 | 1.9482 | 1.7842 | 1.6095 | 1.5045 | |||||||
| Low | 1.9235 | 1.7256 | 1.7138 | 1.7544 | 1.5500 | 1.4074 | 1.3730 | |||||||
| Notes: |
| (1) | The closing exchange rate on the last operating business day of each of the periods indicated, years commencing from 1 January or the next operating business day. |
| (2) | Average daily exchange rate during the period. |
| Source: Bloomberg page USCFBPS Crncy |
S-19
Terms and conditions of the US notes
This section supplements the section in the accompanying prospectus entitled “Terms and conditions of the US notes” by applying the following condition to the offered notes:
| 5.10 | Regulatory call option |
| (a) | If following the date of the issue of the issue 2007-2 notes (i) a new regulation, rule, law or recommendation of best practice (including, without limitation, the Capital Requirements Directive (as described in the consultation paper on the EU’s implementation of the New Basel Capital Accord published on 14 July 2004 by the European Commission) comes into effect, or (ii) there is a new application or interpretation of an existing regulation, rule, law or recommendation of best practice, which causes or could foreseeably cause (A) an adverse effect on Abbey’s regulatory capital position and/or the regulatory capital treatment for Abbey of the issue of the issue 2007-2 notes, or (B) an adverse financial or economic effect on Abbey if it maintains its then current regulatory capital position and/or its regulatory capital treatment of the issue of the issue 2007-2 notes (regulatory event), Abbey has the right (the regulatory call), by delivering a notice stating that the regulatory event has occurred to the noteholders of each relevant series and class (or sub-class), the registrar and the note trustee pursuant to an optional purchase agreement dated [•] 2007 between Abbey, the registrar and the note trustee (the regulatory call note purchase agreement), to require such noteholders to sell to Abbey or otherwise allow Abbey to be substituted as the noteholder of such series and class (or sub-class) of the issue 2007-2 notes (the called notes) on any interest payment date falling on or after the later of (a) the regulatory event and (b) in respect of (i) the issue 2007-2 series 1 class A1 notes, the interest payment date falling in [July 2008], (ii) the issue 2007-2 series 2 class A1 notes, the interest payment date falling in [April 2010], (iii) the issue 2007-2 series 3 class A1 notes, the interest payment date falling in [October 2011], (iv) the issue 2007-2 series 4 class A notes, the interest payment date falling in [July 2012], (v) the issue 2007-2 series 1 class B notes, the interest payment date falling in [July 2008], (iv) the issue 2007-2 series 2 class B1 notes, the interest payment date falling in [July 2010], (vii) the issue 2007-2 series 2 class M1 notes, the interest payment date falling in [July 2010], (viii) the issue 2007-2 series 1 class C notes, the interest payment date falling in [July 2008] and (ix) the issue 2007-2 series 2 class C1 notes, the interest payment date falling in [July 2010], in each case for a price equal to the aggregate of the redemption amount of such called notes (as determined in accordance with number 5.7) and any accrued and unpaid interest on such called notes and, on the date therefor specified in the notice (being an iInterest payment date falling on or after the regulatory event), such called notes shall be transferred to Abbey. The note trustee shall be entitled to accept the notice described in this paragraph (a) as sufficient evidence of the satisfaction of the conditions precedent set out in this paragraph (a) and it shall be conclusive and binding on the noteholders and the note trustee shall not be liable to the noteholders for any losses incurred thereby. |
| (b) | Immediately after such transfer or substitution of Abbey as the holder of the called notes, each former holder of the called notes shall cease to have any interest in the called notes. |
| (c) | The called notes transferred to Abbey pursuant to the regulatory call shall, subject as provided in the transaction documents, remain outstanding until the date on which they would otherwise be redeemed or cancelled in accordance with their terms and conditions. |
| (d) | By subscribing to or purchasing the issue 2007-2 notes, each holder of the issue 2007-2 notes (i) is deemed to have notice of and be bound by the provisions of the regulatory call note purchase agreement and (ii) directs, authorises and requests the note trustee to enter into the regulatory call note purchase agreement. Each holder of called notes also irrevocably authorises and instructs the master issuer, the registrar, DTC, Euroclear, Clearstream, Luxembourg or, as the case may be, an alternative clearing system to effect the transfer of its called notes on the relevant interest payment date to Abbey, in accordance with this condition and the rules for the time being of DTC, Euroclear, Clearstream, Luxembourg or, as the case may be, an alternative clearing system. |
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Scheduled redemption dates and bullet redemption dates
The scheduled amortisation amount or the bullet amount, as applicable, for each series and class of the offered notes set out below for the interest payment dates set out below is equal to the corresponding stated amount below.
Series and class | Type of note | Scheduled redemption date or bullet redemption date | Scheduled amortisation amount or bullet amount | |||||
| (£) | ($ | ) | ||||||
| series 1 class A1 | Scheduled redemption | April 2008 and July 2008 | [•] | [•] | ||||
| series 2 class A1 | Bullet | April 2010 | [•] | [•] | ||||
| series 3 class A1 | Scheduled redemption | April 2011, July 2011 and October 2011 | [•] | [•] | ||||
| series 4 class A | Bullet | July 2012 | [•] | [•] | ||||
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Maturity and prepayment considerations
The average lives of each class of the offered notes cannot be stated, as the actual rate of repayment of the loans and redemption of the mortgages and a number of other relevant factors are unknown. However, calculations of the possible average lives of each class of the offered notes can be made based on certain assumptions. The assumptions used to calculate the possible average lives of each class of the offered notes in the following table include that:
| (1) | neither the issuing entity security nor the Funding security has been enforced; |
| (2) | the seller is not in breach of the terms of the mortgage sale agreement; |
| (3) | the seller sells no new loans to the mortgages trustee after the closing date and the loans are assumed to amortise in accordance with the assumed constant payment rate indicated in the table below (subject to assumption (4) below); |
| (4) | the seller sells to the mortgages trustee sufficient new loans and their related security in the period up to (but excluding) the interest payment date in April 2011, such that the aggregate principal amount outstanding of loans in the portfolio at any time is not less than £[31,000,000,000] and £0 thereafter or (in each case) such higher amount as may be required to be maintained as a result of the issuing entity or any new issuing entities providing new term advances to Funding which Funding uses as consideration for an increase in its share of the trust property and/or to pay the seller for the sale of new loans to the mortgages trustee; |
| (5) | neither an asset trigger event nor a non-asset trigger event occurs; |
| (6) | no event occurs that would cause payments on scheduled amortisation term advances or pass-through term advances to be deferred (unless such advances are deferred in accordance with Rule (1) or Rule (3) or Rule (6) as set out in “Cashflows” in the accompanying prospectus) and no event occurs that would cause payments on the applicable series and class (or sub-class) of issuing entity notes to be deferred; |
| (7) | the issuing entity exercises its option to redeem the offered notes on the step-up date relating to the offered notes (where applicable); |
| (8) | the closing date is [•] June, 2007; |
| (9) | the annualised CPR as at the closing date is assumed to be the same as the various assumed rates in the table below; and |
| (10) | there is a balance of £[•] in the cash accumulation ledger at the closing date. |
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CPR and possible average lives of each series and class of offered notes
(in years)
Based upon the foregoing assumptions, the approximate average life in years of each series and class (or sub-class) of offered notes, at various assumed rates of repayment of the loans, would be as follows:
| Constant payment rate(1) (per annum) | series 1 class A1 notes | series 2 class A1 notes | series 3 class A1 notes | series 4 class A notes | series 1 class B notes | series 2 class B1 notes | series 2 class M1 notes | series 1 class C notes | series 2 class C1 notes | |||||||||
| 5 per cent. | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] | |||||||||
| 10 per cent. | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] | |||||||||
| 15 per cent. | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] | |||||||||
| 20 per cent. | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] | |||||||||
| 25 per cent. | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] | |||||||||
| 30 per cent. | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] | [•] |
| (1) | Includes both scheduled and unscheduled payments. |
Assumptions (1) to (6) and (8) relate to circumstances which are not predictable. Assumption (7) relates to an event under the control of the issuing entity but no assurance can be given that the issuing entity will be in a position to redeem the notes on the step-up date. If the issuing entity does not so exercise its option to redeem, then the average lives of the then outstanding issue 2007-2 notes would be extended.
The average lives of the issue 2007-2 notes are subject to factors largely outside the control of the issuing entity and consequently no assurance can be given that these assumptions and estimates will prove in any way to be realistic and they must therefore be viewed with considerable caution. For more information in relation to the risks involved in the use of these estimated average lives, see “Risk factors – The yield to maturity of the issuing entity notes may be adversely affected by prepayments or redemptions on the loans” in the accompanying prospectus.
S-23
Information in respect of the Funding swap provider and the Funding swap is provided in the accompanying prospectus under the heading “The swap agreements – The Funding swap.”
The sponsor has determined that the significance percentage for the Funding swap in respect of the offered notes is less than 10 per cent.
The significance percentage of the Funding swap is the percentage equivalent of (1) the amount of a reasonable good-faith estimate of maximum probable exposure (made in substantially the same manner as that used in the sponsor’s internal risk management process in respect of similar derivative instruments) divided by (2) the aggregate principal balance of the loans in the portfolio.
S-24
Information in respect of the issuing entity swaps is provided in the accompanying prospectus under the heading “The swap agreements – The issuing entity swaps”. The sponsor has determined that the significance percentage for each of the issuing entity swaps in respect of the offered notes is 20 per cent. or more.
The significance percentage of the issuing entity swaps in respect of a class of the offered notes is the percentage equivalent of (1) the amount of a reasonable good-faith estimate of maximum probable exposure (made in substantially the same manner as that used in the sponsor’s internal risk management process in respect of similar derivative instruments) divided by (2) the aggregate principal amount of such class of offered notes.
The Issuing Entity Swap Provider is ML MBS Services Limited in relation to the classes and sub-classes of the issue 2007-2 notes as indicated above.
| ML MBS Services Limited |
ML MBS Services Limited is a private limited company registered in England and Wales under number 2474. It has its registered head office at 2 King Edward Street, London EC1A 1HQ (telephone number +44 (0)207 996 0980). ML MBS Services Limited was incorporated on March 30, 2007 as Hackremco and then subsequently changed its name to ML MBS Services Limited on April 27, 2007. ML MBS Services Limited’s most recent financial information as of May 4, 2007 is included in Annex F to this prospectus supplement.
ML MBS Services Limited will be principally engaged in holding cross currency swaps.
The whole of the issued ordinary share capital of ML MBS Services Limited is beneficially owned by Merrill Lynch European Asset Holdings, Inc. (a US incorporated legal entity), and the ultimate parent company is Merrill Lynch & Co., Inc.
| Merrill Lynch & Co., Inc. |
Merrill Lynch & Co., Inc. will, under the terms of a guarantee to be made between ML MBS Services Limited and the issuing entity, fully and unconditionally guarantee the payment obligations of ML MBS Services Limited under the issuing entity swaps.
Merrill Lynch & Co., Inc. was incorporated under the laws of the State of Delaware of the United States of America in 1973. The principal executive office of Merrill Lynch & Co., Inc. is located at 4 World Financial Center, New York, N.Y. 10080, U.S.A.; its telephone number is +1 212 449 1000. Merrill Lynch & Co., Inc.’s registered office in the State of Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, U.S.A. Merrill Lynch & Co., Inc.’s most recent financial information is available in its Quarterly Report on Form 10-Q for the three-months ended March 30, 2007, which was filed with the SEC on May 7, 2007, and in its Annual Report on Form 10-K for the year ended December 31, 2006, which was filed with the SEC on February 26, 2007.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated, Merrill Lynch Government Securities, Inc., Merrill Lynch Capital Services, Inc., Merrill Lynch International, Merrill Lynch Investment Managers, L.P., Merrill Lynch Investment Managers Limited, Merrill Lynch Bank USA, Merrill Lynch Bank & Trust Company (Cayman) Limited, Merrill Lynch International Bank Limited, Merrill Lynch Japan Securities Co., Ltd., Merrill Lynch Canada Inc. and Merrill Lynch Insurance Group, Inc., provides broker-dealer, investment banking, financing, wealth management, advisory, asset management, insurance, lending and related products and services on a global basis, including:
| • | securities brokerage, trading and underwriting; |
| • | investment banking, strategic advisory services (including mergers and acquisitions) and other corporate finance activities; |
| • | wealth management products and services, including financial, retirement and generational planning; |
| • | asset management and investment advisory and related record keeping services; |
| • | origination, brokerage, dealer and related activities in swaps, options, forwards, exchange-traded futures, other derivatives, commodities and foreign exchange products; |
| • | securities clearance, settlement financing services and prime brokerage; |
| • | equity, debt, foreign exchange and economic research; |
| • | private equity and other principal investing activities; |
S-25
| • | banking, trust and lending services, including deposit taking, consumer and commercial lending, including mortgage loans and related services; and |
| • | insurance and annuities sales and annuity underwriting services. |
Merrill Lynch & Co., Inc. provides these products and services to a wide array of clients, including individual investors, small and large businesses, public companies, financial institutions, governments and government agencies.
The common stock of Merrill Lynch & Co., Inc. is listed on the New York Stock Exchange, Chicago Stock Exchange, Pacific Exchange, Euronext Paris S.A., London Stock Exchange and Tokyo Stock Exchange.
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| United States |
We have agreed to sell, and HSBC Securities (USA) Inc., Lehman Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the lead underwriters) and the other underwriters for the offered notes listed in the following table have agreed to purchase, the principal amount of those offered notes listed in that table. The terms of these purchases are governed by an underwriting agreement among us, the lead underwriters and the underwriters.
Some of the underwriters are expected to make offers and sales both inside and outside the United States through their respective selling agents. Any offers or sales in the United States will be conducted by broker dealers registered with the SEC.
| Underwriters of the series 1 class A1 notes | Principal amount of the series 1 class A1 notes | ||
| HSBC Securities (USA) Inc. | [•] | ||
| Lehman Brothers Inc. | [•] | ||
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | [•] | ||
| Total: | [•] | ||
| Underwriters of the series 2 class A1 notes | Principal amount of the series 2 class A1 notes | ||
| HSBC Securities (USA) Inc. | [•] | ||
| Lehman Brothers Inc. | [•] | ||
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | [•] | ||
| Total: | [•] | ||
| Underwriters of the series 3 class A1 notes | Principal amount of the series 3 class A1 notes | ||
| HSBC Securities (USA) Inc. | [•] | ||
| Lehman Brothers Inc. | [•] | ||
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | [•] | ||
| Total: | [•] | ||
| Underwriters of the series 4 class A notes | Principal amount of the series 4 class A notes | ||
| HSBC Securities (USA) Inc. | [•] | ||
| Lehman Brothers Inc. | [•] | ||
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | [•] | ||
| Total: | [•] | ||
| Underwriters of the series 1 class B notes | Principal amount of the series 1 class B notes | ||
| HSBC Securities (USA) Inc. | [•] | ||
| Lehman Brothers Inc. | [•] | ||
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | [•] | ||
| Total: | [•] | ||
S-27
| Underwriters of the series 2 class B1 notes | Principal amount of the series 2 class B1 notes | ||
| HSBC Securities (USA) Inc. | [•] | ||
| Lehman Brothers Inc. | [•] | ||
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | [•] | ||
| Total: | [•] | ||
| Underwriters of the series 2 class M1 notes | Principal amount of the series 2 class M1 notes | ||
| HSBC Securities (USA) Inc. | [•] | ||
| Lehman Brothers Inc. | [•] | ||
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | [•] | ||
| Total: | [•] | ||
| Underwriters of the series 1 class C notes | Principal amount of the series 1 class C notes | ||
| HSBC Securities (USA) Inc. | [•] | ||
| Lehman Brothers Inc. | [•] | ||
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | [•] | ||
| Total: | [•] | ||
| Underwriters of the series 2 class C1 notes | Principal amount of the series 2 class C1 notes | ||
| HSBC Securities (USA) Inc. | [•] | ||
| Lehman Brothers Inc. | [•] | ||
| Merrill Lynch, Pierce, Fenner & Smith Incorporated | [•] | ||
| Total: | [•] | ||
The price to the public as a percentage of the principal balance of the offered notes will be 100 per cent.
We have agreed to pay to the underwriters in respect of each class of offered notes a selling commission and a management and underwriting fee (in each case based on the aggregate principal amount of such class of offered notes) as set forth in the table below:
Series and class of offered notes | Selling commission | Management and underwriting fee | |||
| series 1 class A1 | [•] per cent. | [•] per cent. | |||
| series 2 class A1 | [•] per cent. | [•] per cent. | |||
| series 3 class A1 | [•] per cent. | [•] per cent. | |||
| series 4 class A | [•] per cent. | [•] per cent. | |||
| series 1 class B | [•] per cent. | [•] per cent. | |||
| series 2 class B1 | [•] per cent. | [•] per cent. | |||
| series 2 class M1 | [•] per cent. | [•] per cent. | |||
| series 1 class C | [•] per cent. | [•] per cent. | |||
| series 2 class C1 | [•] per cent. | [•] per cent. |
The issuing entity has agreed to pay an aggregate fee of $[•] to the Underwriters for their services in connection with the issuance of the issue 2007-2 notes.
The lead underwriters of the offered notes have advised us that the underwriters propose initially to offer the offered notes to the public at the offering price stated on the cover page of this prospectus supplement and to some dealers at that price less a concession not in excess of [•] per cent. per series 1
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class A1 note, [•] per cent. per series 2 class A1 note, [•] per cent. per series 3 class A1 note, [•] per cent. per series 4 class A note, [•] per cent. per series 1 class B note, [•] per cent. per series 2 class B1 note, [•] per cent. per series 2 class M1 note, [•] per cent. per series 1 class C note, and [•] per cent. per series 2 class C1 note. The underwritersmay allow, and those dealers may re-allow, a concession not in excess of [•] per cent. per series 1 class A1 note, [•] per cent. per series 2 class A1 note, [•] per cent. per series 3 class A1 note, [•] per cent. per series 4 class A note, [•] per cent. per series 1 class B note, [•] per cent. per series 2 class B1 note, [•] per cent. per series 2 class M1 note, [•] per cent. per series 1 class C note, and [•] per cent. per series 2 class C1 note.
Additional out-of-pocket expenses (other than the commissions and fees stated above) solely in relation to the offered notes are estimated to be approximately $[•].
S-29
Certain matters of English law regarding the issuing entity notes, including matters relating to the validity of the issuance of the issuing entity notes, will be opined upon to Abbey, Funding and the issuing entity by Slaughter and May. Certain matters of United States law regarding matters of United States federal income tax with respect to the offered notes will be opined upon to Abbey, Funding and the issuing entity by Cleary Gottlieb Steen & Hamilton LLP. Certain matters of English law and United States law will be opined upon to the underwriters by Allen & Overy LLP.
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ANNEX A-1
Statistical information on the portfolio
The reference date mortgage portfolio
The information provided in this Annex A-1 constitutes an integral part of this prospectus supplement and is incorporated by reference into this prospectus supplement. For the purposes of this Annex A-1, all references to “portfolio”, unless the context otherwise requires, include the loans and their related security, if any, expected to be sold to the mortgages trustee on the closing date.
The statistical and other information contained herein has been compiled by reference to the loans and mortgage accounts in the portfolio as at 31 December 2006 (the reference date). The US dollar figures set forth in the tables below have been calculated based on the currency exchange rate of £1 = $1.9862 and have been rounded to the nearest cent. following their conversion from sterling. Columns stating percentage amounts may not add up to 100 per cent. owing to rounding. A loan will have been removed from any new portfolio (which comprises a portion of the portfolio as at the reference date) if, in the period up to (and including) the closing date relating to such new portfolio, the loan is repaid in full or if the loan does not comply with the terms of the mortgage sale agreement on or about the closing date. Once such loans are removed, the seller will then randomly select from the loans remaining in the new portfolio those loans, if any, to be assigned on the applicable closing date once the determination has been made as to the anticipated principal balances of the notes to be issued and the corresponding size of the trust that would be required ultimately to support payments on the offered notes and all other notes of the issuing entity and the previous issuing entities.
The loans in the mortgages trust that are selected for inclusion in the mortgages trust will have been originated on the basis of the seller’s lending criteria. The material aspects of the seller’s lending criteria are described under “The loans – Underwriting -” and “The loans – Lending criteria” in the accompanying prospectus. Standardised credit scoring is not used in the United Kingdom mortgage market. For an indication of the credit quality of borrowers in respect of the loans, investors may refer to such lending criteria and to the historical performance of the loans in the mortgages trust as set forth in this Annex A-1 and in Annex E. One significant indicator of obligor credit quality is arrears and losses. The information presented under “Delinquency and loss experience of the portfolio” in this Annex A-1 reflects the arrears and repossession experience for loans that were contained in the portfolio since the inception of the mortgages trust. Abbey services all of the loans it originates. Any material change to the seller’s lending criteria, which could lead to arrears and losses deviating from the historical experience presented in the table under “Delinquency and loss experience of the portfolio”, will be reported by the seller on periodic reports filed with the SEC on Form 10-D. It is not expected that the characteristics of the portfolio as at the closing date will differ materially from the characteristics of the portfolio as at the reference date. Except as otherwise indicated, these tables have been prepared using the current balance as at the reference date, which includes all principal and accrued interest for the loans in the portfolio.
The portfolio as at the reference date consisted of 605,234 mortgage accounts, comprising loans originated by Abbey and secured over properties located in England, Wales and Scotland and having an aggregate outstanding principal balance of approximately £55,587,937,185 as at that date. The loans in the portfolio as at the reference date were originated by the seller between 1 August 1995 and 30 September 2006. As at the reference date, approximately 96.98 per cent. of the loans in the portfolio had an active direct debit instruction, the servicer, as agent of the mortgages trustee, having specifically agreed to another specific form of payment for the balance of the loans.
As at the reference date, approximately 81.22 per cent. of the mortgages securing the loans in the portfolio were on freehold properties or the Scottish equivalent, approximately 13.99 per cent. were on leasehold properties and 4.79 per cent. were unknown.
As at the reference date, approximately 67.03 per cent. of the loans in the portfolio were repayment loans and approximately 5.13 per cent. were interest-only loans. Approximately 7.57 per cent. of the loans had an original loan-to-value ratio of at least 90 per cent. as at the reference date.
As at the closing date:
| • | the Funding share of the trust property will be approximately £[•], representing approximately [•] per cent. of the trust property; and |
| • | the seller share of the trust property will be approximately £[•], representing approximately [•] per cent. of the trust property. |
S-31
The actual amounts of the Funding share of the trust property and the seller share of the trust property as at the closing date will not be determined until the day before the closing date which will be after the date of this prospectus supplement.
| Outstanding principal balances |
The following table shows the range of outstanding principal balances (including capitalised high loan-to-value fees and/or booking fees and/or valuation fees).
| Range of outstanding principal balances (including capitalised high loan-to-value fees and/or booking fees and/or valuation fees) | Current principal balance (£) | Current principal balance (US$) | % of total balance | Number of mortgage accounts | % of total | ||||||
| Less than £0,000 | -439,274 | -872,487 | 0.00 | % | 367 | 0.06 | % | ||||
| £0,000 – £49,999 | 5,924,568,179 | 11,767,377,318 | 10.66 | % | 178,295 | 29.46 | % | ||||
| £50,000 – £99,999 | 15,717,302,575 | 31,217,706,375 | 28.27 | % | 215,823 | 35.66 | % | ||||
| £100,000 – £149,999 | 14,422,928,055 | 28,646,819,702 | 25.95 | % | 118,255 | 19.54 | % | ||||
| £150,000 – £199,999 | 9,013,710,093 | 17,903,030,988 | 16.22 | % | 52,719 | 8.71 | % | ||||
| £200,000 – £249,999 | 4,825,103,802 | 9,583,621,171 | 8.68 | % | 21,852 | 3.61 | % | ||||
| £250,000 – £299,999 | 2,487,716,439 | 4,941,102,392 | 4.48 | % | 9,199 | 1.52 | % | ||||
| £300,000 – £349,999 | 1,485,360,726 | 2,950,223,475 | 2.67 | % | 4,632 | 0.77 | % | ||||
| £350,000 – £399,999 | 711,440,061 | 1,413,062,250 | 1.28 | % | 1,921 | 0.32 | % | ||||
| £400,000 – £449,999 | 454,007,160 | 901,749,022 | 0.82 | % | 1,080 | 0.18 | % | ||||
| £450,000 – £499,999 | 329,964,877 | 655,376,240 | 0.59 | % | 700 | 0.12 | % | ||||
| £500,000 – £549,999 | 124,696,800 | 247,672,784 | 0.22 | % | 244 | 0.04 | % | ||||
| £550,000 – £599,999 | 29,504,967 | 58,602,765 | 0.05 | % | 52 | 0.01 | % | ||||
| £600,000 – £649,999 | 28,878,500 | 57,358,476 | 0.05 | % | 47 | 0.01 | % | ||||
| £650,000 – £699,999 | 16,585,103 | 32,941,332 | 0.03 | % | 25 | 0.00 | % | ||||
| £700,000 – £749,999 | 15,859,121 | 31,499,387 | �� | 0.03 | % | 22 | 0.00 | % | |||
| ›=£750,000 | 750,000 | 1,489,650 | 0.00 | % | 1 | 0.00 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
The largest mortgage account has an outstanding principal balance of £750,000 and the smallest mortgage account has an outstanding principal balance of approximately minus £122,440. The average outstanding principal balance is approximately £91,845.
There are a small number of mortgage accounts in the portfolio with a negative balance. In these cases, this is due to overpayment of the amount required to redeem the mortgage account. The account status is set to “redeemed” when the balance is zero and the overpaid amount has been refunded which normally happens within two to three days of that overpayment.
| Loan-to-value ratios at origination |
The following table shows the range of loan-to-value, or LTV, ratios, which express the outstanding balance of a mortgage loan as at the date of the original initial mortgage loan origination divided by the value of the property securing that mortgage loan at the same date.
| Range of loan-to-value ratios at origination (excluding capitalised high loan-to-value fees and/or booking fees and/or valuation fees) | Current principal balance (£) | Current principal balance (US$) | % of total balance | Number of mortgage accounts | % of total | ||||||
| 00.00% – 24.99% | 1,781,833,597 | 3,539,077,891 | 3.21 | % | 43,889 | 7.25 | % | ||||
| 25.00% – 49.99% | 10,670,162,053 | 21,193,075,869 | 19.20 | % | 154,450 | 25.52 | % | ||||
| 50.00% – 74.99% | 24,391,507,918 | 48,446,413,027 | 43.88 | % | 236,078 | 39.01 | % | ||||
| 75.00% – 79.99% | 4,784,349,553 | 9,502,675,081 | 8.61 | % | 41,205 | 6.81 | % | ||||
| 80.00% – 84.99% | 3,713,688,490 | 7,376,128,078 | 6.68 | % | 31,452 | 5.20 | % | ||||
| 85.00% – 89.99% | 6,574,162,376 | 13,057,601,311 | 11.83 | % | 52,344 | 8.65 | % | ||||
| 90.00% – 95.00% | 3,672,233,199 | 7,293,789,579 | 6.61 | % | 45,816 | 7.57 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
The weighted average loan-to-value ratio of the mortgage accounts (excluding any capitalised high loan-to-value fees and/or capitalised booking fees and/or capitalised valuation fees) at origination was approximately 64.98 per cent. The highest loan-to-value ratio of any mortgage account (excluding any capitalised high loan-to-value fees and/or any capitalised booking fees and/or capitalised valuation fees) at origination was 95 per cent. and the lowest was 0 per cent. The average value of capitalised high loan-to-
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value fees and/or capitalised booking fees and/or capitalised valuation fees at origination was approximately £500.
| LTV ratios at origination indexed according to the Nationwide House Price Index |
The following table shows the range of LTV ratios, which express the outstanding balance of a mortgage loan as at the date of the original initial mortgage origination divided by the indexed valuation of the property securing that mortgage loan as at the reference date, based on the Nationwide House Price Index.
| Range of loan-to-value ratios at origination (excluding capitalised high loan-to-value fees and/or booking fees and/or valuation fees) | Current principal balance (£) | Current principal balance (US$) | % of total balance | Number of mortgage accounts | % of total | ||||||
| 00.00% – 24.99% | 4,141,146,172 | 8,225,144,526 | 7.45 | % | 90,793 | 15.00 | % | ||||
| 25.00% – 49.99% | 20,608,193,444 | 40,931,993,818 | 37.07 | % | 269,796 | 44.58 | % | ||||
| 50.00% – 74.99% | 23,639,197,555 | 46,952,174,183 | 42.53 | % | 197,310 | 32.60 | % | ||||
| 75.00% – 79.99% | 2,714,035,578 | 5,390,617,465 | 4.88 | % | 18,778 | 3.10 | % | ||||
| 80.00% – 84.99% | 2,710,564,850 | 5,383,723,904 | 4.88 | % | 17,482 | 2.89 | % | ||||
| 85.00% – 89.99% | 1,532,858,817 | 3,044,564,182 | 2.76 | % | 9,449 | 1.56 | % | ||||
| 90.00% – 95.00% | 241,940,771 | 480,542,759 | 0.44 | % | 1,626 | 0.27 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
The weighted average loan-to-value ratio of the mortgage accounts (excluding any capitalised high loan-to-value fees and/or capitalised booking fees and/or capitalised valuation fees) at origination was approximately 64.98 per cent. The highest loan-to-value ratio of any mortgage account (excluding any capitalised high loan-to-value fees and/or any capitalised booking fees and/ or capitalised valuation fees) at origination was 95 per cent. and the lowest was 0 per cent. The average value of capitalised high loan-to-value fees and/or capitalised booking fees and/or capitalised valuation fees at origination was approximately £500.
| LTV ratios at origination indexed according to the Halifax House Price Index |
The following table shows the range of LTV ratios, which express the outstanding balance of a mortgage loan as at the date of the original initial mortgage origination divided by the indexed valuation of the property securing that mortgage loan as at the reference date, based on the Halifax House Price Index.
| Range of loan-to-value ratios at origination (excluding capitalised high loan-to-value fees and/or booking fees and/or valuation fees) | Current principal balance (£) | Current principal balance (US$) | % of total balance | Number of mortgage accounts | % of total | ||||||
| 00.00% – 24.99% | 4,372,493,280 | 8,684,646,153 | 7.87 | % | 94,490 | 15.61 | % | ||||
| 25.00% – 49.99% | 21,793,406,480 | 43,286,063,950 | 39.21 | % | 280,801 | 46.40 | % | ||||
| 50.00% – 74.99% | 23,112,627,230 | 45,906,300,205 | 41.58 | % | 189,036 | 31.23 | % | ||||
| 75.00% – 79.99% | 2,758,811,436 | 5,479,551,274 | 4.96 | % | 18,543 | 3.06 | % | ||||
| 80.00% – 84.99% | 2,391,847,661 | 4,750,687,825 | 4.30 | % | 15,249 | 2.52 | % | ||||
| 85.00% – 89.99% | 1,006,180,754 | 1,998,476,214 | 1.81 | % | 6,074 | 1.00 | % | ||||
| 90.00% – 95.00% | 152,570,344 | 303,035,216 | 0.27 | % | 1,041 | 0.17 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
The weighted average loan-to-value ratio of the mortgage accounts (excluding any capitalised high loan-to-value fees and/or capitalised booking fees and/or capitalised valuation fees) at origination was approximately 51.55 per cent.
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| Geographical distribution |
The following table shows the distribution of properties throughout England, Wales and Scotland. No properties are situated outside England, Wales and Scotland. The geographical location of a property has no impact upon the seller’s lending criteria and credit scoring tests.
| Region | Current principal balance (£) | Current principal balance (US$) | % of total balance | Number of mortgage accounts | % of total | ||||||
| East Anglia | 1,982,993,888 | 3,938,622,461 | 3.57 | % | 23,615 | 3.90 | % | ||||
| East Midlands | 2,549,863,482 | 5,064,538,848 | 4.59 | % | 32,286 | 5.33 | % | ||||
| London | 12,340,964,201 | 24,511,623,097 | 22.20 | % | 103,824 | 17.15 | % | ||||
| Northwest | 5,054,286,871 | 10,038,824,583 | 9.09 | % | 68,860 | 11.38 | % | ||||
| North | 1,638,234,534 | 3,253,861,432 | 2.95 | % | 24,948 | 4.12 | % | ||||
| Scotland | 2,458,274,671 | 4,882,625,151 | 4.42 | % | 37,728 | 6.23 | % | ||||
| Southeast (excluding London) | 17,512,949,281 | 34,784,219,863 | 31.50 | % | 161,283 | 26.65 | % | ||||
| Southwest | 4,455,488,435 | 8,849,491,129 | 8.02 | % | 48,553 | 8.02 | % | ||||
| Unknown | 54,351,644 | 107,953,235 | 0.10 | % | 719 | 0.12 | % | ||||
| Wales | 1,973,606,423 | 3,919,977,078 | 3.55 | % | 28,072 | 4.64 | % | ||||
| West Midlands | 2,915,941,947 | 5,791,643,894 | 5.25 | % | 37,636 | 6.22 | % | ||||
| Yorkshire and Humberside | 2,650,981,808 | 5,265,380,067 | 4.77 | % | 37,710 | 6.23 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
House prices and incomes vary throughout England, Scotland and Wales. The table below summarises the average house price and the average income for each region for the period ended 31 December 2006 in order to produce a house price to earnings ratio for each region.
| Regions | Average earnings (£ per annum)* | House price (£)** | Price/ earnings ratio | ||||
| North East | 38,739 | 143,097 | 3.69 | ||||
| North West | 42,121 | 157,948 | 3.75 | ||||
| Yorkshire and Humberside | 41,652 | 158,247 | 3.80 | ||||
| East Midlands | 42,152 | 164,336 | 3.90 | ||||
| West Midlands | 44,086 | 177,183 | 4.02 | ||||
| East Anglia | 47,002 | 194,243 | 4.13 | ||||
| London | 76,140 | 305,544 | 4.01 | ||||
| South East | 58,161 | 251,400 | 4.32 | ||||
| South West | 49,620 | 213,586 | 4.30 | ||||
| Wales | 41,331 | 157,457 | 3.81 | ||||
| Scotland | 40,079 | 137,191 | 3.42 |
| * | Average recorded income of borrowers |
| ** | Simple average house prices |
| Source: www.communities.gov.uk/index.asp?id=1156110 |
For a discussion of geographic concentration risks, see “Risk factors – The timing and amount of payments on the loans could be affected by various factors which may adversely affect payments on the issuing entity notes” in the accompanying prospectus.
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| Seasoning of loans |
The following table shows the time elapsed since the date of origination of the loans. The ages (but not the balances) of the loans in this table have been calculated up to the reference date of 31 December 2006 for the purpose of calculating the seasoning.
| Age of loans in months | Current principal balance (£) | Current principal balance ($) | % of total balance | Number of mortgage accounts | % of total | ||||||
| 0 to < 6 | 4,872,334,299 | 9,677,430,384 | 8.77 | % | 38,240 | 6.32 | % | ||||
| 6 to < 12 | 9,277,470,280 | 18,426,911,469 | 16.69 | % | 78,761 | 13.01 | % | ||||
| 12 to < 18 | 8,023,736,344 | 15,936,745,127 | 14.43 | % | 70,773 | 11.69 | % | ||||
| 18 to < 24 | 5,566,846,360 | 11,056,870,241 | 10.01 | % | 53,388 | 8.82 | % | ||||
| 24 to < 30 | 4,656,401,271 | 9,248,544,205 | 8.38 | % | 49,984 | 8.26 | % | ||||
| 30 to < 36 | 4,872,246,056 | 9,677,255,117 | 8.76 | % | 57,273 | 9.46 | % | ||||
| 36 to < 42 | 4,652,761,849 | 9,241,315,585 | 8.37 | % | 54,941 | 9.08 | % | ||||
| 42 to < 48 | 3,320,843,165 | 6,595,858,694 | 5.97 | % | 42,970 | 7.10 | % | ||||
| 48 to < 54 | 3,452,344,346 | 6,857,046,339 | 6.21 | % | 46,988 | 7.76 | % | ||||
| 54 to < 60 | 1,715,893,521 | 3,408,107,712 | 3.09 | % | 23,698 | 3.92 | % | ||||
| 60 to < 66 | 1,765,575,940 | 3,506,786,933 | 3.18 | % | 24,541 | 4.05 | % | ||||
| 66 to < 72 | 666,872,396 | 1,324,541,953 | 1.20 | % | 10,457 | 1.73 | % | ||||
| 72 to < 78 | 501,952,206 | 996,977,472 | 0.90 | % | 8,206 | 1.36 | % | ||||
| 78 to < 84 | 382,437,557 | 759,597,475 | 0.69 | % | 6,758 | 1.12 | % | ||||
| 84 to < 90 | 382,003,395 | 758,735,144 | 0.69 | % | 7,106 | 1.17 | % | ||||
| 90 to < 96 | 252,355,921 | 501,229,330 | 0.45 | % | 4,776 | 0.79 | % | ||||
| 96 to < 102 | 326,431,243 | 648,357,735 | 0.59 | % | 6,381 | 1.05 | % | ||||
| Greater than 102 | 899,431,036 | 1,786,449,923 | 1.62 | % | 19,993 | 3.30 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
The weighted average seasoning of loans was approximately 29.15 months and the maximum seasoning of loans was 138 months. The minimum seasoning of loans was 3 months.
| Years to maturity of loans |
The following table shows the number of years of the mortgage term which remain unexpired:
| Years to Maturity | Current principal balance (£) | Current principal balance ($) | % of total balance | Number of mortgage accounts | % of total | ||||||
| < 0 | 1,048,197 | 2,081,929 | 0.00 | % | 30 | 0.00 | % | ||||
| 0 to < 5 | 980,545,006 | 1,947,558,491 | 1.76 | % | 22,841 | 3.77 | % | ||||
| 5 to < 10 | 4,856,507,191 | 9,645,994,582 | 8.74 | % | 80,321 | 13.27 | % | ||||
| 10 to < 15 | 8,113,960,344 | 16,115,948,035 | 14.60 | % | 109,691 | 18.12 | % | ||||
| 15 to < 20 | 14,513,576,948 | 28,826,866,533 | 26.11 | % | 161,899 | 26.75 | % | ||||
| 20 to < 25 | 24,319,122,468 | 48,302,641,046 | 43.75 | % | 207,807 | 34.33 | % | ||||
| 25 to < 30 | 2,699,236,935 | 5,361,224,400 | 4.86 | % | 21,781 | 3.60 | % | ||||
| 30 to < 38 | 103,940,097 | 206,445,821 | 0.19 | % | 864 | 0.14 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
The weighted average remaining term of loans was approximately 19.39 years and the maximum remaining term was 35.67 years. The minimum remaining term was 0.08 years.
| Purpose of loan |
The following table shows the purpose of the loans on origination:
| Use of proceeds | Current principal balance (£) | Current principal balance ($) | % of total balance | Number of mortgage accounts | % of total | ||||||
| Purchase | 33,108,385,181 | 65,759,874,647 | 59.56 | % | 375,787 | 62.09 | % | ||||
| Remortgage | 22,479,552,004 | 44,648,886,191 | 40.44 | % | 229,447 | 37.91 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
As at the reference date, the average balance of loans used to finance the purchase of a new property was £88,104 and the average balance of loans used to remortgage a property already owned by the borrower was £97,973.
The following table shows the types of properties to which the mortgage accounts relate.
| Property type | Current principal balance (£) | Current principal balance ($) | % of total balance | Number of mortgage accounts | % of total | ||||||
| Converted flat/maisonette | 351,668,288 | 698,483,554 | 0.63 | % | 4,032 | 0.67 | % | ||||
| Detached house | 14,351,393,904 | 28,504,738,572 | 25.82 | % | 117,739 | 19.45 | % | ||||
| Detached or chalet bungalow | 575,164,738 | 1,142,392,203 | 1.03 | % | 8,117 | 1.34 | % | ||||
| Purpose-built flat/maisonette | 5,948,940,761 | 11,815,786,140 | 10.70 | % | 62,661 | 10.35 | % | ||||
| Self contained maisonette | 142,223 | 282,483 | 0.00 | % | 2 | 0.00 | % | ||||
| Semi-detached bungalow | 2,795,657,209 | 5,552,734,348 | 5.03 | % | 29,617 | 4.89 | % | ||||
| Semi-detached/link-detached house | 16,274,652,400 | 32,324,714,597 | 29.28 | % | 190,600 | 31.49 | % | ||||
| Terraced house/bungalow | 12,050,741,700 | 23,935,183,164 | 21.68 | % | 142,207 | 23.50 | % | ||||
| Other/unknown | 3,239,575,962 | 6,434,445,775 | 5.83 | % | 50,259 | 8.30 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
As at the reference date, the average balance of loans secured by semi-detached/link-detached house, detached house and terraced house/bungalow properties was £85,386, £121,892 and £84,741, respectively.
| Origination channel |
The following table shows the origination channel for the initial loan in a mortgage account.
| Origination channel | Current principal balance (£) | Current principal balance ($) | % of total balance | Number of mortgage accounts | % of total | ||||||
| Direct Origination | 22,876,838,272 | 45,437,976,175 | 41.15 | % | 274,370 | 45.33 | % | ||||
| Intermediaries | 28,228,773,457 | 56,067,989,841 | 50.78 | % | 264,108 | 43.64 | % | ||||
| Other Channels | 4,482,325,457 | 8,902,794,822 | 8.06 | % | 66,756 | 11.03 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
As at the reference date, the average balance of loans originated through direct origination, intermediaries and other channels was £83,380, £106,883 and £67,145, respectively.
| Repayment terms |
The following table shows the repayment terms for the loans in the mortgage accounts as at the reference date. Where any loan in a mortgage account is interest-only, then that entire mortgage account is classified as interest-only.
| Repayment terms | Current principal balance (£) | Current principal balance ($) | % of total balance | Number of mortgage accounts | % of total | ||||||
| Endowment | 2,852,739,921 | 5,666,112,031 | 5.13 | % | 45,726 | 7.56 | % | ||||
| Interest only | 15,473,529,247 | 30,733,523,791 | 27.84 | % | 121,468 | 20.07 | % | ||||
| Repayment | 37,261,668,017 | 74,009,125,015 | 67.03 | % | 438,040 | 72.38 | % | ||||
| 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | |||||
As at the reference date, the average balance of endowment loans, interest-only loans and repayment loans in the portfolio was £62,388, £127,388 and £85,065 respectively.
| Product type |
The following table shows the distribution of product type as at the reference date.
| Product type | Current principal balance (£) | Current principal balance ($) | % of total balance | Number of properties | % of total | ||||||
| Non-flexible loans: | |||||||||||
| Tracker loans | 12,362,623,808 | 24,554,643,408 | 22.24 | % | 128,478 | 21.23 | % | ||||
| Fixed loans | 16,296,589,448 | 32,368,285,961 | 29.32 | % | 145,906 | 24.11 | % | ||||
| Variable loans | 16,459,700,301 | 32,692,256,738 | 29.61 | % | 217,305 | 35.90 | % | ||||
| Flexible loans: | |||||||||||
| Tracker loans | 9,551,631,186 | 18,971,449,862 | 17.18 | % | 103,218 | 17.05 | % | ||||
| Fixed loans | 270,825,155 | 537,912,923 | 0.49 | % | 2,714 | 0.45 | % | ||||
| Variable loans | 646,567,287 | 1,284,211,945 | 1.16 | % | 7,613 | 1.26 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
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| Payment methods |
The following table shows the payment methods for the mortgage accounts as at the reference date.
| Payment methods | Current principal balance (£) | Current principal balance ($) | % of total balance | Number of mortgage accounts | % of total | ||||||
| Direct debit (Abbey bank account) | 4,352,468,096 | 8,644,872,133 | 7.83 | % | 47,925 | 7.92 | % | ||||
| Direct debit (other bank account) | 49,557,171,899 | 98,430,454,826 | 89.15 | % | 536,099 | 88.58 | % | ||||
| Other* | 1,678,297,190 | 3,333,433,879 | 3.02 | % | 21,210 | 3.50 | % | ||||
| Total | 55,587,937,185 | 110,408,760,837 | 100.00 | % | 605,234 | 100.00 | % | ||||
| * | External standing orders, internal standing orders and payments made at Abbey branches. |
| Distribution of fixed rate loans |
As at the reference date, approximately 29.80 per cent. of the loans in the portfolio were fixed rate loans. Fixed rate loans remain at the relevant fixed rate for a period of time as specified in the offer conditions, after which they move to the SVR or some other rate as specified in the offer conditions.
| Fixed rate % | Current principal balance (£) | Current principal balance ($) | % of total balance | Number of mortgage accounts | % of total fixed rate loans | ||||||
| 3.00% – 3.99% | 222,706,515 | 442,339,681 | 1.34 | % | 1,880 | 1.26 | % | ||||
| 4.00% – 4.99% | 11,046,049,712 | 21,939,663,938 | 66.67 | % | 89,771 | 60.40 | % | ||||
| 5.00% – 5.99% | 4,902,666,771 | 9,737,676,740 | 29.59 | % | 51,178 | 34.44 | % | ||||
| 6.00% – 6.99% | 375,337,440 | 745,495,224 | 2.27 | % | 5,303 | 3.57 | % | ||||
| 7.00% – 7.99% | 20,293,532 | 40,307,014 | 0.12 | % | 480 | 0.32 | % | ||||
| 8.00% – 8.99% | 360,632 | 716,288 | 0.00 | % | 8 | 0.01 | % | ||||
| Total | 16,567,414,603 | 32,906,198,884 | 100.00 | % | 148,620 | 100.00 | % | ||||
| Year in which fixed period ends | Current principal balance (£) | Current principal balance ($) | % of total balance | Number of mortgage accounts | % of total | ||||||
| 2007 | 4,031,938,964 | 8,008,237,170 | 24.34 | % | 36,040 | 24.25 | % | ||||
| 2008 | 8,524,237,492 | 16,930,840,507 | 51.45 | % | 71,348 | 48.01 | % | ||||
| 2009 | 1,134,323,914 | 2,252,994,158 | 6.85 | % | 12,292 | 8.27 | % | ||||
| 2010 | 1,162,272,807 | 2,308,506,249 | 7.02 | % | 11,068 | 7.45 | % | ||||
| 2011 | 1,339,023,174 | 2,659,567,829 | 8.08 | % | 13,009 | 8.75 | % | ||||
| 2012 | 96,650,922 | 191,968,061 | 0.58 | % | 1,054 | 0.71 | % | ||||
| 2013 | 27,517,791 | 54,655,836 | 0.17 | % | 428 | 0.29 | % | ||||
| 2014 | 4,351,416 | 8,642,783 | 0.03 | % | 66 | 0.04 | % | ||||
| 2015 | 21,090,373 | 41,889,699 | 0.13 | % | 337 | 0.23 | % | ||||
| 2016 | 138,564,389 | 275,216,589 | 0.84 | % | 1,776 | 1.19 | % | ||||
| 2017 | 26,365,108 | 52,366,378 | 0.16 | % | 297 | 0.20 | % | ||||
| 2018 | 182,442 | 362,366 | 0.00 | % | 5 | 0.00 | % | ||||
| 2019 | 43,957,048 | 87,307,488 | 0.27 | % | 638 | 0.43 | % | ||||
| 2020 | 13,855,033 | 27,518,866 | 0.08 | % | 205 | 0.14 | % | ||||
| 2021 | 192,821 | 382,982 | 0.00 | % | 4 | 0.00 | % | ||||
| 2022 | 1,488,375 | 2,956,210 | 0.01 | % | 35 | 0.02 | % | ||||
| 2023 | 6,828 | 13,562 | 0.00 | % | 1 | 0.00 | % | ||||
| 2024 | 442,117 | 878,133 | 0.00 | % | 6 | 0.00 | % | ||||
| 2025 | 657,593 | 1,306,112 | 0.00 | % | 7 | 0.00 | % | ||||
| >= 2026 | 295,994 | 587,904 | 0.00 | % | 4 | 0.00 | % | ||||
| Total | 16,567,414,603 | 32,906,198,884 | 100.00 | % | 148,620 | 100.00 | % | ||||
| Payment Rate Analysis |
The following table shows the annualised payment rate for the most recent 1-, 3- and 12-month period for the loans in the portfolio.
| As of | 1-month annualised | 3-month annualised | 12-month annualised | |||
| 8 May 2007 | 41.21 | % | 42.55 | % | 43.69 | % |
In the table above,
| • | 1-month annualised CPR is calculated as 1 – ((1 – R) ^ 12), |
| • | 3-month annualised CPR is calculated as the average of the 1-month annualised CPR for the most recent 3 months, and |
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| • | 12-month annualised CPR is calculated the average of the 1-month annualised CPR for the most recent 12 months, |
where R is (i) total principal receipts received plus the principal balance of loans repurchased by the seller (primarily due to further advances) during the relevant period, divided by (ii) the aggregate outstanding principal balance of the loans in the portfolio as at the start of that period.
| Delinquency and loss experience of the portfolio |
The following table shows the arrears and repossession experience in respect of the portfolio as at the dates indicated.
The loans used in the table below are administered in accordance with Abbey’s administration policies. The method by which Abbey classifies loans as being in arrears is described in the accompanying prospectus under “The servicer – Arrears and default procedures” and is important in helping to understand the arrears and repossession information in respect of the portfolio, as at the dates indicated, set forth in the following table.
| As at or for the periods ended | |||||||||||||||
| December 8, 2004 | December 8, 2005 | ||||||||||||||
| £(m) | $(m) | % | £(m) | $(m) | % | ||||||||||
| Outstanding balance | 29,917.00 | 59,421.15 | 29,959.81 | 59,506.17 | |||||||||||
| Number of loans outstanding | 404.69 | 404.69 | 397.38 | 397.38 | |||||||||||
| Outstanding balance of loans in arrears | |||||||||||||||
| 1 – 2 months | 447.07 | 887.97 | 1.49 | % | 466.58 | 926.72 | 1.56 | % | |||||||
| 2 – 3 months | 145.62 | 289.23 | 0.49 | % | 154.32 | 306.51 | 0.52 | % | |||||||
| 3 – 4 months | 73.08 | 145.16 | 0.24 | % | 78.86 | 156.63 | 0.26 | % | |||||||
| 4 – 5 months | 31.98 | 63.51 | 0.11 | % | 39.46 | 78.37 | 0.13 | % | |||||||
| 5 – 6 months | 17.38 | 34.51 | 0.06 | % | 24.50 | 48.65 | 0.08 | % | |||||||
| 6 – 12 months | 27.90 | 55.41 | 0.09 | % | 52.67 | 104.61 | 0.18 | % | |||||||
| Over 12 months | 1.32 | 2.63 | 0.00 | % | 5.83 | 11.58 | 0.02 | % | |||||||
| Total outstanding balance of loans in arrears | 744.35 | 1,478.43 | 2.49 | % | 822.21 | 1,633.08 | 2.74 | % | |||||||
| Number of loans outstanding in arrears (thousands) | |||||||||||||||
| 1 – 2 months | 5.73 | 5.73 | 1.42 | % | 5.53 | 5.53 | 1.39 | % | |||||||
| 2 – 3 months | 2.06 | 2.06 | 0.51 | % | 2.09 | 2.09 | 0.53 | % | |||||||
| 3 – 4 months | 1.09 | 1.09 | 0.27 | % | 1.08 | 1.08 | 0.27 | % | |||||||
| 4 – 5 months | 0.49 | 0.49 | 0.12 | % | 0.51 | 0.51 | 0.13 | % | |||||||
| 5 – 6 months | 0.25 | 0.25 | 0.06 | % | 0.33 | 0.33 | 0.08 | % | |||||||
| 6 – 12 months | 0.43 | 0.43 | 0.11 | % | 0.66 | 0.66 | 0.17 | % | |||||||
| Over 12 months | 0.02 | 0.02 | 0.01 | % | 0.08 | 0.08 | 0.02 | % | |||||||
| Total number of loans outstanding in arrears | 10.07 | 10.07 | 2.49 | % | 10.27 | 10.27 | 2.58 | % | |||||||
| Repossessions | 113 | 113 | 0.03 | % | 206 | 206 | 0.05 | % | |||||||
| Amount of loan losses | 0.08 | 0.16 | 0.69 | 1.36 | |||||||||||
| Loan losses as % of total current balance | 0.00 | 0.00 | % | 0.00 | 0.00 | % | |||||||||
| As at or for the periods ended | |||||||||||||||
| December 8, 2006 | December 8, 2007 | ||||||||||||||
| £(m) | $(m) | % | £(m) | $(m) | % | ||||||||||
| Outstanding balance | 30,057.09 | 59,699.39 | 40,001.04 | 79,450.07 | |||||||||||
| Number of loans outstanding | 379.72 | 379.72 | 461.97 | 461.97 | |||||||||||
| Outstanding balance of loans in arrears | |||||||||||||||
| 1 – 2 months | 434.28 | 862.57 | 1.44 | % | 640.22 | 1,271.60 | 1.60 | % | |||||||
| 2 – 3 months | 150.37 | 298.67 | 0.50 | % | 191.31 | 379.98 | 0.48 | % | |||||||
| 3 – 4 months | 77.26 | 153.46 | 0.26 | % | 84.50 | 167.83 | 0.21 | % | |||||||
| 4 – 5 months | 35.70 | 70.91 | 0.12 | % | 38.49 | 76.44 | 0.10 | % | |||||||
| 5 – 6 months | 25.17 | 49.98 | 0.08 | % | 22.52 | 44.73 | 0.06 | % | |||||||
| 6 – 12 months | 48.97 | 97.26 | 0.16 | % | 45.14 | 89.66 | 0.11 | % | |||||||
| Over 12 months | 5.93 | 11.78 | 0.02 | % | 6.48 | 12.88 | 0.02 | % | |||||||
| Total outstanding balance of loans in arrears | 777.69 | 1,544.64 | 2.59 | % | 1,028.66 | 2,043.13 | 2.57 | % | |||||||
| Number of loans outstanding in arrears (thousands) | |||||||||||||||
S-38
| 1 – 2 months | 5.53 | 5.53 | 1.46 | % | 7.16 | 7.16 | 1.55 | % | ||||
| 2 – 3 months | 1.89 | 1.89 | 0.50 | % | 2.34 | 2.34 | 0.51 | % | ||||
| 3 – 4 months | 0.95 | 0.95 | 0.25 | % | 1.03 | 1.03 | 0.22 | % | ||||
| 4 – 5 months | 0.43 | 0.43 | 0.11 | % | 0.47 | 0.47 | 0.10 | % | ||||
| 5 – 6 months | 0.30 | 0.30 | 0.08 | % | 0.28 | 0.28 | 0.06 | % | ||||
| 6 – 12 months | 0.58 | 0.58 | 0.15 | % | 0.54 | 0.54 | 0.12 | % | ||||
| Over 12 months | 0.07 | 0.07 | 0.02 | % | 0.07 | 0.07 | 0.01 | % | ||||
| Total number of loans outstanding in arrears | 9.75 | 9.75 | 2.57 | % | 11.88 | 11.88 | 2.57 | % | ||||
| Repossessions | 243 | 243 | 0.06 | % | 293 | 293 | 0.06 | % | ||||
| Amount of loan losses | 1.44 | 2.86 | 0.59 | 1.16 | ||||||||
| Loan losses as % of total current balance | 0.00 | 0.00 | % | 0.00 | % | 0.00 | % | |||||
“Repossessions” expresses the number of mortgaged properties that the servicer has taken into possession during the period, as a percentage of the number of loans in the portfolio outstanding at the end of the period.
S-39
ANNEX A-2
Characteristics of the United Kingdom residential mortgage market
The information provided in this Annex A-2 constitutes an integral part of this prospectus supplement and is incorporated by reference into this prospectus supplement.
According to the Council of Mortgage Lenders, at the end of 2006, mortgage loans outstanding in the United Kingdom amounted to £12,278 billion, with banks and building societies holding approximately 57.20 per cent. and approximately 17.76 per cent. of the total, respectively, and in 2006 outstanding mortgage debt in the United Kingdom grew by approximately 10.96 per cent.
Set out in the following tables are a number of characteristics of the United Kingdom mortgage market.
| CPR rates |
In the following tables, quarterly constant prepayment rate (CPR) data was calculated by dividing the amount of scheduled and unscheduled repayments of mortgages made by building societies in a quarter by the quarterly balance of mortgages outstanding owed to building societies in the United Kingdom. These quarterly repayment rates were then annualised using standard methodology.
| CPR (%) | Aggregate quarters over 40 years | CPR (%) | Aggregate quarters over 40 years | CPR (%) | Aggregate quarters over 40 years | CPR (%) | Aggregate quarters over 40 years | CPR (%) | Aggregate quarters over 40 years | |||||||||
| 7.0 | 0 | 11.0 | 13 | 15.0 | 3 | 19.0 | 3 | 23.0 | 0 | |||||||||
| 7.5 | 3 | 11.5 | 17 | 15.5 | 4 | 19.5 | 4 | 23.5 | 0 | |||||||||
| 8.0 | 2 | 12.0 | 12 | 16.0 | 2 | 20.0 | 3 | 24.0 | 0 | |||||||||
| 8.5 | 6 | 12.5 | 8 | 16.5 | 0 | 20.5 | 0 | 24.5 | 0 | |||||||||
| 9.0 | 8 | 13.0 | 4 | 17.0 | 2 | 21.0 | 5 | |||||||||||
| 9.5 | 11 | 13.5 | 6 | 17.5 | 3 | 21.5 | 1 | |||||||||||
| 10.0 | 16 | 14.0 | 2 | 18.0 | 1 | 22.0 | 2 | |||||||||||
| 10.5 | 15 | 14.5 | 2 | 18.5 | 2 | 22.5 | 0 | |||||||||||
| Source: The Bank of England |
Over the past 40 years, the highest single quarter CPR experienced in respect of residential mortgage loans made by building societies was recorded in September 2002 at a level of 22.40 per cent. The lowest level was 7.94 per cent. in March and June of 1974.
The highest 12-month rolling average CPR over the same 40-year period was 21.07 per cent. The lowest was 8.84 per cent.
| Quarter | CPR rate for the quarter (%) | 12-month rolling average (%) | Quarter | CPR rate for the quarter (%) | 12-month rolling average ( | %) | ||||
| June 1966 | 11.39 | 11.00 | September 1966 | 11.71 | 11.27 | |||||
| December 1966 | 10.60 | 11.04 | March 1967 | 9.51 | 10.80 | |||||
| June 1967 | 10.96 | 10.69 | September 1967 | 11.67 | 10.68 | |||||
| December 1967 | 11.52 | 10.91 | March 1968 | 10.19 | 11.08 | |||||
| June 1968 | 10.59 | 10.99 | September 1968 | 10.92 | 10.81 | |||||
| December 1968 | 10.25 | 10.49 | March 1969 | 9.16 | 10.23 | |||||
| June 1969 | 10.24 | 10.14 | September 1969 | 10.66 | 10.08 | |||||
| December 1969 | 10.02 | 10.02 | March 1970 | 8.93 | 9.96 | |||||
| June 1970 | 10.69 | 10.07 | September 1970 | 11.61 | 10.31 | |||||
| December 1970 | 11.47 | 10.67 | March 1971 | 9.33 | 10.77 | |||||
| June 1971 | 11.45 | 10.96 | September 1971 | 12.18 | 11.11 | |||||
| December 1971 | 12.31 | 11.32 | March 1972 | 10.73 | 11.67 | |||||
| June 1972 | 11.82 | 11.76 | September 1972 | 12.25 | 11.78 | |||||
| December 1972 | 11.74 | 11.63 | March 1973 | 10.12 | 11.48 | |||||
| June 1973 | 10.54 | 11.16 | September 1973 | 11.06 | 10.87 | |||||
| December 1973 | 10.56 | 10.57 | March 1974 | 7.95 | 10.03 | |||||
| June 1974 | 7.95 | 9.38 | September 1974 | 9.59 | 9.01 | |||||
| December 1974 | 10.83 | 9.08 | March 1975 | 9.96 | 9.58 | |||||
| June 1975 | 12.23 | 10.65 | September 1975 | 12.76 | 11.45 | |||||
| December 1975 | 12.22 | 11.79 | March 1976 | 10.10 | 11.83 | |||||
| June 1976 | 11.48 | 11.64 | September 1976 | 11.86 | 11.42 | |||||
| December 1976 | 11.70 | 11.29 | March 1977 | 8.00 | 10.76 | |||||
| June 1977 | 9.85 | 10.35 | September 1977 | 12.13 | 10.42 | |||||
| December 1977 | 12.66 | 10.66 | March 1978 | 11.30 | 11.49 | |||||
| June 1978 | 12.19 | 12.07 | September 1978 | 11.72 | 11.97 | |||||
| December 1978 | 11.19 | 11.60 | March 1979 | 9.34 | 11.11 | |||||
| June 1979 | 10.13 | 10.59 | September 1979 | 11.36 | 10.50 |
S-40
| Quarter | CPR rate for the quarter (%) | 12-month rolling average (%) | Quarter | CPR rate for the quarter (%) | 12-month rolling average ( | %) | ||||
| December 1979 | 11.07 | 10.47 | March 1980 | 8.04 | 10.15 | |||||
| June 1980 | 8.66 | 9.78 | September 1980 | 9.87 | 9.41 | |||||
| December 1980 | 10.48 | 9.26 | March 1981 | 9.97 | 9.75 | |||||
| June 1981 | 11.78 | 10.53 | September 1981 | 12.53 | 11.19 | |||||
| December 1981 | 11.83 | 11.53 | March 1982 | 9.63 | 11.44 | |||||
| June 1982 | 12.91 | 11.73 | September 1982 | 13.97 | 12.08 | |||||
| December 1982 | 14.20 | 12.68 | March 1983 | 12.55 | 13.41 | |||||
| June 1983 | 12.76 | 13.37 | September 1983 | 12.48 | 13.00 | |||||
| December 1983 | 11.86 | 12.41 | March 1984 | 10.40 | 11.88 | |||||
| June 1984 | 12.14 | 11.72 | September 1984 | 12.40 | 11.70 | |||||
| December 1984 | 11.88 | 11.70 | March 1985 | 10.02 | 11.61 | |||||
| June 1985 | 11.67 | 11.49 | September 1985 | 13.46 | 11.76 | |||||
| December 1985 | 13.68 | 12.21 | March 1986 | 11.06 | 12.47 | |||||
| June 1986 | 15.53 | 13.43 | September 1986 | 17.52 | 14.45 | |||||
| December 1986 | 15.60 | 14.93 | March 1987 | 10.75 | 14.85 | |||||
| June 1987 | 15.13 | 14.75 | September 1987 | 17.06 | 14.63 | |||||
| December 1987 | 16.41 | 14.84 | March 1988 | 13.74 | 15.58 | |||||
| June 1988 | 16.24 | 15.86 | September 1988 | 18.46 | 16.21 | |||||
| December 1988 | 12.76 | 15.30 | March 1989 | 8.96 | 14.11 | |||||
| June 1989 | 13.12 | 13.33 | September 1989 | 11.60 | 11.61 | |||||
| December 1989 | 10.44 | 11.03 | March 1990 | 8.96 | 11.03 | |||||
| June 1990 | 9.42 | 10.11 | September 1990 | 9.71 | 9.63 | |||||
| December 1990 | 10.58 | 9.67 | March 1991 | 9.07 | 9.69 | |||||
| June 1991 | 10.69 | 10.01 | September 1991 | 11.57 | 10.48 | |||||
| December 1991 | 10.24 | 10.39 | March 1992 | 9.14 | 10.41 | |||||
| June 1992 | 9.12 | 10.02 | September 1992 | 9.75 | 9.56 | |||||
| December 1992 | 7.96 | 8.99 | March 1993 | 8.53 | 8.84 | |||||
| June 1993 | 9.97 | 9.05 | September 1993 | 10.65 | 9.28 | |||||
| December 1993 | 10.01 | 9.79 | March 1994 | 8.97 | 9.90 | |||||
| June 1994 | 10.48 | 10.03 | September 1994 | 11.05 | 10.13 | |||||
| December 1994 | 10.68 | 10.29 | March 1995 | 9.15 | 10.34 | |||||
| June 1995 | 10.51 | 10.35 | September 1995 | 11.76 | 10.53 | |||||
| December 1995 | 11.61 | 10.76 | March 1996 | 10.14 | 11.00 | |||||
| June 1996 | 11.32 | 11.21 | September 1996 | 13.20 | 11.57 | |||||
| December 1996 | 12.58 | 11.81 | March 1997 | 9.75 | 11.71 | |||||
| June 1997 | 15.05 | 12.65 | September 1997 | 12.18 | 12.39 | |||||
| December 1997 | 11.17 | 12.04 | March 1998 | 10.16 | 12.14 | |||||
| June 1998 | 12.05 | 11.39 | September 1998 | 13.79 | 11.79 | |||||
| December 1998 | 13.44 | 12.36 | March 1999 | 11.14 | 12.60 | |||||
| June 1999 | 14.39 | 13.19 | September 1999 | 15.59 | 13.64 | |||||
| December 1999 | 14.94 | 14.02 | March 2000 | 13.82 | 14.69 | |||||
| June 2000 | 13.87 | 14.55 | September 2000 | 14.88 | 14.38 | |||||
| December 2000 | 15.55 | 14.53 | March 2001 | 15.46 | 14.94 | |||||
| June 2001 | 17.36 | 15.81 | September 2001 | 19.12 | 16.87 | |||||
| December 2001 | 19.00 | 17.74 | March 2002 | 18.68 | 18.54 | |||||
| June 2002 | 19.88 | 19.17 | September 2002 | 22.40 | 19.99 | |||||
| December 2002 | 22.16 | 20.78 | March 2003 | 19.52 | 20.99 | |||||
| June 2003 | 20.18 | 21.06 | September 2003 | 21.65 | 20.88 | |||||
| December 2003 | 21.33 | 20.67 | March 2004 | 19.90 | 20.77 | |||||
| June 2004 | 21.42 | 21.08 | September 2004 | 21.41 | 21.01 | |||||
| December 2004 | 18.72 | 20.36 | March 2005 | 17.76 | 19.83 | |||||
| June 2005 | 17.75 | 18.91 | September 2005 | 20.24 | 18.62 | |||||
| December 2005 | 20.36 | 19.03 | March 2006 | 19.65 | 19.50 | |||||
| June 2006 | 19.38 | 19.90 | September 2006 | 21.24 | 20.15 | |||||
| December 2006 | 21.07 | 20.33 | ||||||||
| Source of repayment and outstanding mortgage information: The Bank of England |
The CPR table above presents the historical CPR experience only of building societies in the United Kingdom. During the late 1990s, a number of former building societies converted to stock form United Kingdom banks, and the CPR experience of these banks is therefore not included in the foregoing building society CPR data. According to the Council of Mortgage Lenders, the 12 month rolling average CPR experience of banks during each of the years 1999 through 2005 was 16.08 per cent., 15.34 per cent., 18.69 per cent., 21.81 per cent., 23.81 per cent., 22.88 per cent. and 22.93 per cent. respectively.
S-41
| Repossession rate |
In January 2007, the Council of Mortgage Lenders published figures for 2006, which showed that the repossession rate in the United Kingdom for that year was 0.15%. No assurance can be given as to whether, or for how long, these low levels of repossessions will continue.
| Year | Repossessions (%) | Year | Repossessions (%) | Year | Repossessions ( | %) | ||||
| 1982 | 0.11 | 1991 | 0.77 | 2000 | 0.20 | |||||
| 1983 | 0.12 | 1992 | 0.69 | 2001 | 0.14 | |||||
| 1984 | 0.17 | 1993 | 0.58 | 2002 | 0.11 | |||||
| 1985 | 0.25 | 1994 | 0.47 | 2003 | 0.07 | |||||
| 1986 | 0.30 | 1995 | 0.47 | 2004 | 0.05 | |||||
| 1987 | 0.32 | 1996 | 0.40 | 2005 | 0.09 | |||||
| 1988 | 0.22 | 1997 | 0.31 | 2006 | 0.15 | |||||
| 1989 | 0.17 | 1998 | 0.31 | |||||||
| 1990 | 0.47 | 1999 | 0.27 | |||||||
| Source: Council of Mortgage Lenders |
| House price to earnings ratio |
The following table shows the ratio for any one year of the average annual value of houses compared to the average annual salary in the United Kingdom as calculated from the weekly earnings in April of the same year of male employees whose earnings were not affected by their absence from work (as recorded by the Department for Education and Employment). While this is a good indication of house affordability, it does not take into account the fact that the majority of households have more than one income to support a mortgage loan.
| Year | House price to earnings ratio | Year | House price to earnings ratio | ||||
| 1971 | 3.21 | 1989 | 5.14 | ||||
| 1972 | 3.83 | 1990 | 4.62 | ||||
| 1973 | 4.58 | 1991 | 4.23 | ||||
| 1974 | 4.21 | 1992 | 3.84 | ||||
| 1975 | 3.52 | 1993 | 3.63 | ||||
| 1976 | 3.30 | 1994 | 3.59 | ||||
| 1977 | 3.26 | 1995 | 3.53 | ||||
| 1978 | 3.34 | 1996 | 3.57 | ||||
| 1979 | 3.74 | 1997 | 3.79 | ||||
| 1980 | 3.75 | 1998 | 4.04 | ||||
| 1981 | 3.51 | 1999 | 4.28 | ||||
| 1982 | 3.29 | 2000 | 4.65 | ||||
| 1983 | 3.40 | 2001 | 4.73 | ||||
| 1984 | 3.50 | 2002 | 5.33 | ||||
| 1985 | 3.52 | 2003 | 5.90 | ||||
| 1986 | 3.71 | 2004 | 6.29 | ||||
| 1987 | 4.02 | 2005 | 6.43 | ||||
| 1988 | 4.64 | 2006 | 6.47 |
| Source: Council of Mortgage Lenders |
| House price index |
United Kingdom residential property prices, as measured by the Nationwide House Price Index and Halifax House Price Index (collectively the Housing Indices), have generally followed the United Kingdom Retail Price Index over an extended period. Nationwide is a United Kingdom building society and Halifax is a United Kingdom bank.
The United Kingdom housing market has been through various economic cycles in the recent past, with large year-to-year increases in the Housing Indices occurring in the late 1980s and large decreases occurring in the early 1990s.
S-42
The housing indices have generally increased since 1996.
| Retail Price Index | Nationwide House Price Index | Halifax House Price Index | ||||||||||
| Quarter | Index | % annual change1 | Index | % annual change1 | Index | % annual change1 | ||||||
| March 1981 | 280.4 | 11.96 | % | 47.3 | 4.54 | % | NA | NA | ||||
| June 1981 | 294.0 | 11.07 | % | 48.1 | 3.16 | % | NA | NA | ||||
| September 1981 | 299.1 | 10.67 | % | 48.3 | 2.34 | % | NA | NA | ||||
| December 1981 | 306.5 | 11.25 | % | 47.5 | 1.27 | % | NA | NA | ||||
| March 1982 | 311.6 | 10.55 | % | 48.2 | 1.87 | % | NA | NA | ||||
| June 1982 | 321.5 | 8.94 | % | 49.2 | 2.38 | % | NA | NA | ||||
| September 1982 | 323.0 | 7.68 | % | 49.8 | 3.18 | % | NA | NA | ||||
| December 1982 | 325.4 | 5.98 | % | 51.0 | 7.22 | % | NA | NA | ||||
| March 1983 | 327.0 | 4.84 | % | 52.5 | 8.45 | % | 95.9 | NA | ||||
| June 1983 | 333.7 | 3.71 | % | 54.6 | 10.41 | % | 99.9 | NA | ||||
| September 1983 | 338.0 | 4.54 | % | 56.2 | 12.08 | % | 102.2 | NA | ||||
| December 1983 | 341.8 | 4.93 | % | 57.1 | 11.24 | % | 102.4 | NA | ||||
| March 1984 | 343.9 | 5.03 | % | 59.2 | 12.05 | % | 102.9 | 7.05 | % | |||
| June 1984 | 350.9 | 5.02 | % | 61.5 | 11.85 | % | 106.5 | 6.40 | % | |||
| September 1984 | 353.9 | 4.61 | % | 62.3 | 10.37 | % | 109.2 | 6.62 | % | |||
| December 1984 | 358.3 | 4.72 | % | 64.9 | 12.83 | % | 111.0 | 8.06 | % | |||
| March 1985 | 362.9 | 5.37 | % | 66.2 | 11.23 | % | 112.2 | 8.65 | % | |||
| June 1985 | 375.3 | 6.73 | % | 68.2 | 10.29 | % | 115.9 | 8.46 | % | |||
| September 1985 | 376.3 | 6.13 | % | 69.2 | 10.46 | % | 117.6 | 7.41 | % | |||
| December 1985 | 378.1 | 5.38 | % | 70.7 | 8.52 | % | 120.7 | 8.38 | % | |||
| March 1986 | 380.8 | 4.82 | % | 71.1 | 7.11 | % | 122.5 | 8.78 | % | |||
| June 1986 | 385.7 | 2.73 | % | 73.8 | 7.99 | % | 128.6 | 10.40 | % | |||
| September 1986 | 386.1 | 2.58 | % | 76.3 | 9.74 | % | 133.1 | 12.38 | % | |||
| December 1986 | 391.0 | 3.35 | % | 79.0 | 11.09 | % | 136.9 | 12.59 | % | |||
| March 1987 | 100.3 | NA | 81.6 | 13.70 | % | 140.6 | 13.78 | % | ||||
| June 1987 | 101.9 | NA | 85.8 | 14.96 | % | 147.3 | 13.58 | % | ||||
| September 1987 | 102.1 | NA | 88.6 | 14.98 | % | 152.6 | 13.67 | % | ||||
| December 1987 | 103.2 | NA | 88.5 | 11.36 | % | 158.2 | 14.46 | % | ||||
| March 1988 | 103.7 | 3.33 | % | 90.0 | 9.80 | % | 164.9 | 15.94 | % | |||
| June 1988 | 106.2 | 4.13 | % | 97.6 | 12.95 | % | 180.2 | 20.16 | % | |||
| September 1988 | 107.7 | 5.34 | % | 108.4 | 20.15 | % | 198.9 | 26.50 | % | |||
| December 1988 | 109.9 | 6.29 | % | 114.2 | 25.51 | % | 212.0 | 29.27 | % | |||
| March 1989 | 111.7 | 7.43 | % | 118.8 | 27.79 | % | 217.8 | 27.82 | % | |||
| June 1989 | 114.9 | 7.87 | % | 124.2 | 24.06 | % | 226.8 | 23.00 | % | |||
| September 1989 | 116.0 | 7.42 | % | 125.2 | 14.42 | % | 227.3 | 13.35 | % | |||
| December 1989 | 118.3 | 7.37 | % | 122.7 | 7.16 | % | 222.8 | 4.97 | % | |||
| March 1990 | 120.4 | 7.50 | % | 118.9 | 0.09 | % | 220.7 | 1.32 | % | |||
| June 1990 | 126.0 | 9.22 | % | 117.7 | -5.38 | % | 224.3 | -1.11 | % | |||
| September 1990 | 128.1 | 9.92 | % | 114.2 | -9.23 | % | 224.2 | -1.37 | % | |||
| December 1990 | 130.1 | 9.51 | % | 109.6 | -11.31 | % | 222.9 | 0.04 | % | |||
| March 1991 | 130.8 | 8.28 | % | 108.8 | -8.84 | % | 220.2 | -0.23 | % | |||
| June 1991 | 133.6 | 5.86 | % | 110.6 | -6.23 | % | 223.2 | -0.49 | % | |||
| September 1991 | 134.2 | 4.65 | % | 109.5 | -4.18 | % | 220.8 | -1.53 | % | |||
| December 1991 | 135.5 | 4.07 | % | 107.0 | -2.37 | % | 217.5 | -2.45 | % | |||
| March 1992 | 136.2 | 4.05 | % | 104.1 | -4.42 | % | 210.6 | -4.46 | % | |||
| June 1992 | 139.1 | 4.03 | % | 105.1 | -5.10 | % | 210.4 | -5.91 | % | |||
| September 1992 | 139.0 | 3.51 | % | 104.2 | -4.97 | % | 208.4 | -5.78 | % | |||
| December 1992 | 139.6 | 2.98 | % | 100.1 | -6.68 | % | 199.3 | -8.74 | % | |||
| March 1993 | 138.7 | 1.82 | % | 100.0 | -4.02 | % | 196.9 | -6.73 | % | |||
| June 1993 | 140.9 | 1.29 | % | 103.6 | -1.42 | % | 203.2 | -3.48 | % | |||
| September 1993 | 141.3 | 1.64 | % | 103.2 | -0.96 | % | 204.2 | -2.04 | % | |||
| December 1993 | 141.8 | 1.56 | % | 101.8 | 1.74 | % | 202.5 | 1.59 | % | |||
| March 1994 | 142.0 | 2.35 | % | 102.4 | 2.36 | % | 202.3 | 2.71 | % | |||
| June 1994 | 144.5 | 2.52 | % | 102.5 | -1.08 | % | 204.3 | 0.54 | % | |||
| September 1994 | 144.6 | 2.31 | % | 103.2 | -0.03 | % | 204.3 | 0.05 | % | |||
| December 1994 | 145.5 | 2.58 | % | 104.0 | 2.06 | % | 200.9 | -0.79 | % | |||
| March 1995 | 146.8 | 3.32 | % | 101.9 | -0.47 | % | 200.3 | -0.99 | % | |||
| June 1995 | 149.5 | 3.40 | % | 103.0 | 0.53 | % | 201.0 | -1.63 | % | |||
S-43
| Retail Price Index | Nationwide House Price Index | Halifax House Price Index | ||||||||||
| Quarter | Index | % annual change1 | Index | % annual change1 | Index | % annual change1 | ||||||
September 1995 | 149.9 | 3.60 | % | 102.4 | -0.77 | % | 199.0 | -2.63 | % | |||
| December 1995 | 150.1 | 3.11 | % | 101.6 | -2.30 | % | 197.8 | -1.56 | % | |||
| March 1996 | 150.9 | 2.75 | % | 102.5 | 0.55 | % | 200.9 | 0.30 | % | |||
| June 1996 | 152.8 | 2.18 | % | 105.8 | 2.67 | % | 208.6 | 3.71 | % | |||
| September 1996 | 153.1 | 2.11 | % | 107.7 | 5.08 | % | 209.8 | 5.28 | % | |||
| December 1996 | 154.0 | 2.57 | % | 110.1 | 8.00 | % | 212.6 | 7.22 | % | |||
| March 1997 | 154.9 | 2.62 | % | 111.3 | 8.30 | % | 215.3 | 6.92 | % | |||
| June 1997 | 156.9 | 2.65 | % | 116.5 | 9.65 | % | 222.6 | 6.50 | % | |||
| September 1997 | 158.4 | 3.40 | % | 121.2 | 11.77 | % | 223.6 | 6.37 | % | |||
| December 1997 | 159.7 | 3.63 | % | 123.3 | 11.40 | % | 224.0 | 5.22 | % | |||
| March 1998 | 160.2 | 3.36 | % | 125.5 | 11.96 | % | 226.4 | 5.03 | % | |||
| June 1998 | 163.2 | 3.94 | % | 130.1 | 11.04 | % | 234.9 | 5.38 | % | |||
| September 1998 | 163.7 | 3.29 | % | 132.4 | 8.84 | % | 236.1 | 5.44 | % | |||
| December 1998 | 164.4 | 2.90 | % | 132.3 | 7.00 | % | 236.3 | 5.35 | % | |||
| March 1999 | 163.7 | 2.16 | % | 134.6 | 7.02 | % | 236.3 | 4.28 | % | |||
| June 1999 | 165.5 | 1.40 | % | 139.7 | 7.09 | % | 247.7 | 5.31 | % | |||
| September 1999 | 165.6 | 1.15 | % | 144.4 | 8.65 | % | 256.7 | 8.37 | % | |||
| December 1999 | 166.8 | 1.45 | % | 148.9 | 11.83 | % | 263.4 | 10.86 | % | |||
| March 2000 | 167.5 | 2.29 | % | 155.0 | 14.10 | % | 270.5 | 13.52 | % | |||
| June 2000 | 170.6 | 3.04 | % | 162.0 | 14.83 | % | 275.6 | 10.67 | % | |||
| September 2000 | 170.9 | 3.15 | % | 161.5 | 11.20 | % | 277.6 | 7.83 | % | |||
| December 2000 | 172.0 | 3.07 | % | 162.8 | 8.95 | % | 278.3 | 5.50 | % | |||
| March 2001 | 171.8 | 2.53 | % | 167.5 | 7.77 | % | 279.0 | 3.09 | % | |||
| June 2001 | 173.9 | 1.92 | % | 174.8 | 7.63 | % | 297.0 | 7.48 | % | |||
| September 2001 | 174.0 | 1.80 | % | 181.6 | 11.77 | % | 305.0 | 9.41 | % | |||
| December 2001 | 173.8 | 1.04 | % | 184.6 | 12.54 | % | 310.9 | 11.08 | % | |||
| March 2002 | 173.9 | 1.21 | % | 190.2 | 12.71 | % | 324.3 | 15.05 | % | |||
| June 2002 | 176.0 | 1.20 | % | 206.5 | 16.64 | % | 346.6 | 15.44 | % | |||
| September 2002 | 176.6 | 1.48 | % | 221.1 | 19.66 | % | 369.1 | 19.08 | % | |||
| December 2002 | 178.2 | 2.50 | % | 231.3 | 22.55 | % | 393.0 | 23.43 | % | |||
| March 2003 | 179.2 | 3.00 | % | 239.3 | 22.94 | % | 400.1 | 21.00 | % | |||
| June 2003 | 181.3 | 2.97 | % | 250.1 | 19.18 | % | 422.5 | 19.80 | % | |||
| September 2003 | 181.8 | 2.90 | % | 258.9 | 15.77 | % | 437.6 | 17.02 | % | |||
| December 2003 | 182.9 | 2.60 | % | 267.1 | 14.40 | % | 453.5 | 14.32 | % | |||
| March 2004 | 183.8 | 2.53 | % | 277.3 | 14.77 | % | 474.0 | 16.95 | % | |||
| June 2004 | 186.3 | 2.72 | % | 296.2 | 16.90 | % | 513.2 | 19.45 | % | |||
| September 2004 | 187.4 | 3.03 | % | 306.2 | 16.79 | % | 527.2 | 18.63 | % | |||
| December 2004 | 189.2 | 3.39 | % | 304.1 | 12.98 | % | 522.0 | 14.07 | % | |||
| March 2005 | 189.7 | 3.16 | % | 304.8 | 9.44 | % | 520.2 | 9.30 | % | |||
| June 2005 | 191.9 | 2.96 | % | 314.2 | 5.91 | % | 532.1 | 3.62 | % | |||
| September 2005 | 192.6 | 2.74 | % | 314.4 | 2.67 | % | 543.1 | 2.97 | % | |||
| December 2005 | 193.7 | 2.35 | % | 314.0 | 3.18 | % | 548.4 | 4.93 | % | |||
| March 2006 | 194.2 | 2.34 | % | 319.8 | 4.81 | % | 552.6 | 6.04 | % | |||
| June 2006 | 197.6 | 2.93 | % | 329.2 | 4.68 | % | 582.1 | 8.98 | % | |||
| September 2006 | 199.3 | 3.42 | % | 336.1 | 6.65 | % | 586.7 | 7.72 | % | |||
| December 2006 | 201.4 | 3.90 | % | 343.2 | 8.92 | % | 602.8 | 9.46 | % | |||
| March 2007 | 203.0 | 4.43 | % | 350.2 | 9.08 | % | 613.9 | 10.52 | % | |||
| Source: Office of National Statistics, Council of Mortgage Lenders and Halifax Bank of Scotland. “NA” indicates that the relevant figure is not available. |
| 1 | The percentage annual change is calculated in accordance with the following formula: |
| Ln (x/y) where “x” is equal to the current quarter’s index value and “y” is equal to the index value of the previous year’s corresponding quarter. |
All information contained in this prospectus supplement in respect of the Nationwide House Price Index has been accurately reproduced from information published by Nationwide Building Society. All information contained in this prospectus supplement in respect of the Halifax House Price Index has been accurately reproduced from information published by HBOS plc. So far as the issuing entity is aware and is able to ascertain from information published by Nationwide Building Society and HBOS plc respectively, no facts have been omitted which would render the reproduced information inaccurate or misleading.
S-44
Note, however, that the issuing entity has not participated in the preparation of the information in this section entitled “Characteristics of the United Kingdom residential mortgage market” nor made any enquiry with respect to such information. Neither the issuing entity nor Nationwide Building Society nor HBOS plc makes any representation as to the accuracy of the information in this section entitled “Characteristics of United Kingdom residential mortgage market” or has any liability whatsoever to you in connection with such information. Anyone relying on such information does so at their own risk.
S-45
| Notes issued by issuing entity and term advances advanced by issuing entity to Funding in connection therewith |
The information provided in this Annex B constitutes an integral part of this prospectus supplement and is incorporated by reference into this prospectus supplement.
As at the closing date, the aggregate principal amount outstanding of notes issued by the issuing entity (converted, where applicable, into sterling at the applicable specified currency exchange rate), including the offered notes described herein, will be:
| class A notes | £[•] | |
| class B notes | £[•] | |
| class M notes | £[•] | |
| class C notes | £[•] |
As at the closing date, the aggregate outstanding principal balance of term advances advanced by the issuing entity to Funding under the master intercompany loan agreement, including the term advances described herein, will be:
| AAA Term Advances | £[•] | |
| AA Term Advances | £[•] | |
| A Term Advances | £[•] | |
| BBB Term Advances | £[•] |
S-46
Previous start-up loans to Funding
The following start-up loans have been made available to Funding by Abbey (in its capacity as the start-up loan provider) in connection with the issues of previous notes, by the issuing entity and previous issuing entities set out below, for the stated current outstanding principal balance.
| Issuing entity | Current outstanding principal balance | ||
| Holmes Financing (No.1) PLC | £0 | ||
| Holmes Financing (No.2) PLC | £0 | ||
| Holmes Financing (No.3) PLC | £0 | ||
| Holmes Financing (No.4) PLC | £0 | ||
| Holmes Financing (No.5) PLC | £0 | ||
| Holmes Financing (No.6) PLC | £0 | ||
| Holmes Financing (No.7) PLC | £0 | ||
| Holmes Financing (No.8) PLC | £0 | ||
| Holmes Financing (No.9) PLC | £0 | ||
| Holmes Financing (No.10) PLC | £0 | ||
| Holmes Master Issuer PLC (in respect of the issue 2006-1 notes) | £0 | ||
| Holmes Master Issuer PLC (in respect of the issue 2007-1 notes) | £77,000,000 |
S-47
| Description of the previous issuing entities, the previous notes and the previous intercompany loans |
The previous issuing entities, Holmes Financing (No. 1) PLC, Holmes Financing (No. 2) PLC, Holmes Financing (No. 3) PLC, Holmes Financing (No. 4) PLC, Holmes Financing (No. 5) PLC, Holmes Financing (No. 6) PLC, Holmes Financing (No. 7) PLC, Holmes Financing (No. 8) PLC, Holmes Financing (No. 9) PLC and Holmes Financing (No. 10) PLC are each a public limited company incorporated in England and Wales. The registered office of each previous issuing entity is Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN. The contact telephone number for the previous issuing entities is +44 (0) 870 607 6000. Each of the previous issuing entities is a special purpose company whose purpose is to have issued the previous notes that represent their respective residential mortgage-backed obligations and to have lent an amount equal to the proceeds of the previous notes to Funding under their respective previous intercompany loans. Each of the previous issuing entities does not engage in any activities that are unrelated to these purposes.
The seller has been appointed as the cash manager for each of the previous issuing entities to manage its bank accounts, to determine the amounts of and arrange payments of monies to be made by it and keep certain records on its behalf. The seller has also been appointed as an account bank for each of the previous issuing entities to provide banking services to it.
The following tables summarise the principal features of the previous notes. In each table, references to previousnotes are references to the previous notes issued by the relevant previous issuing entity and the issuing entity, previous notes of which are described in that table. Where a series and class of previous notes has been redeemed in full, the table indicates such redemption by an asterisk (“*”) next to the relevant series and class of previous notes.
S-48
| Class of previous notes issued by Holmes Financing (No. 1) PLC | ||||||||||||
| Series 1 class A* | Series 1 class B* | Series 1 class C* | Series 2 class A* | Series 2 class B* | Series 2 class C* | |||||||
| Principal amount: | $900,000,000 | $31,500,000 | $42,000,000 | $975,000,000 | $34,500,000 | $45,000,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||||
| Interest rate: | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD- LIBOR + margin | ||||||
| Margin: | 0.14% p.a. | 0.38% p.a. | 1.03% p.a. | 0.19% p.a. | 0.41% p.a. | 1.15% p.a. | ||||||
| Until interest payment date falling in: | July 2010 | July 2010 | July 2010 | July 2010 | July 2010 | July 2010 | ||||||
| And thereafter: | N/A | 1.38% p.a. | 2.03% p.a. | N/A | 1.41% p.a. | 2.15% p.a. | ||||||
| Scheduled redemption date: | July 2003 | N/A | N/A | July 2005 | N/A | N/A | ||||||
| Outstanding balance at last payment date: | Nil | Nil | Nil | Nil | Nil | Nil | ||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | ||||||
| Interest payment dates: | Quarterly in arrear on the interest payment dates falling in January, April, July and October of each year | |||||||||||
| First interest payment date: | October 2000 | October 2000 | October 2000 | October 2000 | October 2000 | October 2000 | ||||||
| Final maturity date: | July 2005 | July 2040 | July 2040 | July 2007 | July 2040 | July 2040 | ||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||||
| Ratings as at date of issue (S&P/Moody’s/ Fitch): | AAA/Aaa /AAA | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||||
| Current ratings (where relevant)(S&P/Moody’s/Fitch): | N/A | N/A | N/A | N/A | N/A | N/A | ||||||
S-49
| Class of previous notes issued by Holmes Financing (No. 1) PLC | ||||||||||||||
| Series 3 class A1 | Series 3 class A2 | Series 3 class B | Series 3 class C | Series 4 class A | Series 4 class B | Series 4 class C | ||||||||
| Principal amount: | £375,000,000 | €320,000,000 | £24,000,000 | £30,000,000 | £250,000,000 | £11,000,000 | £14,000,000 | |||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | |||||||
| Interest rate: | Three-month sterling LIBOR + margin | Three-month EURIBOR + margin | Three-month sterling LIBOR + margin | Three-month sterling LIBOR + margin | 6.62% p.a. until the interest payment date in July 2010 and then three-month sterling LIBOR + margin | Three-month sterling LIBOR + margin | Three-month sterling LIBOR + margin | |||||||
| Margin: | 0.26% p.a. | 0.26% p.a. | 0.45% p.a. | 1.60% p.a. | N/A | 0.62% p.a. | 1.75% p.a. | |||||||
| Until interest payment date falling in: | July 2010 | July 2010 | July 2010 | July 2010 | July 2010 | July 2010 | July 2010 | |||||||
| And thereafter: | N/A | N/A | 1.45% p.a. | 2.60% p.a. | 1.25% p.a. | 1.62% p.a. | 2.75% p.a. | |||||||
| Scheduled redemption date: | July 2007 | July 2007 | N/A | N/A | July 2010 | N/A | N/A | |||||||
| Outstanding balance at last payment date: | £375,000,000 | €320,000,000 | £24,000,000 | £30,000,000 | £250,000,000 | £11,000,000 | £14,000,000 | |||||||
| Interest accrual method: | Actual/365 | Actual/360 | Actual/365 | Actual/365 | Actual/365 | Actual/365 | Actual/365 | |||||||
| Interest payment dates: | For the series 3 previous notes, the series 4 class B previous notes and the series 4 class C previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. For the series 4 class A previous notes, until (and including) the interest payment in July 2010, interest will be paid semi-annually in arrear on the 15th day in January and July of each year (subject to payment being made on business days). If a trigger event occurs or the Financing security is enforced prior to the interest payment date in July, 2010, principal amounts due and payable on the series 4 class A previous notes will be paid quarterly on the interest payment dates falling in January, April, July and October of each year. After the interest payment date in July, 2010 interest and principal on the series 4 class A previous notes will be paid quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||||||||
| First interest payment date: | October 2000 | October 2000 | October 2000 | October 2000 | January 2001 | October 2000 | October 2000 | |||||||
| Final maturity date: | July 2010 | July 2010 | July 2040 | July 2040 | July 2013 | July 2040 | July 2040 | |||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | |||||||
| Ratings as at date of issue (S&P/ Moody’s/Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | |||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | |||||||
S-50
| Class of previous notes issued by Holmes Financing (No. 2) PLC | ||||||||||||
| Series 1 class A* | Series 1 class B* | Series 1 class C* | Series 2 class A* | Series 2 class B* | Series 2 class C* | |||||||
| Principal amount: | $1,000,000,000 | $37,000,000 | $49,000,000 | $1,000,000,000 | $37,000,000 | $49,000,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||||
| Interest rate: | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | ||||||
| Margin: | 0.09% p.a. | 0.35% p.a. | 1.20% p.a. | 0.18% p.a. | 0.44% p.a. | 1.35% p.a. | ||||||
| Until interest payment date falling in: | October 2007 | October 2007 | October 2007 | October 2007 | October 2007 | October 2007 | ||||||
| And thereafter: | N/A | 1.35% p.a. | 2.20% p.a. | 0.36% p.a. | 1.44% p.a. | 2.35% p.a. | ||||||
| Scheduled redemption date: | July 2002 | N/A | N/A | October 2003, January 2004, April 2004 and July 2004 | N/A | N/A | ||||||
| Outstanding balance at last payment date: | Nil | Nil | Nil | Nil | Nil | Nil | ||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | ||||||
| Interest payment dates: | Quarterly in arrear on the interest payment dates falling in January, April, July and October of each year | |||||||||||
| First interest payment date: | 16 January, 2001 | 16 January, 2001 | 16 January, 2001 | 16 January, 2001 | 16 January, 2001 | 16 January, 2001 | ||||||
| Final maturity date: | July 2004 | July 2040 | July 2040 | July 2017 | July 2040 | July 2040 | ||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | N/A | N/A | N/A | ||||||
S-51
| Class of previous notes issued by Holmes Financing (No. 2) PLC | ||||||||||||
| Series 3 class A* | Series 3 class B* | Series 3 class C* | Series 4 class A | Series 4 class B | Series 4 class C | |||||||
| Principal amount: | £500,000,000 | £19,000,000 | £25,000,000 | €500,000,000 | €21,000,000 | €35,000,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||||
| Interest rate: | Three-month sterling LIBOR + margin | Three-month sterling LIBOR + margin | Three-month sterling LIBOR + margin | Three-month EURIBOR + margin | Three-month EURIBOR + margin | Three-month EURIBOR + margin | ||||||
| Margin: | 0.24% p.a. | 0.45% p.a. | 1.50% p.a. | 0.27% p.a. | 0.50% p.a. | 1.60% p.a. | ||||||
| Until interest payment date falling in: | October 2007 | October 2007 | October 2007 | October 2007 | October 2007 | October 2007 | ||||||
| And thereafter: | 0.48% p.a. | 1.45% p.a. | 2.50% p.a. | 0.54% p.a. | 1.50% p.a. | 2.60% p.a. | ||||||
| Scheduled redemption date: | October 2005, January 2006, April 2006 and July 2006 | N/A | N/A | N/A | N/A | N/A | ||||||
| Outstanding balance at last payment date: | Nil | Nil | Nil | €500,000,000 | €21,000,000 | €35,000,000 | ||||||
| Interest accrual method: | Actual/365 | Actual/365 | Actual/365 | Actual/360 | Actual/360 | Actual/360 | ||||||
| Interest payment dates: | Quarterly in arrear on the interest payment dates falling in January, April, July and October of each year | |||||||||||
| First interest payment date: | 16 January, 2001 | 16 January, 2001 | 16 January, 2001 | 16 January, 2001 | 16 January, 2001 | 16 January, 2001 | ||||||
| Final maturity date: | July 2023 | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | ||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||||
| Ratings as at date of issue (S&P/Moody’s/Fitch) | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||||
S-52
| Class of previous notes issued by Holmes Financing (No. 3) PLC | ||||||||||||
| Series 1 class A* | Series 1 class B* | Series 1 class C* | Series 2 class A* | Series 2 class B* | Series 2 class C* | |||||||
| Principal amount: | $1,060,000,000 | $32,500,000 | $53,000,000 | $1,060,000,000 | $32,500,000 | $53,000,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||||
| Interest rate: | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | ||||||
| Margin: | 0.12% p.a. | 0.35% p.a. | 1.20% p.a. | 0.16% p.a. | 0.40% p.a. | 1.27% p.a. | ||||||
| Until interest payment date falling in: | July 2006 | July 2006 | July 2006 | July 2006 | July 2006 | July 2006 | ||||||
| And thereafter: | N/A | 0.70% p.a. | 2.20% p.a. | 0.16% p.a. | 0.80% p.a. | 2.27% p.a. | ||||||
| Scheduled redemption date: | January 2003 | N/A | N/A | January 2005 | N/A | N/A | ||||||
| Outstanding balance at last payment date: | Nil | Nil | Nil | Nil | Nil | Nil | ||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | ||||||
| Interest payment dates: | Quarterly in arrear on the interest payment dates falling in January, April, July and October of each year | |||||||||||
| First interest payment date: | 16 July, 2001 | 16 July, 2001 | 16 July, 2001 | 16 July, 2001 | 16 July, 2001 | 16 July, 2001 | ||||||
| Final maturity date: | January 2005 | July 2040 | July 2040 | January 2007 | July 2040 | July 2040 | ||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||||
| Ratings as at date of issue (S&P/ Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | N/A | N/A | N/A | ||||||
S-53
| Class of previous notes issued by Holmes Financing (No. 3) PLC | ||||||
| Series 3 class A* | Series 3 class B* | Series 3 class C* | ||||
| Principal amount: | €805,000,000 | €24,000,000 | €50,000,000 | |||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | |||
| Interest rate: | Three-month EURIBOR + margin | Three-month EURIBOR + margin | Three-month EURIBOR + margin | |||
| Margin: | 0.24% p.a. | 0.40% p.a. | 1.50% p.a. | |||
| Until interest payment date falling in: | July 2006 | July 2006 | July 2006 | |||
| And thereafter: | 0.48% p.a. | 0.80% p.a. | 2.50% p.a. | |||
| Scheduled redemption date: | N/A | N/A | N/A | |||
| Outstanding balance at last payment date: | Nil | Nil | Nil | |||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | |||
| Interest payment dates: | Quarterly in arrear on the interest payment dates falling in January, April, July and October of each year | |||||
| First interest payment date: | 16 July, 2001 | 16 July, 2001 | 16 July, 2001 | |||
| Final maturity date: | July 2040 | July 2040 | July 2040 | |||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | |||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | |||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | |||
S-54
| Class of previous notes issued by Holmes Financing (No. 4) PLC | ||||||||||||
| Series 1 class A* | Series 1 class B* | Series 1 class C* | Series 2 class A* | Series 2 class B* | Series 2 class C* | |||||||
| Principal amount: | $1,050,000,000 | $36,500,000 | $54,500,000 | €800,000,000 | €35,800,000 | €53,800,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes and the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, and the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes and the class D notes and the reserve funds | Subordination of the class M notes, the class C notes and the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||||
| Interest rate: | Three-month USD- LIBOR + margin | Three-month USD- LIBOR + margin | Three-month USD- LIBOR + margin | 5.05% until the interest payment date in July 2006 and then three-month EURIBOR + margin | Three-month EURIBOR + margin | Three-month EURIBOR + margin | ||||||
| Margin: | 0.19% p.a. | 0.39% p.a. | 1.20% p.a. | N/A | 0.40% p.a. | 1.45% p.a. | ||||||
| Until interest payment date falling in: | July 2006 | July 2006 | July 2006 | July 2006 | July 2006 | July 2006 | ||||||
| And thereafter: | 0.38% p.a. | 0.78% p.a. | 2.20% p.a. | 0.48% p.a. | 0.80% p.a. | 2.45% p.a. | ||||||
| Scheduled redemption date(s): | October 2003, January 2004, April 2004, July 2004 | N/A | N/A | July 2006 | N/A | N/A | ||||||
| Outstanding balance at last payment date: | Nil | Nil | Nil | Nil | Nil | Nil | ||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/Actual (ISMA) until the interest payment date in July 2006 and then Actual/360 | Actual/360 | Actual/360 | ||||||
| Interest payment dates: | For all of these previous notes (other than the series 2 class A previous notes), quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. For the series 2 class A previous notes, until (and including) the interest payment date falling in July 2006, interest will be payable annually in arrear on the 15th day in July of each year (subject to payment being made on business days). If a trigger event occurs or the previous Financing security is enforced prior to the interest payment date falling in July 2006, principal and interest amounts due and payable on the series 2 class A previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. After the interest payment date falling in July 2006, interest and principal on the series 2 class A previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||||||
| First interest payment date: | 15 October, 2001 | 15 October, 2001 | 15 October, 2001 | 15 July, 2002 | 15 October, 2001 | 15 October, 2001 | ||||||
| Final maturity date: | July 2015 | July 2040 | July 2040 | July 2008 | July 2040 | July 2040 | ||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | N/A | N/A | N/A | ||||||
S-55
| Class of previous notes issued by Holmes Financing (No. 4) PLC | ||||||||||||||
| Series 3 class A1* | Series 3 class A2* | Series 3 class B* | Series 3 class C* | Series 3 class D1* | Series 3 class D2* | Series 3 class D3* | ||||||||
| Principal amount: | £550,000,000 | $410,000,000 | $34,500,000 | $49,500,000 | £30,000,000 | €27,000,000 | $5,000,000 | |||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes and the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes and the class D notes and the reserve funds | Subordination of the class M notes, the class C notes and the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | The reserve funds | The reserve funds | The reserve funds | |||||||
| Interest rate: | Three-month sterling LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month sterling LIBOR + margin | Three-month EURIBOR + margin | Three-month USD-LIBOR + margin | |||||||
| Margin: | 0.23% p.a. | 0.23% p.a. | 0.44% p.a. | 1.30% p.a. | 4.75% p.a. | 4.50% p.a. | 4.50% p.a. | |||||||
| Until interest payment date falling in: | July 2006 | July 2006 | July 2006 | July 2006 | July 2006 | July 2006 | July 2006 | |||||||
| And thereafter: | 0.46% p.a. | 0.46% p.a. | 0.88% p.a. | 2.30% p.a. | 5.75% p.a. | 5.50% p.a. | 5.50% p.a. | |||||||
| Scheduled redemption date: | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||||||
| Outstanding balance at last payment date: | Nil | Nil | Nil | Nil | Nil | Nil | Nil | |||||||
| Interest accrual method: | Actual/365 | Actual/360 | Actual/360 | Actual/360 | Actual/365 | Actual/360 | Actual/360 | |||||||
| Interest payment dates: | For all of these previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year | |||||||||||||
| First interest payment date: | 15 October, 2001 | 15 October, 2001 | 15 October, 2001 | 15 October, 2001 | 15 October, 2001 | 15 October, 2001 | 15 October, 2001 | |||||||
| Final maturity date: | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | |||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | |||||||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | BB/Ba2/BB | BB/Ba2/BB | BB/Ba2/BB | |||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||||||
S-56
| Class of previous notes issued by Holmes Financing (No. 4) PLC | ||||||
| Series 4 class A* | Series 4 class B* | Series 4 class C* | ||||
| Principal amount: | CHF850,000,000 | £11,000,000 | £19,000,000 | |||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes and the class D notes and the reserve funds | Subordination of the class M notes, the class C notes and the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | |||
| Interest rate: | 3.50% until the interest payment date in October 2006 and then three-month CHF-LIBOR + margin | Three-month sterling LIBOR + margin | Three-month sterling LIBOR + margin | |||
| Margin: | N/A | 0.43% p.a. | 1.50% p.a. | |||
| Until interest payment date falling in: | October 2006 | October 2006 | October 2006 | |||
| And thereafter: | 0.36% p.a. | 0.86% p.a. | 2.50% p.a. | |||
| Scheduled redemption date: | October 2006 | N/A | N/A | |||
| Outstanding balance at last payment date: | Nil | Nil | Nil | |||
| Interest accrual method: | 30/360 until the interest payment date in October 2006 and then Actual/360 | Actual/365 | Actual/365 | |||
| Interest payment dates: | For all of these previous notes (other than the series 4 class A previous notes), quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. For the series 4 class A previous notes, until (and including) the interest payment date falling in October 2006, interest will be payable annually in arrear on the 15th day in October of each year (subject to payment being made on business days). If a trigger event occurs or the Financing security is enforced prior to the interest payment date falling in October 2006, principal and interest amounts due and payable on the series 4 class A previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. After the interest payment date falling in October 2006, interest and principal on the series 4 class A previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||
| First interest payment date: | 15 October, 2001 | 15 October, 2001 | 15 October, 2001 | |||
| Final maturity date: | October 2009 | July 2040 | July 2040 | |||
| Listing: | SWX Swiss Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | |||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | |||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | |||
S-57
| Class of previous notes issued by Holmes Financing (No. 5) PLC | ||||||||||||
| Series 1 class A* | Series 1 class B* | Series 1 class C* | Series 2 class A1* | Series 2 class A2* | Series 2 class B* | |||||||
| Principal amount: | $1,000,000,000 | $35,000,000 | $52,000,000 | $750,000,000 | CHF400,000,000 | $35,000,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | ||||||
| Interest rate: | One-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | 2.5% p.a. until the interest payment date in October 2004 and then three-month CHF LIBOR + margin | Three-month USD-LIBOR + margin | ||||||
| Margin: | 0.01% p.a. | 0.35% p.a. | 1.35% p.a. | 0.20% p.a. | N/A | 0.43% p.a. | ||||||
| Until interest payment date falling in: | October 2002 | October 2006 | October 2006 | October 2006 | October 2004 | October 2006 | ||||||
| And thereafter: | N/A | 0.70% p.a. | 2.35% p.a. | N/A | 0.22% p.a. | 0.86% p.a. | ||||||
| Scheduled redemption date(s): | July 2002 and October 2002 | N/A | N/A | October 2004 | October 2004 | N/A | ||||||
| Outstanding balance at last payment date: | Nil | Nil | Nil | Nil | Nil | Nil | ||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/360 | 30/360 until the interest payment date in October 2004 and then Actual/360 | Actual/360 | ||||||
| Interest payment dates: | For the series 1 class A previous notes, monthly in arrear on the interest payment date falling in each consecutive month. For the other series 1 previous notes and for all of the series 2 previous notes (other than the series 2 class A2 previous notes), quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. For the series 2 class A2 previous notes, until (and including) the interest payment date falling in October 2004, interest will be payable annually in arrear on the 15th day in October of each year (subject to payment being made on business days). If a trigger event occurs or the previous Financing security is enforced prior to the interest payment date falling in October 2002, interest and principal due and payable on the series 1 class A previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October in 2002, as applicable. If a trigger event occurs or the previous Financing security is enforced prior to the interest payment date falling in October 2004, interest and principal due and payable on the series 2 class A2 previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. After the interest payment date falling in October 2004, interest and principal on the series 2 class A2 previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||||||
| First interest payment date: | 17 December, 2001 | 15 January, 2002 | 15 January, 2002 | 15 January, 2002 | 15 October, 2002 | 15 January, 2002 | ||||||
| Final maturity date: | October 2002 | July 2040 | July 2040 | October 2006 | October 2006 | July 2040 | ||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | SWX Swiss Exchange | UK Listing Authority and London Stock Exchange | ||||||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | A-1+/P-1/F1+ | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | ||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | N/A | N/A | N/A | ||||||
S-58
| Class of previous notes issued by Holmes Financing (No. 5) PLC | ||||||||||
| Series 2 class C* | Series 3 class A1* | Series 3 class A2* | Series 3 class B* | Series 3 class C* | ||||||
| Principal amount: | $52,000,000 | €600,000,000 | £500,000,000 | €53,000,000 | €76,000,000 | |||||
| Credit enhancement: | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | |||||
| Interest rate: | Three-month USD-LIBOR + margin | 4.25% p.a. until the interest payment date in October 2006 and then three-month EURIBOR + margin | Three-month sterling LIBOR + margin | Three-month EURIBOR + margin | Three-month EURIBOR + margin | |||||
| Margin: | 1.45% p.a. | N/A | 0.23% p.a. | 0.40% p.a. | 1.47% p.a. | |||||
| Until interest payment date falling in: | October 2006 | October 2006 | October 2006 | October 2006 | October 2006 | |||||
| And thereafter: | 2.45% p.a. | 0.42% p.a. | 0.46% p.a. | 0.80% p.a. | 2.47% p.a. | |||||
| Scheduled redemption date(s): | N/A | October 2006 | N/A | N/A | N/A | |||||
| Outstanding balance at last payment date: | Nil | Nil | Nil | Nil | Nil | |||||
| Interest accrual method: | Actual/360 | Actual/Actual (ISMA) until the interest payment date in October 2006 and then Actual/360 | Actual/365 | Actual/360 | Actual/360 | |||||
| Interest payment dates: | For all of the series 3 previous notes (other than the series 3 class A1 previous notes), quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. For the series 3 class A1 previous notes, until (and including) the interest payment date in October 2006, interest will be payable annually in arrear on the 15th day in October of each year (subject to payment being made on business days). If a trigger event occurs or the previous Financing security is enforced prior to the interest payment date in October 2006, interest and principal due and payable on the series 3 class A1 previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. After the interest payment date falling in October 2006, interest and principal on the series 3 class A1 previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||||
| First interest payment date: | 15 January, 2002 | 15 October, 2002 | 15 January, 2002 | 15 January, 2002 | 15 January, 2002 | |||||
| Final maturity date: | July 2040 | October 2008 | July 2040 | July 2040 | July 2040 | |||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | |||||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | BBB/Baa2/BBB | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | |||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | N/A | N/A | |||||
S-59
| Class of previous notes issued by Holmes Financing (No. 6) PLC | ||||||||||||
| Series 1 class A* | Series 1 class B* | Series 1 class C* | Series 2 class A* | Series 2 class B* | Series 2 class C* | |||||||
| Principal amount: | $1,500,000,000 | $50,000,000 | $86,000,000 | $1,250,000,000 | $42,000,000 | $71,000,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||||
| Interest rate: | One-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | ||||||
| Margin: | 0.00% p.a. | 0.375% p.a. | 1.35% p.a. | 0.17% p.a. | 0.41% p.a. | 1.45% p.a. | ||||||
| Until interest payment date falling in: | October 2003 | April 2008 | April 2008 | April 2008 | April 2008 | April 2008 | ||||||
| And thereafter: | N/A | 0.75% p.a. | 2.35% p.a. | N/A | 0.82% p.a. | 2.45% p.a. | ||||||
| Scheduled redemption date(s): | July 2003 and October 2003 | N/A | N/A | April 2005 | N/A | N/A | ||||||
| Outstanding balance at last payment date: | Nil | Nil | Nil | Nil | Nil | Nil | ||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | ||||||
| Interest payment dates: | For the series 1 class A previous notes, monthly in arrear on the interest payment date falling in each consecutive month. For the other series 1 Financing notes and for all of the series 2 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. If a trigger event occurs or the Financing security is enforced prior to the interest payment date falling in October 2003, interest and principal due and payable on the series 1 class A previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October, as applicable. | |||||||||||
| First interest payment date: | 15 December, 2002 | 15 January, 2003 | 15 January, 2003 | 15 January, 2003 | 15 January, 2003 | 15 January, 2003 | ||||||
| Final maturity date: | October 2003 | July 2040 | July 2040 | April 2008 | July 2040 | July 2040 | ||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | A-1+/P-1/F1+ | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | N/A | N/A | N/A | ||||||
S-60
| Class of previous notes issued by Holmes Financing (No. 6) PLC | ||||||
| Series 3 class A* | Series 3 class B | Series 3 class C | ||||
| Principal amount: | €1,000,000,000 | €34,000,000 | €57,000,000 | |||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | |||
| Interest rate: | Three-month EURIBOR + margin | Three-month EURIBOR + margin | Three-month EURIBOR + margin | |||
| Margin: | 0.24% p.a. | 0.50% p.a. | 1.50% p.a. | |||
| Until interest payment date falling in: | April 2008 | April 2008 | April 2008 | |||
| And thereafter: | 0.48% p.a. | 1.00% p.a. | 2.50% p.a. | |||
| Scheduled redemption date(s): | April 2007 | N/A | N/A | |||
| Outstanding balance at last payment date: | Nil | €34,000,000 | €57,000,000 | |||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | |||
| Interest payment dates: | For all of the series 3 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||
| First interest payment date: | 15 January 2003 | 15 January, 2003 | 15 January, 2003 | |||
| Final maturity date: | October 2009 | July 2040 | July 2040 | |||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | |||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | |||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | AA/Aa3/AA | BBB/Baa2/BBB | |||
S-61
| Class of previous notes issued by Holmes Financing (No. 6) PLC | ||||||||
| Series 4 class A1 | Series 4 class A2 | Series 4 class B | Series 4 class C | |||||
| Principal amount: | $1,000,000,000 | CHF300,000,000 | $40,000,000 | $69,000,000 | ||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||
| Interest rate: | Three-month USD- LIBOR + margin | 2.50% p.a. until the interest payment date in October 2007 and then three-month CHF-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | ||||
| Margin: | 0.24% p.a. | N/A | 0.52% p.a. | 1.55% p.a. | ||||
| Until interest payment date falling in: | April 2008 | October 2007 | April 2008 | April 2008 | ||||
| And thereafter: | 0.48% p.a. | 0.35% p.a. | 1.04% p.a. | 2.55% p.a. | ||||
| Scheduled redemption date(s): | October 2007 | October 2007 | N/A | N/A | ||||
| Outstanding balance at last payment date: | $1,000,000,000 | CHF300,000,000 | $40,000,000 | $69,000,000 | ||||
| Interest accrual method: | Actual/360 | 30/360 until the interest payment date in October 2007 and then Actual/360 | Actual/360 | Actual/360 | ||||
| Interest payment dates: | For the series 4 previous notes (other than the series 4 class A2 previous notes), quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. For the series 4 class A2 previous notes, until (and including) the interest payment date falling in October 2007 interest will be payable annually in arrear on the 15th day in October of each year (subject to payment being made on business days). If a trigger event occurs or the Financing security is enforced prior to the interest payment date falling in October 2007, interest and principal due and payable on the series 4 class A2 previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. After the interest payment date falling in October 2007 interest and principal on the series 4 class A2 previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||
| First interest payment date: | 15 January, 2003 | 15 October, 2003 | 15 January, 2003 | 15 January, 2003 | ||||
| Final maturity date: | October 2009 | October 2009 | July 2040 | July 2040 | ||||
| Listing: | UK Listing Authority and London Stock Exchange | SWX Swiss Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||
S-62
| Class of previous notes issued by Holmes Financing (No.6) PLC | ||||||
| Series 5 class A | Series 5 class B | Series 5 class C | ||||
| Principal amount: | £500,000,000 | £17,000,000 | £29,000,000 | |||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | |||
| Interest rate: | Three-month sterling-LIBOR + margin | Three-month sterling-LIBOR + margin | Three-month sterling-LIBOR + margin | |||
| Margin: | 0.24% p.a. | 0.52% p.a. | 1.55% p.a. | |||
| Until interest payment date falling in: | April 2008 | April 2008 | April 2008 | |||
| And thereafter: | 0.48% p.a. | 1.04% p.a. | 2.55% p.a. | |||
| Scheduled redemption date(s): | N/A | N/A | N/A | |||
| Outstanding balance at last payment date: | £500,000,000 | £17,000,000 | £29,000,000 | |||
| Interest accrual method: | Actual/365 | Actual/365 | Actual/365 | |||
| Interest payment dates: | For all of the series 5 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||
| First interest payment date: | 15 January, 2003 | 15 January, 2003 | 15 January, 2003 | |||
| Final maturity date: | July 2040 | July 2040 | July 2040 | |||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | |||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | |||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | |||
S-63
| Class of previous notes issued by Holmes Financing (No. 7) PLC | ||||||||||||
| Series 1 class A* | Series 1 class B* | Series 1 class M* | Series 2 class A* | Series 2 class B* | Series 2 class M* | |||||||
| Principal amount: | $750,000,000 | $22,500,000 | $38,250,000 | $1,250,000,000 | $37,500,000 | $63,750,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class C notes, the class D notes and the reserve funds | ||||||
| Interest rate: | One-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | ||||||
| Margin: | Minus 0.04% p.a. | 0.23% p.a. | 0.75% p.a. | 0.15% p.a. | 0.35% p.a. | 0.80% p.a. | ||||||
| Until interest payment date falling in: | April 2004 | April 2008 | April 2008 | January 2008 | April 2008 | April 2008 | ||||||
| And thereafter: | N/A | 0.46% p.a. | 1.50% p.a. | N/A | 0.70% p.a. | 1.60% p.a. | ||||||
| Scheduled redemption date(s): | January 2004 and April 2004 | N/A | January 2006 | N/A | N/A | N/A | ||||||
| Outstanding balance at last payment date: | Nil | Nil | Nil | Nil | Nil | Nil | ||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | ||||||
| Interest payment dates: | For the series 1 class A notes, monthly in arrear on the interest payment date falling in each consecutive month. For the other series 1 notes and for all of the series 2 notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. If a trigger event occurs or the Financing security is enforced prior to the interest payment date falling in April 2004, interest and principal due and payable on the series 1 class A notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October, as applicable. | |||||||||||
| First interest payment date: | 15 April, 2003 | 15 July, 2003 | 15 July, 2003 | 15 July, 2003 | 15 July, 2003 | 15 July, 2003 | ||||||
| Final maturity date: | April 2004 | July 2040 | July 2040 | January 2008 | July 2040 | July 2040 | ||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | A-1+/P-1/F1+ | AA/Aa3/AA | A/A2/A | AAA/Aaa/AAA | AA/Aa3/AA | A/A2/A | ||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | N/A | N/A | N/A | ||||||
S-64
| Class of previous notes issued by Holmes Financing (No. 7) PLC | ||||||
| Series 3 class A* | Series 3 class B | Series 3 class M | ||||
| Principal amount: | $500,000,000 | £15,000,000 | £20,000,000 | |||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, class C notes, class D notes and the reserve funds | Subordination of the class C notes, the class D notes and the reserve funds | |||
| Interest rate: | Three-month USD-LIBOR + margin | Three-month sterling-LIBOR + margin | Three-month sterling-LIBOR + margin | |||
| Margin: | 0.23% p.a. | 0.50% p.a. | 0.80% p.a. | |||
| Until interest payment date falling in: | April 2008 | April 2008 | April 2008 | |||
| And thereafter: | 0.46% p.a. | 1.00% p.a. | 1.60% p.a. | |||
| Scheduled redemption date(s): | January 2007 and April 2007 | N/A | N/A | |||
| Outstanding balance at last payment date: | Nil | £15,000,000 | £20,000,000 | |||
| Interest accrual method: | Actual/360 | Actual/365 | Actual/365 | |||
| Interest payment dates: | For all of the series 3 notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||
| First interest payment date: | 15 July, 2003 | 15 July, 2003 | 15 July, 2003 | |||
| Final maturity date: | July 2020 | July 2040 | July 2040 | |||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | |||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | A/A2/A | |||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | AA/Aa3/AA | A/A2/A | |||
S-65
| Class of previous notes issued by Holmes Financing (No. 7) PLC | ||||||||
| Series 4 class A1 | Series 4 class A2 | Series 4 class B | Series 4 class M | |||||
| Principal amount: | €500,000,000 | £250,000,000 | €41,000,000 | €56,000,000 | ||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class C notes, the class D notes and the reserve funds | ||||
| Interest rate: | Three-month EURIBOR + margin | Three-month sterling- LIBOR + margin | Three-month EURIBOR + margin | Three-month EURIBOR + margin | ||||
| Margin: | 0.26% p.a. | 0.26% p.a. | 0.53% p.a. | 0.80% p.a. | ||||
| Until interest payment date falling in: | April 2008 | April 2008 | April 2008 | April 2008 | ||||
| And thereafter: | 0.52% p.a. | 0.52% p.a. | 1.06% p.a. | 1.60% p.a. | ||||
| Scheduled redemption date(s): | N/A | N/A | N/A | N/A | ||||
| Outstanding balance at last payment date: | €500,000,000 | £250,000,000 | €41,000,000 | €56,000,000 | ||||
| Interest accrual method: | Actual/360 | Actual/365 | Actual/360 | Actual/360 | ||||
| Interest payment dates: | For all of the series 4 notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||
| First interest payment date: | 15 July, 2003 | 15 July, 2003 | 15 July, 2003 | 15 July, 2003 | ||||
| Final maturity date: | July 2040 | July 2040 | July 2040 | July 2040 | ||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | A/A2/A | ||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | A/A2/A | ||||
S-66
| Class of previous notes issued by Holmes Financing (No. 8) PLC | ||||||||||||
| Series 1 class A* | Series 1 class B* | Series 1 class C* | Series 2 class A* | Series 2 class B* | Series 2 class C* | |||||||
| Principal amount: | $1,850,000,000 | $62,900,000 | $107,300,000 | $1,500,000,000 | $51,000,000 | $87,000,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||||
| Interest rate: | One-month USD- LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | ||||||
| Margin: | Minus 0.05% p.a. | 0.13% p.a. | 0.62% p.a. | 0.08% p.a. | 0.17% p.a. | 0.72% p.a. | ||||||
| Until interest payment date falling in: | April 2005 | January 2009 | January 2009 | January 2009 | January 2009 | January 2009 | ||||||
| And thereafter: | N/A | 0.26% p.a. | 1.62% p.a. | 0.16% p.a. | 0.34% p.a. | 1.72% p.a. | ||||||
| Scheduled redemption date(s): | April 2005 | N/A | N/A | January 2007 | N/A | N/A | ||||||
| Outstanding balance at last payment date: | Nil | Nil | Nil | Nil | Nil | Nil | ||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | ||||||
| Interest payment dates: | For the series 1 class A notes, monthly in arrear starting with the interest payment date falling in May 2004 and then on the interest payment date falling in each consecutive month. For the other series 1 notes and for all of the series 2 notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. If a trigger event occurs or the Financing security is enforced prior to the interest payment date falling in April 2005, interest and principal due and payable on the series 1 class A notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October, as applicable. | |||||||||||
| First interest payment date: | 17 May, 2004 | 15 July, 2004 | 15 July, 2004 | 15 July, 2004 | 15 July, 2004 | 15 July, 2004 | ||||||
| Final maturity date: | April 2005 | July 2040 | July 2040 | April 2011 | July 2040 | July 2040 | ||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | A-1+/P-1/F1+ | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | N/A | N/A | N/A | N/A | N/A | ||||||
S-67
| Class of previous notes issued by Holmes Financing (No. 8) PLC | ||||||
| Series 3 class A | Series 3 class B | Series 3 class C | ||||
| Principal amount: | €990,000,000 | €34,000,000 | €57,500,000 | |||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | |||
| Interest rate: | Three-month EURIBOR + margin | Three-month EURIBOR + margin | Three-month EURIBOR + margin | |||
| Margin: | 0.15% p.a. | 0.27% p.a. | 0.85% p.a. | |||
| Until interest payment date falling in: | January 2009 | January 2009 | January 2009 | |||
| And thereafter: | 0.30% p.a. | 0.54% p.a. | 1.85% p.a. | |||
| Scheduled redemption date(s): | April 2008, July 2008 and October 2008 | N/A | N/A | |||
| Outstanding balance at last payment date: | €990,000,000 | €34,000,000 | €57,500,000 | |||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | |||
| Interest payment dates: | For all of the series 3 notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||
| First interest payment date: | 15 July, 2004 | 15 July, 2004 | 15 July, 2004 | |||
| Final maturity date: | April 2020 | July 2040 | July 2040 | |||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | |||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | |||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | |||
S-68
| Class of previous notes issued by Holmes Financing (No. 8) PLC | ||||||||
| Class of notes | Series 4 class A1 | Series 4 class A2 | Series 4 class B | Series 4 class C | ||||
| Principal amount: | £900,000,000 | $500,000,0000 | £39,900,000 | £68,000,000 | ||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||
| Interest rate: | Three-month sterling-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month sterling -LIBOR + margin | Three-month sterling -LIBOR + margin | ||||
| Margin: | 0.15% p.a. | 0.14% p.a. | 0.30% p.a. | 0.90% p.a. | ||||
| Until interest payment date falling in: | January 2009 | January 2009 | January 2009 | January 2009 | ||||
| And thereafter: | 0.30% p.a. | 0.28% p.a. | 0.60% p.a. | 1.90% p.a. | ||||
| Scheduled redemption date(s): | N/A | N/A | N/A | N/A | ||||
| Outstanding balance at last payment date: | £900,000,000 | $500,000,0000 | £39,900,000 | £68,000,000 | ||||
| Interest accrual method: | Actual/365 | Actual/360 | Actual/365 | Actual/365 | ||||
| Interest payment dates: | For all of the series 4 notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||
| First interest payment date: | 15 July, 2004 | 15 July, 2004 | 15 July, 2004 | 15 July, 2004 | ||||
| Final maturity date: | July 2040 | July 2040 | July 2040 | July 2040 | ||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||
| Ratings as at date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||
| Current ratings(where relevant) (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||
S-69
| Class of previous notes issued by Holmes Financing (No. 9) PLC | ||||||||||
| Series 1 class A* | Series 2 class A | Series 3 class A1 | Series 3 class A2 | Series 4 class A | ||||||
| Principal amount: | $1,740,000,000 | $2,175,000,000 | €740,000,000 | £400,000,000 | £600,000,000 | |||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | |||||
| Interest rate: | One-month USD- LIBOR + margin | Three-month USD-LIBOR + margin | Three-month EURIBOR + margin | Three-month sterling LIBOR + margin | Three-month sterling LIBOR + margin | |||||
| Margin: | Minus 0.03% p.a. | 0.06% p.a. | 0.10% p.a. | 0.09% p.a. | 0.09% p.a. | |||||
| Until interest payment date falling in: | December 2006 | October 2010 | October 2010 | October 2010 | October 2010 | |||||
| And thereafter: | N/A | 0.12% p.a. | 0.20% p.a. | 0.18% p.a. | 0.18% p.a. | |||||
| Scheduled redemption date(s): | December 2006 | October 2008 | January 2010 and April 2010 | January 2010 and April 2010 | July 2010 | |||||
| Outstanding balance at last payment date: | Nil | $2,175,000,000 | €740,000,000 | £400,000,000 | £600,000,000 | |||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/365 | Actual/365 | |||||
| Interest payment dates: | For the series 1 class A Financing notes, monthly in arrear starting with the interest payment date falling in January 2006 and then on the interest payment date falling in each consecutive month. For the series 2 class A Financing notes, series 3 class A Financing notes and series 4 class A Financing notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. If a trigger event occurs or the Financing security is enforced prior to the interest payment date falling in December 2006, interest and principal due and payable on the series 1 Financing notes will be payable in arrear on the interest payment dates falling in April, July, October and December 2006 as applicable. | |||||||||
| First interest payment date: | 17 January 2006 | 18 April 2006 | 18 April 2006 | 18 April 2006 | 18 April 2006 | |||||
| Final maturity date: | December 2006 | July 2013 | January 2021 | January 2021 | January 2016 | |||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | |||||
| Ratings as at date of issue (S&P/ Moody’s/Fitch): | A-1 +/P 1/F1 + | AAA/Aaa/AAA | AAA/Aaa/AAA | AAA/Aaa/AAA | AAA/Aaa/AAA | |||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | N/A | AAA/Aaa/AAA | AAA/Aaa/AAA | AAA/Aaa/AAA | AAA/Aaa/AAA | |||||
S-70
| Class of previous notes issued by Holmes Financing (No. 10) PLC | ||||||||||||
| Series 1 class A | Series 1 class B | Series 1 class C | Series 2 class A | Series 2 class B | Series 2 class C | |||||||
| Principal amount: | $1,260,000,000 | $47,000,000 | $47,000,000 | $1,440,000,000 | $55,000,000 | $55,000,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes, and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||||
| Interest rate: | One-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | ||||||
| Margin: | Minus 0.03% p.a. | 0.08% p.a. | 0.27% p.a. | 0.03% p.a. | 0.09% p.a. | 0.35% p.a. | ||||||
| Until interest payment date falling in: | October 2010 | October 2010 | October 2010 | October 2010 | October 2010 | October 2010 | ||||||
| And thereafter: | N/A | 0.16% p.a. | 0.54% p.a. | 0.06% p.a. | 0.18% p.a. | 0.70% p.a. | ||||||
| Scheduled redemption date(s) and amounts: | July 2007, $1,260,000,000 | N/A | N/A | April 2008 and July 2008, $720,000,000 and $720,000,000 | N/A | N/A | ||||||
| Designation of corresponding term advance: | Bullet | Pass-through | Pass-through | Scheduled amortisation | Pass-through | Pass-through | ||||||
See “Summary of the issuing entity notes – Scheduled redemption notes” and “–The master intercompany loan agreement” for a description of the timing of principal payments on the notes and cash accumulation periods relating to bullet term advances and scheduled amortisation instalments. | ||||||||||||
| Outstanding balance at last payment date: | $1,260,000,000 | $47,000,000 | $47,000,000 | $1,440,000,000 | $55,000,000 | $55,000,000 | ||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | ||||||
| Interest payment dates: | For the series 1 class A previous notes, monthly in arrear starting with the interest payment date falling in September 2006 and then on the interest payment date falling in each consecutive month. For the other series 1 previous notes and for all of the series 2 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. If a trigger event occurs or the issuing entity security is enforced prior to the interest payment date falling in June 2007, interest and principal due and payable on the series 1 class A previous notes will be payable quarterly in arrear on the interest payment dates falling in January, April, July and October, as applicable. | |||||||||||
| First interest payment date: | 15 September 2006 | 16 October 2006 | 16 October 2006 | 16 October 2006 | 16 October 2006 | 16 October 2006 | ||||||
| Final maturity date: | July 2007 | July 2040 | July 2040 | January 2021 | July 2040 | July 2040 | ||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||||||
| Ratings as at the date of issue (S&P/Moody’s/Fitch): | A-1+/P-1/F1+ | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | A-1+/P-1/F1+ | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | ||||||
S-71
| Class of previous notes issued by Holmes Financing (No. 10) PLC | ||||||||||||||
| Series 3 class A | Series 3 class B1 | Series 3 class B2 | Series 3 class M1 | Series 3 class M2 | Series 3 class C1 | Series 3 class C2 | ||||||||
| Principal amount: | €1,000,000,000 | €37,000,000 | £27,500,000 | €34,000,000 | £20,000,000 | €52,500,000 | £22,000,000 | |||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination the class M notes, the class C notes, the class D notes, and the reserve funds | Subordination of the class C notes, the class D notes and the reserve funds | Subordination of the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | |||||||
| Interest rate: | Three-month EURIBOR + margin | Three-month EURIBOR + margin | Three-month sterling LIBOR + margin | Three-month EURIBOR + margin | Three-month sterling LIBOR + margin | Three-month EURIBOR + margin | Three-month sterling LIBOR + margin | |||||||
| Margin: | 0.07% p.a. | 0.12% p.a. | 0.12% p.a. | 0.20% p.a. | 0.20% p.a. | 0.40% p.a. | 0.40% p.a. | |||||||
| Until interest payment date falling in: | October 2010 | October 2010 | October 2010 | October 2010 | October 2010 | October 2010 | October 2010 | |||||||
| And thereafter: | 0.14% p.a. | 0.24% p.a. | 0.24% p.a. | 0.40% p.a. | 0.40% p.a. | 0.80% p.a. | 0.80% p.a. | |||||||
| Scheduled redemption date(s) and amounts: | April 2009 and July 2009, €500,000,000 and €500,000,000 | N/A | N/A | N/A | N/A | N/A | N/A | |||||||
| Designation of corresponding term advance: | Scheduled amortisation | Pass-through | Pass-through | Pass-through | Pass-through | Pass-through | Pass-through | |||||||
See “Summary of the issuing entity notes – Scheduled redemption notes” and “–The master intercompany loan agreement” for a description of the timing of principal payments on the notes and cash accumulation periods relating to bullet term advances and scheduled amortisation instalments. | ||||||||||||||
| Outstanding balance at last payment date: | €1,000,000,000 | €37,000,000 | £27,500,000 | €34,000,000 | £20,000,000 | €52,500,000 | £22,000,000 | |||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/365 | Actual/360 | Actual/365 | Actual/360 | Actual/365 | |||||||
| Interest payment dates: | For all the series 3 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||||||||
| First interest payment date: | 16 October 2006 | 16 October 2006 | 16 October 2006 | 16 October 2006 | 16 October 2006 | 16 October 2006 | 16 October 2006 | |||||||
| Final maturity date: | July 2021 | July 2040 | July 2040 | January 2021 | July 2040 | July 2040 | July 2040 | |||||||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | |||||||
| Ratings as at the date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | AA/Aa3/AA | A/A2/A | A/A2/A | BBB/Baa2/BBB | BBB/Baa2/BBB | |||||||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AA/Aa3/AA | AA/Aa3/AA | A/A2/A | A/A2/A | BBB/Baa2/BBB | BBB/Baa2/BBB | |||||||
S-72
| Class of previous notes issued by Holmes Financing (No. 10) PLC | ||||
| Series 4 class A1 | Series 4 class A2 | |||
| Principal amount: | $1,440,000,000 | £750,000,000 | ||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | ||
| Interest rate: | Three-month USD – LIBOR + margin | Three-month sterling-LIBOR + margin | ||
| Margin: | 0.08% p.a. | 0.09% p.a. | ||
| Until interest payment date falling in: | October 2010 | October 2010 | ||
| And thereafter: | 0.16% p.a. | 0.18 % p.a. | ||
| Scheduled redemption date(s) and amounts: | N/A | N/A | ||
| Designation of corresponding term advance: | Pass-through | Pass-through | ||
See “Summary of the issuing entity notes – Scheduled redemption notes” and “The master intercompany loan agreement” for a description of the timing of principal payments on the notes and cash accumulation periods relating to bullet term advances and scheduled amortisation instalments. | ||||
| Outstanding balance at last payment date: | $1,440,000,000 | £750,000,000 | ||
| Interest accrual method: | Actual/360 | Actual/365 | ||
| Interest payment dates: | For all the series 4 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||
| First interest payment date: | 16 October 2006 | 16 October 2006 | ||
| Final maturity date: | July 2040 | July 2040 | ||
| Listing: | UK Listing Authority and London Stock Exchange | UK Listing Authority and London Stock Exchange | ||
| Ratings as at the date of issue (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | ||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | ||
S-73
| Class of previous notes issued by Holmes Master Issuer PLC issue 2006-1 Notes | ||||||||||||
| Series 1 class A | Series 1 class B | Series 1 class C | Series 2 class A | Series 2 class B | Series 2 class M | |||||||
| Principal amount: | $1,500,000,000 | $45,000,000 | $45,000,000 | $1,500,000,000 | $35,000,000 | $30,000,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | ||||||
| Interest rate: | One-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | ||||||
| Margin: | Minus 0.02% p.a. prior to the first transfer date; not greater than 0.05% p.a. following the first transfer date | 0.09% p.a. | 0.24% p.a. | 0.06% p.a. | 0.12% p.a. | 0.19% p.a. | ||||||
| Until interest payment date falling in: | N/A | October 2010 | October 2010 | October 2010 | October 2010 | October 2010 | ||||||
| And thereafter: | N/A | 0.18% p.a. | 0.48% p.a. | 0.12% p.a. | 0.24% p.a. | 0.38% p.a. | ||||||
| Scheduled redemption date(s) and amounts: | N/A | N/A | N/A | July 2009 and October 2009 | N/A | N/A | ||||||
| Designation of corresponding term advance: | Bullet | Pass-through | Pass-through | Scheduled Amortisation | Pass-through | Pass-through | ||||||
See “Summary of the issuing entity notes – Scheduled redemption notes” and “The master intercompany loan agreement” for a description of the timing of principal payments on the notes and cash accumulation periods relating to bullet term advances and scheduled amortisation instalments. | ||||||||||||
| Outstanding balance at last payment date: | $1,500,000,000 | $45,000,000 | $45,000,000 | $1,500,000,000 | $35,000,000 | $30,000,000 | ||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | ||||||
| Interest payment dates: | For the series 1 class A previous notes, on the 15th day of each calendar month in each year up to and including the final maturity date or, following the earlier of the occurrence of a trigger event or enforcement of the issuing entity security, quarterly in arrear on the interest payment dates falling in January, April, July and October, as applicable. For the other series 1 previous notes and for all of the series 2 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||||||
| First interest payment date: | 15 January 2007 | 15 January 2007 | 15 January 2007 | 15 January 2007 | 15 January 2007 | 15 January 2007 | ||||||
| Final maturity date: | January 2016 | July 2040 | July 2040 | July 2021 | July 2040 | July 2040 | ||||||
| Listing: | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | ||||||
| Ratings as at the date of issue (S&P/Moody’s/ Fitch): | F1+/P-1/A-1+ AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | A/A2/A | ||||||
| Current ratings (where relevant) (S&P/Moody’s/ Fitch): | F1+/P-1/A-1+ AAA/Aaa/AAA | AA/Aa3/AA | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | A/A2/A | ||||||
S-74
| Class of previous notes issued by Holmes Master Issuer PLC issue 2006-1 Notes | ||||||||||||||
| Series 2 class C1 | Series 3 class A1 | Series 3 class A2 | Series 3 class A3 | Series 3 class B2 | Series 3 class B3 | Series 3 class M2 | ||||||||
| Principal amount: | $40,000,000 | $900,000,000 | €670,000,000 | £700,000,000 | €37,500,000 | £20,000,000 | €35,500,000 | |||||||
| Credit enhancement: | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class C notes, the class D notes and the reserve funds | |||||||
| Interest rate: | Three-month USD-LIBOR + margin | Three-month USD-LIBOR + margin | Three-month EURIBOR + margin | Three-month sterling LIBOR + margin | Three-month EURIBOR + margin | Three-month sterling LIBOR + margin | Three-month EURIBOR + margin | |||||||
| Margin: | 0.39% p.a. | 0.08% p.a. | 0.10% p.a. | 0.10% p.a. | 0.15% p.a. | 0.15% p.a. | 0.22% p.a. | |||||||
| Until interest payment date falling in: | October 2010 | October 2010 | October 2010 | October 2010 | October 2010 | October 2010 | October 2010 | |||||||
| And thereafter: | 0.78% p.a. | 0.16% p.a. | 0.20% p.a. | 0.20% p.a. | 0.30% p.a. | 0.30% p.a. | 0.44% p.a. | |||||||
| Scheduled redemption date(s) and amounts: | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||||||
| Designation of corresponding term advance: | Pass-through | Pass-through | Pass-through | Pass-through | Pass-through | Pass-through | Pass-through | |||||||
See “Summary of the issuing entity notes – Scheduled redemption notes” and “The master intercompany loan agreement” for a description of the timing of principal payments on the notes and cash accumulation periods relating to bullet term advances and scheduled amortisation instalments. | ||||||||||||||
| Outstanding balance at last payment date: | $40,000,000 | $900,000,000 | €670,000,000 | £700,000,000 | €37,500,000 | £20,000,000 | €35,500,000 | |||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/360 | Actual/365 | Actual/360 | Actual/365 | Actual/360 | |||||||
| Interest payment dates: | For all the series 2 and series 3 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||||||||
| First interest payment date: | 15 January 2007 | 15 January 2007 | 15 January 2007 | 15 January 2007 | 15 January 2007 | 15 January 2007 | 15 January 2007 | |||||||
| Final maturity date: | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | |||||||
| Listing: | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | |||||||
| Ratings as at the date of issue (S&P/Moody’s/ Fitch): | BBB/Baa2/BBB | AAA/Aaa/AAA | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | AA/Aa3/AA | A/A2/A | |||||||
| Current ratings (where relevant) (S&P/Moody’s/ Fitch): | BBB/Baa2/BBB | AAA/Aaa/AAA | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | AA/Aa3/AA | A/A2/A | |||||||
S-75
| Class of previous notes issued by Holmes Master Issuer PLC issue 2006-1 Notes | ||||||
| Series 3 class M3 | Series 3 class C2 | Series 3 class C3 | ||||
| Principal amount: | £12,000,000 | €61,500,000 | £12,500,000 | |||
| Credit enhancement: | Subordination of the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | |||
| Interest rate: | Three-month sterling LIBOR + margin | Three-month EURIBOR + margin | Three-month sterling LIBOR + margin | |||
| Margin: | 0.22% p.a. | 0.42% p.a. | 0.42% p.a. | |||
| Until interest payment date falling in: | October 2010 | October 2010 | October 2010 | |||
| And thereafter: | 0.44% p.a. | 0.84% p.a. | 0.84% p.a. | |||
| Scheduled redemption date(s) and amounts: | N/A | N/A | N/A | |||
| Designation of corresponding term advance: | Pass-through | Pass-through | Pass-through | |||
See “Summary of the issuing entity notes – Scheduled redemption notes” and “The master intercompany loan agreement” for a description of the timing of principal payments on the notes and cash accumulation periods relating to bullet term advances and scheduled amortisation instalments. | ||||||
| Outstanding balance at last payment date: | £12,000,000 | €61,500,000 | £12,500,000 | |||
| Interest accrual method: | Actual/365 | Actual/360 | Actual/365 | |||
| Interest payment dates: | For all the series 3 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||
| First interest payment date: | 15 January 2007 | 15 January 2007 | 15 January 2007 | |||
| Final maturity date: | July 2040 | July 2040 | July 2040 | |||
| Listing: | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | |||
| Ratings as at the date of issue (S&P/Moody’s/Fitch): | A/A2/A | BBB/Baa2/BBB | BBB/Baa2/BBB | |||
| Current ratings (where relevant) (S&P/Moody’s/Fitch): | A/A2/A | BBB/Baa2/BBB | BBB/Baa2/BBB | |||
S-76
| Class of previous notes issued by Holmes Master Issuer PLC issue 2007-1 notes | ||||||||||||
| Series 1 class A1 | Series 1 class A3 | Series 1 class B1 | Series 1 class B2 | Series 1 class C1 | Series 1 class C2 | |||||||
| Principal amount: | $1,500,000,000 | £600,000,000 | $57,200,000 | €21,400,000 | $30,300,000 | €22,700,000 | ||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||||
| Interest rate: | One-month USD-LIBOR + margin | Three-month Sterling LIBOR + margin | Three-month USD-LIBOR + margin | Three-month EURIBOR + margin | Three-month USD-LIBOR + margin | Three-month EURIBOR + margin | ||||||
| Margin: | Minus 0.02% p.a. prior to the first transfer date | 0.03% p.a. | 0.09% p.a. | 0.09% p.a. | 0.28% p.a. | 0.28% p.a. | ||||||
| Until interest payment date falling in: | N/A | January 2011 | January 2011 | January 2011 | January 2011 | January 2011 | ||||||
| And thereafter: | N/A | 0.06% p.a. | 0.18% p.a. | 0.18% p.a. | 0.56% p.a. | 0.56% p.a. | ||||||
| Scheduled redemption date(s) and amounts: | N/A | N/A | N/A | N/A | N/A | N/A | ||||||
| Designation of corresponding term advance: | Bullet | Bullet | Pass-through | Pass-through | Pass-through | Pass-through | ||||||
See “Summary of the issuing entity notes – Scheduled redemption notes” and “The master intercompany loan agreement” for a description of the timing of principal payments on the notes and cash accumulation periods relating to bullet term advances and scheduled amortisation instalments. | ||||||||||||
| Outstanding balance at last payment date: | $1,500,000,000 | £600,000,000 | $57,200,000 | €21,400,000 | $30,300,000 | €22,700,000 | ||||||
| Interest accrual method: | Actual/360 | Actual/365 | Actual/360 | Actual/360 | Actual/360 | Actual/360 | ||||||
| Interest payment dates: | For the series 1 class A1 previous notes, on the 15th day of each calendar month in each year up to and including the final maturity date or, following the earlier of the occurrence of a trigger event or enforcement of the issuing entity security, quarterly in arrear on the interest payment dates falling in January, April, July and October, as applicable. For the other series 1 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||||||
| First interest payment date: | 15 April 2007 | 15 April 2007 | 15 July 2007 | 15 July 2007 | 15 July 2007 | 15 July 2007 | ||||||
| Final maturity date: | March 2008 | July 2020 | July 2040 | July 2040 | July 2040 | July 2040 | ||||||
| Listing: | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | ||||||
| Ratings as at the date of issue (S&P/Moody’s/ Fitch): | A-1+/P1/F1+ | AA/Aa3/AA | AA/Aa3/AA | AA/Aa3/AA | BBB/Baa2/BBB | BBB/Baa2/BBB | ||||||
| Current ratings (where relevant) (S&P/Moody’s/ Fitch): | A-1+/P1/F1+ | AA/Aa3/AA | AA/Aa3/AA | AA/Aa3/AA | BBB/Baa2/BBB | BBB/Baa2/BBB | ||||||
S-77
| Class of previous notes issued by Holmes Master Issuer PLC issue 2007-1 notes | ||||||||||||||||
| Series 1 class C3 | Series 2 class A | Series 2 class B2 | Series 2 class M2 | Series 2 class M3 | Series 2 class C1 | Series 2 class C2 | Series 2 class C3 | |||||||||
| Principal amount: | £15,550,000 | $1,500,000,000 | €26,300,000 | €10,600,000 | £10,800,000 | $9,800,000 | €21,900,000 | £5,000,000 | ||||||||
| Credit enhancement: | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class C notes, the class D notes and the reserve funds | Subordination of the class C notes, the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | ||||||||
| Interest rate: | Three-month Sterling LIBOR + margin | Three-month USD-LIBOR + margin | Three-month EURIBOR + margin | Three-month EURIBOR + margin | Three-month Sterling LIBOR + margin | Three-month USD-LIBOR + margin | Three-month EURIBOR + margin | Three-month Sterling LIBOR + margin | ||||||||
| Margin: | 0.28% p.a. | 0.05% p.a. | 0.14% p.a. | 0.22% p.a. | 0.22% p.a. | 0.42% p.a. | 0.42% p.a. | 0.42% p.a. | ||||||||
| Until interest payment date falling in: | January 2011 | January 2011 | January 2011 | January 2011 | January 2011 | January 2011 | January 2011 | January 2011 | ||||||||
| And thereafter: | 0.56% p.a. | 0.10% p.a. | 0.28% p.a. | 0.44% p.a. | 0.44% p.a. | 0.84% p.a. | 0.84% p.a. | 0.84% p.a. | ||||||||
| Scheduled redemption date(s) and amounts: | N/A | January 2010 and April 2010 | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||
| Designation of corresponding term advance: | Pass-through | Scheduled Amortisation | Pass-through | Pass-through | Pass-through | Pass-through | Pass-through | Pass-through | ||||||||
See “Summary of the issuing entity notes – Scheduled redemption notes” and “The master intercompany loan agreement” for a description of the timing of principal payments on the notes and cash accumulation periods relating to bullet term advances and scheduled amortisation instalments. | ||||||||||||||||
| Outstanding balance at last payment date: | £15,550,000 | $1,500,000,000 | €26,300,000 | €10,600,000 | £10,800,000 | $9,800,000 | €21,900,000 | £5,000,000 | ||||||||
| Interest accrual method: | Actual/365 | Actual/360 | Actual/360 | Actual/360 | Actual/365 | Actual/360 | Actual/360 | Actual/365 | ||||||||
| Interest payment dates: | For the series 1 class C3 previous notes and all the series 2 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||||||||||
| First interest payment date: | 15 July 2007 | 15 July 2007 | 15 July 2007 | 15 July 2007 | 15 July 2007 | 15 July 2007 | 15 July 2007 | 15 July 2007 | ||||||||
| Final maturity date: | July 2040 | July 2021 | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | ||||||||
| Listing: | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | ||||||||
| Ratings as at the date of issue (S&P/Moody’s/ Fitch): | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | A/A2/A | A/A2/A | BBB/Baa2/BBB | BBB/Baa2/BBB | BBB/Baa2/BBB | ||||||||
| Current ratings (where relevant) (S&P/Moody’s/ Fitch): | BBB/Baa2/BBB | AAA/Aaa/AAA | AA/Aa3/AA | A/A2/A | A/A2/A | BBB/Baa2/BBB | BBB/Baa2/BBB | BBB/Baa2/BBB | ||||||||
S-78
| Class of previous notes issued by Holmes Master Issuer PLC issue 2007-1 notes | ||||||||||||||
| Series 3 class A1 | Series 3 class A2 | Series 3 class A3 | Series 3 class B2 | Series 3 class B3 | Series 3 class M2 | Series 3 class M3 | ||||||||
| Principal amount: | $1,600,000,000 | €1,500,000,000 | £800,000,000 | €46,700,000 | £48,000,000 | €28,000,000 | £28,800,000 | |||||||
| Credit enhancement: | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class M notes, the class C notes, the class D notes and the reserve funds | Subordination of the class C notes, the class D notes and the reserve funds | Subordination of the class C notes, the class D notes and the reserve funds | |||||||
| Interest rate: | Three-month USD-LIBOR + margin | Three-month EURIBOR margin | Three-month sterling LIBOR + margin | Three-month EURIBOR + margin | Three-month sterling LIBOR + margin | Three-month EURIBOR + margin | Three-month sterling LIBOR + margin | |||||||
| Margin: | 0.08% p.a. | 0.10% p.a. | 0.10% p.a. | 0.14% p.a. | 0.14% p.a. | 0.22% p.a. | 0.22% p.a. | |||||||
| Until interest payment date falling in: | April 2011 | April 2011 | April 2011 | January 2011 | January 2011 | January 2011 | January 2011 | |||||||
| And thereafter: | 0.16% | 0.20% | 0.20% | 0.28% | 0.28% | 0.44% | 0.44% | |||||||
| Scheduled redemption date(s) and amounts: | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||||||
| Designation of corresponding term advance: | Pass-through | Pass-through | Pass-through | Pass-through | Pass-through | Pass-through | Pass-through | |||||||
See “Summary of the issuing entity notes – Scheduled redemption notes” and “The master intercompany loan agreement” for a description of the timing of principal payments on the notes and cash accumulation periods relating to bullet term advances and scheduled amortisation instalments. | ||||||||||||||
| Outstanding balance at last payment date: | $1,600,000,000 | €1,500,000,000 | £800,000,000 | €46,700,000 | £48,000,000 | €28,000,000 | £28,800,000 | |||||||
| Interest accrual method: | Actual/360 | Actual/360 | Actual/365 | Actual/360 | Actual/365 | Actual/360 | Actual/365 | |||||||
| Interest payment dates: | For all the series 3 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||||||||||
| First interest payment date: | 15 July 2007 | 15 July 2007 | 15 July 2007 | 15 July 2007 | 15 July 2007 | 15 July 2007 | 15 July 2007 | |||||||
| Final maturity date: | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | July 2040 | |||||||
| Listing: | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | |||||||
| Ratings as at the date of issue (S&P/Moody’s/ Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | AA/Aa3/AA | A/A2/A | A/A2/A | |||||||
| Current ratings (where relevant) (S&P/Moody’s/ Fitch): | AAA/Aaa/AAA | AAA/Aaa/AAA | AAA/Aaa/AAA | AA/Aa3/AA | AA/Aa3/AA | A/A2/A | A/A2/A | |||||||
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| Class of previous notes issued by Holmes Master Issuer PLC issue 2007-1 notes | ||||||
| Series 3 class C2 | Series 3 class C3 | Series 4 class A | ||||
| Principal amount: | €86,900,000 | £25,500,000 | $1,000,000,000 | |||
| Credit enhancement: | Subordination of the class D notes and the reserve funds | Subordination of the class D notes and the reserve funds | Subordination of the class B notes, the class M notes, the class C notes, the class D notes and the reserve funds | |||
| Interest rate: | Three-month EURIBOR + margin | Three-month Sterling LIBOR + margin | Three-month USD-LIBOR + margin | |||
| Margin: | 0.42% p.a. | 0.42% p.a. | 0.10% p.a. | |||
| Until interest payment date falling in: | January 2011 | January 2011 | October 2012 | |||
| And thereafter: | 0.84% p.a. | 0.84% p.a. | 0.20% p.a. | |||
| Scheduled redemption date(s) and amounts: | N/A | N/A | October 2012 | |||
| Designation of corresponding term advance: | Pass-through | Pass-through | Bullet | |||
See “Summary of the issuing entity notes – Scheduled redemption notes” and “The master intercompany loan agreement” for a description of the timing of principal payments on the notes and cash accumulation periods relating to bullet term advances and scheduled amortisation instalments. | ||||||
| Outstanding balance at last payment date: | €86,900,000 | £25,500,000 | $1,000,000,000 | |||
| Interest accrual method: | Actual/360 | Actual/365 | Actual/360 | |||
| Interest payment dates: | For all the series 3 and series 4 previous notes, quarterly in arrear on the interest payment dates falling in January, April, July and October of each year. | |||||
| First interest payment date: | 15 July 2007 | 15 July 2007 | 15 July 2007 | |||
| Final maturity date: | July 2040 | July 2040 | July 2030 | |||
| Listing: | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | London Stock Exchange’s Gilt Edged and Fixed Interest Market | |||
| Ratings as at the date of issue (S&P/Moody’s/ Fitch): | BBB/Baa2/BBB | BBB/Baa2/BBB | AAA/Aaa/AAA | |||
| Current ratings (where relevant) (S&P/Moody’s/ Fitch): | BBB/Baa2/BBB | BBB/Baa2/BBB | AAA/Aaa/AAA | |||
Each of the issuing entity’s and the previous issuing entities’ obligations to pay principal and interest on its previous notes are funded primarily from the payments of principal and interest received by it from Funding under the relevant previous intercompany loan. Each of the issuing entity’s and the previous issuing entities’ primary asset is the relevant previous intercompany loan. None of the issuing entity and the previous issuing entities nor the previous noteholders have any direct interest in the trust property, although the issuing entity and the previous issuing entities share the security interest under the Funding deed of charge in Funding’s share of the trust property.
Each of the previous intercompany loans is split into separate previous term advances to match the underlying series and classes (or sub-classes) of previous notes (for this purpose, the series 3 class A1 previous notes, the series 3 class A2 previous notes and/or the series 3 class A3 previous notes issued by each of Holmes Financing (No. 1) PLC, Holmes Financing (No. 4) PLC, Holmes Financing (No. 5) PLC, Holmes Financing (No. 9) PLC, Holmes Financing (No. 10) PLC and the issuing entity are treated as one class of series 3 previous notes; the series 4 class A1 previous notes and the series 4 class A2 previous notes issued by Holmes Financing (No. 6) PLC, Holmes Financing (No. 7) PLC, Holmes Financing (No. 8) PLC and Holmes Financing (No. 10) PLC are treated as one class of series 4 previous notes of Holmes Financing (No. 6) PLC, Holmes Financing (No. 7) PLC, Holmes Financing (No. 8) PLC and Holmes Financing (No. 10) PLC respectively): the previous AAA term advances, matching the issue of the class A previous notes of each series; the previous AA term advances, matching the issue of the class B previous notes of each series; the previous A term advances, matching the issue of the class M previous notes of each series and the previous BBB term advances, matching the issue of the class C previous notes of each series and the previous BB term advances, matching the issue of the class D previous notes of each series. Together these advances are referred to in this prospectus supplement as the previous term advances.
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The previous AAA term advances reflect the rating assigned to the class A previous notes by the rating agencies (being, in the case of the series 1 class A previous notes issued by Holmes Financing (No. 6) PLC, Holmes Financing (No. 7) PLC, Holmes Financing (No. 8) PLC, Holmes Financing (No. 9) PLC, Holmes Financing (No. 10) PLC and the issuing entity, A-1+ by Standard & Poor’s, P-1 by Moody’s and F1+ by Fitch and, in the case of all other class A previous notes, AAA by Standard & Poor’s, Aaa by Moody’s and AAA by Fitch). The previous AA term advances reflect the rating assigned to the class B previous notes by the rating agencies (being AA by Standard & Poor’s, Aa3 by Moody’s and AA by Fitch), the previous A term advances reflect the rating assigned to the class M previous notes by the rating agencies (being A by Standard & Poor’s, A2 by Moody’s and A by Fitch), the previous BBB term advances reflect the rating assigned to the class C previous notes by the rating agencies (being BBB by Standard & Poor’s, Baa2 by Moody’s and BBB by Fitch) and the previous BB term advances reflected the rating assigned to the class D previous notes by the rating agencies (being BB by Standard’s and Poor’s, Ba2 by Moody’s and BB by Fitch).
Funding used the proceeds of the previous intercompany loan from Holmes Financing (No. 1) PLC to pay the seller for loans and their related security assigned to the mortgages trustee which comprised its original share of the trust property. Funding used the proceeds of the previous intercompany loans from Holmes Financing (No. 2) PLC, Holmes Financing (No. 4) PLC, Holmes Financing (No. 7) PLC, Holmes Financing (No. 9) PLC, Holmes Financing (No.10) PLC and the issuing entity to pay the seller for an increase in Funding’s share of the trust property (resulting in a corresponding decrease in the seller’s share of the trust property). Funding used the proceeds of the previous intercompany loans from Holmes Financing (No. 3) PLC, Holmes Financing (No. 5) PLC, Holmes Financing (No. 6) PLC and Holmes Financing (No. 8) PLC to pay the seller for loans and their related security assigned to the mortgages trustee which constituted an addition to Funding’s existing share of the trust property.
For the purposes of the principles described in rules 1 to 6 in the accompanying prospectus under “Cashflows-Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security-Rules for application of Funding available principal receipts and Funding principal receipts”, except where specified in a prospectus supplement or final terms, an amount will become due and payable on an interest payment date in respect of any pass-through term advance in an amount equal to the principal balance of such pass-through term advance if on or immediately preceding an interest payment date any term advances advanced by the same issuing entity and which are repayable prior to such pass-through term advance have been repaid in full except that:
| • | in the case of the series 1 term AA advance under the intercompany loan to be made by Holmes Master Issuer PLC in respect of the issue 2007-2 notes on the closing date (the issue 2007-2 intercompany loan), amounts will become due and payable on the interest payment dates falling on or after each scheduled repayment date on which the applicable scheduled repayment in respect of the series 1 term AAA advance made under the issue 2007-2 intercompany loan is paid in full up to the applicable series 1 AAA term advances repayment amount and, in the case of the series 1 term BBB advance under the issue 2007-2 intercompany loan, amounts will become due and payable on the interest payment dates falling on or after each scheduled repayment date on which the applicable scheduled repayment in respect of the series 1 term AAA advance made under the issue 2007-2 intercompany loan is paid in full up to the applicable series 1 AAA term advances repayment amount, provided that the series 1 term AA advance under the issue 2007-2 intercompany loan has been paid up to the applicable series 1 AA term advances repayment amount; |
| • | in the case of the series 2 AAA term advances under the previous intercompany loan made by Holmes Financing (No. 10) PLC, amounts will become due and payable on the interest payment dates falling in April 2008 and July 2008; |
| • | in the case of the series 3 AAA term advances under the previous intercompany loan made by Holmes Financing (No. 10) PLC, amounts will become due and payable on the interest payment dates falling in April 2009 and July 2009; |
| • | in the case of the series 4 AAA term advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, amounts will become due and payable on the interest payment date falling in October 2010; |
| • | in the case of the series 4 AAA term advance under the previous intercompany loan made by Holmes Financing (No. 9) PLC, amounts will become due and payable on the interest payment date falling in July 2010; |
| • | in the case of the series 3A1 AAA term advances under the previous intercompany loan made by Holmes Financing (No. 9) PLC, amounts will become due and payable on the interest payment dates falling in January 2010 and April 2010; |
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| • | in the case of the series 3A2 AAA term advances under the previous intercompany loan made by Holmes Financing (No. 9) PLC, amounts will become due and payable on the interest payment dates falling in January 2010 and April 2010; |
| • | in the case of the series 3 term AA advance under the previous intercompany loan made by Holmes Financing (No. 8) PLC, amounts will become due and payable on the interest payment date falling on or after each scheduled repayment date on which the applicable scheduled repayment in respect of the series 3 term AAA advance made under the previous intercompany loan made by Holmes Financing (No. 8) PLC is paid in full up to the applicable series 3 AAA term advances repayment amount and, in the case of the series 3 term BBB advance under the previous intercompany loan made by Holmes Financing (No. 8) PLC, amounts will become due and payable on the interest payment date falling on or after each scheduled repayment date on which the applicable scheduled repayment in respect of the series 3 term AAA advance made under the previous intercompany loan made by Holmes Financing (No. 8) PLC is paid in full up to the applicable series 3 AAA term advances repayment amount, provided that the series 3 term AA advance under the previous intercompany loan made by Holmes Financing (No. 8) PLC has been paid up to the applicable series 3 AA term advances repayment amount; |
| • | in the case of the series 4 AAA term advances under the previous intercompany loan made by Holmes Financing (No. 8) PLC, amounts will become due and payable on the interest payment date falling in January 2009; |
| • | in the case of the series 4 term AAA advance and the series 5 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 6) PLC, amounts will become due and payable on the interest payment dates falling in October 2007 and April 2008 respectively; |
| • | in the case of the series 4 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 2) PLC, amounts will become due and payable on the interest payment date falling in October 2007; and |
| • | in the case of the series 4 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 1) PLC, amounts will become due and payable on the interest payment date falling in July 2010, |
in each case ignoring for these purposes any provisions deferring payment if Funding has insufficient funds to pay such amount on such interest payment date.
It is expected that the earliest dates on which the previous term advances will fall due and payable are those set out below:
| • | in respect of the series 3 AAA term advances under the previous intercompany loan made by Holmes Financing (No. 1) PLC, the interest payment date falling in July 2007; |
| • | in respect of the series 3 term AA advance under the previous intercompany loan made by Holmes Financing (No. 1) PLC, the interest payment date falling in October 2007; |
| • | in respect of the series 3 term BBB advance under the previous intercompany loan made by Holmes Financing (No. 1) PLC, the interest payment date falling in October 2007; |
| • | in respect of the series 4 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 1) PLC, the interest payment date falling in July 2010; |
| • | in respect of the series 4 term AA advance under the previous intercompany loan made by Holmes Financing (No. 1) PLC, the interest payment date falling in October 2010; |
| • | in respect of the series 4 term BBB advance under the previous intercompany loan made by Holmes Financing (No. 1) PLC, the interest payment date falling in October 2010; |
| • | in respect of the series 4 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 2) PLC, the interest payment date falling in October 2007; |
| • | in respect of the series 4 term AA advance under the previous intercompany loan made by Holmes Financing (No. 2) PLC, the interest payment date falling in January 2008; |
| • | in respect of the series 4 term BBB advance under the previous intercompany loan made by Holmes Financing (No. 2) PLC, the interest payment date falling in January 2008; |
| • | in respect of the series 3 term AA advance under the previous intercompany loan made by Holmes Financing (No. 6) PLC, the interest payment date falling in July 2007; |
| • | in respect of the series 3 term BBB advance under the previous intercompany loan made by Holmes Financing (No. 6) PLC, the interest payment date falling in July 2007; |
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| • | in respect of the series 4 AAA term advances under the previous intercompany loan made by Holmes Financing (No. 6) PLC, the interest payment date falling in October 2007; |
| • | in respect of the series 4 term AA advance under the previous intercompany loan made by Holmes Financing (No. 6) PLC, the interest payment date falling in January 2008; |
| • | in respect of the series 4 term BBB advance under the previous intercompany loan made by Holmes Financing (No. 6) PLC, the interest payment date falling in January 2008; |
| • | in respect of the series 5 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 6) PLC, the interest payment date falling in April 2008; |
| • | in respect of the series 5 term AA advance under the previous intercompany loan made by Holmes Financing (No. 6) PLC, the interest payment date falling in July 2008; |
| • | in respect of the series 5 term BBB advance under the previous intercompany loan made by Holmes Financing (No. 6) PLC, the interest payment date falling in July 2008; |
| • | in respect of the series 3 term AA advance under the previous intercompany loan made by Holmes Financing (No. 7) PLC, the interest payment date falling in July 2007; |
| • | in respect of the series 3 term A advance under the previous intercompany loan made by Holmes Financing (No. 7) PLC, the interest payment date falling in July 2007; |
| • | in respect of the series 4 AAA term advances under the previous intercompany loan made by Holmes Financing (No. 7) PLC, the interest payment date falling in April 2008; |
| • | in respect of the series 4 term AA advance under the previous intercompany loan made by Holmes Financing (No. 7) PLC, the interest payment date falling in July 2008; |
| • | in respect of the series 4 term A advance under the previous intercompany loan made by Holmes Financing (No. 7) PLC, the interest payment date falling in July 2008; |
| • | in respect of the series 3 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 8) PLC, the interest payment dates falling in April 2008, July 2008 and October 2008; |
| • | in respect of the series 3 term AA advance under the previous intercompany loan made by Holmes Financing (No. 8) PLC, the interest payment dates falling in April 2008, July 2008 and October 2008; |
| • | in respect of the series 3 BBB term advances under the previous intercompany loan made by Holmes Financing (No. 8) PLC, the interest payment dates falling in April 2008, July 2008 and October 2008; |
| • | in respect of the series 4 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 8) PLC, the interest payment date falling in January 2009; |
| • | in respect of the series 4 term AA advance under the previous intercompany loan made by Holmes Financing (No. 8) PLC, the interest payment date falling in January 2009; |
| • | in respect of the series 4 term BBB advance under the previous intercompany loan made by Holmes Financing (No. 8) PLC, the interest payment date falling in January 2009; |
| • | in respect of the series 2 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 9) PLC, the interest payment date falling in October 2008; |
| • | in respect of the series 3A1 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 9) PLC, the interest payment dates falling in January 2010 and April 2010; |
| • | in respect of the series 3A2 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 9) PLC, the interest payment dates falling in January 2010 and April 2010; |
| • | in respect of the series 4 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 9) PLC, the interest payment date falling in July 2010; |
| • | in respect of the series 1 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the series 1 class A interest payment date falling in July 2007; |
| • | in respect of the series 1 term AA advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the interest payment date falling in July 2007; |
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| • | in respect of the series 1 term BBB advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the interest payment date falling in July 2007; |
| • | in respect of the series 2 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the interest payment dates falling in April 2008 and July 2008; |
| • | in respect of the series 2 term AA advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the interest payment date falling in July 2008; |
| • | in respect of the series 2 term BBB advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the interest payment date falling in July 2008; |
| • | in respect of the series 3 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the interest payment dates falling in April 2009 and July 2009; |
| • | in respect of the series 3 term AA advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the interest payment date falling in July 2009; |
| • | in respect of the series 3 term A advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the interest payment date falling in July 2009; |
| • | in respect of the series 3 term BBB advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the interest payment date falling in July 2009; |
| • | in respect of the series 4A1 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the interest payment date falling in October 2010; |
| • | in respect of the series 4A2 term AAA advance under the previous intercompany loan made by Holmes Financing (No. 10) PLC, the interest payment date falling in October 2010; |
| • | in respect of the series 1 term AAA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2006-1 notes, the interest payment date falling in October 2007; |
| • | in respect of the series 1 term AA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2006-1 notes, the interest payment date on which all the 2006-1 series 1 term advances of a higher rating for the issue 2006-1 notes have been repaid in full; |
| • | in respect of the series 1 term BBB advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2006-1 notes, the interest payment date on which all the 2006-1 series 1 term advances of a higher rating for the issue 2006-1 notes have been repaid in full; |
| • | in respect of the series 2 term AAA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2006-1 notes, the interest payment dates falling in July 2009 and October 2009; |
| • | in respect of the series 2 term AA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2006-1 notes, the interest payment date on which all the 2006-1 series 2 term advances of a higher rating for the issue 2006-1 notes have been repaid in full; |
| • | in respect of the series 2 term A advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2006-1 notes, the interest payment date on which all the 2006-1 series 2 term advances of a higher rating for the issue 2006-1 notes have been repaid in full; |
| • | in respect of the series 2 term BBB advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2006-1 notes, the interest payment date on which all the 2006-1 series 2 term advances of a higher rating for the issue 2006-1 notes have been repaid in full; |
| • | in respect of the series 3 term AAA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2006-1 notes, the interest payment date falling in October 2010; |
| • | in respect of the series 3 term AA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2006-1 notes, the interest payment date on which all the 2006-1 series 3 term advances of a higher rating for the issue 2006-1 notes have been repaid in full; |
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| • | in respect of the series 3 term A advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2006-1 notes, the interest payment date on which all the 2006-1 series 3 term advances of a higher rating for the issue 2006-1 notes have been repaid in full; |
| • | in respect of the series 3 term BBB advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2006-1 notes, the interest payment date on which all the 2006-1 series 3 term advances of a higher rating for the issue 2006-1 notes have been repaid in full; |
| • | in respect of the series 1A1 term AAA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date falling in March 2008; |
| • | in respect of the series 1A3 term AAA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date falling in April 2008; |
| • | in respect of the series 1 term AA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date on which all the 2007-1 series 1 term advances of a higher rating for the issue 2007-1 notes have been repaid in full; |
| • | in respect of the series 1 term BBB advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date on which all the 2007-1 series 1 term advances of a higher rating for the issue 2007-1 notes have been repaid in full; |
| • | in respect of the series 2 term AAA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment dates falling in January 2010 and April 2010; |
| • | in respect of the series 2 term AA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date on which all the 2007-1 series 2 term advances of a higher rating for the issue 2007-1 notes have been repaid in full; |
| • | in respect of the series 2 term A advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date on which all the 2007-1 series 2 term advances of a higher rating for the issue 2007-1 notes have been repaid in full; |
| • | in respect of the series 2 term BBB advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date on which all the 2007-1 series 2 term advances of a higher rating for the issue 2007-1 notes have been repaid in full; |
| • | in respect of the series 3 term AAA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date falling in April 2011; |
| • | in respect of the series 3 term AA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date falling in January 2011; |
| • | in respect of the series 3 term A advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date on which all the 2007-1 series 3 term advances of a higher rating for the issue 2007-1 notes, other than the 2007-1 series 3 term AAA advances, have been repaid in full; |
| • | in respect of the series 3 term BBB advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date on which all the 2007-1 series 3 term advances of a higher rating for the issue 2007-1 notes, other than the 2007-1 series 3 term AAA advances, have been repaid in full; and |
| • | in respect of the series 4 term AAA advance under the previous intercompany loan made by Holmes Master Issuer PLC for the issue 2007-1 notes, the interest payment date falling in October 2012. |
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This annex sets out, to the extent material, certain static pool information with respect to the loans in the mortgages trust.
Static pool information on prepayments has not been included because changes in prepayment and payment rates historically have not affected repayment of the issuing entity notes, and are not anticipated to have a significant effect on future payments on the issuing entity notes for a number of reasons. The mechanics of the mortgages trust require an extended cash accumulation period when prepayment rates fall below certain minima required by the rating agencies, serving to limit the extent to which slow prepayments would cause the average lives of the issuing entity notes to extend. Conversely, rapid prepayments should not cause the average lives of the issuing entity notes to shorten so long as the seller maintains the minimum required mortgages trust size. Furthermore, only a limited amount of note principal in relation to the very large mortgages trust size is actually due to be repaid on any particular interest payment date.
One of the characteristics of the mortgages trust is that the seller is able to sell more loans to the mortgages trustee over time, whether in connection with an issuance of issuing entity notes or in order to maintain the minimum seller share. To aid in understanding changes to the mortgages trust over time, the following table sets out information relating to each sale of loans by the seller to the mortgages trustee pursuant to the mortgage sale agreement.
| Date | Balance of loans substituted or sold | Number of loans substituted or sold | In connection with previous issue by | |||
| 26 July 2000 | £6,399,214,137 | 115,191 | Holmes Financing (No. 1) PLC | |||
| 29 November 2000 | £0 | 0 | Holmes Financing (No. 2) PLC | |||
| 23 May 2001 | £5,675,174,662 | 90,088 | Holmes Financing (No. 3) PLC | |||
| 5 July 2001 | £0 | 0 | Holmes Financing (No. 4) PLC | |||
| 8 November 2001 | £6,316,801,008 | 88,154 | Holmes Financing (No. 5) PLC | |||
| 7 November 2002 | £7,721,958,214 | 100,534 | Holmes Financing (No. 6) PLC | |||
| 26 March 2003 | £0 | 0 | Holmes Financing (No. 7) PLC | |||
| 1 April 2004 | £6,903,977,960 | 80,529 | Holmes Financing (No. 8) PLC | |||
| 8 December 2005 | £0 | 0 | Holmes Financing (No. 9) PLC | |||
| 8 August 2006 | £0 | 0 | Holmes Financing (No. 10) PLC | |||
| 28 November 2006 | £0 | 0 | Holmes Master Issuer PLC (in respect of the issue 2006-1 notes) | |||
| 28 March 2007 | £10,749,721,703 | 98,169 | Holmes Master Issuer PLC (in respect of the issue 2007-1 notes) |
The sale of new loans by the seller to the mortgages trustee is subject to conditions, including ones required by the rating agencies, designed to maintain certain credit-related and other characteristics of the mortgages trust. These include limits on loans in arrears in the mortgages trust at the time of sale, limits on the aggregate balance of loans sold, limits on changes in the weighted average repossession frequency and the weighted average loss severity, minimum yield for the loans in the mortgages trust after the sale and maximum loan-to-value ratio for the loans in the mortgages trust after the sale. See a description of these conditions in “Assignment of the loans and their related security” in the accompanying prospectus.
| Portfolio Arrears by Year of Origination |
The following tables show, for each of the last five years of origination, the distribution of loans in the mortgages trust originated in that year by delinquency category as at each year-end starting in 2003. The tables include loans that are secured by mortgaged properties subject to foreclosure proceedings and in possession.
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Static pool information is not deemed part of this prospectus supplement to the extent that the static pool information relates to loans originated by Abbey before 1 January 2006. No loans in the mortgages trust were originated after 3 January 2006.
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Loans originated in 2001
as at each specified date
| 31 December 2003 | 31 December 2004 | 31 December 2005 | 31 December 2006 | 30 April 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | ||||||||||||||||||||||||||||||||||||||||||||
| <1 month | 76,213 | 5,512,368,773.51 | 97.42 | % | 97.54 | % | 56,681 | 4,089,499,203.03 | 96.50 | % | 96.49 | % | 44,745 | 3,133,454,781.33 | 95.87 | % | 95.70 | % | 30,294 | 2,120,079,455.87 | 96.68 | % | 96.49 | % | 29,449 | 2,051,490,985.92 | 96.44 | % | 96.21 | % | |||||||||||||||||||||||||||||||||
| 1 – <2 months | 1,222 | 83,659,646.01 | 1.56 | % | 1.48 | % | 1,089 | 79,724,693.10 | 1.85 | % | 1.88 | % | 1,170 | 85,662,605.90 | 2.51 | % | 2.62 | % | 514 | 36,199,841.59 | 1.64 | % | 1.65 | % | 534 | 37,952,944.53 | 1.75 | % | 1.78 | % | |||||||||||||||||||||||||||||||||
| 2 – <3 months | 369 | 25,070,108.34 | 0.47 | % | 0.44 | % | 447 | 31,658,127.58 | 0.76 | % | 0.75 | % | 307 | 21,730,234.54 | 0.66 | % | 0.66 | % | 197 | 14,227,031.80 | 0.63 | % | 0.65 | % | 238 | 17,247,022.01 | 0.78 | % | 0.81 | % | |||||||||||||||||||||||||||||||||
| 3 – <4 months | 165 | 11,440,285.67 | 0.21 | % | 0.20 | % | 224 | 16,186,855.48 | 0.38 | % | 0.38 | % | 158 | 11,748,091.15 | 0.34 | % | 0.36 | % | 106 | 8,754,343.81 | 0.34 | % | 0.40 | % | 120 | 9,366,318.17 | 0.39 | % | 0.44 | % | |||||||||||||||||||||||||||||||||
| 4 – <5 months | 94 | 7,125,236.52 | 0.12 | % | 0.13 | % | 125 | 8,743,561.98 | 0.21 | % | 0.21 | % | 97 | 6,671,144.79 | 0.21 | % | 0.20 | % | 72 | 5,459,807.25 | 0.23 | % | 0.25 | % | 63 | 5,048,063.59 | 0.21 | % | 0.24 | % | |||||||||||||||||||||||||||||||||
| 5 – <6 months | 55 | 3,899,404.64 | 0.07 | % | 0.07 | % | 50 | 3,611,631.33 | 0.09 | % | 0.09 | % | 64 | 5,080,987.13 | 0.14 | % | 0.16 | % | 46 | 4,131,865.40 | 0.15 | % | 0.19 | % | 30 | 2,275,724.99 | 0.10 | % | 0.11 | % | |||||||||||||||||||||||||||||||||
| 6 – <12 months | 109 | 7,710,828.44 | 0.14 | % | 0.14 | % | 120 | 8,718,632.75 | 0.20 | % | 0.21 | % | 108 | 7,998,770.00 | 0.23 | % | 0.24 | % | 83 | 6,659,922.37 | 0.26 | % | 0.30 | % | 77 | 6,510,991.93 | 0.25 | % | 0.31 | % | |||||||||||||||||||||||||||||||||
| 12+ months | 4 | 178,252.61 | 0.01 | % | 0.00 | % | 3 | 239,769.18 | 0.01 | % | 0.01 | % | 23 | 1,892,794.05 | 0.05 | % | 0.06 | % | 23 | 1,592,205.46 | 0.07 | % | 0.07 | % | 26 | 2,362,432.38 | 0.09 | % | 0.11 | % | |||||||||||||||||||||||||||||||||
| Total | 78,231 | 5,651,452,535.74 | 100.00 | % | 100.00 | % | 58,739 | 4,238,382,474.39 | 100.00 | % | 100.00 | % | 46,672 | 3,274,233,408.89 | 100.00 | % | 100.00 | % | 31,335 | 2,197,104,473.55 | 100.00 | % | 100.00 | % | 30,537 | 2,132,254,483.52 | 100.00 | % | 100.00 | % | |||||||||||||||||||||||||||||||||
Loans originated in 2002
as at each specified date
| 31 December 2003 | 31 December 2004 | 31 December 2005 | 31 December 2006 | 30 April 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | ||||||||||||||||||||||||||||||||||||||||||||
| <1 month | 95,413 | 7,471,448,826.70 | 98.98 | % | 99.00 | % | 81,425 | 6,201,216,713.87 | 97.91 | % | 97.76 | % | 60,690 | 4,534,054,148.90 | 97.70 | % | 97.40 | % | 43,373 | 3,212,951,645.81 | 97.73 | % | 97.43 | % | 42,494 | 3,133,227,282.57 | 97.61 | % | 97.21 | % | |||||||||||||||||||||||||||||||||
| 1 – <2 months | 632 | 48,133,683.48 | 0.66 | % | 0.64 | % | 1,007 | 81,446,481.26 | 1.21 | % | 1.28 | % | 720 | 57,710,963.59 | 1.16 | % | 1.24 | % | 484 | 40,932,489.74 | 1.09 | % | 1.24 | % | 515 | 43,898,535.69 | 1.18 | % | 1.36 | % | |||||||||||||||||||||||||||||||||
| 2 – <3 months | 182 | 13,801,134.12 | 0.19 | % | 0.18 | % | 353 | 30,470,170.15 | 0.42 | % | 0.48 | % | 317 | 27,639,843.92 | 0.51 | % | 0.59 | % | 222 | 18,268,892.54 | 0.50 | % | 0.55 | % | 209 | 17,907,559.10 | 0.48 | % | 0.56 | % | |||||||||||||||||||||||||||||||||
| 3 – <4 months | 69 | 5,320,561.16 | 0.07 | % | 0.07 | % | 154 | 12,147,353.46 | 0.19 | % | 0.19 | % | 141 | 11,967,835.60 | 0.23 | % | 0.26 | % | 117 | 9,411,626.57 | 0.26 | % | 0.29 | % | 109 | 9,726,430.36 | 0.25 | % | 0.30 | % | |||||||||||||||||||||||||||||||||
| 4 – <5 months | 41 | 3,302,298.69 | 0.04 | % | 0.04 | % | 84 | 6,526,065.09 | 0.10 | % | 0.10 | % | 72 | 6,876,254.82 | 0.12 | % | 0.15 | % | 61 | 5,627,306.58 | 0.14 | % | 0.17 | % | 55 | 4,539,229.57 | 0.13 | % | 0.14 | % | |||||||||||||||||||||||||||||||||
| 5 – <6 months | 27 | 2,090,332.73 | 0.03 | % | 0.03 | % | 47 | 4,012,861.64 | 0.06 | % | 0.06 | % | 64 | 6,136,813.80 | 0.10 | % | 0.13 | % | 27 | 2,325,441.07 | 0.06 | % | 0.07 | % | 45 | 3,976,396.07 | 0.10 | % | 0.12 | % | |||||||||||||||||||||||||||||||||
| 6 – <12 months | 31 | 2,552,949.50 | 0.03 | % | 0.03 | % | 90 | 7,079,235.10 | 0.11 | % | 0.11 | % | 95 | 8,828,223.83 | 0.15 | % | 0.19 | % | 70 | 5,939,544.60 | 0.16 | % | 0.18 | % | 86 | 7,975,132.83 | 0.20 | % | 0.25 | % | |||||||||||||||||||||||||||||||||
| 12+ months | 3 | 199,447.73 | 0.00 | % | 0.00 | % | 5 | 317,397.58 | 0.01 | % | 0.01 | % | 19 | 1,770,446.88 | 0.03 | % | 0.04 | % | 26 | 2,377,157.92 | 0.06 | % | 0.07 | % | 20 | 2,045,192.62 | 0.0 | % | 0.06 | % | |||||||||||||||||||||||||||||||||
| Total | 96,398 | 7,546,849,234.11 | 100.00 | % | 100.00 | % | 83,165 | 6,343,216,278.15 | 100.00 | % | 100.00 | % | 62,118 | 4,654,984,531.34 | 100.00 | % | 100.00 | % | 44,380 | 3,297,834,104.83 | 100.00 | % | 100.00 | % | 43,533 | 3,223,295,758.81 | 100 | % | 100 | % | |||||||||||||||||||||||||||||||||
S-88
Loans originated in 2003
as at each specified date
| 31 December 2003 | 31 December 2004 | 31 December 2005 | 31 December 2006 | 30 April 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | ||||||||||||||||||||||||||||||||||||||||||||
| <1 month | 1,033 | 95,783,983.18 | 99.71 | % | 99.57 | % | 96,873 | 8,869,159,460.97 | 98.57 | % | 98.52 | % | 67,437 | 5,701,583,594.29 | 97.39 | % | 97.13 | % | 50,330 | 4,241,572,056.10 | 97.29 | % | 97.04 | % | 56,488 | 4,862,064,827.71 | 97.34 | % | 97.11 | % | |||||||||||||||||||||||||||||||||
| 1 – <2 months | 3 | 410,367.48 | 0.29 | % | 0.43 | % | 981 | 92,702,569.91 | 1.00 | % | 1.03 | % | 977 | 89,581,391.05 | 1.41 | % | 1.53 | % | 661 | 58,691,922.00 | 1.28 | % | 1.34 | % | 753 | 69,738,753.34 | 1.30 | % | 1.39 | % | |||||||||||||||||||||||||||||||||
| 2 – <3 months | 0.00 | % | 0.00 | % | 235 | 21,824,046.81 | 0.24 | % | 0.24 | % | 358 | 30,833,452.34 | 0.52 | % | 0.53 | % | 302 | 27,632,557.39 | 0.58 | % | 0.63 | % | 364 | 33,393,939.00 | 0.63 | % | 0.67 | % | |||||||||||||||||||||||||||||||||||
| 3 – <4 months | 0.00 | % | 0.00 | % | 95 | 8,740,005.59 | 0.10 | % | 0.10 | % | 177 | 17,536,924.89 | 0.26 | % | 0.30 | % | 136 | 12,298,625.43 | 0.26 | % | 0.28 | % | 155 | 14,162,494.28 | 0.27 | % | 0.28 | % | |||||||||||||||||||||||||||||||||||
| 4 – <5 months | 0.00 | % | 0.00 | % | 43 | 4,500,393.49 | 0.04 | % | 0.05 | % | 89 | 9,424,291.04 | 0.13 | % | 0.16 | % | 90 | 8,120,400.22 | 0.17 | % | 0.19 | % | 74 | 7,095,923.64 | 0.13 | % | 0.14 | % | |||||||||||||||||||||||||||||||||||
| 5 – <6 months | 0.00 | % | 0.00 | % | 23 | 2,347,958.56 | 0.02 | % | 0.03 | % | 55 | 5,450,716.18 | 0.08 | % | 0.09 | % | 50 | 5,269,612.08 | 0.10 | % | 0.12 | % | 36 | 3,405,511.43 | 0.06 | % | 0.07 | % | |||||||||||||||||||||||||||||||||||
| 6 – <12 months | 0.00 | % | 0.00 | % | 24 | 2,926,961.06 | 0.02 | % | 0.03 | % | 141 | 14,963,486.43 | 0.20 | % | 0.25 | % | 130 | 14,084,058.02 | 0.25 | % | 0.32 | % | 130 | 12,626,259.40 | 0.22 | % | 0.25 | % | |||||||||||||||||||||||||||||||||||
| 12+ months | 0.00 | % | 0.00 | % | 1 | 126,830.87 | 0.00 | % | 0.00 | % | 8 | 938,676.60 | 0.01 | % | 0.02 | % | 31 | 3,336,417.11 | 0.06 | % | 0.08 | % | 34 | 4,444,195.96 | 0.06 | % | 0.09 | % | |||||||||||||||||||||||||||||||||||
| Total | 1,036 | 96,194,350.66 | 100.00 | % | 100.00 | % | 98,275 | 9,002,328,227.26 | 100.00 | % | 100.00 | % | 69,242 | 5,870,312,532.82 | 100.00 | % | 100.00 | % | 51,730 | 4,371,005,648.35 | 100.00 | % | 100.00 | % | 58,034 | 5,006,931,904.76 | 100.00 | % | 100.00 | % | |||||||||||||||||||||||||||||||||
Loans originated in 2004
as at each specified date
| 31 December 2004 | 31 December 2005 | 31 December 2006 | 30 April 2007 | ||||||||||||||||||||||||||||||||||||||||||||||
Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | ||||||||||||||||||||||||||||||||||
| 1 – <month | 19,395 | 1,858,143,858.65 | 98.98 | % | 98.99 | % | 86,242 | 8,412,198,446.40 | 98.68 | % | 98.68 | % | 52,812 | 4,901,040,405.66 | 97.70 | % | 97.53 | % | 55,191 | 5,144,462,247.19 | 97.36 | % | 97.19 | % | |||||||||||||||||||||||||
| 1 – <2 months | 160 | 14,925,884.27 | 0.82 | % | 0.80 | % | 771 | 77,031,962.24 | 0.88 | % | 0.90 | % | 584 | 54,806,784.18 | 1.08 | % | 1.09 | % | 771 | 74,867,218.64 | 1.36 | % | 1.41 | % | |||||||||||||||||||||||||
| 2 – <3 months | 26 | 3,009,986.86 | 0.13 | % | 0.16 | % | 199 | 19,495,552.43 | 0.23 | % | 0.23 | % | 274 | 26,997,716.81 | 0.51 | % | 0.54 | % | 294 | 27,662,377.62 | 0.52 | % | 0.52 | % | |||||||||||||||||||||||||
| 3 – <4 months | 8 | 435,131.51 | 0.04 | % | 0.02 | % | 83 | 7,139,842.78 | 0.09 | % | 0.08 | % | 153 | 16,524,010.39 | 0.28 | % | 0.33 | % | 145 | 15,584,452.03 | 0.26 | % | 0.29 | % | |||||||||||||||||||||||||
| 4 – <5 months | 4 | 414,997.35 | 0.02 | % | 0.02 | % | 37 | 3,561,935.58 | 0.04 | % | 0.04 | % | 73 | 7,590,279.34 | 0.14 | % | 0.15 | % | 83 | 8,280,762.26 | 0.15 | % | 0.16 | % | |||||||||||||||||||||||||
| 5 – <6 months | 1 | 57,002.74 | 0.01 | % | 0.00 | % | 20 | 2,184,137.69 | 0.02 | % | 0.03 | % | 45 | 4,971,075.64 | 0.08 | % | 0.10 | % | 52 | 5,372,183.30 | 0.09 | % | 0.10 | % | |||||||||||||||||||||||||
| 6 – <12 months | 1 | 127,958.01 | 0.01 | % | 0.01 | % | 42 | 4,205,832.56 | 0.05 | % | 0.05 | % | 105 | 11,602,620.98 | 0.19 | % | 0.23 | % | 129 | 14,196,916.16 | 0.23 | % | 0.27 | % | |||||||||||||||||||||||||
| 12+ months | 0.00 | % | 0.00 | % | 3 | 213,936.61 | 0.00 | % | 0.00 | % | 12 | 1,452,433.82 | 0.02 | % | 0.03 | % | 21 | 2,725,824.14 | 0.04 | % | 0.05 | % | |||||||||||||||||||||||||||
| Total | 19,595 | 1,877,114,819.39 | 100.00 | % | 100.00 | % | 87,397 | 8,526,031,646.29 | 100.00 | % | 100.00 | % | 54,058 | 5,024,985,326.82 | 100.00 | % | 100.00 | % | 56,686 | 5,293,151,981.34 | 100.00 | % | 100.00 | % | |||||||||||||||||||||||||
S-89
Loans originated in 2005
as at each specified date
| 31 December 20051 | 31 December 2006 | 30 April 2007 | |||||||||||||||||||||||||||||||||
Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | ||||||||||||||||||||||||
| 1 – <month | 55,564 | 6,382,284,578.00 | 99.14 | % | 99.15 | % | 73,522 | 8,448,672,640.56 | 98.92 | % | 98.89 | % | |||||||||||||||||||||||
| 1 – <2 months | 328 | 35,729,018.02 | 0.59 | % | 0.56 | % | 524 | 60,414,272.91 | 0.71 | % | 0.71 | % | |||||||||||||||||||||||
| 2 – <3 months | 99 | 12,151,297.65 | 0.18 | % | 0.19 | % | 163 | 20,747,115.71 | 0.22 | % | 0.24 | % | |||||||||||||||||||||||
| 3 – <4 months | 27 | 3,280,988.46 | 0.05 | % | 0.05 | % | 52 | 6,042,696.68 | 0.07 | % | 0.07 | % | |||||||||||||||||||||||
| 4 – <5 months | 14 | 1,736,683.34 | 0.02 | % | 0.03 | % | 28 | 3,280,749.65 | 0.04 | % | 0.04 | % | |||||||||||||||||||||||
| 5 – <6 months | 3 | 249,321.66 | 0.01 | % | 0.00 | % | 10 | 1,231,153.99 | 0.01 | % | 0.01 | % | |||||||||||||||||||||||
| 6 – <12 months | 11 | 1,316,070.99 | 0.02 | % | 0.02 | % | 19 | 2,951,325.39 | 0.03 | % | 0.03 | % | |||||||||||||||||||||||
| 12+ months | 1 | 70,159.46 | 0.00 | % | 0.00 | % | 3 | 285,295.45 | 0.00 | % | 0.00 | % | |||||||||||||||||||||||
| Total | 56,047 | 6,436,818,117.58 | 100.00 | % | 100.00 | % | 74,321 | 8,543,625,250.34 | 100.00 | % | 100.00 | % | |||||||||||||||||||||||
| 1 | There were no loans originated in 2005 included in the portfolio as at 31 December 2005. |
Loans originated in 2006
as at each specified date
| 31 December 2006 | 30 April 2007 | ||||||||||||||||||||
Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | ||||||||||||||
| 1 – <month | 91 | 10,759,178.71 | 100 | % | 100 | % | 63,053 | 7,900,343,616.41 | 99.45 | % | 99.42 | % | |||||||||
| 1 – <2 months | 316 | 42,363,813.12 | 0.50 | % | 0.53 | % | |||||||||||||||
| 2 – <3 months | 27 | 3,278,635.97 | 0.04 | % | 0.04 | % | |||||||||||||||
| 3 – <4 months | 2 | 452,974.45 | 0.00 | % | 0.01 | % | |||||||||||||||
| 4 – <5 months | 1 | 169,936.55 | 0.00 | % | 0.00 | % | |||||||||||||||
| 5 – <6 months | |||||||||||||||||||||
| 6 – <12 months | |||||||||||||||||||||
| 12+ months | |||||||||||||||||||||
| Total | 91 | 10,759,178.71 | 100 | % | 100 | % | 63,399 | 7,946,608,976.50 | 100.00 | % | 100.00 | % | |||||||||
S-90
All Loans in the Mortgages Trust
as at each specified date
| 31 December 2003 | 31 December 2004 | 31 December 2005 | 31 December 2006 | 30 April 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | Number | Principal Balance | % by Number | % by Balance | ||||||||||||||||||||||||||||||||||||||||||||
| <1 month | 326,403 | 22,345,024,813.78 | 96.99 | % | 97.28 | % | 374,448 | 28,051,118,706.28 | 97.09 | % | 97.28 | % | 361,246 | 27,642,121,931.48 | 96.34 | % | 96.59 | % | 355,589 | 28,505,469,915.05 | 97.46 | % | 97.53 | % | 435,733 | 38,081,835,205.66 | 97.68 | % | 97.83 | % | |||||||||||||||||||||||||||||||||
| 1 – <2 months | 6,596 | 406,399,033.54 | 1.96 | % | 1.77 | % | 6,674 | 469,981,030.31 | 1.73 | % | 1.63 | % | 9,015 | 619,619,491.58 | 2.40 | % | 2.17 | % | 5,039 | 373,322,777.27 | 1.38 | % | 1.28 | % | 5,801 | 468,274,277.16 | 1.30 | % | 1.20 | % | |||||||||||||||||||||||||||||||||
| 2 – <3 months | 1,593 | 97,314,758.79 | 0.47 | % | 0.42 | % | 2,221 | 156,420,805.82 | 0.58 | % | 0.54 | % | 2,103 | 154,748,821.99 | 0.56 | % | 0.54 | % | 1,828 | 146,544,540.17 | 0.50 | % | 0.50 | % | 2,101 | 170,249,146.20 | 0.47 | % | 0.44 | % | |||||||||||||||||||||||||||||||||
| 3 – <4 months | 778 | 48,163,896.20 | 0.23 | % | 0.21 | % | 1,037 | 70,581,738.45 | 0.27 | % | 0.24 | % | 1,019 | 75,812,791.70 | 0.27 | % | 0.26 | % | 908 | 74,222,128.03 | 0.25 | % | 0.25 | % | 972 | 77,822,948.10 | 0.22 | % | 0.20 | % | |||||||||||||||||||||||||||||||||
| 4 – <5 months | 452 | 27,885,093.36 | 0.13 | % | 0.12 | % | 557 | 37,444,319.60 | 0.14 | % | 0.13 | % | 542 | 41,137,402.02 | 0.14 | % | 0.14 | % | 484 | 39,638,703.77 | 0.13 | % | 0.14 | % | 463 | 37,855,348.67 | 0.10 | % | 0.10 | % | |||||||||||||||||||||||||||||||||
| 5 – <6 months | 243 | 15,300,225.89 | 0.07 | % | 0.07 | % | 271 | 18,749,712.84 | 0.07 | % | 0.07 | % | 323 | 25,869,547.34 | 0.09 | % | 0.09 | % | 280 | 24,672,588.91 | 0.08 | % | 0.08 | % | 260 | 21,839,495.90 | 0.06 | % | 0.06 | % | |||||||||||||||||||||||||||||||||
| 6 – <12 months | 403 | 25,692,095.80 | 0.12 | % | 0.11 | % | 440 | 30,826,722.88 | 0.11 | % | 0.11 | % | 617 | 50,902,070.08 | 0.16 | % | 0.18 | % | 592 | 52,682,111.53 | 0.16 | % | 0.18 | % | 611 | 55,678,453.01 | 0.14 | % | 0.14 | % | |||||||||||||||||||||||||||||||||
| 12+ months | 52 | 3,374,017.50 | 0.02 | % | 0.01 | % | 33 | 1,725,963.21 | 0.01 | % | 0.01 | % | 91 | 6,780,407.67 | 0.02 | % | 0.02 | % | 137 | 12,213,319.24 | 0.04 | % | 0.04 | % | 139 | 14,488,904.27 | 0.03 | % | 0.04 | % | |||||||||||||||||||||||||||||||||
| Total | 336,520 | 22,969,153,934.66 | 100.00 | % | 100.00 | % | 385,681 | 28,836,848,999.39 | 100.00 | % | 100.00 | % | 374,956 | 28,616,992,463.86 | 100.00 | % | 100.00 | % | 364,857 | 29,228,766,083.97 | 100.00 | % | 100.00 | % | 446,080 | 39,928,043,778.97 | 100 | % | 100 | % | |||||||||||||||||||||||||||||||||
S-91
ANNEX F
Issuing entity swap provider’s financial information
S-92
ML MBS SERVICES LIMITED
INDEX TO FINANCIAL STATEMENTS SCHEDULES
| Page | ||
| Report of Indpendent Registered Public Accounting Firm | 2 | |
| Balance Sheet | 3 | |
| Notes to the Financial Statements | 4 |
1
| Deloitte & Touche LLP Stonecutter Court 1 Stonecutter Street London EC4A 4TR Tel: +44 (0) 20 7936 3000 Fax: +44 (0) 20 7583 1198 LDE: DX 599 www.deloitte.co.uk |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
To the Board of Directors of ML MBS Services Limited:
We have audited the accompanying balance sheet of ML MBS Services Limited (the “Company”) as of May 4, 2007, and the related notes for the period from March 30, 2007 to May 4, 2007. The financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statement presents fairly, in all material respects, the financial position of ML MBS Services Limited at May 4, 2007, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Chartered Accountants
London
May 9, 2007
| Audit•Tax•Consulting•Corporate Finance• | Member of Deloitte Touche Tohmatsu |
Deloitte & Touche LLP is a limited liability partnership registered in England and Wales with registered number
OC303675 and its registered office at Stonecutter Court, 1 Stonecutter Street, London EC4A 4TR, United Kingdom.
Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTP’), a Swiss Verein whose
member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability
for each other’s acts or omissions. Services are provided by member firms or their subsidiaries and not by DTT.
2
ML MBS SERVICES LIMITED
BALANCE SHEET
(in British Pounds)
| Note | As at May 4, | |||
| 2007 | ||||
| TOTAL ASSETS | £— | |||
| MEMBER’S EOUTTY | ||||
| Contributed Capital (£1 per share; 2 shares issued and outstanding) | 3 | £2 | ||
| Subscription receivable from Parent | £(2 | ) | ||
| TOTAL MEMBER’S EQUITY | £— | |||
The accompanying notes are an integral part of the Financial Statement.
3
ML MBS SERVICES LIMITED
| NOTES TO THE FINANCIAL STATEMENT |
| NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS |
| Organization |
ML MBS Services Limited (hereinafter referred to as the “Company”) is a Limited Liability Company registered in the United Kingdom.
The Company was incorporated on March 30, 2007 as Hackremco (No. 2474) Limited and subsequently changed its legal name to ML MBS Services Limited on April 27, 2007.
The Company is a wholly-owned subsidiary of Merrill Lynch European Asset Holdings, Inc., a U.S. incorporated legal entity.
| Nature of Operations |
The Company will be principally engaged in holding cross currency swaps.
| NOTE 2. BASIS OF PREPARATION |
The financial statement has been prepared in conformity with generally accepted accounting principles in the United States of America.
The preparation of the financial statement requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses. Actual results may differ from estimates.
The functional and reporting currency of the Company is the British Pound. The financial statement is presented in British Pounds.
| NOTE 3. INITIAL CAPITALIZATION OF MEMBER’S EQUITY |
On March 30, 2007, the Company issued 2 ordinary shares at £1 per share. Merrill Lynch European Asset Holdings, Inc. subscribed to purchase those shares.
The £2 to be received from Merrill Lynch European Asset Holdings, Inc. is classified as a deduction from Member’s equity as “Subscription receivable from Parent”. Accordingly, a Statement of Changes in Member’s Equity is not shown.
Management believes that all related party transactions have been made on an arm’s length basis.
| NOTE 4. OPERATING RESULTS AND CASHFLOWS FOR THE PERIOD MARCH 30, 2007 to MAY 4, 2007 |
There have been no transactions for the period from March 30, 2007 to May 4, 2007. As a result, a Statement of Operations and Cash Flows has not been presented.
******
4
HOLMES MASTER ISSUER PLC
(incorporated in England and Wales with limited liability, registered number 5953811)
Issuing entity
Residential Mortgage-Backed Note Issuance Programme
HOLMES FUNDING LIMITED
Depositor
ABBEY NATIONAL plc
Sponsor, seller, servicer, cash manager and account bank
The issuing entity may from time to time issue class A notes, class B notes, class M notes, class C notes and/or class D notes in one or more series (together, the issuing entity notes). Each series will consist of one or more classes (or sub-classes) of issuing entity notes. One or more series or classes (or sub-classes) of issuing entity notes may be issued at any one time.
The principal asset from which the issuing entity will make payments on the issuing entity notes is a master intercompany loan to an affiliated company called Holmes Funding Limited (Funding). The principal asset from which Funding will make payments on the master intercompany loan is its interest in a master trust over a pool of residential mortgage loans held by Holmes Trustees Limited (the mortgages trustee).
The residential mortgage loans were originated by Abbey National plc (Abbey) and are secured over properties located in England, Wales and Scotland.
Subject to the detailed description and limits set out in “Credit structure”, the issuing entity notes will have the benefit of the following credit enhancement or support: availability of excess portions of Funding’s available revenue receipts and of Funding’s available principal receipts; reserve funds that will be used in certain circumstances by Funding to meet any deficit in revenue or to repay amounts of principal; and subordination of junior classes of issuing entity notes. The issuing entity notes will also have the benefit of certain derivatives instruments which may include currency and interest rate swaps, if specified in the relevant prospectus supplement.
The issuing entity notes offered by this prospectus will be obligations of the issuing entity only. The issuing entity notes will not be obligations of, or the responsibility of, or guaranteed by, or represent any interest in, the sponsor, the depositor or any of their affiliates.
Please consider carefully the risk factors described on pages 45 to 79 of this prospectus.
Application will be made to (i) the Financial Services Authority (the FSA) in its capacity as competent authority (the UK Listing Authority) under Part VI of the Financial Services and Markets Act 2000 (FSMA) for issuing entity notes issued during the period of 12 months from the date of this prospectus to be admitted to the official list maintained by the UK Listing Authority (the official list) and (ii) the London Stock Exchange plc (the London Stock Exchange) for the issued issuing entity notes to be admitted to trading on the London Stock Exchange’s Gilt Edged and Fixed Interest Market (being a regulated market for the purposes of the Investment Services Directive (93/22/EEC)).
This prospectus may be used to offer and sell the issuing entity notes only if accompanied by a prospectus supplement.
The issuing entity may offer the issuing entity notes through underwriters or by other methods described in this prospectus under “Underwriting”.
Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved the issuing entity notes or determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offence.
Prospectus dated 23 May 2007
Table of contents
| Clause | Page | |
| Defined Terms | 9 | |
| Forward-looking statements | 11 | |
| Important notice about information provided in this prospectus and the relevant prospectus supplement | 11 | |
| Overview of Transaction | 13 | |
| Overview of the transaction | 13 | |
| Structural diagram of the securitisation by the issuing entity | 15 | |
| Diagram of ownership structure of special purpose companies | 16 | |
| The Main Parties | 18 | |
| Summary of the Issuing Entity Notes | 21 | |
| Series | 21 | |
| Payment | 21 | |
| Interest | 21 | |
| Issuance | 22 | |
| Ratings | 22 | |
| Listing | 22 | |
| Denominations of the issuing entity notes | 22 | |
| Maturities | 23 | |
| Currencies | 23 | |
| Issue price | 23 | |
| Selling restrictions | 23 | |
| Relationship between the issuing entity notes and the master intercompany loan | 23 | |
| Diagram of the priority of payments by the issuing entity and subordination relationships | 23 | |
| Operative documents concerning the issuing entity notes | 24 | |
| Payment and ranking of the issuing entity notes | 24 | |
| Fixed rate notes | 26 | |
| Floating rate notes | 26 | |
| Zero coupon notes | 26 | |
| Bullet redemption notes | 26 | |
| Scheduled redemption notes | 27 | |
| Pass-through notes | 27 | |
| Money market notes | 28 | |
| Redemption and repayment | 29 | |
| Optional redemption or repurchase of the issuing entity notes | 29 | |
| Post-enforcement call option | 30 | |
| Withholding tax | 30 | |
| The programme date | 30 | |
| Credit enhancement | 30 | |
| Swap agreements | 31 | |
| Funding principal deficiency ledger | 31 | |
| Trigger events | 31 | |
| Acceleration | 31 | |
| The loans | 32 | |
| Assignment of the loans | 33 | |
| The mortgages trust | 33 | |
| Intercompany loans | 35 | |
| Security granted by Funding and the issuing entity | 38 | |
| Swap providers | 39 | |
| Swap agreements | 39 | |
| The post-enforcement call option agreement | 40 | |
| The previous issuing entities, new issuing entities and new funding entities | 40 |
2
| Clause | Page | |
| United Kingdom tax status | 43 | |
| United States tax status | 43 | |
| ERISA considerations for investors | 43 | |
| Fees | 44 | |
| Risk Factors | 45 | |
| The Issuance of Issuing Entity Notes | 80 | |
| Use of Proceeds | 84 | |
| The Issuing Entity | 85 | |
| The Abbey Group of Companies | 88 | |
| Funding | 90 | |
| The Mortgages Trustee | 92 | |
| Holdings | 93 | |
| PECOH Limited | 94 | |
| The Note Trustee and the Issuing Entity Security Trustee | 95 | |
| The Funding Swap Provider | 96 | |
| Affiliations and certain Relationships and Related Transactions of Transaction Parties | 97 | |
| The Loans | 98 | |
| The portfolio | 98 | |
| Introduction | 98 | |
| Characteristics of the loans | 99 | |
| Product switches | 105 | |
| Origination of the loans | 105 | |
| Underwriting | 106 | |
| Lending criteria | 106 | |
| Changes to the underwriting policies and the lending criteria | 108 | |
| Insurance policies | 109 | |
| Scottish loans | 110 | |
| The Servicer | 112 | |
| The servicer | 112 | |
| Servicing of loans | 112 | |
| Arrears and default procedures | 113 | |
| Arrears experience | 114 | |
| The Servicing Agreement | 115 | |
| Introduction | 115 | |
| Powers | 115 | |
| Undertakings by the servicer | 115 | |
| Compensation of the servicer | 117 | |
| Removal or resignation of the servicer | 117 | |
| Right of delegation by the servicer | 118 | |
| Actual delegation by the servicer to EDS Credit Services Limited | 118 | |
| Servicer compliance | 119 | |
| Liability of the servicer | 119 | |
| Governing law | 120 | |
| Assignment of The Loans And Their Related Security | 121 | |
| Introduction | 121 | |
| Assignment of loans and their related security to the mortgages trustee | 121 | |
| Legal assignment of the loans to the mortgages trustee | 125 | |
| Representations and warranties | 126 | |
| Repurchase of loans under a mortgage account | 128 | |
| Drawings under flexible loans | 129 | |
| Product switches and further advances | 129 | |
| Reasonable, prudent mortgage lender | 129 | |
| Governing law | 129 | |
| The Mortgages Trust | 130 | |
| General legal structure | 130 |
3
| Clause | Page | |
| Fluctuation of the Funding’s share/ seller’s share of the trust property | 131 | |
| Funding share of the trust property | 131 | |
| Seller share of the trust property | 133 | |
| Minimum seller share | 133 | |
| Cash management of trust property – revenue receipts | 134 | |
| Mortgages trust application of revenue receipts | 134 | |
| Cash management and allocation of trust property – principal receipts | 135 | |
| Mortgages trust allocation and distribution of principal receipts prior to the occurrence of a trigger event | 138 | |
| Mortgages trust allocation and distribution of principal receipts and retained principal receipts after the occurrence of a trigger event | 139 | |
| Losses | 139 | |
| Disposal of trust property | 140 | |
| Additions to the trust property | 140 | |
| Acquisition by Funding of a further interest in the trust property | 140 | |
| Acquisition by the seller of a further interest in the trust property | 140 | |
| Payment by the seller to Funding of the amount outstanding under an intercompany loan | 141 | |
| Termination of mortgages trust | 142 | |
| Retirement of mortgages trustee | 142 | |
| Governing law | 142 | |
| The Master Intercompany Loan Agreement | 143 | |
| The facility | 143 | |
| Ratings designations of the term advances | 143 | |
| Conditions to drawdown | 144 | |
| Representations and agreements | 144 | |
| Payments of interest | 144 | |
| Repayment of principal on the term advances | 145 | |
| Limited recourse | 145 | |
| Master intercompany loan events of default | 146 | |
| New intercompany loan agreements with new issuing entities | 146 | |
| Funding’s bank accounts | 147 | |
| Governing law | 147 | |
| Security for Funding’s Obligations | 148 | |
| Covenants of Funding | 148 | |
| Funding security | 148 | |
| Funding pre-enforcement priority of payments | 150 | |
| Following the creation of new intercompany loan agreements with new issuing entities | 150 | |
| Enforcement | 150 | |
| Funding post enforcement priority of payments | 151 | |
| Appointment, powers, responsibilities and liabilities of the security trustee | 151 | |
| The security trustee’s fees and expenses | 152 | |
| Retirement and removal | 152 | |
| Additional provisions of the Funding deed of charge | 152 | |
| Governing law | 153 | |
| Security for the Issuing Entity’s Obligations | 154 | |
| Covenants of the issuing entity | 154 | |
| Issuing entity security | 154 | |
| Enforcement | 156 | |
| Post enforcement priority of payments | 156 | |
| New issuing entity secured creditors | 157 | |
| Appointment, powers, responsibilities and liabilities of the issuing entity security trustee | 157 | |
| Issuing entity security trustee’s fees and expenses | 157 |
4
| Clause | Page | |
| Retirement and removal | 158 | |
| Additional provisions of the issuing entity deed of charge | 158 | |
| Governing law | 160 | |
| Cashflows | 161 | |
| Distribution of Funding available revenue receipts | 161 | |
| Distribution of issuing entity revenue receipts | 164 | |
| Distribution of issuing entity revenue receipts prior to enforcement of the issuing entity security | 164 | |
| Distribution of issuing entity revenue receipts after enforcement of the issuing entity security but prior to enforcement of the Funding security | 166 | |
| Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security | 167 | |
| Rules for application of Funding available principal receipts and Funding principal receipts | 168 | |
| 1. General rules | 168 | |
| 2. Prior to the occurrence of a trigger event and the enforcement of the Funding security, repayment of the AAA term advances is determined by final maturity date if more than one AAA term advance is due and payable on the same interest payment date | 169 | |
| 3. In certain circumstances, payment on all the BB term advances, all the BBB term advances, all the A term advances and all the AA term advances is deferred | 169 | |
| 4. Effect of cash accumulation period on term advances | 169 | |
| 5. Repayment of pass-through term advances | 170 | |
| 6. Repayment tests | 170 | |
| Repayment of term advances prior to a trigger event, enforcement of the issuing entity security or enforcement of the Funding security | 171 | |
| Repayment of term advances of each series following the occurrence of a non-asset trigger event prior to enforcement of the issuing entity security or the Funding security | 172 | |
| Repayment of term advances of each series following the occurrence of an asset trigger event prior to enforcement of the issuing entity security or the Funding security | 173 | |
| Repayment of term advances of each series following enforcement of the issuing entity security | 173 | |
| Distribution of issuing entity principal receipts | 174 | |
| Distribution of issuing entity principal receipts prior to enforcement of the issuing entity security | 174 | |
| Distribution of issuing entity principal receipts following enforcement of the issuing entity security but prior to enforcement of the Funding security | 175 | |
| Distribution of Funding principal receipts and Funding revenue receipts following enforcement of the Funding security | 176 | |
| Collateral in the Funding post enforcement priority of payments | 178 | |
| Distribution of issuing entity principal receipts and issuing entity revenue receipts following enforcement of the issuing entity security and enforcement of the Funding security | 178 | |
| Collateral in the issuing entity post-enforcement priority of payments | 180 | |
| Credit Structure | 181 | |
| Credit support for the issuing entity notes provided by Funding available revenue receipts | 181 | |
| Interest rate on the portfolio | 182 | |
| Level of arrears experienced | 182 | |
| Use of Funding principal receipts to pay Funding income deficiency | 182 | |
| First reserve fund | 182 |
5
| Clause | Page | |
| Second reserve fund | 183 | |
| Funding reserve fund | 184 | |
| Principal deficiency ledger | 185 | |
| Following the creation of new intercompany loan agreements | 186 | |
| Issuing entity available funds | 186 | |
| Priority of payments among the class A notes, the class B notes, the class M notes, the class C notes and the class D notes | 186 | |
| Mortgages trustee GIC account/Funding GIC account | 187 | |
| Funding liquidity reserve fund | 187 | |
| The Swap Agreements | 189 | |
| General | 189 | |
| The Funding swap | 189 | |
| The issuing entity swaps | 191 | |
| Ratings downgrade of swap providers | 192 | |
| Swap collateral | 192 | |
| Termination of the swaps | 192 | |
| Transfer of the swaps | 194 | |
| Taxation | 194 | |
| Governing law | 194 | |
| Cash Management for the Mortgages Trustee and Funding | 195 | |
| Cash management services provided in relation to the mortgages trust | 195 | |
| Cash management services to be provided to Funding | 195 | |
| Compensation of cash manager | 196 | |
| Resignation of cash manager | 197 | |
| Termination of appointment of cash manager | 197 | |
| Governing law | 197 | |
| Cash Management for the Issuing Entity | 198 | |
| Cash management services to be provided to the issuing entity | 198 | |
| Issuing entity’s bank accounts | 199 | |
| Compensation of issuing entity cash manager | 199 | |
| Resignation of issuing entity cash manager | 199 | |
| Termination of appointment of issuing entity cash manager | 199 | |
| Governing law | 200 | |
| Description of the Trust Deed | 201 | |
| General | 201 | |
| Trust Indenture Act prevails | 202 | |
| Governing law | 202 | |
| The Issuing Entity Notes and the Global Notes | 203 | |
| Payment | 204 | |
| Clearance and settlement | 204 | |
| Global clearance and settlement procedures | 206 | |
| Terms and Conditions of the US Notes | 208 | |
| Material Legal Aspects of the Loans | 235 | |
| English loans | 235 | |
| Taking security over land | 235 | |
| Scottish loans | 236 | |
| United Kingdom Taxation | 240 | |
| Payment of interest on the issuing entity notes | 240 | |
| EU Savings Directive | 241 | |
| United States Taxation | 242 | |
| General | 242 | |
| Tax status of the issuing entity, Funding, mortgages trustee and the mortgages trust | 242 | |
| Characterisation of the offered notes | 243 | |
| Taxation of US holders of the offered notes | 243 | |
| Offered notes as debt of Funding | 243 |
6
| Clause | Page | |
| Information reporting and backup withholding | 244 | |
| ERISA Considerations | 245 | |
| Enforcement of foreign judgments in England and Wales | 248 | |
| United States Legal Investment Considerations | 249 | |
| Legal Matters | 250 | |
| Underwriting | 251 | |
| United States | 251 | |
| United Kingdom | 252 | |
| France | 252 | |
| Italy | 252 | |
| Spain | 253 | |
| Canada | 253 | |
| General | 253 | |
| Reports to noteholders | 254 | |
| Certain relationships | 254 | |
| Incorporation of certain Information by reference | 254 | |
| Where investors can find more information | 255 | |
| Listing and General Information | 256 | |
| Authorisation | 256 | |
| Listing of issuing entity notes | 256 | |
| Clearing and settlement | 256 | |
| Litigation | 256 | |
| Accounts | 256 | |
| Significant or material change | 257 | |
| Trustee Reliance | 257 | |
| Documents available | 257 | |
| Glossary | 259 |
7
On 28 November 2006, Abbey National plc, in its capacity as sponsor, established the residential mortgage-backed note issuance programme (the programme) whereby the issuing entity may from time to time issue the issuing entity notes. Not all of the issuing entity notes issued under the programme will be offered by this prospectus.
The issuing entity and certain other issuing entities (the previous issuing entities) have issued previous notes and used the proceeds thereof to make intercompany loans to Funding. Subject to certain conditions described further in this prospectus, from time to time new issuing entities may also be established to issue new notes and make new intercompany loans to Funding. In addition, new separate funding entities (each a new funding entity) may be created in the future and new issuing entities may be established to issue new notes and make new intercompany loans to such new funding entities. The previous notes issued by the previous issuing entities and the issuing entity are, and any new notes issued by such new issuing entities will be, ultimately secured by the same trust property as the issuing entity notes offered by the issuing entity under this prospectus and the relevant prospectus supplement. The allocation of trust property as between Abbey (the seller) and Funding is described in this prospectus under “The mortgages trust”.
An issuing entity note is not a deposit and neither the issuing entity notes nor the underlying receivables are insured or guaranteed by any United Kingdom or United States governmental agency.
8
DEFINED TERMS
Terms used in this prospectus are defined in the glossary. Where terms first appear in the text, they are also defined there or accompanied by a reference to a definition elsewhere.
References herein to this prospectus are to this base prospectus and references herein to prospectus supplement are to a supplement to this base prospectus which forms part of this prospectus in relation to the relevant series and class (or sub-class) of the issuing entity notes.
References in this prospectus to final terms are to the final terms for the issuing entity notes (including issuing entity notes not offered by this prospectus) filed with the UK Listing Authority and made available to the public in accordance with the Prospectus Rules made pursuant to the Financial Services and Markets Act 2000. The final terms do not form a part of this prospectus and will not be used to offer the issuing entity notes in the United States.
References in this document (other than in the Appendices) to the issuing entity mean Holmes Master Issuer PLC and references to you mean potential investors in the issuing entity notes.
References in this prospectus to the depositor or Funding mean Holmes Funding Limited.
References in this prospectus to the SEC mean the United States Securities and Exchange Commission.
References in this prospectus to £, pounds or sterling are to the lawful currency for the time being of the United Kingdom of Great Britain and Northern Ireland. References in this prospectus to USD, US$, $, US dollars or dollars are to the lawful currency of the United States of America. References in this prospectus to €, euro or Euro are to the single currency introduced at the third stage of European Economic and Monetary Union pursuant to the Treaty establishing the European Communities, as amended from time to time.
Not all series and classes (or sub classes) of issuing entity notes will be registered in the United States under the US Securities Act of 1933, as amended (the Securities Act) and therefore will not be offered under this prospectus. However, the term issuing entity notes unless otherwise stated, when used in this prospectus, includes all notes issued by the issuing entity.
Any series of the issuing entity notes which are registered in the United States under the Securities Act and offered under this prospectus and the relevant prospectus supplement are referred to in this prospectus as US notes or offered notes.
Because this transaction is connected, by virtue of its structure, with several previous transactions and because it may be connected with future transactions, it is necessary in this prospectus to refer to any or all of these transactions.
In respect of notes or other terms derived from or related to them, the word previous is used when referring to the previous transactions, issuing entity when referring to a transaction set out in the accompanying prospectus supplement (the present transaction), current when referring to both the previous transactions, and the present transaction, new when referring to future transactions, and any or all when referring to any or all of the previous transactions, the present transaction and future transactions. For example, the issuing entity notes are the notes issued by Holmes Master Issuer PLC as set out in the relevant prospectus supplement and the previous notes are the notes issued by Holmes Financing (No. 1) PLC, Holmes Financing (No. 2) PLC, Holmes Financing (No. 3) PLC, Holmes Financing (No. 4) PLC, Holmes Financing (No. 5) PLC, Holmes Financing (No. 6) PLC, Holmes Financing (No. 7) PLC, Holmes Financing (No. 8) PLC, Holmes Financing (No. 9) PLC and Holmes Financing (No. 10) PLC, and the issuing entity notes issued by the issuing entity prior to the date of the relevant prospectus supplement.
In respect of term advances or intercompany loans, the word previous is used when referring to any term advances or intercompany loans made available in respect of a previous transaction either (i) by a previous issuing entity under a previous intercompany loan agreement, or (ii) by the issuing entity under the master intercompany loan agreement, current when referring to any term advances or intercompany loans made available by the issuing entity under the master intercompany loan agreement in respect of the present transaction, new when referring to any term
9
advances or intercompany loans made available in respect of a future transaction either (i) by the issuing entity under the master intercompany loan agreement, or (ii) by a new issuing entity under a new intercompany loan agreement and any or all when referring to any of the term advances or intercompany loans under the previous transactions, the present transaction and future transactions.
Each term advance (being either (i) a previous term advance made by a previous issuing entity or the issuing entity under a previous intercompany loan, (ii) a current term advance made by the issuing entity to Funding under the current intercompany loan, or (iii) a new term advance made by a new issuing entity or the issuing entity under a new intercompany loan, in each case funded from proceeds received by the relevant issuing entity from the issuance of a series and class (or sub-class) of notes) carries a rating designation, which is the rating assigned on issuance by the rating agencies (Moody’s Investors Service Limited, Standard & Poor’s Rating Services and Fitch Ratings Ltd.) to the corresponding notes used to fund that term advance. These rating designations, from highest to lowest, are AAA, AA, A, BBB and BB. References to higher or lower term advance rating designations should be construed accordingly.
10
Forward-looking statements
This prospectus includes forward-looking statements including, but not limited to, statements made under the headings “Risk factors”, “The loans”, “The servicer” and “The servicing agreement”. These forward-looking statements can be identified by the use of forward-looking terminology, such as the words “believes”, “expects”, “may”, “intends”, “should” or “anticipates” or the negative or other variations of those terms. These statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results and performance of the issuing entity notes, Abbey or the UK residential mortgage industry to differ materially from any future results or performance expressed or implied in the forward-looking statements. These risks, uncertainties and other factors include, among others general economic and business conditions in the United Kingdom, currency exchange and interest rate fluctuations, government, statutory, regulatory or administrative initiatives affecting Abbey, changes in business strategy, lending practices or customer relationships and other factors that may be referred to in this prospectus. Some of the most significant of these risks, uncertainties and other factors are discussed in this prospectus under the heading “Risk factors”, and you are encouraged to carefully consider those factors prior to making an investment decision in relation to the issuing entity notes.
These forward-looking statements speak only as of the date of this prospectus. The issuing entity expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the issuing entity’s expectations with regard thereto or any change in events, conditions or circumstances after the date of this prospectus on which any such statement is based. These statements reflect the issuing entity’s current views with respect to such matters.
Important notice about information provided in this prospectus
and the relevant prospectus supplement
Information about each series and class (or sub-class) of issuing entity notes is contained in two separate documents: (a) this prospectus, which provides general information, some of which may not apply to a particular series and class (or sub-class) of issuing entity notes; and (b) the relevant prospectus supplement for a particular series and class (or sub-class) of issuing entity notes, which describes the specific terms of the issuing entity notes of that series and class (or sub-class), including:
| • | the timing of interest and principal payments; |
| • | financial and other information about the assets of the issuing entity; |
| • | information about enhancement for the series or class (or sub-class) of issuing entity notes; |
| • | the ratings for the class of issuing entity notes; |
| • | the method for selling the issuing entity notes; and |
| • | other terms and conditions not contained herein that are applicable to that series and class (or sub-class) of issuing entity notes. |
This prospectus may be used to offer and sell any series and class (or sub-class) of issuing entity notes only if accompanied by the prospectus supplement for that series and class (or sub-class).
Although the information in the relevant prospectus supplement for a particular series and class (or sub-class) of issuing entity notes should not be inconsistent with the information contained in this prospectus, insofar as the prospectus supplement contains specific information about the series and class (or sub-class) that differs from the more general information contained in this prospectus, you should rely on the information in the relevant prospectus supplement.
11
You should rely only on the information contained in this prospectus and the relevant prospectus supplement, including the information incorporated by reference. The issuing entity has not authorised anyone to provide you with information that is different from that contained in this prospectus and the relevant prospectus supplement. The information in this prospectus and the relevant prospectus supplement is only accurate as of the dates on the respective covers of those documents.
Cross-references are included in this prospectus and each relevant prospectus supplement to headings in these materials under which you can find further related discussions. The table of contents in this prospectus and the table of contents included in each relevant prospectus supplement provide the pages on which these headings are located.
If you require additional information, the mailing address of Funding’s principal executive offices is Abbey House, 2 Triton Square, Regent’s Place, London NW1 3AN, United Kingdom and the telephone number is +44 (0) 870 607 6000. For other means of acquiring additional information about the issuing entity or a series or class (or sub-class) of issuing entity notes, see “Incorporation of certain information by reference” in this prospectus.
12
OVERVIEW OF TRANSACTION
The information in this section of this prospectus is an overview of the principal features of the issuing entity notes, including the transaction documents and the loans that will generate the income for the issuing entity to make payments on the issuing entity notes. This overview does not contain all of the information that you should consider before investing in the issuing entity notes. You should read this entire prospectus and the relevant prospectus supplement carefully, especially the risks of investing in the issuing entity notes discussed in this prospectus under the heading “Risk factors” and in the relevant prospectus supplement under the heading “Risk factors”.
| Overview of the transaction |
The following is a brief overview of the transaction and is further illustrated by the “Structural diagram of the securitisation by the issuing entity” (the numbers in the diagram refer to the numbered paragraphs in this section).
| (1) | On 26 July 2000 (the initial closing date) and on several subsequent dates (in connection with previous transactions by the issuing entity and by previous issuing entities), the seller assigned the trust property to the mortgages trustee pursuant to a mortgage sale agreement and retained an interest for itself in the trust property, as further described in “Assignment of the loans”. From time to time the seller may, subject to satisfaction of the conditions to sale set out in “Assignment of the loans and their related security – Assignment of loans and their related security to the mortgages trustee”, sell further loans and their related security to the mortgages trustee. The loans will be residential mortgage loans originated by Abbey and secured over properties located in England, Wales and/or Scotland. |
| (2) | The mortgages trustee holds, and will hold, the loans and other property (the trust property) on trust for the benefit of the seller and Funding pursuant to a mortgages trust deed entered into on 25 July 2000, as amended from time to time. The trust property includes the portfolio, which at any time consists of the loans and the other amounts derived from the loans and their related security. Each of the seller and Funding has a joint and undivided interest in the trust property but their respective entitlement to the proceeds from the trust property is in proportion to their respective shares of the trust property, as further described under “The mortgages trust”. |
| (3) | The mortgages trustee distributes interest payments on the loans, after payment of certain fees and expenses (including those of the mortgages trustee, the servicer, the cash manager and the account bank), to Funding according to the share that Funding has in the trust property. The mortgages trustee distributes the remaining interest receipts on the loans to the seller. The mortgages trustee allocates losses in relation to the loans to the seller and Funding according to the share that each of them then has in the trust property, expressed as a percentage. These percentages may fluctuate as described in “The mortgages trust”. The mortgages trustee distributes principal payments on the loans to the seller and Funding according to the share that each of them has in the trust property from time to time and a series of rules as described in “The mortgages trust”. |
| (4) | Funding will use the proceeds of term advances received from time to time from the issuing entity under the master intercompany loan to: |
| (a) | pay the seller part of the consideration for loans (together with their related security) sold by the seller to the mortgages trustee in connection with the relevant issue by the issuing entity and the making of the relevant term advances to Funding, which will result in an increase in the amount of the trust property and a corresponding adjustment to the value of the Funding share of the trust property and the value of the seller share of the trust property; |
| (b) | acquire part of the seller share of the trust property, which will result in a decrease of the seller share of the trust property and a corresponding increase in the Funding share of the trust property; |
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| (c) | fund or replenish the first reserve fund; and/or |
| (d) | make a payment to the issuing entity or a previous issuing entity or a new issuing entity to refinance a previous term advance. |
| (5) | Funding will use a portion of the amounts received from its share in the trust property to meet its obligations to pay interest and principal due to the issuing entity under the master intercompany loan. Funding’s obligations to the issuing entity under the master intercompany loan will be secured under the Funding deed of charge by, among other things, Funding’s share of the trust property. |
| (6) | The issuing entity’s obligations to pay principal and interest on the issuing entity notes will be funded primarily from the payments of principal and interest received by it from Funding under the master intercompany loan. The issuing entity’s primary asset will be its rights and interests under the master intercompany loan agreement. Neither the issuing entity nor the noteholders will have any direct interest in the trust property, although the issuing entity will have a shared security interest under the Funding deed of charge in respect of Funding’s share of the trust property. Prior to service of a note enforcement notice, the issuing entity will only repay a class of issuing entity notes (or part thereof) of any series on the relevant interest payment date if it has received principal repayments in respect of the term advance that was funded by the issue of such issuing entity notes. The issuing entity will only receive a principal repayment in respect of such term advance if, among other things, following such repayment there would continue to be sufficient credit enhancement on that date for each outstanding class of issuing entity notes, either in the form of lower ranking classes of issuing entity notes or other forms of credit enhancement. Following service of a note enforcement notice, the issuing entity will apply amounts received by it from Funding under the master intercompany loan agreement to repay all classes of outstanding issuing entity notes of any series (see “Cashflows – Distribution of issuing entity principal receipts”). |
| (7) | Subject to satisfying certain conditions precedent, including: |
| (a) | the issuing entity obtaining written confirmation from each of the rating agencies that the then current ratings of the issuing entity notes outstanding at that time, and the implicit ratings of the term advances outstanding at that time, will not be adversely affected because of the proposed issue; |
| (b) | that no event of default under any of the intercompany loan agreements outstanding at that time has occurred which has not been remedied or waived, and no event of default will occur as a result of the proposed issue of the issuing entity notes; and |
| (c) | as at the most recent interest payment date, no deficiency (which remains outstanding) is recorded on the principal deficiency ledger in relation to the term advances outstanding at that time, |
| the issuing entity will issue issuing entity notes in separate series and classes (or sub-classes) (each such issue of issuing entity notes issued under the programme being an issue) and then lend the proceeds to Funding under the master intercompany loan agreement (see “Summary of the issuing entity notes – Relationship between the issuing entity notes and the master intercompany loan”). The types of term advances (namely, bullet term advances, scheduled amortisation term advances and pass-through term advances) are described under “Summary of the issuing entity notes – Intercompany loans”. Each series will consist of one or more classes (or sub-classes) of issuing entity notes and may be offered under this prospectus and the relevant prospectus supplement setting out the terms of that series and those classes (or sub-classes) of issuing entity notes. The issuing entity’s obligations under, among other things, the issuing entity notes will be secured, under the issuing entity deed of charge entered into on 28 November 2006 (as amended or restated from time to time) |
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| by the issuing entity with, among others, the issuing entity security trustee and the note trustee, over, among other things, the issuing entity’s rights under the master intercompany loan agreement and the Funding deed of charge. |
| (8) | The accounts, the reserve funds, any 2a-7 swap transactions, the interest-rate swap transactions and the currency swap transactions and their function in the programme structure are described later in this prospectus and the relevant prospectus supplement. They are included in the following diagram so that investors can refer back to see where they fit into the structure. |
| Structural diagram of the securitisation by the issuing entity |
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| Diagram of ownership structure of special purpose companies |
This diagram illustrates the ownership structure of the principal special purpose companies involved in the programme, as follows:
| • | Each of the mortgages trustee, Funding, the issuing entity and the previous issuing entities is, and any new issuing entity or new funding entity is expected to be, a wholly owned subsidiary of Holmes Holdings Limited (Holdings). See “Funding” and ”Summary of the issuing entity notes – The previous issuing entities, new issuing entities and new funding entities” in this prospectus and “Description of the previous issuing entities, the previous notes and the previous intercompany loans” in the relevant prospectus supplement. |
| • | The entire issued share capital of Holdings is held on trust by a professional trust company, not affiliated with the seller, under the terms of a discretionary trust for the benefit of one or more charities. See “Holdings”. The entire issued share capital of the post enforcement call option holder is held on a separate trust by the same professional trust company under the terms of a discretionary trust for the benefit of one or more different charities to those referred to in respect of Holdings. See “PECOH Limited”. |
| • | Abbey (who as the sponsor organises and initiates each transaction under the programme, and who was the sponsor for the transactions by the previous issuing entities) has no ownership interest in any of the entities in the diagram above. This should ensure, among other things, that none of the transactions under the programme will be linked to the credit of Abbey, and that Abbey has no obligation to support any such transaction financially, although Abbey may still have a connection with such transaction for other reasons (such as acting as servicer of the loans and as a beneficiary under the mortgages trust). See “The Abbey group of companies”. |
| • | The previous issuing entities are Holmes Financing (No. 1) PLC, Holmes Financing (No. 2) PLC, Holmes Financing (No. 3) PLC, Holmes Financing (No. 4) PLC, Holmes Financing (No. 5) PLC, Holmes Financing (No. 6) PLC, Holmes Financing (No. 7) PLC, Holmes Financing (No. 8) PLC, Holmes Financing (No. 9) PLC and Holmes Financing (No. 10) PLC, all of which are wholly owned subsidiaries of Holdings. The previous issuing entities and the issuing entity issued the previous notes to investors and loaned the proceeds of those issues to Funding pursuant to separate previous intercompany loan agreements (in the case of the previous issuing entities) and pursuant to the master intercompany loan agreement (in the case of the issuing entity) in separate transactions between 26 July 2000 and 28 November 2006. Any issuing entity notes offered under this prospectus and the relevant prospectus supplement will rank behind, equally or ahead of the previous notes, as further described under “– The previous issuing entities, new issuing entities and new funding entities”. The issuing entity, the previous issuing entities and, if relevant, any new issuing entities will share in the security granted by Funding for its respective obligations to them under their respective intercompany loans. |
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| • | Holdings may establish new issuing entities that issue new notes that may rank behind, equally or ahead of the issuing entity notes, depending on the ratings of the new notes as described under “– The previous issuing entities, new issuing entities and new funding entities”. Any new issuing entity established after the date of this prospectus is expected to be a wholly owned subsidiary of Holdings. |
| • | Holdings may establish new funding entities (each a new funding entity), which may in the future issue new notes from time to time and (subject to the agreement of the seller and Funding) use the proceeds to make a payment to the seller to acquire an interest in the trust property. Any new funding entity would be a wholly owned subsidiary of Holdings as described in “– The previous issuing entities, new issuing entities and new funding entities”. The new notes issued would be secured by the same trust property as the issuing entity notes offered under this prospectus and the relevant prospectus supplement. See “Risk factors – Holdings may establish new funding entities, which may become additional beneficiaries under the mortgages trust”. |
| • | In certain circumstances (including when new issuing entities are established or new funding entities become beneficiaries under the mortgages trust) the security trustee may, or will be obliged to, consent to modifications being made to some of the transaction documents. Your consent will not be obtained in relation to those modifications. See “Risk factors – The security trustee, the issuing entity security trustee and/or the note trustee may agree to modifications to the transaction documents without your prior consent, which may adversely affect your interests”. |
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THE MAIN PARTIES
| The issuing entity |
Holmes Master Issuer PLC (the issuing entity) is a public limited company incorporated in England and Wales. Its registered office is Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN. The contact telephone number is +44 (0) 870 607 6000.
The issuing entity is a special purpose company created at the direction of the sponsor. The purpose of the issuing entity is to issue the issuing entity notes which represent its asset-backed obligations and to lend an amount equal to the proceeds of the issuing entity notes to Funding pursuant to the master intercompany loan agreement. The issuing entity will not engage in any activities that are unrelated to this purpose. See also “The issuing entity”.
| The depositor |
Holmes Funding Limited (Funding) is a private limited company incorporated in England and Wales. Its registered office is Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN. The contact telephone number is +44 (0) 870 607 6000.
Funding is a special purpose company. Funding will borrow money from the issuing entity pursuant to the terms of the master intercompany loan agreement. Funding is a beneficiary under the mortgages trust and currently owns a share of the trust property that it acquired in relation to the previous notes issued by the previous issuing entities and the issuing entity. Funding will use the money borrowed from the issuing entity to: (i) pay the seller part of the consideration for loans (together with their related security) sold by the seller to the mortgages trustee in connection with the relevant issue by the issuing entity and the making of the relevant term advances to Funding, which will result in an increase in the amount of the trust property and a corresponding adjustment to the value of the Funding share of the trust property and the value of the seller share of the trust property; (ii) pay the seller for an increase in Funding’s existing share of the trust property (resulting in a corresponding decrease in the seller’s share of the trust property); (iii) fund or replenish the first reserve fund; and/or (iv) make a payment to the issuing entity or a previous issuing entity or a new issuing entity to refinance a previous term advance. Together, Funding and the seller are beneficially entitled to all of the trust property. New funding entities may also acquire a share of the trust property in the future. See also “Funding”.
| The mortgages trustee |
Holmes Trustees Limited (the mortgages trustee) is a private limited company incorporated in England and Wales. See “The mortgages trustee”. Its registered office is Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN. The contact telephone number is +44 (0) 870 607 6000.
The mortgages trustee is a special purpose company. The purpose of the mortgages trustee is to hold the trust property. The mortgages trustee holds the trust property on trust for the seller and Funding and, if applicable, new funding entities, under the terms of the mortgages trust deed. See also “The mortgages trust”.
The sponsor, the seller, the servicer, the Funding swap provider, the cash manager, the issuing entity cash manager, the issuing entity account banks and the originator
Abbey National plc (Abbey) is a bank incorporated in England and Wales as a public limited company. It is regulated by the FSA. Abbey’s current rating for its long term senior debt is AA- by Standard & Poor’s, Aa3 by Moody’s and AA- by Fitch. Its registered office is Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN. The contact telephone number is +44 (0) 870 607 6000. See also “The Abbey group of companies”.
Abbey will act as sponsor, being the entity that is organising and initiating this residential mortgage-backed note issuance programme, and as seller, by transferring the loans (and their related security) to the mortgages trust, Funding’s beneficial share of which backs the issuing entity notes to be issued by the issuing entity.
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The seller originated all of the loans in the portfolio according to the lending criteria applicable at the time of origination and has assigned those loans together with their related security to the mortgages trustee under the mortgage sale agreement. The seller’s current lending criteria are described later in this prospectus. The seller may from time to time sell additional loans together with their related security to the mortgages trustee pursuant to the terms of the mortgage sale agreement. See “Assignment of the loans and their related security”.
Although the loans have been assigned to the mortgages trustee, the seller continues to perform administration and servicing functions in respect of the loans on behalf of the mortgages trustee and the beneficiaries of the mortgages trust, including collecting payments under the loans and taking steps to recover arrears. The seller may not resign as servicer unless a successor servicer has been appointed. In addition, the servicer may be replaced by a successor servicer if it defaults in its obligations under the servicing agreement. The seller has delegated some of the administration and servicing functions in respect of the loans. See “The servicing agreement – Actual delegation by the servicer”.
Abbey has also been appointed as the cash manager for the mortgages trustee and Funding to manage their bank accounts, determine the amounts of and arrange payments of monies to be made by them and keep certain records on their behalf. See “Cash management for the mortgages trustee and Funding”.
Abbey has also been appointed as the issuing entity cash manager to manage the issuing entity’s bank accounts, determine the amounts of and arrange payments of monies to be made by the issuing entity and keep certain records on the issuing entity’s behalf. See “Cash management for the issuing entity”.
Additionally, Abbey has been appointed as an issuing entity account bank (the sterling account bank) to provide banking services to the issuing entity, and has been appointed as the account bank to Funding and the mortgages trustee. The other issuing entity account bank (the non-sterling account bank) is Citibank, N.A., London Branch.
Citibank, N.A., London Branch, as an issuing entity account bank is a national banking association organised under the National Bank Act of 1864. Its address is Citigroup Centre, Canada Square, London E14 5LB. Its contact telephone number is +44 (0) 20 7500 5000.
Although the seller has assigned the loans to the mortgages trustee, the seller continues to have an interest in the loans as holder of the legal title to the loans and as one of the beneficiaries of the mortgages trust under the mortgages trust deed. See “The mortgages trust – Seller share of the trust property”.
| The note trustee |
The Bank of New York, London Branch is the note trustee. Its address is One Canada Square, London E14 5AL. The note trustee will act as trustee for the noteholders under the trust deed.
| The paying agents, agent bank, registrar and transfer agent |
The Bank of New York, London Branch is the principal paying agent. Its address is One Canada Square, London E14 5AL. The Bank of New York, New York Branch is the US paying agent and its address is 101 Barclay Street, New York NY 10286. The paying agents will make payments on the issuing entity notes to noteholders.
The Bank of New York, London Branch is the agent bank. Its address is One Canada Square, London E14 5AL. The agent bank will calculate the interest rate on the issuing entity notes.
The Bank of New York (Luxembourg) S.A. is the registrar and the transfer agent. Its address is Aerogolf Center, 1A, Hoehenhof, L-1736 Senningerberg, Luxembourg. The registrar will maintain a register in respect of the issuing entity notes.
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| The security trustee |
JPMorgan Chase Bank, N.A., London Branch is the security trustee. Its address is Trinity Tower, 9 Thomas More Street, London E1W 1YT. The security trustee will act as trustee for the Funding secured creditors under the Funding deed of charge.
| The issuing entity security trustee |
The Bank of New York, London Branch is the issuing entity security trustee. Its address is One Canada Square, London E14 5AL. The issuing entity security trustee will act as trustee for the issuing entity secured creditors under the issuing entity deed of charge.
| The previous issuing entities and new issuing entities |
In connection with the loans (and their related security) sold to the mortgages trustee prior to the programme date, the previous issuing entities issued previous notes and used the sterling equivalent of the issue proceeds to make previous intercompany loans to Funding on the respective previous closing dates. Each of the previous issuing entities is a wholly-owned subsidiary of Holdings. In the future, new issuing entities may issue new notes and loan the proceeds to Funding and/or to new funding entities, as the case may be. It is not necessary to obtain your approval for any issuance of new notes, nor is it necessary to provide you with notice of any such issuance.
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SUMMARY OF THE ISSUING ENTITY NOTES
| Series |
The issuing entity may from time to time issue class A notes, class B notes, class M notes, class C notes and class D notes in one or more series. Each series will consist of one or more classes (or sub-classes) of issuing entity notes. One or more series or classes (or sub-classes) of issuing entity notes may be issued at one time. Each series and class (or sub-class) of issuing entity notes will be secured over the same assets as all other issuing entity notes offered under this prospectus and the relevant prospectus supplement as well as all previous notes issued by previous issuing entities and the issuing entity. The issuing entity notes issued from time to time by the issuing entity will constitute direct, secured and unconditional obligations of the issuing entity.
The issuing entity notes of a particular class in differing series (and the issuing entity notes of differing sub-classes of the same class and series) will not necessarily have all the same terms. Differences may include issue price, principal amount, interest rates and interest rate calculations, currency, permitted redemption dates, final maturity dates and ratings. Noteholders holding certain issuing entity notes may have the benefit of remarketing and conditional purchase arrangements or 2a-7 swap provider arrangements specified in the applicable prospectus supplement. The terms of each series and class (or sub-class) of issuing entity notes will be set out in the relevant prospectus supplement.
For a summary of characteristics of the previous notes, see “Description of the previous issuing entities, the previous notes and the previous intercompany loans” in the relevant prospectus supplement.
| Payment |
Some series of issuing entity notes will be paid ahead of others, regardless of the ranking of the issuing entity notes. In particular, some payments on some series of class B notes, class M notes, class C notes and class D notes will be made before some series of class A notes, as described under “Summary of the issuing entity notes – Payment and ranking of the issuing entity notes”.
In addition, the occurrence of an asset trigger event or non-asset trigger event (which are briefly described under “Summary of the issuing entity notes – Trigger events”) will alter the payments on the issuing entity notes.
| Interest |
Interest will accrue on each series and class (or sub-class) of issuing entity notes from its date of issue at the applicable interest rate specified in the relevant prospectus supplement for that series and class (or sub-class) of issuing entity notes, which may be fixed or floating rate or have a combination of these characteristics. Interest on each series and class (or sub-class) of issuing entity notes will be due and payable on the interest payment dates specified in the relevant prospectus supplement up to and including the final maturity date or early redemption date.
Any shortfall in payments of interest due on any series of the class B notes (to the extent that any class A notes are outstanding), the class M notes (to the extent that any class A notes and/or class B notes are outstanding), the class C notes (to the extent that any class A notes and/or class B notes and/or class M notes are outstanding) or the class D notes (to the extent that any class A notes and/or class B notes and/or class M notes and/or class C notes are outstanding) on any interest payment date in respect of such issuing entity notes will, unless it is the then most senior class of issuing entity notes of that issue then outstanding, be deferred until the immediately succeeding interest payment date in respect of such issuing entity notes. On that immediately succeeding interest payment date, the amount of interest due on the relevant class of issuing entity notes will be increased to take account of any such deferred interest. If on that interest payment date there is still a shortfall, that shortfall will be deferred again. This deferral process will continue until the final maturity date of such issuing entity notes, at which point all such deferred amounts will become due and payable. However, if there are insufficient funds available to the issuing entity to pay interest on the class B notes, the class M notes, the class C
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notes or the class D notes, then noteholders may not receive all interest amounts due on those classes of issuing entity notes. Payments of interest due on any interest payment date in respect of the class A notes, or (if applicable) the most senior class of issuing entity notes of that issue then outstanding in respect of which interest may not be deferred and the failure to pay interest on such issuing entity notes will be a note event of default.
| Issuance |
Issuing entity notes may only be issued upon the satisfaction of certain conditions precedent. In particular, issuing entity notes may be issued only if the following conditions (among others) are satisfied:
| • | the issuing entity obtaining a written confirmation from each of the rating agencies that the then current ratings of the issuing entity notes outstanding at that time, and the implicit ratings of the term advances outstanding at that time, will not be adversely affected because of the proposed issue (bearing in mind that the term advances are not themselves rated); |
| • | that no event of default under any of the intercompany loan agreements outstanding at that time has occurred which has not been remedied or waived and no event of default will occur as a result of the proposed issue of the issuing entity notes; and |
| • | as at the most recent interest payment date, that no principal deficiency (which remains outstanding) is recorded on the principal deficiency ledger in relation to the term advances outstanding at that time. |
There are no restrictions on the issuance of any issuing entity notes so long as such conditions are satisfied.
| Ratings |
The ratings assigned to each series and class (or sub-class) of issuing entity notes will be specified in the relevant prospectus supplement.
A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation if, in its judgment, circumstances in the future so warrant.
Standard & Poor’s, Moody’s and Fitch together comprise the rating agencies referred to in this prospectus. The term rating agencies also includes any further or replacement rating agency appointed by the issuing entity with the approval of the note trustee to give a credit rating to the issuing entity notes of any series.
The issuing entity has agreed to pay ongoing surveillance fees to the rating agencies, in exchange for which each rating agency will monitor the ratings it has assigned to each series and class (or sub-class) of issuing entity notes while they are outstanding.
| Listing |
Application will be made to the UK Listing Authority for the issuing entity notes issued during the period of 12 months from the date of this prospectus to be admitted to the official list maintained by the UK Listing Authority. Application will also be made to the London Stock Exchange for each series and class (or sub-class) of the issuing entity notes to be admitted to trading on the London Stock Exchange’s Gilt Edged and Fixed Interest Market.
| Denominations of the issuing entity notes |
The issuing entity notes (in either global or definitive form) will be issued in the denominations specified in the relevant prospectus supplement, save that the minimum denomination of each issuing entity note will be such as may be allowed or required from time to time by the relevant central bank or regulatory authority (or equivalent body) or any laws or regulations applicable to the relevant currency and save that the minimum denomination of each US dollar denominated issuing entity note will be $100,000 and in integral multiples of $1,000 in excess thereof, each sterling denominated issuing entity note will be issued in minimum denominations of £50,000 and in
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integral multiples of £1,000 in excess thereof and each euro denominated issuing entity note will be issued in minimum denominations of €50,000 and in integral multiples of €1,000 in excess thereof.
| Maturities |
Issuing entity notes will be issued in such maturities as may be specified in the relevant prospectus supplement, subject to compliance with all applicable legal, regulatory and/or central bank requirements.
| Currencies |
Subject to compliance with all applicable legal, regulatory and/or central bank requirements, a series and class (or sub-class) of issuing entity notes may be denominated in such currency or currencies as may be agreed between the relevant underwriters and/or dealers and the issuing entity as specified in the relevant prospectus supplement.
| Issue price |
Each series and class (or sub-class) of issuing entity notes may be issued on a fully paid basis and at an issue price which is at par or at a discount to, or a premium over, par.
| Selling restrictions |
For a description of certain restrictions on offers, sales and deliveries of issuing entity notes and on the distribution of offering material in the United Kingdom and certain other jurisdictions, see “Underwriting” below and in the relevant prospectus supplement.
| Relationship between the issuing entity notes and the master intercompany loan |
The gross proceeds of each issue of issuing entity notes will fund an intercompany loan under the master intercompany loan agreement. Each such intercompany loan will comprise multiple term advances, each relating to a particular series and class (or sub-class) of issuing entity notes forming part of the relevant issue. The repayment terms of each term advance (for example, dates for payment of principal and the type of amortisation or redemption) will reflect the terms of the related series and class (or sub-class) of issuing entity notes. Subject to any swap agreements as described under “The swap agreements” and the Funding priority of payments and the issuing entity priority of payments, the issuing entity will make payments on the relevant series and class (or sub-class) of issuing entity notes from payments received by it from Funding under the corresponding term advance of the master intercompany loan and, in each case where the relevant class (or sub-class) of issuing entity notes is denominated in a currency other than sterling, after making the appropriate currency exchange under the corresponding issuing entity swap agreement.
The ability of Funding to make payments on the master intercompany loan will depend to a large extent on (a) Funding receiving its share of collections on the trust property, which will in turn depend principally on the collections the mortgages trustee receives on the loans and the related security and (b) the allocation of monies between the previous intercompany loans, the master intercompany loan and any new intercompany loans. See “Summary of the issuing entity notes – Intercompany loans”.
| Diagram of the priority of payments by the issuing entity and subordination relationships |
The following diagram illustrates in a general way the payment priorities for revenue receipts and principal receipts by the issuing entity before acceleration of the intercompany loans and also indicates the subordination relationship among the issuing entity notes of a particular issue. This diagram does not indicate the priority of payments by Funding, nor does it indicate the priority of payments by the issuing entity after acceleration of the intercompany loans. For the sake of simplicity, this diagram omits material details relating to the payment priorities. You should refer to “Cashflows” for a description of the priorities of payments by Funding and the issuing entity in all circumstances.
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| * | Includes scheduled amounts and, provided that termination of a swap is not related to a default or rating downgrade of the related swap provider, early termination amounts payable to the swap providers for the swaps entered into by the issuing entity corresponding to the relevant class (or sub-class) of issuing entity notes. Amounts received by the issuing entity from such swap providers under the relevant swap will be used to make payments of interest and principal on the corresponding class (or sub-class) of issuing entity notes. |
| Operative documents concerning the issuing entity notes |
The issuing entity will issue each series of issuing entity notes under the trust deed. The issuing entity notes will also be subject to the issuing entity paying agent and agent bank agreement. The security for the issuing entity notes will be created under the issuing entity deed of charge between the issuing entity, the issuing entity security trustee and the issuing entity’s other secured creditors. Operative legal provisions relating to the issuing entity notes are included in the trust deed, the issuing entity paying agent and agent bank agreement, the issuing entity deed of charge, the issuing entity cash management agreement and the issuing entity notes themselves, each of which are governed by English law.
| Payment and ranking of the issuing entity notes |
Payments of interest and principal on the class A notes of each series due and payable on an interest payment date will rank ahead of payments of interest and principal on the class B
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notes of any series, the class M notes of any series, the class C notes of any series and the class D notes of any series (in each case due and payable on such interest payment date). Payments of interest and principal on the class B notes of each series will rank ahead of payments of interest and principal on the class M notes of any series, the class C notes of any series and the class D notes of any series (in each case due and payable on such interest payment date). Payments of interest and principal on the class M notes of each series will rank ahead of payments of interest and principal on the class C notes of any series and the class D notes of any series (in each case due and payable on such interest payment date). Payments of interest and principal on the class C notes of each series will rank ahead of payments of interest and principal on the class D notes of any series (in each case due and payable on such interest payment date). For more information on the priority of payments, see “Cashflows” and see also “Risk factors – Subordination of other issuing entity note classes may not protect noteholders from all risk of loss”.
Payments of interest and principal on the class A notes of each series rank equally (but subject to the interest payment dates, scheduled redemption dates or permitted redemption dates of each series of class A notes). Payments of interest and principal on the class B notes of each series rank equally (but subject to the interest payment dates or permitted redemption dates of each series of class B notes). Payments of interest and principal on the class M notes of each series rank equally (but subject to the interest payment dates or permitted redemption dates of each series of class M notes). Payments of interest and principal on the class C notes of each series rank equally (but subject to the interest payment dates or permitted redemption dates of each series of class C notes). Payments of interest and principal on the class D notes of each series rank equally (but subject to the interest payment dates or permitted redemption dates of each series of class D notes). The interest payment dates, scheduled redemption dates and permitted redemption dates for a series and class (or sub-class) of issuing entity notes will be specified in the relevant prospectus supplement.
Investors should note that subject as further described under “Cashflows”:
| • | Issuing entity notes of different series and classes (or sub-classes) are intended to receive payment of interest and principal at different times, and therefore lower ranking classes of issuing entity notes of one series may be paid interest and principal before higher ranking classes of issuing entity notes of a different series. |
| • | No term advance other than the AAA term advances and, consequently, no issuing entity notes of any class other than the class A notes may be repaid principal if, following such repayment, the amount of credit enhancement available from all outstanding subordinated term advances, reserves and other forms of credit enhancement is less than the required subordinated amount for any class of issuing entity notes more senior to that term advance. The required subordinated amount for each class of US notes will be specified in the relevant prospectus supplement and may change for new issues of issuing entity notes. The repayment tests which determine whether the principal outstanding of any term advance and, consequently, any series and class (or sub-class) of issuing entity notes, may be repaid principal are set out in “Cashflows”. The failure to repay principal in respect of a term advance (other than the AAA term advances) and the related issuing entity notes on the applicable interest payment dates due to the repayment tests not being met will not constitute an event of default in respect of such term advance or in respect of the related issuing entity notes. |
| • | If there is a debit balance on a principal deficiency sub-ledger with respect to a particular lower ranking term advance or the adjusted first reserve fund level is less than the first reserve fund required amount or arrears in respect of loans in the mortgages trust exceed a specified amount (each as described below under “Cashflows”) and there is a more senior term advance and related series and class (or sub-class) of issuing entity notes outstanding, no amount of principal will be repayable in respect of such lower ranking term advance and related series and class (or sub-class) of issuing entity notes until such situation is rectified. The failure to repay principal in respect of |
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| such lower ranking term advance and the related issuing entity notes on the applicable redemption dates for any of the aforementioned reasons will not constitute an event of default in respect of such term advance or in respect of the related issuing entity notes. |
| • | To the extent required, but subject to certain limits and conditions, Funding may apply amounts standing to the credit of the first reserve fund and the Funding liquidity reserve fund (if any) in payment of, among other things, amounts due to the issuing entity in respect of the term advances. |
| • | Prior to service of a note enforcement notice, a series and class (or sub-class) of issuing entity notes may be redeemed on a permitted redemption date only to the extent of the amount (if any) repaid on the related term advance in respect of such date. |
| • | If not redeemed earlier, each series and class (or sub-class) of issuing entity notes will be redeemed by the issuing entity on the final maturity date specified in the relevant prospectus supplement. The failure to redeem a series and class (or sub-class) of issuing entity notes on its final maturity date will constitute a note event of default in respect of such issuing entity notes. |
| • | Following a trigger event or service of an intercompany loan acceleration notice or a note enforcement notice, the priority of payments will change and the issuing entity will make payments of interest and principal in accordance with and subject to the relevant priority of payments as described below under “Cashflows”. |
| Fixed rate notes |
If issued, a series and class (or sub-class) of fixed rate notes would bear interest at a fixed rate and the interest would be payable on the interest payment dates and on redemption as specified in the relevant prospectus supplement and would be calculated on the basis of the day count fraction specified in the relevant prospectus supplement.
| Floating rate notes |
If issued, a series and class (or sub-class) of floating rate notes would bear interest in each case at the rate specified in the relevant prospectus supplement. The margin, if any, relating to such series and class (or sub-class) of issuing entity notes would be specified in the relevant prospectus supplement. Interest on floating rate notes in respect of each interest period would be payable on the interest payment dates and would be calculated on the basis of the day count fraction specified in the relevant prospectus supplement.
| Zero coupon notes |
If issued, a series and class (or sub-class) of zero coupon notes would be offered and sold at a discount to their nominal amount as specified in the relevant prospectus supplement (zero coupon notes).
| Bullet redemption notes |
If issued, a series and class (or sub-class) of bullet redemption notes would be redeemable in full on the bullet redemption date specified in the relevant prospectus supplement. However, Funding will seek to accumulate funds relating to payment of principal on each bullet term advance over its cash accumulation period in order to make a single payment to the issuing entity so that the issuing entity can redeem the corresponding bullet redemption notes in full on the relevant bullet redemption date.
A cash accumulation period in respect of a bullet term advance is the period of time estimated to be the number of months prior to the relevant bullet redemption date necessary for Funding to accumulate enough principal receipts derived from its share of the trust property to repay that bullet term advance to the issuing entity so that the issuing entity will be able to redeem the corresponding bullet redemption notes in full on the relevant bullet redemption date. The cash accumulation period is described under “The mortgages trust”. To the extent there are insufficient funds to redeem a series and class (or sub-class) of bullet redemption notes on the relevant bullet
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redemption date, then the issuing entity will be required to pay the shortfall, to the extent it receives funds therefor, on subsequent interest payment dates in respect of such issuing entity notes up until the final repayment date. No assurance can be given that Funding will accumulate sufficient funds during the cash accumulation period relating to any bullet term advance to enable it to repay the relevant bullet term advance to the issuing entity so that the issuing entity is able to repay principal of the related series and class (or sub-class) of bullet redemption notes on the relevant bullet redemption date.
See “Risk factors – The yield to maturity of the issuing entity notes may be adversely affected by prepayments or redemptions on the loans” and “Risk factors – The issuing entity’s ability to redeem the issuing entity notes on their scheduled redemption dates is affected by the rate of prepayment on the loans”.
Following the earlier to occur of a trigger event and the step-up date (if any) in relation to a series and class (or sub-class) of bullet redemption notes, such issuing entity notes will be deemed to be pass-through notes and the issuing entity will repay such issuing entity notes to the extent that funds are available and subject to the conditions referred to above regarding repayment on subsequent interest payment dates.
For more information on the redemption of the issuing entity notes, including a description of asset trigger events and non-asset trigger events, see “The mortgages trust – Cash management and allocation of trust property – principal receipts” and “Cashflows”.
| Scheduled redemption notes |
If issued, a series and class (or sub-class) of scheduled redemption notes would be redeemable on scheduled redemption dates in two or more scheduled amortisation amounts, the dates and amounts of which will be specified in the relevant prospectus supplement. Prior to each scheduled redemption date, Funding will seek to accumulate sufficient funds so that it may repay the issuing entity each scheduled amortisation amount on the relevant scheduled redemption date so that the issuing entity is able to repay principal on the related series and class (or sub-class) of scheduled redemption notes on the relevant scheduled redemption date.
A scheduled amortisation period in respect of a scheduled amortisation amount is the period of time estimated to be the number of months prior to the relevant scheduled redemption date necessary for Funding to accumulate enough principal receipts derived from its share of the trust property to repay that scheduled amortisation amount to the issuing entity on the relevant scheduled redemption date. The scheduled amortisation period is described under “The mortgages trust”. If there are insufficient funds on a scheduled redemption date for Funding to repay the issuing entity the relevant scheduled amortisation amount, then the issuing entity will be required to pay the shortfall in respect of the related series and class (or sub-class) of scheduled redemption notes, to the extent it receives funds therefor, on subsequent interest payment dates in respect of such issuing entity notes. No assurance can be given that Funding will accumulate sufficient funds during the scheduled amortisation period relating to any scheduled amortisation amount to enable it to repay the relevant scheduled amortisation amount to the issuing entity so that the issuing entity is able to repay principal of the related series of scheduled redemption notes on the scheduled redemption date.
Following the earlier to occur of a trigger event and the step-up date (if any) in relation to a series and class (or sub-class) of scheduled redemption notes, such issuing entity notes will be deemed to be pass-through notes and the issuing entity will repay such issuing entity notes to the extent that funds are available and subject to the conditions referred to above regarding repayment on subsequent interest payment dates.
| Pass-through notes |
If issued, a series and class (or sub-class) of pass-through notes would be redeemable in full on the final maturity date specified in the relevant prospectus supplement. On each interest payment date, Funding may make payments of amounts equal to the pass-through requirement in respect of pass-through term advances to the issuing entity so that the issuing entity may, on the
27
applicable interest payment date, repay all or part of the related series and class (or sub-class) of pass-through notes prior to their final maturity dates.
Following the earlier to occur of a trigger event and the step-up date (if any) in relation to a series and class (or sub-class) of pass-through notes, the issuing entity will repay such pass-through notes to the extent that funds are available and subject to the conditions referred to above for repayment on subsequent interest payment dates.
| Money market notes |
From time to time, the issuing entity may issue a series and class (or sub-class) of issuing entity notes designated as money market notes in the relevant prospectus supplement. Money market notes are issuing entity notes which will be “Eligible Securities” within the meaning of Rule 2a-7 under the US Investment Company Act of 1940, as amended (the Investment Company Act).
Money market notes will generally be bullet redemption notes or scheduled redemption notes, the final maturity date of which will be fewer than 397 days from the closing date on which such issuing entity notes were issued.
Such money market notes may have the benefit of remarketing arrangements under which a remarketing bank and a conditional note purchaser (the remarketing bank and the conditional note purchaser respectively) enter into agreements under which the remarketing bank agrees to seek purchasers of the relevant issuing entity notes on specified dates throughout the term of such issuing entity notes (each such date a transfer date) and the conditional note purchaser agrees to purchase any such issuing entity notes on the related transfer date if purchasers for such issuing entity notes have not been found, provided that certain events have not then occurred.
The transfer dates for any affected class (or sub-class) or series of issuing entity notes will be specified in the relevant prospectus supplement but are likely to be on every anniversary of issue of the relevant issuing entity notes.
The circumstances in which a conditional note purchaser is not obliged to purchase any affected issuing entity notes on a transfer date in circumstances where purchasers for such issuing entity notes have not been found will likewise be specified in the relevant prospectus supplement relating to the particular issuing entity notes but will include the occurrence of an event of default and may also include the occurrence of certain triggers related to the ratings of the issuing entity notes (such events conditional note purchaser obligation termination events).
If prior to any transfer date purchasers for any issuing entity notes of the relevant series or class (or sub-class) have not been found, unless a conditional note purchaser obligation termination event has occurred, the remarketing bank will serve a notice on the conditional note purchaser to purchase the issuing entity notes which remain unremarketed on the transfer date for a price per note specified in such notice.
The rate of interest under the relevant issuing entity notes will be re-set on each transfer date, either at a rate determined by the remarketing bank or, if any issuing entity notes are to be acquired by the conditional note purchaser, at a specified rate subject to a maximum re-set margin as specified in such prospectus supplement.
If the conditional note purchaser has purchased all of the issuing entity notes as of any transfer date, the rate of interest shall cease to be re-set on future transfer dates and the remarketing bank shall cease to be under any obligation to find purchasers of such issuing entity notes on any transfer date following such purchase.
The appointment of the remarketing bank may be terminated by the issuing entity if the remarketing bank becomes insolvent, no longer has the requisite authority or ability to act in accordance with the terms of the relevant documentation documenting the arrangements or a material breach of warranty or covenant by the remarketing bank occurs and is outstanding under the relevant documentation.
The remarketing bank will have the right to terminate its remarketing obligations under the relevant documentation if a note event of default occurs and is continuing, there occurs an event
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beyond the control of the remarketing bank such that it is unable to perform its obligations under the relevant documentation or which in its reasonable opinion represents a material market change affecting the issuing entity notes to be re-marketed, the requirements of rule 2a-7 of the Investment Company Act for purchase of the relevant issuing entity notes by money market funds have changed since the closing date for the relevant issuing entity notes or if the conditional note purchaser purchases all relevant issuing entity notes pursuant to its obligations under the relevant documentation.
No remarketing bank or conditional note purchaser shall have any recourse to the issuing entity in respect of such arrangements.
Certain risks relating to repayment of money market notes by means of a money market note subscriber are described under “Risk factors – The remarketing bank may not be able to remarket money market notes and payments from a conditional note purchaser may not be sufficient to repay money market notes”. No assurance can be given that any remarketing bank or any conditional note purchaser will comply with and perform their respective obligations under the remarketing documentation. Each remarketing bank will be required to make the representations required of underwriters as described in “Underwriting”.
The issuing entity may also have the benefit of a 2a-7 swap provider arrangement under which a swap provider (the 2a-7 swap provider) will be required to make a principal payment under the relevant issuing entity swap agreement to the issuing entity to enable the issuing entity to redeem a class (or sub-class) of issuing entity notes in full on their bullet repayment date (unless an asset trigger event has occurred on or prior to that date) notwithstanding that it has not received the corresponding principal payment required to be made by the issuing entity under the relevant issuing entity swap agreement. A failure by the issuing entity to make the full principal repayment on the bullet repayment date of the term advance corresponding to the relevant class (or sub-class) of issuing entity notes for which the relevant issuing entity swap was entered into will not constitute an event of default or a termination event under the relevant issuing entity swap agreement. If such arrangements apply to any money market notes, the relevant prospectus supplement will, in addition to providing information regarding a series and class (or sub-class) of money market notes, identify any 2a-7 swap provider in respect of such money market notes and the terms of the applicable issuing entity swap agreement.
Certain risks relating to repayment of money market notes in reliance on such an arrangement with a 2a-7 swap provider are described under “Risk factors – You may be subject to risks relating to exchange rates or interest rates on the issuing entity notes or risks relating to reliance on a 2a-7 swap provider”.
| Redemption and repayment |
If not redeemed earlier, each series and class (or sub-class) of issuing entity notes will be redeemed by the issuing entity on the final maturity date specified for such series and class (or sub-class) of issuing entity notes in the relevant prospectus supplement.
For more information on the redemption of the issuing entity notes, see “The mortgages trust – Cash management and allocation of trust property – principal receipts” and “Cashflows”. See also “Summary of the issuing entity notes – Payment and ranking of the issuing entity notes”.
| Optional redemption or repurchase of the issuing entity notes |
The issuing entity may redeem all, but not a portion, of a series and class (or sub-class) of issuing entity notes at their aggregate redemption amount, together with any accrued and unpaid interest in respect thereof by giving notice in accordance with the terms and conditions of the issuing entity notes of that issue, subject to the issuing entity notes not having been accelerated and the availability of sufficient funds, as described in detail in number 5.5 or, as applicable and if specified in the relevant prospectus supplement, number 5.6 under “Terms and conditions of the US notes” (subject to certain conditions set out therein) in the following circumstances:
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| • | if at any time it would become unlawful for the issuing entity to make, fund or to allow to remain outstanding a term advance made by it under the master intercompany loan agreement (see number 5.5 under “Terms and conditions of the US notes”); or |
| • | on any interest payment date in the event of particular tax changes affecting the issuing entity, the issuing entity notes or the corresponding term advance under the master intercompany loan agreement (see number 5.5 under “Terms and conditions of the US notes”); or |
| • | (if specified in the relevant prospectus supplement) if the new regulatory capital framework known as the Basel II Framework has been implemented in the United Kingdom (through the implementation of the EU Capital Requirements Directive) (see number 5.6 under “Terms and conditions of the US notes”). |
In addition, the issuing entity may redeem in the same manner as stated in the previous paragraph a series and class (or sub-class) of issuing entity notes outstanding:
| • | on the step-up date relating to such series and class (or sub-class) of issuing entity notes (as specified in the relevant prospectus supplement) and on any interest payment date thereafter (see number 5.4 under “Terms and conditions of the US notes”); or |
| • | on any interest payment date on which the aggregate principal amount of such series and class (or sub-class) of issuing entity notes and all other classes of issuing entity notes of the same series is less than 10 per cent. of the aggregate principal amount outstanding of such series of issuing entity notes as at the relevant closing date on which such series of issuing entity notes was issued (see number 5.4 under “Terms and conditions of the US notes”). |
| Post-enforcement call option |
The note trustee is required at the request of the post-enforcement call option holder, for a nominal consideration, to transfer or procure the transfer of all of the class B notes and/or all of the class M notes and/or all of the class C notes and/or all of the class D notes, as the case may be, to the post-enforcement call option holder pursuant to the option granted to it by the note trustee (as agent for the noteholders) under the terms of the post-enforcement call option agreement. The post-enforcement call option may only be exercised following enforcement and realisation of the issuing entity security to the maximum extent possible (as certified by the issuing entity security trustee) and the application of the proceeds of that enforcement. See “PECOH Limited”.
| Withholding tax |
Payments of interest and principal with respect to the issuing entity notes will be made subject to any withholding or deduction for or on account of any taxes, and neither the issuing entity nor any other person will be obliged to pay additional amounts in relation thereto. The applicability of any UK withholding tax is discussed under “United Kingdom taxation”.
| The programme date |
On 28 November 2006 (the programme date) the issuing entity and other principal transaction parties entered into the transaction documents in relation to the establishment of the programme and the amendment and restatement of certain transaction documents (some of which are also Funding transaction documents).
| Credit enhancement |
Subject to the detailed description and limits set forth under the heading “Credit structure”, the issuing entity notes of each series will have the benefit of the following credit enhancement or support:
| • | availability of excess portions of Funding available revenue receipts (which consist of revenue receipts on the loans paid by the mortgages trustee to Funding and other amounts as set forth under the heading “Cashflows – Distribution of Funding |
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| available revenue receipts”) and of Funding available principal receipts (which consist of principal receipts on the loans paid by the mortgages trustee to Funding and other amounts as set forth under the heading “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security – Definition of Funding available principal receipts”); |
| • | reserve funds that will be used in certain circumstances by Funding to meet any deficit in revenue or to repay amounts of principal; and |
| • | subordination of junior classes of notes. |
| Swap agreements |
The issuing entity notes will also have the benefit of derivatives instruments, namely the Funding swaps provided by Abbey, as the Funding swap provider, and any issuing entity swaps in respect of the relevant series and class (or sub-class) of issuing entity notes, as specified in the relevant prospectus supplement. See “The swap agreements”.
| Funding principal deficiency ledger |
A principal deficiency ledger has been established to record principal losses on the loans allocated to Funding and the application of Funding available principal receipts to meet any deficiency in Funding available revenue receipts or to fund the Funding liquidity reserve fund (if any) up to the Funding liquidity reserve required amount.
The Funding principal deficiency ledger has five sub-ledgers which will correspond to each of the AAA term advances, the AA term advances, the A term advances, the BBB term advances and the BB term advances, respectively. See “Credit structure – Principal deficiency ledger”.
| Trigger events |
If an asset trigger event or non-asset trigger event should occur, then payments on the issuing entity notes may be altered, as described in “Cashflows”.
An asset trigger event will occur when an amount is debited to the AAA principal deficiency sub-ledger of Funding.
A non-asset trigger event means the occurrence of any of the following: (a) an insolvency event in relation to the seller; (b) the seller’s role as servicer under the servicing agreement is terminated and a new servicer is not appointed within 60 days; (c) on the distribution date immediately succeeding a seller share event distribution date, the current seller share is equal to or less than the minimum seller share (determined using the amounts of the current seller share and minimum seller share that would exist after making the distributions of the principal receipts due on that distribution date on the basis that the cash manager assumes that those principal receipts are distributed in the manner described under “– Mortgages trust allocation and distribution of principal receipts prior to the occurrence of a trigger event”); or (d) on the distribution date immediately succeeding a seller share event distribution date, the aggregate outstanding principal balance of loans comprising the trust property on such distribution date is less than the required loan balance amount in effect at that time. The required loan balance amount in effect at the time of an offering of US notes will be set forth in the relevant prospectus supplement under the heading “Summary – Non-asset trigger event”. The required loan balance amount may change at the time of any new issue of notes. See “The mortgages trust – Cash management and allocation of trust property – principal receipts”.
A trigger event means an asset trigger event and/or a non-asset trigger event.
| Acceleration |
All issuing entity notes will become immediately due and payable and the issuing entity security will be enforced on the service on the issuing entity by the note trustee of a note enforcement notice. The note trustee becomes entitled to serve a note enforcement notice at any time after the occurrence of a note event of default in respect of a series and class (or sub-class)
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of issuing entity notes (and it shall, subject to being indemnified and/or secured to its satisfaction, do so on the instructions of the noteholders of the applicable class of issuing entity notes across all series (holding in aggregate at least one quarter in principal amount outstanding of such class of notes) or if directed to do so by an extraordinary resolution of the holders of the relevant class of notes then outstanding) provided that, at such time, all issuing entity notes ranking in priority to such class of notes have been repaid in full.
| The loans |
The loans comprising the portfolio (included in the trust property) from time to time have been and will be originated by the seller and secured by first legal charges or first-ranking standard securities over residential property located in England, Wales or Scotland.
The loans in the portfolio consist of several different types with a variety of characteristics relating to, among other things, calculation of interest and repayment of principal and comprise or will comprise:
| • | loans which are subject to variable rates of interest set by the seller based on general interest rates and competitive forces in the United Kingdom mortgage market from time to time; |
| • | loans which track a variable rate of interest other than a variable rate set by the seller (for example, a rate set at a margin above sterling LIBOR or above rates set by the Bank of England); and |
| • | loans which are subject to fixed rates of interest, including capped rate loans that are subject to the specified capped rate of interest, set by reference to a predetermined rate or series of rates for a fixed period or periods. |
The loans in the portfolio will also include flexible loans. A flexible loan allows the borrower to, among other things, make larger repayments than are due on a given payment date (which may reduce the life of the loan) or draw further amounts under the loan. A flexible loan also allows the borrower to make under-payments or to take payment holidays. Any drawings under flexible loans will be funded solely by the seller. This means that the drawings under flexible loans will be added to the trust property and will be included in the seller’s share of the trust property for the purposes of allocating interest and principal.
See “The loans – Characteristics of the loans” for a more detailed description of the loans offered by the seller and see the relevant prospectus supplement for statistical information on the portfolio.
The trust property may be supplemented by the seller assigning new loans to the mortgages trustee from time to time after the date of this prospectus.
New loans assigned to the mortgages trustee will be required to comply with specified criteria (see “Assignment of the loans and their related security – Assignment of loans and their related security to the mortgages trustee”). Any new loans assigned to the mortgages trustee will increase the total size of the trust property, and will increase the Funding share of the trust property to the extent only that Funding has paid for an increased share of the trust property. To the extent that Funding does not pay for an increased share, the seller share of the trust property will increase by a corresponding amount.
All the loans in the portfolio are, and any new loans or drawings under flexible loans added to the trust property will be, secured by first legal charges over freehold or leasehold properties located in England or Wales or by first-ranking standard securities over heritable or long leasehold properties located in Scotland. Some flexible loans are or will be secured by both a first and second legal charge or standard security in favour of the seller.
All loans are originated according to the seller’s lending criteria for mortgage loans applicable at the time of origination. The seller’s current lending criteria are described further in “The loans – Lending criteria”. The seller may from time to time change its lending criteria and any other terms applicable to new loans or their related security assigned to the mortgages trustee after the date of this prospectus so that all new loans originated after the date of that change will be subject to the
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new lending criteria. Notwithstanding any change to the lending criteria or other terms applicable to the loans, the loans and their related security may only be sold to the mortgages trustee if they comply with the seller’s warranties in the mortgage sale agreement. If a loan or its related security does not materially comply with these warranties, then the seller will have 20 days in which to cure the default. If the default cannot be or is not cured within 20 days, then at Funding’s and the security trustee’s direction the mortgages trustee may require the seller to repurchase the loan or loans under the relevant mortgage account and their related security from the mortgages trustee. If the seller does not repurchase those loans and their related security, then the trust property will be deemed to be reduced by an amount equal to the amount outstanding under those loans. The size of the seller’s share of the trust property will reduce by that amount but the size of Funding’s share of the trust property will not alter, and the respective percentage shares of the seller and Funding in the trust property will alter accordingly.
| Assignment of the loans |
The seller assigned the portfolio to the mortgages trustee on the initial closing date and on a number of subsequent dates pursuant to the terms of the mortgage sale agreement. After the date of this prospectus, the seller may assign further new loans and their related security to the mortgages trustee in order to increase or maintain the size of the trust property. The seller may increase the size of the trust property from time to time in relation to an issue of issuing entity notes under the programme or new notes by a new issuing entity, the proceeds of which are applied ultimately to fund the assignment of the new loans and their related security to the mortgages trustee, or to comply with its obligations under the mortgage sale agreement as described under “Assignment of the loans and their related security”.
Although the seller has sold or will sell the loans to the mortgages trustee, the seller continues to have an interest in the loans as one of the beneficiaries of the mortgages trust. The seller is the sponsor of the programme in connection with which the issuing entity is issuing the issuing entity notes.
When new loans are assigned to the mortgages trustee, the amount of the trust property will increase. Depending on the circumstances, the increase in the trust property may result in an increase in either the seller’s share of the trust property or Funding’s share of the trust property (or both). For a description of how adjustments are made to the seller’s share and Funding’s share of the trust property, see “The mortgages trust”.
Some fees payable by the mortgage borrowers, such as early repayment fees, will be given back to the seller and not included in the trust property. For more information on the mortgage sale agreement, see “Assignment of the loans and their related security”.
| The mortgages trust |
The mortgages trustee holds the trust property for both Funding and the seller. Funding and the seller each has a joint and undivided beneficial interest in the trust property. However, payments of interest and principal arising from the loans in the trust property are allocated to Funding and the seller according to Funding’s share of the trust property and the seller’s share of the trust property, calculated periodically as described later in this section. As at the date of this prospectus, the beneficiaries of the trust are Funding and the seller only. At a later date, new funding entities may become beneficiaries of the trust (subject to the agreement of the seller and Funding).
The trust property will be made up of the loans in the portfolio and their related security and any income generated by the loans or their related security. The trust property will also include any money in the mortgages trustee guaranteed investment contract, or GIC, account and in any other bank account or bank accounts held by the mortgages trustee (as agreed by the mortgages trustee, Funding, the seller and the security trustee) from time to time, called the alternative accounts. Any bank account of the mortgages trustee will be managed by the cash manager under the cash management agreement. The mortgages trustee GIC account is the bank account in which the mortgages trustee holds any cash that is part of the trust property until it is distributed to the beneficiaries. The alternative accounts are accounts into which payments by some borrowers
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are paid initially. Amounts on deposit in the alternative accounts are swept into the mortgages trustee GIC account on a regular basis but in any event no later than the next London business day after they are deposited in the relevant alternative account.
In addition, drawings under flexible loans, and any new loans and their related security that the seller assigns to the mortgages trustee after the date of this prospectus, will be part of the trust property, unless they are repurchased by the seller. The seller will be solely responsible for funding drawings under flexible loans. The composition of the trust property will fluctuate as drawings under flexible loans and new loans are added and as the loans that are already part of the trust property are repaid or mature or default or are repurchased by the seller.
The relevant prospectus supplement will set out the approximate amounts of Funding’s share of the trust property and the seller’s share of the trust property as at the relevant closing date and will be calculated in accordance with the formula described in “The mortgages trust – Funding share of the trust property” and “The mortgages trust – Seller share of the trust property”.
Income (but not principal) from the trust property is distributed at least monthly to Funding and the seller on each distribution date. A distribution date is the eighth day (or if not a London business day, the next succeeding London business day) of each month after the relevant closing date (as specified in the relevant prospectus supplement) and any other day during a month that Funding acquires a further interest in the trust property and/or the mortgages trustee acquires new loans from the seller. On each of these distribution dates, Funding’s share and the seller’s share of the trust property, and the percentage of the total to which each relates, are recalculated to take into account:
| • | principal payments on the loans distributed to Funding and/or the seller since the last distribution date (in general, a principal payment made to a party reduces that party’s share of the trust property); |
| • | any drawings under flexible loans since the last distribution date (these will be funded by the seller and, in general, the seller’s share of the trust property will increase accordingly); |
| • | any increase in Funding’s share of the trust property acquired since the last distribution date and any corresponding decrease in the seller’s share (which happens when Funding receives additional funds under a new intercompany loan and which, in general, increases Funding’s share of the trust property); |
| • | the assignment of any new loans to the mortgages trustee which increases the total size of the trust property (and the Funding share or seller share of the trust property will increase depending on whether Funding has provided consideration for all or a portion of that assignment); |
| • | any decrease in the interest charging balance of a flexible loan due to a borrower making overpayments (which reduces the outstanding balance of the relevant flexible loan at that time) (see “The mortgages trust – Fluctuation of the Funding’s share/seller’s share of the trust property”); and |
| • | any increase in the interest charging balance of a flexible loan due to a borrower taking a payment holiday or making an underpayment (which increases the share of Funding and the seller in the trust property unless the seller has made a payment to Funding to increase its share of the trust property (see “The mortgages trust – Acquisition by the seller of a further interest in the trust property”)). |
On each distribution date, income (but not principal) from the trust property is distributed to Funding and losses on the loans are allocated to Funding, in each case in proportion to Funding’s percentage of the trust property calculated on the previous distribution date. Similarly, income (but not principal) and losses from the trust property are distributed or, in the case of losses, allocated to the seller in accordance with the seller’s percentage of the trust property calculated on the previous distribution date.
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Whether the mortgages trustee distributes principal received on the loans to Funding depends on a number of factors. In general, Funding receives payment of principal in, inter alia, the following circumstances:
| • | when Funding is accumulating principal during a cash accumulation period in order to repay the bullet term advances; |
| • | when Funding is scheduled to make repayments on a scheduled amortisation term advance or to accumulate funds in order to repay the scheduled amortisation term advance (in which case principal receipts on the loans in general will be paid to Funding during the scheduled amortisation period based on the amounts required by Funding to pay the amounts that will fall due and payable in respect of the scheduled amortisation term advance on the next following interest payment date) (see “The mortgages trust – Mortgages trust allocation and distribution of principal receipts prior to the occurrence of a trigger event”); |
| • | when Funding is required to pay any amounts which will fall due and payable in respect of any other term advances; |
| • | when, in relation to previous term advances and any new term advances, Funding is either accumulating principal during a cash accumulation period or a scheduled amortisation period or is scheduled to make principal repayments (in which case principal receipts will be paid to Funding based on the nature of those previous term advances and/or new term advances and the terms of the mortgages trust deed); |
| • | when a non-asset trigger event has occurred and an asset trigger event has not occurred (in which case principal receipts on the loans will be allocated and paid to Funding first); or |
| • | when an asset trigger event has occurred or the security granted by Funding to the security trustee has been enforced (in which case principal receipts on the loans will be paid to Funding in proportion to its share of the trust property). |
For more information on the mortgages trust, the cash accumulation period, the scheduled amortisation period and the distribution of principal receipts on the loans, including a description of when a non-asset trigger event or an asset trigger event will occur, see “The mortgages trust”.
| Intercompany loans |
The issuing entity has entered into the master intercompany loan agreement with Funding. As used in this prospectus, term advances made by the issuing entity to Funding under the master intercompany loan agreement in respect of a particular issue will constitute an intercompany loan separate from any previous intercompany loans and/or any new intercompany loans. As described under “– Relationship between the issuing entity notes and the master intercompany loan”, each intercompany loan will consist of multiple term advances, each corresponding to a particular series and class (or sub-class) of issuing entity notes. The term advances may comprise AAA tranches, AA tranches, A tranches, BBB tranches and BB tranches reflecting the designated credit rating assigned to each term advance (see “The master intercompany loan agreement – Ratings designations of the relevant term advances”). The term advance related to a series and class (or sub-class) of issuing entity notes will be specified for such series and class (or sub-class) of issuing entity notes in the relevant prospectus supplement. The terms of each term advance will be set forth in the relevant term advance supplement and the master intercompany loan agreement.
From time to time and subject to certain conditions, the issuing entity will lend amounts to Funding using the proceeds of each issuance of or, as applicable, the sterling equivalent to the proceeds of each issuance of, a series and class (or sub-class) of issuing entity notes. Funding will use the funds advanced under each such term advance under the master intercompany loan to:
| • | make a payment to the seller as consideration for the sale of the loans (together with their related security) sold by the seller to the mortgages trustee in connection with the relevant issue by the issuing entity and the making of the relevant term advances to |
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| Funding, which will result in an increase in the amount of the trust property and a corresponding adjustment to the value of the Funding share of the trust property and the value of the seller share of the trust property; |
| • | acquire part of the seller share of the trust property which will result in a corresponding decrease of the seller share of the trust property and a corresponding increase in the Funding share of the trust property; |
| • | fund or replenish the first reserve fund; and/or |
| • | make a payment to the issuing entity or a previous issuing entity or a new issuing entity to refinance a previous term advance. |
As described in “– The issuing entity notes – Relationship between the issuing entity notes and the master intercompany loan”, each current intercompany loan under the master intercompany loan will be split into multiple term advances to match the underlying series and classes (or sub-classes) of issuing entity notes: the AAA term advances, matching the issue of the class A notes of each series; the AA term advances, matching the issue of the class B notes of each series; the A term advances, matching the issue of the class M notes of each series; the BBB term advances, matching the issue of the class C notes of each series; and the BB term advances, matching the issue of the class D notes. Together these advances are referred to in this prospectus as the term advances.
Subject to the provisions of the relevant Funding priority of payments (see “Cashflows”), Funding will repay each term advance under the master intercompany loan agreement from payments received from Funding’s share of the trust property from the mortgages trustee, as described under “– The mortgages trust”. To the extent required, but subject to certain limits and conditions, Funding may also apply amounts standing to the credit of the first reserve fund and the Funding liquidity reserve fund (if any) in making payments of interest and principal due under the master intercompany loan agreement. The issuing entity will make payments of interest and principal on the issuing entity notes primarily from payments of interest and principal made by Funding under the master intercompany loan agreement. The repayment schedule for the series of each term advance is as set out in the relevant prospectus supplement.
A term advance may be a bullet term advance, a scheduled amortisation term advance or a pass-through term advance. A bullet term advance is a term advance that is scheduled to be repaid in full in one instalment on one interest payment date. A scheduled amortisation term advance is a term advance that is scheduled to be repaid in more than one instalment on more than one interest payment date. Such instalments and interest payment dates are referred to as scheduled amortisation amounts and scheduled repayment dates. A pass-through term advance is a term advance that has no scheduled repayment date other than its final repayment date. Term advances with pass-through repayment will be repaid on or after the interest payment date on which the term advances with the same series designation and a higher rating designation in respect of the series have been fully repaid. The designation and type of term advance and the repayment schedule, if any, for the term advances advanced in connection with a particular series and class (or sub-class) of issuing entity notes will be set out in the relevant prospectus supplement.
Funding is generally required to repay principal on the term advances of any intercompany loan based on their respective term advance ratings. This means that the AAA term advances are repaid before the AA term advances, which in turn are repaid before the A term advances, which in turn are repaid before the BBB term advances and which in turn are repaid before the BB term advances. Prior to the occurrence of a trigger event or notice of enforcement of the Funding security or of the issuing entity security, there are a number of exceptions to this priority of payments. For further information on such exceptions, see “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security – Rules for application of Funding available principal receipts and Funding principal receipts”. This means that payments on the AAA term advances, the AA term advances, the A term advances, the BBB term advances and the BB term advances under an intercompany loan, even though they may have a
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lower term advance rating than the relevant bullet term advance under another intercompany loan, should not be affected by the cash accumulation period under that other intercompany loan.
During a cash accumulation period in respect of a bullet term advance or a scheduled amortisation period in respect of a scheduled amortisation term advance of an intercompany loan, no principal repayments will be made in respect of any of the AA term advances, any of the A term advances, any of the BBB term advances or any of the BB term advances made under that same intercompany loan. If, however, Funding is in a cash accumulation period for a bullet term advance or a scheduled amortisation period for a scheduled amortisation term advance under an intercompany loan, then Funding will continue to set aside amounts in respect of the bullet term advance or scheduled amortisation term advance and make principal repayments in respect of any of the AA term advances, any of the A term advances, any of the BBB term advances or any of the BB term advances (or other pass-through term advances of the issuing entity) of each series due and payable under any other intercompany loan based on the amount of principal receipts paid by the mortgages trustee to Funding on each distribution date and the share of those which is allocable to that other intercompany loan (see “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security – Rules for application of Funding available principal receipts and Funding principal receipts”). This means that payments on the AAA term advances, the AA term advances, the A term advances, the BBB term advances and the BB term advances under an intercompany loan, even though they may have a lower term advance rating than the relevant bullet term advance or scheduled amortisation term advance under another intercompany loan, should not be affected by the cash accumulation period or the scheduled amortisation period, as the case may be, under another intercompany loan.
During the cash accumulation period for any bullet term advance or the scheduled amortisation period for any scheduled amortisation term advance under an intercompany loan, Funding will continue to make principal repayments on the term advances made under other intercompany loans if those term advances are then due and scheduled to be paid, pro rata with any payment of an equal priority subject to having sufficient funds therefor after meeting its obligations with a higher priority.
When principal amounts are due and payable on a bullet term advance or scheduled amortisation term advance under an intercompany loan, and principal amounts are also due and payable on any of the AAA term advances, the AA term advances, the A term advances, the BBB term advances or the BB term advances under another intercompany loan, Funding will continue to make principal repayments on those AAA term advances, AA term advances, A term advances, BBB term advances, or BB term advances, based on the amount of principal receipts paid by the mortgages trustee to Funding on each distribution date and the portion thereof which is allocable to that other intercompany loans (see “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security – Rules for application of Funding available principal receipts and Funding principal receipts”).
If on an interest payment date in respect of which principal is scheduled to be paid on any AA term advance, A term advance, BBB term advance or BB term advance, the amount of principal due (or any part thereof) in respect of the AA term advance, A term advance, BBB term advance or BB term advance, as the case may be, will only be payable if, after giving effect to such payment and the payment to be made on such date in respect of the related series and class (or sub-class) of issuing entity notes, the required amount of subordination in respect of the relevant series and class (or sub-class) of issuing entity notes is maintained (see “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security – Rules for application of Funding available principal receipts and Funding principal receipts – 6. Repayment tests”).
Whether Funding will have sufficient funds to repay the term advances, on the dates described in the relevant prospectus supplement, will depend on a number of factors (see “Risk factors – The yield to maturity of the issuing entity notes may be adversely affected by
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prepayments or redemptions on the loans” and “Risk factors – The issuing entity’s ability to redeem the issuing entity notes on their scheduled redemption dates is affected by the rate of prepayment on the loans”).
The circumstances under which the issuing entity can take action against Funding if it does not make a repayment under the master intercompany loan agreement are limited. In particular, it will not be an event of default in respect of the master intercompany loan agreement if Funding does not repay amounts due in respect of the master intercompany loan where Funding does not have the money to make the relevant repayment. For more information on the master intercompany loan agreement, see “The master intercompany loan agreement”.
| Security granted by Funding and the issuing entity |
To secure its obligations to the issuing entity under the master intercompany loan and to Funding’s other secured creditors, Funding entered into a deed of charge on 26 July 2000. On 29 November 2000, Funding entered into a first deed of accession to the Funding deed of charge with Holmes Financing (No. 2) PLC and the other parties who entered into the original deed of charge on 26 July 2000. On 23 May 2001, Funding entered into a second deed of accession with Holmes Financing (No. 3) PLC and the other parties who entered into the first deed of accession on 29 November 2000. On 5 July 2001, Funding entered into a third deed of accession with Holmes Financing (No. 4) PLC and the other parties who entered into the second deed of accession on 23 May 2001. On 8 November 2001, Funding entered into a fourth deed of accession with Holmes Financing (No. 5) PLC and the other parties who entered into the third deed of accession on 5 July 2001. On 7 November 2002, Funding entered into an amended and restated Funding deed of charge with Holmes Financing (No. 6) PLC and the other parties who entered into the previous deeds of accession. On 26 March 2003, Funding entered into a first deed of accession to the amended and restated Funding deed of charge with Holmes Financing (No. 7) PLC and the other parties who entered into the amended and restated Funding deed of charge. On 1 April 2004, Funding entered into a second deed of accession to the amended and restated Funding deed of charge with Holmes Financing (No. 8) PLC and the other parties who entered into the first deed of accession to the amended and restated Funding deed of charge on 26 March 2003. On 8 December 2005, Funding entered into a third deed of accession to the amended and restated Funding deed of charge with Holmes Financing (No. 9) PLC and the other parties who entered into the second deed of accession to the amended and restated Funding deed of charge on 1 April 2004. On 8 August 2006, Funding entered into a fourth deed of accession to the amended and restated Funding deed of charge with Holmes Financing (No. 10) PLC and the other parties who entered into the third deed of accession to the amended and restated Funding deed of charge. On 28 November 2006, Funding entered into a second amended and restated Funding deed of charge with the issuing entity and the other parties who entered into the fourth deed of accession to the amended and restated Funding deed of charge. The second amended and restated Funding deed of charge is referred to as the Funding deed of charge. Pursuant to the Funding deed of charge, Funding grants security over all of its assets in favour of the security trustee. Besides the issuing entity, Funding’s secured creditors as at the date of this prospectus are the previous issuing entities (in relation to the previous intercompany loans), the Funding swap provider, the cash manager, the account bank, the corporate services provider, the security trustee, Abbey National plc (as the start-up loan provider) and the seller. The security trustee holds that security for the benefit of the secured creditors of Funding, including the issuing entity. This means that Funding’s obligations to the issuing entity under the master intercompany loan and to the other secured creditors are and will be secured over the same assets. Except in very limited circumstances, only the security trustee is entitled to enforce the security granted by Funding. For more information on the security granted by Funding, see “Security for Funding’s obligations”. For details of post-enforcement priority of payments, see “Cashflows”.
To secure the issuing entity’s obligations to the noteholders and to its other secured creditors, the issuing entity has granted security over all of its assets in favour of the issuing entity security trustee. As at the date of this prospectus, the issuing entity’s secured creditors are the issuing entity security trustee, the note trustee, the noteholders, the agent bank, the issuing entity cash manager, the issuing entity account banks, the paying agents, the issuing entity swap providers
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and the corporate services provider. The issuing entity security trustee holds that security for the benefit of the issuing entity’s secured creditors, including the noteholders. This means that the issuing entity’s obligations to its other secured creditors are and will be secured over the same assets that secure the issuing entity’s obligations under the issuing entity notes. Except in very limited circumstances, only the issuing entity security trustee will be entitled to enforce the security granted by the issuing entity. For more information on the security granted by the issuing entity, see “Security for the issuing entity’s obligations”. For details of post-enforcement priority of payments, see “Cashflows”.
| Swap providers |
The Funding swap provider is Abbey Financial Markets. Its registered office is Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN.
The Funding swap provider has entered into the Funding swap agreement with Funding, which is a master agreement (including a schedule and a confirmation) under which the Funding swap has been documented. To enable the issuing entity to make payments in respect of series and classes (or sub-classes) of issuing entity notes denominated in currencies other than sterling, the issuing entity will enter into issuing entity currency swap agreements, which are master agreements (each including a schedule and a confirmation) in respect of the relevant currencies.
| Swap agreements |
Borrowers will make payments under the loans in pounds sterling. Some of the loans carry variable rates of interest, some of the loans pay interest at a fixed or capped rate or rates of interest and some of the loans pay interest at a rate which tracks an interest rate other than the variable rate set by Abbey or the mortgages trustee (for example the interest rate may be set at a margin above sterling LIBOR or above rates set by the Bank of England). These interest rates do not necessarily match the floating rate of interest payable on the term advances under the intercompany loans and, accordingly, Funding has entered into the Funding swap agreement with the Funding swap provider.
Under the Funding swap agreement, Funding makes quarterly payments to the Funding swap provider based on the weighted average of the average variable rate from several United Kingdom mortgage lenders and the different rates of interest payable on the tracker rate loans and fixed rate loans (including capped rate loans that are subject to the specified capped rate of interest) and the Funding swap provider makes quarterly payments to Funding based on the floating rates of interest payable on the intercompany loans outstanding at that time.
Payments made by the mortgages trustee to Funding under the mortgages trust deed, payments made by Funding to the issuing entity under the master intercompany loan agreement and any drawings under the Funding liquidity reserve fund will be made in pounds sterling. To enable the issuing entity to make payments on the interest payment dates in respect of a series of issuing entity notes (other than sterling-denominated notes) in their respective currencies, the issuing entity will enter into issuing entity currency swap agreements.
The term advances under the master intercompany loan will pay quarterly interest equivalent to the weighted average of the floating rate of interest in sterling calculated by reference to the London inter-bank offer rate for three-month sterling deposits (also called three-month sterling LIBOR) in effect on the relevant interest payment date plus a margin for each term advance. To enable the issuing entity to make payments on issuing entity notes denominated in sterling which accrue interest at a floating rate other than three-month sterling LIBOR, the issuing entity will enter into basis rate swap agreements. In the case of issuing entity notes denominated in a currency other than sterling, the relevant currency swap agreement will also hedge such interest rate exposure.
To enable it to make payments on issuing entity notes which accrue a fixed rate of interest, the issuing entity will enter into interest rate swaps in respect of each relevant series and class (and/or sub-class) of issuing entity notes.
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The terms of the swaps and certain additional information about the relevant issuing entity swap providers will be described in greater detail under the heading “The swap agreements” in this prospectus and under the heading “The swap agreements” in the relevant prospectus supplement.
| The post-enforcement call option agreement |
A post-enforcement call option agreement has been entered into between the issuing entity security trustee, as agent for the class B noteholders, the class M noteholders, the class C noteholders and the class D noteholders, the issuing entity and an entity called PECOH Limited. The terms of the option require, upon exercise of the option by PECOH Limited, the transfer to PECOH Limited of all of the class B notes and/or all of the class M notes and/or all of the class C notes and/or all of the class D notes, as the case may be. The class B noteholders, the class M noteholders, the class C noteholders and the class D noteholders will be bound by the terms of the class B notes, the class M notes, the class C notes and the class D notes, respectively, to transfer the issuing entity notes to PECOH Limited in these circumstances. None of the class B noteholders, the class M noteholders, the class C noteholders or the class D noteholders will be paid for that transfer.
However, as the post-enforcement call option can be exercised only after the issuing entity security trustee has enforced the security granted by the issuing entity under the issuing entity deed of charge and determined that there are no further assets available to pay amounts due and owing to the class B noteholders, the class M noteholders, the class C noteholders and/or the class D noteholders, as the case may be, the exercise of the post-enforcement call option will not further disadvantage the economic position of those noteholders. In addition, exercise of the post-enforcement call option and delivery by the class B noteholders, the class M noteholders, the class C noteholders and/or the class D noteholders of the class B notes, the class M notes, the class C notes and/or the class D notes, respectively, to PECOH Limited will not extinguish any other rights or claims other than the rights to payment of interest and repayment of principal under the class B notes, the class M notes, the class C notes and/or the class D notes that such class B noteholders, the class M noteholders, class C noteholders and/or class D noteholders may have against the issuing entity.
| The previous issuing entities, new issuing entities and new funding entities |
The previous issuing entities, each of which is a wholly owned subsidiary of Holdings, issued previous notes and from those issue proceeds made previous intercompany loans to Funding as follows:
| • | Holmes Financing (No. 1) PLC, on 26 July 2000; |
| • | Holmes Financing (No. 2) PLC, on 29 November 2000; |
| • | Holmes Financing (No. 3) PLC, on 23 May 2001; |
| • | Holmes Financing (No. 4) PLC, on 5 July 2001; |
| • | Holmes Financing (No. 5) PLC, on 8 November 2001; |
| • | Holmes Financing (No. 6) PLC, on 7 November 2002; |
| • | Holmes Financing (No. 7) PLC, on 26 March 2003; |
| • | Holmes Financing (No. 8) PLC, on 1 April 2004; |
| • | Holmes Financing (No. 9) PLC, on 8 December 2005; and |
| • | Holmes Financing (No. 10) PLC, on 8 August 2006. |
In addition, on the programme date the issuing entity issued previous notes and from those issue proceeds made a previous intercompany loan to Funding under the master intercompany loan agreement.
It is not necessary to obtain your approval for any issuance of issuing entity notes or new notes, nor is it necessary to provide you notice of any such issuance.
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Funding’s obligations under the previous intercompany loans made by the previous issuing entities are secured by the same security that secures the master intercompany loan. In addition, it is expected that in the future, subject to satisfaction of certain conditions, Holdings may establish additional wholly owned subsidiary companies to issue new notes to investors. One of these conditions is that the ratings of the issuing entity notes will not be adversely affected at the time a new issuing entity issues new notes. As set forth in detail under “The master intercompany loan agreement – New intercompany loan agreements with new issuing entities”, any new issuing entities will loan the proceeds of any issue of new notes to Funding pursuant to the terms of a new intercompany loan agreement. Funding will use the proceeds of a new intercompany loan to do one or more of the following:
| • | pay the seller for new loans and their related security to be assigned to the mortgages trustee, which will result in an increase in Funding’s share of the trust property; |
| • | pay the seller for an increase in Funding’s share of the trust property (resulting in a corresponding decrease in the seller’s share of the trust property); |
| • | refinance an intercompany loan or intercompany loans outstanding at that time, which will not result in a change in the size of Funding’s share of the trust property. In these circumstances, Funding will use the proceeds of the new intercompany loan to repay an intercompany loan outstanding at that time, which the relevant issuing entity will, provided that the terms of the relevant issuing entity notes then permit such optional redemption, use to repay the relevant noteholders. If any intercompany loan to Funding is refinanced in these circumstances, the holders of the relevant notes could be repaid early; and/or |
| • | make a deposit in one or more of the reserve funds. |
Regardless of which of these uses of proceeds is selected, the previous notes, the issuing entity notes and any new notes will all be secured ultimately over Funding’s share of the trust property and will be subject to the ranking described in the following paragraphs.
Funding will apply amounts it receives from the trust property to pay amounts it owes under the previous term advances, the current term advances and new term advances without distinguishing when the share in the trust property was acquired or when the relevant term advance was made. Funding’s obligations to pay interest and principal to the issuing entity on its previous, current or new term advances and to the previous issuing entities or new issuing entities on their respective previous term advances or new term advances will rank either equal with, ahead of or after each other, primarily depending on the relative designated rating of each previous term advance, current term advance and new term advance. The rating of a previous term advance, current term advance or new term advance will be the rating assigned by the rating agencies to the previous notes, the issuing entity notes or the new notes that are used to fund the relevant term advance, on their date of issue. Funding will pay interest and (subject to their respective scheduled repayment dates and the rules for application of principal receipts described in “Cashflows – Distribution of the Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security – Rules for application of Funding available principal receipts and Funding principal receipts”) principal first on the previous term advances, the current term advances and the new term advances with the highest rating, and thereafter on the previous term advances, the current term advances and the new term advances with the next highest rating, and so on down to the previous term advances, the current term advances and the new term advances with the lowest rating. Accordingly, any term advance in relation to previous notes or new notes that have an AAA rating will rank equally with Funding’s payments of interest and (subject to their respective scheduled repayment dates and the rules referred to in this paragraph) principal on the AAA term advances and will rank ahead of Funding’s payments of interest and principal on the AA term advances, the A term advances, the BBB term advances and the BB term advances.
It should be noted, however, that although a previous term advance, a current term advance and any new term advance may rank equally, principal payments may be made earlier on the previous term advances, new term advances or the current term advances, as the case may be,
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depending on their scheduled repayment and final repayment dates. Further, as described in “Cashflows – Distribution of the Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security – Rules for application of Funding available principal receipts and Funding principal receipts”, in some circumstances, Funding will continue to make payments on term advances due and payable under the current intercompany loan, any new intercompany loans and the previous intercompany loans, irrespective of term advance rating. More specifically, if amounts are due and payable on any of the pass-through term advances made under the previous intercompany loans which have a term advance rating of AA, A, BBB or BB, and at the same time amounts are due and payable on the pass-through term advance made under any intercompany loan under the master intercompany loan agreement which has a term advance rating of AAA, then Funding will allocate principal receipts available to it to each of the previous issuing entities and the issuing entity based on the outstanding principal balance of each of their respective intercompany loans.
During a cash accumulation period or scheduled amortisation period to set aside any bullet amount in respect of any bullet term advance or scheduled amortisation amount in respect of any scheduled amortisation term advance under an intercompany loan, Funding will continue to make principal repayments in respect of amounts due and payable in respect of pass-through term advances and scheduled amortisation term advances under other intercompany loans (for example, one of the previous intercompany loans), based on the outstanding principal balance of each of those intercompany loans.
If Funding enters into a new intercompany loan agreement, the terms of the Funding swap agreement provide that the notional amount of the Funding swap will be increased in order to address the potential mismatch between variable, tracker and fixed rates of interest paid by borrowers on the loans and the floating rate of interest paid by Funding on the intercompany loans outstanding at that time (including the new intercompany loan), as described further in “The swap agreements”. The various margins on the fixed, floating and tracker elements of the Funding swap will vary depending on the nature of the loans constituting the trust property from time to time.
If Funding enters into new intercompany loan agreements, it will, if required, simultaneously enter into new start-up loan agreements with a new start-up loan provider which will provide for the costs and expenses of the issue of the new notes and, if required in order to ensure no adverse impact on the ratings of the notes, for extra amounts to be credited to one or both reserve funds. A start-up loan may not be required in relation to an issue of new notes if the costs and expenses associated with the issue of those new notes can be met from amounts in the Funding reserve fund.
The terms of the Funding transaction documents may be amended upon a new issue and your consent will not be required to such amendments, notwithstanding that these changes may affect the cashflow from the mortgages trust and/or Funding that is available to pay amounts due on the issuing entity notes.
Pursuant to its obligations under the Listing Rules of the UK Listing Authority and the Exchange Act, if a new issuing entity is established to issue new notes, then the issuing entity will notify or procure that notice is given of that new issue.
Holdings may establish new funding entities, which may, in the future, issue new notes from time to time and (subject to the agreement of the seller and Funding) use the proceeds to make a payment to the seller to acquire an interest in the trust property rather than lending the proceeds to Funding. Any new funding entity would be a wholly-owned subsidiary of Holdings and would be organised as a special purpose company in compliance with Standard & Poor’s bankruptcy remoteness criteria and its proposed establishment would be notified to Standard & Poor’s. In that event, such new funding entity would become a beneficiary of the mortgages trust subject to the satisfaction of certain conditions (see “Risk factors – Holdings may establish new funding entities, which may become additional beneficiaries under the mortgages trust”).
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| United Kingdom tax status |
Subject to important qualifications and conditions set out under “United Kingdom taxation”, Slaughter and May, UK tax advisers to the issuing entity, are of the opinion that no UK withholding tax will be required on interest payments to any holder of the issuing entity notes provided that such issuing entity notes are, and remain at all times, listed on a recognised stock exchange (the London Stock Exchange being a recognised stock exchange for such purposes).
| United States tax status |
It is anticipated that Cleary Gottlieb Steen & Hamilton LLP, US tax advisers to the issuing entity and Funding, will deliver their opinion which will be contained in the relevant prospectus supplement that, although there is no authority on the treatment of instruments substantially similar to the offered notes, the issuing entity notes to which the relevant prospectus supplement relate will be treated as debt for US federal income tax purposes. It is intended that the offered notes will be treated as debt of the issuing entity. The US Internal Revenue Service could seek to recharacterise the offered notes as an ownership interest in the related debt of Funding. In that case, a US holder of a class of offered notes generally would be treated as holding Funding debt and a currency swap, which may be integrated as a synthetic debt instrument having the characteristics of the applicable class of offered notes and substantially the same tax treatment as if the class of offered notes were characterised as debt of the issuing entity. See “United States taxation – Offered notes as debt of Funding”.
The US tax advisers to the issuing entity have also provided their opinion that, assuming compliance with the transaction documents, the mortgages trustee acting in its capacity as trustee of the mortgages trust, Funding and the issuing entity will not be subject to US federal income tax.
| ERISA considerations for investors |
The offered notes will be eligible for purchase by employee benefit and other plans subject to section 406 of the US Employee Retirement Income Security Act of 1974, as amended (ERISA) or section 4975 of the US Internal Revenue Code of 1986, as amended (the Code), and by governmental plans that are subject to any state, local or other federal law of the United States that is substantially similar to section 406 of ERISA or section 4975 of the Code, subject to consideration of the issues described herein under “ERISA considerations”. Each purchaser of any such issuing entity notes (and all subsequent transferees thereof) will be deemed to have represented and warranted that its purchase, holding and disposition of such issuing entity notes will not result in a non-exempt prohibited transaction under ERISA or the Code (or in the case of any governmental plan, any substantially similar state, local or other federal law of the United States). In addition, any fiduciary of a plan subject to the fiduciary responsibility provisions of ERISA or similar provisions of state, local or other federal laws of the United States should consult with their counsel to determine whether an investment in the offered notes satisfies the prudence, investment diversification and other applicable requirements of those provisions.
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| Fees |
The following table sets out the on-going fees to be paid by the issuing entity, Funding and the mortgages trustee to transaction parties.
| Type of fee | Amount of fee | Priority in cashflow | Frequency | ||
| Servicing fee | 0.12% per year of Funding’s share of trust property | Ahead of all revenue amounts payable to Funding by the mortgages trustee | Each distribution date | ||
| Funding cash management fee | £117,500 each year | Ahead of all term advances | Each interest payment date | ||
| Issuing entity cash management fee | Estimated £117,500 each year | Ahead of all outstanding issuing entity notes | Each interest payment date | ||
| Corporate expenses of the mortgages trustee | Estimated £20,000 each year | Ahead of all revenue amounts payable to Funding by the mortgages trustee | Each distribution date | ||
| Corporate expenses of Funding | Estimated £52,500 each year | Ahead of all term advances | Each interest payment date | ||
| Corporate expenses of the issuing entity | Estimated £52,500 each year | Ahead of all outstanding issuing entity notes | Each interest payment date | ||
| Fee payable by Funding to the security trustee | $5,000 each year | Ahead of all term advances | Each interest payment date | ||
| Fee payable by the issuing entity to the issuing entity security trustee and the note trustee | $6,000 each year | Ahead of all outstanding issuing entity notes | Each interest payment date |
Each of the fees set out in the preceding table is, where applicable, inclusive of VAT, which is currently assessed at 17.5 per cent. The fees will be subject to adjustment if the applicable rate of VAT changes.
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RISK FACTORS
This section describes the principal risk factors associated with an investment in the issuing entity notes. If you are considering purchasing the issuing entity notes, you should carefully read and consider all the information contained in this prospectus and in the relevant prospectus supplement, including the risk factors set out herein and (if applicable) in the relevant prospectus supplement, prior to making any investment decision.
| The structure of the transaction in which you are investing is subject to change without your consent |
The issuing entity notes represent an indirect investment in a portfolio of mortgages held under a mortgages trust.
The underlying structure of the mortgages trust and the characteristics of the trust property are subject to change. However, your consent may not be required in relation to such changes. In particular (but without limitation), your attention is drawn to the risk factors described in the following sections set out below:
| • | “Holdings may establish new funding entities, which may become additional beneficiaries under the mortgages trust”; |
| • | “If Funding enters into new intercompany loan agreements with new issuing entities, then the new term advances may rank ahead of the current term advances as to payment, and accordingly new notes may rank ahead of the issuing entity notes as to payment”; |
| • | “As new loans are assigned to the mortgages trustee, the characteristics of the trust property may change from those existing at the date of this prospectus, and those changes may adversely affect payments on the issuing entity notes”; and |
| • | “The seller may change the lending criteria relating to loans that are subsequently assigned to the mortgages trustee, which could affect the characteristics of the trust property and which may adversely affect payments on the issuing entity notes”. |
In addition, you should also be aware that the terms of the Funding transaction documents may be amended upon a new issue of notes and that your consent will not be required to such amendments, notwithstanding that these changes may affect the cashflow from the mortgages trust and/or Funding that is available to pay amounts due on the issuing entity notes.
This risk factor is without prejudice to those additional risk factors outside the control of Funding, Holdings, the mortgages trustee, the issuing entity and/or the seller, including but not limited to those listed below on pages 45 to 79.
If certain parties to the transaction documents cease to satisfy various criteria then the rights and obligations of such party pursuant to the relevant transaction document may have to be transferred to a replacement entity under terms that may not be as favourable as those currently offered under the relevant transaction document.
Those parties to the transaction documents who receive and hold monies pursuant to the terms of such documents are required to satisfy certain criteria in order that they can continue to receive and hold monies.
These criteria include FSA requirements and/or provisions as well as requirements in relation to the short-term, unguaranteed and unsecured ratings ascribed to each such party by Standard & Poor’s, Fitch and Moody’s. The table below sets out more particularly such rating requirements.
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| Party | Transaction Documents | Requisite Rating | Remedy for Breach of Rating Requirement | |||
| Abbey (in its capacity as the sterling account bank) | Bank account agreement | The short-term, unsubordinated, unguaranteed and unsecured ratings of the account bank are at least F1 by Fitch, P-1 by Moody’s or A-1+ by S&P, provided always that where the relevant deposit amount is less than 30 per cent. of the amount of the Funding share, then the short-term, unsubordinated, unguaranteed and unsecured rating of the account bank required by S&P shall be at least A-1 | Within 30 days of the date on which the downgrade in the rating is announced publicly, the account bank: (i) transfers all of its rights and obligations to another entity whose short-term, unsecured, unsubordinated and unguaranteed debt obligations have a rating of at least the required rating; (ii) procures that an entity with the required rating becomes a co-obligor in respect of the obligations of the account bank; (iii) procures that an entity with the required rating provides a guarantee of the obligations of the account bank; or (iv) takes such other actions to ensure that the rating assigned to the issuing entity notes is not adversely affected by the ratings downgrade, and in each case provided that the then current ratings of the issuing entity notes shall not be adversely affected by each or any of the above actions. | |||
| Abbey (in its capacity as Funding GIC provider) | Funding guaranteed investment contract | As detailed in the provisions set out above | As detailed in the provisions set out above | |||
| Abbey (in its capacity as mortgages trustee GIC provider) | Mortgages trustee guaranteed investment contract | As detailed in the provisions set out above | As detailed in the provisions set out above |
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| Party | Transaction Documents | Requisite Rating | Remedy for Breach of Rating Requirement | |||
| Abbey (in its capacity as the sterling account bank) | Issuing entity bank account agreement | As detailed in the provisions set out above | As detailed in the provisions set out above | |||
| Citibank N.A., London Branch (in its capacity as the non-sterling account bank) | Issuing entity bank account agreement | As detailed in the provisions set out above | As detailed in the provisions set out above | |||
| Abbey (in its capacity as guarantor of the obligations of Abbey Financial Markets as Funding swap provider) | Funding swap | The short-term unsecured and unsubordinated debt obligations of Abbey are to be rated at least A-1 by S&P and the long-term unsecured and unsubordinated debt obligations of Abbey are to be rated at least Aa3 by Moody’s and AA- by Fitch | As detailed in the provisions set out above |
If the party concerned ceases to satisfy the applicable criteria, including the rating criteria detailed above, then the rights and obligations of that party (including the right and/or obligation to receive monies) may need to be transferred to another entity which does satisfy the applicable criteria. In these circumstances, the terms agreed with the replacement entity may not be as favourable as those provided by the original party pursuant to the relevant transaction document.
In addition, you should also be aware that, should the applicable criteria cease to be satisfied as detailed above, then the parties to the relevant transaction document may agree to amend or waive certain of the terms of such documents and the applicable criteria in order to avoid the need for a replacement entity to be appointed. Your consent may not be required in relation to such amendments and/or waivers.
| You cannot rely on any person other than the issuing entity to make payments on the issuing entity notes |
The issuing entity notes will not represent an obligation or be the responsibility of any of Abbey or any of its affiliates, any arranger, any dealer, any underwriter, or any of their respective affiliates, the previous issuing entities, any new issuing entity, the mortgages trustee, the security trustee, the issuing entity security trustee, the note trustee or any other party to the transaction other than the issuing entity.
| You may not be able to sell the offered notes |
Each issue of a new series and class (or sub-class) of issuing entity notes will be a new issue of securities for which there will initially be no market. Furthermore, none of the issuing entity, the arrangers, the dealers or the underwriters intends to create a market for the issuing entity notes. Accordingly, no assurance can be given as to the development or liquidity of any market for the issuing entity notes. If no secondary market develops, you may not be able to sell the offered notes prior to their maturity. The issuing entity cannot offer any assurance that a secondary market will develop or, if one does develop, that it will continue to exist. You must therefore be able to bear the risks of your investment in the issuing entity notes for an indefinite period of time.
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The issuing entity has limited resources available to it to make payments on the issuing entity notes
The issuing entity’s ability to make payments of principal and interest on the issuing entity notes and to pay its operating and administrative expenses will depend primarily on the funds being received under the master intercompany loan agreement. The payment of interest and principal on each series and class (or sub-class) of issuing entity notes will primarily depend on funds being received by the issuing entity under the related term advance. In addition, the issuing entity will rely on the currency swaps to hedge the currency exposure with respect to certain series and classes (or sub-classes) of issuing entity notes.
If Funding is unable to pay in full on any interest payment date (a) the interest on any term advance, (b) its operating and administrative expenses and/or (c) the principal payments in respect of the Funding liquidity reserve fund term advances, and in the event that the seller suffers a certain ratings downgrade, Funding may draw money from the Funding liquidity reserve fund (see “Credit structure”). The issuing entity will not have any other significant sources of funds available to meet the issuing entity’s obligations under the issuing entity notes and/or any other payments ranking in priority to the issuing entity notes.
Funding is not obliged to make payments on the term advances if it does not have enough money to do so, which could adversely affect payments on the issuing entity notes
Funding’s ability to pay amounts due on any term advances will depend upon:
| • | Funding receiving enough funds from the Funding share percentage of the revenue and principal receipts on the loans included in the mortgages trust on or before each interest payment date; |
| • | Funding receiving the required funds from the Funding swap provider; |
| • | the amount of funds credited to the reserve funds (as described in “Credit structure – First reserve fund”, “Credit structure – Second reserve fund” and “Credit Structure – Funding liquidity reserve fund”); and |
| • | the allocation of funds between the previous term advances, the current term advances and any new term advances (as described in “Cashflows”). |
According to the terms of the mortgages trust deed, the mortgages trustee is obliged to pay to Funding the Funding share percentage of revenue receipts on the loans (subject to payment of prior ranking amounts) by crediting those amounts to the Funding GIC account on each distribution date. The mortgages trustee is obliged to pay to Funding principal receipts on the loans by crediting those amounts to the Funding GIC account as and when required pursuant to the terms of the mortgages trust deed.
Funding will be obliged to pay revenue receipts due to the issuing entity under the master intercompany loan agreement only to the extent that it has revenue receipts left over after making payments ranking in priority to the payments due to the issuing entity, such as payments of certain fees and expenses of Funding and payments on certain higher ranking previous term advances under the previous intercompany loans or new term advances under any new intercompany loan agreement.
Funding will be obliged to pay principal receipts due to the issuing entity under the master intercompany loan agreement only to the extent that it has principal receipts available for that purpose after repaying amounts ranking in priority to the issuing entity (including repaying certain higher ranking previous term advances or higher ranking new term advances), as described in “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security – Rules for application of Funding available principal receipts and Funding principal receipts” in this prospectus and “Description of the previous issuing entities, the previous notes and the previous intercompany loans” in the relevant prospectus supplement.
If there is a shortfall between the amounts payable by Funding to the issuing entity in respect of a term advance under the master intercompany loan agreement and the amounts payable by the issuing entity on the related series and class (or sub-class) of issuing entity notes, you may,
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depending on what other sources of funds are available to the issuing entity and to Funding, not receive the full amount of interest and/or principal which would otherwise be due and payable on the issuing entity notes.
Failure by Funding to meet its obligations under the master intercompany loan agreement would adversely affect payments on the issuing entity notes
If Funding does not make payments due and payable on the master intercompany loan, then the issuing entity may not have enough money to make payments on the issuing entity notes, and in addition the issuing entity will have only limited recourse to the assets of Funding. If Funding does not pay amounts under the master intercompany loan because it does not have enough money available, those amounts will be deemed not to be due and payable, so there will not be an event of default under the master intercompany loan, and the issuing entity will not have recourse to the assets of Funding in that instance.
On the final repayment date of an intercompany loan under the master intercompany loan agreement, any outstanding amounts in respect of the AA term advances, the A term advances, the BBB term advances and the BB term advances will be extinguished, which would cause a loss on any class B notes, any class M notes, any class C notes and any class D notes still outstanding
If there is a shortfall between the amounts payable by Funding to the issuing entity in respect of a term advance under the master intercompany loan agreement and the amounts payable by the issuing entity on the related series and class (or sub-class) of issuing entity notes, then the shortfall will be deemed to be not due and payable under the master intercompany loan agreement and the issuing entity will not have any claim against Funding for the shortfall.
If there is such a shortfall in interest and/or principal payments under the master intercompany loan agreement, you may not receive the full amount of interest and/or principal which would otherwise be due and payable on the class B notes, the class M notes, the class C notes or the class D notes outstanding.
Although enforcement of the issuing entity security will be possible following the occurrence of an event of default in the issuing entity’s obligations, the proceeds of that enforcement may not be enough to make all payments due on the issuing entity notes
The issuing entity has no recourse to the assets of Funding unless Funding has also defaulted on its obligations under the master intercompany loan agreement and the Funding security has been enforced.
If the security created as required by the issuing entity deed of charge is enforced, the proceeds of enforcement may be insufficient to pay all principal and interest due on the issuing entity notes. The noteholders may still have an unsecured claim against the issuing entity for the shortfall, but there is no guarantee that the issuing entity will have sufficient (or any) funds to pay that shortfall.
Subordination of other issuing entity note classes may not protect noteholders from all risk of loss
The class B notes, the class M notes, the class C notes and class D notes of any series are subordinated in right of payment of interest to the class A notes of any series. The class M notes, the class C notes and the class D notes are subordinated in right of payment of interest to the class B notes of any series. The class C notes and the class D notes of any series are subordinated in right of payment of interest to the class M notes of any series. The class D notes of any series are subordinated in right of payment of interest to the class C notes of any series.
The class B notes, the class M notes, the class C notes and the class D notes of any series are subordinated in right of payment of principal to the class A notes of any series. The class M notes, the class C notes and the class D notes are subordinated in right of payment of principal to the class B notes of any series. The class C notes and the class D notes of any series are subordinated in right of payment of principal to the class M notes of any series. The class D notes of any series are subordinated in right of payment of principal to the class C notes of any series.
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You should be aware however that not all classes of issuing entity notes are scheduled to receive payments of principal on the same interest payment dates. The interest payment dates for the payment of interest and principal in respect of each series and class (or sub-class) of issuing entity notes will be specified in the relevant prospectus supplement. Each series and class (or sub-class) of issuing entity notes may have interest payment dates in respect of interest and/or principal that are different from other issuing entity notes of the same class (but of different series) or of the same series (but of different class or sub-class). Despite the principal priority of payments described above, subject to no trigger event having occurred and satisfaction of the repayment tests, lower ranking classes of issuing entity notes may nevertheless be repaid principal before higher ranking classes of issuing entity notes and a series and class (or sub-class) of issuing entity notes may be repaid principal before other series of issuing entity notes of the same class. Payments of principal are expected to be made on each class of issuing entity notes in amounts up to the amounts set forth under “Cashflows – Distribution of issuing entity principal receipts prior to enforcement of the issuing entity security”, “Cashflows – Distribution of issuing entity principal receipts following enforcement of the issuing entity security but prior to enforcement of the Funding security” and “Cashflows – Distribution of issuing entity principal receipts and issuing entity revenue receipts following enforcement of the issuing entity security and following enforcement of the Funding security”.
However, there is no assurance that these subordination rules will protect the class A noteholders from all risks of loss, the class B noteholders from all risks of loss, the class M noteholders from all risks of loss or the class C noteholders from all risks of loss. If the losses borne by the class D notes are in an amount equal to the aggregate outstanding principal balances of the class D notes, then losses on the loans will thereafter be borne by the class C notes. Similarly, if the losses borne by the class D notes and the class C notes are in an amount equal to the aggregate outstanding principal balances of the class D notes and the class C notes, then losses on the loans will thereafter be borne by the class M notes. Similarly, if the losses borne by the class D notes, the class C notes and the class M notes are in an amount equal to the aggregate outstanding principal balances of the class D notes, the class C notes and the class M notes, then losses on the loans will thereafter be borne by the class B notes. Finally, if the losses borne by the class D notes, the class C notes, the class M notes and the class B notes are in an amount equal to the aggregate outstanding principal balances of the class D notes, the class C notes, the class M notes and the class B notes, then losses on the loans will thereafter be borne by the class A notes, at which point there will be an asset trigger event.
Payments of class B, class M, class C and class D notes may be deferred or reduced in certain circumstances
On any interest payment date on which a payment of principal is due on any series of class B notes, class M notes, class C notes and class D notes, the issuing entity’s obligation to make such principal payments will be subject to the satisfaction of the repayment tests described under “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security – Rules for application of Funding available principal receipts and Funding principal receipts – 1. General rules”, including an arrears test, a general reserve fund requirement and a principal deficiency sub-ledger test to the extent that any class A notes of any series or any other senior ranking issuing entity notes of any series are outstanding on that interest payment date.
There may be conflicts between your interests and the interests of any of the issuing entity’s other secured creditors (including more senior noteholders), and the interest of those issuing entity secured creditors may prevail over your interests
The issuing entity deed of charge requires the issuing entity security trustee to consider the interests of each of the issuing entity secured creditors in the exercise of all of its powers, trusts, authorities, duties and discretions, but requires the issuing entity security trustee, in the event of a conflict between your interests and the interests of any of the other issuing entity secured creditors, to consider only your interests, except in the event of a proposed waiver of any breach of the provisions of the issuing entity transaction documents or a proposed modification to any of the
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issuing entity transaction documents. In these circumstances, the issuing entity security trustee is required to consider whether the proposed waiver or modification would be materially prejudicial to the interests of an issuing entity swap provider(s) and, if so, the issuing entity security trustee is required to get its or their written consent to the proposed waiver or modification.
There may be conflicts between the interests of the holders of the various classes of issuing entity notes, and the interests of the holders of other classes of issuing entity notes may prevail over your interests
The trust deed provides and the terms of the issuing entity notes will provide that the note trustee and the issuing entity security trustee are to have regard to the interests of the holders of all the classes of issuing entity notes. There may be circumstances, however, where the interests of one class of the noteholders conflicts with the interests of another class or classes of the noteholders. The trust deed provides and the terms of the issuing entity notes will provide that where, in the opinion of the note trustee or the issuing entity security trustee, there is such a conflict, then:
| • | the note trustee or the issuing entity security trustee is to have regard only to the interests of the class A noteholders in the event of a conflict between the interests of the class A noteholders on the one hand and the class B noteholders, the class M noteholders, the class C noteholders and/or the class D noteholders on the other hand; |
| • | (if there are no class A notes outstanding) the note trustee or the issuing entity security trustee is to have regard only to the interests of the class B noteholders in the event of a conflict between the interests of the class B noteholders on the one hand and the class M noteholders, the class C noteholders and/or the class D noteholders on the other hand; |
| • | (if there are no class A notes outstanding and no class B notes outstanding) the note trustee or the issuing entity security trustee is to have regard only to the interest of the class M noteholders in the event of a conflict between the interests of the class M noteholders on the one hand and the class C noteholders and/or the class D noteholders on the other hand; and |
| • | (if there are no class A notes outstanding, no class B notes outstanding and no class M notes outstanding) the note trustee or the issuing entity security trustee is to have regard only to the interest of the class C noteholders in the event of a conflict between the interests of the class C noteholders on the one hand and the class D noteholders on the other hand. |
There may be a conflict between the interests of the holders of each series and/or sub-class of the class A notes, the holders of each series and/or sub-class of the class B notes, the holders of each series and/or sub-class of the class M notes, the holders of each series and/or sub-class of the class C notes and the holders of each series and/or sub-class of the class D notes, and the interests of other series and/or sub-classes of noteholders may prevail over your interests
There may also be circumstances where the interests of the class A noteholders of one series and/or sub-class of the issuing entity notes conflict with the interests of the class A noteholders of another series and/or sub-class of the issuing entity notes or there may be circumstances where the interests of the class B noteholders of one series and/or sub-class of the issuing entity notes conflict with the interests of the class B noteholders of another series and/or sub-class of the issuing entity notes or where the interests of the class M noteholders of one series and/or sub-class of the issuing entity notes conflict with the interests of the class M noteholders of another series and/or sub-class of the issuing entity notes or where the interests of the class C noteholders of one series and/or sub-class of the issuing entity notes conflict with the interests of the class C noteholders of another series and/or sub-class of the issuing entity notes or where the interests of the class D noteholders of one series and/or sub-class of the issuing entity notes conflict with the interests of the class D noteholders of another series and/or sub-class of the issuing entity notes.
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The trust deed provides and the terms of the issuing entity notes will provide that where, in the opinion of the note trustee or the issuing entity security trustee, there is such a conflict, then a resolution directing the note trustee or, as applicable, the issuing entity security trustee to take any action must be passed at separate meetings of the holders of each series and/or sub-class (as applicable) of the class A notes, or, as applicable, each series and/or sub-class (as applicable) of the class B notes, each series and/or sub-class (as applicable) of the class M notes, each series and/or sub-class (as applicable) of the class C notes or each series and/or sub-class (as applicable) of the class D notes. A resolution may only be passed at a single meeting of the noteholders of each series and/or sub-class (as applicable) of the relevant class if the note trustee or, as applicable, the issuing entity security trustee is satisfied that there is no conflict between them.
Similar provisions will apply in relation to requests in writing from holders of a specified percentage of the principal amount outstanding of the issuing entity notes of each class (the principal amount outstanding being converted into sterling for the purposes of making the calculation).
The required subordination for a class of issuing entity notes may be changed
The issuing entity may change the required subordinated amount for any class of issuing entity notes, or the method of calculating the required subordinated amount for such class, at any time without the consent of any noteholders if certain conditions are met, including confirmation from each rating agency that such change would not cause an adverse effect on its then current rating of any outstanding issuing entity notes that would be affected by such change.
In certain circumstances some of the conditions precedent to the issuance of issuing entity notes may be waived
If the issuing entity obtains confirmation from each rating agency that the issuance of a new series and class (or sub-class) of issuing entity notes would not cause an adverse effect on the then current rating of any outstanding issuing entity notes rated by that rating agency, then some of the other conditions precedent to issuance of issuing entity notes (e.g., the absence of a note event of default in respect of a series and/or class of issuing entity notes) may be waived by the note trustee. For a description of the conditions precedent to issuance and the waiver of such conditions see “The issuance of issuing entity notes”.
The security trustee, the issuing entity security trustee and/or the note trustee may agree to modifications to the transaction documents without your prior written consent, which may adversely affect your interests
Pursuant to the terms of the trust deed and the issuing entity deed of charge, the note trustee may, without the consent or sanction of the noteholders at any time and from time to time:
| • | concur with the issuing entity or any other person; or |
| • | direct the issuing entity security trustee to concur with the issuing entity or any other person, |
in making modifications (except a basic terms modification) to any of the transaction documents which in the sole opinion of the note trustee it may be proper to make, provided that (a) the note trustee is of the sole opinion that such modification will not be materially prejudicial to the interests of the holders of any class (or sub-class) of any series of issuing entity notes, or (b) in the sole opinion of the note trustee, such modification is of a formal, minor or technical nature or is necessary to correct a manifest error or an error which is, in the opinion of the note trustee, proven.
In the exercise of any of its powers, trusts, authorities and discretions under the trust deed, the note trustee shall have regard to the interests of the noteholders (subject to the provisions of the next paragraph), but in the event of a conflict of interest it shall have regard to the interests of the holders of the class of issuing entity notes with the highest rating.
The note trustee will be entitled to assume that the exercise of its discretions will not be materially prejudicial to the interests of noteholders if each of the rating agencies then rating the
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issuing entity notes has confirmed in writing that the then current rating by it of such issuing entity notes would not be adversely affected by such exercise.
In addition, the security trustee and the issuing entity security trustee (as applicable) will give its consent to any modifications to the transaction documents that are requested by Funding or the cash manager, provided that Funding or the cash manager certifies to the security trustee or, as applicable, the issuing entity security trustee in writing that such modifications are required in order to accommodate, among other things new intercompany loan agreements, the issue of new notes by new issuing entities, the addition of relevant creditors, the issue (directly or indirectly) of new notes by Funding, the sale of new types of loans to the mortgages trustee, changes to the Funding reserve fund required amount or the Funding liquidity reserve required amount and changes to the asset trigger events and non-asset trigger events and that each of the rating agencies has confirmed in writing that the then current rating by it of the current notes would not be adversely affected by such modifications.
The modifications required to give effect to such matters may include, among other matters, amendments to the provisions of the mortgages trust deed and the Funding deed of charge relating to the allocation of and entitlement to monies. There can be no assurance that the effect of such modifications to the transaction documents will not ultimately adversely affect your interests.
Holdings may establish new funding entities, which may become additional beneficiaries under the mortgages trust
Holdings may establish new funding entities which may issue new notes from time to time and use the proceeds to make a payment to the seller to acquire an interest in the trust property rather than lending the proceeds to Funding, subject to the agreement of the seller and Funding, as existing beneficiaries of the mortgages trust. If a new funding entity becomes a beneficiary of the mortgages trust then the percentage shares of Funding and the seller in the trust property may decrease. The introduction of a new funding entity will not cause a reduction in the principal amount of assets backing the issuing entity notes. The security trustee will only be entitled to consent to any modifications to the transaction documents caused by the introduction of a new funding entity if it is satisfied that such modifications would not adversely affect the then current ratings of the outstanding notes.
If new funding entities were to become beneficiaries of the mortgages trust then the seller, Funding and such new funding entities would each have a joint and undivided interest in the trust property but their entitlement to the proceeds from the trust property would be in proportion to their respective shares of the trust property. On each distribution date the mortgages trustee would distribute interest and principal receipts to the beneficiaries in accordance with the terms of the mortgages trust.
It is anticipated that any such new funding entity would issue new notes directly to investors from time to time backed by its share of the trust property. You would not have a direct or indirect interest in any new funding entity’s share of the trust property.
Amendments would be made to a number of the transaction documents as a result of the inclusion of a new funding entity as a beneficiary of the mortgages trust. In particular (but without limitation), amendments would be made to:
| • | the mortgage sale agreement to enable the purchase by the new funding entity of interests in the trust property by paying the purchase price for new loans and their related security sold by the seller from time to time and to give the new funding entity the benefit of the covenants in the mortgage sale agreement; |
| • | the mortgages trust deed (i) to establish the new funding entity as a beneficiary of the trust, (ii) to enable changes in the new funding entity’s share of the trust property from time to time and (iii) to regulate the distribution of interest and principal receipts in the trust property to the new funding entity and the other beneficiaries; and |
| • | the cash management agreement to regulate the application of monies to the new funding entity. |
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There may be conflicts of interest between Funding and new funding entities, in which case it is expected that the mortgages trustee would follow the directions given by the relevant beneficiary that has the largest share of the trust property at that time. The interests of Funding may not prevail, which may adversely affect your interests.
If Funding enters into new intercompany loan agreements with new issuing entities, then the new term advances may rank ahead of the current term advances as to payment, and accordingly new notes may rank ahead of the issuing entity notes as to payment
Subject to satisfaction of certain conditions, Holdings may, in the future, establish additional wholly-owned subsidiary companies that will issue new notes to investors. The proceeds of such issue of new notes may be advanced by way of a new intercompany loan to Funding. Funding will use the proceeds of the new intercompany loan to:
| • | pay the seller for new loans and their related security to be assigned to the mortgages trustee; |
| • | pay the seller for a part of the seller’s share of the trust property to be assigned to Funding; |
| • | refinance an intercompany loan or intercompany loans outstanding at that time (and if any intercompany loan (or any part thereof) is refinanced, noteholders could be repaid early); and/or |
| • | deposit funds in one or more of the reserve funds. |
The order in which Funding pays principal and interest to the issuing entity on the term advances made by the issuing entity and to any new issuing entity on the new term advances made by that new issuing entity will depend primarily on the designated ratings of those term advances. In general, term advances with the highest term advance rating will be paid ahead of lower rated term advances, subject to their relative scheduled repayment dates. For example, Funding will pay interest due on the AAA term advances proportionally and equally with the interest due on any new AAA term advances and ahead of payments of interest due on any term advance with a lower term advance rating than AAA (including, for the avoidance of doubt, any AA term advance, any A term advance, any BBB term advance and any BB term advance). Similarly, Funding will, in general, repay principal amounts due on the term advances (including any new term advances) in accordance with their respective term advance ratings, subject to their relative scheduled repayment dates. For example, principal repayments due on a AAA term advance generally will be made before principal repayments due on a new AA term advance. This principle is subject to a number of exceptions, however, which are designed primarily to provide some protection that scheduled repayments of principal on current term advances will not materially affect payments of principal on previous or new term advances and in turn would not be materially affected by payments of principal on previous or new term advances. These exceptions are described in “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security – Rules for application of Funding available principal receipts and Funding principal receipts”.
The term advance ratings designated to the term advances on the relevant closing date will not change even if the ratings assigned to the corresponding classes of issuing entity notes change.
It is expected that the payment of the amounts owing by Funding under any new intercompany loan will be funded from amounts received by Funding from the trust property. Noteholders should note that the obligation to make such payments may rank equally or in priority with payments made by Funding to the issuing entity under other intercompany loan agreements. The terms of the new notes issued by any new issuing entity and the related new intercompany loan may result in such new notes and such new intercompany loan being repaid prior to the repayment of the issuing entity notes issued by the issuing entity under this prospectus and the relevant prospectus supplement and prior to the repayment of the related intercompany loans.
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You will not have any right of prior review or consent with respect to those new intercompany loans or the corresponding issuance by new issuing entities of new notes. Similarly, the terms of the Funding transaction documents (including, but not limited to, the mortgage sale agreement, the mortgages trust deed, the Funding deed of charge, the definitions of the trigger events and the criteria for the assignment of new loans to the mortgages trustee) may be amended to reflect such new issuance. Your consent to these changes will not be required. There can be no assurance that these changes will not affect cashflow available to pay amounts due on the issuing entity notes.
Before issuing new notes, however, a new issuing entity will be required to satisfy a number of conditions, including:
| • | obtaining a written confirmation from each of the rating agencies that the then current ratings of the issuing entity notes outstanding at that time, and the implicit ratings of the term advances outstanding at that time, will not be adversely affected because of the new issue (bearing in mind that the term advances are not themselves rated); |
| • | that no event of default under any of the intercompany loan agreements outstanding at that time has occurred which has not been remedied or waived and no event of default will occur as a result of the issue of the new notes; and |
| • | as at the most recent interest payment date, that no principal deficiency (which remains outstanding) is recorded on the principal deficiency ledger in relation to the term advances outstanding at that time. |
The issuing entity and the previous issuing entities have made previous intercompany loans to Funding, and some of the previous term advances in those previous intercompany loans may rank ahead of some of the term advances in the current intercompany loan as to payment, and accordingly some of the previous notes issued by the issuing entity and the previous issuing entities may rank ahead of some of the offered notes as to payment
The issuing entity and the previous issuing entities have issued previous notes to investors, the proceeds of which were used to make previous intercompany loans to Funding. Funding used the proceeds of the previous intercompany loan from Holmes Financing (No. 1) PLC to pay the seller for loans and their related security assigned to the mortgages trustee which comprised its original share of the trust property. Funding used the proceeds of the previous intercompany loans from Holmes Financing (No. 2) PLC, Holmes Financing (No. 4) PLC, Holmes Financing (No. 7) PLC, Holmes Financing (No. 9) PLC, Holmes Financing (No. 10) PLC and the issuing entity to pay the seller for an increase in Funding’s share of the trust property (resulting in a corresponding decrease in the seller’s share of the trust property). Funding used the proceeds of the previous intercompany loans from Holmes Financing (No. 3) PLC, Holmes Financing (No. 5) PLC, Holmes Financing (No. 6) PLC and Holmes Financing (No. 8) PLC to pay the seller for loans and their related security assigned to the mortgages trustee, which constituted an increase in Funding’s existing share of the trust property.
The order in which Funding pays principal and interest to the issuing entity on the term advances made by the issuing entity and to the previous issuing entities on the previous term advances made by the previous issuing entities depends primarily on the designated ratings of those term advances. See “Description of the previous issuing entities, the previous notes and the previous intercompany loans” in the accompanying prospectus supplement. In general, term advances with the highest term advance rating will be paid ahead of lower rated term advances subject to their relative scheduled repayment dates. For example, Funding will pay interest due on the AAA term advances proportionally and equally with the interest due on any previous AAA term advances and ahead of payments of interest due on any term advance with a lower term advance rating than AAA (including, for the avoidance of doubt, any AA term advance, A term advance, BBB term advance or BB term advance). Similarly, Funding will, in general, repay principal amounts due on the term advances in accordance with their respective term advance ratings. For example, principal repayments due on a AAA term advance generally will be made before principal repayments due on a previous AA term advance. This principle is subject to a number of exceptions, however, which are designed primarily to provide some protection that
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scheduled repayments of principal on current term advances will not materially affect payments of principal on previous term advances and in turn would not be materially affected by payments of principal on new term advances. These exceptions are described in “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security – Rules for application of Funding available principal receipts and Funding principal receipts”.
The term advance ratings designated to the previous term advances on the previous closing dates will not change even if the ratings assigned to the corresponding classes of previous notes change.
If the current intercompany loan (or any part thereof) is refinanced the issuing entity notes could be repaid early
Funding may refinance some or all of the term advances through proceeds received from the issuing entity under the current intercompany loan, a new issuing entity under new intercompany loans or payments received from the seller and/or a new funding entity. The issuing entity or the new issuing entity would fund such term advances through the issuance of new series and classes (or sub-classes) of further issuing entity notes or new notes, as the case may be. For example, an existing term advance might be refinanced in order to provide the issuing entity with funds to redeem a class of issuing entity notes after their step-up date. If the proceeds of a refinanced term advance were used by the issuing entity to effect an optional redemption of issuing entity notes prior to their expected maturity, those issuing entity notes would be repaid early. This, in turn, could have an adverse effect on the yield to maturity on the affected issuing entity notes. See “Terms and conditions of US notes – Redemption, purchase and cancellation”.
The criteria for the sale of new loans to the mortgages trustee may change over time without your consent
The criteria for new loans to be sold to the mortgages trustee may be amended in the future without your consent. As a result, the mortgages trust may include types of loans in the future with different characteristics from those currently in the mortgages trust. This may occur, for example, due to the development of new mortgage loan products in response to changing market conditions. Any such amendments, as provided in the mortgage sale agreement, would require the consent of the parties to the mortgage sale agreement, including the security trustee.
New issuing entities and new start-up loan providers will share in the same security granted by Funding to the issuing entity, and this may adversely affect payments on the issuing entity notes
If Funding enters into any new intercompany loan agreements, then if required it may also enter into new start-up loan agreements with new start-up loan providers and the security trustee. If Funding is required, in order to ensure no adverse impact on the ratings of the notes, to further fund one or more of the existing reserve funds, Funding may use part of the proceeds of the new start-up loans.
Any new issuing entities may become parties to the Funding deed of charge and, if so, will be entitled to share in the security granted by Funding for the issuing entity’s benefit (and the benefit of the other Funding secured creditors) under the Funding deed of charge. This could ultimately cause a reduction in the payments noteholders receive on the issuing entity notes.
The previous issuing entities, the Funding swap provider and the start-up loan provider already share in the security being granted by Funding to the issuing entity, which may adversely affect payments on the issuing entity notes
Funding has entered into the previous intercompany loan agreements and, as at the date of this prospectus, it has also entered into eight start-up loan agreements with the start-up loan provider and the security trustee. Funding used part of the proceeds of these start-up loans to fund the first reserve fund.
The previous issuing entities and the start-up loan provider are parties to the Funding deed of charge and are entitled to share in the security granted by Funding for the benefit of the Funding secured creditors (including, as from the programme date, the issuing entity) under the Funding
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deed of charge. In addition, the liabilities owed to the Funding swap provider which are secured by the Funding deed of charge may increase each time that Funding enters into a new intercompany loan agreement. These factors could ultimately cause a reduction in the payments noteholders receive on the issuing entity notes.
There may be conflicts between the issuing entity, the previous issuing entities and any new issuing entities, and the issuing entity’s interests may not prevail, which may adversely affect payments on the issuing entity notes
The security trustee will exercise its rights under the Funding deed of charge only in accordance with directions given by the issuing entities (which could be the issuing entity, the previous issuing entities and, if Funding enters into new intercompany loans, any new issuing entity) that have the highest-ranking outstanding term advances at that time, provided that the security trustee is indemnified to its satisfaction.
If the security trustee receives conflicting directions, it will follow the directions given by the relevant issuing entities representing the largest principal amount outstanding of relevant term advances. If the issuing entity is not in the group representing that largest principal amount, then its interests may not prevail. This could ultimately cause a reduction in the payments noteholders receive on the issuing entity notes. For example, if the term advances with the highest designated term advance rating at the time of a direction are the AAA term advances, then, in the event of conflicting directions being given by issuing entities with outstanding AAA term advances, the security trustee will follow the direction given by those issuing entities owed the largest principal amount outstanding of AAA term advances.
The inclusion of certain types of loans may affect the rate of repayment and prepayment of the loans
The portfolio contains flexible loans. Flexible loans provide the borrower with a range of options that give that borrower greater flexibility in the timing and amount of payments made under the loans. Subject to the terms and conditions of the loans (which may require in some cases notification to the seller and in other cases the consent of the seller), under a flexible loan a borrower may (among other things) redraw amounts that have been repaid exercising available options set out in the relevant flexible option agreement. For a detailed summary of the characteristics of the flexible loans, see “The loans – Characteristics of the loans – Flexible loans”.
To the extent that borrowers under flexible loans exercise any of the options available to them, the timing of payments on the issuing entity notes may be adversely affected.
Competition in the United Kingdom mortgage loan industry could increase the risk of an early redemption of the issuing entity notes
The mortgage loan industry in the United Kingdom is highly competitive. Both traditional and new lenders use heavy advertising, targeted marketing, aggressive pricing competition and loyalty schemes in an effort to expand their presence in or to facilitate their entry into the market and compete for customers. For example, certain of the seller’s competitors have implemented loyalty discounts for long-time customers to reduce the likelihood that these customers would refinance their mortgage loans with other lenders such as the seller.
This competitive environment may affect the rate at which the seller originates new mortgage loans and may also affect the level of loss of the seller’s existing borrowers as customers. If the rate at which new mortgage loans are originated declines significantly or if existing borrowers refinance their mortgage loans with lenders other than the seller, then the risk of a trigger event occurring increases, which could result in an early redemption of the issuing entity notes.
If property values decline, payments on the issuing entity notes could be adversely affected
The security granted by Funding in respect of the master intercompany loan, which is the principal source of funding for the issuing entity notes, consists, among other things, of Funding’s interest in the mortgages trust. Since the value of the portfolio held by the mortgages trustee may increase or decrease, the value of that security may decrease and will decrease if there is a general decline in property values. The issuing entity cannot give any assurance that the value of
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a mortgaged property will remain at the same level as on the date of origination of the related loan. If the residential property market in the United Kingdom experiences an overall decline in property values, the value of the security created by the mortgage could be significantly reduced and, ultimately, may result in an adverse effect on the payments on the issuing entity notes if the security is required to be enforced.
The principal source of income for repayment of the issuing entity notes by the issuing entity is the master intercompany loan agreement. The principal source of income for repayment by Funding of each term advance under the master intercompany loan agreement is its interest in the loans held on trust by the mortgages trustee for Funding and the seller. If the timing and payment of the loans is adversely affected by any of the risks described in this section, then the payments on the issuing entity notes could be reduced and/or delayed.
As new loans are assigned to the mortgages trustee, the characteristics of the trust property may change from those existing at the date of this prospectus, and those changes may adversely affect payments on the issuing entity notes
There is no guarantee that any new loans assigned to the mortgages trustee will have the same characteristics as the loans in the portfolio as at the date of this prospectus. In particular, new loans may have different payment characteristics from the loans in the portfolio as at the date of this prospectus. The ultimate effect of this could be to delay or reduce the payments noteholders receive on the issuing entity notes. However, the new loans will be required to meet the criteria described in “Assignment of the loans and their related security”. These criteria may be modified after the closing date and your consent to such modifications will not be obtained provided that the security trustee is satisfied that the then current ratings of the outstanding notes will not be adversely affected by the proposed modifications.
The yield to maturity of the issuing entity notes may be adversely affected by prepayments or redemptions on the loans
The yield to maturity of the issuing entity notes of each class (and sub-class) will depend mostly on (a) the amount and timing of payment of principal on the loans and (b) the price paid by the noteholders of each class (and sub-class) of issuing entity notes.
The yield to maturity of the issuing entity notes of each class (and sub-class) may be adversely affected by a higher or lower than anticipated rate of prepayments on the loans. The factors affecting the rate of prepayment on the loans are described in “– The issuing entity’s ability to redeem the issuing entity notes on their scheduled redemption dates is affected by the rate of prepayment on the loans”. See also “Characteristics of the United Kingdom residential mortgage market” in the relevant prospectus supplement.
No assurance can be given that Funding will accumulate sufficient funds during the cash accumulation periods relating to bullet term advances or scheduled amortisation term advances owed to the issuing entity to enable it to repay these bullet term advances or scheduled amortisation term advances owed to the issuing entity so that the corresponding series and class (or sub-class) of the issuing entity notes will be redeemed in accordance with their bullet redemption dates or scheduled redemption dates respectively.
The extent to which sufficient funds are accumulated by Funding during a cash accumulation period or a scheduled amortisation period or received by it from its share in the mortgages trust on a scheduled repayment date will depend on whether the actual principal prepayment rate of the loans is the same as the assumed principal prepayment rate. If Funding is not able to accumulate enough money during a cash accumulation period or a scheduled amortisation period or does not receive enough money from its share in the mortgages trust to pay the full amount scheduled to be repaid on a bullet term advance or scheduled amortisation term advance and the issuing entity is therefore unable to redeem the corresponding series and class (or sub-class) of issuing entity notes on their scheduled redemption date(s), then Funding will be required to pay to the issuing entity on those scheduled redemption dates only the amount that it has actually accumulated. Any shortfall will be deferred and paid on subsequent interest payment dates when Funding has money available to make the payment. In these circumstances, there may be a variation in the yield to maturity of the relevant class of issuing entity notes.
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The issuing entity’s ability to redeem the issuing entity notes on their scheduled redemption dates or their final maturity dates is affected by the rate of prepayment on the loans
The rate of prepayment of loans is influenced by a wide variety of economic, social and other factors, including prevailing mortgage market interest rates, the availability of alternative financing programs, local and regional economic conditions and homeowner mobility. For instance, prepayments on the loans may be due to borrowers refinancing their loans and sales of properties by borrowers (either voluntarily or as a result of enforcement action taken). In addition, if the seller is required to repurchase a loan or loans under a mortgage account and their related security because, for example, one of the loans does not comply with the loan warranties in the mortgage sale agreement, then the payment received by the mortgages trustee will have the same effect as a prepayment of all of the loans under the mortgage account. Because these factors are not within the issuing entity’s control or the control of Funding or the mortgages trustee, the issuing entity cannot give any assurances as to the level of prepayments that the portfolio may experience.
Variation in the rate of prepayments of principal on the loans may affect each series and class (or sub-class) of issuing entity notes differently depending upon amounts already repaid by Funding to the issuing entity in respect of the corresponding term advance and whether a trigger event has occurred, or a loan is subject to a product switch or a further advance or the security granted by the issuing entity under the issuing entity deed of charge has been enforced.
If prepayments on the loans occur less frequently than anticipated, then there may not be sufficient funds available to redeem the issuing entity notes of any series in full on their respective scheduled redemption dates or final maturity dates.
The seller may change the lending criteria relating to loans that are subsequently assigned to the mortgages trustee, which could affect the characteristics of the trust property and which may adversely affect payments on the issuing entity notes
Each of the loans was originated in accordance with the seller’s lending criteria at the time of origination. The current lending criteria are set out in the section “The loans – Lending criteria”. These lending criteria consider a variety of factors such as a potential borrower’s credit history, employment history and status and repayment ability, as well as the value of the property to be mortgaged. In the event of the assignment of any new loans and new related security to the mortgages trustee, the seller will warrant that those new loans and new related security were originated in accordance with the seller’s lending criteria at the time of their origination. However, the seller retains the right to revise its lending criteria as determined from time to time, and so the lending criteria applicable to any loan at the time of its origination may not be or have been the same as those set out in the section “The loans – Lending criteria”.
If new loans that have been originated under revised lending criteria are assigned to the mortgages trustee, the characteristics of the trust property could change. This could lead to a delay or a reduction in the payments received on the issuing entity notes.
The seller has introduced procedures relating to investigations and searches for remortgages which could affect the characteristics of the trust property and which may adversely affect payments on the issuing entity notes
The seller no longer requires a solicitor or licensed or qualified conveyancer to conduct a full investigation of the title to a property in all cases. Where the borrower is remortgaging there will be a more limited form of investigation of title for properties located in England, Wales and Scotland, in particular in the case of registered land in England and Wales (e.g. confirming that the borrower is the registered proprietor of the property and the description of the property corresponds with the entries on the Land Registry’s register) and confirming such other matters as are required by a reasonable, prudent mortgage lender. Properties which have undergone such a limited investigation may be subject to matters which would have been revealed by a full investigation of title and which may have been remedied or, if incapable of remedy, may have resulted in the properties not being accepted as security for a loan had such matters been revealed. The introduction of loans secured by such properties into the trust property could result in a change of the characteristics of the trust
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property. This could lead to a delay or a reduction in the payments received on the issuing entity notes.
The timing and amount of payments on the loans could be affected by various factors which may adversely affect payments on the issuing entity notes
The loans are affected by credit, liquidity and interest rate risks. Various factors influence mortgage delinquency rates, prepayment rates, repossession frequency and the ultimate payment of interest and principal, such as changes in the national or international economic climate, regional economic or housing conditions, changes in tax laws, interest rates, inflation, the availability of financing, yields on alternative investments, political developments and government policies. Other factors in borrowers’ individual, personal or financial circumstances may affect the ability of borrowers to repay loans. Loss of earnings, illness, divorce and other similar factors may lead to an increase in delinquencies by and bankruptcies of borrowers, and could ultimately have an adverse impact on the ability of borrowers to repay loans.
If a borrower fails to repay its loan and the related property is repossessed, the likelihood of there being a net loss on disposition of the property is adversely affected by a higher loan-to-value ratio. In addition, the ability of a borrower to sell a property given as security for a loan at a price sufficient to repay the amounts outstanding under the loan will depend upon a number of factors, including the availability of buyers for that property, the value of that property and property values in general at the time. The relevant prospectus supplement will provide information on the distribution of the loan-to-value ratios at origination of the loans sold to the mortgages trustee, see “Statistical information on the portfolio” in Annex A-1 of the relevant prospectus supplement.
The portfolio may also be subject to geographic concentration risks. To the extent that specific geographic regions within the United Kingdom have experienced or may experience in the future weaker regional economic conditions and housing markets than other regions, a concentration of the loans in such a region may be expected to exacerbate all risks relating to the loans described in this section. The economy of each geographic region within the United Kingdom is dependent on different mixtures of industries. Any downturn in a local economy or particular industry may adversely affect the regional employment levels and consequently the repayment ability of the borrowers in that region or the region that relies most heavily on that industry. Any natural disasters in a particular region may reduce the value of affected mortgaged properties. This may result in a loss being incurred upon sale of the mortgaged property. These circumstances could affect receipts on the loans and ultimately result in losses on the issuing entity notes. For an overview of the geographical distribution of the loans sold to the mortgages trustee in connection with the issuance of the relevant series of issuing entity notes, see “Statistical information on the portfolio” in Annex A-1 of the relevant prospectus supplement.
The principal source of income for repayment of the issuing entity notes by the issuing entity is the master intercompany loan agreement. The principal source of income for repayment by Funding of each term advance under the master intercompany loan agreement is its interest in the loans held on trust by the mortgages trustee for Funding and the seller. If the timing and payment of the loans is adversely affected by any of the risks described in this section, then the payments on the issuing entity notes could be reduced and/or delayed.
The occurrence of an asset trigger event and enforcement of the issuing entity security may adversely affect the repayment of certain issuing entity notes and/or delay the repayment of other issuing entity notes
If an asset trigger event has occurred, the mortgages trustee will distribute principal receipts on the loans to Funding and the seller proportionally and equally based on their percentage shares of the trust property (that is, the Funding share percentage and the seller share percentage). When an asset trigger event has occurred, Funding will repay:
| first, the AAA term advances and the previous AAA term advances of each series proportionally and equally, until all of those AAA term advances are fully repaid; |
| then, the AA term advances and the previous AA term advances of each series proportionally and equally, until all of those AA term advances are fully repaid; |
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| then, the A term advances and the previous A term advances of each series proportionally and equally, until all of those A term advances are fully repaid; |
| then, the BBB term advances and the previous BBB term advances of each series proportionally and equally, until all of those BBB term advances are fully repaid; and |
| then, the BB term advances and the previous BB term advances of each series proportionally and equally, until all of those BB term advances are fully repaid. |
The above order of priority of payments may cause certain series and classes (or sub-classes) of issuing entity notes to be repaid more rapidly than expected and other series and classes (or sub-classes) of issuing entity notes to be repaid more slowly than expected and there is a risk that such issuing entity notes may not be repaid by their final maturity date.
The occurrence of a non-asset trigger event may accelerate the repayment of certain issuing entity notes and/or delay the repayment of other issuing entity notes
If a non-asset trigger event has occurred, the mortgages trustee will distribute all principal receipts to Funding until the Funding share percentage of the trust property is zero. When a non-asset trigger event has occurred, Funding will repay:
| first, the AAA term advances in order of final repayment date, beginning with the earliest final repayment date; |
| then, the AA term advances until each of those AA term advances is fully repaid; |
| then, the A term advances until each of those A term advances is fully repaid; |
| then, the BBB term advances until each of those BBB term advances is fully repaid; and |
| then, the BB term advances until each of those BB term advances is fully repaid. |
The above order of priority of payments may cause certain series and classes (or sub-classes) of issuing entity notes to be repaid more rapidly than expected and other series and classes (or sub-classes) of issuing entity notes to be repaid more slowly than expected and there is a risk that such issuing entity notes may not be repaid on their scheduled redemption dates.
Loans subject to product switches and further advances will be repurchased by the seller from the mortgages trustee, which will affect the prepayment rate of the loans, and this may affect the yield to maturity of the issuing entity notes
If a loan is subject to a product switch or a further advance, then the seller will be required to repurchase the loan or loans under the relevant mortgage account and their related security from the mortgages trustee at a price equal to the outstanding principal balance of those loans together with any arrears of interest and accrued and unpaid interest and expenses to the date of purchase.
A loan will be subject to a product switch if the borrower and the seller agree on or the servicer issues an offer for, and the borrower accepts, a variation in the financial terms and conditions applicable to the relevant borrower’s loan, other than:
| • | any variation agreed with a borrower to control or manage arrears on the loan; |
| • | any variation in the maturity date of the loan unless, while the previous intercompany loan made by Holmes Financing (No. 1) PLC is outstanding, it is extended beyond July 2038; |
| • | any variation imposed by statute; |
| • | any variation of the principal available and/or the rate of interest payable in respect of the loan where that rate is offered to the borrowers of more than 10 per cent. by outstanding principal amount of loans comprised in the trust property in any interest period; or |
| • | any variation in the frequency with which the interest payable in respect of the loan is charged. |
A loan will be subject to a further advance if an existing borrower requests a further amount to be lent to him or her under the mortgage in circumstances where the seller has discretion to, and does, grant that request. A drawing under a flexible loan will not constitute a further advance.
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The yield to maturity of the issuing entity notes may be affected by the repurchase of loans subject to product switches and further advances.
Ratings assigned to the issuing entity notes may be lowered or withdrawn after you purchase the issuing entity notes, which may lower the market value of the issuing entity notes
The ratings assigned by Standard & Poor’s and Fitch to each class (or sub-class) of issuing entity notes address the likelihood of full and timely payment to you of all payments of interest on each interest payment date under that class (or sub-class) of issuing entity notes in accordance with the terms of the issuing entity transaction documents and the conditions of the issuing entity notes. The ratings also address the likelihood of “ultimate” payment of principal by the final maturity date of each class (or sub-class) of issuing entity notes. The ratings assigned by Moody’s to each class (or sub-class) of issuing entity notes address the expected loss in proportion to the initial principal amount of such class (or sub-class) and express Moody’s opinion that the structure allows for timely payment of interest and ultimate payment of principal at par on or before the rated final legal maturity date. The expected ratings of each class (or sub-class) of issuing entity notes on the relevant closing date are set out in the relevant prospectus supplement. Any rating agency may lower, qualify or withdraw its rating if, in the sole judgment of the rating agency, the credit quality of the issuing entity notes has declined or is in question. If any rating assigned to the issuing entity notes is lowered, qualified or withdrawn, the market value of the issuing entity notes may be reduced and, in the case of money market notes, such money market notes may no longer be eligible for investment by money market funds. A change to the ratings assigned to each class (or sub-class) of issuing entity notes will not affect the term advance ratings assigned to each relevant term advance under the master intercompany loan agreement.
The remarketing bank may not be able to remarket money market notes and payments from a conditional note purchaser may not be sufficient to repay money market notes
The ability of the remarketing bank to procure payment of the transfer price on a transfer date will depend upon the remarketing bank either (a) procuring third party purchasers for any tendered notes prior to the relevant transfer date and obtaining the transfer price from those third party purchasers or (b) exercising its rights under the conditional purchase agreement to require the conditional note purchaser to acquire the unremarketed notes.
There can be no assurance that the remarketing bank will be able to identify purchasers willing to acquire the tendered notes on a transfer date. In such event the transfer of any unremarketed notes would be dependent upon the ability of the conditional note purchaser to pay the transfer price and acquire the unremarketed notes.
You should consider carefully the risk posed if your tendered notes cannot be remarketed on a transfer date and either (a) the conditions to the conditional note purchaser’s obligation to purchase unremarketed notes are not satisfied or (b) the conditional note purchaser defaults in its obligation to purchase unremarketed notes under the conditional purchase agreement. In those situations noteholders may be unable to sell the issuing entity notes on the relevant transfer date or at any other time.
In addition, you will have no recourse against the issuing entity, the conditional note purchaser or the remarketing bank for any default or failure to purchase by the conditional note purchaser under the conditional purchase agreement or default or failure to remarket by the remarking bank under the remarketing agreement. Although the parties to these agreements may be able to enforce them, they have no obligation to do so.
Neither the issuing entity nor any of the underwriters, any remarketing bank or any conditional note purchaser will make any representation as to the suitability of the money market notes for investment by money market funds subject to Rule 2a-7 under the Investment Company Act. Any determination as to such suitability or compliance with Rule 2a-7 under the Investment Company Act, is solely your responsibility.
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| Issuance of further issuing entity notes may affect the timing and amounts of payments to you |
The issuing entity expects to issue further issuing entity notes from time to time. Further issuing entity notes may be issued without prior notice to existing noteholders and without their consent, and may have different terms from outstanding issuing entity notes. For a description of the conditions that must be satisfied before the issuing entity can issue further issuing entity notes, see “Summary of the issuing entity notes – Issuance”.
The issuance of further issuing entity notes could adversely affect the timing and amount of payments on the outstanding issuing entity notes. For example, if further issuing entity notes of the same class (or sub-class) as the issuing entity notes (issued after such issuing entity notes) have a higher interest rate than the issuing entity notes, this could result in a reduction in the available funds used to pay interest on the issuing entity notes. Also, when further issuing entity notes are issued, the voting rights attaching to the issuing entity notes will be diluted.
You may be subject to risks relating to exchange rates or interest rates on the issuing entity notes or risks relating to reliance on a 2a-7 swap provider
Repayments of principal and payments of interest on a series and class (or sub-class) of issuing entity notes may be made in a currency other than sterling but the loan made by the issuing entity to Funding and repayments of principal and payments of interest by Funding to the issuing entity under the master intercompany loan agreement will be in sterling. In addition, interest due and payable by Funding to the issuing entity on any term advance under the master intercompany loan agreement will be calculated by reference to LIBOR for three-month sterling deposits or, for some term advances, such other sterling LIBOR rate as may be specified in the relevant term advance supplement but interest due and payable on a series and class (or sub-class) of issuing entity notes may be calculated by reference to a fixed or floating rate (as set out in the relevant prospectus supplement).
To hedge the issuing entity’s currency exchange rate exposure and/or interest rate exposure in such cases, on the relevant closing date for a series and class (or sub-class) of issuing entity notes, the issuing entity will, where applicable, enter into appropriate currency and/or interest rate swap transactions for such issuing entity notes with an issuing entity swap provider as specified in the relevant prospectus supplement. See “The swap agreements”.
Each issuing entity swap provider is obliged to make payments under a swap only for so long as and to the extent that the issuing entity makes timely payments under it. If such issuing entity swap provider is not obliged to make payments of, or if it defaults in its obligations to make payments of, amounts equal to the full amount scheduled to be paid to the issuing entity on the dates for payment specified under the relevant swap or such swap is otherwise terminated, the issuing entity will be exposed to changes in the exchange rates between sterling and the currency in which such issuing entity notes are denominated and in the relevant interest rates. Unless a replacement swap transaction is entered into, the issuing entity may have insufficient funds to make payments due on the corresponding series and class (or sub-class) of issuing entity notes.
If a 2a-7 swap provider swap arrangement is specified as applying to a certain series and class (or sub-class) of issuing entity notes in the relevant prospectus supplement, the 2a-7 swap provider will be required to make a principal payment under the relevant issuing entity swap agreement to the issuing entity to enable the issuing entity to redeem a class of issuing entity notes in full on their bullet repayment date (unless an asset trigger event has occurred prior to that date) notwithstanding that the 2a-7 swap provider has not received the corresponding principal payment required to be made by the issuing entity under the relevant issuing entity swap agreement. A failure by the issuing entity to make the full principal repayment on the bullet repayment date of the term advance corresponding to the relevant class (or sub-class) of issuing entity notes for which the relevant issuing entity swap was entered into will not constitute an event of default or a termination event under that swap. In such circumstances, noteholders in respect of such issuing entity notes will be dependent on the performance of the 2a-7 swap provider and no assurance can be given that the issuing entity will have sufficient funds to make payments due on the corresponding series and class (or sub-class) of issuing entity notes.
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Termination payments on the swaps may adversely affect the funds available to make payments on the issuing entity notes
If any of the swaps terminates, the issuing entity may as a result be obliged to pay a termination payment to the relevant issuing entity swap provider. The amount of the termination payment will be based on the cost of entering into a replacement swap. Under the master intercompany loan agreement, Funding will be required to pay the issuing entity an amount equal to any termination payment due from the issuing entity to the relevant issuing entity swap provider. Funding will also be obliged to pay the issuing entity any extra amounts which it may be required to pay to enter into a replacement swap.
No assurance can be given that Funding will have the funds available to make such payments or that the issuing entity will have sufficient funds available to make any termination payment under any of its swaps or to make subsequent payments to you in respect of the relevant series and class (or sub-class) of issuing entity notes. Nor can any assurance be given that the issuing entity will be able to enter into a replacement swap or, if one is entered into, that the credit rating of the replacement issuing entity swap provider will be sufficiently high to prevent a downgrading of the then current ratings of the issuing entity notes by the rating agencies.
Except where the relevant issuing entity swap provider has caused the relevant swap to terminate by its own default or following a downgrade termination event, any termination payment due from the issuing entity will rank equally not only with payments due to the holders of the series and class (or sub-class) of issuing entity notes to which the relevant swap relates but also with payments due to the holders of any other series and class (or sub-class) of issuing entity notes which rank equally with the series and class (or sub-class) of issuing entity notes to which the relevant swap relates. Any additional amounts required to be paid by the issuing entity following termination of the relevant swap (including any extra costs incurred (for example, from entering into spot currency or interest rate swaps) if the issuing entity cannot immediately enter into a replacement swap) will also rank equally not only with payments due to the holders of the series and class (or sub-class) of issuing entity notes to which the relevant swap relates but also with payments due to the holder of any other series and class (or sub-class) of issuing entity notes which rank equally with the series and class (or sub-class) of issuing entity notes to which the relevant swap relates. Furthermore, any termination payment or additional payment or additional amounts required to be paid by the issuing entity following termination of a swap will rank ahead of payments due to the holders of any series and class (or sub-class) of issuing entity notes which ranks below the series and class (or sub-class) of issuing entity notes to which the relevant swap relates. Therefore, if the issuing entity is obliged to make a termination payment to the relevant issuing entity swap provider or to pay any other additional amount as a result of the termination of the relevant swap, this may affect the funds which the issuing entity has available to make payments on the issuing entity notes of any class and any series.
Payments by Funding to third parties in relation to the previous issuing entities may affect payments due to the issuing entity and accordingly the issuing entity’s ability to make payments on the issuing entity notes
Under the previous intercompany loan agreements, Funding is required to make payments to the previous issuing entities in respect of the previous issuing entities’ obligations to make payments to their respective own security trustee, note trustee, agent bank, paying agents, cash manager, corporate services provider and account bank and to other third parties to whom the previous issuing entities owe money. These payments rank in priority to amounts due by Funding to the issuing entity on the term advances. For further information regarding Funding’s payment obligations to the previous issuing entities, see “Cashflows”.
Funding’s obligations to make the payments described in the preceding paragraph to the previous issuing entities may affect Funding’s ability to make payments to the issuing entity under the master intercompany loan agreement. This in turn may affect the issuing entity’s ability to make payments on the issuing entity notes.
The issuing entity relies on third parties to perform services in relation to the issuing entity notes, and you may be adversely affected if they fail to perform their obligations.
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The issuing entity is, and will be, a party to contracts with a number of third parties that have agreed or will agree to perform services in relation to the issuing entity notes. For example, the issuing entity swap providers have agreed or will agree to provide their respective swaps, the corporate services provider has agreed to provide corporate services and the paying agents and the agent bank have agreed to provide payment and calculation services in connection with the issuing entity notes. In the event that any of these parties were to fail to perform their obligations under the respective agreements to which they are a party, you may be adversely affected.
The issuing entity may be unable to pay, in full or at all, interest due on the issuing entity notes if there is an income or principal deficiency
If, on any interest payment date, revenue receipts available to Funding (including the reserve funds) are insufficient to enable Funding to pay interest on previous term advances, term advances and any new term advances and other expenses of Funding ranking higher in seniority to interest due on these term advances, then Funding may use principal receipts on the loans received by it in the mortgages trust to make up the shortfall.
Funding will use principal receipts that would have been applied to repay the term advances with the lowest term advance rating to pay interest on those other term advances and senior expenses described in the preceding paragraph where there is a shortfall of monies to pay those amounts.
However, it is expected that these principal deficiencies will be recouped from subsequent excess revenue receipts and amounts standing to the credit of the first reserve fund.
However, if there are insufficient funds available because of income or principal deficiencies, this will affect the funds which the issuing entity has available to make payments on the issuing entity notes of any series or class (or sub-class) and, as a consequence, you may receive later than anticipated, and/or you may not receive in full, repayment of the principal amount outstanding on the issuing entity notes.
For more information on principal deficiencies, see “Credit structure – Principal deficiency ledger”.
The seller share of the trust property does not provide credit enhancement for the issuing entity notes
Any losses from loans included in the trust property will be allocated proportionately between Funding and the seller on each distribution date depending on their respective shares of the trust property. The seller’s share of the trust property therefore does not provide credit enhancement for the Funding share of the trust property or the issuing entity notes.
The issuing entity will only have recourse to the seller if there is a breach of warranty or other obligation by the seller, but otherwise the seller’s assets will not be available to the issuing entity as a source of funds to make payments on the issuing entity notes
After a master intercompany loan enforcement notice under the master intercompany loan agreement is given (as described in “Security for Funding’s obligations”), the security trustee may sell the Funding share of the trust property. There is no assurance that a buyer would be found or that such a sale would realise enough money to repay amounts due and payable under the master intercompany loan agreement.
The issuing entity, Funding and the mortgages trustee will not have any recourse to the seller of the loans, other than in respect of a breach of warranty or other obligation under the mortgage sale agreement.
The issuing entity, the mortgages trustee, Funding and the security trustee will not undertake any investigations, searches or other actions on any loan or its related security and each of them will rely instead on the warranties given in the mortgage sale agreement by the seller.
If any of the warranties given by the seller is materially untrue on the date on which a loan is assigned to the mortgages trustee, then the seller may be required by the mortgages trustee to remedy the breach within 20 days of the seller becoming aware of the same or of receipt by it of a notice from the mortgages trustee.
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If the seller fails to remedy the breach within 20 days, the mortgages trustee may require the seller to repurchase the loan or loans under the relevant mortgage account and their related security together with any arrears of interest and accrued and unpaid interest and expenses. There can be no assurance that the seller will have the financial resources to repurchase the loan or loans under the relevant mortgage account and their related security. However, if the seller does not repurchase those loans and their related security when required, then the seller’s share of the trust property will be deemed to be reduced by an amount equal to the principal amount outstanding of those loans together with any arrears of interest and accrued and unpaid interest and expenses.
Other than as described here, neither you nor the issuing entity will have any recourse to the assets of the seller.
There can be no assurance that a borrower will repay principal at the end of the term on an interest only loan, which may adversely affect repayments on the issuing entity notes
Each loan in the portfolio is repayable either on a principal repayment basis or an interest only basis. For interest only loans, because the principal is repaid in a lump sum at the maturity of the loan, the borrower is recommended to have some repayment mechanism such as an investment plan in place to help ensure that funds will be available to repay the principal at the end of the term. However, the seller does not take security over these repayment mechanisms. The borrower is also recommended to take out a life insurance policy in relation to the loan but, as with repayment mechanisms, the seller does not take security over these life insurance policies.
The ability of a borrower to repay the principal on an interest only loan at maturity depends on the borrower’s responsibility to ensure that sufficient funds are available from an investment plan or another source, such as ISAs, pension policies, personal equity plans or endowment policies, as well as the financial condition of the borrower, tax laws and general economic conditions at the time. There can be no assurance that the borrower will have the funds required to repay the principal at the end of the term. If a borrower cannot repay the loan and a loss occurs on the loan, then this may affect repayments of principal on the issuing entity notes if that loss cannot be cured by amounts standing to the credit of the first reserve fund or the application of excess Funding available revenue receipts. In respect of loans sold to the mortgages trustee, the relevant prospectus supplement will state the amount of the loans in the expected portfolio that are interest only loans. See “Statistical information on the portfolio” in Annex A-1 of the relevant prospectus supplement.
Set-off risks in relation to flexible loans, delayed cashbacks and reward cashbacks may adversely affect the funds available to the issuing entity to repay the issuing entity notes
As described in “– There may be risks associated with the fact that the mortgages trustee has no legal title to the mortgages, which may adversely affect payments on the issuing entity notes”, the seller has made, and in the future may make, an equitable assignment of the mortgages, or in the case of Scottish mortgages a transfer of the beneficial interest in the Scottish mortgages, to the mortgages trustee, with legal title being retained by the seller. Therefore, the rights of the mortgages trustee may be subject to the direct rights of the borrowers against the seller, including rights of set-off existing prior to notification to the borrowers of the assignment of the mortgages. These set-off rights may occur if the seller fails to advance to a borrower a drawing under a flexible loan when the borrower is entitled to draw additional amounts under a flexible loan or if the seller fails to pay to a borrower any delayed cashback or reward cashback which the seller had agreed to pay to that borrower after completion of the relevant loan.
If the seller fails to advance the drawing or pay the delayed cashback or reward cashback, then the relevant borrower may set off any damages claim (or analogous rights in Scotland) arising from the seller’s breach of contract against the seller’s (and, as assignee of the mortgages, the mortgages trustee’s) claim for payment of principal and/or interest under the loan as and when it becomes due. These set-off claims will constitute transaction set-off as described in the risk factor entitled “Independent set-off risks which a borrower has against the seller may adversely affect the funds available to the issuing entity to repay the issuing entity notes”.
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The amount of the claim in respect of a drawing will, in many cases, be the cost to the borrower of finding an alternative source of finance (although, in the case of flexible loan drawing, a delayed cashback or reward cashback in respect of a Scottish loan, it is possible, though regarded as unlikely, that the borrower’s right of set-off could extend to the whole amount of the additional drawing). The borrower may obtain a loan elsewhere in which case the damages would be equal to any difference in the borrowing costs together with any consequential losses, namely the associated costs of obtaining alternative funds (for example, legal fees and survey fees). If the borrower is unable to obtain an alternative loan, he or she may have a claim in respect of other losses arising from the seller’s breach of contract where there are special circumstances communicated by the borrower to the seller at the time the mortgage was taken out.
In respect of a delayed cashback or reward cashback, the claim is likely to be in an amount equal to the amount due under the delayed cashback or reward cashback together with interest and expenses and consequential losses (if any).
A borrower may also attempt to set off against his or her mortgage payments an amount greater than the amount of his or her damages claim (or analogous rights in Scotland). In that case, the servicer will be entitled to take enforcement proceedings against the borrower, although the period of non-payment by the borrower is likely to continue until a judgment is obtained.
The exercise of set-off rights by borrowers would reduce the incoming cashflow to the mortgages trustee during such exercise. However, the amounts set off will be applied to reduce the seller share of the trust property only.
See also “– If a significant number of borrowers attempt to set off claims for damages based on contravention of an FSA rule against the amount owing by the borrower under a loan, there could be a material decrease in receipts to the issuing entity from the mortgages trust” and “– If the issuing entity’s interpretation of certain technical rules under the CCA were held to be incorrect by a court or the Ombudsman or was challenged by a significant number of borrowers, or borrowers were to exercise rights of set-off to the extent available under the CCA, there could be material disruption to the income flow from the mortgages trust”.
The minimum seller share has been sized in an amount expected to cover this risk, although there is no assurance that it will. If the minimum seller share is not sufficient in this respect, then there is a risk that noteholders may not receive all amounts due on the issuing entity notes.
There may be risks associated with the fact that the mortgages trustee has no legal title to the mortgages, which may adversely affect payments on the issuing entity notes
The sale by the seller to the mortgages trustee of the English mortgages has taken effect (and any sale of English mortgages in the future will take effect) in equity only. The sale by the seller to the mortgages trustee of the Scottish mortgages has taken effect by declarations of trust by the seller (and any sale of Scottish mortgages in the future will be given effect by further declarations of trust) by which the beneficial interest in the Scottish mortgages is transferred to the mortgages trustee. In each case this means that legal title to the loans in the trust property remains with the seller, but the mortgages trustee has all the other rights and benefits relating to ownership of each loan and its related security (which rights and benefits are subject to the trust in favour of the beneficiaries). The mortgages trustee has the right to demand that the seller give it legal title to the loans and the related security in the circumstances described in “Assignment of the loans and their related security – Legal assignment of the loans to the mortgages trustee”. Until then the mortgages trustee will not apply to the Land Registry or the Central Land Charges Registry to register or record its equitable interest in the English mortgages, and cannot in any event apply to the Registers of Scotland to register or record its beneficial interest in the Scottish mortgages. For more information on the Scottish mortgages see “The loans – Scottish loans” and “Material legal aspects of the loans – Scottish loans”.
Because the mortgages trustee has not obtained legal title to the loans or their related security, there are risks, as follows:
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| • | firstly, if the seller wrongly sold a loan to another person which has already been assigned to the mortgages trustee, and that person acted in good faith and did not have notice of the interests of the mortgages trustee or the beneficiaries in the loan, then she or he might obtain good title to the loan, free from the interests of the mortgages trustee and the beneficiaries. If this occurred then the mortgages trustee would not have good title to the affected loan and its related security and it would not be entitled to payments by a borrower in respect of that loan. This may affect the ability of the issuing entity to repay the issuing entity notes; and |
| • | secondly, the rights of the mortgages trustee and the beneficiaries may be subject to the rights of the borrowers against the seller, such as the rights of set-off (see in particular “Risk factors – Set-off risks in relation to flexible loans, delayed cashbacks and reward cashbacks may adversely affect the funds available to the issuing entity to repay the issuing entity notes”) which occur in relation to transactions or deposits made between some borrowers and the seller and the rights of borrowers to redeem their mortgages by repaying the loan directly to the seller. If these rights were exercised, the mortgages trustee may receive less money than anticipated from the loans, which may affect the ability of the issuing entity to repay the issuing entity notes. |
However, if a borrower exercises any set-off rights, then an amount equal to the amount set off will reduce the total amount of the seller share of the trust property only, and the minimum seller share has been sized in an amount expected to cover this risk (although there is no assurance that it will).
Independent set-off risks which a borrower has against the seller may adversely affect the funds available to the issuing entity to repay the issuing entity notes
Once notice has been given to borrowers of the transfer of the loans and their related security to the mortgages trustee, independent set-off rights which a borrower has against the seller will crystallise and further rights of independent set-off would cease to accrue from that date and no new rights of independent set-off could be asserted following that notice. Set-off rights arising under transaction set-off (which are set-off claims arising out of a transaction connected with the loan (for example, a savings account maintained by a borrower pursuant to the terms of a flexible plus loan)) will not be affected by that notice.
If the servicer is removed, there is no guarantee that a substitute servicer would be found, which could delay collection of payments on the loans and ultimately could adversely affect payments on the issuing entity notes
The seller has been appointed by the mortgages trustee and the beneficiaries as servicer to service the loans. If the servicer breaches the terms of the servicing agreement, then the mortgages trustee and the beneficiaries will be entitled to terminate the appointment of the servicer and appoint a new servicer in its place.
There can be no assurance that a substitute servicer would be found who would be willing and able to service the loans on the terms of the servicing agreement. The ability of a substitute servicer fully to perform the required services would depend, among other things, on the information, software and records available at the time of the appointment. Any delay or inability to appoint a substitute servicer may affect payments on the loans and hence the issuing entity’s ability to make payments when due on the issuing entity notes.
You should note that the servicer has no obligation itself to advance payments that borrowers fail to make in a timely fashion.
Neither the security trustee nor the note trustee is obliged in any circumstances to act as a servicer or to monitor the performance by the servicer of its obligations.
Funding may not receive the benefit of any claims made on the buildings insurance which could adversely affect payments on the issuing entity notes
The practice of the seller in relation to buildings insurance is described under “The loans – Insurance policies”. As described in that section, no assurance can be given that Funding will always receive the benefit of any claims made under any applicable insurance contracts. This
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could reduce the principal receipts received by Funding according to the Funding share percentage and could adversely affect the issuing entity’s ability to redeem the issuing entity notes. You should note that buildings insurance is renewed annually.
Failure by the seller or the servicer to hold relevant authorisations and permission under FMSA in relation to regulated mortgage contracts may have an adverse effect on enforcement of mortgage contracts
In the United Kingdom, regulation of residential mortgage business by the FSA under the Financial Services and Markets Act 2000 (FSMA) came into force on 31 October 2004, the date known as N(M). Entering into, arranging or advising in respect of, and administering, regulated mortgage contracts, and agreeing to do any of these things, are (subject to certain exemptions) regulated activities under FSMA.
A regulated mortgage contract under FSMA is one where, at the time it is entered into on or after N(M): (i) the borrower is an individual or trustee; (ii) the contract provides for the obligation of the borrower to repay to be secured by a first legal mortgage or, in Scotland, a first-ranking standard security on land (other than timeshare accommodation) in the United Kingdom; and (iii) at least 40 per cent. of that land is used, or is intended to be used, as or in connection with a dwelling by the borrower or (in the case of credit provided to trustees) by an individual who is a beneficiary of the trust, or by a related person. No person may carry on a regulated activity in the United Kingdom unless that person is an authorised person. Breach of this prohibition is a criminal offence.
The main effects are that, on or after N(M), unless an exclusion or exemption applies: (a) each entity carrying on a regulated mortgage activity by way of business has to hold authorisation and permission from the FSA to carry on that activity; and (b) generally, each financial promotion in respect of an agreement relating to qualifying credit has to be issued or approved by a person holding authorisation and permission from the FSA. If requirements as to authorisation and permission of lenders and brokers or as to issue and approval of financial promotions are not complied with, a regulated mortgage contract will be unenforceable against the borrower except with the approval of a court. An unauthorised person who administers a regulated mortgage contract entered into on or after N(M) may commit a criminal offence, but this will not render the contract unenforceable against the borrower.
Any credit agreement intended to be a regulated mortgage contract under FSMA might instead be wholly or partly regulated by the Consumer Credit Act 1974 (CCA) or treated as such or unregulated by the CCA, and any credit agreement intended to be regulated by the CCA or unregulated by the CCA might instead be a regulated mortgage contract under FSMA, because of technical rules on: (a) determining whether the credit agreement or any part of it falls within the definition of “regulated mortgage contract”; and (b) changes to credit agreements.
The seller is required to hold, and holds, authorisation and permission to enter into and to administer and, where applicable, to advise in respect of regulated mortgage contracts. Subject to any exemption, brokers will be required to hold authorisation and permission to arrange and, where applicable, to advise in respect of regulated mortgage contracts.
The issuing entity and the mortgages trustee are not and do not propose to be authorised persons under FSMA. The issuing entity and the mortgages trustee do not require authorisation in order to acquire legal or beneficial title to a regulated mortgage contract. The issuing entity and the mortgages trustee do not carry on the regulated activity of administering in relation to regulated mortgage contracts by having them administered pursuant to an administration agreement by an entity having the required FSA authorisation and permission. If such administration agreement terminates, however, the issuing entity and the mortgages trustee will have a period of not more than one month in which to arrange for mortgage administration to be carried out by a replacement administrator having the required FSA authorisation and permission. In addition, on and after N(M) no variation has been or will be made to the loans and no further advance or product switch has been or will be made in relation to a loan, where it would result in the issuing entity, Funding or the mortgages trustee arranging or advising in respect of, administering or entering into a regulated
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mortgage contract or agreeing to carry on any of these activities, if the issuing entity, Funding or the mortgages trustee would be required to be authorised under FSMA to do so.
If a significant number of borrowers attempt to set off claims for damage based on contravention of an FSA rule against the amount owing by the borrower under a loan, there could be a material decrease in receipts to the issuing entity from the mortgages trust
The FSA Mortgages: Conduct of Business Sourcebook (MCOB), which sets out its rules for regulated mortgage activities, came into force on 31 October 2004. These rules cover, among other things, certain pre-origination matters such as financial promotion and pre-application illustrations, pre-contract and start of-contract and post-contract disclosure, contract changes, charges, and arrears and repossessions. FSA rules for prudential and authorisation requirements for mortgage firms and for extending the appointed representatives regime to mortgages, came into force on 31 October 2004.
A borrower who is a private person is entitled to claim damages for loss suffered as a result of any contravention by an authorised person of an FSA rule, and may set off the amount of the claim against the amount owing by the borrower under a loan or any other loan that the borrower has taken (or exercise analogous rights in Scotland). Any such set-off may adversely affect the issuing entity’s ability to make payments on the issuing entity notes.
So as to avoid dual regulation, it is intended that regulated mortgage contracts will not be regulated by the CCA. This exemption only affects credit agreements made on or after N(M), and credit agreements made before N(M) but subsequently changed such that a new contract is entered into on or after N(M) and constitutes a regulated mortgage contract. A court order under section 126 of the CCA is, however, necessary to enforce a land mortgage (including, in Scotland, a standard security) securing a regulated mortgage contract to the extent that it would, apart from this exemption, be regulated by the CCA or be treated as such.
No assurance can be given that additional regulatory changes by the OFT, the FSA or any other regulatory authority will not arise with regard to the mortgage market in the United Kingdom generally, the seller’s particular sector in that market or specifically in relation to the seller. Any such action or developments or compliance costs may have a material adverse effect on the seller, the issuing entity, the servicer, the mortgages trustee, Funding and their respective businesses and operations. This may adversely affect the issuing entity’s ability to make payments in full on the issuing entity notes when due.
The seller has given or, as applicable, will give warranties to the mortgages trustee in the mortgage sale agreement that, among other things, each loan and its related security is enforceable (subject to certain exceptions). If a loan or its related security does not comply with these warranties, and if the default (if capable of being cured) cannot be or is not cured within 20 London business days, then the seller, upon receipt of notice from the mortgages trustee, will be required to repurchase the loan and its related security from the mortgages trustee.
If the issuing entity’s interpretation of certain technical rules under the CCA were held to be incorrect by a court or the Ombudsman or was challenged by a significant number of borrowers, or borrowers were to exercise rights of set-off to the extent available under the CCA, there could be material disruption to the income flow from the mortgages trust
In the United Kingdom, the Office of Fair Trading (the OFT) is responsible for the issue of licences under, and the superintendence of the working and the enforcement of, the CCA, related consumer credit regulations and other consumer protection legislation. The OFT may review businesses and operations, provide guidelines to follow and take actions when necessary with regard to the consumer credit and mortgage markets in the United Kingdom.
Currently, a credit agreement is regulated by the CCA where: (a) the borrower is or includes an individual; (b) the amount of “credit” as defined in the CCA does not exceed the financial limit, which is £25,000 for credit agreements made on or after 1 May 1998, or lower amounts for credit agreements made before that date; and (c) the credit agreement is not an exempt agreement as defined in the CCA (for example, it is intended that a regulated mortgage contract under FSMA is an exempt agreement under the CCA).
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Any credit agreement that is wholly or partly regulated by the CCA or treated as such has to comply with the requirements under the CCA as to licensing of lenders and brokers, documentation and procedures of credit agreements, and (in so far as applicable) pre-contract disclosure. If it does not comply with those requirements, then to the extent that the credit agreement is regulated by the CCA or treated as such, it is unenforceable against the borrower: (a) without an order of the OFT, if the lender or any broker does not hold the required licence at the relevant time; (b) totally, if the form to be signed by the borrower is not signed by the borrower personally or omits or mis-states a “prescribed term”; or (c) without a court order in other cases and, in exercising its discretion whether to make the order, the court would take into account any prejudice suffered by the borrower and any culpability by the lender.
Any credit agreement intended to be a regulated mortgage contract under FSMA or unregulated under FSMA might instead be wholly or partly regulated by the CCA or treated as such because of technical rules on: (a) determining whether any credit under the CCA arises, or whether the financial limit of the CCA is exceeded; (b) determining whether the credit agreement is an exempt agreement under the CCA; and (c) changes to credit agreements.
A court order under section 126 of the CCA is necessary to enforce a land mortgage (including, in Scotland, a standard security) securing a credit agreement to the extent that the credit agreement is regulated by the CCA or treated as such. In dealing with such application, the court has the power, if it appears just to do so, to amend a credit agreement or to impose conditions upon its performance or to make a time order (for example, giving extra time for arrears to be cleared).
Under section 75 of the CCA in certain circumstances: (a) the lender is liable to the borrower in relation to misrepresentation and breach of contract by a supplier in a transaction financed by the lender, where the related credit agreement is or is treated as entered into under pre-existing arrangements, or in contemplation of future arrangements, between the lender and the supplier; and (b) the lender has a statutory indemnity from the supplier against such liability, subject to any agreement between the lender and the supplier.
The borrower may set off the amount of the claim against the lender against the amount owing by the borrower under the loan or under any other loan that the borrower has taken. Any such set-off may adversely affect the issuing entity’s ability to make payments in full on the issuing entity notes when due.
The Consumer Credit Act 2006 (the CCA 2006) received the Royal Assent on 30 March 2006. Once implemented, the new Act updates and augments the CCA.
The DTI has indicated that, from 6 April 2007, the extortionate credit regime will be replaced by the unfair relationship test. In applying the new unfair relationship test, the courts will be able to consider a wider range of circumstances surrounding the transaction, including the creditor’s conduct before and after making the agreement. There is no statutory definition of the word “unfair” as the intention is for the test to be flexible and subject to judicial discretion. However the word “unfair” is not an unfamiliar term in United Kingdom law due to the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083). The courts may look to the above legislation for guidance. The FSA principles are also relevant and apply to the way contract terms are used in practice and not just the way they are drafted. The test has retrospective application after a transitional period. Once the debtor alleges that an unfair relationship exists, the burden of proof is on the creditor to prove the contrary.
An alternative dispute resolution scheme for consumer credit matters is to be run by the Ombudsman. The DTI has indicated that, from 6 April 2007, the scheme will be mandatory for all businesses licensed under the CCA. The CCA 2006 also introduces an Independent Consumer Appeals Tribunal.
The DTI has indicated that, from 6 April 2008, the statutory upper financial limit of £25,000 for CCA regulation will be removed.
The OFT are to be given far broader powers under the CCA 2006: for instance they can apply intermediate sanctions, have far greater powers of investigation and can issue indefinite standard licences. The CCA 2006 obliges creditors to comply with more stringent information
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requirements. The DTI has indicated that, from 6 April 2008, lenders will be obliged to give customers clearer and more regular information on their credit accounts.
The seller has interpreted certain technical rules under the CCA in a way common with many other lenders in the mortgage market. If such interpretation were held to be incorrect by a court or the Ombudsman, then a credit agreement, to the extent that it is regulated by the CCA or treated as such, would be unenforceable as described above. If such interpretation were challenged by a significant number of borrowers, then this could lead to significant disruption and shortfall in the income of the mortgages trustee. Court decisions have been made on technical rules under the CCA against certain mortgage lenders, but such decisions are very few and are generally county court decisions which are not binding on other courts.
The seller has given or, as applicable, will give warranties to the mortgages trustee in the mortgage sale agreement that, among other things, each loan and its related security is enforceable (subject to certain exceptions). If a loan or its related security does not comply with these warranties, and if the default cannot be or is not cured within 20 days, then the seller will be required to repurchase the loans under the relevant mortgage account and their related security from the mortgages trustee.
Under new distance marketing regulations, some of the loans may be cancellable, which may have an adverse effect on the issuing entity’s ability to make payments on the issuing entity notes
In the United Kingdom, the Financial Services (Distance Marketing) Regulations 2004 apply, among other things, to credit agreements entered into on or after 31 October 2004 by means of distance communication (i.e. without any substantive simultaneous physical presence of the originator and the borrower). A regulated mortgage contract under FSMA, if originated by a UK lender from an establishment in the United Kingdom, will not be cancellable under these regulations. Certain other credit agreements will be cancellable under these regulations, if the borrower does not receive prescribed information at the prescribed time. Where the credit agreement is cancellable under these regulations, the borrower may send notice of cancellation at any time before the end of the 14th day after the day on which the cancellable agreement is made, where all the prescribed information has been received, or, if later, the borrower receives the last of the prescribed information.
If the borrower cancels the credit agreement under these regulations, then: (a) the borrower is liable to repay the principal and any other sums paid by the originator to the borrower under or in relation to the cancelled agreement, within 30 days beginning with the day of the borrower sending notice of cancellation or, if later, the originator receiving notice of cancellation; (b) the borrower is liable to pay interest, or any early repayment charge or other charge for credit under the cancelled agreement, only if the borrower received certain prescribed information at the prescribed time and if other conditions are met; and (c) any security is to be treated as never having had effect for the cancelled agreement.
Regulations in the United Kingdom could lead to some terms of the loans being unenforceable, which may adversely affect payments on the issuing entity notes
In the United Kingdom, the Unfair Terms in Consumer Contracts Regulations 1999, as amended (the 1999 Regulations) and (in so far as applicable) the Unfair Terms in Consumer Contracts Regulations 1994 (together with the 1999 Regulations, the UTCCR) apply to agreements entered into on or after 1 July 1995 and affect all of the loans. The Regulations provide that:
| • | a consumer may challenge a standard term in an agreement on the basis that it is an “unfair” term within the UTCCR and therefore not binding on the consumer; and |
| • | the OFT, the FSA and any other “qualifying body” (as defined in the 1999 Regulations) may seek to enjoin (or in Scotland, interdict) a business from using or recommending the use of unfair terms. |
The UTCCR will not generally affect “core terms” which set out the main subject-matter of the contract, such as the borrower’s obligation to repay the principal. However, they may affect
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terms that are not considered to be core terms, such as the right of the lender to vary the interest rate.
For example, if a term permitting a lender to vary the interest rate (as the seller is permitted to do) is found to be unfair, the borrower will not be liable to pay the increased rate or, to the extent that she or he has paid it, will be able, as against the lender, or any assignee such as the mortgages trustee, to claim repayment of the extra interest amounts paid or to set-off the amount of the claim against the amount owing by the borrower under the loan or under any other loan that the borrower has taken. Any such non-recovery, claim or set-off may adversely affect the issuing entity’s ability to make payments on the issuing entity notes.
Under a new concordat agreed between the FSA and the OFT, with effect from 31 July 2006, responsibility for the enforcement of the UTCCR in mortgage agreements was agreed to be allocated by them, normally, to the FSA in relation to regulated mortgage contracts (in respect of the activities of firms authorised by the FSA) and to the OFT in relation to mortgages regulated under the CCA and where entered into by persons not authorised by the FSA nor their appointed representatives. It should be noted that in the context of the OFT’s investigation into credit card default charges, the OFT on 5 April 2006 publicly announced that the principles the OFT considers should be applied in assessing the fairness of credit card default charges should apply (or are likely to apply) to analogous default charges in other agreements, including those for mortgages. In May 2005, the FSA issued a statement of good practice on fairness of terms in consumer contracts, which is relevant to firms authorised and regulated by the FSA in relation to products and services within the FSA’s regulatory scope. This statement considers, among other things, borrowers who are locked in, for example by an early repayment charge that is considered to be a penalty. This statement provides that, for locked-in borrowers, a firm may consider drafting the contract to permit a change in the contract to be made only where any lock-in clause is not exercised.
In August 2002, the Law Commission for England and Wales and the Scottish Law Commission issued a joint consultation LCCP No. 166/SLCDP 119 on proposals to rationalise the Unfair Contract Terms Act 1977 and the 1999 Regulations into a single piece of legislation and a final report, together with a draft bill on unfair terms, was published in February 2005. The Law Commissions have a duty under section 3 of the Law Commissions Act 1965 to keep the law under review for a number of purposes, including its simplification. The proposals are primarily to simplify the legislation on unfair terms. It is not proposed that there should be any significant increase in the extent of controls over terms in consumer contracts. Some changes are proposed, however, such as that (a) a consumer may also challenge a negotiated term in an agreement on the basis that it is “unfair” and “unreasonable” within the legislation and therefore not binding on the consumer; and (b) in any challenge by a consumer (but not by the OFT or a qualifying body) of a standard term or a negotiated term, the burden of proof lies on the business to show that the term is fair and reasonable. However, it is not obligatory for any of the Law Commissions’ reports to be considered for enactment as legislation by the United Kingdom government. It is therefore too early to tell how the proposals, if enacted, would affect the loans.
No assurance can be given that changes in the 1999 Regulations, if enacted, or changes to guidance on interest variation terms, if adopted, will not have a material adverse effect on the seller, the issuing entity, the mortgages trustee, Funding and their respective businesses and operations. This may adversely affect the issuing entity’s ability to make payments in full on the issuing entity notes when due.
Decisions of the Ombudsman could lead to some terms of the loans being varied, which may adversely affect payments on the issuing entity notes
Under FSMA, the Financial Ombudsman Service (the Ombudsman) is required to make decisions on, among other things, complaints relating to activities and transactions under its jurisdiction, including the loans, on the basis of what, in the Ombudsman’s opinion, would be fair and reasonable in all circumstances of the case, taking into account, among other things, law and guidance. By transitional provisions, the Ombudsman is also required to deal with certain complaints relating to breach of the Mortgage Code, which was a voluntary code issued by the Council of Mortgage Lenders and in force until N(M). Complaints brought before the Ombudsman
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for consideration must be decided on a case-by-case basis, with reference to the particular facts of any individual case. Each case is first adjudicated by an adjudicator. Either party to the case may appeal against the adjudication. In the event of an appeal, the case proceeds to a final decision by the Ombudsman.
No Ombudsman decision against the seller has had a material adverse effect on the issuing entity’s ability to make payments on the issuing entity notes. As, however, the Ombudsman is required to make decisions on the basis of, among other things, the principles of fairness, and may make a money award to the borrower, it is not possible to predict how any future decision of the Ombudsman would affect the issuing entity’s ability to make payments in full on the issuing entity notes when due.
European Directive 2005/29/EC on Unfair Commercial Practices may adversely affect the loans and payments on the issuing entity notes
On 11 May 2005 the European Parliament and the Council adopted a Directive (2005/29/EC) regarding unfair business-to-consumer commercial practices (the Unfair Practices Directive). Generally, this Directive applies full harmonisation, which means that member states may not impose more stringent provisions in the fields to which full harmonisation applies. By way of exception, this Directive permits member states to impose more stringent provisions in the fields of financial services and immovable property, such as mortgage loans.
The Unfair Practices Directive provides that enforcement bodies may take administrative action or legal proceedings in relation to a commercial practice on the basis that it is “unfair” within the Directive. This Directive is intended to protect only collective interests of consumers, and so is not intended to give any claim, defence or right of set-off to an individual consumer.
The DTI published a consultation paper on implementing the Unfair Practices Directive into United Kingdom law on 14 December 2005. It expects to hold a second consultation on the draft implementing legislation later in 2006. Member states have until 12 December 2007, in which to bring national implementing legislation into force, subject to a transitional period until 12 June 2013 for applying full harmonisation in the fields to which it applies. It is too early to predict what effect the implementation of the Unfair Practices Directive would have on the loans.
Tax payable by Funding or the issuing entity may adversely affect the issuing entity’s ability to make payments on the issuing entity notes
Funding and the issuing entity will generally be subject to United Kingdom corporation tax, currently at a rate of 30 per cent., on the profit reflected in their respective applicable profit and loss accounts as increased by the amount of any non-deductible expenses or losses. If the tax payable by Funding or the issuing entity is greater than expected because, for example, non-deductible expenses or losses are greater than expected, the funds available to make payments on the issuing entity notes will be reduced and this may adversely affect the issuing entity’s ability to make payments on the issuing entity notes.
The UK corporation tax position of the issuing entity and Funding, however, also depends to a significant extent on the accounting treatment applicable to it. The accounts of the issuing entity are required to comply with new UK Financial Reporting Standards reflecting International Financial Reporting Standards (new UK GAAP), and they may be required to comply with International Financial Reporting Standards (IFRS) if the issuing entity chooses to adopt IFRS. Funding may also choose to comply with IFRS. There is a concern that companies such as the issuing entity and Funding might, under either IFRS or new UK GAAP, suffer timing differences that could result in profits or losses for accounting purposes, and accordingly for tax purposes (unless tax legislation provides otherwise), which bear little or no relationship to the company’s cash position. However, the Finance Act 2005 (as amended by the Finance Act 2006) established an interim regime under which a “securitisation company” is required to prepare tax computations for accounting periods beginning on or after 1 January 2005 and ending before 1 January 2008 on the basis of UK GAAP as applicable up to 31 December 2004, notwithstanding the requirement to prepare statutory accounts under IFRS or new UK GAAP. On the basis of the definition of “securitisation company” as currently drafted for these purposes, the issuing entity and Funding will each qualify as such a company.
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The stated policy of H.M. Revenue & Customs is that the tax neutrality of securitisation special purpose companies in general should not be disrupted as a result of the transition to IFRS or new UK GAAP. The Finance Act 2005 enables regulations to be made to establish a permanent regime for the taxation of such companies, and regulations were made pursuant to this on 11 December 2006. Under the regulations, the interim regime described above is replaced for accounting periods beginning on or after 1 January 2007 by a permanent regime of specific rules for securitisation companies (as defined for the purposes of the regulations), which will, broadly, be taxed by reference to their “retained profit”. Companies, such as the issuing entity and Funding, that previously fell within the interim regime are required under the regulations to elect irrevocably into the permanent regime within 18 months of the end of the company’s first accounting period beginning after 31 December 2006. It is expected that the issuing entity and Funding will each qualify as a securitisation company for the purposes of the regulations, and also that they will elect into the permanent regime in accordance with the regulations.
European Council Directive 2003/48/EC on the Taxation of Savings Income may adversely affect your interests
Under European Council Directive (2003/48/EC) regarding the taxation of savings income, member states are required to provide to the tax authorities of other member states details of payments of, interest and other similar income paid by a person within a member state’s jurisdiction to an individual in another member state, except that Austria, Belgium and Luxembourg will instead impose a withholding system for a transitional period, unless during such period they elect otherwise (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories, including Switzerland, have agreed to adopt similar measures (a withholding system in the case of Switzerland).
Payments of interest on the issuing entity notes which are made or collected through a member state or any other relevant country may be subject to withholding tax which would prevent holders of the issuing entity notes from receiving interest on their issuing entity notes in full.
Your interests may be adversely affected if the United Kingdom joins the European Monetary Union
It is possible that, prior to the maturity of the issuing entity notes, the United Kingdom may become a participating member state in the European economic and monetary union and the euro may become the lawful currency of the United Kingdom. In that event (a) all amounts payable in respect of the issuing entity notes denominated in pounds sterling may become payable in euro, (b) applicable provisions of law may require or allow the issuing entity to redenominate such issuing entity notes into euro and take additional measures in respect of such issuing entity notes and (c) the introduction of the euro as the lawful currency of the United Kingdom may result in the disappearance of published or displayed rates for deposits in sterling used to determine the rates of interest on such issuing entity notes or changes in the way those rates are calculated, quoted and published or displayed. The introduction of the euro could also be accompanied by a volatile interest rate environment which could adversely affect investors. It cannot be said with certainty what effect, if any, adoption of the euro by the United Kingdom will have on investors in the issuing entity notes.
Changes of law may adversely affect your interests
The structure of the issue of the issuing entity notes and the ratings which are to be assigned to them are based on English law and (in relation to the Scottish loans) Scots law in effect as at the date of this prospectus. No assurance can be given as to the impact of any possible change to English law or Scots law or administrative practice in the United Kingdom after the date of this prospectus.
Insolvency Act 2000
Significant changes to the insolvency regime in England and Wales and Scotland have recently been enacted, including the Insolvency Act 2000. The Insolvency Act 2000 allows certain “small” companies to seek protection from their creditors for a period of 28 days, for the purposes of putting together a company voluntary arrangement, with the option for creditors to extend the
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moratorium for a further two months. A “small” company is defined as one which satisfies, in any financial year, two or more of the following criteria: (i) its turnover is not more than £5.6 million, (ii) its balance sheet total is not more than £2.8 million and (iii) the number of employees is not more than 50. Whether or not a company is a “small” company may change from period to period and consequently no assurance can be given that the issuing entity, the mortgages trustee or Funding will not, at any given time, be determined to be a “small” company. The Secretary of State for Trade and Industry may by regulation modify the eligibility requirements for “small” companies and has the power to make different provisions for different cases. No assurance can be given that any such modification or different provisions will not be detrimental to the interests of noteholders.
Secondary legislation has now been enacted which excludes certain special purpose companies in relation to capital markets transactions from the optional moratorium provisions. Such exceptions include (amongst other matters): (i) a company which is a party to an agreement which is or forms part of a capital market arrangement (as defined in the secondary legislation) under which (a) a party has incurred or when the agreement was entered into was expected to incur a debt of at least £10 million under the arrangement and (b) the arrangement involves the issue of a capital market investment (also defined, but generally, a rated, listed or traded bond) and (ii) a company which has incurred a liability (including a present, future or contingent liability) of at least £10 million. While the issuing entity, the mortgages trustee and Funding should fall within the exceptions, there is no guidance as to how the legislation will be interpreted by a court and the Secretary of State for Trade and Industry may by regulation modify the exception. No assurance may be given that any modification of the eligibility requirements for “small” companies and/or the exceptions will not be detrimental to the interests of noteholders.
If the issuing entity and/or the mortgages trustee and/or Funding is determined to be a “small” company and determined not to fall within one of the exceptions (by reason of modification of the exceptions or otherwise), then the enforcement of the issuing entity security by the security trustee may, for a period, be prohibited by the imposition of a moratorium.
Enterprise Act 2002
On 15 September 2003, the corporate insolvency provisions of the Enterprise Act 2002 (the Enterprise Act) came into force, amending certain provisions of the Insolvency Act 1986 as amended (the Insolvency Act). These provisions introduced significant reforms to corporate insolvency law. In particular the reforms restrict the right of the holder of a floating charge created after 15 September 2003 to appoint an administrative receiver (unless an exception applies) and instead gives primacy to collective insolvency procedures (in particular, administration).
The holder of a floating charge created before 15 September 2003 over the whole or substantially the whole of the assets of a company (such as the security trustee under the Funding deed of charge) retains the ability to block the appointment of an administrator by appointing an administrative receiver, who has a duty to act primarily in the interests of the floating charge holder.
The Insolvency Act contains provisions which continue to allow for the appointment of an administrative receiver in relation to certain transactions in the capital markets. The right to appoint an administrative receiver is retained for certain types of security (such as the issuing entity security) that form part of a capital markets arrangement (as defined in the Insolvency Act) that involves (i) indebtedness of at least £50,000,000 (or, when the relevant security document was entered into (being in respect of the transactions described in this prospectus, the issuing entity deed of charge), a party to the relevant transaction (such as the issuing entity) was expected to incur a debt of at least £50,000,000) and (ii) the issue of a capital markets investment (also defined but generally a rated, listed or traded bond). The Secretary of State for Trade and Industry may, by secondary legislation, modify this exception and/or provide that the exception shall cease to have effect. No assurance can be given that any such modification or provision in respect of the capital market exception, or its ceasing to be applicable to the transactions described in this prospectus, will not adversely affect payments on the issuing entity notes. While the issuing entity security should fall within the relevant exception, as the provisions of the Enterprise Act have never been considered judicially, no assurance can be given as to whether the Enterprise Act could have
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a detrimental effect on the transactions described in this prospectus or on the interests of noteholders.
The Insolvency Act also contains a new out-of-court route into administration for a qualifying floating charge holder, the directors or the company itself. The relevant provisions provide for a notice period during which the holder of the floating charge can either agree to the administrator proposed by the directors of the company or appoint an alternative administrator, although the moratorium will take effect immediately after notice is given. If the qualifying floating charge holder does not respond to the directors’ notice of intention to appoint, the directors’, or as the case may be, the company’s appointee will automatically take office after the notice period has elapsed. Where the holder of a qualifying floating charge within the context of a capital market transaction retains the power to appoint an administrative receiver, such holder may prevent the appointment of an administrator (either by the new out-of-court route or by the court based procedure), by appointing an administrative receiver prior to the appointment of the administrator being completed.
The new provisions of the Insolvency Act give primary emphasis to the rescue of the company as a going concern. The purpose of realising property to make a distribution to one or more secured creditors is subordinated to the primary purposes of rescuing the company as a going concern or achieving a better result for the creditors as a whole than would be likely if the company were wound up. No assurance can be given that the primary purposes of the new provisions will not conflict with the interests of noteholders were the issuing entity or Funding ever subject to administration.
In addition to the introduction of a prohibition on the appointment of an administrative receiver as set out above, section 176A of the Insolvency Act provides that in relation to floating charges created after 15 September 2003 any receiver (including an administrative receiver), liquidator or administrator of a company is required to make a “prescribed part” of the company’s “net property” available for the satisfaction of unsecured debts in priority to the claims of the floating charge holder. The company’s “net property” is defined as the amount of the chargor’s property which would be available for satisfaction of debts due to the holder(s) of any debentures secured by a floating charge and so refers to any floating charge realisations less any amounts payable to the preferential creditors or in respect of the fees or expenses of administration. The “prescribed part” is defined in the Insolvency Act 1986 (Prescribed Part) Order 2003 (SI 2003/2097) to be an amount equal to 50 per cent. of the first £10,000 of floating charge realisations plus 20 per cent. of the floating charge realisations thereafter, provided that such amount may not exceed £600,000.
This obligation does not apply if the net property is less than a prescribed minimum and the relevant officeholder is of the view that the cost of making a distribution to unsecured creditors would be disproportionate to the benefits. The relevant officeholder may also apply to court for an order that the provisions of section 176A of the Insolvency Act should not apply on the basis that the cost of making a distribution would be disproportionate to the benefits.
Floating charge realisations upon the enforcement of the issuing entity security may be reduced by the operation of the “ring fencing” provisions described above.
You will not receive issuing entity notes in physical form, which may cause delays in distributions and hamper your ability to pledge or resell the issuing entity notes
Unless the global notes are exchanged for definitive notes, which will only occur under a limited set of circumstances, your beneficial ownership of the issuing entity notes will only be recorded in book-entry form with DTC, Euroclear or Clearstream, Luxembourg. The lack of issuing entity notes in physical form could, among other things:
| • | result in payment delays on the issuing entity notes because the issuing entity will be sending distributions on the issuing entity notes to DTC, Euroclear or Clearstream, Luxembourg instead of directly to you; |
| • | make it difficult for you to pledge the issuing entity notes if issuing entity notes in physical form are required by the party demanding the pledge; and |
| • | hinder your ability to resell the issuing entity notes because some investors may be unwilling to buy issuing entity notes that are not in physical form. |
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If you have a claim against the issuing entity it may be necessary for you to bring suit against the issuing entity in England and Wales to enforce your rights
The issuing entity has agreed to submit to the non-exclusive jurisdiction of the courts of England and Wales, and it may be necessary for you to bring a suit in England and Wales to enforce your rights against the issuing entity.
Implementation of the Basel II risk-weighted asset framework may result in changes to the risk-weighting of the issuing entity notes
On 14 November 2005, the Basel Committee on Banking Supervision published an updated version of the text of new capital adequacy standards for international banks, under the title “Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework.” This new framework (the Basel II Framework) substantially revises and expands the existing Basel I Capital Accord first issued in 1988, includes more sophisticated approaches to applying capital requirements based on risk, addresses more types of risk including operational risk, and places enhanced emphasis on market discipline and banks’ internal systems and controls. The Basel II framework is not self-implementing, but rather forms the basis for national rule-making and approval processes in participating countries. The Basel Committee has released numerous discussion papers, impact studies and guidance for banking organisations in their preparations for implementing the revised capital standards. The Committee has also formed an Accord Implementation Group of bank supervisors to share information and to promote consistency as participating countries move forward with implementation of Basel II.
Within the European Union and the EEA, the Basel II Framework will be implemented through the EU Capital Requirements Directive, which makes some modifications to the Framework. It is currently intended that the various approaches under the Basel II Framework and the EU Capital Requirements Directive will be implemented in stages, some from year-end 2006, the most advanced at year-end 2007.
In the United States, the federal banking regulators have proposed to require about the 20 largest US banking organisations to use the most advanced approaches of Basel II; other US banks with sophisticated systems may voluntarily elect to adopt Basel II advanced approaches subject to regulatory approval. Most US banks initially would not be subject to Basel II and would continue to follow existing US risk-based capital rules with certain modifications to be determined (a proposal known as Basel I-A.). The United States is not adopting Basel II’s simpler approaches, as the existing US framework based on Basel I is not equivalent to Basel II. Implementation of Basel II in the United States is also targeted to begin on 1 January 2009, one year later than in Europe. This one year “gap” and other differences in the application or interpretation between the United States, the EU and other jurisdictions in which the Abbey group has operations could represent challenges for the bank in implementing Basel II.
As and when implemented, the Basel II Framework could affect the risk-based capital treatment of the issuing entity notes for investors who are subject to bank capital adequacy requirements that follow the Basel II Framework. Consequently, investors should consult their own advisers as to the consequences to and effect on them of the proposed implementation of the Basel II Framework. Proposals and guidelines for implementing Basel II in participating jurisdictions are still in development, and no predictions can be made as to the precise effects of potential changes on the Abbey group, the issuing entity notes or any investor.
The issuing entity may, under certain circumstances relating to the statutory implementation of the Basel II Framework in the United Kingdom, as described in number 5.6 (Optional redemption for implementation of EU Capital Requirements Directive) in the section “Terms and conditions of the US notes”, require noteholders to redeem the issuing entity notes if so specified in the relevant prospectus supplement.
Fixed charges subsequently re-characterised as floating charges may adversely affect payments on the issuing entity notes
Fixed charges over bank accounts may take effect under English law as floating charges. Under the terms of the issuing entity deed of charge and the Funding deed of charge respectively, the issuing entity and Funding will purport to grant, among other things, fixed charges in favour of
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the issuing entity security trustee and, in the case of Funding, the security trustee over, in the case of the issuing entity, the issuing entity’s interest in the transaction account and, in the case of Funding, Funding’s interest in the Funding transaction account.
The law in England and Wales relating to the re-characterisation of fixed charges is unsettled. The fixed charges purported to be granted by the issuing entity and Funding (other than by way of assignment in security) will take effect under English law only as floating charges if it is determined that the issuing entity security trustee or, in the case of Funding, the security trustee, does not exert sufficient control over the relevant account, or the proceeds thereof, for the security to be said to “fix” over those assets. As the issuing entity and Funding are signatories to the accounts, there is a risk that a court will consider that the issuing entity security trustee does not exert a sufficient degree of control to ensure that the charges over those accounts are held to be fixed charges. If the charges take effect as floating charges instead of fixed charges, then certain matters, which are given priority over floating charges by law, will be given priority over the claims of the floating chargeholder.
In addition, if assets in respect of which the issuing entity or Funding has granted a fixed charge are paid into a bank account the charge over which is subsequently re-characterised as a floating charge, the original fixed charge in relation to the assets may also be re-characterised as a floating charge.
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THE ISSUANCE OF ISSUING ENTITY NOTES
The issuing entity notes will be issued pursuant to the trust deed. The following summary and the information set out in “Summary of the issuing entity notes” and “Terms and conditions of the US notes” summarise the material terms of the issuing entity notes and the trust deed. These summaries do not purport to be complete and are subject to the provisions of the trust deed and the terms and conditions of the issuing entity notes.
| General |
The issuing entity notes will be issued in series. Each series will comprise one or more classes and one or more sub-classes of class A notes, class B notes, class M notes, class C notes and/or class D notes issued on a single issue date. A class designation determines the relative seniority for receipt of cash flows. The issuing entity notes of a particular class in different series (and the issuing entity notes of differing sub-classes of the same class and series) will not necessarily have the same terms. Differences may include principal amount, interest rates, interest rate calculations, currency, permitted redemption dates, final maturity dates and ratings. Each series and class (or sub-class) of issuing entity notes will be secured over the same property as the issuing entity notes offered by this prospectus and the previous notes. The terms of each series and class (or sub-class) of US notes will be set forth in the relevant prospectus supplement.
| Issuance |
The issuing entity may issue new series and classes (or sub-classes) of further issuing entity notes and advance new term advances to Funding from time to time without obtaining the consent of existing noteholders. As a general matter the issuing entity may only issue a new series and class (or sub-class) of further issuing entity notes if sufficient subordination is provided for that new series and class (or sub-class) of issuing entity notes by one or more subordinate classes of issuing entity notes and/or the first reserve fund and/or the second reserve fund maintained by Funding. The required subordinated percentage, which is used to calculate the required subordination amount for each class of issuing entity notes other than the class D notes, will be set forth in the relevant prospectus supplement for each series of that class (or sub-class) of US notes under the heading “Summary – Required subordinated percentage”. Similarly, the Funding reserve fund required amount in effect at the time of an offering of US notes will be specified in the relevant prospectus supplement under the heading “Summary – Funding reserve fund required amount”. The required subordinated percentage and the Funding reserve fund required amount are subject to change. The conditions and tests (including the required levels of subordination) necessary to issue a series and class (or sub-class) of issuing entity notes, or the “issuance tests”, include the following:
| All classes of issuing entity notes |
Issuing entity notes may only be issued upon satisfaction of certain conditions precedent. In particular, new notes may be issued only if the following conditions (among others) are satisfied:
| • | the issuing entity has obtained a written confirmation from each of the rating agencies that the then current ratings of the issuing entity notes outstanding at that time will not be adversely affected as a consequence of such issuance; |
| • | no note event of default under any of the intercompany loan agreements outstanding at that time shall have occurred which has not been remedied or waived and no event of default will occur as a consequence of such issuance; and |
| • | as at the most recent interest payment date, no principal deficiency (which remains outstanding) is recorded on the principal deficiency ledger in relation to the term advances outstanding at that time, |
AND,
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| For the class A notes of any series, |
On the closing date for that series of issuing entity notes and after giving effect to the issuance of that series of issuing entity notes, the class A available subordinated amount must be equal to or greater than the class A required subordinated amount.
The class A required subordinated amount is calculated, on any date, as the product of:
A x B
where:
| A = | the class A required subordinated percentage as specified in the most recent prospectus supplement for that issuance of issuing entity notes for AAA term advances of any series; and |
| B = | the principal amount outstanding of all term advances on such date (after giving effect to any repayments of principal to be made on the term advances on such date) less the amounts standing to the credit of the cash accumulation ledger and the principal ledger available on such date for the repayment of principal on the term advances (after giving effect to any repayments of principal to be made on the term advances on such date). |
The class A available subordinated amount is calculated, on any date, as:
| (a) | the sum of (i) the aggregate of the principal amounts outstanding of the AA term advances of all series, the A term advances of all series, the BBB term advances of all series and the BB term advances of all series (after giving effect to repayments of principal to be made on those term advances on such date); and (ii) the aggregate amount of the first reserve fund and the second reserve fund on such date and (iii) stressed excess spread; |
less
| (b) | the amounts standing to the credit of the principal ledger available on such date for the payment of principal on AA term advances, A term advances, BBB term advances and BB term advances (after giving effect to any repayments of principal to be made on the term advances on such date). |
| For the class B notes of any series, |
On the closing date for that series of issuing entity notes and after giving effect to the issuance of that series of issuing entity notes, the class B available subordinated amount must be equal to or greater than the class B required subordinated amount.
The class B required subordinated amount is calculated, on any date, as the product of:
A x B
where:
| A = | the class B required subordinated percentage as specified in the most recent prospectus supplement for that issuance of issuing entity notes for AA term advances of any series; and |
| B = | the principal amount outstanding of all term advances on such date (after giving effect to any repayments of principal to be made on the term advances on such date) less the amounts standing to the credit of the cash accumulation ledger and the principal ledger available on such date for the repayment of principal on the term advances (after giving effect to any repayments of principal to be made on the term advances on such date). |
The class B available subordinated amount is calculated, on any date, as:
| (a) | the sum of (i) the aggregate of the principal amounts outstanding of the A term advances of all series, the BBB term advances of all series and the BB term advances of all series (after giving effect to repayments of principal to be made on those term advances on such date); and (ii) the aggregate amount of the first reserve fund and the second reserve fund on such date and (iii) stressed excess spread; |
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less
| (b) | the amounts standing to the credit of the principal ledger available on such date for the payment of principal on A term advances, BBB term advances and BB term advances (after giving effect to any repayments of principal to be made on the term advances on such date). |
| For the class M notes of any series, |
On the closing date for that series of issuing entity notes and after giving effect to the issuance of that series of issuing entity notes, the class M available subordinated amount must be equal to or greater than the class M required subordinated amount.
The class M required subordinated amount is calculated, on any date, as the product of:
A x B
where:
| A = | the class M required subordinated percentage as specified in the most recent prospectus supplement for that issuance of issuing entity notes for A term advances of any series; and |
| B = | the principal amount outstanding of all term advances on such date (after giving effect to any repayments of principal to be made on the term advances on such date) less the amounts standing to the credit of the cash accumulation ledger and the principal ledger available on such date for the repayment of principal on the term advances (after giving effect to any repayments of principal to be made on the term advances on such date). |
The class M available subordinated amount is calculated, on any date, as:
| (a) | the sum of (i) the aggregate of the principal amounts outstanding of the BBB term advances of all series and the BB term advances of all series (after giving effect to repayments of principal to be made on those term advances on such date); and (ii) the aggregate amount of the first reserve fund and the second reserve fund on such date and (iii) stressed excess spread; |
less
| (b) | the amounts standing to the credit of the principal ledger available on such date for the payment of principal on BBB term advances and BB term advances (after giving effect to any repayments of principal to be made on the term advances on such date). |
| For the class C notes of any series, |
On the closing date for that series of issuing entity notes and after giving effect to the issuance of that series of issuing entity notes, the class C available subordinated amount must be equal to or greater than the class C required subordinated amount.
The class C required subordinated amount is calculated, on any date, as the product of:
A x B
where:
| A = | the class C required subordinated percentage as specified in the most recent prospectus supplement for that issuance of issuing entity notes for BBB term advances of any series; and |
| B = | the principal amount outstanding of all term advances on such date (after giving effect to any repayments of principal to be made on the term advances on such date) less the amounts standing to the credit of the cash accumulation ledger and the principal ledger available on such date for the repayment of principal on the term advances (after giving effect to any repayments of principal to be made on the term advances on such date). |
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| The class C available subordinated amount is calculated, on any date, as: |
| (a) | the sum of (i) the aggregate of the principal amounts outstanding of the BB term advances of all series (after giving effect to repayments of principal to be made on those term advances on such date); and (ii) the aggregate amount of the first reserve fund and the second reserve fund on such date and (iii) stressed excess spread; |
less
| (b) | the amounts standing to the credit of the principal ledger available on such date for the payment of principal on BB term advances (after giving effect to any repayments of principal to be made on the term advances on such date). |
| For the class D notes of any series |
The class D notes are supported by surplus available revenue receipts and amounts standing to the credit of the first reserve fund and the second reserve fund.
In relation to the above, the amounts available on any date for the payment of principal on any term advance shall be calculated in accordance with the Funding pre-enforcement principal priority of payments (as set out in “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security”) and shall be calculated without reference to the rules for the application of Funding available principal receipts (as set out in “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security”).
Stressed excess spread is calculated, on any date, as:
| (a) | the product of: |
X + Y
-----
2
| and the aggregate outstanding principal balance of the term advances advanced under the master intercompany loan agreement less the amount debited to the principal deficiency ledger at such date; less |
| (b) | the product of the weighted average interest rate of the outstanding issuing entity notes at such date, including any issuing entity notes issued on such date (subject to adjustment where the step-up date occurs for any series and class (or sub-class) of issuing entity notes and taking into account the margins on the issuing entity swaps as at such date and the expenses of the issuing entity ranking in priority to payments on such issuing entity notes) and the aggregate principal amount outstanding of such issuing entity notes at such date. |
where:
| x = | the weighted average yield on the loans in the portfolio at such date, together with new loans (if any) to be assigned to the mortgages trustee on such date (taking into account the margins on the Funding swaps as at such date) |
| y = | LIBOR for 3 month sterling deposits plus 0.5 per cent. |
The required subordinated amount for any class (or sub-class) of issuing entity notes or the method of computing the required subordinated amount may be changed at any time without the consent of any noteholders provided confirmation has been obtained from each rating agency then rating any outstanding notes that the change will not result in an adverse effect on the then current rating of any outstanding notes.
In addition, if confirmation is obtained from each rating agency then rating any outstanding notes that the issuance of a new series and class (or sub-class) of new notes will not cause an adverse effect on the then current rating of any outstanding notes rated by that rating agency, then some of the other conditions to issuance described above may be waived by the note trustee. For example, the note trustee may, in accordance with and subject to the provisions of the trust deed,
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without the consent of the noteholders, but only if and so far as in its opinion the interests of the noteholders of any series and class (or sub-class) of issuing entity notes shall not be materially prejudiced thereby, determine at the request of the issuing entity that any note event of default in respect of a series and class (or sub-class) of issuing entity notes (the absence of which constitutes a condition to issuance of new notes or further issuing entity notes) shall not be treated as such.
USE OF PROCEEDS
An indication of the application of the proceeds from each issue of issuing entity notes will be described in the relevant prospectus supplement.
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THE ISSUING ENTITY
| Introduction |
The issuing entity was incorporated in England and Wales on 3 October 2006 (registered number 5953811) and is a public limited company under the Companies Act 1985. The authorised share capital of the issuing entity comprises 50,000 ordinary shares of £1 each. The issued share capital of the issuing entity comprises 50,000 ordinary shares of £1 each, 49,998 of which are partly paid to £0.25 each and two of which are fully paid and all of which are beneficially owned by Holdings (see Holdings). The registered office of the issuing entity is Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN. The contact telephone number is +44 (0) 870 607 6000.
The issuing entity is organised as a special purpose company. The issuing entity has no subsidiaries. The seller does not own directly or indirectly any of the share capital of Holdings or the issuing entity.
The principal objects of the issuing entity are set out in its memorandum of association and include among other things:
| • | lending money and giving credit, secured or unsecured; |
| • | borrowing or raising money and securing the payment of money; |
| • | granting security over its property for the performance of its obligations or the payment of money; and |
| • | to acquire or enter into financial instruments including derivative instruments. |
The issuing entity was established to issue the issuing entity notes and to make the AAA term advances, the AA term advances, the A term advances, the BBB term advances and the BB term advances to Funding. The activities of the issuing entity are limited to making term advances under the master intercompany loan agreement, issuing the issuing entity notes and other activities incidental thereto.
The issuing entity has not engaged, since its incorporation, in any material activities other than those incidental to its incorporation and re-registration as a public company under the Companies Act 1985, to the issue of the issuing entity notes and making the term advances to Funding and to the authorisation and performance of the other transaction documents and activities referred to in this prospectus.
Under the Companies Act 1985, the issuing entity’s constitutional documents, including the principal objects of the issuing entity, may be altered by a special resolution of the shareholders.
The activities of the issuing entity are and will be restricted by the terms and conditions of the issuing entity notes and are limited to the issue of the issuing entity notes, making the term advances to Funding, the exercise of related rights and powers, and other activities referred to in this prospectus or incidental to those activities.
There is no intention to accumulate surplus cash in the issuing entity except in the circumstances set out in “Security for the issuing entity’s obligations”.
The accounting reference date of the issuing entity is the last day of December. As at the date of this prospectus, no statutory accounts have been prepared or delivered to the Registrar of Companies on behalf of the issuing entity.
| Directors and secretary |
The following table sets out the directors of the issuing entity and their respective business addresses and occupations.
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Name | Business address | Business occupation | Age | Term of office | ||||
| Martin McDermott | Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ | Executive Director of Wilmington Trust SP Services (London) Limited | 44 | Indefinite, subject to resignation or disqualification under the Companies Act of 1985 | ||||
| Wilmington Trust SP Services (London) Limited | Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ | Management of Special Purpose Companies | — | Indefinite, subject to resignation or disqualification under the Companies Act of 1985 | ||||
| Ruth Samson | Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ | Solicitor | 34 | Indefinite, subject to resignation or disqualification under the Companies Act of 1985 | ||||
| David Green | Abbey National House 2 Triton Square Regent’s Place London NW1 3AN | Finance Director, Banking Entities | 51 | Indefinite, subject to resignation or disqualification under the Companies Act of 1985 |
The sponsor has caused David Green, an employee of the seller, to be a director of the issuing entity. David Green does not receive any compensation for acting as director.
The sponsor has caused Wilmington Trust SP Services (London) Limited, a company specialising in acting as directors of special purpose companies, to be a director of the issuing entity.
The directors of Wilmington Trust SP Services (London) Limited are set out under the section “Holdings” in this prospectus.
The directors’ (other than David Green’s) principal activities include the provision of directors and corporate management services to structured finance transactions as directors on the board of Wilmington Trust SP Services (London) Limited.
The company secretary of the issuing entity is:
| Abbey National Secretariat Services Limited Abbey National House 2 Triton Square Regent’s Place London NW1 3AN |
In accordance with the issuing entity corporate services agreement, Wilmington Trust SP Services (London) Limited will provide to the directors of the issuing entity a registered and administrative office, the service of a company secretary, the arrangement of meetings of directors and shareholders and the procurement of book-keeping services and preparation of accounts. No other remuneration is paid by the issuing entity to or in respect of any director or officer of the issuing entity for acting as such.
Under the issuing entity corporate services agreement, Holdings has agreed to comply with all requests of the issuing entity security trustee in relation to the appointment and/or removal by Holdings of any of the directors of the issuing entity.
The issuing entity has no employees.
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| Capitalisation statement |
The following table shows the capitalisation of the issuing entity as at 7 March 2007:
| As at 7 March 2007 | ||
| Authorised share capital | ||
| Ordinary shares of £1 each | 50,000 | |
| Issued share capital | ||
| 2 ordinary shares of £1 each fully paid | 2.00 | |
| 49,998 ordinary shares each one quarter paid | 12,499.50 | |
| 12,501.50 | ||
Other than the relevant previous notes, the issuing entity has no loan capital, term loans, other borrowings or indebtedness or contingent liabilities or guarantees as at 7 March 2007.
It is not intended that there be any further payment of the issued share capital.
There has been no material change in the capitalisation, indebtedness, guarantees or contingent liabilities of the issuing entity since 7 March 2007.
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THE ABBEY GROUP OF COMPANIES
| The sponsor and the seller |
| Background |
The sponsor and the seller, a public limited company, was incorporated in England and Wales on 12 September 1988 with registered number 2294747. The registered office of Abbey is at Abbey National House, 2 Triton Square, Regent’s Place, London, NW1 3AN. The telephone number of Abbey’s registered office is +44 (0) 870 607 6000.
The seller and its subsidiaries (the Abbey group) provide a comprehensive range of personal financial services, including savings and investments, mortgages, unsecured lending, banking, pensions, life and general insurance products to customers throughout the United Kingdom. The Abbey group also has offshore operations in Jersey and the USA. The Abbey group is regulated by the Financial Services Authority.
On 12 November 2004, Banco Santander Central Hispano, S.A. (Banco Santander) completed the acquisition of the entire issued share capital of the seller, implemented by means of a scheme of arrangement under Section 425 of the Companies Act 1985, making the seller a wholly-owned subsidiary of Banco Santander. Banco Santander is one of the largest banks in the world by market capitalisation. Founded in 1857, Banco Santander has more than 60 million customers, over 10,000 offices and a presence in over 40 countries.
In addition to being the sponsor of the asset-backed securities transactions in connection with which the issuing entity notes will be issued, Abbey is also the seller, the originator, the servicer, the cash manager, the issuing entity cash manager, the account bank and the Funding swap provider in the transaction.
As at the date of this prospectus, there are no legal or arbitration proceedings pending (or known by Abbey to be contemplated by governmental authorities) against Abbey or in which any property of Abbey is the subject that is material to holders of the issuing entity notes.
| Corporate Purpose and Strategy |
The seller’s purpose and goal is to maximise value for its shareholder, Banco Santander, by focusing on the provision of personal financial services in the United Kingdom. The Abbey group is already a leading participant in its core mortgage and savings market and continues to target consolidation of these positions and growth in personal banking and investments. Over the last two years, the Abbey group has made good progress in restructuring its business, disposing of and exiting assets and businesses that were deemed non-core and investing in the ongoing personal financial services operations. As part of the Banco Santander group of companies, the focus in the future will be on its ongoing retail banking business.
Abbey announced on 7 June 2006 that it had entered into an agreement to sell its entire life insurance business to Resolution plc (Resolution) for cash consideration of approximately £3,600 million. The sale was completed during the third quarter of 2006. The life insurance subsidiaries sold were Scottish Mutual Assurance plc, Scottish Provident Limited and Abbey National Life plc, as well as the two offshore life insurance companies, Scottish Mutual International plc and Scottish Provident International Life Assurance Limited. Separately, in order to provide continuity of product supply and service to its customers, Abbey had entered into a retail bank distribution agreement and intermediary distribution agreement with Resolution.
| Organisational Structure |
The Abbey group’s operations were re-organised following the acquisition of Abbey by Banco Santander in November 2004 and there are now three main operating divisions: Retail Banking, Wealth Management and Abbey Financial Markets. The responsibility for driving forward plans in Retail Banking has been split into Direct and Intermediary. There are also a number of supporting functions which include, but are not limited to, Manufacturing, Risk, Finance and Human Resources.
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| Mortgage business |
Abbey has been engaged in the origination and servicing of residential mortgage loans since 1989, when, as the successor company to the Abbey National Building Society, it took a transfer of the latter’s business, the core of which had always been the origination and servicing of residential mortgage loans. As at 31 December 2006, Abbey was the second largest provider of mortgage loans in the United Kingdom. Statistical information regarding the recent size and growth of the portfolio of residential mortgage loans serviced by Abbey (all of which were originated by Abbey) may be found in Annex A-1 of the accompanying prospectus supplement under “Statistical information on the portfolio”. The total value of the Abbey group’s mortgage stock as at 31 December 2006 was £101.7 billion and as at 31 December 2005 was approximately £93.9 billion. The Abbey group achieved net mortgage lending of approximately £7.8 billion in 2006, equating to a net mortgage lending market share of approximately 7.1 per cent.
| Securitisation |
Abbey became engaged in the securitisation of residential mortgage loans in 1997. To date, it has completed 14 residential mortgage securitisation transactions in which an aggregate initial principal amount of £35.8 billion of notes has been issued. No prior securitisation completed by Abbey has experienced an event of default to date.
In general, Abbey is responsible for the selection of the pool of loans to be securitised in Abbey’s mortgage loan securitisation programme and for ongoing servicing, reporting and cash management in accordance with the applicable documentation. Abbey also acts as sponsor of these securitisations and is responsible for structuring of the transaction, cash flow modelling, arranging distribution and marketing of the securities and arranging currency, interest rate and other hedge providers. Abbey is responsible for liaising with rating agencies, engaging various third party service providers and advisors as well as overall transaction management.
For further information on the loans, see “Description of the previous issuing entities, the previous notes and the previous intercompany loans” in Annex D of the accompanying prospectus supplement. For further information on the portfolio, see “Static pool data” in Annex E of the relevant prospectus supplement.
| Abbey National Treasury Services PLC trading as Abbey Financial Markets or AFM (AFM) |
AFM is a wholly-owned subsidiary of the seller and is an authorised person with permission to accept deposits under FSMA. AFM was incorporated in England and Wales on 24 January 1989 with registered number 2338548.
AFM comprises:
| (i) | Short Term Markets (previously known as Short-term Funding, Liquidity and Trading); |
| (ii) | Asset and Liability Management (previously known as Group Treasury and International); and |
| (iii) | Derivatives and Structured Products (previously known as Abbey National Financial Products). |
AFM manages the Abbey group’s funding, liquidity and balance sheet requirements. In addition, AFM provides structured products, underpinned by its derivatives trading activities, to the Abbey group and other financial services organisations. It is also active in securities financing and in the international money markets and capital markets. AFM has ceased its international treasury operations other than those in Stamford, Connecticut, USA. The obligations of AFM are guaranteed by a deed poll made by the seller and dated 26 January 2004.
| Baker Street Risk and Insurance (Guernsey) Limited (Baker Street Risk) |
Baker Street Risk was incorporated in Guernsey on 12 March 1993. Baker Street Risk is a wholly owned subsidiary of the seller and its registered office is at Fourth Floor, The Albany, South Esplanade, St Peter Port, Guernsey GY1 4NF. The principal business activity of Baker Street Risk is that of an insurer.
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FUNDING
| Introduction |
Funding was incorporated in England and Wales on 28 April 2000 (registered number 3982428) as a private limited company under the Companies Act 1985. The authorised share capital of Funding comprises 100 ordinary shares of £1 each. The issued share capital of Funding comprises two ordinary shares of £1 each, both of which are beneficially owned by Holdings (see “Holdings”). The registered office of Funding is at Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN. Its contact telephone number is +44 (0) 870 607 6000.
Funding was established to act as a depositor for the securitisation of residential mortgages originated by the seller, and it has acted as such for each securitisation by the previous issuing entities and the issuing entity. Funding is organised as a special purpose company. Funding has no subsidiaries. The seller does not own directly or indirectly any of the share capital of Holdings or Funding.
The principal objects of Funding are set out in its memorandum of association and are, among other things, to:
| • | carry on the business of a property investment company and an investment holding company; |
| • | acquire trust property and enter into loan arrangements; |
| • | invest, buy, sell and otherwise acquire and dispose of mortgage loans, advances and other investments and all forms of security; |
| • | carry on business as a money lender, financier and investor; |
| • | enter into financial instruments, including derivative instruments; and |
| • | undertake and carry on all kinds of loan, financial and other operations. |
Since its incorporation, Funding has not engaged in any material activities, other than those relating to the previous issues by the previous issuing entities and the issuing entity and those incidental to the authorisation and performance of the transaction documents referred to in this prospectus to which it is or will be a party and other matters which are incidental to those activities. Funding has no employees.
At the date of this prospectus, Funding has not failed to meet its payment obligations under any intercompany loan agreement.
After the issuance of any series of issuing entity notes, Funding will have no continuing duties with respect to such issuing entity notes but will receive payments in respect of the Funding share of the trust property and distribute such receipts as payments on the intercompany loans in accordance with the priorities of payment set forth under “Cashflows” in this prospectus.
The accounting reference date of Funding is the last day of December.
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| Directors and secretary |
The following table sets out the directors of Funding and their respective business addresses and occupations.
| Name | Business address | Business occupation | ||
| Martin McDermott | Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ | Executive Director of Wilmington Trust SP Services (London) Limited | ||
| Wilmington Trust SP Services (London) Limited | Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ | Management of Special Purpose Companies | ||
| David Green | Abbey National House 2 Triton Square Regent’s Place London NW1 3AN | Finance Director, Banking Entities | ||
| Ruth Samson | Tower 42 International Financial Centre 25 Old Broad Street London EC2N 1HQ | Solicitor |
David Green is an employee of the seller. There are no other potential conflicts between any duties owed to Funding by the persons referred to above and their private interests and or other duties.
The directors of Wilmington Trust SP Services (London) Limited are set out under the section “Holdings” in this prospectus.
The company secretary of Funding is:
| Abbey National Secretariat Services Limited Abbey National House 2 Triton Square Regent’s Place London NW1 3AN |
In accordance with the corporate services agreement, the corporate services provider will provide to Funding directors a registered and administrative office, the service of a company secretary, the arrangement of meetings of directors and shareholders and the procurement of book-keeping services and preparation of accounts. No other remuneration is paid by Funding to or in respect of any director or officer of Funding for acting as such.
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THE MORTGAGES TRUSTEE
The mortgages trustee was incorporated in England and Wales on 28 April 2000 (registered number 3982431) as a private limited company under the Companies Act 1985. The authorised share capital of the mortgages trustee comprises 100 ordinary shares of £1 each. The issued share capital of the mortgages trustee comprises two ordinary shares of £1 each, both of which are beneficially owned by Holdings (see “Holdings”). The registered office of the mortgages trustee is at Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN.
The mortgages trustee is organised as a special purpose company. The mortgages trustee has no subsidiaries. The seller does not own directly or indirectly any of the share capital of Holdings or the mortgages trustee.
Any profits received by the mortgages trustee, after payment of the costs and expenses of the mortgages trustee, will, ultimately, be paid for the benefit of charities and charitable purposes selected at the discretion of Wilmington Trust SP Services (London) Limited. The payments on the issuing entity notes will not be affected by this arrangement.
The mortgages trustee was established to act as trustee of the mortgages trust, and it has acted as such in connection with each securitisation by the previous issuing entities and the issuing entity. The mortgages trust is a bare trust.
The principal objects of the mortgages trustee are set out in its memorandum of association and are, among other things, to:
| • | invest and deal in mortgage loans secured on residential or other properties within England, Wales and Scotland; |
| • | invest in, buy, sell and otherwise acquire and dispose of mortgage loans, advances, other similar investments and all forms of security; |
| • | carry on business as a money lender, financier and investor; |
| • | undertake and carry on all kinds of loan, financial and other operations; and |
| • | act as trustee in respect of carrying on any of these objects. |
The mortgages trustee has not engaged, since its incorporation, in any material activities other than those incidental to the settlement of the trust property on the mortgages trustee or relating to the issue of previous notes by the previous issuing entities and the issuing entity, changing its name from Trushelfco (No. 2655) Ltd. on 6 June 2000, the authorisation and performance of the transaction documents referred to in this prospectus to which it is or will be a party and other matters which are incidental or ancillary to the foregoing. The mortgages trustee has no employees.
The accounting reference date of the mortgages trustee is the last day of December.
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HOLDINGS
Holdings was incorporated in England and Wales on 29 December 1998 (registered number 3689577) as a private limited company under the Companies Act 1985. The registered office of Holdings is at Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN.
Holdings has an authorised share capital of £100 divided into 100 ordinary shares of £1 each, of which two shares of £1 each have been issued. Limited recourse loans were made by Wilmington Trust SP Services (London) Limited to Holdings in order for Holdings to acquire all of the issued share capital of the previous issuing entities, Funding and the mortgages trustee. A further limited recourse loan has been made by Wilmington Trust SP Services (London) Limited to Holdings in order for Holdings to acquire all of the issued share capital of the issuing entity. Wilmington Trust SP Services (London) Limited, a professional trust company, holds all of the beneficial interest in the issued shares in Holdings on a discretionary trust for persons employed as nurses in the United Kingdom and for other charitable purposes. The payments on the issuing entity notes will not be affected by this arrangement.
Any profits received by Holdings, after payment of the costs and expenses of Holdings, will, following the payment of dividends to the share trustee, be paid for the benefit of persons employed as nurses in the United Kingdom and for other charitable purposes selected at the discretion of Wilmington Trust SP Services (London) Limited. The payments on the issuing entity notes will not be affected by this arrangement.
Holdings is organised as a special purpose company.
The principal objects of Holdings are set out in its memorandum of association and are, among other things, to:
| • | acquire and hold, by way of investments or otherwise; and |
| • | deal in or exploit in such manner as may from time to time be considered expedient, |
all or any of the shares, stocks, debenture stocks, debentures or other interests of or in any company (including the previous issuing entities, the issuing entity, the mortgages trustee and Funding).
Holdings has acquired all of the issued share capital of the issuing entity, the previous issuing entities, the mortgages trustee and Funding. Holdings has not engaged in any other activities since its incorporation other than those incidental to the authorisation and performance of the previous transaction documents and the transaction documents and other matters which are incidental to those activities. Holdings has no employees.
The accounting reference date of Holdings is the last day of December.
The directors of Wilmington Trust SP Services (London) Limited and their principal activities are as follows:
| Name | Function | Principal Activities | ||
| Martin McDermott | Managing Director/Chief Executive | Company Director | ||
| Mark Filer | Executive Director | Company Director | ||
| James Fairrie | Managing Director/Sales and Marketing | Company Director | ||
| Nicolas Patch | Executive Director | Company Director | ||
| David Dupert | Non-Executive Chairman | Banker | ||
| William Farrell II | Non-Executive Deputy Chairman | Banker | ||
| John Beeson | Non-Executive Director | Banker | ||
| Jean-Christophe Schroeder | Company Director | Company Director |
The company secretary of Wilmington Trust SP Services (London) Limited is Clifford Chance Secretaries (CCA) Limited.
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PECOH LIMITED
The post enforcement call option holder was incorporated in England and Wales on 28 April 2000 (registered number 3982397) as a private limited company under the Companies Act 1985. The registered office of the post enforcement call option holder is Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN.
The authorised share capital of the post enforcement call option holder comprises 100 ordinary shares of £1 each. The issued share capital of the post enforcement call option holder comprises two ordinary shares of £1 each, both of which are beneficially owned by Wilmington Trust SP Services (London) Limited on a discretionary trust for charitable purposes. This is a separate trust with different beneficiaries to that declared by Wilmington Trust SP Services (London) Limited in respect of all the issued share capital of Holdings.
The post enforcement call option holder is organised as a special purpose company. The post enforcement call option holder has no subsidiaries. The seller does not own directly or indirectly any of the share capital of the post enforcement call option holder.
The principal objects of the post enforcement call option holder are as set out in its memorandum of association and are, among others, to hold bonds, notes, obligations and securities issued or guaranteed by any company and any options or rights in respect of them. The post enforcement call option holder has not engaged since its incorporation in any material activities other than changing its name from Trushelfco (No. 2657) Ltd. on 6 June 2000 and those activities relating to the previous issues by the previous issuing entities and the issuing entity and those incidental to the authorisation and performance of the transaction documents referred to in this prospectus to which it is or will be a party and other matters which are incidental to those activities. The post enforcement call option holder has no employees.
The accounting reference date of the post enforcement call option holder is the last day of December.
Pursuant to the terms of an option granted to the post enforcement call option holder under the post-enforcement call option agreement, following the enforcement, realisation and payment of the proceeds of the issuing entity security granted by the issuing entity pursuant to the issuing entity deed of charge, the post enforcement call option holder can require the transfer to it of all of the class B notes and/or all of the class M notes and/or all of the class C notes and/or the class D notes, as the case may be, for a nominal amount.
As the post enforcement call option granted pursuant to the post-enforcement call option agreement can be exercised only after the issuing entity security trustee has enforced and realised the issuing entity security granted by the issuing entity under the issuing entity deed of charge and has determined that there are no further assets available to pay amounts due and owing to the class B noteholders, the class M noteholders, the class C noteholders and/or the class D noteholders, as the case may be, the exercise of the post enforcement call option and delivery by the class B noteholders, the class M noteholders, the class C noteholders and/or the class D noteholders of the class B notes, the class M notes, the class C notes and/or the class D notes to the post enforcement call option holder will not extinguish any other rights or claims other than the rights to payment of interest and repayment of principal under the class B notes, the class M notes, the class C notes and/or the class D notes that such class B noteholders, class M noteholders, class C noteholders and/or class D noteholders, as the case may be, may have against the issuing entity.
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THE NOTE TRUSTEE AND THE ISSUING ENTITY SECURITY TRUSTEE
The note trustee and the issuing entity security trustee, The Bank of New York, London Branch, is a banking institution incorporated under the laws of the State of New York registered with the Registrar of Companies for England and Wales under Company Number FC005522 and Branch Number BR000818, acting through its offices located at One Canada Square, London, E14 5AL.
The Bank of New York, London Branch, has served and is currently serving as trustee for numerous securitisation transactions and programmes involving pools of mortgage loans.
Pursuant to the trust deed, the note trustee is required to take certain actions as described under “Terms and conditions of the US notes”. Pursuant to the trust deed and the issuing entity deed of charge, the issuing entity security trustee is required to take certain actions as described under “Terms and conditions of the US notes”.
The limitations on liability of the note trustee and the issuing entity security trustee are described under “Terms and conditions of the US notes”.
The indemnifications available to the note trustee and the issuing entity security trustee are described in “Terms and conditions of the US notes”.
Provisions for the removal of the issuing entity security trustee are described under “Security for the issuing entity’s obligations – Retirement and removal”.
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THE FUNDING SWAP PROVIDER
Information in respect of the Funding swap is provided in this prospectus under the heading “The swap agreements”.
The Funding swap provider is Abbey Financial Markets. A description of the Funding swap provider is included in this prospectus under the heading “The Abbey group of companies”.
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AFFILIATIONS AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF TRANSACTION PARTIES
Abbey is the sponsor of the programme. In addition, Abbey has several other roles in the programme. Abbey is the originator of the loans. Abbey is the only seller of loans to the mortgages trustee and is the servicer of all of the loans. Abbey also provides the services of (a) cash manager to the mortgages trustee and Funding, (b) issuing entity cash manager, (c) account bank to the mortgages trustee and Funding and (d) sterling account bank to the issuing entity. Abbey National Treasury Services plc (trading as Abbey Financial Markets), a wholly-owned subsidiary of Abbey, is the Funding swap provider and may act as an issuing entity swap provider in relation to a series and class (or sub-class) of issuing entity notes.
Except as described in the preceding paragraph, there are no other affiliations or relationships or related transactions involving the transaction parties under the programme.
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THE LOANS
| The portfolio |
Each prospectus supplement issued in connection with the issuance of a series and class (or sub-class) of issuing entity notes will contain tables summarising information in relation to the relevant expected portfolio. The tables will contain information in relation to various criteria in respect of the expected portfolio as at the applicable cut-off date (as defined in the relevant prospectus supplement). Tables will indicate, among other things, composition by type of property, seasoning, period to maturity, geographical distribution, LTV ratios, outstanding balance and repayment terms. The portfolio as at the cut-off date, for which statistics are presented in the relevant prospectus supplement, and the portfolio as at the relevant closing date may differ owing to, among other things, amortisation of loans in the portfolio.
Each prospectus supplement relating to the issuance of a series and class (or sub-class) of issuing entity notes also will contain tables summarising certain characteristics of the United Kingdom mortgage market. Tables will provide historical information on, among other things, repossession rates, house price to earnings ratios, as well as other information that may be described from time to time.
| Introduction |
The following is a description of some of the characteristics of the loans currently or previously offered by the seller including details of loan types, the underwriting process, lending criteria and selected statistical information. The issuing entity believes the loans in the portfolio at any time will have characteristics that demonstrate the capacity to produce funds to service any payments due and payable on the issuing entity notes.
The portfolio of loans currently making up the trust property, together with their related security, accrued interest and other amounts derived from the loans as they make up the trust property on the date of this prospectus, are called the current portfolio. These items as they make up the trust property at other times are referred to simply as the portfolio.
Each loan in the current portfolio may incorporate one or more of the features referred to in this section but each loan will have only one method of repayment. Each borrower may have more than one loan incorporating different features (including different repayment methods), but all loans secured on the same property will be incorporated in a single account with the seller which is called the mortgage account. A mortgage account may therefore be part interest only and part repayment if it consists of two or more loans with different methods of repayment. Each loan is secured by a first legal charge over a residential property in England or Wales or a first-ranking standard security over a residential property in Scotland. Some flexible loans are secured by both a first and a second legal charge or standard security in favour of the seller.
Unless otherwise indicated, the description that follows relates to types of loans that have been or could be assigned to the mortgages trustee, either as part of the current portfolio or as a new loan assigned to the mortgages trustee at a later date.
The seller may assign new loans and their related security to the mortgages trustee from time to time. The seller reserves the right to amend its lending criteria and to assign to the mortgages trustee new loans which are based upon mortgage terms (as defined in the glossary) different from those upon which loans forming the portfolio as at any date are based. Those new loans may include loans which are currently being offered to borrowers which may or may not have some of the characteristics described here, but may also include loans with other characteristics that are not currently being offered to borrowers or that have not yet been developed. All new loans will be required to comply with the representations and warranties set out in the mortgage sale agreement from time to time. All the material representations and warranties in the mortgage sale agreement as at the date of this prospectus are described in this prospectus. See “Assignment of the loans and their related security”.
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| Characteristics of the loans |
The following is a description of some of the characteristics of the loans currently or previously originated by the seller, including details of loan types, the underwriting process, lending criteria and selected statistical information. The issuing entity believes the loans in the portfolio at any time will have characteristics that demonstrate the capacity to produce funds to service any payments due and payable on the issuing entity notes.
| Repayment terms |
Loans are typically repayable on one of the following bases:
| • | “repayment”: the borrower makes monthly payments of both interest and principal so that, when the loan matures, the full amount of the principal of the loan will have been repaid; and |
| • | “interest-only”: the borrower makes monthly payments of interest but not of principal; when the loan matures, the entire principal amount of the loan is still outstanding and is payable in one lump sum. |
In the case of either repayment loans or interest-only loans, the required monthly payment may alter from month to month for various reasons, including changes in interest rates.
For interest-only loans, because the principal is repaid in a lump sum at the maturity of the loan, the borrower is recommended to have some repayment mechanism (such as an investment plan) in place to help ensure that funds will be available to repay the principal at the end of the term. However, the seller does not take security over these repayment mechanisms.
Principal prepayments may be made in whole or in part at any time during the term of a loan. A prepayment of the entire outstanding balance of all loans under a mortgage account discharges the mortgage. Any prepayment in full must be made together with all accrued interest, arrears of interest, any unpaid expenses and any early repayment fee(s).
Each of the English loans is governed by English law and each of the Scottish loans is governed by Scots law.
| Payment methods |
Various methods are available to borrowers for making payments on the loans, including:
| • | internal transfer from an Abbey current account or other account the borrower may have with Abbey; |
| • | direct debit instruction from another bank or building society account; |
| • | external standing order from another bank or building society account; |
| • | internal standing order from an account at Abbey; and |
| • | payments made at an Abbey branch. |
| Early repayment fees |
Borrowers who have received the benefit of some of the interest rates and/or features referred to in this section may in certain circumstances be required to pay an early repayment fee if they repay all or part of their loans, or if they make a product switch, before a date specified in the offer conditions. The right to receive such early repayment fees is retained by the seller. The seller also retains discretion to waive or enforce early repayment fees in accordance with the seller’s policy from time to time (unless it is necessary to waive such fees in order to effect a change in the interest rate and the seller has not complied with its obligations to buy back the affected loan, in which case the mortgages trustee is authorised to waive early repayment fees on behalf of the seller). For example, the seller’s current policy is to waive early repayment fees in circumstances where the amount of the principal repayment in any calendar year (other than scheduled repayments of principal on a repayment loan) is less than ten per cent. of the sum of the principal balance of the loan at the beginning of that calendar year and the principal balance on any further advance completed during that year. The mortgages trustee has not agreed to
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purchase any early repayment fees from the seller and so any sums received will be for the seller’s account and not for the account of the mortgages trustee
| Cashbacks |
Certain loans offered by the seller include a cashback feature under which a borrower is offered a sum of money that is paid (i) on completion of the loan, known as a “completion cashback”, or (ii) after the loan has been advanced for a specific period, called a “delayed cashback”, or (iii) at periodic intervals whilst the loan is outstanding, known as a “reward cashback”. Where any loan is subject to a completion cashback or a delayed cashback, if there is an unscheduled principal repayment or a product switch (as described in “Product switches”), in either case before a date specified in the offer conditions, then all or some of the cashback must be repaid to the seller. This repayment request may, however, be waived at the discretion of the seller.
For relevant loans originated before N(M), the seller offered a reward cashback, equal to one per cent. of the then outstanding principal balance of the relevant loan, paid for every two completed years of its life, and which is not subject to the repayment requirement described above. For loans originated on and after N(M), the seller has not offered any reward cashback. For any future new reward cashback mortgage product, the amount and payment frequency of any reward cashback, and whether it is subject to any repayment requirement, may differ from the reward cashback for relevant loans originated before N(M).
Borrowers may request that a reward cashback is paid in cash and/or is applied by the seller in partial repayment of the related reward loan, in each case after deduction of any amounts that are overdue on their mortgage account.
The obligation to pay any delayed cashback or reward cashback remains an obligation of the seller and will not pass to the mortgages trustee. See “Risk factors – Set-off risks in relation to flexible loans, delayed cashbacks and reward cashbacks may adversely affect the funds available to the issuing entity to repay the issuing entity notes”.
| Interest payments and interest rate setting |
Interest on each loan is payable monthly in arrear. Interest on loans is computed daily on balances which are recalculated on a daily, monthly or annual basis.
The basic rate of interest set by the seller for loans beneficially owned by the seller outside the mortgages trust is either the Abbey SVR or a rate directly linked to a rate set from time to time by the Bank of England. The Abbey SVR is determined by the terms set forth in the 2002 mortgage conditions, the 2004 mortgage conditions and the 2006 mortgage conditions and is subject to a cap which is currently set at a margin of 2.5 per cent. above the Bank of England’s base rate and is also subject to the variances as set forth below.
Loans may combine one or more of the features listed in this section. In respect of the interest rates which last for a period of time specified in the offer conditions, after the expiration of that period a loan associated with that interest rate may (a) move to some other interest rate type or (b) become a tracker loan (as described in the following bulleted list) with a variable rate of interest linked to a rate set from time to time by the Bank of England or (c) revert to, or remain at, the SVR. The features that apply to a particular loan are specified in the offer conditions (as varied from time to time). The features are as follows:
| • | “large loan discounts” allows some borrowers to pay interest at a discretionary discount to the SVR, based on the aggregate size of the loans under the mortgage account (i) at origination or (ii) when a further advance is made; |
| • | “discounted variable rate loans” allow the borrower to pay interest at a specified discount to the SVR; |
| • | “capped rate loans” are subject to a maximum rate of interest and charge interest at the lesser of the SVR (or, as the case may be, the tracker rate) or the specified capped rate; |
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| • | “tracker loans” are subject to a variable rate of interest that is linked to an interest rate other than the SVR – for example the rate may be set at a fixed or variable margin above or below sterling LIBOR or above or below rates set from time to time by the Bank of England; |
| • | “minimum rate loans” are subject to an interest rate that is the greater of the SVR (or, as the case may be, the tracker rate) or a specified minimum rate; |
| • | “higher variable rate loans” are subject to an interest rate that is set at a margin above the SVR; and |
| • | “fixed rate loans” are subject to a fixed rate of interest. |
Except in limited circumstances as set out in “The servicing agreement – Undertakings by the servicer”, the servicer is responsible for setting the mortgages trustee SVR on the loans in the current portfolio as well as on any new loans that are assigned to the mortgages trustee. The 1995 mortgage conditions applicable to SVR loans provide that the SVR may only be varied for certain reasons, which are specified in those mortgage conditions. These reasons include:
| • | to maintain the competitiveness of the seller’s business as a whole, taking into account actual or expected changes in market conditions; |
| • | to reflect actual or expected changes in the cost of funds used by the seller in its mortgage lending business; |
| • | to ensure that the seller’s business is run prudently; |
| • | to reflect a change in the general practice of mortgage lenders; |
| • | to reflect any regulatory requirements or guidance or any change in the law or decision or recommendation by a court or an ombudsman; or |
| • | to reflect a change which the seller reasonably believes has occurred or is likely to occur in the risk it runs in connection with its security or the recovery of the sums due from the borrower. |
The term “seller” in these six bullet points means Abbey and its successors and assigns.
In respect of the loans with these 1995 mortgage conditions, the servicer may also change the mortgages trustee SVR for any other reason which is valid.
The 2002 mortgage conditions, the 2004 mortgage conditions and the 2006 mortgage conditions applicable to SVR loans provide that the SVR may be varied for one or more of the following reasons, which are specified in those mortgage conditions:
| • | to maintain the competitiveness of the seller’s personal banking business, taking account of actual or anticipated changes in the interest rates which other financial institutions charge to personal mortgage borrowers; |
| • | to reflect actual or expected changes in the cost of funds used by the seller in making loans to its personal mortgage borrowers; |
| • | to ensure that the seller’s business is run in a way which complies with the requirements of its regulator or of any central bank or other monetary authority; or |
| • | to enable the seller to ensure that the SVR does not exceed the cap. |
The term “seller” in these four bullet points means Abbey and its successors and assigns.
In respect of the loans with these 2002 mortgage conditions, the 2004 mortgage conditions or the 2006 mortgage conditions, the servicer may also:
| • | change the mortgages trustee SVR for any reason which is valid; or |
| • | increase or reduce the margin creating the cap on the SVR, |
provided that in each case not less than 30 days’ notice of an increase is given and not less than seven days’ notice of a reduction is given. If, in the case of loans under the 2002 mortgage conditions, the 2004 mortgage conditions or the 2006 mortgage conditions, the mortgages trustee SVR is increased for a valid reason or if the margin creating the cap on the SVR is increased,
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then an affected borrower will be entitled to repay all the sums due from that borrower under the mortgage terms within three months from the date on which the increase takes effect without paying any early repayment fee that would otherwise apply.
The need to change the Abbey SVR is considered at least monthly by the pricing committee of Abbey, which includes a number of senior Abbey executives, and is additionally considered immediately in the light of all changes to Bank of England rates. In maintaining, determining or setting the mortgages trustee SVR, the servicer will apply the factors set out here and, except in limited circumstances as set out in “The servicing agreement – Undertakings by the servicer”, has undertaken to maintain, determine or set the mortgages trustee SVR at a rate which is not higher than the Abbey SVR from time to time.
The servicer is also responsible for setting any variable margins in respect of tracker loans in the current portfolio as well as on any new tracker loans that are assigned to the mortgages trustee. However, in maintaining, determining or setting these variable margins, except in the limited circumstances as set out in “The servicing agreement – Undertakings by the servicer”, the servicer has undertaken to maintain, determine or set the variable margins at a level which is not higher than the variable margins set in accordance with the seller’s policy from time to time.
| Further advances |
If a borrower wishes to take out a further loan secured by the same mortgage (but excluding a drawdown under a flexible loan as described under “– Flexible loans”), the borrower will need to make a further application and the seller will use the lending criteria applicable to further advances at that time in determining whether to approve the application. All further advances will be funded solely by the seller. The seller will also reassess the value of the property by a valuer approved by the seller or, where appropriate, according to a methodology which would meet the standards of a reasonable, prudent mortgage lender (as referred to under “The servicing agreement – Undertakings by the servicer”) and which has been approved by the Director of Group Property and Survey of the seller. A new loan-to-value ratio will be calculated by dividing the aggregate of the outstanding amount and the further advance by the reassessed valuation. The aggregate of the outstanding amount of the loan and the further advance may be greater than the original amount of the loan. However, no loans will be assigned to the mortgages trust where the LTV ratio at the time of origination or further advance is in excess of 95 per cent.
Unless otherwise specified in the relevant prospectus supplement, none of the loans in an expected portfolio obliges the seller to make further advances (other than drawdowns under flexible loans as described under “– Flexible loans”). However, some loans in an expected portfolio at that time may have had further advances made on them prior to their assignment to the mortgages trustee, and new loans added to the portfolio in the future, may have had further advances made on them in the past. If a loan becomes subject to a further advance after that loan has been assigned to the mortgages trustee, then the seller will be required to repurchase the loan or loans under the relevant mortgage account and their related security from the mortgages trustee. See “Risk factors – Loans subject to product switches and further advances will be repurchased by the seller from the mortgages trustee, which will affect the prepayment rate of the loans, and this may affect the yield to maturity of the issuing entity notes” and “Assignment of the loans and their related security”.
| Flexible loans |
| General |
A flexible loan typically incorporates features that give the borrower options to make further drawings on the loan account and/or to overpay or to underpay principal and interest in a given month. The seller offers flexible loans to its borrowers, and it has the right to assign to the mortgages trustee new loans that may be flexible loans. In addition to the flexible loans offered to date, the seller may offer flexible loans in the future (that may be assigned to the mortgages trustee) that have different features from those described here. See “The mortgages trust – Additions to the trust property”. The seller has also offered loans to its borrowers which may, after the expiry of a period of time specified in the offer conditions, acquire features of flexible loans other than the ability to make further drawings.
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Currently the total amount outstanding at any time on a flexible loan as described below cannot exceed an LTV ratio of 95 per cent., or exceed an LTV ratio of 90 per cent. if an available funds facility exists. The loan and, where applicable, the available funds facility are secured by a first legal charge over a property in England and Wales or a first-ranking standard security over a property in Scotland. Some of the flexible loans are secured by both a first and second charge or standard security in favour of the seller.
| Flexible loans – offer dated on or before 2 July 2002 |
In respect of flexible loans where the seller’s offer to lend is dated on or before 2 July 2002, there are three basic elements: the initial loan, the available funds facility and the overpaid funds account. The amount of the initial loan is agreed at origination. Borrowers may, during the life of these flexible loans, draw additional amounts from the available funds facility on request to the seller, up to the amount available and subject to the mortgage conditions.
The agreement for the available funds facility is regulated by the CCA, which prescribes the form and procedure and (insofar as will be applicable) pre-contract disclosure for making an agreement regulated by the Act.
Subject to the provisions for underpayments and payment holidays, borrowers are required to make a monthly payment on the initial loan and (if a drawdown has been made) on the available funds facility. A borrower may make an overpayment at any time. If a borrower makes an overpayment, it is used for the following purposes and in the following order:
| • | to reduce any part of the initial loan which is then overdue; |
| • | to reduce any part of the drawdown debt in the available funds facility which is then overdue; |
| • | to reduce the remainder of the drawdown debt in the available funds facility, if specifically requested by the borrower, or if the overpaid funds account has been closed; and |
| • | to create or to increase a credit balance in the overpaid funds account. |
The credit balance in the overpaid funds account can be used by the borrower to fund an underpayment or a payment holiday or it can be used to reduce the balance owing on the initial loan. If the overpaid funds account has been closed, which will occur when the initial loan is repaid, the balance of any overpayment which would otherwise have been credited to the overpaid funds account will be repaid to the borrower.
Borrowers may make an underpayment or miss a monthly payment entirely if there is a credit balance on the overpaid funds account that is equal to or greater than the amount to be underpaid or the missed monthly payment. Alternatively, a borrower may make an underpayment or miss a monthly payment if there is an amount available for drawdown in the available funds facility that is at least as much as the amount to be underpaid or the missed monthly payment.
The “repayment” basis (as set out in “– Repayment terms”) applies to the whole of the drawdown debt under the available funds facility.
The seller may increase or reduce the credit limit for the available funds facility for one of the reasons specified in the credit agreement for the available funds facility.
| Flexible loans – offer dated on or after 3 July 2002 |
In respect of flexible loans where the seller’s offer to lend is dated on or after 3 July 2002, there is a flexible loan facility with a credit limit. The amount of the credit limit and the “amount available” (that is, the credit limit less the monies owing to the seller) are agreed at origination. Borrowers may, during the life of these flexible loans, draw additional amounts from the flexible loan facility on request to the seller, up to the amount available and subject to the mortgage conditions.
The agreement for the flexible loan facility has been designed by the seller with the intention that it is not regulated by the CCA.
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Subject to the provisions for underpayments and payment holidays, borrowers are required to make monthly payments on the flexible loan facility. A borrower may make an overpayment at any time. Any such overpayment will immediately reduce the balance owing on the flexible loan facility.
The “amount available” can be used by the borrower to fund an underpayment or a payment holiday or a further drawdown, subject to the mortgage conditions.
In respect of further drawdowns, unless the borrower gives the seller instructions to the contrary (as set out below):
| • | if the offer conditions specify that the “repayment” basis (as set out in “– Repayment terms”) applies to the whole of the first drawdown, then the “repayment” basis will also apply to the whole of each further drawdown made under that flexible loan facility; |
| • | if the offer conditions specify that the “interest-only” basis (as set out in “– Repayment terms”) applies to the whole of the first drawdown, then the “interest-only” basis will also apply to the whole of each further drawdown made under that flexible loan facility; and |
| • | if the offer conditions specify that the “interest-only” basis (as set out in “– Repayment terms”) applies to part only of the first drawdown, then the “repayment” basis will apply to the whole of each further drawdown made under that flexible loan facility. |
A borrower’s request to the seller for a further drawdown may include instructions to the seller that, as from the date when the borrower makes the further drawdown:
| • | the “repayment” basis is to apply to the whole or a specified part of the balance owing in place of the “interest-only” basis; or |
| • | the “interest-only” basis is to apply to the whole or a specified part of the balance owing in place of the “repayment” basis. |
The seller may increase the credit limit if:
| • | the borrower writes to the seller asking the seller to exercise its power to increase the credit limit; |
| • | the borrower pays any credit limit review charge; and |
| • | if requested to do so, the borrower pays for a new valuation report on the property and provides the seller with further information in relation to the borrower’s financial position. |
The seller may reduce the credit limit:
| • | to ensure that the monies owing to the seller under the flexible loan facility and the amount available do not together exceed 90 per cent. of the current market value of the property; |
| • | to ensure that the amount available at any time does not exceed the amount available as at the date of completion of the flexible loan facility; |
| • | if the borrower is in breach of the mortgage terms; |
| • | if the seller is reasonably of the opinion that, because of a change in the borrower’s financial position, the borrower could not afford to repay present or future drawdowns up to the existing credit limit; or |
| • | to ensure that the seller’s business is run in a way that complies with the requirements of the seller’s regulator or of any central bank or other monetary authority. |
If a reduction in the credit limit means that the monies owing to the seller exceed the reduced credit limit for the flexible loan facility, then the borrower must pay off the excess within three months after the date on which the seller gives the borrower notice of the reduction.
| Flexible loans – flexible plus loans |
Flexible loans include flexible plus loans, which are documented under the flexible plus loan conditions 2003 and the flexible plus mortgage conditions 2006. These conditions mirror those for other flexible loans where the seller’s offer to lend is dated on or after 3 July 2002, save for the
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following material differences in relation to the borrower’s savings account, overpayments, payment holidays and underpayments, the interest rate tracking differential and further drawdowns:
| • | Flexible plus loans contain a savings account element. No interest is paid by the seller on the savings. Instead, interest is charged each day on the amount which, at the end of the day, represents the capital owing on the mortgage account, less any savings in the savings account. As a result, when the borrower has savings in the savings account, the amount of interest charged on the mortgage account will be reduced. |
| • | Any savings held in the savings account do not affect the amount of the borrower’s monthly payment. As a result, when there are savings, the monthly payment the borrower makes will exceed the amount actually charged to the mortgage account and the seller will treat this excess as an overpayment. |
| • | The seller will use these overpayments to reduce or pay off any part of the mortgage balance which is overdue at that date. The remainder will be credited to the savings account. The borrower may also opt to make a series of regular overpayments with the borrower’s monthly payment, and these overpayments will be used by the seller in the same way. |
| • | The borrower may also make one-off overpayments in the form of a deposit. The seller will, on instructions from the borrower, credit this deposit to the mortgage account in order to reduce the mortgage balance. In the absence of such instructions, the deposit will be used to reduce or pay off any part of the mortgage balance which is overdue at that date and the remainder will be credited to the savings account. |
| • | The borrower may withdraw money from the savings account or instruct the seller to use some or all of the money in the savings account to reduce the mortgage balance. The borrower may also instruct the seller to use the savings to fund a payment holiday or make up a shortfall on an underpayment. |
| • | The savings in the savings account must not exceed the mortgage balance. |
| • | The borrower must not overdraw on the savings account. If the savings account becomes overdrawn, the seller will add the amount overdrawn to the mortgage balance. |
| • | The seller may use the savings at any time to pay off any of the following items which the borrower has failed to pay when they have become due: a monthly payment, an administration charge, a credit limit review charge, other items of costs and the mortgage balance if it becomes immediately payable. |
| • | The borrower may continue to make drawdowns until the end of the mortgage repayment period, even if the mortgage balance has been repaid. The mortgage will remain in force during the repayment period as security for money which may become owing under the borrower’s facility to make drawdowns up to the credit limit. |
| Product switches |
From time to time, borrowers may request or the seller may offer, and the borrowers may accept, a variation in the financial terms and conditions applicable to the borrower’s loan. If a loan is subject to a product switch, then the seller will be required to repurchase the loan or loans under the relevant mortgage account and their related security from the mortgages trustee. See “Risk factors – Loans subject to product switches and further advances will be repurchased by the seller from the mortgages trustee, which will affect the prepayment rate of the loans, and this may affect the yield to maturity of the issuing entity notes” and “Assignment of the loans and their related security”.
| Origination of the loans |
The seller currently derives its mortgage-lending business from the following sources: through a branch network throughout the United Kingdom, through intermediaries incorporating electronic commerce channels, and from telephone sales. In terms of value of mortgage-lending business generated, the current principal intermediaries are Bankhall (Premier Mortgage Service),
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Countrywide Assured Group (CAG), Legal and General, Openwork, SESAME, and The Mortgage Alliance. The relevant prospectus supplement will specify the percentage of loans in the expected portfolio as at the relevant date originated through direct channels, through intermediaries and through other channels.
The seller is subject to the Financial Ombudsman Service and follows the Code of Banking Practice and followed the Council of Mortgage Lenders’ Mortgage Code, which was in force until N(M).
| Underwriting |
The decision to offer a loan to a potential borrower is made either pursuant to an automated process or by underwriters located in branches, head office sites, telephone operations centres or business development units, who liaise with the intermediaries.
Each underwriter must pass a formal training programme conducted by the seller to gain the authority to approve loans. The seller has established various levels of authority for its underwriters who approve loan applications. The levels are differentiated by, among other things, degree of risk and the ratio of the loan amount to the value of the property in the relevant application. An underwriter wishing to move to the next level of authority must first take and pass a further training course. The seller also monitors the quality of underwriting decisions on a regular basis.
The seller introduced the automated process in May 2005. The automated process reduces the manual assessment of loans by underwriters in relation to those segments of the seller’s mortgages business that have historically performed well and that meet the relevant lending criteria. The introduction of the automated process has not affected the substance of the decisioning process.
The seller is continually reviewing the way in which it conducts its mortgage origination business, in order to ensure that it remains up-to-date and cost effective in a competitive market.
Furthermore, notwithstanding any of the changes described in this section, the seller will continue to retain exclusive control over the underwriting policies and lending criteria to be applied to the origination of each loan.
| Lending criteria |
Each loan in the current portfolio was originated according to the seller’s lending criteria applicable at the time the loan was offered, which included some or all of the criteria set out in this section. New loans may only be included in the portfolio if they are originated in accordance with the lending criteria applicable at the time the loan is offered and if the conditions contained in “Assignment of the loans and their related security” have been satisfied. However, the seller retains the right to revise its lending criteria from time to time and so the criteria applicable to new loans may not be the same as those currently used. Some of the factors currently used in making a lending decision are as follows:
| (1) | Type of property |
Properties may be either freehold or leasehold or the Scottish equivalents. In the case of leasehold properties, the unexpired portion of the lease must in most cases not expire earlier than 30 years after the term of the loan.
All properties have been valued by a valuer approved by the seller or, where appropriate, according to a methodology which would meet the standards of a reasonable, prudent mortgage lender (as referred to under “The servicing agreement – Undertakings by the servicer”). Such methodology may involve a form of valuation which is less comprehensive than the traditional full valuation and may involve an external viewing only by the valuer or a desktop valuation. All valuations are carried out in a manner which has been approved by the Chief Surveyor of the seller.
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| (2) | Term of loan |
There is a minimum term of 5 years on the loans and the maximum term is normally 35 years. For interest-only loans where the borrower is using a pension plan as the relevant repayment mechanism to repay the loan at maturity, the maximum term is extended to 57 years to reflect the long-term nature of pension plans. For these “pension-linked loans”, if the property is a leasehold and the lease has 55 or fewer years unexpired as at the date of completion of the mortgage, the maximum term is 25 years. Otherwise, the maximum term of a loan secured on a leasehold property may not exceed the unexpired residue of the term of the relevant lease.
| (3) | Age of applicant |
All borrowers must be aged 18 or over. There is no maximum age limit unless the loan is a pension-linked loan, in which case the loan must mature no later than the time when the borrower reaches 75 years of age.
| (4) | Loan-to-value (or “LTV”) ratio |
The maximum original LTV ratio of loans in the current portfolio is 95 per cent., excluding any capitalised (as defined in the glossary) high loan-to-value fee and/or booking fee and/or valuation fee (these fees are also defined in the glossary).
Value is determined, in the case of a remortgage, on the basis of the valuer’s valuation only and, in the case of a property which is being purchased, on the lower of the valuer’s valuation and the purchase price and, in the case of a further advance, on the basis of the valuer’s valuation or, where appropriate, according to a methodology which would meet the standards of a reasonable, prudent mortgage lender and which has been approved by the Chief Surveyor of the seller (or his successors or predecessors).
| (5) | Status of applicant(s) |
The maximum amount of the aggregate loan(s) under a mortgage account is determined by a number of factors, including the applicant’s income. In determining income, the seller includes basic salary as primary income and also the following which it considers to be regular: allowances, mortgage subsidies, pensions and annuities (for self-employed applicants income is derived from the net profit of the business). If theses payments are not considered regular, they are treated as secondary income.
In the case of loans of equal to or less than £500,000 with an LTV ratio of equal to and less than 85 per cent., borrowers (whether employed or self employed) may certify as to their own income. The income stated is assessed for reasonableness by age, job type and geographical location and must be less than or equal to the 80th percentile of the distribution of incomes for borrowers who have verified their income.
Income must be evidenced or be able to be proved on every application that Abbey receives. Abbey will continue to allow Intermediary and Telephone Distribution Additional Loan mortgage applications that meet certain criteria to be Fast Tracked, i.e. submitted without proof of income, in order to simplify the paperwork requirements and speed up the mortgage process. However, this agreement is on the basis that the income declared is accurate and that evidence has been captured.
The highest risk cases (those that historically did not score as ‘Low Risk’) will not be eligible for Fast Track.
Where cases are not eligible to be Fast Tracked, self-employed applicants must provide one of the following to certify as to their own income: an accountant’s letter; minimum 2 years’ signed accounts; or minimum 2 years’ self-assessment returns and tax calculation forms. Employed borrowers must submit documentation (such as pay slips or bank statements) to certify as to their own income.
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As at the date of this prospectus, the amount available to a borrower is initially calculated as follows:
| Gross Income £000’s | High Credit Score | Medium Credit Score | Low Credit Score | ||||||||||||
| Single | Joint | Single | Joint | Single | Joint | ||||||||||
| <=20 | 3.8 | 3.8 | 3.6 | 3.1 | 3.5 | 2.8 | |||||||||
| >20, <=25 | 4.0 | 4.0 | 3.8 | 3.3 | 3.6 | 2.8 | |||||||||
| >25, <=35 | 4.3 | 4.3 | 4.0 | 3.5 | 3.7 | 3.0 | |||||||||
| >35, <=60 | 4.6 | 4.6 | 4.3 | 3.8 | 3.8 | 3.6 | |||||||||
| >60 | 5.0 | 5.0 | 4.7 | 4.2 | 4.0 | 3.6 | |||||||||
The seller may exercise discretion within its lending criteria in applying those factors which are used to determine the maximum amount of the loan(s). Accordingly, these parameters may vary for some loans.
All loans are subject to affordability, based on the income and outgoings of applicants.
| (6) | Credit history |
| (a) | Credit search |
| With the exception, in some circumstances, of then existing Abbey mortgage loan borrowers, a credit search is carried out in respect of all applicants. Applications may be declined where an adverse credit history (for example, county court judgment (or the Scottish equivalent), default or bankruptcy notice) is revealed. |
| (b) | Existing lender’s reference |
| The seller may also seek a reference from any existing and/or previous lender. Any reference must satisfy the seller that the account has been properly conducted and that no history of material arrears exists. |
| (c) | First time buyers/applicants in rented accommodation |
| Where applicants currently reside in rented accommodation, a landlord’s reference may be sought by the seller. In addition, if considered appropriate, a further reference may be taken in connection with any other property rented by the applicant(s) within the three preceding years. |
| (d) | Bank reference |
| A bank reference may be sought or the applicant may be required to provide bank statements in support of his or her application. |
| (7) | Scorecard and policy rules |
With the exception of some additional loans made to existing borrowers, the seller uses some of the criteria described here and various other criteria to produce an overall score for the application which reflects a statistical analysis of the risk of advancing the loan. The score is used in conjunction with a number of policy rules to determine the lending decision.
| Changes to the underwriting policies and the lending criteria |
The seller’s underwriting policies and lending criteria are subject to change within the seller’s sole discretion. New loans and further advances that are originated under lending criteria that are different from the criteria set out here may be assigned to the mortgages trustee. The score is used in conjunction with a number of policy rules to determine the lending decision.
Neither the issuing entity nor the seller will revalue (a) any of the mortgaged properties in the portfolio or (b) any new loans and their related security which are to be sold to the mortgages trustee from time to time for the purposes of any issue.
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| Insurance policies |
| Insurance on the property |
A borrower is required to provide for insurance on the mortgaged property for an amount equal to the estimated rebuilding cost of the property. The borrower may either purchase the insurance through the seller or the borrower or landlord (for a leasehold property) may arrange for the insurance independently. Where borrower-or landlord-arranged insurance fails without the knowledge of the seller, a properties in possession policy issued in favour of the seller by Baker Street Risk and Insurance (Guernsey) Limited, a wholly owned insurance subsidiary of the seller, provides cover for the seller (but not the borrower) for any losses or costs which the insured is unable to recover, and the seller can claim under the properties in possession policy once the relevant property has been repossessed by the seller.
| Abbey policies |
If a borrower asks the seller to arrange insurance on their behalf, a policy will be issued by an insurance underwriter in favour of that borrower. The policy will provide the borrower with rebuilding insurance up to an amount equal to the actual rebuilding cost subject to the valuation. Standard policy conditions apply, which are renegotiated periodically by the seller with the insurance underwriter(s) selected from time to time by the seller to provide the insurance. Generally the seller is named as an insured in a schedule to the policy, but successors in title and assigns, including the mortgages trustee, are not covered. However, the insurer has confirmed or will confirm to the seller, the mortgages trustee, Funding and the security trustee that, notwithstanding the fact that the seller has agreed to assign the seller’s interest in a number of properties which are covered by Abbey policies to the mortgages trustee, the insurer will continue to process and pay claims in respect of those properties in the same way and in the same amount as it would have done had the mortgage sale agreement not been entered into. Amounts paid under the insurance policy are generally utilised to fund the reinstatement of the property or are otherwise paid to the seller to reduce the amount of the loan(s).
In the mortgage sale agreement, the seller has agreed to transfer the proceeds of all relevant claims made under the Abbey policies (but not the right to make and enforce claims) to the mortgages trustee. The seller has also agreed to make and enforce claims and to hold the proceeds of claims on trust for the mortgages trustee or as the mortgages trustee may direct. In the servicing agreement, the seller, acting in its capacity as servicer, has also agreed to deal with claims under the Abbey policies in accordance with its normal procedures. If the seller, acting in its capacity as servicer, receives any claim proceeds relating to a loan which has been assigned to the mortgages trustee, these will be required to be paid into the mortgages trustee’s, rather than the seller’s, accounts.
| Seller-introduced insurance |
If the Abbey insurer is unwilling to provide insurance to a borrower, the seller has ad hoc arrangements with other insurers who may provide the borrower with insurance. If it transpires that the property thought to be covered by seller-introduced insurance is not so covered, and the property is damaged while uninsured, the seller is entitled (once the property has gone into possession) to make a claim under the properties in possession policy (described later in this section).
| Borrower or landlord-arranged insurance |
If a borrower elects not to take up an Abbey policy, or if a borrower who originally had an Abbey policy confirms that the borrower no longer requires that insurance, that borrower is either sent an “alternative insurance requirements – new business” form or an “alternative insurance requirements” form, whichever is appropriate. This varies the insurance provisions of the mortgage conditions, the most significant variation being the fact that they do not stipulate a level of insurance cover. Once an alternative insurance requirements form has been dispatched, it is assumed that the borrower is making arrangements in accordance with those requirements.
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| The properties in possession policies |
If it transpires that a borrower has not complied with the borrower- or landlord-arranged insurance requirements set out in the alternative insurance requirements and if the property is damaged while uninsured, the seller is entitled (once the property is in possession) to make a claim under the properties in possession policy. The properties in possession policy is an insurance policy provided to the seller by Baker Street Risk and Insurance (Guernsey) Limited that insures the seller against loss relating to properties after those properties have been repossessed by the seller. It is not possible for the properties in possession policy from Baker Street Risk and Insurance (Guernsey) Limited to provide cover for any company outside the Abbey group, including for the mortgages trustee. However, the insurer has confirmed to the seller, the mortgages trustee, Funding and the security trustee that, notwithstanding the fact that the seller has agreed to assign the seller’s interest in a number of properties which are covered by the properties in possession policy to the mortgages trustee, the insurer will continue to process and pay claims in respect of those properties in the same way and in the same amount as it would have done had the mortgage sale agreement not been entered into. The servicer will make claims in accordance with the seller’s policy and pay proceeds relating to the loans into the mortgages trustee’s accounts.
In the case of leasehold properties where the lease requires the landlord to insure the property, provision is made to deal with the insurance in the mortgage conditions or the “General Instructions to Solicitors” or the “CML’s Lenders’ Handbook for England & Wales” or other comparable or successor instructions or guidelines. Again, if it transpires that the property is not insured and is damaged, the seller can claim under the properties in possession policy once the property has been repossessed by the seller.
If a borrower who originally had Abbey-arranged insurance fails to pay a premium, but does not notify the seller that it wishes to make alternative arrangements, it is assumed that the borrower requires Abbey-arranged insurance to continue and no alternative insurance requirements form is sent to that borrower. The unpaid premium is added to the balance of the relevant loan.
As with its interest in the Abbey policies, the seller has agreed to assign the proceeds of any claims under any borrower or landlord-arranged insurance to the mortgages trustee and, to the extent that any proceeds are received by the servicer, it has agreed to pay these into the mortgages trustee’s accounts.
In the mortgage sale agreement the seller has agreed to make and enforce claims under the relevant policies and to hold the proceeds of claims on trust for the mortgages trustee or as the mortgages trustee may direct.
| MIG policies |
A MIG policy is an agreement between a lender and an insurance company to underwrite the amount of each relevant mortgage account which exceeds a certain LTV ratio. Until and including 31 December 2001, Abbey required MIG policies for all mortgaged properties with an LTV ratio of more than 75 per cent. (with the exception of some flexible loans). These MIG policies were underwritten by Carfax Insurance Limited, or Carfax, a wholly owned subsidiary of the seller.
However, on 14 October 2005, Abbey exercised its right to cancel all relevant MIG policies and, as at the date of this prospectus, none of the mortgage loans in the available portfolio is covered by a MIG policy. The seller may choose at some point in the future to reintroduce MIG cover (underwritten by Carfax or otherwise) for some or all of its mortgage loans but has no obligation to do so.
If MIG cover were reintroduced, the seller would retain the right to cancel the MIG policies at any time. If the seller exercised its right to cancel any such reintroduced MIG policies, the trust property would not then have the benefit of such MIG policies.
| Scottish loans |
A proportion of the loans in the current portfolio is secured over properties in Scotland. Under Scots law, the only means of creating a fixed charge or security over heritable or long leasehold property is the statutorily prescribed standard security. In relation to Scottish loans, references in
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this prospectus to a mortgage are to be read as references to such a standard security and references to a mortgagee are to be read as references to the security holder (termed in Scots law the heritable creditor).
In practice, the seller has advanced and intends to advance loans on a similar basis both in England and Wales and in Scotland. While there are certain differences in law and procedure in connection with the enforcement and realisation of Scottish mortgages the seller does not consider that these differences make Scottish mortgages significantly different or less effective than those secured over properties in England and Wales. For more information on the Scottish loans, see “Material legal aspects of the loans – Scottish loans”.
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THE SERVICER
| The servicer |
Under the servicing agreement, Abbey has been appointed as the initial servicer of the loans. The day-to-day servicing of the loans is performed by the servicer through the servicer’s retail branches, telephone and electronic banking centres and operations centres which are subject to the arrangements described in “The servicing agreement – Actual delegation by the servicer”. The servicer’s registered office is Abbey National House, 2 Triton Square, Regent’s Place, London NW1 3AN.
This section describes the servicer’s procedures in relation to mortgage loans generally. A description of the servicer’s obligations under the servicing agreement follows in the next section.
Abbey is continually reviewing the way in which it conducts its mortgage loan servicing business in order to ensure that it remains up-to-date and cost effective in a competitive market, and the servicer may therefore change any of its servicing processes and arrangements from time to time. However, Abbey will retain exclusive control over the underwriting policies and lending criteria and will agree the servicing standards to be applied in the course of servicing mortgage loans. It will also seek to ensure that any changes to its servicing arrangements are made with the minimum level of business interruption.
| Servicing of loans |
Servicing procedures include responding to customer enquiries, monitoring compliance with and servicing the loan features and facilities applicable to the loans and management of loans in arrears. See “The servicing agreement”.
Pursuant to the terms and conditions of the loans, borrowers must pay the monthly amount required under the terms and conditions of the loans on or before each monthly instalment due date. Interest accrues in accordance with the terms and conditions of each loan and is collected from borrowers monthly.
In the case of variable rate loans, the servicer sets the mortgages trustee SVR and any variable margin applicable to any tracker loan on behalf of the mortgages trustee and the beneficiaries, except in the limited circumstances as set out in the servicing agreement. In the case of some loans that are not payable at the mortgages trustee SVR, for example loans at a fixed rate, the borrower will continue to pay interest at the relevant fixed rate until the relevant period ends in accordance with the borrower’s offer conditions. After that period ends, and unless the seller issues an offer, which the borrower accepts, of another option with an incentive, interest will be payable at the mortgages trustee SVR. In addition, some other types of loans are payable or may change so as to become payable by reference to other rates not under the control of the servicer such as LIBOR or rates set by the Bank of England, which rates may also include a fixed or variable rate margin set by the servicer.
The servicer will take all steps necessary under the mortgage terms to notify borrowers of any change in the interest rates applicable to the loans, whether due to a change in the mortgages trustee SVR or any variable margin or as a consequence of any provisions of those terms.
Payments of interest and, in the case of repayment loans, principal, are payable in arrear monthly. The servicer is responsible for collecting all payments made by the relevant borrower either directly to the mortgages trustee GIC account held in the name of the mortgages trustee or to the relevant alternative account or cleared through the relevant Abbey account and credited to the mortgages trustee GIC account, as appropriate. All payments from borrowers are made by direct debits unless the servicer, as agent of the mortgages trustee, has specifically agreed to another form of payment with that borrower. The servicer initially credits the mortgages trustee GIC account and the alternative accounts with the full amount of the direct debit requests. However, a few days after the due date for payment the unpaid direct debits begin to be returned, at which time the servicer is permitted to reclaim from the mortgages trustee GIC account or the relevant alternative account, as appropriate, the corresponding amounts previously credited. In these circumstances the usual arrears procedures described in “– Arrears and default procedures” will be taken.
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All amounts which are credited and paid to an alternative account are transferred into the mortgages trustee GIC account on a regular basis and in any event no later than the next business day after they are deposited in the relevant alternative account. Any amounts which are due to be paid to the mortgages trustee GIC account but which are credited in error to an account of the seller will initially be held on trust by the seller for the mortgages trustee. The seller will then transfer those amounts to the mortgages trustee GIC account as soon as reasonably practicable.
A borrower of a reward loan may request that a reward cashback is paid in cash and/or is applied by the seller in partial repayment of the related reward loan. If a borrower of a reward loan that forms part of the trust property requests that a reward cashback (or a proportion of it) should be so applied against the relevant reward loan, the seller will transfer an amount equal to the relevant reward cashback (or the relevant proportion thereof) to the mortgages trustee GIC account as soon as reasonably practicable after it falls due for payment and, pending such transfer, will hold such amount on trust for the mortgages trustee. Any such reward cashback shall be applied first against any overdue amounts on the relevant mortgage account and then against the principal amount of the relevant reward loan.
| Arrears and default procedures |
The servicer regularly gives to the mortgages trustee and the beneficiaries written details of loans that are in arrears. A loan is identified as being in arrears when the aggregate of all amounts overdue is at least equal to the monthly payment then due. In general, the servicer attempts to collect all payments due under or in connection with the loans, having regard to the circumstances of the borrower in each case.
The arrears are reported between 1 and 14 days after the amount has been identified unless the arrears have been reduced in the meantime to an amount less than the monthly payment then due. After the arrears are first reported the borrower is contacted and asked for payment of the arrears. The servicer then continues to contact the borrower asking for payment of the arrears.
Where considered appropriate, the servicer may enter into arrangements with the borrower regarding the arrears, including:
| • | arrangements to make each monthly payment as it falls due plus an additional amount to pay the arrears over a period of time; |
| • | arrangements to pay only a portion of each monthly payment as it falls due; and |
| • | a deferment for a period of time of all payments, including interest and principal or parts of any of them. |
Any arrangements may be varied from time to time at the discretion of the servicer, the primary aim being to rehabilitate the borrower and recover the situation.
Legal proceedings do not usually commence until the arrears become equivalent to at least three times the monthly payment then due. However, in many cases legal proceedings may commence later than this. Once legal proceedings have commenced, the servicer may send further letters to the borrower encouraging the borrower to enter into discussions to pay the arrears. The servicer may still enter into an arrangement with a borrower at any time prior to a court hearing, or it may apply to the court to adjourn a court hearing. If a court order is made for payment and the borrower subsequently defaults in making the payment, then the servicer may take action as it considers appropriate, including entering into an arrangement with the borrower. If the servicer applies to the court for an order for repossession, the court has discretion as to whether it will grant the order.
The servicer has discretion to deviate from these procedures. In particular, the servicer may deviate from these procedures where a borrower suffers from a mental or physical infirmity, is deceased or where the borrower is otherwise prevented from making payment due to causes beyond the borrower’s control. This is the case for both sole and joint borrowers.
After repossession, the servicer may take action as it considers appropriate, including to:
| • | secure, maintain or protect the property and put it into a suitable condition for sale; |
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| • | create (other than in Scotland) any estate or interest on the property, including a leasehold; |
| • | dispose of the property (in whole or in parts) or of any interest in the property, by auction, private sale or otherwise, for a price it considers appropriate; and |
| • | let the property for any period of time. |
The servicer has discretion as to the timing of any of these actions, including whether to postpone the action for any period of time. The servicer may also carry out works on the property as it considers appropriate, including the demolition of the whole or any part of it.
It should also be noted that the servicer’s ability to exercise its power of sale in respect of the property is dependent upon mandatory legal restrictions as to notice requirements. In addition, there may be factors outside the control of the servicer, such as whether the borrower contests the sale and the market conditions at the time of sale, that may affect the length of time between the decision of the servicer to exercise its power of sale and final completion of the sale.
The net proceeds of sale of the property are applied against the sums owed by the borrower to the extent necessary to discharge the mortgage including any accumulated fees and interest. Any amounts owed by the borrower not covered by the net proceeds of sale will be written off at that date and the account closed. However, the borrower is still liable for any deficit left over after the property is sold. The servicer attempts to recover as much of this deficit as possible from the borrower.
These arrears and security enforcement procedures may change over time as a result of a change in the servicer’s business practices or legislative and regulatory changes.
| Arrears experience |
The prospectus supplement relating to an issue will contain tables summarising the then up-to-date information on the levels of arrears and repossession experience in respect of the loans comprising the mortgages trust.
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THE SERVICING AGREEMENT
The following section contains a summary of the material terms of the servicing agreement. The summary does not purport to be complete and is subject to the provisions of the servicing agreement.
| Introduction |
On 26 July 2000, Abbey was appointed by the mortgages trustee, Funding and the seller under the servicing agreement to be their agent to service the loans and their related security and the security trustee consented to the appointment. Abbey has undertaken that in its role as servicer it will comply with any proper directions and instructions that the mortgages trustee, Funding, the seller or the security trustee may from time to time give to Abbey in accordance with the provisions of the servicing agreement. The servicer is required to administer the loans in the following manner:
| • | in accordance with the servicing agreement; and |
| • | as if the loans and mortgages had not been assigned to the mortgages trustee but remained with the seller, and in accordance with the seller’s procedures and administration and enforcement policies as they apply to those loans from time to time. |
The servicer’s actions in servicing the loans in accordance with its procedures are binding on the mortgages trustee. The servicer may, in some circumstances, delegate or sub-contract some or all of its responsibilities and obligations under the servicing agreement. However, the servicer remains liable at all times for servicing the loans and for the acts or omissions of any delegate or sub-contractor. The servicer has delegated some of its responsibilities and obligations under the servicing agreement as described in “– Actual delegation by the servicer”.
| Powers |
Subject to the guidelines for servicing set forth in the preceding section, the servicer has the power, among other things:
| • | to exercise the rights, powers and discretions of the mortgages trustee, the seller and Funding in relation to the loans and their related security and to perform their duties in relation to the loans and their related security; and |
| • | to do or cause to be done any and all other things which it reasonably considers necessary or convenient or incidental to the administration of the loans and their related security or the exercise of such rights, powers and discretions. |
| Undertakings by the servicer |
The servicer has undertaken, among other things, the following:
| (a) | To maintain approvals, authorisations, consents, and licences required for itself in order to properly service the loans and their related security and to perform or comply with its obligations under the servicing agreement. |
| (b) | To determine and set the mortgages trustee SVR and any variable margin applicable to any tracker loan in relation to the loans (including the relevant tracker loans) comprising the trust property except in the limited circumstances described in this paragraph (b) when the mortgages trustee will be entitled to do so. It will not at any time, without the prior consent of the mortgages trustee, Funding and the security trustee, set or maintain: |
| (i) | the mortgages trustee SVR at a rate which is higher than (although it may be lower than) the then prevailing Abbey SVR which applies to loans beneficially owned by the seller outside the mortgages trust; |
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| (ii) | a margin in respect of any tracker loan which, where the offer conditions for that loan provide that the margin shall be the same as the margin applicable to all other loans having the same offer conditions in relation to interest rate setting, is higher than the margin then applying to those loans beneficially owned by the seller outside the mortgages trust; and |
| (iii) | a margin in respect of any other tracker loan which is higher than the margin which would then be set in accordance with the seller’s policy from time to time in relation to that loan. |
| In particular, the servicer will determine on each interest payment date, having regard to: |
| (i) | the income which Funding would expect to receive during the next succeeding interest period; |
| (ii) | the mortgages trustee SVR, any variable margins applicable in relation to any tracker loans and the variable mortgage rates in respect of the loans which the servicer proposes to set under the servicing agreement; and |
| (iii) | the other resources available to Funding including the Funding swap agreement and the reserve funds, |
| whether Funding would receive an amount of income during that loan interest period which is less than the amount which is the aggregate of (A) the amount of interest which will be payable in respect of all AAA term advances on the interest payment date falling at the end of that loan interest period and (B) the other senior expenses of Funding ranking in priority to interest due on all those AAA term advances. If the servicer determines that there will be a shortfall in the foregoing amounts, it will give written notice to the mortgages trustee, Funding and the security trustee, within one London business day, of the amount of the shortfall and the SVR and any variable margins applicable in relation to any tracker loans which would, in the servicer’s opinion, need to be set in order for no shortfall to arise, having regard to the date(s) on which the change to the SVR and any variable margins would take effect and at all times acting in accordance with the standards of a reasonable, prudent mortgage lender as regards the competing interests of borrowers with SVR loans and borrowers with tracker loans. If the mortgages trustee, Funding and the security trustee notify the servicer that, having regard to the obligations of Funding, the SVR and/or any variable margins should be increased, the servicer will take all steps which are necessary to increase the SVR and/or any variable margins including publishing any notice which is required in accordance with the mortgage terms. |
| The mortgages trustee and/or Funding and the security trustee may terminate the authority of the servicer to determine and set the mortgages trustee SVR and any variable margins on the occurrence of a servicer termination event as defined under “– Removal or resignation of the servicer”, in which case the mortgages trustee will set the mortgages trustee SVR and any variable margins itself in accordance with this paragraph (b) and Abbey will have the right to make representations to the mortgages trustee with respect to changes to the variable margin. |
| (c) | To the extent so required by the relevant mortgage terms and applicable law, to notify borrowers of any change in interest rates, whether due to a change in the mortgages trustee SVR, the margin applicable to any tracker loan or as a consequence of any provisions of the mortgage conditions or the offer conditions. It will also notify the mortgages trustee, the security trustee and the beneficiaries of any change in the mortgages trustee SVR. |
| (d) | To execute all documents on behalf of the mortgages trustee, the seller and Funding which are necessary or desirable for the efficient provision of services under the servicing agreement. |
| (e) | To keep records and accounts on behalf of the mortgages trustee in relation to the loans. |
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| (f) | To keep the customer files and (if applicable) title deeds in safe custody and maintain records necessary to enforce each mortgage. It will ensure that (if applicable) each title deed is capable of identification and retrieval and that each title deed is distinguishable from information held by the servicer for other persons. If the servicer’s short-term, unsecured, unsubordinated and unguaranteed debt is rated less than A-1 by Standard & Poor’s, P-1 by Moody’s and F1 by Fitch, it will use reasonable endeavours to ensure the customer files and (if applicable) title deeds are located separately from customer files and any title deeds which relate to loans held outside the trust property. |
| (g) | To provide the mortgages trustee, Funding and the security trustee with access to records relating to the administration of the loans and mortgages and (if applicable) the title deeds. |
| (h) | To make available to beneficial owners of the issuing entity notes, who have provided the beneficial ownership certification as described in the servicing agreement, on a monthly basis a report containing information about the loans in the mortgages trust. |
| (i) | To assist the cash manager in the preparation of a quarterly report substantially in the form set out in the cash management agreement on, among other things, arrears. |
| (j) | To take all reasonable steps, in accordance with the usual procedures undertaken by a reasonable, prudent mortgage lender, to recover all sums due to the mortgages trustee, including instituting proceedings and enforcing any relevant loan or mortgage. |
| (k) | To enforce any loan which is in default in accordance with its enforcement procedures or, to the extent that the enforcement procedures are not applicable having regard to the nature of the default in question, with the usual procedures undertaken by a reasonable, prudent mortgage lender on behalf of the mortgages trustee. |
| (l) | Not knowingly to fail to comply with any legal requirements in the performance of its obligations under the servicing agreement. |
| (m) | To ensure that at all times the loans (including the flexible loans) comply with the terms of the CCA (to the extent that such loans are regulated by that Act or treated as such). |
The requirement for any action to be taken according to the standards of a reasonable, prudent mortgage lender is as defined in the glossary and shall be satisfied by the servicer taking the relevant action in accordance with the seller’s policy from time to time.
| Compensation of the servicer |
The servicer receives a fee for servicing the loans. The mortgages trustee pays to the servicer a servicing fee of 0.12 per cent. per annum on the aggregate outstanding amount of the Funding share of the trust property as of the preceding interest payment date. The fee is payable in arrear on each distribution date only to the extent that the mortgages trustee has sufficient funds to pay it. Any unpaid balance will be carried forward until the next distribution date and, if not paid earlier, will be payable on the final repayment date of the previous intercompany loans, the current intercompany loan and all new intercompany loans or on their earlier repayment in full by Funding.
| Removal or resignation of the servicer |
The mortgages trustee and/or Funding and the security trustee may, upon written notice to the servicer, terminate the servicer’s rights and obligations immediately if any of the following events (each a servicer termination event) occurs:
| • | the servicer defaults in the payment of any amount due and fails to remedy that default for a period of three London business days after becoming aware of the default; |
| • | the servicer fails to comply with any of its other material obligations under the servicing agreement which in the opinion of the security trustee is materially prejudicial to noteholders of the previous issuing entities, the issuing entity or any new issuing entities, respectively and does not remedy that failure within 20 days after becoming aware of the failure; |
| • | an insolvency event (as defined in the glossary) occurs in relation to the servicer; or |
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| • | neither the servicer nor a wholly owned subsidiary of the servicer is servicing the loans pursuant to the servicing agreement. |
Subject to the fulfilment of a number of conditions, the servicer may voluntarily resign by giving not less than 12 months’ notice to the mortgages trustee and the beneficiaries, provided that a substitute servicer has been appointed. The substitute servicer is required to have a management team which has experience of administering mortgages in the United Kingdom and to enter into a servicing agreement with the mortgages trustee, Funding and the security trustee substantially on the same terms as the relevant provisions of the servicing agreement. It is a further condition precedent to the resignation of the servicer that the current ratings of the issuing entity notes are not adversely affected as a result of the resignation, unless the relevant classes of noteholders otherwise agree by an extraordinary resolution.
If the appointment of the servicer is terminated, the servicer must deliver the borrower files relating to the loans and (if applicable) title deeds to, or at the direction of, the mortgages trustee. The servicing agreement will terminate when Funding no longer has an interest in the trust property.
No provision has been made in the servicing agreement or otherwise for any costs and expenses associated with the transfer of servicing to a substitute servicer, and such costs and expenses will be borne by the seller and Funding as beneficiaries of the mortgages trust. The servicing fee payable to a substitute servicer will be agreed with that substitute servicer prior to its appointment.
| Right of delegation by the servicer |
The servicer may subcontract or delegate the performance of its duties under the servicing agreement, provided that it meets particular conditions, including that:
| • | Funding and the security trustee consent to the proposed sub-contracting or delegation; and |
| • | Funding and the security trustee have no liability for any costs, charges or expenses in relation to the proposed sub-contracting or delegation. |
The consent of Funding and the security trustee referred to here will not be required in respect of any delegation to a wholly owned subsidiary of Abbey from time to time or to persons such as receivers, lawyers or other relevant professionals.
If the servicer sub-contracts or delegates the performance of its duties, it will nevertheless remain responsible for the performance of those duties to Funding, the mortgages trustee and the security trustee and, in particular, will remain liable at all times for servicing the loans and for the acts or omissions of any delegate or subcontractor.
| Actual delegation by the servicer |
On 2 May 2001 a joint venture arrangement involving two companies, Abbey National Credit and Payment Services Limited (ANCAPS) and EDS Credit Services Limited (ECSL), was set up as part of a structure whereby mortgage administration and processing services were provided to the servicer through the joint venture arrangement where these services had previously been undertaken by the servicer itself. The consent of the mortgages trustee and Funding was obtained to the delegation to the joint venture of such services.
Following Abbey’s acquisition by Banco Santander in November 2004, the joint venture arrangement with ECSL required realignment to take into account Banco Santander’s strategy, leading to a renegotiation of the arrangement with ECSL. On 3 August 2005, the joint venture structure was dismantled and ANCAPS became a wholly owned subsidiary of the servicer. The original arrangement was formally terminated and the servicer entered into a business processing outsourcing agreement (BPOA) whereby the arrangement was redefined along the model of a more traditional outsourcing arrangement. Under the BPOA, ECSL had management responsibility for ANCAPS in the provision of mortgage administration and processing services to the servicer.
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The consent of the security trustee was obtained to the entering into of the restructured arrangement and Electronic Data Systems Corporation has given Abbey an unconditional and irrevocable guarantee of ECSL’s performance of its obligations under the BPOA.
Neither the original joint venture arrangement nor the restructured arrangement affected the underwriting procedure described in “The loans – Underwriting” nor did the delegated services include managing of arrears or enforcement and handling of relevant insurance claims, both of which remain with the servicer.
In December 2006, the servicer reached an agreement with ECSL whereby the management responsibility for ANCAPS was transferred back to the servicer, with ECSL just continuing to provide IT support services under the BPOA. The BPOA was amended and restated on 1 March 2007 to reflect such change in ECSL’s responsibilities.
As ANCAPS is a wholly owned subsidiary of the servicer, there is no sub-delegation and full operational and management responsibility for ANCAPS is with Abbey.
The servicer will at all times remain primarily liable for the performance of the servicing obligations under the servicing agreement and it is not expected that any delegation of administration and processing services to ANCAPS will materially and adversely impact on the provision of the loan administration services under the servicing agreement.
| Servicer compliance |
The servicer will be required pursuant to the servicing agreement to deliver to Funding and the mortgages trustee, on or before 31 March of each year, an officer’s certificate stating that:
| • | a review of the activities of the servicer and of its performance under the servicing agreement during the preceding year has been made under the supervision of that officer, and |
| • | to the best of that officer’s knowledge, based on the review, the servicer has fulfilled all its obligations under the servicing agreement, or, if there has been a failure in the fulfilment of any obligation, specifying such failure known to that officer and the nature and status thereof. |
Any other servicer that satisfies the criteria in item 1108(a)(2) of Regulation AB will be similarly required to deliver such an officer’s certificate.
The officer’s certificate will be accompanied by a report on an assessment of compliance with the minimum servicing criteria established in item 1122(d) of Regulation AB, which include specific criteria relating to general servicing considerations, cash collection and administration, investor remittances and reporting and mortgage administration. The report will indicate that the servicing criteria were used to test compliance and will set out any material instances of non-compliance.
The servicer will also deliver with its report on assessment of compliance an attestation report from a firm of independent public accountants, prepared in accordance with the attestation engagement standards of the Public Company Accounting Oversight Board, on the assessment of compliance with the servicing criteria. This attestation report will contain the accounting firm’s opinion as to whether the related servicing criteria assessment was fairly stated in all material respects or a statement that the firm cannot express such an opinion.
These annual reports of assessment of compliance, attestation reports and statements of compliance will be filed with Funding’s annual reports on Form 10-K.
| Liability of the servicer |
The servicer will indemnify the mortgages trustee and the beneficiaries against all losses, liabilities, claims, expenses or damages incurred as a result of negligence or wilful default by the servicer in carrying out its functions or as a result of a breach of the terms of the servicing agreement. If the servicer does breach the terms of the servicing agreement and thereby causes loss to the beneficiaries, then the seller share of the trust property will be reduced by an amount equal to the loss.
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| Governing law |
The servicing agreement is governed by English law.
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ASSIGNMENT OF THE LOANS AND THEIR RELATED SECURITY
The following section contains a summary of the material terms of the mortgage sale agreement. The summary does not purport to be complete and is subject to the provisions of the mortgage sale agreement.
| Introduction |
Loans and their related security have been, and will continue to be, assigned to the mortgages trustee pursuant to the terms of a mortgage sale agreement which was originally entered into on 26 July 2000 between the seller, the mortgages trustee, the security trustee and Funding, amended on 29 November 2000 and amended and restated on 23 May 2001, 5 July 2001, 8 November 2001, 7 November 2002, 26 March 2003, 1 April 2004, 8 December 2005, on 8 August 2006 and on 28 November 2006. The mortgage sale agreement has six primary functions:
| • | it provides for the sale of loans; |
| • | it sets out the circumstances under which new loans can be added to the mortgages trust; |
| • | it provides for the equitable, beneficial and (in certain circumstances) legal assignment of the loans to the mortgages trustee; |
| • | it sets out the representations and warranties given by the seller; |
| • | it provides for the repurchase of mortgage accounts and related security which have loans (a) which are subject to a product switch or (b) in respect of which a further advance is made or (c) which cause the seller to be in breach of any of its warranties in respect of the loans; and |
| • | it provides for drawings in respect of flexible loans contained in the trust property. |
| Assignment of loans and their related security to the mortgages trustee |
Under the mortgage sale agreement, on 26 July 2000 the seller transferred by way of equitable assignment to the mortgages trustee its interest in a portfolio of loans, together with all of the related security to those loans. Further assignments of loans took place on subsequent distribution dates. Full legal assignment of the loans will be deferred until a later date, as described under “– Legal assignment of the loans to the mortgages trustee”. On the date of this prospectus, the consideration paid to the seller will have consisted of:
| • | the sum of £2,256,000,000 paid by Funding on 26 July 2000 pursuant to the terms of the mortgage sale agreement (from the proceeds of the previous intercompany loan made by Holmes Financing (No. 1) PLC) and a covenant by Funding to pay, at a later date, the deferred consideration; |
| • | the sum of £2,404,516,000 paid by Funding on 29 November 2000 pursuant to the terms of the mortgages trust deed (from the proceeds of the previous intercompany loan made by Holmes Financing (No. 2) PLC) and a covenant by Funding to pay, at a later date, the deferred consideration; |
| • | the sum of £2,167,000,000 paid by Funding on 23 May 2001 pursuant to the terms of the mortgage sale agreement (from the proceeds of the previous intercompany loan made by Holmes Financing (No. 3) PLC) and a covenant by Funding to pay, at a later date, the deferred consideration; |
| • | the sum of £2,667,000,000 paid by Funding on 5 July 2001 pursuant to the terms of the mortgages trust deed (from the proceeds of the previous intercompany loan made by Holmes Financing (No. 4) PLC) and a covenant by Funding to pay, at a later date, the deferred consideration; |
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| • | the sum of £2,479,000,000 paid by Funding on 8 November 2001 pursuant to the terms of the mortgage sale agreement (from the proceeds of the previous intercompany loan made by Holmes Financing (No. 5) PLC) and a covenant by Funding to pay, at a later date, the deferred consideration; |
| • | the sum of £3,999,221,000 paid by Funding on 7 November 2002 pursuant to the terms of the mortgages trust deed (from the proceeds of the previous intercompany loan made by Holmes Financing (No. 6) PLC) and a covenant by Funding to pay, at a later date, the deferred consideration; |
| • | the sum of £2,403,500,000 paid by Funding on 26 March 2003 pursuant to the terms of the mortgages trust deed (from the proceeds of the previous intercompany loan made by Holmes Financing (No. 7) PLC) and a covenant by Funding to pay, at a later date, the deferred consideration; |
| • | the sum of £3,983,790,310 paid by Funding on 1 April 2004 pursuant to the terms of the mortgages trust deed (from the proceeds of the previous intercompany loan made by Holmes Financing (No. 8) PLC) and a covenant by Funding to pay, at a later date, the deferred consideration; |
| • | the sum of £3,796,807,000 paid by Funding on 8 December 2005 pursuant to the terms of the mortgages trust deed (from the proceeds of the previous intercompany loan made by Holmes Financing (No. 9) PLC) and a covenant by Funding to pay, at a later date, the deferred consideration; |
| • | the sum of £3,929,390,000 paid by Funding on 8 August 2006 pursuant to the terms of the mortgages trust deed (from the proceeds of the previous intercompany loan made by Holmes Financing (No. 10) PLC) and a covenant by Funding to pay, at a later date, the deferred consideration; |
| • | the sum of £3,460,130,000 paid by Funding on 28 November 2006 pursuant to the terms of the mortgages trust deed (from the proceeds of the previous intercompany loan made by Holmes Master Issuer PLC) and a covenant by Funding to pay, at a later date, the deferred consideration; and |
| • | the promise by the mortgages trustee to hold the trust property on trust for the seller (as to the seller share) and Funding (as to the Funding share) in accordance with the terms of the mortgages trust deed. |
The deferred consideration is paid in accordance with the priority of payments set out in “Cashflows – Distribution of Funding available revenue receipts” and “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security”. Funding and the seller (as beneficiaries of the mortgages trust) are not entitled to retain any early repayment fees received by the mortgages trustee, which, upon receipt and identification by the servicer, the mortgages trustee returns to the seller.
The mortgage sale agreement provides that the seller may assign new loans and their related security to the mortgages trustee, which may have the effect of increasing or maintaining the overall size of the trust property. New loans and their related security can only be assigned if certain conditions, as described in this section, are met. The mortgages trustee will hold the new loans and their related security on trust for the seller and Funding pursuant to the terms of the mortgages trust deed. Full legal assignment or assignation (as appropriate) of the loans will be deferred until a later date, as described under “Legal assignment of the loans to the mortgages trustee”.
On the date of each relevant sale, the consideration for the assignment of the new loans and their related security (in all cases at their face value) to the mortgages trustee will consist of:
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| • | a payment by Funding to the seller of the proceeds of any new term advance borrowed from the issuing entity pursuant to the master intercompany loan agreement (or, as the case may be, the proceeds of any new term advance borrowed from any new issuing entity pursuant to a new intercompany loan agreement) and deferred consideration; and/or |
| • | the promise of the mortgages trustee to hold the trust property (including the new loans and their related security) on trust for the seller (as to the seller share) and Funding (as to the Funding share) in accordance with the terms of the mortgages trust deed. |
The assignment of new loans and their related security to the mortgages trustee will in all cases be subject to conditions, including the following conditions (which may be varied or waived by the mortgages trustee where it has received written confirmation from the rating agencies that such variation or waiver will not cause the ratings of the outstanding notes to be reduced, withdrawn or qualified), being satisfied on the relevant date of assignment (assignment date):
| (a) | each new loan complies with the loan warranties in the mortgage sale agreement at the assignment date of that new loan to the mortgages trustee; |
| (b) | the seller’s lending criteria applicable at the time of origination of the relevant new loan have been applied to the new loan and to the circumstances of the borrower at the time the new loan was made; |
| (c) | the total amount of arrears in respect of all the loans in the mortgages trust, as a percentage of the total amount of gross interest due to the mortgages trustee during the previous 12 months on all loans outstanding during all or part of that period, does not exceed 2 per cent.; Arrears for this purpose in respect of a loan on any date means the aggregate amount overdue on the loan on that date but only where the aggregate amount overdue equals or exceeds an amount equal to twice the monthly payments then due on the loan; |
| (d) | as at the relevant assignment date, the aggregate outstanding principal balance of loans in the mortgages trust, in respect of which the aggregate amount in arrears is more than three times the monthly payment then due, is less than 4 per cent. of the aggregate outstanding principal balance of loans in the mortgages trust; |
| (e) | no new loan has on the relevant assignment date an aggregate amount in arrears which is more than the amount of the monthly payment then due, and each new loan was made at least three calendar months prior to the relevant assignment date; |
| (f) | each new loan is secured by a mortgage constituting a valid and subsisting first charge by way of legal mortgage or (in Scotland) standard security over the relevant property (except in the case of some flexible loans in respect of which the mortgage constitutes valid and subsisting first and second charges by way of legal mortgage or (in Scotland) standard security over the relevant property), subject only (in appropriate cases) to registration at the Land Registry or the Registers of Scotland; |
| (g) | no outstanding principal balance on any new loan is, at the relevant assignment date, greater than £750,000; |
| (h) | for so long as amounts are owed by Funding to Holmes Financing (No. 1) PLC under the previous intercompany loan agreement made by Holmes Financing (No. 1) PLC, no new loan has a final maturity date beyond July 2038; |
| (i) | each borrower has made at least one full monthly payment in respect of the relevant new loan; |
| (j) | no event of default under the transaction documents shall have occurred which is continuing as at the relevant assignment date; |
| (k) | as at the most recent interest payment date, the principal deficiency ledger does not have a debit balance at the relevant assignment date (for a description of the principal deficiency ledger, see “Credit structure – Principal deficiency ledger”); |
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| (l) | the mortgages trustee is not aware that the purchase of the portfolio of new loans on the assignment date would adversely affect the then current ratings by Moody’s, Standard & Poor’s or Fitch of the current notes or any of them; |
| (m) | unless otherwise agreed by Moody’s, Standard and Poor’s or Fitch, as the case may be, the short-term, unsecured, unguaranteed and unsubordinated debt obligations of the seller are rated at least P-1 by Moody’s, A-1 by Standard & Poor’s and F1 by Fitch at the time of, and immediately following, the assignment of new loans to the mortgages trustee; |
| (n) | except where Funding is paying amounts to the seller with respect to any new loans to be assigned to the mortgages trustee, at least 85 per cent. of the number of loans and their related security that are in the portfolio at the expiry of any one interest period must have been in the portfolio at the beginning of that interest period; |
| (o) | the assignment of new loans on the relevant assignment date does not result in the product of the weighted average repossession frequency (WAFF) and the weighted average loss severity (WALS) for the loans constituting the mortgages trust after such purchase calculated on such assignment date in the same way as for the loans constituting the mortgages trust as at the initial closing date (or as agreed by the servicer and the rating agencies from time to time) exceeding the product of the WAFF and WALS for the loans constituting the mortgages trust calculated on the most recent previous closing date, plus 0.25 per cent.; |
| (p) | the yield on the loans in the mortgages trust together with the new loans to be assigned to the mortgages trustee on the relevant assignment date is not less than LIBOR for three-month sterling deposits plus 0.50 per cent., taking into account the average yield on the loans which are variable rate loans, tracker loans and fixed rate loans and the margins on the Funding swap and amounts standing to the credit of the second reserve fund (calculated as a percentage of the outstanding balance of the portfolio in the mortgages trust), in each case as at the relevant assignment date; |
| (q) | the assignment of new loans does not result in the Moody’s portfolio variation test value of the loans in the mortgages portfolio after such assignment, (calculated by applying the Moody’s portfolio variation test to such loans on such assignment date), exceeding the most recently determined Moody’s portfolio variation test value as calculated in relation to the mortgage loans in the mortgage portfolio as at the most recent date on which Moody’s performed a full pool analysis on the mortgages portfolio (not to be less frequent than annually) plus 0.3 per cent.; |
| (r) | the assignment of new loans on the relevant assignment date does not result in the loans (other than fixed-rate loans) with a discount of more than 0.8 per cent. to the stabilised rate as at the relevant assignment date that have more than two years remaining on their incentive period in aggregate accounting for more than 20 per cent. of the aggregate outstanding principal balance of loans constituting the trust property; |
| (s) | no assignment of new loans may occur after any interest payment date on which the issuing entity, any new issuing entity or any previous issuing entity does not exercise its option to redeem the issuing entity notes (other than pursuant to number 5.5 of the issuing entity notes (Optional redemption for tax and other reasons) or, as applicable and if specified in the relevant prospectus supplement, number 5.6 of the issuing entity notes (Optional redemption for implementation of EU Capital Requirements Directive)), that is with reference to the issuing entity’s ability to redeem the issuing entity notes on specified dates, but not to the post enforcement call option), any new notes or any previous notes issued by the issuing entity, such new issuing entity or such previous issuing entity (as the case may be) on the relevant step-up date pursuant to the terms and conditions of the US notes, those new notes or those previous notes; |
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| (t) | the first reserve fund has not been debited on or prior to the relevant assignment date for the purposes of curing a principal deficiency in respect of the outstanding BB term advances and/or the outstanding BBB term advances and/or outstanding A term advances and/or the outstanding AA term advances and where the first reserve fund has not been replenished by a corresponding amount by the relevant assignment date; and |
| (u) | if the assignment of loans to the mortgages trustee would include an assignment of types of loan products which have not previously been assigned to the mortgages trustee, the security trustee has received written confirmation from each of the rating agencies that such new types of loan products may be assigned to the mortgages trustee and that such assignment of new types of loan products would not have an adverse effect on the then current ratings by Moody’s, Standard & Poor’s or Fitch of the current notes or any of them. |
In the mortgage sale agreement, the seller has undertaken in respect of each series to use all reasonable efforts to offer to assign to the mortgages trustee, and the mortgages trustee has undertaken to use all reasonable efforts to acquire from the seller and hold in accordance with the terms of the mortgages trust deed, until the earlier of a specified interest payment date (or a later date as may be notified by Funding) and the occurrence of a trigger event, sufficient new loans and their related security so that the aggregate outstanding principal balance of loans in the mortgages trust is not less than a specified amount specified in the relevant prospectus supplement (or another amount notified by Funding to the seller). In the case of any issuance of US notes, the relevant interest payment date and minimum principal balance will be specified in the relevant prospectus supplement under the heading “Summary – The mortgages trust”. The relevant interest payment date and minimum principal balance may change at the time of any new issue of notes or as otherwise notified by Funding. However, the seller is not obliged on any distribution date to assign to the mortgages trustee, and the mortgages trustee is not obliged to acquire, new loans and their related security if, in the opinion of the seller, that assignment would adversely affect the business of the seller. If Funding enters into a new intercompany loan, then the period during which the seller covenants to use reasonable efforts to maintain the aggregate outstanding principal balance of loans in the mortgages trust at a specified level prior to a trigger event may be extended.
The seller selects the new loans in the expected portfolio, and any loans to be substituted into the expected portfolio, using an internally developed system containing defined data on each of the qualifying loans in the seller’s overall portfolio of loans available for selection. This system allows the setting of exclusion criteria, among others, corresponding to relevant representations and warranties that the seller makes in the mortgage sale agreement in relation to the loans. Once the criteria have been determined, the system identifies all loans owned by the seller that are consistent with the criteria. From this subset, loans are selected at random until the target balance for new loans has been reached, or the subset has been exhausted. After a pool of new loans is selected in this way, the constituent loans are monitored so that they continue to comply with the relevant criteria on the date of transfer.
| Legal assignment of the loans to the mortgages trustee |
The English loans in the current portfolio were assigned, and any new English loans will be assigned, to the mortgages trustee by way of equitable assignment. The transfer of the beneficial interest in the Scottish loans in the current portfolio to the mortgages trustee has been given effect by declarations of trust by the seller, and the transfer of the beneficial interest in any new Scottish loans will be given effect by further declarations of trust (and in relation to Scottish loans, references in this prospectus to the assignment of loans are in the context of an equitable assignment to read as references to the making of such declarations of trust). In each case this means that legal title to the loans and their related security remains with the seller until notice of the assignment or, in Scotland, until assignations are executed and delivered and notice of such assignation, is given by the seller to the borrowers. Legal assignment or assignation of the loans and their related security (including, where appropriate, their registration) to the mortgages trustee will remain deferred, save in the limited circumstances described in this section. See “Risk factors
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– There may be risks associated with the fact that the mortgages trustee has no legal title to the mortgages, which may adversely affect payments on the issuing entity notes” and “Risk factors – Set-off risks in relation to flexible loans, delayed cashbacks and reward cashbacks may adversely affect the funds available to the issuing entity to repay the issuing entity notes”.
Legal assignment or assignation of the loans and their related security to the mortgages trustee will be completed on the fifth London business day after the earliest of the following:
| (a) | the service of an intercompany loan enforcement notice in relation to any intercompany loan or a note enforcement notice in relation to any previous notes, the issuing entity notes or any new notes; |
| (b) | the seller being required, by an order of a court of competent jurisdiction, or by a regulatory authority of which the seller is a member or any organisation whose members comprise, but are not necessarily limited to, mortgage lenders with whose instructions it is customary for the seller to comply, to perfect legal title to the mortgages; |
| (c) | it being rendered necessary by law to take any of those actions; |
| (d) | the security under the Funding deed of charge or any material part of that security being in jeopardy and the security trustee deciding to take that action to reduce materially that jeopardy; |
| (e) | unless otherwise agreed by the rating agencies and the security trustee, the termination of the seller’s role as servicer under the servicing agreement; |
| (f) | the seller requesting that transfer by notice to the mortgages trustee, Funding and the security trustee; |
| (g) | the date on which the seller ceases to be assigned a long-term unsecured, unsubordinated debt obligation rating by Moody’s of at least Baa3 or by Standard & Poor’s of at least BBB- or by Fitch of at least BBB-; and |
| (h) | the latest of the last repayment dates of the current intercompany loan, the previous intercompany loans and any new intercompany loans. |
Pending completion of the transfer, the right of the mortgages trustee to exercise the powers of the legal owner of the mortgages has been secured by an irrevocable power of attorney granted by the seller in favour of the mortgages trustee, Funding and the security trustee.
The customer files relating to the loans and (if applicable) the title deeds are currently held by or to the order of the seller or by solicitors acting for the seller in connection with the creation of the loans and their related security. The seller has undertaken that all the title deeds and customer files relating to the loans which are at any time in its possession or under its control or held to its order be held to the order of the mortgages trustee.
| Representations and warranties |
None of the mortgages trustee, Funding, the security trustee, any previous issuing entity or the issuing entity has made or has caused to be made on its behalf any enquiries, searches or investigations in respect of the loans and their related security. Instead, each is relying entirely on the representations and warranties by the seller contained in the mortgage sale agreement. The parties to the mortgage sale agreement may, with the prior consent of the security trustee (which consent shall be given if the rating agencies confirm to it and to the issuing entity that the ratings of the notes as at that time will not be adversely affected as a result), amend the representations and warranties in the mortgage sale agreement. The material representations and warranties are as follows:
| • | each loan was originated by the seller in pounds sterling and is denominated in pounds sterling (or was originated in pounds sterling or euro, as applicable, and is denominated in euro if the euro has been adopted as the lawful currency of the United Kingdom); |
| • | no loan has an outstanding principal balance of more than £750,000; |
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| • | prior to the making of each advance under a loan, the lending criteria and all preconditions to the making of any loan were satisfied in all material respects subject only to exceptions as would be acceptable to a reasonable, prudent mortgage lender; |
| • | other than with respect to monthly payments, no borrower is or has, since the date of the relevant mortgage, been in material breach of any obligation owed in respect of the relevant loan or under the related security and accordingly no steps have been taken by the seller to enforce any related security; |
| • | the total amount of arrears of interest or principal, together with any fees, commissions and premiums payable at the same time as that interest payment or principal repayment, on any loan is not on the assignment date more than the monthly payment payable in respect of that loan in respect of the month in which that assignment date falls and has at no date in the past been more than two times the then monthly payment payable in respect of that loan; |
| • | all of the borrowers are individuals; |
| • | each borrower has made at least one monthly payment; |
| • | the whole of the outstanding principal balance on each loan and any arrears of interest and all accrued interest is secured by a mortgage; |
| • | each mortgage constitutes a valid and subsisting first charge by way of legal mortgage or (in Scotland) standard security over the relevant property, except in the case of some flexible loans in respect of which a mortgage may constitute a valid and subsisting first and second charge by way of legal mortgage or (in Scotland) standard security over the relevant property, and subject only in certain appropriate cases to applications for registrations at the Land Registry or the Registers of Scotland; |
| • | all of the properties are in England, Wales or Scotland; |
| • | not more than six months (or a longer period as may be acceptable to a reasonable, prudent mortgage lender) prior to the grant of each mortgage (excluding mortgages granted in relation to flexible loans as a result of that loan being the subject matter of a product switch to that flexible loan), the seller received a valuation report on the relevant property (or another form of valuation concerning the relevant property as would be acceptable to a reasonable, prudent mortgage lender), the contents of which were such as would be acceptable to a reasonable, prudent mortgage lender; |
| • | the benefit of all valuation reports, any other valuation report referred to in this section (if any) and certificates of title can be validly assigned to the mortgages trustee without obtaining the consent of the relevant valuer, solicitor or licensed or qualified conveyancer; |
| • | prior to the taking of each mortgage (excluding mortgages granted in relation to flexible loans as a result of that loan being the subject matter of a product switch to that flexible loan), the seller instructed its solicitor or licensed or qualified conveyancer (a) to carry out an investigation of title to the relevant property and to undertake other searches, investigations, enquiries and other actions on behalf of the seller as are set out in the “General Instructions to Solicitors” or the “CML’s Lenders’ Handbook” for England & Wales or Scotland (as applicable) contained in the standard documentation (or other comparable or successor instructions and/or guidelines as may for the time being be in place), subject only to those variations as would be acceptable to a reasonable, prudent mortgage lender or (b) in the case of a remortgage to carry out a more limited form of investigation of title for properties located in England, Wales and Scotland, in particular in the case of registered land in England and Wales (e.g. confirming that the borrower is the registered proprietor of the property and the description of the property corresponds with the entries on the Land Registry’s register) and confirming such other matters as are required by a reasonable, prudent mortgage lender; |
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| • | insurance cover for each property is or will at all relevant times be available under either a policy arranged by the borrower or an Abbey policy or a seller-introduced insurance policy or a policy arranged by the relevant landlord or the properties in possession policy; |
| • | the seller has good title to, and is the absolute unencumbered legal and beneficial owner of, all property, interests, rights and benefits agreed to be sold by the seller to the mortgages trustee under the mortgage sale agreement; |
| • | the seller has, since the making of each loan, kept or procured the keeping of full and proper accounts, books and records showing clearly all transactions, payments, receipts, proceedings and notices relating to such loan; |
| • | there are no authorisations, approvals, licences or consents required as appropriate for the seller to enter into or to perform the obligations under the mortgage sale agreement or to make the mortgage sale agreement legal, valid, binding and enforceable; and |
| • | the seller is under no obligation to make further advances or to release retentions or to pay fees or other sums relating to any loan or its related security to any borrower (other than flexible loan drawings, delayed cashbacks and/or reward cashbacks). |
| Repurchase of loans under a mortgage account |
Under the mortgage sale agreement, if a loan does not materially comply on the assignment date with the representations and warranties made under the mortgage sale agreement:
| (i) | the seller is required to remedy the breach within 20 days of the seller being given written notice of such breach by the mortgages trustee; or |
| (ii) | if the breach is not remedied within the 20-day period then, at the direction of Funding and the security trustee, the mortgages trustee will require the seller to repurchase the loan or loans under the relevant mortgage account and their related security from the mortgages trustee at a price equal to their outstanding principal balances, together with any arrears of interest and accrued interest and expenses to the date of repurchase. |
The seller is also required to repurchase the loan or loans under any mortgage account and their related security if a court, tribunal or any ombudsman makes any determination in respect of any loan and its related security that:
| (a) | any material term which relates to the recovery of interest under the standard documentation applicable to that loan and its related security is unfair; or |
| (b) | the treatment of any borrower in relation to the interest payable by that borrower under any loan is unfair; or |
| (c) | the interest payable under any loan is to be set by reference to the Abbey SVR (and not that of its successors or assigns or those deriving title from them) and at any time on or after the determination the Abbey SVR shall be below or shall fall below the SVR set by those successors or assigns or those deriving title from them; or |
| (d) | the variable margin under any tracker loan must be set by the seller (rather than by its successors or assigns or those deriving title from them); or |
| (e) | the interest payable under any loan is to be set by reference to an interest rate other than that set or purported to be set by either the servicer or the mortgages trustee as a result of the seller having more than one variable mortgage rate; or |
| (f) | a borrower should be or should have been offered the opportunity to switch to an interest rate other than that required by the servicer or the mortgages trustee for that borrower as a result of the seller having more than one variable rate; or |
| (g) | there has been a breach of or non-observance or non-compliance with any obligation, undertaking, covenant or condition on the part of the seller relating to the interest payable by or available to a borrower under any loan. |
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If the seller fails to pay the consideration due for the repurchase (or otherwise fails to complete the repurchase), then the seller share of the trust property shall be deemed to be reduced by an amount equal to that consideration.
| Drawings under flexible loans |
The seller is solely responsible for funding all future drawings in respect of flexible loans contained in the trust property. The amount of the seller’s share of the trust property will increase by the amount of the drawing.
| Product switches and further advances |
If a loan is subject to a product switch or an offer of a further advance, then the seller is required to repurchase the loan or loans under the relevant mortgage account and the related security from the mortgages trustee at a price equal to their aggregate outstanding principal balances together with any arrears of interest and accrued interest and expenses to the date of purchase.
A loan will be subject to a product switch if the borrower and the seller agree or the servicer issues an offer of, and the borrower accepts, a variation in the financial terms and conditions applicable to the relevant borrower’s loan other than:
| • | any variation agreed with a borrower to control or manage arrears on that loan; |
| • | any variation in the maturity date of the loan unless, while the previous intercompany loan made by Holmes Financing (No. 1) PLC is outstanding, it is extended beyond July 2038; |
| • | any variation imposed by statute; |
| • | any variation of the principal available and/or the rate of interest payable in respect of that loan where that rate is offered to the borrowers of loans which constitute more than 10 per cent. by outstanding principal amount of the loans comprising the trust property in any interest period; or |
| • | any variation in the frequency with which the interest payable in respect of the loan is charged. |
For these purposes only, a loan is subject to a further advance if an existing borrower requests a further amount to be lent to him or her under the mortgage in circumstances where the seller has discretion to make that further amount available to the relevant borrower and it grants that request. However, any drawings pursuant to a flexible loan shall not be a further advance for these purposes.
| Reasonable, prudent mortgage lender |
References in the documents to the seller and/or the servicer acting to the standard of a reasonable, prudent mortgage lender mean the seller and/or the servicer, as applicable, acting in accordance with the seller’s policy from time to time.
| Governing law |
The mortgage sale agreement is governed by English law (other than certain aspects relating to the Scottish loans and their related security, which are governed by Scots law).
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THE MORTGAGES TRUST
The following section contains a summary of the material terms of the mortgages trust deed. The summary does not purport to be complete and is subject to the provisions of the mortgages trust deed.
| General legal structure |
The mortgages trust was formed under English law with the mortgages trustee as trustee for the benefit of the seller and Funding as beneficiaries. The mortgages trust was formed for the financings of the previous issuing entities and the issuing entity, for the financings described in this prospectus and for the financings of new issuing entities and new funding entities. This section describes the material terms of the mortgages trust, including how money is distributed from the mortgages trust to Funding and the seller.
If new issuing entities are established or a new funding entity becomes a beneficiary of the mortgages trust (subject to the agreement of the seller and Funding) or new types of loans are added to the mortgages trust, then the terms of the mortgages trust will be amended. Such amendments may affect the timing of payments on the issuing entity notes. The prior consent of noteholders will not be sought in relation to any of the proposed amendments to the mortgages trust deed, provided (amongst other things) that the rating agencies confirm that the ratings of the outstanding notes will not be adversely affected by such amendments. There can be no assurance that the effect of any such amendments will not ultimately adversely affect your interests.
Under the terms of the mortgages trust deed, the mortgages trustee holds all the trust property on trust absolutely for Funding (as to Funding’s share) and for the seller (as to the seller’s share). The trust property is:
| • | the sum of £100 settled by Wilmington Trust SP Services (London) Limited on trust on the date of the mortgages trust deed; |
| • | the current portfolio of loans and their related security assigned to the mortgages trustee by the seller; |
| • | new loans and their related security assigned to the mortgages trustee by the seller after the date of this prospectus; |
| • | any drawings under flexible loans; |
| • | any interest and principal paid by borrowers on their loans; |
| • | any other amounts received under the loans and related security excluding third party amounts; and |
| • | amounts on deposit (and interest earned on those amounts) in the mortgages trustee GIC account and in the alternative accounts |
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| • | any actual losses in relation to the loans and any actual reductions occurring in respect of the loans as described in paragraph (a) in “– Funding share of the trust property”; and |
| • | distributions of principal made from time to time to the beneficiaries of the mortgages trust. |
Funding is not entitled to particular loans and their related security separately from the seller; rather each of them has an undivided interest in all of the loans and their related security constituting the trust property. Each of Funding and the seller have a pro rata beneficial interest, according to the Funding share and the seller share respectively, in the trust property.
The relevant prospectus supplement will set out approximately Funding’s share of the trust property and the seller’s share of the trust property as at the relevant closing date.
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| Fluctuation of the Funding’s share/ seller’s share of the trust property |
Funding’s share and the seller’s share of the trust property fluctuates depending on a number of factors including:
| • | the allocation of principal receipts on the loans to Funding and/or the seller; |
| • | losses arising on the loans; |
| • | if new loans and their related security are assigned to the mortgages trustee; |
| • | if Funding acquires part of the seller’s share of the trust property from the seller (as described under “– Acquisition by Funding of a further interest in the trust property”); |
| • | if a borrower makes a drawing under a flexible loan; |
| • | if a borrower makes underpayments or takes payment holidays under a flexible loan; |
| • | if the seller’s share must be adjusted as a result of a borrower exercising a right of set-off in relation to a loan, the seller failing or being unable to repurchase a loan in circumstances when it is required to do so under the mortgage sale agreement, or the seller materially breaching any other obligation or warranty in the mortgage sale agreement or (whilst it is the servicer) the servicing agreement (as described under “– Funding share of the trust property”); and |
| • | if the seller acquires part of Funding’s share of the trust property, as described in “– Acquisition by the seller of a further interest in the trust property”. |
The Funding share and the seller share are recalculated by the cash manager on each distribution date. A distribution date is the eighth day (or, if not a London business day, the next succeeding London business day) of each month and any other date on which Funding acquires a further interest in the trust property and/or the mortgages trustee acquires new loans from the seller. The recalculation is based on the total outstanding principal balance of the loans in the trust property as at the relevant distribution date. The period from (and including) one distribution date, to (but excluding) the next distribution date, is known as a distribution period.
The reason for the recalculation is to determine the new percentage shares of Funding and the seller in the trust property. The percentage share that each of Funding and the seller has in the trust property determines their entitlement to interest and principal receipts from the loans in the trust property and also the allocation of losses arising on the loans. The method for determining those new percentage shares is set out in the next two sections.
| Funding share of the trust property |
On each distribution date and the date when the mortgages trust terminates (each case also referred to in this section as the relevant distribution date), the interest of Funding in the trust property is recalculated in accordance with the following formula:
| • | The current share of Funding in the trust property is an amount equal to: |
A-B-C+D+E+F
| • | The current percentage share of Funding in the trust property is an amount equal to: |
(A-B-C+D+E+F) x 100
G
in the latter case expressed as a percentage and rounded upwards to five decimal places,
where:
| A | = | the amount of the share of Funding in the trust property on the immediately preceding distribution date; |
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| B | = | the amount of any principal receipts on the loans to be distributed to Funding on the relevant distribution date (as described under “– Mortgages trust allocation and distribution of principal receipts prior to the occurrence of a trigger event” and “– Mortgages trust allocation and distribution of principal receipts and retained principal receipts after the occurrence of a trigger event”); |
| C | = | the amount of losses sustained on the loans in the period from the last distribution date to the relevant distribution date and allocated to Funding in the distribution period ending on the relevant distribution date according to Funding’s percentage share at the previous distribution date; |
| D | = | the amount of any consideration (excluding deferred consideration) to be paid by Funding to the seller with respect to any new loans assigned to the mortgages trustee on the relevant distribution date; |
| E | = | the amount of any consideration (excluding deferred consideration) paid by Funding to the seller in relation to the acquisition by Funding from the seller on the relevant distribution date of an interest in the trust property; |
| F | = | the amount equal to Funding’s share of any capitalised interest accruing on a flexible loan due to borrowers taking payment holidays or making underpayments since the last distribution date less the amount to be paid by the seller to Funding on the relevant distribution date in an amount up to but not exceeding Funding’s share of that capitalised interest as described in “– Acquisition by the seller of a further interest in the trust property”; and |
| G | = | the amount of the retained principal receipts (as defined below) (if any) plus the aggregate outstanding principal balance of all the loans in the trust property as at the relevant distribution date including after making the distributions, allocations and additions referred to in “B”, “C”, “D”, “E” and “F”, taking account of (a) any distribution of principal receipts to Funding and the seller, (b) the amount of any losses allocated to Funding and the seller, (c) any increase in the loan balances due to borrowers taking payment holidays and/or making underpayments under flexible loans, (d) the adjustments referred to in paragraphs (a) to (e) below and (e) the amount of any other additions or subtractions to the trust property. |
If any of the following events occurs during a distribution period, then the aggregate total outstanding principal balance of the loans in the trust property is reduced or deemed to be reduced for the purposes of the calculation of “G”:
| (a) | any borrower exercises a right of set-off so that the amount of principal and interest owing under a loan is reduced but no corresponding payment is received by the mortgages trustee. In this event, the aggregate outstanding principal balance of the loans in the trust property is reduced by an amount equal to the amount of that set-off; and/or |
| (b) | a loan or its related security is (i) in breach of the loan warranties contained in the mortgage sale agreement or (ii) the subject of a product switch or further advance or other obligation of the seller to repurchase, and in each case the seller fails to repurchase the loan or loans under the relevant mortgage account and their related security to the extent required by the terms of the mortgage sale agreement. In this event, the aggregate outstanding principal balance of the loans in the trust property is deemed to be reduced for the purposes of the calculation in “G” by an amount equal to the outstanding principal balance of the relevant loan or loans under the relevant mortgage account (together with arrears of interest and accrued interest); and/or |
| (c) | the seller would be required to repurchase a loan and its related security as required by the terms of the mortgage sale agreement, but the loan is not capable of being repurchased. In this event, the aggregate outstanding principal balance of the loans in the trust property is deemed to be reduced for the purposes of the calculation in “G” by |
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| an amount equal to the outstanding principal balance of the relevant loan or loans under the relevant mortgage account (together with arrears of interest and accrued interest); and/or |
| (d) | the seller materially breaches any other obligation or warranty under the mortgage sale agreement and/or (for so long as the seller is the servicer) the servicing agreement, which is also grounds for terminating the appointment of the servicer. In this event, the aggregate outstanding principal balance of the loans in the trust property is deemed to be reduced by an amount equal to the resulting loss incurred by the beneficiaries; and/or |
| (e) | the seller share of the mortgages trustee revenue receipts is less than the loss amount payable to the mortgages trustee and/or Funding. In this event, the trust property is deemed to be reduced for the purposes of the calculation in “G” by an amount equal to the shortfall in the loss amount. The “loss amount” means any costs, losses or other claims suffered by the mortgages trustee and/or Funding as a result of any of the matters listed at (C) to (I) (inclusive) in “Assignment of the loans and their related security – Repurchase of loans under a mortgage account” and where such costs, losses or other claims are in connection with any recovery of interest on the loans to which the seller, the mortgages trustee or Funding was not entitled or could not enforce. |
The reductions set out in paragraphs (a) to (e) are made to the seller’s share of the trust property only.
Any subsequent recoveries in respect of loans which have been subject to a set-off (as set out in paragraph (a)) belong to the seller (and to the extent received by the mortgages trustee will be returned to the seller).
| Seller share of the trust property |
The current share of the seller in the trust property is an amount equal to:
the total amount of trust property – current Funding share
The current percentage share of the seller in the trust property is an amount equal to:
100% – current Funding percentage share
Neither the Funding share nor the seller share of the trust property may be reduced below zero.
| Minimum seller share |
The seller’s share of the trust property includes an amount known as the minimum seller share. The relevant prospectus supplement will set out the approximate minimum seller share. The amount of the minimum seller share fluctuates depending on changes to the characteristics of the loans in the trust property. The seller is not entitled to receive principal receipts which would reduce the seller share of the trust property to an amount less than the minimum seller share unless and until the Funding share of the trust property is zero or an asset trigger event has occurred. The minimum seller share is the amount determined on each distribution date in accordance with the following formula:
W+X+Y+Z+AA
where:
| W | = | 100 per cent. of the aggregate cleared credit balances of all savings accounts opened in respect of flexible plus loans in the trust property; |
| X | = | 4.0 per cent. of the aggregate outstanding principal balance of loans in the trust property; |
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| Y | = | the product of p, q and r where: |
| p | = | 8.0 per cent.; |
| q | = | the flexible draw capacity, being an amount equal to the excess of (a) the maximum amount that borrowers may draw under flexible loans included in the trust property (whether or not drawn) over (b) the aggregate principal balance of actual flexible loan advances in the trust property on the relevant distribution date; and |
| r | = | 3; |
| Z | = | the aggregate sum of reductions deemed made (if any) in accordance with paragraphs (b), (c) and (d) as described in “– Funding share of the trust property”; and |
| AA | = | the aggregate entitlement of borrowers to receive reward cashbacks and delayed cashbacks in respect of the remaining life of the reward loans in the trust property. |
The purpose of X is to mitigate the risks relating to the loans (see “Risk factors – There may be risks associated with the fact that the mortgages trustee has no legal title to the mortgages, which may adversely affect payments on the issuing entity notes”). The amount of X may be varied from time to time at the request of the seller or Funding (acting reasonably) provided that the security trustee has received written confirmation from the rating agencies that there will be no adverse effect on the then current ratings of the notes as a result thereof. The purpose of Y is to mitigate the risk of the seller failing to fund a drawing under a flexible loan. The purpose of Z is to mitigate the risk of the seller not repurchasing loans where the interest rate is set lower than the Abbey SVR. The purpose of AA is to mitigate the risk of the seller failing to pay a reward cashback or a delayed cashback.
| Cash management of trust property – revenue receipts |
Under the cash management agreement, the cash manager is responsible for distributing revenue receipts on behalf of the mortgages trustee on each distribution date in accordance with the order of priority described in the following section. For further information on the role of the cash manager, see “Cash management for the mortgages trustee and Funding”.
| Mortgages trust application of revenue receipts |
Mortgages trust available revenue receipts is calculated by the cash manager two London business days prior to each distribution date and is an amount equal to the sum of:
| • | revenue receipts on the loans (but excluding principal receipts); and |
| • | interest payable to the mortgages trustee on the mortgages trustee GIC account and on the alternative accounts; |
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| • | amounts due to third parties (also known as third party amounts) including: |
| (a) | payments of high loan-to-value fees due to the seller; |
| (b) | amounts under a direct debit which are repaid to the bank making the payment if that bank is unable to recoup that amount itself from its customer’s account; |
| (c) | payments by borrowers of early repayment fees and other charges which are due to the seller; or |
| (d) | recoveries in respect of loans which have been subject to a set-off as described in paragraph (a) of “Funding Share of the trust property”, |
| which amounts may be paid daily from monies on deposit in the mortgages trustee GIC account or, as applicable, the alternative accounts. |
On each distribution date, the cash manager will apply mortgages trust available revenue receipts in the following order of priority:
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| (a) | in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to: |
| • | the mortgages trustee under the provisions of the mortgages trust deed; and |
| • | third parties from the mortgages trustee in respect of the mortgages trust but only if: |
| (i) | payment is not due as a result of a breach by the mortgages trustee of the documents to which it is a party; and/or |
| (ii) | payment has not already been provided for elsewhere; |
| (b) | in payment of amounts due to the servicer or to become due to the servicer during the following distribution period under the provisions of the servicing agreement; and |
| (c) | in no order of priority between them but in proportion to the respective amounts due, to allocate and pay the remaining mortgages trust available revenue receipts to: |
| • | Funding in an amount determined by multiplying the total amount of the remaining mortgages trust available revenue receipts by Funding’s percentage share of the trust property (as determined on the prior distribution date); and |
| • | the seller in an amount equal to the mortgages trust available revenue receipts remaining after determining Funding’s share of the mortgages trust available revenue receipts. |
Amounts due to the mortgages trustee and the servicer are inclusive of VAT. At the date of this prospectus, VAT is calculated at the rate of 17.5 per cent. of the amount to be paid.
| Cash management and allocation of trust property – principal receipts |
Under the cash management agreement, the cash manager is also responsible for allocating and distributing principal receipts on behalf of the mortgages trustee on each distribution date in accordance with the order of priority described in the next two following sections. The cash accumulation period (as defined below) will be calculated separately for each bullet term advance and for each series 1 term AAA cash amount. To understand how the cash manager distributes principal receipts on the loans on each distribution date you need to understand the following definitions:
| anticipated cash accumulation period means (a) the anticipated number of months required to accumulate sufficient principal receipts to pay the relevant bullet amount or (b) the anticipated number of months required to accumulate sufficient principal receipts to set aside the relevant series 1 term AAA cash amount which, in each case, is equal to: |
J+K-L
---------
M x N x (O-P)
calculated in months and rounded up to the nearest whole number, where:
| J | = | (a) the relevant bullet amount (as defined later in this section) or (b) the relevant series 1 term AAA cash amount (as defined later in this section); |
| K | = | (a) the aggregate outstanding principal balance of any bullet amount and/or scheduled amortisation amount that was not fully repaid on its scheduled repayment date, plus any other bullet amount and/or scheduled amortisation amount the scheduled repayment date of which falls on or before the scheduled repayment date of the relevant bullet amount; or (b) the aggregate amount outstanding of any series 1 term AAA cash amount that was not set aside in full on the interest payment date on which it was due to be set aside plus any other series 1 term AAA cash amount the relevant interest payment date of which falls on or before the relevant interest payment date of the relevant series 1 term AAA cash amount; |
| L | = | the amount of any available cash already standing to the credit of the cash accumulation ledger; |
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| M | = | the principal payment rate (as defined later in this section); |
| N | = | 0.90; |
| O | = | the aggregate outstanding principal balance of the loans comprising the trust property; and |
| P | = | the principal amount outstanding of any pass-through outstanding term advance (and, as the case may be, any new term advance which is a pass-through term advance) which is then due and payable. |
| An asset trigger event will occur when an amount is debited to the AAA principal deficiency sub-ledger of Funding. For more information on the principal deficiency ledger, see “Credit structure – Principal deficiency ledger”. |
| cash accumulation ledger is a ledger maintained by the cash manager for Funding, which records the amount accumulated by Funding to be set aside as a series 1 term AAA cash amount on the relevant interest payment date in the cash accumulation sub-ledger for the relevant issuing entity and/or to pay the amounts due on the relevant bullet term advances and/or, as applicable, the scheduled amortisation advances. |
| cash accumulation sub-ledger is a sub-ledger of such name on the cash accumulation ledger in the name of the relevant issuing entity, which records any series 1 term AAA cash amount in relation to such issuing entity on the relevant interest payment dates. |
| cash accumulation period means the period beginning on the earlier of: |
| • | the commencement of the anticipated cash accumulation period; and |
| • | four months prior to the scheduled repayment date of the relevant bullet amount and/or four months prior to the interest payment date on which the relevant series 1 term AAA cash amount is to be set aside by Funding but, in the case of each series 1 term AAA cash amount, if the portfolio CPR falls below 15 per cent., such period shall be extended to eight months or such shorter period prior to the interest payment date on which such series 1 term AAA cash amount is to be set aside by Funding, |
| and ending when Funding has accumulated an amount equal to the relevant bullet amount for payment to the relevant issuing entity (as shown on the cash accumulation ledger) and/or an amount equal to the relevant series 1 term AAA cash amount (as recorded on the cash accumulation sub-ledger for the relevant issuing entity). |
| A non-asset trigger event will occur if: |
| (a) | an insolvency event occurs in relation to the seller; |
| (b) | the seller’s role as servicer is terminated and a new servicer is not appointed within 60 days; |
| (c) | on the distribution date immediately succeeding a seller share event distribution date, the current seller share is equal to or less than the minimum seller share (determined using the amounts of the current seller share and minimum seller share that would exist after making the distributions of the principal receipts due on that distribution date on the basis that the cash manager assumes that those principal receipts are distributed in the manner described under “– Mortgages trust allocation and distribution of principal receipts prior to the occurrence of a trigger event”); or |
| (d) | on the distribution date immediately succeeding a seller share event distribution date, the aggregate outstanding principal balance of loans comprising the trust property on such distribution date is less than the required loan balance amount in effect at that time. The required loan balance amount in effect at the time of an offering of US notes will be set forth in the relevant prospectus supplement under the heading “Summary – Non-asset trigger event”. The required loan balance amount may change at the time of any new issue of notes. |
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| The terms of the asset trigger event and the non-asset trigger event may be amended without your prior consent following entry by Funding into a new intercompany loan agreement. A change in these terms may affect the timing of payments on the issuing entity notes. |
| payment rate date is the eighth day (or, if not a London business day, the next succeeding London business day) of each month. |
| payment rate period is the period from and including a payment rate date to but excluding the next payment rate date. |
| principal payment rate means the average monthly rolling principal payment rate on the loans for the 12 months immediately preceding the relevant distribution date, calculated on each payment rate date. The principal payment rate is calculated by: |
| • | dividing (a) the aggregate principal receipts received in relation to the loans in the portfolio during the payment rate period ending on the payment rate date which is the same as or, if not the same, immediately preceding, the relevant distribution date by (b) the aggregate outstanding principal balance of the loans on the previous payment rate date; |
| • | aggregating the result of the foregoing calculation with the results of the equivalent calculation made on or for each of the eleven most recent prior distribution dates during the relevant twelve month period; and |
| • | dividing the aggregated result by 12. |
| relevant bullet amount means, in relation to a bullet term advance, the relevant bullet amount specified in the relevant prospectus in relation to the related series and class (or sub-class) of previous notes and, (in the case of the issuing entity notes) the amount specified as the relevant bullet amount in the relevant prospectus supplement. |
| scheduled amortisation amount means, in relation to a scheduled amortisation term advance, the scheduled amortisation amounts in relation to the related series and class (or sub-class) of previous notes and, in the case of the issuing entity notes, the amount specified as the scheduled amortisation amount in the relevant prospectus supplement. |
| scheduled amortisation period means the period commencing on the distribution date falling 3 months prior to the scheduled repayment date of a scheduled amortisation amount, and which ends on the date that an amount equal to the relevant scheduled amortisation amount has been accumulated by Funding. |
| scheduled repayment date means, in respect of a term advance, the interest payment date(s) specified in the relevant prospectus or (in the case of the issuing entity notes) the relevant prospectus supplement and term advance supplement for the scheduled repayment of principal. |
| seller share event will occur if, on a distribution date, (a) either (i) the result of the calculation of the current seller share on that distribution date would be equal to or less than the minimum seller share for such distribution date (determined using the amounts of the current seller share and the minimum seller share that would exist after making the distributions of principal receipts due on that distribution date on the basis that the cash manager assumes that those principal receipts are distributed in the manner described under “– Mortgages trust allocation and distribution of principal receipts prior to the occurrence of a trigger event”) or (ii) the aggregate outstanding principal balance of loans comprising the trust property on such distribution date is less than the required loan balance amount in effect at that time and (b) neither of the events described in (a) above has occurred on the immediately preceding distribution date. The required loan balance amount in effect at the time of an offering of US notes will be set forth in the relevant prospectus supplement under the heading “Summary – Non-asset trigger event and seller share event”. The required loan balance amount may change at the time of any new issue of notes. |
| seller share event distribution date is a distribution date on which a seller share event occurs. |
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| series 1 term AAA cash amount means the cash amount to be accumulated and set aside by Funding in relation to a term advance related to series 1 class A notes, which is recorded in the cash accumulation sub-ledger of the relevant issuing entity. |
| trigger event means an asset trigger event and/or a non-asset trigger event. |
| Mortgages trust allocation and distribution of principal receipts prior to the occurrence of a trigger event |
Prior to the occurrence of a trigger event, the mortgages trustee will allocate and distribute or (as the case may be) retain and reinvest principal receipts on each distribution date as follows:
| (a) | after making the distributions referred to in paragraphs (b), (c), (d), (e) and (f) below, all principal receipts will be allocated and paid to the seller in an amount up to but not exceeding the seller share of the trust property at that time less the minimum seller share; |
| (b) | to distribute to Funding an amount equal to the aggregate of (i) the amounts required to replenish the first reserve fund to the extent that amounts have been drawn from the first reserve fund to make scheduled repayments of principal and (ii) to the extent that there is a shortfall in the Funding liquidity reserve required amount, an amount equal to the shortfall; |
| (c) | after making the distributions in (b) above from and including the start of a cash accumulation period, all principal receipts will be allocated and paid to Funding, provided that amounts shall only be distributed to the extent that the Funding share of the trust property does not as a result of such distribution fall below zero, until an amount equal to the relevant bullet amount or the relevant series 1 term AAA cash amount has been or will have been accumulated by Funding, as shown on the cash accumulation ledger and on the relevant cash accumulation sub-ledger, as applicable; |
| (d) | after making the distributions in (b) and (c) above, the cash manager on behalf of the mortgages trustee shall allocate and distribute principal receipts to Funding in a scheduled amortisation period in an amount equal to the scheduled amortisation amount due on the relevant scheduled amortisation term advance on the immediately succeeding interest payment date, provided that amounts shall only be distributed to the extent that the Funding share of the trust property does not as a result of such distribution fall below zero; |
| (e) | after making the distributions in (b), (c) and (d) above, from and including the date when amounts are or will become outstanding on the next following interest payment date in respect of one or more pass-through term advances that are due and payable (the payable pass-through term advances) under an intercompany loan, ignoring for these purposes the deferral of repayment of any term BB advance, any term BBB advance, any term A advance and any term AA advance, then the aggregate amount of the following amounts in respect of each intercompany loan under which such payable pass-through term advances arise shall be allocated and distributed to Funding until all of such payable pass-through term advances are fully repaid or will on the next following interest payment date be fully repaid. The amounts referred to above shall be determined in respect of each intercompany loan advanced by the issuing entity, any previous issuing entity or any new issuing entity to Funding which then comprises a payable pass-through term advance (intercompany loan X) and shall be: |
| (i) | prior to the occurrence of any option to redeem the notes (other than pursuant to number 5.5 of the notes (Optional redemption for tax and other reasons) or, as applicable and if specified in the relevant prospectus supplement, number 5.6 of the notes (Optional redemption for implementation of EU Capital Requirements Directive) or pursuant to the post enforcement call option) related to such intercompany loan X, the outstanding principal balance of each payable pass-through term advance forming part of such intercompany loan X; and |
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| (ii) | after the occurrence of any option to redeem the notes (other than pursuant to number 5.5 of the notes (Optional redemption for tax and other reasons) or, as applicable and if specified in the relevant prospectus supplement, number 5.6 of the notes (Optional redemption for implementation of EU Capital Requirements Directive) or pursuant to the post enforcement call option) related to such intercompany loan X, an amount calculated as follows: |
| outstanding principal balance of intercompany loan agreement X Funding share percentage x principal receipts x ----------------- aggregate outstanding principal balance of all intercompany loans |
| (but in each case, taking into account any amounts available to Funding in the Funding principal ledger to make such payments), and provided always that amounts shall only be distributed to the extent that the Funding share of the trust property does not as a result of such distribution fall below zero; and |
| (f) | after making the distributions in (b), (c), (d) and (e), if such distribution date is a seller share event distribution date then the cash manager shall, on behalf of the mortgages trustee, retain and reinvest the remaining balance of the principal receipts (the retained principal receipts) by deposit in the mortgages trustee GIC account and make a corresponding credit to the principal ledger and, where such distribution date is not a seller share event distribution date, any retained principal receipts shall be paid to the seller. |
If Funding borrows new intercompany loans, then the terms of the mortgages trust, including the provisions regarding the way in which the mortgages trustee distributes principal receipts, may change.
| Mortgages trust allocation and distribution of principal receipts and retained principal receipts after the occurrence of a trigger event |
On each distribution date after the occurrence of an asset trigger event, all principal receipts plus an amount equal to the current retained principal receipts (if any) will be allocated and distributed by the cash manager, on behalf of the mortgages trustee, as follows:
| (a) | if the immediately preceding distribution date was a seller share event distribution date, an amount equal to the retained principal receipts to Funding until the Funding share of the trust property is zero; and then |
| (b) | with no order of priority between them but in proportion to the respective amounts due, to Funding and the seller according to the Funding percentage share of the trust property and the seller percentage share of the trust property respectively, until the Funding share of the trust property is zero. When the Funding share of the trust property is zero, the remaining principal receipts (if any) will be allocated to the seller. |
On each distribution date after the occurrence of a non-asset trigger event but prior to the occurrence of an asset trigger event, all principal receipts will be allocated and paid to Funding until the Funding share of the trust property is zero.
Following the occurrence of a non-asset trigger event but prior to the occurrence of an asset trigger event, the issuing entity notes will be subject to prepayment risk (that is, they may be repaid earlier than expected). Following the occurrence of an asset trigger event, the class A notes may not be repaid in full by their respective final maturity dates. See “Risk factors – The yield to maturity of the issuing entity notes may be adversely affected by prepayments or redemptions on the loans”.
| Losses |
All losses arising on the loans are applied in reducing proportionately the Funding share and the seller share of the trust property. Funding’s share and the seller’s share of the losses are determined by multiplying the amount of losses during a distribution period by the Funding share
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percentage, which are allocated to Funding (until the Funding share of the trust property is zero), and the remainder, which are allocated to the seller, on each distribution date.
| Disposal of trust property |
The trust property is held on trust for the benefit of Funding and the seller. Subject to the terms of the mortgages trust deed, the mortgages trustee is not entitled to dispose of the trust property or create any security interest over the trust property.
If an event of default occurs under any intercompany loan agreement (an intercompany loan event of default) and the security trustee enforces the security granted by Funding over its assets, including its share of the trust property, then the security trustee is entitled, among other things, to sell Funding’s share of the trust property. For further information on the security granted by Funding over its assets, see “Security for Funding’s obligations”.
| Additions to the trust property |
The trust property may be increased from time to time by the assignment of new loans and their related security to the mortgages trustee. The mortgages trustee will hold the new loans and their related security on trust for Funding and the seller according to the terms of the mortgages trust deed. For further information on the assignment of new loans and their related security to the mortgages trustee, see “Assignment of the loans and their related security”.
| Acquisition by Funding of a further interest in the trust property |
On not more than 60 nor less than 30 days’ written notice, Funding may offer to make a payment to the seller in consideration for an increase in Funding’s share of the trust property on a distribution date specified in that notice, with the effect that Funding’s share of the trust property shall increase and the seller’s share of the trust property shall correspondingly decrease. Funding is permitted to do this only if it meets a number of conditions, including:
| • | no intercompany loan event of default has occurred under any intercompany loan agreement that has not been remedied or waived; |
| • | as at the most recent interest payment date, no deficiency is recorded on Funding’s principal deficiency ledger (which remains outstanding); |
| • | the security trustee is not aware that the increase in the Funding share of the trust property (or the corresponding decrease in the seller share of the trust property) would adversely affect the then current ratings by the rating agencies of the outstanding notes; |
| • | as at the relevant distribution date, the aggregate outstanding principal balance of loans constituting the trust property, in respect of which the aggregate amount in arrears is more than three times the monthly payment then due, is less than 5 per cent. of the aggregate outstanding principal balance of all loans constituting the trust property; |
| • | unless otherwise agreed by Moody’s, Standard and Poor’s or Fitch, as the case may be, the short-term, unsecured, unguaranteed and unsubordinated debt obligations of the seller are rated at least P-1 by Moody’s, A-1 by Standard & Poor’s and F1 by Fitch at the time of, and immediately following, the payment made by Funding on the relevant distribution date; and |
| • | the product of the weighted average repossession frequency (WAFF) and the weighted average loss severity (WALS) for the loans constituting the trust property calculated on the relevant distribution date in the same way as for the initial portfolio (or as agreed by the servicer and the rating agencies from time to time) does not exceed the product of the WAFF and WALS for the loans constituting the trust property calculated on the most recent previous closing date, plus 0.25 per cent. |
| Acquisition by the seller of a further interest in the trust property |
If a borrower takes a payment holiday or makes an underpayment in respect of interest pursuant to the terms of a flexible loan, then the outstanding principal balance of the flexible loan will increase by, in the case of a payment holiday, the amount of interest that would have been
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paid on the relevant loan if not for such payment holiday and, in the case of an underpayment, the excess of the amount of interest that would have been paid on the relevant loan if not for such underpayment over the reduced amount of interest paid by the borrower (in each case, the capitalised interest).
The increase in the loan balance as a result of the capitalised interest will be allocated to the Funding share of the trust property and to the seller share of the trust property, based on their respective percentage shares in the trust property as calculated on the previous distribution date.
Prior to an insolvency event occurring in respect of the seller, on each distribution date, the seller will make a cash payment to Funding in an amount equal to Funding’s share of the capitalised interest in respect of those loans that are subject to payment holidays or underpayments. Following such payment:
| • | the seller share of the trust property will increase by an amount equal to the amount paid to Funding for Funding’s share of the capitalised interest, and Funding’s share of the trust property will decrease by a corresponding amount; and |
| • | Funding will apply the proceeds of the amount paid by the seller in accordance with the Funding pre-enforcement revenue priority of payments and, after enforcement of the Funding security, in accordance with the Funding post enforcement priority of payments. |
If an insolvency event occurs in respect of the seller, then the seller may acquire from Funding its share of the capitalised interest in the same manner and for the same purpose described above, but it is not obliged to do so.
| Payment by the seller to Funding of the amount outstanding under an intercompany loan |
If the seller offers to make a payment to Funding of the amount outstanding under a term advance that forms part of an intercompany loan, then Funding may accept that offer but only if:
| • | either: |
| (a) | the aggregate outstanding principal balance of the relevant term advance under an intercompany loan is less than 10 per cent. of the principal balance of that term advance immediately after it was drawn by Funding; or |
| (b) | (i) the issuing entity or a previous issuing entity would be required to deduct or withhold from any payment of principal or interest or any other amount under any of the issuing entity notes or the previous notes (as the case may be) any amount for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature or (ii) Funding would be required to deduct or withhold from amounts due under an intercompany loan any amount on account of any present or future taxes, duties, assessments or governmental charges of whatever nature and the issuing entity or that previous issuing entity (as the case may be) is not able to arrange the substitution of a company incorporated in another jurisdiction approved by the relevant note trustee or previous note trustee (as the case may be) as principal debtor under the relevant issuing entity notes or previous notes (as the case may be) or as lender under the relevant intercompany loan agreement, as the case may be; or |
| (c) | the issuing entity, or a previous issuing entity, has delivered a certificate to Funding, the issuing entity security trustee or the relevant previous issuing entity security trustee and the rating agencies to the effect that it would be unlawful for the issuing entity or that previous issuing entity (as the case may be) to make, fund or allow that term advance to remain outstanding and stating that that the issuing entity or that previous issuing entity (as the case may be) requires Funding to prepay that term advance; or |
| (d) | (in relation to the previous intercompany loans made by Holmes Financing (No. 7) PLC and Holmes Financing (No. 8) PLC only) the new Basel Capital Accord (as described in the consultative document “The New Basel Capital Accord” published in April 2003 by the Basel Committee on Banking Supervision and in |
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| their further consultative documents) has been implemented in the United Kingdom, whether by the rule of law, recommendation of best practice or by any other regulation, no note enforcement notice has been served and the seller has given not less than 30 and not more than 60 days notice of the offer by the seller to be made on or after the interest payment date falling in April 2007; or |
| (e) | (in relation to each intercompany loan made by the issuing entity under the master intercompany loan agreement) the new Basel Capital Accord (as described in the consultative document “The New Basel Capital Accord” published on 14 July 2004 by the European Commission) has been implemented in the United Kingdom, whether by the rule of law, recommendation of best practice or by any other regulation, no note enforcement notice has been served and Funding has given not less than 30 and not more than 60 days notice to the note trustee and the issuing entity, but only if so specified with respect to the corresponding issuing entity notes; |
| • | the security trustee has received written confirmation from each of the rating agencies that there would not be any adverse effect on the then current ratings of the outstanding notes if Funding accepted the offer; |
| • | Funding would receive the payment on a distribution date; and |
| • | the relevant issuing entity has confirmed to Funding that the proceeds of the corresponding payment made by Funding to the relevant issuing entity would be applied to repay the relevant intercompany loan and the relevant issuing entity has exercised its right to prepay the corresponding series of notes in these circumstances. |
The Funding share of the trust property would decrease by an amount equal to the payment made by the seller and the seller share would increase by a corresponding amount.
| Termination of mortgages trust |
The mortgages trust will terminate on the later to occur of:
| • | the date on which all amounts due from Funding under all the intercompany loan agreements have been repaid in full; and |
| • | any other date agreed in writing by Funding and the seller. |
| Retirement of mortgages trustee |
The mortgages trustee is not entitled to retire or otherwise terminate its appointment. The seller and Funding covenant not to replace the mortgages trustee.
| Governing law |
The mortgages trust deed is governed by English law.
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THE MASTER INTERCOMPANY LOAN AGREEMENT
The following section contains a summary of the material terms of the master intercompany loan agreement. The summary does not purport to be complete and is subject to the provisions of the master intercompany loan agreement.
| The facility |
Pursuant to the terms of the master intercompany loan agreement, the issuing entity will lend to Funding from time to time on the relevant closing date for each issue an aggregate amount in sterling equal to the proceeds of the issue of such issuing entity notes.
For the purposes of this prospectus, each such advance of funds will be divided into separate term advances which together shall constitute an intercompany loan under the master intercompany loan agreement. Each intercompany loan will be divided into one or more term advances. Each such term advance under the master intercompany loan agreement will relate to a particular series and class (or sub-class) of issuing entity notes. The intercompany loan relating to the particular issue being issued on the relevant closing date of the relevant prospectus supplement is referred to as the current intercompany loan. The term advance supplement to the master intercompany loan agreement will contain the terms of each term advance. Funding will use the proceeds of each term advance under the master intercompany loan agreement to:
| • | pay the seller part of the consideration for loans (together with their related security) sold by the seller to the mortgages trustee in connection with the relevant issue by the issuing entity and the making of the relevant term advances to Funding, which will result in an increase in the amount of the trust property and a corresponding adjustment to the value of the Funding share of the trust property and the value of the seller share of the trust property; |
| • | acquire part of the seller’s share of the trust property (such payment to be made to the seller which will result in a corresponding decrease of the seller’s share of the trust property and a corresponding increase in Funding’s share of the trust property); |
| • | fund or replenish the first reserve fund; and/or |
| • | make a payment to the issuing entity or to a previous issuing entity or to a new issuing entity to refinance an existing term advance. |
| Ratings designations of the term advances |
The AAA term advances reflect the ratings expected to be assigned to the corresponding class A notes by the rating agencies on the relevant closing date, except that AAA term advances may correspond to money market notes rated at least A-1+/P-1/F-1+. The AA term advances reflect the rating expected to be assigned to the class B notes by the rating agencies on the relevant closing date. The A term advances reflect the rating expected to be assigned to the class M notes by the rating agencies on the relevant closing date. The BBB term advances reflect the rating expected to be assigned to the class C notes by the rating agencies on the relevant closing date. The BB term advances reflect the rating expected to be assigned to the class D notes by the rating agencies on the relevant closing date. If, after any closing date, the rating agencies subsequently change the ratings assigned to a series and class (or sub-class) of the issuing entity notes, then this will not affect the designated ratings of the term advances under the master intercompany loan.
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| Conditions to drawdown |
The issuing entity may make new term advances to Funding and issue corresponding series and classes (or sub-classes) of issuing entity notes from time to time without obtaining the consent of existing noteholders. The issuing entity will not be obliged to make the new term advances available to Funding unless the issuing entity security trustee is satisfied on the relevant closing date that a number of conditions have been met, including:
| • | that the corresponding series and class (or sub-class) of issuing entity notes have been issued and the proceeds received by or on behalf of the issuing entity; |
| • | that Funding has delivered a certificate certifying that it is solvent; and |
| • | that each of the transaction documents has been duly executed by the relevant parties to them. |
| Representations and agreements |
Funding will make several representations to the issuing entity in the master intercompany loan agreement including representations that Funding has been duly incorporated and that it has the requisite corporate power and authority to enter into the transaction documents to which it is a party.
In addition, Funding will agree that:
| • | it will not create or permit to subsist any encumbrance, unless arising by operation of law, or other security interest over any of its assets other than pursuant to the transaction documents; |
| • | it will not carry on any business or engage in any activity whatsoever which is not incidental to or necessary in connection with any of the activities in which the transaction documents provide or envisage that Funding will engage; |
| • | it will not have any subsidiaries, any subsidiary undertakings, both as defined in the Companies Act 1985 as amended, or any employees or premises; |
| • | it will not transfer, sell, lend, part with or otherwise dispose of all or any of its assets, properties or undertakings or any interest, estate, right, title or benefit therein other than as contemplated in the transaction documents; |
| • | it will not pay any dividend or make any other distribution to its shareholders, other than in accordance with the Funding deed of charge, and it will not issue any new shares; |
| • | it will not incur any indebtedness in respect of any borrowed money or give any guarantee in respect of any indebtedness or of any obligation of any person whatsoever other than indebtedness contemplated by the transaction documents; and |
| • | it will not enter into any amalgamation, demerger, merger or reconstruction, nor acquire any assets or business nor make any investments other than as contemplated in the transaction documents. |
| Payments of interest |
The interest rate applicable to the term advances made under the master intercompany loan from time to time will be determined (other than, in each case, in respect of the first period) by reference to LIBOR for three-month sterling deposits or, for some term advances, such other sterling LIBOR rate as may be specified in the applicable term advance supplement plus or minus, in each case, a margin which may differ for each separate term advance. LIBOR for an interest period will be determined on the relevant interest determination date. The relevant prospectus supplement sets out details of the interest payment dates and payment of interest on the term advances under the intercompany loan relating to the series and class (or sub-class) of issuing entity notes issued.
In addition, Funding will agree to pay an additional fee to the issuing entity on each interest payment date or otherwise when required. The fee on each interest payment date will be equal to the amount needed by the issuing entity to pay or provide for other amounts falling due, if any, to
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be paid to its creditors (other than amounts of interest and principal due on the issuing entity notes and tax that can be met out of the issuing entity’s profits) and a sum (in amount up to 0.02 per cent. of the interest paid to the issuing entity on the term advances on each interest payment date) to be retained by the issuing entity as profit. The fee will be paid by Funding out of the Funding available revenue receipts.
| Repayment of principal on the term advances |
The term advances under the master intercompany loan agreement will be repaid on the dates and in the priorities described in “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security”.
Deferral of payments on BB term advances, BBB term advances, A term advances and AA term advances when losses are recorded on respective principal deficiency ledgers and in other circumstances
If:
| • | a principal loss has been recorded on the principal deficiency ledger in respect of any of the BB term advances, the BBB term advances, the A term advances or the AA term advances (whether in respect of a term advance under the current intercompany loan, any previous intercompany loan or any new intercompany loan); or |
| • | monies standing to the credit of the first reserve fund have been used, on or prior to the relevant interest payment date, to cure a principal deficiency in respect of the BB term advances and/or the BBB term advances and/or the A term advances and/or the AA term advances (whether in respect of a term advance under the current intercompany loan, any previous intercompany loan or any new intercompany loan), and the first reserve fund has not been replenished by a corresponding amount on the relevant interest payment date; or |
| • | as at the relevant interest payment date, the total outstanding principal balance of loans in the mortgages trust, in respect of which the aggregate amount in arrears is more than three times the monthly payment then due, is more than 5 per cent. of the total outstanding principal balance of loans in the mortgages trust, |
then the BB term advances, the BBB term advances, the A term advances, and, as applicable, the AA term advances will not be entitled to principal repayments (i) until the relevant circumstance as described in the preceding bulleted list has been cured or otherwise ceases to exist; or (ii) unless no AAA term advances are outstanding.
| Limited recourse |
Funding will only be obliged to pay amounts to the issuing entity in respect of any term advance under the master intercompany loan agreement to the extent that it has funds to do so after making payments ranking in priority to amounts due on the term advances.
If, on the final repayment date of a term advance under the master intercompany loan, there is a shortfall between the amount of interest and/or principal due on that term advance and the amount available to Funding to make that payment, then that shortfall shall not be due and payable to the issuing entity until the time (if ever) when Funding has enough money available to pay the shortfall on that term advance (after making any other payments due that rank higher in priority to that advance).
If, on the final repayment date of an intercompany loan, unless otherwise specified in the relevant term advance supplement, there is a shortfall between the amount required to pay all outstanding interest and/or principal on the AA term advances, and/or the A term advances and/or the BBB term advances and/or the BB term advances constituting that intercompany loan and the amount available to Funding to make the relevant payments, then the shortfall shall be deemed to be not due and payable under the relevant intercompany loan agreement and any claim that the issuing entity may have against Funding in respect of that shortfall will be extinguished.
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| Master intercompany loan events of default |
The master intercompany loan agreement will contain events of default (each a master intercompany loan event of default), which will include, among others, the following events:
| • | a default by Funding for a period of three London business days in the payment of any amount payable under any intercompany loan agreement (whether any previous intercompany loan agreement, the master intercompany loan agreement or any new intercompany loan agreement) (but subject to the limited recourse provisions described later in this section and in “– Limited recourse”); |
| • | Funding does not comply in any material respect with its obligations under the transaction documents (other than non-payment as set out in the preceding paragraph) and that non-compliance, if capable of remedy, is not remedied promptly and in any event within twenty London business days of Funding becoming aware of its non-compliance or of receipt of notice from the security trustee requiring Funding’s non-compliance to be remedied; and |
| • | insolvency related events occur in relation to Funding or it is, or becomes, unlawful for Funding to perform its obligations under any of the transaction documents. |
Investors should note that, as described in “– Limited recourse”, it will not be an event of default under an intercompany loan agreement (whether any previous intercompany loan agreement, the master intercompany loan agreement or any new intercompany loan agreement) if default is made by Funding in paying amounts due under the intercompany loan agreement where Funding does not have the money available to make the relevant payment. The ability of the issuing entity to repay each series and class (or sub-class) of issuing entity notes will depend upon payments to the issuing entity from Funding under the corresponding term advances pursuant to the master intercompany loan agreement. See “Risk factors – Failure by Funding to meet its obligations under the master intercompany loan agreement would adversely affect payments on the issuing entity notes”.
Investors should also note that an event of default by Funding in respect of any previous intercompany loan or any new intercompany loan or any agreement entered into by Funding in connection with that previous intercompany loan or new intercompany loan, will constitute an event of default under the current intercompany loan.
If a master intercompany loan event of default occurs, then the security trustee will be entitled to deliver a notice to Funding stating that a master intercompany loan event of default has occurred (a master intercompany loan enforcement notice). Upon the service of a master intercompany loan enforcement notice, the security trustee may direct that the term advances become immediately due and payable and/or that the term advances become due and payable on the demand of the security trustee.
| New intercompany loan agreements with new issuing entities |
New issuing entities may be established by Holdings for the purpose of issuing new notes to investors and using the proceeds thereof to make new intercompany loans to Funding. The issuance of new notes by a new issuing entity and the making of the related new intercompany loan will only be permitted if certain conditions are satisfied, including, among others, that the then current ratings of the issuing entity notes outstanding at that time will not, as a result of the new issuing entity issuing any new notes, be adversely affected.
See “Risk factors – If Funding enters into new intercompany loan agreements with new issuing entities, then the new term advances may rank ahead of the current term advances as to payment, and accordingly new notes may rank ahead of the issuing entity notes as to payment”, “Risk factors – New issuing entities and new start-up loan providers will share in the same security granted by Funding to the issuing entity, and this may adversely affect payments on the issuing entity notes”, and “Risk factors – The previous issuing entities, the Funding swap provider and the start-up loan provider already share in the security being granted by Funding to the issuing entity, which may adversely affect payments on the issuing entity notes”.
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| Funding’s bank accounts |
Funding maintains two bank accounts in its name (managed by the cash manager) with Abbey. These are:
| (a) | the Funding GIC account: the reserve funds (including the Funding liquidity reserve fund and the Funding reserve fund) are credited to this account and on each distribution date Funding’s share of the mortgages trust available revenue receipts and any distribution of principal receipts to Funding under the mortgages trust are initially deposited in this account. On each interest payment date, amounts required to meet Funding’s obligations to its various creditors are, with the consent of the security trustee, transferred to the Funding transaction account; and |
| (b) | the Funding transaction account: on each interest payment date, monies standing to the credit of the Funding GIC account are, with the consent of the security trustee, transferred to the Funding transaction account and applied by the cash manager in accordance with the relevant order of priority of payments. Amounts representing Funding’s profits are retained in the Funding transaction account. |
If collateral is posted by the Funding swap provider under the Funding swap agreement, Funding shall open a new account in its name, subject to the terms of the Funding swap agreement, called the Funding collateral account into which the collateral will be deposited. See “The swap agreements – Ratings downgrade of swap providers”.
The accounts referred to above are currently maintained or to be maintained with the account bank but may be required to be transferred to an alternative bank in certain circumstances, including if the short-term, unguaranteed and unsecured ratings ascribed to the account bank fall below A-1+ (or in the circumstances described below, A-1) by Standard & Poor’s, F1 by Fitch and P-1 by Moody’s. So long as the relevant deposit amount is less than 30 per cent. of the amount of the Funding share in the trust property, then the short-term, unguaranteed and unsecured rating required to be ascribed to the account bank by Standard & Poor’s shall be at least A-1. Such a transfer is not required despite such a downgrade if the account bank: (i) procures that an entity with the required rating becomes a co-obligor in respect of the obligations of the account bank; (ii) procures that an entity with the required rating provides a guarantee of the obligations of the account bank; or (iii) takes such other actions to ensure that the rating assigned to the outstanding notes is not adversely affected by the ratings downgrade, in each case provided that the then current ratings of the outstanding notes shall not be adversely affected by each or any of the above actions.
| Governing law |
The master intercompany loan agreement is governed by English law.
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SECURITY FOR FUNDING’S OBLIGATIONS
Funding has granted security for its obligations under the master intercompany loan agreement (and the other transaction documents to which it is a party) by entering into the Funding deed of charge with the security trustee, the cash manager, the account bank, the seller, the corporate services provider, the previous issuing entities, the Funding swap provider and the start-up loan provider. The issuing entity has entered into a deed of accession to the Funding deed of charge which means that it shares in the security granted by Funding under the Funding deed of charge. In addition, if Funding enters into new intercompany loan agreements with new issuing entities, then the new issuing entities (together with any new start-up loan providers), will enter into deeds of accession in relation to the Funding deed of charge. This means that they will also share in the security granted by Funding under the Funding deed of charge with the existing Funding secured creditors.
The Funding deed of charge has seven primary functions:
| • | it sets out the covenants of Funding; |
| • | it creates security in favour of the security trustee which the security trustee then administers on trust for each of the Funding secured creditors (including secured creditors that accede to the Funding deed of charge in connection with new term advances made by the issuing entity or by a new issuing entity under a new intercompany loan); |
| • | it sets out the order in which the cash manager applies money received by Funding prior to enforcement of the security; |
| • | it sets out the enforcement procedures relating to a default by Funding on its covenants under the transaction documents (including provisions relating to the appointment of a receiver); |
| • | it sets out the order in which the security trustee applies money received by Funding following the enforcement of the security; |
| • | it sets out the appointment of the security trustee, its powers and responsibilities and the limitations on those responsibilities; and |
| • | it sets out how new creditors of Funding can accede to the terms of the Funding deed of charge. |
The following section contains a summary of the material terms of the Funding deed of charge. The summary does not purport to be complete and is subject to the provisions of the Funding deed of charge.
| Covenants of Funding |
The Funding deed of charge contains covenants made by Funding in favour of the security trustee on trust for the benefit of itself, any receiver of Funding and the other Funding secured creditors. The main covenants are that Funding will pay all amounts due to each of the Funding secured creditors as they become due (subject to the limited recourse provisions) and that it will comply with its other obligations under the transaction documents to which it is or will be a party.
| Funding security |
Under the Funding deed of charge, Funding creates the following security (also known as the Funding security) for and on behalf of the Funding secured creditors in respect of its obligations under the intercompany loans outstanding at any one time and the other transaction documents to which it is or will be a party:
| • | a first ranking fixed charge (which may take effect as a floating charge) over the Funding share of the trust property; |
| • | an assignment by way of first ranking fixed security of all of its rights and interest in the transaction documents to which Funding is a party from time to time; |
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| • | a charge by way of first fixed charge (which may take effect as a floating charge) of the rights and benefits of Funding in the Funding GIC account, the Funding transaction account, all amounts standing to the credit of those accounts and all authorised investments purchased from those accounts; |
| • | with regard to all of Funding’s assets located in England and Wales or governed by English law, a first ranking floating charge over all the assets and the undertaking of Funding not otherwise secured by any fixed charge detailed here; and |
| • | with regard to all of Funding’s assets located in Scotland or governed by Scots law, a first ranking floating charge. |
| Nature of security – fixed charge |
Funding may not deal with those of its assets which are subject to a fixed charge without the consent of the security trustee. Accordingly, Funding is not permitted to deal with the assets which are expressed to be subject to a fixed charge in its ordinary course of business. In this way, the security is said to “fix” over those assets which are expressed to be subject to a fixed charge (being the charges described in the first three bullet points in this section).
| Nature of security – floating charge |
Unlike the fixed charges, the floating charge does not attach to specific assets but instead “floats” over a class of assets which may change from time to time, allowing Funding to deal with those assets and to give third parties title to those assets free from any encumbrance in the event of sale, discharge or modification, provided those dealings and transfers of title are in the ordinary course of Funding’s business. Any of Funding’s assets, whether currently held or acquired after the relevant closing date (including assets acquired as a result of the disposition of any other asset of Funding), which are not subject to the fixed charges mentioned in this section and all of its Scottish assets are subject to the floating charge.
The Funding deed of charge was created prior to 15 September 2003. Accordingly, the prohibition in section 72A of the Insolvency Act on the appointment of an administrative receiver under floating charges created after that date will not apply to any appointment made pursuant to the Funding deed of charge.
The existence of the floating charge allows the security trustee to appoint an administrative receiver of Funding and thereby prevent the appointment of an administrator or receiver of Funding by one of Funding’s other creditors. Therefore, in the event that enforcement proceedings are commenced in respect of amounts due and owing by Funding, the security trustee will always be able to control those proceedings in the best interests of the Funding secured creditors. However, see “Risk factors – Changes of law may adversely affect your interests” relating to potential prohibition on appointment of administrative receivers.
The interest of the Funding secured creditors in property and assets over which there is a floating charge only will rank behind the expenses of any liquidation or any administration and the claims of certain other preferential creditors on enforcement of the Funding security. Section 250 of the Enterprise Act abolishes crown preference in relation to all insolvencies and thus reduces the categories of preferential debts that are to be paid in priority to debts due to the holder of a floating charge but a new Section 176A of the Insolvency Act (as inserted by Section 251 of the Enterprise Act) requires a “prescribed part” (up to a maximum amount of £600,000) of the floating charge realisations available for distribution to be set aside to satisfy the claims of unsecured creditors. This means that the fees and expenses of any administration and preferential creditors will be paid out of the proceeds of enforcement of the floating charge ahead of amounts due to the issuing entity under the master intercompany loan agreement. Again, see “Risk factors – Changes of law may adversely affect your interests” relating to the introduction of enhanced rights for unsecured creditors in respect of floating charge recoveries.
The floating charge created by the Funding deed of charge may crystallise and become a fixed charge over the relevant class of assets owned by Funding at the time of crystallisation. Crystallisation will occur automatically following the occurrence of specific events set out in the Funding deed of charge, including, among other events, notice to Funding from the security trustee
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following an intercompany loan event of default except in relation to Funding’s Scottish assets, where crystallisation will occur on the appointment of an administrative receiver or upon the commencement of the winding up of Funding. A crystallised floating charge will rank ahead of the claims of unsecured creditors but will continue to rank behind the claims of preferential creditors (as referred to in this section) on enforcement of the Funding security.
| Funding pre-enforcement priority of payments |
The Funding deed of charge sets out the order of priority of distribution by the cash manager, as at the closing date and prior to the enforcement of the Funding security, of amounts standing to the credit of the Funding transaction account on each interest payment date. This order of priority is described in “Cashflows – Distribution of Funding available revenue receipts” and “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding Security or the occurrence of a trigger event or enforcement of the issuing entity security”.
| Following the creation of new intercompany loan agreements with new issuing entities |
If any new issuing entities are established to issue new notes and accordingly to make new term advances to Funding, such new issuing entities (together with any new start-up loan providers) will enter into deeds of accession or supplemental deeds in relation to the Funding deed of charge which may, depending on the type of new notes to be issued, require amendments, among other things, to the Funding pre-enforcement revenue priority of payments, the Funding pre-enforcement principal priority of payments and the Funding post enforcement priority of payments to reflect the amounts due to the new issuing entity and any new start-up loan provider. The ranking of those new amounts due will be as follows:
| • | subject to the rules regarding the application of principal receipts by Funding (see “Cashflows – Distribution of Funding available principal receipts prior to enforcement of the Funding Security or the occurrence of a trigger event or enforcement of the issuing entity security – Rules for application of Funding available principal receipts and Funding principal receipts”), all amounts due and payable to the previous issuing entities, the issuing entity and any new issuing entity will be paid, subject to their relevant repayment dates, in descending order of the respective ratings of their term advances so the term advance with the highest term advance rating will be paid first and the term advance with the lowest term advance rating will be paid last; and |
| • | all start-up loan providers will rank in no order of priority between them but in proportion to the respective amounts due to them. |
| Enforcement |
The Funding deed of charge sets out the general procedures by which the security trustee may take steps to enforce the security created by Funding so that the security trustee can protect the interests of each of the Funding secured creditors.
The Funding deed of charge requires the security trustee to consider the interests of each of the Funding secured creditors as to the exercise of its powers, trusts, authorities, duties and discretions, but requires the security trustee in the event of a conflict between the interests of the previous issuing entities, the issuing entity and any new issuing entities and the interests of any other Funding secured creditors, to consider only, unless stated otherwise, the interests of the previous issuing entities, the issuing entity and any new issuing entities. As among the previous issuing entities, the issuing entity and any new issuing entities, the security trustee will exercise its rights under the Funding deed of charge only in accordance with the directions of the previous issuing entities, the issuing entity and/or the new issuing entity(s) with the highest-ranking term advance ratings. If the previous issuing entities, the issuing entity and/or any new issuing entities with term advances of equal ratings give conflicting directions, then the security trustee will act in accordance with the directions of the previous issuing entities, the issuing entity or new issuing entity (or two or more of them if in agreement) whose aggregate principal amount outstanding of
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its/their highest-ranking term advances is the greatest. In all cases, the security trustee will only act if it is indemnified to its satisfaction.
The Funding security will become enforceable upon the service of an intercompany loan enforcement notice under any intercompany loan, provided that, if the Funding security has become enforceable otherwise than by reason of a default in payment of any amount due on any of the term advances, the security trustee will not be entitled to dispose of all or part of the assets comprised in the Funding security unless either:
| • | a sufficient amount would be realised to allow a full and immediate discharge of all amounts owing in respect of the AAA term advances – including the AAA term advances made under the previous intercompany loans, the current intercompany loan and any new intercompany loans (or, once these AAA term advances have been repaid, the term advances with the next highest term advance rating, and so on); or |
| • | the security trustee is of the opinion that the cashflow expected to be received by Funding will not (or that there is a significant risk that it will not) be sufficient, having regard to any other relevant actual, contingent or prospective liabilities of Funding, to discharge in full over time all amounts owing in respect of the AAA term advances – including the AAA term advances made under the previous intercompany loans, the current intercompany loan and any new intercompany loans (or, once these AAA term advances have been repaid, the term advances with the next highest term advance rating, and so on). |
Each of the Funding secured creditors will agree under the Funding deed of charge that they will not take steps directly against Funding for any amounts owing to them, unless the security trustee has become bound to enforce the Funding security but has failed to do so within 30 days of becoming so bound.
| Funding post enforcement priority of payments |
The Funding deed of charge sets out the order of priority of distribution as at the relevant closing date of each issue by the security trustee, following service of an intercompany loan enforcement notice, of amounts received or recovered by the security trustee or a receiver appointed on its behalf. This order of priority is described in “Cashflows – Distribution of Funding principal receipts and Funding revenue receipts following enforcement of the Funding security”.
| Following the creation of new intercompany loan agreements with new issuing entities |
Any deeds of accession will amend the Funding post enforcement priority of payments to reflect the amounts due to the new issuing entity and any new start-up loan provider or any other relevant creditor that has acceded to the terms of the Funding deed of charge.
| Appointment, powers, responsibilities and liabilities of the security trustee |
The security trustee is appointed to act as trustee on behalf of the Funding secured creditors on the terms and conditions of the Funding deed of charge. It holds the benefit of the security created by the Funding deed of charge on trust for each of the Funding secured creditors in accordance with the terms and conditions of the Funding deed of charge.
The Funding Deed of Charge provides that the security trustee may agree amendments or modifications to any of the transaction documents:
| • | which in the opinion of the security trustee it may be expedient to make, provided that the security trustee is of the opinion acting reasonably, that such modifications will not be materially prejudicial to the interests of the Funding secured creditors or, if it is not of that opinion in relation to any Funding secured creditors, such Funding secured creditor has given its written consent to such modifications; |
| • | which in the opinion of the security trustee are made to correct a manifest error or are of a formal, minor or technical nature; or |
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| • | provided that the rating agencies confirm that as a result of such modification there will not be any adverse effect on the then current ratings by the rating agencies of any series or class (or sub-class) of notes. |
If any new funding entity is established, then the security trustee may agree to changes to the transaction documents to enable the inclusion of such new funding entity as a beneficiary of the mortgages trust, and the prior consent of noteholders will not be obtained in relation to those modifications, provided that the rating agencies confirm that the inclusion of the new funding entity as a beneficiary of the mortgages trust would not adversely affect the existing ratings of any series or class (or sub-class) of notes.
| The security trustee’s fees and expenses |
Funding shall reimburse the security trustee for all its costs and expenses properly incurred in acting as security trustee. The security trustee is entitled to a fee payable quarterly in the amount agreed from time to time by the security trustee and Funding. Funding has agreed to indemnify the security trustee and each of its officers, employees and advisers from and against all claims, actions, proceedings, demands, liabilities, losses, damages, costs and expenses arising out of or in connection with:
| • | the transaction documents; or |
| • | the security trustee’s engagement as security trustee, |
which it or any of its officers, employees or advisers may suffer.
Funding is not responsible under the Funding deed of charge for any liabilities, losses, damages, costs or expenses resulting from fraud, negligence, wilful misconduct or breach of the terms of the Funding deed of charge by the security trustee or any of its officers or employees.
| Retirement and removal |
Subject to the appointment of a successor security trustee, the security trustee may retire after giving three months’ notice in writing to Funding.
Funding may remove the security trustee at any time provided that it has the consent, which must not be unreasonably withheld or delayed, of each of the other Funding secured creditors to the removal.
In addition, the security trustee may, subject to conditions specified in the Funding deed of charge, appoint a co-trustee to act jointly with it.
| Additional provisions of the Funding deed of charge |
The Funding deed of charge contains a range of provisions regulating the scope of the security trustee’s duties and liabilities. These include the following:
| • | the security trustee will, if reasonably practicable, give prior notification to the seller of the security trustee’s intention to enforce the Funding security (although any failure to so notify will not prejudice the ability of the security trustee to enforce the Funding security); |
| • | the security trustee is not responsible for the adequacy or enforceability of the Funding deed of charge or any other transaction document; |
| • | the security trustee is not required to exercise its powers under the Funding deed of charge without being directed to do so by the issuing entity, the previous issuing entities, any new issuing entities or the other Funding secured creditors; |
| • | the security trustee may rely on documents provided by the mortgages trustee, Funding and the cash manager and the advice of consultants and advisors; |
| • | the security trustee is not required to monitor whether an intercompany loan event of default under any intercompany loan has occurred or compliance by Funding with the transaction documents; |
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| • | the security trustee will be taken not to have knowledge of the occurrence of an intercompany loan event of default under any intercompany loan unless the security trustee has received notice from a Funding secured creditor stating that an intercompany loan event of default has occurred and describing that intercompany loan event of default; |
| • | the security trustee has no duties or responsibilities except those expressly set out in the Funding deed of charge or the transaction documents; |
| • | any action taken by the security trustee under the Funding deed of charge or any transaction document binds all of the Funding secured creditors; |
| • | each Funding secured creditor must make its own independent investigations, without reliance on the security trustee, as to the affairs of Funding and whether or not to request that the security trustee take any particular course of action under any transaction document; |
| • | the security trustee and its affiliates may engage in any kind of business with Funding or any of the Funding secured creditors as if it were not security trustee and may receive consideration for services in connection with any transaction document or otherwise without having to account to the Funding secured creditors; |
| • | the security trustee has no liability under or in connection with the Funding deed of charge or any other transaction document, whether to a Funding secured creditor or otherwise, other than to the extent to which (a) the liability is able to be satisfied in accordance with the Funding deed of charge out of the property held by it on trust under the Funding deed of charge and (b) it is actually indemnified for the liability. This limitation of liability does not apply to a liability of the security trustee to the extent that it is not satisfied because there is a reduction in the extent of the security trustee’s indemnification as a result of its fraud, negligence or wilful misconduct or breach of the terms of the Funding deed of charge; and |
| • | the security trustee is not responsible for any deficiency which may arise because it is liable to tax in respect of the proceeds of security. |
The security trustee has had no involvement in the preparation of any part of this prospectus, other than any particular reference to the security trustee. The security trustee expressly disclaims and takes no responsibility for any other part of this prospectus. The security trustee makes no statement or representation in this prospectus, has not authorised or caused the issue of any part of it and takes no responsibility for any part of it. The security trustee does not guarantee the performance of the issuing entity notes or the payment of principal or interest on the issuing entity notes.
| Governing law |
The Funding deed of charge is governed by English law.
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SECURITY FOR THE ISSUING ENTITY’S OBLIGATIONS
The issuing entity has granted security for its obligations by entering into the issuing entity deed of charge with the issuing entity secured creditors.
The issuing entity deed of charge has six primary functions:
| • | it sets out covenants of the issuing entity; |
| • | it creates security for the issuing entity security trustee which the issuing entity security trustee then administers on trust for each of the issuing entity secured creditors (including secured creditors that accede to the issuing entity deed of charge in connection with future series and classes (or sub-classes) of issuing entity notes); |
| • | it sets out the enforcement procedures relating to a default by the issuing entity of its covenants under the transaction documents (including the appointment of a receiver); |
| • | it sets out the order in which the issuing entity security trustee applies monies standing to the credit of the transaction accounts following the enforcement of the issuing entity security; |
| • | it sets out the appointment of the issuing entity security trustee, its powers and responsibilities and the limitations on those responsibilities; and |
| • | it sets out how creditors of the issuing entity can accede to the terms of the issuing entity deed of charge. |
The following section contains a summary of the material terms of the issuing entity deed of charge. The summary does not purport to be complete and is subject to the provisions of the issuing entity deed of charge.
| Covenants of the issuing entity |
The issuing entity deed of charge contains covenants made by the issuing entity in favour of the issuing entity security trustee on trust for the benefit of itself, any receiver of the issuing entity and the issuing entity secured creditors. The main covenants are that the issuing entity will pay all amounts due to each of the issuing entity secured creditors as they become due (subject to applicable deferral provisions) and that it will comply with its other obligations under the transaction documents.
| Issuing entity security |
Under the issuing entity deed of charge, the issuing entity creates the following security in respect of its obligations under the issuing entity notes and the other transaction documents to which it is or will be a party:
| • | an assignment and charge by way of first fixed security of the issuing entity’s rights under the transaction documents to which it is a party, including the master intercompany loan agreement, the Funding deed of charge, the issuing entity swap agreements, the issuing entity paying agent and agent bank agreement, the underwriting agreement, subscription agreement, the issuing entity corporate services agreement, the issuing entity bank account agreement, the issuing entity cash management agreement and the trust deed; |
| • | a charge by way of first fixed charge (which may take effect as a floating charge) of the issuing entity’s right, title and interest and benefit in the transaction accounts and any amounts deposited in them; |
| • | a charge by way of first fixed charge (which may take effect as a floating charge) of the issuing entity’s right, title, interest and benefit in all authorised investments made by or on behalf of the issuing entity, including all monies and income payable under them; |
| • | with regard to all of the issuing entity’s assets located in England or Wales or governed by English law a first ranking floating charge over the issuing entity’s business and assets not already charged under the fixed charges described here; and |
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| • | with regard to all of the issuing entity’s assets located in Scotland or governed by Scots law a first ranking floating charge (all of the assets subject to fixed charges as listed above being wholly governed by English law). |
| Nature of security – fixed charge |
The issuing entity may not deal with those of its assets which are subject to a fixed charge without the consent of the issuing entity security trustee. Accordingly, the issuing entity will not be permitted to deal in its ordinary course of business with the assets which are expressed to be subject to a fixed charge. In this way, the security is said to “fix” over those assets which are expressed to be subject to a fixed charge (being the charges described in the first three bullet points in this section).
| Nature of security – floating charge |
Unlike the fixed charges, the floating charge does not attach to specific assets but instead “floats” over a class of assets which may change from time to time, allowing the issuing entity to deal with those assets and to give third parties title to those assets free from any encumbrance in the event of sale, discharge or modification, provided those dealings and transfers of title are in the ordinary course of the issuing entity’s business. Any assets acquired by the issuing entity after the relevant closing date (including assets acquired as a result of the disposition of any other assets of the issuing entity) which are not subject to fixed charges described in the preceding section and all of its Scottish assets will also be subject to the floating charge.
The existence of the floating charge allows the issuing entity security trustee to appoint an administrative receiver of the issuing entity and thereby prevent the appointment of an administrator or receiver of the issuing entity by one of the issuing entity’s other creditors. Therefore, in the event that enforcement proceedings are commenced in respect of amounts due and owing by the issuing entity, the issuing entity security trustee should be able to control those proceedings in the best interest of the issuing entity secured creditors. However, see “Risk factors – Changes of law may adversely affect your interests” relating to the appointment of administrative receivers.
The interests of the issuing entity secured creditors in property and assets over which there is a floating charge will rank behind the expenses of any liquidation or any administration and the claims of certain preferential creditors on enforcement of the issuing entity security. This means that the expenses of any liquidation or any administration and preferential creditors will be paid out of the proceeds of enforcement of the floating charge ahead of amounts due to the noteholders. Section 250 of the Enterprise Act abolishes crown preference in relation to all insolvencies (and thus reduces the categories of preferential debts that are to be paid in priority to debts due to the holder of a floating charge) but a new Section 176A of the Insolvency Act (as inserted by Section 251 of the Enterprise Act) requires a “prescribed part” (up to a maximum amount of £600,000) of the floating charge realisations available for distribution to be set aside to satisfy the claims of unsecured creditors. This means that the fees and expenses of any administration, the claims of preferential creditors and the beneficiaries of the prescribed part will be paid out of the proceeds of enforcement of the floating charge ahead of amounts due to noteholders. The prescribed part will not be relevant to property subject to a valid fixed security interest or to a situation in which there are no unsecured creditors.
The floating charge created by the issuing entity deed of charge may crystallise and become a fixed charge over the relevant class of assets owned by the issuing entity at the time of crystallisation. Crystallisation will occur automatically following the occurrence of specific events set out in the issuing entity deed of charge, including, among other events, notice to the issuing entity from the issuing entity security trustee following an event of default under the issuing entity notes (except in relation to the issuing entity’s Scottish assets, where crystallisation will occur on the appointment of an administrative receiver or upon commencement of a winding up of the issuing entity). A crystallised floating charge will rank ahead of the claims of unsecured creditors which are in excess of the prescribed part but will rank behind the fees and expenses of any administration, the claims of preferential creditors and the beneficiaries of the prescribed part on enforcement of the issuing entity security.
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| Enforcement |
The issuing entity deed of charge sets out the general procedures by which the issuing entity security trustee may take steps to enforce the security created by the issuing entity so that the issuing entity security trustee can protect the interests of each of the issuing entity secured creditors.
The issuing entity deed of charge requires the issuing entity security trustee to consider the interests of each of the issuing entity secured creditors as to the exercise of its powers, trusts, authorities, duties and discretions, but requires the issuing entity security trustee in the event of a conflict between the interests of the noteholders and the interests of any other issuing entity secured creditor, to consider only, unless stated otherwise, the interests of the noteholders. As among noteholders, the issuing entity security trustee will exercise its rights under the issuing entity deed of charge only in accordance with the directions of the class of noteholders with the highest-ranking issuing entity notes. If there is a conflict between the interests of the class A noteholders of one series and the class A noteholders of another series, or conflict between the class B noteholders of one series and the class B noteholders of another series, or conflict between the class M noteholders of one series and the class M noteholders of another series, or conflict between the class C noteholders of one series and the class C noteholders of another series, or conflict between the class D noteholders of one series and the class D noteholders of another series, then a resolution directing the issuing entity security trustee to take any action must be passed at separate meetings of the holders of each series of the class A notes or, as applicable, each series of the class B notes or, as applicable, each series of the class M notes or, as applicable, each series of the class C notes or, as applicable, each series of the class D notes.
The issuing entity security will become enforceable upon either (a) the enforcement of the Funding security or (b) the occurrence of a note event of default which is not being waived by the issuing entity security trustee, provided that, if the issuing entity security has become enforceable otherwise than by reason of a default in payment of any amount due on the issuing entity notes, the issuing entity security trustee will not be entitled to dispose of all or part of the assets comprised in the issuing entity security unless either:
| • | a sufficient amount would be realised to allow a full and immediate discharge of all amounts owing in respect of the class A notes or, if the class A notes have been fully repaid, the class B notes or, if the class B notes have been fully repaid, the class M notes or, if the class M notes have been fully repaid, the class C notes or, if the class C notes have been fully repaid, the class D notes; or |
| • | the issuing entity security trustee is of the opinion that the cashflow expected to be received by the issuing entity will not, or that there is a significant risk that it will not, be sufficient, having regard to any other relevant actual, contingent or prospective liabilities of the issuing entity, to discharge in full over time all amounts owing in respect of the class A notes or, if the class A notes have been fully repaid, the class B notes or, if the class B notes have been fully repaid, the class M notes or, if the class M notes have been fully repaid, the class C notes or, if the class C notes have been fully repaid, the class D notes. |
Each of the issuing entity secured creditors (other than the noteholders, the note trustee acting on behalf of the noteholders and the issuing entity security trustee) will agree under the issuing entity deed of charge that they will not take steps directly against the issuing entity for any amounts owing to them, unless the issuing entity security trustee has become bound to enforce the issuing entity security but has failed to do so within 30 days of becoming so bound and the failure is continuing.
| Post enforcement priority of payments |
The issuing entity deed of charge sets out the order of priority of distribution by the issuing entity security trustee, following service of a note enforcement notice, of amounts received or recovered by the issuing entity security trustee (or a receiver appointed on its behalf). There are two separate payment orders of priority depending on whether the Funding security has also been enforced. These orders of priority are described in “Cashflows”.
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| New issuing entity secured creditors |
New issuing entity secured creditors will enter into deeds of accession in relation to the issuing entity deed of charge upon or immediately prior to the issue of the series or class (or sub-class) of offered notes described in the relevant prospectus supplement and/or a new series or class (or sub-class) of new notes by the issuing entity.
| Appointment, powers, responsibilities and liabilities of the issuing entity security trustee |
The issuing entity security trustee is appointed to act as trustee on behalf of the issuing entity secured creditors on the terms and conditions of the issuing entity deed of charge. It holds the benefit of the security created by the issuing entity deed of charge on trust for each of the issuing entity secured creditors in accordance with the terms and conditions of the issuing entity deed of charge.
The issuing entity security trustee may concur with any person in making any modifications to the transaction documents only (for so long as any issuing entity notes remain outstanding) if so directed by the note trustee. The note trustee may give such direction, without the consent or sanction of the noteholders, provided that:
| • | (i) the note trustee is of the opinion that such modifications will not be materially prejudicial to the interests of the noteholders of any series or class of issuing entity notes, and (ii) the note trustee is of the opinion that such modifications will not be materially prejudicial to the interests of the issuing entity swap providers or, if it is not of that opinion in relation to any of the issuing entity swap providers, such issuing entity swap provider has consented to such modifications; |
| • | in the opinion of the note trustee such modification is to correct a manifest or proven error established as such to the satisfaction of the note trustee or is an error of a formal, minor or technical nature. |
The issuing entity security trustee is entitled to assume in the exercise of its discretions and powers, that the proposed exercise would not be materially prejudicial to the interests of the noteholders, if the existing ratings of the issuing entity notes are not adversely affected by that proposed exercise. The prior consent of noteholders will not be obtained in relation to the inclusion of a new funding entity as a beneficiary of the mortgages trust, provided that the rating agencies confirm that the inclusion of such new funding entity as a beneficiary of the mortgages trust would not adversely affect the existing ratings of any notes.
| Issuing entity security trustee’s fees and expenses |
The issuing entity will reimburse the issuing entity security trustee for all its costs and expenses properly incurred in acting as issuing entity security trustee. The issuing entity security trustee shall be entitled to a fee payable quarterly in the amount agreed from time to time by the issuing entity security trustee and the issuing entity. The issuing entity has agreed to indemnify the issuing entity security trustee and each of its officers, employees and advisers from and against all claims, actions, proceedings, demands, liabilities, losses, damages, costs and expenses arising out of or in connection with:
| • | the transaction documents; or |
| • | the issuing entity security trustee’s engagement as issuing entity security trustee, |
which it or any of its officers, employees or advisers may suffer.
The issuing entity will not be responsible under the issuing entity deed of charge for any liabilities, losses, damages, costs or expenses resulting from fraud, wilful default or negligence on the part of the issuing entity security trustee or any of its officers, employees and advisers or breach by them of the terms of the issuing entity deed of charge.
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| Retirement and removal |
Subject to the appointment of a successor issuing entity security trustee, the issuing entity security trustee may retire after giving three months’ notice in writing to the issuing entity.
The issuing entity may remove the issuing entity security trustee at any time providing that it has the consent, which must not be unreasonably withheld or delayed, of each of the other issuing entity secured creditors to the removal.
In addition, the issuing entity security trustee may, subject to the conditions specified in the issuing entity deed of charge, appoint a co-trustee to act jointly with it.
| Additional provisions of the issuing entity deed of charge |
The issuing entity deed of charge contains a range of provisions regulating the scope of the issuing entity security trustee’s duties and liability. These include the following:
| • | the issuing entity security trustee will, if reasonably practicable, give prior notification to the seller of the issuing entity security trustee’s intention to enforce the issuing entity security (although any failure to so notify will not prejudice the ability of the issuing entity security trustee to enforce the issuing entity security); |
| • | the issuing entity security trustee is not responsible for the adequacy or enforceability of the issuing entity deed of charge or any other transaction document; |
| • | the issuing entity security trustee is not required to exercise its powers under the issuing entity deed of charge without being directed or requested to do so by an extraordinary resolution of the noteholders or in writing by the holders of at least 25 per cent. of the aggregate principal amount outstanding of the issuing entity notes then outstanding or by any other issuing entity secured creditor provided that: |
| (a) | the issuing entity security trustee will not act at the direction or request of the class B noteholders unless either so to do would not, in its opinion, be materially prejudicial to the interests of the class A noteholders or the action is sanctioned by an extraordinary resolution of the class A noteholders; |
| (b) | the issuing entity security trustee will not act at the direction or request of the class M noteholders unless either so to do would not, in its opinion, be materially prejudicial to the interests of the class A noteholders and/or the class B noteholders or the action is sanctioned by extraordinary resolutions of the class A noteholders and/or the class B noteholders, as the case may be; |
| (c) | the issuing entity security trustee will not act at the direction or request of the class C noteholders unless either so to do would not, in its opinion, be materially prejudicial to the interests of the class A noteholders and/or the class B noteholders and/or the class M noteholders or the action is sanctioned by extraordinary resolutions of the class A noteholders and/or the class B noteholders and/or the class M noteholders, as the case may be; |
| (d) | the issuing entity security trustee will not act at the direction or request of the class D noteholders unless either so to do would not, in its opinion, be materially prejudicial to the interest of the class A noteholders and/or the class B noteholders and/or the class M noteholders and/or the class C noteholders or the action is sanctioned by extraordinary resolutions of the class A noteholders and/or the class B noteholders and/or the class M noteholders and the class C noteholders, as the case may be; and |
| (e) | the issuing entity security trustee will not act at the direction or request of any other issuing entity secured creditor unless so to do would not, in its opinion, be materially prejudicial to the interests of the noteholders or the action is sanctioned by extraordinary resolutions of the noteholders and each of the other relevant secured creditors that ranks ahead of that issuing entity secured creditor (in the post enforcement priority of payments) also consents to that action and in particular; |
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| • | the issuing entity security trustee is entitled to assume that, in the exercise of its rights, powers, duties and discretions, the exercise will not be materially prejudicial to the noteholders if each of the rating agencies has confirmed that the then current ratings of the issuing entity notes will not be adversely affected by the exercise; |
| • | the issuing entity security trustee may rely on documents provided by the issuing entity, the issuing entity cash manager, the issuing entity swap provider(s), the agent bank, the paying agents, the registrar, the transfer agent, the issuing entity account banks and the corporate services provider and the advice of consultants and advisers; |
| • | the issuing entity security trustee is not required to monitor whether a note event of default has occurred or compliance by the issuing entity with the transaction documents; |
| • | the issuing entity security trustee will be taken not to have knowledge of the occurrence of a note event of default unless the issuing entity security trustee has received notice from a issuing entity secured creditor stating that a note event of default has occurred and describing that note event of default; |
| • | the issuing entity security trustee may rely on any instructions or directions given to it by the note trustee as being given on behalf of the relevant class of noteholders without inquiry about compliance with the trust deed; |
| • | the issuing entity security trustee has no duties or responsibilities except those expressly set out in the issuing entity deed of charge or the transaction documents; |
| • | any action taken by the issuing entity security trustee under the issuing entity deed of charge or any of the transaction documents binds all of the issuing entity secured creditors; |
| • | each issuing entity secured creditor must make its own independent investigations, without reliance on the issuing entity security trustee, as to the affairs of the issuing entity and whether or not to request that the issuing entity security trustee take any particular course of action under any transaction document; |
| • | the issuing entity security trustee in a capacity other than as issuing entity security trustee can exercise its rights and powers as such as if it were not acting as the issuing entity security trustee; |
| • | the issuing entity security trustee and its affiliates may engage in any kind of business with the issuing entity or any of the issuing entity secured creditors as if it were not the issuing entity security trustee and may receive consideration for services in connection with any transaction document or otherwise without having to account to the issuing entity secured creditors; |
| • | the issuing entity security trustee has no liability under or in connection with the issuing entity deed of charge or any other transaction document, whether to a issuing entity secured creditor or otherwise, other than to the extent to which (a) the liability is able to be satisfied in accordance with the issuing entity deed of charge out of the property held by it on trust under the issuing entity deed of charge and (b) it is actually indemnified for the liability. This limitation of liability does not apply to a liability of the issuing entity security trustee to the extent that it is not satisfied because there is a reduction in the extent of the issuing entity security trustee’s indemnification as a result of its fraud, negligence, wilful misconduct or breach of the terms of the issuing entity deed of charge; and |
| • | the issuing entity security trustee is not responsible for any deficiency which may arise because it is liable to tax in respect of the proceeds of security. |
The issuing entity security trustee has had no involvement in the preparation of any part of this prospectus, other than any particular reference to the issuing entity security trustee. The issuing entity security trustee expressly disclaims and takes no responsibility for any other part of this prospectus. The issuing entity security trustee makes no statement or representation in this prospectus, has not authorised or caused the issue of any part of it and takes no responsibility for
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any part of it. The issuing entity security trustee does not guarantee the success of the issuing entity notes or the payment of principal or interest on the issuing entity notes.
| Governing law |
The issuing entity deed of charge will be governed by English law.
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CASHFLOWS
| Distribution of Funding available revenue receipts |
| Definition of Funding available revenue receipts |
Funding available revenue receipts will be calculated by the cash manager on the day falling four business days prior to each interest payment date and will be an amount equal to the sum of:
| • | all mortgages trust available revenue receipts distributed to Funding during the interest period ending on the immediately following interest payment date; |
| • | other net income of Funding including all amounts of interest received on the Funding GIC account, the Funding transaction account and/or authorised investments (as defined in the glossary), amounts received by Funding under the Funding swap agreement (other than any early termination amount received by Funding under the Funding swap agreement and any amount to be credited to the Funding collateral account, including interest thereon, subject to the circumstances described in “– Collateral in the Funding post enforcement priority of payments”), in each case to be received on or prior to the immediately following interest payment date; and |
| • | the amounts standing to the credit of the first reserve ledger, the second reserve ledger, the Funding reserve ledger and (if established) the Funding liquidity reserve ledger. |
Four business days prior to each interest payment date, the cash manager will calculate whether there will be an excess or a deficit of Funding available revenue receipts (including the first reserve fund and the second reserve fund) to pay items (a) to (e), (g), (i), (k) and (m) of the Funding pre-enforcement revenue priority of payments.
If there is a deficit on an interest payment date, then Funding shall pay or provide for that deficit by applying amounts then standing to the credit of the Funding principal ledger, if any, and the cash manager shall make a corresponding entry in the relevant principal deficiency ledger, as described in “Credit structure”.
Funding principal receipts may not be used to pay interest on any term advance if and to the extent that would result in a deficiency being recorded or an existing deficiency being increased, on a principal deficiency sub-ledger relating to a higher ranking term advance.
Funding shall apply any excess revenue to extinguish any balance on the principal deficiency ledger, as described in “Credit structure”.
| Distribution of Funding available revenue receipts prior to enforcement of the Funding security |
This section sets out the order of priority of payments of Funding available revenue receipts as at the date of this prospectus. If Funding enters into new intercompany loan agreements, then this order of priority will change “– see Security for Funding’s obligations”.
Except for amounts due to third parties by the issuing entity, the previous issuing entities and/or Funding under paragraph (a) or amounts due to the account bank, the issuing entity account banks and/or the previous issuing entity account banks, which shall be paid when due, on each interest payment date prior to enforcement of the Funding security, the cash manager will apply the Funding available revenue receipts in the following order of priority (the Funding pre-enforcement revenue priority of payments):
| (a) | first, in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to: |
| • | the security trustee (together with interest and any amount in respect of VAT on those amounts) and to provide for any amounts due or to become due in the immediately following interest period to the security trustee under the Funding deed of charge; |
| • | in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to (i) the issuing entity in respect of the issuing entity’s obligations specified in items (a) to (c) inclusive of the issuing entity pre- |
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| • | enforcement revenue priority of payments or, as the case may be, items (a) to (b) inclusive of the post-enforcement priority of payments, as described in “- Distribution of issuing entity revenue receipts” and “– Distribution of issuing entity principal receipts and issuing entity revenue receipts following enforcement of the issuing entity security and enforcement of the Funding security” and (ii) the previous issuing entities in respect of the previous issuing entities’ similar obligations under their respective priorities of payments; and |
| • | any third party creditors of Funding (other than those referred to later in this order of priority of payments), which amounts have been incurred without breach by Funding of the transaction documents to which it is a party (and for which payment has not been provided for elsewhere) and to provide for any of these amounts expected to become due and payable in the immediately following interest period by Funding and to pay or discharge any liability of Funding for corporation tax on any chargeable income or gain of Funding; |
| (b) | then, towards payment of amounts due and payable to the cash manager under the cash management agreement (together with any amount in respect of VAT on those amounts); |
| (c) | then, in no order of priority between them but in proportion to the respective amounts due, towards payment of amounts, if any, due and payable to the account bank under the terms of the bank account agreement and to the corporate services provider under the corporate services agreement; |
| (d) | then, towards payment of amounts (if any) due and payable to the Funding swap provider under the Funding swap agreement (except for any termination payments due and payable by Funding following a Funding swap provider default (as defined later in this section)); |
| (e) | then, in no order of priority between them but in proportion to the respective amounts due, towards payment of interest due and payable on the AAA term advances in relation to the intercompany loans; |
| (f) | then, towards a credit to the AAA principal deficiency sub-ledger in an amount sufficient to eliminate any debit on that ledger; |
| (g) | then, in no order of priority between them but in proportion to the respective amounts due, towards payment of interest due and payable on the AA term advances in relation to the intercompany loans; |
| (h) | then, towards a credit to the AA principal deficiency sub-ledger in an amount sufficient to eliminate any debit on that ledger; |
| (i) | then, in no order of priority between them but in proportion to the respective amounts due, towards payment of interest due and payable on the A term advances in relation to the intercompany loans; |
| (j) | then, towards a credit to the A principal deficiency sub-ledger in an amount sufficient to eliminate any debit on that ledger; |
| (k) | then, in no order of priority between them but in proportion to the respective amounts due, towards payment of interest due and payable on the BBB term advances in relation to the intercompany loans; |
| (l) | then, towards a credit to the BBB principal deficiency sub-ledger in an amount sufficient to eliminate a debit on that ledger; |
| (m) | then, in no order of priority between them but in proportion to the respective amounts due, towards payment of interest due and payable on the BB term advances in relation to the intercompany loans; |
| (n) | then, towards a credit to the BB principal deficiency sub-ledger in an amount sufficient to eliminate a debit on that ledger; |
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| (o) | then, in no order of priority between them but in proportion to the respective amounts due, towards payment of any amounts due to the issuing entity and the previous issuing entities in respect of their respective obligations (if any) to make a termination payment to an existing swap provider (but excluding any payment due to an existing swap provider as a result of an existing swap provider default or any existing swap provider downgrade termination event); |
| (p) | then, towards a credit to the first reserve ledger in an amount up to the first reserve fund required amount (see “Credit structure – First reserve fund”) (except that amounts standing to the credit of the second reserve ledger shall not be available for this purpose); |
| (q) | then, if an arrears trigger event has occurred, towards a credit to the first reserve ledger to ensure that the balance thereof is equal to the first reserve fund additional required amount (see “credit structure – First reserve fund”) (except that amounts standing to the credit of the second reserve ledger shall not be available for this purpose); |
| (r) | then, towards a credit to the Funding liquidity reserve ledger in an amount up to the Funding liquidity reserve required amount (see “Credit structure – Funding liquidity reserve fund”); |
| (s) | then, in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to: |
| • | the issuing entity and/or the previous issuing entities, as the case may be, in respect of their respective obligations to pay any termination payment to an existing swap provider following an existing swap provider default or any existing swap provider downgrade termination event; |
| • | any other amounts due to the issuing entity under the master intercompany loan agreement and/or to the previous issuing entities under the previous intercompany loan agreements, and not otherwise provided for in this order of priorities; and |
| • | after the occurrence of a Funding swap provider default, towards payment of any termination payment due and payable by Funding under the Funding swap agreement; |
| (t) | then, towards a credit to the second reserve ledger in an amount up to the second reserve fund required amount (see “Credit structure – Second reserve fund”); |
| (u) | then, towards a credit to the Funding reserve ledger in an amount up to the Funding reserve fund required amount (see “Credit structure – Funding reserve fund”); |
| (v) | then, towards payment of amounts due to all start-up loan providers under the start-up loan agreements; |
| (w) | then, an amount equal to 0.01 per cent. of the Funding available revenue receipts which shall be retained by Funding as profit or distributed by it by way of dividends to its shareholders; |
| (x) | then, towards payment of any additional consideration due to the seller pursuant to the terms of the mortgage sale agreement (this together with the postponed deferred consideration, known as deferred consideration) other than postponed deferred consideration; and |
| (y) | then, towards payment of any additional consideration due to the seller which has been postponed pursuant to the terms of the mortgage sale agreement (known as postponed deferred consideration). |
As used in this prospectus, Funding swap provider default means the occurrence of an event of default (as defined in the Funding swap agreement) where the Funding swap provider is the defaulting party (as defined in the Funding swap agreement).
As used in this prospectus, existing swap provider default means the occurrence of an event of default (as defined in the relevant existing swap agreement) where an existing swap provider is the defaulting party (as defined in the relevant existing swap agreement) and existing
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swap provider downgrade termination event means the occurrence of an additional termination event (as defined in the relevant existing swap agreement) following the failure by the relevant existing swap provider to comply with the ratings downgrade provisions set out in the relevant existing swap agreement. Existing swap providers means the swap providers under the relevant existing swap agreements. Existing swap agreements means any outstanding swap agreements entered into between the previous issuing entities, the issuing entity or any new issuing entity with the relevant existing swap provider.
| Distribution of issuing entity revenue receipts |
| Definition of issuing entity revenue receipts |
Revenue receipts will be calculated by the issuing entity cash manager four business days prior to each interest payment date and will be an amount equal to the sum of:
| • | interest to be paid by Funding on the relevant interest payment date in respect of the term advances under the master intercompany loan agreement; |
| • | fees to be paid to the issuing entity by Funding on the relevant interest payment date under the terms of the master intercompany loan agreement; |
| • | interest payable on the issuing entity’s bank accounts (but excluding any interest in respect of collateral provided by a issuing entity swap provider to the issuing entity as described below) and any authorised investments (as defined in the glossary) and which will be received on or before the relevant interest payment date; and |
| • | other net income of the issuing entity including amounts received or to be received under the issuing entity swap agreements on or before the relevant interest payment date (without double counting) (other than any early termination amount received by the issuing entity under the issuing entity swap agreements and any amount to be credited to the relevant issuing entity collateral account, including interest thereon, subject to the circumstances described in “– Collateral in the issuing entity post enforcement priority of payments”). |
| Distribution of issuing entity revenue receipts prior to enforcement of the issuing entity security |
The issuing entity cash management agreement sets out the order of priority of distribution by the issuing entity cash manager, prior to the enforcement of the issuing entity security, of amounts received by the issuing entity on each interest payment date. The order of priority in effect at the time of an issuance of US notes will be as described in this section as supplemented by the relevant prospectus supplement and is subject to change at the time of any new issue of notes.
As used in this prospectus, swap provider default means the occurrence of an event of default (as defined in the relevant issuing entity swap agreements) where the relevant issuing entity swap provider is the defaulting party (as defined in the relevant issuing entity swap agreement). Issuing entity swap agreement means any swap agreement between a issuing entity swap provider and the issuing entity. Downgrade termination event means the occurrence of an additional termination event following the failure by the relevant issuing entity swap provider to comply with the ratings downgrade provisions set out in the relevant issuing entity swap agreement and downgrade termination payment means a termination payment due and payable to the relevant issuing entity swap provider following the occurrence of a downgrade termination event, save to the extent that such termination payment may be satisfied by any swap replacement payment made to the issuing entity following a downgrade termination event in respect of the relevant issuing entity swap agreement. For the avoidance of doubt, swap replacement payments made to the issuing entity following a downgrade termination event will not constitute issuing entity revenue receipts.
Either on each interest payment date or when due in respect of amounts due to third parties under paragraph (b) below or amounts due to the issuing entity account banks under the issuing entity bank account agreement under paragraph (c) below, the issuing entity security trustee will apply issuing entity revenue receipts in the following order of priority (the issuing entity pre-enforcement revenue priority of payments):
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| (a) | first, in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to: |
| • | the issuing entity security trustee, together with interest and any amount in respect of VAT on those amounts, and to provide for any amounts due or to become due during the following interest period to the issuing entity security trustee under the issuing entity deed of charge; |
| • | the note trustee, together with interest and any amount in respect of VAT on those amounts, and to provide for any amounts due or to become due during the following interest period to the note trustee under the trust deed; and |
| • | the agent bank, the paying agents, the registrar and the transfer agent, together with interest and any amount in respect of VAT on those amounts, and any costs, charges, liabilities and expenses then due or to become due during the following interest period to the agent bank, the paying agents, the registrar and the transfer agent under the issuing entity paying agent and agent bank agreement; |
| (b) | then, to pay amounts due to any third party creditors of the issuing entity (other than those referred to later in this order of priority of payments), which amounts have been incurred without breach by the issuing entity of the transaction documents to which it is a party and for which payment has not been provided for elsewhere and to provide for any of those amounts expected to become due and payable during the following interest period by the issuing entity and to pay or discharge any liability of the issuing entity for corporation tax on any chargeable income or gain of the issuing entity; |
| (c) | then, in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to the issuing entity cash manager, together with any amount in respect of VAT on those amounts, and to provide for any amounts due, or to become due to the issuing entity cash manager in the immediately succeeding interest period, under the issuing entity cash management agreement and to the corporate services provider under the issuing entity corporate services agreement and to the issuing entity account banks under the issuing entity bank account agreement; |
| (d) | then, from amounts (excluding principal) received by the issuing entity from Funding in respect of each AAA term advance (and, in respect of (ii) below, the amounts (if any), excluding principal, received from the issuing entity swap provider(s) under the issuing entity swap agreement(s) in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay the amounts due and payable to the relevant issuing entity swap provider(s) (if any) in respect of the related series and class (or sub-class) of class A notes (including any termination payment, but excluding any issuing entity swap excluded termination amount) in accordance with the terms of the relevant issuing entity swap agreement; |
| (ii) | pro rata and pari passu, to pay interest due and payable (if any) on the related series and class (or sub-class) of class A notes on such interest payment date; |
| (e) | then, from amounts (excluding principal) received by the issuing entity from Funding in respect of each AA term advance (and, in respect of (ii) below, the amounts (if any), excluding principal, received from the issuing entity swap provider(s) under the issuing entity swap agreement(s) in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay the amounts due and payable to the relevant issuing entity swap provider(s) (if any) in respect of the related series and class (or sub-class) of class B notes (including any termination payment, but excluding any issuing entity swap excluded termination amount) in accordance with the terms of the relevant issuing entity swap agreement; |
| (ii) | pro rata and pari passu, to pay interest due and payable (if any) on the related series and class (or sub-class) of class B notes on such interest payment date; |
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| (f) | then, from amounts (excluding principal) received by the issuing entity from Funding in respect of each A term advance (and, in respect of (ii) below, the amounts (if any), excluding principal, received from the issuing entity swap provider(s) under the issuing entity swap agreement(s) in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay the amounts due and payable to the relevant issuing entity swap provider(s) (if any) in respect of the related series and class (or sub-class) of class M notes (including any termination payment, but excluding any issuing entity swap excluded termination amount) in accordance with the terms of the relevant issuing entity swap agreement; |
| (ii) | pro rata and pari passu, to pay interest due and payable (if any) on the related series and class (or sub-class) of class M notes on such interest payment date; |
| (g) | then, from amounts (excluding principal) received by the issuing entity from Funding in respect of each BBB term advance (and, in respect of (ii) below, the amounts (if any), excluding principal, received from the issuing entity swap provider(s) under the issuing entity swap agreement(s) in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay the amounts due and payable to the relevant issuing entity swap provider(s) (if any) in respect of the related series and class (or sub-class) of class C notes (including any termination payment, but excluding any issuing entity swap excluded termination amount) in accordance with the terms of the relevant issuing entity swap agreement; |
| (ii) | pro rata and pari passu, to pay interest due and payable (if any) on the related series and class (or sub-class) of class C notes on such interest payment date; |
| (h) | then, from amounts (excluding principal) received by the issuing entity from Funding in respect of each BB term advance (and, in respect of (ii) below, the amounts (if any), excluding principal, received from the issuing entity swap provider(s) under the issuing entity swap agreement(s) in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay the amounts due and payable to the relevant issuing entity swap provider(s) (if any) in respect of the related series and class (or sub-class) of class D notes (including any termination payment, but excluding any issuing entity swap excluded termination amount) in accordance with the terms of the relevant issuing entity swap agreement; |
| (ii) | pro rata and pari passu, to pay interest due and payable (if any) on the related series and class (or sub-class) of class D notes on such interest payment date; |
| (i) | then, in no order of priority between them but in proportion to the respective amounts due, to pay to each issuing entity swap excluded termination amount due to an issuing entity swap provider; |
| (j) | then, to the issuing entity, an amount equal to 0.01 per cent. of the interest received on the term advances under the master intercompany loan agreement, to be retained by the issuing entity as profit; and |
| (k) | then, any surplus to the issuing entity. |
Distribution of issuing entity revenue receipts after enforcement of the issuing entity security but prior to enforcement of the Funding security
Following enforcement of the issuing entity security under the issuing entity deed of charge, but prior to enforcement of the Funding security under the Funding deed of charge, the issuing entity security trustee will apply issuing entity revenue receipts in the same order of priority as set out in “Distribution of issuing entity revenue receipts” except that:
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| • | in addition to the amounts due to the issuing entity security trustee under paragraph (a) of “Distribution of issuing entity revenue receipts – Distribution of issuing entity revenue receipts prior to enforcement of the issuing entity security”, issuing entity revenue receipts will be applied to pay amounts due to any receiver appointed by the issuing entity security trustee together with interest and any amount in respect of VAT on those amounts, and to provide for any amounts due or to become due to the receiver during the following interest period; and |
| • | the issuing entity security trustee will not be required to pay amounts due to any entity which is not an issuing entity secured creditor. |
| Distribution of Funding available principal receipts prior to enforcement of the Funding security or the occurrence of a trigger event or enforcement of the issuing entity security |
| Definition of Funding available principal receipts |
Funding available principal receipts will be calculated by the cash manager on the day falling four business days prior to each interest payment date and will be an amount equal to the sum of:
| • | all Funding principal receipts received by Funding during the interest period ending on the relevant interest payment date and any other amounts standing to the credit of the Funding principal ledger; |
| • | all Funding principal receipts standing to the credit of the cash accumulation ledger which are to be applied on the next interest payment date to repay a bullet term advance and/or, as applicable, a scheduled amortisation term advance, and, for the avoidance of doubt, all series 1 term AAA cash amounts standing to the credit of the cash accumulation sub-ledger of the relevant issuing entity which are to be applied on the next interest payment date to repay the bullet term advance in respect of the AAA term advance and/or any previous term AAA advance, as applicable; |
| • | the amount, if any, to be credited to the principal deficiency ledger pursuant to items (f), (h), (j), (l) and (n) in “Distribution of Funding available revenue receipts – Distribution of Funding available revenue receipts prior to enforcement of the Funding security” on the relevant interest payment date; |
| • | prior to enforcement of the Funding security and to be applied only in respect of the first reserve fund term advances, the amount then standing to the credit of the first reserve ledger (but less any amounts applied or to be applied on the relevant date in payment of interest and other revenue expenses as set out in items (a) to (o) (inclusive) of the Funding pre-enforcement revenue priority of payments); and |
| • | prior to enforcement of the Funding security or the occurrence of an asset trigger event, and to be applied only in respect of Funding liquidity reserve fund term advances, the amount then standing to the credit of the Funding liquidity reserve ledger (but less any amounts applied or to be applied on the relevant date in payment of interest and other revenue expenses as set out in items (a) to (o) (inclusive) of the Funding pre-enforcement revenue priority of payments), |
less
| • | the amount of Funding principal receipts to be applied on the relevant interest payment date to pay items (a) to (e) (inclusive), (g), (i), (k) and (m) of the Funding pre-enforcement revenue priority of payments. |
For the avoidance of doubt, the amount standing to the credit of the first reserve ledger and the Funding liquidity reserve ledger may be applied after the payments described in items (i) (ii) and (iii) under rule (1) below have been made.
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| Rules for application of Funding available principal receipts and Funding principal receipts |
The Funding deed of charge sets out certain rules for the application by Funding, or the cash manager on its behalf, of the Funding available principal receipts on each interest payment date and, in the case of the principle described in rule 4 below on each distribution date. For the purposes of the principles described in rules 1 to 6 below:
| (a) | an amount will become due and payable in respect of a bullet term advance in an amount equal to the relevant bullet amount on the scheduled repayment date for that bullet term advance which falls on that interest payment date (ignoring for the purposes of this definition any provisions deferring payment if Funding has insufficient funds to pay such amount on such interest payment date); |
| (b) | an amount will become due and payable in respect of a scheduled amortisation term advance in an amount equal to the applicable scheduled amortisation amount due on the scheduled repayment date for that scheduled amortisation term advance which falls on that interest payment date (ignoring for the purposes of this definition any provisions deferring payment if Funding has insufficient funds to pay such amount on such interest payment date); and |
| (c) | an amount will become due and payable on an interest payment date in respect of any pass-through term advance in an amount equal to the principal balance of such pass-through term advance if on or immediately preceding an interest payment date any term advances advanced by the same issuing entity under the same intercompany loan and which are repayable prior to such pass-through term advance have been repaid in full except as otherwise specified in the relevant prospectus supplement. |
The six rules are as follows:
| 1. | General rules |
| On each interest payment date, Funding or the cash manager on its behalf will apply Funding available principal receipts: |
| (i) | first, to replenish the first reserve fund to the extent only that monies have been drawn from the first reserve fund to make scheduled principal repayments on the first reserve fund term advances; |
| (ii) | then, if the Funding liquidity reserve fund has been established, after the application of Funding available revenue receipts, to replenish the Funding liquidity reserve fund up to the amount of the Funding liquidity reserve required amount; |
| (iii) | then, (subject to rule (2) below) to repay any AAA term advances which are bullet term advances and/or scheduled amortisation term advances that are then due and payable; |
| (iv) | then, to pay into the cash accumulation ledger an amount equal to: |
| A – B |
| where: |
| A = | the amount standing to the credit of the cash accumulation ledger immediately prior to such interest payment date, and | |||
| B = | the amounts applied to repay the bullet term advances and scheduled amortisation term advances repaid under item (iii) above; and |
| (v) | then, to repay all other outstanding term advances which are then due and payable in accordance with the terms and provisions of, as applicable, the current intercompany loan agreement, the previous intercompany loan agreements and any new intercompany loan agreements and the relative term advance ratings of those term advances. The repayment terms of the master intercompany loan are described in the remaining sub-sections under this section. Subject to the principles described in rules 2 to 6 below, term advances will be repaid according to their respective term advance ratings (first on |
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| the term advances with the highest term advance rating, and thereafter on the term advances with the next highest term advance rating, and so on, down to the term advances with the lowest term advance rating) with any remainder remaining in the Funding principal ledger. |
| 2. | Prior to the occurrence of a trigger event and the enforcement of the Funding security, repayment of the AAA term advances is determined by final maturity date if more than one AAA term advance is due and payable on the same interest payment date |
| If on any interest payment date amounts are due and payable under more than one AAA term advance (whether in respect of the current intercompany loan, the previous intercompany loans or any new intercompany loan), then Funding will apply Funding available principal receipts to repay the AAA term advance with the earliest final maturity date and then the next earliest, and so on. |
| If, in this instance, any AAA term advances have the same final maturity date, then Funding will apply Funding available principal receipts to repay those AAA term advances in no order of priority between them but in proportion to the respective amounts due. |
| 3. | In certain circumstances, payment on all the BB term advances, all the BBB term advances, all the A term advances and all the AA term advances is deferred |
If:
| • | a principal loss has been recorded on the principal deficiency ledger in respect of any of the BB term advances, the BBB term advances, the A term advances or the AA term advances under any intercompany loan; or |
| • | monies standing to the credit of the first reserve fund have been used, on or prior to the relevant interest payment date, to cure a principal deficiency in respect of any of the BB term advances and/or the BBB term advances and/or the A term advances and/or the AA term advances under any intercompany loan, and the first reserve fund has not been replenished by a corresponding amount on the relevant interest payment date; or |
| • | as at the relevant interest payment date, the aggregate outstanding principal balance of loans in the mortgages trust, in respect of which the aggregate amount in arrears is more than three times the monthly payment then due, is more than 5 per cent. of the aggregate outstanding principal balance of loans in the mortgages trust, |
| then, any BB term advances, any BBB term advances, any A term advances or AA term advances which are due and payable (whether in respect of the current intercompany loan, the previous intercompany loans or any new intercompany loan) will not be entitled to receive principal repayments: (i) until the relevant circumstances described in the preceding bulleted list have been cured or otherwise cease to exist; or (ii) unless no AAA term advances are outstanding. |
| 4. | Effect of cash accumulation period on term advances |
| From the time that a cash accumulation period has started in respect of a bullet term advance or a series 1 term AAA cash amount, on each distribution date and, if the principle described in rule 5 below is applicable, on each interest payment date, Funding available principal receipts will be deposited in the Funding GIC account and the amount of those deposits will be recorded on the cash accumulation ledger until Funding has saved enough to repay the relevant bullet term advance or the relevant series 1 term AAA cash amount. Amounts accumulated by Funding during a scheduled amortisation period will also be deposited on each distribution date in the Funding GIC account and the amount so deposited recorded in the cash accumulation ledger, until Funding has received sufficient principal receipts to repay the relevant scheduled amortisation term advance. |
| During the cash accumulation period for a bullet term advance and/or for a series 1 term AAA cash amount in relation to a AAA term advance or the relevant previous term AAA advance, in each case made under an intercompany loan (intercompany loan X), no principal repayments will be made on the pass-through term advances or any scheduled amortisation |
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| term advances made under that intercompany loan X (unless that scheduled amortisation term advance has a deemed “AAA” rating (in which case rule 2 above shall apply)). Subject to the terms set out in rules 1 and 5, however, during a cash accumulation period under intercompany loan X payments may continue to be made in relation to term advances due and payable under other intercompany loan agreements. For the avoidance of doubt, separate intercompany loans made under the master intercompany loan agreement will be treated as different intercompany loans for the purposes of these rules. |
| 5. | Repayment of pass-through term advances |
| Subject to rule 3 above, Funding may make payments on pass-through term advances whether or not a cash accumulation period has commenced under a different intercompany loan. |
| Funding or the cash manager on its behalf will apply any amounts available to pay any pass-through term advances to repay each outstanding payable pass-through term advance in the proportion which the outstanding principal balance of the intercompany loan under which such pass-through term advance arises bears to the aggregate outstanding principal balance of all intercompany loans. Any remaining amounts shall continue to be reapplied in accordance with such proportion until the outstanding payable pass through term advances have been repaid in full. |
| If any amounts remain after the application of the above rules, such remainder shall be paid into the cash accumulation ledger of any bullet term advances and/or any series 1 term AAA cash amount, as applicable, in respect of which a cash accumulation period has commenced, or, if there is none (or if the relevant bullet term advance and/or the series 1 term AAA cash amount has been fully accumulated for), then such remainder shall be credited to the Funding principal ledger. |
| 6. | Repayment tests |
| If on an interest payment date in respect of which principal in respect of any term advance is scheduled to be paid: |
| • | for any AA term advance, the amount of principal due (or any part thereof) in respect of the AA term advance may only be paid if, after giving effect to such payment and the payment to be made on such date in respect of the related series and class (or sub-class) of issuing entity notes, the class A available subordinated amount is at least equal to the class A required subordinated amount; |
| • | for any A term advance, the amount of principal due (or any part thereof) in respect of the A term advance may only be paid if, after giving effect to such payment and the payment to be made on such date in respect of the related series and class (or sub-class) of issuing entity notes, the class A available subordinated amount is at least equal to the class A required subordinated amount and the class B available subordinated amount is at least equal to the class B required subordinated amount; |
| • | for any BBB term advance, the amount of principal due (or any part thereof) in respect of the BBB term advance may only be paid if, after giving effect to such payment and the payment to be made on such date in respect of the related series and class (or sub-class) of issuing entity notes, the class A available subordinated amount is at least equal to the class A required subordinated amount, the class B available subordinated amount is at least equal to the class B required subordinated amount and the class M available subordinated amount is at least equal to the class M required subordinated amount; |
| • | for any BB term advance, the amount of principal due (or any part thereof) in respect of the BB term advance may only be paid if, after giving effect to such payment and the payment to be made on such date in respect of the related series and class (or sub-class) of issuing entity notes, the class A available subordinated amount is at least equal to the class A required subordinated amount, the class B available subordinated amount is at least equal to the class B required subordinated amount, the class M available |
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| subordinated amount is at least equal to the class M required subordinated amount and the class C available subordinated amount is at least equal to the class C required subordinated amount, |
| save that, on any date, in calculating the class A available subordinated amount, the class B available subordinated amount, the class M available subordinated amount and the class C available subordinated amount for such date for the purposes of the above: |
| (a) | stressed excess spread will be deemed to be zero; and |
| (b) | references to the “aggregate amount of the first reserve fund” in the relevant definition of available subordinated amount in respect of the relevant class of issuing entity notes (as set out under “The issuance of issuing entity notes”) shall instead be deemed to be an amount calculated as being the greater of either (i) the amount standing to the credit of the first reserve fund on the date that such calculation is made and (ii) if on any interest payment date since the most recent interest payment date (the reference date) on which the amount standing to the credit of the first reserve fund was at least equal to the first reserve fund required amount, the amount standing to the credit of the first reserve fund has been less than the amount standing to the credit of the first reserve fund on any preceding interest payment date from and including the reference date, the first reserve fund required amount on such date. |
| See “The issuance of issuing entity notes” for a description of the various required subordinated amounts and available subordinated amounts. |
| Repayment of term advances prior to a trigger event, enforcement of the issuing entity security or enforcement of the Funding security |
Prior to:
| (a) | the occurrence of a trigger event (as described further in “The mortgages trust”); or |
| (b) | enforcement of the issuing entity security by the issuing entity security trustee under the issuing entity deed of charge or enforcement of the previous issuing entity security by the previous issuing entity security trustee under any previous issuing entity deed of change; or |
| (c) | enforcement of the Funding security by the security trustee under the Funding deed of charge, |
the term advances under any intercompany loan will be repaid in accordance with the relevant intercompany loan agreement as follows, replenishing the first reserve fund (to the extent only that money has been drawn from the first reserve fund to make scheduled principal repayments) and then replenishing the Funding liquidity reserve fund up to the Funding liquidity reserve required amount:
| • | in order of their scheduled repayment dates, beginning with the earliest such date (and, if two or more AAA term advances and/or previous AAA term advances have the same final repayment date, in proportion to their respective amounts due) to repay the principal amounts due (if any) on such interest payment date in respect of the AAA term advances to the issuing entity subject to rules 1 and 2 above. If there are insufficient funds available to pay the scheduled repayment amount of a scheduled amortisation term advance on the relevant scheduled repayment date, then the shortfall will be repaid on the subsequent interest payment dates (together with any other amounts scheduled to be repaid on the scheduled amortisation term advances on those interest payment dates) from Funding available principal receipts; |
| • | in no order of priority among them, but in proportion to the respective amounts due, to repay the principal amounts due (if any) on such interest payment date on the AA term advances and/or previous AA term advances, in each case subject to rules 1, 3 and 6 above; |
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| • | in no order of priority among them, but in proportion to the respective amounts due, to repay the principal amounts due (if any) on such interest payment date on the A term advances and/or previous A term advances, in each case subject to rules 1, 3 and 6 above; |
| • | in no order of priority among them, but in proportion to the respective amounts due, to repay the principal amounts due (if any) on such interest payment date on the BBB term advances and/or previous BBB term advances, in each case subject to rules 1, 3 and 6 above; and |
| • | in no order of priority among them, but in proportion to the respective amounts due, to repay the principal amounts due (if any) on such interest payment date on the BB term advances and/or previous BB term advances, in each case subject to rules 1, 3 and 6 above. |
| Repayment of term advances of each series following the occurrence of a non-asset trigger event prior to enforcement of the issuing entity security or the Funding security |
Following the occurrence of a non-asset trigger event under the mortgages trust deed but prior to enforcement of the Funding security by the security trustee under the Funding deed of charge or the issuing entity security under the issuing entity deed of charge, the bullet term advances and the scheduled amortisation term advances in respect of any intercompany loan will be deemed to be pass-through term advances and on each interest payment date Funding will be required to apply Funding available principal receipts in the following order of priority, replenishing the first reserve fund (to the extent only that money has been drawn from the first reserve fund to make scheduled principal repayments) and then replenishing the Funding liquidity reserve fund up to the Funding liquidity reserve required amount:
| • | first, to repay the term AAA advance with the earliest final maturity date, then to repay the term AAA advance with the next earliest final maturity, and so on until the AAA term advances in respect of the current intercompany loan, the previous intercompany loans and any new intercompany loans are fully repaid; |
| • | then, in no order of priority between them but in proportion to the amounts due, to repay the AA term advances in respect of the current intercompany loan, the previous intercompany loans and any new intercompany loans, until those AA term advances are fully repaid; |
| • | then, in no order of priority between them but in proportion to the amounts due, to repay the A term advances in respect of the current intercompany loan, the previous intercompany loans and any new intercompany loans, until those A term advances are fully repaid; |
| • | then, in no order of priority between them but in proportion to the amounts due, to repay the BBB term advances in respect of the current intercompany loan, the previous intercompany loans and any new intercompany loans, until those BBB term advances are fully repaid; and |
| • | then, in no order of priority between them but in proportion to the amounts due, to repay the BB term advances in respect of the current intercompany loan, the previous intercompany loans and any new intercompany loans, until those BB term advances are fully repaid. |
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| Repayment of term advances of each series following the occurrence of an asset trigger event prior to enforcement of the issuing entity security or the Funding security |
Following the occurrence of an asset trigger event but prior to enforcement by the security trustee of the Funding security under the Funding deed of charge or the issuing entity security under the issuing entity deed of charge, the bullet term advances and the scheduled amortisation term advances in respect of any intercompany loan will be deemed to be pass-through term advances and on each interest payment date Funding will be required to apply Funding available principal receipts in the following order of priority (replenishing the first reserve fund (to the extent only that money has been drawn from the first reserve fund to make scheduled principal repayments) and then replenishing the Funding liquidity reserve fund up to the Funding liquidity reserve required amount):
| • | first, in no order of priority between them, but in proportion to the amounts due, to repay the AAA term advances in respect of the current intercompany loan, the previous intercompany loans and any new intercompany loans, until each of those AAA term advances is fully repaid; |
| • | then, in no order of priority between them, but in proportion to the amounts due, to repay the AA term advances in respect of the current intercompany loan, the previous intercompany loans and any new intercompany loans, until each of those AA term advances is fully repaid; |
| • | then, in no order of priority between them but in proportion to the amounts due, to repay the A term advances in respect of the current intercompany loan, the previous intercompany loans and any new intercompany loans, until those A term advances are fully repaid; |
| • | then, in no order of priority between them, but in proportion to the amounts due, to repay the BBB term advances in respect of the current intercompany loan, the previous intercompany loans and any new intercompany loans, until each of those BBB term advances is fully repaid; and |
| • | then, in no order of priority between them, but in proportion to the amounts due, to repay the BB term advances in respect of the current intercompany loan, the previous intercompany loans and any new intercompany loans, until each of those BB term advances is fully repaid. |
| Repayment of term advances of each series following enforcement of the issuing entity security |
If the issuing entity security is enforced by the issuing entity security trustee under the issuing entity deed of charge, then that will not result in automatic enforcement of the Funding security under the Funding deed of charge. In those circumstances, however, the bullet term advances and the scheduled amortisation advances under the master intercompany loan (only) will be deemed to be pass-through term advances and Funding will be required to apply Funding available principal receipts on each interest payment date in the following order of priority, replenishing the first reserve fund (to the extent only that money has been drawn from the first reserve fund to make scheduled principal repayments) and then replenishing the Funding liquidity reserve fund up to the Funding liquidity reserve required amount:
| • | first, in no order of priority between them, but in proportion to the amounts due, to repay the AAA term advances until each of those advances is fully repaid; |
| • | then, in no order of priority between them, but in proportion to the amounts due, to repay the AA advances until each of those advances is fully repaid; |
| • | then, in no order of priority between them, but in proportion to the amounts due, to repay the A term advances until each of those advances is fully repaid; |
| • | then, in no order of priority between them, but in proportion to the amounts due, to repay the BBB term advances until each of those advances is fully repaid; and |
| • | then, in no order of priority between them, but in proportion to the amounts due, to repay the BB term advances until each of those advances is fully repaid. |
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| Distribution of issuing entity principal receipts |
| Definition of issuing entity principal receipts |
Prior to enforcement of the issuing entity security, issuing entity principal receipts will be calculated by the issuing entity cash manager four business days prior to each interest payment date and will be an amount equal to the sum of all principal amounts to be repaid by Funding to the issuing entity under the master intercompany loan during the relevant interest period.
Following enforcement of the issuing entity security, but prior to enforcement of the Funding security, issuing entity principal receipts means the sum calculated by the issuing entity security trustee four business days prior to each interest payment date as the amount to be repaid by Funding to the issuing entity under the master intercompany loan during the relevant interest period and/or the sum otherwise recovered by the issuing entity security trustee (or the receiver appointed on its behalf) representing the principal balance of the issuing entity notes.
| Distribution of issuing entity principal receipts prior to enforcement of the issuing entity security |
Prior to enforcement of the issuing entity security, the issuing entity, or the issuing entity cash manager on its behalf, will apply any issuing entity principal receipts, on each interest payment date, in the following manner:
| Class A notes |
| • | from principal amounts received by the issuing entity from Funding in respect of each AAA term advance (and in respect of (ii) below, the principal amounts received (if any) from the issuing entity swap providers under the relevant issuing entity swap agreements in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay amounts due and payable (in respect of principal) on such interest payment date to the relevant issuing entity swap providers in respect of the related series and class (or sub-class) of class A notes in accordance with the terms of the relevant issuing entity swap agreements; and |
| (ii) | to pay amounts due and payable in respect of principal (if any) on such interest payment date on the related series and class (or sub-class) of class A notes. |
| Class B notes |
| • | from principal amounts received by the issuing entity from Funding in respect of each AA term advance (and in respect of (ii) below, the principal amounts received (if any) from the issuing entity swap providers under the relevant issuing entity swap agreements in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay amounts due and payable (in respect of principal) on such interest payment date to the relevant issuing entity swap providers in respect of the related series and class (or sub-class) of class B notes in accordance with the terms of the relevant issuing entity swap agreements; and |
| (ii) | to pay amounts due and payable in respect of principal (if any) on such interest payment date on the related series and class (or sub-class) of class B notes. |
| Class M notes |
| • | from principal amounts received by the issuing entity from Funding in respect of each A term advance (and in respect of (ii) below, the principal amounts received (if any) from the issuing entity swap providers under the relevant issuing entity swap agreements in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay amounts due and payable (in respect of principal) on such interest payment date to the relevant issuing entity swap providers in respect of the related series and class (or sub-class) of class M notes in accordance with the terms of the relevant issuing entity swap agreements; and |
| (ii) | to pay amounts due and payable in respect of principal (if any) on such interest payment date on the related series and class (or sub-class) of class M notes. |
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| Class C notes |
| • | from principal amounts received by the issuing entity from Funding in respect of each BBB term advance (and in respect of (ii) below, the principal amounts received (if any) from the issuing entity swap providers under the relevant issuing entity swap agreements in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay amounts due and payable (in respect of principal) on such interest payment date to the relevant issuing entity swap providers in respect of the related series and class (or sub-class) of class C notes in accordance with the terms of the relevant issuing entity swap agreements; and |
| (ii) | to pay amounts due and payable in respect of principal (if any) on such interest payment date on the related series and class (or sub-class) of class C notes. |
| Class D notes |
| • | from principal amounts received by the issuing entity from Funding in respect of each BB term advance (and in respect of (ii) below, the principal amounts received (if any) from the issuing entity swap providers under the relevant issuing entity swap agreements in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay amounts due and payable (in respect of principal) on such interest payment date to the relevant issuing entity swap providers in respect of the related series and class (or sub-class) of class D notes in accordance with the terms of the relevant issuing entity swap agreements; and |
| (ii) | to pay amounts due and payable in respect of principal (if any) on such interest payment date on the related series and class (or sub-class) of class D notes. |
| Distribution of issuing entity principal receipts following enforcement of the issuing entity security but prior to enforcement of the Funding security |
The issuing entity deed of charge sets out the order of priority of distribution of issuing entity principal receipts received or recovered by the issuing entity security trustee (or a receiver appointed on its behalf) following enforcement of the issuing entity security but prior to enforcement of the Funding security. In these circumstances, the issuing entity security trustee will apply issuing entity principal receipts on each interest payment date to repay the issuing entity notes in the following manner:
| • | first, in no order of priority between them, but in proportion to the amounts due, in respect of each AAA term advance (and in respect of (ii) below, the principal receipts received (if any) from the issuing entity swap providers under the relevant issuing entity swap agreements in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay amounts due and payable (in respect of principal) on such interest payment date to the relevant issuing entity swap providers in respect of the related series and class (or sub-class) of class A notes in accordance with the terms of the relevant issuing entity swap agreements; and |
| (ii) | to pay amounts due and payable in respect of principal (if any) on such interest payment date on the related series and class (or sub-class) of class A notes; |
| • | then, in no order of priority between them, but in proportion to the amounts due, in respect of each AA term advance (and in respect of (ii) below, the principal receipts received (if any) from the issuing entity swap providers under the relevant issuing entity swap agreements in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay amounts due and payable (in respect of principal) on such interest payment date to the relevant issuing entity swap providers in respect of the related series and class (or sub-class) of class B notes in accordance with the terms of the relevant issuing entity swap agreements; and |
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| (ii) | to pay amounts due and payable in respect of principal (if any) on such interest payment date on the related series and class (or sub-class) of class B notes; |
| • | then, in no order of priority between them, but in proportion to the amounts due, in respect of each A term advance (and in respect of (ii) below, the principal receipts received (if any) from the issuing entity swap providers under the relevant issuing entity swap agreements in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay amounts due and payable (in respect of principal) on such interest payment date to the relevant issuing entity swap providers in respect of the related series and class (or sub-class) of class M notes in accordance with the terms of the relevant issuing entity swap agreements; and |
| (ii) | to pay amounts due and payable in respect of principal (if any) on such interest payment date on the related series and class (or sub-class) of class M notes; |
| • | then, in no order of priority between them, but in proportion to the amounts due, in respect of each BBB term advance (and in respect of (ii) below, the principal receipts received (if any) from the issuing entity swap providers under the relevant issuing entity swap agreements in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay amounts due and payable (in respect of principal) on such interest payment date to the relevant issuing entity swap providers in respect of the related series and class (or sub-class) of class C notes in accordance with the terms of the relevant issuing entity swap agreements; and |
| (ii) | to pay amounts due and payable in respect of principal (if any) on such interest payment date on the related series and class (or sub-class) of class C notes; |
| • | then, in no order of priority between them, but in proportion to the amounts due, in respect of each BB term advance (and in respect of (ii) below, the principal receipts received (if any) from the issuing entity swap providers under the relevant issuing entity swap agreements in respect of the related series and class (or sub-class) of issuing entity notes): |
| (i) | to pay amounts due and payable (in respect of principal) on such interest payment date to the relevant issuing entity swap providers in respect of the related series and class (or sub-class) of class D notes in accordance with the terms of the relevant issuing entity swap agreements; and |
| (ii) | to pay amounts due and payable in respect of principal (if any) on such interest payment date on the related series and class (or sub-class) of class D notes. |
| Distribution of Funding principal receipts and Funding revenue receipts following enforcement of the Funding security |
The Funding deed of charge sets out the order of priority of distribution as at the closing date by the security trustee, following service of an intercompany loan acceleration notice, of amounts received or recovered by the security trustee or a receiver appointed on its behalf. If Funding enters into new intercompany loan agreements, then this order of priority may change – see “Security for Funding’s obligations”.
The security trustee will apply amounts received or recovered following enforcement of the Funding security on each interest payment date in accordance with the following order of priority (except for amounts due to the account bank under the bank account agreement, which will be paid when due):
| (a) | first, in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to: |
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| • | the security trustee and any receiver appointed by the security trustee, together with interest and any amount in respect of VAT on those amounts, and to provide for any amounts due or to become due to the security trustee and the receiver in the following interest period under the Funding deed of charge; and |
| • | the issuing entity in respect of the issuing entity’s obligations specified in items (A) to (B) of the post enforcement priority of payments and the previous issuing entities in respect of their own similar obligations; |
| (b) | then, towards payment of amounts due and payable to the cash manager and any costs, charges, liabilities and expenses then due or to become due and payable to the cash manager under the cash management agreement, together with any amount in respect of VAT on those amounts; |
| (c) | then, in no order of priority between them but in proportion to the respective amounts due, towards payment of amounts (if any) due to the account bank under the terms of the bank account agreement and to the corporate services provider under the corporate services agreement; |
| (d) | then, towards payment of amounts (if any) due to the Funding swap provider under the Funding swap agreement (except for any termination payments due and payable by Funding under the Funding swap agreement following a Funding swap provider default); |
| (e) | then, in no order of priority between them but in proportion to the respective amounts due, towards payments of interest and principal due and payable on the AAA term advances outstanding under the intercompany loans; |
| (f) | then, in no order of priority between them but in proportion to the respective amounts due, towards payments of interest and principal due and payable on the AA term advances outstanding under the intercompany loans; |
| (g) | then, in no order of priority between them but in proportion to the respective amounts due, towards payments of interest and principal due and payable on the A term advances outstanding under the intercompany loans; |
| (h) | then, in no order of priority between them but in proportion to the respective amounts due, towards payments of interest and principal due and payable on the BBB term advances outstanding under the intercompany loans; |
| (i) | then, in no order of priority between them but in proportion to the respective amounts due, towards payments of interest and principal due and payable on the BB term advances outstanding under the intercompany loans; |
| (j) | then, towards payment of any amounts due to the issuing entity and the previous issuing entities in respect of their respective obligations (if any) to make a termination payment to an existing swap provider (but excluding any payment due to a relevant existing swap provider following an existing swap provider default or any existing swap provider downgrade termination event); |
| (k) | then, in no order of priority between them but in proportion to the respective amounts due, to pay: |
| • | amounts due to the issuing entity and the previous issuing entities in respect of their respective obligations to pay any termination payment to an existing swap provider following an existing swap provider default or any existing swap provider downgrade termination event; |
| • | any other amounts due to the issuing entity and/or the previous issuing entities under the master intercompany loan agreement and/or the previous intercompany loan agreements and not otherwise provided for earlier in this order of priorities; and |
| • | after the occurrence of a Funding swap provider default, towards payment of any termination payment due and payable by Funding under the Funding swap; |
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| (l) | then, towards payment of amounts due to all start-up loan providers under the start-up loan agreements; |
| (m) | then, towards payment of any postponed deferred consideration due to the seller pursuant to the terms of the mortgage sale agreement; and |
| (n) | last, towards payment of any deferred consideration (other than postponed deferred consideration) due to the seller pursuant to the terms of the mortgage sale agreement. |
| Collateral in the Funding post enforcement priority of payments |
Any amount of collateral provided to Funding by the Funding swap provider shall not be applied in accordance with the above priority of payments, except to the extent that, following the early termination of the Funding swap due to an event of default:
| • | the value of the collateral is applied against an amount equal to the termination amount that would have been payable by the Funding swap provider had the collateral not been provided; and |
| • | such amounts (which, for the avoidance of doubt, shall not exceed the amount equal to the termination amount that would have been payable by the Funding swap provider had the collateral not been provided) are not applied by Funding towards the costs of entering into a replacement swap. |
Any collateral not applied in accordance with the foregoing shall be returned to the Funding swap provider.
| Distribution of issuing entity principal receipts and issuing entity revenue receipts following enforcement of the issuing entity security and enforcement of the Funding security |
If the Funding security is enforced under the Funding deed of charge, then there will be an automatic enforcement of the issuing entity security under the issuing entity deed of charge. The issuing entity deed of charge sets out the order of priority of distribution by the issuing entity security trustee, following enforcement of the issuing entity security and enforcement of the Funding security (known as the issuing entity post enforcement priority of payments), of amounts received or recovered by the issuing entity security trustee (or a receiver appointed on its behalf) (a) on each interest payment date or (b) when due in respect of amounts due to the issuing entity account banks under the issuing entity bank account agreement under paragraph (b) below, the issuing entity security trustee will apply amounts received or recovered following enforcement of the issuing entity security as follows:
| (a) | first, in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to: |
| • | the issuing entity security trustee and any receiver appointed by the issuing entity security trustee together with interest and any amount in respect of VAT on those amounts and any amounts then due or to become due to the issuing entity security trustee and the receiver under the provisions of the issuing entity deed of charge; |
| • | the note trustee together with interest and any amount in respect of VAT on those amounts and any amounts then due or to become due and payable to the note trustee under the provisions of the trust deed; and |
| • | the agent bank, the paying agents, the registrar and the transfer agent together with interest and any amount in respect of VAT on those amounts and any costs, charges, liabilities and expenses then due or to become due and payable to them under the provisions of the issuing entity paying agent and agent bank agreement; |
| (b) | then, in no order of priority between them but in proportion to the respective amounts due, towards payment of amounts (together with any amount in respect of VAT on those amounts) due and payable to the issuing entity cash manager under the issuing entity cash management agreement and to the corporate services provider under the issuing entity corporate services agreement and to the issuing entity account banks under the issuing entity bank account agreement; |
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| (c) | then, in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to the issuing entity swap providers for each series of class A notes (except for any termination payments due and payable to a issuing entity swap provider as a result of an issuing entity swap provider default or a downgrade termination event) and from amounts received from the issuing entity swap provider to pay interest due or overdue on, and to repay principal of, the applicable series of class A notes; |
| (d) | then, in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to the issuing entity swap providers for each series of class B notes (except for any termination payments due and payable to an issuing entity swap provider as a result of an issuing entity swap provider default or a downgrade termination event) and from amounts received from the issuing entity swap provider to pay interest due or overdue on, and to repay principal of, the applicable series of class B notes; |
| (e) | then, in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to the issuing entity swap providers for each series of class M notes (except for any termination payments due and payable to an issuing entity swap provider as a result of an issuing entity swap provider default or a downgrade termination event) and from amounts received from the issuing entity swap provider to pay interest due or overdue on, and to repay principal of, the applicable series of class M notes; |
| (f) | then, in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to the issuing entity swap providers for each series of class C notes (except for any termination payments due and payable to an issuing entity swap provider as a result of an issuing entity swap provider default or a downgrade termination event) and from amounts received from the issuing entity swap provider to pay interest due or overdue on, and to repay principal of, the applicable series of class C notes; |
| (g) | then, in no order of priority between them but in proportion to the respective amounts due, to pay amounts due to the issuing entity swap providers for each series of class D notes (except for any termination payments due and payable to an issuing entity swap provider as a result of an issuing entity swap provider default or a downgrade termination event) and from amounts received from the issuing entity swap provider to pay interest due or overdue on, and to repay principal of, the applicable series of class D notes; |
| (h) | then, in no order of priority between them but in proportion to the respective amounts due, to pay any termination payment due to the issuing entity swap providers for each series of class A notes following a swap provider default or a downgrade termination event; |
| (i) | then, in no order of priority between them but in proportion to the respective amounts due, to pay to pay any termination payment due to the issuing entity swap providers for each series of class B notes following a swap provider default or a downgrade termination event; |
| (j) | then, in no order of priority between them but in proportion to the respective amounts due, to pay any termination payment due to the issuing entity swap providers for each series of class M notes following a swap provider default or a downgrade termination event; |
| (k) | then, in no order of priority between them but in proportion to the respective amounts due, to pay any termination payment due to the issuing entity swap providers for each series of class C notes following a swap provider default or a downgrade termination event; and |
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| (l) | last, in no order of priority between them but in proportion to the respective amounts due, to pay any termination payment due to the issuing entity swap providers for each series of class D notes following a swap provider default or a downgrade termination event. |
| Collateral in the issuing entity post-enforcement priority of payments |
Any amount of collateral provided to the issuing entity by any issuing entity swap provider shall not be applied in accordance with the above priority of payments, except to the extent that, following the early termination of the swap due to an event of default:
| • | the value of the collateral is applied against an amount equal to the termination amount that would have been payable by the relevant issuing entity swap provider had the collateral not been provided; and |
| • | such amounts (which, for the avoidance of doubt, shall not exceed the amount equal to the termination amount that would have been payable by the relevant issuing entity swap provider had the collateral not been provided) are not applied by the issuing entity towards the costs of entering into a replacement swap. |
Any collateral not applied in accordance with the foregoing shall be returned directly to such issuing entity swap provider.
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CREDIT STRUCTURE
The issuing entity notes will be an obligation of the issuing entity only and will not be obligations of, or the responsibility of, or guaranteed by, any other party. However, there are a number of main features of the transaction which enhance the likelihood of timely receipt of payments to noteholders, as follows:
| • | Funding available revenue receipts are expected to exceed interest and fees payable to the issuing entity; |
| • | a shortfall in Funding available revenue receipts may be met from Funding’s principal receipts; |
| • | the first reserve fund, which was established on 26 July 2000, and which was further funded on 29 November 2000, 23 May 2001, 5 July 2001, 1 April 2004 and 8 August 2006, is available to meet shortfalls in interest due on the term advances and principal due on the first reserve fund term advances; |
| • | the second reserve fund, which was established on 29 November 2000, further funded on 5 July 2001 from the proceeds of the previous term BB advance made by Holmes Financing (No. 4) PLC and will be further funded by Funding’s excess revenue to meet shortfalls in interest due on the term advances if amounts standing to the credit of the first reserve fund are insufficient for that purpose; |
| • | payments of the class D notes will be subordinated to payments on the class A notes, class B notes, class M notes and class C notes; |
| • | payments of the class C notes will be subordinated to payments on the class A notes, class B notes and class M notes; |
| • | payments of the class M notes will be subordinated to payments on the class A notes and class B notes; |
| • | payments on the class B notes will be subordinated to payments on the class A notes; |
| • | the mortgages trustee GIC account and the Funding GIC account each earn interest at a specified rate (LIBOR for three-month sterling deposits); |
| • | Funding will be obliged to establish a Funding liquidity reserve fund if the seller ceases to have a long-term unsecured, unsubordinated and unguaranteed credit rating by Moody’s of at least A3 or at least A- by Fitch (unless the relevant rating agency confirms that the current rating of the outstanding notes will not be adversely affected by the rating downgrade of the seller); and |
| • | the Funding reserve fund, which was established on 1 April 2004 and will be funded from the excess Funding available revenue receipts after Funding has paid all of its obligations in respect of items ranking higher than item (u) of the Funding pre-enforcement revenue priority of payments on each interest payment date. |
Each of these factors is considered more fully in the remainder of this section.
| Credit support for the issuing entity notes provided by Funding available revenue receipts |
It is anticipated that, during the life of the issuing entity notes issued under the programme, the Funding share of the interest received from borrowers on the loans will, assuming that all of the loans are fully performing, be greater than the sum of the interest which the current issuing entities have to pay on all of the current issuing entity notes and the other costs and expenses of the structure. In other words, it is anticipated that the Funding available revenue receipts would be sufficient to pay the amounts payable under items (a) to (e), (g), (i), (k) and (m) of the Funding pre-enforcement revenue priority of payments.
The actual amount of any excess will vary during the life of the issuing entity notes. Two of the key factors determining the variation are as follows:
| • | the interest rate on the portfolio; and |
| • | the level of arrears experienced. |
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| Interest rate on the portfolio |
Funding has entered or may enter into a swap in relation to the previous intercompany loans, the current intercompany loan and any new intercompany loan to enable it to swap amounts of interest received from borrowers which vary on a variable, tracker or fixed rate basis for amounts it receives from the Funding swap counterparty which vary in accordance with LIBOR based rates payable on the intercompany loans, plus a margin expected to cover Funding’s obligations to, among others, the issuing entity. The swap hedges against the possible variance between sterling LIBOR based rates payable on the intercompany loans and a weighted average of the SVR payable on the variable rate loans (including those capped rate loans that are not subject to the specified capped rate of interest), the rates of interest payable on the tracker loans and the fixed rates of interest payable on the fixed rate loans (including those capped rate loans that are subject to the specified capped rate of interest).
The terms of the swaps are described in greater detail below in “The swap agreements”.
| Level of arrears experienced |
If the level of arrears of interest payments made by the borrowers results in Funding experiencing an income deficit, Funding will be able to use the following amounts to cure that income deficit:
| • | first, amounts standing to the credit of the first reserve fund, as described in “– First reserve fund”; |
| • | second, (if established) amounts standing to the credit of the Funding liquidity reserve fund, as described in “– Funding liquidity reserve fund”; |
| • | third, amounts standing to the credit of the second reserve fund, as described in “– Second reserve fund”; and |
| • | fourth, principal receipts, if any, as described in “– Use of Funding principal receipts to pay Funding income deficiency”. |
Any excess of Funding revenue receipts will be applied on each interest payment date to the extent described in the Funding pre-enforcement revenue priority of payments, including to extinguish amounts standing to the credit of any principal deficiency ledger and to replenish the reserve funds.
| Use of Funding principal receipts to pay Funding income deficiency |
Four business days prior to each interest payment date, the cash manager will calculate whether there will be an excess or a deficit of Funding available revenue receipts (including the reserve funds) to pay items (a) to (e), (g), (i), (k) and (m) of the Funding pre-enforcement revenue priority of payments.
If there is a deficit, then Funding shall pay or provide for that deficit by the application of Funding available principal receipts, if any, and the cash manager shall make a corresponding entry in the relevant principal deficiency sub-ledger, as described in “– Principal deficiency ledger”.
Funding principal receipts may not be used to pay interest on any term advance if and to the extent that would result in a deficiency being recorded or an existing deficiency being increased, on a principal deficiency sub-ledger relating to a higher ranking term advance.
Funding shall apply any excess Funding available revenue receipts to extinguish any balance on the principal deficiency ledger, as described in “– Principal deficiency ledger”.
| First reserve fund |
A first reserve fund has been established:
| • | to help meet any deficit in Funding available revenue receipts; |
| • | to help meet any deficit recorded on the principal deficiency ledger; and |
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| • | prior to enforcement of the Funding security, to help repay principal due on the first reserve fund term advances. |
The first reserve fund was funded initially on 26 July 2000 by the first start-up loan in the sum of £6,000,000. It was further funded on 29 November 2000 by the second start-up loan in the sum of £7,500,000, on 23 May 2001 by the third start-up loan in the sum of £12,000,000, on 1 April 2004 by the eighth start-up loan in the sum of £36,000,000 and on 8 August 2006 from the Funding reserve fund in the sum of £8 million. In addition, part of the proceeds of the previous BB term advance made by Holmes Financing (No. 4) PLC (in an amount equal to £31,000,000) was credited by Funding to the first reserve fund on 5 July 2001. The first reserve ledger is maintained by the cash manager to record the balance from time to time of the first reserve fund.
On each interest payment date the amount of the first reserve fund is added to certain other income of Funding in calculating Funding available revenue receipts.
Prior to enforcement of the Funding security, after meeting any income deficit and satisfying any deficit on the principal deficiency ledger, amounts standing to the credit of the first reserve fund may be used to repay principal due and payable in relation to the several outstanding AAA term advances from and including their respective scheduled repayment dates.
The first reserve fund will be replenished from:
| • | firstly, Funding available principal receipts in an amount up to the amount used to repay the first reserve fund term advances (but only if the first reserve fund has been used for this purpose); |
| • | secondly, any excess Funding available revenue receipts up to and including an amount equal to the first reserve fund required amount specified in connection with the most recent issuance of notes; and |
| • | thirdly, following the occurrence of an arrears trigger event, any Funding available revenue receipts to be paid in accordance with item (q) of the Funding pre-enforcement revenue priority of payments receipts up to and including an amount equal to the first reserve fund additional required amount specified in connection with the most recent issuance of notes. |
Funding available revenue receipts will only be applied to replenish the first reserve fund after paying interest due on the term advances and reducing any deficiency on the AAA principal deficiency sub-ledger, the AA principal deficiency sub-ledger, the A principal deficiency sub-ledger, the BBB principal deficiency sub-ledger and the BB principal deficiency sub-ledger (see “Cashflows – Distribution of Funding available revenue receipts – Distribution of Funding available revenue receipts prior to enforcement of the Funding security”).
The seller, Funding and the security trustee may agree to increase the first reserve fund required amount and the first reserve fund additional required amount from time to time. They may also agree to decrease the first reserve fund required amount and the first reserve fund additional required amount (subject to such reduction not having an adverse impact on the ratings of the notes) if Funding has repaid any amounts owing to the previous issuing entities, the issuing entity and any new issuing entities, from time to time. The first reserve fund required amount and the first reserve fund additional required amount in effect at the time of an issuance of US notes will be the amounts specified as such in the relevant prospectus supplement under the heading “Summary – First reserve fund”.
| Second reserve fund |
A second reserve fund was established on 29 November 2000 to help meet deficits in Funding available revenue receipts.
The second reserve fund is funded from:
| (a) | part of the proceeds of the previous term BB advance made by Holmes Financing (No. 4) PLC (in an amount equal to £19,000,000) which was credited by Funding to the second reserve fund on 5 July 2001; and |
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| (b) | excess Funding available revenue receipts, after Funding has paid all of its obligations in respect of items ranking higher than (t) (which item is a credit to the second reserve ledger up to the second reserve fund required amount) pursuant to the Funding pre-enforcement revenue priority of payments on each interest payment date (see “Cashflows – Distribution of Funding available revenue receipts”). |
A second reserve ledger is maintained by the cash manager to record the balance from time to time of the second reserve fund.
On each interest payment date the amount of the second reserve fund is added to certain other income of Funding in calculating Funding available revenue receipts.
The second reserve fund is replenished from any excess Funding available revenue receipts up to and including an amount equal to the second reserve fund required amount. The second reserve fund required amount is an amount equal to X where X is calculated on each interest payment date as follows:
| ((LIBOR for three-month sterling deposits + 0.65 per cent.) – (the weighted average yield on the loans in the mortgages trust) + (the net margin on the Funding swap)) x (the aggregate outstanding principal balance of all the term advances) x (the weighted average life of all the term advances) |
The weighted average life of the current term advances is calculated as being the greater of 2.5 years or the weighted average life calculated on the following assumptions:
| (a) | the lower of a 15 per cent. CPR and the 12 month rolling CPR; and |
| (b) | the previous issuing entities, the issuing entity and any new issuing entities, from time to time, not exercising their respective options to redeem the previous notes, the issuing entity notes or new notes, respectively, issued by it. |
If the issuing entity exercises its option to redeem the issuing entity notes, then the second reserve fund required amount will decrease in accordance with the formula set forth in this section.
The seller, Funding and the security trustee may agree to increase, decrease or amend the second reserve fund required amount from time to time.
| Funding reserve fund |
A Funding reserve fund was established on 1 April 2004 to fund further the reserve funds in connection with the issuance of new notes by any new issuing entities after such date and, among other things, to fund certain costs and expenses incurred by Funding in connection with subsequent assignments of part of the seller’s share of the trust property to it, fees to be paid under new intercompany loans which relate to the costs of issue of new notes, all necessary filing and other fees incurred in ensuring compliance with regulatory requirements and all legal and audit fees and other professional advisory fees.
The Funding reserve fund will be funded from the excess Funding available revenue receipts after Funding has paid all of its obligations in respect of items ranking higher than item (u) of the Funding pre-enforcement revenue priority of payments on each interest payment date. The Funding reserve ledger will be maintained by the cash manager to record the balance of the Funding reserve fund from time to time.
On each interest payment date, the amount of the Funding reserve fund is added to certain other income of Funding in calculating Funding available revenue receipts.
The Funding reserve fund is replenished from any excess Funding available revenue receipts up to the Funding reserve fund required amount, or such other amount as the seller may determine from time to time. The Funding reserve fund required amount in effect at the time of an issuance of US notes will be the amount specified as such in the relevant prospectus supplement under the heading “Summary – Funding reserve fund required amount” and may change at the time of any new issue of notes or as the seller may determine.
The seller may increase, decrease or amend the Funding reserve fund required amount from time to time, without the consent of the security trustee, Funding or the noteholders.
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| Principal deficiency ledger |
A principal deficiency ledger has been established to record:
| • | any principal losses on the loans allocated to Funding; and/or |
| • | the application of Funding available principal receipts to meet any deficiency in Funding’s available revenue receipts (as described in “– Use of Funding principal receipts to pay Funding income deficiency”); and/or |
| • | the application of Funding available principal receipts which are allocated to fund the Funding liquidity reserve fund up to the Funding liquidity reserve required amount. |
The principal deficiency ledger is split into five sub-ledgers which will each correspond to each of the AAA term advances, the AA term advances, the A term advances, the BBB term advances and the BB term advances, respectively, as follows:
| • | the AAA principal deficiency sub-ledger corresponding to all outstanding AAA term advances; |
| • | the AA principal deficiency sub-ledger corresponding to all outstanding AA term advances; |
| • | the A principal deficiency sub-ledger corresponding to all outstanding A term advances; |
| • | the BBB principal deficiency sub-ledger corresponding to all outstanding BBB term advances; and |
| • | the BB principal deficiency sub-ledger corresponding to all outstanding term BB advances. |
Losses on the loans and/or the application of Funding available principal receipts to pay interest on term advances are recorded as follows:
| • | first, on the BB principal deficiency sub-ledger until the balance of the BB principal deficiency sub-ledger is equal to the aggregate principal amount outstanding of all term BB advances; |
| • | second, on the BBB principal deficiency sub-ledger until the balance of the BBB principal deficiency sub-ledger is equal to the aggregate principal amount outstanding of all BBB term advances; |
| • | third, on the A principal deficiency sub-ledger until the balance of the A principal deficiency sub-ledger is equal to the aggregate principal amount outstanding of all A term advances; |
| • | fourth, on the AA principal deficiency sub-ledger until the balance of the AA principal deficiency sub-ledger is equal to the aggregate principal amount outstanding of all AA term advances; and |
| • | fifth, on the AAA principal deficiency sub-ledger, at which point there will be an asset trigger event. |
Any excess revenue of Funding as described in “– Use of Funding principal receipts to pay Funding income deficiency” is, on each interest payment date, applied to the extent described in the Funding pre-enforcement revenue priority of payments as follows:
| • | first, provided that interest due on the AAA term advances has been paid, in an amount necessary to reduce to zero the balance on the AAA principal deficiency sub-ledger; |
| • | second, provided that interest due on the AA term advances has been paid, in an amount necessary to reduce to zero the balance on the AA principal deficiency sub-ledger; |
| • | third, provided that interest due on the A term advances has been paid, in an amount necessary to reduce to zero the balance on the A principal deficiency sub-ledger; |
| • | fourth, provided that interest due on the BBB term advances has been paid, in an amount necessary to reduce to zero the balance on the BBB principal deficiency sub-ledger; and |
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| • | fifth, provided that interest due on the BB term advances has been paid, in an amount necessary to reduce to zero the balance on the BB principal deficiency sub-ledger. |
| Following the creation of new intercompany loan agreements |
In general, if Funding borrows a new term advance under a new intercompany loan, and that new term advance does not have a term advance rating of either AAA, AA, A, BBB or BB, then Funding will establish a new principal deficiency sub-ledger. That new principal deficiency sub-ledger will correspond to and be known by the term advance rating of the relevant new term advance.
Losses on the loans and/or the application of Funding available principal receipts to pay interest on the outstanding term advances will first be recorded on the lowest ranking principal deficiency sub-ledger, and then in ascending order of rating priority up to the highest-ranking principal deficiency sub-ledger. Any excess revenue of Funding will be applied to the highest-ranking principal deficiency sub-ledger, in descending order of rating priority down to the lowest ranking principal deficiency sub-ledger.
| Issuing entity available funds |
On each interest payment date in respect of the master intercompany loan, the issuing entity will receive from Funding an amount equal to or less than the amount which it needs to pay out on the corresponding interest payment date in respect of the issuing entity notes in accordance with the issuing entity pre-enforcement priority of payments. It is not intended that any surplus cash will be accumulated in the issuing entity.
See also the description of the issuing entity swaps under “The swap agreements”.
| Priority of payments among the class A notes, the class B notes, the class M notes, the class C notes and the class D notes |
The order of payments of interest to be made on the classes of issuing entity notes will be prioritised so that interest payments on the class D notes will be subordinated to interest payments on the class C notes, interest payments on the class C notes will be subordinated to interest payments on the class M notes, interest payments on the class M notes will be subordinated to interest payments on the class B notes and interest payments on the class B notes will be subordinated to interest payments on the class A notes, in each case in accordance with the issuing entity priority of payments.
Any shortfall in payments of interest on any series of the class B notes and/or the class M notes and/or the class C notes and/or the class D notes on any interest payment date in respect of such issuing entity notes will be deferred until the next interest payment date and will accrue interest. On the next interest payment date, the amount of interest due on the relevant class of issuing entity notes will be increased to take account of any deferred interest. If, on that interest payment date, there is still a shortfall, that shortfall will be deferred again. This deferral process will continue until the final repayment date of the issuing entity notes, at which point all such deferred amounts of interest (including interest thereon) will be due and payable. However, if there is insufficient money available to the issuing entity to pay interest on the class B notes, or the class M notes or the class C notes, or the class D notes then you may not receive all interest amounts payable on those classes of issuing entity notes.
The issuing entity is not able to defer payments of interest due on any interest payment date in respect of the class A notes or (if applicable) the most senior class of issuing entity notes then outstanding. The failure to pay interest on such issuing entity notes will be a note event of default.
The class A notes, the class B notes, the class M notes, the class C notes and the class D notes will be constituted by the trust deed and will share the same security. However, upon enforcement of the issuing entity security or the occurrence of a trigger event, the class A notes of each series will rank in priority to each series of class B notes, each series of class M notes, each series of class C notes and each series of class D notes, the class B notes of each series will rank in priority to each series of class M notes, each series of class C notes and each series of class D notes, the class M notes of each series will rank in priority to each series of class C notes
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and each series of class D notes and the class C notes of each series will rank in priority to each series of class D notes.
| Mortgages trustee GIC account/Funding GIC account |
All amounts held by the mortgages trustee are deposited in the mortgages trustee GIC account with the mortgages trustee GIC provider. This account is subject to a guaranteed investment contract such that the mortgages trustee GIC provider agrees to pay a variable rate of interest on funds in the mortgages trustee GIC account of LIBOR for three-month sterling deposits.
Amounts held in alternative accounts do not have the benefit of a guaranteed investment contract but following their receipt are transferred into the mortgages trustee GIC account on a regular basis and in any event no later than the next business day after they are deposited in the relevant alternative account.
All amounts held by Funding are deposited in the Funding GIC account in the first instance. The Funding GIC account is maintained with the Funding GIC provider. This account is subject to a guaranteed investment contract such that the Funding GIC provider agrees to pay a variable rate of interest on funds in the Funding GIC account of LIBOR for three-month sterling deposits.
| Funding liquidity reserve fund |
Funding will be required to establish a liquidity reserve fund if the long-term, unsecured, unsubordinated and unguaranteed debt obligations of the seller cease to be rated at least A3 by Moody’s or A- by Fitch (unless Moody’s or Fitch, as applicable, confirms that the then current ratings of the outstanding notes will not be adversely affected by the ratings downgrade).
Prior to enforcement of the Funding security, the Funding liquidity reserve fund may be used to help meet any deficit in Funding available revenue receipts which are allocated to the issuing entity or any previous issuing entity to pay amounts due on the intercompany loan advanced by the issuing entity or any previous issuing entity, but only to the extent that such amounts are necessary to fund:
| • | the payment by any issuing entity of operating and administrative expenses due and interest due on the relevant interest payment date in respect of any series of class A notes, class B notes, class M notes, class C notes and/or class D notes issued by such issuing entity and to help meet any deficit recorded on the principal deficiency ledger in respect of any series of class A notes issued by such issuing entity; and |
| • | prior to the occurrence of an asset trigger event, the payment of principal in respect of the Funding liquidity reserve fund term advances. |
The Funding liquidity reserve fund, if any, will be funded initially from Funding available revenue receipts in accordance with the Funding pre-enforcement revenue priority of payments. The Funding liquidity reserve fund will be funded up to the Funding liquidity reserve required amount, being an amount as of any interest payment date equal to the excess, if any, of 3 per cent. of the aggregate outstanding balance of the issuing entity notes on that payment date over amounts standing to the credit of the first reserve fund on that payment date.
The Funding liquidity reserve fund will be deposited in Funding’s name in the Funding GIC account into which the first reserve fund and second reserve fund are also deposited. All interest or income accrued on the amount of the Funding liquidity reserve fund while on deposit in the Funding GIC account will belong to Funding. The cash manager will maintain a separate Funding liquidity reserve ledger to record the balance from time to time of the Funding liquidity reserve fund.
On each interest payment date prior to enforcement of the Funding security, funds standing to the credit of the Funding liquidity reserve fund will be added to certain other income of Funding in calculating Funding available revenue receipts to make payments due under the intercompany loan.
Once it has been initially funded, the Funding liquidity reserve fund will be replenished from any Funding available revenue receipts or Funding available principal receipts, as applicable. Funding available revenue receipts will only be applied to replenish the Funding liquidity reserve
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fund after: (i) the payment of interest due on each series of class A notes, the class B notes, the class M notes, the class C notes and the class D notes and the reduction of any deficiency on the principal deficiency sub ledger for each series of class A notes, the class B notes, the class M notes, the class C notes and class D notes as described in “Cashflows – Distribution of Funding available revenue receipts prior to enforcement of the Funding security” and (ii) the payment of principal in respect of the Funding liquidity reserve fund term advances.
Following enforcement of the Funding security, amounts standing to the credit of the Funding liquidity reserve ledger may be applied in making payments of principal due under the term advances.
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THE SWAP AGREEMENTS