Registration No. 333-117465
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 2004
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GRANITE MORTGAGES 04-3 PLC
(Exact name of Registrant 1 as specified in its charter)
Fifth FLOOR, 100 WOOD STREET, LONDON EC2V 7EX, UNITED KINGDOM (011 44 20) 7606
5451
(Address and telephone number of Registrant 1's principal executive offices)
CT Corporation System
111 Eighth Avenue
New York, New York 10011
(212) 894-8600
(Name, address and telephone number of Registrant 1's agent for service)
GRANITE FINANCE FUNDING LIMITED
(Exact name of Registrant 2 as specified in its charter)
69 PARK LANE, CROYDON CR9 1TQ, UNITED KINGDOM (011 44 20) 8409 8888
(Address and telephone number of Registrant 2's principal executive offices)
CT Corporation System
111 Eighth Avenue
New York, New York 10011
(212) 894-8600
(Name, address and phone number of Registrant 2's agent for service)
GRANITE FINANCE TRUSTEES LIMITED
(Exact name of Registrant 3 as specified in its charter)
22 GRENVILLE STREET, ST HELIER, JERSEY JE4 8PX, CHANNEL ISLANDS (011 44 1534)
609892
(Address and telephone number of Registrant 3's principal executive offices)
CT Corporation System
111 Eighth Avenue
New York, New York 10011
(212) 894-8600
(Name, address and phone number of Registrant 3's agent for service)
_____________________________
Copies to:
Phil Robinson Robert Torch, Esq. Christopher Bernard, Esq.
Northern Rock plc Sidley Austin Brown & Wood Allen & Overy LLP
Northern Rock House Woolgate Exchange 1 New Change
Gosforth 25 Basinghall Street London EC4M 9QQ
Newcastle upon Tyne NE3 4PL London EC2V 5HA United Kingdom
United Kingdom United Kingdom
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. {square}
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. {square}
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. {square}
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. {square}
_______________________________
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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CALCULATION OF REGISTRATION FEE
TITLE OF SECURITIES BEING REGISTERED AMOUNT BEING PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
REGISTERED OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
UNIT(1) PRICE(1) FEE(3)
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$[981,400,000] series 1 class A1 floating rate $[981,400,000] [ ]% $[981,400,000] $[124,343]
notes due September 2025
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$[1,248,100,000] series 1 class A3 floating rate $[1,248,100,000] [ ]% $[1,248,100,000] $[158,134]
notes due September 2044
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$[59,200,000] series 1 class B floating rate notes $[59,200,000] [ ]% $[59,200,000] $[7,501]
due September 2044
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$[31,400,000] series 1 class M floating rate notes $[31,400,000] [ ]% $[31,400,000] $[3,978]
due September 2044
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$[62,700,000] series 1 class C floating rate notes $[62,700,000] [ ]% $[62,700,000] $[7,944]
due September 2044
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$[713,700,000] series 2 class A1 floating rate $[713,700,000] [ ]% $[713,700,000] $[90,426]
notes due September 2044
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Intercompany loan(2) __ __ __ __
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Funding interest in the mortgages trust(2) __ __ __ __
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Total $[3,096,500,000] [ ]% $[3,096,500,000] $[392,326]
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(1) Estimated solely for the purposes of computing the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act of
1933, as amended.
(2) These items are not being offered directly to investors. Granite Finance
Trustees Limited is the registrant for Granite Finance Funding Limited's
interest in the mortgages trust and is holding that interest in the
mortgages trust on behalf of Granite Finance Funding Limited. The interest
of Granite Finance Funding Limited in the mortgages trust will be the
primary source of payment on the intercompany loan listed. Granite Finance
Funding Limited is the registrant for the intercompany loan and is
providing the intercompany loan to Granite Mortgages 04-3 plc. The
intercompany loan will be the primary source of payments on the notes.
Granite Mortgages 04-3 plc is the registrant for the notes.
(3) Previously paid.
The information in this prospectus is not complete and may be amended. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion, dated September 14, 2004
GRANITE MORTGAGES 04-3 PLC
Issuer
Class Interest Price to Public Proceeds to Final
per Note Issuer per Maturity Date
Class of Note
$[981,400,000] series 1 class A1 notes Three-month USD [__]% $[__] September 2025
LIBOR + [__]% p.a.
$[1,248,100,000] series 1 class A3 notes Three-month USD [__]% $[__] September 2044
LIBOR + [__]% p.a.
$[59,200,000] series 1 class B notes Three-month USD [__]% $[__] September 2044
LIBOR + [__]% p.a.
$[31,400,000] series 1 class M notes Three-month USD [__]% $[__] September 2044
LIBOR + [__]% p.a.
$[62,700,000] series 1 class C notes Three-month USD [__]% $[__] September 2044
LIBOR + [__]% p.a.
$[713,700,000] series 2 class A1 notes Three-month USD [__]% $[__] September 2044
LIBOR + [__]% p.a.
* The principal asset from which we will make payments of interest on, and
principal of, the notes is an intercompany loan to an affiliated company
called Granite Finance Funding Limited.
* The principal asset from which Granite Finance Funding Limited will make
payments on the intercompany loan is its interest in a pool of UK
residential mortgage loans originated by Northern Rock plc and held in a
master trust by Granite Finance Trustees Limited.
* Northern Rock plc originated the residential mortgage loans that are
being held in the master trust. Each mortgage loan is secured by a
mortgaged property located in England, Wales or Scotland. All of the
transaction documents are governed by the laws of England, Scotland,
Jersey or New York.
* Granite Finance Funding Limited, our parent, is also the parent of each
of the previous issuers, Granite Mortgages 01-1 plc, Granite Mortgages
01-2 plc, Granite Mortgages 02-1 plc, Granite Mortgages 02-2 plc, Granite
Mortgages 03-1 plc, Granite Mortgages 03-2 plc, Granite Mortgages 03-3
plc, Granite Mortgages 04-1 plc and Granite Mortgages 04-2 plc which
issued the previous notes referred to in this prospectus. We share with
the previous issuers the security granted by Granite Finance Funding
Limited to secure its obligations to each of us and the previous issuers
under our respective intercompany loans.
PLEASE CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 36 OF THIS
PROSPECTUS.
THE NOTES OFFERED BY THIS PROSPECTUS WILL BE THE OBLIGATIONS SOLELY OF THE
ISSUER. THE NOTES WILL NOT BE OBLIGATIONS OF NORTHERN ROCK PLC, ANY OF ITS
AFFILIATES OR ANY OF THE OTHER PARTIES NAMED IN THIS PROSPECTUS OTHER THAN THE
ISSUER.
Application has been 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 notes to be admitted to the official list
maintained by the UK Listing Authority. Application has also been made to the
London Stock Exchange plc for each class of the notes to be admitted to trading
by the London Stock Exchange plc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE NOTES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
JOINT UNDERWRITERS FOR THE SERIES 1 CLASS A1 NOTES, THE SERIES 1 CLASS A3 NOTES
AND THE SERIES 2 CLASS A1 NOTES
DEUTSCHE BANK SECURITIES LEHMAN BROTHERS UBS INVESTMENT BANK
BARCLAYS CAPITAL CITIGROUP HSBC JPMORGAN MERRILL LYNCH & CO.
JOINT UNDERWRITERS FOR THE SERIES 1 CLASS B NOTES, THE SERIES 1 CLASS M NOTES
AND THE SERIES 1 CLASS C NOTES
DEUTSCHE BANK SECURITIES LEHMAN BROTHERS UBS INVESTMENT BANK
Prospectus dated September [16], 2004
You should note that Granite Finance Funding Limited ("FUNDING") has
established previous issuers which have made previous intercompany loans to
Funding, and that Funding may establish from time to time new issuers which
will make new intercompany loans to Funding. Each previous issuer made a
previous intercompany loan from the proceeds of the previous notes that were
issued by that previous issuer, and any new issuer will make a new intercompany
loan from the proceeds of new notes that are issued by that new issuer. The
previous notes issued by the previous issuers ultimately are, and any new notes
issued by a new issuer ultimately will be, secured by the same trust property
(primarily consisting of the mortgage portfolio) as the notes issued by us
under this prospectus.
Funding will repay each outstanding intercompany loan in proportion to the
relevant issuer's allocable interest in the Funding share of the trust
property, principally consisting of principal receipts and revenue receipts on
the underlying mortgage loans. The amount and timing of payments under an
intercompany loan are determined by the amount and timing of payments on the
notes issued by the relevant issuer and by the priorities for payment
applicable to those notes. The terms of the previous notes issued by the
previous issuers and of any new notes issued by a new issuer may therefore
result in those previous notes and the related previous intercompany loans or
those new notes and the related new intercompany loan being repaid prior to the
repayment of the notes issued by us under this prospectus and our related
intercompany loan regardless of the ratings of such previous notes or new notes
relative to the notes.
A note is not a deposit and none of the notes, payments under the
intercompany loan or the underlying mortgage loans are insured or guaranteed by
any United Kingdom or United States governmental agency or authority.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements including, but not
limited to, statements made under the captions "RISK FACTORS", "THE MORTGAGE
LOANS", "THE ADMINISTRATOR AND THE ADMINISTRATION AGREEMENT" and "MATURITY AND
REPAYMENT CONSIDERATIONS". 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 notes, Northern Rock plc 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 UK; currency exchange and interest fluctuations;
governmental, statutory, regulatory or administrative initiatives affecting
Northern Rock plc; 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 under the caption "RISK FACTORS", and you are encouraged to
carefully consider those factors prior to making an investment decision.
2
TABLE OF CONTENTS
SUMMARY OF PROSPECTUS........................................................... 5
RISK FACTORS.................................................................... 36
DEFINED TERMS................................................................... 64
US DOLLAR PRESENTATION.......................................................... 65
THE ISSUER...................................................................... 66
USE OF PROCEEDS................................................................. 69
THE NORTHERN ROCK GROUP......................................................... 70
FUNDING......................................................................... 71
THE MORTGAGES TRUSTEE........................................................... 74
HOLDINGS........................................................................ 76
GPCH LIMITED.................................................................... 77
THE INTEREST RATE SWAP PROVIDER................................................. 78
THE CURRENCY RATE SWAP PROVIDERS................................................ 78
DESCRIPTION OF THE PREVIOUS ISSUERS, THE PREVIOUS NOTES AND THE PREVIOUS
INTERCOMPANY LOANS........................................................... 81
THE MORTGAGE LOANS.............................................................. 91
CHARACTERISTICS OF UNITED KINGDOM RESIDENTIAL MORTGAGE MARKET................... 123
THE ADMINISTRATOR AND THE ADMINISTRATION AGREEMENT.............................. 130
ASSIGNMENT OF THE MORTGAGE LOANS AND RELATED SECURITY........................... 143
THE MORTGAGES TRUST............................................................. 154
THE INTERCOMPANY LOAN AGREEMENT................................................. 174
CASHFLOWS....................................................................... 180
CREDIT STRUCTURE................................................................ 221
THE SWAP AGREEMENTS............................................................. 232
CASH MANAGEMENT FOR THE MORTGAGES TRUSTEE AND FUNDING........................... 241
CASH MANAGEMENT FOR THE ISSUER.................................................. 245
SECURITY FOR FUNDING'S OBLIGATIONS.............................................. 247
SECURITY FOR THE ISSUER'S OBLIGATIONS........................................... 253
DESCRIPTION OF THE TRUST DEED................................................... 258
THE NOTES....................................................................... 260
DESCRIPTION OF THE OFFERED NOTES................................................ 265
RATINGS OF THE OFFERED NOTES.................................................... 286
MATURITY AND REPAYMENT CONSIDERATIONS........................................... 287
MATERIAL LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE RELATED SECURITY........... 289
MATERIAL UNITED KINGDOM TAX CONSEQUENCES........................................ 295
MATERIAL UNITED STATES TAX CONSEQUENCES......................................... 299
MATERIAL JERSEY (CHANNEL ISLANDS) TAX CONSIDERATIONS............................ 303
ERISA CONSIDERATIONS............................................................ 304
ENFORCEMENT OF FOREIGN JUDGMENTS IN ENGLAND AND WALES........................... 307
UNITED STATES LEGAL INVESTMENT CONSIDERATIONS................................... 308
EXPERTS......................................................................... 308
LEGAL MATTERS................................................................... 308
UNDERWRITING.................................................................... 309
REPORTS TO NOTEHOLDERS.......................................................... 314
WHERE INVESTORS CAN FIND MORE INFORMATION....................................... 314
LISTING AND GENERAL INFORMATION................................................. 315
GLOSSARY........................................................................ 318
3
ANNEX A -- EXTRACT OF CURRENT REPORTS DESCRIBING MORTGAGE LOANS IN THE
MORTGAGES TRUST DURING THE PERIOD FROM JUNE 1, 2004 THROUGH JUNE
30, 2004............................................................. 369
ANNEX B -- MORTGAGE LOANS UNDER THE SELLER'S NON-VERIFIED INCOME PROGRAM........ 373
INDEX OF APPENDICES............................................................. 374
Appendix A Report of Independent Registered Public Accounting Firm for Granite
Mortgages 04-3 plc........................................................... 375
Appendix B Balance Sheet of Granite Mortgages 04-3 plc......................... 376
Appendix C Notes to the Balance Sheet of Granite Mortgages 04-3 plc............ 377
Appendix D Report of Independent Registered Public Accounting Firm for Granite
Finance Funding Limited...................................................... 378
Appendix E Consolidated Statement of Income of Granite Finance Funding Limited. 379
Appendix F Consolidated Balance Sheet of Granite Finance Funding Limited....... 380
Appendix G Consolidated Statement of Changes in Shareholders' Equity of Granite
Finance Funding Limited...................................................... 381
Appendix H Consolidated Statement of Cash Flows of Granite Finance Funding
Limited...................................................................... 382
Appendix I Notes to the Financial Statements of Granite Finance Funding Limited 383
4
SUMMARY OF PROSPECTUS
The information in this section is a summary of the principal features of
the notes, including a description of the mortgage loans that will generate the
income for us to make payments on the notes and the contracts that document the
transaction. This summary does not contain all of the information that you
should consider before investing in the notes. You should read the entire
prospectus carefully, especially the risks of investing in the notes discussed
under "RISK FACTORS".
OVERVIEW OF THE TRANSACTION
The following is an overview of the transaction as illustrated by the
"STRUCTURAL DIAGRAM OF THE SECURITIZATION PROGRAM". The numbers in the diagram
refer to the numbered paragraphs in this section.
(1) On March 26, 2001, the seller assigned the initial mortgage
portfolio and the other initial trust property to the mortgages
trustee pursuant to the mortgage sale agreement and retained an
interest for itself in the trust property. Since March 26, 2001 the
seller has assigned further mortgage portfolios and the other
further trust property (including the additional assigned mortgage
portfolio) to the mortgages trustee pursuant to the mortgage sale
agreement, while continuing to retain an interest for itself in the
trust property. For a further description of the assignment of the
initial mortgage portfolio, the further mortgage portfolios and the
additional assigned mortgage portfolio, see "SUMMARY OF THE NOTES
-- ASSIGNMENT OF THE MORTGAGE LOANS". The trust property consists
of the mortgage loans in the mortgage portfolio, their related
security, any accrued interest on those mortgage loans and other
amounts derived from those mortgage loans. The mortgage loans are
residential mortgage loans originated by Northern Rock plc and
secured over mortgaged properties located in England, Wales and
Scotland.
(2) The mortgages trustee holds the trust property in trust for the
benefit of the seller and Funding pursuant to a mortgages trust
deed. The seller and Funding each has a joint and undivided
interest in the trust property, but their entitlement to the
proceeds from the trust property is in proportion to their
respective shares of the trust property.
(3) Unless otherwise expressly provided in the mortgages trust deed,
the cash manager on behalf of the mortgages trustee distributes
interest and principal payments on the mortgage loans and allocates
losses in relation to the mortgage 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 fluctuate as
described under "SUMMARY OF THE NOTES -- THE MORTGAGES TRUST".
(4) Funding currently owns a beneficial interest in the trust property,
which it purchased on prior dates by making initial contributions
to the mortgages trust from the proceeds of the previous
intercompany loans made to Funding by the previous issuers. The
seller increased the trust property (and the seller share of the
trust property) by the assignment on August 23, 2004 of the
additional assigned mortgage portfolio. Therefore, rather than
assigning new mortgage loans to the mortgages trust on the closing
date, Funding on the closing date will pay to the mortgages trustee
the proceeds of the intercompany loan from the issuer as a further
contribution to increase its beneficial interest in the trust
property. Upon receipt of Funding's further contribution, the
mortgages trustee will pay these funds to the seller as initial
consideration. The initial consideration from the mortgages trustee
to the seller will correspondingly decrease the seller share of the
trust property. From time to time Funding will make deferred
contributions to the mortgages trustee pursuant to the mortgages
trust deed in respect of the
5
Funding share of the trust property and from such deferred
contributions the mortgages trustee will from time to time make
corresponding payments of deferred purchase price to the seller.
(5) In addition to paying certain of its own fees and expenses, Funding
will use amounts received from its share in the trust property to
meet its obligations to pay interest, principal and fees due to the
issuer under the intercompany loan, to pay interest, principal and
fees due to the previous issuers under the previous issuers'
intercompany loans and to any new issuer under any new intercompany
loan, to allocate the issuer amounts to replenish the issuer
reserve fund and to fund and/or replenish the issuer liquidity
reserve fund, if any (and, in respect of the previous issuers and
any new issuer, to allocate such issuer amounts to replenish such
issuer's reserve fund and to fund and/ or replenish such issuer's
liquidity reserve fund, if any) and to replenish the Funding
reserve fund. Funding's obligations to the issuer under the
intercompany loan will be secured under the Funding deed of charge
by, among other things, Funding's rights to its share of the trust
property. Funding's rights to its share in the trust property also
secures its obligations to the previous issuers under the previous
intercompany loans and will secure its obligations to any new
issuer under any new intercompany loan.
(6) The issuer's obligations to pay interest on, and principal of, the
notes will be funded primarily from the payments of interest and
principal received by it from Funding under the intercompany loan.
The issuer's primary asset will be its rights under the
intercompany loan agreement. Neither you nor the issuer will have
any direct interest in the trust property, although the issuer will
have a security interest (which it will share with the previous
issuers and any new issuer) under the Funding deed of charge in
Funding's rights to its share of the trust property.
(7) The issuer will sell the notes to you and then lend the proceeds to
Funding under the intercompany loan on the closing date.
(8) The accounts, reserve funds and swaps, and their function in the
transaction structure are described later in this prospectus. They
are included in the following diagram so that you can refer back to
see where they fit into the structure.
6
STRUCTURAL DIAGRAM OF THE SECURITIZATION PROGRAM
[STRUCTURAL DIAGRAM OF THE SECURITIZATION PROGRAM]
7
DIAGRAM OF OWNERSHIP STRUCTURE
[DIAGRAM OF OWNERSHIP STRUCTURE]
This diagram illustrates the ownership structure of the principal parties
to the transaction:
* Each of the mortgages trustee, Funding and GPCH Limited is a
wholly-owned subsidiary of Granite Finance Holdings Limited.
* We are a wholly-owned subsidiary of Funding.
* The entire issued share capital of Holdings is held on trust by a
professional trust company under the terms of a discretionary trust
for the benefit of one or more charities. The professional trust
company is not affiliated with the seller. Any profits received by
Holdings, after payment of the costs and expenses of Holdings, will
be paid for the benefit of the Down's Syndrome North East
Association (UK) and for other charitable purposes selected at the
discretion of the professional trust company. The payments on your
notes will not be affected by this arrangement.
8
The purpose of this diagram is to draw your attention to two facts:
* Firstly, the seller has no ownership interest in any of the
entities in the above diagram. As a result, the financial condition
of the seller should not directly affect the mortgages trustee,
Funding, the issuer or, ultimately, investors in the notes,
although the seller still has a connection with the transaction for
other reasons (such as acting as administrator of the mortgage
loans and as basis rate swap provider); and
* Secondly, Funding has established previous issuers which have made
previous intercompany loans to Funding, and Funding may establish
from time to time new issuers which will make new intercompany
loans to Funding, as described under "SUMMARY OF THE NOTES -- THE
PREVIOUS ISSUERS AND NEW ISSUERS". Each previous issuer made a
previous intercompany loan from the proceeds of the previous notes
that were issued by that previous issuer, and any new issuer will
make a new intercompany loan from the proceeds of new notes that
are issued by that new issuer. The previous notes issued by the
previous issuers ultimately are, and any new notes issued by a new
issuer ultimately will be, secured by the same trust property
(primarily consisting of the mortgage portfolio) as the notes
issued by us under this prospectus. Subject to certain exceptions,
payments by Funding to new issuers under any new intercompany loans
will rank equally in priority with payments made by Funding to the
previous issuers under the previous intercompany loans and to us
under our intercompany loan. However, you should note that the
amount and timing of payments under an intercompany loan are
determined by the amount and timing of payments on the notes issued
by the relevant issuer and by the priorities for payment applicable
to those notes. The previous notes (other than the notes issued by
the eighth issuer and the ninth issuer) all share the same
quarterly payment dates (except for money market notes and fixed
rate notes) whereas the notes will, and any new notes may, have
different payment dates. The terms of the previous notes issued by
the previous issuers and of any new notes issued by a new issuer
may therefore result in those previous notes and the related
previous intercompany loans or those new notes and the related new
intercompany loan being repaid prior to the repayment of the notes
issued by us under this prospectus and our related intercompany
loan regardless of the ratings of such previous notes or new notes
relative to the notes.
9
SUMMARY OF THE NOTES
In addition to the series 1 class A1 notes, series 1 class A3 notes, series
1 class B notes, series 1 class M notes, series 1 class C notes and series 2
class A1 notes, the issuer will issue the series 1 class A2 notes, series 2
class A2 notes, series 2 class B notes, series 2 class M notes, series 2 class
C notes, series 3 class A1 notes, series 3 class A2 notes, series 3 class B
notes, series 3 class M notes and series 3 class C notes. The series 1 notes,
series 2 notes and series 3 notes will each be secured by the issuer security,
comprising our interest in our intercompany loan and our interest in the
security granted by Funding, including Funding's beneficial interest in the
mortgage loans. The series 1 notes (other than the series 1 class A2 notes) and
the series 2 class A1 notes are collectively referred to as the "DOLLAR NOTES"
or the "US NOTES". The series 1 class A2 notes and the series 2 notes (other
than the series 2 class A1 notes) are collectively referred to as the "EURO
NOTES". The series 3 notes are collectively referred to as the "STERLING
NOTES". The euro notes and the sterling notes have not been and will not be
registered with the United States Securities and Exchange Commission and are
not being offered by this prospectus. However, the term "NOTES" when used in
this prospectus includes all of the series 1 notes, series 2 notes and series 3
notes, certain features of which are summarized in this section.
10
CLASS OF NOTES
---------------------------------------------------------------------------------
SERIES 1 SERIES 1 SERIES 1 SERIES 1
CLASS A1 CLASS A2 CLASS A3 CLASS B
------------------- ------------------ ------------------- -------------------
Principal amount: $[981,400,000] [e][494,000,000] $[1,248,100,000] $[59,200,000]
Credit enhancement: Subordination of Subordination of Subordination of Subordination of
the class B notes, the class B notes, the class B notes, the class M notes,
the class M notes, the class M notes, the class M notes, the class C notes
the class C notes the class C notes the class C notes and the issuer
and the issuer and the issuer and the issuer reserve fund
reserve fund reserve fund reserve fund
Interest rate: Three-month USD Three-month Three-month USD Three-month USD
LIBOR + margin EURIBOR + LIBOR + margin LIBOR + margin
margin
Margin until payment date falling in [__]% p.a. [__]% p.a. [__]% p.a. [__]% p.a.
September 20111, 2:
Margin after payment date falling in [__]% p.a. [__]% p.a. [__]% p.a. [__]% p.a.
September 20112:
Interest accrual method: Actual/360 Actual/360 Actual/360 Actual/360
Payment dates: For all of the notes (other than the series 3 class A2 notes), interest and
principal will be payable quarterly in arrears on the payment dates falling in
March, June, September and December, beginning in December 2004. For the series 3
class A2 notes, until and including the payment date in September 2011, interest
and principal will be payable annually in arrears on the September payment date
of each year, beginning in September 2005. Following the payment date in
September 2011, or, if a trigger event occurs or the Funding security and/or the
issuer security is enforced prior to the payment date falling in September 2011,
interest and principal in respect of the series 3 class A2 notes will be payable
quarterly in arrears on the payment dates falling in March, June, September and
December of each year.
First payment date (payment date December 2004 December 2004 December 2004 December 2004
falling in):
Final maturity date: September 2025 September 2028 September 2044 September 2044
Tax treatment: Debt for United N/A (these notes Debt for United Debt for United
States federal are not being States federal States federal
income tax offered or sold in income tax income tax
purposes, subject the United States) purposes, subject purposes, subject
to the to the to the
considerations considerations considerations
contained in contained in contained in
"MATERIAL UNITED "MATERIAL UNITED "MATERIAL UNITED
STATES TAX STATES TAX STATES TAX
CONSEQUENCES" CONSEQUENCES" CONSEQUENCES"
ERISA eligible: Yes, subject to the N/A (these notes Yes, subject to the Yes, subject to the
considerations in are not being considerations in considerations in
"ERISA offered or sold in "ERISA "ERISA
CONSIDERATIONS" the United States) CONSIDERATIONS" CONSIDERATIONS"
Stock Exchange Listing: London London London London
ISIN: [__] [__] [__] [__]
Common Code: [__] [__] [__] [__]
CUSIP Number: [__] N/A [__] [__]
Expected rating Aaa/AAA/AAA Aaa/AAA/AAA Aaa/AAA/AAA Aa3/AA/AA
(Moody's/S&P/Fitch):
CLASS OF NOTES
---------------------------------------------------------------------------------
SERIES 1 SERIES 1 SERIES 2 SERIES 2
CLASS M CLASS C CLASS A1 CLASS A2
------------------- ------------------- ------------------- ------------------
Principal amount: $[31,400,000] $[62,700,000] $[713,700,000] [e][800,150,000]
Credit enhancement: Subordination of The issuer reserve Subordination of Subordination of
the class C notes fund the class B notes, the class B notes,
and the issuer the class M notes, the class M notes,
reserve fund the class C notes the class C notes
and the issuer and the issuer
reserve fund reserve fund
Interest rate: Three-month USD Three-month USD Three-month USD Three-month
LIBOR + margin LIBOR + margin LIBOR + margin EURIBOR +
margin
Margin until payment date falling in [__]% p.a. [__]% p.a. [__]% p.a. [__]% p.a.
September 20111, 2:
Margin after payment date falling in [__]% p.a. [__]% p.a. [__]% p.a. [__]% p.a.
September 20112:
Interest accrual method: Actual/360 Actual/360 Actual/360 Actual/360
Payment dates: For all of the notes (other than the series 3 class A2 notes), interest and
principal will be payable quarterly in arrears on the payment dates falling in
March, June, September and December, beginning in December 2004. For the series 3
class A2 notes, until and including the payment date in September 2011, interest
and principal will be payable annually in arrears on the September payment date
of each year, beginning in September 2005. Following the payment date in
September 2011, or, if a trigger event occurs or the Funding security and/or the
issuer security is enforced prior to the payment date falling in September 2011,
interest and principal in respect of the series 3 class A2 notes will be payable
quarterly in arrears on the payment dates falling in March, June, September and
December of each year.
First payment date (payment date December 2004 December 2004 December 2004 December 2004
falling in):
Final maturity date: September 2044 September 2044 September 2044 September 2044
Tax treatment: Debt for United Debt for United Debt for United N/A (these notes
States federal States federal States federal are not being
income tax income tax income tax offered in the
purposes, subject purposes, subject purposes, subject United States)
to the to the to the
considerations considerations considerations
contained in contained in contained in
"MATERIAL UNITED "MATERIAL UNITED "MATERIAL UNITED
STATES TAX STATES TAX STATES TAX
CONSEQUENCES" CONSEQUENCES" CONSEQUENCES"
ERISA eligible: Yes, subject to the Yes, subject to the Yes, subject to the N/A (these notes
considerations in considerations in considerations in are not being
"ERISA "ERISA "ERISA offered in the
CONSIDERATIONS" CONSIDERATIONS" CONSIDERATIONS" United States)
Stock Exchange Listing: London London London London
ISIN: [__] [__] [__] [__]
Common Code: [__] [__] [__] [__]
CUSIP Number: [__] [__] [__] N/A
Expected rating A2/A/A Baa2/BBB/BBB Aaa/AAA/AAA Aaa/AAA/AAA
(Moody's/S&P/Fitch):
CLASS OF NOTES
------------------------------------------------------------------------------
SERIES 2 SERIES 2 SERIES 2 SERIES 3
CLASS B CLASS M CLASS C CLASS A1
------------------ ------------------ ------------------ ------------------
Principal amount: [e][74,400,000] [e][57,900,000] [e][139,050,000] [GBP][411,250,000]
Credit enhancement: Subordination of Subordination of The issuer reserve Subordination of
the class M notes, the class C notes fund the class B notes,
the class C notes and the issuer the class M notes,
and the issuer reserve fund the class C notes
reserve fund and the issuer
reserve fund
Interest rate: Three-month Three-month Three-month Three-month
EURIBOR + EURIBOR + EURIBOR + sterling LIBOR +
margin margin margin margin
Margin until payment date falling in [__]% p.a. [__]% p.a. [__]% p.a. [__]% p.a.
September 20111, 2:
Margin after payment date falling in [__]% p.a. [__]% p.a. [__]% p.a. [__]% p.a.
September 20112:
Interest accrual method: Actual/360 Actual/360 Actual/360 Actual/365
Payment dates: For all of the notes (other than the series 3 class A2 notes), interest and
principal will be payable quarterly in arrears on the payment dates falling in
March, June, September and December, beginning in December 2004. For the
series 3 class A2 notes, until and including the payment date in September
2011, interest and principal will be payable annually in arrears on the
September payment date of each year, beginning in September 2005. Following
the payment date in September 2011, or, if a trigger event occurs or the
Funding security and/or the issuer security is enforced prior to the payment
date falling in September 2011, interest and principal in respect of the
series 3 class A2 notes will be payable quarterly in arrears on the payment
dates falling in March, June, September and December of each year.
First payment date (payment date December 2004 December 2004 December 2004 December 2004
falling in):
Final maturity date: September 2044 September 2044 September 2044 September 2044
Tax treatment: N/A (these notes N/A (these notes N/A (these notes N/A (these notes
are not being are not being are not being are not being
offered or sold in offered or sold in offered or sold in offered or sold in
the United States) the United States) the United States) the United States)
ERISA eligible: N/A (these notes N/A (these notes N/A (these notes N/A (these notes
are not being are not being are not being are not being
offered or sold in offered or sold in offered or sold in offered or sold in
the United States) the United States) the United States) the United States)
Stock Exchange Listing: London London London London
ISIN: [__] [__] [__] [__]
Common Code: [__] [__] [__] [__]
CUSIP Number: N/A N/A N/A N/A
Expected rating Aa3/AA/AA A2/A/A Baa2/BBB/BBB Aaa/AAA/AAA
(Moody's/S&P/Fitch):
CLASS OF NOTES
----------------------------------------------------------------------------------
SERIES 3 SERIES 3 SERIES 3 SERIES 3
CLASS A2 CLASS B CLASS M CLASS C
---------------------- ------------------ ------------------ ------------------
Principal amount: [GBP][600,000,000] [GBP][54,350,000] [GBP][42,250,000] [GBP][99,450,000]
Credit enhancement: Subordination of Subordination of Subordination of The issuer reserve
the class B notes, the class M notes, the class C notes fund
the class M notes, the class C notes and the issuer
the class C notes and the issuer reserve fund
and the issuer reserve fund
reserve fund
Interest rate: [__]% p.a. until the Three-month Three-month Three-month
earlier to occur of sterling LIBOR + sterling LIBOR + sterling LIBOR +
(i) the payment margin margin margin
date in September
2011, (ii) the
occurrence of a
trigger event or (iii)
the enforcement of
the Funding
security and/or the
issuer security,
and thereafter
three-month
sterling LIBOR +
margin
Margin until payment date falling in N/A [__]% p.a. [__]% p.a. [__]% p.a.
September 20111, 2:
Margin after payment date falling in [__]% p.a. [__]% p.a. [__]% p.a. [__]% p.a.
September 20112:
Interest accrual method: Actual/Actual Actual/365 Actual/365 Actual/365
until the earlier to
occur of the end of
the interest period
falling on or
immediately
before the
payment date in
September 2011,
the occurrence of
a trigger event or
enforcement of the
Funding security
and/or the issuer
security, and
thereafter actual/
365
Payment dates: For all of the notes (other than the series 3 class A2 notes), interest and
principal will be payable quarterly in arrears on the payment dates falling in
March, June, September and December, beginning in December 2004. For the series 3
class A2 notes, until and including the payment date in September 2011, interest
and principal will be payable annually in arrears on the September payment date of
each year, beginning in September 2005. Following the payment date in September
2011, or, if a trigger event occurs or the Funding security and/or the issuer
security is enforced prior to the payment date falling in September 2011, interest
and principal in respect of the se ries 3 class A2 notes will be payable quarterly
in arrears on the payment dates falling in March, June, September and December of
each year.
First payment date (payment date September 2005 December 2004 December 2004 December 2004
falling in):
Final maturity date: September 2044 September 2044 September 2044 September 2044
Tax treatment: N/A (these notes N/A (these notes N/A (these notes N/A (these notes
are not being are not being are not being are not being
offered or sold in offered or sold in offered or sold in offered or sold in
the United States) the United States) the United States) the United States)
ERISA eligible: N/A (these notes N/A (these notes N/A (these notes N/A (these notes
are not being are not being are not being are not being
offered or sold in offered or sold in offered or sold in offered or sold in
the United States) the United States) the United States) the United States)
Stock Exchange Listing: London London London London
ISIN: [__] [__] [__] [__]
Common Code: [__] [__] [__] [__]
CUSIP Number: N/A N/A N/A N/A
Expected rating Aaa/AAA/AAA Aa3/AA/AA A2/A/A Baa2/BBB/BBB
(Moody's/S&P/Fitch):
- ---------------
1 If a trigger event occurs or the Funding security and/or the issuer security
is enforced prior to the payment date in September 2011, the margin for the
series 3 class A2 notes will be [__]% p.a. up to and including the interest
period ending on the payment date falling in September 2011.
2 In respect of the series 1 class A2 notes only, the payment date falling in
March 2006.
11
THE ISSUER
Granite Mortgages 04-3 plc is a public limited company incorporated in
England and Wales. Its registered office is at Fifth Floor, 100 Wood Street,
London EC2V 7EX. References in this document to "WE" or "US" mean the issuer
and references to "YOU" mean potential investors in the notes.
We are a newly created special purpose company and a wholly-owned subsidiary
of Funding. Our purpose is to issue the notes which represent our mortgage-
backed obligations and to lend an amount equal to the proceeds of the notes to
Funding. We will not engage in any activities that are unrelated to these
purposes.
FUNDING
Granite Finance Funding Limited is a private limited company incorporated in
Jersey, Channel Islands. Its registered office is at 22 Grenville Street, St.
Helier, Jersey JE4 8PX.
Funding has been registered under Schedule 21A to the Companies Act 1985 as
having established a branch in England and Wales. Its branch address is 69 Park
Lane, Croydon CR9 1TQ.
Funding is a special purpose company. Funding currently owns a share of the
trust property that it acquired with the proceeds of the previous intercompany
loans from the previous issuers in connection with the issuance of the previous
notes. Funding will borrow money from us pursuant to the terms of our
intercompany loan agreement. Funding will use the money borrowed from us to pay
to the mortgages trustee a further contribution for an increased Funding share
of the trust property pursuant to the mortgages trust deed which, upon receipt
by the mortgages trustee, will be paid to the seller as initial consideration
for Funding increasing its beneficial interest in the trust property. Funding's
further contribution to the mortgages trustee will increase the Funding share
of the trust property and the initial consideration from the mortgages trustee
to the seller will correspondingly decrease the seller share of the trust
property. Funding and the seller together are beneficially entitled to all of
the trust property in accordance with their respective shares in the trust.
THE MORTGAGES TRUSTEE
Granite Finance Trustees Limited is a private limited company incorporated
in Jersey, Channel Islands. Its registered office is at 22 Grenville Street,
St. Helier, Jersey JE4 8PX.
The mortgages trustee is a special purpose company. The purpose of the
mortgages trustee is to acquire from time to time additional trust property
from the seller and to hold all of the trust property on trust for the seller
and Funding under the terms of the mortgages trust deed.
THE SELLER, THE ADMINISTRATOR, THE CASH MANAGER, THE ISSUER CASH MANAGER AND
THE ACCOUNT BANK
Northern Rock plc is a bank incorporated in England and Wales as a public
limited company. It is regulated by the Financial Services Authority. Its
registered office is at Northern Rock House, Gosforth, Newcastle upon Tyne NE3
4PL.
The seller originated each of the additional assigned mortgage loans which
it assigned to the mortgages trustee according to the seller's lending criteria
applicable at the time such mortgage loan was offered, which lending criteria
were the same as or substantially similar to the criteria described later in
this prospectus.
The seller acts as administrator of the mortgage portfolio under the terms
of the administration agreement, pursuant to which it has agreed to continue to
perform administrative functions in respect of the mortgage loans on behalf of
the mortgages trustee and the beneficiaries, including collecting payments
under the mortgage loans and
12
taking steps to recover arrears. The seller may not resign as administrator
unless a successor administrator has been appointed. In addition, the
administrator may be replaced by a new administrator if it defaults in its
obligations under the administration agreement.
The seller 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 to be made by them and keep certain records on their behalf.
The seller has also been appointed as account bank in respect of the Funding
GIC account, the mortgages trustee GIC account and the Funding (Issuer) GIC
account for the ninth issuer. The seller will also be appointed as account bank
in respect of the Funding (Granite 04-3) GIC account.
The seller will also be appointed as the issuer cash manager to manage our
bank account, determine the amounts of and arrange payments to be made by us
and keep certain records on our behalf.
Citibank, N.A. will be appointed as account bank to provide banking services
to us.
Lloyds TSB Bank plc has also been appointed as account bank to provide
banking services to Funding. Lloyds TSB Bank plc Jersey International Branch
has been appointed as Jersey account bank to provide banking services to the
mortgages trustee. Lloyds TSB Bank plc Jersey International Branch is a branch
of Lloyds TSB Bank plc. Its activities currently include currency exchange,
fund management, private banking, investment advice and treasury operations.
The address of Lloyds TSB Bank plc Jersey International Branch is 25 New
Street, St. Helier, Jersey JE4 8ZE.
The seller has a continuing interest in the mortgage loans as one of the
beneficiaries of the mortgages trust.
THE NOTES
CLASSES OF NOTES
In this prospectus, we are offering the following series of notes:
$[981,400,000] series 1 class A1 floating rate notes due September 2025;
$[1,248,100,000] series 1 class A3 floating rate notes due September 2044;
$[59,200,000] series 1 class B floating rate notes due September 2044;
$[31,400,000] series 1 class M floating rate notes due September 2044;
$[62,700,000] series 1 class C floating rate notes due September 2044; and
$[713,700,000] series 2 class A1 floating rate notes due September 2044.
In addition, we are issuing the following separate series of notes, which
are not being offered by this prospectus:
[e][494,000,000] series 1 class A2 floating rate notes due September 2028;
[e][800,150,000] series 2 class A2 floating rate notes due September 2044;
[e][74,400,000] series 2 class B floating rate notes due September 2044;
[e][57,900,000] series 2 class M floating rate notes due September 2044;
[e][139,050,000] series 2 class C floating rate notes due September 2044;
[GBP][411,250,000] series 3 class A1 floating rate notes due September 2044;
[GBP][600,000,000] series 3 class A2 fixed rate notes due September 2044;
[GBP][54,350,000] series 3 class B floating rate notes due September 2044;
[GBP][42,250,000] series 3 class M floating rate notes due September 2044;
and
[GBP][99,450,000] series 3 class C floating rate notes due September 2044.
The series 1 class A1 notes, the series 1 class A2 notes and the series 1
class A3 notes are collectively referred to as the series 1 class A notes. The
series 1 class A notes, the series 1 class B notes, the series 1 class M notes
and the series 1 class C notes are collectively referred to as the series 1
notes. The series 2 class A1 notes and the series 2 class A2 notes are together
referred to as the series 2 class A notes. The series 2 class A notes, the
series 2 class B notes, the series 2 class M notes and the series 2 class C
notes are collectively referred to as the series 2 notes. The series 3 class
13
A1 notes and the series 3 class A2 notes are together referred to as the series
3 class A notes. The series 3 class A notes, the series 3 class B notes, the
series 3 class M notes and the series 3 class C notes are collectively referred
to as the series 3 notes. The series 1 class A notes, the series 2 class A
notes and the series 3 class A notes are collectively referred to as the class
A notes and you should construe references to the class B notes, class M notes
and class C notes in an analogous manner.
The euro notes and the sterling notes are not being offered to the public in
the United States by this prospectus. Instead, they will be offered to
institutional investors outside the United States in transactions exempt from
the registration requirements of the Securities Act.
The series 1 notes, the series 2 notes and the series 3 notes collectively
represent our mortgage-backed obligations.
RELATIONSHIP BETWEEN THE NOTES AND THE INTERCOMPANY LOAN
On the closing date we will make an intercompany loan to Funding from the
proceeds of the issue of the notes. For more information on the intercompany
loan, see "THE INTERCOMPANY LOAN". Subject to the various swap agreements and
the payments to be made to us by the various swap providers as described under
"THE SWAP AGREEMENTS", we will repay the notes from payments made to us by
Funding under the intercompany loan. If Funding does not have enough money to
pay amounts due under the intercompany loan to enable us to pay interest or
repay principal amounts on the notes, then in certain circumstances Funding may
access funds standing to the credit of the issuer reserve fund and/or the
issuer liquidity reserve fund, although Funding will only be required to
establish the issuer liquidity reserve fund in limited circumstances. For more
information on the issuer reserve fund, see "CREDIT STRUCTURE -- ISSUER RESERVE
FUND", and for more information on the issuer liquidity reserve fund and the
circumstances in which Funding will be required to establish the issuer
liquidity reserve fund, see "CREDIT STRUCTURE -- ISSUER LIQUIDITY RESERVE
FUND". The ability of Funding to make payments on the intercompany loan will
depend on 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 mortgage loans and their related security.
OPERATIVE DOCUMENTS CONCERNING THE NOTES
We will issue the notes under the trust deed. The notes will also be subject
to a paying agent and agent bank agreement. The security for the notes will be
created under the issuer deed of charge among us, the note trustee and our
other secured creditors. Operative legal provisions relating to the notes will
be included in the trust deed, the paying agent and agent bank agreement, the
issuer deed of charge, the issuer cash management agreement and the notes
themselves.
PAYMENT PRIORITY AND RANKING OF NOTES
Payments of interest on the notes will be made from issuer available revenue
receipts available to the issuer following payment of amounts owing to the
security trustee, the note trustee, the agent bank and paying agents, the
transfer agent, the registrar, third party creditors of the issuer, the issuer
cash manager and the corporate services provider.
Among the series 1 notes, payments of interest will be made on the series 1
class A1 notes, the series 1 class A2 notes and the series 1 class A3 notes in
no order of priority among them but in proportion to the respective amounts due
on the series 1 class A1 notes, the series 1 class A2 notes and the series 1
class A3 notes, payments of interest on the series 1 class A notes will be made
ahead of payments of interest on the series 1 class B notes, the series 1 class
M notes and the series 1 class C notes, payments of interest on the series 1
class B notes will be made ahead of payments of interest on the
14
series 1 class M notes and the series 1 class C notes and payments of interest
on the series 1 class M notes will be made ahead of payments of interest on the
series 1 class C notes.
Among the series 2 notes, payments of interest will be made on the series 2
class A1 notes and the series 2 class A2 notes in no order of priority between
them but in proportion to the respective amounts due on the series 2 class A1
notes and the series 2 class A2 notes, payments of interest on the series 2
class A notes will be made ahead of payments of interest on the series 2 class
B notes, the series 2 class M notes and the series 2 class C notes, payments of
interest on the series 2 class B notes will be made ahead of payments of
interest on the series 2 class M notes and the series 2 class C notes and
payments of interest on the series 2 class M notes will be made ahead of
payments of interest on the series 2 class C notes.
Among the series 3 notes, payments of interest will be made on the series 3
class A1 notes and the series 3 class A2 notes in no order of priority between
them but in proportion to the respective amounts due on the series 3 class A1
notes and the series 3 class A2 notes, payments of interest on the series 3
class A notes will be made ahead of payments of interest on the series 3 class
B notes, the series 3 class M notes and the series 3 class C notes, payments of
interest on the series 3 class B notes will be made ahead of payments of
interest on the series 3 class M notes and the series 3 class C notes and
payments of interest on the series 3 class M notes will be made ahead of
payments of interest on the series 3 class C notes.
Among the series 1 notes, the series 2 notes and the series 3 notes,
payments of interest on the series 1 class A1 notes, the series 1 class A2
notes, the series 1 class A3 notes, the series 2 class A1 notes, the series 2
class A2 notes, the series 3 class A1 notes and the series 3 class A2 notes
will be made in no order of priority among them but in proportion to the
respective amounts due on the class A notes (such payments to be made ahead of
payments of interest on the class B notes), payments of interest on the series
1 class B notes, the series 2 class B notes and the series 3 class B notes will
be made in no order of priority among them but in proportion to the respective
amounts due on the class B notes (such payments to be made ahead of payments of
interest on the class M notes), payments of interest on the series 1 class M
notes, the series 2 class M notes and the series 3 class M notes will be made
in no order of priority among them but in proportion to the respective amounts
due on the class M notes (such payments to be made ahead of payments of
interest on the class C notes) and payments of interest on the series 1 class C
notes, the series 2 class C notes and the series 3 class C notes will be made
in no order of priority among them but in proportion to the respective amounts
due on the class C notes.
For more information on the priority of interest payments to you, see
"CASHFLOWS".
If not already paid in full in accordance with the paragraph below or
redeemed earlier, the principal amount outstanding of each class of notes will
be repaid by the issuer on the final maturity date for that class of notes.
On each payment date prior to the final maturity date, however, we will be
obliged to make payments of principal of the notes to the extent of issuer
available principal receipts subject to and in accordance with the relevant
issuer priority of payments applicable to us on that date.
Subject to there being no trigger event and no enforcement of the Funding
security and/or the issuer security, no class of notes will be repaid an amount
of principal which is greater than the controlled amortization amount in
respect of that class of notes for the relevant payment date and, subject also
to the satisfaction of certain conditions in relation to the repayment of
principal of the class B notes, the class M notes and the class C notes at any
time when any class A notes are outstanding as specified below, repayment of
principal will be made in accordance with the following priority. Repayment of
principal in respect of the series 1 class A1 notes will be made ahead of
repayment of principal in
15
respect of the series 1 class A2 notes, the series 1 class A3 notes, the series
2 class A1 notes, the series 2 class A2 notes, the series 3 class A1 notes and
the series 3 class A2 notes. Repayment of principal in respect of the series 1
class A2 notes will be made ahead of repayment of principal in respect of the
series 1 class A3 notes, the series 2 class A1 notes, the series 2 class A2
notes, the series 3 class A1 notes and the series 3 class A2 notes. Repayment
of principal in respect of the series 1 class A3 notes, the series 2 class A1
notes, the series 2 class A2 notes, the series 3 class A1 notes and the series
3 class A2 notes will be made in no order of priority among them but in
proportion to the respective amounts due on the series 1 class A3 notes, the
series 2 class A1 notes, the series 2 class A2 notes, the series 3 class A1
notes and the series 3 class A2 notes. However, repayment of principal in
respect of the class A notes will be made ahead of repayment of principal in
respect of the class B notes. Repayment of principal in respect of the series 1
class B notes, the series 2 class B notes and the series 3 class B notes will
be made in no order of priority among them but in proportion to the respective
amounts due on the class B note s. However, repayment of principal in respect of
the class B notes will be made ahead of repayment of principal in respect of
the class M notes. Repayment of principal in respect of the series 1 class M
notes, the series 2 class M notes and the series 3 class M notes will be made
in no order of priority among them but in proportion to the respective amounts
due on the class M notes. However, repayment of principal in respect of the
class M notes will be made ahead of repayment of principal in respect of the
class C notes. Repayment of principal in respect of the series 1 class C notes,
the series 2 class C notes and the series 3 class C notes will be made in no
order of priority among them but in proportion to the respective amounts due on
the class C notes.
If any class A note remains outstanding and either the issuer arrears test
or the issuer reserve requirement is not satisfied on the relevant payment
date, no amount of principal will be payable in respect of the class B notes,
the class M notes or the class C notes.
The controlled amortization amount payable in respect of each class of notes
is determined by a schedule that indicates the target balance for that class of
notes on the relevant payment date, as set forth under "CASHFLOWS --
DISTRIBUTION OF ISSUER AVAILABLE PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF THE
ISSUER SECURITY AND/OR OCCURRENCE OF A TRIGGER EVENT". However, you should be
aware that not all classes of notes are scheduled to receive payments of
principal on each payment date. The controlled amortization amount payable on
some classes of notes on certain payment dates will be zero, which means that,
despite the principal priority of payments described above, lower ranking
classes of notes may nevertheless be repaid principal before higher ranking
classes of notes. Payments of principal are expected to be made to each class
of notes in scheduled amounts up to the amounts set forth under "CASHFLOWS --
DISTRIBUTION OF ISSUER AVAILABLE PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF THE
ISSUER SECURITY AND/OR OCCURRENCE OF A TRIGGER EVENT".
Following the occurrence of a trigger event, the enforcement of the Funding
security and/or the enforcement of the issuer security, the above priority of
payments will change and we will make repayments of principal in accordance
with and subject to the relevant issuer priority of payments as described under
"CASHFLOWS".
The issuer reserve fund provides credit enhancement for the class C notes.
The issuer reserve fund and the class C notes provide credit enhancement for
the class M notes. The issuer reserve fund, the class C notes and the class M
notes provide credit enhancement for the class B notes. The issuer reserve
fund, the class C notes, the class M notes and the class B notes provide credit
enhancement for the class A notes. You should note, however, that the series 2
notes as a group do not provide credit enhancement for the series 1 notes and
the series 3 notes as a group do not provide credit enhancement for the series
1 notes or the series 2 notes.
16
For more information on the priority of principal repayments to you, see
"CASHFLOWS". For more information on the redemption of the notes, including a
description of asset trigger events, non-asset trigger events and seller share
events, see "THE MORTGAGES TRUST -- CASH MANAGEMENT OF TRUST PROPERTY --
PRINCIPAL RECEIPTS" and "CASHFLOWS".
You should note that Funding has established previous issuers, each of which
has made a previous intercompany loan to Funding, and that Funding may
establish from time to time new issuers which will make new intercompany loans
to Funding, as described under "-- THE PREVIOUS ISSUERS AND NEW ISSUERS" and
"THE INTERCOMPANY LOAN AGREEMENT -- OTHER INTERCOMPANY LOAN AGREEMENTS". Each
previous issuer made a previous intercompany loan from the proceeds of the
previous notes that were issued by that previous issuer, and any new issuer
will make a new intercompany loan from the proceeds of new notes that are
issued by that new issuer. The previous notes issued by the previous issuers
ultimately are, and any new notes issued by a new issuer ultimately will be,
secured by the same trust property (primarily consisting of the mortgage
portfolio) as the notes issued by us under this prospectus.
You should also note that payments by Funding to the previous issuers under
the previous intercompany loans and to new issuers under any new intercompany
loans will rank equally in priority with payments made by Funding to us under
our intercompany loan, other than in respect of the priority made in the
allocation of principal receipts to an issuer (such as the fifth issuer and the
eighth issuer) that issued a money market note, as described under "CASHFLOWS
- -- DISTRIBUTION OF FUNDING AVAILABLE PRINCIPAL RECEIPTS PRIOR TO THE
ENFORCEMENT OF THE FUNDING SECURITY -- RULES FOR APPLICATION OF FUNDING
AVAILABLE PRINCIPAL RECEIPTS". In other words, subject to the foregoing
exception, interest and principal payments under our intercompany loan will not
have priority over interest and principal payments on the previous intercompany
loans or any new intercompany loans that are made at later dates. Instead,
subject to the exception described above, Funding will initially allocate
interest and principal to make payments under each outstanding intercompany
loan in no order of priority among them but in proportion to each relevant
issuer's allocable interest in the Funding share of the trust property (or, if
provided under the relevant intercompany loan agreement, will set aside that
allocable interest in the Funding share of principal receipts for that issuer).
However, prior to the enforcement of the issuer security, the amount and timing
of payments under an intercompany loan are determined by the amount and timing
of payments on the notes issued by the relevant issuers and by the priorities
for payment applicable to those notes. The previous notes (other than the notes
issued by the eighth issuer and the ninth issuer) all share the same quarterly
payment dates (except for money market notes and fixed rate notes) whereas the
notes will, and any new notes may, have different payment dates. The terms of
the previous notes issued by the previous issuers and of any new notes issued
by a new issuer may therefore result in those previous notes and the related
previous intercompany loans or those new notes and the related new intercompany
loan being repaid prior to the repayment of the notes issued by us under this
prospectus and our related intercompany loan regardless of the ratings of such
previous notes or new notes relative to the notes.
OPTIONAL REDEMPTION OF THE NOTES FOR TAX AND OTHER REASONS
We may redeem all of the notes at their principal amount outstanding in the
event of particular tax changes affecting the notes or the intercompany loan
which cannot be avoided by us or Funding, as the case may be, taking reasonable
measures available to us or Funding if (a) we give not more than 60 nor less
than 30 days' notice to you and the note trustee in accordance with the terms
and conditions of the notes, and (b) we have, prior to giving that notice,
provided all necessary opinions to the note trustee and certified to the note
trustee that, among other things, we will have the necessary funds to pay
principal and interest due in respect of the notes on the relevant payment
date.
17
In addition, we may redeem in principally the same manner the notes
outstanding:
* in the case of all of the notes (other than the series 1 class A2
notes), on the payment date falling in September 2011 and on any
payment date thereafter. This gives us the option to redeem all of
the notes (other than the series 1 class A2 notes) on or after the
September 2011 step-up date for interest; or
* in the case of the series 1 class A2 notes, on the payment date
falling in March 2006 and on any payment date thereafter. This
gives us the option to redeem the series 1 class A2 notes on or
after the March 2006 step-up date for interest in respect of the
series 1 class A2 notes; or
* in the case of all of the notes, on the payment date falling in
June 2008 and any payment date thereafter if the New Basel Capital
Accord has been implemented in the United Kingdom, whether by rule
of law, recommendation or best practice or by any other regulation,
provided that a note enforcement notice has not been served; or
* in the case of all of the notes, on any payment date on which the
aggregate principal amount outstanding of the notes is less than
10% of the aggregate principal amount outstanding of the notes as
at the closing date; or
* in the case of all of the notes, on any payment date after it has
become unlawful for us to make, fund or allow to remain outstanding
the intercompany loan and we have required Funding to prepay the
intercompany loan.
Any notes that we redeem under these circumstances will be redeemed at their
principal amount outstanding together with accrued and unpaid interest on that
principal amount, provided that in the event of an optional redemption on or
after the payment date falling in June 2008 as a result of the implementation
in the United Kingdom of the New Basel Capital Accord, any series 3 class A2
notes redeemed may also receive a redemption premium.
For a detailed description of the circumstances in which the notes may be
redeemed see "DESCRIPTION OF THE OFFERED NOTES".
WITHHOLDING TAX
Payments of interest and principal with respect to the notes will be subject
to any applicable withholding taxes and we will not be obliged to pay
additional amounts in relation thereto. The applicability of any UK withholding
tax is discussed under "MATERIAL UNITED KINGDOM TAX CONSEQUENCES".
THE CLOSING DATE
We will issue the notes on or about September 22, 2004.
THE NOTE TRUSTEE
The Bank of New York is the note trustee and is acting through its London
branch office at 48th Floor, One Canada Square, London E14 5AL. The note
trustee will act as trustee for you under the trust deed.
THE PAYING AGENTS AND AGENT BANK
Citibank, N.A., is the principal paying agent and is acting through its
London branch office at 5 Carmelite Street, London EC4Y 0PA. Citibank, N.A. is
the US paying agent and its address is 14th Floor Zone 3, 111 Wall Street, New
York, New York 10043. The paying agents will make payments on the notes to you.
Citibank, N.A., is the agent bank and is acting through its London branch
office at 5 Carmelite Street, London EC4Y 0PA. The agent bank will calculate
the interest rate on the notes.
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THE REGISTRAR AND TRANSFER AGENT
Citibank, N.A., is the registrar and transfer agent and is acting through
its London branch office at 5 Carmelite Street, London EC4Y 0PA. The registrar
will maintain a register in respect of the notes. The transfer agent is
responsible for administering any transfer of notes.
THE MORTGAGE LOANS
In describing the characteristics of the mortgage loans, references in this
prospectus to:
* "INITIAL MORTGAGE PORTFOLIO" means the portfolio of mortgage loans,
their related security, accrued interest and other amounts derived
from such mortgage loans that the seller assigned to the mortgages
trustee on March 26, 2001;
* "FURTHER MORTGAGE PORTFOLIOS" means the portfolios of further
mortgage loans, their related security, accrued interest and other
amounts derived from such further mortgage loans that the seller
has assigned to the mortgages trustee after March 26, 2001 and
before August 23, 2004;
* "ADDITIONAL MORTGAGE PORTFOLIO" means the portfolio of additional
mortgage loans, their related security, accrued interest and other
amounts derived from such additional mortgage loans that the
seller, as of the cut-off date, anticipated assigning to the
mortgages trustee on August 23, 2004;
* "CUT-OFF DATE MORTGAGE PORTFOLIO" means, as of the cut-off date,
the initial mortgage portfolio and the further mortgage portfolios
(taking account of, among other things, amortization of mortgage
loans in that portfolio and the addition and/ or removal of any
mortgage loans to or from that portfolio since March 26, 2001)
combined with the additional mortgage portfolio;
* "ADDITIONAL ASSIGNED MORTGAGE PORTFOLIO" means the portfolio of
additional assigned mortgage loans, their related security, accrued
interest and other amounts derived from such additional assigned
mortgage loans that the seller actually assigned to the mortgages
trustee on August 23, 2004; and
* "MORTGAGE PORTFOLIO" means the initial mortgage portfolio, the
further mortgage portfolios and the additional assigned mortgage
portfolio as it is constituted as of any date of determination
since August 23, 2004, taking account of, among other things,
amortization of mortgage loans in that portfolio and the addition
and/or removal of any mortgage loans to or from that portfolio.
The mortgage loans in the mortgage portfolio on the closing date will
comprise:
* mortgage loans which are subject to variable rates of interest set
by the seller or by reference to a specified market rate from time
to time; and
* mortgage loans which are subject to fixed rates of interest set by
reference to a pre-determined rate or series of rates for a fixed
period or periods.
231,096 mortgage loans in the cut-off date mortgage portfolio (or 80.96% of
the aggregate current balance of the mortgage loans as of the cut-off date) are
flexible mortgage loans. Flexible mortgage loans that are included in the
mortgage portfolio are subject to variable or fixed rates of interest, and
generally allow the borrower to make larger repayments than are due on a given
monthly payment date (which may reduce the life of the mortgage loan). These
flexible mortgage loans may also allow the borrower, in certain circumstances,
to make authorized underpayments or take payment holidays under the mortgage
loan (collectively referred to in this prospectus as "NON-CASH RE-DRAWS") and
to make cash re-draws of amounts previously overpaid (which together with non-
cash redraws ultimately may reduce the amount of money available to make
payments under the notes and may extend the life of the related mortgage loan).
Cash re-draws and non-cash re-draws under flexible mortgage loans are
collectively referred to in this prospectus
19
as "RE-DRAWS". Additional features of the mortgage loans in the cut-off date
mortgage portfolio are described under "THE MORTGAGE LOANS -- CHARACTERISTICS
OF THE MORTGAGE LOANS".
The mortgage portfolio includes personal secured loans. These are loans to
borrowers each of whom already has a mortgage loan from the seller and which is
secured on the same property that secures the borrower's existing mortgage
loan. A personal secured loan is, however, a separate mortgage loan secured by
means of a separate mortgage and is governed by separate terms and conditions
documented either as a regulated agreement subject to the Consumer Credit Act
1974 (the "CCA") or as an unregulated agreement based on the amount of the
personal secured loan or the purpose for which it is used. Some personal
secured loans permit the borrower to draw additional amounts in aggregate up to
the fixed amount of credit extended under the terms of the mortgage conditions
at the inception of the mortgage loan.
In addition to the mortgage loans in the mortgage portfolio on the closing
date, after the closing date the trust property may also include new mortgage
loans, including redraws under flexible mortgage loans and further draws under
personal secured loans. The mortgage portfolio already includes re-draws under
flexible mortgage loans and further draws under personal secured loans. In all
cases, re-draws and further draws have been or will be funded solely by the
seller. This means that for any cash re-draw under a flexible mortgage loan or
further draw under a personal secured loan the seller has paid the amount of
that cash re-draw or further draw to the borrower, and both the size of the
trust property and the seller share of the trust property has increased by the
amount of that cash payment. It also means that for any non-cash re-draw under
a flexible mortgage loan, the seller has paid to the mortgages trustee an
amount equal to the unpaid interest associated with that non-cash re-draw, and
both the size of the trust property and the seller share of the trust property
has increased by the amount of that payment. The seller will make the foregoing
payments (which will result in a corresponding increase in the overall size and
seller share of the trust property described above) for future re-draws under
flexible mortgage loans and for further draws under personal secured loans.
The seller currently intends to purchase from the mortgages trustee mortgage
loans that become subject to further advances. If a borrower takes a personal
secured loan after that borrower's existing mortgage loan has been assigned to
the mortgages trustee, the seller currently intends to purchase that borrower's
existing mortgage loan and any personal secured loan previously assigned to the
mortgages trustee. However, in the future these mortgage loans may remain
within (and the further advances or such personal secured loans may be assigned
to and form part of) the trust property.
New mortgage loans that the seller assigns to the mortgages trustee will be
required to comply with specified criteria (see "ASSIGNMENT OF THE MORTGAGE
LOANS AND RELATED SECURITY -- ASSIGNMENT OF NEW MORTGAGE LOANS AND THEIR
RELATED SECURITY"). These new mortgage loans may include mortgage loans that
are currently being offered to borrowers and have some of the characteristics
described in this prospectus, but may also include mortgage loans with other
characteristics that the seller currently is not offering to borrowers or that
the seller has not yet developed. Any new mortgage loans that the seller
assigns to the mortgages trustee will increase the total size of the trust
property, and will increase the Funding share of the trust property only to the
extent that Funding has provided a contribution (excluding any deferred
contribution) to the mortgages trustee for those new mortgage loans. To the
extent that Funding does not provide a contribution for the new mortgage loans,
only the seller share of the trust property will increase by a corresponding
amount.
All of the mortgage loans in the mortgage portfolio (other than personal
secured loans) on the closing date, and any new mortgage loans added to the
trust property in the future (other than personal secured loans), will be
secured by first priority legal charges over freehold or leasehold mortgaged
properties located in England or Wales or by first priority standard securities
over heritable or long leasehold mortgaged properties located in
20
Scotland. Personal secured loans will be secured by second or subsequent
priority legal charges over freehold or leasehold mortgaged properties located
in England and Wales or by second or subsequent priority standard securities
over heritable or long leasehold mortgaged properties located in Scotland.
The mortgage loans have been originated in accordance with the seller's
lending criteria applicable at the time each mortgage loan was offered, which
lending criteria in the case of each mortgage loan included in the mortgage
portfolio were the same as or substantially similar to the criteria described
later in this prospectus under "THE MORTGAGE LOANS -- ORIGINATION OF THE
MORTGAGE LOANS -- LENDING CRITERIA". The seller has given warranties to the
mortgages trustee in the mortgage sale agreement that, among other things, the
mortgage loans have been originated in accordance with the seller's lending
criteria in effect at the time of origination of the relevant mortgage loan. If
a mortgage loan (including any personal secured loans) or its related security
does not materially comply with these warranties, then the seller will have 28
days in which to remedy the situation. If the breach cannot be or is not
remedied to the satisfaction of Funding and the security trustee within that
period, then the seller will be required to repurchase from the mortgages
trustee (i) the relevant mortgage loan and its related security and (ii) any
other mortgage loans (including any personal secured loans) of the relevant
borrower and their related security that are included in the trust property. If
the seller does not repurchase those mortgage loans and their related security,
then the trust property will be deemed to be reduced by an amount equal to the
aggregate current balances of those mortgage loans. The size of the seller
share of the trust property will be deemed to be reduced by that amount but the
size of the Funding 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 MORTGAGE LOANS
The seller assigned the initial mortgage portfolio to the mortgages trustee
on March 26, 2001, and since March 26, 2001 has assigned further mortgage
portfolios and the other further trust property (including the additional
assigned mortgage portfolio) to the mortgages trustee, in each case subject to
the terms of the mortgage sale agreement. After the closing date, the seller
may assign new mortgage loans and their related security to the mortgages
trustee in order to increase or maintain the size of the trust property. The
seller also may increase the size of the trust property from time to time in
connection with an issue of new notes by any new issuer, the proceeds of which
are applied ultimately to fund the assignment of the new mortgage loans and
their related security to the mortgages trustee as described under "ASSIGNMENT
OF THE MORTGAGE LOANS AND RELATED SECURITY -- ASSIGNMENT OF NEW MORTGAGE LOANS
AND THEIR RELATED SECURITY". Any new issuer will be a wholly-owned subsidiary
of Funding.
The English mortgage loans and their related security were assigned by the
seller to the mortgages trustee by way of an English law equitable assignment.
The beneficial interests in the Scottish mortgage loans and their related
security were transferred by the seller to the mortgages trustee by way of a
declaration of trust in favour of the mortgages trustee. In each case this
means that the beneficial interest in the mortgage loans and the related
security passed to the mortgages trustee in its capacity as trustee for and on
behalf of the beneficiaries of the mortgages trust. However, unless certain
events have occurred and certain additional steps have been taken (including
the execution and (where necessary) registration of certain transfers and
assignations and the giving of notices of the assignment to the relevant
borrowers), legal title to the mortgage loans and their related security will
remain with the seller. More information on equitable and beneficial
assignments is described under "ASSIGNMENT OF THE MORTGAGE LOANS AND RELATED
SECURITY -- TRANSFER OF LEGAL TITLE TO THE MORTGAGES TRUSTEE".
21
The seller may, from time to time, change its lending criteria and any other
terms applicable to the new mortgage loans or their related security assigned
to the mortgages trust after the closing date so that all new mortgage loans
originated after the date of that change will be subject to the new lending
criteria. Notwithstanding any change to the lending criteria or other terms
applicable to new mortgage loans, those new mortgage loans and their related
security may only be assigned to the mortgages trust if those new mortgage
loans comply with the seller's representations and warranties set out in the
mortgage sale agreement, including a representation that those new mortgage
loans were originated in accordance with the seller's lending criteria
applicable at the time of their origination.
When new mortgage 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 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".
Under the terms of the mortgage sale agreement, the amount of any early
repayment charges which may become payable on any mortgage loans that have been
assigned to the mortgages trustee will be paid by the mortgages trustee to the
seller as deferred purchase price. For more information on the mortgage sale
agreement, see "ASSIGNMENT OF THE MORTGAGE LOANS AND RELATED SECURITY".
THE MORTGAGES TRUST
The mortgages trust was established on March 26, 2001 among the mortgages
trustee, the seller, Funding and Law Debenture Corporate Services Limited. The
mortgages trustee holds the trust property on trust for both Funding and the
seller. Funding and the seller each has a joint and undivided beneficial
interest in the trust property. Unless otherwise expressly provided in the
mortgages trust deed, payments of interest and principal arising from the
mortgage loans in the trust property are allocated to Funding and the seller as
described later in this section. The only beneficiaries of the trust are
Funding and the seller.
The trust property currently consists of, among other things, the mortgage
portfolio. After the closing date, the trust property will consist of the
mortgage portfolio (including the additional assigned mortgage portfolio) and
each new mortgage portfolio, including any permitted replacement mortgage loan
in respect of any permitted product switch and any income generated by the
mortgage loans or their related security on or after the relevant assignment
date (excluding third party amounts). In addition, re-draws that have been made
under flexible mortgage loans and further draws that have been made under
personal secured loans, in each case that were assigned to the mortgages
trustee, also form part of the existing trust property. Future re-draws that
are made under flexible mortgage loans and further draws that are made under
personal secured loans, in each case that were assigned to the mortgages
trustee, will also form part of the trust property. The trust property also
includes any contribution paid by either beneficiary to the mortgages trustee
(until the relevant funds are applied by the mortgages trustee in accordance
with the mortgages trust deed) and includes any money in the mortgages trustee
transaction account and the mortgages trustee guaranteed investment contract,
or GIC, account. 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 administrator has agreed to ensure that all payments due under the
mortgage loans which are included in the trust property will be made by direct
debit or, if that payment is late or borrowers choose not to pay by direct
debit, by check or other means into collection accounts in the name of the
administrator. Amounts standing to the credit of the collection accounts
representing receipts or recoveries in respect of the mortgage loans
22
in the mortgage portfolio are transferred by the administrator to the mortgages
trustee transaction account for further transfer to the mortgages trustee GIC
account in the manner and in the time limits described under "THE ADMINISTRATOR
AND THE ADMINISTRATION AGREEMENT -- THE ADMINISTRATION AGREEMENT -- COLLECTION
OF PAYMENTS". The administrator may, from time to time, change its
administration policy in respect of the mortgage loans.
If the administrator and the mortgages trustee are notified or are otherwise
aware that a borrower has requested a further advance or a product switch and
the mortgages trustee has received confirmation of the seller's election to
purchase such borrower's mortgage loan(s) and its related security from the
mortgages trustee, the mortgages trustee shall sell and the seller shall
purchase such mortgage loan(s) together with its related security at any time
at a price not less than the current balance(s) as of the date of completion of
the purchase together with all unpaid interest (including all accrued interest
and arrears of interest) and other sums. The administrator may not itself make
any offer of a further advance or a product switch (other than a re-fixed
mortgage loan) without first having received confirmation of the seller's
election to repurchase the mortgage loan(s). The administrator may, however,
agree to a borrower's request for a re-fixed mortgage loan if so required by
the terms of that mortgage loan notwithstanding the seller's election not to
purchase the relevant mortgage loan. Any such application for a further advance
or a product switch may result from a solicitation made by the seller, as the
seller may periodically contact borrowers in respect of the seller's total
portfolio of mortgage loans in order to offer to a borrower the opportunity to
apply for a further advance or switch to an alternative mortgage product.
Although the seller is entitled, but not obliged, to purchase any mortgage
loans that are the subject of a further advance, this arrangement may change if
the seller decides at a later date to retain these mortgage loans within the
trust property and to assign these further advances to the mortgages trustee.
Any further advance made to an existing borrower (in respect of a mortgage loan
within the mortgages trust) that the seller at a later date decides to assign
to the mortgages trustee will be funded solely by the seller, will comply with
the applicable conditions to the assignment of new mortgage loans and their
related security to the mortgages trust as described in this prospectus, will
be secured by the same mortgaged property securing that borrower's mortgage
loan, will form part of the trust property, and will increase only the seller
share of the trust property, unless at the time of assignment Funding provides
a contribution (excluding any deferred contribution) to the mortgages trustee
in respect of that new trust property.
The seller is solely responsible for funding re-draws under flexible
mortgage loans and further draws under personal secured loans. This means that
for any cash re-draw under a flexible mortgage loan or further draw under a
personal secured loan, the seller will pay the amount of that cash re-draw or
further draw to the borrower and both the size of the trust property and the
seller share of the trust property will increase by the amount of that cash
payment. It also means that for any non-cash re-draw under a flexible mortgage
loan, the seller will pay to the mortgages trustee an amount equal to the
unpaid interest associated with that non-cash re-draw, and both the size of the
trust property and the seller share of the trust property will increase by the
amount of that payment.
The composition of the trust property fluctuates as re-draws under flexible
mortgage loans, further draws under personal secured loans, future further
advances and new mortgage loans are added to the mortgages trust and as the
mortgage loans that are already part of the trust property are repaid or
mature, or are purchased by the seller.
As of the date of this prospectus, the amount of Funding's beneficial
interest in the trust property is approximately [GBP]18,490 million, which
corresponds to 76.67% of the trust property, and the amount of the seller's
beneficial interest in the trust property is approximately [GBP]5,627 million,
which corresponds to 23.33% of the trust property.
23
On the closing date:
* immediately following Funding's further contribution to the
mortgages trustee in connection with Funding's purchase of an
additional beneficial interest in the trust property, Funding's
beneficial interest in the trust property is expected to be
approximately [GBP]22,077 million, representing approximately
91.54% of the trust property; and
* immediately following the payment by the mortgages trustee to the
seller of the initial consideration (which sum is payable from
amounts received by the mortgages trustee from Funding as a further
contribution in connection with Funding's purchase of an increased
beneficial interest in the trust property), the seller's beneficial
interest in the trust property is expected to be approximately
[GBP]2,041 million, representing approximately 8.46% of the trust
property.
The amounts of the Funding share of the trust property and the seller share
of the trust property as of the closing date are only an approximation and the
actual amounts of the Funding share of the trust property and the seller share
of the trust property as of the closing date will depend, among other things,
on the actual amortization of the mortgage loans in the mortgage portfolio
between August 23, 2004 and the closing date. The actual amounts of the Funding
share of the trust property and the seller share of the trust property as of
the closing date will not be determined until the day before the closing date,
which will be after the date of this prospectus.
The Funding share of the trust property and the seller share of the trust
property, and the percentage of the total which each represents, will be
recalculated on each distribution date to take into account:
* principal payments on the mortgage loans distributed to Funding
and/or the seller on that distribution date (in general, a
principal payment made to a party will reduce that party's share of
the trust property);
* losses arising on the mortgage loans;
* a borrower making a re-draw under a flexible mortgage loan, which
will be funded by the seller and the seller share of the trust
property will increase accordingly;
* a borrower making a further draw under a personal secured loan,
which will be funded by the seller and the seller share of the
trust property will increase accordingly;
* the capitalization of arrears in respect of any mortgage loan; and
* the seller making a further advance to an existing borrower and the
seller electing to purchase that relevant mortgage loan in
accordance with the mortgage sale agreement. Although the seller
does not currently intend to assign further advances made in
respect of mortgage loans included in the trust property to the
mortgages trustee, it may do so in the future.
The Funding share of the trust property and the seller share of the trust
property, and the percentage of the total which each represents, also will be
recalculated (1) on each date on which a new mortgage portfolio is assigned by
the seller to the mortgages trust to take account of the new mortgage loans and
their related security assigned to the mortgages trust on that assignment date,
and (2) on any date (including, in connection with the issuance of the notes,
the closing date) on which Funding makes a further contribution to the
mortgages trustee in connection with Funding's purchase of an increased
beneficial interest in the trust property, on which date the mortgages trustee
will also pay to the seller an initial consideration equal to the amount of
such further contribution, as described under "THE MORTGAGES TRUST -- FUNDING
SHARE OF TRUST PROPERTY (ASSIGNMENT DATE RECALCULATION)".
24
On each distribution date, income from the trust property (less certain
third party payments) is distributed to Funding and the seller in no order of
priority between them but in proportion to the respective amounts due to
Funding and the seller. This income generally is distributed:
* to the seller in an amount determined by multiplying the total
amount of the remaining mortgages trustee available revenue
receipts by the seller share percentage of the trust property;
* to Funding in an amount which is equal to the lesser of:
(x) the aggregate of the amounts to be applied on the immediately
succeeding payment date for group 1 issuers and the immediately
succeeding payment date for group 2 issuers as set forth under
the Funding pre-enforcement revenue priority of payments or, as
the case may be, the Funding post-enforcement priority of
payments (but excluding any principal amount due under any
intercompany loan (save that, for the avoidance of doubt, such
exclusion shall not apply in respect of any Funding available
revenue receipts which are applied by an issuer to credit that
issuer's principal deficiency ledgers and thereby reduce the
principal payable under that issuer's intercompany loan) and
any amount of deferred contribution under item (P) of the
Funding pre-enforcement revenue priority of payments and/or
item (F) of the Funding post-enforcement priority of payments),
less all other amounts (not derived from the distribution of
mortgages trustee available revenue receipts under the
mortgages trust) which will constitute Funding available
revenue receipts on the immediately succeeding payment date,
such amount not to be less than zero; and
(y) an amount determined by multiplying the total amount of the
remaining mortgages trustee available revenue receipts by the
Funding share percentage of the trust property; and
* to the seller any remaining amount, such amount to be in
satisfaction of amounts of deferred purchase price due to the
seller.
For a more detailed description of how the cash manager calculates the
distributions to be made on each distribution date, and for a description of
how the foregoing calculations may vary on a distribution date following a
trust calculation period during which the seller has assigned new mortgage
loans to the mortgages trustee or during which Funding has made a further
contribution to the mortgages trustee, see "THE MORTGAGES TRUST -- FLUCTUATION
OF THE SELLER SHARE/FUNDING SHARE OF THE TRUST PROPERTY".
Certain excess amounts of income to which Funding is entitled from time to
time on distribution dates will be paid by the mortgages trustee to the seller
as deferred purchase price for the purchase of the mortgage portfolio, which
payments will satisfy Funding's obligation to pay deferred contributions from
time to time to the mortgages trustee in respect of the Funding share of the
trust property. See "THE MORTGAGES TRUST -- MORTGAGES TRUST ALLOCATION OF
REVENUE RECEIPTS" for a detailed description of the distribution of income from
the trust property on each distribution date.
Mortgages trustee principal receipts are distributed on each distribution
date (other than a seller share event distribution date) to each of Funding and
the seller prior to the occurrence of a trigger event as described under "THE
MORTGAGES TRUST -- MORTGAGES TRUST ALLOCATION AND DISTRIBUTION OF MORTGAGES
TRUSTEE PRINCIPAL RECEIPTS PRIOR TO THE OCCURRENCE OF A TRIGGER EVENT". In
general and subject to the provisos referred to in that section dealing with,
for example, reductions for amounts recorded on each issuer's principal
deficiency ledgers and other matters, prior to the occurrence of a trigger
event and/or enforcement of the Funding security and/or enforcement of the
issuer security, the mortgages trustee distributes mortgages trustee principal
receipts:
25
(A) first, to the seller the amount of any initial consideration which
is then allocable and payable to the seller in accordance with the
mortgages trust deed;
(B) second, to Funding an amount in respect of each issuer equal to the
lesser of:
(1) (a) prior to the occurrence of an ACA trigger event, the
principal amount due on the intercompany loan of such
issuer equal to the controlled amortization amounts due, if
any, on the payment date immediately succeeding such
distribution date (in each case determined on the
assumption that each such amount will not be restricted
and/or deferred on that payment date in any of the
circumstances described under "CASHFLOWS" below); and
(b) upon and after the occurrence of an ACA trigger event, (i)
in respect of each issuer that is not an ACA issuer, an
amount as set forth in (1)(a) above and (ii) in respect of
each ACA issuer, up to an amount equal to the ACA limit
amount in respect of such ACA issuer; and
(2) an amount in respect of each issuer equal to:
Funding share percentage as outstanding principal balance
calculated on the immediately of the intercompany loan of
preceding distribution date such issuer
mortgages trustee x (or, in the case of the first x ------------------------
principal receipts distribution date immediately aggregate outstanding
following the closing date, as principal balance on all
of the closing date) intercompany loans
(C) third, (1) prior to the occurrence of an ACA trigger event, to
Funding an amount in respect of each issuer towards any principal
amount remaining which will be due and payable (following the
payment to Funding set forth in (B) above) on the immediately
succeeding payment date under such issuer's intercompany loan (in
each case determined on the assumption that each such principal
amount will not be restricted and/or deferred on that payment date
in any of the circumstances described under "CASHFLOWS" below) plus
an amount equal to the amount which Funding will be required to
apply on that payment date under item (1)(A) or (2)(A) of the
Funding pre-enforcement principal priority of payments, and
(2) upon and after the occurrence of an ACA trigger event, to
Funding (i) in respect of each issuer that is not an ACA issuer, an
amount as set forth in (C)(1) above and (ii) in respect of each ACA
issuer (following the payment to Funding set forth in (B) above) up
to an amount equal to the ACA limit amount in respect of such ACA
issuer plus an amount equal to the amount which Funding will be
required to apply on that payment date under item (1)(A) or (2)(A)
of the Funding pre-enforcement principal priority of payments; and
(D) last, if such distribution date is not a seller share event
distribution date, all remaining mortgages trustee principal
receipts to the seller.
Following the occurrence of a seller share event, the mortgages trustee will
not distribute the remaining mortgages trustee principal receipts to the seller
and instead the remaining mortgages trustee principal receipts will be
deposited in the mortgages trustee GIC account and referred to as the
"MORTGAGES TRUSTEE RETAINED PRINCIPAL RECEIPTS".
See "THE MORTGAGES TRUST -- MORTGAGES TRUST ALLOCATION AND DISTRIBUTION OF
MORTGAGES TRUSTEE PRINCIPAL RECEIPTS PRIOR TO THE OCCURRENCE OF A TRIGGER
EVENT" for a detailed description of the distribution of mortgages trustee
principal receipts on each distribution date prior to a trigger event.
Funding is entitled to receive distributions of principal received on the
mortgage loans after the occurrence of certain trigger events in the following
amounts:
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* following the occurrence of an asset trigger event, mortgages
trustee principal receipts will be paid to Funding in proportion to
its percentage share of the trust property and to the seller in
proportion to its percentage share of the trust property; and
* following the occurrence of a non-asset trigger event and until the
occurrence of an asset trigger event, all principal receipts on the
mortgage loans will be distributed to Funding until the Funding
share of the trust property is zero.
In addition, Funding will be entitled on a distribution date to receive all
of the mortgages trustee retained principal receipts after the occurrence of an
asset trigger event if the immediately preceding distribution date was a seller
share event distribution date.
See "THE MORTGAGES TRUST -- MORTGAGES TRUST ALLOCATION AND DISTRIBUTION OF
MORTGAGES TRUSTEE PRINCIPAL RECEIPTS AFTER THE OCCURRENCE OF A TRIGGER EVENT"
for a detailed description of the distribution of principal received on the
mortgage loans on each distribution date following a trigger event.
Losses on the mortgage loans generally are allocated to each of Funding and
the seller in accordance with each of Funding's and the seller's respective
percentage share of the trust property calculated on the immediately preceding
distribution date (or, in certain circumstances, each of Funding's and the
seller's respective weighted average percentage share of the trust property as
calculated on the relevant distribution date). However, certain losses related
to re-draws and/or set-off by borrowers may, in limited circumstances, be
allocated solely to the seller. In addition, losses in respect of personal
secured loans will be applied first to reduce the seller's share of the trust
property (including the minimum seller share) until the seller's share is
reduced to zero, and only thereafter to reduce the Funding share of the trust
property. For a detailed description of how losses on the mortgage loans are
allocated to the intercompany loan of each issuer, see "THE INTERCOMPANY LOAN
AGREEMENT -- ALLOCATION OF LOSSES".
THE INTERCOMPANY LOAN
On the closing date, we will lend an amount in sterling equal to the
proceeds of the issue of the notes to Funding. Funding will use the proceeds of
the intercompany loan to pay to the mortgages trustee a further contribution
for an increased Funding share of the trust property pursuant to the mortgages
trust deed which, upon receipt by the mortgages trustee, will be paid to the
seller as initial consideration for Funding increasing its beneficial interest
in the trust property. Funding's further contribution to the mortgages trustee
will increase the Funding share of the trust property and the initial
consideration from the mortgages trustee to the seller will correspondingly
decrease the seller share of the trust property.
Funding will repay the intercompany loan from payments received from the
mortgages trustee, as described under "-- THE MORTGAGES TRUST". We will make
payments of interest on, and principal of, the notes principally from payments
of interest and principal made by Funding to us under the intercompany loan. We
do not intend to accumulate surplus cash. Under the terms of the intercompany
loan agreement and prior to the occurrence of a trigger event and enforcement
of the Funding security and/or the issuer security, Funding is required to
distribute to us:
* an amount up to our allocable share of all of the revenue receipts
and other income from the trust property that Funding received from
the mortgages trustee prior to the relevant payment date (our
allocable share being equal to the outstanding principal balance of
our intercompany loan divided by the aggregate outstanding
principal balance of our intercompany loan, the previous
intercompany loans and any new intercompany loans, after
subtracting certain fees and expenses payable by Funding in
priority to us); and
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* an amount equal to the principal amount due on our intercompany
loan or an amount up to our allocable share (as described in the
previous bullet point) of all of the principal receipts from the
trust property that Funding received from the mortgages trustee
prior to the relevant payment date.
In certain circumstances, our allocable share may be increased by the amount
standing to the credit of the issuer reserve fund and/or the issuer liquidity
reserve fund, if any, held by Funding in respect of our intercompany loan. In
other circumstances (for example, to the extent of amounts recorded on our
issuer principal deficiency ledger) we may receive less than our allocable
share.
For a detailed description of Funding's payments of interest and principal
under the intercompany loan, see "THE INTERCOMPANY LOAN AGREEMENT -- PAYMENT OF
INTEREST" and "THE INTERCOMPANY LOAN AGREEMENT -- REPAYMENT OF THE INTERCOMPANY
LOAN".
The circumstances under which we can take action against Funding if it does
not make a payment under the intercompany loan are limited. In particular, it
will not be an event of default in respect of the intercompany loan if Funding
does not pay some or all amounts due in respect of the intercompany loan where
Funding does not have the money to make the relevant payment. However, the
occurrence of an event of default under a previous intercompany loan and/or any
new intercompany loan may trigger an acceleration of the intercompany loan
between Funding and us, because each previous issuer and any new issuer will
share in the same security as us under the Funding deed of charge. For more
information on events of default under the intercompany loan generally, see
"THE INTERCOMPANY LOAN AGREEMENT".
THE SECURITY TRUSTEE
The Bank of New York is the security trustee and is acting through its
London branch office at 48th Floor, One Canada Square, London E14 5AL.
SECURITY GRANTED BY FUNDING AND THE ISSUER
To secure its obligations to the previous issuers under the previous
intercompany loans and to secure its obligations to its other secured
creditors, Funding entered into a Funding deed of charge on March 26, 2001
(with respect to the first issuer) and entered into deeds of accession to the
Funding deed of charge on September 28, 2001 (with respect to the second
issuer), on March 20, 2002 (with respect to the third issuer), on September 23,
2002 (with respect to the fourth issuer), on January 27, 2003 (with respect to
the fifth issuer), on May 21, 2003 (with respect to the sixth issuer), on
September 24, 2003 (with respect to the seventh issuer), on January 28, 2004
(with respect to the eighth issuer) and on May 26, 2004 (with respect to the
ninth issuer). On the closing date, Funding will enter into a deed of accession
with us and the other parties that entered into the original deed of charge on
March 26, 2001 to secure its obligations to us under the intercompany loan and
to the start-up loan provider under the start-up loan agreement. Together, we
refer to the deed of charge and the deeds of accession as the Funding deed of
charge. Pursuant to the Funding deed of charge, Funding grants security under
English law and (in relation to any property situated in Jersey) Jersey law
over all of its assets in favor of the security trustee for itself and on
behalf of the Funding secured creditors. Funding will also grant a security
interest to the security trustee for our benefit (but not for the benefit of
any other Funding secured creditor) in respect of the Funding (Granite 04-3)
GIC account. Besides the previous issuers (in relation to the issuance of the
previous notes) and ourselves, Funding's secured creditors are the account
bank, the Funding GIC provider, the mortgages trustee, the corporate services
provider, the security trustee, each start-up loan provider, Northern Rock, in
its capacity as cash manager, and any new Funding secured creditor who accedes
to the Funding deed of charge from time to time (including any new issuer).
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Save as otherwise provided in relation to any Funding (Issuer) GIC account,
the security trustee will hold that security for the benefit of Funding's
secured creditors, including us, the previous issuers and, after the closing
date, any new issuers or other creditors who accede to the Funding deed of
charge. This means that Funding's obligations to us under the intercompany loan
and to the other secured creditors will be secured substantially over the same
assets. Except in very limited circumstances, only the security trustee will be
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 the Funding post-enforcement priority of payments, see "CASHFLOWS".
As the Funding deed of charge was created prior to September 15, 2003, the
prohibition in Section 72A of the Insolvency Act 1986 on the appointment of an
administrative receiver under charges created after that date will not apply to
any appointment made pursuant to the Funding deed of charge.
To secure our obligations to you and to our other secured creditors, we will
grant security under English law and (in relation to any property situated in
Jersey) Jersey law over all of our assets in favor of the note trustee. Our
secured creditors are the note trustee, the issuer cash manager, the issuer
account bank, the paying agents, the agent bank, the transfer agent, the
registrar, the dollar currency swap providers, the euro currency swap provider,
the basis rate swap provider, the interest rate swap provider, the corporate
services provider and you.
The note trustee will hold that security for the benefit of our secured
creditors. This means that our obligations to our other secured creditors will
be secured over the same assets that secure our obligations under the notes.
Except in very limited circumstances, only the note trustee will be entitled to
enforce the security granted by us, and as the note trustee will not be
entitled to assign to a third party its or our rights under the intercompany
loan agreement following the service of a note enforcement notice, the most
likely consequence of the issuer security becoming enforceable will be that
monies received by the note trustee from Funding will be applied by the note
trustee (or the issuer cash manager on its behalf) to make payments on the
notes in accordance with the issuer post-enforcement priority of payments. For
more information on the security granted by us, see "SECURITY FOR THE ISSUER'S
OBLIGATIONS". For details of post-enforcement priority of payments, see
"CASHFLOWS".
We expect that an appointment of an administrative receiver by the note
trustee under the issuer deed of charge will not be prohibited by Section 72A
of the Insolvency Act 1986 as the appointment will fall within the exception
set out under Section 72B of the Insolvency Act 1986 (First Exception: Capital
Market).
In addition Funding granted, on January 28, 2004, second ranking fixed and
floating security over all of its assets in favor of the security trustee, to
secure the same obligations as under the Funding deed of charge (such second
ranking security, the "SECOND PRIORITY FUNDING DEED OF CHARGE"). Such second
priority Funding deed of charge is principally governed by English law but
contains certain Scots law provisions. It is enforceable in the same
circumstances as the Funding deed of charge and proceeds of enforcement thereof
are applied in the same order as those following enforcement of the Funding
deed of charge.
SWAP PROVIDERS
The basis rate swap provider is Northern Rock plc. Its registered office is
at Northern Rock House, Gosforth, Newcastle upon Tyne NE3 4PL England. The
interest rate swap provider is UBS Limited, acting through its office at 1
Finsbury Avenue, London EC2M 2PP. The dollar currency swap provider in respect
of the series 1 notes (other than the series 1 class A2 notes) is Barclays Bank
PLC, acting through its office at 54 Lombard Street, London EC3P 3AH, the
dollar currency swap provider in respect of the series 2 class A1 notes is
Swiss Re Financial Products Corporation of 55 East 52nd Street,
29
39th Floor, New York, New York 10055 and the eu ro currency swap provider is
Citibank, N.A., acting through its London Branch at Citigroup Centre, Canada
Square, Canary Wharf, London E14 5LB.
The basis rate swap provider will enter into a basis rate swap agreement
with us and the note trustee. The interest rate swap provider will enter into
the interest rate swap agreement with us and the note trustee. The dollar
currency swap providers will enter into the dollar currency swap agreements
with us and the note trustee. The euro currency swap provider will enter into
the euro currency swap agreements with us and the note trustee.
SWAP AGREEMENTS
Borrowers make payments under the mortgage loans in pounds sterling. Some of
the mortgage loans carry variable rates of interest, some of the mortgage loans
pay interest at a fixed rate or rates of interest and some of the flexible
mortgage loans pay interest at variable rates of interest no higher than the
rate offered by a basket of UK mortgage lenders or pay interest at a rate which
tracks the Bank of England base rate. However, these interest rates on the
mortgage loans which will fund the interest payable under the intercompany loan
will not necessarily match the floating and/or fixed rates on the notes. To
deal with this potential mismatch, we will enter into a basis rate swap
documented under the basis rate swap agreement. Under the basis rate swap, we
will make payments to the basis rate swap provider based on the weighted
average of each of the variable rates from several UK mortgage lenders, the
different rates of interest payable on the fixed rate mortgage loans and the
different rates of interest payable on the seller's flexible mortgage loans,
and the basis rate swap provider will make payments to us based on a margin
over three-month sterling LIBOR.
Subject to there being no trigger event and no enforcement of the Funding
security and/or the issuer security, under the interest rate swap for the
series 3 class A2 notes, up to (and including) the payment date in September
2011, we will make payments to the interest rate swap provider based on a
margin over three-month sterling LIBOR, and the interest rate swap provider
will make payments to us based on a fixed rate of interest.
Payments made by the mortgages trustee to Funding under the mortgages trust
deed are, and payments made by Funding to us under the intercompany loan and by
the basis rate swap provider to us under the basis rate swap will be, made in
pounds sterling. So that you can receive payments on the dollar notes in US
dollars, we will enter into the dollar currency swap agreements with the dollar
currency swap providers and the note trustee. Under the dollar currency swaps,
we will pay to the dollar currency swap providers a portion of sterling amounts
received on the intercompany loan and the basis rate swap in the same priority
as payments on the related class of notes, and the dollar currency swap
providers will pay to us amounts in US dollars that are in proportion to the
amounts paid by us to fund the payment of the dollar notes.
Similarly, to enable us to make payments on euro notes in euro, we will
enter into the euro currency swap agreements with the euro currency swap
provider and the note trustee. Under the euro currency swaps, we will pay to
the euro currency swap provider a portion of sterling amounts received on the
intercompany loan and the basis rate swap in the same priority as payments on
the related class of notes, and the euro currency swap provider will pay to us
amounts in euro that are in proportion to the amounts paid by us to fund the
payment of the euro notes.
POST-ENFORCEMENT CALL OPTION
The post-enforcement call option agreement will be entered into between us,
the note trustee (as agent for the noteholders) and by a subsidiary of Holdings
called GPCH Limited. The terms of the option will require, upon exercise of the
option granted to GPCH Limited by the note trustee, the transfer to GPCH
Limited of all (but not some only) of the notes. The option may be exercised
upon the earlier of (1) within 20 days following the
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final maturity date of the latest maturing notes, the note trustee certifying
that there is no further amount outstanding under the related intercompany
loan, and (2) the enforcement by the note trustee of the security granted by us
under the issuer deed of charge as certified by the note trustee (following the
note trustee's determination that there are no further assets available to pay
amounts due and owing to the noteholders). If the earlier of the foregoing two
events is the enforcement of the security under the issuer deed of charge, the
option may only be exercised if the note trustee has determined that there is
not enough money to pay all amounts due to the noteholders and has distributed
to the noteholders their respective shares of the remaining proceeds. The
noteholders will be bound by the terms of the notes to transfer the notes to
GPCH Limited in these circumstances. The noteholders will not be paid more than
a nominal sum for that transfer.
As the post-enforcement call option may only be exercised in the two
situations described above, the economic position of the noteholders will not
be further disadvantaged. In addition, exercise of the post-enforcement call
option and delivery by the noteholders of the notes to GPCH Limited will not
extinguish any other rights or claims that these noteholders may have against
us other than the rights to payment of interest and repayment of principal
under the notes.
RATINGS OF THE OFFERED NOTES
The series 1 class A1 notes, the series 1 class A3 notes and the series 2
class A1 notes are expected to be assigned an "AAA" rating by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. ("STANDARD &
POOR'S"), an "Aaa" rating by Moody's Investors Service Limited ("MOODY'S") and
an "AAA" rating by Fitch Ratings ("FITCH") on the closing date. The series 1
class B notes are expected to be assigned an "AA" rating by Standard & Poor's,
an "Aa3" rating by Moody's and an "AA" rating by Fitch on the closing date. The
series 1 class M notes are expected to be assigned an "A" rating by Standard &
Poor's, an "A2" rating by Moody's and an "A" rating by Fitch on the closing
date. The series 1 class C notes are expected to be assigned a "BBB" rating by
Standard & Poor's, a "Baa2" rating by Moody's and a "BBB" rating by Fitch on
the closing date.
The ratings assigned by Standard & Poor's and Fitch to each class of notes
address the likelihood of full and timely payment to you of all payments of
interest on each payment date under those classes of notes. Such ratings also
address the likelihood of ultimate repayment of principal on or before the
final maturity date of each class of notes. The ratings assigned by Moody's to
each class of notes address the expected loss in proportion to the initial
principal amount of such class posed to investors by the final maturity date.
In Moody's opinion, the structure allows for timely payment of interest and
ultimate repayment of principal at par on or before the final maturity date.
The ratings do not address the likely actual rate of prepayments on the
mortgage loans. The rate of prepayments, if different than originally
anticipated, could adversely affect the yield realized on your notes.
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 organization if, in its judgement, circumstances in the future
so warrant.
Standard & Poor's, Moody's and Fitch are collectively referred to in this
document as the "RATING AGENCIES", which term includes any further or
replacement rating agency of similar standing in the international market
appointed by us to give a credit rating to the notes or any class of the notes.
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LISTING
Application has been 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 (the "FSMA") for the notes to be admitted to the
official list maintained by the UK Listing Authority. Application has also been
made to the London Stock Exchange plc for each class of the notes to be
admitted to trading by the London Stock Exchange plc.
THE PREVIOUS ISSUERS AND NEW ISSUERS
On March 26, 2001, the first issuer, which is a wholly-owned subsidiary of
Funding, issued series of notes and from those issue proceeds made an
intercompany loan to Funding. The second issuer, the third issuer, the fourth
issuer, the fifth issuer, the sixth issuer, the seventh issuer, the eighth
issuer and the ninth issuer, each of which is also a wholly-owned subsidiary of
Funding, issued separate series of notes and from those issue proceeds each
made a separate intercompany loan to Funding between September 28, 2001 and May
26, 2004. Funding's obligations under those previous intercompany loans are
secured by the same security that secures our intercompany loan. In addition,
it is expected that in the future, subject to satisfaction of certain
conditions, Funding will establish additional wholly-owned subsidiary companies
to issue new notes to investors. One of these conditions is that the ratings of
your notes will not be downgraded or otherwise adversely affected at the time a
new issuer issues new notes. Any new issuers 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 the new intercompany loan (less any
amount utilized to fund any issuer reserve fund for any new issuer) to do one
or more of the following:
* pay to the mortgages trustee Funding's initial contribution for the
Funding share in respect of any new mortgage loans to be assigned
by the seller to the mortgages trustee (which funds the mortgages
trustee will pay to the seller in satisfaction of the initial
purchase price payable for the assignment of the new mortgage loans
and their related security to the mortgages trustee) and that
payment by Funding to the mortgages trustee will result in an
increase in the Funding share of the trust property;
* pay to the mortgages trustee a further contribution to increase the
Funding share of the trust property; or
* refinance an existing intercompany loan or intercompany loans,
which will not result in a change in the size of the Funding share
of the trust property. In this circumstance (subject to the terms
of the relevant notes permitting optional redemption), Funding will
use the proceeds of the new intercompany loan to repay an existing
intercompany loan, which the relevant issuer will use to repay the
relevant noteholders. If our intercompany loan to Funding is
refinanced, you could be repaid early.
Regardless of which of these uses of proceeds is selected, the previous
notes issued by the previous issuers and any new notes issued by a new issuer
ultimately will be secured by the same trust property (primarily consisting of
the mortgage portfolio) as the notes issued by us described in this prospectus.
Funding will apply amounts it receives from the trust property to pay
amounts it owes under the intercompany loan, the previous intercompany loans
and any new intercompany loan without regard to when the Funding share of the
trust property increased or when the relevant intercompany loan was made. You
should note that payments by Funding to the previous issuers under the previous
intercompany loans and to new issuers under any new intercompany loans will
rank equally in priority with payments made by Funding to us under our
intercompany loan, other than in respect of the priority made in the allocation
of principal receipts to an issuer (such as the fifth issuer and the eighth
issuer) that issued a money market note, as described under "CASHFLOWS --
DISTRIBUTION OF FUNDING AVAILABLE
32
PRINCIPAL RECEIPTS PRIOR TO THE ENFORCEMENT OF THE FUNDING SECURITY -- RULES
FOR APPLICATION OF FUNDING AVAILABLE PRINCIPAL RECEIPTS". In other words,
subject to foregoing exception, interest and principal payments under our
intercompany loan will not have priority over interest and principal payments
on the previous intercompany loans or any new intercompany loans that are made
at later dates. Instead, subject to the exception described above, Funding will
initially allocate principal to repay each outstanding intercompany loan in no
order of priority among them but in proportion to each relevant issuer's
allocable interest in the Funding share of the trust property (or, if provided
under the relevant intercompany loan agreement, will set aside that allocable
interest in the Funding share of principal receipts for that issuer). However,
the amount and timing of payments on an intercompany loan are determined by the
amount and timing of payments on the notes issued by the relevant issuer and by
the priorities for payment applicable to those notes. The terms of the previous
notes issued by the previous issuers and of any new notes issued by a new
issuer may therefore result in those previous notes and the related previous
intercompany loan s or those new notes and the related new intercompany loan
being repaid prior to the repayment of the notes issued by us under this
prospectus and our related intercompany loan regardless of the ratings of such
previous notes or new notes relative to the notes.
Ultimately, our obligations to pay interest and principal to you broadly
reflect the corresponding obligations of Funding to us under the intercompany
loan.
UNITED KINGDOM TAX STATUS
Subject to important qualifications and conditions set out under "MATERIAL
UNITED KINGDOM TAX CONSEQUENCES", including as to final documentation and
assumptions, Sidley Austin Brown & Wood, our UK tax advisers, are of the
opinion that:
* if and for so long as the offered notes are listed on a "recognised
stock exchange", no UK withholding tax will be required on interest
payments to any offered noteholder. If the notes cease to be so
listed at the time of the relevant interest payment, UK withholding
tax at the current rate of 20% will be imposed on interest paid on
the notes. US residents may be able to reclaim this withholding tax
under the double taxation treaty between the US and the UK;
* US persons who are not and have never been either resident or
ordinarily resident in the UK and who are not carrying on a trade,
profession or vocation through a branch or agency (or, in the case
of a noteholder which is a company, which is not carrying on a
trade through a permanent establishment) in the UK will not be
subject to UK taxation in respect of payments of principal and
interest on the offered notes, except to the extent that any
withholding or deduction from interest payments is required, as
described in the paragraph above;
* US resident noteholders will not be liable to UK tax in respect of
a disposal of the notes provided they are not within the charge to
UK corporation tax and (i) are not resident or ordinarily resident
in the UK, and (ii) do not carry on a trade, profession or vocation
in the UK through a branch or agency in connection with which
interest is received or to which the notes are attributable;
* no UK stamp duty or stamp duty reserve tax is payable on the issue
or transfer of any offered note;
* Funding and the issuer generally will be subject to UK corporation
tax, currently at a rate of 30%, on the profit reflected in their
respective profit and loss accounts as increased by the amounts of
any non-deductible expenses or losses. In respect of Funding, the
profit in the profit and loss account will not exceed 0.01% of the
Funding available revenue receipts. In respect of the issuer, the
profit in the profit and loss account will not exceed 0.01% of the
interest received under the intercompany loan. Any liability to UK
corporation tax will be paid out of the available revenue receipts
of Funding and the issuer, respectively; and
33
* the mortgages trustee will have no liability to UK tax in respect
of any income, profit or gain arising under these arrangements.
Accordingly, the mortgages trustee will have no liability to UK tax
in relation to amounts which it receives on behalf of Funding or
the seller under the mortgages trust.
UNITED STATES TAX STATUS
While not free from doubt, in the opinion of Sidley Austin Brown & Wood LLP,
our US tax advisers, the dollar notes will be treated as debt for US federal
income tax purposes. See "MATERIAL UNITED STATES TAX CONSEQUENCES".
Our US tax advisers 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 issuer will not be
subject to US federal income tax.
JERSEY (CHANNEL ISLANDS) TAX STATUS
It is the opinion of Jersey (Channel Islands) tax counsel that the mortgages
trustee is resident in Jersey for taxation purposes and will be liable to
income tax in Jersey at a rate of 20% in respect of the profits it makes from
acting as trustee of the mortgages trust. The mortgages trustee will not be
liable for any income tax in Jersey in respect of any income it receives in its
capacity as mortgages trustee on behalf of the beneficiaries of the mortgages
trust.
Subject to paying an annual exempt company charge and certain other
considerations, Funding will have "EXEMPT COMPANY" status within the meaning of
Article 123A of the Income Tax (Jersey) Law, 1961, for so long as such status
is available under Jersey law. As an "EXEMPT COMPANY", Funding will not be
liable to Jersey income tax other than on Jersey source income (except bank
deposit interest on Jersey bank accounts). The income of Funding will not be
Jersey source income insofar as the income of Funding arises only from the
trust property and that property is either situated outside Jersey or is
interest on bank or building society deposits in Jersey. It is the opinion of
Jersey (Channel Islands) tax counsel that for so long as Funding is an "EXEMPT
COMPANY", payments in respect of the intercompany loan will not be subject to
Jersey taxation and no withholding in respect of taxation will be required on
such payments to the issuer under the intercompany loan. See "MATERIAL JERSEY
(CHANNEL ISLANDS) TAX CONSEQUENCES".
On June 3, 2003, the European Union Council of Economic and Finance
Ministers reached political agreement on the adoption of a Code of Conduct on
Business Taxation. Although Jersey is not a member of the European Union, the
Policy & Resources Committee of the States of Jersey has announced that, in
keeping with Jersey's policy of constructive international engagement, it
intends to propose legislation to replace the Jersey exempt company regime by
the end of 2008 with a general zero rate of corporate tax.
ERISA CONSIDERATIONS FOR INVESTORS
The dollar notes will be eligible for purchase by employee benefit and other
plans subject to Section 406 of ERISA or Section 4975 of 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 in
this prospectus under "ERISA CONSIDERATIONS". Each purchaser of any such notes
(and all subsequent transferees thereof) will be deemed to have represented and
warranted that its purchase, holding and disposition of such 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
34
States should consult with their counsel to determine whether an investment in
the notes satisfies the prudence, investment diversification and other
applicable requirements of those provisions.
FEES
The table below sets out the on-going fees to be paid by the issuer, Funding
and the mortgages trustee to transaction parties.
TYPE OF FEE AMOUNT OF FEE PRIORITY IN CASHFLOW FREQUENCY
- ---------------------------------- ------------------------ ---------------------------- ----------------------
Administration fee 0.08% per year of the Ahead of all revenue Each distribution date
Funding share of trust amounts payable to
property Funding by the mortgages
trustee
Funding cash management fee [GBP]100,000 each year Ahead of all revenue Each payment date
amounts payable by
Funding and allocable to
an issuer
Previous issuers' cash Estimated [GBP]1,170,000 Ahead of all interest Each payment date
management fees, corporate each year payments on the notes
expenses and fees payable to the
note trustee and each previous
issuer's principal paying agent,
paying agent, transfer agent,
registrar and agent bank
Issuer cash management fee [GBP]117,500 each year Ahead of all interest Each payment date
payments on the notes
Corporate expenses of Estimated [GBP]13,000 Ahead of all revenue Each payment date
mortgages trustee each year amounts payable to
Funding by the mortgages
trustee
Corporate expenses of Funding Estimated [GBP]10,500 Ahead of all revenue Each payment date
each year amounts payable by
Funding and allocable to
an issuer
Corporate expenses of issuer Estimated [GBP]6,000 Ahead of all interest Each payment date
each year payments on the notes
Fee payable by Funding to Estimated [GBP]6,500 In respect of the security Each payment date
security trustee, by issuer to the each year trustee, ahead of all
note trustee and by issuer to the revenue amounts payable
principal paying agent, paying by Funding and allocable to
agent, transfer agent, registrar an issuer, and in respect of
and agent bank the note trustee and the
agents, ahead of all
interest payments on the
notes
Each of the above fees is inclusive of value added tax ("VAT"), which is
currently assessed at 17.5%. The VAT-exclusive amount of the fees will be
subject to adjustment if the applicable rate of VAT changes so that the actual
amount of each fee (inclusive of VAT and regardless of the VAT rate assessed)
will be the amount as set out above.
35
RISK FACTORS
This section describes the principal risk factors associated with an
investment in the notes. If you are considering purchasing our notes, you
should carefully read and think about all the information contained in this
document, including the risk factors set out here, prior to making any
investment decision.
The risks and uncertainties described below are not the only ones relating
to the notes. Additional risks and uncertainties not presently known to us may
also impair your investment. In addition, this prospectus contains forward-
looking statements that involve risks and uncertainties. Actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including the risks described below and elsewhere
in this prospectus.
YOU CANNOT RELY ON ANY PERSON OTHER THAN US TO MAKE PAYMENTS ON THE NOTES
We are the only party responsible for making payments on the notes. The
notes do not represent an interest in or obligation of, and are not insured or
guaranteed by, any of Northern Rock plc, the underwriters, Funding, the
previous issuers, the mortgages trustee, the security trustee, the note
trustee, any swap provider or any of their respective affiliates or any other
party to the transaction other than us.
WE HAVE A LIMITED AMOUNT OF RESOURCES AVAILABLE TO US TO MAKE PAYMENTS ON THE
NOTES
Our ability to make payments of interest on, and principal of, the notes and
to pay our operating and administrative expenses will depend primarily on funds
being received under the intercompany loan. In addition, we will rely on (i)
the basis rate swap to provide payments on all the notes, (ii) the interest
rate swap to provide payments on the series 3 class A2 notes and (iii) the
dollar currency swaps and the euro currency swaps to provide payments on the
notes denominated in US dollars and in euro, respectively.
We will not have any other significant sources of funds available to meet
our obligations under the notes and/or any other payments ranking in priority
to the notes. If the resources described above cannot provide us with
sufficient funds to enable us to make required payments on the notes, you may
incur a loss of interest and/or principal which would otherwise be due and
payable on your notes.
FUNDING IS NOT REQUIRED TO MAKE PAYMENTS ON THE INTERCOMPANY LOAN IF IT DOES
NOT HAVE ENOUGH MONEY TO DO SO, WHICH COULD ADVERSELY AFFECT PAYMENT ON THE
NOTES
Funding's ability to pay amounts due on the intercompany loan will depend
upon:
* Funding receiving enough funds from the Funding share of the trust
property, including revenue receipts and principal receipts on the
mortgage loans included in the mortgages trust on or before each
payment date;
* on any payment date, Funding's entitlement to access funds standing
to the credit of the issuer reserve fund and/or the issuer
liquidity reserve fund, if any, subject to certain limitations (as
described under "CREDIT STRUCTURE -- ISSUER RESERVE FUND" and
"CREDIT STRUCTURE -- ISSUER LIQUIDITY RESERVE FUND"); and
* (in the case of interest due under the intercompany loan) the
amount of funds credited to the Funding reserve fund (as described
under "CREDIT STRUCTURE -- FUNDING RESERVE FUND").
According to the terms of the mortgages trust deed, the mortgages trustee is
obliged to pay to Funding on each distribution date (a) that portion of revenue
receipts on the mortgage loans which is payable to Funding in accordance with
the terms of the mortgages trust deed and (b) that portion of principal
receipts on the mortgage loans which is payable to Funding in accordance with
the terms of the mortgages trust deed.
On each payment date, however, Funding will only be obliged to pay amounts
due to us under the intercompany loan to the extent that it has funds available
to it after making payments ranking in priority to us, such as payments of
certain fees and expenses of Funding. Furthermore, Funding is obliged to make
payments to the previous issuers under
36
the previous intercompany loans and, if Funding subsequently enters into a new
intercompany loan with a new issuer, Funding will also be obliged to make
payments due to such new issuer under such new intercompany loan. These
payments will rank equally with payments to us, other than in respect of the
priority made in respect of the allocation of principal receipts to an issuer
(such as the fifth issuer and the eighth issuer) that issued a money market
note, all in accordance with the relevant Funding priority of payments. If
Funding does not pay amounts to us under the intercompany loan because it does
not have sufficient funds available, those amounts will be due but not payable
until funds are available to pay those amounts in accordance with the relevant
Funding priority of payments. Funding's failure to pay those amounts to us when
due in such circumstances will not constitute an event of default under the
intercompany loan.
If there is a shortfall between the amounts payable by Funding to us under
the intercompany loan agreement and the amounts payable by us on the notes,
then depending on the other sources of funds available to Funding referred to
above, you may not receive the full amount of interest and/or principal which
would otherwise be due and payable on the notes.
OUR RECOURSE TO FUNDING UNDER THE INTERCOMPANY LOAN IS LIMITED, WHICH COULD
ADVERSELY AFFECT PAYMENT ON THE NOTES
If, on the final repayment date of the intercompany loan, there is a
shortfall between the amount required by us to pay all outstanding interest
and/or principal in respect of the notes and the amount available to Funding to
pay amounts due under the intercompany loan to fund repayment of such amounts,
then Funding shall not be obliged to pay that shortfall to us under the
intercompany loan agreement. Any claim that we may have against Funding in
respect of that shortfall will then be extinguished. If there is a shortfall in
interest and/or principal payments under the intercompany loan agreement, we
may not have sufficient funds to make payments on the notes and you may incur a
loss on interest and/or principal which would otherwise be due and payable on
your notes.
ENFORCEMENT OF THE ISSUER SECURITY IS THE ONLY REMEDY FOR A DEFAULT IN OUR
OBLIGATIONS, AND THE NOTE TRUSTEE WILL NOT BE ABLE TO ASSIGN ITS OR OUR RIGHTS
UNDER THE INTERCOMPANY LOAN AGREEMENT
The only remedy for recovering amounts due on the notes is through the
enforcement of the issuer security. If Funding does not pay amounts due under
the intercompany loan because it does not have sufficient funds available,
those amounts will be deemed to be not due and payable, there will not be an
event of default under the intercompany loan and we will not have recourse to
the assets of Funding in that instance. We will only have recourse to the
assets of Funding if Funding has also defaulted on its obligations under the
intercompany loan and the security trustee (on our behalf and on behalf of the
other Funding secured creditors) has enforced the Funding security.
As the note trustee will not be entitled to assign to a third party its or
our rights under the intercompany loan agreement following the service of a
note enforcement notice, the most likely consequence of the issuer security
becoming enforceable will be that monies received by the note trustee from
Funding will be applied by the note trustee (or the issuer cash manager on its
behalf) to make payments on the notes in accordance with the issuer post-
enforcement priority of payments. However, the proceeds of that enforcement may
be insufficient to pay all interest and principal due on the notes.
THERE MAY BE A CONFLICT BETWEEN THE INTERESTS OF THE HOLDERS OF THE VARIOUS
CLASSES OF NOTES, AND THE INTERESTS OF OTHER CLASSES OF NOTEHOLDERS MAY PREVAIL
OVER YOUR INTERESTS
The trust deed, the issuer deed of charge and the terms of the notes will
provide that the note trustee is to have regard to the interests of the holders
of all the classes of notes. There may be circumstances, however, where the
interests of one class of the
37
noteholders conflict with the interests of another class or classes of the
noteholders. In general, the note trustee will give priority to the interests
of the holders of the most senior class of notes such that:
* the note 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 and/or the class M noteholders and/or the class C
noteholders on the other hand;
* (if there are no class A notes outstanding) the note 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 and/or the
class C noteholders on the other hand; and
* (if there are no class A notes or class B notes outstanding) the
note trustee is to have regard only to the interests 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 on
the other hand.
THERE MAY BE A CONFLICT BETWEEN THE INTERESTS OF THE HOLDERS OF NOTES OF ANY
CLASS OF THE SERIES 1 NOTES AND THE HOLDERS OF THE SAME CLASS OF THE SERIES 2
NOTES AND/OR SERIES 3 NOTES, AND THE INTERESTS OF OTHER NOTEHOLDERS MAY PREVAIL
OVER YOUR INTERESTS
There may also be circumstances where the interests of a class of
noteholders of one series of notes conflict with the interests of the
noteholders of the same class of a different series of notes and/or, in
relation to the series 1 class A notes, the interests of the noteholders of the
series 1 class A1 notes conflict with the interests of the noteholders of the
series 1 class A2 notes and the series 1 class A3 notes, the interests of the
noteholders of the series 1 class A2 notes conflict with the interests of the
noteholders of the series 1 class A1 notes and series 1 class A3 notes, the
interests of the noteholders of the series 1 class A3 notes conflict with the
interests of the noteholders of the series 1 class A1 notes and the series 1
class A2 notes and/or, in relation to the series 2 class A notes, the interests
of the noteholders of the series 2 class A1 notes conflict with the interests
of the noteholders of the series 2 class A2 notes and/or, in relation to the
series 3 class A notes, the interests of the noteholders of the series 3 class
A1 notes conflict with the interests of the noteholders of the series 3 class
A2 notes. In general, the trust deed, the issuer deed of charge and the terms
of the notes will require a single meeting of the holders of all series of the
relevant class of notes whether or not there is a conflict of interest between
the holders of those different series of that class of notes. As there will be
no provision for separate meetings of the holders of a class of notes of one
series, a resolution may be passed by holders of notes of one series of a
relevant class which will bind the holders of each other series of that same
class.
THERE MAY BE CONFLICTS BETWEEN US, THE PREVIOUS ISSUERS AND ANY NEW ISSUERS,
AND OUR INTERESTS MAY NOT PREVAIL, WHICH MAY ADVERSELY AFFECT PAYMENTS ON THE
NOTES
The security trustee will exercise its rights under the Funding deed of
charge only in accordance with directions given by the note trustee. If
resolutions of holders of the previous notes and any new notes result in
conflicting directions being given to the note trustee (and, ultimately, from
the note trustee to the security trustee), the security trustee shall have
regard only to the directions of the noteholders of the issuer, each previous
issuer or new issuers that has or have the highest ranking class of notes
outstanding at such time (meaning the class A notes so long as there are any
class A notes outstanding and thereafter the class B notes so long as there are
no class A notes outstanding and thereafter the class M notes so long as there
are neither class A notes nor class B notes outstanding and thereafter the
class C notes so long as there are no class A notes, class B notes or class M
notes outstanding and thereafter special repayment notes so long as there are
no class A notes, class B notes, class M notes or class C notes outstanding).
However, if more than one issuer has notes outstanding that are the highest
ranking notes outstanding among all issuers, the note trustee shall instead
have regard to the resolutions
38
of the holders of notes of that issuer that has the greatest aggregate
principal amount of notes outstanding at such time. If there is a conflict
between us and any previous issuer and/or any new issuers and we do not have
the highest ranking notes outstanding among all issuers (or the greatest
aggregate principal amount of notes outstanding at such time), our interests
may not prevail. This could ultimately cause a reduction in the payments that
you receive on your notes.
IF FUNDING ENTERS INTO NEW INTERCOMPANY LOANS, THESE NEW INTERCOMPANY LOANS AND
ACCOMPANYING NEW NOTES MAY RANK AHEAD OF THE INTERCOMPANY LOAN AND THE NOTES AS
TO PAYMENTS
It is expected that in the future, subject to satisfaction of certain
conditions, Funding will establish additional wholly-owned subsidiary companies
to issue new notes to investors. The proceeds of each new issue of new notes
will be used by the new issuer to make a new intercompany loan to Funding.
Funding will use the proceeds of the new intercompany loan (less any amount
utilized to fund any applicable reserve fund for any new issuer) to do one or
more of the following:
* pay to the mortgages trustee Funding's initial contribution for the
Funding share in respect of any new trust property to be assigned
by the seller to the mortgages trustee;
* pay to the mortgages trustee a further contribution to increase the
Funding share of the trust property; and/or
* refinance an existing intercompany loan or intercompany loans
outstanding at that time (and if our intercompany loan to Funding
is refinanced, you could be repaid early).
Funding will apply amounts it receives from the trust property to pay
amounts it owes under the intercompany loan, the previous intercompany loans
and any new intercompany loan without regard to when the relevant intercompany
loan was made. You should note that payments by Funding to the previous issuers
under the previous intercompany loans and to new issuers under any new
intercompany loans will rank equally in priority with payments made by Funding
to us under our intercompany loan, other than in respect of the priority made
in the allocation of principal receipts to an issuer (such as the fifth issuer
and the eighth issuer) that issued a money market note, as described under
"CASHFLOWS -- DISTRIBUTION OF FUNDING AVAILABLE PRINCIPAL RECEIPTS PRIOR TO THE
ENFORCEMENT OF THE FUNDING SECURITY -- RULES FOR APPLICATION OF FUNDING
AVAILABLE PRINCIPAL RECEIPTS". Subject to the foregoing exception, Funding will
initially allocate principal to repay each outstanding intercompany loan in no
order of priority among them but in proportion to each relevant issuer's
allocable interest in the Funding share of the trust property (or, if provided
under the relevant intercompany loan agreement, will set aside that allocable
interest in the Funding share of principal receipts for that issuer).
The amount and timing of payments on an intercompany loan are determined by
the amount and timing of payments on the notes issued by the relevant issuer
and by the priorities for payment applicable to those notes. The terms of the
previous notes issued by the previous issuers and of any new notes issued by a
new issuer may therefore result in those previous notes and the related
previous intercompany loans or those new notes and the related new intercompany
loan being repaid prior to the repayment of the notes issued by us under this
prospectus and our related intercompany loan.
If Funding establishes new issuers to make new intercompany loans to
Funding, you will not have any right of prior review or consent with respect to
those new intercompany loans or the corresponding issuance by new issuers of
new notes. Similarly, the terms of the Funding transaction documents (including
the mortgage sale agreement, the mortgages trust deed, the Funding deed of
charge, the definitions of the trigger events and the seller share event and
the criteria for the assignment of new loans to the mortgages trustee) may be
amended to reflect the new issue. Your consent to these changes will not be
required. There can be no assurance that these changes will not affect the
cashflow available to pay amounts due on your notes.
39
Before issuing new notes, however, a new issuer will be required to satisfy
a number of conditions, including that the ratings of your notes will not be
downgraded or otherwise adversely affected at the time a new issuer issues new
notes.
NEW ISSUERS WILL SHARE IN THE SAME SECURITY GRANTED BY FUNDING TO US, AND THIS
MAY ULTIMATELY CAUSE A REDUCTION IN THE PAYMENTS YOU RECEIVE ON THE NOTES
A new issuer will become party to the Funding deed of charge and will be
entitled to share, on an equal ranking, in the security granted by Funding for
our benefit (and the benefit of the other Funding secured creditors) under the
Funding deed of charge. If the Funding security is enforced and there are
insufficient funds to make the payments that are due to all issuers, each
issuer will only be entitled to its proportionate share of those limited funds.
This could ultimately cause a reduction in the payments you receive on your
notes.
THE PREVIOUS ISSUERS AND THE OTHER FUNDING SECURED CREDITORS ALREADY SHARE IN
THE SAME SECURITY GRANTED BY FUNDING TO US, AND THIS MAY ULTIMATELY CAUSE A
REDUCTION IN THE PAYMENTS YOU RECEIVE ON THE NOTES
Funding has entered into previous intercompany loan agreements and it has
also entered into various agreements with other Funding secured creditors in
connection with the issuance of the previous intercompany loans. These Funding
secured creditors are already parties to the Funding deed of charge and are
entitled to share, on an equal ranking, in the security granted by Funding for
our benefit. If the Funding security is enforced and there are insufficient
funds to make the payments that are due to the previous issuers and to us, we
will only be entitled to our proportionate share of those limited funds. This
could ultimately cause a reduction in the payments you receive on your notes.
AS NEW MORTGAGE LOANS ARE ASSIGNED TO THE MORTGAGES TRUSTEE AND AS MORTGAGE
LOANS ARE IN CERTAIN CIRCUMSTANCES REMOVED FROM THE MORTGAGES TRUST, THE
CHARACTERISTICS OF THE TRUST PROPERTY MAY CHANGE FROM THOSE EXISTING AT THE
CLOSING DATE, AND THOSE CHANGES MAY DELAY OR REDUCE PAYMENTS ON THE NOTES
We do not guarantee that the characteristics of any new mortgage loans
assigned to the mortgages trustee will have the same characteristics as the
mortgage loans in the mortgage portfolio as of the closing date. In particular,
new mortgage loans may have different payment characteristics than the mortgage
loans in the mortgage portfolio as of the closing date. The ultimate effect of
this could be to delay or reduce the payments you receive on your notes or
increase the rate of repayment of the notes. However, the new mortgage loans
will be required to meet the conditions described under "ASSIGNMENT OF THE NEW
MORTGAGE LOANS AND THEIR RELATED SECURITY".
In addition, in order to promote the retention of borrowers, the seller may
periodically contact certain borrowers in respect of the seller's total
portfolio of outstanding mortgage loans in order to encourage a borrower to
review the seller's other mortgage products and to discuss shifting that
borrower to an alternative Northern Rock mortgage product. The seller also may
periodically contact borrowers in the same manner in order to offer to a
borrower the opportunity to apply for a further advance. The employee of the
seller who contacts a borrower will not know whether that borrower's original
mortgage loan has been assigned to the mortgages trust. However, if the
relevant original mortgage loan made to that borrower happens to have been
assigned to the mortgages trust and that borrower decides to switch mortgage
products or take a further advance, the seller then has the option of
repurchasing that original mortgage loan from the mortgages trust.
Generally, the borrowers that the seller may periodically contact are those
borrowers whose mortgage loans are not in arrears and who are otherwise in good
standing. To the extent that these borrowers switch to a different Northern
Rock mortgage product or take a further advance and their original mortgage
loans are purchased by the seller, the
40
percentage of fully performing mortgage loans in the mortgage portfolio may
decrease, which could delay or reduce payments you receive on your notes.
However, as described above, the seller's decision as to which borrowers to
target for new mortgage products and/or further advances and the decision
whether to approve a new mortgage product and/ or further advance for a
particular borrower will be made without regard to whether a borrower's
mortgage loan is included in the mortgage portfolio.
THE SELLER MAY CHANGE THE LENDING CRITERIA RELATING TO MORTGAGE LOANS WHICH ARE
SUBSEQUENTLY ASSIGNED TO THE MORTGAGES TRUSTEE WHICH COULD AFFECT THE
CHARACTERISTICS OF THE TRUST PROPERTY, AND WHICH COULD LEAD TO A DELAY OR A
REDUCTION IN THE PAYMENTS RECEIVED ON YOUR NOTES OR COULD INCREASE THE RATE OF
REPAYMENT OF THE NOTES
Each of the mortgage loans was originated in accordance with the seller's
lending criteria applicable at the time of origination, which lending criteria
in the case of each mortgage loan included in the mortgage portfolio as of the
closing date were the same as or substantially similar to the criteria
described later in this prospectus under "THE MORTGAGE LOANS -- ORIGINATION OF
THE MORTGAGE 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 mortgage loans and
new related security to the mortgages trustee, the seller will warrant to the
mortgages trustee, Funding and the security trustee that those new mortgage
loans and new related security were originated in accordance with the seller's
lending criteria applicable 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 new mortgage loan at the
time of origination may not be the same as those set out in the section "THE
MORTGAGE LOANS -- ORIGINATION OF THE MORTGAGE LOANS -- LENDING CRITERIA".
If new mortgage 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 your notes or it could increase the rate of repayment of
the notes.
IF PROPERTY VALUES DECLINE PAYMENTS ON THE NOTES COULD BE ADVERSELY AFFECTED
The security granted by Funding in respect of the intercompany loan, which
is the principal source of funding for your notes, consists, among other
things, of Funding's interest in the mortgages trust. Since the value of the
mortgage 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. We cannot guarantee that the value of a mortgaged
property will remain at the same level as on the date of origination of the
related mortgage 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 loans could be significantly reduced and, ultimately,
may result in losses to you if the security is required to be enforced.
THE TIMING AND AMOUNT OF PAYMENTS ON THE MORTGAGE LOANS COULD BE AFFECTED BY
GEOGRAPHIC CONCENTRATION OF THE MORTGAGE LOANS
To the extent that specific geographic regions have experienced or may
experience in the future weaker regional economic conditions and housing
markets than other regions, a concentration of the mortgage loans in such a
region may be expected to exacerbate all of the risks relating to the mortgage
loans described in this section. We can predict neither when and where such
regional economic declines may occur nor to what extent or for how long such
conditions may continue. See "THE MORTGAGE LOANS -- THE CUT-OFF DATE MORTGAGE
PORTFOLIO".
41
THE TIMING AND AMOUNT OF PAYMENTS ON THE MORTGAGE LOANS COULD BE AFFECTED BY
VARIOUS FACTORS WHICH MAY ADVERSELY AFFECT PAYMENTS ON THE NOTES
Various factors influence mortgage delinquency rates, prepayment rates,
repossession frequency and the ultimate payment of interest and repayment of
principal. These factors include 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' personal or financial circumstances may affect the ability of
borrowers to repay mortgage 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 mortgage loans.
In addition, the ability of a borrower to sell a property given as security
for a mortgage loan at a price sufficient to repay the amounts outstanding
under the mortgage loan will depend upon a number of factors, including the
availability of buyers for that property, the value of that property and
property values and the property market in general at the time.
The intercompany loan is our principal source of income for repayment of the
notes. The principal source of income for repayment by Funding of the
intercompany loan is its interest in the mortgage loans held on trust by the
mortgages trustee for the benefit of Funding and the seller. If the timing and
payment of the mortgage loans is adversely affected by any of the risks
described above, the payments on your notes could be reduced or delayed.
THE YIELD TO MATURITY OF THE NOTES MAY BE ADVERSELY AFFECTED BY PREPAYMENTS OR
REDEMPTIONS ON THE MORTGAGE LOANS OR REPURCHASES OF MORTGAGE LOANS BY THE
SELLER
The yield to maturity of the notes of each class will depend mostly on (a)
the amount and timing of the repayment of principal on the mortgage loans and
(b) the price paid by the noteholders of each class of notes. The yield to
maturity of the notes of each class may be adversely affected by a higher or
lower than anticipated rate of prepayments on the mortgage loans.
The rate of prepayment of mortgage 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 mortgage loans may be due to borrowers refinancing their mortgage loans
and sales of mortgaged properties by borrowers (either voluntarily or as a
result of enforcement action taken), as well as the receipt of proceeds from
buildings insurance and life insurance policies. The rate of prepayment of
mortgage loans may also be influenced by the presence or absence of early
repayment charges. You should note that certain of the seller's flexible
mortgage loan products allow the borrower to make overpayments or repay the
entire current balance under the flexible mortgage loan at any time without
incurring an early repayment charge. See "THE MORTGAGE LOANS -- CHARACTERISTICS
OF THE MORTGAGE LOANS -- EARLY REPAYMENT CHARGES".
Variation in the rate and timing of prepayments of principal on the mortgage
loans may affect each class of notes differently depending upon amounts already
repaid by Funding to us under the intercompany loan and whether a trigger event
has occurred or the security granted by us under the issuer deed of charge has
been enforced. If prepayments on the mortgage loans occur less frequently than
anticipated, then the actual yields on your notes may be lower than you
anticipate and the amortization of the notes may take much longer than is
presently anticipated.
The yield to maturity of the notes may be affected by the purchase by the
seller of mortgage loans subject to product switches, further advances or in
respect of which personal secured loans are made to the same borrower and
secured over the same property or by the repurchase by the seller of mortgage
loans for breaches of
42
representations and warranties. If the seller is required to repurchase from
the mortgages trustee a mortgage loan or mortgage loans under a mortgage
account and their related security because one of the mortgage loans does not
comply with the mortgage loan representations and warranties in the mortgage
sale agreement, then the payment received by the mortgages trustee will have
the same effect as a prepayment of such mortgage loan or mortgage loans.
Because these factors are not within our control or the control of Funding or
the mortgages trustee, we cannot give any assurances as to the level of
prepayments that the mortgage portfolio may experience.
In addition, if a mortgage loan is subject to a product switch or a further
advance, the seller may purchase the relevant borrower's mortgage loan or
mortgage loans and their related security from the mortgages trustee. If a
borrower takes a personal secured loan after the borrower's existing mortgage
loan(s) has been assigned to the mortgages trustee, the seller currently
intends to purchase from the mortgages trustee the mortgage loan(s) of that
borrower (including any personal secured loans and any further draws thereunder
in respect of that borrower) that were part of the trust property. In the case
of any such purchase, the payment received by the mortgages trustee will have
the same effect as a prepayment of such mortgage loan or mortgage loans.
In order to promote the retention of borrowers, the seller may periodically
contact certain borrowers in respect of the seller's total portfolio of
outstanding mortgage loans in order to encourage a borrower to review the
seller's other mortgage products and to discuss shifting that borrower to an
alternative Northern Rock mortgage product. The employee of the seller who
contacts a borrower will not know whether that borrower's original mortgage
loan has been assigned to the mortgages trust. However, if the relevant
original mortgage loan made to that borrower happens to have been assigned to
the mortgages trust and that borrower decides to switch mortgage loan products,
the seller's retention policy may ultimately result in that mortgage loan
becoming the subject of a product switch which ultimately may result in a
prepayment as described in the preceding paragraph. Furthermore, the seller
also may periodically contact certain borrowers in respect of the seller's
total portfolio of outstanding mortgage loans in order to offer to a borrower
the opportunity to apply for a further advance. If the borrower decides to take
a further advance and the seller decides to purchase the mortgage loan subject
to that further advance, the mortgage loan will be prepaid.
As the decision by the seller whether to purchase a mortgage loan subject to
a product switch or a further advance, or the mortgage loan(s) of a borrower
taking a personal secured loan, is not within our control or the control of
Funding or the mortgages trustee, we cannot give any assurance as to the level
of effective prepayments that the mortgage portfolio may experience.
THE INCLUSION OF FLEXIBLE MORTGAGE LOANS MAY AFFECT THE YIELD TO MATURITY OF
AND THE TIMING OF PAYMENTS ON THE NOTES
231,096 mortgage loans in the cut-off date mortgage portfolio (or 80.96% of
the aggregate current balance of the mortgage loans as of the cut-off date) are
flexible mortgage loans. Flexible mortgage loans provide the borrower with a
range of options that gives that borrower greater flexibility in the timing and
amount of payments made under the mortgage loan. Subject to the terms and
conditions of the mortgage loans (which may require in some cases notification
to the seller and in other cases the consent of the seller), under a flexible
mortgage loan a borrower may "OVERPAY" or prepay principal on any day or make a
re-draw in specified circumstances. For a detailed summary of the
characteristics of the flexible mortgage loans, see "THE MORTGAGE LOANS --
CHARACTERISTICS OF THE MORTGAGE LOANS -- FLEXIBLE MORTGAGE LOANS". In addition,
certain of the seller's flexible mortgage loan products allow the borrower to
make overpayments or repay the entire current balance under the flexible
mortgage loan at any time without incurring an early repayment charge. See "THE
MORTGAGE LOANS -- CHARACTERISTICS OF THE MORTGAGE LOANS -- EARLY REPAYMENT
CHARGES".
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The inclusion of Together Connections mortgage loans and Connections
mortgage loans, which are another type of flexible mortgage loan, in the
mortgages trust may also affect the yield to maturity of and the timing of
payments on the notes. Application of the Together Connections Benefit, a
feature of Together Connections mortgage loans, and the Connections Benefit, a
feature of Connections mortgage loans, will reduce the principal amount
outstanding on a Together Connections mortgage loan and a Connections mortgage
loan, respectively. As a result, less of a related borrower's contractual
monthly payment (which the borrower is nevertheless obligated to continue
making in full) will be required to pay interest, and proportionately more of
that contractual monthly payment will be allocated as a repayment of principal.
This reallocation may lead to amortization of the related mortgage loan more
quickly than would otherwise be the case. For a description of the Together
Connections mortgage loans and the Together Connections Benefit and the
Connections mortgage loans and the Connections Benefit, see "THE MORTGAGE LOANS
- -- CHARACTERISTICS OF THE MORTGAGE LOANS -- MORTGAGE LOAN PRODUCTS OFFERED BY
THE SELLER".
If the notes are not repaid on or before the applicable step-up date, then
to the extent that borrowers under flexible mortgage loans consistently prepay
principal or to the extent that Together Connections mortgage loans and
Connections mortgage loans amortize more quickly than otherwise expected, the
timing of payments on your notes may be adversely affected.
THE OCCURRENCE OF AN ASSET TRIGGER EVENT OR ENFORCEMENT OF THE ISSUER SECURITY
MAY ACCELERATE THE REPAYMENT OF CERTAIN NOTES AND/OR DELAY THE REPAYMENT OF
OTHER NOTES
If no trigger event has occurred and the issuer security has not been
enforced, then payments of principal of a class of notes on any payment date
will not be greater than the controlled amortization amount for that class on
that payment date. If an asset trigger event has occurred, the mortgages
trustee will distribute principal receipts on the mortgage loans to Funding and
the seller proportionally based on their percentage shares (or, in certain
circumstances, their weighted average percentage shares) of the trust property
and Funding will on each payment date apply those principal receipts to repay
the previous intercompany loans, our intercompany loan and each new
intercompany loan (if any) in proportion to the outstanding principal balance
of the relevant intercompany loan.
Following the occurrence of an asset trigger event or enforcement of the
issuer security, we will apply these principal repayments of our intercompany
loan which are available for payment to noteholders on each payment date to
repay the class A notes, in no order of priority among them but in proportion
to the respective amounts due on the class A notes, until their outstanding
principal balances have been reduced to zero, without regard to their
controlled amortization amounts, then the class B notes, in no order of
priority among them but in proportion to the respective amounts due on the
class B notes, until their outstanding principal balances have been reduced to
zero, without regard to their controlled amortization amounts, then the class M
notes, in no order of priority among them but in proportion to the respective
amounts due on the class M notes, until their outstanding principal balances
have been reduced to zero, without regard to their controlled amortization
amounts, and finally, the class C notes, in no order of priority among them but
in proportion to the respective amounts due on the class C notes, until their
outstanding principal balances have been reduced to zero, without regard to
their controlled amortization amounts.
As the priority of payment in respect of the series 1 class A notes, the
series 2 class A notes and the series 3 class A notes rank equally after the
occurrence of an asset trigger event or enforcement of the issuer security, and
as repayments of principal in these circumstances will not be limited to or
controlled by the respective controlled amortization amounts for the relevant
class of notes, this may result in certain noteholders being repaid more
rapidly than if an asset trigger event or enforcement of the issuer security
had not occurred, and may result in other noteholders being repaid less rapidly
than if an asset trigger event had not occurred.
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THE OCCURRENCE OF A NON-ASSET TRIGGER EVENT MAY ACCELERATE THE REPAYMENT OF
CERTAIN NOTES AND/OR DELAY THE REPAYMENT OF OTHER 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. Funding will on each payment date apply these
principal receipts to repay the previous intercompany loans, our intercompany
loan and each new intercompany loan (if any) equally and in proportion to the
outstanding principal balance of the relevant intercompany loan.
Following the occurrence of a non-asset trigger event, we will apply these
principal repayments of the intercompany loan which are available for payment
to noteholders on each payment date to repay the series 1 class A1 notes until
the outstanding principal balance of the series 1 class A1 notes has been
reduced to zero, without regard to their controlled amortization amounts, then
the series 1 class A2 notes until the outstanding principal balance of the
series 1 class A2 notes has been reduced to zero, without regard to their
controlled amortization amounts, then the series 1 class A3 notes, the series 2
class A1 notes, the series 2 class A2 notes, the series 3 class A1 notes and
the series 3 class A2 notes, in no order of priority among them but in
proportion to the respective amounts due on the series 1 class A3 notes, the
series 2 class A1 notes, the series 2 class A2 notes, the series 3 class A1
notes and the series 3 class A2 notes, until the outstanding principal balance
of each of the series 1 class A3 notes, the series 2 class A1 notes, the series
2 class A2 notes, the series 3 class A1 notes and the series 3 class A2 notes
has been reduced to zero, without regard to their controlled amortization
amounts, then the class B notes, in no order of priority among them but in
proportion to the respective amounts due on the class B notes, until their
outstanding principal balances have been reduced to zero, without regard to
their controlled amortization amounts, then the class M notes, in no order of
priority among them but in proportion to the respective amounts due on the
class M notes, until their outstanding principal balances have been reduced to
zero, without regard to their controlled amortization amounts and finally, the
class C notes, in no order of priority among them but in proportion to the
respective amounts due on the class C notes, until their outstanding principal
balances have been reduced to zero, without regard to their controlled
amortization amounts.
As the repayments of principal in these circumstances will not be limited to
or controlled by the respective controlled amortization amounts for the
relevant class of notes, this may result in certain noteholders being repaid
more rapidly than if a non-asset trigger event or enforcement of the issuer
security had not occurred, and may result in other noteholders being repaid
less rapidly than if a non-asset trigger event had not occurred.
COMPETITION IN THE UK MORTGAGE LOAN INDUSTRY COULD INCREASE THE RISK OF AN
EARLY REDEMPTION OF YOUR 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 attrition of the
seller's existing borrowers. 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 your
notes.
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IF THE SELLER DOES NOT PURCHASE FIXED RATE MORTGAGE LOANS UNDER WHICH THE
BORROWER EXERCISES HIS OR HER RE-FIX OPTION THEN WE MAY NEED TO ENTER INTO NEW
HEDGING ARRANGEMENTS AND WE MAY NOT FIND A COUNTERPARTY AT THE RELEVANT TIME
If the seller does not elect within 30 days of the end of the relevant fixed
rate period to purchase the relevant mortgage loan from the mortgages trustee
if it becomes a re-fixed mortgage loan, then this will necessitate the entry by
us into further hedging arrangements with an alternative basis rate swap
counterparty satisfactory to the rating agencies. Entering into additional
hedging arrangements may increase our obligations on any payment date which may
adversely affect payments on your notes. In addition, we cannot provide
assurance that an alternative basis rate swap counterparty will be available at
the relevant time.
IF THE MORTGAGES TRUSTEE GIC PROVIDER OR THE FUNDING GIC PROVIDER CEASES TO
SATISFY CERTAIN CRITERIA, THEN THE MORTGAGES TRUSTEE GIC ACCOUNT OR THE FUNDING
GIC ACCOUNT MAY HAVE TO BE TRANSFERRED TO ANOTHER GIC PROVIDER UNDER TERMS THAT
MAY NOT BE FAVOURABLE AS THOSE OFFERED BY THE CURRENT GIC PROVIDER
The mortgages trustee GIC provider and the Funding GIC provider are required
to satisfy certain criteria (including certain criteria and/or permissions set
or required by the FSA from time to time) in order to continue to receive
deposits in the mortgages trustee GIC account and the Funding GIC account,
respectively. If either the mortgages trustee GIC provider or the Funding GIC
provider ceases to satisfy that criteria, then the relevant account may need to
be transferred to another entity which does satisfy that criteria. In these
circumstances, the stand-by GIC provider or other bank, as applicable, may not
offer a GIC on terms as favourable as those provided by the mortgages trustee
GIC provider or the Funding GIC provider.
The criteria referred to above include a requirement that the short-term,
unguaranteed and unsecured ratings ascribed to the mortgages trustee GIC
provider or, as the case may be, the Funding GIC provider are at least "A-1+"
(or in the circumstances described below, "A-1") by Standard & Poor's, "F1" by
Fitch and "P-1" by Moody's, provided that where the relevant deposit amount is
less than 20% of the amount of the Funding share of the trust property, then
the short-term, unguaranteed and unsecured rating required to be ascribed by
Standard & Poor's to the mortgages trustee GIC provider or, as the case may be,
the Funding GIC provider shall be at least "A-1".
RATINGS ASSIGNED TO THE NOTES MAY BE LOWERED OR WITHDRAWN AFTER YOU PURCHASE
THE NOTES, WHICH MAY LOWER THE MARKET VALUE OF THE NOTES
The ratings assigned by Standard & Poor's and Fitch to each class of notes
address the likelihood of full and timely payment to you of all payments of
interest on each payment date under those classes of notes. Such ratings also
address the likelihood of ultimate repayment of principal on the final maturity
date of each class of notes. The ratings assigned by Moody's to each class of
notes address the expected loss in proportion to the initial principal amount
of such class posed to investors by the final maturity date. In Moody's
opinion, the structure allows for timely payment of interest and ultimate
repayment of principal at par on or before the final maturity date. The
expected ratings of each class of notes offered by this prospectus on the
closing date are set out in "RATINGS OF THE OFFERED NOTES". Any rating agency
may lower its rating or withdraw its rating if, in the sole judgement of the
rating agency, the credit quality of the notes has declined or is in question.
If any rating assigned to the notes is lowered or withdrawn, the market value
of the notes may be reduced.
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SUBORDINATION OF OTHER NOTE CLASSES MAY NOT PROTECT YOU FROM ALL RISK OF LOSS
Each of the class B notes of each series, the class M notes of each series
and the class C notes of each series are subordinated in right of payment of
interest to the class A notes of each series. Each of the class M notes of each
series and the class C notes of each series are subordinated in right of
payment of interest to the class B notes of each series. Each of the class C
notes of each series are subordinated in right of payment of interest to the
class M notes of each series.
Each of the class B notes of each series, the class M notes of each series
and the class C notes of each series are subordinated in right of payment of
principal to the class A notes of each series. Each of the class M notes of
each series and the class C notes of each series are subordinated in right of
payment of principal to the class B notes of each series. Each of the class C
notes of each series are subordinated in right of payment of principal to the
class M notes of each series.
However, the controlled amortization amount payable in respect of each class
of notes is determined by a schedule that indicates the target balance for that
class of notes on the relevant payment date, as set forth under "CASHFLOWS --
DISTRIBUTION OF ISSUER AVAILABLE PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF THE
ISSUER SECURITY AND/OR OCCURRENCE OF A TRIGGER EVENT". You should be aware that
not all classes of notes are scheduled to receive payments of principal on each
payment date. The controlled amortization amount payable on some classes of
notes on certain payment dates will be zero, which means that, despite the
principal priority of payments described above, lower ranking classes of notes
may nevertheless be repaid principal before higher ranking classes of notes.
Payments of principal are expected to be made to each class of notes in
scheduled amounts up to the amounts set forth under "CASHFLOWS -- DISTRIBUTION
OF ISSUER AVAILABLE PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF THE ISSUER
SECURITY AND/OR OCCURRENCE OF A TRIGGER EVENT".
There is no assurance that these subordination rules will protect the class
A noteholders from all risk of loss, the class B noteholders from all risk of
loss or the class M noteholders from all risk of loss. If the losses allocated
to the class C notes, the class M notes and the class B notes, as evidenced on
each of the class C, class M and class B principal deficiency subledgers,
respectively, plus any other debits to each of the class C, class M and class B
principal deficiency subledgers, as the case may be, are in an aggregate amount
equal to the aggregate outstanding principal balances of the class C notes, the
class M notes and the class B notes, then losses on the mortgage loans will
thereafter be allocated to the class A notes at which point there will be an
asset trigger event. If the losses allocated to the class C notes and the class
M notes, as evidenced on each of the class C and class M principal deficiency
subledgers, respectively, plus any other debits to each of the class C and
class M principal deficiency subledgers, as the case may be, are in an
aggregate amount equal to the aggregate outstanding principal balances of the
class C notes and the class M notes, then losses on the mortgage loans will
thereafter be allocated to the class B notes. Similarly, if the losses
allocated to the class C notes as evidenced on the class C principal deficiency
subledger plus any other debits to the class C principal deficiency subledger
are in an aggregate amount equal to the aggregate outstanding principal balance
of the class C notes, then losses on the mortgage loans will thereafter be
allocated to the class M notes.
PRINCIPAL PAYMENTS ON THE CLASS B NOTES, THE CLASS M NOTES AND THE CLASS C
NOTES WILL BE DEFERRED IN CERTAIN CIRCUMSTANCES
On any payment date, our obligation to pay principal of the class B notes,
the class M notes and the class C notes will be subject to the satisfaction as
of the related determination date of the issuer arrears test and the issuer
reserve requirement to the extent that any class A notes are outstanding on
that date.
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If any class A note remains outstanding on that date and any of the above
conditions is not satisfied on the related determination date, payments of
principal which would otherwise have been made to the class B notes and/or the
class M notes and/or the class C notes will not be payable on that payment
date.
YOU MAY NOT BE ABLE TO SELL THE NOTES
There currently is no secondary market for the notes. The underwriters
expect, but are not obliged, to make a market in the notes. If no secondary
market develops, you may not be able to sell the notes prior to maturity. We
cannot offer any assurance that a secondary market will develop or, if one does
develop, that it will continue.
YOU MAY BE SUBJECT TO EXCHANGE RATE AND INTEREST RATE RISKS
Repayments of principal and payments of interest on the dollar notes will be
made in US dollars and repayments of principal and payments of interest on the
euro notes will be made in euro but the intercompany loan to be made by us to
Funding and repayments of principal and payments of interest by Funding to us
under the intercompany loan will be in sterling. Additionally, payments of
interest on the series 3 class A2 notes to be made by the issuer will be made
by reference to a fixed rate until the earlier to occur of the payment date
falling in September 2011, the occurrence of a trigger event or enforcement of
the Funding security and/or the issuer security. However, payments received by
the issuer from Funding in relation to the intercompany loan agreement will be
calculated by reference to a floating rate.
To hedge our currency exchange rate exposure, including any interest rate
exposure connected with that currency exposure, on the closing date we will
enter into the dollar currency swaps for the dollar notes with the dollar
currency swap providers and the euro currency swaps for the euro notes with the
euro currency swap provider (see "THE SWAP AGREEMENTS -- THE DOLLAR CURRENCY
SWAPS" and "-- THE EURO CURRENCY SWAPS").
To hedge our interest rate exposure, on the closing date we will enter into
the interest rate swap with the interest rate swap provider (see "THE SWAP
AGREEMENTS -- THE INTEREST RATE SWAP").
To the extent that it has funds available, on each payment date Funding will
pay to us interest and, if applicable, principal due on the intercompany loan
agreement. On each payment date up to and including the payment date falling in
September 2011 (or if earlier, until the occurrence of a trigger event or
enforcement of the Funding security and/or the issuer security), in relation to
our obligations under the interest rate swap, we will pay the amount so
received to the interest rate swap provider, to the extent that such amount
relates to the series 3 class A2 notes.
If we fail to make timely payments of amounts due under the interest rate
swap, then we will have defaulted under the interest rate swap. The interest
swap provider is obliged only to make payments under the interest rate swap if
and for so long as we make payments under it. If the interest rate swap
provider is not obliged to make payments, or if it defaults in its obligations
to make payments of amounts equal to the full amount to be paid by it on the
payment dates under the interest rate swap we will be exposed to any difference
between the floating amount payable to us by Funding under the intercompany
loan and the fixed interest amounts payable by us on the series 3 class A2
notes. Unless a replacement interest rate swap is entered into, we may have
insufficient funds to make payments of interest due on the notes of any class
and any series that are then outstanding.
Additionally, the interest rate swap provider will not be obliged to make
any corresponding swap payments to us until the applicable payment date in
respect of the series 3 class A2 notes. This payment date occurs annually up to
and including the earliest to occur of (i) the payment date falling in
September 2011, (ii) the occurrence of a trigger event and (iii) enforcement of
the Funding security and/or the issuer security, and thereafter occurs
quarterly on the payment dates falling, as applicable, in March, June,
48
September and December. Therefore, under the interest rate swap, the date on
which the interest rate swap provider pays amounts due to us may be as long as
nine months after a date on which we pay amounts due to it.
If we fail to make timely payments of amounts due under a currency swap,
then we will have defaulted under that currency swap. Each currency swap
provider is obliged only to make payments under a currency swap as long as we
make payments under it. If such currency swap provider is not obliged to make
payments of, or if it defaults in its obligations to make payments of, amounts
in US dollars or euro (as the case may be) equal to the full amount to be paid
to us on the payment dates under the currency swap (which are the same dates as
the payment dates under the notes), we will be exposed to changes in US dollar/
sterling or euro/sterling currency exchange rates and in the associated
interest rates on these currencies. Unless a replacement currency swap is
entered into, we may have insufficient funds to make payments due on the notes
of any class and any series.
Further, some of the mortgage loans carry variable rates of interest, some
of the mortgage loans pay interest at a fixed rate or rates of interest and
some of the flexible mortgage loans pay interest at variable rates of interest
no higher than the rate offered by a basket of UK mortgage lenders or pay
interest at a rate which tracks the Bank of England base rate. However, these
interest rates on the mortgage loans which will fund the interest payable under
the intercompany loan will not necessarily match the floating and/or fixed
rates on the notes. If the basis rate swap provider defaults in its obligation
to make payments under the basis rate swap, we will be exposed to the variance
between the rates of interest payable on the mortgage loans and the rate of
interest payable on the notes. Unless a replacement basis rate swap is entered
into, we may have insufficient funds to make payments due on the notes of any
class and any series.
TERMINATION PAYMENTS ON THE BASIS RATE SWAP MAY ADVERSELY AFFECT THE FUNDS
AVAILABLE TO MAKE PAYMENTS ON THE NOTES
The amount of revenue receipts that Funding receives will fluctuate
according to the interest rates applicable to the mortgage loans in the
mortgages trust. However, the amount of interest payable to us pursuant to the
swap agreements and the intercompany loan agreement (as the case may be) will
be calculated by reference to a rate based on three-month LIBOR for sterling
deposits or, in the case of the interest rate swap, by reference to a fixed
rate.
To hedge our exposure against the possible variance between the foregoing
interest rates, we will enter into the basis rate swap with the basis rate swap
provider and the note trustee on the closing date (see "THE SWAP AGREEMENTS --
THE BASIS RATE SWAP").
If the basis rate swap is terminated, we may be obliged to pay a termination
payment to the basis rate swap provider. The amount of the termination payment
will be based on the cost of entering into a replacement basis rate swap. Under
the intercompany loan agreement, Funding will be required to pay us an amount
equal to any termination payment due by us to the basis swap provider. Funding
will also be obliged to pay us any extra amounts which we may be required to
pay to enter into a replacement swap.
We cannot give you any assurance that Funding will have the funds available
to make that payment or that we will have sufficient funds available to make
any termination payment under the swap or to make subsequent payments to you in
respect of the relevant series and class of notes. Nor can we give you any
assurance that we will be able to enter into a replacement swap or, if one is
entered into, that the credit rating of the replacement basis rate swap
provider will be sufficiently high to prevent a downgrading of the then-current
ratings of the notes by the rating agencies.
Except where the basis rate swap provider has caused the basis rate swap to
terminate by its own default, any termination payment due by us will rank
equally with payments due on the notes. Any additional amounts required to be
paid by us following
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termination of the basis rate swap (including any extra costs incurred (for
example, from entering into "SPOT" interest rate swaps) if we cannot
immediately enter into a basis rate swap) will also rank equally with payments
due on the notes.
Therefore, if we are obliged to make a termination payment to the basis rate
swap provider or to pay any other additional amount as a result of the
termination of the swap, this may affect the funds which we have available to
make payments on the notes of any class and any series.
TERMINATION PAYMENTS ON THE INTEREST RATE SWAP AND ANY OF THE CURRENCY SWAPS
MAY ADVERSELY AFFECT THE FUNDS AVAILABLE TO MAKE PAYMENTS ON THE NOTES
If the interest rate swap or any of the currency swaps terminate, we may be
obliged to pay a termination payment to the interest rate swap provider or the
relevant currency rate swap provider, as applicable. The amount of the
termination payment will be based on the cost of entering into a replacement
swap. Under the intercompany loan agreement, Funding will be required to pay us
an amount required by us to pay any termination payment due by us to the
relevant swap provider. Funding will also be obliged to pay us any extra
amounts which we may be required to pay to enter into a replacement swap.
We cannot give you any assurance that Funding will have the funds available
to make that payment or that we will have sufficient funds available to make
any termination payment under the interest rate swap or any of the currency
swaps or to make subsequent payments to you in respect of the relevant series
and class of notes. Nor can we give you any assurance that we will be able to
enter into a replacement swap or, if one is entered into, that the credit
rating of the replacement swap provider will be sufficiently high to prevent a
downgrading of the then--current ratings of the notes by the rating agencies.
Except where the relevant swap provider has caused the relevant swap to
terminate by its own default, any termination payment due by us will rank
equally with payments due on the notes. Any additional amounts required to be
paid by us following termination of the relevant swap (including any extra
costs incurred if we cannot immediately enter into a replacement swap) will
also rank equally with payments due on the notes.
Therefore, if we are obliged to make a termination payment to the relevant
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 we have
available to make payments on the notes of any class and any series.
IF THE BANK OF ENGLAND BASE RATE FALLS BELOW A CERTAIN LEVEL, WE COULD SUFFER A
REVENUE SHORTFALL WHICH COULD ADVERSELY AFFECT OUR PAYMENTS ON THE NOTES
The seller guarantees that for variable rate mortgage loans that are
eligible to be charged at the seller's standard variable rate (including fixed
rate mortgage loans which become variable after the fixed period), during the
period in which the seller may impose an early repayment charge, the actual
gross interest rate that the seller charges will be the lower of:
(a) the seller's standard variable rate; or
(b) the Bank of England base rate plus a margin which is determined by
Northern Rock.
If the Bank of England base rate plus the appropriate margin (as described
above) falls to a level below the seller's standard variable rate it is
possible that there would be a shortfall of income on the mortgage loans and
that, as a result, either or both of Funding and we would suffer a revenue
shortfall.
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IF BORROWERS BECOME ENTITLED TO THE LOYALTY DISCOUNT OFFERED BY THE SELLER, WE
COULD SUFFER A REVENUE SHORTFALL WHICH COULD ADVERSELY AFFECT OUR PAYMENTS ON
THE NOTES
The seller currently offers a loyalty discount on each mortgage loan (other
than a Together mortgage loan, a Together Connections mortgage loan and a CAT
standard mortgage loan) which currently provides for a reduction of 0.25%
(although the seller may in the future allow for a discount of between 0.25%
and 0.75%) of the applicable interest rate on that mortgage loan once the
borrower has held that mortgage loan for at least seven years, subject to
certain conditions. If the loyalty discount becomes applicable to a significant
number of borrowers it is possible that there would be a shortfall of income on
the mortgage loans and that, as a result, either or both of Funding and we
would suffer a revenue shortfall.
WE RELY ON THIRD PARTIES AND YOU MAY BE ADVERSELY AFFECTED IF THEY FAIL TO
PERFORM THEIR OBLIGATIONS
We are a party to contracts with a number of other third parties that have
agreed to perform services in relation to the notes. For example, the swap
providers have agreed 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 notes. In the event that any relevant third party was to
fail to perform its obligations under the respective agreements to which it is
a party, you may be adversely affected.
PAYMENTS BY FUNDING TO THIRD PARTIES IN RELATION TO THE PREVIOUS ISSUERS MAY
AFFECT PAYMENTS DUE TO US AND ACCORDINGLY OUR ABILITY TO MAKE PAYMENTS ON THE
NOTES
Under the previous intercompany loan agreements, Funding is required to make
payments to each previous issuer in respect of that previous issuer's
obligations to make payments to the security trustee and its own note trustee,
agent bank, paying agents, cash manager, corporate services provider and
account bank and to other third parties to whom that previous issuer owes
money. These payments, in addition to the payments that we are required to make
to our third party creditors, rank in priority to amounts due by Funding to us
under the intercompany loan that we may use to make payments under the notes.
For further information regarding Funding's payment obligations, see
"CASHFLOWS".
Funding's obligations to make the third-party payments described above to
the previous issuers may affect Funding's ability to make payments to us under
the intercompany loan. This in turn may affect our ability to make payments on
your notes.
EXCESS REVENUE RECEIPTS MAY NOT BE SUFFICIENT TO REPLENISH PRINCIPAL THAT HAS
BEEN USED TO PAY INTEREST, WHICH MAY RESULT IN YOUR NOTES NOT BEING REPAID IN
FULL
If, on any payment date, revenue receipts available to us are insufficient
to enable us to pay interest on the notes and our other expenses ranking in
priority to interest due on notes, then we may use principal receipts from the
intercompany loan to make up that revenue shortfall.
During the term of the transaction, however, it is expected that these
principal deficiencies will be recouped from subsequent excess issuer available
revenue receipts. However, if subsequent excess issuer available revenue
receipts are insufficient to recoup those principal deficiencies, then you may
receive later than anticipated, or you may not receive in full, repayment of
the principal amount outstanding on your notes.
For more information on principal deficiencies, see "CREDIT STRUCTURE --
ISSUER PRINCIPAL DEFICIENCY LEDGER".
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THE SELLER SHARE OF THE TRUST PROPERTY DOES NOT PROVIDE CREDIT ENHANCEMENT FOR
THE NOTES
Subject to certain exceptions as described under "THE MORTGAGES TRUST --
ADJUSTMENTS TO TRUST PROPERTY" and " -- LOSSES", any losses from mortgage loans
included in the trust property will be allocated to Funding and the seller on
each distribution date in proportion to the then current Funding share
percentage and the then current seller share percentage of the trust property.
The seller share of the trust property does not provide credit enhancement
for the Funding share of the trust property. Losses on the mortgage loans in
the trust property are generally allocated proportionately between the seller
and Funding depending on their respective percentage shares (or, in certain
circumstances, their weighted average percentage shares) of the trust property.
WE WILL ONLY HAVE RECOURSE TO THE SELLER IF THERE IS A BREACH OF WARRANTY BY
THE SELLER, AND OTHERWISE THE SELLER'S ASSETS WILL NOT BE AVAILABLE TO US AS A
SOURCE OF FUNDS TO MAKE PAYMENTS ON THE NOTES
After an intercompany loan enforcement notice under the intercompany loan,
any previous intercompany loan or any new intercompany loan is given (as
described under "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 realize enough money to repay
amounts due and payable under the intercompany loan agreement, the previous
intercompany loan agreements and any new intercompany loan agreements.
We will not, and Funding and the mortgages trustee will not, have any
recourse to the seller of the mortgage loans, other than in respect of a breach
of warranty under the mortgage sale agreement.
We will not, and the mortgages trustee, Funding and the security trustee
will not, undertake any investigations, searches or other actions on any
mortgage loan or its related security and we and each of them will rely instead
on the warranties given in the mortgage sale agreement by the seller.
If any of the warranties made by the seller is materially untrue on the date
on which a mortgage loan (including any personal secured loan) is assigned to
the mortgages trustee, then, in the first instance, the seller will be required
to remedy the breach within 28 days of the seller becoming aware of the same or
of receipt by it of a notice from the mortgages trustee.
If the seller fails to remedy the breach within 28 days, then the seller
will be required to repurchase from the mortgages trustee (i) the relevant
mortgage loan and its related security and (ii) any other mortgage loans
(including any personal secured loans) of the relevant borrower and their
related security that are included in the trust property, in each case at their
current balance as of the date of completion of such repurchase together with
all interest (whether due or accrued but not due) and arrears of interest
payable thereon to the date of repurchase. There can be no assurance that the
seller will have the financial resources to repurchase the mortgage loan or
mortgage loans and their related security. However, if the seller does not
repurchase those mortgage loans and their related security when required, then
the seller share of the trust property will be deemed to be reduced by an
amount equal to the principal amount outstanding of those mortgage loans
together with any arrears of interest and accrued and unpaid interest and
expenses.
Other than as described here, none of the mortgages trustee, Funding, you,
the holders of the previous notes, the previous issuers or we 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 (WITH OR WITHOUT A CAPITAL REPAYMENT VEHICLE)
OR A COMBINATION LOAN
Each mortgage loan in the cut-off date mortgage portfolio was advanced on
one of the following bases:
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* Repayment basis, with principal and interest repaid on a monthly
basis through the mortgage term; or
* An interest-only basis with or without a capital repayment vehicle;
or
* A combination basis, that is, a combination of the repayment and
interest-only arrangements where only part of the principal will be
repaid by way of monthly payments.
Of the mortgage loans in the cut-off date mortgage portfolio, 72,538
mortgage loans (or 31.56% of the aggregate current balance of the mortgage
loans as of the cut-off date) are interest-only basis with or without a capital
repayment vehicle and 224,693 mortgage loans (or 68.43% of the aggregate
current balance of the mortgage loans as of the cut-off date) are combination
or repayment mortgage loans. Neither the interest-only mortgage loans nor the
interest-only portion of any combination mortgage loan includes scheduled
amortization of principal. Instead the principal must be repaid by the borrower
in a lump sum at maturity of the mortgage loan.
For interest-only mortgage loans with a capital repayment vehicle or a
combination loan with a capital repayment vehicle the borrower is recommended
to put in place an investment plan or other repayment mechanism forecast to
provide sufficient funds to repay the principal due at the end of the term.
The ability of a borrower to repay the principal on an interest-only
mortgage loan or the final payment of principal on a combination mortgage loan
at maturity depends on such 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. However, there can be no assurance that there will be sufficient
funds from any investment plan to repay the principal or (in the case of a
combination loan) the part of the principal that it is designed to cover.
The seller does not (and in certain circumstances cannot) take security over
investment plans. Consequently, in the case of a borrower in poor financial
condition the investment plan will be an asset available to meet the claims of
other creditors. The seller also recommends the borrower to take out term life
insurance cover in relation to the mortgage loan, although the seller again
does not take security over such policies.
In the case of interest-only mortgage loans, 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 mortgage loan and a loss occurs on the
mortgage loan, then this may affect payments on the notes if that loss cannot
be cured by the application of excess issuer available revenue receipts.
THERE MAY BE RISKS ASSOCIATED WITH THE FACT THAT THE MORTGAGES TRUSTEE HAS NO
LEGAL TITLE TO THE MORTGAGE LOANS AND THEIR RELATED SECURITY WHICH MAY
ADVERSELY AFFECT PAYMENTS ON THE NOTES
The assignment by the seller to the mortgages trustee of the benefit of the
English mortgage loans and their related security on August 23, 2004 took
effect in equity only (and any assignment of the benefit of the English
mortgage loans and their related security in the future will take effect in
equity only). The sale and assignment by the seller to the mortgages trustee of
the Scottish mortgage loans and their related security on August 23, 2004 were
given effect by a declaration of trust by the seller by which the beneficial
interests in such Scottish mortgage loans and their related security were
transferred to the mortgages trustee (and any sale of Scottish mortgage loans
and their related security in the future will be given effect by further
declaration of trust). In each case this means that legal title to the mortgage
loans and their related security in the trust property remains with the seller,
but the mortgages trustee has all the other rights and benefits relating to
ownership of each mortgage loan and its related security (which rights and
benefits are subject to the trust in favor of the beneficiaries). The mortgages
trustee has the right to demand the seller to give it legal title to the
mortgage loans and the related security in the
53
circumstances described under "ASSIGNMENT OF THE MORTGAGE LOANS AND THEIR
RELATED SECURITY -- TRANSFER OF LEGAL TITLE TO THE MORTGAGES TRUSTEE" and until
then the mortgages trustee will not apply to H.M. Land Registry or H.M. 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 mortgage loans and their related security, see "THE
MORTGAGE LOANS -- SCOTTISH MORTGAGE LOANS" and "MATERIAL LEGAL ASPECTS OF THE
MORTGAGE LOANS -- SCOTTISH MORTGAGES". In addition, except in the limited
circumstances set out in "ASSIGNMENT OF THE MORTGAGE LOANS AND RELATED SECURITY
- -- TRANSFER OF LEGAL TITLE TO THE MORTGAGES TRUSTEE", the seller will not give
notice of the assignment of the mortgage loans and related security to any
borrower.
At any time during which the mortgages trustee does not hold the legal title
to the mortgage loans and their related security or has not notified its
interest in the mortgage loans and their related security to the borrowers,
there are risks, as follows:
* firstly, if the seller wrongly sold to another person a mortgage
loan and that mortgage loan 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 mortgage loan and that person notified the
borrower of that sale to it of the mortgage loan and its related
security or registered its interest in that mortgage, then she or
he might obtain good title to the mortgage 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 mortgage loan and its related security and it would
not be entitled to payments by a borrower in respect of such a
mortgage loan. This may affect our ability to repay the notes;
* 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 setoff (see in particular "-- THERE ARE RISKS
IN RELATION TO FLEXIBLE MORTGAGE LOANS AND PERSONAL SECURED LOANS
WHICH MAY ADVERSELY AFFECT THE FUNDS AVAILABLE TO PAY THE NOTES")
which occur in relation to transactions or deposits made between
certain borrowers and the seller and the rights of borrowers to
redeem their mortgages by repaying the mortgage loan directly to
the seller. If these rights were exercised, the mortgages trustee
may receive less money than anticipated from the mortgage loans,
which may affect our ability to repay the notes; and
* finally, the mortgages trustee would not be able to enforce any
borrower's obligations under a mortgage loan or mortgage itself but
would have to join the seller as a party to any legal proceedings.
However, once notice has been given to a borrower of the transfer of the
related mortgage loan and its related security to the mortgages trustee, any
independent set-off rights which that borrower has against the seller will
crystallize, 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 mortgage loan) will
not be affected by that notice.
Additionally, 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. For more information on the risks of transaction set-
off, see "-- THERE ARE RISKS IN RELATION TO FLEXIBLE MORTGAGE LOANS AND
PERSONAL SECURED LOANS WHICH MAY ADVERSELY AFFECT THE FUNDS AVAILABLE TO PAY
THE NOTES".
54
THERE ARE RISKS IN RELATION TO FLEXIBLE MORTGAGE LOANS AND PERSONAL SECURED
LOANS WHICH MAY ADVERSELY AFFECT THE FUNDS AVAILABLE TO PAY THE NOTES
As described under "-- THERE MAY BE RISKS ASSOCIATED WITH THE FACT THAT THE
MORTGAGES TRUSTEE HAS NO LEGAL TITLE TO THE MORTGAGE LOANS AND THEIR RELATED
SECURITY, WHICH MAY ADVERSELY AFFECT PAYMENTS ON THE NOTES", the seller has
made an equitable assignment of (or, in the case of the Scottish mortgage
loans, a transfer of the beneficial interest in) the relevant mortgage loans
and 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
mortgage loans and the mortgages. Such set-off rights (including analogous
rights in Scotland) may occur if the seller fails to advance a cash re-draw to
a borrower under a flexible mortgage loan or a further draw to a borrower under
a personal secured loan when the borrower is entitled to such cash re-draw or
further draw.
If the seller fails to advance the cash re-draw or further draw in
accordance with the relevant mortgage loan, then the relevant borrower may set
off any damages claim (or the exercise of analogous rights in Scotland) arising
from the seller's breach of contract against the seller's (and, as equitable
assignee of or holder of the beneficial interest in the mortgage loans and the
mortgages, the mortgages trustee's) claim for payment of principal and/or
interest under the flexible mortgage loan or personal secured loan as and when
it becomes due. In addition, a borrower under a personal secured loan may
attempt to set off any such damages claim (or the exercise of analogous rights
in Scotland) against the seller's claim for payment of principal and/or
interest under any other mortgage loan which the borrower has with the seller.
Such set-off claims will constitute transaction set-off as described in the
immediately preceding risk factor.
The amount of the claim in respect of a cash re-draw or further draw will,
in many cases, be the cost to the borrower of finding an alternative source of
funds (although in the case of Scottish mortgage loans which are personal
secured loans it is possible, though regarded as unlikely, that the borrower's
rights of set-off could extend to the full amount of the relevant further
draw). The borrower may obtain a mortgage 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 mortgage 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 borrower entered into the mortgage or which otherwise were reasonably
foreseeable.
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 the exercise
of analogous rights in Scotland). In that case, the administrator 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 judgement
is obtained.
The exercise of set-off rights by borrowers would reduce the incoming cash
flow 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.
Further, there may be circumstances in which:
* a borrower may seek to argue that certain re-draws are
unenforceable by virtue of non-compliance with the CCA;
* a borrower may seek to argue that personal secured loans may be
unenforceable or unenforceable without a court order because of
non-compliance with the CCA; or
* certain re-draws or further draws may rank behind liens created by
a borrower after the date upon which the borrower entered into its
mortgage with the seller.
55
The minimum seller share has been sized in an amount expected to cover these
risks, 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 you may not receive
all amounts due on the notes or that payments may not be made when due.
IF THE ADMINISTRATOR IS REMOVED, THERE IS NO GUARANTEE THAT A SUBSTITUTE
ADMINISTRATOR WOULD BE FOUND, WHICH COULD DELAY COLLECTION OF PAYMENTS ON THE
MORTGAGE LOANS AND ULTIMATELY COULD ADVERSELY AFFECT PAYMENTS ON THE NOTES
The seller has been appointed by the mortgages trustee and the beneficiaries
as administrator to service the mortgage loans. If the administrator breaches
the terms of the administration agreement, then the mortgages trustee, Funding
and the security trustee will be entitled to terminate the appointment of the
administrator and to appoint a substitute administrator.
There can be no assurance that a substitute administrator would be found who
would be willing and able to service the mortgage loans on the terms of the
administration agreement. In addition, as described under the third risk factor
immediately succeeding this risk factor, any substitute administrator may be
required to be authorized under the FSMA once mortgage lending becomes a
regulated activity. The ability of a substitute administrator 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 administrator may affect payments on the
mortgage loans and hence our ability to make payments when due on the notes.
You should note that the administrator has no obligation itself to advance
payments that borrowers fail to make in a timely fashion.
THE MORTGAGES TRUSTEE MAY NOT RECEIVE THE BENEFIT OF CLAIMS MADE ON THE
BUILDINGS INSURANCE WHICH COULD ADVERSELY AFFECT PAYMENTS ON THE NOTES
The practice of the seller in relation to buildings insurance is described
under "THE MORTGAGE LOANS -- BUILDINGS INSURANCE POLICIES". As described in
that section, we cannot provide assurance that the mortgages trustee will
always receive the benefit of any claims made under any applicable insurance
contracts or that the amount received in the case of a successful claim will be
sufficient to reinstate the property. This could reduce the principal receipts
received by Funding according to the Funding share and could adversely affect
our ability to make payments on the notes. You should note that buildings
insurance is normally renewed annually.
THE MORTGAGES TRUSTEE IS NOT REQUIRED TO MAINTAIN MORTGAGE INDEMNITY INSURANCE
WITH THE CURRENT INSURER, AND THE SELLER IS NOT REQUIRED TO MAINTAIN THE
CURRENT LEVEL OF MORTGAGE INDEMNITY INSURANCE COVERAGE FOR NEW MORTGAGE LOANS
THAT IT ORIGINATES IN THE FUTURE, WHICH MAY ADVERSELY AFFECT THE FUNDS
AVAILABLE TO PAY THE NOTES
The mortgages trustee is not required to maintain a mortgage indemnity
policy with the current insurer. The mortgages trustee has the discretion to
contract for mortgage indemnity guarantee protection from any insurer then
providing mortgage indemnity insurance policies or not at all, subject to prior
agreement with the rating agencies and their confirmation that this will not
affect the then current ratings of the notes.
In addition, the seller is not required to maintain the same level of
coverage under mortgage indemnity insurance policies for mortgage loans that it
may originate in the future and assign to the mortgages trust. See "THE
MORTGAGE LOANS -- BUILDINGS INSURANCE POLICIES -- MIG POLICIES".
56
POSSIBLE REGULATORY CHANGES BY THE OFFICE OF FAIR TRADING, THE FINANCIAL
SERVICES AUTHORITY AND ANY OTHER REGULATORY AUTHORITIES MAY HAVE AN IMPACT ON
THE SELLER, THE ISSUER, THE ADMINISTRATOR, THE MORTGAGE LOANS AND/OR PERSONAL
SECURED LOANS AND MAY ADVERSELY AFFECT OUR ABILITY TO MAKE PAYMENTS WHEN DUE ON
THE NOTES
In the United Kingdom, the Office of Fair Trading ("OFT") is responsible for
the issue of licenses under 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 mortgage market in the United Kingdom.
Mortgage lending in the United Kingdom is to become a regulated activity
under the FSMA on October 31, 2004 ("N(M)").
The FSMA will apply to a "REGULATED MORTGAGE CONTRACT". A mortgage loan
contract (other than personal secured loans) will be a regulated mortgage
contract if, at the time it is entered into: (a) the borrower is an individual
or trustee, (b) the contract provides for the obligation of the borrower to
repay to be secured by a first legal mortgage on land (other than timeshare
accommodation) in the UK, and (c) at least 40% 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.
When mortgage lending becomes a regulated activity at N(m), subject to any
exemption, persons carrying on any specified mortgage-related activity by way
of business will need to be authorized by the Financial Services Authority (the
"FSA") under the FSMA. The specified activities currently are (a) entering into
a regulated mortgage contract as lender, (b) administering a regulated mortgage
contract (administrating in this context means notifying borrowers of changes
in mortgage payments and collecting payments due under the mortgage loan), (c)
advising on regulated mortgage contracts, and (d) arranging regulated mortgage
contracts. Agreeing to carry on any of these activities will also be a
regulated activity.
The regime under the FSMA regulating financial promotion will cover the
content and manner of promotion of regulated mortgage products, and by whom
such promotion can be issued or approved.
If an unauthorized person carries on a regulated activity in respect of a
regulated mortgage contract entered into on or after N(m) and/or the
requirements as to advertising are not complied with, a criminal offence may be
committed and it may render the contract unenforceable against the borrower
except with the approval of a court. The mortgages trustee does not need to be
an authorised person under the FSMA in order to acquire legal or beneficial
title to a regulated mortgage contract. The issuer and mortgages trustee will
not carry on the regulated activity of administering in relation to regulated
mortgage contracts, where such contracts are administered pursuant to an
administration agreement by an entity having the required FSA authorization and
permission. If such administration agreement terminates, however, the issuer
and 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 authorization and permission. In
addition, from N(m) no variations will be made to the mortgage loans and no re-
draws or further advances will be made under the mortgage loans, where it will
result in the issuer, Funding or the mortgages trustee arranging, advising on,
administering or entering into a regulated mortgage contract or agreeing to
carry on any of these activities, if it would be required to be authorized
under the FSMA to do so.
Currently in the United Kingdom, self-regulation of mortgage business is
under the Mortgage Code (the "CML CODE") issued by the Council of Mortgage
Lenders (the "CML"). The seller currently subscribes to the CML Code.
Membership of the CML and compliance with the CML Code are voluntary. The CML
Code sets out a minimum standard of good mortgage business practice, from
marketing to lending procedures and dealing with borrowers experiencing
financial difficulties. Since April 30, 1998, lender-
57
subscribers to the CML Code may not accept mortgage business introduced by
intermediaries who were not registered with (before November 1, 2000) the
Mortgage Code Register of Intermediaries or (on and after November 1, 2000) the
Mortgage Code Compliance Board.
In March 2001, the European Commission published a Recommendation to member
states urging their lenders to subscribe to the code issued by the European
Mortgage Federation. On July 26, 2001 the CML decided to subscribe to the code
collectively on behalf of its members. Lenders had until September 30, 2002 to
implement the code, an important element of which is provision to consumers of
a "European Standardised Information Sheet" (an "ESIS") similar to the pre-
application illustration proposed by the FSA. Following postponement of the
regulation by the FSA of mortgage business from August 2002 to N(m), UK lenders
generally cannot begin to provide ESISs to consumers until N(m). The CML has
discussed this with the European Commission and the European Mortgage
Federation. While compliance with the code is voluntary, if the code is not
effective, the European Commission is likely to see further pressure from
consumer bodies to issue a Directive on mortgage credit or to extend its
proposal for a Directive on consumer credit (as to which, see the paragraph
below) to all mortgage credit.
In September 2002, the European Commission published a proposal for a
directive of the European Parliament and of the Council on the harmonization of
the laws, regulations and administrative provisions of the member states
concerning credit for consumers and surety agreements entered into by
consumers. In its original form, the proposal requires specified requirements
to be met and restrictions observed in respect of certain mortgage loan
products, including new credit agreements for further drawings under certain
flexible mortgages and for further advances and amortization tables for
repayment mortgages. If the proposal comes into force in its original form,
mortgage loans which do not comply with these requirements and restrictions may
be subject to penalties, potentially including loss of interest and charges by
the mortgagee coupled with continuation of the right of repayment in
installments by the borrower. Significantly, in its original form the proposal
provides that it does not apply retrospectively (subject to certain exceptions
including new drawings or further advances made in respect of existing
agreements) and does not apply to residential mortgage loans except those which
include an equity release component. There has been significant opposition from
the European Parliament to the original form of the proposed directive. On
April 20, 2004, the European Parliament voted on its first reading of the
proposed directive and has made over 150 amendments. In particular, these
amendments provide that (subject to certain exceptions) loans not exceeding
[e]100,000 will be regulated, but that the proposed directive will not apply to
any loan secured by a mortgage on land or to any loan originated before
national implementing legislation comes into force.
The European Commission will now re-draft the proposed directive in light of
the European Parliament resolution. There are differences in opinion as to the
extent to which mortgage loans should be included in the scope of the proposed
directive, and the directive may be substantially further amended before it is
ultimately brought into effect.
In any event the proposed directive is unlikely to come into force before
2006 as the co-decision procedures of the European Parliament and of the
Council, from the publication of the proposal to the coming into force of the
new consumer credit directive, are likely to take at least two years and member
states will then have a further two years in which to bring national
implementing legislation regulations and administrative provisions into force.
The UK Department of Trade and Industry (the "DTI") is currently in
consultation with consumer and industry organizations in relation to this
proposal. As a result of the above, the form and the effect of the ultimately
implemented directive on our ability to make payments when due on the notes
cannot be fully determined at this stage.
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 [GBP]25,000 for credit
agreements made on or after May 1, 1998, or lower amounts for credit agreements
made before that date, and (c) the credit
58
agreement is not an exempt agreement as specified in or under section 16 of the
CCA (for example, certain types of credit to finance the purchase of, or
alterations to, homes or business premises). Some of the personal secured loans
in the mortgage portfolio might be wholly or partly regulated or treated as
such by the CCA. Any such perso nal secured loan has to comply with requirements
under the CCA as to content, layout and execution of the personal secured loan
agreement. If it does not comply, then to the extent that it is regulated or to
be treated as such:
(a) the personal secured loan is unenforceable if the form to be signed
by the borrower is not signed by the borrower or omits or mis-
states a "prescribed term"; or
(b) in other cases, the personal secured loan is unenforceable without
a court order and, in exercising its discretion whether to make the
order, the court will take into account any prejudice suffered by
the borrower and any culpability by the seller.
If a court order is necessary to enforce some or part of a personal secured
loan in the mortgage portfolio to the extent that it is regulated, then in
dealing with such an application, the court has the power, if it appears just
to do so, to amend the personal secured loan agreement or to impose conditions
upon its performance or to make a time order (for example, giving extra time
for arrears to be cleared). The CCA contains anti-avoidance provisions. The
seller does not believe that these provisions would apply to the mortgage
loans, and has represented that no mortgage loan (apart from a personal secured
loan) is wholly or partly regulated by the CCA or to be treated as such.
In November 2002, the DTI announced its intention that a credit agreement
will be regulated by the CCA where, for credit agreements made after this
change is implemented: (a) the borrower is or includes an individual, save for
partnerships of four or more partners, (b) irrespective of the amount of credit
(although in July 2003, the DTI announced its intention that the financial
limit will remain for certain business-to-business lending), and (c) the credit
agreement is not an exempt agreement. If this change is implemented, then any
new loan or further advance made after this time, other than a regulated
mortgage contract under the FSMA or an exempt agreement under the CCA, will be
regulated by the CCA. Such loan or further advance will have to comply with
requirements as to the form and content of the credit agreement and, in certain
cases, new requirements for pre-contract disclosure of key information. If it
does not comply, it will be unenforceable against the borrower. A consumer
credit white paper was published by the DTI in December 2003. The white paper
was accompanied by a consultation on draft regulations detailing the changes
proposed for consumer credit advertising, the form and content of credit
agreements, pre-contract disclosure requirements, the early settlement of
credit agreements and facilitating the conclusion of credit agreements over the
internet.
Following the consultation process, in June 2004 finalized regulations were
laid before Parliament governing consumer credit advertising; the form and
content of credit agreements; requirements for pre-contract disclosure; and the
rebate of interest charges to which a borrower will be entitled on early
settlement. The new regulations relating to advertising are due to come into
effect on October 31, 2004. The regulations relating to form and content of
credit agreements are due to come into effect on May 31, 2005, or August 31,
2005 for agreements that have been presented, sent or made available to the
borrower but have not been executed before May 31, 2005. Regulations on pre-
contract disclosure are due to take effect from May 31, 2005. The regulations
on early settlement introduce revised formulae for calculating the minimum
rebate of interest to which the borrower is entitled on an early settlement,
which are anticipated to be more favourable to the borrower than the existing
formulae. The new formulae come into force on May 31, 2005 for all agreements
entered into on or after that date. For all agreements existing on May 31, 2005
the new formulae will apply from May 31, 2007 for all such agreements which
were originally for a term of 10 years or less, and from May 31, 2010 for all
such agreements which were originally for a term of more than 10 years.
59
The FSA has announced that, to avoid dual regulation once the new regulatory
regime applies, all mortgages regulated by the FSA will not be covered by the
CCA. This carve-out only affects mortgages entered into on or after N(m).
Before that date, the CCA will continue to be the relevant legislation. For the
avoidance of doubt, a mortgage securing a regulated mortgage contract that
would (except for the carve-out) be regulated under the CCA or treated as such
will, however, be enforceable on an order of the court only pursuant to section
126 of the CCA, notwithstanding regulation under the FSMA.
No assurance can be given that additional regulations from 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, in particular, but not limited to, the cost of compliance, may
have a material adverse effect on the seller, the issuer and/or the servicer
and their respective businesses and operations. This may adversely affect our
ability to make payments in full when due on the notes.
REGULATIONS IN THE UNITED KINGDOM COULD LEAD TO SOME TERMS OF THE MORTGAGE
LOANS BEING UNENFORCEABLE, WHICH MAY ADVERSELY AFFECT PAYMENTS ON THE NOTES
In the United Kingdom, the Unfair Terms in Consumer Contracts Regulations
1994 applied to all of the mortgage loans that were entered into between July
1, 1995 and September 30, 1999. These regulations were revoked and re-enacted
by the Unfair Terms in Consumer Contracts Regulations 1999 ("UTCCR") on October
1, 1999, which apply to all the mortgage loans as of that date. The UTCCR
generally provide that:
* a borrower may challenge a term in an agreement on the basis that
it is an "unfair" term within the regulations and therefore not
binding on the borrower; and
* the OFT and any "qualifying body" (as defined in the regulations,
such as the FSA) may seek to prevent a business from relying on
unfair terms.
This will not generally affect "core terms" which set out the main subject
matter of the contract, such as the borrower's obligation to repay principal.
However, it may affect 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 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 the mortgages
trustee, to claim repayment of the extra interest amounts paid or to set off
the amount of such claim against the amount owing by the borrower under the
mortgage loan. Any such non-recovery, claim or set-off ultimately may adversely
affect our ability to make payments on the notes such that the payments on your
notes could be reduced or delayed.
On February 24, 2000, the OFT issued a guidance note on what the OFT
considers to be fair and unfair terms for interest variation in mortgage
contracts. Where the interest variation term does not provide for precise and
immediate tracking of an external rate outside the lender's control, and if the
borrower is locked in, for example by an early repayment charge that is
considered to be a penalty, the term is likely to be regarded as unfair under
the UTCCR unless the lender (i) notifies the borrower in writing at least 30
days before the rate change and (ii) permits the borrower to repay the whole
loan during the next three months after the rate change, without paying the
early repayment charge. The seller has reviewed the guidance note and has
concluded that its compliance with it will have no material adverse effect on
the mortgage loans or its business. The guidance note has been withdrawn from
the OFT website. The FSA has agreed with the OFT to take responsibility for the
enforcement of the UTCCR in regulated mortgage contracts. The guidance note is
currently under review by the OFT and the FSA, but there is no indication as to
when this review is likely to be concluded or what changes, if any may arise
from it.
In August 2002 the Law Commission for England and Wales and the Scottish Law
Commission published a Joint Consultation Paper proposing changes to the UTCCR,
including harmonizing provisions of the UTCCR and the Unfair Contract Terms Act
1977,
60
applying the UTCCR to business-to-business contracts and revising the UTCCR to
make it "clearer and more accessible". The closing date for comments on this
consultation was November 8, 2002 and a final report (together with a Bill) is
expected in 2004. No assurances can be given that changes to the UTCCR, if
implemented, will not have an adverse effect on the seller, the issuer and/or
the administrator.
Under the FSMA, the Financial Ombudsman Service (the "OMBUDSMAN") is
required to make decisions on (among other things) complaints relating to the
terms in agreements 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. Complaints brought before the Ombudsman
for consideration must be decided on a case-by-case basis, with reference to
the particular facts of any individual case. Each case would first be
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. The Ombudsman may make a money award to a borrower, which may
adversely affect the value at which mortgage loans could be realized and
accordingly our ability to make payments in full when due on the notes.
THE MORTGAGES TRUSTEE'S ENTITLEMENT TO BE INDEMNIFIED FOR LIABILITIES
UNDERTAKEN DURING THE ENFORCEMENT PROCESS MAY ADVERSELY AFFECT THE FUNDS
AVAILABLE TO FUNDING TO PAY AMOUNTS DUE UNDER THE INTERCOMPANY LOAN, WHICH MAY
IN TURN ADVERSELY AFFECT THE FUNDS AVAILABLE TO PAY THE NOTES
In order to enforce a power of sale in respect of a mortgaged property, the
relevant mortgagee (which may be Northern Rock, the mortgages trustee or any
receiver appointed by the security trustee) must first obtain possession of the
mortgaged property unless the property is vacant. Possession is usually
obtained by way of a court order although this can be a lengthy process and the
mortgagee must assume certain risks. Each of the mortgages trustee and the
security trustee and any receiver appointed by it is entitled to be indemnified
to its satisfaction against personal liabilities which it could incur if it
were to become a mortgagee in possession before it is obliged to seek
possession, provided that it is always understood that the security trustee is
never obliged to enter into possession of the mortgaged property.
THE EUROPEAN UNION DIRECTIVE ON THE TAXATION OF SAVINGS INCOME MAY PREVENT YOU
FROM RECEIVING INTEREST ON THE NOTES IN FULL
The European Union has adopted a Directive regarding the taxation of savings
income. Subject to a number of important conditions being met, it is proposed
that member states will be required from July 1, 2005, to provide to the tax
authorities of other member states details of payments of interest and other
similar income paid by a person 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.
TAX PAYABLE BY FUNDING AND THE ISSUER MAY ADVERSELY AFFECT OUR ABILITY TO MAKE
PAYMENTS ON THE NOTES
As explained under "MATERIAL UNITED KINGDOM TAX CONSEQUENCES", Funding and
the issuer will generally be subject to UK corporation tax, currently at a rate
of 30%, on the profit reflected in their respective profit and loss accounts as
increased by the amount of any expenses or losses which are not deductible for
the purposes of UK corporation tax. If the tax payable by Funding or the issuer
is greater than expected because, for example, expenses or losses which are not
so deductible are greater than expected, the funds available to make payments
on your notes could be materially reduced and this could have a material
adverse effect on our ability to make payments on the notes.
61
IF THE UNITED KINGDOM JOINS THE EUROPEAN MONETARY UNION PRIOR TO THE MATURITY
OF THE NOTES, WE CANNOT ASSURE YOU THAT THIS WOULD NOT ADVERSELY AFFECT
PAYMENTS ON YOUR NOTES
It is possible that prior to the maturity of the 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 any notes denominated in
pounds sterling may become payable in euro; (b) applicable provisions of law
may allow or require us to re-denominate such notes into euro and take
additional measures in respect of such 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 pounds sterling
used to determine the rates of interest on such 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 a borrower's ability to repay its loan as well as
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
notes.
YOUR INTERESTS MAY BE ADVERSELY AFFECTED BY A CHANGE OF LAW IN RELATION TO UK
WITHHOLDING TAX
In the event that amounts due under the notes are subject to withholding
tax, we will not be obliged to pay additional amounts in relation thereto. The
applicability of any UK withholding tax under current English law is discussed
under "MATERIAL UNITED KINGDOM TAX CONSEQUENCES".
PROPOSED CHANGES TO THE BASEL CAPITAL ACCORD AND THE RISK WEIGHTED ASSET
FRAMEWORK MAY RESULT IN CHANGES TO THE RISK-WEIGHTING OF YOUR NOTES
In June 1999, the Basel Committee on Banking Supervision (the "BASEL
COMMITTEE") issued proposals for reform of the 1988 Capital Accord and proposed
a new capital adequacy framework which places enhanced emphasis on market
discipline. Following an extensive consultation period on its proposals, the
Basel Committee announced on May 11, 2004 that it had achieved consensus on the
framework of the "NEW BASEL CAPITAL ACCORD". The text of the New Basel Capital
Accord was published on June 26, 2004 as "International Convergence of Capital
Measurement and Capital Standards: A Revised Framework". This text will serve
as the basis for national and super national rule-making and approval processes
to continue and for banking organizations to complete their preparation for the
implementation of the New Basel Capital Accord. The Basel Committee confirmed
that it is currently intended that the various approaches under the framework
be implemented in stages, some from year-end 2006, and the most advanced at
year-end 2007. The New Basel Capital Accord proposals could affect risk
weighting of the notes in respect of certain investors if those investors are
regulated in a manner which will be affected by the proposals. Consequently,
you should consult your own advisers as to the consequences to and effect on
you of the potential application of the New Basel Capital Accord proposals. We
cannot predict the precise effects of potential changes which might result from
the adoption of the New Basel Capital Accord.
YOU WILL NOT RECEIVE PHYSICAL NOTES, WHICH MAY CAUSE DELAYS IN DISTRIBUTIONS
AND HAMPER YOUR ABILITY TO PLEDGE OR RESELL THE NOTES
Unless the global note certificates are exchanged for individual note
certificates, which will only occur under a limited set of circumstances, your
beneficial ownership of the notes will only be registered in book-entry form
with DTC, Euroclear or Clearstream, Luxembourg. The lack of physical notes
could, among other things:
* result in payment delays on the notes because we will be sending
distributions on the notes to DTC instead of directly to you;
62
* make it difficult for you to pledge or otherwise grant security
over the notes if physical notes are required by the party
demanding the pledge or other security; and
* hinder your ability to resell the notes because some investors may
be unwilling or unable to buy notes that are not in physical form.
IF YOU HAVE A CLAIM AGAINST US IT MAY BE NECESSARY FOR YOU TO BRING SUIT
AGAINST US IN ENGLAND TO ENFORCE YOUR RIGHTS
We have agreed to submit to the non-exclusive jurisdiction of the courts of
England, and it may be necessary for you to bring a suit in England to enforce
your rights against us.
PROVISIONS OF THE INSOLVENCY ACT 2000 COULD DELAY ENFORCEMENT OF YOUR RIGHTS IN
THE EVENT OF OUR INSOLVENCY OR AN INSOLVENCY OF FUNDING
The Insolvency Act 2000 amended the Insolvency Act 1986 to provide that
certain "small" companies (which are defined by reference to certain tests
relating to a company's balance sheet, turnover and number of employees) will
be able to seek protection from their creditors for a period of up to 28 days
with the option for creditors to extend the moratorium for a further two
months. The position as to whether or not a company is a "small" company may
change from period to period and consequently no assurance can be given that
the Issuer or Funding will, 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 can 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.
However, the Insolvency Act 1986 (Amendment) (No.3) Regulations 2002
(Statutory Instrument 2002 No. 1990) provides for an exception to the "small"
companies moratorium provisions if the company is party to an arrangement which
is or forms part of a capital market arrangement under which (i) a party has
incurred, or when the arrangement was entered into was expected to incur, a
debt of at least [GBP]10 million under the arrangement and (ii) the arrangement
involves the issue of a capital market investment. We believe that we will fall
within this exception and that the moratorium provisions will not apply to us.
However, we take the view that the exception will not cover Funding and there
is therefore a risk that it may be the subject of a "small" companies
moratorium under the Insolvency Act 2000. It should be borne in mind that the
moratorium merely delays the enforcement of security whilst the moratorium is
in effect (a maximum of three months), it does not void or in any way negate
the security itself.
63
DEFINED TERMS
We have provided an index of defined terms at the end of this prospectus
under "GLOSSARY". Terms used in this prospectus have the meaning set out in the
glossary unless they are defined where they first appear in this prospectus.
For purposes of this prospectus, the term "BORROWER" has the meaning set out in
the glossary, but generally means a person or persons who have borrowed money
under a mortgage loan.
Because this transaction is related, by virtue of its master trust
structure, to previous transactions and because it may be related to future
transactions, it is necessary in this prospectus to refer to any or all of
these transactions. In respect of notes, intercompany loans, issuers and terms
derived from or relating to these terms, we use the word "PREVIOUS" when
referring to the Granite Mortgages 01-1 plc transaction that closed on March
26, 2001, the Granite Mortgages 01-2 plc transaction that closed on September
28, 2001, the Granite Mortgages 02-1 plc transaction that closed on March 20,
2002, the Granite Mortgages 02-2 plc transaction that closed on September 23,
2002, the Granite Mortgages 03-1 plc transaction that closed on January 27,
2003, the Granite Mortgages 03-2 plc transaction that closed on May 21, 2003,
the Granite Mortgages 03-3 plc transaction that closed on September 24, 2003,
the Granite Mortgages 04-1 plc transaction that closed on January 28, 2004 and
the Granite Mortgages 04-2 plc transaction that closed on May 26, 2004 and
persons and matters connected to those transactions, and "NEW" when referring
to future potential transactions. References to "THE ISSUER", "WE" or "US"
refer to Granite Mortgages 04-3 plc, and references to "THE NOTES" and "THE
INTERCOMPANY LOAN" refer to the notes that we are issuing under this prospectus
and the intercompany loan that we will enter into with Funding on the closing
date.
64
US DOLLAR PRESENTATION
Translations of pounds sterling into US dollars, unless otherwise stated in
this prospectus, have been made at the rate of [GBP]0.5473 = $1.00, which
reflects the noon buying rate in the City of New York for cable transfers in
sterling per US$1.00 as certified for customs purposes by the Federal Reserve
Bank on August 2, 2004. Use of this rate does not mean that pound sterling
amounts actually represent those US dollar amounts or could be converted into
US dollars at that rate at any particular time.
References throughout this prospectus to "[GBP]", "POUNDS" or "STERLING" are
to the lawful currency for the time being of the United Kingdom of Great
Britain and Northern Ireland.
References in this prospectus to "US$", "USD", "$", "US DOLLARS" or
"DOLLARS" are to the lawful currency of the United States of America.
References in this prospectus to "[E]", "EURO" or "EURO" are to the currency
of the member states of the European Union that adopt the single currency in
accordance with the Treaty of Rome of March 25, 1957 establishing the European
Community, as amended from time to time.
STERLING/US DOLLAR EXCHANGE RATE HISTORY*
JANUARY 1, 2004 YEARS ENDED DECEMBER 31
THROUGH ------------------------------
AUGUST 2, 2004 2003 2002 2001 2000
--------------- ------ ------ ------ ------
Last(1) 1.8271 1.7858 1.6100 1.4546 1.4930
Average(2) 1.8261 1.6359 1.5038 1.4407 1.5160
High 1.9047 1.7858 1.6100 1.5038 1.6537
Low 1.7559 1.5541 1.4082 1.3727 1.3977
--------------- ------ ------ ------ ------
- ------------
Notes
(1) Last is the closing exchange rate on the last operating business day of
each of the years indicated, years commencing from January 1 or the next
operating business day.
(2) Average is the average daily exchange rate during the period.
JULY JUNE MAY APRIL MARCH
2004 2004 2004 2004 2004
------ ------ ------ ------ ------
High 1.8730 1.8431 1.8382 1.8572 1.8694
Low 1.8170 1.8073 1.7559 1.7713 1.8027
- ------------
* Source: Bloomberg
65
THE ISSUER
INTRODUCTION
The issuer was incorporated in England and Wales as a public company limited
by shares under the Companies Act 1985 on July 1, 2004 with registered number
5168395. The registered office of the issuer is at Fifth Floor, 100 Wood
Street, London EC2V 7EX. The issuer's authorized share capital as at August 27,
2004 comprised, and as at the date of this prospectus comprises, 50,000
ordinary shares of [GBP]1 each. The issuer's issued share capital as at August
27, 2004 and as at the date of this prospectus comprised 50,000 ordinary shares
of [GBP]1 each (of which [GBP]12,500 is paid up), all of which are beneficially
owned by Funding (see "FUNDING").
The issuer is organized as a special purpose company and will be mostly
passive. The issuer has no subsidiaries. The seller does not own directly or
indirectly any of the share capital of Funding or the issuer.
The principal objects of the issuer are set out in its memorandum of
association and permit the issuer, among other things, to lend money and give
credit, secured or unsecured, to borrow or raise money and to grant security
over its property for the performance of its obligations or the payment of
money.
The issuer was established to raise capital by the issue of notes and to use
the net proceeds of such issuance to make the intercompany loan to Funding in
accordance with the intercompany loan agreement to be entered into between
Funding and the issuer.
Since its incorporation, the issuer has not engaged in any material
activities other than those incidental to its registration as a public company
under the Companies Act 1985, the authorization and issue of the notes, the
matters contemplated in this prospectus, the authorization of the other
transaction documents referred to in this prospectus or in connection with the
issue of the notes and other matters which are incidental or ancillary to those
activities. The issuer has no employees.
There is no intention to accumulate surplus cash in the issuer except in the
circumstances set out under "SECURITY FOR THE ISSUER'S OBLIGATIONS". The
current financial period of the issuer will end on December 31, 2005.
DIRECTORS AND SECRETARY
The directors of the issuer and their respective business addresses and
principal activities or business occupations are:
PRINCIPAL ACTIVITIES/
NAME BUSINESS ADDRESS BUSINESS OCCUPATION
- ------------------------------ ------------------- -----------------------------
Keith McCallum Currie Northern Rock House Treasury Director of
Gosforth Northern Rock plc
Newcastle upon Tyne
NE3 4PL
L.D.C. Securitisation Director Fifth Floor Acting as corporate directors
No. 1 Limited 100 Wood Street of special purpose companies
London
EC2V 7EX
L.D.C. Securitisation Director Fifth Floor Acting as corporate directors
No. 2 Limited 100 Wood Street of special purpose companies
London
EC2V 7EX
Keith McCallum Currie is an employee of the seller.
66
The directors of L.D.C. Securitisation Director No. 1 Limited and L.D.C.
Securitisation Director No. 2 Limited and their principal activities or
business occupations are:
PRINCIPAL ACTIVITIES/
NAME BUSINESS ADDRESS BUSINESS OCCUPATION
- ---------------------------- ----------------------------- --------------------------
Law Debenture Securitisation Fifth Floor, 100 Wood Street, Provision of directors for
Services Limited London EC2V 7EX special purpose vehicles
The affairs of L.D.C. Securitisation Director No. 1 Limited, L.D.C.
Securitisation Director No. 2 Limited and Law Debenture Securitisation Services
Limited are represented by its directors Denyse Monique Anderson, Julian Robert
Mason-Jebb, Clive Laurence Charles Rakestrow, Richard David Rance and Robert
James Williams each of whose business address is at Fifth Floor, 100 Wood
Street, London EC2V 7EX and (other than Robert James Williams) each of whose
principal activities are as director of The Law Debenture Trust Corporation
p.l.c. The principal activity of Robert James Williams is director of The Law
Debenture Corporation p.l.c.
The company secretary of the issuer is:
NAME BUSINESS ADDRESS
- ---------------------------------------- -----------------------------
Law Debenture Corporate Services Limited Fifth Floor, 100 Wood Street,
London EC2V 7EX
In accordance with the corporate services agreement, the seller and the
corporate services provider will each provide directors and other corporate
services for the issuer in consideration for the payment of an annual fee to
the corporate services provider.
The issuer's activities will principally comprise the issue of the notes,
the making of the intercompany loan to Funding pursuant to the intercompany
loan agreement, the entering into of all documents relating to such issue and
such intercompany loan to which it is expressed to be a party and the exercise
of related rights and powers and other activities referred to in this
prospectus or reasonably incidental to those activities.
CAPITALIZATION AND BORROWINGS
The following table shows the unaudited capitalization and borrowings of the
issuer as at August 27, 2004 and as adjusted for the issuance of the notes
(assuming all of the notes are issued on the closing date):
AT AS ADJUSTED
AUGUST 27, FOR ISSUANCE
2004 OF NOTES
[GBP] [GBP]
---------- ------------
SHARE CAPITAL
Total authorized share capital (ordinary
shares of [GBP]1 each) 50,000 50,000
---------- ------------
Total paid up share capital (50,000 ordinary
shares of [GBP]1 each, partly paid up to 25%) 12,500 12,500
========== ============
BORROWINGS
Series 1 notes 0 [__]
Series 2 notes 0 [__]
Series 3 notes 0 [__]
---------- ------------
0 [__]
The issuer's audited balance sheet is set out in Appendix B to this
prospectus. As at August 27, 2004, the issuer had no contingent liabilities and
no outstanding guarantees or unsecured loan capital. None of the issuer's
borrowings, including loan capital, is
67
guaranteed. There has been no material change to the capitalization, borrowings
(including loan capital), guarantees or contingent liabilities of the issuer
from August 27, 2004 to the date of this prospectus. The notes issued by this
prospectus will not be guaranteed by the issuer or any other party.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE ISSUER
SOURCES OF CAPITAL AND LIQUIDITY
The issuer's source of capital will be the net proceeds of the offering of
the notes. The issuer's primary source of liquidity will be payments of
interest and principal on the intercompany loan.
RESULTS OF OPERATIONS
The issuer does not have an operating history as of the date of this
prospectus. Accordingly, this prospectus does not include any historical or pro
forma ratio of earnings to fixed charges. The earnings on the intercompany
loan, the interest costs of the notes and the related operating expenses will
determine the issuer's results of operations in the future. The fee payable by
Funding under the intercompany loan agreement will cover the fees and expenses
of the issuer in connection with the issuance of the notes. The income
generated on the intercompany loan will be used to pay principal and interest
on the notes.
68
USE OF PROCEEDS
The gross proceeds from the issuance of the offered notes will equal
approximately $[__] and will be applied (after exchanging the gross US dollar
proceeds of the dollar notes for sterling proceeds calculated by reference to
the dollar currency swap rates, after exchanging the gross euro proceeds of the
euro notes for sterling proceeds calculated by reference to the euro currency
swap rates and after including the gross proceeds from the issuance of the
sterling notes), in accordance with the intercompany loan agreement, to make
the intercompany loan to Funding. Our fees and expenses in connection with the
issuance of the notes are expected to be approximately [GBP][__] (or $[__]).
These fees and expenses will be paid by us, but will be funded by an amount
paid to us by Funding as a fee under the intercompany loan agreement.
69
THE NORTHERN ROCK GROUP
THE SELLER
The seller was incorporated as a public limited liability company in England
and Wales on October 30, 1996 with registered number 03273685. The seller is
regulated by the Financial Services Authority. The seller was originally a
building society and was converted October 1, 1997 from a mutual form UK
building society to a stock form UK bank listed on the London Stock Exchange
plc and authorized under the FSMA.
The registered office of the seller is at Northern Rock House, Gosforth,
Newcastle upon Tyne NE3 4PL.
At June 30, 2004, the seller was the ninth largest UK quoted bank by market
capitalization. It is a specialized mortgage lender whose core business is the
provision of residential mortgages funded in both the retail and wholesale
markets. It also provides a range of other services, mainly related to its core
activities.
At June 30, 2004, the seller and its principal subsidiaries (the "GROUP")
had total assets under management of approximately [GBP]57.1 billion and
employed approximately 4,674 employees. At the date of this prospectus,
Northern Rock has a long-term rating of "A" by Standard & Poor's, "A1" by
Moody's and "A+" by Fitch. The seller's ordinary shares are listed on the
London Stock Exchange plc.
MORTGAGE BUSINESS
The seller is one of the major mortgage lenders in the UK in terms of
mortgage loans outstanding. In the UK mortgage market, the seller's net lending
during 2003 and for the six months ended June 30, 2004 (i.e., new mortgage
lending during the year/period net of capital repayments and acquisitions) was
[GBP]8.5 billion and [GBP]5.1 billion, respectively, and gross mortgage lending
during 2003 and for the six months ended June 30, 2004 (i.e., solely on the
basis of new mortgage lending during the year/period) was [GBP]17.3 billion and
[GBP]10.1 billion, respectively.
SUBSIDIARIES OF THE SELLER
The seller currently has the following two principal subsidiaries:
* NORTHERN ROCK MORTGAGE INDEMNITY COMPANY LIMITED
Northern Rock Mortgage Indemnity Company Limited, or NORMIC, is a limited
liability company incorporated in Guernsey on July 15, 1994 with registered
number 28379. NORMIC's core business is the provision of mortgage indemnity
insurance. NORMIC provides mortgage indemnity insurance to the seller.
* NORTHERN ROCK (GUERNSEY) LIMITED
Northern Rock (Guernsey) Limited, or NRG, is a limited liability company
incorporated in Guernsey on November 17, 1995 with registered number 30224. NRG
is a wholly owned subsidiary of the seller and engages in retail deposit
taking.
The issuer believes that additional information relating to Northern Rock,
in its capacity as basis rate swap provider and administrator, is not material
to an investor's decision to purchase the notes.
70
FUNDING
INTRODUCTION
Funding was incorporated as a private limited company in Jersey, Channel
Islands on February 14, 2001 with registered number 79308. The registered
office of Funding is at 22 Grenville Street, St. Helier, Jersey JE4 8PX,
Channel Islands. Funding has been registered, under Schedule 21A to the
Companies Act 1985, as having established a branch in England and Wales on
February 19, 2001. Its registered overseas company number is FC022999 and
branch number is BR005916. The branch address is at 69 Park Lane, Croydon CR9
1TQ. The authorized share capital of Funding as at December 31, 2003 comprised
100,000 ordinary shares of [GBP]1 each and as at the date of this prospectus
comprises 200,000 ordinary shares of [GBP]1 each. The issued share capital of
Funding as at December 31, 2003 comprised 100,000 ordinary shares of [GBP]1
each, all of which are beneficially owned by Holdings (see "HOLDINGS"), and the
issued share capital of Funding as at the date of this prospectus is comprised
of 125,000 ordinary shares of [GBP]1 each, all of which will continue to be
beneficially owned by Holdings.
Funding is organized as a special purpose company and is mostly passive.
Funding has no subsidiaries other than the previous issuers and the issuer,
although it is expected that, subject to certain conditions, Funding will
establish new issuers from time to time to issue new notes. Each new issuer
will be a subsidiary of Funding.
Since its incorporation, Funding has not engaged in any material activities
other than those relating to the issue of the previous notes by the previous
issuers and those activities incidental to establishing the issuer, authorizing
the transaction documents referred to in this prospectus, obtaining a standard
license under the Consumer Credit Act 1974, filing a notification under the
Data Protection Act 1998 and other matters which are incidental or ancillary to
those activities. The current financial period of Funding will end on December
31, 2004.
DIRECTORS AND SECRETARY
The directors of Funding and their respective business addresses and
principal activities or business occupations are:
PRINCIPAL ACTIVITIES/
NAME BUSINESS ADDRESS BUSINESS OCCUPATION
- --------------------- ------------------- -----------------------------
Keith McCallum Currie Northern Rock House Treasury Director of Northern
Gosforth Rock plc
Newcastle upon Tyne
NE3 4PL
Robert William Short 69 Park Lane Director of Onshore
Croydon Administration
CR9 1TQ Mourant International
Finance Administration
Jonathan David Rigby 4 Royal Mint Court Advocate
London
EC3N 4HJ
Keith McCallum Currie is an employee of the seller.
The company secretary of Funding is:
NAME BUSINESS ADDRESS
- ----------------------------------------- -----------------------------
Mourant & Co. Capital Secretaries Limited 69 Park Lane, Croydon CR9 1TQ
71
Jonathan Rigby is a partner of Mourant du Feu & Jeune, the legal adviser to
Funding as to matters of Jersey law. Robert Short and Jonathan Rigby are
employees of the Mourant Group, which is the ultimate owner of Mourant & Co.
Capital (SPV) Limited, to which fees are payable for providing corporate
administration services to Funding, including the provision of a secretary
through its subsidiary company, Mourant & Co. Capital Secretaries Limited.
Jonathan Rigby and Robert Short are directors of both Mourant & Co. Capital
(SPV) Limited and Mourant & Co. Capital Secretaries Limited.
CAPITALIZATION AND BORROWINGS
The following table shows the unaudited capitalization and borrowings of
Funding as at December 31, 2003 and as adjusted for the drawing of the
intercompany loan and the start-up loan (assuming that the intercompany loan
and the start-up loan are drawn on the closing date):
AS ADJUSTED FOR
DRAWING OF
INTERCOMPANY
DECEMBER 31, LOAN AND START-UP
2003 LOAN
[GBP] [GBP]
-------------- -----------------
SHARE CAPITAL
Total authorized share capital (ordinary shares of [GBP]1 each) 100,000 200,000
Total issued share capital (ordinary shares of [GBP]1 each allotted
and fully paid) 100,000 125,000
LOAN CAPITAL OR BORROWINGS
Secured intercompany loan (Granite Mortgages 01-1 plc) 992,527,487 878,159,7533
Start-up loan for Granite Mortgages 01-1 plc 4,447,095 4,447,0953
-------------- -----------------
Secured intercompany loan (Granite Mortgages 01-2 plc) 1,090,480,769 964,307,6923
Start-up loan for Granite Mortgages 01-2 plc 8,517,720 8,517,7203
-------------- -----------------
Secured intercompany loan (Granite Mortgages 02-1 plc) 1,908,801,128 1,688,037,5053
Start-up loan for Granite Mortgages 02-1 plc 24,431,029 24,431,0293
-------------- -----------------
Secured intercompany loan (Granite Mortgages 02-2 plc) 2,307,072,298 2,062,614,5263
Start-up loan for Granite Mortgages 02-2 plc 23,268,501 23,268,5013
-------------- -----------------
Secured intercompany loan (Granite Mortgages 03-1 plc) 2,580,312,980 2,294,174,9983
Start-up loan for Granite Mortgages 03-1 plc 26,832,548 26,832,5483
-------------- -----------------
Secured intercompany loan (Granite Mortgages 03-2 plc) 2,291,019,597 1,964,045,3253
Start-up loan for Granite Mortgages 03-2 plc 22,625,000 22,625,0002
-------------- -----------------
Secured intercompany loan (Granite Mortgages 03-3 plc) 2,226,469,523 1,853,684,3823
Start-up loan for Granite Mortgages 03-3 plc 16,400,000 16,400,0003
-------------- -----------------
Secured intercompany loan (Granite Mortgages 04-1 plc) 01 2,987,641,6993
Start-up loan for Granite Mortgages 04-1 plc 01 46,650,0003
-------------- -----------------
Secured intercompany loan (Granite Mortgages 04-2 plc) 02 3,397,983,4273
Start-up loan for Granite Mortgages 04-2 plc 02 61,600,0003
-------------- -----------------
Secured intercompany loan (Granite Mortgages 04-3 plc) 0 [__]
Start-up loan for Granite Mortgages 04-3 plc 0 [__]
-------------- -----------------
Total Loan Capital or Borrowings 13,523,205,6751,2 [__]
============== =================
- ------------
1 Granite Mortgages 04-1 plc commenced trading on January 28, 2004 when it
issued [GBP]3,471,661,953 principal amount of mortgage backed notes and made
an intercompany loan in the amount of [GBP]3,471,661,953 to Funding. Funding
in turn used the proceeds of such intercompany loan to purchase an additional
share of the mortgages trust from the mortgages trustee in the amount of
[GBP]3,471,661,953. Northern Rock assigned [GBP]4,999,992,263 of mortgage
loans to the mortgages trustee on January 26, 2004 and also made available to
Funding a start-up loan on January 26, 2004 in the amount of [GBP]46,650,000.
No repayment of principal by Funding under the intercompany loan from Granite
Mortgages 04-1 plc or under the start-up loan from Northern Rock was due
until the payment date occurring in March 2004.
72
2 Granite Mortgages 04-2 plc commenced trading on May 26, 2004 when it issued
[GBP]3,650,288,662 principal amount of mortgage backed notes and made an
intercompany loan in the amount of [GBP]3,650,288,662 to Funding. Funding in
turn used the proceeds of such intercompany loan to purchase an additional
share of the mortgages trust from the mortgages trustee in the amount of
[GBP]3,650,288,662. Northern Rock assigned [GBP]4,766,405,961 of mortgage
loans to the mortgages trustee on April 26, 2004 and also made available to
Funding a start-up loan on May 26, 2004 in the amount of [GBP]61,600,000. No
repayment of principal by Funding under the intercompany loan from Granite
Mortgages 04-2 plc or under the start-up loan from Northern Rock was due
until the payment date occurring in September 2004.
3 As adjusted for principal repaid by Funding to the relevant issuer under the
relevant intercompany loan and payments made by Funding to the start-up loan
provider under the relevant start-up loan on the payment dates occurring in
January, March, April, June, July and September of 2004.
Funding's audited balance sheets, related statements of income, statements
of changes in shareholders' equity and statements of cash flows are set out in
Appendices E through I to this prospectus. As of December 31, 2003, Funding had
no contingent liabilities and no outstanding guarantees or unsecured loan
capital or other debt other than as set forth above. None of Funding's
borrowings, including loan capital, is guaranteed. Except as disclosed in this
prospectus in relation to the issuance of the notes, there has been no material
change to the capitalization, borrowings (including loan capital), contingent
liabilities or outstanding guarantees of Funding from December 31, 2003 to the
date of this prospectus, other than as set forth in the above table and other
than with respect to principal repaid by Funding under the intercompany loans
on the January, March, April, June, July and September of 2004 payment dates as
set forth in the table above. The annual accounts of Funding for the last three
financial years have been audited and are unqualified.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF FUNDING
SOURCES OF CAPITAL AND LIQUIDITY
Funding's principal sources of capital are the previous intercompany loans
made to it by the previous issuers and the intercompany loan made to it by the
issuer.
Funding's primary source of liquidity is the earnings on Funding's interest
in the trust property and the Funding reserve fund and (in specified
circumstances and for specified purposes) each previous issuer's reserve fund
and each previous issuer's liquidity reserve fund, if any, and will include
after the closing date (in specified circumstances and for specified purposes)
earnings on Funding's interest in the issuer reserve fund and the issuer
liquidity reserve fund, if any.
RESULTS OF OPERATIONS
This prospectus does not include any historical or pro forma ratio of
Funding's earnings to fixed charges. The earnings on Funding's interest in the
trust property, the Funding reserve fund, each previous issuer's and our
reserve fund, each previous issuer's and our liquidity reserve fund, if any,
each start-up loan and the related operating expenses are the principal
components of Funding's results of operations. The income generated on its
interest in the trust property will be used to pay principal and interest on
the intercompany loan to the issuer, to pay principal and interest on the
previous intercompany loans to the previous issuers and to pay principal and
interest on any new intercompany loan to any new issuer.
73
THE MORTGAGES TRUSTEE
INTRODUCTION
The mortgages trustee was incorporated as a private limited company in
Jersey, Channel Islands on February 14, 2001 with registered number 79309. The
registered office of the mortgages trustee is at 22 Grenville Street, St.
Helier, Jersey JE4 8PX, Channel Islands. The authorized share capital of the
mortgages trustee as at December 31, 2003 comprised 10,000 ordinary shares of
[GBP]1 each. The issued share capital of the mortgages trustee as at December
31, 2003 and as at the date of this prospectus comprised 10 ordinary shares of
[GBP]1 each, all of which were beneficially owned by Holdings (see "HOLDINGS").
As at the date of this prospectus, the mortgages trustee does not have any
borrowings or contingent liabilities. The mortgages trustee is organized as a
special purpose company and is mostly passive. 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.
Since its incorporation, the mortgages trustee has not engaged 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 the previous
notes of the previous issuers, the authorization of the transaction documents
referred to in this prospectus to which it is or will be a party, obtaining a
standard license under the Consumer Credit Act 1974, filing a notification
under the Data Protection Act 1998 and other matters which are incidental or
ancillary to those activities. The current financial period of the mortgages
trustee will end on December 31, 2004.
DIRECTORS AND SECRETARY
The directors of the mortgages trustee and their respective business
addresses and principal activities or business occupations are:
PRINCIPAL ACTIVITIES/
NAME BUSINESS ADDRESS BUSINESS OCCUPATION
- --------------------------- ------------------- ------------------------
Nicola Claire Davies 22 Grenville Street Advocate
St. Helier
Jersey JE4 8PX
Channel Islands
Julia Anne Jennifer Chapman 22 Grenville Street Solicitor
St. Helier
Jersey JE4 8PX
Channel Islands
Richard Gough 22 Grenville Street Corporate Administration
St. Helier Manager
Jersey JE4 8PX
Channel Islands
Daniel Le Blancq 22 Grenville Street Corporate Administration
St. Helier Manager
Jersey JE4 8PX
Channel Islands
74
The company secretary of the mortgages trustee is:
NAME BUSINESS ADDRESS
- --------------------------------- -------------------
Mourant & Co. Secretaries Limited 22 Grenville Street
St. Helier
Jersey JE4 8PX
Channel Islands
Each of Nicola Davies and Julia Chapman is a partner of Mourant du Feu &
Jeune, the legal adviser to the mortgages trustee as to matters of Jersey law,
and each is a partner of the Mourant Group, the ultimate owner of Mourant & Co.
Limited, to which fees are payable for providing corporate administration
services to the mortgages trustee, including the provision of a secretary
through its subsidiary company, Mourant & Co. Secretaries Limited. Each of
Nicola Davies and Julia Chapman is a director of Mourant & Co. Limited and
Mourant & Co. Secretaries Limited. Each of Richard Gough and Daniel Le Blancq
is an employee of the Mourant Group and Richard Gough is an associate director
of Mourant & Co. Limited, the parent company of Mourant & Co. Secretaries
Limited.
75
HOLDINGS
INTRODUCTION
Holdings was incorporated as a private limited company in England and Wales
on December 14, 2000 with registered number 4127787. The registered office of
Holdings is at Fifth Floor, 100 Wood Street, London EC2V 7EX.
The authorized share capital of Holdings as at December 31, 2003 comprised
150,018 ordinary shares of [GBP]1 each. The issued share capital of Holdings as
at December 31, 2003 was comprised of 100,018 ordinary shares of [GBP]1 each,
all of which were held by The Law Debenture Intermediary Corporation p.l.c.
under the terms of a trust for the benefit of charitable institutions, and the
issued share capital of Holdings as at the date of this prospectus is comprised
of 125,018 ordinary shares of [GBP]1 each, all of which will continue to be
held by The Law Debenture Intermediary Corporation p.l.c. under the terms of a
trust for the benefit of charitable institutions. Holdings is organized as a
special purpose company and is mostly passive.
The principal objects of Holdings are as set out in its memorandum of
association and are, among other things, to acquire and hold, by way of
investments or otherwise and to 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 mortgages trustee, Funding and the post-enforcement call option holder).
Since its incorporation, other than subscribing for or otherwise acquiring
the issued share capital of the mortgages trustee, Funding and GPCH Limited,
Holdings has not engaged in any other activities. Holdings has no employees.
The current financial period of Holdings will end on December 31, 2004.
DIRECTORS AND SECRETARY
The directors of Holdings and their respective business addresses and
principal activities or business occupations are:
PRINCIPAL ACTIVITIES/
NAME BUSINESS ADDRESS BUSINESS OCCUPATION
- ---------------------- ------------------- -----------------------------
Keith McCallum Currie Northern Rock House Treasury Director of
Gosforth Newcastle Northern Rock plc
upon Tyne NE3 4PL
L.D.C. Securitisation Fifth Floor 100 Acting as corporate directors
Director No. 1 Limited Wood Street of special purpose companies
London EC2V 7EX
L.D.C. Securitisation Fifth Floor Acting as corporate directors
Director No. 2 Limited 100 Wood Street of special purpose companies
London EC2V 7EX
Keith McCallum Currie is an employee of the seller.
The company secretary of Holdings is:
NAME BUSINESS ADDRESS
- ---------------------------------------- ----------------
Law Debenture Corporate Services Limited Fifth Floor
100 Wood Street
London EC2V 7EX
The directors of L.D.C. Securitisation Director No. 1 Limited and L.D.C.
Securitisation Director No. 2 Limited are set out on page 67 of this
prospectus.
76
GPCH LIMITED
INTRODUCTION
GPCH Limited, the post-enforcement call option holder, was incorporated as a
private limited company in England and Wales on December 15, 2000 with
registered number 4128437. The registered office of the post-enforcement call
option holder is at Fifth Floor, 100 Wood Street, London EC2V 7EX.
The authorized share capital of the post-enforcement call option holder as
at December 31, 2002 comprised 100 ordinary shares of [GBP]1 each. The issued
share capital of the post-enforcement call option holder as at December 31,
2003 and as at the date of this prospectus comprised 2 ordinary shares of
[GBP]1 each, both of which were beneficially owned by Holdings.
The post-enforcement call option holder is organized as a special purpose
company and is mostly passive. The post-enforcement call option holder has no
subsidiaries. The seller does not own directly or indirectly any of the share
capital of Holdings or 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 other things, to hold
bonds, notes, obligations and securities issued or guaranteed by any company
and any options or rights in respect of them.
Since its incorporation, the post-enforcement call option holder has not
engaged in any material activities other than those activities incidental or
relating to the issue of the previous notes by the previous issuers and the
authorizing of the transaction documents referred to in this prospectus and
other matters which are incidental to those activities. The post-enforcement
call option holder has no employees.
The current financial period of the post-enforcement call option holder will
end on December 31, 2004.
DIRECTORS AND SECRETARY
The directors of the post-enforcement call option holder and their
respective business addresses and principal activities or business occupations
are:
PRINCIPAL ACTIVITIES/
NAME BUSINESS ADDRESS BUSINESS OCCUPATION
- ------------------------------ --------------------------- -----------------------------
Keith McCallum Currie Northern Rock House Treasury Director of Northern
Gosforth Newcastle upon Rock plc
Tyne NE3 4PL
L.D.C. Securitisation Director Fifth Floor 100 Wood Street Acting as corporate directors
No. 1 Limited London EC2V 7EX of special purpose companies
L.D.C. Securitisation Director Fifth Floor 100 Wood Street Acting as corporate directors
No. 2 Limited London EC2V 7EX of special purpose companies
Keith McCallum Currie is an employee of the seller.
The company secretary of the post-enforcement call option holder is:
NAME BUSINESS ADDRESS
- ---------------------------------------- ----------------
Law Debenture Corporate Services Limited Fifth Floor
100 Wood Street
London EC2V 7EX
The directors of L.D.C. Securitisation Director No.1 Limited and L.D.C.
Securitisation Director No. 2 Limited are set out on page 67 of this
prospectus.
77
THE INTEREST RATE SWAP PROVIDER
UBS Limited ("UBSL") is the interest rate swap provider in respect of the
series 3 class A2 notes. UBSL is a company limited by shares incorporated in
Great Britain under the Companies Act 1985 registered in England and Wales with
number 2035362 on July 9, 1986 now having its registered office and principal
place of business situated at 1 Finsbury Avenue, London EC2M 2PP.
UBSL is an "authorised institution" under the FSMA regulated by the FSA and
is a wholly-owned subsidiary of UBS AG, a company incorporated with limited
liability in Switzerland on February 28, 1978 registered at the Commercial
Registry Office of the Canton of Zurich and the Commercial Registry Office of
the Canton of Basel-City with Identification No: CH-270.3.004.646-4 having its
registered offices at Bahnhofstrasse 45, 8001 Zurich and Aeschenvorstadt 1,
4051 Basel, Switzerland. At December 31, 2003 UBSL had an issued share capital
of [GBP]21,200,000 divided into 21,200,000 ordinary shares of [GBP]1.00 each
fully paid and total shareholders' funds of [GBP]235,168,000. Total Assets
were [GBP]163,490,311,000.
UBS AG is the guarantor for the obligations of UBSL under the interest rate
swap. UBS AG was incorporated in Basel under the name SBC AG on February 28,
1978. On December 8, 1997, SBC AG changed its name to UBS AG. UBS AG in its
present form was created on June 29, 1998 by the merger of Union Bank of
Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872). With
headquarters in Zurich and Basel, Switzerland, UBS AG operates in over 50
countries and from all major international centers. As of December 31, 2003,
UBS AG had total invested assets of $1,782 billion, a market capitalisation of
$77 billion and employed approximately 66,000 people. As at the date of this
prospectus, UBS AG has a long-term debt credit rating of "Aa2" from Moody's and
"AA+" from S&P.
UBS AG is publicly owned, and its shares are listed on the SWS Swiss
Exchange, New York and Tokyo Stock Exchange. The information contained herein
with respect to UBSL and UBS AG relates to and has been obtained from it. The
delivery of this prospectus shall not create any implication that there has
been no change in the affairs UBSL or UBS AG since the date hereof, or that the
information contained or referred to herein is correct as of any time
subsequent to its date.
The information contained in the preceding four paragraphs has been provided
by UBSL and UBS AG for use in this prospectus. Except for the foregoing four
paragraphs, UBS AG and UBSL and their respective affiliates have not been
involved in the preparation of, and do not accept responsibility for, this
prospectus as a whole.
THE CURRENCY RATE SWAP PROVIDERS
THE DOLLAR CURRENCY SWAP PROVIDERS
SERIES 1 NOTES (OTHER THAN SERIES 1 CLASS A2 NOTES)
Barclays Bank PLC ("BARCLAYS BANK") is the dollar currency swap provider in
respect of the series 1 notes (other than the series 1 class A2 notes).
Barclays Bank is a public limited company registered in England and Wales under
number 1026167. The liability of the members of Barclays Bank is limited. It
has its registered and head office at 54 Lombard Street, London EC3P 3AH.
Barclays Bank was incorporated on August 7, 1925 under the Colonial Bank Act
1925 and on October 4, 1971 was registered as a company limited by shares under
the Companies Act 1948 to 1967. Pursuant to The Barclays Bank Act 1984, on
January 1, 1985, Barclays Bank was re-registered as a public limited company
and its name was changed from "Barclays Bank International Limited" to
"Barclays Bank PLC".
78
Barclays Bank and its subsidiary undertakings (together, the "BARCLAYS
GROUP") is an international financial services group engaged primarily in
banking, investment banking and asset management. In terms of assets employed,
it is one of the largest financial services groups in the United Kingdom. The
Barclays Group also operates in many other countries around the world and is
leading provider of co-ordinated global services to multinational corporations
and financial institutions in the world's main financial centers. The whole of
the issued ordinary share capital of Barclays Bank is owned by Barclays PLC,
which is the ultimate holding company of the Barclays Group.
The short term unsecured obligations of Barclays Bank are rated "A-1+" by
S&P, "P-1" by Moody's and "F1+" by Fitch and the long-term obligations of
Barclays Bank are rated "AA" by S&P, "Aa1" by Moody's and "AA+" by Fitch.
Except for the information provided in the preceding three paragraphs,
Barclays Bank and Barclays Group have not been involved in the preparation of,
and do not accept responsibility for, this prospectus.
SERIES 2 CLASS A1 NOTES
Swiss Re Financial Products Corporation ("SRFP") of 55 East 52nd Street,
39th Floor, New York, New York 10055 is the dollar currency swap provider in
respect of the series 2 class A1 notes.
SRFP is a Delaware corporation and an indirect, wholly-owned subsidiary of
Swiss Reinsurance Company ("SWISS RE"), a Swiss corporation. SRFP currently has
a long-term counterparty credit rating of "AA (negative outlook)" and a short-
term rating of "A-1+" from S&P. The obligations of SRFP under the dollar
currency swap in respect of the series 2 class A1 notes will be fully and
unconditionally guaranteed by Swiss Re. Swiss Re currently has an insurance
financial strength rating of "AA (negative outlook)" and a short-term rating of
"A-1+" from S&P and an insurance financial strength rating of "Aa2" and a
short-term rating of "Prime-1" from Moody's. In addition, Fitch currently
assigns an insurer financial strength rating to Swiss Re of "AA+" based purely
on public information.
Except for the information provided in the preceding two paragraphs, SRFP
and Swiss Re have not been involved in the preparation of, and do not accept
responsibility for, this prospectus.
THE EURO CURRENCY SWAP PROVIDER
Citibank, N.A. ("CITIBANK"), acting through its London Branch, is the euro
currency swap provider in respect of the euro notes.
Citibank was originally organised on June 16, 1812, and is now a national
banking association organized under the National Bank Act of 1864 of the United
States. Citibank is a wholly-owned subsidiary of Citicorp, a Delaware
corporation, and is Citicorp's principal subsidiary. Citicorp is an indirect
wholly-owned subsidiary of Citigroup Inc. ("CITIGROUP"), a diversified global
financial services holding company incorporated in Delaware. As of June 30,
2004 the total assets of Citibank and its consolidated subsidiaries represented
approximately 73% of the total assets of Citicorp and its consolidated
subsidiaries. As of the date of this prospectus, the unguaranteed, unsecured
and unsubordinated long-term debt obligations of Citibank are rated "AA" by
S&P, "Aa1" by Moody's and "AA+" by Fitch.
Citibank is a commercial bank that, along with its subsidiaries and
affiliates, offers a wide range of banking and trust services to its customers
throughout the United States and the world.
Citibank, N.A., London Branch, was registered in the United Kingdom as a
foreign company in July 1920. The principal offices of the London Branch are
located at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB,
England. The London Branch is primarily regulated by the FSA and operated in
the United Kingdom as a fully authorized commercial banking institution
offering a wide range of corporate banking products.
79
For further information regarding Citibank, reference should be made to
Citicorp's Annual Report on Form 10-K for the year ended December 31, 2003 and
to any subsequent reports of Citicorp on Forms 10-K, 10-Q and 8-K which are
filed with SEC. Copies of such material may be obtained, upon payment of a
duplicating fee, by writing to the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, such reports are available at the SEC Web site
(http://www.sec.gov).
In addition, Citibank submits quarterly to the United States Office of the
Comptroller of the Currency (the "COMPTROLLER") certain reports called
"Consolidated Reports of Condition and Income for a Bank With Domestic and
Foreign Offices" ("CALL REPORTS"). The Call Reports are on file with and
publicly available at the Comptroller's offices at 250 E Street, S.W.,
Washington, D.C. 20219 and are also available on the Web site of the Federal
Deposit Insurance Corporation of the United States (http://www.fdic.gov). Each
Call Report consists of a Balance Sheet, Income Statement, Changes in Equity
Capital and other supporting schedules at the end of and for the period to
which the report relates. The Call Reports are prepared in accordance with the
regulatory instructions issued by the Federal Financial Institutions
Examination Council in the United States. While the Call Reports are
supervisory and regulatory documents, not primarily accounting documents, and
do not provide a complete range of financial disclosure about Citibank, the
reports nevertheless provide important information concerning the financial
condition and results of operations of Citibank.
The obligations of Citibank, N.A., London Branch, under the euro currency
swap agreements will not be guaranteed by Citicorp or Citigroup or by any other
affiliate.
The information in the preceding six paragraphs has been provided by
Citibank for use in this prospectus. Except for the foregoing six paragraphs,
Citibank, Citicorp, Citigroup and their affiliates do not accept responsibility
for this prospectus as a whole.
The issuer believes that additional information relating to UBSL, UBS AG,
Barclays Bank, the Barclays Group, SRFP, Swiss Re, Citibank, Citicorp,
Citigroup or their affiliates is not material to an investor's decision to
purchase the notes.
80
DESCRIPTION OF THE PREVIOUS ISSUERS, THE PREVIOUS NOTES AND
THE PREVIOUS INTERCOMPANY LOANS
FIRST ISSUER
The first issuer, Granite Mortgages 01-1 plc, was incorporated in England
and Wales as a public company limited by shares under the Companies Act 1985 on
December 18, 2000 with registered number 4129652. The registered office of the
first issuer is at Fifth Floor, 100 Wood Street, London EC2V 7EX. The first
issuer was organized as a special purpose company whose purpose was to issue
the first issuer notes that represent its mortgage-backed obligations and to
lend an amount equal to the proceeds of the issue of such notes to Funding
under the first issuer intercompany loan. The first issuer does not engage in
any activities that are unrelated to these activities.
The following table summarizes the principal features of the first issuer
notes:
CLASS OF FIRST ISSUER NOTES
------------------------------------------------------------------------
SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 2
CLASS A1 CLASS A2 CLASS B CLASS C CLASS A
------------ ------------ ------------ ------------ ----------------
Principal amount as at March 26, 2001: $760,000,000 $735,000,000 $50,000,000 $67,500,000 [GBP]350,000,000
Interest rate: Three-month Three-month Three-month Three-month Three month
USD LIBOR + USD LIBOR + USD LIBOR + USD LIBOR + sterling LIBOR
margin margin margin margin + margin
Margin until payment date falling in 0.12% p.a. 0.21% p.a. 0.40% p.a. 1.40% p.a. 0.24% p.a.
January 2008:
Margin after payment date falling in January 0.24% p.a. 0.42% p.a. 0.80% 2.40% p.a. 0.48% p.a.
2008:
Expected final payment date: January 20, N/A N/A N/A N/A
2004
Final maturity date: January 2011 January 2026 January 2041 January 2041 January 2041
Stock Exchange Listing: London London London London London
Rating as at March 26, 2001 Aaa/AAA/AAA Aaa/AAA/AAA Aa3/AA/AA Baa2/BBB/BBB Aaa/AAA/AAA
(Moody's/S&P/Fitch):
CLASS OF FIRST ISSUER NOTES
--------------------------------
SERIES 2 SERIES 2
CLASS B CLASS C
--------------- ---------------
Principal amount as at March 26, 2001: [GBP]10,000,000 [GBP]15,000,000
Interest rate: Three month Three month
sterling LIBOR sterling LIBOR
+ margin + margin
Margin until payment date falling in 0.40% p.a. 1.40% p.a.
January 2008:
Margin after payment date falling in January 0.80% p.a. 2.40% p.a.
2008:
Expected final payment date: N/A N/A
Final maturity date: January 2041 January 2041
Stock Exchange Listing: London London
Rating as at March 26, 2001 Aa3/AA/AA Baa2/BBB/BBB
(Moody's/S&P/Fitch):
81
SECOND ISSUER
The second issuer, Granite Mortgages 01-2 plc, was incorporated in England
and Wales as a public company limited by shares under the Companies Act 1985 on
August 14, 2001 with registered number 4270015. The registered office of the
second issuer is at Fifth Floor, 100 Wood Street, London EC2V 7EX. The second
issuer was organized as a special purpose company whose purpose was to issue
the second issuer notes that represent its mortgage-backed obligations and to
lend an amount equal to the proceeds of such notes to Funding under the second
issuer intercompany loan. The second issuer does not engage in any activities
that are unrelated to these activities.
The following table summarizes the principal features of the second issuer
notes:
CLASS OF SECOND ISSUER NOTES
-----------------------------------------------------------------------------
SERIES 1 SERIES 1 SERIES 1 SERIES 2 SERIES 2
CLASS A CLASS B CLASS C CLASS A CLASS B
-------------- ------------ ------------ ---------------- ---------------
Principal amount as at $1,300,000,000 $43,500,000 $58,000,000 [GBP]500,000,000 [GBP]15,000,000
September 28, 2001:
Interest rate: Three-month Three-month Three-month Three-month Three-month
USD LIBOR + USD LIBOR + USD LIBOR + sterling LIBOR sterling LIBOR
margin margin margin + margin + margin
Margin until payment date falling in 0.230% p.a. 0.400% p.a. 1.375% p.a. 0.250% p.a. 0.420% p.a.
October 2006:
Margin after payment date falling in 0.460% p.a. 0.800% p.a. 2.375% p.a. 0.500% p.a. 0.840% p.a.
October 2006:
Final maturity date: October 2021 October 2041 October 2041 October 2041 October 2041
Stock Exchange Listing: London London London London London
Rating as at September 28, 2001 Aaa/AAA/AAA Aa3/AA/AA Baa2/BBB/BBB Aaa/AAA/AAA Aa3/AA/AA
(Moody's/S&P/Fitch):
CLASS OF SECOND ISSUER NOTES
--------------------------------
SERIES 2 SERIES 2
CLASS C CLASS D
--------------- ---------------
Principal amount as at [GBP]20,000,000 [GBP]10,000,000
September 28, 2001:
Interest rate: Three-month Three-month
sterling LIBOR sterling LIBOR
+ margin + margin
Margin until payment date falling in 1.400% p.a. 4.600% p.a.
October 2006:
Margin after payment date falling in 2.400% p.a. 5.600% p.a.
October 2006:
Final maturity date: October 2041 October 2041
Stock Exchange Listing: London London
Rating as at September 28, 2001 Baa2/BBB/BBB Ba2/BB+/BB+
(Moody's/S&P/Fitch):
82
THIRD ISSUER
The third issuer, Granite Mortgages 02-1 plc, was incorporated in England
and Wales as a public company limited by shares under the Companies Act 1985 on
December 14, 2001 with registered number 4340767. The registered office of the
third issuer is at Fifth Floor, 100 Wood Street, London EC2V 7EX. The third
issuer was organized as a special purpose company whose purpose was to issue
the third issuer notes that represent its mortgage-backed obligations and to
lend an amount equal to the proceeds of such notes to Funding under the third
issuer intercompany loan. The third issuer does not engage in any activities
that are unrelated to these activities.
The following table summarizes the principal features of the third issuer
notes:
CLASS OF THIRD ISSUER NOTES
------------------------------------------------------------------------------------------
SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 2
CLASS A1 CLASS A2 CLASS A3 CLASS B CLASS C CLASS A
------------ -------------- ----------- ------------ ---------------- ---------------
Principal amount as at $704,200,000 $1,274,400,000 $69,700,000 $96,500,000 [GBP]460,000,000 [GBP]16,200,000
March 20, 2002:
Interest rate: Three-month Three-month Three-month Three-month Three-month Three-month
USD LIBOR + USD LIBOR + USD LIBOR + USD LIBOR + sterling LIBOR sterling LIBOR
margin margin margin margin + margin + margin
Margin until payment 0.10% p.a. 0.16% p.a. 0.33% p.a. 1.30% p.a. 0.20% p.a. 0.35% p.a.
date falling in April 2007:
Margin after payment 0.20% p.a. 0.32% p.a. 0.66% p.a. 2.30% p.a. 0.40% p.a. 0.70% p.a.
date falling in April 2007:
Final maturity date: October 2016 July 2019 April 2042 April 2042 April 2042 April 2042
Stock Exchange Listing: London London London London London London
Rating as at March 20,
2002 (Moody's/
S&P/ Fitch): Aaa/AAA/AAA Aaa/AAA/AAA Aa3/AA/AA Baa2/BBB/BBB Aaa/AAA/AAA Aa3/AA/AA
CLASS OF THIRD ISSUER NOTES
-------------------------------------------------------------------------------
SERIES 2 SERIES 2 SERIES 3 SERIES 3 SERIES 3
CLASS B CLASS C CLASS A CLASS B CLASS C
--------------- --------------- --------------- ------------- -------------
Principal amount as at [GBP]22,500,000 [GBP]15,000,000 [e]600,000,000 [e]21,100,000 [e]29,300,000
March 20, 2002:
Interest rate: Three-month Three-month 5.15% annually, Three-month Three-month
sterling LIBOR sterling LIBOR until the EURIBOR + EURIBOR+
+ margin + margin payment date margin margin
in April 2007,
and then three-
month
EURIBOR +
margin
Margin until payment 1.30% p.a. 4.50% p.a. N/A 0.35% p.a. 1.30% p.a.
date falling in April 2007:
Margin after payment 2.30% p.a. 5.50% p.a. 0.42% p.a. 0.70% p.a. 2.30% p.a.
date falling in April 2007:
Final maturity date: April 2042 April 2042 April 2042 April 2042 April 2042
Stock Exchange Listing: London London London London London
Rating as at March 20,
2002 (Moody's/
S&P/ Fitch): Baa2/BBB/BBB Ba2/BB+/BB+ Aaa/AAA/AAA Aa3/AA/AA Ba2/BB+/BB+
83
FOURTH ISSUER
The fourth issuer, Granite Mortgages 02-2 plc, was incorporated in England
and Wales as a public company limited by shares under the Companies Act 1985 on
July 11, 2002 with registered number 4482804. The registered office of the
fourth issuer is at Fifth Floor, 100 Wood Street, London EC2V 7EX. The fourth
issuer was organized as a special purpose company whose purpose was to issue
the fourth issuer notes that represent its mortgage-backed obligations and to
lend an amount equal to the proceeds of such notes to Funding under the fourth
issuer intercompany loan. The fourth issuer does not engage in any activities
that are unrelated to these activities.
The following table summarizes the principal features of the fourth issuer
notes:
CLASS OF FOURTH ISSUER NOTES
-----------------------------------------------------------------------------------------
SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 2 SERIES 2
CLASS A1 CLASS A2 CLASS B CLASS C CLASS A CLASS B
------------ -------------- ------------ ------------ ---------------- -------------
Principal amount as at $650,000,000 $1,150,000,000 $60,000,000 $88,000,000 [e]1,100,000,000 [e]41,000,000
September 23, 2002:
Interest rate: Three-month Three-month Three-month Three-month Three-month Three-month
USD LIBOR USD LIBOR USD LIBOR USD LIBOR EURIBOR+ EURIBOR+
+ margin + margin + margin + margin margin margin
Margin until payment date 0.11% p.a. 0.18% p.a. 0.37% p.a. 1.25% p.a. 0.19% p.a. 0.37% p.a.
falling in January 2008:
Margin after payment date 0.22% p.a. 0.36% p.a. 0.74% p.a. 2.25% p.a. 0.38% p.a. 0.74% p.a.
falling in January 2008:
Final maturity date: January 2017 January 2043 January 2043 January 2043 January 2043 January 2043
Stock Exchange Listing: London London London London London London
Rating as at September 23, Aaa/AAA/AAA Aaa/AAA/AAA Aa3/AA/AA Baa2/BBB/BBB Aaa/AAA/AAA Aa3/AA/AA
2002 (Moody's/
S&P/Fitch):
CLASS OF FOURTH ISSUER NOTES
-----------------------------------------------------------------
SERIES 2 SERIES 3 SERIES 3 SERIES 3
CLASS C CLASS A CLASS B CLASS C
------------- ---------------- --------------- ---------------
Principal amount as at [e]53,000,000 [GBP]665,000,000 [GBP]25,000,000 [GBP]33,000,000
September 23, 2002:
Interest rate: Three-month Three-month Three-month Three-month
EURIBOR+ sterling LIBOR sterling LIBOR sterling LIBOR
margin + margin + margin + margin
Margin until payment date 1.25% p.a. 0.19% p.a. 0.37% p.a. 1.25% p.a.
falling in January 2008:
Margin after payment date 2.25% p.a. 0.38% p.a. 0.74% p.a. 2.25% p.a.
falling in January 2008:
Final maturity date: January 2043 January 2043 January 2043 January 2043
Stock Exchange Listing: London London London London
Rating as at September 23, Baa2/BBB/BBB Aaa/AAA/AAA Aa3/AA/AA Baa2/BBB/BBB
2002 (Moody's/
S&P/Fitch):
84
FIFTH ISSUER
The fifth issuer, Granite Mortgages 03-1 plc, was incorporated in England
and Wales as a public company limited by shares under the Companies Act 1985 on
November 22, 2002 with registered number 4598035. The registered office of the
fifth issuer is at Fifth Floor, 100 Wood Street, London EC2V 7EX. The fifth
issuer was organized as a special purpose company whose purpose was to issue
the fifth issuer notes that represent its mortgage-backed obligations and to
lend an amount equal to the proceeds of such notes to Funding under the fifth
issuer intercompany loan. The fifth issuer does not engage in any activities
that are unrelated to these activities.
The following table summarizes the principal features of the fifth issuer
notes:
CLASS OF FIFTH ISSUER NOTES
---------------------------------------------------------------------------------------
SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 2
CLASS A1 CLASS A2 CLASS A3 CLASS B CLASS C CLASS A
------------ -------------- ------------- ------------ ------------ --------------
Principal amount as at $925,000,000 $1,225,000,000 $300,000,000 $42,000,000 $56,000,000 [e]900,000,000
January 27, 2003:
Interest rate: One-month Three-month Federal funds Three-month Three-month Three-month
USD LIBOR USD LIBOR rate + margin USD LIIBOR USD LIBOR EURIBOR
+ margin + margin + margin + margin + margin
Margin until payment (0.01%) p.a. 0.19% p.a. 0.40% p.a. 0.43% p.a. 1.45% p.a. 0.24% p.a.
date falling in April 2008:
Margin after payment 0.00% p.a. 0.38% p.a. 0.80% p.a. 0.86% p.a. 2.45% p.a. 0.48% p.a.
date falling in April 2008:
Final maturity date: January 2004 January 2020 January 2020 January 2043 January 2043 January 2043
Stock Exchange Listing: London London London London London London
Rating as at P-1/A-1+/F1+ Aaa/AAA/AAA Aaa/AAA/AAA Aa3/AA/AA Baa2/BBB/BBB Aaa/AAA/AAA
January 27, 2003
(Moody's/S&P/ Fitch):
CLASS OF FIFTH ISSUER NOTES
--------------------------------------------------------------------------------
SERIES 2 SERIES 2 SERIES 3 SERIES 3 SERIES 3
CLASS B CLASS C CLASS A CLASS B CLASS C
------------- ------------- ---------------- --------------- ---------------
Principal amount as at [e]62,000,000 [e]94,500,000 [GBP]665,000,000 [GBP]31,000,000 [GBP]41,000,000
January 27, 2003:
Interest rate: Three-month Three-month Three-month Three-month Three-month
EURIBOR EURIBOR sterling LIBOR sterling LIBOR sterling LIBOR
+ margin + margin + margin + margin + margin
Margin until payment 0.43% p.a. 1.45% p.a. 0.24% p.a. 0.43% p.a. 1.45% p.a.
date falling in April 2008:
Margin after payment 0.86% p.a. 2.45% p.a. 0.48% p.a. 0.86% p.a. 2.45% p.a.
date falling in April 2008:
Final maturity date: January 2043 January 2043 January 2043 January 2043 January 2043
Stock Exchange Listing: London London London London London
Rating as at Aa3/AA/AA Baa2/BBB/BBB Aaa/AAA/AAA Aa3/AA/AA Baa2/BBB/BBB
January 27, 2003
(Moody's/S&P/ Fitch):
85
SIXTH ISSUER
The sixth issuer, Granite Mortgages 03-2 plc, was incorporated in England
and Wales as a public company limited by shares under the Companies Act 1985 on
March 3, 2003 with registered number 4684567. The registered office of the
sixth issuer is at Fifth Floor, 100 Wood Street, London EC2V 7EX. The sixth
issuer was organized as a special purpose company whose purpose was to issue
the sixth issuer notes that represent its mortgage-backed obligations and to
lend an amount equal to the proceeds of such notes to Funding under the sixth
issuer intercompany loan. The sixth issuer does not engage in any activities
that are unrelated to these activities.
The following table summarizes the principal features of the sixth issuer
notes:
CLASS OF SIXTH ISSUER NOTES
------------------------------------------------------------------------------------------------------
SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 2 SERIES 2
CLASS A1 CLASS A2 CLASS A3 CLASS B CLASS C CLASS A CLASS B
-------------- -------------- ------------ ----------- ------------ -------------- -------------
Principal amount $1,245,000,000 $1,006,000,000 $500,000,000 $76,500,000 $10,500,000 [e]300,000,000 [e]72,900,000
as at May 21, 2003:
Interest rate: Three-month Three-month Three-month Three-month Three-month Three-month Three-month
USD LIBOR USD LIBOR USD LIBOR USD LIBOR USD LIBOR EURIBOR+ EURIBOR+
+ margin + margin + margin + margin + margin margin margin
Margin until payment 0.08% p.a. 0.16% p.a. 0.25% p.a. 0.49% p.a. 1.55% p.a. 0.25% p.a. 0.49% p.a.
date falling in July
20101:
Margin after payment 0.16% p.a. 0.32% p.a. 0.50% p.a. 0.98% p.a. 2.55% p.a. 0.50% p.a. 0.98% p.a.
date falling in July
2010:
Final maturity date: July 2017 July 2020 July 2043 July 2043 July 2043 July 2043 July 2043
Stock Exchange London London London London London London London
Listing:
Rating as at May 21, Aaa/AAA/AAA Aaa/AAA/AAA Aaa/AAA/AAA Aa3/AA/AA Baa2/BBB/BBB Aaa/AAA/AAA Aa3/AA/AA
2003 (Moody's/S&P/
Fitch):
CLASS OF SIXTH ISSUER NOTES
-----------------------------------------------------------------------------------
SERIES 2 SERIES 2 SERIES 2 SERIES 3 SERIES 3
CLASS M CLASS C1 CLASS C2 CLASS A CLASS C
------------- ------------------ ------------- ---------------- ---------------
Principal amount [e]52,300,000 [e]16,000,000 [e]65,500,000 [GBP]352,280,000 [GBP]15,000,000
as at May 21, 2003:
Interest rate: Three-month 5.20% p.a. Three-month 4.625% p.a. Three-month
EURIBOR+ annually, until EURIBOR annually, until sterling LIBOR
margin the earlier of (a) + margin the payment + margin
the payment date in July
date in July 2010, and then
2010, (b) the three-month
occurrence of a sterling LIBOR
trigger event or + margin
(c) the
enforcement
of the issuer
security, and
then three-
month
EURIBOR +
margin
Margin until payment 0.75% p.a. N/A 1.55% p.a. N/A 1.55% p.a.
date falling in July
20101:
Margin after payment 1.50% p.a. 2.55% p.a. 2.55% p.a. 0.48% p.a. 2.55% p.a.
date falling in July
2010:
Final maturity date: July 2043 July 2043 July 2043 July 2043 July 2043
Stock Exchange London London London London London
Listing:
Rating as at May 21, A2/A/A Baa2/BBB/BBB Baa2/BBB/BBB Aaa/AAA/AAA Baa2/BBB/BBB
2003 (Moody's/S&P/
Fitch):
- ------------
1 If a trigger event occurs or the sixth issuer security is enforced prior to
the payment date in July 2010, the margin for the series 2 class C1 notes
will be 1.55% p.a. up to and including the interest period ending on the
payment date falling in July 2010.
86
SEVENTH ISSUER
The seventh issuer, Granite Mortgages 03-3 plc, was incorporated in England
and Wales as a public company limited by shares under the Companies Act 1985 on
July 7, 2003 with registered number 4823268. The registered office of the
seventh issuer is at Fifth Floor, 100 Wood Street, London EC2V 7EX. The seventh
issuer was organized as a special purpose company whose purpose was to issue
the seventh issuer notes that represent its mortgage-backed obligations and to
lend an amount equal to the proceeds of such notes to Funding under the seventh
issuer intercompany loan. The seventh issuer does not engage in any activities
that are unrelated to these activities.
The following table summarizes the principal features of the seventh issuer
notes:
CLASS OF SEVENTH ISSUER NOTES
--------------------------------------------------------------------------------------------
SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 1
CLASS A1 CLASS A2 CLASS A3 CLASS B CLASS M CLASS C
-------------- -------------- -------------- -------------- -------------- ------------
Principal amount as at $750,000,000 $750,000,000 $500,000,000 $72,000,000 $27,000,000 $50,000,000
September 24, 2003:
Credit enhancement: Subordination Subordination Subordination Subordination Subordination The issuer
of the class B of the class B of the class B of the class M of the class C reserve fund
notes, the notes, the notes, the notes, the notes and the
class M notes, class M notes, class M notes, class C notes issuer reserve
the class C the class C the class C and the issuer fund
notes and the notes and the notes and the reserve fund
issuer reserve issuer reserve issuer reserve
fund fund fund
Interest rate: Three-month Three-month Three-month Three-month Three-month Three-month
USD LIBOR USD LIBOR USD LIBOR USD LIBOR USD LIBOR USD LIBOR
+ margin + margin + margin + margin + margin + margin
Margin until payment date 0.08% p.a. 0.12% p.a. 0.20% p.a. 0.45% p.a. 0.70% p.a. 1.45% p.a.
falling January 2009:
Margin after payment date 0.16% p.a. 0.24% p.a. 0.40% p.a. 0.90% p.a. 1.40% p.a. 2.45% p.a.
falling in January 2009:
Final maturity date: January 2019 January 2024 January 2044 January 2044 January 2044 January 2044
Stock Exchange Listing: London London London London London London
Rating as at September 24, Aaa/AAA/AAA Aaa/AAA/AAA Aaa/AAA/AAA Aa3/AA/AA A2/A/A Baa2/BBB/BBB
2003 (Moody's/S&P/Fitch):
CLASS OF SEVENTH ISSUER NOTES
------------------------------------------------------------------------------------------------
SERIES 2 SERIES 2 SERIES 2 SERIES 2 SERIES 3 SERIES 3
CLASS A CLASS B CLASS M CLASS C CLASS A CLASS B
-------------- -------------- -------------- ------------- ---------------- ---------------
Principal amount as at [e]640,000,000 [e]23,000,000 [e]7,500,000 [e]55,000,000 [GBP]340,000,000 [GBP]28,500,000
September 24, 2003:
Credit enhancement: Subordination Subordination Subordination The issuer Subordination Subordination
of the class B of the class M of the class C reserve fund of the class B of the class M
notes, the notes, the notes and the notes, the notes, the
class M notes, class C notes issuer reserve class M notes, class C notes
the class C and the issuer fund the class C and the issuer
notes and the reserve fund notes and the reserve fund
issuer reserve issuer reserve
fund fund
Interest rate: Three-month Three-month Three-month Three-month Three-month Three-month
EURIBOR EURIBOR EURIBOR EURIBOR sterling LIBOR sterling LIBOR
+ margin + margin + margin + margin + margin + margin
Margin until payment date 0.19% p.a. 0.45% p.a. 0.70% p.a. 1.45%p.a. 0.19% p.a. 0.45% p.a.
falling January 2009:
Margin after payment date 0.38% p.a. 0.90% p.a. 1.40% p.a. 2.45% p.a. 0.38% p.a. 0.90% p.a.
falling in January 2009:
Final maturity date: January 2044 January 2044 January 2044 January 2044 January 2044 January 2044
Stock Exchange Listing: London London London London London London
Rating as at September 24, Aaa/AAA/AAA Aa3/AA/AA A2/A/A Baa2/BBB/BBB Aaa/AAA/AAA Aa3/AA/AA
2003 (Moody's/S&P/Fitch):
CLASS OF SEVENTH ISSUER NOTES
-------------------------------
SERIES 3 SERIES 3
CLASS M CLASS C
--------------- --------------
Principal amount as at [GBP]11,500,000 [GBP]7,500,000
September 24, 2003:
Credit enhancement: Subordination The issuer
of the class C reserve fund
notes and the
issuer reserve
fund
Interest rate: Three-month Three-month
sterling LIBOR sterling LIBOR
+ margin + margin
Margin until payment date 0.70% p.a. 1.45% p.a.
falling January 2009:
Margin after payment date 1.40% p.a. 2.45% p.a.
falling in January 2009:
Final maturity date: January 2044 January 2044
Stock Exchange Listing: London London
Rating as at September 24, A2/A/A Baa2/BBB/BBB
2003 (Moody's/S&P/Fitch):
87
EIGHTH ISSUER
The eighth issuer, Granite Mortgages 04-1 plc, was incorporated in England
and Wales as a public company limited by shares under the Companies Act 1985 on
November 11, 2003 with registered number 4959572. The registered office of the
eighth issuer is at Fifth Floor, 100 Wood Street, London EC2V 7EX. The eighth
issuer was organized as a special purpose company whose purpose was to issue
the eighth issuer notes that represent its mortgage-backed obligations and to
lend an amount equal to the proceeds of such notes to Funding under the eighth
issuer intercompany loan. The eighth issuer does not engage in any activities
that are unrelated to these activities.
The following table summarizes the principal features of the eighth issuer
notes:
CLASS OF EIGHTH ISSUER NOTES
---------------------------------------------------------------------------------------------------
SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 2
CLASS A1 CLASS A2 CLASS B CLASS M CLASS C CLASS A1
-------------- -------------- -------------- ------------------- ------------ ----------------
Principal amount as at $1,185,000,000 $1,185,000,000 $52,000,000 $72,000,000 $108,000,000 $1,185,000,000
January 28, 2004:
Credit enhancement: Subordination Subordination Subordination Subordination The issuer Subordination
of the class B of the class B of the class M of the class C reserve fund of the class B
notes, the notes, the notes, the notes and the notes, the class
class M notes, class M notes, class C notes issuer reserve fund M notes, the
the class C the class C and the issuer class C notes
notes and the notes and the reserve fund and the issuer
issuer reserve issuer reserve reserve fund
fund fund
Interest rate: One-month Three-month Three-month Three-month Three-month Three-month
USD LIBOR USD LIBOR USD LIBOR USD LIBOR USD LIBOR USD LIBOR
+ margin + margin + margin + margin + margin + margin
Margin until payment date (0.04)% p.a. 0.07% p.a. 0.21% p.a. 0.41% p.a. 0.90% p.a. 0.16% p.a.
falling in March 2009:
Margin after payment date N/A 0.14% p.a. 0.42% p.a. 0.82% p.a. 1.80% p.a. 0.32% p.a.
falling in March 2009:
Final maturity date: December 2004 March 2025 March 2044 March 2044 March 2044 March 2044
Stock Exchange Listing: London London London London London London
Ratings as at January 28, 2004 P-1/A-1+/F1+ Aaa/AAA/AAA Aa3/AA/AA A2/A/A Baa2/BBB/BBB Aaa/AAA/AAA
(Moody's/S&P/Fitch):
CLASS OF EIGHTH ISSUER NOTES
------------------------------------------------------------------------------------------
SERIES 2 SERIES 2 SERIES 2 SERIES 2 SERIES 3
CLASS A2 CLASS B CLASS M CLASS C CLASS A
------------------------- -------------- -------------- ------------- ----------------
Principal amount as at [e]900,000,000 [e]91,000,000 [e]45,000,000 [e]60,000,000 [GBP]600,000,000
January 28, 2004:
Credit enhancement: Subordination Subordination Subordination The issuer Subordination
of the class B notes, the of the class M of the class C reserve fund of the class B
class M notes, notes, the notes and the notes, the
the class C class C notes issuer reserve class M notes,
notes and the and the issuer fund the class C
issuer reserve reserve fund notes and the
fund issuer reserve
fund
Interest rate: Three-month Three-month Three-month Three-month Three-month
EURIBOR+ EURIBOR+ EURIBOR+ EURIBOR+ sterling LIBOR
margin margin margin margin + margin
Margin until payment date 0.16% p.a. 0.34% p.a. 0.57% p.a. 1.07% p.a. 0.16% p.a.
falling in March 2009:
Margin after payment date 0.32% p.a. 0.68% p.a. 1.14% p.a. 2.07% p.a. 0.32% p.a.
falling in March 2009:
Final maturity date: March 2044 March 2044 March 2044 March 2044 March 2044
Stock Exchange Listing: London London London London London
Ratings as at January 28, 2004 Aaa/AAA/AAA Aa3/AA/AA A2/A/A Baa2/BBB/BBB Aaa/AAA/AAA
(Moody's/S&P/Fitch):
CLASS OF EIGHTH ISSUER NOTES
--------------------------------------------------
SERIES 3 SERIES 3 SERIES 3
CLASS B CLASS M CLASS C
---------------- --------------- ---------------
Principal amount as at [GBP]23,000,000 [GBP]10,000,000 [GBP]20,000,000
January 28, 2004:
Credit enhancement: Subordination Subordination The issuer
of the class M of the class C reserve fund
notes, the class notes and the
C notes and the issuer reserve
issuer reserve fund
fund
Interest rate: Three-month Three-month Three-month
sterling LIBOR sterling LIBOR sterling LIBOR
+ margin + margin + margin
Margin until payment date 0.34% p.a. 0.57%p.a. 1.07% p.a.
falling in March 2009:
Margin after payment date 0.68% p.a. 1.14% p.a. 2.07% p.a.
falling in March 2009:
Final maturity date: March 2044 March 2044 March 2044
Stock Exchange Listing: London London London
Ratings as at January 28, 2004 Aa3/AA/AA A2/A/A Baa2/BBB/BBB
(Moody's/S&P/Fitch):
88
NINTH ISSUER
The ninth issuer, Granite Mortgages 04-2 plc, was incorporated in England
and Wales as a public company limited by shares under the Companies Act 1985 on
February 26, 2004 with registered number 5057377. The registered office of the
ninth issuer is at Fifth Floor, 100 Wood Street, London EC2V 7EX. The ninth
issuer was organized as a special purpose company whose purpose was to issue
the ninth issuer notes that represent its mortgage-backed obligations and to
lend an amount equal to the proceeds of such notes to Funding under the ninth
issuer intercompany loan. The ninth issuer does not engage in any activities
that are unrelated to these activities.
The following table summarizes the principal features of the ninth issuer
notes:
CLASS OF NINTH ISSUER NOTES
----------------------------------------------------------------------------------------------
SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 2
CLASS A1 CLASS A2 CLASS B CLASS M CLASS C CLASS A1
-------------- -------------- -------------- -------------- ------------ ----------------
Principal amount as at $1,120,400,000 $1,322,800,000 $40,300,000 $33,200,000 $73,500,000 [e]1,340,000,000
May 26, 2004:
Credit enhancement: Subordination Subordination Subordination Subordination The issuer Subordination
of the class B of the class B of the class M of the class C reserve fund of the class B
notes, the notes, the notes, the notes and the notes, the
class M notes, class M notes, class C notes issuer reserve class M notes,
the class C the class C and the issuer fund the class C
notes and the notes and the reserve fund notes and the
issuer reserve issuer reserve issuer reserve
fund fund fund
Interest rate: Three-month Three-month Three-month Three-month Three-month Three-month
USD LIBOR USD LIBOR USD LIBOR USD LIBOR USD LIBOR EURIBOR
+ margin + margin + margin + margin + margin + margin
Margin until payment date 0.04% p.a. 0.07% p.a. 0.17% p.a. 0.28% p.a. 0.70% p.a. 0.14% p.a.
falling in June 2011:
Margin after payment date 0.08% p.a. 0.14% p.a. 0.34% p.a. 0.56% p.a. 1.40% p.a. 0.28% p.a.
falling in June 2011:
Final maturity date: June 2025 June 2028 June 2044 June 2044 June 2044 June 2044
Stock Exchange Listing: London London London London London London
Ratings as at May 26, 2004 Aaa/AAA/AAA Aaa/AAA/AAA Aa3/AA/AA A2/A/A Baa2/BBB/BBB Aaa/AAA/AAA
(Moody's/S&P/Fitch):
CLASS OF NINTH ISSUER NOTES
------------------------------------------------------------------------------------------
SERIES 2 SERIES 2 SERIES 2 SERIES 2 SERIES 3
CLASS A2 CLASS B CLASS M CLASS C CLASS A
-------------------- -------------- ------------------- ------------- ----------------
Principal amount as at [GBP]244,000,000 [e]92,000,000 [e]53,500,000 [e]89,000,000 [GBP]752,100,000
May 26, 2004:
Credit enhancement: Subordination Subordination Subordination The issuer Subordination
of the class B of the class M of the class C reserve fund of the class B
notes, the notes, the notes and the notes, the class
class M notes, class C notes issuer reserve fund M notes,
the class C and the issuer the class C
notes and the reserve fund notes and the
issuer reserve issuer reserve
fund fund
Interest rate: Three-month Sterling Three-month Three-month Three-month Three-month
LIBOR EURIBOR+ EURIBOR+ EURIBOR+ sterling LIBOR
+ margin margin margin margin + margin
Margin until payment date 0.14% p.a. 0.27% p.a. 0.40% p.a. 0.80% p.a. 0.16% p.a.
falling in June 2011:
Margin after payment date 0.28% p.a. 0.54% p.a. 0.80% p.a. 1.60% p.a. 0.32% p.a.
falling in June 2011:
Final maturity date: June 2044 June 2044 June 2044 June 2044 June 2044
Stock Exchange Listing: London London London London London
Ratings as at May 26, 2004 Aaa/AAA/AAA Aa3/AA/AA A2/A/A Baa2/BBB/BBB Aaa/AAA/AAA
(Moody's/S&P/Fitch):
CLASS OF NINTH ISSUER NOTES
-------------------------------------------------
SERIES 3 SERIES 3 SERIES 3
CLASS B CLASS M CLASS C
--------------- --------------- ---------------
Principal amount as at [GBP]38,900,000 [GBP]26,500,000 [GBP]48,500,000
May 26, 2004:
Credit enhancement: Subordination Subordination The issuer
of the class M of the class C reserve fund
notes, the notes and the
class C notes issuer reserve
and the issuer fund
reserve fund
Interest rate: Three-month Three-month Three-month
sterling LIBOR sterling LIBOR sterling LIBOR
+ margin + margin + margin
Margin until payment date 0.32% p.a. 0.47%p.a. 0.85% p.a.
falling in June 2011:
Margin after payment date 0.64% p.a. 0.94% p.a. 1.70% p.a.
falling in June 2011:
Final maturity date: June 2044 June 2044 June 2044
Stock Exchange Listing: London London London
Ratings as at May 26, 2004 Aa3/AA/AA A2/A/A Baa2/BBB/BBB
(Moody's/S&P/Fitch):
89
PREVIOUS ISSUERS -- GENERAL
Each previous issuer's obligations to pay principal and interest on the
previous notes issued by such previous issuer are funded primarily from
payments of principal and interest received by it from Funding under the
related previous intercompany loan. Each previous issuer's primary asset is the
related previous intercompany loan. None of the previous issuers nor the
previous noteholders have any direct interest in the trust property, although
each previous issuer shares with us the security interest under the Funding
deed of charge in Funding's share of the trust property.
Funding used the proceeds of the previous intercompany loans from the
previous issuers (less an amount used to fund each previous issuer's reserve
fund) to pay the mortgages trustee for Funding's initial contributions to the
mortgages trustee for the Funding share of the relevant trust property that the
seller assigned to the mortgages trustee pursuant to the mortgages trust deed.
Upon receipt of Funding's initial contribution, the mortgages trustee paid
those funds to the seller in satisfaction of the mortgages trustee's obligation
to pay to the seller the initial purchase price for the assignment to the
mortgages trustee of each mortgage portfolio pursuant to the mortgage sale
agreement. Funding uses a portion of the amounts received from the Funding
share of the trust property to meet its obligations to pay interest and
principal due to each previous issuer under each related previous intercompany
loan. As mentioned above, Funding's obligations to the previous issuers under
the previous intercompany loans will be secured under the Funding deed of
charge by, among other things, the Funding share of the trust property. A
default by Funding under any previous intercompany loan will cause a default
under our intercompany loan.
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THE MORTGAGE LOANS
INTRODUCTION
The housing market in the UK primarily consists of owner-occupied housing.
The remainder of dwellings are in some form of public, private landlord or
social ownership. The mortgage market, in which mortgage loans are provided for
the purchase of a property and secured on that property, is the primary source
of household borrowings in the UK. At June 30, 2004, mortgage loans outstanding
in the UK amounted to approximately [GBP]826 billion. Outstanding mortgage debt
grew at an annual average rate of 8.0% between 1994 and June 2004. At June 30,
2004, banks held 64% of outstanding mortgage debt while building societies held
18% of outstanding mortgage debt.
In describing the characteristics of the mortgage loans, references in this
prospectus to:
* "INITIAL MORTGAGE PORTFOLIO" means the portfolio of mortgage loans,
their related security, accrued interest and other amounts derived
from such mortgage loans that the seller assigned to the mortgages
trustee on March 26, 2001;
* "FURTHER MORTGAGE PORTFOLIOS" means the portfolios of further
mortgage loans, their related security, accrued interest and other
amounts derived from such further mortgage loans that the seller
has assigned to the mortgages trustee after March 26, 2001 and
before August 23, 2004;
* "ADDITIONAL MORTGAGE PORTFOLIO" means the portfolio of additional
mortgage loans, their related security, accrued interest and other
amounts derived from such additional mortgage loans that the
seller, as of the cut-off date, anticipated assigning to the
mortgages trustee on August 23, 2004;
* "CUT-OFF DATE MORTGAGE PORTFOLIO" means, as of the cut-off date,
the initial mortgage portfolio and the further mortgage portfolios
(taking account of, among other things, amortization of mortgage
loans in that portfolio and the addition and/or removal of any
mortgage loans to or from that portfolio since March 26, 2001)
combined with the additional mortgage portfolio;
* "ADDITIONAL ASSIGNED MORTGAGE PORTFOLIO" means the portfolio of
additional assigned mortgage loans, their related security, accrued
interest and other amounts derived from such additional assigned
mortgage loans that the seller actually assigned to the mortgages
trustee on August 23, 2004; and
* "MORTGAGE PORTFOLIO" means the initial mortgage portfolio, the
further mortgage portfolios and the additional assigned mortgage
portfolio as it is constituted as of any date of determination
since August 23, 2004, taking account of, among other things,
amortization of mortgage loans in that portfolio and the addition
and/or removal of any mortgage loans to or from that portfolio
since August 23, 2004.
The following is a description of some of the characteristics of the
mortgage loans currently or previously offered by the seller and includes
details of mortgage loan types, the underwriting process, lending criteria and
selected statistical information. Each mortgage loan in the cut-off date
mortgage portfolio incorporated one or more of the features referred to in this
section. The seller will not assign to the mortgages trust any mortgage loan
that was in arrears at any time during the 12 months prior to the assignment
date, and will not assign to the mortgages trust any mortgage loan that is a
non-performing mortgage loan.
Each borrower may have more than one mortgage loan incorporating different
features, but all mortgage loans secured on the same mortgaged property will be
incorporated in a single account with the seller which is called the mortgage
account. Each mortgage loan (other than a personal secured loan) is secured by
a first legal charge over a residential property in England or Wales (an
"ENGLISH MORTGAGE") or a first ranking standard security over a residential
property in Scotland (a "SCOTTISH MORTGAGE"). Each personal secured loan will
be secured by a legal charge over freehold or leasehold
91
mortgaged propert ies located in England and Wales or by a standard security
over heritable or long leasehold mortgaged properties located in Scotland. The
priority of the legal charge or (in Scotland) standard security securing a
personal secured loan will rank below the first priority legal charge or
standard security securing the related borrower's existing mortgage loan. A
"MORTGAGE" means an English mortgage or, as applicable, a Scottish mortgage.
Each mortgage loan secured over a property located in England and Wales (an
"ENGLISH MORTGAGE LOAN") is subject to the laws of England and Wales and each
mortgage loan secured over a property located in Scotland (a "SCOTTISH MORTGAGE
LOAN") is subject to the laws of Scotland. 220,471 of the mortgages securing
the mortgage loans in the cut-off date mortgage portfolio (or 76.93% of the
aggregate current balance of the mortgage loans as of the cut-off date) were on
freehold properties or heritable properties (being the Scots law equivalent of
freehold) and 76,760 of the mortgages securing the mortgage loans in the cut-
off date mortgage portfolio (or 23.07% of the aggregate current balance of the
mortgage loans as of the cut-off date) are on leasehold properties.
The seller randomly selected the mortgage loans from the additional mortgage
portfolio which were assigned to the mortgages trustee on August 23, 2004. In
making its selection, the seller excluded from the additional mortgage
portfolio those mortgage loans that had been repaid in full or that did not
comply with the terms of the mortgage sale agreement on the August 23, 2004
assignment date. Once such mortgage loans were removed, the seller then
randomly selected from the mortgage loans remaining in the additional mortgage
portfolio those mortgage loans which were included in the additional assigned
mortgage portfolio once a determination had 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 notes.
We do not expect the characteristics of the mortgage portfolio as of the
closing date to differ materially from the characteristics of the cut-off date
mortgage portfolio. Unless we indicate otherwise, the following description
relates to types of mortgage loans that could be included in the mortgage
portfolio as of the closing date or on any subsequent date.
The cut-off date mortgage portfolio was drawn up as at July 31, 2004 and
comprised 297,231 mortgage loans having an aggregate current balance of
[GBP]25,480,712,643.90 as at that date. The seller originated the mortgage
loans in the cut-off date mortgage portfolio between July 1, 1995 and May 31,
2004. None of the mortgage loans in the additional mortgage portfolio had an
aggregate monthly payment that was overdue by one or more months as of the
assignment date on August 23, 2004.
The seller may assign new mortgage loans and their related security to the
mortgages trustee after the closing date. The seller reserves the right to
amend its lending criteria and to assign to the mortgages trustee new mortgage
loans which are based upon mortgage conditions (as defined in the glossary)
different from those upon which mortgage loans which formed the cut-off date
mortgage portfolio were based. Those new mortgage loans may include mortgage
loans which are currently being offered to borrowers and have some of the
characteristics described here, but may also include mortgage loans with other
characteristics that the seller currently is not offering to borrowers or that
the seller has not yet developed. The terms of the mortgage sale agreement
require that all new mortgage loans comply with the warranties set out in the
mortgage sale agreement. We describe all of the material warranties in the
mortgage sale agreement in this prospectus. See "ASSIGNMENT OF THE MORTGAGE
LOANS AND RELATED SECURITY".
CHARACTERISTICS OF THE MORTGAGE LOANS
MORTGAGE LOAN PRODUCTS OFFERED BY THE SELLER
The seller offers a variety of fixed rate, variable rate and hybrid mortgage
loan products to borrowers. The seller may assign to the mortgages trustee any
of the following of its mortgage loan products, which in each case may comprise
one or more of the following:
92
* "FIXED RATE MORTGAGE LOANS": mortgage loans subject to a fixed
interest rate for a specified period of time and at the expiration
of that period are generally subject to the seller's standard
variable rate.
* "STANDARD VARIABLE RATE MORTGAGE LOANS": mortgage loans subject to
the seller's standard variable rate for the life of the mortgage
loan.
* "TOGETHER MORTGAGE LOANS": flexible mortgage loans, which are
offered in various product types: Together flexible, Together
variable, Together fixed, Together fixed for life, Together
discount tracker and Together stepped tracker. These products allow
the borrower to obtain a mortgage loan, an unsecured loan and, in
some cases, a credit card, each with a variable or a fixed interest
rate, depending on the product type, and which in certain
circumstances permit the borrower to make authorized underpayments
and take payment holidays (collectively referred to in this
prospectus as "non-cash re-draws"), receive cash re-draws and make
overpayments.
* "TOGETHER CONNECTIONS MORTGAGE LOANS": flexible mortgage loans,
which are offered in two product types: Together Connections
variable and Together Connections fixed. These products have the
same basic features as a Together mortgage loan, but also allow the
borrower to link the mortgage loan with certain deposit and/or
current accounts that are held with the seller. If a borrower
elects to take the Together Connections Benefit (as defined below),
the seller will only charge interest on the difference between the
total of the outstanding balances on the Together Connections
mortgage loan and certain deposit/current accounts held with the
seller (the "COMBINED DEBIT BALANCE") and the average monthly
cleared credit balance in that borrower's linked deposit account or
accounts (the "COMBINED CREDIT BALANCE"). Despite the foregoing,
the borrower is nevertheless obligated to make their contractual
monthly payment of principal (if any) and interest in full. The
"TOGETHER CONNECTIONS BENEFIT" is the difference between (1) the
contractual monthly payment due on the combined debit balance and
(2) the proportion of the payment made on the amount by which the
outstanding combined debit balance exceeds the average cleared
credit balance in that borrower's linked deposit account or
accounts in respect of each month or any part of a month. Where the
customer has elected to take Together Connections Benefit,
calculations will be made and applied with effect from the first
day of the month following the month during which the combined
debit balance exceeded such credit balance. Unless the borrower
specifies otherwise, the Together Connections Benefit will be
apportioned pro rata between the mortgage loan and the unsecured
loan in accordance with their respective contractual monthly
payments. Any Together Connections Benefit is used to reduce the
principal amount outstanding on the mortgage loan and related
unsecured loan as described above. The application of the Together
Connections Benefit may lead to amortization of the related
mortgage loan more quickly than would otherwise be the case, as a
higher proportion of the contractual monthly payment could be
allocated towards the repayment of principal of the mortgage loan.
See "RISK FACTORS -- THE INCLUSION OF FLEXIBLE MORTGAGE LOANS MAY
AFFECT THE YIELD TO MATURITY OF AND THE TIMING OF PAYMENTS ON THE
NOTES". The borrower is not permitted to make a cash redraw of the
principal amounts that have been repaid as a result of the
application of the Together Connections Benefit.
Alternatively, customers that have linked their mortgage loan to
one or more deposit accounts may simply opt to be paid interest
periodically on deposits held in their linked accounts at the same
interest rate that is used to calculate interest on their mortgage
loan. This option is referred to as "TOGETHER CONNECTIONS
INTEREST".
93
The connection between a borrower's mortgage loan and unsecured
loan and any linked account or account of the borrower may be ended
(1) by the seller giving the borrower three months notice in
writing at any time or (2) immediately by the seller giving the
borrower notice in writing at any time where there are serious
grounds for ending the connection with immediate effect. The
connection between a borrower's mortgage loan and unsecured loan
and any linked account or account of the borrower will be ended
automatically where the average combined cleared credit balance for
the month exceeds the combined debit balance in any month.
* "CONNECTIONS MORTGAGE LOANS": flexible mortgage loans, which allow
the borrower to obtain a mortgage loan with either a variable or
fixed rate, depending on the product type, and which, in certain
circumstances, permit the borrower to make authorized underpayments
and take payment holidays (collectively referred to in this
prospectus as "NON CASH RE-DRAWS"), receive cash re-draws and make
overpayments. Connections mortgage loans have the same basic
features as Together Connections mortgage loans but without the
facility for an unsecured loan or credit card. The "CONNECTIONS
DEBIT BALANCE" will equal the total outstanding balance on the
Connections mortgage loan. In addition, the "CONNECTIONS COMBINED
CREDIT BALANCE" will comprise the average monthly cleared credit
balance in the borrower's linked Save Direct deposit account (a
deposit account operated by a dedicated savings division of the
seller) and/or current account with the seller. "CONNECTIONS
BENEFIT" and "CONNECTIONS INTEREST" are calculated in the same way
as "TOGETHER CONNECTIONS BENEFIT" and "TOGETHER CONNECTIONS
INTEREST" taking into account the amended definitions of
"CONNECTIONS DEBIT BALANCE" and "CONNECTIONS COMBINED CREDIT
BALANCE" as outlined above. For the purposes of calculating
Connections Interest, only the average cleared balance in the
deposit account will apply.
* "CAT STANDARD MORTGAGE LOANS": flexible mortgage loans, which can
offer either a variable rate equal to the Bank of England base rate
plus an additional fixed percentage or can offer initially a fixed
rate for a specified period of time followed by a variable rate
equal to the Bank of England base rate plus an additional fixed
percentage, and which in some cases permit the borrower to make
non-cash re-draws and receive cash re-draws.
* "CAPPED RATE MORTGAGE LOANS": mortgage loans subject to a maximum
rate of interest and charge interest at the lesser of the seller's
standard variable rate or the specified capped rate.
* "FLEXIBLE CAPPED RATE MORTGAGE LOANS": flexible mortgage loans with
the same basic features as a Together mortgage loan (other than
allowing the borrower to obtain a credit card and unsecured loan)
which are subject to a maximum rate of interest for a specified
period of time, and at the expiration of that period are generally
subject to the seller's standard variable rate.
* "FLEXIBLE DISCOUNT RATE MORTGAGE LOANS": flexible mortgage loans
which allow the borrower to pay interest at a specified discount to
the seller's standard variable rate for a specified period of time
or for the life of the mortgage loan.
* "FLEXIBLE FIXED RATE MORTGAGE LOANS": flexible mortgage loans with
the same basic features as a Together mortgage loan (other than
allowing the borrower to obtain a credit card and unsecured loan)
which are subject to a fixed rate of interest for a specified
period of time, and at the expiration of that period are generally
subject to the seller's standard variable rate.
* "DISCOUNT RATE MORTGAGE LOANS": mortgage loans which allow the
borrower to pay interest at a specified discount to the seller's
standard variable rate for a specified period of time or for the
life of the loan.
94
* "TRACKER RATE MORTGAGE LOANS": mortgage loans subject to a variable
rate of interest that is linked to the Bank of England base rate
plus an additional fixed percentage.
* "FLEXIBLE TRACKER RATE MORTGAGE LOANS": flexible mortgage loans
with the same basic features as a Together mortgage loan (other
than allowing the borrower to obtain a credit card and unsecured
loan) which are subject to a variable rate of interest that is
linked to the Bank of England base rate plus an additional fixed
percentage.
* "CASHBACK MORTGAGE LOANS": mortgage loans which provide a specified
lump sum payment to the borrower at the time that the mortgage loan
is advanced to the borrower. The cashback mortgage loan product is
sometimes combined with another product (although the seller
currently does not combine the cashback feature with Together
mortgage loans, Together Connections mortgage loans, Connections
mortgage loans and CAT standard mortgage loans). For example, a
borrower may have a fixed rate and cashback mortgage loan, or a
discounted and cashback mortgage loan.
* "PERSONAL SECURED LOANS": mortgage loans having a fixed or variable
interest rate the proceeds of which may be used by the borrower for
unrestricted purposes and which are offered to borrowers who have
existing mortgage loans with the seller. A personal secured loan is
secured on the same property that secures the borrower's existing
mortgage loan. A personal secured loan is, however, secured by
means of a separate mortgage and is governed by separate terms and
conditions documented either as a regulated agreement subject to
the CCA or as an unregulated agreement based on the amount of the
personal secured loan or the purposes for which it is used. Some
personal secured loans permit the borrower to draw additional
amounts in aggregate up to the fixed amount of credit extended
under the terms of the mortgage conditions at the inception of such
personal secured loan. Such draws under a personal secured loan are
collectively referred to as "FURTHER DRAWS".
For a description of the mortgage loan products which were included in the
cut-off date mortgage portfolio, see the table entitled "MORTGAGE LOAN
PRODUCTS".
REPAYMENT TERMS
Borrowers typically make payments of interest on, and repay principal of,
their mortgage loans using one of the following methods:
* "REPAYMENT": the borrower makes monthly payments of both interest
and principal so that, when the mortgage loan matures, the borrower
will have repaid the full amount of the principal of the mortgage
loan.
* "INTEREST-ONLY" (with a repayment vehicle): the borrower makes
monthly payments of interest but not of principal; when the
mortgage loan matures, the entire principal amount of the mortgage
loan is still outstanding and the borrower must repay that amount
in one lump sum. The borrower arranges a separate investment plan
which will be administered by a separate organization, which plan
provides a lump sum payment to coincide with the end of the
mortgage term. Although these investment plans are forecast to
provide sufficient sums to repay the principal balance of the
mortgage loan upon its maturity, to the extent that the lump sum
payment is insufficient to pay the principal amount owing, the
borrower will be liable for making up any shortfall. These types of
plans include:
* "ENDOWMENT": the borrower makes regular payments to a life
assurance company which invests the premiums; the endowment policy
is intended to repay the mortgage loan at maturity;
95
* "PENSION POLICY": the borrower makes regular payments to a personal
pension plan; upon retirement, or plan maturity, the borrower will
receive a tax-free lump sum which is intended to repay the mortgage
loan;
* "INDIVIDUAL SAVINGS ACCOUNTS" or "ISAS": the borrower makes
contributions to a tax-free ISA account; once the value of the ISA
equals or exceeds the outstanding mortgage debt, the borrower may
use those amounts to repay the mortgage loan at any time thereafter
or may wait to repay the mortgage loan upon its maturity;
* "PERSONAL EQUITY PLANS" or "PEPS": similarly to ISAs, the borrower
makes contributions to a tax-free PEP account and uses these
amounts to repay the mortgage loan. Although PEPs have been
discontinued in the United Kingdom, some mortgage loans with PEP
repayment vehicles may be included in the mortgage portfolio; and
* "UNIT TRUSTS": the borrower makes regular payments to a unit trust,
and the accumulated unit trust is used to repay the mortgage loan
by the end of its term.
* "INTEREST-ONLY" (without a repayment vehicle): similar to the
interest-only mortgage loans described above, where the borrower
makes monthly payments of interest but not of principal and when
the mortgage loan matures, the entire principal amount of the
mortgage loan is due. However, the borrower has no formal repayment
vehicle in place to repay the mortgage loan in full.
* "COMBINATION REPAYMENT AND INTEREST-ONLY" (with or without a
repayment vehicle): this situation most often occurs when the
borrower had an interest-only mortgage loan with a repayment
vehicle on a prior mortgaged property, and after selling that
mortgaged property the borrower purchased a property with a
mortgage loan issued by the seller, where the subsequent home was
either more expensive than the prior home or the borrower took out
a larger mortgage loan or further advance. The borrower used the
existing interest-only repayment vehicle for the new mortgage loan
or further advance issued by the seller and made up the difference
between the anticipated maturity value of the interest-only
repayment vehicle and the higher mortgage loan value with a
repayment mortgage.
The required monthly payment in connection with repayment mortgage loans or
interest-only mortgage loans may vary from month to month for various reasons,
including changes in interest rates. See "-- ORIGINATION OF THE MORTGAGE LOANS
- -- MAXIMUM LTV RATIO" for the maximum LTV ratio for the mortgage loans
described above.
The borrowers in respect of 274,536 of the mortgage loans in the cut-off
date mortgage portfolio (or 92.74% of the aggregate current balance of the
mortgage loans as of the cut-off date) have agreed to have their monthly
mortgage payments to the seller directly debited from their bank accounts.
The seller does not (and in some cases cannot) take security over investment
plans. See "RISK FACTORS -- THERE CAN BE NO ASSURANCE THAT A BORROWER WILL
REPAY PRINCIPAL AT THE END OF A TERM ON AN INTEREST-ONLY LOAN (WITH OR WITHOUT
A CAPITAL REPAYMENT VEHICLE) OR A COMBINATION LOAN".
CAPITAL PAYMENTS, OVERPAYMENTS AND UNDERPAYMENTS ON NON-FLEXIBLE MORTGAGE LOANS
Subject to certain conditions, if a borrower makes a monthly payment on a
mortgage loan (other than a flexible mortgage loan) that is greater by [GBP]200
or more than the amount due for that month, and the borrower notifies the
seller that the overpayment is intended to reduce the capital balance of the
related mortgage loan (a "CAPITAL PAYMENT"), then the current balance of the
mortgage loan will be immediately reduced, and the capital balance of the
mortgage loan will be reduced from the last day of the month in which the
capital payment occurs. As interest on the mortgage loans accrues on the
capital balance thereof from time to time, any capital payment will affect the
amount of interest payable by the
96
borrower from the first day of the month following the month in which the
capital payment was made by the borrower. Capital payments may be subject to
early repayment charges, as described under "-- EARLY REPAYMENT CHARGES", and
may only be made in certain min imum amounts and only if the relevant borrower's
account is not in arrears at the time of the capital payment.
If the borrower makes a monthly payment on a mortgage loan (other than a
flexible mortgage loan) that is greater than the amount due for that month, but
the borrower (1) does not specify that the additional payment is intended to
reduce the capital balance of the related mortgage loan, (2) does not specify
any intention or (3) specifies that the payment is intended to repay the
capital balance but the additional payment is less than [GBP]200, that
overpayment initially will only reduce the current balance of the related
mortgage loan and not the capital balance. Any overpayment will be held by the
cash manager in the mortgages trustee GIC account and recorded on an
overpayments ledger and will not reduce the capital balance of the related
mortgage loan until the annual date at the end of each calendar year on which
the capital balances of the mortgage loans (other than flexible mortgage loans
as described below) are reconciled with the current balances of such mortgage
loans. The capital balances of such mortgage loans will only be reduced on such
annual date in an amount equal to the aggregate amount of the overpayments made
in that calendar year less any amounts that the borrower has underpaid (or has
overpaid in error, which amounts may be refunded to the borrower) during the
same calendar year of the overpayment. These credits and debits will be
recorded on the overpayments ledger during each calendar year. Any
underpayments or refunds may be made only up to the net amount of the
overpayment standing to the credit of the overpayments ledger during the same
calendar year as the underpayment. As interest on the mortgage loans accrues on
the capital balance thereof from time to time, an overpayment may only have an
effect on the interest accruing on that mortgage loan after the annual date
that the current balance and the capital balance of the mortgage loan is
reconciled.
If a borrower under a mortgage loan (other than a flexible mortgage loan)
makes a monthly payment which is less than the required monthly payment (an
"UNDERPAYMENT"), the current balance of that mortgage loan will remain higher
than the expected scheduled current balance, although the capital balance of
that mortgage loan will remain unchanged until the annual reconciliation of the
current balance and capital balance. As overpayments on non-flexible mortgage
loans will be held in the overpayments ledger throughout the calendar year in
which the overpayment was made, amounts standing to the credit of the
overpayments ledger will be used to fund underpayments that the borrower has
made during that same calendar year. See "THE MORTGAGES TRUST -- OVERPAYMENTS".
If a borrower makes an unauthorized underpayment but has not made any prior
overpayments within that same calendar year, those underpayments are treated by
the seller as arrears.
At the end of a calendar year, if a borrower under a mortgage loan (other
than a flexible mortgage loan) has a current balance which is less than its
capital balance (because of any overpayments made in that same calendar year
which were not used to fund an underpayment), the seller will decrease the
capital balance on that borrower's mortgage loan to equal the current balance
on that borrower's mortgage loan. The borrower then will no longer be able to
fund underpayments with amounts overpaid in the prior calendar year.
Conversely, if at the end of a calendar year a borrower under a mortgage loan
(other than a flexible mortgage loan) has a current balance which is greater
than its capital balance (because of any underpayments which were not funded by
overpayments made in that same calendar year), the seller will increase the
capital balance on that borrower's mortgage loan to equal the current balance
on that borrower's mortgage loan. Notwithstanding the year-end reconciliation
of the related capital balance and current balance, the borrower will still be
considered in arrears for the amount of the underpayment.
97
For a description of the treatment of overpayments and underpayments under
the seller's current flexible mortgage loan products, see "-- FLEXIBLE MORTGAGE
LOANS".
EARLY REPAYMENT CHARGES
Borrowers under the seller's non-flexible mortgage products that have
received a benefit in the form of a cashback, capped, discounted or fixed rate
mortgage loan will be required to pay an early repayment charge if (a) in any
one calendar year in addition to the scheduled monthly payments they repay more
than a specified percentage (currently 15%) of the initial amount of the
mortgage loan, or (b) generally if they make a product switch or a permitted
product switch, in each case before a date specified in the offer of advance.
Although a borrower under the seller's flexible capped rate mortgage loan,
flexible fixed rate mortgage loan, flexible discount rate mortgage loan,
Together fixed mortgage loan, Together Connections fixed mortgage loan or
Connections fixed mortgage loan may make overpayments or capital payments at
any time without incurring any early repayment charge, that borrower will be
subject to an early repayment charge for the remaining period of time during
which the fixed or capped rate, as the case may be, on the mortgage loan
applies (except in the case of flexible fixed rate mortgage loans with an
extended early repayment charge period), to the extent that the borrower repays
the entire current balance under that mortgage loan during such period.
Borrowers under the seller's Connections Base Rate Tracker mortgage loans will
be subject to an early repayment charge which is currently three (3) years from
completion, to the extent that the borrower repays the entire current balance
under that mortgage loan during such period. Borrowers under the seller's
flexible fixed rate mortgage loans with an extended early repayment charge
period will be subject to an early repayment charge for the remaining period of
time during which the fixed rate on the mortgage loan applies plus an
additional period of one year to the extent that the borrower repays the entire
current balance under that mortgage loan during such period. Borrowers under
the seller's Together variable, Together Connections variable and CAT standard
mortgage loans are not subject to early repayment charges regardless of whether
they make an overpayment or they repay the entire current balance under the
relevant mortgage loan. 54,533 mortgage loans in the cut-off date mortgage
portfolio (or 13.33% of the aggregate current balance of the mortgage loans as
of the cut-off date) were Together variable, Together Connections variable and
CAT standard mortgage loans and therefore are not subject to early repayment
charges.
Any early repayment charge will equal a percentage of the amount repaid in
excess of the specified percentage limit (except for an early repayment in
full, where the early repayment charge will equal a varying percentage of the
entire amount repaid). The seller retains absolute discretion to waive or
enforce early repayment charges in accordance with the seller's policy from
time to time. Under the terms of the mortgage sale agreement, the amount of any
early repayment charges which may become payable on any mortgage loans that
have been assigned to the mortgages trustee will be paid by the mortgages
trustee to the seller as deferred purchase price.
Cashback mortgage loans offered by the seller provide the borrower with a
cash payment that the seller makes to the borrower upon completion of the
mortgage loan. The cash payment depends upon the terms of the offer of advance,
but is usually calculated as a percentage of the amount borrowed. If a borrower
with a cashback mortgage loan makes an unscheduled principal repayment or
executes a product switch or a permitted product switch (as described under "--
PRODUCT SWITCHES") in either case before a date specified in the offer of
advance, then the borrower must repay to the seller some or all of the cash
payment made by the seller.
All of the seller's mortgage loan products allow for the borrower to avoid
early repayment charges and, if applicable, avoid repaying to the seller any of
the cash payment described above, by "PORTING" the existing mortgage loan to a
new mortgaged property, provided that (1) the new mortgage loan is equal to or
greater than the existing mortgage
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loan and (2) the borrower receives from the seller substantially the same
mortgage loan product. The new mortgage loan preserves the borrower's status in
that mortgage loan product.
A prepayment of the entire outstanding balance of a mortgage loan discharges
the related mortgage. Any prepayment in full must be made together with all
accrued interest, arrears of interest, any unpaid charges and any early
repayment charges.
INTEREST PAYMENTS AND SETTING OF INTEREST RATES
Interest on each mortgage loan accrues on the capital balance of that
mortgage loan from time to time. Interest is payable by the borrower monthly in
advance. Interest on the mortgage loans in the cut-off date mortgage portfolio
may be computed on a daily, monthly or annual basis. Each mortgage loan in the
cut-off date mortgage portfolio accrues interest at any time at a fixed or a
variable rate.
Fixed rate mortgage loans provide that the borrower pays interest on such
mortgage loan at a fixed rate of interest for the period specified in the offer
of advance. At the end of that period, the interest rate reverts to the
seller's standard variable rate. However, under the terms of certain fixed rate
loans, the borrower may exercise a one-time option within three months of the
end of the initial fixed rate period to "RE-FIX" the interest rate for a
further specified period of time at a new fixed rate that the seller is
offering to existing borrowers at that time. Any exercise of an option to "RE-
FIX" shall constitute a product switch and shall be dealt with as described
under "-- PRODUCT SWITCHES".
The rate of interest set by the seller for variable rate mortgage loans is
the "SELLER'S STANDARD VARIABLE RATE". Interest accrues on these mortgage loans
at a rate equal to the seller's standard variable rate, or, for a specified
period of time, at a set margin above or below the seller's standard variable
rate. The seller's standard variable rate is not directly linked to interest
rates in the financial markets although, in general, the seller's standard
variable rate follows movements in the markets. At August 1, 2004, the seller's
standard variable rate for existing and/or new borrowers was 6.59% per annum.
The seller's "BASE RATE PLEDGE" guarantees that for variable rate mortgage
loans, and for fixed rate mortgage loans upon conversion from a fixed rate to
the seller's standard variable rate, the actual gross interest rate that the
seller charges will be the lower of:
* the seller's standard variable rate; or
* the Bank of England base rate plus a margin which is determined by
Northern Rock.
This base rate pledge only applies, however, during the period, if any, in
which the borrower is subject to an early repayment charge as described under
"-- EARLY REPAYMENT CHARGES".
If the Bank of England's base rate falls to a level of 1.99% below the
seller's standard variable rate it is possible that a revenue shortfall would
occur. See "RISK FACTORS -- IF THE BANK OF ENGLAND BASE RATE FALLS BELOW A
CERTAIN LEVEL, WE COULD SUFFER A REVENUE SHORTFALL".
Mortgage loans may combine one or more of the features listed in this
section. For mortgage loans with an interest rate that lasts for a limited
period of time specified in the offer of advance, after the expiration of that
period the interest rate adjusts to some other interest rate type or else it
reverts to, or remains at, the seller's standard variable rate. The features
that may apply to a particular mortgage loan are specified in the offer of
advance (and as the seller may vary from time to time).
118,716 mortgage loans in the cut-off date mortgage portfolio (or 48.21% of
the aggregate current balance of the mortgage loans as of the cut-off date)
were fixed rate mortgage loans. The remaining 178,515 of the mortgage loans in
the cut-off date mortgage portfolio (or 51.79% of the aggregate current balance
of the mortgage loans as of the cut-off date) were standard variable rate
mortgage loans, discounted variable rate mortgage
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loans, "TOGETHER", "TOGETHER CONNECTIONS", "CONNECTIONS" and flexible capped
rate mortgage loans, as described below. Each mortgage loan (other than a
Together mortgage loan, a Together Connections mortgage loan and a CAT standard
mortgage loan) currently provides for a loyalty discount reduction of 0.25%
(although the seller may in the future allow for a discount of between 0.25%
and 0.75%) of the applicable interest rate once the borrower has held the
mortgage loan for at least seven years, subject to certain conditions.
Except in limited circumstances as set out in "THE ADMINISTRATOR AND THE
ADMINISTRATION AGREEMENT -- THE ADMINISTRATION AGREEMENT -- UNDERTAKINGS BY THE
ADMINISTRATOR", the administrator on behalf of the mortgages trustee, Funding
and the security trustee is responsible for setting the variable mortgage rate
on the mortgage loans in the mortgage portfolio as well as on any new mortgage
loans that are assigned to the mortgages trustee. The mortgage conditions
applicable to all of the variable rate mortgage loans provide that the seller
and its successors may vary the variable mortgage rate only for certain reasons
which are specified in the mortgage conditions. These reasons may include:
* where there has been, or the lender reasonably expects there to be
in the near future, a general trend to increase rates on mortgages;
* where the lender for good commercial reasons needs to fund an
increase in the interest rate or rates payable to depositors;
* where the lender wishes to adjust its interest rate structure to
maintain a prudent level of profitability;
* where there has been, or the lender reasonably expects there to be
in the near future, a general increase in the risk of shortfalls on
the accounts of mortgage borrowers; and
* where the lender's administrative costs have increased or are
likely to increase in the near future.
The term "LENDER" in the above five bullet points means the seller and its
successors.
The rate that the borrower is required to pay under the variable rate
mortgage loans must not be greater than either the seller's standard variable
rate or a set margin above or below the seller's standard variable rate. The
seller has given the mortgages trustee, Funding, the administrator and the
security trustee the power to set the seller's standard variable rate and other
applicable discretionary rates or margins, but that power may only be exercised
in limited circumstances.
In maintaining, determining or setting the variable mortgage rate for
mortgage loans within the mortgages trust, the administrator will apply the
factors set out here and has undertaken to maintain, determine or set the
standard variable rate and other applicable discretionary rates or margins at
rates which are not higher than the seller's equivalent rates from time to
time.
FLEXIBLE MORTGAGE LOANS
The "TOGETHER" mortgage loans, the "TOGETHER CONNECTIONS" mortgage loans,
the "CONNECTIONS" mortgage loans, the flexible capped rate mortgage loans, the
flexible fixed rate mortgage loans, the flexible discount rate mortgage loans,
the flexible tracker rate mortgage loans and the "CAT STANDARD" mortgage loans
(collectively, the "FLEXIBLE MORTGAGE LOANS") are subject to a range of options
selected by the borrower that give the borrower greater flexibility in the
timing and amount of payments made under the mortgage loan as well as access to
re-draws under the mortgage loan. A mortgage loan that has one or more of these
features may be called a flexible mortgage loan. 231,096 of the mortgage loans
in the cut-off date mortgage portfolio (or 80.96% of the aggregate current
balance of the mortgage loans as of the cut-off date) were flexible mortgage
loans, 96,371 mortgage loans (or 24.65% of the aggregate current balance of the
mortgage loans as of the cut-of-date) of which were Together mortgage loans.
The seller anticipates that an
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increasing percentage of the mortgage loans that it originates will offer the
flexible features described below. As a result, mortgage loans assigned to the
mortgages trustee in the future may contain a higher proportion of flexible
mortgage loans than are in the cut-off date mortgage portfolio. In addition to
the flexible mortgage loans that the seller currently offers, the seller in the
future may offer flexible mortgage loans that the seller also may assign to the
mortgages trustee that have different features than those described below.
Unlike non-flexible mortgage loans for which separate current balances and
capital balances are only reconciled annually (see "-- CAPITAL PAYMENTS,
OVERPAYMENTS AND UNDERPAYMENTS ON NON-FLEXIBLE MORTGAGE LOANS"), the flexible
mortgage loans that the seller currently offers have separate current balances
and capital balances which are reconciled on a daily basis.
The following options currently are available to a borrower following the
issue of a flexible mortgage loan:
* Overpayments. A borrower may make overpayments or may repay the
entire current balance under its Together, Together Connections,
Connections and CAT standard mortgage loan at any time without
incurring any early repayment charges. Although a borrower may make
overpayments under its flexible capped rate mortgage loan, flexible
fixed rate mortgage loan, flexible tracker rate mortgage loan,
Together fixed mortgage loan, Together Connections fixed mortgage
loan, Connections Base Rate Tracker mortgage loan or Connections
fixed mortgage loan at any time without incurring any early
repayment charge, that borrower will be subject to an early
repayment charge for the remaining period of time during which the
fixed, tracker or capped rate, as the case may be, on the mortgage
loan applies (except in the case of a Connections Base Rate Tracker
mortgage loan which has a variable early repayment charge period of
approximately three years from completion), to the extent that the
borrower repays the entire current balance under that mortgage
loan. Any overpayments immediately reduce the current balance of
the flexible mortgage loan from the day the seller receives
payment. Any overpayment on a flexible mortgage loan will result in
the immediate reduction in the amount of interest payable by the
relevant borrower.
* Authorized Underpayments. A borrower may use certain amounts that
it has previously overpaid to the seller to fund future
underpayments under its mortgage loan (an "AUTHORIZED
UNDERPAYMENT"). If a borrower makes an authorized underpayment
under its mortgage loan, the current balance of that mortgage loan
will be increased at the end of the month in which the authorized
underpayment has been made and there will be an immediate effect on
the amount of interest payable by the borrower. An authorized
underpayment is also called a "NON-CASH RE-DRAW" for the purposes
of this prospectus. A borrower under a flexible mortgage loan may
offset authorized underpayments up to the aggregate amount of any
overpayments previously made (but not yet used to fund an
authorized underpayment or redrawn in cash by the borrower) during
the lifetime of the mortgage loan. Any authorized underpayment will
be funded solely by the seller in an amount equal to the unpaid
interest associated with that authorized underpayment. However, any
such amounts funded by the seller in connection with an authorized
underpayment will form part of the mortgage portfolio and thereby
increase the seller share of the trust property.
* Unauthorized Underpayments. Any underpayment made by a borrower (a)
which cannot be funded by prior overpayments and (b) where the
borrower is not entitled to a payment holiday (an "unauthorized
underpayment"), if any, will be treated by the seller as arrears.
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* Payment Holidays. A borrower that has made nine consecutive
scheduled monthly payments (or an equivalent sum of payments) on
its flexible mortgage loan may apply for a one month payment
holiday even if that borrower has not made prior overpayments. A
borrower may apply for this payment holiday facility once in each
rolling twelve-month period and may accumulate the right to take up
to a maximum of three monthly payment holidays in any one calendar
year if the borrower has not used the payment holiday facility in a
given three-year period. In addition, a flexible mortgage loan
borrower may apply for up to a six-month payment holiday in certain
limited cases (generally, where the borrower can demonstrate an
extenuating circumstance). The mortgage loan will continue to
accrue interest and other charges during any payment holiday and
accrued interest will be added to the current balance of the
related mortgage loans which will increase the amount of interest
payable by the borrower. Any payment holiday will be funded solely
by the seller in an amount equal to the unpaid interest associated
with that payment holiday. However, any such amounts funded by the
seller in connection with a payment holiday will form part of the
mortgage portfolio and thereby increase the seller share of the
trust property. A payment holiday is also called a "non-cash re-
draw" for the purposes of this prospectus.
* Cash re-draws. A borrower may request a cash re-draw of
overpayments that the borrower has made on its flexible mortgage
loan by requesting that the seller refund some or all of such
overpayments in cash, provided that the aggregate amount of all
overpayments not yet used to fund an authorized underpayment or
otherwise re-drawn in cash by the borrower from the period
commencing with the origination of the mortgage loan to the date of
the cash re-draw is equal to or greater than [GBP]500, and that the
amount of such cash re-draw is equal to or greater than [GBP]500.
If the aggregate amount of all overpayments for such period is less
than [GBP]500, any borrower wishing to make a cash re-draw in these
amounts may instead make an authorized underpayment of the
scheduled monthly payment, but is not entitled to a cash re-draw.
Notwithstanding the foregoing, a borrower under a Together
Connections Benefit mortgage loan or Connections mortgage loan is
not permitted to make a cash re-draw of the principal amounts that
have been repaid as a result of the application of the Together
Connections Benefit or Connections Benefit. Any cash re-draw on a
flexible mortgage loan will result in the immediate increase in the
related current balance and will increase the amount of interest
payable by the borrower. Any cash re-draws will be funded solely by
the seller, but will form part of the mortgage portfolio and
thereby increase the seller share of the trust property.
Under the mortgage conditions, a borrower must receive permission from the
seller to make an authorized underpayment or take a payment holiday on a
flexible mortgage loan. However, the seller occasionally waives the requirement
that the borrower first seeks the seller's permission. The seller, however,
retains the discretion whether to grant a cash redraw or to provide a further
advance (as described under "-- FURTHER ADVANCES" below) to a borrower on a
flexible mortgage loan, and also maintains discretion in some cases to grant a
payment holiday to a borrower, depending on the facts associated with the
borrower's request. Despite the foregoing means by which the seller describes
and treats authorized underpayments, payment holidays and cash re-draws, each
re-draw technically would be a "FURTHER ADVANCE" as used in the Law of Property
Act 1925 (which applies only in England and Wales and which has no statutory or
common law equivalent in Scotland).
For a description of the treatment of overpayments and underpayments in
respect of the seller's current non-flexible loan products, see "-- CAPITAL
PAYMENTS, OVERPAYMENTS AND UNDERPAYMENTS ON NON-FLEXIBLE MORTGAGE LOANS".
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In addition to the features described above, the flexible mortgage loans
that the seller currently offers under the Together and Together Connections
programs may be linked to an unsecured credit facility and a credit card which
are made available to a borrower. In 2002, the seller also began offering a
linked unsecured credit facility to borrowers under the flexible capped rate
mortgage loan, flexible tracker rate mortgage loan and flexible fixed rate
mortgage loan products and in 2003 under the flexible discount rate mortgage
loans. The unsecured credit facility is a line of credit available to be drawn
down by the borrower over and above the amount of the mortgage loan. Amounts
drawn under the credit facility (or the credit card in respect of Together and
Together Connections mortgage loans) are not secured by a mortgage on the
borrower's property. These flexible mortgage loans that offer borrowers a
linked unsecured credit facility allow a borrower to make one monthly payment
of amounts due under the mortgage loan and under the unsecured credit facility,
to the extent the borrower has made a drawing under the unsecured credit
facility (any linked credit card payments under the Together and Together
Connections programs will be made separately). The seller applies the
borrower's regular monthly payments and any overpayments received on a flexible
mortgage loan in proportion to the contractual monthly payment due on the
mortgage loan and the amount due on the unsecured credit facility, unless the
borrower specifies otherwise.
The amount of a flexible mortgage loan is agreed at origination. Amounts
available under the unsecured credit facility (currently a maximum of
[GBP]30,000 for Together and Together Connections mortgage loans and
[GBP]10,000 for flexible capped rate, flexible tracker rate and flexible fixed
rate mortgage loans) and any credit card (in respect of Together and Together
Connections mortgage loans) are not secured by the mortgaged property, and the
seller will not assign to the mortgages trustee amounts due under the unsecured
credit facility or any credit card. This means that only the secured mortgage
loan is assigned to the mortgages trustee.
The seller has originated several types of Together mortgage loans (referred
to collectively in this prospectus as "TOGETHER" mortgage loans):
(1) "TOGETHER VARIABLE" mortgage loans. The interest rate on Together
variable mortgage loans offered at any time is set periodically (a)
for approximately the first two years of the mortgage loan, at a
rate which is below the average standard variable rate offered by a
basket of mortgage lenders in the UK or a rate which tracks the
Bank of England base rate and (b) after that initial approximate
two-year period, at a variable rate which is below the seller's
standard variable rate for the seller's then-existing borrowers.
(2) "TOGETHER FLEXIBLE" mortgage loans. The interest rate on Together
flexible mortgage loans is set periodically (a) for approximately
the first two years of the mortgage loan, at a rate equal to or
lower than the seller's standard variable rate and (b) after that
initial period, at a variable rate equal to the lower of (i) the
Bank of England base rate plus a margin or (ii) the seller's then
current standard variable rate.
(3) "TOGETHER FIXED FOR LIFE" mortgage loans. The interest rate on
Together fixed for life mortgage loans is fixed by the seller,
which rate will remain for the life of the mortgage loan.
(4) "TOGETHER FIXED" mortgage loans. The initial interest rate on
Together fixed mortgage loans is fixed by the seller. After the
initial interest rate period, the interest rate will be set
periodically at a variable rate equal to the lower of (i) the Bank
of England base rate plus a margin or (ii) the seller's then
current standard variable rate.
(5) "TOGETHER DISCOUNT TRACKER" mortgage loans. The initial interest
rate on the Together discount tracker mortgage loans is a variable
rate and is linked to the Bank of England base rate. The interest
rate on the Together discount tracker
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mortgage loans is discounted for approximately the first two
years of the mortgage loan and thereafter tracks the Bank of
England base rate plus a margin.
(6) "TOGETHER STEPPED TRACKER" mortgage loans. The interest rate on
Together stepped tracker mortgage loans is a fixed rate which steps
up after a period of time (currently one or two years) before
becoming linked to the Bank of England base rate.
The seller also began originating Together Connections variable mortgage
loans (referred to in this prospectus as "TOGETHER CONNECTIONS VARIABLE"
mortgage loans) in May 2001 and Together Connections fixed mortgage loans
(referred to in this prospectus as "TOGETHER CONNECTIONS FIXED" mortgage loans)
in August 2002 (Together Connections variable mortgage loans and Together
Connections fixed mortgage loans are together referred to in this prospectus as
"TOGETHER CONNECTIONS" mortgage loans). Together Connections mortgage loans
generally share the same characteristics as Together mortgage loans, but have
the additional feature of allowing the borrower to link the mortgage loan with
one or more deposit accounts that are held with the seller, as described above
under "-- MORTGAGE LOAN PRODUCTS OFFERED BY THE SELLER". The interest rate on
Together Connections mortgage loans depends on the LTV ratio of the particular
mortgage loan.
The seller began originating Connections mortgage loans in November 2002.
Connections mortgage loans have similar features to Together Connections
mortgage loans but allow the customer to connect the mortgage loan with a
current account and/or a Save Direct deposit account as described above under
"-- MORTGAGE LOAN PRODUCTS OFFERED BY THE SELLER". Connections mortgage loans
do not allow the customer to have an unsecured facility.
Generally, a prospective borrower applying for a currently offered flexible
mortgage loan may borrow up to a maximum of 95% of the lower of the original
property value or the purchase price of the mortgaged property. The seller
requires a lower LTV ratio where the valuation or purchase price is over
[GBP]250,000. In the case of a remortgage, the seller calculates the maximum
amount of the loan available by using the then current valuation of the
mortgaged property. A borrower may repay amounts owed under a currently offered
flexible mortgage loan under any of the repayment terms described above under
"-- REPAYMENT TERMS". The current term over which a borrower may repay its
flexible mortgage loan (other than a Together mortgage loan, a Together
Connections mortgage loan or a Connections mortgage loan) is up to 35 years,
and the current term over which a borrower may repay its Together mortgage
loan, Together Connections mortgage loan or Connections mortgage loan is up to
30 years.
The seller currently reviews monthly the interest rate on its variable rate
flexible mortgage loans. In addition, the seller will recalculate accrued
interest on flexible mortgage loans to take account of the exercise of any
overpayment or re-draw, so that (a) interest on any re-draw is charged from the
date of the redraw, and (b) borrowers are given the benefit of any overpayment
from the date on which the overpayment is paid.
In addition to the conditions described above, the re-draw options for
borrowers with flexible mortgage loans may cease to be available, at the
seller's sole discretion, if an event of default (as set out in the applicable
terms and conditions) occurs.
PERSONAL SECURED LOANS
Personal secured loans are offered to borrowers who have an existing
mortgage loan with the seller. The proceeds of a personal secured loan may be
used for any purpose and such loan is secured by a legal charge or (in
Scotland) a standard security on the same property that secures the borrower's
existing mortgage loan. The priority of the legal charge or (in Scotland)
standard security securing a personal secured loan will rank below the first
priority legal charge or standard security securing the related borrower's
existing mortgage loan. A borrower may have more than one personal secured
loan. A personal
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secured loan may be in an amount up to [GBP]25,000. If the borrower's existing
mortgage loan is not a flexible mortgage loan then the borrower may be eligible
for a "FLEXI PLAN LOAN" which is a personal secured loan under which a fixed
amount of credit (up to [GBP]25,000) is extended. The borrower may draw down
the flexi plan loan in increments up to the amo unt of credit granted. Draws
after the initial advance of funds under a flexi plan loan are referred to as
further draws. Flexi plan loans bear interest at the standard variable rate
whereas all other personal secured loans bear interest at either the standard
variable rate or a fixed rate. For personal secured loans that are not flexi
plan loans, the borrower may elect the interest rate applicable to the
borrower's existing mortgage loan during the period, if any, when an incentive
rate of interest applies to that existing mortgage loan. The seller will not
assign to the mortgages trustee the mortgage loans of a borrower where the
combined LTV of the personal secured loan(s) and the other mortgage loan
secured on the same property that secures the personal secured loan(s) is
greater than 95%.
FURTHER ADVANCES
An existing borrower may apply to the seller for a further amount to be lent
to him or her under his or her mortgage loan, which amount will be secured by
the same mortgaged property as the mortgage loan. Any such application may
result from a solicitation made by the seller, as the seller may periodically
contact borrowers in respect of the seller's total portfolio of mortgage loans
in order to offer to a borrower the opportunity to apply for a further advance.
Any further advance approved by the seller and made to an existing borrower
will be added to the outstanding principal balance of that borrower's mortgage
loan at the time of the advance under the same terms and conditions as the
existing mortgage loan. The aggregate of the outstanding amount of the mortgage
loan and the further advance may be greater than the original amount of the
mortgage loan.
In determining whether to make a further advance, the seller will use its
lending criteria applicable to further advances at that time in determining, in
its sole discretion, whether to approve the application. The seller will
calculate a new LTV ratio by dividing the aggregate of the outstanding amount
of the mortgage loan and the further advance by the revised valuation of the
mortgaged property. Where the aggregate of the initial advance and the further
advance is greater than 95% of the indexed value of the mortgaged property, the
seller will reassess the property's value, by instructing a valuer, who may
physically inspect the property. The seller will not assign to the mortgages
trust any mortgage loan where the LTV ratio at the time of origination or
further advance is in excess of 95% (excluding capitalized fees and/or
charges).
None of the mortgage loans in the cut-off date mortgage portfolio obliges
the seller to make further advances. However, the seller may have made further
advances on some mortgage loans in the additional mortgage portfolio prior to
their assignment to the mortgages trustee. The administrator is required under
the administration agreement not to issue an offer for a further advance to any
borrower in respect of a mortgage loan which has been assigned to the mortgages
trustee unless the seller has elected to purchase that mortgage loan in
accordance with the terms of the mortgage sale agreement, although this
requirement may change if the seller decides at a later date to retain those
mortgage loans within the trust property and to assign such further advances to
the mortgages trustee. See "RISK FACTORS -- THE YIELD TO MATURITY OF THE NOTES
MAY BE ADVERSELY AFFECTED BY PREPAYMENT OR REDEMPTIONS ON THE MORTGAGE OR
REPURCHASES OF MORTGAGE LOANS BY THE SELLER" and "ASSIGNMENT OF THE MORTGAGE
LOANS AND RELATED SECURITY".
PRODUCT SWITCHES
From time to time borrowers may request or the seller may offer, in limited
circumstances, a variation in the mortgage conditions applicable to the
borrower's mortgage loan. In addition, in order to promote the retention of
borrowers, the seller may periodically contact certain borrowers in respect of
the seller's total portfolio of outstanding mortgage loans in order to
encourage a borrower to review the seller's other mortgage
105
products and to discuss shifting that borrower to an alternative mortgage
product. Any such variation, including a change in product type (other than a
variation described as a permitted product switch), is called a "PRODUCT
SWITCH". The administrator is required under the administration agreement not
to issue an offer for a product switch to any borrower in respect of a mortgage
loan which has been assigned to the mortgages trustee unless the seller has
elected to purchase that mortgage loan in accordance with the terms of the
mortgage sale agreement. However, some fixed rate mortgage loans permit the
borrower to exercise a one-time option within three months of the end of the
initial fixed rate period to "RE-FIX" the interest rate at a new fixed rate
that the seller is offering existing borrowers at that time. Although this re-
fixing of the borrower's fixed rate mortgage loan is considered by the seller
as a product switch, these mortgage loans may or may not be purchased by the
seller from the mortgages trustee. See "RISK FACTORS -- THE YIELD TO MATURITY
OF THE NOTES MAY BE ADVERSELY AFFECTED BY PREPAYMENT OR REDEMPTIONS ON THE
MORTGAGE OR REPURCHASES OF MORTGAGE LOANS BY THE SELLER" and "ASSIGNMENT OF THE
MORTGAGE LOANS AND RELATED SECURITY".
ARREARS CAPITALIZATION
From time to time, where a borrower has demonstrated a regular payment
history following previous arrears, the seller may capitalize any outstanding
amounts in arrears. In those circumstances, the seller will set the arrears
tracking balance to zero and the related mortgage loan will no longer be
considered to be in arrears. The outstanding balance will be required to be
repaid over the remaining term of such mortgage loan. See "THE ADMINISTRATOR
AND THE ADMINISTRATION AGREEMENT -- ARREARS AND DEFAULT PROCEDURES".
ORIGINATION OF THE MORTGAGE LOANS
The seller currently derives its mortgage lending business from the
following sources:
* intermediaries that range from mortgage clubs to small independent
mortgage advisors;
* its branch network throughout the United Kingdom;
* its website; and
* Northern Rock Direct, a centralized telephone-based lending
operation.
In each case, the seller performs all the evaluations of the borrower and
determines whether a mortgage loan will be offered. The seller has adopted the
Council of Mortgage Lenders' Code of Mortgage Lending Practice, which is a
voluntary code observed by most banks, building societies and other residential
mortgage lenders in the UK. The Code sets out, among other things, what
information loan applicants should be provided with before committing to a
mortgage loan, including the repayment method and repayment period, the
financial consequences of early repayment, the type of interest rate, insurance
requirements, costs and fees associated with the mortgage loan and when an
applicant's account details can be given to credit reference agencies. The Code
also mandates that the lender, among other things, act fairly and reasonably
with its borrowers and assist borrowers in choosing a mortgage that fits the
needs of the relevant borrower. See "RISK FACTORS -- POSSIBLE REGULATORY
CHANGES BY THE OFFICE OF FAIR TRADING, THE FINANCIAL SERVICES AUTHORITY AND ANY
OTHER REGULATORY AUTHORITY MAY HAVE AN IMPACT ON THE SELLER, THE ISSUER AND/OR
THE MORTGAGE LOANS AND MAY ADVERSELY AFFECT OUR ABILITY TO MAKE PAYMENTS WHEN
DUE ON THE NOTES".
UNDERWRITING
The decision to offer a mortgage loan to a potential borrower is made by one
of the seller's underwriters and/or mandate holders located in its mortgage
service centers or head office in Gosforth, who may liaise with the
intermediaries. Each underwriter and/or mandate holder must pass the seller's
formal training program to gain the authority to approve mortgage loans. The
seller has established various levels of authority for its underwriters who
approve mortgage loan applications. The levels are differentiated by,
106
among other things, degree of risk, value of the property and LTV ratio 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 decision to offer a mortgage loan to a potential borrower also may be
made by one of the seller's mandate holders located in a regional mortgage
service center or the seller's head office. "MANDATE HOLDERS" are employees of
the seller who are not underwriters but who have participated in a formal
training program, and who have been given a mandate by the seller to approve a
mortgage loan for which the potential borrower has attained a specified minimum
credit score on the seller's initial credit review.
The seller continually reviews 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. The seller may therefore change its
origination processes from time to time. However, the seller will retain
exclusive control over the underwriting polices and lending criteria to be
applied to the origination of each mortgage loan. The seller's underwriting and
processing of mortgage loans are independent from the process by which the
seller's mortgage loans are originated.
LENDING CRITERIA
Each mortgage loan was originated according to the seller's lending criteria
applicable at the time the mortgage loan was offered, which lending criteria in
the case of each mortgage loan included in the mortgage portfolio as of the
closing date were the same as or substantially similar to the criteria
described in this section. New mortgage loans may only be included in the
mortgage portfolio if they are originated in accordance with the lending
criteria applicable at the time the mortgage loan is offered and if the
conditions contained in "ASSIGNMENT OF THE MORTGAGE LOANS AND RELATED SECURITY
- -- ASSIGNMENT OF NEW MORTGAGE LOANS AND THEIR RELATED SECURITY" have been
satisfied. However, the seller retains the right to revise its lending criteria
from time to time, so the criteria applicable to new mortgage loans may not be
the same as those currently used.
To obtain a mortgage loan, each prospective borrower completes an
application form which includes information about the applicant's income,
current employment details, bank account information, if any, current mortgage
information, if any, and certain other personal information. The seller
completes a credit reference agency search in all cases against each applicant
at their current address and, if necessary, former addresses, which gives
details of public information including any county court judgements and details
of any bankruptcy. Some of the factors currently used in making a lending
decision are as follows:
(1) Employment details
The seller operates the following policy in respect of the verification of a
prospective borrower's income details. Under this policy, the seller
categorizes prospective borrowers as either "EMPLOYED" or "SELF-EMPLOYED".
Proof of income for employed prospective borrowers applying for mortgage loans
in an amount less than [GBP]500,000 may be established by:
* last three monthly bank statements and/or three monthly payslips
from the six month period prior to the date of the loan
application; and
* a form P60 or accountants' certificate certifying the borrower's
income.
Proof of income for self-employed prospective borrowers may be
established by:
* a letter from the prospective borrower's accountant in acceptable
form; or
* acceptable confirmation of self-employment which might include any
of a tax return, accountant's letter or a trade invoice, together
with a certificate from the prospective borrower as to income.
107
In May 2001 the seller introduced its fast track program to prospective
borrowers for certain mortgage loan products. If a mortgage loan is judged
appropriate for the fast track program, income is accepted as stated by the
prospective borrower without further proof once positive identification of the
borrower is provided and the borrower has passed the seller's credit scoring
test. The seller does, nevertheless, reserve the right to request income
verification from prospective borrowers. In order to qualify, the prospective
borrower must have attained a specified minimum credit score on the seller's
initial credit review. From May 2001 through January 2002, a prospective
borrower eligible for the fast track program must have had a property value of
at least [GBP]150,000, applied for a mortgage loan with an LTV ratio no greater
than 60% and must have had a valuation made on the mortgaged property. From
January 2002 to August 2002, a prospective borrower eligible for the fast track
program must have had a property value of at least [GBP]100,000, applied for a
mortgage loan with an LTV ratio no greater than 75% and must have had a
valuation made on the mortgaged property. From August 2002, a prospective
borrower eligible for the fast track program must have a property value of at
least [GBP]100,000, applied for a mortgage loan with an LTV ratio no greater
than 80% and must have a valuation made on the mortgaged property. From July
2003, a prospective borrower eligible for the fast track program must have a
property value of at least [GBP]100,000, be applying for a mortgage loan with
an LTV ratio no greater than 85% and must have a valuation made on the
mortgaged property. An existing borrower may also be eligible for the fast
track program in respect of a further advance under a mortgage loan provided
that the LTV ratio of the combined mortgage loan and further advance does not
exceed 95% and that prior to the request for a further advance the mortgage
loan was not subject to the seller's fast track program procedure. Further, an
existing borrower may also be eligible for the fast track program if the
borrower is moving from one property (for which the seller is the mortgagee) to
another property and either (a) the borrower has had a mortgage loan with the
seller for at least two years prior to the date on which the borrower applies
for the new mortgage loan and the LTV ratio for the new mortgage loan is no
greater than 80%, or (b) the amount of the new mortgage loan is equal to or
less than the amount of the original mortgage loan, and the borrower's personal
circumstances (for example, income and employment) have not changed since the
date of the original mortgage loan. In all cases, the seller reserves the right
to obtain proof of income references. Together mortgage loans and Together
Connections mortgage loans are excluded from the seller's fast track program.
As of March 2004 the seller no longer originates mortgage loans under the fast
track program.
Since March 2004 the seller has adopted a new set of procedures under which
verification of a borrower's income is not required in certain circumstances.
For mortgage loans with an LTV ratio of 85% or less (80% or less for mortgage
loans greater than [GBP]500,000) a borrower receiving a medium to high credit
score does not need to provide proof of income. First time buyers, borrowers
employed less than six months and borrowers of Together mortgage loans and
Together Connections mortgage loans are ineligible for a non-verified income
mortgage loan. In addition, mortgage loans for non owner-occupied properties
must have an LTV ratio no greater than 70% to qualify as a non-verified
mortgage loan. Notwithstanding these procedures, the seller retains the right
to require proof of income or other credit-related information in any case it
deems necessary.
(2) Valuation
The seller requires that a valuation of the property be obtained either from
its in-house valuation department or from an independent firm of professional
valuers selected from a panel of approved valuers. The seller retains details
of professional indemnity insurance held by panel valuers. The person
underwriting the mortgage loan and/or the valuation team reviews the valuation
of each property securing the mortgage loans. For more information on the
valuation process and criteria used for a further advance, including the use of
desktop valuations, see "-- CHARACTERISTICS OF THE MORTGAGE LOANS -- FURTHER
ADVANCES".
108
(3) Property types
The seller applies the criteria set out below in determining the eligibility
of properties to serve as security for mortgage loans. Under these criteria,
eligible property types include freehold and leasehold houses, leasehold flats
and mixed commercial and residential use properties where there is a separate
entrance for the residential part of the property. In the case of a mortgage
loan secured by a leasehold property, the seller requires that the unexpired
term of the lease be at least 30 years from the end of the agreed mortgage loan
term.
The seller may consider some property types that do not meet its usual
lending criteria on a case-by-case basis. However, some property types will not
be considered for the purposes of providing security for a mortgage loan. The
types of property falling within this category comprise freehold flats in
England or Wales, shared ownership or shared equity schemes and properties of
non-standard construction of a type considered to be defective.
(4) Loan amount
Generally, the maximum loan amount is [GBP]1,000,000, but this may vary
according to the application in question. The amount borrowed may exceed this
limit in exceptional cases. The seller has represented and warranted in the
mortgage sale agreement that, as of the date of assignment, no mortgage loan in
the mortgage portfolio has a current balance greater than [GBP]500,000. The
largest mortgage loan in the mortgage portfolio as of the cut-off date had a
current balance of [GBP]499,970.77.
(5) Term
Each mortgage loan must have an initial term of between 7 and 30 years (in
the case of a Together mortgage loan, a Together Connections mortgage loan and
a Connections mortgage loan) or between 7 and 35 years in the case of all other
mortgage loans.
(6) Age of applicant
The first named borrower in respect of a Together mortgage loan or a
Together Connections mortgage loan must be aged 21 or over. All borrowers in
respect of all other mortgage loans must be aged 18 or over. There are no
maximum age limits.
(7) Status of applicant(s)
The maximum loan amount of the mortgage 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 along with performance or
profit-related pay, allowances, mortgage subsidies, pensions, annuities,
overtime, bonus and commission. The seller will deduct the annual cost of
existing commitments of twelve months or more from the applicant's gross
income. Positive proof of the applicant's identity and address is obtained in
all cases.
In cases where an applicant requests that the seller takes a secondary
income into account, the seller will consider the sustainability of the
applicant's work hours, the similarity of the jobs and/or skills, the commuting
time and distance between jobs, the length of employment at both positions and
whether the salary is consistent with the type of employment. The seller will
determine, after assessing the above factors, if it is appropriate to use both
incomes. If so, a portion of the secondary income will be used as part of the
normal income calculation.
Where there are two applicants, the seller adds joint incomes together for
the purposes of calculating the applicants' total income. In determining the
loan amount available to the applicants the seller may use the higher of the
joint income multiplied by the appropriate income multiple or the highest of
the two incomes multiplied by the
109
appropriate income mult iple plus the lower income. The seller may at its
discretion consider the income of one additional applicant as well, but only at
a maximum income multiple of 1.
The seller may exercise discretion within its lending criteria in applying
those factors that are used to determine the maximum amount an applicant can
borrow. Accordingly, these parameters may vary for some mortgage loans. The
seller may take the following into account when applying discretion: credit
score result, existing customer relationship, LTV and total income needed to
support the mortgage loan.
(8) Credit history
(a) Credit search
A credit search is carried out in respect of all applicants.
Applications may be declined where an adverse credit history (for
example, county court judgement (or the Scottish equivalent),
default or bankruptcy notice) is revealed.
(b) Existing lender's reference
In some cases the seller may 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. The seller may substitute the reference
with the bureau record obtained as a result of the credit search.
(9) Scorecard
The seller uses some of the criteria described here and various other
criteria to produce an overall score for the application that reflects the
statistical analysis of the risk of advancing the mortgage loan. The scorecard
has been developed using the seller's own data and experience of its own
mortgage accounts. The lending policies and processes are determined centrally
to ensure consistency in the management and monitoring of credit risk exposure.
Full use is made of software technology in credit scoring new applications.
Credit scoring applies statistical analysis to publicly available data and
customer-provided data to assess the likelihood of an account going into
arrears. The seller also uses behavioural scoring, which uses customer data on
existing accounts to make further lending decisions and to prioritize action in
case of arrears.
The seller reserves the right to decline an application that has achieved a
passing score. The seller does have an appeals process if an applicant believes
that his/her application has been unfairly declined. It is the seller's policy
to allow only authorised individuals to exercise discretion in granting
variances from the scorecard.
SELLER'S DISCRETION TO LEND OUTSIDE OF ITS LENDING CRITERIA
On a case-by-case basis, and within approved limits as detailed in the
seller's lending criteria, the seller may have determined that, based upon
compensating factors, a prospective borrower that did not strictly qualify
under its lending criteria at that time warranted an underwriting exception.
The seller may take into account compensating factors including, but not
limited to, a low LTV ratio, stable employment and time in residence at the
applicant's current residence. New mortgage loans and further advances (made
prior to their assignment to the mortgages trustee or if the seller decides at
a later date to retain such mortgage loans subject to further advances within
the mortgages trust, after their assignment to the mortgages trustee) that the
seller has originated under lending criteria that are different than the
lending criteria set out here may be assigned to the mortgages trustee.
MAXIMUM LTV RATIO
The maximum LTV ratio permitted for prospective borrowers applying for
mortgage loans secured by mortgaged properties valued up to [GBP]250,000 is 95%
of the lower of the purchase price or valuation of the mortgaged property
determined by the relevant valuation. The maximum LTV ratio permitted for
prospective borrowers applying for
110
mortgage loans secured by mortgaged properties valued up to [GBP]1,000,000 is
90% of the lower of the purchase price or valuation of the mortgaged property
determined by the relevant valuation. The maximum LTV ratio permitted for
prospective borrowers applying for mortgage loans secured by mortgaged
properties valued over [GBP]1,000,000 is 85% of the lower of the purchase price
or valuation of the mortgaged property determined by the relevant valuation.
The maximum LTV ratio for prospective borrowers applying for mortgage loans
secured by the seller's currently offered flexible mortgage loans is as
described under "-- CHARACTERISTICS OF THE MORTGAGE LOANS -- FLEXIBLE MORTGAGE
LOANS".
In the case of a purchase of a mortgaged property, the seller will determine
the current market value of that mortgaged property (which will be used to
determine the maximum amount of the mortgage loan permitted to be made by the
seller) to be the lower of:
* the valuation made by an independent valuer from the panel of
valuers appointed by the seller or an employee valuer of the
seller; or
* the purchase price for the mortgaged property paid by the
prospective borrower.
If a borrower or a prospective borrower has applied to remortgage its
current mortgaged property, the seller will determine the current market value
of the mortgaged property (for the purpose of determining the maximum amount of
the loan available) by using the then current valuation of the mortgaged
property as determined using the process described under "-- LENDING CRITERIA
- -- (2) VALUATION".
If the borrower has applied for a further advance or a personal secured
loan, the seller will determine the current market value of the mortgaged
property by using either an indexed valuation figure provided by a UK pricing
index, a desktop valuation by an employee valuer of the seller or the then
current valuation of the mortgaged property as determined using the process
described under "-- LENDING CRITERIA -- (2) VALUATION".
BUILDINGS INSURANCE POLICIES
INSURANCE ON THE PROPERTY
A borrower is required to arrange for insurance on the mortgaged property
for an amount equal to the full rebuilding cost of the property. The borrower
may either purchase the insurance through an insurer arranged by the seller (a
"SELLER ARRANGED INSURER"), or the borrower or landlord (for a leasehold
property) may arrange for the insurance independently. Where borrower or
landlord-arranged insurance fails or (without the knowledge of the seller) no
insurance is arranged, a contingency insurance policy exists to protect the
seller (but not the borrower) up to the amount of the seller's insurable
interest in the property (subject to aggregate limits of indemnity) and the
seller can make a claim under the contingency insurance policy. The policy has
a [GBP]50,000 deductible in the aggregate in any one period of insurance.
SELLER ARRANGED BUILDINGS INSURANCE POLICIES
The solicitor, licensed or qualified conveyancer acting for the seller is
required to ensure that buildings insurance cover is taken out by the relevant
borrower prior to the completion of each mortgage loan. If a borrower asks the
seller to arrange insurance on its behalf, a policy will be issued by a seller
arranged insurer, which currently is AXA General Insurance Ltd., a member of
the AXA Group of Companies ("AXA"). AXA's registered number is 141 885 and its
address is 107 Cheapside, London EC2V 6DU. The policy will provide the borrower
with rebuilding insurance up to an amount equal to the actual rebuilding cost.
Standard policy conditions apply, which are renegotiated periodically by the
seller with the seller arranged insurer. Under seller arranged insurance
policies, the seller will assign its rights under those policies to the
mortgages trustee. Amounts paid under the insurance policy are generally
utilized to fund the reinstatement of the property or are otherwise paid to the
seller to reduce the amount of the mortgage loan(s).
111
In the administration agreement, the seller, acting in its capacity as
administrator, has agreed to deal with claims under the seller arranged
insurance policies in accordance with its normal procedures and also has 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.
BORROWER OR LANDLORD-ARRANGED BUILDINGS INSURANCE POLICIES AND THE CONTINGENCY
INSURANCE POLICY
If a borrower elects not to take up a seller arranged insurance policy, or
if a borrower who originally had a seller arranged insurance policy confirms
that he or she no longer requires such insurance, that borrower is sent an
"alternative insurance requirements" form. The borrower is required to
acknowledge that it is responsible for arranging an alternative insurance
policy which covers the rebuilding cost of the property and to request joint
insured status for the seller.
Once an alternative insurance requirements form has been dispatched, it is
assumed that the borrower is making arrangements in accordance with those
requirements. If it transpires that the borrower has not complied with those
requirements and if the property is damaged while uninsured or partially
insured because of under insurance, the seller is entitled to make a claim
under the contingency insurance policy provided the seller has no prior
knowledge of the deficiency. The contingency insurance policy is an insurance
policy currently provided to the seller by AXA that insures the seller against
loss relating to mortgaged properties where borrowers have failed to make their
own property insurance arrangements. The contingency insurance policy provides
cover for the mortgages trustee. The administrator will make claims in
accordance with the contingency insurance policy and hold the proceeds of
claims on trust for the mortgages trustee or as the mortgages trustee may
direct.
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 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
contingency insurance policy.
If a borrower who originally had seller 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 seller 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
mortgage loan.
The seller may not be insured under any insurance policy which is not
arranged by the seller, and it may not have the benefit of any security over
such policies. The mortgages trustee therefore may not have an interest in
policies that were not arranged through the seller. See "RISK FACTORS -- THE
MORTGAGES TRUSTEE MAY NOT RECEIVE THE BENEFIT OF CLAIMS MADE ON THE BUILDINGS
INSURANCE".
PROPERTIES IN POSSESSION POLICY
If the seller takes possession of a property from a borrower in default, the
seller has coverage through a properties in possession policy from AXA. The
policy provides the seller with rebuilding insurance up to an amount equal to
the actual rebuilding cost. The seller will assign its rights under this policy
to the mortgages trustee for any mortgage loan which is in a mortgage portfolio
and is a property in possession. Amounts paid under the properties in
possession policy are generally utilized to fund the reinstatement of the
property or are otherwise paid to the seller to reduce the amount of the
mortgage loan. This policy is subject to a [GBP]50,000 deductible in the
aggregate in any one period of insurance.
112
MIG POLICIES
A mortgage indemnity guarantee, or MIG, policy is an agreement between a
lender and an insurance company to underwrite the amount of each relevant
mortgage loan which exceeds a specified LTV ratio. Although since January 1,
2003 the seller is no longer required to take out a MIG policy with respect to
any mortgage loan originated on or after January 1, 2003, each mortgage loan
originated prior to January 1, 2003, that had an LTV ratio in excess of 75%
contains a condition that the seller take out mortgage indemnity insurance with
Northern Rock Mortgage Indemnity Company Limited ("NORMIC"). However, under the
terms of these MIG policies, the MIG coverage for a mortgage loan will be
cancelled in the event a further advance is granted with respect to such
mortgage loan on or after January 1, 2003.
This insurance is intended to provide only limited cover in the event of
losses being incurred in excess of the relevant LTV ratio following
repossession and sale of a mortgaged property from a borrower, and is further
limited in that such insurance is subject to certain caps on claims that may be
made under the MIG policy by the seller and/or its relevant subsidiary.
Firstly, each mortgage loan that is subject to a MIG policy is subject to a cap
on claims made in respect of that mortgage loan, regardless of whether or not
that mortgage loan is included in the mortgage portfolio. In addition, all
mortgage loans that were originated in any one year and that are subject to a
MIG policy are also subject to an aggregate cap on claims that can be made in
respect of that group of mortgage loans. However, the aggregate cap in respect
of mortgage loans originated in any one year is proportioned between mortgage
loans that are included in the mortgage portfolio and mortgage loans that are
not included in the mortgage portfolio. As each proportionate aggregate cap is
applicable either to mortgage loans included in the mortgage portfolio or
mortgage loans that are not included in the mortgage portfolio, any losses on
mortgage loans outside of the mortgage portfolio will not reduce the amount of
MIG coverage remaining on those mortgage loans included in the mortgage
portfolio which continue to have MIG coverage. The MIG policy will not cover
all losses suffered in relation to the mortgage loans which continue to have
MIG coverage and each such mortgage loan is only covered for a ten year period
following completion of the mortgage loan or further advance. In addition, the
mortgages trustee is not required to maintain a mortgage indemnity policy with
the current insurer, and the seller is not required to maintain the same level
of coverage under the mortgage indemnity insurance policies for mortgage loans
that it may originate in the future and assign to the mortgages trust. See
"RISK FACTORS -- THE MORTGAGES TRUSTEE IS NOT REQUIRED TO MAINTAIN MORTGAGE
INDEMNITY INSURANCE WITH THE CURRENT INSURER, AND THE SELLER IS NOT REQUIRED TO
MAINTAIN THE SAME LEVEL OF MORTGAGE INDEMNITY INSURANCE COVERAGE FOR NEW
MORTGAGE LOANS THAT IT ORIGINATES IN THE FUTURE, WHICH MAY ADVERSELY AFFECT THE
FUNDS AVAILABLE TO PAY THE NOTES".
The insured under each MIG policy is the seller and/or its relevant
subsidiary. The related borrower has no interest in this policy. The seller
will formally assign its interest in each MIG policy to the mortgages trustee
to the extent that it relates to the mortgage loans from time to time comprised
in the mortgage portfolio. Practically speaking, this will have little effect
on the way in which claims are made and paid under the policies as they will
continue to be administered by the seller acting in its capacity as
administrator. To the extent that claims relate to mortgage loans in the
mortgage portfolio, their proceeds will be paid by the seller into the
mortgages trustee transaction account and all other claims will be paid into
the seller's account.
NORMIC is a Guernsey limited liability company and a wholly-owned insurance
subsidiary of the seller. NORMIC's registered number in Guernsey is 28379, and
its address is P.O. Box 384, The Albany, South Esplanade, St. Peter Port,
Guernsey, Channel Islands. NORMIC does not have a public credit rating by any
of Moody's, Standard & Poor's or Fitch. The seller does not guarantee the
liabilities of NORMIC and is under no legal obligation to support NORMIC in the
discharge of those liabilities. The seller
113
however, contingently liable to NORMIC to pay up any unpaid amount in respect
of the seller's shareholding in NORMIC. The unpaid share capital is immaterial
in relation to NORMIC's overall exposure.
The seller has warranted that each of the mortgage indemnity policies
relating to a mortgaged property is in force and all premiums thereon have been
paid. The seller also has warranted that, so far as the seller is aware, there
has been no breach of any term of the mortgage indemnity policies which would
entitle the relevant insurer to avoid the same. Management of the seller
believes that financial information relating to NORMIC is not material to an
investor's decision to purchase the notes.
SCOTTISH MORTGAGE LOANS
A portion of the mortgage loans in the additional assigned mortgage
portfolio are 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 the
Scottish mortgage loans, references in this prospectus to a "MORTGAGE" are to
be read as references to such standard security and references to a "MORTGAGEE"
are to be read as references to the security holder (under Scots law, termed
the "HERITABLE CREDITOR").
In practice, the seller has advanced and intends to advance mortgage 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
realization of Scottish mortgages, the seller does not consider that these
differences make Scottish mortgages significantly different from or less
effective than the English mortgages. For further information on Scottish
mortgages, see "MATERIAL LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE RELATED
SECURITY -- SCOTTISH MORTGAGES".
THE CUT-OFF DATE MORTGAGE PORTFOLIO
The statistical and other information contained in this prospectus has been
compiled by reference to the mortgage loans in the cut-off date mortgage
portfolio. The US dollar figures set forth in the tables below have been
rounded to the nearest cent following their conversion from pounds sterling.
Columns stating percentage amounts may not add up to 100% due to rounding. A
mortgage loan will have been removed from the additional mortgage portfolio
(which comprised a portion of the cut-off date portfolio) if in the period up
to (and including) the assignment date on August 23, 2004 the mortgage loan was
repaid in full or if the mortgage loan did not comply with the terms of the
mortgage sale agreement on the August 23, 2004 assignment date. Once such
mortgage loans were removed, the seller then randomly selected from the
mortgage loans remaining in the additional mortgage portfolio those mortgage
loans which were included in the additional assigned mortgage portfolio once
the determination had 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 notes. We do not expect the
characteristics of the mortgage portfolio as of the closing date to differ
materially from the characteristics of the cut-off date mortgage portfolio. The
US dollar numbers in the following tables have been calculated based on the
currency exchange rate set forth on page 65 under "US DOLLAR PRESENTATION".
114
TYPES OF PROPERTY
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
BALANCE BALANCE % OF MORTGAGE % OF
TYPE OF PROPERTY ([GBP]) US$ TOTAL LOANS TOTAL
- ---------------------- ----------------- ----------------- ------ ----------- ------
Detached Bungalow 802,911,296.82 1,467,040,556.95 3.15 8,073 2.72
Detached House 6,450,217,385.52 11,785,524,183.30 25.31 52,588 17.69
Flat 2,942,644,368.33 5,376,656,985.80 11.55 35,783 12.04
Masionette 374,911,667.32 685,020,404.39 1.47 3,820 1.29
Not Known 263,508,270.01 481,469,523.13 1.03 2,920 0.98
New Property 11,638,346.28 21,265,021.52 0.05 100 0.03
Other Use 65,473,357.74 119,629,741.90 0.26 636 0.21
Purpose Built Flat 66,485,883.62 121,479,780.05 0.26 1,189 0.40
Semi Detached Bungalow 337,789,902.97 617,193,318.05 1.33 4,659 1.57
Semi Detached House 6,782,410,597.28 12,392,491,498.78 26.62 84,357 28.38
Terraced House 7,382,721,568.01 13,489,350,571.92 28.97 103,106 34.69
----------------- ----------------- ------ ----------- ------
TOTAL 25,480,712,643.90 46,557,121,585.78 100.00 297,231 100.00
================= ================= ====== =========== ======
EXPECTED SEASONING OF MORTGAGE LOANS AT CLOSING
The following table shows length of time since the mortgage loans were
originated as of the closing date.
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
AGE OF MORTGAGE LOANS BALANCE BALANCE % OF MORTGAGE % OF
(MONTHS) ([GBP]) US$ TOTAL LOANS TOTAL
- ---------------------- ----------------- ----------------- ------ --------- ------
0 to 6 2,196,699,512.73 4,013,702,745.72 8.62 20,649 6.95
6 to 12 5,065,798,740.11 9,255,981,619.06 19.88 49,456 16.64
12 to 18 5,656,880,431.82 10,335,977,401.46 22.20 59,738 20.10
18 to 24 3,818,421,431.51 6,976,834,334.94 14.99 42,742 14.38
24 to 30 2,562,873,673.18 4,682,758,401.57 10.06 32,947 11.08
30 to 36 1,448,002,852.97 2,645,720,542.61 5.68 19,750 6.64
36 to 42 1,112,518,376.24 2,032,739,587.50 4.37 16,006 5.39
42 to 48 698,634,004.28 1,276,510,148.51 2.74 10,370 3.49
48 to 54 499,961,434.58 913,505,270.56 1.96 7,736 2.60
54 to 60 469,923,661.93 858,621,710.09 1.84 7,073 2.38
60 to 66 421,545,689.58 770,227,826.75 1.65 6,217 2.09
66 to 72 259,137,875.69 473,484,150.72 1.02 3,955 1.33
72 to 78 487,411,304.93 890,574,282.72 1.91 6,599 2.22
78 to 84 252,107,051.10 460,637,769.23 0.99 3,819 1.28
84 to 90 159,647,193.37 291,699,604.18 0.63 2,682 0.90
90 to 96 114,308,240.91 208,858,470.51 0.45 2,242 0.75
96 to 102 130,992,186.87 239,342,566.91 0.51 2,576 0.87
102 to 108 79,919,821.21 146,025,618.87 0.31 1,679 0.56
108 to 114 45,929,160.89 83,919,533.88 0.18 995 0.33
----------------- ----------------- ------ --------- ------
TOTAL 25,480,712,643.90 46,557,121,585.78 100.00 297,231 100.00
================= ================= ====== ========= ======
The weighted average seasoning of mortgage loans as of the closing date is
expected to be 24.28 months and the maximum seasoning of mortgage loans as of
the closing date is expected to be 110.76 months. The minimum seasoning of the
mortgage loans as of the closing date is expected to be 3.85 months.
115
YEARS TO MATURITY AT CLOSING
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
BALANCE BALANCE % OF MORTGAGE % OF
YEARS TO MATURITY ([GBP]) US$ TOTAL LOANS TOTAL
- ---------------------- ----------------- ----------------- ------ --------- ------
0 to 5 156,996,720.85 286,856,789.42 0.62 3,515 1.18
5 to 10 1,434,149,485.53 2,620,408,341.91 5.63 21,482 7.23
10 to 15 2,801,644,087.53 5,119,028,115.35 11.00 36,432 12.26
15 to 20 4,847,343,265.31 8,856,830,376.96 19.02 56,510 19.01
20 to 25 15,184,992,048.82 27,745,280,556.95 59.59 168,772 56.78
25 to 30 896,676,924.67 1,638,364,561.79 3.52 9,103 3.06
30 to 35 158,910,111.19 290,352,843.39 0.62 1,417 0.48
----------------- ----------------- ------ --------- ------
TOTAL 25,480,712,643.90 46,557,121,585.78 100.00 297,231 100.00
================= ================= ====== ========= ======
The weighted average remaining term of the mortgage loans as of the closing
date is expected to be 20.32 years and the maximum remaining term as of the
closing date is expected to be 34.77 years. The minimum remaining term as of
the closing date is expected to be less than one month.
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
The following table shows the spread of mortgaged properties securing the
mortgage loans throughout England, Wales and Scotland as of the cut-off date.
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.
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
BALANCE BALANCE % OF MORTGAGE % OF
REGION ([GBP]) US$ TOTAL LOANS TOTAL
- ---------------------- ----------------- ----------------- ------ --------- ------
East Anglia 515,226,962.45 941,397,702.27 2.02 5,975 2.01
East Midlands 1,616,067,920.41 2,952,800,877.78 6.34 21,097 7.10
Greater London 5,041,950,222.09 9,212,406,764.28 19.79 35,686 12.01
North 1,992,047,042.04 3,639,771,682.88 7.82 34,994 11.77
North West 2,777,087,955.71 5,074,160,342.97 10.90 40,591 13.66
Scotland 2,026,995,216.68 3,703,627,291.58 7.96 31,915 10.74
South East (excluding
London) 5,159,698,115.68 9,427,550,001.24 20.25 43,824 14.74
South West 1,821,597,444.59 3,328,334,450.19 7.15 19,041 6.41
Wales 844,053,326.75 1,542,213,277.45 3.31 12,523 4.21
West Midlands 1,573,607,981.32 2,875,220,137.62 6.18 19,624 6.60
Yorkshire 2,112,380,456.18 3,859,639,057.52 8.29 31,961 10.75
----------------- ----------------- ------ --------- ------
TOTAL 25,480,712,643.90 46,557,121,585.78 100.00 297,231 100.00
================= ================= ====== ========= ======
116
CURRENT LOAN-TO-VALUE RATIOS
The following table shows the range of current loan-to-value, or LTV,
ratios, which express the outstanding balance of a mortgage loan as at the cut-
off date divided by the value of the mortgaged property securing that mortgage
loan at the same date. The seller has not revalued any of the mortgaged
properties since the date of the origination of the related mortgage loan,
other than in respect of a mortgaged property of a related borrower that has
remortgaged its property or to which the seller has made a further advance, as
described under "-- MAXIMUM LTV RATIO".
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
BALANCE BALANCE % OF MORTGAGE % OF
CURRENT LTV ([GBP]) US$ TOTAL LOANS TOTAL
- ---------------------- ----------------- ----------------- ------ --------- ------
0% to 25% 374,179,691.47 683,682,973.63 1.47 9,312 3.13
25% to 50% 2,464,357,511.97 4,502,754,452.71 9.67 33,530 11.28
50% to 55% 918,662,044.60 1,678,534,706.01 3.61 10,507 3.53
55% to 60% 1,078,544,063.40 1,970,663,371.83 4.23 11,716 3.94
60% to 65% 1,274,468,208.68 2,328,646,462.05 5.00 13,354 4.49
65% to 70% 1,502,273,035.54 2,744,880,386.52 5.90 15,471 5.21
70% to 75% 2,072,759,745.79 3,787,246,018.25 8.13 21,858 7.35
75% to 80% 2,518,979,452.26 4,602,557,011.26 9.89 22,976 7.73
80% to 85% 3,506,138,640.17 6,406,246,373.41 13.76 33,654 11.32
85% to 90% 3,685,340,658.17 6,733,675,604.18 14.46 43,648 14.68
90% to 95% 4,619,694,979.77 8,440,882,477.20 18.13 61,089 20.55
95% to 100% 1,455,188,303.12 2,658,849,448.42 5.71 19,933 6.71
> 100% 10,126,308.96 18,502,300.31 0.04 183 0.06
----------------- ----------------- ------ --------- ------
TOTAL 25,480,712,643.90 46,557,121,585.78 100.00 297,231 100.00
================= ================= ====== ========= ======
The weighted average current loan-to-value ratio of the mortgage loans at
the cut-off date was 75.48%.
CURRENT INDEXED LOAN-TO-VALUE RATIOS
The following table shows the range of current indexed loan-to-value, or
LTV, ratios, which express the outstanding balance of a mortgage loan as of the
cut-off date divided by the indexed value of the mortgaged property securing
that mortgage loan as of the same date (calculated using the Halifax House
Price Index).
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
CURRENT BALANCE BALANCE % OF MORTGAGE % OF
INDEXED LTV ([GBP]) US$ TOTAL LOANS TOTAL
- ---------------------- ----------------- ----------------- ------ --------- ------
0% to 25% 1,098,672,470.70 2,007,441,020.83 4.31 23,404 7.87
25% to 50% 5,813,855,695.28 10,622,794,984.98 22.82 81,455 27.40
50% to 55% 1,622,128,391.56 2,963,874,276.56 6.37 19,140 6.44
55% to 60% 1,729,225,965.37 3,159,557,766.07 6.79 19,164 6.45
60% to 65% 2,096,474,047.14 3,830,575,638.85 8.23 22,935 7.72
65% to 70% 2,279,151,498.67 4,164,355,013.10 8.94 23,253 7.82
70% to 75% 2,896,967,584.12 5,293,198,582.35 11.37 29,087 9.79
75% to 80% 2,763,403,951.42 5,049,157,594.41 10.85 27,908 9.39
80% to 85% 2,552,741,641.31 4,664,245,644.64 10.02 24,360 8.20
85% to 90% 1,580,472,762.97 2,887,763,133.51 6.20 15,685 5.28
90% to 95% 692,567,239.33 1,265,425,250.01 2.72 6,734 2.27
95% to 100% 337,613,926.06 616,871,781.58 1.32 3,911 1.32
> 100% 17,437,469.97 31,860,898.90 0.07 195 0.07
----------------- ----------------- ------ --------- ------
TOTAL 25,480,712,643.90 46,557,121,585.78 100.00 297,231 100.00
================= ================= ====== ========= ======
The weighted average current indexed loan-to-value ratio of the mortgage
loans as of the cut-off date was 61.94%.
117
OUTSTANDING CURRENT BALANCES
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
RANGE OF CURRENT PRINCIPAL BALANCE BALANCE % OF MORTGAGE % OF
BALANCE ([GBP]) US$ TOTAL LOANS TOTAL
- ---------------------------- ----------------- ----------------- ------ --------- ------
[GBP]0 to [GBP]25,000 233,715,109.17 427,032,905.48 0.92 12,208 4.11
[GBP]25,000 to [GBP]50,000 2,866,996,340.65 5,238,436,580.76 11.25 74,346 25.01
[GBP]50,000 to [GBP]75,000 4,856,954,592.28 8,874,391,727.17 19.06 78,486 26.41
[GBP]75,000 to [GBP]100,000 4,352,109,533.39 7,951,963,335.26 17.08 50,469 16.98
[GBP]100,000 to [GBP]125,000 3,343,214,811.78 6,108,559,860.73 13.12 29,979 10.09
[GBP]125,000 to [GBP]150,000 2,477,217,463.38 4,526,251,531.85 9.72 18,152 6.11
[GBP]150,000 to [GBP]175,000 1,768,834,615.66 3,231,928,769.71 6.94 10,969 3.69
[GBP]175,000 to [GBP]200,000 1,305,929,559.90 2,386,131,116.21 5.13 6,996 2.35
[GBP]200,000 to [GBP]225,000 992,339,658.91 1,813,154,867.37 3.89 4,708 1.58
[GBP]225,000 to [GBP]250,000 709,150,012.95 1,295,724,489.22 2.78 3,000 1.01
[GBP]250,000 to [GBP]275,000 550,670,657.22 1,006,158,701.30 2.16 2,108 0.71
[GBP]275,000 to [GBP]300,000 426,933,249.44 780,071,714.67 1.68 1,489 0.50
[GBP]300,000 to [GBP]325,000 357,076,469.44 652,432,796.35 1.40 1,149 0.39
[GBP]325,000 to [GBP]350,000 257,108,502.36 469,776,178.26 1.01 762 0.26
[GBP]350,000 to [GBP]375,000 241,166,077.22 440,646,952.71 0.95 668 0.22
[GBP]375,000 to [GBP]400,000 187,154,112.96 341,958,912.77 0.73 485 0.16
[GBP]400,000 to [GBP]425,000 184,919,334.41 337,875,633.86 0.73 452 0.15
[GBP]425,000 to [GBP]450,000 131,469,793.99 240,215,227.46 0.52 301 0.10
[GBP]450,000 to [GBP]475,000 130,232,909.54 237,955,252.22 0.51 283 0.10
[GBP]475,000 to [GBP]500,000 107,519,839.25 196,455,032.43 0.42 221 0.07
----------------- ----------------- ------ --------- ------
TOTAL 25,480,712,643.90 46,557,121,585.78 100.00 297,231 100.00
================= ================= ====== ========= ======
The largest mortgage loan had a current balance as of the cut-off date of
[GBP]499,970.77 or $913,522.09. The average current balance as of the cut-off
date was approximately [GBP]85,726.97 or $156,636.12.
MORTGAGE LOAN PRODUCTS
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
BALANCE BALANCE % OF MORTGAGE % OF
MORTGAGE LOAN PRODUCTS ([GBP]) US$ TOTAL LOANS TOTAL
- ---------------------- ----------------- ----------------- ------ --------- ------
Tracker 938,950,224.79 1,715,604,284.29 3.68 8,471 2.85
Standard Variable Rate 3,981,823,047.45 7,275,393,837.84 15.63 56,659 19.06
Discount 1,749,847,426.85 3,197,236,299.74 6.87 13,487 4.54
Fixed 12,283,521,224.46 22,443,853,872.57 48.21 118,716 39.94
Capped 244,388,843.83 446,535,435.47 0.96 3,527 1.19
Together 5,949,257,966.54 10,870,195,444.07 23.35 90,809 30.55
Together Connections 332,923,909.98 608,302,411.80 1.31 5,562 1.87
----------------- ----------------- ------ --------- ------
TOTAL 25,480,712,643.90 46,557,121,585.78 100.00 297,231 100.00
================= ================= ====== ========= ======
118
EMPLOYMENT STATUS
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
BALANCE BALANCE % OF MORTGAGE % OF
EMPLOYMENT STATUS ([GBP]) US$ TOTAL LOANS TOTAL
- ---------------------- ----------------- ----------------- ------ --------- ------
Full Time 21,149,663,198.61 38,643,638,221.47 83.00 261,432 87.96
Part Time 225,282,440.05 411,625,141.70 0.88 3,700 1.24
Retired 18,150,026.07 33,162,846.83 0.07 544 0.18
Self Employed 3,942,945,685.99 7,204,359,009.67 15.47 28,637 9.63
Other 144,671,293.18 264,336,366.12 0.57 2,918 0.98
----------------- ----------------- ------ --------- ------
TOTAL 25,480,712,643.90 46,557,121,585.78 100.00 297,231 100.00
================= ================= ====== ========= ======
Approximately 34.45% of the aggregate current balance of the mortgage loans
as of the cut-off date were made to borrowers under the seller's non-verified
income program as described under "-- CHARACTERISTICS OF THE MORTGAGE LOANS --
LENDING CRITERIA".
DISTRIBUTION OF FIXED RATE MORTGAGE LOANS
Fixed rate mortgage loans remain at the relevant fixed rate for a period of
time as specified in the offer of advance, after which they move to the
seller's standard variable rate or some other rate as specified in the offer of
advance.
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
BALANCE BALANCE % OF MORTGAGE % OF
FIXED RATE % ([GBP]) US$ TOTAL LOANS TOTAL
- ---------------------- ----------------- ----------------- ------ --------- ------
0.00 -- 2.99 965,230,020.47 1,763,621,451.62 7.86 8,960 7.55
3.00 -- 3.99 3,997,015,109.86 7,303,152,037.02 32.54 28,638 24.12
4.00 -- 4.99 5,264,715,220.32 9,619,432,158.45 42.86 54,580 45.98
5.00 -- 5.99 2,018,046,840.41 3,687,277,252.71 16.43 25,920 21.83
6.00 -- 6.99 35,037,834.03 64,019,429.98 0.29 560 0.47
7.00 -- 7.99 3,222,295.63 5,887,622.20 0.03 57 0.05
8.00 -- 8.99 253,903.74 463,920.59 0.00 1 0.00
----------------- ----------------- ------ --------- ------
TOTAL 12,283,521,224.46 22,443,853,872.57 100.00 118,716 100.00
================= ================= ====== ========= ======
119
MONTH/YEAR IN WHICH FIXED RATE PERIOD ENDS
MONTH/YEAR IN AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
WHICH FIXED RATE BALANCE BALANCE % OF MORTGAGE % OF
PERIOD ENDS ([GBP]) US$ TOTAL LOANS TOTAL
- ------------------------------ ----------------- ----------------- ------ --------- ------
September-04 27,809,631.20 50,812,408.55 0.23 380 0.32
October-04 261,032,207.69 476,945,382.22 2.13 2,760 2.32
November-04 14,471,851.39 26,442,264.55 0.12 216 0.18
December-04 1,381,384,084.69 2,523,997,962.16 11.25 11,774 9.92
January-05 510,756,539.69 933,229,562.74 4.16 5,017 4.23
February-05 123,983,039.60 226,535,793.17 1.01 1,504 1.27
March-05 769,576,801.91 1,406,133,385.55 6.27 7,012 5.91
April-05 177,884,648.86 325,022,197.81 1.45 2,085 1.76
May-05 1,311,447,678.70 2,396,213,555.09 10.68 10,977 9.25
June-05 779,555,723.08 1,424,366,386.04 6.35 6,972 5.87
July-05 159,821.52 292,018.13 0.00 5 0.00
August-05 552,168,458.93 1,008,895,411.89 4.50 4,788 4.03
September-05 611,001,590.69 1,116,392,455.13 4.97 5,004 4.22
October-05 854,736,878.90 1,561,733,745.48 6.96 6,902 5.81
November-05 106,119,514.69 193,896,427.35 0.86 940 0.79
December-05 42,385,426.10 77,444,593.64 0.35 635 0.53
January-06 357,038,905.24 652,364,160.86 2.91 3,182 2.68
February-06 40,965.44 74,850.06 0.00 1 0.00
March-06 171,966,766.37 314,209,330.11 1.40 1,676 1.41
April-06 395,243,873.53 722,170,424.87 3.22 3,247 2.74
May-06 389,301,815.67 711,313,385.11 3.17 4,098 3.45
June-06 857,270,758.09 1,566,363,526.57 6.98 7,561 6.37
July-06 6,251,899.80 11,423,167.92 0.05 94 0.08
August-06 239,269,492.24 437,181,604.68 1.95 2,581 2.17
September-06 116,523,894.47 212,906,805.17 0.95 1,461 1.23
October-06 66,319,582.89 121,175,923.42 0.54 847 0.71
November-06 22,953,753.09 41,939,983.72 0.19 336 0.28
January-07 55,831,602.80 102,012,795.18 0.45 736 0.62
February-07 21,477,104.98 39,241,923.95 0.17 276 0.23
March-07 12,666,691.41 23,143,963.84 0.10 160 0.13
April-07 145,652,018.33 266,128,299.52 1.19 1,720 1.45
May-07 9,408,349.88 17,190,480.32 0.08 137 0.12
June-07 96,296,809.28 175,948,856.71 0.78 1,190 1.00
July-07 90,295.53 164,983.61 0.00 4 0.00
August-07 77,620,691.03 141,824,759.78 0.63 1,005 0.85
September-07 2,879,666.98 5,261,587.76 0.02 37 0.03
October-07 24,173,149.54 44,168,005.74 0.20 338 0.28
December-07 108,056,529.33 197,435,646.50 0.88 1,290 1.09
January-08 51,369,962.68 93,860,702.87 0.42 677 0.57
February-08 29,292,246.50 53,521,371.28 0.24 421 0.35
March-08 88,839,413.59 162,323,065.21 0.72 1,156 0.97
May-08 153,686,077.36 280,807,742.30 1.25 1,835 1.55
June-08 69,267,228.52 126,561,718.47 0.56 817 0.69
July-08 6,819,557.78 12,460,365.03 0.06 102 0.09
August-08 81,990,166.69 149,808,453.66 0.67 1,029 0.87
September-08 74,005,268.66 135,218,835.48 0.60 1,061 0.89
October-08 90,113,846.93 164,651,647.96 0.73 993 0.84
November-08 32,456,033.99 59,302,090.24 0.26 421 0.35
January-09 76,332,263.52 139,470,607.56 0.62 938 0.79
February-09 30,294,686.59 55,352,981.16 0.25 403 0.34
March-09 6,576,118.07 12,015,563.80 0.05 84 0.07
April-09 78,002,866.17 142,523,051.65 0.64 1,001 0.84
May-09 3,108,750.19 5,680,157.48 0.03 43 0.04
June-09 40,850,998.80 74,640,962.54 0.33 532 0.45
August-09 42,351,491.46 77,382,589.91 0.34 553 0.47
120
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
MONTH/YEAR IN WHICH FIXED RATE BALANCE BALANCE % OF MORTGAGE % OF
PERIOD ENDS ([GBP]) US$ TOTAL LOANS TOTAL
- ------------------------------ ----------------- ----------------- ------ --------- ------
September-09 5,157,553.76 9,423,631.94 0.04 56 0.05
October-09 13,212,981.85 24,142,119.22 0.11 199 0.17
December-09 191,835,087.56 350,511,762.40 1.56 2,234 1.88
January-10 68,454,710.60 125,077,125.16 0.56 829 0.70
March-10 22,932,871.29 41,901,829.51 0.19 285 0.24
May-10 110,507,306.09 201,913,586.86 0.90 1,310 1.10
June-10 53,940,676.96 98,557,787.25 0.44 643 0.54
August-10 20,927,950.76 38,238,536.01 0.17 259 0.22
September-10 19,767,559.28 36,118,325.01 0.16 278 0.23
October-10 34,022,591.97 62,164,428.96 0.28 403 0.34
November-10 9,053,352.41 16,541,846.17 0.07 118 0.10
January-11 23,613,962.00 43,146,285.40 0.19 292 0.25
March-11 6,127,162.01 11,195,253.08 0.05 82 0.07
April-11 5,113,128.61 9,342,460.46 0.04 68 0.06
May-11 2,208,740.48 4,035,703.42 0.02 29 0.02
June-11 6,489,497.05 11,857,294.08 0.05 76 0.06
August-11 2,568,017.96 4,692,157.79 0.02 32 0.03
September-11 466,275.70 851,956.33 0.00 8 0.01
November-12 135,830.54 248,182.97 0.00 3 0.00
December-12 418,580.44 764,809.87 0.00 8 0.01
January-13 2,225,470.91 4,066,272.45 0.02 42 0.04
February-13 23,143.98 42,287.56 0.00 1 0.00
March-13 1,884,262.18 3,442,832.41 0.02 36 0.03
May-13 1,402,917.16 2,563,342.15 0.01 24 0.02
June-13 752,416.10 1,374,778.18 0.01 15 0.01
August-13 210,974.21 385,481.84 0.00 5 0.00
September-13 335,762.77 613,489.44 0.00 6 0.01
October-13 820,754.70 1,499,643.16 0.01 14 0.01
April-14 1,046,195.18 1,911,557.06 0.01 16 0.01
May-14 761,675.34 1,391,696.22 0.01 10 0.01
June-14 2,659,990.65 4,860,205.83 0.02 33 0.03
August-14 743,263.23 1,358,054.50 0.01 11 0.01
September-14 366,664.46 669,951.51 0.00 5 0.00
January-17 115,158.41 210,411.86 0.00 3 0.00
November-17 181,543.94 331,708.28 0.00 2 0.00
December-17 268,751.90 491,050.43 0.00 4 0.00
January-18 2,973,306.94 5,432,682.15 0.02 58 0.05
February-18 110,442.63 201,795.41 0.00 4 0.00
March-18 2,145,366.67 3,919,909.87 0.02 40 0.03
May-18 2,845,153.17 5,198,525.80 0.02 58 0.05
June-18 1,777,051.29 3,246,941.88 0.01 26 0.02
September-18 100,289.41 183,243.94 0.00 2 0.00
October-18 151,294.02 276,437.09 0.00 3 0.00
April-19 693,791.57 1,267,662.29 0.01 7 0.01
May-19 322,217.97 588,741.04 0.00 6 0.01
June-19 3,008,211.68 5,496,458.40 0.02 32 0.03
August-19 1,251,876.92 2,287,368.76 0.01 14 0.01
September-19 1,223,948.69 2,236,339.65 0.01 13 0.01
----------------- ----------------- ------ --------- ------
TOTAL 12,283,521,224.46 22,443,853,872.57 100.00 118,716 100.00
================= ================= ====== ========= ======
121
REPAYMENT TERMS
AGGREGATE CURRENT AGGREGATE CURRENT NUMBER OF
BALANCE BALANCE % OF MORTGAGE % OF
TYPE OF REPAYMENT PLAN ([GBP]) US$ TOTAL LOANS TOTAL
- ------------------------------ ----------------- ----------------- ------ --------- ------
Endowment 2,457,527,312.64 4,490,274,643.96 9.64 31,931 10.74
Interest Only 5,402,317,318.27 9,870,852,034.11 21.20 38,469 12.94
Pension Policy 76,636,963.13 140,027,339.90 0.30 732 0.25
Personal Equity Plan 107,757,149.60 196,888,634.39 0.42 1,406 0.47
Repayment 17,436,473,900.26 31,859,078,933.42 68.43 224,693 75.60
----------------- ----------------- ------ --------- ------
TOTAL 25,480,712,643.90 46,557,121,585.78 100.00 297,231 100.00
================= ================= ====== ========= ======
122
CHARACTERISTICS OF UNITED KINGDOM RESIDENTIAL MORTGAGE MARKET
The housing market in the UK is primarily one of owner-occupied housing. The
remaining occupants are in some form of public/private landlord or social
ownership.
At June 30, 2004, mortgage loans outstanding in the UK amounted to
approximately [GBP]826 billion, with banks and building societies holding 64%
and 18% of the total respectively, according to the Council of Mortgage
Lenders. During the first six months of 2004, outstanding mortgage debt grew by
14.9%, well above the long term average of 8.0% between 1994 and June 2004.
Set out in the following tables are certain characteristics of the United
Kingdom mortgage market.
CPR RATES
The quarterly constant payment rate ("CPR") data presented below was
calculated by dividing the amount of scheduled and unscheduled repayments of
mortgage loans in a quarter by the quarterly balance of mortgage loans
outstanding for building societies in the UK. These quarterly scheduled and
unscheduled repayment rates were then annualized using standard methodology.
You should note that the CPR data presented below understates the seller's
historical CPR data for mortgage loans originated by the seller (and therefore
the expected CPR for mortgage loans included in the mortgages trust) as the
data presented below is based upon a percentage of the total UK residential
mortgage market which has been increasing over time, and as the seller's CPR
data (which calculates the amount of scheduled and unscheduled repayments on a
monthly basis) includes the effect of product switches, which results in a
higher CPR.
The following table shows the actual annualized CPR experience of the
mortgage loans that have been assigned to the mortgages trust between March 26,
2001 and July 31, 2004. You should note that the table covers a relatively
short period of time and that the actual annualized CPR experience of the
seller may differ over time from the data presented below. Since the seller may
assign new mortgage loans and their related security to the mortgages trustee
after the closing date, you should note that the actual annualized CPR
experience of any new mortgage loans assigned to the mortgages trustee after
the closing date may also differ from the data presented below.
MONTH ANNUALIZED CPR MONTH ANNUALIZED CPR
- ----------------------- -------------- ----------------------- --------------
April 2001 25.94% December 2002 43.42%
May 2001 27.72% January 2003 37.28%
June 2001 28.23% February 2003 48.30%
July 2001 32.05% March 2003 44.60%
August 2001 31.87% April 2003 44.77%
September 2001 28.84% May 2003 49.23%
October 2001 29.28% June 2003 48.24%
November 2001 28.40% July 2003 44.96%
December 2001 27.76% August 2003 42.03%
January 2002 31.34% September 2003 38.12%
February 2002 33.33% October 2003 44.14%
March 2002 27.52% November 2003 42.70%
April 2002 41.78% December 2003 45.04%
May 2002 41.90% January 2004 35.49%
June 2002 33.57% February 2004 37.16%
July 2002 44.13% March 2004 54.19%
August 2002 44.89% April 2004 46.85%
September 2002 38.65% May 2004 44.67%
October 2002 42.50% June 2004 49.41%
November 2002 44.26% July 2004 44.04%
123
Over the past 40.5 years, quarterly CPR experienced in respect of
residential mortgage loans made by building societies have been between 9.5%
and 14.0% for approximately 70.6% of that time.
AGGREGATE AGGREGATE AGGREGATE AGGREGATE
QUARTERS QUARTERS QUARTERS QUARTERS AGGREGATE
OVER 40.5 OVER OVER 40.5 OVER 40.5 QUARTERS
CPR (%) YEARS CPR (%) 40.5 YEARS CPR (%) YEARS CPR (%) YEARS CPR (%) OVER 40.5 YEARS
- --------- --------- ------- ---------- ------- --------- ------- --------- ------- ---------------
7.0 0 10.5 17 14.0 6 17.5 1 21.0 0
7.5 0 11.0 18 14.5 2 18.0 1 21.5 2
8.0 4 11.5 16 15.0 3 18.5 1 22.0 1
8.5 1 12.0 19 15.5 2 19.0 1 22.5 2
9.0 6 12.5 13 16.0 4 19.5 2 23.0 0
9.5 9 13.0 10 16.5 2 20.0 3 23.5 0
10.0 10 13.5 4 17.0 1 20.5 1 24.0 0
- ----------
Source of repayment and outstanding mortgage information: Bank of England
Over the past 40.5 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 22.41%. The lowest level was 7.94% in June and
March of 1974. The highest four quarter rolling average CPR over the same 40.5
year period was 21.13%. The lowest was 8.84%.
FOUR QUARTER FOUR QUARTER
CPR FOR THE ROLLING AVERAGE CPR FOR THE ROLLING AVERAGE
DATE QUARTER (%) (%) DATE QUARTER (%) (%)
- -------------- ----------- --------------- ------------- ----------- ---------------
March 1964 11.29 N/A June 1964 12.30 N/A
September 1964 12.68 N/A December 1964 12.82 N/A
March 1965 11.12 12.23 June 1965 10.80 11.86
September 1965 10.66 11.35 December 1965 11.51 11.02
March 1966 10.45 10.86 June 1966 11.39 11.00
September 1966 11.71 11.27 December 1966 10.60 11.04
March 1967 9.49 10.80 June 1967 10.95 10.69
September 1967 11.65 10.67 December 1967 11.51 10.90
March 1968 10.18 11.07 June 1968 10.57 10.98
September 1968 10.91 10.79 December 1968 10.24 10.48
March 1969 9.15 10.22 June 1969 10.23 10.13
September 1969 10.65 10.07 December 1969 10.01 10.01
March 1970 8.92 9.95 June 1970 10.68 10.07
September 1970 11.60 10.30 December 1970 11.46 10.67
March 1971 9.33 10.77 June 1971 11.44 10.96
September 1971 12.17 11.10 December 1971 12.30 11.31
March 1972 10.72 11.66 June 1972 11.81 11.75
September 1972 12.24 11.77 December 1972 11.74 11.63
March 1973 10.11 11.48 June 1973 10.54 11.16
September 1973 11.06 10.86 December 1973 10.55 10.57
March 1974 7.94 10.02 June 1974 7.94 9.37
September 1974 9.58 9.00 December 1974 10.83 9.07
March 1975 9.96 9.58 June 1975 12.23 10.65
September 1975 12.76 11.45 December 1975 12.21 11.79
March 1976 10.10 11.83 June 1976 11.48 11.64
September 1976 11.86 11.41 December 1976 11.70 11.29
March 1977 8.00 10.76 June 1977 9.84 10.35
September 1977 12.13 10.42 December 1977 12.66 10.66
March 1978 11.30 11.48 June 1978 12.19 12.07
September 1978 11.71 11.97 December 1978 11.19 11.60
March 1979 9.33 11.11 June 1979 10.12 10.59
September 1979 11.36 10.50 December 1979 11.07 10.47
March 1980 8.03 10.15 June 1980 8.66 9.78
124
FOUR QUARTER FOUR QUARTER
CPR FOR THE ROLLING AVERAGE CPR FOR THE ROLLING AVERAGE
DATE QUARTER (%) (%) DATE QUARTER (%) (%)
- -------------- ----------- --------------- ------------- ----------- ---------------
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 11.82 11.53
March 1982 9.63 11.44 June 1982 12.91 11.72
September 1982 13.96 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 12.13 11.72
September 1984 12.40 11.70 December 1984 11.87 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 10.57 14.81 June 1987 14.89 14.65
September 1987 16.79 14.46 December 1987 16.18 14.61
March 1988 13.55 15.35 June 1988 16.03 15.64
September 1988 18.23 16.00 December 1988 12.60 15.10
March 1989 8.85 13.93 June 1989 13.04 13.18
September 1989 11.53 11.51 December 1989 10.38 10.95
March 1990 8.91 10.97 June 1990 9.37 10.05
September 1990 9.66 9.58 December 1990 10.58 9.63
March 1991 9.07 9.67 June 1991 10.69 10.00
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 10.30
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 11.01 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 13.42 12.36
March 1999 11.14 12.60 June 1999 14.39 13.19
September 1999 15.58 13.63 December 1999 14.94 14.01
March 2000 13.82 14.68 June 2000 13.87 14.55
September 2000 14.90 14.38 December 2000 15.57 14.54
March 2001 15.49 14.96 June 2001 17.39 15.84
September 2001 19.17 16.91 December 2001 19.04 17.77
March 2002 18.70 18.58 June 2002 19.91 19.21
September 2002 22.41 20.02 December 2002 22.16 20.80
March 2003 19.52 21.00 June 2003 20.19 21.07
September 2003 21.66 20.88 December 2003 21.34 20.68
March 2004 20.00 20.80 June 2004 21.50 21.13
- ----------
Source of repayment and outstanding mortgage information: Bank of England
You should also note that the prior two CPR tables present the historical
CPR experience only of building societies in the UK. During the late 1990's, a
number of former building societies (including Northern Rock) converted to
stock form UK 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 four quarter rolling average
125
CPR experience of banks during 1998 was 14.85%, during 1999 was 16.08%, during
2000 was 15.34%, during 2001 was 18.69%, during 2002 was 21.81% and during 2003
was 23.82%.
REPOSSESSION RATE
The repossession rate of residential mortgaged properties in the UK has
steadily declined since 1991:
YEAR REPOSSESSIONS (%) YEAR REPOSSESSIONS (%) YEAR REPOSSESSIONS (%)
- ---------- ----------------- ----- ----------------- ---- -----------------
1982 0.11 1989 0.17 1996 0.40
1983 0.12 1990 0.47 1997 0.31
1984 0.17 1991 0.77 1998 0.31
1985 0.25 1992 0.69 1999 0.27
1986 0.30 1993 0.58 2000 0.20
1987 0.32 1994 0.47 2001 0.15
1988 0.22 1995 0.47 2002 0.11
2003 0.07
- ----------
Source: Council of Mortgage Lenders
In January 2004, the Council of Mortgage Lenders published arrears figures
for the year ended 2003, which showed that repossessions in the United Kingdom
had fallen to a 22-year low. In 2003, the repossession rate in the United
Kingdom was 0.07%. No assurance can be given as to whether, or for how long,
this downward trend will continue.
ARREARS INFORMATION
The percentage of mortgage loans in arrears in the UK has steadily declined
since 1993:
ARREARS 6-12 ARREARS 12 ARREARS 6-12 ARREARS 12
YEAR MONTHS (%) MONTHS + (%) YEAR MONTHS (%) MONTHS + (%)
- -------------- ------------ ------------ -------- ------------ ------------
1985 0.74 0.17 1994 1.28 1.12
1986 0.64 0.16 1995 1.20 0.81
1987 0.67 0.18 1996 0.95 0.63
1988 0.50 0.12 1997 0.69 0.42
1989 0.73 0.15 1998 0.68 0.32
1990 1.31 0.38 1999 0.52 0.27
1991 1.87 0.93 2000 0.43 0.19
1992 2.07 1.48 2001 0.38 0.18
1993 1.62 1.50 2002 0.30 0.15
2003 0.25 0.11
- ----------
Source: Council of Mortgage Lenders
The arrears table above shows the number of mortgage loans in arrears at the
end of the period as a percentage of the total number of mortgage loans
outstanding at the end of the period.
HOUSE PRICE TO EARNINGS RATIO
The following table shows the ratio for any one year of the average annual
value of houses (sourced prior to and including 1993 from the DETR/BSA 5%
Sample Survey of Building Society Mortgage Completions and sourced from and
including 1994 from the DETR/CML Survey of Mortgage Lenders) compared to the
average annual salary in the UK 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.
126
YEAR HOUSE PRICE TO EARNINGS RATIO YEAR HOUSE PRICE TO EARNINGS RATIO
- --------- ----------------------------- ------- -----------------------------
1988 5.22 1996 3.40
1989 4.72 1997 3.62
1990 4.24 1998 3.86
1991 3.79 1999 4.08
1992 3.48 2000 4.44
1993 3.46 2001 4.51
1994 3.42 2002 5.09
1995 3.37 2003 5.64
- ----------
Source: Council of Mortgage Lenders
HOUSE PRICE INDEX
UK residential property prices, as measured by the Nationwide House Price
Index and Halifax House Price Index (collectively the "HOUSING INDICES"), have
generally followed the UK Retail Price Index over an extended period.
Nationwide is a UK building society and Halifax is a UK bank.
The housing market has been through three economic cycles since 1976. High
year to year increases in the Housing Indices occurred in the late 1970s and
late 1980s with greatest decrease in the early 1990s. The Housing Indices have
generally increased since 1996.
NATIONWIDE
UK RETAIL HOUSE HALIFAX HOUSE
PRICE INDEX PRICE INDEX PRICE INDEX
--------------- --------------- ---------------
% ANNUAL % ANNUAL % ANNUAL
TIME IN QUARTERS INDEX CHANGE1 INDEX CHANGE1 INDEX CHANGE1
- ----------------------------- ----- -------- ----- -------- ----- --------
1973 Q4 24.87 10.1 19.5 N/A N/A N/A
1974 Q1 26.01 12.6 19.8 N/A N/A N/A
1974 Q2 27.55 15.3 20.0 N/A N/A N/A
1974 Q3 28.14 15.8 20.2 N/A N/A N/A
1974 Q4 29.63 17.5 20.4 4.4 N/A N/A
1975 Q1 31.5 19.2 20.7 4.5 N/A N/A
1975 Q2 34.8 23.2 21.4 6.8 N/A N/A
1975 Q3 35.6 23.5 21.9 7.9 N/A N/A
1975 Q4 37.0 22.2 22.5 10.1 N/A N/A
1976 Q1 38.2 19.2 23.0 10.3 N/A N/A
1976 Q2 39.5 12.9 23.4 9.0 N/A N/A
1976 Q3 40.7 13.4 23.9 8.9 N/A N/A
1976 Q4 42.6 14.0 24.4 7.8 N/A N/A
1977 Q1 44.6 15.5 24.8 7.4 N/A N/A
1977 Q2 46.5 16.3 25.3 7.8 N/A N/A
1977 Q3 47.1 14.5 25.9 7.8 N/A N/A
1977 Q4 47.8 11.5 26.2 7.4 N/A N/A
1978 Q1 48.6 8.7 27.6 10.8 N/A N/A
1978 Q2 50.0 7.2 28.9 13.3 N/A N/A
1978 Q3 50.8 7.5 31.7 20.4 N/A N/A
1978 Q4 51.8 8.0 33.6 24.6 N/A N/A
1979 Q1 53.4 9.3 35.5 25.3 N/A N/A
1979 Q2 55.7 10.8 38.1 27.5 N/A N/A
1979 Q3 59.1 15.2 40.9 25.3 N/A N/A
1979 Q4 60.7 15.9 43.8 26.7 N/A N/A
1980 Q1 63.9 18.0 45.2 24.3 N/A N/A
1980 Q2 67.4 19.0 46.6 20.2 N/A N/A
1980 Q3 68.5 14.7 47.1 14.3 N/A N/A
1980 Q4 69.9 14.1 46.9 6.7 N/A N/A
1981 Q1 72.0 11.9 47.3 4.5 N/A N/A
1981 Q2 75.0 10.7 48.1 3.2 N/A N/A
127
NATIONWIDE
UK RETAIL HOUSE HALIFAX HOUSE
PRICE INDEX PRICE INDEX PRICE INDEX
--------------- --------------- ---------------
% ANNUAL % ANNUAL % ANNUAL
TIME IN QUARTERS INDEX CHANGE1 INDEX CHANGE1 INDEX CHANGE1
- ----------------------------- ----- -------- ----- -------- ----- --------
1981 Q3 76.3 10.8 48.3 2.3 N/A N/A
1981 Q4 78.3 11.4 47.5 1.3 N/A N/A
1982 Q1 79.4 9.8 48.2 1.9 N/A N/A
1982 Q2 81.9 8.8 49.2 2.4 N/A N/A
1982 Q3 81.9 7.0 49.8 3.2 N/A N/A
1982 Q4 82.5 5.3 51.0 7.2 N/A N/A
1983 Q1 83.1 4.5 52.5 8.4 97.1 N/A
1983 Q2 84.8 3.6 54.6 10.4 99.4 N/A
1983 Q3 86.1 5.0 56.2 12.1 101.5 N/A
1983 Q4 86.9 5.2 57.1 11.2 102.3 N/A
1984 Q1 87.5 5.1 59.2 12.0 104.1 7.0
1984 Q2 89.2 5.0 61.5 11.9 106.0 6.4
1984 Q3 90.1 4.6 62.3 10.4 108.4 6.6
1984 Q4 90.9 4.5 64.9 12.8 111.0 8.2
1985 Q1 92.8 5.9 66.2 11.2 113.5 8.6
1985 Q2 95.4 6.7 68.2 10.3 115.4 8.5
1985 Q3 95.4 5.7 69.2 10.5 116.8 7.5
1985 Q4 96.1 5.5 70.7 8.5 120.6 8.3
1986 Q1 96.7 4.1 71.1 7.1 124.0 8.8
1986 Q2 97.8 2.5 73.8 8.0 128.1 10.4
1986 Q3 98.3 3.0 76.3 9.7 132.2 12.4
1986 Q4 99.6 3.6 79.0 11.1 136.8 12.6
1987 Q1 100.6 3.9 81.6 13.7 142.3 13.8
1987 Q2 101.9 4.1 85.8 15.0 146.7 13.6
1987 Q3 102.4 4.1 88.6 15.0 151.5 13.6
1987 Q4 103.3 3.6 88.5 11.4 158.0 14.4
1988 Q1 104.1 3.4 90.0 9.8 167.0 16.0
1988 Q2 106.6 4.5 97.6 13.0 179.4 20.1
1988 Q3 108.4 5.7 108.4 20.1 197.4 26.5
1988 Q4 110.3 6.6 114.2 25.5 211.8 29.3
1989 Q1 112.3 7.6 118.8 27.8 220.7 27.9
1989 Q2 115.4 7.9 124.2 24.1 226.1 23.1
1989 Q3 116.6 7.3 125.2 14.4 225.5 13.3
1989 Q4 118.8 7.4 122.7 7.2 222.5 4.9
1990 Q1 121.4 7.8 118.9 0.1 223.7 1.4
1990 Q2 126.7 9.3 117.7 -5.4 223.3 -1.2
1990 Q3 129.3 10.3 114.2 -9.2 222.7 -1.2
1990 Q4 129.9 8.9 109.6 -11.3 223.0 0.2
1991 Q1 131.4 7.9 108.8 -8.8 223.1 -0.3
1991 Q2 134.1 5.7 110.6 -6.2 221.9 -0.6
1991 Q3 134.6 4.0 109.5 -4.2 219.5 -1.4
1991 Q4 135.7 4.4 107.0 -2.4 217.7 -2.4
1992 Q1 136.7 4.0 104.1 -4.4 213.2 -4.5
1992 Q2 139.3 3.8 105.1 -5.1 208.8 -6.1
1992 Q3 139.4 3.5 104.2 -5.0 206.9 -5.9
1992 Q4 139.2 2.5 100.1 -6.7 199.5 -8.7
1993 Q1 139.3 1.9 100.0 -4.0 199.6 -6.6
1993 Q2 141.0 1.2 103.6 -1.4 201.7 -3.5
1993 Q3 141.9 1.8 103.2 -1.0 202.6 -2.1
1993 Q4 141.9 1.9 101.8 1.7 203.5 2.0
1994 Q1 142.5 2.3 102.4 2.4 204.6 2.5
1994 Q2 144.7 2.6 102.5 -1.1 202.9 0.6
1994 Q3 145.0 2.2 103.2 0.0 202.7 0.0
1994 Q4 146.0 2.8 104.0 2.1 201.9 -0.8
1995 Q1 147.5 3.4 101.9 -0.5 201.8 -1.4
128
NATIONWIDE
UK RETAIL HOUSE HALIFAX HOUSE
PRICE INDEX PRICE INDEX PRICE INDEX
--------------- --------------- ---------------
% ANNUAL % ANNUAL % ANNUAL
TIME IN QUARTERS INDEX CHANGE1 INDEX CHANGE1 INDEX CHANGE1
- ----------------------------- ----- -------- ----- -------- ----- --------
1995 Q2 149.8 3.5 103.0 0.5 199.3 -1.8
1995 Q3 150.6 3.8 102.4 -0.8 197.8 -2.4
1995 Q4 150.7 3.2 101.6 -2.3 199.2 -1.3
1996 Q1 151.5 2.7 102.5 0.6 202.1 0.1
1996 Q2 153.0 2.1 105.8 2.7 206.7 3.6
1996 Q3 153.8 2.1 107.7 5.1 208.8 5.4
1996 Q4 154.4 2.4 110.1 8.0 213.9 7.1
1997 Q1 155.4 2.5 111.3 8.3 216.7 7.0
1997 Q2 157.5 2.9 116.5 9.6 220.2 6.3
1997 Q3 159.3 3.5 121.2 11.8 222.6 6.4
1997 Q4 160.0 3.6 123.3 11.4 225.4 5.2
1998 Q1 160.8 3.4 125.5 12.0 228.4 5.3
1998 Q2 163.4 3.7 130.1 11.0 232.1 5.3
1998 Q3 164.4 3.2 132.4 8.8 234.8 5.3
1998 Q4 164.4 2.7 132.3 7.0 237.2 5.1
1999 Q1 164.1 2.0 134.6 7.0 238.6 4.4
1999 Q2 165.6 1.3 139.7 7.1 245.5 5.6
1999 Q3 166.2 1.1 144.4 8.6 255.5 8.4
1999 Q4 167.3 1.7 148.9 11.8 264.1 10.7
2000 Q1 168.4 2.6 155.0 14.1 273.1 13.5
2000 Q2 171.1 3.3 162.0 14.8 272.8 10.5
2000 Q3 171.7 3.3 161.5 11.2 275.9 7.7
2000 Q4 172.2 2.9 162.8 9.0 278.6 5.3
2001 Q1 172.2 2.2 167.5 7.8 281.7 3.1
2001 Q2 174.4 1.9 174.8 7.6 293.2 7.2
2001 Q3 174.6 1.7 181.6 11.8 302.4 9.2
2001 Q4 173.4 0.7 184.6 12.5 311.8 11.3
2002 Q1 174.5 1.3 190.2 12.7 327.3 15.0
2002 Q2 176.2 1.0 206.5 16.6 343.7 15.9
2002 Q3 177.6 1.7 221.1 19.7 366.1 19.1
2002 Q4 178.5 2.9 231.3 22.6 392.1 22.9
2003 Q1 179.9 3.0 239.3 22.9 405.6 21.4
2003 Q2 181.3 2.9 250.1 19.2 419.8 20.0
2003 Q3 182.5 2.7 258.9 15.8 435.3 17.3
2003 Q4 183.5 2.8 267.1 14.4 455.2 14.9
2004 Q1 184.6 2.6 279.7 15.6 480.4 16.9
2004 Q2 186.8 3.0 298.7 17.8 508.9 19.2
- ----------
1 The percentage annual change is calculated in accordance with the following
formula:
In (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.
Source: Office for National Statistics, Nationwide, Halifax.
129
THE ADMINISTRATOR AND THE ADMINISTRATION AGREEMENT
THE ADMINISTRATOR
The mortgages trustee, the seller and Funding have appointed Northern Rock
plc under the terms of the administration agreement as the initial
administrator of the mortgage loans. The administrator performs the day-to-day
servicing of the mortgage loans through its retail branches, mortgage service
centers and telephone banking and operations centers. The administrator will
continue to administer other mortgage loans in addition to those mortgage loans
included in the mortgage portfolio. The administrator's registered office is
Northern Rock House, Gosforth, Newcastle upon Tyne NE3 4PL, United Kingdom.
This section describes the administrator's procedures in relation to
mortgage loans generally. A description of the administrator's obligations
under the administration agreement follows in the next section. The
administrator is continually reviewing the way in which it conducts its
mortgage loan administration business in order to ensure that it remains up-to-
date and cost effective in a competitive market, and the administrator may
therefore change its administration processes from time to time.
ADMINISTRATION OF MORTGAGE LOANS
Administration procedures include monitoring compliance with and
administering the mortgage loan features and facilities applicable to the
mortgage loans, responding to customer inquiries and management of mortgage
loans in arrears. See "-- THE ADMINISTRATION AGREEMENT".
Under the terms and conditions of the mortgage loans, borrowers generally
must pay the monthly payment required under the terms and conditions of the
mortgage loans on each monthly payment due date. Interest accrues in accordance
with the terms and conditions of each mortgage loan and is collected from
borrowers monthly.
In the case of variable rate mortgage loans, the administrator determines
the standard variable rate from time to time. In the case of variable rate
mortgage loans which are assigned to the mortgages trustee, except in certain
limited circumstances, the administrator will continue to determine the
standard variable rate applicable to such mortgage loans on behalf of the
mortgages trustee, Funding and/or the security trustee. The administrator will
take all necessary steps under the mortgage loans to notify borrowers of any
change in the interest rates applicable to the mortgage loans (whether or not
due to a change in the standard variable rate) and will continue to notify
borrowers of any such change under the terms of the administration agreement.
Payments of interest and, in the case of repayment mortgage loans,
principal, are payable monthly in advance. Where a borrower defaults in the
payment of interest and/or principal under a mortgage loan, the administrator
will follow the usual arrears procedures described under "-- ARREARS AND
DEFAULT PROCEDURES" below.
ARREARS AND DEFAULT PROCEDURES
The administrator collects all payments due under or in connection with
mortgage loans in accordance with its administration procedures in force from
time to time, but having regard to the circumstances of the relevant borrower
in each case. In accordance with standard market practice in the UK mortgage
loan servicing business, the administrator identifies a mortgage loan as being
"IN ARREARS" when, on any due date, the overdue amounts which were due on
previous due dates equal, in the aggregate, one or more full monthly payments.
In making an arrears determination, the administrator calculates as of the date
of determination the difference between:
130
* the sum of all monthly payments that were due and payable by a
borrower on any due date up to that date of determination (less the
aggregate amount of all authorized underpayments made by such
borrower up to such date of determination); and
* the sum of all payments actually made by that borrower up to that
date of determination.
The administrator will determine that a mortgage loan is in arrears if the
result arrived at by dividing that difference (if any) by the amount of the
required monthly payment equals or exceeds 1. A mortgage loan will continue to
be in arrears for each calendar month in which the result of the foregoing
arrears calculation equals or exceeds 1, which result means that the borrower
has missed payments that in the aggregate equal or exceed one monthly payment,
and subsequent payments by that borrower (if any) have not reduced the amount
of missed payments to less than one monthly payment. As the administrator
determines its arrears classification based upon the number of full monthly
payments that have been missed by a borrower, a borrower that has missed
payments that in the aggregate equal or exceed 2 monthly payments (but for
which the aggregate of missed payments is less than 3 monthly payments) would
be classified by the administrator as being between 2-3 months in arrears, and
so on. For example, suppose a borrower has made four monthly payments (either
in consecutive months or throughout any period of time) each in an amount less
than the required monthly amount, and the difference, for the purposes of
arrears calculation, between the sum of the payments due and payable by that
borrower and the sum of the payments actually made by that borrower (that
difference then divided by that borrower's required monthly payment) is less
than 1. The administrator would not classify that borrower as being in arrears.
However, if that borrower makes another payment (for the purposes of our
example, on the payment date in June 2003) that is less than the required
monthly amount and which deficient payment, when aggregated with that
borrower's prior deficient payments, results in the foregoing arrears
calculation equaling or exceeding 1, that borrower will be classified as being
one month in arrears as of July 1, 2003. Furthermore, if the result of the
foregoing arrears calculation continues to equal or exceed 1 (but remains less
than 2) until August 2003, that borrower will continue to be classified as
being one month in arrears during that time period. The administrator will not
classify the borrower as being two months in arrears until the beginning of the
month following the monthly payment date in which the result of the arrears
calculation equals or exceeds 2.
This formula that the administrator uses to determine arrears means that
there may be mortgage loans in the mortgage portfolio on which borrowers have
paid less than the monthly payment due, but which have not been classified as
being in arrears, as the aggregate of the amount of deficient payments does not
equal or exceed one monthly payment. This also means that there may be a
significant period of time between the due date on which a borrower pays less
than the monthly payment due on that due date and the date that the aggregate
amount of those deficient payments equals or exceeds one monthly payment, at
which time the administrator will classify that mortgage loan as being in
arrears. In addition, there may be a significant period of time between the
classification of a borrower as being, for example, one month in arrears, and
(assuming the borrower continues to make deficient monthly payments) the time
at which those deficient payments in the aggregate result in the administrator
classifying the borrower as being two months in arrears.
The arrears are reported at each calendar month end. After the arrears are
first reported the borrower is contacted and asked for payment of the arrears.
The administrator will continue to contact the borrower asking for payment of
the arrears. The administrator classifies a mortgage loan that is in arrears as
"NON-PERFORMING" if the related borrower has not made any payment within any of
the three consecutive calendar months prior to the date of determination.
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In the case of any flexible and non-flexible mortgage loan and subject to
the terms and conditions of the mortgage loan arrears are capitalized upon
receipt of three consecutive full monthly payments.
In seeking to control and manage arrears, the administrator from time to
time enters into arrangements with borrowers 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.
The administrator may vary any of these arrangements from time to time at
its discretion, the primary aim being to rehabilitate the borrower and recover
the arrears.
Legal proceedings do not usually commence until the arrears are equal 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 administrator may send further letters to the borrower
encouraging the borrower to enter into discussions to pay the arrears. The
administrator may still enter into an arrangement with a borrower at any time
prior to a court hearing, or it may adjourn a court hearing. If the
administrator applies to the court for an order for possession following a
default of the borrower, the court has discretion as to whether it will grant
the order requiring the borrower to vacate the mortgaged property, and
discretion as to the terms upon which the order is granted. If after the
possession order has been granted the borrower does not voluntarily vacate the
property, then the administrator will be required to request a warrant for
execution by a court officer of the possession order. On average, the
equivalent of 12 monthly payments may have been missed prior to the
administrator obtaining possession, assuming no prior mortgage or the
imposition of defenses. Where a court order for possession is deferred to allow
time for payment and the borrower subsequently defaults in making the payment,
the administrator may take any action it considers appropriate, including
entering into an arrangement with the borrower. In all cases, the administrator
has a duty of care to the borrower to act reasonably.
The administrator has discretion to deviate from these arrears procedures.
In particular, the administrator 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 the administrator has been granted possession, the administrator may
take any action it considers appropriate, subject to any fiduciary duties which
the administrator may owe to the borrower, including but not limited to:
* securing, maintaining or protecting the property and putting it
into a suitable condition for sale;
* creating (other than in Scotland) any estate or interest on the
property, including a leasehold;
* disposing 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
* letting the property for any period of time.
Subject as provided above, the administrator has discretion as to the timing
of any of these actions, including whether to postpone the action for any
period of time. The administrator may also carry out works on the property as
it considers appropriate, including the demolition of the whole or any part of
it.
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The period between the administrator obtaining possession and sale of a
mortgaged property is generally between three and nine months. However, you
should note that the administrator's ability to exercise its power of sale in
respect of a mortgaged property is dependent upon mandatory legal restrictions
as to notice requirements. In addition, there may be factors outside the
administrator's control, 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 administrator's decision to exercise its power of sale and final
completion of the sale.
The administrator will apply the net proceeds of sale of the mortgaged
property against the sums owed by the borrower to the extent necessary to
discharge the mortgage including any accumulated fees and interest. Where those
proceeds are insufficient to cover all amounts owing under the mortgage loan,
the administrator will make a claim under the MIG policy, if appropriate. Where
the funds arising from application of these procedures are insufficient to pay
all amounts owing in respect of a mortgage loan, the funds are applied first in
paying principal, and secondly in paying interest and costs.
At this point the administrator will close the borrower's account. However,
the borrower remains liable for any deficit remaining after the mortgaged
property is sold but before the proceeds of any MIG insurance are applied. The
administrator may pursue the borrower to the extent of any deficiency resulting
from the sale if the administrator deems it appropriate to do so.
These arrears and security enforcement procedures may change over time as a
result of a change in the administrator's business practices, legislative or
regulatory changes or business codes of practice.
ARREARS EXPERIENCE
The following table summarizes, in respect of Northern Rock's overall
mortgage portfolio, Northern Rock's experience administering mortgage loans in
arrears and its repossession experience for residential mortgage loans that
were originated by the seller. The information set forth below includes
information in respect of Northern Rock's experience in administering mortgage
loans secured by mortgaged properties located in England, Wales and Scotland.
The mortgage loans used for statistical purposes in the table below are
administered in accordance with Northern Rock's administration policies. You
should note the method by which Northern Rock classifies mortgage loans as
being in arrears, which is described under "-- ARREARS AND DEFAULT PROCEDURES",
and which is important in helping you to understand Northern Rock's arrears and
repossession experience as set forth in the following table.
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DECEMBER 31, 1996(1) DECEMBER 31, 1997(1) DECEMBER 31, 1998(1) DECEMBER 31, 1999(1)
----------------------- ---------------------- ---------------------- ----------------------
[GBP] US$ % [GBP] US$ % [GBP] US$ % [GBP] US$ %
(MLS) (MLS) (MLS) (MLS) (MLS) (MLS) (MLS) (MLS)
Current balance 10,515 19,212 n/a 12,119 22,143 n/a 13,720 25,069 n/a 15,524 28,365 n/a
Number of mortgage loans 292,222 292,222 n/a 315,184 315,184 n/a 327,088 327,088 n/a 338,149 338,149 n/a
outstanding
Current balance of loans
in
arrears
1 to 2 months 231.3 422.62 2.20 283.4 517.81 2.34 244.4 446.56 1.78 247.5 452.22 1.59
2 to 3 months 82.0 149.83 0.78 71.2 130.09 0.59 101.8 186.00 0.74 62.5 114.20 0.40
3 to 6 months 93.5 170.84 0.89 78.1 142.70 0.64 93.7 171.20 0.68 71.7 131.01 0.46
6 to 12 months 83.5 152.57 0.79 56.3 102.87 0.46 51.2 93.55 0.37 36.0 65.78 0.23
Over 12 months 96.9 177.05 0.92 45.1 82.40 0.37 37.5 68.52 0.27 21.3 38.92 0.14
Total current balance of 587.2 1,072.90 5.58 534.1 975.88 4.41 528.6 965.83 3.85 439.0 802.12 2.83
mortgage loans in
arrears
Number of mortgage loans
outstanding in arrears
1 to 2 months 6,136 6,136 2.10 6,922 6,922 2.20 6,040 6,040 1.85 5,428 5,428 1.61
2 to 3 months 2,247 2,247 0.77 1,793 1,793 0.57 2,579 2,579 0.79 1,470 1,470 0.43
3 to 6 months 2,485 2,485 0.85 1,911 1,911 0.61 2,269 2,269 0.69 1,749 1,749 0.52
6 to 12 months 2,005 2,005 0.69 1,322 1,322 0.42 1,174 1,174 0.36 870 870 0.26
Over 12 months 2,104 2,104 0.72 940 940 0.30 756 756 0.23 447 447 0.13
Total number of mortgage 14,977 14,977 5.13 12,888 12,888 4.09 12,818 12,818 3.92 9,964 9,964 2.95
loans outstanding in
arrears
Repossessions during 1,133 1,133 0.39 956 956 0.30 875 875 0.27 763 763 0.23
year
Amount of mortgage loan 14 25.58 n/a 14 25.58 n/a 10.8 19.73 n/a 8.5 15.53 n/a
losses
Mortgage loan losses as 0.13% 0.13% n/a 0.12% 0.12% n/a 0.08% 0.08% n/a 0.05% 0.05% n/a
% of total current
balance
DECEMBER 31, 2000(1) DECEMBER 31, 2001(1) DECEMBER 31, 2002(1) DECEMBER 31, 2003(1)
---------------------- ---------------------- ---------------------- -----------------------
[GBP] US$ % [GBP] US$ % [GBP] US$ % [GBP] US$ %
(MLS) (MLS) (MLS) (MLS) (MLS) (MLS) (MLS) (MLS)
Current balance 17,858 32,629 n/a 21,639 39,538 n/a 28,955 52,905 n/a 36,875 67,376 n/a
Number of mortgage loans 367,963 367,963 n/a 414,023 414,023 n/a 489,690 489,690 n/a 531,403 531,403 n/a
outstanding
Current balance of loans
in arrears
1 to 2 months 218.2 398.68 1.22 231.98 423.86 1.07 271.07 495.29 0.94 349.77 639.08 0.95
2 to 3 months 77.1 140.87 0.43 78.08 142.66 0.36 104.94 191.74 0.36 123.18 225.07 0.33
3 to 6 months 69.3 126.62 0.39 74.11 135.41 0.34 96.55 176.41 0.33 101.42 185.31 0.28
6 to 12 months 34.8 63.58 0.19 36.17 66.08 0.17 32.60 59.57 0.11 36.86 67.35 0.10
Over 12 months 13.2 24.12 0.07 9.27 16.95 0.04 7.39 13.50 0.03 5.96 10.89 0.02
Total current balance of 412.6 753.88 2.31 429.60 784.95 1.99 512.55 936.51 1.77 617.19 1,127.70 1.67
mortgage loans in
arrears
Number of mortgage loans
outstanding in arrears
1 to 2 months 5,104 5,104 1.39 4,861 4,861 1.17 4,557 4,557 0.93 5,260 5,260 0.99
2 to 3 months 1,896 1,896 0.52 1,694 1,694 0.41 2,150 2,150 0.44 1,965 1,965 0.37
3 to 6 months 1,601 1,601 0.44 1,598 1,598 0.39 1,946 1,946 0.40 1,674 1,674 0.32
6 to 12 months 800 800 0.22 736 736 0.18 658 658 0.13 634 634 0.12
Over 12 months 290 290 0.08 191 191 0.05 133 133 0.03 106 106 0.02
Total number of mortgage 9,691 9,691 2.63 9,080 9,080 2.19 9,444 9,444 1.93 9,639 9,639 1.81
loans outstanding in
arrears
Repossessions during 620 620 0.17 658 658 0.16 573 573 0.06 509 509 0.09
year
Amount of mortgage loan 7 12.79 n/a 5.27 9.63 n/a 3.72 6.80 n/a 1.00 1.83 n/a
losses
Mortgage loan losses as 0.04% 0.04% n/a 0.03% 0.03% n/a 0.01% 0.01% n/a 0.00% 0.00% n/a
% of total current
balance
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JUNE 30, 2004(1)
----------------------
[GBP] US$ %
(MLS) (MLS)
Current balance 41,144 75,176 n/a
Number of mortgage loans outstanding 548,426 548,426 n/a
Current balance of loans in arrears
1 to 2 months 400.53 731.83 0.97
2 to 3 months 138.01 252.17 0.34
3 to 6 months 110.77 202.39 0.27
6 to 12 months 31.24 57.08 0.08
Over 12 months 3.55 6.49 0.01
Total current balance of mortgage loans in arrears 684.10 0.00 0.00
Number of mortgage loans outstanding in arrears
1 to 2 months 5,285 5,285 0.96
2 to 3 months 1,979 1,979 0.36
3 to 6 months 1,591 1,591 0.29
6 to 12 months 501 501 0.09
Over 12 months 49 49 0.01
Total number of mortgage loans outstanding in arrears 9,405 9,405 1.71
Repossessions during year 309 309 0.06
Amount of mortgage loan losses 0.47 0.86 n/a
Mortgage loan losses as % of total current balance 0.00% 0.00% n/a
- ----------
Provided by Northern Rock plc
(1) Year ended December 31 or six months ended June 30, as applicable
Repossessions expresses the number of mortgaged properties that the
administrator has taken into possession during the period, as a percentage of
the number of mortgage loans outstanding at the end of the period.
There can be no assurance that the arrears and repossession experience with
respect to the mortgage loans comprising the trust property will correspond to
the experience of the administrator's overall mortgage portfolio as set forth
in the foregoing table. The statistics in the preceding table represent only
the arrears and repossession experience for the years presented, whereas the
arrears and repossession experience on the mortgage loans in the trust property
will depend on results obtained over the life of the mortgage loans in the
trust property. The foregoing statistics include mortgage loans with a variety
of payment type, product type and other characteristics that may not correspond
to those of the mortgage loans in the trust property. Moreover, if the property
market experiences an overall decline in property values so that the value of
the properties in the trust falls below the current balances of the mortgage
loans comprising the overall pool, the actual rates of arrears and
repossessions could be significantly higher than those previously experienced
by the administrator. In addition, other adverse economic conditions, whether
or not they affect property values, may nonetheless affect the timely payment
by borrowers of principal and interest and, accordingly, the rates of arrears,
repossessions and losses with respect to the mortgage loans in the trust
property. You should note that the United Kingdom experienced relatively low
and stable interest rates during the periods covered in the preceding tables.
If interest rates were to rise, it is likely that the rate of arrears and
repossessions likewise would rise.
Northern Rock's level of mortgage arrears has been on a downward trend since
the recession in the UK in the early 1990s. Between June 1996 and December
2000, interest rate increases, and the reduction (and ultimate elimination) of
benefits offered by the Mortgage Interest Relief At Source scheme, have
contributed to slowing that downward trend.
House price inflation has indirectly contributed to the improved arrears
situation by enabling borrowers to sell at a profit if they encounter financial
hardship. Recently, house price inflation has broken through its historical
upward trend line and is expected to moderate. If it does not, then there is
potential for a boom-bust situation similar to that which occurred in the
period from 1988 to 1990, where housing prices rose substantially
135
faster than inflation as housing turnover increased to record levels. At that
time, the UK economy grew rapidly, which led to falling unemployment and
relatively high rates of real income growth. These fed into higher demand for
housing and house prices rose rapidly. Demand was further increased by changes
in taxation legislation with regard to tax relief on mortgage payments in 1988.
When monetary policy was tightened subsequently (in terms of both "LOCKING IN"
sterling to the European Exchange Rate Mechanism and higher interest rates),
the pace of economic activity first slowed and then turned into recession.
Rising unemployment combined with high interest rates led to a fall in housing
demand and increased default rates and repossessions. The ability of borrowers
to refinance was limited as house prices began to fall and many were in a
position of negative equity (borrowings greater than the resale value of the
property) in relation to their mortgage.
In January, 2004, the Council of Mortgage Lenders published arrears figures
for the year ended 2003, which showed that repossessions in the United Kingdom
had fallen to a 22-year low. No assurance can be given as to whether, or for
how long, this downward trend will continue. See "RISK FACTORS -- THE TIMING
AND AMOUNT OF PAYMENTS ON THE MORTGAGE LOANS COULD BE AFFECTED BY VARIOUS
FACTORS WHICH MAY ADVERSELY AFFECT PAYMENTS ON THE NOTES".
The performance of Northern Rock's new business and the arrears profiles are
monitored monthly against various triggers. Whenever arrears rise and a trigger
is exceeded the cause is reviewed and acted upon. In a continuing effort to
reduce the level of mortgage arrears and to improve collection performance,
Northern Rock has developed behavioral scoring systems to target differing
groups of customers in arrears according to risk.
THE ADMINISTRATION AGREEMENT
The following section describes, in summary, the material terms of the
administration agreement. The description does not purport to be complete and
is subject to the provisions of the administration agreement, a form of which
has been filed as an exhibit to the registration statement of which this
prospectus is a part.
APPOINTMENT
On March 26, 2001, each of the mortgages trustee, Funding and the seller
appointed Northern Rock under the administration agreement to be their agent to
exercise their respective rights, powers and discretions in relation to the
mortgage loans and their related security and to perform their respective
duties in relation to the mortgage loans and their related security. The
security trustee is a party to the administration agreement and has consented
to the appointment. The administrator will continue to administer mortgage
loans which have not been assigned to the mortgages trustee. The administrator
has agreed to administer the mortgage loans assigned to the mortgages trustee
in the same manner as it administers mortgage loans which have not been
assigned to the mortgages trustee but remain on the books of the seller.
Subject to the provisions of the administration agreement, the mortgage
loans, the mortgages and the transaction documents, the administrator has the
power to do or cause to be done any and all things which it reasonably
considers necessary, convenient or incidental to the administration of the
mortgage loans and their related security or the exercise of such rights,
powers and discretions.
The administrator has agreed to comply with any reasonable directions,
orders and instructions which any of the mortgages trustee, Funding or the
seller may from time to time give to it in accordance with the provisions of
the administration agreement (and, in the event of any conflict, those of the
mortgages trustee shall prevail).
The administrator has agreed to administer and service the mortgage loans
and their related security in accordance with:
* the terms and conditions of the mortgage loans and the mortgages;
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* the administrator's administration procedures. The administrator's
administration procedures are the administration, arrears and
enforcement policies and procedures from time to time pursuant to
which the administrator administers and enforces mortgage loans
and their related security which are beneficially owned by the
seller; and
* the terms and provisions of the administration agreement.
UNDERTAKINGS BY THE ADMINISTRATOR
Under the administration agreement, the administrator has undertaken, among
other things:
(A) to determine and set the interest rates applicable to the mortgage
loans which have been assigned to the mortgages trustee including
the standard variable rate, except in the limited circumstances
set out in the administration agreement when the mortgages
trustee, Funding and/or the security trustee will be entitled to
do so. The administrator may not at any time, without the prior
consent of the mortgages trustee, Funding and the security
trustee, set or maintain the standard variable rate and other
discretionary rates or margins for mortgage loans which form part
of the mortgages trust at rates which are higher than the then
prevailing rates for mortgage loans which are beneficially owned
by the seller outside the mortgages trust;
(B) to determine on each payment date, having regard to the aggregate
of:
(1) the income which Funding would expect to receive during the
next succeeding interest period;
(2) the standard variable rate for mortgage loans forming part
of the mortgages trust and the variable mortgage rates in
respect of such mortgage loans which the administrator
proposes to set under the administration agreement; and
(3) all other resources available to Funding including the
Funding reserve fund and amounts standing to the credit of
each issuer's reserve fund and each issuer's liquidity
reserve fund, if any,
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 by
Funding in order to fund (whether by payment to a swap provider or
otherwise) the amount of interest payable in respect of the class
A notes of the issuer and the highest rated class of the previous
notes issued by each previous issuer (and the highest rated class
of notes issued by each new issuer, if any) and all amounts
ranking higher in priority to such amounts on the payment date
falling at the end of that loan interest period and (b) all other
amounts payable by Funding which rank equally with or in priority
to interest due on the intercompany loan in respect of interest
which is payable by the issuer on the class A notes of the issuer
and interest due on each previous intercompany loan in respect of
interest which is payable by each previous issuer on the highest
rated class of previous notes issued by each previous issuer (and
any new intercompany loan (if any) in respect of interest which is
payable by any new issuer on the highest rated class of notes
issued by each new issuer, if any). If the administrator
determines that there will be a revenue 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 such determination, of the amount of the revenue shortfall and
recommend the standard variable rate and the other discretionary
rates or margins which would, in the administrator's opinion, need
to be set in relation to the mortgage loans within the mortgages
trust in order for no revenue shortfall to arise, having regard to
the obligations of Funding. If the mortgages trustee, Funding
and/or the security trustee notify the
137
administrator that, having regard to the obligations of Funding,
the standard variable rate and the other discretionary rates or
margins for mortgage loans within the mortgages trust should be
increased, the administrator will take all steps which are
necessary including publishing any notice required under the
mortgage conditions to effect such increase in those rates or
margins. The mortgages trustee, Funding and/or the security
trustee may terminate the authority of the administrator to set
the standard variable rate and the other discretionary rates or
margins applicable to mortgage loans included in the mortgages
trust in certain limited circumstances set out in the
administration agreement including upon the occurrence of any
administrator termination event (as described below), in which
case the mortgages trustee shall set such standard variable rate
and the other discretionary rates or margins;
(C) except as provided in relation to re-fixed mortgage loans, not to
issue to any borrower an offer for a further advance or a product
switch without having received confirmation that the seller has
elected to purchase the relevant mortgage loan(s) together with
its related security from the seller in accordance with the terms
of the mortgage sale agreement;
(D) sixty days prior to the end of the relevant fixed rate period in
respect of any fixed rate mortgage loan included in the mortgages
trust and on behalf of the mortgages trustee, to offer to re-sell
to the seller all fixed rate mortgage loans which become
"RE-FIXED" during the three month period immediately following the
end of the then current fixed rate period. Where any "RE-FIX"
takes place this will constitute a product switch as described
above and if the seller does not purchase such mortgage loans and
their related security, the administrator will take all steps to
set the existing borrowers' re-fix rate at the higher of the rate
recommended by the administrator (having regard to Funding's
obligations), the rate notified to it by the mortgages trustee and
Funding and the rates notified to it by the trustee or trustees of
any other securitizations of the seller which include fixed rate
mortgage loans;
(E) to take all steps necessary under the mortgage conditions and
applicable law to notify borrowers of each change in interest
rates, whether due to a change in the standard variable rate
(including any such change effected at the request of the
mortgages trustee, Funding and/or the security trustee) or as a
consequence of the mortgage conditions. The administrator will
also notify the mortgages trustee, Funding and the security
trustee of any change in the standard variable rate;
(F) to maintain such records as are necessary to enforce each mortgage
loan and its related security and to keep and maintain, on a loan
by loan basis, records and accounts on behalf of the mortgages
trustee in relation to the mortgage loans;
(G) to keep or cause to be kept the mortgage loan files and title
deeds in safe custody and to the order of the mortgages trustee,
Funding and/or the security trustee and in such a manner that they
are readily identifiable and accessible;
(H) to provide the mortgages trustee, Funding and the security trustee
and their agents with access to the title deeds and mortgage loan
files at all reasonable times;
(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. The administrator will
regularly give to the mortgages trustee and the beneficiaries
written details of mortgage loans that are in arrears;
138
(J) to take all reasonable steps to collect and recover payments due
under or in respect of the mortgage loans and the related
security, including instituting proceedings and enforcing any
relevant mortgage loan, mortgage or any other related security in
accordance with the seller's administration procedures but having
regard to the circumstances of the relevant borrower in each case;
and
(K) to not knowingly fail to comply with any legal requirements in the
performance of its obligations under the administration agreement.
COLLECTION OF PAYMENTS
The administrator has undertaken to ensure that all payments due under the
mortgage loans which are included in the trust property will be made by the
relevant borrower by direct debit or, if such payment is late or borrowers
choose not to pay by direct debit, by check or other means into accounts in the
name of the administrator held with Barclays Bank plc, City Group Office, Percy
Street, Newcastle upon Tyne NE99 1JP and Lloyds TSB Bank plc, City Office,
Bailey Drive, Gillingham Business Park, Kent ME8 0LS (each a "COLLECTION BANK")
and other accounts (each a "COLLECTION ACCOUNT") which the administrator may
utilize from time to time in accordance with the collection bank agreement and
the administration agreement, all of which will be held on trust by the seller.
The administrator has agreed to use its reasonable endeavors to credit any
monthly payment made by a borrower to the relevant collection account within
the following time limits:
* in the case of direct debit payment, by close of business on the
London business day which immediately follows the day on which
such amounts are received;
* in the case of standing order, by close of business on the second
London business day following the day on which such amounts are
received;
* in the case of payment by cash, transfer payment from another
account of the seller or check where reference to the relevant
borrower is provided or payment made by way of paying-in book, by
close of business on the London business day which immediately
follows the day on which such amounts are received; and
* in the case of any payment by check where a reference to the
relevant borrower is not provided, by close of business on the
next London business day after notification from the relevant
collection bank of the identity of the borrower,
provided, however, that in any event the administrator has agreed to credit
monthly payments made by a borrower to the relevant collection account within
three London business days of receiving that monthly payment.
Payments from borrowers under mortgage loans originated by the seller which
are not intended to be assigned to the mortgages trustee are also paid into and
flow through the collection accounts.
Amounts paid into the collection accounts are held on trust by the
administrator for the relevant beneficiaries including the mortgages trustee.
The trusts in favor of the mortgages trustee are in respect of all amounts
credited to the collection accounts which represent receipts in respect of
mortgage loans which are assigned to the mortgages trustee and included in the
trust property.
The collection accounts are operated by the administrator in accordance with
the collection bank agreement. Under the collection bank agreement, until the
collection banks receive notice from the security trustee that an intercompany
loan enforcement notice has been served or that the appointment of the
administrator has been terminated, each collection bank has agreed to operate
the collection accounts in accordance with the instructions of the
administrator. If the short term, unsecured, unguaranteed and unsubordinated
debt obligations of Barclays Bank plc or Lloyds TSB Bank plc are not rated at
least "A-1+" by Standard & Poor's, "P-1" by Moody's and "F1+" by Fitch, the
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administrator will arrange for the transfer of the credit balance on such
accounts to another bank which has the required ratings. The long term and
short term, unsecured, unguaranteed and unsubordinated debt obligations of
Barclays Bank plc and Lloyds TSB Bank plc are rated as of the cut-off date "AA"
and "A-1+" and "AA" and "A-1+", respectively, by Standard & Poor's, "Aa1" and
"P-1" and "Aaa" and "P-1", respectively, by Moody's and "AA+" and "F1+" and
"AA+" and "F1+", respectively, by Fitch. Amounts standing to the credit of the
collection accounts that represent amounts collected in respect of mortgage
loans that have been assigned to the mortgages trust are transferred by the
administrator to the mortgages trustee transaction account every three London
business days.
Amounts standing to the credit of the mortgages trustee transaction account
are transferred (subject to retaining a minimum balance of [GBP]1 in such
account) on a weekly basis by the cash manager to the mortgages trustee GIC
account or, at the cash manager's option, invested in authorized investments,
provided that the yield on those authorized investments expressed as an annual
percentage rate of return is not less than the interest rate on the mortgages
trustee GIC account at the time the investment decision is made. Any amounts
invested in authorized investments, including the interest accrued on such
amounts, are transferred to the mortgages trustee GIC account on the related
distribution date.
In the case of monthly payments which are made by direct debit, the
administrator initially credits the applicable collection account with the full
amount of the direct debit. If an unpaid direct debit is returned in
circumstances where the administrator has credited to the mortgages trustee
transaction account the amount of the monthly payment, the administrator is
permitted to reclaim from the mortgages trustee transaction account the
corresponding amounts previously credited.
Any amount standing to the credit of the mortgages trustee GIC account
accrues interest at a margin below LIBOR for three-month sterling deposits.
REDEMPTION
Under the administration agreement, the administrator is responsible for
handling the procedures connected with the redemption of mortgage loans and is
authorized to release the relevant title deeds to the person or persons
entitled thereto upon redemption.
FEES
The administrator is entitled to receive a fee for servicing the mortgage
loans. On each distribution date the mortgages trustee pays to the
administrator an administration fee of 0.08% per annum (inclusive of VAT) on
the amount of the Funding share of the trust property as determined on that
distribution date in respect of the then current trust calculation period, but
only to the extent that the mortgages trustee has sufficient funds to pay such
amount in accordance with the mortgages trust allocation of revenue receipts.
The unpaid balance (if any) is carried forward until the next succeeding
distribution date and, if not paid before such time, is payable on the latest
occurring final repayment date of the intercompany loans, or on their earlier
repayment in full by Funding. The administration agreement also provides for
the administrator to be reimbursed for all reasonable out-of-pocket expenses
and charges properly incurred by the administrator in the performance of its
services under the administration agreement.
REMOVAL OR RESIGNATION OF THE ADMINISTRATOR
The appointment of the administrator may be terminated by the mortgages
trustee, Funding or the security trustee immediately upon written notice to the
administrator, on the occurrence of certain events (each an "ADMINISTRATOR
TERMINATION EVENT") including:
* the administrator fails to pay any amount due and payable by it
and such failure is not remedied for a period of 5 London business
days after the administrator becomes aware of the default;
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* subject as provided further in the transaction documents, the
administrator fails to comply with any of its other material
obligations under the administration agreement which in the
opinion of the security trustee is materially prejudicial to the
interests of the holders of the notes, the previous notes and any
new notes and such failure is not remedied for a period of 20 days
after the administrator becomes aware of the default;
* if at any time required under any UK mortgage regulatory regime
the administrator fails to obtain or maintain the necessary
license or regulatory approval enabling it to continue
administering mortgage loans; or
* the occurrence of an insolvency event in relation to the
administrator.
Upon termination of the administrator, the security trustee will agree to
use its reasonable endeavors to appoint a substitute administrator.
In addition, subject to the fulfillment of certain conditions including,
without limitation, that a substitute administrator has been appointed by the
mortgages trustee, Funding and the security trustee (and in the event of
failure to agree, by the security trustee), the administrator may voluntarily
resign by giving not less than 12 months' notice of termination to the
mortgages trustee, Funding and the seller.
Any such substitute administrator (whether appointed upon a termination of
the appointment of, or the resignation of, the administrator) is required to:
* if possible, have experience administering mortgage loans secured
on residential mortgaged properties in England, Wales and
Scotland; and
* enter into an agreement on substantially the same terms as the
provisions of the administration agreement.
In addition, the then current ratings (if any) of the notes, the previous
notes or any new notes may not adversely be affected as a result of the
appointment of the substitute administrator, unless otherwise agreed by an
extraordinary resolution of the holders of the relevant class of notes.
Forthwith upon termination of the appointment of the administrator, the
administrator must deliver the title deeds, the mortgage loan files and all
books of account and other records maintained by the administrator relating to
the mortgage loans and/or the related security to, or at the direction of, the
mortgages trustee.
The administration agreement will terminate automatically upon a termination
of the mortgages trust when Funding no longer has any interest in the trust
property.
DELEGATION BY THE ADMINISTRATOR
The administrator may, in some circumstances including with the prior
written consent of the mortgages trustee and Funding and after consultation
with the security trustee, delegate or subcontract the performance of any of
its obligations or duties under the administration agreement. Upon the
appointment of any such delegate or sub-contractor the administrator will
nevertheless remain responsible for the performance of those duties to Funding,
the mortgages trustee and the security trustee.
DELEGATION BY THE SECURITY TRUSTEE TO AN AUTHORIZED THIRD PARTY
Subject as provided in the transaction documents, the security trustee is
entitled pursuant to the administration agreement to delegate certain of its
functions and rights under the transaction documents to one or more authorized
third parties whom the rating agencies have previously confirmed in writing to
the security trustee and the issuer will not result in the ratings on the notes
being downgraded, qualified or withdrawn. The security trustee is obliged to
use reasonable endeavors to procure the appointment of an authorized third
party and in the event of any such appointment is not required to monitor or
supervise the third party's performance and is not responsible for any act or
omission of such third party or for any loss caused thereby.
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GOVERNING LAW
The administration agreement is governed by English law.
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ASSIGNMENT OF THE MORTGAGE LOANS AND RELATED SECURITY
The following section describes, in summary, the material terms of the
mortgage sale agreement. The description does not purport to be complete and is
subject to the provisions of the mortgage sale agreement, a form of which has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
THE MORTGAGE SALE AGREEMENT
Under the mortgage sale agreement dated March 26, 2001 entered into between
the seller, the mortgages trustee, the security trustee and Funding, the seller
assigned the initial mortgage portfolio together with all related security to
the mortgages trustee. The mortgage sale agreement has been amended and
restated on certain dates subsequent to the initial closing date, and the
seller assigned the further mortgage portfolios and the additional assigned
mortgage portfolio with all related security to the mortgages trustee pursuant
to such amended and restated mortgage sale agreement. In addition to providing
for the assignment of the initial mortgage portfolio, the further mortgage
portfolios and the additional assigned mortgage portfolio and related security,
the mortgage sale agreement also sets out or provides for the following:
* the representations and warranties given by the seller in relation
to the mortgage loans and the related security (and the
representations and warranties to be given by the seller as of
each assignment date in relation to any new mortgage loans and the
related security assigned to the mortgages trustee on that
assignment date);
* the assignment of other mortgage loans and their related security
to the mortgages trust;
* (i) the purchase of mortgage loans together with their related
security which are subject to a product switch or in respect of
which a further advance is made or where the borrower takes a
personal secured loan or (ii) the repurchase of mortgage loans
together with their related security where the seller has breached
any of its representations and warranties in respect of such
mortgage loans or their related security (the repurchase to
include all mortgage loans of a borrower included in the trust
property, including personal secured loans, if such a breach
occurs in respect of any mortgage loan of such borrower);
* the making of re-draws in respect of flexible mortgage loans
contained in the trust property; and
* the circumstances for the transfer of legal title to the mortgage
loans to the mortgages trustee.
In relation to Scottish mortgage loans, the mortgage sale agreement provides
for the transfer and assignment of the beneficial interest in such mortgage
loans in the additional assigned mortgage portfolio and their related security
to be effected by a declaration of trust by the seller in favour of the
mortgages trustee and for the transfer and assignment of the beneficial
interest in any other Scottish mortgage loans and their related security to be
effected by further declarations of trust (and in relation to Scottish mortgage
loans, references in this prospectus to the "ASSIGNMENT" of mortgage loans are
to be read as references to the transfer of the beneficial interest therein by
the making of such declarations of trust and the terms "ASSIGN" and "ASSIGNED"
shall in that context be construed accordingly) (see "-- TRANSFER OF LEGAL
TITLE TO THE MORTGAGES TRUSTEE").
THE ADDITIONAL ASSIGNED MORTGAGE PORTFOLIO
The seller assigned to the mortgages trustee on the August 23, 2004
assignment date the additional assigned mortgage portfolio and related
security. The assignment of the English mortgage loans and their related
security was an equitable assignment only and the transfer of the Scottish
mortgage loans and their related security was a transfer of the
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beneficial interest therein only by way of a declaration of trust. The transfer
of legal title to the additional assigned mortgage loans and their related
security may not occur or, if it does occur, will not occur until a later date,
as described under "-- TRANSFER OF LEGAL TITLE TO THE MORTGAGES TRUSTEE".
The consideration for the assignment of the additional assigned mortgage
portfolio together with its related security consisted of:
* the corresponding increase in the seller share of the trust
property;
* the covenant of the mortgages trustee to pay or procure the
payment to the seller of amounts of deferred purchase price in
accordance with the provisions of the mortgage sale agreement and
the mortgages trust deed, which payment also satisfies Funding's
obligation to make deferred contributions to the mortgages trustee
for the Funding share of the trust property; and
* the covenant of the mortgages trustee to hold the additional
assigned trust property on trust for Funding (as to the Funding
share) and the seller (as to the seller share) in accordance with
the terms of the mortgages trust deed.
Under the terms of the mortgage sale agreement, the amount of any early
repayment charges which may become payable on any mortgage loans that have been
assigned to the mortgages trustee will be paid by the mortgages trustee to the
seller as deferred purchase price.
REPRESENTATIONS AND WARRANTIES
The mortgage sale agreement contains representations and warranties given by
the seller to the mortgages trustee, Funding and the security trustee in
relation to each mortgage loan assigned, or to be assigned, to the mortgages
trustee pursuant to that agreement (except as otherwise provided below). None
of the mortgages trustee, Funding, the security trustee or the issuer have
carried out or will carry out any searches, inquiries or independent
investigations of the type which a prudent purchaser or mortgagee would
normally be expected to carry out. Each is relying entirely on the seller's
representations and warranties under the mortgage sale agreement. The seller's
material warranties under the mortgage sale agreement include, among others,
substantially the following:
* subject to completion of any registration which may be pending at
H.M. Land Registry or the Registers of Scotland, the seller is the
absolute legal and beneficial owner of the mortgage loans, the
related security and all property to be sold by the seller
pursuant to the mortgage sale agreement;
* each related mortgage secures the repayment of all advances,
interest, costs and expenses payable by the relevant borrower to
the seller under the relevant mortgage loan in priority to any
other charges registered against the relevant property;
* subject to completion of any registration which may be pending at
H.M. Land Registry (in England and Wales) or the Registers of
Scotland (in Scotland), each mortgage (other than a mortgage in
respect of a personal secured loan) either constitutes, or will
constitute, following registration at H.M. Land Registry or the
Registers of Scotland, (in England and Wales) a first ranking
charge by way of legal mortgage or (in Scotland) a first ranking
standard security over the relevant mortgaged property;
* each relevant mortgaged property is located in England, Wales or
Scotland;
* prior to making each mortgage loan, the seller instructed or
required to be instructed on its behalf solicitors to carry out
all investigations, searches and other actions in relation to the
relevant mortgaged property that would have been undertaken by the
seller acting in accordance with standards consistent with those
of a reasonable and prudent mortgage lender, lending to borrowers
in
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England and Wales or Scotland, as applicable, when advancing money
in an amount equal to such advance to an individual to be secured
on a mortgaged property of the kind permitted under the lending
criteria;
* the seller's lending criteria are consistent with the criteria
that would be used by a reasonable and prudent mortgage lender;
* in relation to each mortgage loan, the borrower has a good and
marketable title to the relevant mortgaged property;
* prior to making a mortgage loan, an independent valuer from the
panel of valuers appointed by the seller or an employee valuer of
the seller valued the relevant mortgaged property, and the results
of such valuation would be acceptable to a reasonable and prudent
mortgage lender;
* prior to making a mortgage loan, the nature and amount of such
mortgage loan, the circumstances of the relevant borrower and
nature of the relevant mortgaged property satisfied the lending
criteria in force at that time in all material respects;
* no payment of interest (or in the case of repayment mortgage
loans, principal and interest) equivalent to an amount in excess
of one month's installment at the applicable rate in respect of a
mortgage loan was at any time during the 12 months before the
relevant closing or assignment date, as the case may be, in
arrears;
* so far as the seller is aware, no borrower is in material breach
of its mortgage loan;
* the first payment due has been paid by the relevant borrower in
respect of each mortgage loan and each mortgage loan is fully
performing;
* each insurance contract arranged by the seller in respect of any
mortgaged property is in full force and effect and all premiums
due on or before the date of the mortgage sale agreement have been
paid in full and the seller is not aware of any circumstances
giving the insurer under any such insurance contract the right to
avoid or terminate such policy in so far as it relates to the
mortgaged properties or the mortgage loans;
* where the lending criteria required that a mortgage loan was
covered by a MIG insurance contract with NORMIC, that mortgage
loan is covered by such an insurance contract;
* the seller has procured that full and proper accounts, books and
records have been kept showing clearly all material transactions,
payments, receipts and proceedings relating to that mortgage loan
and its mortgage;
* each borrower is a natural person, and no borrower is, as of the
assignment date, an employee or an officer of the seller;
* all formal approvals, consents and other steps necessary to permit
a legal or an equitable or beneficial transfer or a transfer of
the servicing away from the seller of the mortgage loans and their
related mortgages to be sold under the mortgage sale agreement
have been obtained or taken and there is no requirement in order
for such transfer to be effective to notify the borrower before,
on or after any such equitable or beneficial transfer or before
any legal transfer of the mortgage loans and their related
mortgages;
* in relation to any cashback mortgage loan, the seller paid to the
relevant borrower the full amount of the cashback payment either
upon completion of the relevant mortgage loan or, if subsequent to
completion, prior to the assignment of such mortgage loan to the
mortgages trustee;
* no mortgage loan has a current balance of more than [GBP]500,000;
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* in respect of any mortgage loan where the borrower also has a
personal secured loan or in respect of any personal secured loan,
the combined LTV of the maximum amount of credit provided under
such personal secured loan and other mortgage loans secured on the
same property is not greater than 95 per cent.;
* in relation to the mortgage loans in the mortgage portfolio as of
the closing date, each English mortgage loan was made not earlier
than July 1, 1995 and each Scottish mortgage loan was made not
earlier than July 1, 2001; and
* each mortgage loan was originated by the seller in pounds sterling
and is denominated in pounds sterling (or was originated and is
denominated in euro at any time when the euro has been adopted as
the lawful currency of the UK) and is currently repayable in
pounds sterling.
Notwithstanding the foregoing, the above representations and warranties in
respect of each mortgage loan will not apply in their entirety to personal
secured loans.
REPURCHASE BY THE SELLER
The seller has agreed in the mortgage sale agreement to repurchase any
mortgage loan together with its related security in the circumstances described
below.
If a mortgage loan (including any personal secured loan) and its related
security do not materially comply on the date of its assignment with the
representations and warranties given by the seller under the mortgage sale
agreement and the seller does not remedy such breach within 28 days of
receiving written notice of such breach from any of the mortgages trustee,
Funding or the security trustee, then, at the direction of Funding or the
security trustee, the seller must repurchase from the mortgages trustee (i) the
relevant mortgage loan and its related security and (ii) any other mortgage
loans (including any personal secured loans) of the relevant borrower and their
related security that are included in the trust property.
For so long as the seller is the administrator it must notify the mortgages
trustee, Funding and the security trustee of any material breach of a warranty
as soon as the administrator becomes aware of such breach.
The repurchase price payable upon the repurchase of any mortgage loan and
its related security is an amount (not less than zero) equal to the current
balance on such mortgage loan as of the date of completion of such repurchase
plus all unpaid interest (including all accrued interest and arrears of
interest) and expenses payable thereon to the date of repurchase. If the seller
fails to pay the consideration due for any repurchase or otherwise fails to
complete such repurchase in accordance with the terms of the mortgage sale
agreement, then the seller share of the trust property shall be deemed to be
reduced by an amount equal to that consideration. If on any date on which the
seller is obliged to repurchase any mortgage loan or mortgage loans pursuant to
the mortgage sale agreement, the seller assigns new mortgage loans together
with their related security to the mortgages trustee in accordance with the
terms of the mortgage sale agreement (as described below), the seller shall be
entitled to set-off against the repurchase price payable by it on such
repurchase the amount of any initial purchase price payable for any such new
mortgage loans and shall pay or be paid a net amount.
PRODUCT SWITCHES, FURTHER ADVANCES AND PERSONAL SECURED LOANS
Except as described below with respect to re-fixed mortgage loans, under the
mortgage sale agreement, the mortgages trustee has agreed not to (and has
agreed to procure that the administrator does not) issue to a borrower an offer
for a further advance or a product switch without having received confirmation
from the seller that it has elected to purchase the relevant mortgage loan
together with its related security in accordance with the terms of the mortgage
sale agreement. Upon receipt of such confirmation the mortgages trustee (or the
administrator on behalf of the mortgages trustee) may then issue
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an offer for a further advance or a product switch and accept the mortgage
documentation duly completed by the borrower. The mortgages trustee may not
itself make any further advance or product switch (other than in relation to a
re-fixed mortgage loan).
A mortgage loan will be subject to a "PRODUCT SWITCH" if there is any
variation of the financial terms and conditions of the mortgage loan other
than:
* a variation in the financial terms and conditions of the mortgage
loan involving a permitted product switch (as described below);
* a change between interest-only and repayment mortgage loans;
* a transfer of equity;
* a release of a party to a mortgage loan or a release of part of
the land subject to the mortgage;
* any variation agreed with borrowers to control or manage arrears
on a mortgage loan;
* any variation which extends the maturity date of the mortgage loan
unless, while any intercompany loan is outstanding, it is extended
beyond January 2039;
* any variation imposed by statute; and
* any variation of the interest rate payable where that rate is
offered to the borrowers of more than 10% by current balance of
the mortgage loans in the trust property in any interest period.
A "PERMITTED PRODUCT SWITCH" is a variation in the financial terms and
conditions of a mortgage loan in which a borrower exchanges its then current
mortgage loan product for a different mortgage loan product offered by the
seller, provided that the related borrower has made at least one monthly
payment on its then current mortgage loan product, and provided further that
the new mortgage loan for which the prior mortgage loan is to be exchanged is a
permitted replacement mortgage loan. A "PERMITTED REPLACEMENT MORTGAGE LOAN" is
a mortgage loan:
* that is subject to a variable rate of interest; and
* that has a maturity date prior to January 2039.
In addition, each of the conditions for the assignment of new mortgage loans
and their related security as set forth under "-- ASSIGNMENT OF NEW MORTGAGE
LOANS AND THEIR RELATED SECURITY" must be satisfied in order for a permitted
product switch to occur, provided that conditions (a), (c), (k), (n) and (o) in
that section will only be required to have been satisfied on the date of the
most recent assignment of mortgage loans to the mortgages trust. The purchase
obligations of the seller set forth under "-- REPURCHASE BY THE SELLER" will
continue to apply to any permitted replacement mortgage loan.
A mortgage loan will be subject to a "FURTHER ADVANCE", for the purposes of
this prospectus, if an existing borrower requests further monies to be advanced
to him or her under a mortgage loan either in circumstances which do not amount
to a re-draw under a flexible loan or where such mortgage loan is not a
flexible mortgage loan, and in either case such request is granted.
Except as provided below with respect to re-fixed mortgage loans, if the
administrator and the mortgages trustee are notified or are otherwise aware
that a borrower has requested a further advance or a product switch and the
mortgages trustee has received confirmation of the seller's election to
purchase the mortgage loan and its related security, the mortgages trustee
shall at any time upon notice from the seller assign to the seller and the
seller shall purchase such mortgage loan together with its related security in
accordance with the mortgage sale agreement at a price not less than the
current balance on such mortgage loan as of the date of completion of such
purchase plus all unpaid interest (including all accrued interest and arrears
of interest) and expenses payable on such mortgage loan to the date of
purchase.
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In the case of fixed rate mortgage loans, a borrower may have the right,
under the terms of such fixed rate mortgage loan, to elect to "RE-FIX" such
fixed rate mortgage loan at the applicable fixed rate then being offered to the
seller's existing borrowers for the applicable requested period within three
months following the end of the fixed rate period. Sixty days prior to the end
of the relevant fixed rate period, the mortgages trustee may offer to re-sell
to the seller all fixed rate mortgage loans which become "RE-FIXED" during the
three month period immediately following the end of the then current fixed rate
period. The seller may accept this offer by payment to the mortgages trustee on
the date on which the relevant mortgage loan becomes a re-fixed mortgage loan
of the purchase price payable for that re-fixed mortgage loan as described
below.
If such fixed rate mortgage loan becomes re-fixed during the relevant three
month period and the seller pays the purchase price for that re-fixed mortgage
loan, the mortgages trustee shall assign to the seller and the seller shall
purchase such re-fixed mortgage loan and its related security in accordance
with the mortgage sale agreement. The price payable on such purchase shall be
at least equal to the current balance on the relevant mortgage loan as at the
date of completion of the purchase plus all unpaid interest (including all
accrued interest and arrears of interest) and expenses in respect of such
mortgage loan.
If the seller does not pay to the mortgages trustee the purchase price to
purchase any mortgage loan which becomes re-fixed during such three month
period, the administrator may agree to a borrower's request to re-fix any such
mortgage loan if required by the terms of the mortgage. In any event the seller
has agreed under the mortgage sale agreement to set the existing borrowers' re-
fix rate for the three month period immediately following expiry of the
relevant fixed rate period at a rate not less than that notified from time to
time to the seller by the mortgages trustee, Funding or the administrator as
being required by the mortgages trustee or Funding.
Upon a fixed rate mortgage loan becoming re-fixed as stated above without
having been purchased by the seller:
(1) the notional amount of the basis rate swap of the issuer, the
previous issuers and of each new issuer (if any) will
automatically be reduced by the current balance of such re-fixed
mortgage loan;
(2) the issuer, the previous issuers and each new issuer (if any) will
be obliged to enter into a new hedging arrangement in respect of
such mortgage loans with either an existing swap counterparty, in
which case such hedging will be fixed at such fixed rate as such
swap counterparty, on the basis of fixed rates being offered in
the swap market, determines to be the fixed rate applicable to the
relevant fixed rate period of the relevant mortgage loans (which
may be different from the fixed rate being offered to the seller's
existing borrowers) or at an issuer's option, another counterparty
whose rating will not affect the then current ratings of the
notes; and
(3) if required, the seller will set the existing borrowers' re-fix
rate at the rate notified to it by the mortgages trustee, Funding
or the administrator as being required by the mortgages trustee or
Funding.
The seller currently intends to purchase from the mortgages trustee mortgage
loans that become subject to further advances. If a borrower takes a personal
secured loan after that borrower's existing mortgage loan has been assigned to
the mortgages trustee, the seller currently intends to purchase that borrower's
existing mortgage loan and any personal secured loan previously assigned to the
mortgages trustee. However, in the future these mortgage loans may remain
within (and the further advances or such personal secured loans may be assigned
to and form part of) the trust property.
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RE-DRAWS UNDER FLEXIBLE MORTGAGE LOANS
Only the seller is responsible for funding all future re-draws in respect of
flexible mortgage loans contained in the trust property. The seller share of
the trust property increases by the amount of any re-draw.
FURTHER DRAWS UNDER PERSONAL SECURED LOANS
Only the seller is responsible for funding all further draws in respect of
personal secured loans contained in the trust property. The seller share of the
trust property increases by the amount of any further draw.
ASSIGNMENT OF NEW MORTGAGE LOANS AND THEIR RELATED SECURITY
The seller is entitled under the terms of the mortgage sale agreement to
assign new mortgage loans and their related security to the mortgages trustee
subject to the fulfillment of certain conditions (which may be varied or waived
by the mortgages trustee with the prior approval of the rating agencies or
their confirmation that there will be no adverse effect on the previous notes)
on or as at the relevant assignment date as follows:
(a) the aggregate arrears of interest in respect of all the mortgage
loans in the mortgages trust, as a percentage of the aggregate
gross interest due on all mortgage loans during the previous 12
months, does not exceed 2% or such other percentage as is then
acceptable to the then current rating agencies at such time
("ARREARS OF INTEREST" for the purpose of this clause, in respect
of a mortgage loan on any date, shall mean the aggregate amount
overdue on that date, but only where such aggregate amount overdue
equals or exceeds an amount equal to the monthly payment then due
on the mortgage loan and such amount has been overdue for an
entire calendar month);
(b) the long term, unsecured, unsubordinated and unguaranteed debt
obligations of the seller are rated no lower than "A3" by Moody's
and "A-" by Fitch (at the time of and immediately following the
assignment of the new mortgage loans to the mortgages trustee);
(c) on the relevant assignment date, the aggregate current balance of
the mortgage loans in the mortgages trust which are then in
arrears for at least 3 months is less than 4% of the aggregate
current balance of all mortgage loans in the mortgages trust on
such date, unless the rating agencies have confirmed that the then
current ratings of the notes will not be adversely affected;
(d) the seller originated the new mortgage loans in accordance with
its lending criteria in force at the time of origination of the
relevant mortgage loan or with material variations from such
lending criteria provided that the then current rating agencies
have been notified of any such material variation;
(e) no new mortgage loan has on the relevant assignment date an
aggregate amount in arrears which is greater than the amount of
the monthly payment then due;
(f) the rating agencies have not provided written confirmation to the
mortgages trustee, the security trustee and the issuer that the
assignment to the mortgages trustee of new mortgage loans on the
assignment date will adversely affect the then current ratings of
the existing notes of any issuer (provided that at a time when a
new issuer issues new notes the rating agencies will have provided
written confirmation that the then current ratings of the existing
notes have not been downgraded or otherwise adversely affected);
(g) the aggregate current balance of new mortgage loans transferred in
any one interest period does not exceed 10% of the aggregate
current balance of the mortgage loans in the mortgages trust as at
the beginning of that interest period;
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(h) each issuer reserve fund is fully funded on the relevant
assignment date up to the relevant required amount (or, if any
issuer reserve fund is not so fully funded on such relevant
assignment date, no payments have been made from such issuer
reserve fund);
(i) no intercompany loan enforcement notice has been served in respect
of any intercompany loan;
(j) the assignment of new mortgage loans does not result in the
product of the weighted average repossession frequency ("WAFF")
and the weighted average loss severity ("WALS") for the mortgage
loans in the mortgages trust after such purchase, calculated on
such assignment date in the same way as for the initial mortgage
portfolio (or as agreed by the administrator and the rating
agencies from time to time), exceeding the product of the WAFF and
WALS for the mortgage loans in the mortgages trust calculated on
the most recent preceding closing date, plus 0.35%;
(k) new mortgages loans may only be assigned to the mortgages trustee
if (to the extent necessary) each issuer has entered into
appropriate hedging arrangements in respect of such mortgage
loans;
(l) no event of default under the transaction documents shall have
occurred which is continuing at the relevant assignment date;
(m) the weighted average yield on the mortgage loans in the mortgages
trust together with the new mortgage 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%, taking into
account the weighted average yield on the mortgage loans and the
margins on the basis rate swaps as at the relevant assignment date;
(n) the assignment of new mortgage loans on the relevant assignment
date does not result in the weighted average LTV ratio of the
mortgage loans and the new mortgage loans, after application of
the LTV test on the relevant assignment date, exceeding the LTV
ratio (based on the LTV test), as determined in relation to the
mortgage loans in the mortgages trust on the most recent preceding
closing date, plus 0.25%;
(o) each new mortgage loan has a maturity date prior to January 2039;
(p) the related borrower under each new mortgage loan has made at
least one monthly payment;
(q) for so long as any notes issued by the issuer, any previous issuer
or any new issuer that have a final maturity date earlier than
January 2041 are outstanding, the assignment of new mortgage loans
to the mortgages trustee may only occur if, following such
assignment, the aggregate number of repayment mortgage loans in
the mortgage portfolio is greater than or equal to 25% of the
aggregate number of mortgage loans in the mortgage portfolio;
(r) the rating agencies have provided written confirmation that the
then current ratings on the notes would not be adversely affected
by the assignment to the mortgages trustee of a new mortgage loan
in respect of a mortgage loan product having characteristics
and/or features that differ materially from the characteristics
and/or features of the mortgage loans in the initial mortgage
portfolio; and
(s) each new mortgage loan and its related security must comply at the
relevant assignment date with the representations and warranties
set out in the mortgage sale agreement, which are described
earlier in this section under "-- REPRESENTATIONS AND WARRANTIES";
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PROVIDED THAT, if an initial purchase price for the new mortgage loans is
payable to the seller by the mortgages trustee on the relevant assignment date,
only the conditions set out in paragraphs (e), (f), (i), (k), (l), (m), (o),
(p), (q), (r) and (s) are required to be satisfied to effect an assignment of
the new mortgage loans.
In addition, no assignment of new mortgage loans may occur after a step-up
date in respect of an issuer's notes if the option to redeem such issuer's
notes on such step-up date pursuant to the terms and conditions of such notes
is not exercised.
Any new mortgage loans and related security so assigned will be held by the
mortgages trustee on trust for Funding and the seller in accordance with the
terms of the mortgages trust deed.
The mortgage sale agreement provides that the seller may not assign new
mortgage loans to the mortgages trustee during any trust calculation period
prior to the distribution date occurring in that trust calculation period, and
that the seller may only make one assignment of new mortgage loans to the
mortgages trustee during any trust calculation period.
To the extent that Funding makes an initial contribution on an assignment
date to increase the Funding share of the trust property, the consideration for
the assignment of the new mortgage loans and their related security to the
mortgages trustee will consist of:
* the payment by the mortgages trustee to the seller of the initial
purchase price for the assignment to the mortgages trustee of the
new mortgage loans. The initial purchase price will be paid by the
mortgages trustee out of funds received by the mortgages trustee
in respect of Funding's initial contribution for the Funding share
of the new trust property pursuant to the mortgages trust deed,
which initial contribution will be funded out of the proceeds of
any new intercompany loan paid by any new issuer to Funding;
* the covenant of the mortgages trustee to pay or procure the
payment to the seller of amounts of deferred purchase price in
accordance with the provisions of the mortgage sale agreement and
the mortgages trust deed, which payment also satisfies Funding's
obligation to make deferred contributions to the mortgages trustee
for the Funding share of the trust property. Amounts of deferred
purchase price will be payable to the seller to the extent of
available funds only after paying or providing for prior ranking
claims and only out of excess income to which Funding is entitled
in accordance with and subject to the priority of payments set out
in "THE MORTGAGES TRUST -- MORTGAGES TRUST ALLOCATION OF REVENUE
RECEIPTS"; and/or
* the covenant of the mortgages trustee to hold the trust property
on trust for Funding (as to the Funding share) and the seller (as
to the seller share of the trust property) in accordance with the
terms of the mortgages trust deed.
In the mortgage sale agreement, the seller has undertaken to use reasonable
efforts to assign to the mortgages trustee, and the mortgages trustee has
undertaken to use reasonable efforts to acquire from the seller and hold in
accordance with the terms of the mortgages trust deed, until the earlier of the
payment date falling in July 2010 (or such later date as may be notified by
Funding) and the occurrence of a trigger event, sufficient new mortgage loans
and their related security so that the overcollateralization test is not
breached on three consecutive distribution dates. However, the seller shall not
be obliged to assign to the mortgages trustee, and the mortgages trustee shall
not be obliged to acquire, new mortgage loans and their related security if, in
the opinion of the seller, such 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 current balance of mortgage loans in the mortgages trust at a certain
level prior to a trigger event may be extended.
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The overcollateralization test shall be calculated on each distribution date
and shall be breached on any distribution date where the aggregate current
balance of mortgage loans in the mortgage portfolio on such distribution date
is less than an amount equal to the product of 1.05 and the principal amount
outstanding of all notes of all issuers on such distribution date provided that
where the notes outstanding are controlled amortization notes, the principal
amount outstanding of such notes will be calculated on a straight-line basis by
applying the appropriate constant payment rate applicable to each series of
notes on a monthly, rather than quarterly, basis.
TRANSFER OF LEGAL TITLE TO THE MORTGAGES TRUSTEE
The English mortgage loans in the mortgage portfolio and their related
security have been assigned to the mortgages trustee by way of equitable
assignment. The transfer by the seller to the mortgages trustee of the
beneficial interest in the Scottish mortgage loans in the mortgage portfolio
and their related security has been given effect by a declaration of trust by
the seller. In each case this means that legal title to the mortgage loans and
their related security will remain with the seller until such time as certain
additional steps have been taken including the giving of notices of the
assignment to the borrowers.
In relation to mortgages of registered land in England and Wales and any
land in Scotland, until such time as transfers and assignations of such
mortgages in favor of the mortgages trustee have been completed and registered
at H.M. Land Registry and the Registers of Scotland (as applicable), the
assignment of the mortgages to the mortgages trustee takes effect in equity (in
England and Wales only) and transfers beneficial title only (in England, Wales
and Scotland). In the case of mortgages of unregistered land in England and
Wales, in order for legal title to pass to the mortgages trustee, conveyances
of the relevant mortgages would have to be completed in favor of the mortgages
trustee.
Under the mortgage sale agreement none of the seller, the mortgages trustee,
Funding or the security trustee will require notification of such assignments
to the borrowers or the execution and completion of such transfers,
assignations and conveyances in favor of the mortgages trustee or the
registration of such transfers in order to effect the transfer of legal title
to the mortgage loans and their related security (including, where appropriate,
their registration), except in the limited circumstances described below.
The execution of transfers and assignations of the mortgages to the
mortgages trustee and the notifications of assignments of mortgage loans to the
borrowers will be required to be completed within 20 business days of receipt
of written notice from the mortgages trustee, Funding and/or the security
trustee upon the occurrence of any of:
* the valid service of an intercompany loan enforcement notice or
(unless the sole reason for service of any note enforcement notice
is default by a currency rate swap provider or interest rate swap
provider of any issuer) a note enforcement notice;
* unless otherwise agreed by the rating agencies, the termination of
the seller's role as administrator under the administration
agreement and failure of any substitute administrator to assume
the duties of the administrator;
* the seller being required, by an order of a court of competent
jurisdiction, or by a change in law occurring after the closing
date, or by a regulatory authority or organization whose members
include mortgage lenders of which the seller is a member or with
whose instructions it is customary for the seller to comply, to
perfect the transfer of legal title to the mortgage loans and
related security in favor of the mortgages trustee;
* the security under the Funding deed of charge or any material part
of such security being in jeopardy and it being necessary to
perfect the transfer of legal title to the mortgage loans in favor
of the mortgages trustee in order to reduce such jeopardy
materially;
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* the occurrence of an insolvency event in relation to the seller;
or
* notice in writing from the seller to the mortgages trustee and
Funding (with a copy to the security trustee) requesting such
transfer.
If the seller ceases to have a long term unsecured, unsubordinated and
unguaranteed credit rating by Standard & Poor's of at least "BBB-", by Moody's
of at least "Baa3" and by Fitch of at least "BBB-" (unless Standard & Poor's,
Moody's and Fitch confirm that the then current ratings of the notes will not
be adversely affected) the seller will be obliged to give notice only of the
transfer of the equitable and beneficial interest in the mortgage loans to the
borrowers but will not be required to complete any other steps necessary to
perfect legal title to the mortgage loans in favor of the mortgages trustee.
TITLE DEEDS
The title deeds and mortgage loan files relating to the mortgage loans 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 mortgage loans and their related
security. Under the administration agreement the administrator has undertaken
that all the title deeds and mortgage loan files at any time in its possession
or under its control or held to its order relating to the mortgage loans which
are at any time assigned to the mortgages trustee will be held to the order of
the mortgages trustee. The administrator will keep, or cause to be kept, the
title deeds and mortgage loan files relating to each mortgage loan and each
mortgaged property in safe custody and shall not part with possession, custody
or control of them except in the limited circumstances specified in the
administration agreement.
GOVERNING LAW
The mortgage sale agreement is governed by English law (other than certain
aspects relating to the Scottish mortgage loans and their related security
which will be 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, a form of which has been
filed as an exhibit to the registration statement of which this prospectus is a
part.
GENERAL LEGAL STRUCTURE
The mortgages trust is a trust 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 on March 26, 2001 in connection with the
issuance of the previous notes, the issuance of our notes and the issuances of
any new notes. This section describes the material terms of the mortgages
trust, including how money is distributed from the mortgages trust to Funding
and the seller.
Under the terms of the mortgages trust deed, the mortgages trustee has
agreed to hold all of the trust property on trust absolutely for Funding (as to
the Funding share) and for the seller (as to the seller share). The "TRUST
PROPERTY" consists of:
* the sum of [GBP]100 settled by Law Debenture Corporate Services
Limited on trust on the date of the mortgages trust deed;
* the mortgage portfolio, including the mortgage loans and their
related security, the rights under any MIG policies and the other
seller arranged insurance policies;
* any new mortgage portfolio that is assigned to the mortgages
trustee by the seller after the closing date, including the
mortgage loans and their related security, the rights under any
MIG policies and the other seller arranged insurance policies;
* any permitted replacement mortgage loan and its related security
(including the rights under any related MIG policy and other
seller arranged insurance policies) relating to any permitted
product switch effected in relation to any mortgage loan and
assigned to the mortgages trustee in accordance with the mortgage
sale agreement and thereby included in the trust property;
* any interest and principal paid by borrowers on their mortgage
loans on or after the relevant assignment date;
* any other amounts received under the mortgage loans and related
security on or after the relevant assignment date excluding third
party amounts;
* any re-draws under flexible mortgage loans included in the trust
property;
* any further draws under personal secured loans included in the
trust property;
* any further advances made by the seller to existing borrowers
which are assigned to the trust in accordance with the mortgage
sale agreement;
* any contribution paid by either Funding or the seller to the
mortgages trustee for application in accordance with the terms of
the mortgages trust but only up to the time of such application;
* amounts on deposit (and interest earned on such amounts) in the
mortgages trustee transaction account and the mortgages trustee
GIC account; and
* the proceeds of sale of any mortgage loan and its related security
pursuant to the mortgage sale agreement or other proceeds of sale
of any trust property;
less
* any actual losses in relation to the mortgage loans and any actual
reductions occurring in respect of the mortgage loans as described
in paragraph (1) in "-- ADJUSTMENTS TO TRUST PROPERTY" below; and
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* distributions of principal made from time to time to the
beneficiaries of the mortgages trust.
In the case of Scottish mortgage loans and their related security, the
interest of the mortgages trustee therein comprises its beneficial interest
under the relevant declaration of trust over such Scottish mortgage loans and
their related security, as described under "ASSIGNMENT OF THE MORTGAGE LOANS
AND RELATED SECURITY -- THE MORTGAGE SALE AGREEMENT".
In addition, the outstanding principal balances of any Together Connections
mortgage loans and Connections mortgage loans included in the trust property
(and therefore the aggregate amount of the trust property) will be reduced from
time to time by the amount of any Together Connections Benefit and Connections
Benefit applied to those Together Connections mortgage loans or Connections
mortgage loans, respectively, as described under "THE MORTGAGE LOANS --
CHARACTERISTICS OF THE MORTGAGE LOANS -- MORTGAGE LOAN PRODUCTS OFFERED BY THE
SELLER".
Funding is not entitled to particular mortgage loans and their related
security separately from the seller. Instead, each of the beneficiaries has an
undivided interest in all of the mortgage loans and their related security
constituting the trust property.
As of the date of this prospectus, the amount of Funding's beneficial
interest in the trust property is approximately [GBP]18,490 million, which
corresponds to 76.67% of the trust property, and the amount of the seller's
beneficial interest in the trust property is approximately [GBP]5,627 million,
which corresponds to 23.33% of the trust property.
At the closing date and immediately following Funding's further contribution
to the mortgages trustee in connection with Funding's purchase of an additional
beneficial interest in the trust property, the amount of Funding's beneficial
interest in the trust property is expected to be approximately [GBP]22,077
million, which corresponds to 91.54% of the trust property. The amount of the
Funding share of the trust property as of the closing date is only an
approximation and the actual amount of the Funding share of the trust property
as of the closing date will depend, among other things, on the actual
amortization of the mortgage loans in the mortgage portfolio between August 23,
2004 and the closing date. The actual share of Funding's beneficial interest in
the trust property on the closing date will not be determined until the day
prior to the closing date.
At the closing date and immediately following the payment by the mortgages
trustee to the seller of the initial consideration (which sum is payable from
amounts received by the mortgages trustee from Funding as a further
contribution in connection with Funding's purchase of an increased beneficial
interest in the trust property), the amount of the seller's beneficial interest
in the trust property is expected to be approximately [GBP]2,041 million, which
corresponds to 8.46% of the trust property. The amount of the seller share of
the trust property as of the closing date is only an approximation and the
actual amount of the seller share of the trust property as of the closing date
will depend, among other things, on the actual amortization of the mortgage
loans in the mortgage portfolio between August 23, 2004 and the closing date.
The actual share of the seller's beneficial interest in the trust property on
the closing date will not be determined until the day prior to the closing
date.
Following the final repayment date of the latest maturing intercompany loan
of any issuer and provided that there are no further claims under any
intercompany loan, or on such earlier date on which there are no claims
outstanding under any intercompany loan, Funding will make a final deferred
contribution to the mortgages trustee. This final deferred contribution will be
in an amount equal to the aggregate amount standing to the credit of the
Funding bank accounts (including any account established by Funding for the
purpose of any issuer reserve fund and/or any issuer liquidity reserve fund of
any issuer) after making any payments ranking in priority, subject to and in
accordance with the relevant Funding priority of payments. On receipt of such
amount, the mortgages trustee will be
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obliged to pay such amount to the seller in satisfaction of the mortgages
trustee's obligation to make a final payment of deferred purchase price to the
seller under the mortgage sale agreement.
FLUCTUATION OF THE SELLER SHARE/FUNDING SHARE OF THE TRUST PROPERTY
The Funding share and the seller share of the trust property fluctuates
depending on a number of factors including:
* the allocation of principal receipts from the mortgage loans to
Funding and/or the seller on each distribution date;
* losses arising on the mortgage loans;
* the assignment of new mortgage loans and their related security to
the mortgages trustee;
* Funding increasing its beneficial interest in, and the Funding
share of, the trust property by making contributions (excluding
any deferred contribution) to the mortgages trustee in accordance
with the mortgages trust deed;
* the seller increasing its beneficial interest in, and the seller
share of, the trust property by making contributions to the
mortgages trustee in accordance with the mortgages trust deed;
* a borrower making a re-draw under a flexible mortgage loan;
* a borrower making a further draw under a personal secured loan;
* the capitalization of arrears in respect of any mortgage loan; and
* the seller making a further advance to an existing borrower.
Although the seller does not currently intend either to assign to
the mortgages trustee further advances made in respect of a
mortgage loan following the assignment of that mortgage loan to
the mortgages trustee or to retain mortgage loans subject to such
further advances within the mortgages trust, it may do so in the
future.
The Funding share of the trust property may not be reduced below zero. The
seller will not be 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 has been
reduced to zero or following the occurrence of an asset trigger event.
The cash manager will recalculate the Funding share and the seller share:
* on each distribution date;
* on any date (including, in connection with the issuance of the
notes, the closing date) on which Funding makes a further
contribution to the mortgages trustee in connection with Funding's
purchase of an increased beneficial interest in the trust
property, on which date the mortgages trustee will also pay to the
seller an initial consideration equal to the amount of such
further contribution (each such date, a "FUNDING CONTRIBUTION
DATE"); and
* on the date of each assignment of any new mortgage portfolio to
the mortgages trustee (each such date, an "ASSIGNMENT DATE").
The reason for the recalculation on a Funding contribution date is to
determine the percentage shares of Funding and the seller in the trust property
which will reflect Funding's further contribution to the mortgages trust (which
will increase the Funding share of the trust property) and to reflect the
mortgages trustee's payment of initial consideration to the seller (which will
decrease the seller share of the trust property) on that same date. The reason
for the recalculation on an assignment date is to determine the percentage
shares of Funding and the seller in the trust property which will reflect the
assignment of
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the new mortgage loans to the trust property (which, unless Funding makes an
initial contribution to the mortgages trustee on the assignment date, will only
increase the seller share of the trust property).
When the cash manager recalculates the Funding share, Funding share
percentage, seller share and seller share percentage on a distribution date,
that recalculation will apply for the then current trust calculation period.
However, if during that trust calculation period the seller assigns a new
mortgage portfolio to the mortgages trustee and/or if Funding makes a further
contribution to the mortgages trustee, the recalculation made by the cash
manager on that distribution date will only apply from the beginning of that
then current trust calculation period to (but excluding) the relevant
assignment date or Funding contribution date, as applicable. The new
recalculation made by the cash manager on that relevant assignment date or
Funding contribution date will (in the case of the assignment of a new mortgage
portfolio) apply from (and including) that assignment date to the end of that
then current trust calculation period or (in the case of Funding making a
further contribution to the mortgages trust) from (and including) that Funding
contribution date to the end of that then current trust calculation period. The
portion of a trust calculation period that is less than a full trust
calculation period during which any single calculation of the Funding share,
Funding share percentage, seller share and seller share percentage applies is
called an "INTERIM CALCULATION PERIOD".
The percentage shares that each of Funding and the seller has in the trust
property will determine their entitlement to interest and principal receipts
from the mortgage loans in the trust property and also the allocation of losses
arising on the mortgage loans for each trust calculation period or interim
calculation period, as applicable. The method for determining those new
percentage shares is set out in the next three sections.
FUNDING SHARE OF TRUST PROPERTY (DISTRIBUTION DATE RECALCULATION)
On each distribution date (also referred to in this section as the "RELEVANT
DISTRIBUTION DATE") the interest of Funding in the trust property will be
recalculated for the then current trust calculation period or related interim
calculation period, as applicable, in accordance with the following formula:
* The current Funding share of the trust property will be an amount
equal to:
A -- B -- C + D
* The current Funding share percentage of the trust property will be
an amount equal to:
A -- B -- C + D
--------------- x 100
G
expressed as a percentage and rounded upwards to five decimal places,
where,
A = the amount of the Funding share of the trust property as
determined on the later of the distribution date, or the
assignment date or Funding contribution date (if any), immediately
preceding the relevant distribution date;
B = the amount of any principal receipts on the mortgage loans
distributed to Funding on the relevant distribution date (as
described under "-- MORTGAGES TRUST ALLOCATION AND DISTRIBUTION OF
MORTGAGES TRUSTEE PRINCIPAL RECEIPTS PRIOR TO THE OCCURRENCE OF A
TRIGGER EVENT" and "-- MORTGAGES TRUST ALLOCATION AND DISTRIBUTION
OF MORTGAGES TRUSTEE PRINCIPAL RECEIPTS AFTER THE OCCURRENCE OF A
TRIGGER EVENT");
C = the amount of losses sustained on the mortgage loans during the
immediately preceding trust calculation period and the amount of
any reductions occurring in respect of the mortgage loans as
described in paragraphs (1) to (5) in "-- ADJUSTMENTS TO TRUST
PROPERTY" below, in each case allocated to Funding in the trust
calculation period ending on the relevant distribution date;
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D = the amount of any capitalized arrears which have been allocated
to Funding in the immediately preceding trust calculation period;
and
G = the amount of the mortgages trustee retained principal receipts
(if any) plus the aggregate current balance of all of the mortgage
loans in the trust property as at the last day of the immediately
preceding trust calculation period after making the distributions,
allocations and additions referred to in "B", "C" and "D" above
(or, if applicable, on the relevant assignment date or Funding
contribution date) and after taking account of the following
(being "TRUST PROPERTY CALCULATION ADJUSTMENTS"):
(i) any distribution of principal receipts to the seller and
Funding,
(ii) the amount of any losses or capitalized arrears allocated
to the seller and Funding,
(iii) the adjustments referred to in paragraphs (1) to (5) in "--
ADJUSTMENTS TO TRUST PROPERTY" below,
(iv) the amount of any other additions to or removals from the
trust property (including any additions to the trust
property resulting from re-draws and further draws made by
borrowers but excluding the addition of mortgage loans on
an assignment date and any initial contributions or further
contributions made by Funding), and
(v) any reduction in the outstanding principal balances of
Together Connections mortgage loans and Connections
mortgage loans resulting from borrowers being allocated a
portion of the related Together Connections Benefit and
Connections Benefit, respectively, under such mortgage
loans.
FUNDING SHARE OF TRUST PROPERTY (ASSIGNMENT DATE RECALCULATION)
On each assignment date which is not also a Funding contribution date (also
referred to in this section as the "RELEVANT ASSIGNMENT DATE"), the interest of
Funding in the trust property will be recalculated for the related interim
calculation period, for the sole purposes of calculating the distributions to
be made from the trust property and determining the amount of losses to be
allocated to Funding on the immediately succeeding distribution date, in
accordance with the following formula:
* The current Funding share of the trust property will be an amount
equal to:
A + E
* The current Funding share percentage of the trust property will be
an amount equal to:
A + E
----- x 100
H
where,
A = the amount of the Funding share of the trust property as
determined on the distribution date immediately preceding the
relevant assignment date;
E = the amount of any initial contribution paid by Funding to the
mortgages trustee on that relevant assignment date in respect of
the Funding share of any new trust property; and
H = the amount of the mortgages trustee retained principal receipts
(if any) plus the aggregate current balance of all of the mortgage
loans in the trust property as at the immediately preceding
distribution date (after making the distributions, allocations and
additions on that preceding distribution date) plus the aggregate
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current balance of the new mortgage loans assigned to the
mortgages trustee on that relevant assignment date and after
taking account of trust property calculation adjustments.
FUNDING SHARE OF TRUST PROPERTY (FUNDING CONTRIBUTION DATE RECALCULATION)
On each Funding contribution date (also referred to in this section as the
"RELEVANT FUNDING CONTRIBUTION DATE"), the interest of Funding in the trust
property will be recalculated for the related interim calculation period, for
the sole purposes of calculating the distributions to be made from the trust
property and determining the amount of losses to be allocated to Funding on the
immediately succeeding distribution date, in accordance with the following
formula:
* The current Funding share of the trust property will be an amount
equal to:
A + E + F
* The current Funding share percentage of the trust property will be
an amount equal to:
A + E + F
--------- x 100
J
where,
A = the amount of the Funding share of the trust property as
determined on the distribution date immediately preceding the
relevant Funding contribution date;
E = (1) if that relevant Funding contribution date is also an
assignment date, the amount of any initial contribution paid by
Funding to the mortgages trustee on that Funding contribution date
in respect of the Funding share of any new trust property, and (2)
in all other cases, zero;
F = the amount of any further contribution paid by Funding to the
mortgages trustee on that relevant Funding contribution date to
increase Funding's beneficial interest in the trust property; and
J = the amount of the mortgages trustee retained principal receipts
(if any) plus the aggregate current balance of all of the mortgage
loans in the trust property as at the immediately preceding
distribution date (after making the distributions, allocations and
additions on that preceding distribution date) plus the aggregate
current balance of the new mortgage loans assigned to the
mortgages trustee on that relevant assignment date and after
taking account of trust property calculation adjustments.
ADJUSTMENTS TO TRUST PROPERTY
If any of the following events occurs during a trust calculation period,
then the aggregate current balance of the mortgage loans in the trust property
will be reduced or deemed to be reduced for the purposes of making the trust
property calculation adjustments:
(1) any borrower exercises a right of set-off so that the amount of
principal and interest owing under a mortgage loan is reduced but
no corresponding payment is received by the mortgages trustee. In
this event, the aggregate current balance of the mortgage loans in
the trust property will be reduced by an amount equal to the
amount of such set-off; and/or
(2) a mortgage 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, further advance or the subject of
an offer by the seller to the borrower of a personal secured loan
in respect of which the seller has elected to purchase the
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relevant mortgage loan or mortgage loans and their related
security, and in the case of (i) above the seller fails to
repurchase and in the case of (ii) above the seller fails to
purchase, the mortgage loan or mortgage loans under the relevant
mortgage account and their related security (including any
personal secured loans and any further draws made thereunder
secured over the same property) as required by the terms of the
mortgage sale agreement. In this event, the aggregate current
balance of the mortgage loans in the trust property will be deemed
to be reduced, for the purposes of making the trust property
calculation adjustments, by an amount equal to the current balance
of the relevant mortgage loan or mortgage loans under the relevant
mortgage account (together with arrears of interest and accrued
interest); and/or
(3) the security trustee is notified that a flexible mortgage loan or
part thereof has been determined by a court judgment on the point
or a determination by a relevant regulatory authority (whether or
not in relation to an analogous flexible mortgage loan product of
another UK mortgage lender):
(a) to be unenforceable; and/or
(b) not to fall within the first ranking charge by way of legal
mortgage or first ranking standard security over the
relevant mortgaged property, in which event, the aggregate
current balance of the mortgage loans in the trust property
will be deemed to be reduced, for the purposes of making
the trust property calculation adjustments, by an amount
equal to that portion of the current balance of the
flexible mortgage loan which is so determined to be
unenforceable or not to fall within the first ranking
charge by way of legal mortgage or first ranking standard
security over the relevant mortgaged property; and/or
(4) (i) in respect of breaches of the loan warranties contained in the
mortgage sale agreement, the seller would be required to
repurchase a mortgage loan and its related security and (ii) in
respect of a mortgage loan subject to a product switch, further
advance or in respect of which the seller has offered to the
borrower a personal secured loan, the seller elects to purchase
the relevant mortgage loan and its related security (including any
personal secured loans and any further draws made thereunder
secured over the same property), in each case as required by the
terms of the mortgage sale agreement, but the mortgage loan is not
capable of being repurchased or purchased, as applicable. In this
event, the aggregate current balance of the mortgage loans in the
trust property will be deemed to be reduced, for the purposes of
making the trust property calculation adjustments, by an amount
equal to the current balance of the relevant mortgage loan
(together with arrears of interest and accrued interest); and/or
(5) the seller breaches any other material warranty under the mortgage
sale agreement and/or (for so long as the seller is the
administrator) the administration agreement, which will also be
grounds for terminating the appointment of the administrator. In
this event, the aggregate current balance of the mortgage loans in
the trust property will be deemed to be reduced by an amount equal
to the resulting loss incurred by Funding and the seller.
The reductions set out in paragraphs (1) to (5) (as well as any resulting
loss in respect thereof) and any losses arising in respect of any personal
secured loans will be made on the relevant date on which the cash manager makes
the relevant trust property calculation adjustments first to the seller's share
(including the minimum seller share) of the trust property only, and thereafter
will be made to the Funding share of the trust property. Any subsequent
recoveries on mortgage loans which have been subject to a setoff or in respect
of which the seller share of the trust property has otherwise been reduced or
deemed reduced pursuant to paragraphs (1) to (5) above or any recovery in
respect of any personal secured loan will constitute a revenue receipt under
the relevant mortgage loan. Such revenue receipt will belong to Funding (but
only if and to the extent
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that the related reductions were applied against Funding's share of the trust
property) and thereafter will belong to the seller (and to the extent received
by the mortgages trustee will be returned to the seller).
The trust property (and the seller share of the trust property) will also be
adjusted to account for the allocation of any Together Connections Benefit to a
Together Connections mortgage loan and any Connections Benefit to a Connections
mortgage loan, as described below under "-- ADDITIONS TO, AND REDUCTIONS FROM,
THE TRUST PROPERTY" and "-- INCREASING AND DECREASING THE SELLER SHARE OF THE
TRUST PROPERTY".
WEIGHTED AVERAGE FUNDING SHARE PERCENTAGE
On any distribution date with respect to which (i) the seller had assigned
new mortgage loans to the mortgages trustee during the immediately preceding
trust calculation period, or (ii) Funding had made a further contribution to
the mortgages trustee in connection with Funding's purchase of an increased
beneficial interest in the trust property during the immediately preceding
trust calculation period, the cash manager will calculate (for the sole purpose
of making the distributions to be made on that distribution date) the weighted
average of the current Funding share percentages that were calculated
previously in respect of each interim calculation period occurring in that
immediately preceding trust calculation period. The calculation will be based
on the relative lengths of the foregoing interim calculation periods. The
"WEIGHTED AVERAGE FUNDING SHARE PERCENTAGE" for any such distribution date will
be equal to:
* in respect of the distribution of revenue receipts to be made on
that distribution date, the formula set forth below:
(AxB) + (CxD)
where,
A = the related current Funding share percentage for interim
calculation period 1;
B = the number of days in interim calculation period 1
divided by the number of days in the trust calculation
period;
C = the related Funding share percentage for interim
calculation period 2; and
D = the number of days in interim calculation period 2
divided by the number of days in the trust calculation
period;
* in respect of the distribution of principal receipts to be made on
that distribution date, the formula set forth below:
(AxB) + (CxD)
where,
A= the related current Funding share percentage for that
interim calculation period 1;
B= the number of days in interim calculation period 1
divided by the number of days in the trust calculation
period;
C= the related Funding share percentage for interim
calculation period 2; and
D= the number of days in interim calculation 2 period
divided by the number of days in the trust calculation
period; and
* in respect of the allocation of losses to be made on that
distribution date, the formula set forth below:
(AxB) + (CxD)
where,
A= the related current Funding share percentage for interim
calculation period 1;
B= the number of days in interim calculation period 1 divided by
the number of days in the trust calculation period;
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C= the related Funding share percentage for interim calculation
period 2; and
D= the number of days in interim calculation period 2 divided by
the number of days in the trust calculation period.
SELLER SHARE OF TRUST PROPERTY (DISTRIBUTION DATE RECALCULATION)
On each relevant distribution date, the current seller share of the trust
property will be recalculated for the then current trust calculation period or
related interim calculation period, as applicable, in accordance with the
following formula:
* the aggregate amount of the trust property as at the relevant
distribution date minus the current Funding share,
where "CURRENT FUNDING SHARE" has the meaning given in "-- FUNDING SHARE OF
TRUST PROPERTY (DISTRIBUTION DATE RECALCULATION)" above.
On each relevant distribution date, the current seller share percentage of
the trust property will be recalculated for the then current trust calculation
period or related interim calculation period, as applicable, in accordance with
the following formula:
* 100% minus the current Funding share percentage,
where "CURRENT FUNDING SHARE PERCENTAGE" has the meaning given in "--
FUNDING SHARE OF TRUST PROPERTY (DISTRIBUTION DATE RECALCULATION)" above.
Seller share of trust property (assignment date recalculation)On each
relevant assignment date, the current seller share of the trust property will
be recalculated for the related interim calculation period in accordance with
the following formula:
* the aggregate amount of the trust property as at the relevant
assignment date minus the current Funding share,
where "CURRENT FUNDING SHARE" has the meaning given in "-- FUNDING SHARE OF
TRUST PROPERTY (ASSIGNMENT DATE RECALCULATION)" above.
On each relevant assignment date, the current seller share percentage of the
trust property will be recalculated for the related interim calculation period
in accordance with the following formula:
* 100% minus the current Funding share percentage,
where "CURRENT FUNDING SHARE PERCENTAGE" has the meaning given in "--
FUNDING SHARE OF TRUST PROPERTY (ASSIGNMENT DATE RECALCULATION)" above.
SELLER SHARE OF TRUST PROPERTY (FUNDING CONTRIBUTION DATE RECALCULATION)
On each relevant Funding contribution date, the current seller share of the
trust property will be recalculated for the related interim calculation period
in accordance with the following formula:
* the aggregate amount of the trust property as at the relevant
Funding contribution date minus the current Funding share,
where "CURRENT FUNDING SHARE" has the meaning given in "-- FUNDING SHARE OF
TRUST PROPERTY (FUNDING CONTRIBUTION DATE RECALCULATION)" above.
On each relevant Funding contribution date, the current seller share
percentage of the trust property will be recalculated for the related interim
calculation period in accordance with the following formula:
* 100% minus the current Funding share percentage,
where "CURRENT FUNDING SHARE PERCENTAGE" has the meaning given in "--
FUNDING SHARE OF TRUST PROPERTY (FUNDING CONTRIBUTION DATE RECALCULATION)"
above.
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WEIGHTED AVERAGE SELLER SHARE PERCENTAGE
On any distribution date with respect to which (i) the seller had assigned
new mortgage loans to the mortgages trustee during the immediately preceding
trust calculation period, or (ii) Funding had made a further contribution to
the mortgages trustee in connection with Funding's purchase of an increased
beneficial interest in the trust property during the immediately preceding
trust calculation period, the cash manager will calculate (for the sole purpose
of making the distributions to be made on that distribution date) the weighted
average of the current seller share percentages that were calculated previously
in respect of each interim calculation period occurring in that immediately
preceding trust calculation period and will be a percentage equal to:
* in respect of the distribution of revenue receipts to be made on
that distribution date:
100% minus the weighted average Funding share percentage,
where the weighted average Funding share percentage is as calculated on that
distribution date in respect of revenue receipts under "-- WEIGHTED AVERAGE
FUNDING SHARE PERCENTAGE" above;
* in respect of the distribution of principal receipts to be made on
that distribution date:
100% minus the weighted average Funding share percentage,
where the weighted average Funding share percentage is as calculated on that
distribution date in respect of principal receipts under "-- WEIGHTED AVERAGE
FUNDING SHARE PERCENTAGE" above; and
* in respect of the allocation of losses to be made on that
distribution date:
100% minus the weighted average Funding share percentage,
where the weighted average Funding share percentage is as calculated on that
distribution date in respect of losses under "-- WEIGHTED AVERAGE FUNDING SHARE
PERCENTAGE" above.
MINIMUM SELLER SHARE
The seller share of the trust property includes an amount known as the
"MINIMUM SELLER SHARE". As at the closing date, the minimum seller share will
be approximately [GBP]1,203 million but the amount of the minimum seller share
will fluctuate depending on changes to the characteristics of the mortgage
loans in the trust property. The amount of the minimum seller share as of the
closing date is only an approximation and the actual amount of the minimum
seller share as of the closing date will depend, among other things, on the
actual amortization of the mortgage loans in the mortgage portfolio between
August 23, 2004 and the closing date. The seller will not be 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 has been reduced to zero or following the
occurrence of an asset trigger event. The minimum seller share will be the
amount determined on each distribution date in accordance with the following
formula:
W + X + Y + Z
where,
W = 100% of the sum of the average cleared credit balance of all
applicable accounts linked to Together Connections mortgage loans
and Connections mortgage loans in respect of each calendar month
or part of any such calendar month;
X = 2.0% of the aggregate current balance of mortgage loans in the
trust property;
Y = the product of: p x q x r where:
p= 8.0%;
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q= the sum of (i) the "FLEXIBLE CASH RE-DRAW CAPACITY",
being an amount equal to the difference between (1) the
maximum amount of cash re-draws that borrowers may make
under flexible mortgage loans included in the trust
property (whether or not drawn) as at the last day of the
immediately preceding trust calculation period and (2) the
aggregate current balance of cash re-draws which form part
of the trust property as at the last day of the immediately
preceding trust calculation period; and (ii) the "FURTHER
DRAW CAPACITY" being an amount equal to the difference
between (1) the maximum amount of credit extended to
borrowers under personal secured loans which are flexi-plan
loans included in the trust property as at the last day of
the immediately preceding trust calculation period and (2)
the aggregate current balance of personal secured loans
which are flexi-plan loans which form part of the trust
property as at the last day of the immediately preceding
trust calculation period; and
r= 3.0; and
Z = the aggregate current balance of (1) re-draws and (2) personal
secured loans in the trust property as at the last day of the
immediately preceding trust calculation period.
The purpose of "W" is to mitigate the risks relating to borrowers holding
deposits in Northern Rock bank accounts that are linked to Together Connections
mortgage loans and Connections mortgage loans, and the purpose of "X" is to
mitigate the risks relating to borrowers holding deposits in Northern Rock bank
accounts that are not linked to Together Connections mortgage loans and
Connections mortgage loans (see "RISK FACTORS -- THERE MAY BE RISKS ASSOCIATED
WITH THE FACT THAT THE MORTGAGES TRUSTEE HAS NO LEGAL TITLE TO THE MORTGAGE
LOANS AND THEIR RELATED SECURITY, WHICH MAY ADVERSELY AFFECT PAYMENTS ON THE
NOTES"). The purpose of the calculation in "Y" is to mitigate the risk of the
seller failing to fund a re-draw under a flexible mortgage loan or a further
draw under a personal secured loan in the trust property. The purpose of "Z" is
to mitigate enforceability and priority risks relating to (a) re-draws under
the flexible mortgage loans and (b) further draws under personal secured loans
in the trust property.
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 ALLOCATION OF REVENUE RECEIPTS
"MORTGAGES TRUSTEE AVAILABLE REVENUE RECEIPTS" will be calculated by the
cash manager on each distribution date and will be an amount equal to the sum
of (in each case in the period prior to the end of the immediately preceding
trust calculation period):
* revenue receipts on the mortgage loans (which shall include, in
respect of any non-flexible mortgage loan only, the amount of any
overpayment made by the borrower in respect of such mortgage loan
as is equal to the amount of any underpayment of interest made by
such borrower in respect of such mortgage loan in the immediately
preceding trust calculation period provided that such underpayment
of interest is made prior to December 31 in the year in which such
overpayment is received from the borrower);
* interest payable to the mortgages trustee on the mortgages trustee
transaction account and the mortgages trustee GIC account; and
* payments made by the seller to the mortgages trustee to fund any
non- cash redraw in respect of any flexible mortgage loan;
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less
* amounts due to third parties (also known as "THIRD PARTY AMOUNTS")
including:
(1) payments of insurance premiums, if any, due to the seller
in respect of any seller arranged insurance policy and/or
to the MIG provider to the extent not paid or payable by
the seller (or to the extent such insurance premiums have
been paid by the seller in respect of any further advance
which is not purchased by the seller to reimburse the
seller);
(2) amounts under an unpaid direct debit which are repaid by
the administrator to the bank making such payment if such
bank is unable to recoup that amount itself from its
customer's account;
(3) other charges which are due to the seller; and/or
(4) recoveries in respect of amounts deducted from mortgage
loans as described in paragraphs (1) to (5) under "--
ADJUSTMENTS TO TRUST PROPERTY" above, which will belong to
and be paid to Funding and/or the seller as described
therein, which amounts may be paid daily from monies on
deposit in the mortgages trustee transaction account or the
mortgages trustee GIC account; and
* amounts distributed on each previous distribution date in
accordance with the mortgages trust allocation of revenue
receipts.
On each distribution date, the cash manager will apply mortgages trustee
available revenue receipts in the following order of priority (the "MORTGAGES
TRUST ALLOCATION OF REVENUE RECEIPTS"):
(A) in no order of priority between them but in proportion to the
respective amounts due, to pay amounts due to:
(1) the mortgages trustee under the provisions of the mortgages
trust deed;
(2) to third parties from the mortgages trustee in respect of
the mortgages trust but only if:
(a) 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
(b) payment has not already been provided for elsewhere;
(B) in payment of amounts (inclusive of VAT) due to the administrator
or the cash manager or to become due to the administrator or the
cash manager prior to the next following distribution date under
the provisions of the administration agreement or the cash
management agreement, as the case may be; and
(C) in no order of priority between them but in proportion to the
respective amounts due, and subject to the proviso below, to
allocate and pay mortgages trustee available revenue receipts to:
(1) the seller in an amount determined by multiplying the total
amount of the remaining mortgages trustee available revenue
receipts by the seller share percentage of the trust
property; and
(2) Funding in an amount which is equal to the lesser of:
(i) the aggregate of the amounts to be applied on the
immediately succeeding payment date for group 1
issuers and the immediately succeeding payment date
for group 2 issuers as set forth under the Funding
pre-enforcement revenue priority of payments or, as
the case may be, the Funding post-enforcement
priority of payments (but excluding any principal
amount due under any intercompany loan (save that,
for the avoidance of doubt, such exclusion shall not
apply in respect of any Funding available revenue
receipts which are applied by an issuer to credit
that issuer's principal deficiency ledger and
thereby
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reduce the principal payable under that issuer's
intercompany loan) and any amount of deferred
contribution under item (P) of the Funding
pre-enforcement revenue priority of payments and/or
item (F) of the Funding post-enforcement priority of
payments), less all other amounts (not derived from
the distribution of mortgages trustee available
revenue receipts under the mortgages trust) which
will constitute Funding available revenue receipts
on the immediately succeeding payment date, such
amount not to be less than zero, and
(ii) an amount determined by multiplying the total amount
of the remaining mortgages trustee available revenue
receipts by the Funding share percentage of the
trust property; and
(D) to allocate to Funding but pay at the direction of Funding to the
seller an amount equal to YY -- ZZ, where "YY" is the amount of
the mortgages trustee available revenue receipts and "ZZ" is the
amount of such mortgages trustee available revenue receipts
applied and/or allocated under (A) to (C) above, such amount to be
in satisfaction of amounts of deferred purchase price due to the
seller under the terms of the mortgage sale agreement;
provided that, if an assignment date or a Funding contribution date has
occurred during the trust calculation period immediately preceding that
distribution date, then the cash manager will use (i) the weighted
average seller share percentage (instead of the seller share percentage)
in respect of revenue receipts in determining the amount of mortgages
trustee available revenue receipts to distribute to the seller on that
distribution date, and (ii) the weighted average Funding share percentage
(instead of the Funding share percentage) in respect of revenue receipts
in determining the amount of mortgages trustee available revenue receipts
to distribute to Funding on that distribution date.
Amounts due to the mortgages trustee and the administrator will include VAT,
if applicable, payable under United Kingdom tax law. At the date of this
prospectus, VAT is calculated at the rate of 17.5% of the amount to be paid.
Payment of VAT will reduce the amounts ultimately available to pay interest on
the notes.
CASH MANAGEMENT OF TRUST PROPERTY -- PRINCIPAL RECEIPTS
Under the cash management agreement, the cash manager is also responsible
for 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. To understand how the cash manager will distribute
principal receipts on the mortgage loans on each distribution date (the
"MORTGAGES TRUSTEE PRINCIPAL PRIORITY OF PAYMENTS") you need to understand the
following definitions:
The "FINAL REPAYMENT DATE" means, in respect of the intercompany loan, the
payment date in September 2044, being the final maturity date of the latest
maturing series 1 notes, series 2 notes and series 3 notes.
A "TRIGGER EVENT" means an asset trigger event and/or a non-asset trigger
event.
An "ASSET TRIGGER EVENT" is the event that occurs when an amount is debited
to the principal deficiency sub-ledger established for any issuer with respect
to class A notes of that issuer. For more information on the issuer principal
deficiency ledger, see "CREDIT STRUCTURE".
A "NON-ASSET TRIGGER EVENT" means any of the following events:
* an insolvency event occurs in relation to the seller;
* the seller's role as administrator is terminated and a new
administrator is not appointed within 60 days; or
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* 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 mortgages trustee
principal receipts due on that distribution date on the basis that
the cash manager assumes that those mortgages trustee principal
receipts are distributed in the manner described under "--
MORTGAGES TRUSTEE ALLOCATION AND DISTRIBUTION OF MORTGAGES TRUSTEE
PRINCIPAL RECEIPTS PRIOR TO THE OCCURRENCE OF A TRIGGER EVENT").
A "SELLER SHARE EVENT" will occur if, on a distribution date, (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 minimum seller
share that would exist after making the distributions of mortgages trustee
principal receipts due on that distribution date on the basis that the cash
manager assumes that those mortgages trustee principal receipts are distributed
in the manner described under "-- MORTGAGES TRUSTEE ALLOCATION AND DISTRIBUTION
OF MORTGAGES TRUSTEE PRINCIPAL RECEIPTS PRIOR TO THE OCCURRENCE OF A TRIGGER
EVENT"), and (ii) a seller share event has not occurred on the immediately
preceding distribution date).
A "SELLER SHARE EVENT DISTRIBUTION DATE" is a distribution date on which a
seller share event occurs.
The rating agencies may require the relevant parties to amend the foregoing
non-asset trigger events should a new issuer issue "BULLET" notes as described
under "-- MORTGAGES TRUST ALLOCATION AND DISTRIBUTION OF MORTGAGES TRUSTEE
PRINCIPAL RECEIPTS PRIOR TO THE OCCURRENCE OF A TRIGGER EVENT" below.
MORTGAGES TRUST ALLOCATION AND DISTRIBUTION OF MORTGAGES TRUSTEE PRINCIPAL
RECEIPTS PRIOR TO THE OCCURRENCE OF A TRIGGER EVENT
Prior to the occurrence of a trigger event (and whether or not there has
been any enforcement of the Funding security or any issuer security) the cash
manager on behalf of the mortgages trustee will allocate and distribute
mortgages trustee principal receipts on each distribution date (or, in respect
of any initial consideration, on any Funding contribution date) as follows:
(A) first, to the seller the amount of any initial consideration which
is then allocable and payable to the seller in accordance with the
mortgages trust deed;
(B) second, to Funding an amount in respect of each issuer equal to
the lesser of:
(1) (a) prior to the occurrence of an ACA trigger event, the
principal amount due on the intercompany loan of
such issuer equal to the controlled amortization
amounts due, if any, on the payment date immediately
succeeding such distribution date (in each case
determined on the assumption that each such amount
will not be restricted and/or deferred on that
payment date in any of the circumstances described
under "CASHFLOWS" below); and
(b) upon and after the occurrence of an ACA trigger
event, (i) in respect of each issuer that is not an
ACA issuer, an amount as set forth in (1)(a) above
and (ii) in respect of each ACA issuer, up to an
amount equal to the ACA limit amount in respect of
such ACA issuer; and
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(2) an amount in respect of each issuer equal to:
Funding share percentage as outstanding principal balance
calculated on the immediately of the intercompany loan of
preceding distribution date such issuer
mortgages trustee X (or, in the case of the first X ____________________
principal receipts distribution date immediately aggregate outstanding
following the closing date, as principal balance on all
of the closing date) intercompany loans
(C) third, (1) prior to the occurrence of an ACA trigger event, to
Funding an amount in respect of each issuer towards any principal
amount remaining which will be due and payable (following the
payment to Funding set forth in (B) above) on the immediately
succeeding payment date under such issuer's intercompany loan (in
each case determined on the assumption that each such principal
amount will not be restricted and/or deferred on that payment date
in any of the circumstances described under "CASHFLOWS" below)
plus an amount equal to the amount which Funding will be required
to apply on that payment date under item (1)(A) or (2)(A) of the
Funding pre-enforcement principal priority of payments, and
(2) upon and after the occurrence of an ACA trigger event, to
Funding (i) in respect of each issuer that is not an ACA
issuer, an amount as set forth in (C)(1) above and (ii) in
respect of each ACA issuer (following the payment to
Funding set forth in (B) above) up to an amount equal to
the ACA limit amount in respect of such ACA issuer plus an
amount equal to the amount which Funding will be required
to apply on that payment date under item (1)(A) or (2)(A)
of the Funding pre- enforcement principal priority of
payments; and
(D) last, if such distribution date is not a seller share event
distribution date, all remaining mortgages trustee principal
receipts to the seller,
PROVIDED THAT in relation to (A) through (D) above the following rules shall
apply:
(1) If the notes of any issuer have become immediately due and payable
as a result of the service of a note enforcement notice or if the
intercompany loan of any issuer (and the other intercompany loans
of any other issuer) have become immediately due and payable as a
result of the service of an intercompany loan enforcement notice,
principal payments in respect of the intercompany loan of that
issuer may be made in excess of any controlled amortization amount
and paragraph (B)(1) above shall no longer apply in relation to
that issuer, and, except following a non-asset trigger event, the
amount of principal receipts to be distributed to Funding in
respect of that issuer on that distribution date may not exceed
the amount determined under paragraph (B)(2) above.
(2) If the notes of any issuer have become immediately due and payable
as a result of the service of a note enforcement notice or if the
intercompany loan of any issuer (and the other intercompany loans
of any other issuers) have become immediately due and payable as a
result of the service of an intercompany loan enforcement notice,
then for the purpose of calculating the amount in respect of that
issuer under paragraph (B)(2) above, that amount will be reduced
to the extent of any remaining amounts standing to the credit of
the issuer reserve ledger and/or the issuer liquidity reserve
ledger (if any) for that issuer which are to be utilized on the
immediately succeeding payment date to repay principal on that
issuer's intercompany loan, but only to the extent that those
amounts would not otherwise be payable on that intercompany loan
on that payment date.
(3) The amount of principal receipts payable to Funding in respect of
each issuer on a distribution date will be reduced in proportion
to the aggregate of the issuer available revenue receipts of that
issuer which are to be applied on the
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immediately succeeding payment date in reduction of deficiencies
recorded on the issuer principal deficiency ledger of that issuer,
but only to the extent that the issuer available revenue receipts
which are to be so applied on that payment date would not
otherwise be payable as principal of the relevant notes on that
payment date.
(4) On a seller share event distribution date, the cash manager shall
deposit all mortgages trustee principal receipts remaining after
(C) above (the "MORTGAGES TRUSTEE RETAINED PRINCIPAL RECEIPTS") in
the mortgages trustee GIC account and make a corresponding credit
to the principal ledger.
(5) For the purpose of determining the principal receipts to be
distributed to Funding in respect of the amount due on the
intercompany loan of any issuer under (B) and (C) above, the
outstanding principal balance of that intercompany loan shall be
deemed to be reduced by the amount of: (a) any deficiency recorded
on the issuer principal deficiency ledger of that issuer as at
that distribution date, but only to the extent that such
deficiency has arisen as a result of (i) losses on the mortgage
loans allocated by Funding to that issuer and/or (ii) the
application of Funding available principal receipts to fund the
issuer liquidity reserve fund of that issuer but not as a result
of any other principal deficiency of that issuer; and (b) the
outstanding principal balance as at such distribution date of any
special repayment notes issued by that issuer.
(6) Funding will not be entitled to receive and the cash manager shall
procure that Funding does not receive any amount of principal
receipts from the mortgages trustee on a distribution date which
is not required by Funding to repay principal falling due on any
intercompany loan on the immediately succeeding payment date in
order to fund payments of principal falling due on any notes of
any issuer on that payment date.
(7) The mortgages trustee will not distribute any overpayment (other
than a capital payment) in respect of any non-flexible mortgage
loans until the first distribution date following December 31 of
the year in which such overpayment is received; provided that if a
borrower has made an underpayment of principal on such non-
flexible mortgage loan following the overpayment then the
mortgages trustee will distribute principal in an amount up to the
amount of such underpayment (but not exceeding the amount of the
overpayment previously made) on the next-occurring distribution
date.
(8) If an assignment date or a Funding contribution date has occurred
during the trust calculation period immediately preceding the
relevant distribution date, then the cash manager shall use the
weighted average Funding share percentage (instead of the current
Funding share percentage) in respect of principal receipts in
determining the amount of mortgages trustee principal receipts to
be distributed to Funding in respect of each issuer pursuant to
clause (B)(2) above.
A new issuer may enter into a new intercompany loan with Funding as
described under "THE INTERCOMPANY LOAN AGREEMENT -- NEW INTERCOMPANY LOANS",
and may issue "BULLET" notes that are scheduled to be repaid in full on a
single payment date. As Funding's corresponding repayment of such new
intercompany loan to the new issuer also would be scheduled to be repaid in
full on a single payment date, Funding would need to accumulate a large
proportion of the principal receipts distributed by the mortgages trustee over
a certain period of time. Any accumulation of principal receipts may require
the consent of the rating agencies and the security trustee if an amendment to
the foregoing mortgages trustee principal priority of payments is required.
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MORTGAGES TRUST ALLOCATION AND DISTRIBUTION OF MORTGAGES TRUSTEE PRINCIPAL
RECEIPTS ON OR AFTER THE OCCURRENCE OF A TRIGGER EVENT
On each distribution date on or after the occurrence of a non-asset trigger
event and until the occurrence of an asset trigger event, the cash manager will
allocate and distribute all mortgages trustee principal receipts to Funding
until the Funding share of the trust property is zero. Following the occurrence
of a non-asset trigger event, the notes will be subject to prepayment risk
(that is, they may be repaid earlier than expected). See "RISK FACTORS -- THE
OCCURRENCE OF A NON-ASSET TRIGGER EVENT MAY ACCELERATE THE REPAYMENT OF CERTAIN
NOTES AND/OR DELAY THE REPAYMENT OF OTHER NOTES".
On each distribution date on or after the occurrence of an asset trigger
event, the cash manager will allocate and distribute all mortgages trustee
principal receipts as follows:
(A) if the immediately preceding distribution date was a seller share
event distribution date, all of the mortgages trustee retained
principal receipts to Funding; 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 share percentage of the trust property and the seller
share percentage of the trust property, respectively, until the
Funding share of the trust property is zero, even though those
payments may reduce the seller share of the trust property to an
amount less than the minimum seller share. Notwithstanding the
foregoing, if an assignment date or a Funding contribution date
has occurred during the trust calculation period immediately
preceding any such distribution date, the cash manager will apply
all mortgages trustee principal receipts remaining after (A) above
between Funding and the seller in no order of priority between
them but in proportion to the weighted average Funding share
percentage and weighted average seller share percentage, each in
respect of mortgages trustee principal receipts, for that
distribution date until the Funding share of the trust property is
zero.
Following the occurrence of an asset trigger event, the notes will be
subject to prepayment risk (that is, they may be repaid earlier than expected).
See "RISK FACTORS -- THE OCCURRENCE OF AN ASSET TRIGGER EVENT OR ENFORCEMENT OF
THE ISSUER SECURITY MAY ACCELERATE THE REPAYMENT OF CERTAIN NOTES AND/OR DELAY
THE REPAYMENT OF OTHER NOTES".
OVERPAYMENTS
An overpayment in respect of any non-flexible mortgage loan which does not
constitute a capital payment in respect of any mortgage loan will not become
available for distribution to the beneficiaries as principal receipts until the
first distribution date following December 31 of the year in which such
overpayment is received, save to the extent that any such overpayment by a
borrower is applied in reduction of an underpayment by such borrower in respect
of such mortgage loan prior to such date. Any such overpayment shall be
retained in the mortgages trustee GIC account and the cash manager will
maintain a separate ledger to record its receipt and subsequent payment from
time to time. Where any such overpayment has been made in error the
administrator will be authorized to refund the amount of such overpayment to
the relevant borrower at any time prior to December 31 of the year in which
such overpayment was made.
An overpayment in respect of any flexible mortgage loan will not be retained
by the mortgages trustee but will be distributed to the beneficiaries on the
immediately succeeding distribution date as principal receipts.
LOSSES
All losses arising on the mortgage loans (other than any personal secured
loans) will, save as otherwise provided, be applied in reducing proportionately
the Funding share of the trust property and the seller share of the trust
property. Save as otherwise provided,
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the Funding share of losses will be determined on any distribution date by
multiplying the amount of losses in the immediately preceding trust calculation
period by the Funding share percentage (as determined on the immediately
preceding distribution date) until the Funding share of the trust property is
zero. However, if an assignment date or a Funding contribution date has
occurred during the trust calculation period immediately preceding a
distribution date, then the amount of losses shall be multiplied by the
weighted average Funding share percentage (as calculated on that distribution
date) in respect of losses rather than the current Funding share percentage.
The remainder of the losses shall be allocated to the seller.
Losses arising on any personal secured loans in the trust property will be
applied first to reduce the seller's share of the trust property (including the
minimum seller share) until the seller's share is reduced to zero, and only
thereafter to reduce the Funding share of the trust property.
For a description of how losses on the mortgage loans that have been
allocated to Funding on any date will be allocated to the intercompany loan of
each issuer, see "THE INTERCOMPANY LOAN AGREEMENT -- ALLOCATION OF LOSSES".
DISPOSAL OF TRUST PROPERTY
The trust property is held on trust for the benefit of Funding and the
seller. Subject as provided otherwise in the mortgages trust deed and the other
transaction documents, the mortgages trustee will not be 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 under the Funding deed of charge
and/or the second priority Funding deed of charge, including its share of the
trust property, then the security trustee will be entitled, among other things,
to sell the Funding 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, AND REDUCTIONS FROM, THE TRUST PROPERTY
The trust property may be increased from time to time by the assignment of
new mortgage loans and their related security to the mortgages trustee. The
mortgages trustee will hold the new mortgage 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 mortgage loans and
their related security to the mortgages trustee, see "ASSIGNMENT OF THE
MORTGAGE LOANS AND RELATED SECURITY".
If a borrower makes a re-draw under a flexible mortgage loan included in the
mortgages trust, then the seller will be solely responsible for funding that
re-draw. As a result, the size of the trust property and the seller share of
the trust property will increase by, in the case of a cash re-draw, the
principal amount of such cash re-draw and, in the case of a non-cash re-draw,
the amount of any further contribution made by the seller to the mortgages
trustee of the unpaid interest element in respect of such non-cash re-draw.
However, if an insolvency event occurs in respect of the seller, then the
seller may continue to make payments to the mortgages trustee in an amount
equal to the unpaid interest element in respect of such non-cash re-draw in the
same manner and for the same purposes as described above, but it is not obliged
to do so.
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If at any time the administrator agrees to a further advance being made
under a mortgage loan included in the mortgages trust, then the seller will be
solely responsible for funding that further advance. If at some future date the
seller decides to assign such further advance to the mortgages trustee or not
purchase the mortgage loan that is subject to such further advance from the
mortgages trustee, the trust property and the seller share of the trust
property will increase by the principal amount of the further advance made by
the seller.
In addition to the reductions or deemed reductions to the trust property
described above under "-- ADJUSTMENTS TO TRUST PROPERTY", the application of
any Together Connections Benefit in relation to Together Connections mortgage
loans and any Connections Benefit in relation to Connections mortgage loans
included in the mortgages trust will also reduce the size of the trust property
(and, as described below under
"-- INCREASING AND DECREASING THE SELLER SHARE OF THE TRUST PROPERTY", the
seller share of the trust property only). This will occur because the
outstanding principal balances of any Together Connections mortgage loans and
Connections mortgage loans included in the trust property (and therefore the
aggregate amount of the trust property) will be reduced from time to time by
the amount of any Together Connections Benefit applied to those Together
Connections mortgage loans and any Connections Benefit applied to those
Connections mortgage loans, as described under "THE MORTGAGE LOANS --
CHARACTERISTICS OF THE MORTGAGE LOANS -- MORTGAGE LOAN PRODUCTS OFFERED BY THE
SELLER".
ARREARS
The aggregate current balance of the mortgage loans in the mortgages trust
will be increased at any time by the amount in which the mortgage loans that
have been assigned to the mortgages trust are in arrears and those arrears have
been capitalized. Such increase shall be allocated to Funding and the seller at
any time in proportion to their respective percentage shares in the trust
property as determined in respect of the trust calculation period or interim
calculation period, as the case may be, in which the arrears occur.
INCREASING AND DECREASING THE SELLER SHARE OF THE TRUST PROPERTY
If a borrower makes a non-cash re-draw in respect of any flexible mortgage
loan under the mortgages trust deed the seller as beneficiary has agreed under
the mortgages trust to fund such non-cash re-draw in the mortgages trust by
making a further contribution to the mortgages trustee of an amount equal to
the unpaid interest element in respect of such non-cash re-draw. Accordingly,
the size of the trust property and the seller share of the trust property will
increase by an amount equal to the further contribution made by the seller. Any
such payment received by the mortgages trustee will be treated as revenue
receipts in the mortgages trust and will be distributed on the immediately
succeeding distribution date among the beneficiaries in accordance with the
mortgages trust allocation of revenue receipts.
The seller will also fund cash re-draws in respect of flexible mortgage
loans and further draws under personal secured loans held in the mortgages
trust by payment of the amount of the cash re-draw or further draw to the
relevant borrower. Accordingly, the size of the trust property and the seller
share of the trust property will automatically increase by the amount of any
cash re-draw or further draw so made.
In addition to the reductions or deemed reductions to the seller share of
the trust property described above under "-- ADJUSTMENTS TO TRUST PROPERTY",
the application of any Together Connections Benefit in relation to Together
Connections mortgage loans and any Connections Benefit in relation to
Connections mortgage loans included in the mortgages trust that reduces the
size of the trust property will also reduce the seller share of the trust
property. This will occur because the outstanding principal balances of any
Together Connections mortgage loans and Connections mortgage loans included in
the trust property (and therefore the aggregate amount of the trust property)
will be reduced from
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time to time by the amount of any Together Connections Benefit applied to those
Together Connections mortgage loans and any Connections Benefit applied to
those Connections mortgage loans, as described under "THE MORTGAGE LOANS --
CHARACTERISTICS OF THE MORTGAGE LOANS -- MORTGAGE LOAN PRODUCTS OFFERED BY THE
SELLER". The amount of any such reduction will be applied against the seller
share of the trust property only.
INCREASING THE FUNDING SHARE OF THE TRUST PROPERTY
If Funding enters into a new intercompany loan, then it may apply the
proceeds of that intercompany loan as a further contribution to the mortgages
trust to increase its beneficial interest in, and the Funding share of, the
trust property. Funding will be permitted to do this only if it meets certain
conditions, including among others:
* that no intercompany loan enforcement notice has been served under
any intercompany loan;
* that as at the most recent payment date no deficiency was recorded
on the issuer principal deficiency ledger of any issuer;
* that no event of default under the transaction documents shall
have occurred which is continuing;
* that the rating agencies have not confirmed in writing to the
security trustee or the issuer that the proposed increase in the
Funding share would adversely affect the then current ratings by
the rating agencies of the existing notes of any issuer; and
* that, as of the last day of the immediately preceding trust
calculation period, the aggregate current balance of mortgage
loans in the mortgages trust which were then in arrears for at
least 3 months is less than 4% of the aggregate current balance of
all mortgage loans in the mortgages trust as of such date, unless
the rating agencies have confirmed that the then current ratings
of the notes will not be adversely affected.
Under the mortgages trust deed, Funding and the seller have agreed that
principal receipts held by the mortgages trustee on any date in respect of any
further contribution paid by Funding to the mortgages trustee on that date will
be allocated and paid by the mortgages trustee to the seller as initial
consideration (an "INITIAL CONSIDERATION") from the mortgages trust on such
date whether or not such date is a distribution date. The payment of any such
initial consideration will reduce the seller share of the trust property.
TERMINATION OF THE MORTGAGES TRUST
The mortgages trust will terminate on the date on which there is no
remaining trust property or, if earlier, such date as may be requested in
writing by the seller to the mortgages trustee being on or after the date on
which all of the intercompany loans have been repaid in full or there is no
further claim under any intercompany loan or the Funding share of the trust
property has been reduced to zero or such other date which may be agreed
between the mortgages trustee, Funding and the seller so long as all amounts
due from Funding to the Funding secured creditors have been repaid in full.
RETIREMENT OF MORTGAGES TRUSTEE
The mortgages trustee is not entitled to retire or otherwise terminate its
appointment. The seller and Funding cannot replace the mortgages trustee.
GOVERNING LAW
The mortgages trust deed is governed by English law.
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THE INTERCOMPANY LOAN AGREEMENT
The following section describes, in summary, the material terms of the
intercompany loan agreement. The description does not purport to be complete
and is subject to the provisions of the intercompany loan agreement, a form of
which has been filed as an exhibit to the registration statement of which this
prospectus is a part.
THE FACILITY
Under the terms of the intercompany loan agreement, the issuer will make a
loan to Funding on the closing date in an aggregate amount in sterling equal to
the proceeds of the issue of the notes. For this purpose, the dollar proceeds
of the dollar notes and the euro proceeds of the euro notes will be converted
into sterling at the relevant dollar currency swap rate or euro currency swap
rate, as applicable. Funding will then pay the proceeds of the intercompany
loan to the mortgages trustee in satisfaction of Funding's further contribution
to the mortgages trustee for the additional Funding share of the trust property
pursuant to the mortgages trust deed. Upon receipt of Funding's further
contribution, the mortgages trustee will pay such funds to the seller as
initial consideration for Funding increasing its beneficial interest in the
trust property, which will reduce the seller share of the trust property. The
intercompany loan agreement is governed by English law.
CONDITIONS PRECEDENT TO DRAWDOWN
The issuer will not be obliged to make the intercompany loan available to
Funding unless on the closing date certain conditions have been met, including:
* that the notes have been issued and the proceeds have been
received by or on behalf of the issuer;
* that one or more deeds of accession relating to the Funding deed
of charge have been executed by the parties to the Funding deed of
charge;
* that each of the transaction documents has been executed by the
relevant parties to those documents; and
* that Funding has delivered a solvency certificate to the security
trustee in form and substance satisfactory to the security
trustee.
THE INTERCOMPANY LOAN
Subject to the satisfaction of the conditions precedent to drawdown, the
intercompany loan will be made available by the issuer to Funding on the
closing date.
The final repayment date of the intercompany loan will be the final maturity
date of the latest maturing class of notes issued by the issuer.
None of the parties to the intercompany loan agreement may assign its rights
thereunder to any third party, except that the issuer may assign to the note
trustee by way of security its right, title and interest under the intercompany
loan agreement. The note trustee will not be entitled to assign to a third
party its or the issuer's right, title and interest under the intercompany loan
agreement following the service of a note enforcement notice.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Under the intercompany loan agreement, Funding will make standard
representations and warranties to the issuer.
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In addition to standard covenants, Funding will give the following
undertakings:
* it will not create or permit to subsist any security interest over
or in respect of any of its assets (unless arising by operation of
law) other than as provided for pursuant to the transaction
documents;
* it will not sell, assign, transfer, lease or otherwise dispose of
or grant any option over all or any of its assets, properties or
undertakings or any interest, estate, right, title or benefit to
or in such assets, properties or undertakings other than as
provided for pursuant to the transaction documents;
* 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;
* except as provided or contemplated under the transaction documents
it will not incur any indebtedness or give any guarantee or
indemnity in respect of any obligation of any other person;
* it will not pay any dividend or make any other distribution in
respect of any of its shares other than in accordance with the
Funding deed of charge, or issue any new shares or alter any
rights attaching to its issued shares as at the date of the
intercompany loan agreement;
* it will not carry on any business or engage in any activity other
than as contemplated by the transaction documents or 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; and
* save for the previous issuers, the issuer and any other issuer, it
will not have any subsidiaries or subsidiary undertakings as
defined in the Companies Act 1985 (as amended).
PAYMENT OF INTEREST
Payment of interest and fees on the intercompany loan will be made only from
and to the extent of distributions received by Funding in respect of the
Funding share of the trust property representing issuer allocable revenue
receipts which are payable to the issuer on each payment date, subject to and
in accordance with the Funding priority of payments and the rules for the
application of Funding available revenue receipts described under "CASHFLOWS"
below.
Subject as provided above and to the limited recourse provisions described
below, interest will be payable by Funding on each payment date on the
outstanding principal balance of the intercompany loan. The interest due on the
intercompany loan on each payment date will be in an amount equal to the amount
required by the issuer on that payment date to fund (by payment to any swap
provider or otherwise) the payment of interest on the notes on payment dates,
as set forth in the items under "CASHFLOWS -- DISTRIBUTION OF ISSUER AVAILABLE
REVENUE RECEIPTS PRIOR TO ENFORCEMENT OF THE ISSUER SECURITY" or in the
relevant items under such other issuer priority of payments as may apply on
that payment date.
Subject as provided above and to the limited recourse provisions described
below, in addition, on each payment date or as and when required Funding will
pay an additional fee to the issuer. This fee will be equal to the amount
required by the issuer to pay or provide for all other amounts (but excluding
interest and principal due on the notes and tax that can be met out of the
issuer's profits) if any, falling due on that payment date as set forth in the
items under "CASHFLOWS -- DISTRIBUTION OF ISSUER AVAILABLE REVENUE RECEIPTS
PRIOR TO ENFORCEMENT OF THE ISSUER SECURITY" or in the relevant items under
such other issuer priority of payments as may apply on that payment date.
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REPAYMENT OF THE INTERCOMPANY LOAN
Payment of principal on the intercompany loan on any payment date will be
made only from and to the extent of distributions received by Funding in
respect of the Funding share of the trust property representing issuer
allocable principal receipts which are payable to the issuer on that payment
date subject to and in accordance with the Funding priority of payments and the
rules for the application of Funding available principal receipts described
under "CASHFLOWS" below.
Subject as provided above and subject to the limited recourse provisions
described below, on each payment date Funding will repay to the issuer
principal on the intercompany loan in amounts sufficient to fund (by payment to
any swap provider or otherwise) the payments of principal of the notes in the
amounts and in the priorities described under "CASHFLOWS -- DISTRIBUTION OF
ISSUER AVAILABLE PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF THE ISSUER SECURITY
AND/OR OCCURRENCE OF A TRIGGER EVENT" or in the relevant amounts and priorities
described in any other issuer priority of payments as may apply on that payment
date.
A "CONTROLLED AMORTIZATION AMOUNT" will be due under the intercompany loan
on any payment date equal to the aggregate of the controlled amortization
amounts due on such date under the notes.
At the option of the issuer, Funding may be required to prepay the
intercompany loan in specified circumstances, including funding any optional
redemption of the notes.
ALLOCATION OF LOSSES
Losses on the mortgage loans that have been allocated to Funding on any date
(as described under "THE MORTGAGES TRUST -- LOSSES") shall be allocated to the
intercompany loan of each issuer on such date according to the following
formula:
outstanding principal balance of the
amount of losses allocated intercompany loan of such issuer
to Funding x ----------------------------------------
aggregate outstanding principal balance
of the intercompany loans of all issuers
PROVIDED THAT, for the purposes of the foregoing calculation, the outstanding
principal balance of the intercompany loan of any issuer shall be reduced by
the principal amount outstanding on such date of any special repayment notes of
that issuer.
LIMITED RECOURSE
Funding will only be obliged to pay amounts to the issuer under the
intercompany loan to the extent that it has funds to do so subject to and in
accordance with the relevant Funding priority of payments, the rules for the
application of Funding available revenue receipts and the rules for the
application of Funding available principal receipts described under "CASHFLOWS"
below.
If, on the final repayment date of the intercompany loan, there is a
shortfall between the amount required to pay all outstanding interest on and/or
principal of the notes and the amount available to Funding to pay amounts due
under the intercompany loan in respect thereof, then Funding will not be
obliged to pay that shortfall to the issuer under the intercompany loan
agreement and any claim that the issuer may have against Funding in respect of
that shortfall will be extinguished.
Following enforcement of the Funding security and distribution of the
proceeds in accordance with the terms of the Funding deed of charge all
outstanding claims of any issuer will be extinguished.
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INTERCOMPANY LOAN EVENTS OF DEFAULT
Each intercompany loan agreement will contain events of default (each, an
"INTERCOMPANY LOAN EVENT OF DEFAULT") including, among others, the following
events:
* Funding does not pay any amount payable under the intercompany
loan agreement for a period of 5 London business days after such
amount has become due and payable in accordance with the terms of
the intercompany loan agreement (subject always to the limited
recourse provisions set out in the intercompany loan agreement);
or
* Funding does not comply in any material respect with any of its
obligations under the transaction documents (except for its
payment obligations under the intercompany loan agreement) and, if
capable of remedy, such non-compliance is not remedied within 20
London business days of Funding becoming aware of it or of
receiving notice from the security trustee requiring it to be
remedied; or
* a representation or warranty of Funding made or repeated in
connection with any of the transaction documents is incorrect in
any material respect when made or deemed to be made or repeated;
or
* an insolvency event occurs in relation to Funding; or
* it is, or becomes, unlawful for Funding to perform its obligations
under any of the transaction documents; or
* the Funding deed of charge is no longer binding or enforceable
against Funding or is no longer effective to create the security
intended to be created by it.
If an intercompany loan event of default occurs and is continuing under the
intercompany loan agreement or any other intercompany loan agreement, then the
security trustee may, by delivery of an intercompany loan enforcement notice to
Funding, declare the intercompany loan and each other intercompany loan to be
immediately due and payable and/or declare the intercompany loan and each other
intercompany loan to be due and payable on demand of the security trustee.
You should be aware that the non-payment by Funding of any amount due under
the intercompany loan agreement in circumstances where Funding does not have
sufficient funds available to make the relevant payment to the issuer will not
be an intercompany loan event of default. The ability of the issuer to repay
the notes will depend, among other things, upon payments received by the issuer
from Funding under the intercompany loan agreement. See "RISK FACTORS --
FUNDING IS NOT REQUIRED TO MAKE PAYMENTS ON THE INTERCOMPANY LOAN IF IT DOES
NOT HAVE ENOUGH MONEY TO DO SO, WHICH COULD ADVERSELY AFFECT THE PAYMENT ON THE
NOTES" and "-- OUR RECOURSE TO FUNDING UNDER THE INTERCOMPANY LOAN IS LIMITED,
WHICH COULD ADVERSELY AFFECT THE PAYMENT ON THE NOTES".
OTHER INTERCOMPANY LOAN AGREEMENTS
Funding has entered into a previous intercompany loan with each of the
previous issuers. In addition, new issuers may be established by Funding for
the purpose of issuing new notes to investors. The intercompany loan agreement
will permit Funding, by written notice to the security trustee and the rating
agencies, to enter into a new intercompany loan agreement with a new issuer at
any time and to borrow additional money under such new intercompany loan
agreement. The drawdown of any new intercompany loan will be financed by the
issue of new notes by the new issuer, and will only be permitted if certain
conditions precedent are satisfied, including among others:
* that the proceeds of the new intercompany loan are used by Funding
(1) to pay Funding's initial contribution to the mortgages trustee
for the Funding share in respect of any new trust property (which
amount will be paid to the seller by the mortgages trustee in
satisfaction of the initial purchase price for the assignment to
the mortgages trustee of new mortgage loans and related security
to be
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assigned to the mortgages trustee pursuant to the mortgage sale
agreement) and/ or (2) to fund a further contribution to the
mortgages trustee in order to increase the Funding share of the
trust property and/or (3) to refinance the existing debts of
Funding, including the intercompany loan which is funding payments
on the notes; and
* any conditions for such assignment of new loans or such increase
in the funding share of the existing trust property or such
refinancing (if any) have been or will be satisfied prior to
drawdown.
The previous intercompany loan agreements were, and each new intercompany
loan agreement will be, on substantially the same terms as the intercompany
loan agreement, except as to the amount advanced, the date that monies were, or
are, drawn and the terms for repayment. Each intercompany loan is repayable by
Funding from the issuer allocable principal receipts which are allocated to the
relevant new issuer. You should note that each intercompany loan agreement is
subject to the same general terms and conditions, which are then supplemented
by a separate intercompany loan confirmation to provide for the specific terms
and conditions of that related intercompany loan. If Funding enters into a new
intercompany loan agreement, then the provisions of the intercompany loan
agreement that we have entered into with Funding may be varied without our
consent to the extent necessary to reflect the terms of that new intercompany
loan, provided that no variation shall be made to certain fundamental terms of
the intercompany loan, including the payment dates and the limited recourse
nature of the intercompany loan, without the prior written consent of the
Funding secured creditors and the rating agencies.
FUNDING'S BANK ACCOUNTS
Funding currently maintains the "FUNDING GIC ACCOUNT" in its name with
Northern Rock. A separate "FUNDING RESERVE LEDGER" is maintained to record
amounts standing to the credit of the Funding reserve fund from time to time.
Among other things, Funding may use amounts credited to the Funding reserve
ledger from time to time to fund issuer reserve funds, if any, in respect of
new issuers, to pay the start-up costs in connection with new issuers and to
cover losses and shortfalls of any issuers as part of fees payable under the
relevant intercompany loan agreement.
On each distribution date the Funding share of each of the mortgages trustee
available revenue receipts and mortgages trustee available principal receipts
payable to Funding under the mortgages trust will initially be deposited in the
Funding GIC account. On each payment date, amounts required to meet Funding's
obligations to its various creditors will, with the consent of the security
trustee, be transferred from the Funding GIC account to the "FUNDING
TRANSACTION ACCOUNT" and applied by the cash manager in accordance with the
relevant Funding priority of payments. Amounts representing Funding's profits
will be retained in the Funding transaction account.
Funding will also establish accounts from time to time to which the reserve
funds it holds in respect of the issuer or any new issuer may be credited.
On the closing date, Funding will establish a reserve account for our
benefit (the "FUNDING (GRANITE 04-3) GIC ACCOUNT") in its name with Northern
Rock. On the closing date, the issuer reserve fund will be credited to the
Funding (Granite 04-3) GIC account, and a separate "ISSUER RESERVE LEDGER" will
be maintained to record amounts standing to the credit of the issuer reserve
fund from time to time. If at any time an issuer liquidity reserve fund is
required to be established, the issuer liquidity reserve fund will also be
credited to the Funding (Granite 04-3) GIC account and a separate "ISSUER
LIQUIDITY RESERVE LEDGER" will be maintained to record amounts standing to the
credit of the issuer liquidity reserve fund from time to time. Pursuant to the
Funding deed of charge, Funding will grant a security interest to the security
trustee in respect of its rights and interest in, and all monies standing to
the credit of, the Funding (Granite 04-3) GIC account as security for its
obligations to the issuer under the intercompany loan. Subject to certain
limitations, Funding will be entitled to utilize monies credited to the issuer
reserve ledger
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and the issuer liquidity reserve ledger to meet certain of its payment
obligations to the issuer under the intercompany loan in circumstances where
there would otherwise be a deficit as described under "CREDIT STRUCTURE --
ISSUER RESERVE FUND" and "CREDIT STRUCTURE -- ISSUER LIQUIDITY RESERVE FUND".
The Funding GIC account referred to above will be maintained with Northern
Rock but may be required to be transferred to the stand-by GIC provider or
other bank in certain circumstances, including if the short-term, unguaranteed
and unsecured ratings ascribed to Northern Rock 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, provided that where the relevant deposit amount is less than
20% of the amount of the Funding share of the trust property, then the short-
term, unguaranteed and unsecured rating required to be ascribed to Northern
Rock by Standard & Poor's shall be at least "A-1".
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CASHFLOWS
FUNDING ALLOCATION OF MORTGAGES TRUSTEE AVAILABLE REVENUE RECEIPTS
On each distribution date the cash manager, on behalf of Funding, will
allocate all mortgages trustee available revenue receipts received from the
mortgages trustee on such distribution date as follows:
(A) an amount equal to all amounts to be applied on the immediately
succeeding payment dates for group 1 issuers and group 2 issuers
set forth under items (A)-(D) of the Funding pre-enforcement
revenue priority of payments or, as the case may be, items (A)-(C)
of the Funding post-enforcement priority of payments, to be
recorded on the Funding expense sub-ledger; and
(B) in no order of priority:
(1) an amount to be recorded on the group 1 revenue sub-ledger
in respect of all group 1 issuers which is equal to the
lesser of:
(a) in respect of all group 1 issuers an amount equal to
the aggregate of the amounts to be applied on the
immediately succeeding payment date for group 1
issuers as set forth under items (E)-(Q) of the
Funding pre-enforcement revenue priority of payments
or, as the case may be items (D)-(G) of the Funding
post-enforcement priority of payments (but excluding
any principal amount due under any intercompany loan
(save that, for the avoidance of doubt, such
exclusion shall not apply in respect of any group 1
available revenue receipts which are applied by any
group 1 issuer to credit that issuer's principal
deficiency ledgers and thereby reduce the principal
payable under that issuer's intercompany loan) and
any amount of deferred contribution under item (P)
of the Funding pre-enforcement revenue priority of
payments and/or item (F) of the Funding post-
enforcement priority of payments), less all other
amounts (not derived from the distribution of
mortgages trustee available revenue receipts under
the mortgages trust) which will constitute group 1
available revenue receipts on the immediately
succeeding payment date; and
(b) an amount (not less than zero) equal to:
remaining mortgages trustee available
revenue receipts allocated to Funding x group 1 share percentage
(2) an amount to be recorded on the group 2 revenue sub-ledger
in respect of all group 2 issuers which is equal to the
lesser of:
(a) in respect of all group 2 issuers an amount equal to
the aggregate of the amounts to be applied on the
immediately succeeding payment date for group 2
issuers as set forth under items (E)-(Q) of the
Funding pre-enforcement revenue priority of payments
or, as the case may be, items (D)-(G) of the Funding
post-enforcement priority of payments (but excluding
any principal amount due under any intercompany loan
(save that, for the avoidance of doubt, such
exclusion shall not apply in respect of any group 2
available revenue receipts which are applied by any
group 2 issuer to credit that issuer's principal
deficiency ledgers and thereby reduce the principal
payable under that issuer's intercompany loan) and
any amount of deferred contribution under item (P)
of the Funding pre-enforcement revenue priority of
payments and/or item (F) of the Funding post-
enforcement priority of payments), less all other
amounts (not derived from the distribution of
mortgages trustee
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available revenue receipts under the mortgages
trust) which will constitute group 2 available
revenue receipts on the immediately succeeding
payment date; and
(b) an amount (not less than zero) equal to:
remaining mortgages trustee available
revenue receipts allocated to Funding x group 2 share percentage
(C) either:
(1) an amount to be recorded on the group 1 revenue sub-ledger
in respect of all group 1 issuers towards any remaining
revenue amounts which will be due and payable (following
the allocation set forth in (B) above) on the immediately
succeeding payment date for group 1 issuers under such
issuers' intercompany loans; or
(2) an amount to be recorded on the group 2 revenue sub-ledger
in respect of all group 2 issuers towards any remaining
revenue amounts which will be due and payable (following
the allocation set forth in (B) above) on the immediately
succeeding payment date for group 2 issuers under such
issuers' intercompany loans.
DISTRIBUTIONS OF FUNDING AVAILABLE REVENUE RECEIPTS
DEFINITIONS
"FUNDING AVAILABLE REVENUE RECEIPTS" in respect of any payment date will be
calculated by the cash manager on the distribution date immediately preceding
such payment date and will be an amount equal to the sum of:
(1) all mortgages trustee available revenue receipts distributed to
Funding during the interest period ending on the relevant payment
date and recorded on the group 1 revenue sub-ledger, the group 2
revenue sub-ledger and the Funding expense sub-ledger;
(2) other net income of Funding including all amounts of interest
received on the Funding GIC account and the Funding transaction
account, and/or all income from authorized investments, as
allocated by Funding between group 1 and group 2 in proportion to
the group 1 share percentage and group 2 share percentage and
recorded on the group 1 revenue sub-ledger and the group 2 revenue
sub-ledger on each distribution date during the interest period
ending on such payment date, in each case to be received on or
prior to such payment date; and
(3) the amount standing to the credit of the Funding reserve ledger,
PROVIDED THAT
* "GROUP 1 AVAILABLE REVENUE RECEIPTS" in respect of any payment
date for group 1 issuers, as calculated on the immediately
preceding distribution date, will be an amount equal to the sum of
(a) amounts recorded on the group 1 revenue subledger during the
related interest period as set forth in item (1) above, (b)
amounts recorded on the group 1 revenue sub-ledger during the
related interest period as set forth in item (2) above and (c) the
product of the amount standing to the credit of the Funding
reserve ledger multiplied by the group 1 share percentage, in each
case as on such distribution date (unless the related payment date
for group 1 issuers is also a Funding reserve adjustment date, in
which case the product of the amount standing to the credit of the
Funding reserve ledger multiplied by the group 1 share percentage,
in each case as on the distribution date immediately preceding the
immediately preceding payment date for group 2 issuers).
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* "GROUP 2 AVAILABLE REVENUE RECEIPTS" in respect of any payment
date for group 2 issuers as calculated on the immediately
preceding distribution date, will be an amount equal to the sum of
(a) amounts recorded on the group 2 revenue sub-ledger during the
related interest period as set forth in item (1) above, (b)
amounts recorded on the group 2 revenue sub-ledger during the
related interest period as set forth in item (2) above and (c) the
product of the amount standing to the credit of the Funding
reserve ledger multiplied by the group 2 share percentage, in each
case as on such distribution date (unless the related payment date
for group 2 issuers is also a Funding reserve adjustment date, in
which case the product of the amount standing to the credit of the
Funding reserve ledger multiplied by the group 2 share percentage,
in each case as on the distribution date immediately preceding the
immediately preceding payment date for group 1 issuers);
PROVIDED FURTHER THAT for the purpose only of the payments to be made to any
group 1 issuer or group 2 issuer on the relevant payment date in respect of the
intercompany loan made by that issuer (but not for the purpose of any other
payment to be made by Funding on the relevant payment date including any
payment in respect of any other intercompany loan made by any other issuer),
group 1 available revenue receipts and group 2 available revenue receipts, as
applicable, shall also include the sum of:
* the amount standing to the credit of the issuer reserve ledger in
respect of that issuer (but not in respect of any other issuer),
subject to any limits or conditions on the purposes for which that
reserve may be utilized as set out in the Funding deed of charge;
and
* the amount standing to the credit of the issuer liquidity reserve
ledger, if any, in respect of that issuer (but not in respect of
any other issuer), subject to any limits or conditions on the
purposes for which that reserve may be utilized as set out in the
Funding deed of charge; and
PROVIDED FURTHER THAT, as set forth in Rule (3) under "-- RULES FOR APPLICATION
OF FUNDING AVAILABLE REVENUE RECEIPTS", on the payment date following the
repayment in full of the intercompany loan of any issuer and provided that
Funding has no further liability under the relevant intercompany loan
agreement, subject to any limits or conditions on the purposes for which the
related issuer reserve fund or issuer liquidity reserve fund, if any, may be
utilized as set out in the Funding deed of charge, any remaining amounts
standing to the credit of the issuer reserve ledger and the issuer liquidity
reserve ledger, if any, of that issuer will constitute additional Funding
available revenue receipts for the purpose of items (N) through (Q) of the
Funding pre-enforcement priority of payments and may be utilized by Funding in
paying any other liability of Funding (including, without limitation, payment
of interest and principal amounts due to each start-up loan provider under the
relevant start-up loan agreement and payment of any deferred contribution due
to the mortgages trustee under the mortgages trust deed), in each case, subject
to and in accordance with the relevant Funding priority of payments.
In the case of the issuer, the limits and conditions on the utilization of
the issuer reserve fund and the issuer liquidity reserve fund, if any, are
described under "CREDIT STRUCTURE -- ISSUER RESERVE FUND" and "CREDIT STRUCTURE
- -- ISSUER LIQUIDITY RESERVE FUND".
"ISSUER ALLOCABLE REVENUE RECEIPTS"
(1) On the distribution date immediately preceding a payment date for
group 1 issuers, the cash manager will calculate the issuer
allocable revenue receipts for each such group 1 issuer in respect
of the relevant payment date which will be an amount (not less
than zero) for each issuer equal to the sum of:
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(A) the amount calculated by reference to the following
formula:
outstanding principal balance on such
group 1 available revenue group 1 issuer's intercompany loan
receipts (excluding all group 1 -----------------------------------------
ssuer reserve funds and group 1 x aggregate outstanding principal
issuer liquidity reserve funds) balance of all intercompany loans of all
group 1 issuers
(B) the amount standing to the credit of the issuer reserve
ledger in respect of that group 1 issuer (but not in
respect of any other issuer), subject to any limits or
conditions on the purposes for which that reserve may be
utilized; and
(C) the amount standing to the credit of the issuer liquidity
reserve ledger, if any, in respect of that group 1 issuer
(but not in respect of any other issuer), subject to any
limits or conditions on the purposes for which that reserve
may be utilized.
(2) On the distribution date immediately preceding a payment date for
group 2 issuers, the cash manager will calculate the issuer
allocable revenue receipts for each such group 2 issuer in respect
of the relevant payment date which will be an amount (not less
than zero) for each issuer equal to the sum of:
(A) the amount calculated by reference to the following
formula:
outstanding principal balance on such
group 2 available revenue group 2 issuer's intercompany loan
receipts (excluding all group 2 -----------------------------------------
issuer reserve funds and group 2 x aggregate outstanding principal
issuer liquidity reserve funds) balance of all intercompany loans of all
group 2 issuers
(B) the amount standing to the credit of the issuer reserve
ledger in respect of that group 2 issuer (but not in
respect of any other issuer), subject to any limits or
conditions on the purposes for which that reserve may be
utilized; and
(C) the amount standing to the credit of the issuer liquidity
reserve ledger, if any, in respect of that group 2 issuer
(but not in respect of any other issuer), subject to any
limits or conditions on the purposes for which that reserve
may be utilized.
As of the closing date the only group 1 issuers will be the first issuer,
the second issuer, the third issuer, the fourth issuer, the fifth issuer, the
sixth issuer and the seventh issuer. As of the closing date the only group 2
issuers will be the eighth issuer, the ninth issuer and Granite Mortgages 04-3
plc.
RULES FOR APPLICATION OF FUNDING AVAILABLE REVENUE RECEIPTS
The Funding deed of charge sets out certain rules for the application by
Funding, or the cash manager on its behalf, of Funding available revenue
receipts on each payment date. The principal rules are as follows:
(1) (A) Subject as provided in rules (2) through (9) below, the
portion of issuer allocable revenue receipts for all group
1 issuers remaining after item (M) of the Funding
pre-enforcement revenue priority of payments, together
with any additional Funding available revenue receipts
under rule (3) below, shall constitute "GROUP 1 SHARED
ISSUER REVENUE RECEIPTS". Group 1 shared issuer revenue
receipts will be reallocated by the cash manager on a
payment date for group 1 issuers in accordance with item
(N) of the Funding pre-enforcement revenue priority of
payments and will continue to
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be distributed on such payment date in accordance with
items (E) through (M) of the Funding pre-enforcement
revenue priority of payments until there are no remaining
amounts of group 1 shared issuer revenue receipts to be
reallocated and distributed on such payment date. Any
limitation restricting a payment to an issuer to the amount
up to that issuer's issuer allocable revenue receipts shall
not apply for the purpose of the reall ocation of group 1
shared issuer revenue receipts by the cash manager on a
payment date in accordance with this rule. If there is more
than one group 1 issuer that is entitled to group 1 shared
issuer revenue receipts, then each such group 1 issuer will
be reallocated a portion of group 1 shared issuer revenue
receipts equal to:
outstanding principal balance of the
intercompany loan of such group 1 issuer
amount of group 1 shared x -------------------------------------------
issuer revenue receipts aggregate outstanding principal balance of
the intercompany loans of all group 1
issuers
(B) Subject as provided in rules (2) through (4) below, the
portion of issuer allocable revenue receipts for all group
2 issuers remaining after item (M) of the Funding
pre-enforcement revenue priority of payments, together with
any additional Funding available revenue receipts under
rule (3) below, shall constitute "GROUP 2 SHARED ISSUER
REVENUE RECEIPTS". Group 2 shared issuer revenue receipts
will be reallocated by the cash manager on a payment date
for group 2 issuers in accordance with item (N) of the
Funding pre-enforcement revenue priority of payments and
will continue to be distributed on such payment date in
accordance with items (E) through (M) of the Funding
pre-enforcement revenue priority of payments until there
are no remaining amounts of group 2 shared issuer revenue
receipts to be reallocated and distributed on such payment
date. Any limitation restricting a payment to an issuer to
the amount up to that issuer's issuer allocable revenue
receipts shall not apply for the purpose of the
reallocation of group 2 shared issuer revenue receipts by
the cash manager on a payment date in accordance with this
rule. If there is more than one group 2 issuer that is
entitled to group 2 shared issuer revenue receipts, then
each such group 2 issuer will be reallocated a portion of
group 2 shared issuer revenue receipts equal to:
outstanding principal balance of the
intercompany loan of such group 2 issuer
amount of group 2 shared x
issuer revenue receipts aggregate outstanding principal balance of
the intercompany loans of all group 2
issuers
(2) No issuer shall be entitled to or shall receive any amount of
issuer allocable revenue receipts from Funding on a payment date
on which such issuer is not required by that issuer to make a
payment on that date in accordance with the relevant issuer
pre-enforcement revenue priority of payments or other relevant
issuer priority of payments which applies to that issuer on that
date, and the cash manager will take account of all of the funds
which are or will become available to that issuer on that payment
date and which constitute issuer available revenue receipts
(including any payments due under any swap agreement and any
interest or other income received or to be received) for that
issuer for the purpose of making this determination.
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(3) Unless and until the intercompany loan of any issuer has been
repaid in full and Funding has no further liability under the
relevant intercompany loan agreement, amounts standing to the
credit of the issuer reserve ledger and the issuer liquidity
reserve ledger, if any, established by Funding for that issuer may
only be utilized by Funding in making payments due under that
issuer's intercompany loan and may not be used in or towards the
payment of any other liability of Funding. On the payment date
following the repayment in full of the intercompany loan of that
issuer and provided that Funding has no further liability in
respect of the relevant intercompany loan agreement, any remaining
amounts standing to the credit of the issuer reserve ledger and
the issuer liquidity reserve ledger, if any, of that issuer will
constitute additional Funding available revenue receipts for the
purpose of items (N) through (Q) of the Funding pre-enforcement
revenue priority of payments and may be utilized by Funding in
paying any other liability of Funding subject to and in accordance
with the relevant Funding priority of payments.
(4) If on any payment date any issuer allocable revenue receipts
and/or any group 1 shared issuer revenue receipts or group 2
shared issuer revenue receipts, as applicable, are paid to an
issuer and are applied by that issuer in reducing any deficiency
recorded on the issuer principal deficiency ledger of that issuer
(but only to the extent of any deficiency which has arisen as a
result of (i) losses on the mortgage loans allocated by Funding to
the issuer and/or (ii) the application of Funding available
principal receipts to fund the issuer liquidity reserve fund of
the issuer but not as a result of any other principal deficiency
of the issuer), then the issuer allocable revenue receipts and/or
group 1 shared issuer revenue receipts or group 2 shared issuer
revenue receipts, as applicable, so applied shall constitute
repayments of principal under the relevant intercompany loan and
shall reduce the outstanding principal balance of that
intercompany loan accordingly.
To the extent that (a) an amount payable to an issuer pursuant to
the Funding pre-enforcement revenue priority of payments on any
payment date would, in accordance with the issuer pre-enforcement
revenue priority of payments relating to that issuer, be credited
by that issuer to its issuer principal deficiency ledger, and (b)
the amount to be treated as principal as a result of making such
credit would result in the issuer available principal receipts of
that issuer on that payment date being in excess of the principal
amount to be repaid by that issuer in respect of its notes on that
payment date, then an amount equal to that excess shall be
reapplied by Funding as group 1 available principal receipts or
group 2 available principal receipts, as applicable.
(5) The cash manager will distribute group 1 available revenue
receipts only on each payment date for group 1 issuers and group 2
available revenue receipts only on each payment date for group 2
issuers. Group 1 available revenue receipts and group 2 available
revenue receipts will be applied (subject to rule (7) below) to
pay amounts set forth in paragraphs (E)-(R) of the FUNDING
PRE-ENFORCEMENT REVENUE PRIORITY OF PAYMENTS and (D)-(G) of the
FUNDING POST- ENFORCEMENT PRIORITY OF PAYMENTS.
(6) All references to an "ISSUER" or "ISSUERS" in the Funding pre-
enforcement revenue priority of payments below shall be construed
to refer to an issuer or issuers in group 1 on a payment date for
group 1 issuers and in group 2 on a payment date for group 2
issuers.
(7) On payment dates for both group 1 issuers and group 2 issuers the
cash manager will apply amounts standing to the credit of the
Funding expense subledger on the immediately preceding
distribution date to pay the amounts set
185
forth in paragraphs (A)-(D) of the FUNDING PRE-ENFORCEMENT REVENUE
PRIORITY OF PAYMENTS and paragraphs (A)-(C) of the FUNDING
POST-ENFORCEMENT PRIORITY OF PAYMENTS.
(8) To the extent that on any payment date for group 1 issuers or
payment date for group 2 issuers amounts standing to the credit of
the Funding expense subledger distributed pursuant to paragraph
(7) above are insufficient to pay all amounts described in such
paragraph (7), then the cash manager will apply amounts standing
to the credit of the Funding reserve ledger to meet such a
shortfall. To the extent that on any payment date amounts standing
to the credit of the Funding reserve ledger and applied pursuant
to the preceding sentence are insufficient to pay all amounts
described in paragraph (7) above, then the cash manager will apply
on the payment date for group 1 issuers, group 1 available revenue
receipts or on the payment date for group 2 issuers, group 2
available revenue receipts, as applicable, to pay such amounts. To
the extent that amounts standing to the credit of the Funding
reserve ledger are applied to pay any amounts described in
paragraph (7) above then the amounts standing to the credit of the
Funding reserve ledger as at the relevant date described in
paragraph (c) of "GROUP 1 AVAILABLE REVENUE RECEIPTS" and "GROUP 2
AVAILABLE REVENUE RECEIPTS" above shall be deemed to have been
reduced by the amount applied to pay amounts described in
paragraph (7) above.
(9) Group 1 available revenue receipts may not be used to make
payments to group 2 issuers and group 2 available revenue receipts
may not be used to make payments to group 1 issuers.
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 closing date.
On each payment date or, in respect of amounts due to third parties by
Funding under item (B), when due, prior to enforcement of the Funding security,
the cash manager will, subject to the rules for application of Funding
available revenue receipts, apply group 1 available revenue receipts, group 2
available revenue receipts and amounts standing to the credit of the funding
expense sub-ledger, as applicable, in the following order of priority (the
"FUNDING PRE-ENFORCEMENT REVENUE PRIORITY OF PAYMENTS"):
(A) first, to pay amounts due to the security trustee (together with
interest and (to the extent not already inclusive) VAT on those
amounts) and to provide for any amounts due or to become due
during the following interest period to the security trustee,
under the Funding deed of charge or any other transaction
document;
(B) second, to pay amounts due to any third party creditors of Funding
(other than those referred to later in this order of priority of
payments or in the Funding pre-enforcement principal priority of
payments) of which the cash manager has notice prior to the
relevant payment date, 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 such amounts expected to become due and
payable by Funding during the following interest period and to pay
or discharge any liability of Funding for corporation tax on any
chargeable income or gain of Funding;
(C) third, towards payment of amounts due to the cash manager under
the cash management agreement (together with (to the extent not
already inclusive) VAT on those amounts);
186
(D) fourth, in no order of priority among them, but in proportion to
the respective amounts due, towards payment of amounts, if any,
due to (i) the account bank under the terms of the bank account
agreement, (ii) the stand-by account bank under the terms of the
stand-by bank account agreement and (iii) the corporate services
provider under the terms of the corporate services agreement;
(E) fifth, to pay, in no order of priority among them, to each issuer
an amount up to its issuer allocable revenue receipts in respect
of interest and fees due on that issuer's intercompany loan but
not exceeding the aggregate amount of, and to be applied in the
amounts and priorities set forth in, the issuer pre-liquidity
payments for that issuer. "ISSUER PRE-LIQUIDITY PAYMENTS" means,
in the case of the issuer, the payments set out in items (A)
through (G) under "-- DISTRIBUTION OF ISSUER AVAILABLE REVENUE
RECEIPTS PRIOR TO ENFORCEMENT OF THE ISSUER SECURITY" (or the
relevant payments in the equivalent items under such other issuer
priority of payments as may apply to the issuer on that payment
date) and, in the case of any other issuer, the payment(s)
identified as such for that other issuer;
(F) sixth, to pay, in no order of priority among them, such amount for
each issuer up to its issuer allocable revenue receipts as is
necessary to replenish the issuer liquidity reserve fund, if any,
established in respect of that issuer up to the issuer liquidity
reserve required amount (in the case of the issuer, as defined in
"CREDIT STRUCTURE -- ISSUER LIQUIDITY RESERVE FUND") (but only to
the extent that monies have been drawn from the relevant issuer
liquidity reserve fund to pay interest and fees due under the
relevant intercompany loan and only to replenish the issuer
liquidity reserve fund of an issuer to the extent that there are
class A notes issued by such issuer outstanding on such payment
date);
(G) seventh, to pay, in no order of priority among them, to each
issuer an amount up to its issuer allocable revenue receipts in
respect of interest and fees due on that issuer's intercompany
loan but not exceeding the aggregate amount of, and to be applied
in the amounts and priorities set forth in, the issuer
post-liquidity payments for that issuer. "ISSUER POST-LIQUIDITY
PAYMENTS" means, in the case of the issuer, the payments set out
in items (H) through (L) under "-- DISTRIBU-TION OF ISSUER
AVAILABLE REVENUE RECEIPTS PRIOR TO ENFORCEMENT OF THE ISSUER
SECURITY" (or the relevant payments in the equivalent items under
such other issuer priority of payments as may apply to the issuer
on that payment date) and in the case of any new issuer the
payment(s) identified as such for that new issuer;
(H) eighth, to pay in no order of priority among them, such amount for
each issuer up to its issuer allocable revenue receipts as is
necessary to fund the issuer reserve fund established in respect
of that issuer up to the issuer reserve required amount (in the
case of the issuer, as defined in "CREDIT STRUCTURE -- ISSUER
RESERVE FUND") or to replenish such issuer reserve fund up to the
related issuer reserve required amount (to the extent that monies
have been drawn from such issuer reserve fund to pay interest and
fees under the relevant intercompany loan) or if an arrears or
step-up trigger event has occurred, to credit the issuer reserve
ledger with such additional amounts as set out in "CREDIT
STRUCTURE -- ISSUER RESERVE FUND";
(I) ninth, to pay, in no order of priority among them, to each issuer
an amount up to its issuer allocable revenue receipts in respect
of interest, principal (in the case of the special repayment
notes) and fees due on that issuer's intercompany loan but not
exceeding the aggregate amount of, and to be applied in the
amounts and priorities set forth in, the issuer pre-reserve
payments for that issuer. "ISSUER PRE-RESERVE PAYMENTS" means the
relevant payments identified as such in the
187
items under such issuer priority of payments as may apply to that
issuer on that payment date and in the case of any new issuer the
payment(s) identified as such for that new issuer;
(J) tenth, in no order of priority among them from each issuer's
allocable revenue receipts, to credit the Funding reserve ledger
in an amount up to the Funding reserve required amount (as defined
in "CREDIT STRUCTURE -- FUNDING RESERVE FUND") or if a Funding
step-up trigger event has occurred, to credit the Funding reserve
ledger with such additional amount as set out in "CREDIT STRUCTURE
-- FUNDING RESERVE FUND";
(K) eleventh, to pay, to each issuer in no order of priority among
them, but in proportion to the respective amounts due, an amount
up to its issuer allocable revenue receipts in respect of interest
and fees due on that issuer's intercompany loan but not exceeding
the aggregate amount of, and to be applied in the amounts and
priorities set forth in, the issuer post-reserve payments for that
issuer. "ISSUER POST-RESERVE PAYMENTS" means, in the case of the
issuer, the payments set out in items (M) and (N) under "--
DISTRIBUTION OF ISSUER AVAILABLE REVENUE RECEIPTS PRIOR TO
ENFORCEMENT OF THE ISSUER SECURITY" (or the relevant payments in
the equivalent items under such other issuer priority of payments
as may apply to the issuer on that payment date) and in the case
of any new issuer the payment(s) identified as such for that
issuer;
(L) twelfth, in no order of priority among them, but in proportion to
the respective amounts due, from issuer allocable revenue
receipts, towards payment of interest and principal amounts due to
each start-up loan provider under the relevant start-up loan
agreement;
(M) thirteenth, to pay each issuer, in no order of priority among
them, but in proportion to the respective amounts due, an amount
up to its issuer allocable revenue receipts in respect of interest
and fees and any other amount (if any) due on that issuer's
intercompany loan but not exceeding the aggregate amount of, and
to be applied in the amounts and priorities set forth in, the
issuer post start-up payments for that issuer. "ISSUER POST
START-UP PAYMENTS" means, in the case of the issuer, the payments
set out in items (O) and (P) under "-- DISTRIBUTION OF ISSUER
AVAILABLE REVENUE RECEIPTS PRIOR TO ENFORCEMENT OF THE ISSUER
SECURITY" (or the relevant payments in the equivalent items under
such other issuer priority of payments as may apply to the issuer
on that payment date) and in the case of any new issuer the
payment(s) identified as such for that issuer;
(N) fourteenth, to apply on the payment date for group 1 issuers, to
the extent required group 1 available revenue receipts remaining
or on the payment date for group 2 issuers, to the extent required
group 2 available revenue receipts remaining, as applicable, in
the priorities set forth in items (E) through (M) above;
(O) fifteenth, towards payment to Funding of an amount equal to 0.01%
per annum of the Funding available revenue receipts (excluding,
for this purpose, amounts standing to the credit of the Funding
reserve ledger), which amount will be retained by Funding as
profit, less corporation tax in respect of those profits provided
for or paid at item (B) above;
(P) sixteenth, towards payment of any deferred contribution due to the
mortgages trustee pursuant to the terms of the mortgages trust
deed; and
(Q) last, towards payment to the shareholders of Funding of any
dividend declared by Funding,
PROVIDED THAT no amount will be applied in replenishing any of the reserve
funds held by Funding in respect of an issuer under items (F) and/or (H) above
following an enforcement of the issuer security relating to that issuer.
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For the avoidance of doubt, references to the issuer allocable revenue
receipts for a particular issuer in items (E) through (M) (inclusive) above
shall be reduced by any amounts already allocated to that issuer in the above
priority of payments on that payment date.
DISTRIBUTION OF ISSUER AVAILABLE REVENUE RECEIPTS PRIOR TO ENFORCEMENT OF THE
ISSUER SECURITY
DEFINITION OF ISSUER AVAILABLE REVENUE RECEIPTS
"ISSUER AVAILABLE REVENUE RECEIPTS" for the issuer in respect of any payment
date will be calculated by the issuer cash manager on the distribution date
immediately preceding that payment date and will be an amount equal to the sum
of:
* interest, fees and any other amount (excluding principal) paid by
Funding on the relevant payment date in respect of the
intercompany loan;
* amounts received by the issuer under or in accordance with the
basis rate swap agreement (excluding swap collateral excluded
amounts) and any early termination amounts (other than such early
termination amounts applied or to be applied by the issuer in the
purchase of one or more replacement hedge transactions) received
by the issuer under the swap agreements;
* interest payable on the issuer transaction account and any income
from authorized investments made with funds standing to the credit
of the issuer transaction account, in each case which has been or
will be received on or before the relevant payment date; and
* (only to the extent required after making the calculation set out
below) the aggregate of all principal amounts (if any) repaid by
Funding to the issuer under the intercompany loan on the relevant
payment date which are to be applied on the relevant payment date
to pay items (A) through (E), (G), (I) and/or (K) of the issuer
pre-enforcement revenue priority of payments.
On each distribution date the issuer cash manager will calculate whether
there will be an excess or a deficit of issuer available revenue receipts to
pay items (A) through (P) of the issuer pre-enforcement revenue priority of
payments (after taking account of group 1 shared issuer revenue receipts or
group 2 shared issuer revenue receipts, if any, available therefor).
Subject as provided below, if there is a deficit in the amount of issuer
available revenue receipts to pay items (A) through (E), (G), (I) and (K) of
the issuer pre-enforcement revenue priority of payments, then the issuer cash
manager shall pay or provide for that deficit by applying amounts which
constitute issuer allocable principal receipts, if any, paid to the issuer and
the issuer cash manager shall make a corresponding entry in the issuer
principal deficiency ledger, as described under "CREDIT STRUCTURE". Issuer
allocable principal receipts may not, however, be used to pay interest to any
class of notes if the application of that interest by the relevant issuer would
create or increase a principal deficiency in respect of a higher-ranking class
of notes issued by such issuer.
DISTRIBUTION OF ISSUER AVAILABLE REVENUE RECEIPTS PRIOR TO ENFORCEMENT OF THE
ISSUER SECURITY
The issuer cash management agreement sets out the order of priority of
distribution by the issuer cash manager, prior to the enforcement of the issuer
security, of issuer available revenue receipts on each payment date. As at the
closing date, the order of priority will be as described in this section.
As used in this prospectus, "DOLLAR CURRENCY SWAP PROVIDER DEFAULT" means
the occurrence of an event of default or downgrade termination event (as
defined in the relevant dollar currency swap agreement) where the dollar
currency swap provider is the defaulting party or the affected party (as
defined in the relevant dollar currency swap
189
agreement). The term "EURO CURRENCY SWAP PROVIDER DEFAULT" means the occurrence
of an event of default or downgrade termination event (as defined in the
relevant euro currency swap agreement) where the euro currency swap provider is
the defaulting party or the affected party (as defined in the relevant euro
currency swap agreement). The term "BASIS RATE SWAP PROVIDER DEFAULT" means the
occurrence of an event of default or downgrade termination event (as defined in
the basis rate swap agreement) where the basis rate swap provider is the
defaulting party or the affected party (as defined in the basis rate swap
agreement). The term "INTEREST RATE SWAP PROVIDER DEFAULT" means the occurrence
of an event of default or downgrade termination event (as defined in the
interest rate swap agreement) where the interest rate swap provider is the
defaulting party or the affected party (as defined in the interest rate swap
agreement).
On (i) each payment date or (ii) the date when due in respect of amounts due
to third parties under paragraph (C) below, the issuer cash manager will apply
issuer available revenue receipts in the following order of priority (the
"ISSUER PRE-ENFORCEMENT REVENUE PRIORITY OF PAYMENTS"):
(A) first, to pay amounts due to the note trustee, together with
interest and (to the extent not already inclusive) 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, the issuer deed of charge or any other transaction
document;
(B) second, in no order of priority among them but in proportion to
the respective amounts due, to pay amounts due to the agent bank,
the paying agents, the transfer agent and the registrar together
with interest and (to the extent not already inclusive) VAT on
those amounts, and to provide for any costs, charges, liabilities
and expenses due or to become due during the following interest
period to the agent bank, the paying agents, the transfer agent
and the registrar, under the paying agent and agent bank
agreement;
(C) third, to pay amounts due to any third party creditors of the
issuer (other than those referred to later in this order of
priority of payments or in the issuer pre-enforcement principal
priority of payments), of which the issuer cash manager has notice
prior to the relevant payment date, which amounts have been
incurred without breach by the issuer 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 such amounts expected to
become due and payable during the following interest period by the
issuer and to pay or discharge any liability of the issuer for
corporation tax on any chargeable income or gain of the issuer;
(D) fourth, in no order or priority among them but in proportion to
the respective amounts due, to pay amounts due to the issuer cash
manager under the issuer cash management agreement, the corporate
services provider under the corporate services agreement and the
issuer account bank under the issuer bank account agreement
together with (to the extent not already inclusive) VAT on those
amounts, and to provide for any amounts due, or to become due in
the immediately succeeding interest period, to the issuer cash
manager under the issuer cash management agreement, to the
corporate services provider under the corporate services agreement
and to the issuer account bank under the issuer bank account
agreement;
(E) fifth, in no order of priority among them but in proportion to the
respective amounts due, to pay:
* amounts (including such part of any termination payment)
due to the basis rate swap provider (except for any
termination payment or any part thereof due and payable to
the basis rate swap provider as a result of a basis rate
swap provider default, save to the extent such termination
payment may be
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satisfied by any swap replacement payment received by the
issuer following a downgrade termination event in respect
of the basis rate swap and applied in accordance with this
order of priority of payments);
* amounts due in respect of interest and such part of any
termination payment due to the series 1 class A1 dollar
currency swap provider under the series 1 class A1 dollar
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a dollar currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 1 class A1 dollar currency swap and
applied in accordance with this order of priority of
payments) and from amounts received on each payment date in
respect of interest from the series 1 class A1 dollar
currency swap provider to pay on such payment date interest
due or overdue on the series 1 class A1 notes to the
holders of the series 1 class A1 notes;
* amounts due in respect of interest and such part of any
termination payment due to the series 1 class A2 euro
currency swap provider under the series 1 class A2 euro
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a euro currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 1 class A2 euro currency swap and
applied in accordance with this order of priority of
payments) and from amounts received on each payment date in
respect of interest from the series 1 class A2 euro
currency swap provider to pay on such payment date interest
due or overdue on the series 1 class A2 notes to the
holders of the series 1 class A2 notes;
* amounts due in respect of interest and such part of any
termination payment due to the series 1 class A3 dollar
currency swap provider under the series 1 class A3 dollar
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a dollar currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 1 class A3 dollar currency swap and
applied in accordance with this order of priority of
payments) and from amounts received on each payment date in
respect of interest from the series 1 class A3 dollar
currency swap provider to pay on such payment date interest
due or overdue on the series 1 class A3 notes to the
holders of the series 1 class A3 notes;
* amounts due in respect of interest and such part of any
termination payment due to the series 2 class A1 dollar
currency swap provider under the series 2 class A1 dollar
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a dollar currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 2 class A1 dollar currency swap and
applied in accordance with this order of priority of
payments) and from amounts received on each payment date in
respect of interest from the series 2
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class A1 dollar currency swap provider to pay on such
payment date interest due or overdue on the series 2 class
A1 notes to the holders of the series 2 class A1 notes;
* amounts due in respect of interest and such part of any
termination payment due to the series 2 class A2 euro
currency swap provider under the series 2 class A2 euro
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a euro currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 2 class A2 euro currency swap and
applied in accordance with this order of priority of
payments) and from amounts received on each payment date in
respect of interest from the series 2 class A2 euro
currency swap provider to pay on such payment date interest
due or overdue on the series 2 class A2 notes to the
holders of the series 2 class A2 notes;
* amounts due to pay on each payment date interest due or
overdue on the series 3 class A1 notes to the holders of
the series 3 class A1 notes; and
* (i) on any payment date up to and including the earlier of
(a) the payment date in September 2011, (b) the occurrence
of a trigger event or (c) the enforcement of the Funding
security and/or the issuer security, amounts due in respect
of interest and such part of any termination payment due to
the interest rate swap provider under the interest rate
swap (except for any termination payment or any part
thereof due and payable to that swap provider as a result
of an interest rate swap provider default by that swap
provider, save to the extent such termination payment may
be satisfied by any swap replacement payment received by
the issuer following a downgrade termination event in
respect of the interest rate swap and applied in accordance
with this order of priority of payments) and from amounts
received on each payment date in respect of interest from
the interest rate swap provider to pay on such payment date
interest due or overdue on the series 3 class A2 notes to
the holders of the series 3 class A2 notes, and (ii)
thereafter, amounts due in respect of interest and such
part of any termination payment due to the interest rate
swap provider under the interest rate swap, to the extent
not already paid (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of an interest rate swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the interest rate swap and applied in accordance
with this order of priority of payments) and amounts due to
pay on such payment date interest due or overdue on the
series 3 class A2 notes to the holders of the series 3
class A2 notes;
(F) sixth, towards a credit to the principal deficiency sub-ledger for
the class A notes in an amount up to the amount necessary to
eliminate any debit on that ledger;
(G) seventh, in no order of priority among them but in proportion to
the respective amounts due, to pay:
* amounts due in respect of interest and such part of any
termination payment due to the series 1 class B dollar
currency swap provider under the series 1 class B dollar
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a dollar currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
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respect of the series 1 class B dollar currency swap and
applied in accordance with this order of priority of
payments) and from amounts received on each payment date in
respect of interest from the series 1 class B dollar
currency swap provider to pay on such payment date interest
due or overdue on the series 1 class B notes to the holders
of the series 1 class B notes;
* amounts due in respect of interest and such part of any
termination payment due to the series 2 class B euro
currency swap provider under the series 2 class B euro
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a euro currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 2 class B euro currency swap and
applied in accordance with this order of priority of
payments) and from amounts received on each payment date in
respect of interest from the series 2 class B euro currency
swap provider to pay on such payment date interest due or
overdue on the series 2 class B notes to the holders of the
series 2 class B notes; and
* amounts due to pay on each payment date interest due or
overdue on the series 3 class B notes to the holders of the
series 3 class B notes;
(H) eighth, towards a credit to the principal deficiency sub-ledger
for the class B notes in an amount up to the amount necessary to
eliminate any debit on that ledger;
(I) ninth, in no order of priority among them but in proportion to the
respective amounts due, to pay:
* amounts due in respect of interest and such part of any
termination payment due to the series 1 class M dollar
currency swap provider under the series 1 class M dollar
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a dollar currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 1 class M dollar currency swap and
applied in accordance with this order of priority of
payments) and from amounts received on each payment date in
respect of interest from the series 1 class M dollar
currency swap provider to pay on such payment date interest
due or overdue on the series 1 class M notes to the holders
of the series 1 class M notes;
* amounts due in respect of interest and such part of any
termination payment due to the series 2 class M euro
currency swap provider under the series 2 class M euro
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a euro currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 2 class M euro currency swap and
applied in accordance with this order of priority of
payments) and from amounts received on each payment date in
respect of interest from the series 2 class M euro currency
swap provider to pay on such payment date interest due or
overdue on the series 2 class M notes to the holders of the
series 2 class M notes; and
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* amounts due to pay on each payment date interest due or
overdue on the series 3 class M notes to the holders of the
series 3 class M notes;
(J) tenth, to credit the principal deficiency sub-ledger for the class
M notes in an amount up to the amount necessary to eliminate any
debit on that ledger;
(K) eleventh, in no order of priority among them but in proportion to
the respective amounts due, to pay:
* amounts due in respect of interest and such part of any
termination payment due to the series 1 class C dollar
currency swap provider under the series 1 class C dollar
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a dollar currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 1 class C dollar currency swap and
applied in accordance with this order of priority of
payments) and from amounts received on each payment date in
respect of interest from the series 1 class C dollar
currency swap provider to pay on such payment date interest
due or overdue on the series 1 class C notes to the holders
of the series 1 class C notes;
* amounts due in respect of interest and such part of any
termination payment due to the series 2 class C euro
currency swap provider under the series 2 class C euro
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a euro currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 2 class C euro currency swap and
applied in accordance with this order of priority of
payments) and from amounts received on each payment date in
respect of interest from the series 2 class C euro currency
swap provider to pay on such payment date interest due or
overdue on the series 2 class C notes to the holders of the
series 2 class C notes; and
* amounts due to pay on each payment date interest due or
overdue on the series 3 class C notes to the holders of the
series 3 class C notes;
(L) twelfth, towards a credit to the principal deficiency sub-ledger
for the class C notes in an amount up to the amount necessary to
eliminate any debit on that ledger;
(M) thirteenth, on the payment date falling in December of each year,
to pay to the issuer account bank an amount equal to the amount of
any debit balance in the issuer transaction account as permitted
by the issuer account bank and outstanding as at such payment
date;
(N) fourteenth, in no order of priority among them but in proportion
to the respective amounts due, to pay any termination payment to:
* the basis rate swap provider following a basis rate swap
provider default;
* the interest rate swap provider following an interest rate
swap provider default;
* any dollar currency swap provider following a dollar
currency swap provider default; and
* the euro currency swap provider following a euro currency
swap provider default;
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(O) fifteenth, to pay to the issuer an amount equal to 0.01% per annum
of the interest received under the intercompany loan, which will
be retained by the issuer as profit, less corporation tax in
respect of those profits provided for or paid at item (C) above;
and
(P) last, to pay to shareholders of the issuer any dividend declared
by the issuer.
If any swap collateral available revenue amounts (as defined in the
glossary) are received by the issuer on a payment date, such swap collateral
available revenue amounts shall be applied by the issuer cash manager on that
payment date in the same manner as it would have applied the receipts which
such swap collateral available revenue amounts replace.
FUNDING ALLOCATION OF MORTGAGES TRUSTEE AVAILABLE PRINCIPAL RECEIPTS
On each distribution date the cash manager, on behalf of Funding, will
allocate all mortgages trustee available principal receipts received from the
mortgages trustee on such distribution date and amounts standing to the credit
of the Funding principal ledger (taking into account amounts already standing
to the credit of the group 1 principal sub-ledger and the group 2 principal
sub-ledger) as follows:
(A) (1) for each issuer, an amount to be recorded on the group 1
principal subledger or group 2 principal sub-ledger, as the
case may be, equal to the amount by which the issuer
liquidity reserve fund relating to that issuer will be
less than the issuer liquidity reserve required amount, in
each case prior to the distribution of group 1 issuer
available principal receipts or group 2 issuer available
principal receipts, as applicable, on the payment date for
such issuer immediately succeeding such distribution date;
and
(2) for each issuer, an amount to be recorded on the group 1
principal subledger or the group 2 principal sub-ledger, as
the case may be, equal to the amount payable to such issuer
on the payment date for that issuer in respect of money
market notes of that issuer having controlled amortisation
amounts due on such payment dates; and
(B) in no order of priority between them:
(1) an amount to be recorded on the group 1 principal
sub-ledger in respect of all group 1 issuers which is equal
to the lesser of:
(a) the principal amount due on the intercompany loans
of all such group 1 issuers equal to the controlled
amortization amounts due for non-money market notes,
if any, on the payment date for group 1 issuers
immediately succeeding such distribution date (in
each case determined on the assumption that each
such amount will not be restricted and/or deferred
on that payment date in any of the circumstances
described under this section "CASHFLOWS"); and
(b) an amount equal to:
mortgages trustee principal
receipts plus any amounts
standing to the credit of the
Funding principal ledger (less x group 1 share percentage
any amounts applied in
paragraph (A) above)
(2) an amount to be recorded on the group 2 principal
sub-ledger in respect of all group 2 issuers which is equal
to the lesser of:
(a) the principal amount due on the intercompany loans
of all such group 2 issuers equal to the controlled
amortization amounts due for non-money market notes,
if any, on the payment date for group 2 issuers
195
immediately succeeding such distribution date (in
each case determined on the assumption that each
such amount will not be restricted and/or deferred
on that payment date in any of the circumstances
described under this section "CASHFLOWS"); and
(b) an amount equal to:
mortgages trustee principal
receipts plus any amounts
standing to the credit of the
Funding principal ledger (less x group 2 share percentage
any amounts applied in
paragraph (A) above)
(C) either:
(1) an amount to be recorded on the group 1 principal
sub-ledger in respect of all group 1 issuers towards any
principal amounts remaining which will be due and payable
(following the allocation to Funding set forth in (A)(2)
and (B) above) on the immediately succeeding payment date
under such issuers' intercompany loans (in each case
determined on the assumption that each such amount will not
be restricted and/or deferred on that payment date in any
of the circumstances described under this section
"CASHFLOWS"); or
(2) an amount to be recorded on the group 2 principal
sub-ledger in respect of all group 2 issuers towards any
principal amounts remaining which will be due and payable
(following the allocation to Funding set forth in (A)(2)
and (B) above) on the immediately succeeding payment date
under such issuers' intercompany loans (in each case
determined on the assumption that each such amount will not
be restricted and/or deferred on that payment date in any
of the circumstances described under this section
"CASHFLOWS"); and
(D) to credit any remaining amounts to the Funding principal ledger,
PROVIDED that if on any distribution date mortgages trustee principal receipts
are allocable to both group 1 principal sub-ledger and group 2 principal sub-
ledger pursuant to paragraph (A)(2) above, then the cash manager shall record
such amounts on the group 1 principal sub-ledger and group 2 principal sub-
ledger, respectively, in priority corresponding to the final maturity dates of
the money market notes of the related issuers, beginning with the earliest such
final maturity date.
For purposes of calculating the group 1 share percentage and the group 2
share percentage in paragraphs (B)(1)(b) and (B)(2)(b) above, respectively, the
outstanding principal balance of the relevant intercompany loan shall be deemed
to be reduced by the amount of: (a) any deficiency recorded on the issuer
principal deficiency ledger of that issuer as at the relevant payment date, but
only to the extent that such deficiency has arisen as a result of (i) losses on
the mortgage loans allocated by Funding to that issuer and/or (ii) the
application of Funding available principal receipts to fund the issuer
liquidity reserve fund of that issuer but not as a result of any other
principal deficiency of that issuer; and (b) the outstanding principal balance
as of such payment date of any special repayment notes issued by that issuer.
DISTRIBUTION OF FUNDING AVAILABLE PRINCIPAL RECEIPTS PRIOR TO THE ENFORCEMENT
OF THE FUNDING SECURITY
DEFINITION OF FUNDING AVAILABLE PRINCIPAL RECEIPTS
"FUNDING AVAILABLE PRINCIPAL RECEIPTS" in respect of a payment date for
group 1 issuers or for group 2 issuers will be calculated by the cash manager
or otherwise on behalf of Funding (or, following enforcement of the Funding
security, the security trustee) on the distribution date immediately preceding
that payment date and will be an amount equal to all mortgages trustee
principal receipts received by Funding from the mortgages
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trustee (and recorded on the group 1 principal sub-ledger or the group 2
principal subledger, as applicable) during the interest period ending on the
relevant payment date plus amounts transferred from the Funding principal
ledger to the group 1 principal sub-ledger or the group 2 principal sub-ledger
during the interest period ending on the relevant payment date provided that,
subject as provided otherwise, for the purpose only of determining the amount
of Funding available principal receipts which may be allocated following an
enforcement of the issuer security relating to that issuer, it may also include
the aggregate of any amounts standing to the credit of the issuer liquidity
reserve ledger, if any, and the issuer reserve ledger of that issuer remaining
on that payment date after the application of such reserve funds in accordance
with the Funding pre-enforcement revenue priority of payments. The amounts
recorded on the group 1 principal sub-ledger or the group 2 principal sub-
ledger in respect of the related payment date, together with any other amounts
described in the preceding sentence, constitute Funding available principal
receipts and are separately referred to as the "GROUP 1 AVAILABLE PRINCIPAL
RECEIPTS" (available for payment to group 1 issuers) and the "GROUP 2 AVAILABLE
PRINCIPAL RECEIPTS" (available for payment to group 2 issuers), respectively.
RULES FOR APPLICATION OF FUNDING AVAILABLE PRINCIPAL RECEIPTS
The Funding deed of charge sets out certain rules for the application by
Funding, or the cash manager on its behalf, of Funding available principal
receipts on each payment date. The principal rules are as follows:
(1) (A) On the distribution date immediately preceding a payment
date for group 1 issuers, the cash manager will calculate
the "ISSUER ALLOCABLE PRINCIPAL RECEIPTS" for each such
issuer in respect of the relevant payment date which,
subject as provided in paragraphs (2) through (8) below,
is an amount that is equal to the sum of:
(a) the aggregate of:
(i) for any group 1 issuer, the amount, if any,
by which the issuer liquidity reserve fund
relating to that issuer will be less than the
issuer liquidity reserve required amount in
each case prior to the distribution of group
1 available principal receipts on the payment
date for group 1 issuers immediately
succeeding such distribution date; and
(ii) for any group 1 issuer which has a money
market note still outstanding, up to the
amount equal to the controlled amortization
amount due on such money market note, if any,
on the payment date for group 1 issuers
immediately succeeding such distribution
date; and
(b) for any group 1 issuer, an amount equal to the
lesser of:
(i) (only if relevant) the principal amount due
on the intercompany loan of such issuer which
is an amount equal to the controlled
amortization amount due, if any, on the
payment date for group 1 issuers immediately
succeeding such distribution date (excluding
any amount calculated in accordance with
paragraph 1(A)(a)); and
(ii) an amount equal to:
outstanding principal balance on
group 1 available principal such group 1 issuer's intercompany
receipts minus the loan
aggregate amount under x ------------------------------------
(1)(A)(a) above in respect aggregate outstanding principal
of the relevant issuer on balance all intercompany loans of
such payment date group 1 issuers
197
(B) On the distribution date immediately preceding a payment
date for group 2 issuers, the cash manager will calculate
the "ISSUER ALLOCABLE PRINCIPAL RECEIPTS" for each such
issuer in respect of the relevant payment date which,
subject as provided in paragraphs (2) through (8) below, is
an amount which is equal to the sum of:
(a) the aggregate of:
(i) for any group 2 issuer, the amount, if any,
by which the issuer liquidity reserve fund
relating to that issuer will be less than the
issuer liquidity reserve required amount in
each case prior to the distribution of group
2 available principal receipts on the payment
date for group 2 issuers immediately
succeeding such distribution date; and
(ii) for any group 2 issuer which has a money
market note still outstanding, up to the
amount equal to the controlled amortization
amount due on such money market note, if any,
on the payment date for group 2 issuers
immediately succeeding such distribution
date; and
(b) for any group 2 issuer, an amount equal to the
lesser of:
(i) (only if relevant) the principal amount due
on the intercompany loan of such issuer which
is an amount equal to the controlled
amortization amount due, if any, on the
payment date immediately succeeding such
distribution date (excluding any amount
calculated in accordance with paragraph
1(B)(a)); and
(ii) an amount equal to:
outstanding principal balance on
group 2 available principal such group 2 issuer's intercompany
receipts minus the loan
aggregate amount under x ----------------------------------
(1)(B(a)) above in respect aggregate outstanding principal
of the relevant issuer on balance all intercompany loans of
such payment date group 2 issuers
PROVIDED THAT:
* subject as provided in paragraphs (2) through (8) below, for the
purpose only of determining the amount of issuer allocable
principal receipts which may be allocated and paid to the relevant
group 1 issuer or group 2 issuer (but not to any other issuer) in
accordance with this paragraph (1), following an enforcement of
the issuer security relating to that issuer the amount so
determined may be increased to the extent of the aggregate of any
amounts standing to the credit of the issuer liquidity reserve
ledger, if any, and the issuer reserve ledger of that issuer
remaining on the relevant payment date after the application of
such reserve funds in accordance with the Funding pre-enforcement
revenue priority of payments; and
* for the purpose of determining the amount of group 1 shared issuer
principal receipts and group 2 shared issuer principal receipts in
accordance with paragraph (6) below, issuer allocable principal
receipts (in respect of a group 1 issuer) shall be an amount equal
to the amount calculated in accordance with paragraphs (1)(A)(a)
and (1)(A)(b)(ii) and paragraph (1)(A)(b)(i) above shall not
apply, and (in respect of a group 2 issuer) shall be an amount
equal to the amount calculated in accordance with paragraphs
(1)(B)(a) and (1)(B)(b)(ii) above and paragraphs (1)(A)(b)(i) and
(1)(B)(b)(i) above shall not apply.
198
(2) If the notes of any issuer have become immediately due and payable
as a result of the service of a note enforcement notice or if the
intercompany loan of any issuer and the other intercompany loans
of any other issuers have become immediately due and payable as a
result of the service of an intercompany loan enforcement notice
or otherwise on any payment date following the occurrence of any
asset trigger event, principal payments in respect of any
intercompany loan may be made in excess of any controlled
amortization amount and paragraphs (1)(A)(a) and (1)(A)(b)(i) (in
respect of a group 1 issuer), or paragraphs (1)(B)(a) and
(1)(B)(b)(i) above (in respect of a group 2 issuer) shall no
longer apply in relation to that issuer and the amount of issuer
allocable principal receipts payable to that issuer on the
relevant payment date may not exceed the amount determined under
paragraphs (1)(A)(b)(ii) and (1)(B)(b)(ii) above (save that no
deduction shall be made from Funding available principal receipts)
but subject always to any increase in that amount as a result of
the utilization of the issuer reserve fund and the issuer
liquidity reserve fund (if any) following enforcement of the
issuer security relating to that issuer as provided in that
paragraph. Following the occurrence of any non-asset trigger event
(but prior to the occurrence of an asset trigger event), (1) the
reference in paragraphs (1)(A)(a)(ii) and (1)(B)(a)(ii) above to
the "CONTROLLED AMORTIZATION AMOUNT DUE ON SUCH MONEY MARKET NOTE"
shall be deemed to refer to the "OUTSTANDING PRINCIPAL BALANCE OF
SUCH MONEY MARKET NOTE", and (2) paragraph (1)(A)(b)(i) above (in
respect of a group 1 issuer), or paragraph (1)(B)(b)(i) above (in
respect of a group 2 issuer) shall no longer apply in relation to
the relevant issuer and the amount of issuer allocable principal
receipts payable to that issuer on the relevant payment date may
not exceed the amount determined under paragraph (1)(A)(b)(ii) (in
respect of a group 1 issuer) and (1)(B)(b)(ii) above (in respect
of a group 2 issuer), subject to the same qualifications set forth
in the immediately preceding paragraph.
(3) For the purpose of determining the amount of issuer allocable
principal receipts and/or shared issuer principal receipts which
may be paid to any issuer on a payment date pursuant to paragraph
(1) above or paragraph (6) below, the outstanding principal
balance of the relevant intercompany loan shall be deemed to be
reduced by the amount of: (a) any deficiency recorded on the
issuer principal deficiency ledger of that issuer as at the
relevant payment date, but only to the extent that such deficiency
has arisen as a result of (i) losses on the mortgage loans
allocated by Funding to that issuer and/or (ii) the application of
Funding available principal receipts to fund the issuer liquidity
reserve fund of that issuer but not as a result of any other
principal deficiency of that issuer; and (b) the outstanding
principal balance as of such payment date of any special repayment
notes issued by that issuer. Further, issuer allocable principal
receipts, which may be paid to any issuer on a payment date, will
be reduced and held in the Funding principal ledger to the extent
the application of that principal by the relevant issuer would
create or increase a deficit on the relevant issuer principal
deficiency ledger in respect of a higher-ranking class of notes
issued by such issuer.
(4) The amount of Funding available principal receipts payable to each
issuer on a payment date will be reduced by an amount equal to the
aggregate of the issuer available revenue receipts of that issuer
which are to be applied on that payment date in reducing
deficiencies recorded on the issuer principal deficiency ledgers,
but only to the extent that the issuer available revenue receipts
which are to be so applied on that payment date would not
otherwise be payable as principal of the relevant notes on such
payment date.
199
(5) No issuer shall be entitled to, or shall receive on a payment
date, any amount of issuer allocable principal receipts from
Funding which is not required by that issuer to make a payment on
that date in accordance with the relevant issuer pre-enforcement
principal priority of payments or otherwise to make a payment of
principal of the notes.
(6) (A) The portion of issuer allocable principal receipts
(calculated in accordance with paragraph (1)(A)(b)(ii)
above), if any, not required to be applied by a group 1
issuer to pay principal of the notes on a payment date for
group 1 issuers together with the portion of issuer
allocable principal receipts relating to all other group 1
issuers not required to be so applied by such other
group 1 issuers (or otherwise required to be set aside by
Funding for any group 1 issuer) on that payment date
(excluding the amount of any group 1 issuer reserve fund
or issuer liquidity reserve fund (if any) of any issuer)
shall constitute "GROUP 1 SHARED ISSUER PRINCIPAL
RECEIPTS". Group 1 shared issuer principal receipts will
be reallocated by the cash manager and distributed on
such payment date among the group 1 issuers until there
are no remaining amounts of group 1 shared issuer
principal receipts to be reallocated and distributed on
such payment date. Save as provided in paragraph (2)
above, if there is more than one group 1 issuer that is
entitled to group 1 shared issuer principal receipts, then
each such group 1 issuer will be reallocated a portion of
the group 1 shared issuer principal receipts equal to:
outstanding principal balance of the
intercompany loan of such group 1 issuer
amount of group 1 shared x ------------------------------------------
issuer revenue receipts aggregate outstanding principal balance of
the intercompany loans of all group 1
issuers
(B) The portion of issuer allocable principal receipts
(calculated in accordance with paragraph (1)(B)(b)(ii)
above), if any, not required to be applied by a group 2
issuer to pay principal of the notes on a payment date for
group 2 issuers together with the portion of issuer
allocable principal receipts relating to all other group 2
issuers not required to be so applied by such other group 2
issuers (or otherwise required to be set aside by Funding
for any group 2 issuer) on that payment date (excluding the
amount of any issuer reserve fund or issuer liquidity
reserve fund (if any) of any group 2 issuer) shall
constitute "GROUP 2 SHARED ISSUER PRINCIPAL RECEIPTS".
Group 2 shared issuer principal receipts will be
reallocated by the cash manager and distributed on such
payment date among the group 2 issuers until there are no
remaining amounts of group 2 shared issuer principal
receipts to be reallocated and distributed on such payment
date. Save as provided in paragraph (2) above, if there is
more than one group 2 issuer that is entitled to group 2
shared issuer principal receipts, then each such group 2
issuer will be reallocated a portion of the group 2 shared
issuer principal receipts equal to:
outstanding principal balance of the
intercompany loan of such group 2 issuer
amount of group 2 shared x ------------------------------------------
issuer revenue receipts aggregate outstanding principal balance of
the intercompany loans of all group 2
issuers
(7) The repayment of any intercompany loan prior to the occurrence of
a trigger event, enforcement of the issuer security by the note
trustee under the issuer deed of charge or enforcement of the
Funding security by the security trustee under the Funding deed of
charge will be made in accordance with the terms of the relevant
intercompany loan agreement.
200
(8) The cash manager will distribute only group 1 available principal
receipts on each payment date for group 1 issuers and only group 2
available principal receipts on each payment date for group 2
issuers. No payment may be made to group 1 issuers from group 2
available principal receipts and no payment may be made to group 2
issuers from group 1 principal receipts.
DISTRIBUTION OF FUNDING AVAILABLE PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF
THE FUNDING SECURITY
This section sets out the order of priority of payments of Funding available
principal receipts as at the closing date.
On each payment date prior to enforcement of the Funding security, the cash
manager will, subject to the rules for application of Funding available
principal receipts, apply group 1 available principal receipts or group 2
available principal receipts, as applicable, as follows (the "FUNDING PRE-
ENFORCEMENT PRINCIPAL PRIORITY OF PAYMENTS"):
(1) on each payment date for group 1 issuers, group 1 available
principal receipts to each group 1 issuer in the following order
of priority:
(A) first, to fund (either initially or to replenish, as the
case may be) the issuer liquidity reserve fund, if any, of
each group 1 issuer up to the issuer liquidity reserve
required amount but only from and to the extent of the
issuer allocable principal receipts for that issuer;
(B) second, to pay to (or, if required under that issuer's
intercompany loan, set aside for) each group 1 issuer an
amount up to its issuer allocable principal receipts in
respect of principal due (or, if required under that
issuer's intercompany loan, to become due) on that issuer's
intercompany loan, which shall be an amount up to the
aggregate amount of, and shall be applied in the amounts
and priorities set forth in, the issuer principal payments
for that issuer. "ISSUER PRINCIPAL PAYMENTS" means, in
relation to the issuer, the payments set forth in items (A)
through (F) under "-- DISTRI-BUTION OF ISSUER AVAILABLE
PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF THE ISSUER
SECURITY AND/OR OCCURRENCE OF A TRIGGER EVENT" or the
relevant payments set forth in the equivalent items in such
other issuer priority of payments as may be applicable to
that group 1 issuer on that payment date and in relation to
any new group 1 issuer the payment(s) identified as such
for that new group 1 issuer;
(C) third, to pay to (or, if required under that issuer's
intercompany loan, set aside for) each group 1 issuer an
amount up to its allocable portion of group 1 shared issuer
principal receipts in respect of principal due (or, if
required under that issuer's intercompany loan, to become
due) on that issuer's intercompany loan, which in the case
of that group 1 issuer shall be an amount up to the
aggregate amount of, and shall be applied in the amounts
and priorities set forth in, the issuer principal payments
for that issuer until there are no remaining group 1
available principal receipts on such payment date; and
(D) last, to credit any remaining amounts to the Funding
principal ledger,
(2) on each payment date for group 2 issuers, group 2 available
principal receipts to each group 2 issuer in the following order
of priority:
(A) first, to fund (either initially or to replenish, as the
case may be) the issuer liquidity reserve fund, if any, of
each group 2 issuer up to the issuer liquidity reserve
required amount but only from and to the extent of the
issuer allocable principal receipts for that issuer;
(B) second, to pay to (or, if required under that issuer's
intercompany loan, set aside for) each group 2 issuer an
amount up to its issuer allocable principal receipts in
respect of principal due (or, if required under that
issuer's
201
intercompany loan, to become due) on that issuer's
intercompany loan, which shall be an amount up to the
aggregate amount of, and shall be applied in the amounts
and priorities set forth in, the issuer principal payments
for that issuer. "ISSUER PRINCIPAL PAYMENTS" means, in
relation to that group 2 issuer, the payments set forth in
items (A) through (F) under "-- DISTRIBUTION OF ISSUER
AVAILABLE PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF THE
ISSUER SECURITY AND/OR OCCURRENCE OF A TRIGGER EVENT" or
the relevant payments set forth in the equivalent items in
such other issuer priority of payments as may be applicable
to that group 2 issuer on that payment date and in relation
to any new group 2 issuer the payme nt(s) identified as
such for that new group 2 issuer;
(C) third, to pay to (or, if required under that issuer's
intercompany loan, set aside for) each group 2 issuer an
amount up to its allocable portion of group 2 shared issuer
principal receipts in respect of principal due (or, if
required under that issuer's intercompany loan, to become
due) on that issuer's intercompany loan, which in the case
of that group 2 issuer shall be an amount up to the
aggregate amount of, and shall be applied in the amounts
and priorities set forth in, the issuer principal payments
for that issuer until there are no remaining group 2
available principal receipts on such payment date; and
(D) last, to credit any remaining amounts to the Funding
principal ledger,
PROVIDED THAT no amount will be applied in replenishing the issuer liquidity
reserve fund held by the Funding in respect of an issuer under paragraphs
(1)(A) or (2)(A) above following an enforcement of the issuer security relating
to that issuer.
DISTRIBUTION OF ISSUER AVAILABLE PRINCIPAL RECEIPTS
DEFINITION OF ISSUER AVAILABLE PRINCIPAL RECEIPTS
Prior to enforcement of the issuer security, "ISSUER AVAILABLE PRINCIPAL
RECEIPTS" for the issuer in respect of any payment date will be calculated by
the issuer cash manager on the distribution date immediately preceding that
payment date and will be an amount equal to the sum of:
* all principal amounts repaid by Funding to the issuer under the
intercompany loan during the period from (but excluding) the
immediately preceding payment date to (and including) that payment
date; and
* all issuer available revenue receipts which are to be applied on
that payment date to credit the issuer principal deficiency ledger
for any class of notes issued by the issuer,
less
* the aggregate of all principal amounts (if any) repaid by Funding
to the issuer under the intercompany loan on the relevant payment
date which are to be applied on the relevant payment date to pay
items (A) through (E), (G), (I) or (K) of the issuer pre-
enforcement revenue priority of payments.
Following enforcement of the issuer security, "ISSUER AVAILABLE PRINCIPAL
RECEIPTS" for the issuer in respect of any payment date will be the sum
calculated by or on behalf of the note trustee on the distribution date
immediately preceding that payment date as the amount to be repaid to the
issuer under the intercompany loan during the relevant interest period and/or
the sum otherwise recovered by the note trustee (or any receiver appointed on
its behalf) representing the principal amount outstanding of the notes.
202
DISTRIBUTION OF ISSUER AVAILABLE PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF THE
ISSUER SECURITY AND/OR THE OCCURRENCE OF A TRIGGER EVENT
Prior to enforcement of the issuer security, and/or the occurrence of a
trigger event, the issuer, or the issuer cash manager on its behalf, will apply
any issuer available principal receipts on each payment date in the following
manner (the "ISSUER PRE-ENFORCEMENT PRINCIPAL PRIORITY OF PAYMENTS"):
(A) first, amounts due in respect of principal and such part of any
termination payment due to the series 1 class A1 dollar currency
swap provider under the series 1 class A1 dollar currency swap
(except for any termination payment or any part thereof due and
payable to that swap provider as a result of a dollar currency
swap provider default by that swap provider, save to the extent
such termination payment may be satisfied by any swap replacement
payment received by the issuer following a downgrade termination
event in respect of the series 1 class A1 dollar currency swap and
applied in accordance with this order of priority of payments) and
from amounts received in respect of principal from the series 1
class A1 dollar currency swap provider to pay up to the series 1
class A1 controlled amortization amount to the holders of the
series 1 class A1 notes;
(B) second, amounts due in respect of principal and such part of any
termination payment due to the series 1 class A2 euro currency
swap provider under the series 1 class A2 euro currency swap
(except for any termination payment or any part thereof due and
payable to that swap provider as a result of a euro currency swap
provider default by that swap provider, save to the extent such
termination payment may be satisfied by any swap replacement
payment received by the issuer following a downgrade termination
event in respect of the series 1 class A2 euro currency swap and
applied in accordance with this order of priority of payments) and
from amounts received in respect of principal from the series 1
class A2 euro currency swap provider to pay up to the series 1
class A2 controlled amortization amount to the holders of the
series 1 class A2 notes;
(C) third, in no order of priority between them but in proportion to
the respective amounts due, to pay:
* amounts due in respect of principal and such part of any
termination payment due to the series 1 class A3 dollar
currency swap provider under the series 1 class A3 dollar
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a dollar currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 1 class A3 dollar currency swap and
applied in accordance with this order of priority of
payments) and from amounts received in respect of principal
from the series 1 class A3 dollar currency swap provider to
pay up to the series 1 class A3 controlled amortization
amount to the holders of the series 1 class A3 notes;
* amounts due in respect of principal and such part of any
termination payment due to the series 2 class A1 dollar
currency swap provider under the series 2 class A1 dollar
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a dollar currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 2 class A1 dollar currency swap and
applied in accordance with this order of priority of
payments) and from
203
amounts received in respect of principal from the series 2
class A1 dollar currency swap provider to pay up to the
series 2 class A1 controlled amortization amount to the
holders of the series 2 class A1 notes;
* amounts due in respect of principal and such part of any
termination payment due to the series 2 class A2 euro
currency swap provider under the series 2 class A2 euro
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a euro currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 2 class A2 euro currency swap and
applied in accordance with this order of priority of
payments) and from amounts received in respect of principal
from the series 2 class A2 euro currency swap provider to
pay up to the series 2 class A2 controlled amortization
amount to the holders of the series 2 class A2 notes;
* up to the series 3 class A1 controlled amortization amount
to the holders of the series 3 class A1 notes; and
* up to the series 3 class A2 controlled amortization amount
to the holders of the series 3 class A2 notes;
(D) fourth, provided that the issuer reserve requirement and the
issuer arrears test are satisfied on such payment date (or, if
either the issuer reserve requirement or the issuer arrears test
is not satisfied on such payment date, but the class A notes have
been repaid in full), in no order of priority among them but in
proportion to the respective amounts due, to pay:
* amounts due in respect of principal and such part of any
termination payment due to the series 1 class B dollar
currency swap provider under the series 1 class B dollar
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a dollar currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 1 class B dollar currency swap and
applied in accordance with this order of priority of
payments) and from amounts received in respect of principal
from the series 1 class B dollar currency swap provider to
pay up to the series 1 class B controlled amortization
amount to the holders of the series 1 class B notes;
* amounts due in respect of principal and such part of any
termination payment due to the series 2 class B euro
currency swap provider under the series 2 class B euro
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a euro currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 2 class B euro currency swap and
applied in accordance with this order of priority of
payments) and from amounts received in respect of principal
from the series 2 class B euro currency swap provider to
pay up to the series 2 class B controlled amortization
amount to the holders of the series 2 class B notes; and
* up to the series 3 class B controlled amortization amount
to the holders of the series 3 class B notes;
(E) fifth, provided that the issuer reserve requirement and the issuer
arrears test are satisfied on such payment date (or, if either the
issuer reserve requirement or the issuer arrears test is not
satisfied on such payment date, but the class A notes have been
repaid in full), in no order of priority among them but in
proportion to the respective amounts due, to pay:
204
* amounts due in respect of principal and such part of any
termination payment due to the series 1 class M dollar
currency swap provider under the series 1 class M dollar
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a dollar currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 1 class M dollar currency swap and
applied in accordance with this order of priority of
payments) and from amounts received in respect of principal
from the series 1 class M dollar currency swap provider to
pay up to the series 1 class M controlled amortization
amount to the holders of the series 1 class M notes;
* amounts due in respect of principal and such part of any
termination payment due to the series 2 class M euro
currency swap provider under the series 2 class M euro
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a euro currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 2 class M euro currency swap and
applied in accordance with this order of priority of
payments) and from amounts received in respect of principal
from the series 2 class M euro currency swap provider to
pay up to the series 2 class M controlled amortization
amount to the holders of the series 2 class M notes; and
* up to the series 3 class M controlled amortization amount
to the holders of the series 3 class M notes; and
(F) last, provided that the issuer reserve requirement and the issuer
arrears test are satisfied on such payment date (or, if either the
issuer reserve requirement or the issuer arrears test is not
satisfied on such payment date, but the class A notes have been
repaid in full), in no order of priority among them but in
proportion to the respective amounts due, to pay:
* amounts due in respect of principal and such part of any
termination payment due to the series 1 class C dollar
currency swap provider under the series 1 class C dollar
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a dollar currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 1 class C dollar currency swap and
applied in accordance with this order of priority of
payments) and from amounts received in respect of principal
from the series 1 class C dollar currency swap provider to
pay up to the series 1 class C controlled amortization
amount to the holders of the series 1 class C notes;
* amounts due in respect of principal and such part of any
termination payment due to the series 2 class C euro
currency swap provider under the series 2 class C euro
currency swap (except for any termination payment or any
part thereof due and payable to that swap provider as a
result of a euro currency swap provider default by that
swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in
respect of the series 2 class C euro currency swap and
applied in accordance with this order of priority of
payments) and from amounts received in respect of principal
from the series 2 class C euro currency swap provider to
pay up to the series 2 class C controlled amortization
amount to the holders of the series 2 class C notes; and
205
* up to the series 3 class C controlled amortization amount
to the holders of the series 3 class C notes.
If any swap collateral available principal amounts (as defined in the
glossary) are received by the issuer on a payment date, such swap collateral
available principal amounts shall be applied by the issuer cash manager on that
payment date in the same manner as it would have applied the receipts which
such swap collateral available principal amounts replace.
The "ISSUER ARREARS TEST" is satisfied on a payment date if the issuer or
the issuer cash manager on its behalf calculates on the distribution date
immediately preceding that payment date that, as of the last day of the trust
calculation period immediately preceding that distribution date (i) the
aggregate current balance of the mortgage loans which are then in arrears for
at least 3 months is less than 4% of the aggregate current balance of all
mortgage loans, unless the rating agencies have confirmed that the then current
ratings of the notes will not be adversely affected by the issuer arrears test
not having been met; and (ii) the aggregate interest arrears in respect of all
the mortgage loans in the mortgages trust as a percentage of the aggregate
gross interest due on all mortgage loans during the previous 12 months does not
exceed 2%, or such other percentage as is then acceptable to the then current
rating agencies at such time.
The "ISSUER RESERVE REQUIREMENT" is satisfied on a payment date if, after
taking account of the application of any Funding available revenue receipts to
the credit of the issuer reserve ledger, the amount of funds in the issuer
reserve fund is equal to the issuer reserve required amount.
The "CONTROLLED AMORTIZATION AMOUNT" for each series and/or class of notes
of the issuer for any payment date set forth below is an amount equal to the
amount which the issuer would be required to repay in respect of such class of
notes so that on that payment date the aggregate principal amount outstanding
of such class of notes has been reduced to (but is not less than) the stated
amount or "TARGET BALANCE" set out in the following table:
[GBP]($*) TARGET [GBP]($*) TARGET [GBP]($*) TARGET
BALANCE [GBP]($*) TARGET BALANCE BALANCE BALANCE
PAYMENT DATE FOR SERIES 1 CLASS A1 FOR SERIES 1 CLASS A3 FOR SERIES 1 CLASS B FOR SERIES 1 CLASS M
OCCURRING IN: NOTES NOTES NOTES NOTES
- ------------- ---------------------- ------------------------ --------------------- ---------- ----------
([GBP]) $ ([GBP]) $ ([GBP]) $ ([GBP]) $
------- ------------- ------- --------------- ------- ------------ ------- ------------
Dec 04 [611,416,376] [1,271,750,000] [60,350,000] [31,950,000]
Mar 05 [235,329,224] [1,271,750,000] [60,350,000] [31,950,000]
Jun 05 [0] [1,271,750,000] [60,350,000] [31,950,000]
Sep 05 [0] [1,271,750,000] [60,350,000] [31,950,000]
Dec 05 [0] [1,131,146,314] [53,677,751] [28,417,633]
Mar 06 [0] [863,188,004] [40,961,978] [21,685,753]
Jun 06 [0] [609,768,680] [28,936,143] [15,319,135]
Sep 06 [0] [370,099,481] [17,562,810] [9,297,958]
Dec 06 [0] [143,434,348] [6,806,576] [3,603,481]
Mar 07 [0] [0] [0] [0]
Jun 07 [0] [0] [0] [0]
Sep 07 [0] [0] [0] [0]
Dec 07 [0] [0] [0] [0]
Mar 08 [0] [0] [0] [0]
Jun 08 [0] [0] [0] [0]
Sep 08 [0] [0] [0] [0]
Dec 08 [0] [0] [0] [0]
Mar 09 [0] [0] [0] [0]
Jun 09 [0] [0] [0] [0]
Sep 09 [0] [0] [0] [0]
Dec 09 [0] [0] [0] [0]
Mar 10 [0] [0] [0] [0]
Jun 10 [0] [0] [0] [0]
Sep 10 [0] [0] [0] [0]
Dec 10 [0] [0] [0] [0]
Mar 11 [0] [0] [0] [0]
Jun 11 [0] [0] [0] [0]
Sep 11 [0] [0] [0] [0]
[GBP]($*) TARGET [GBP]($*) TARGET
BALANCE BALANCE
PAYMENT DATE FOR SERIES 1 CLASS C FOR SERIES 2 CLASS A1
OCCURRING IN: NOTES NOTES
- ------------- --------------------- ----------------------
([GBP]) $ ([GBP]) $
------- ------------ ------- -------------
Dec 04 [63,900,000] [727,250,000]
Mar 05 [63,900,000] [727,250,000]
Jun 05 [63,900,000] [727,250,000]
Sep 05 [63,900,000] [727,250,000]
Dec 05 [56,835,266] [727,250,000]
Mar 06 [43,371,507] [727,250,000]
Jun 06 [30,638,269] [727,250,000]
Sep 06 [18,595,917] [727,250,000]
Dec 06 [7,206,963] [727,250,000]
Mar 07 [0] [699,210,294]
Jun 07 [0] [619,068,487]
Sep 07 [0] [543,275,046]
Dec 07 [0] [471,594,035]
Mar 08 [0] [403,802,320]
Jun 08 [0] [339,688,874]
Sep 08 [0] [279,054,121]
Dec 08 [0] [221,709,313]
Mar 09 [0] [167,475,941]
Jun 09 [0] [116,185,184]
Sep 09 [0] [67,677,382]
Dec 09 [0] [21,801,535]
Mar 10 [0] [0]
Jun 10 [0] [0]
Sep 10 [0] [0]
Dec 10 [0] [0]
Mar 11 [0] [0]
Jun 11 [0] [0]
Sep 11 [0] [0]
- ----------
* The target balances for the dollar notes which are stated in US dollars in
the above table have been calculated based upon the dollar currency swap rate
under the dollar currency swaps for the dollar notes of [GBP]1 = $[__].
206
[GBP]([E]*) TARGET [GBP]([E]*) TARGET [GBP]([E]*) TARGET [GBP]([E]*) TARGET [GBP]([E]*) TARGET
BALANCE BALANCE BALANCE BALANCE BALANCE
PAYMENT DATE FOR SERIES 1 CLASS A2 FOR SERIES 2 CLASS A2 FOR SERIES 2 CLASS B FOR SERIES 2 CLASS M FOR SERIES 2 CLASS C
OCCURRING IN: NOTES NOTES NOTES NOTES NOTES
- -------------- ---------------------- ---------------------- --------------------- --------------------- ----------------------
([GBP]) [E] ([GBP]) [E] ([GBP]) [E] ([GBP]) [E] ([GBP]) [E]
------- ------------- ------- ------------- ------- ------------ ------- ------------ ------- -------------
Dec 04 [500,000,000] [810,000,000] [75,300,000] [58,600,000] [140,750,000]
Mar 05 [500,000,000] [810,000,000] [75,300,000] [58,600,000] [140,750,000]
Jun 05 [402,468,807] [810,000,000] [75,300,000] [58,600,000] [140,750,000]
Sep 05 [129,870,250] [810,000,000] [75,300,000] [58,600,000] [140,750,000]
Dec 05 [0] [810,000,000] [75,300,000] [58,600,000] [140,750,000]
Mar 06 [0] [810,000,000] [75,300,000] [58,600,000] [140,750,000]
Jun 06 [0] [810,000,000] [75,300,000] [58,600,000] [140,750,000]
Sep 06 [0] [810,000,000] [75,300,000] [58,600,000] [140,750,000]
Dec 06 [0] [810,000,000] [75,300,000] [58,600,000] [140,750,000]
Mar 07 [0] [778,769,801] [72,396,748] [56,340,630] [135,323,271]
Jun 07 [0] [689,509,075] [64,098,806] [49,883,002] [119,812,842]
Sep 07 [0] [605,091,491] [56,251,098] [43,775,755] [105,143,984]
Dec 07 [0] [525,254,270] [48,829,193] [37,999,877] [91,271,035]
Mar 08 [0] [449,748,889] [41,809,989] [32,537,389] [78,150,810]
Jun 08 [0] [378,340,307] [35,171,636] [27,371,286] [65,742,467]
Sep 08 [0] [310,806,241] [28,893,469] [22,485,489] [54,007,381]
Dec 08 [0] [246,936,464] [22,955,945] [17,864,786] [42,909,021]
Mar 09 [0] [186,532,158] [17,340,582] [13,494,796] [32,412,841]
Jun 09 [0] [129,405,293] [12,029,899] [9,361,914] [22,486,167]
Sep 09 [0] [75,378,040] [7,007,366] [5,453,275] [13,098,098]
Dec 09 [0] [24,282,218] [2,257,347] [1,756,714] [4,219,410]
Mar 10 [0] [0] [0] [0] [0]
Jun 10 [0] [0] [0] [0] [0]
Sep 10 [0] [0] [0] [0] [0]
Dec 10 [0] [0] [0] [0] [0]
Mar 11 [0] [0] [0] [0] [0]
Jun 11 [0] [0] [0] [0] [0]
Sep 11 [0] [0] [0] [0] [0]
- ----------
* The target balances for the euro notes which are stated in euro in the above
table have been calculated based upon the euro currency swap rate under the
euro currency swaps for the euro notes of [GBP]1 = [e][__].
[GBP] TARGET BALANCE [GBP] TARGET BALANCE [GBP] TARGET BALANCE [GBP] TARGET BALANCE [GBP] TARGET BALANCE
PAYMENT DATE FOR SERIES 3 FOR SERIES 3 FOR SERIES 3 FOR SERIES 3 FOR SERIES 3
OCCURRING IN: CLASS A1 NOTES CLASS A2 NOTES CLASS B NOTES CLASS M NOTES CLASS C NOTES
- ---------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Dec 04 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Mar 05 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Jun 05 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Sep 05 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Dec 05 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Mar 06 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Jun 06 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Sep 06 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Dec 06 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Mar 07 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Jun 07 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Sep 07 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Dec 07 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Mar 08 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Jun 08 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Sep 08 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Dec 08 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Mar 09 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Jun 09 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Sep 09 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Dec 09 [411,250,000] [600,000,000] [54,350,000] [42,250,000] [99,450,000]
Mar 10 [383,187,303] [600,000,000] [52,841,760] [41,077,541] [96,690,212]
Jun 10 [329,841,142] [600,000,000] [49,974,651] [38,848,740] [91,443,957]
Sep 10 [279,389,457] [600,000,000] [47,263,107] [36,740,870] [86,482,355]
Dec 10 [231,675,200] [600,000,000] [44,698,687] [34,747,369] [81,789,962]
Mar 11 [186,549,842] [600,000,000] [42,273,408] [32,862,033] [77,352,170]
Jun 11 [143,872,913] [600,000,000] [39,979,721] [31,078,992] [73,155,166]
Sep 11 [103,511,565] [600,000,000] [37,810,486] [29,392,696] [69,185,884]
Notwithstanding the foregoing, on the payment date immediately following the
step-up date in September 2011 in respect of the issuer and on each payment
date thereafter:
207
(1) the target balance for the series 1 class A1 notes and the series
1 class A2 notes will be zero; and
(2) the target balances for each other class of notes will be an
amount equal to the greater of:
(a) zero, and
(b) the aggregate principal amount outstanding on that class of
notes as at the immediately preceding payment date for
group 2 issuers (after taking into account principal
payments on such payment date) less an amount equal to the
product of:
(i) the sum of (1) the product of (A) the sum of the
mortgages trustee principal receipts for each
distribution date since the immediately preceding
payment date for group 2 issuers, and (B) the
Funding share percentage or, as applicable, the
weighted average Funding share percentage applicable
as at the later to occur of the immediately
preceding assignment date, the immediately preceding
Funding contribution date and the immediately
preceding distribution date, and (2) the amount
standing to the credit of the Funding principal
ledger as at the end of the preceding payment date
for group 2 issuers (after application of Funding
available principal receipts on that preceding
payment date); and
(ii) the quotient of (A) the outstanding principal
balance of the issuer's intercompany loan as at the
immediately preceding payment date for group 2
issuers (after taking into account principal
payments on such payment date) less the aggregate of
amounts recorded on the principal deficiency ledger
of the issuer, divided by (B) the aggregate
outstanding principal balance on all intercompany
loans as at the immediately preceding payment date
for group 2 issuers (after taking into account
principal payments on such payment date) less the
sum of (1) the aggregate outstanding principal
balance of all special repayment notes and (2) the
aggregate of amounts recorded on the principal
deficiency ledgers of all issuers; and
(iii) either:
(1) if the class A notes have not been repaid in
full on that payment date and either the
issuer arrears test or the issuer reserve
requirement has not been satisfied on such
payment date:
(a) in relation to class A notes, the
quotient of (A) the aggregate
principal amount outstanding on the
relevant class of notes as at the
immediately preceding payment date for
group 2 issuers (after taking into
account principal payments on such
payment date), divided by (B) the
aggregate principal amount outstanding
on all class A notes of the issuer as
at the immediately preceding payment
date for group 2 issuers (after taking
into account principal payments); and
(b) in relation to any other class of
notes, zero; or
(2) in any other case, the quotient of (A) the
aggregate principal amount outstanding on the
relevant class of notes as at the immediately
preceding payment date for group 2 issuers
(after taking into account principal payments
on such payment date), divided by (B) the
aggregate principal amount outstanding on all
notes of the issuer as at the immediately
preceding payment date for group 2 issuers
(after taking into account principal payments
on such payment date).
208
Notwithstanding the foregoing, upon and after the occurrence of an ACA
trigger event in respect of an ACA issuer the target balance for each class of
notes of such ACA issuer will be zero.
To the extent not repaid earlier, the full principal amount outstanding on a
class of notes will become due and payable on the final maturity date of that
class of notes.
DISTRIBUTION OF ISSUER AVAILABLE PRINCIPAL RECEIPTS FOLLOWING THE OCCURRENCE OF
A NON-ASSET TRIGGER EVENT AND PRIOR TO THE OCCURRENCE OF AN ASSET TRIGGER EVENT
Following the occurrence of a non-asset trigger event but prior to the
enforcement of the Funding security under the Funding deed of charge and/or the
issuer security under the issuer deed of charge, the issuer cash manager will
apply issuer available principal receipts in the following order of priority:
(A) first, to pay amounts (including such part of any termination
payment) due to the series 1 class A1 dollar currency swap
provider under the series 1 class A1 dollar currency swap (except
for any termination payment or any part thereof due and payable to
that swap provider as a result of a dollar currency swap provider
default by that swap provider, save to the extent such termination
payment may be satisfied by any swap replacement payment received
by the issuer following a downgrade termination event in respect
of the series 1 class A1 dollar currency swap and applied in
accordance with this order of priority of payments) and from
amounts received from the series 1 class A1 dollar currency swap
provider to repay the series 1 class A1 notes until the series 1
class A1 notes have been repaid in full;
(B) second, to pay amounts (including such part of any termination
payment) due to the series 1 class A2 euro currency swap provider
under the series 1 class A2 euro currency swap (except for any
termination payment or any part thereof due and payable to that
swap provider as a result of a euro currency swap provider default
by that swap provider, save to the extent such termination payment
may be satisfied by any swap replacement payment received by the
issuer following a downgrade termination event in respect of the
series 1 class A2 euro currency swap and applied in accordance
with this order of priority of payments) and from amounts received
from the series 1 class A2 euro currency swap provider to repay
the series 1 class A2 notes until the series 1 class A2 notes have
been repaid in full;
(C) third, in no order of priority between them, but in proportion to
the amounts due:
* to pay amounts (including such part of any termination
payment) due to the series 1 class A3 dollar currency swap
provider under the series 1 class A3 dollar currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class A3 dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 1 class A3 dollar
currency swap provider to repay the series 1 class A3 notes
until the series 1 class A3 notes have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 2 class A1 dollar currency swap
provider under the series 2 class A1 dollar currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 2
209
class A1 dollar currency swap and applied in accordance
with this order of priority of payments) and from amounts
received from the series 2 class A1 dollar currency swap
provider to repay the series 2 class A1 notes until the
series 2 class A1 notes have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 2 class A2 euro currency swap
provider under the series 2 class A2 euro currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a euro
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 2 class A2 euro currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 2 class A2 euro
currency swap provider to repay the series 2 class A2 notes
until the series 2 class A2 notes have been repaid in full;
* to repay the series 3 class A1 notes until the series 3
class A1 notes have been repaid in full; and
* to repay the series 3 class A2 notes until the series 3
class A2 notes have been repaid in full;
(D) fourth, in no order of priority among them, but in proportion to
the amounts due:
* to pay amounts (including such part of any termination
payment) due to the series 1 class B dollar currency swap
provider under the series 1 class B dollar currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class B dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 1 class B dollar
currency swap provider to repay the series 1 class B notes
until the series 1 class B notes have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 2 class B euro currency swap
provider under the series 2 class B euro currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a euro
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 2 class B euro currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 2 class B euro
currency swap provider to repay the series 2 class B notes
until the series 2 class B notes have been repaid in full;
and
* to repay the series 3 class B notes until the series 3
class B notes have been repaid in full;
(E) fifth, in no order of priority among them, but in proportion to
the amounts due:
* to pay amounts (including such part of any termination
payment) due to the series 1 class M dollar currency swap
provider under the series 1 class M dollar currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class M dollar currency swap and applied in
accordance with this order of
210
priority of payments) and from amounts received from the
series 1 class M dollar currency swap provider to repay the
series 1 class M notes until the series 1 class M notes
have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 2 class M euro currency swap
provider under the series 2 class M euro currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a euro
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 2 class M euro currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 2 class M euro
currency swap provider to repay the series 2 class M notes
until the series 2 class M notes have been repaid in full;
and
* to repay the series 3 class M notes until the series 3
class M notes have been repaid in full; and
(F) last, in no order of priority among them, but in proportion to the
amounts due:
* to pay amounts (including such part of any termination
payment) due to the series 1 class C dollar currency swap
provider under the series 1 class C dollar currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class C dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 1 class C dollar
currency swap provider to repay the series 1 class C notes
until the series 1 class C notes have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 2 class C euro currency swap
provider under the series 2 class C euro currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a euro
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 2 class C euro currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 2 class C euro
currency swap provider to repay the series 2 class C notes
until the series 2 class C notes have been repaid in full;
and
* to repay the series 3 class C notes until the series 3
class C notes have been repaid in full.
If any swap collateral available principal amounts (as defined in the
glossary) are received by the issuer on a payment date, such swap collateral
available principal amounts shall be applied by the issuer cash manager on that
payment date in the same manner as it would have applied the receipts which
such swap collateral available principal amounts replace.
DISTRIBUTION OF ISSUER AVAILABLE PRINCIPAL RECEIPTS FOLLOWING THE OCCURRENCE OF
AN ASSET TRIGGER EVENT BUT PRIOR TO ENFORCEMENT OF THE FUNDING SECURITY AND/OR
THE ISSUER SECURITY
Following the occurrence of an asset trigger event but prior to enforcement
of the Funding security under the Funding deed of charge and/or the issuer
security under the issuer deed of charge, the issuer cash manager will apply
issuer available principal receipts in the following order of priority:
211
(A) first, in no order of priority among them, but in proportion to
the amounts due:
* to pay amounts (including such part of any termination
payment) due to the series 1 class A1 dollar currency swap
provider under the series 1 class A1 dollar currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class A1 dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 1 class A1 dollar
currency swap provider to repay the series 1 class A1 notes
until the series 1 class A1 notes have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 1 class A2 euro currency swap
provider under the series 1 class A2 euro currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a euro
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class A2 euro currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 1 class A2 euro
currency swap provider to repay the series 1 class A2 notes
until the series 1 class A2 notes have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 1 class A3 dollar currency swap
provider under the series 1 class A3 dollar currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class A3 dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 1 class A3 dollar
currency swap provider to repay the series 1 class A3 notes
until the series 1 class A3 notes have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 2 class A1 dollar currency swap
provider under the series 2 class A1 dollar currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 2 class A1 dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 2 class A1 dollar
currency swap provider to repay the series 2 class A1 notes
until the series 2 class A1 notes have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 2 class A2 euro currency swap
provider under the series 2 class A2 euro currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a euro
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 2 class A2 euro currency swap and applied in
accordance with this order of
212
priority of payments) and from amounts received from the
series 2 class A2 euro currency swap provider to repay the
series 2 class A2 notes until the series 2 class A2 notes
have been repaid in full; and
* to repay the series 3 class A1 notes until the series 3
class A1 notes have been repaid in full; and
* to repay the series 3 class A2 notes until the series 3
class A2 notes have been repaid in full;
(B) second, in no order of priority among them, but in proportion to
the amounts due:
* to pay amounts (including such part of any termination
payment) due to the series 1 class B dollar currency swap
provider under the series 1 class B dollar currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class B dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 1 class B dollar
currency swap provider to repay the series 1 class B notes
until the series 1 class B notes have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 2 class B euro currency swap
provider under the series 2 class B euro currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a euro
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 2 class B euro currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 2 class B euro
currency swap provider to repay the series 2 class B notes
until the series 2 class B notes have been repaid in full;
and
* to repay the series 3 class B notes until the series 3
class B notes have been repaid in full;
(C) third, in no order of priority among them, but in proportion to
the amounts due:
* to pay amounts (including such part of any termination
payment) due to the series 1 class M dollar currency swap
provider under the series 1 class M dollar currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class M dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 1 class M dollar
currency swap provider to repay the series 1 class M notes
until the series 1 class M notes have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 2 class M euro currency swap
provider under the series 2 class M euro currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a euro
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 2 class M euro currency swap and applied in
accordance with this order of
213
priority of payments) and from amounts received from the
series 2 class M euro currency swap provider to repay the
series 2 class M notes until the series 2 class M notes
have been repaid in full; and
* to repay the series 3 class M notes until the series 3
class M notes have been repaid in full; and
(D) last, in no order of priority among them, but in proportion to the
amounts due:
* to pay amounts (including such part of any termination
payment) due to the series 1 class C dollar currency swap
provider under the series 1 class C dollar currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class C dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 1 class C dollar
currency swap provider to repay the series 1 class C notes
until the series 1 class C notes have been repaid in full;
* to pay amounts (including such part of any termination
payment) due to the series 2 class C euro currency swap
provider under the series 2 class C euro currency swap
(except for any termination payment or any part thereof due
and payable to that swap provider as a result of a euro
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 2 class C euro currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 2 class C euro
currency swap provider to repay the series 2 class C notes
until the series 2 class C notes have been repaid in full;
and
* to repay the series 3 class C notes until the series 3
class C notes have been repaid in full.
If any swap collateral available principal amounts (as defined in the
glossary) are received by the issuer on a payment date, such swap collateral
available principal amounts shall be applied by the issuer cash manager on that
payment date in the same manner as it would have applied the receipts which
such swap collateral available principal amounts replace.
DISTRIBUTION OF FUNDING AVAILABLE PRINCIPAL RECEIPTS AND FUNDING AVAILABLE
REVENUE RECEIPTS FOLLOWING ENFORCEMENT OF THE FUNDING SECURITY
The Funding deed of charge sets out the order of priority of distribution 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.
The security trustee (or the cash manager on its behalf) will apply amounts
received or recovered following enforcement of the Funding security on each
payment date in accordance with the following order of priority (known as the
"FUNDING POST-ENFORCEMENT PRIORITY OF PAYMENTS"):
(A) first, from amounts standing to the credit of the Funding expense
sub-ledger in respect of such payment date, to pay amounts due to
the security trustee and any receiver appointed by the security
trustee, together with interest and (to the extent not already
inclusive) 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 or
any other transaction document;
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(B) second, from amounts standing to the credit of the Funding expense
sub-ledger in respect of such payment date, 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 (to the extent not already inclusive) VAT on those
amounts;
(C) third, from amounts standing to the credit of the Funding expense
sub-ledger in respect of such payment date, in no order of
priority among them but in proportion to the respective amounts
due, towards payment of amounts (if any) due to (i) the account
bank under the terms of the bank account agreement, (ii) the
stand-by account bank under the terms of the stand-by bank account
agreement and (iii) the corporate services provider under the
terms of the corporate services agreement;
(D) fourth, (1) from group 1 available revenue receipts and group 1
available principal receipts in respect of each payment date for
group 1 issuers, in no order of priority among them but in
proportion to the respective amounts due, to each group 1 issuer
its issuer allocable revenue receipts and issuer allocable
principal receipts towards payment of amounts of interest,
principal and fees due to such group 1 issuer under such issuer's
intercompany loan agreement, which in the case of the issuer shall
be up to the aggregate of the amounts, and shall be applied in the
amounts and priorities, as set forth in "-- DISTRIBUTION OF ISSUER
AVAILABLE PRINCIPAL RECEIPTS AND ISSUER AVAILABLE REVENUE RECEIPTS
FOLLOWING ENFORCEMENT OF THE ISSUER SECURITY" below;
(2) from group 2 available revenue receipts and group 2 available
principal receipts in respect of each payment date for group 2
issuers, in no order of priority among them but in proportion to
the respective amounts due, to each group 2 issuer its issuer
allocable revenue receipts and issuer allocable principal
receipts, respectively, towards payment of amounts of interest,
principal and fees due to such group 2 issuer under such issuer's
intercompany loan agreement, which in the case of the issuer shall
be up to the aggregate of the amounts, and shall be applied in the
amounts and priorities, as set forth in "-- DISTRIBUTION OF ISSUER
AVAILABLE PRINCIPAL RECEIPTS AND ISSUER AVAILABLE REVENUE RECEIPTS
FOLLOWING ENFORCEMENT OF THE ISSUER SECURITY" below;
(E) fifth, (1) from group 1 available revenue receipts and group 1
available principal receipts in respect of each payment date for
group 1 issuers, towards payment of amounts due to each start-up
loan provider under the relevant start-up loan agreement for each
group 1 issuer; (2) from group 2 available revenue receipts and
group 2 available principal receipts in respect of each payment
date for group 2 issuers, towards the payment of amounts due to
each start-up loan provider under the relevant start-up loan
agreement for each group 2 issuer;
(F) sixth, from any remaining Funding available revenue receipts
(being the remaining group 1 available revenue receipts, the group
1 available principal receipts, the group 2 available revenue
receipts and the group 2 available principal receipts) in respect
of such payment date, towards payment of any deferred contribution
due to the mortgages trustee under the mortgages trust deed; and
(G) last, to pay any amount remaining following the application of
principal and revenue set forth in items (A) through (F) above, to
Funding;
PROVIDED THAT, to the extent that there is a shortfall in the amounts standing
to the credit of the Funding expense sub-ledger, amounts payable under (A)
through (C) above may also be paid from group 1 available revenue receipts or
group 2 available revenue receipts as applicable to the relevant payment date.
215
DISTRIBUTION OF ISSUER AVAILABLE PRINCIPAL RECEIPTS AND ISSUER AVAILABLE
REVENUE RECEIPTS FOLLOWING ENFORCEMENT OF THE ISSUER SECURITY
Following enforcement of the issuer security, "ISSUER AVAILABLE PRINCIPAL
RECEIPTS" for the issuer in respect of any payment date means the sum
calculated by or on behalf of the note trustee on the distribution date
immediately preceding such payment date as the amount to be repaid by Funding
to the issuer under the intercompany loan during the relevant interest period
and/or the sum otherwise recovered by the note trustee (or the receiver
appointed on its behalf) representing the outstanding principal balance of the
notes.
The issuer deed of charge sets out the order of priority of distribution by
or on behalf of the note trustee, following enforcement of the issuer security,
of amounts received or recovered by the note trustee (or a receiver appointed
on its behalf) pursuant to the issuer deed of charge. If the Funding security
is enforced under the Funding deed of charge, then there will be an event of
default in respect of the issuer security under each issuer deed of charge.
On each payment date the note trustee (or the issuer cash manager on its
behalf) will apply amounts received or recovered following enforcement of the
issuer security as follows:
(A) first, to pay amounts due to the note trustee (and any receiver
appointed by the note trustee) together with the interest and VAT
on those amounts and to provide for any amounts then due or to
become due and payable to the note trustee and the receiver under
the provisions of the trust deed, the issuer deed of charge and
any other transaction document;
(B) second, to pay, in no order of priority among them but in
proportion to the respective amounts due, the agent bank, the
paying agents, the transfer agent and the registrar, together with
interest and VAT on those amounts and to provide for any costs,
charges, liabilities and expenses then due or to become due and
payable to them under the provisions of the paying agent and agent
bank agreement;
(C) third, in no order of priority among them but in proportion to the
respective amounts due, towards payment of amounts (together with
VAT on those amounts) due and payable to the issuer cash manager
under the issuer cash management agreement, to the corporate
services provider under the corporate services agreement and to
the issuer account bank under the issuer bank account agreement;
(D) fourth, in no order of priority among them but in proportion to
the respective amounts due, to pay:
* amounts (including such part of any termination payment)
due to the basis rate swap provider (except for any
termination payment or any part thereof due and payable to
the basis rate swap provider as a result of a basis rate
swap provider default, save to the extent such termination
payment may be satisfied by any swap replacement payment
made to the issuer following a downgrade termination event
in respect of the basis rate swap and applied in accordance
with this order of priority of payments);
* amounts (including such part of any termination payment)
due to the series 1 class A1 dollar currency swap provider
under the series 1 class A1 dollar currency swap (except
for any termination payment or any part thereof due and
payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class A1 dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 1 class A1
216
dollar currency swap provider to pay interest due or
overdue and to repay principal of the series 1 class A1
notes until the series 1 class A1 notes have been repaid in
full;
* amounts (including such part of any termination payment)
due to the series 1 class A2 euro currency swap provider
under the series 1 class A2 euro currency swap (except for
any termination payment or any part thereof due and payable
to that swap provider as a result of a euro swap provider
default by that swap provider, save to the extent such
termination payment may be satisfied by any swap
replacement payment received by the issuer following a
downgrade termination event in respect of the series 1
class A2 euro currency swap and applied in accordance with
this order of priority of payments) and from amounts
received from the series 1 class A2 euro currency swap
provider to pay interest due or overdue and to repay
principal of the series 1 class A2 notes until the series 1
class A2 notes have been repaid in full;
* amounts (including such part of any termination payment)
due to the series 1 class A3 dollar currency swap provider
under the series 1 class A3 dollar currency swap (except
for any termination payment or any part thereof due and
payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 1 class A3 dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 1 class A3 dollar
currency swap provider to pay interest due or overdue and
to repay principal of the series 1 class A3 notes until the
series 1 class A3 notes have been repaid in full;
* amounts (including such part of any termination payment)
due to the series 2 class A1 dollar currency swap provider
under the series 2 class A1 dollar currency swap (except
for any termination payment or any part thereof due and
payable to that swap provider as a result of a dollar
currency swap provider default by that swap provider, save
to the extent such termination payment may be satisfied by
any swap replacement payment received by the issuer
following a downgrade termination event in respect of the
series 2 class A1 dollar currency swap and applied in
accordance with this order of priority of payments) and
from amounts received from the series 2 class A1 dollar
currency swap provider to pay interest due or overdue and
to repay principal of the series 2 class A1 notes until the
series 2 class A1 notes have been repaid in full;
* amounts (including such part of any termination payment)
due to the series 2 class A2 euro currency swap provider
under the series 2 class A2 euro currency swap (except for
any termination payment or any part thereof due and payable
to that swap provider as a result of a euro currency swap
provider default by that swap provider, save to the extent
such termination payment may be satisfied by any swap
replacement payment received by the issuer following a
downgrade termination event in respect of the series 2
class A2 euro currency swap and applied in accordance with
this order of priority of payments) and from amounts
received from the series 2 class A2 euro currency swap
provider to pay interest due or overdue and to repay
principal of the series 2 class A2 notes until the series 2
class A2 notes have been repaid in full;
* interest due or overdue and to repay principal of the
series 3 class A1 notes until the series 3 class A1 notes
have been repaid in full; and
217
* principal of the series 3 class A2 notes until the series 3
class A2 notes have been repaid in full and (i) on any
payment date up to and including the earlier of (a) the
payment date in September 2011, (b) the occurrence of a
trigger event or (c) the enforcement of the Funding
security and/or the issuer security, amounts (including
such part of any termination payment) due to the interest
rate swap provider under the interest rate swap (except for
any termination payment or any part thereof due and payable
to that swap provider as a result of an interest rate swap
provider default by that swap provider, save to the extent
such termination payment may be satisfied by any swap
replacement payment received by the issuer following a
downgrade termination event in respect of the interest rate
swap and applied in accordance with this order of priority
of payments) and from amounts received from the interest
rate swap provider to pay interest due or overdue and (ii)
thereafter, amounts (including such part of any termination
payment) due to the interest rate swap provider under the
interest rate swap, to the extent not already paid (except
for any termination payment or any part thereof due and
payable to that swap provider as a result of an interest
rate swap provider default by that swap provider, save to
the extent such termination payment may be satisfied by any
swap replacement payment received by the issuer following a
downgrade termination event in respect of the interest rate
swap and applied in accordance with this order of priority
of payments) and to pay interest due or overdue on the
series 3 class A2 notes to the holders of the series 3
class A2 notes;
(E) fifth, in no order of priority among them but in proportion to the
respective amounts due, to pay:
* amounts (including such part of any termination payment)
due to the series 1 class B dollar currency swap provider
under the series 1 class B dollar currency swap (except for
any termination payment or any part thereof due and payable
to that swap provider as a result of a dollar currency swap
provider default by that swap provider, save to the extent
such termination payment may be satisfied by any swap
replacement payment received by the issuer following a
downgrade termination event in respect of the series 1
class B dollar currency swap and applied in accordance with
this order of priority of payments) and from amounts
received from the series 1 class B dollar currency swap
provider to pay interest due or overdue and to repay
principal of the series 1 class B notes until the series 1
class B notes have been repaid in full;
* amounts (including such part of any termination payment)
due to the series 2 class B euro currency swap provider
under the series 2 class B euro currency swap (except for
any termination payment or any part thereof due and payable
to that swap provider as a result of a euro currency swap
provider default by that swap provider, save to the extent
such termination payment may be satisfied by any swap
replacement payment received by the issuer following a
downgrade termination event in respect of the series 2
class B euro currency swap and applied in accordance with
this order of priority of payments) and from amounts
received from the series 2 class B euro currency swap
provider to pay interest due or overdue and to repay
principal of the series 2 class B notes until the series 2
class B notes have been repaid in full; and
* interest due or overdue and to repay principal of the
series 3 class B notes until the series 3 class B notes
have been repaid in full;
(F) sixth, in no order of priority among them but in proportion to the
respective amounts due, to pay:
218
* amounts (including such part of any termination payment)
due to the series 1 class M dollar currency swap provider
under the series 1 class M dollar currency swap (except for
any termination payment or any part thereof due and payable
to that swap provider as a result of a dollar currency swap
provider default by that swap provider, save to the extent
such termination payment may be satisfied by any swap
replacement payment received by the issuer following a
downgrade termination event in respect of the series 1
class M dollar currency swap and applied in accordance with
this order of priority of payments) and from amounts
received from the series 1 class M dollar currency swap
provider to pay interest due or overdue and to repay
principal of the series 1 class M notes until the series 1
class M notes have been repaid in full;
* amounts (including such part of any termination payment)
due to the series 2 class M euro currency swap provider
under the series 2 class M euro currency swap (except for
any termination payment or any part thereof due and payable
to that swap provider as a result of a euro currency swap
provider default by that swap provider, save to the extent
such termination payment may be satisfied by any swap
replacement payment received by the issuer following a
downgrade termination event in respect of the series 2
class M euro currency swap and applied in accordance with
this order of priority of payments) and from amounts
received from the series 2 class M euro currency swap
provider to pay interest due or overdue and to repay
principal of the series 2 class M notes until the series 2
class M notes have been repaid in full; and
* interest due or overdue and to repay principal of the
series 3 class M notes until the series 3 class M notes
have been repaid in full;
(G) seventh, in no order of priority among them but in proportion to
the respective amounts due, to pay:
* amounts (including such part of any termination payment)
due to the series 1 class C dollar currency swap provider
under the series 1 class C dollar currency swap (except for
any termination payment or any part thereof due and payable
to that swap provider as a result of a dollar currency swap
provider default by that swap provider, save to the extent
such termination payment may be satisfied by any swap
replacement payment received by the issuer following a
downgrade termination event in respect of the series 1
class C dollar currency swap and applied in accordance with
this order of priority of payments) and from amounts
received from the series 1 class C dollar currency swap
provider to pay interest due or overdue and to repay
principal of the series 1 class C notes until the series 1
class C notes have been repaid in full;
* amounts (including such part of any termination payment)
due to the series 2 class C euro currency swap provider
under the series 2 class C euro currency swap (except for
any termination payment or any part thereof due and payable
to that swap provider as a result of a euro currency swap
provider default by that swap provider, save to the extent
such termination payment may be satisfied by any swap
replacement payment received by the issuer following a
downgrade termination event in respect of the series 2
class C euro currency swap and applied in accordance with
this order of priority of payments) and from amounts
received from the series 2 class C euro currency swap
provider to pay interest due or overdue and to repay
principal of the series 2 class C notes until the series 2
class C notes have been repaid in full; and
* interest due or overdue and to repay principal of the
series 3 class C notes until the series 3 class C notes
have been repaid in full;
219
(H) eighth, on the payment date falling in December of each year, to
pay to the issuer account bank an amount equal to the amount of
any debit balance in the issuer transaction account as permitted
by the issuer account bank and outstanding as at such payment
date;
(I) ninth, in no order of priority among them but in proportion to the
respective amounts due, to pay any termination payment to:
* the basis rate swap provider following a basis rate swap
provider default;
* the interest rate swap provider following an interest rate
swap provider default;
* any dollar currency swap provider following a dollar
currency swap provider default; and
* any euro currency swap provider following a euro currency
swap provider default; and
(J) last, to pay any amount remaining following the application of
principal and revenue set forth in items (A) through (I) above, to
the issuer.
220
CREDIT STRUCTURE
The notes will be an obligation of the issuer only and will not be
obligations of, or the responsibility of, or guaranteed by, any other party.
However, there are ten main features of the transaction which enhance the
likelihood of timely receipt of payments to noteholders, as follows:
* mortgages trustee available revenue receipts remaining after
payment to the seller of the seller share of the trust property
are expected to exceed interest and fees payable to the issuers
under the intercompany loans;
* a revenue shortfall in issuer available revenue receipts may be
met from issuer available principal receipts;
* an issuer reserve fund will be established by Funding for the
issuer to meet revenue shortfalls in Funding available revenue
receipts to pay fees and interest due on the intercompany loan;
* each of the series 1, series 2 and series 3 payments on the class
C notes will be subordinated to payments on the class A notes, the
class B notes and the class M notes;
* each of the series 1, series 2 and series 3 payments on the class
M notes will be subordinated to payments on the class A notes and
the class B notes;
* each of the series 1, series 2 and series 3 payments on the class
B notes will be subordinated to payments on the class A notes;
* the mortgages trustee GIC account, the Funding GIC account and the
Funding (Granite 04-3) GIC account each earn interest at a
specified rate (expected to be 0.15% below LIBOR for three-month
sterling deposits);
* a reserve fund will be available to Funding to meet revenue
shortfalls in fees and interest due on the intercompany loan and
any other intercompany loans;
* Funding will be obliged to establish an issuer liquidity reserve
fund for the issuer 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 then current ratings of
the notes will not be adversely affected by the ratings downgrade
of the seller); and
* a start-up loan will be provided to Funding to meet the costs of
setting up the structure and to partially fund the issuer reserve
fund.
Each of these factors is considered more fully in the remainder of this
section.
CREDIT SUPPORT FOR THE NOTES PROVIDED BY MORTGAGES TRUSTEE AVAILABLE REVENUE
RECEIPTS
The interest rates charged on the mortgage loans vary according to product
type. It is anticipated, however, that during the life of the notes, the
revenue receipts received from borrowers on the mortgage loans remaining after
payment to the seller of the seller share of such revenue receipts will,
assuming that all of the mortgage loans are fully performing, be greater than
the sum of the interest which Funding is required to pay on the intercompany
loans in order to fund (by payment to a swap provider or otherwise) the
interest payments due on the notes and the notes of all other issuers and the
other costs and expenses of the structure and the structures relating to all
other issuers. Based on the same assumption, issuer allocable revenue receipts
are expected to be sufficient to pay the amounts payable under items (A)
through (E), (G), (I) and (K) of the issuer pre-enforcement revenue priority of
payments.
The actual amount of any excess will vary during the life of the notes. The
key factors determining such variation are as follows:
* the weighted average interest rate on the mortgage portfolio; and
* the level of arrears experienced.
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On any distribution date, any excess will be available to meet the payments
referred to in the mortgages trust allocation of revenue receipts and the
payment of amounts of deferred contribution to the mortgages trustee which, in
turn, will fund the payment of deferred purchase price to the seller. Any
deferred contribution so paid to the mortgages trustee cannot subsequently be
reclaimed by Funding.
INTEREST RATE ON THE MORTGAGE PORTFOLIO
The weighted average interest rate on the mortgage portfolio will depend on:
* the standard variable rate or other interest rate payable on, and
the aggregate current balance of, the variable rate mortgage loans
included in the trust property from time to time; and
* the fixed rates of interest payable on, and the aggregate current
balance of, the fixed rate mortgage loans included in the trust
property from time to time.
The issuer will enter into a basis rate swap agreement to hedge against the
variances on the rates payable on the mortgage loans. See "THE SWAP
AGREEMENTS".
Scheduled and unscheduled repayments will also affect the weighted average
interest rate on the mortgage portfolio. For historical data on the level of
scheduled and unscheduled repayments in the UK housing market, see
"CHARACTERISTICS OF UNITED KINGDOM RESIDENTIAL MORTGAGE MARKET -- CPR RATES".
LEVEL OF ARREARS EXPERIENCED
If the level of arrears of interest payments made by the borrowers results
in Funding experiencing an income deficit on any payment date, then the issuer
reserve fund and the issuer liquidity reserve fund, if any, established by
Funding in respect of the issuer may be utilized by Funding in making payments
of interest (or, in limited circumstances, payments of principal following the
enforcement of the issuer security) to the issuer under the intercompany loan
on that payment date. However, no issuer reserve fund or issuer liquidity
reserve fund established by Funding in respect of any other issuer may be
utilized by Funding in making any payments to the issuer under the intercompany
loan.
In addition (but only if there are no amounts standing to the credit of the
relevant issuer reserve ledger and issuer liquidity reserve ledger, if any, of
the issuer) Funding will be able to apply the issuer's share of any amounts
standing to the credit of the Funding reserve ledger, as described under "--
FUNDING RESERVE FUND", against that income deficit.
Funding available revenue receipts which are paid to the issuer on a payment
date may be applied on that payment date by the issuer to extinguish amounts
standing to the credit of the issuer principal deficiency ledger in accordance
with the issuer pre-enforcement revenue priority of payments.
Funding available revenue receipts which are not paid to the issuer also may
be utilized to replenish the issuer reserve fund in accordance with the issuer
pre-enforcement revenue priority of payments to the extent of the issuer's
allocable share.
FUNDING RESERVE FUND
The Funding reserve fund has been established:
* to be allocated among issuers and between groups to help meet any
deficit in Funding available revenue receipts and thereby to help
meet any deficit recorded on the issuer principal deficiency
ledgers; and
* to fund initial reserves and other expenses in connection with the
issuance of notes by the issuer and any other issuers.
The Funding reserve fund is funded from Funding available revenue receipts
which are distributed to Funding from the mortgages trust and deposited in the
Funding GIC account. The Funding reserve ledger is maintained by the cash
manager to record the balance from time to time of the Funding reserve fund.
222
On each payment date funds standing to the credit of the Funding reserve
fund will be added to certain other income of Funding in calculating Funding
available revenue receipts which are available to make payments of interest and
fees on the intercompany loan and any other intercompany loan.
Prior to enforcement of the Funding security, amounts standing to the credit
of the Funding reserve fund may be utilized through their inclusion in the
calculation of Funding available revenue receipts to meet, and thereby to
satisfy, any deficit on each issuer principal deficiency ledger.
The Funding reserve fund will be funded and replenished from:
(1) Funding available revenue receipts up to and including an amount
equal to the "FUNDING RESERVE REQUIRED AMOUNT", being the amount
from time to time equal to the product of 1% and the greater of
(a) the aggregate principal amount outstanding of the notes
outstanding of all issuers on the relevant determination date and
(b) the aggregate outstanding principal balance of the
intercompany loans of all issuers on the relevant determination
date, or such other amount as may be agreed from time to time with
the rating agencies; and
(2) following the occurrence of a Funding step-up trigger event, any
Funding available revenue receipts to be paid in accordance with
item (J) of the Funding pre-enforcement revenue priority of
payments up to and including an additional amount, being an amount
equal to the sum of the Funding reserve required amount and
[GBP]22,100,000.
As at the closing date, the Funding reserve required amount will be
approximately [GBP]221,000,000. All amounts currently in the Funding reserve
fund as of the closing date may be used to partially fill the issuer reserve
fund and/or to pay a portion of the costs and expenses in connection with the
issuance of the notes. The balance of the Funding reserve fund as of July 31,
2004 was [GBP]23,965,350. Funding available revenue receipts will only be
applied to replenish the Funding reserve fund after paying interest due on each
intercompany loan (which, in turn, is funding interest due on the notes and any
new notes (if any) and reducing any deficiency on the issuer principal
deficiency ledgers) as described under "CASHFLOWS -- DISTRIBUTION OF FUNDING
AVAILABLE REVENUE RECEIPTS PRIOR TO ENFORCEMENT OF THE FUNDING SECURITY".
The seller, Funding, the rating agencies and the security trustee may agree
to increase the Funding reserve required amount and any additional amount by
which the Funding reserve required amount is increased from time to time.
ISSUER RESERVE FUND
On the closing date, an issuer reserve fund will be established by Funding.
The issuer reserve fund will be initially funded to an amount of
[GBP]41,000,000 from a portion of the start-up loan and a portion of the
Funding reserve fund and will be deposited into the Funding (Granite 04-3) GIC
account, which will be a separate GIC account in the name of Funding. The
issuer reserve ledger will be maintained by the cash manager to record the
balance from time to time of the issuer reserve fund. Funding will grant to the
security trustee a security interest in respect of the Funding (Granite 04-3)
GIC account as security for its obligations to the issuer under the
intercompany loan agreement.
On each payment date prior to the enforcement of the issuer security, funds
standing to the credit of the issuer reserve fund will be added to certain
other income of Funding in calculating the Funding available revenue receipts
which are to be allocated to the issuer to make payments of interest and fees
due under the intercompany loan. Once received by the issuer those revenue
receipts may be utilized by the issuer in meeting, and thereby satisfying, any
deficit on the issuer principal deficiency ledger. Funding is not entitled to
utilize the issuer reserve fund to meet any deficit in Funding available
revenue receipts which are allocated to any other issuer to make payments due
under any other intercompany loan agreement unless and until the intercompany
loan of the issuer has
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been repaid in full and Funding has no further liability under the intercompany
loan agreement. Following the repayment in full of the intercompany loan and
provided Funding has no further liability under the intercompany loan
agreement, any remaining amounts standing to the credit of the issuer reserve
fund may be utilized by Funding in paying any other liability of Funding
subject to and in accordance with the relevant Funding priority of payments.
Further, Funding will be entitled to establish a separate reserve fund which
will be deposited into a separate GIC account in the name of Funding to help
meet that deficit allocated to any new issuer and has established issuer
reserve funds with respect to the previous issuers.
The cash manager will apply funds available in the issuer reserve fund and
the issuer liquidity reserve fund, if any, prior to applying funds available in
the Funding reserve fund in calculating the Funding available revenue receipts
to be allocated to the issuer. In addition, prior to utilizing any amounts
credited to the issuer reserve fund or the issuer liquidity reserve fund, if
any, the cash manager will apply other Funding available revenue receipts in
making payments of interest and fees under any intercompany loan.
The issuer reserve fund will be funded and, if necessary, replenished from:
(1) excess Funding available revenue receipts which are allocated to
the issuer up to and including an amount equal to the "ISSUER
RESERVE REQUIRED AMOUNT", being an amount equal to
[GBP]48,000,000; and
(2) following the occurrence of an arrears or step-up trigger event,
any Funding available revenue receipts to be paid in accordance
with item (H) of the Funding pre-enforcement revenue priority of
payments up to and including an amount, being an amount equal to
the sum of the issuer reserve required amount and (a) if an
arrears or step-up trigger event has occurred under item (i) only
of the arrears or step-up trigger event definition,
[GBP]7,200,000, (b) if an arrears or step-up trigger event has
occurred under item (ii) only of the arrears or step-up trigger
event definition, [GBP]10,800,000, or (c) if an arrears or step-up
trigger event has occurred under both items (i) and (ii) of the
arrears or step-up trigger event definition, [GBP]18,000,000.
Funding available revenue receipts will only be applied to replenish the
issuer reserve fund after paying interest due under the intercompany loan to
fund interest due on the notes on the relevant payment date, after paying such
fees under the intercompany loan as will be sufficient to reduce any deficiency
on the issuer principal deficiency subledgers and after application of Funding
available revenue receipts to pay certain expenses of Funding and to fund the
issuer liquidity reserve fund up to the issuer liquidity reserve required
amount, all as described under "CASHFLOWS -- DISTRIBUTION OF FUNDING AVAILABLE
REVENUE RECEIPTS PRIOR TO ENFORCEMENT OF THE FUNDING SECURITY".
Following enforcement of the issuer security, amounts standing to the credit
of the issuer reserve ledger may be applied in making payments of principal due
under the intercompany loan of the issuer (but not in respect of any other
intercompany loan of any other issuer).
The seller, Funding, the rating agencies and the security trustee may agree
to increase the issuer reserve required amount and any additional amounts as
set out above from time to time. If an arrears or step-up trigger event under
item (i) only of the arrears or step-up trigger event definition is cured after
its occurrence, the issuer reserve required amount will be reduced by
[GBP]7,200,000.
ISSUER LIQUIDITY RESERVE FUND
Funding will be required to establish a liquidity reserve fund for the
issuer 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 notes will not be adversely affected by the ratings downgrade).
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Prior to enforcement of the issuer security, the issuer liquidity reserve
fund may be used:
* to help meet any deficit in Funding available revenue receipts
which are allocated to the issuer to pay amounts due on the
intercompany loan, but only to the extent that such amounts are
necessary to fund the payment by the issuer of interest and fees
due on the relevant payment date in respect of the class A notes
and/or the class B notes and to help meet any deficit recorded on
the issuer principal deficiency ledger in respect of the class A
notes; and
* (provided that there are no class A notes outstanding) to help
meet any deficit in Funding available revenue receipts which are
allocated to the issuer to pay all interest and fees due on the
intercompany loan.
The issuer liquidity reserve fund, if any, will be funded initially from
Funding available principal receipts which are allocated to the issuer in
accordance with the Funding pre-enforcement principal priority of payments. The
issuer liquidity reserve fund will be funded up to the "ISSUER LIQUIDITY
RESERVE REQUIRED AMOUNT", being an amount as of any payment date equal to the
excess, if any, of 3% of the aggregate outstanding balance of the notes on that
payment date over amounts standing to the credit of the issuer reserve fund on
that payment date.
The issuer liquidity reserve fund will be deposited in Funding's name in the
Funding (Granite 04-3) GIC account into which the issuer reserve fund also will
be deposited. All interest or income accrued on the amount of the issuer
liquidity reserve fund while on deposit in the Funding (Granite 04-3) GIC
account will belong to Funding. The cash manager will maintain a separate
issuer liquidity reserve ledger to record the balance from time to time of the
issuer liquidity reserve fund.
On each payment date prior to enforcement of the issuer security, funds
standing to the credit of the issuer liquidity reserve fund will be added to
certain other income of Funding in calculating Funding available revenue
receipts which are allocated to the issuer to make payments due under the
intercompany loan. Funding will not be entitled to utilize the issuer liquidity
reserve fund to meet any deficit in Funding available revenue receipts which
are allocated to any other issuer to make payments due under any other
intercompany loan unless and until the intercompany loan of the issuer has been
repaid in full and Funding has no further liability under the intercompany loan
agreement. Following the repayment in full of the intercompany loan and
provided Funding has no further liability under the intercompany loan
agreement, any remaining amounts standing to the credit of the issuer liquidity
reserve fund may be utilized by Funding in paying any other liability of
Funding subject to and in accordance with the relevant Funding priority of
payments. Further, Funding will be entitled to establish a separate liquidity
reserve fund for each new issuer which will be deposited into a separate GIC
account in the name of Funding to help meet that deficit allocated to any new
issuer.
Once it has been initially funded, the issuer liquidity reserve fund will be
replenished from any Funding available revenue receipts or Funding available
principal receipts. Funding available revenue receipts will only be applied to
replenish the issuer liquidity reserve fund after paying amounts due on the
intercompany loan to the extent that such amounts will fund the payment of
interest due on the class A notes, the class B notes and the reduction of any
deficiency on the principal deficiency subledger for the class A notes (but not
to fund any payment which would reduce any deficiency on the principal
deficiency subledgers for the class B notes, the class M notes or the class C
notes as described under "CASHFLOWS -- DISTRIBUTION OF FUNDING AVAILABLE
REVENUE RECEIPTS PRIOR TO ENFORCEMENT OF THE FUNDING SECURITY"). Funding
available principal receipts will be applied, if necessary, on any payment date
to replenish the issuer liquidity reserve fund as described under "CASHFLOWS --
DISTRIBUTION OF FUNDING AVAILABLE PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF
THE FUNDING SECURITY".
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Following enforcement of the issuer security, amounts standing to the credit
of the issuer liquidity reserve ledger may be applied in making payments of
principal due under the intercompany loan of the issuer (but not in respect of
any other intercompany loan of any previous issuer or any new issuer).
ISSUER PRINCIPAL DEFICIENCY LEDGER
An issuer principal deficiency ledger will be established for the issuer on
the closing date to record:
* any principal losses on the mortgage loans allocated by Funding to
the intercompany loan of the issuer;
* the application of issuer allocable principal receipts to meet any
deficiency in issuer available revenue receipts as described under
"-- USE OF PRINCIPAL RECEIPTS TO PAY ISSUER INCOME DEFICIENCY";
and
* the application of Funding available principal receipts which are
allocated to the issuer to fund the issuer liquidity reserve fund
as described under "CASHFLOWS -- DISTRIBUTION OF FUNDING AVAILABLE
PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF THE ISSUER SECURITY".
On the closing date, the issuer principal deficiency ledger will be divided
into four subledgers which will correspond to each of the class A notes, class
B notes, class M notes and class C notes, respectively. The subledger for each
class will show separate entries for each class of notes.
The allocation of losses on the mortgage loans to the intercompany loan of
the issuer or the application of issuer available principal receipts to pay
interest on the notes or the application by Funding of issuer allocable
principal receipts to fund the issuer liquidity reserve fund will be recorded
as follows:
* first, on the class C principal deficiency subledger until the
balance of that subledger is equal to the aggregate outstanding
balance of the series 1 class C notes, the series 2 class C notes
and the series 3 class C notes;
* second, on the class M principal deficiency subledger, until the
balance of that subledger is equal to the aggregate outstanding
balance of the series 1 class M notes, the series 2 class M notes
and the series 3 class M notes;
* third, on the class B principal deficiency subledger, until the
balance of that subledger is equal to the aggregate outstanding
balance of the series 1 class B notes, the series 2 class B notes
and the series 3 class B notes; and
* last, on the class A principal deficiency subledger, at which
point there will be an asset trigger event.
Losses on the mortgage loans that have been allocated to Funding on any date
shall be allocated to the intercompany loan of each issuer as described under
"THE INTERCOMPANY LOAN AGREEMENT -- ALLOCATION OF LOSSES".
Each time that the issuer credits issuer available revenue receipts to the
principal deficiency ledger of the issuer, it shall be deemed to cure the
relevant deficiencies in the following order:
* first, deficiencies which have resulted from the application of
issuer available principal receipts to meet any deficiency in
issuer available revenue receipts;
* second, deficiencies which have arisen from principal losses on
the mortgage loans being allocated by Funding to the intercompany
loan of such issuer; and
* last, deficiencies which have arisen from the application by
Funding of Funding allocable principal receipts to fund the issuer
liquidity reserve fund, and
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accordingly, each time a record is made on the principal
deficiency ledger of the issuer, the issuer cash manager will
describe the source of such deficiency as being one of the above
categories (as appropriate).
As described under "CASHFLOWS -- DISTRIBUTION OF ISSUER AVAILABLE REVENUE
RECEIPTS PRIOR TO ENFORCEMENT OF THE ISSUER SECURITY", issuer available revenue
receipts may, on each payment date, be applied as follows:
* first, provided that interest due on the series 1 class A1 notes,
the series 1 class A2 notes, the series 1 class A3 notes, the
series 2 class A1 notes, the series 2 class A2 notes, the series 3
class A1 notes and the series 3 class A2 notes has been paid, in
an amount necessary to reduce to zero the balances in respect of
the series 1 class A1 notes, the series 1 class A2 notes, the
series 1 class A3 notes, the series 2 class A1 notes, the series 2
class A2 notes, the series 3 class A1 notes and the series 3 class
A2 notes (in no order of priority but in proportion to their
outstanding balances) on the class A principal deficiency
subledger;
* second, provided that interest due on the series 1 class B notes,
the series 2 class B notes and the series 3 class B notes has been
paid, in an amount necessary to reduce to zero the balances in
respect of the series 1 class B notes, the series 2 class B notes
and the series 3 class B notes (in no order of priority but in
proportion to their outstanding balances) on the class B principal
deficiency subledger;
* third, provided that interest due on the series 1 class M notes,
the series 2 class M notes and the series 3 class M notes has been
paid, in an amount necessary to reduce to zero the balance in
respect of the series 1 class M notes, the series 2 class M notes
and the series 3 class M notes on the class M principal deficiency
subledger; and
* last, provided that interest due on the series 1 class C notes,
the series 2 class C notes and the series 3 class C notes has been
paid, in an amount necessary to reduce to zero the balances in
respect of the series 1 class C notes, the series 2 class C notes
and the series 3 class C notes (in no order of priority but in
proportion to their outstanding balances) on the class C principal
deficiency subledger.
To the extent that on any payment date, any Funding available revenue
receipts are applied as Funding available principal receipts pursuant to rule 4
under "RULES FOR APPLICATION OF FUNDING AVAILABLE REVENUE RECEIPTS", then on
such payment date (for the limited purposes set out in this paragraph) the
issuer shall be deemed to have received such amounts as issuer available
revenue receipts to be applied to reduce the balances on the issuer principal
deficiency ledger in the manner described above. Any such adjustment to the
issuer principal deficiency ledger shall be completed prior to the application
of the issuer pre-enforcement revenue priority of payments on such payment
date.
FUNDING PRINCIPAL DEFICIENCY LEDGER
A principal deficiency ledger has been established for Funding to record any
principal losses on the mortgage loans allocated to Funding pursuant to the
terms of the mortgages trust, and to record the application of Funding
available principal receipts to any issuer to fund the issuer liquidity reserve
fund of that issuer. As to principal losses on the mortgage loans and the
application of Funding available principal receipts to fund issuer liquidity
reserve funds, the Funding principal deficiency ledger will reflect the
aggregate positions of the issuer principal deficiency ledgers of the issuers.
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On each occasion on which an issuer principal deficiency ledger is credited
(and the related principal deficiencies are thereby reduced), the cash manager
on behalf of Funding will credit the Funding principal deficiency ledger and
thereby record a similar reduction in aggregate principal deficiencies.
USE OF PRINCIPAL RECEIPTS TO PAY ISSUER INCOME DEFICIENCY
On the distribution date immediately preceding each payment date, the issuer
cash manager will calculate whether there will be an excess or a deficit of
issuer available revenue receipts to pay items (A) through (P) of the issuer
pre-enforcement revenue priority of payments (after taking account of any group
1 shared issuer revenue receipts or group 2 shared issuer revenue receipts, if
any, available therefor).
If there is a deficit in the amount of issuer available revenue receipts to
pay items (A) through (E), (G), (I) and (K) of the issuer pre-enforcement
revenue priority of payments, then the issuer shall pay or provide for that
deficit by the application of funds which constitute issuer allocable principal
receipts, if any, paid to the issuer and the issuer cash manager shall make a
corresponding debit entry in the relevant issuer principal deficiency
subledger, as described under "-- ISSUER PRINCIPAL DEFICIENCY LEDGER".
Issuer available principal receipts may not be used to pay interest on any
class of notes if and to the extent that would result in a deficiency being
recorded, or an existing deficiency being increased, on a principal deficiency
subledger relating to a higher ranking class of notes, and may not be used to
make up any deficit other than in respect of items (A) through (E), (G), (I)
and/or (K) of the issuer pre-enforcement revenue priority of payments.
Principal therefore may not be used to pay interest on a class of notes if the
balance on the relevant principal deficiency subledger for such class of notes
is equal to the principal amount outstanding on such class of notes.
The issuer shall apply any excess issuer available revenue receipts to
extinguish any balance on the issuer principal deficiency ledger, as described
under "-- ISSUER PRINCIPAL DEFICIENCY LEDGER".
ISSUER BASIS, INTEREST RATE AND CURRENCY SWAPS
On the closing date, the issuer will enter into the basis rate swap
agreement with the basis rate swap provider and the note trustee, which will
hedge against the rate of interest applicable to payments to be made by Funding
in respect of the intercompany loan (which will be related to the interest
rates applicable to the mortgage loans in the trust property) and the rates of
interest at which the issuer is obliged to make payments in respect of the
notes.
On the closing date, the issuer also will enter into the dollar currency
swaps with the dollar currency swap providers and the note trustee to hedge
against the possible variance between:
* the interest received by the issuer in respect of the basis rate
swap agreement, which will be related to sterling LIBOR for three
month sterling deposits, and the interest which the issuer is
obliged to pay in respect of the dollar notes, which will be
related to US dollar LIBOR for three-month dollar deposits; and
* fluctuations in the exchange rate in respect of principal received
on the intercompany loan, which will be received in sterling, and
principal which the issuer is obliged to repay in respect of the
dollar notes, which must be repaid in dollars.
On the closing date, the issuer also will enter into the euro currency swaps
with the euro currency swap provider and the note trustee to hedge against the
possible variance between:
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* the interest received by the issuer in respect of the basis rate
swap agreement, which will be related to sterling LIBOR for three
month sterling deposits, and the interest which the issuer is
obliged to pay in respect of the euro notes, which will be related
to EURIBOR for three-month euro deposits; and
* fluctuations in the exchange rate in respect of principal received
on the intercompany loan, which will be received in sterling, and
principal which the issuer is obliged to repay in respect of the
euro notes, which must be repaid in euro.
On the closing date, the issuer also will enter into the interest rate swap
with the interest rate swap provider and the note trustee to hedge against the
possible variance between the interest received by the issuer in respect of the
basis rate swap agreement, which will be related to sterling LIBOR for three
month sterling deposits, and the interest which the issuer is obliged to pay in
respect of the series 3 class A2 notes, which will be related to a fixed rate
of interest up to and including the earlier of (a) the interest period ending
on or immediately before the payment date in September 2011, (b) the occurrence
of a trigger event or (c) the enforcement of the Funding security and/or the
issuer security. The interest rate swap will terminate upon the earlier of (a)
the payment date in September 2011, (b) the occurrence of a trigger event, (c)
the enforcement of the Funding security and/or the issuer security and (d) the
date on which all of the series 3 class A2 notes are redeemed in full.
PRIORITY OF PAYMENTS AMONG THE CLASS A NOTES, THE CLASS B NOTES, THE CLASS M
NOTES AND THE CLASS C NOTES
The order of payments of interest to be made on the classes of notes will be
prioritized so that interest payments on the class C notes will be subordinated
to interest payments on the class M notes, the class B notes and the class A
notes, interest payments on the class M notes will be subordinated to interest
payments on the class B notes and the class A 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 issuer priority of payments.
Any revenue shortfall in payments of interest due on the class B notes, the
class M notes or the class C notes on any payment date will be deferred until
the immediately succeeding payment date. On that immediately succeeding payment
date, the amount of interest due on the relevant class of notes will be
increased to take account of any deferred interest. If on that payment date
there is still a revenue shortfall, that revenue shortfall will be deferred
again. This deferral process will continue until the final repayment date of
the notes, at which point if there is insufficient money available to us to pay
interest on the class B notes, the class M notes or the class C notes, then you
may not receive all interest amounts payable on those classes of notes.
We are not able to defer payments of interest due on any payment date in
respect of the class A notes. The failure to pay interest on the class A notes
will be an event of default under the notes.
The class A notes, the class B notes, the class M notes and the class C
notes will be constituted by the trust deed and will share the same security.
Upon enforcement of that 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 and each series of class C notes, the class
B notes of each series will rank in priority to each series of class M notes
and each series of class C notes and each series of class M notes will rank in
priority to each series of class C notes.
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MORTGAGES TRUSTEE GIC ACCOUNT/FUNDING GIC ACCOUNT/FUNDING (GRANITE 04-3) GIC
ACCOUNT
All amounts held by the mortgages trustee which are not invested in
authorized investments will be deposited in the mortgages trustee GIC account
with the mortgages trustee GIC provider. The mortgages trustee GIC account is
subject to a guaranteed investment contract such that the mortgages trustee GIC
provider has agreed to pay a variable rate of interest on funds in the
mortgages trustee GIC account of 0.15% per annum below LIBOR for three-month
sterling deposits.
The mortgages trustee GIC account is currently maintained with Northern Rock
but may be required to be transferred to the stand-by GIC provider or other
bank in certain circumstances, including if the short-term, unguaranteed and
unsecured ratings ascribed to Northern Rock 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, provided that where the relevant deposit amount is less than
20% of the amount of the Funding share in the trust property, then the short-
term, unguaranteed and unsecured rating required to be ascribed to Northern
Rock by Standard & Poor's shall be at least "A-1".
Save as provided below, all amounts held by Funding which are not invested
in authorized investments will be deposited in the Funding GIC account. The
Funding GIC account is maintained with the Funding GIC provider. The Funding
GIC account is subject to a guaranteed investment contract such that the
Funding GIC provider has agreed to pay a variable rate of interest on funds in
the Funding GIC account of 0.15% per annum below LIBOR for three-month sterling
deposits.
All amounts held by Funding in respect of the issuer and standing at any
time to the credit of the issuer reserve ledger or the issuer liquidity reserve
ledger, if any, and which are not invested in authorized investments will be
deposited in the Funding (Granite 04-3) GIC account. The Funding (Granite 04-3)
GIC account will be maintained with the Funding GIC provider. This account will
be subject to a guaranteed investment contract such that the Funding GIC
provider will agree to pay a variable rate of interest on funds in the Funding
(Granite 04-3) GIC account of 0.15% per annum below LIBOR for three-month
sterling deposits.
START-UP LOAN
The following section contains a summary of the material terms of the start-
up loan agreement. The summary does not purport to be complete and is subject
to the provisions of the start-up loan agreement, a form of which has been
filed as an exhibit to the registration statement of which this prospectus is a
part.
GENERAL DESCRIPTION
On the closing date, Northern Rock plc (the "START-UP LOAN PROVIDER") will
make available to Funding a start-up loan under the start-up loan agreement in
an amount of approximately [GBP][__], a portion of which will be used to
partially fund the issuer reserve fund, and the other portion of which will be
used to meet the costs and expenses incurred by Funding in connection with the
acquisition by Funding of the additional Funding share of the trust property
and the fees payable under the intercompany loan agreement which will enable
the issuer to meet its costs in relation to the issuance of the notes.
INTEREST ON THE START-UP LOAN
The start-up loan will bear interest at the rate of three-month sterling
LIBOR plus 0.90% per annum until repaid. Any unpaid interest will be added to
the principal amount owed and will bear interest. Interest is payable by
Funding on each payment date.
REPAYMENT OF START-UP LOAN
Funding will repay the start-up loan only to the extent that it has Funding
available revenue receipts after making payments ranking in priority to
payments to the start-up loan provider as described under "CASHFLOWS --
DISTRIBUTION OF FUNDING AVAILABLE REVENUE
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receipts prior to enforcement of the Funding security" or "CASHFLOWS --
DISTRIBUTION OF FUNDING AVAILABLE PRINCIPAL RECEIPTS AND FUNDING AVAILABLE
REVENUE RECEIPTS FOLLOWING ENFORCEMENT OF THE FUNDING SECURITY". Amounts due to
the start-up loan provider are payable on any payment date after amounts of
interest due to the issuer on the intercompany loan and to any other issuers on
the related intercompany loans. Funding will have no further recourse to the
start-up loan provider after it has repaid the start-up loan.
EVENT OF DEFAULT
It will be an event of default under the start-up loan agreement if Funding
has available funds to pay amounts due to the start-up loan provider and it
does not pay them.
ACCELERATION
Subject to the Funding deed of charge, the start-up loan will become
immediately due and payable upon service of an intercompany loan enforcement
notice.
GOVERNING LAW
The start-up loan will be governed by English law.
EXISTING AND FUTURE START-UP LOANS
The start-up loan provider has in the past made available to Funding start-
up loans in connection with the making of the previous intercompany loans which
were used by Funding for meeting the costs and expenses incurred by Funding in
connection with the acquisitions by Funding of the Funding share of the initial
and further mortgage portfolios and the fees payable under the previous
intercompany loan agreements. In the future, Funding may enter into new start-
up loan agreements, the proceeds of which may be used to help fund any relevant
issuer reserve fund and/or to meet the costs and expenses incurred in the
acquisition of additional assigned mortgage loans and their related security
and in the payment of fees under any new intercompany loan agreements. Each
previous start-up loan agreement was, and each new start-up loan agreement will
be, on substantially the same terms as the start-up loan agreement, except as
to the amount advanced, the date that monies were, are, or will be drawn and
the terms for repayment. Each start-up loan is repayable by Funding from
Funding available revenue receipts after making payments ranking in priority to
payments to the start-up loan provider.
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THE SWAP AGREEMENTS
The following section describes, in summary, the material terms of the swap
agreements. The description does not purport to be complete and is subject to
the provisions of each of the swap agreements, forms of which have been filed
as exhibits to the registration statement of which this prospectus is a part.
GENERAL
The issuer will enter into the basis rate swap with Northern Rock plc, in
its capacity as the basis rate swap provider, and the note trustee. The issuer
will also enter into dollar currency swaps with the dollar currency swap
providers and the note trustee, euro currency swaps with the euro currency swap
provider and the note trustee and the interest rate swap with the interest rate
swap provider and the note trustee. In general, the basis rate swap, the
interest rate swap and the currency swaps are designed to do the following:
* basis rate swap: to protect the issuer against the possible
variance between the seller's standard variable rate payable on
the variable rate mortgage loans, the rates of interest payable on
the flexible mortgage loans which pay variable rates of interest
no higher than the rate offered by a basket of UK mortgage lenders
or a rate which tracks the Bank of England base rate, and the
fixed rates of interest payable on the fixed rate mortgage loans
and a LIBOR based rate for three-month sterling deposits;
* dollar currency swaps: to protect the issuer against changes in
the sterling to dollar exchange rate following the closing date
and the possible variance between a LIBOR based rate for
three-month sterling deposits and a LIBOR based rate for
three-month dollar deposits applicable to the dollar notes;
* euro currency swaps: to protect the issuer against changes in the
sterling to euro exchange rate following the closing date and the
possible variance between a LIBOR based rate for three-month
sterling deposits and a EURIBOR based rate for three-month euro
deposits applicable to the euro notes; and
* interest rate swap: to protect the issuer against changes in the
possible variance between a LIBOR based rate for three-month
sterling deposits and a fixed rate of interest applicable to the
series 3 class A2 notes up to and including the earlier of (i) the
interest period ending on or immediately before the payment date
in September 2011, (ii) the occurrence of a trigger event or (iii)
the enforcement of the Funding security and/or the issuer
security.
In addition to the foregoing, the issuer may from time to time enter into
additional swap arrangements or add additional features to the swap
arrangements described above in order to hedge against interest rate risks that
may arise in connection with new mortgage loan products that the seller assigns
into the mortgages trust at a later date.
THE BASIS RATE SWAP
Some of the mortgage loans in the mortgage portfolio pay a variable rate of
interest for a period of time which may either be linked to the seller's
standard variable rate or linked to an interest rate other than the seller's
standard variable rate, such as a variable rate offered by a basket of UK
mortgage lenders or a rate that tracks the Bank of England base rate. Other
mortgage loans pay a fixed rate of interest for a period of time.
The amount of revenue receipts that Funding receives will fluctuate
according to the interest rates applicable to the mortgage loans in the
mortgages trust. The amount of interest payable by Funding to the issuer under
the intercompany loan, from which the issuer will fund, inter alia, its payment
obligations under the currency swaps and the notes, will be made in sterling.
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However, for each interest period the issuer will be required to pay
interest (1) on the dollar notes in dollars, based upon a LIBOR based rate for
three-month dollar deposits, (2) on the euro notes in euro, based upon a
EURIBOR based rate for three-month euro deposits and (3) on the sterling notes
in sterling, based upon either (a) a fixed rate of interest applicable to the
series 3 class A2 notes up to and including the earlier of (i) the interest
period ending on or immediately before the payment date in September 2011, (ii)
the occurrence of a trigger event or (iii) the enforcement of the Funding
security and/or the issuer security, and thereafter a LIBOR based rate for
three-month sterling deposits applicable to the series 3 class A2 notes or (b)
a LIBOR based rate for three-month sterling deposits applicable to all series 3
notes (other than the series 3 class A2 notes).
Under the dollar currency swaps, the euro currency swaps and the interest
rate swap (each as described below), the issuer will be required to pay to the
applicable currency rate swap provider or the interest rate swap provider, as
the case may be, certain amounts based upon a LIBOR based rate for three-month
sterling deposits in return for the US dollar, euro and sterling amounts it
needs to pay the interest on the dollar notes, the euro notes and the series 3
class A2 notes, respectively. The amounts payable by the issuer to a dollar
currency swap provider under the dollar currency swaps, to the euro currency
swap provider under the euro currency swaps and to the interest rate swap
provider under the interest rate swap will be paid in sterling.
To provide a hedge against the possible variance between:
(1) the seller's standard variable rate payable on the variable rate
mortgage loans, the rates of interest payable on the flexible
mortgage loans which pay variable rates of interest no higher than
the rate offered by a basket of UK mortgage lenders or a rate
which tracks the Bank of England base rate and the fixed rates of
interest payable on the fixed rate mortgage loans; and
(2) a margin over the LIBOR based rate for three-month sterling
deposits,
the issuer will enter into the basis rate swap with the basis rate swap
provider and the note trustee.
Under the basis rate swap, the following amounts will be calculated in
respect of each calculation period:
* the amount (known as the "CALCULATION PERIOD SWAP PROVIDER
AMOUNT") produced by applying, on set monthly dates during the
relevant period, LIBOR for three-month sterling deposits (which is
set at the beginning of each applicable quarter) plus a spread to
the notional amount of the basis rate swap as defined later in
this section; and
* the amount (known as the "CALCULATION PERIOD ISSUER AMOUNT")
produced by applying, on set monthly dates during the relevant
period, a rate equal to the weighted average of:
(1) the average of the standard variable mortgage rates or
their equivalent charged to existing borrowers on
residential mortgage loans as published from time to time,
after excluding the highest and the lowest rate, of Abbey
National plc, Alliance & Leicester plc, Bradford & Bingley,
HBOS plc, Lloyds TSB Bank plc, National Westminster Bank
plc and Woolwich plc;
(2) in respect only of any flexible mortgage loans the
difference between (a) the average of the standard variable
mortgage rates or their equivalent charged to existing
borrowers on residential mortgage loans as published from
time to time, after excluding the highest and the lowest
rate, of Abbey National plc, Alliance & Leicester plc,
Bradford & Bingley, HBOS plc, Lloyds TSB Bank plc, National
Westminster Bank plc and Woolwich plc, and (b) the weighted
average of the discount to the average interest rate
calculated in (a) above in respect of the flexible mortgage
loans; and
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(3) the weighted average of the rates of interest payable on
the fixed rate mortgage loans, other than fixed rate
mortgage loans which have become re-fixed mortgage loans
since the immediately preceding payment date,
to the notional amount of the basis rate swap.
After these two amounts are calculated in relation to a payment date, the
following payments will be made on that payment date:
* if the calculation period swap provider amount is greater than the
calculation period issuer amount, then the basis rate swap
provider will pay the difference (after such difference is
adjusted to take account of amounts payable by the basis rate swap
provider and the issuer under the basis rate swap (as described
below)) to the issuer;
* if the calculation period issuer amount is greater than the
calculation period swap provider amount, then the issuer will pay
the difference (after such difference is adjusted to take account
of amounts payable by the basis rate swap provider and the issuer
under the basis rate swap) to the basis rate swap provider; and
* if the calculation period swap provider amount is equal to the
calculation period issuer amount, neither party will make any
payment to the other party.
If a payment is to be made by the basis rate swap provider, once received by
the issuer that payment will be included in the issuer available revenue
receipts and will be applied on the relevant payment date according to the
relevant issuer priority of payments. If a payment is to be made by the issuer,
it will be made according to the relevant issuer priority of payments.
The "NOTIONAL AMOUNT OF THE BASIS RATE SWAP" in respect of any applicable
date will be an amount in sterling equal to:
* the aggregate principal amount outstanding of the notes on the
immediately preceding payment date;
less
* the balance of the principal deficiency ledger on such immediately
preceding payment date;
less
* the aggregate outstanding principal balance on such immediately
preceding payment date of fixed rate mortgage loans which have
become re-fixed mortgage loans since that payment date.
In the event that the basis rate swap is terminated prior to the service of
a note enforcement notice or the final redemption of any class of notes, the
issuer shall use its best efforts to enter into a replacement basis rate swap
on terms acceptable to the rating agencies and the note trustee and with a swap
provider whom the rating agencies have previously confirmed in writing to the
issuer and the note trustee will not cause the then current ratings of the
issuer's notes to be downgraded, withdrawn or qualified.
THE DOLLAR CURRENCY SWAPS
The dollar notes will be denominated in US dollars and investors will
receive payments of interest on, and principal of, these notes in US dollars.
However, the repayments of principal and payments of interest by Funding to the
issuer under the intercompany loan will be made in sterling. In addition, the
dollar notes will bear interest at a rate based on LIBOR for three-month US
dollar deposits but the payment to be made by the basis rate swap provider to
the issuer will be based on LIBOR for three-month sterling deposits. To hedge
the variance between the US dollar LIBOR rate and the sterling LIBOR rate and
its currency exchange rate exposure in respect of these notes, the issuer will
enter into six dollar currency swaps relating to the dollar notes with the
applicable dollar currency swap provider and the note trustee.
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Under each dollar currency swap, the issuer will pay to each dollar currency
swap provider:
* on the closing date, an amount in US dollars equal to the net
proceeds of the issue of the relevant class of dollar notes;
* on each payment date, an amount in sterling equal to the dollar
amount of principal payments to be made on the relevant class of
dollar notes on that payment date, such dollar amount to be
converted into sterling at the relevant dollar currency swap rate;
and
* on each payment date, an amount in sterling based on LIBOR for
three-month sterling deposits (or based on an interpolated
sterling LIBOR rate, as applicable), which the dollar currency
swap provider in respect of such notes will then exchange for an
amount in US dollars based on LIBOR for three-month US dollar
deposits (or based on an interpolated US dollar LIBOR rate, as
applicable) in order to pay to the issuer on each payment date the
interest amounts set forth below.
Under each dollar currency swap, each dollar currency swap provider will pay
to the issuer, as applicable:
* on the closing date, an amount in sterling equal to the net dollar
proceeds of the issue of the relevant class of dollar notes, such
dollar proceeds to be converted into sterling at the relevant
dollar currency swap rate;
* on each payment date, an amount in US dollars equal to the amount
of principal payments to be made on the relevant class of dollar
notes on such payment date; and
* on each payment date, an amount in dollars equal to the interest
to be paid in US dollars on the relevant class of dollar notes on
such payment date.
As defined in this prospectus, "DOLLAR CURRENCY SWAP RATE" means the rate at
which dollars are converted to sterling or, as the case may be, sterling is
converted to dollars, under the relevant dollar currency swap.
In the event that any dollar currency swap is terminated prior to the
service of a note enforcement notice or the final redemption of the relevant
class of dollar notes, the issuer shall use its best efforts to enter into a
replacement dollar currency swap in respect of the notes or that class of notes
to hedge against fluctuations in the exchange rate between dollars and sterling
and/or the possible variance between LIBOR for three-month sterling deposits
and LIBOR for three-month US dollar deposits in respect of the dollar notes.
Any replacement dollar currency swap must be entered into on terms acceptable
to the rating agencies, the issuer and the note trustee and with a replacement
dollar currency swap provider that the rating agencies have previously
confirmed in writing to the issuer and the note trustee will not cause the then
current ratings of the notes to be downgraded, withdrawn or qualified.
THE EURO CURRENCY SWAPS
The euro notes will be denominated in euro and investors will receive
payments of interest on, and principal of, these notes in euro. However, the
repayments of principal and payments of interest by Funding to the issuer under
the intercompany loan will be made in sterling. In addition, the euro notes
will bear interest at a rate based on EURIBOR, but the payment to be made by
the basis rate swap provider to the issuer will be based on sterling LIBOR. To
hedge the variance between the LIBOR rate and the relevant EURIBOR rate and its
currency exchange rate exposure in respect of these notes, the issuer will
enter into five euro currency swaps relating to the euro notes with the euro
currency swap provider and the note trustee.
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Under each euro currency swap, the issuer will pay to the euro currency swap
provider:
* on the closing date, an amount in euro equal to the net proceeds
of the issue of the relevant class of euro notes;
* on each payment date, an amount in sterling equal to the euro
amount of principal payments to be made on the relevant class of
euro notes on that payment date, such euro amount to be converted
into sterling at the relevant euro currency swap rate; and
* on each payment date, an amount in sterling based upon a LIBOR
based rate for three-month sterling deposits (or based on an
interpolated sterling LIBOR rate, as applicable), which the euro
currency swap provider will then exchange for an amount in euro
based upon a EURIBOR based rate for three-month euro deposits (or
based on an interpolated EURIBOR rate, as applicable) with respect
to the euro notes in order to pay to the issuer on such payment
date the interest amounts set forth below.
Under each euro currency swap, the euro currency swap provider will pay to
the issuer:
* on the closing date, an amount in sterling equal to the net euro
proceeds of the issue of the relevant class of euro notes, such
euro proceeds to be converted into sterling at the relevant euro
currency swap rate;
* on each payment date, an amount in euro equal to the amount of
principal payments to be made on the relevant class of euro notes
on such payment date; and
* on each payment date, an amount in euro equal to the interest to
be paid in euro on the relevant class of euro notes on such
payment date.
As defined in this prospectus, "EURO CURRENCY SWAP RATE" means the rate at
which euro are converted to sterling or, as the case may be, sterling is
converted to euro, under the relevant euro currency swap.
In the event that any euro currency swap is terminated prior to the service
of a note enforcement notice or the final redemption of the relevant class of
euro notes, the issuer shall use its best efforts to enter into a replacement
euro currency swap in respect of the notes or that class of notes to hedge
against fluctuations in the exchange rate between euro and sterling and/or the
possible variance between LIBOR for three-month sterling deposits and EURIBOR
for three-month euro deposits with respect to the euro notes. Any replacement
euro currency swap must be entered into on terms acceptable to the rating
agencies, the issuer and the note trustee and with a replacement euro currency
swap provider that the rating agencies have previously confirmed in writing to
the issuer and the note trustee will not cause the then current ratings of the
notes to be downgraded, withdrawn or qualified.
THE INTEREST RATE SWAP
The series 3 class A2 notes will bear interest initially at a fixed rate up
to and including the earlier of (a) the interest period ending on or
immediately prior to the payment date in September 2011, (b) the occurrence of
a trigger event or (c) the enforcement of the Funding security and/or the
issuer security, but the payment to be made by the basis rate swap provider to
the issuer will be based on sterling LIBOR. To hedge the variance between the
LIBOR rate and the fixed rate in respect of the series 3 class A2 notes, the
issuer will enter into an interest rate swap relating to the series 3 class A2
notes with the interest rate swap provider and the note trustee. The interest
rate swap will terminate upon the earlier to occur of (a) the payment date in
September 2011,
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(b) the occurrence of a trigger event, (c) the enforcement of the Funding
security and/or the issuer security and (d) the date on which all of the series
3 class A2 notes are redeemed in full.
Under the interest rate swap, the issuer will pay to the interest rate swap
provider on each payment date up to and including the earlier of (i) the
payment date in September 2011, (ii) the occurrence of a trigger event or (iii)
the enforcement of the Funding security and/or the issuer security, an amount
in sterling based on three-month sterling LIBOR, which the interest rate swap
provider will then exchange for an amount in sterling based upon a fixed rate
of interest with respect to the series 3 class A2 notes (up to and including
the interest period ending on or immediately prior to the payment date in
September 2011 or, if earlier, the occurrence of a trigger event or enforcement
of the Funding security and/or the issuer security).
Under the interest rate swap, the interest rate swap provider will pay to
the issuer on each payment date up to and including the payment date in
September 2011, an amount in sterling equal to the fixed rate of interest to be
paid in sterling on the series 3 class A2 notes on such payment date.
In the event that the interest rate swap is terminated prior to the earlier
of (i) the payment date in September 2011, (ii) the occurrence of a trigger
event or (iii) the enforcement of the Funding security and/or the issuer
security, the issuer shall use its best efforts to enter into a replacement
interest rate swap in respect of the series 3 class A2 notes to hedge against
the possible variance between LIBOR for three-month sterling deposits and a
fixed rate of interest with respect to the series 3 class A2 notes up to and
including the earlier of (i) the interest period ending on or immediately prior
to the payment date in September 2011, (ii) the occurrence of a trigger event
or (iii) the enforcement of the Funding security and/or the issuer security.
Any replacement interest rate swap must be entered into on terms acceptable to
the rating agencies, the issuer and the note trustee and with a replacement
interest rate swap provider that the rating agencies have previously confirmed
in writing to the issuer and the note trustee will not cause the then-current
ratings of the notes to be downgraded, withdrawn or qualified.
RATINGS DOWNGRADE OF SWAP PROVIDERS
Each swap agreement includes provisions relating to a "RATING DOWNGRADE
EVENT" which will occur on each occasion where:
(a) the relevant debt rating (being the rating of the short-term or
long-term, as applicable, unsecured and unsubordinated debt
obligations) of the swap provider or any credit support provider,
as applicable, is either downgraded below an initial required
rating or below a secondary required rating, each as indicated in
the table below; and
(b) where such downgrade is made by Standard & Poor's and/or Fitch, as
a result of such downgrade, the then-current ratings of the notes
may, in the reasonable opinion of Standard & Poor's and/or Fitch,
as applicable, be downgraded or placed under review for possible
downgrade.
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The initial required ratings and the secondary required ratings for each
swap provider are as follows:
INITIAL REQUIRED RATINGS
-------------------------------------------------------------------------------------
S&P MOODY'S FITCH S&P MOODY'S FITCH
------------ ------------- ------------ -------------- ------------ ------------
P-1 (short- P-2 (short-
A-1 term) and A2 F1 term) and A3 F2
basis rate swap agreement (short-term) (long-term) (short-term) Not applicable (long-term) (short-term)
------------ ------------- ------------ -------------- ------------ ------------
P-1 (short- P-2 (short-
A-1 term) and A1 F1 BBB- term) and A3 F2
interest rate swap agreement (short-term) (long-term) (short-term) (long-term) (long-term) (short-term)
------------ ------------- ------------ -------------- ------------ ------------
dollar currency swap agreements
P-1 (short- P-2 (short-
(1) series 1 notes (other than A-1+ term) and A1 F1 BBB- term) and A3 F2
series 1 class A2 notes) (short-term) (long-term) (short-term) (long-term) (long-term) (short-term)
------------ ------------- ------------ -------------- ------------ ------------
P-1 (short- P-2 (short-
AA- term) and A1 A+ BBB- term) and A3 BBB+
(2) series 2 class A1 notes (long-term) (long-term) (long-term) (long-term) (long-term) (long-term)
------------ ------------- ------------ -------------- ------------ ------------
P-1 (short- P-2 (short-
A-1+ term) and A1 F1 term) and A3 F2
euro currency swap agreements (short-term) (long-term) (short-term) Not applicable (long-term) (short-term)
------------ ------------- ------------ -------------- ------------ ------------
Following the occurrence of a rating downgrade event in respect of a swap
provider, the relevant swap provider may be required, within specified periods
of time, to take certain remedial measures in accordance with the relevant swap
agreement. These remedial measures and periods of time differ according to the
minimum ratings required or secondary required rating to which the rating
downgrade event relates and depending on whether it is an S&P, a Moody's or a
Fitch rating downgrade event. Such remedial measures may include the relevant
swap provider arranging for its obligations under the swap agreement to be
transferred to a third party with the minimum ratings required by the relevant
rating agency, procuring another third party with the relevant initial required
ratings to become co-obligor in respect of its obligations under the relevant
swap agreement and/or taking such other action as it may agree with the
relevant rating agency. In relation to Moody's, such third party must have the
initial required ratings of P-1 (short-term) and A1 (long-term) as specified
above or such other rating as agreed with Moody's (save in the case of the
basis rate swap agreement, where the long-term initial required rating of the
basis rate swap provider must be A2). In addition, the relevant swap provider
shall provide collateral (as specified in the relevant swap agreement) for its
obligations under the swap agreement either in place of or pending (depending
upon the initial required rating or secondary required rating to which the
rating downgrade event relates) taking those other steps.
A failure to take such steps will allow the issuer to terminate the relevant
swap agreement; provided, however, that in respect of a downgrade termination
event, in the event that the issuer designates an early termination date (as
defined in the relevant swap agreement) and there is a payment due to the
relevant swap provider, the issuer may only designate such an early termination
date if the relevant swap provider has found a replacement swap provider.
TERMINATION OF THE SWAPS
* The basis rate swap will terminate on the earlier of the payment
date falling in September 2044 and the date on which all of the
notes are redeemed in full;
* The dollar currency swap for the series 1 class A1 notes will
terminate on the earlier of the payment date falling in September
2025 and the date on which all of the series 1 class A1 notes are
redeemed in full;
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* The euro currency swap for the series 1 class A2 notes will
terminate on the earlier of the payment date falling in September
2028 and the date on which all of the series 1 class A2 notes are
redeemed in full;
* The dollar currency swap for the series 1 class A3 notes will
terminate on the earlier of the payment date falling in September
2044 and the date on which all of the series 1 class A3 notes are
redeemed in full;
* The dollar currency swap for the series 1 class B notes will
terminate on the earlier of the payment date falling in September
2044 and the date on which all of the series 1 class B notes are
redeemed in full;
* The dollar currency swap for the series 1 class M notes will
terminate on the earlier of the payment date falling in September
2044 and the date on which all of the series 1 class M notes are
redeemed in full;
* The dollar currency swap for the series 1 class C notes will
terminate on the earlier of the payment date falling in September
2044 and the date on which all of the series 1 class C notes are
redeemed in full;
* The dollar currency swap for the series 2 class A1 notes will
terminate on the earlier of the payment date falling in September
2044 and the date on which all of the series 2 class A1 notes are
redeemed in full;
* The euro currency swap for the series 2 class A2 notes will
terminate on the earlier of the payment date falling in September
2044 and the date on which all of the series 2 class A2 notes are
redeemed in full;
* The euro currency swap for the series 2 class B notes will
terminate on the earlier of the payment date falling in September
2044 and the date on which all of the series 2 class B notes are
redeemed in full;
* The euro currency swap for the series 2 class M notes will
terminate on the earlier of the payment date falling in September
2044 and the date on which all of the series 2 class M notes are
redeemed in full;
* The euro currency swap for the series 2 class C notes will
terminate on the earlier of the payment date falling in September
2044 and the date on which all of the series 2 class C notes are
redeemed in full; and
* The interest rate swap for the series 3 class A2 notes will
terminate on the earlier to occur of (a) the payment date in
September 2011, (b) the occurrence of a trigger event, (c) the
enforcement of the Funding security and/or the issuer security and
(d) the date on which all of the series 3 class A2 notes are
redeemed in full.
A swap could also terminate in the circumstances set out in the relevant
currency swap agreement or interest rate swap agreement, which include the
following circumstances, each referred to as a "SWAP EARLY TERMINATION EVENT":
* at the option of one party to the swap, if there is a failure by
the other party to pay any amounts due and payable in accordance
with the terms of that swap. Certain amounts may be due but not
payable in accordance with the terms of the swap as described
below under "-- LIMITED RECOURSE AND SWAP PAYMENT OBLIGATION";
* if an event of default under the notes occurs and the note trustee
serves a note enforcement notice;
* if withholding taxes are imposed on a swap provider's payments due
to a change in law;
239
* if a material misrepresentation is made by a swap provider, or a
swap provider breaches any of its obligations, and in each case it
is not remedied within the applicable grace period, or there is
any failure by a relevant guarantor to comply with its obligations
under any relevant guarantee;
* upon the occurrence of certain insolvency events in respect of one
of the parties or its guarantor, if applicable, or the merger of
the relevant swap provider or its guarantor, if applicable,
without an assumption of the obligations under the swaps, or
changes in law resulting in the obligations of one of the parties
becoming illegal;
* if the relevant swap provider is downgraded and fails to comply
with the requirements of the ratings downgrade provision contained
in the relevant swap agreement and described above under "--
RATINGS DOWNGRADE OF SWAP PROVIDERS" or if its guarantor, if
applicable, is downgraded; and
* if any notes outstanding are redeemed at the option of the issuer
on and after the payment date falling in June 2008 and any payment
date thereafter in the event the New Basel Capital Accord is
implemented in the United Kingdom.
Upon the occurrence of a swap early termination event, the issuer or the
relevant swap provider may be liable to make a termination payment to the
other. This termination payment will be calculated and made in sterling. The
amount of any termination payment will be based on the market value of the
terminated swap based on market quotations of the cost of entering into a swap
with the same terms and conditions that would have the effect of preserving the
respective full payment obligations of the parties (or based upon loss in the
event that no market quotation can be obtained). Any such termination payment
could be substantial.
If any termination payment is due by the issuer to a swap provider, then
pursuant to its obligations under the intercompany loan, Funding shall pay to
the issuer the amount required by the issuer to pay the termination payment due
to the relevant swap provider. Any such termination payment will be made by the
issuer to the swap provider only after paying interest amounts due on the
notes, and after providing for any debit balance on the issuer principal
deficiency ledger to the extent that a default was caused by the swap provider.
However, if the issuer causes a default to occur or a swap early termination
event (other than a downgrade termination event (as defined in the relevant
swap agreement)) occurs, in each case that results in a termination payment
becoming due from the issuer to a swap provider, such payment will be made by
the issuer in the same priority as it pays the relevant interest and principal
amounts (as applicable) due on the notes. The issuer shall apply amounts
received from Funding under the intercompany loan in respect of termination
payments in accordance with the issuer pre-enforcement revenue priority of
payments, the pre-enforcement principal priority of payments, the relevant
priority of payments following the occurrence of a trigger event, or, as the
case may be, the issuer post-enforcement priority of payments. The application
by the issuer of termination payments due to a swap provider may affect the
funds available to pay amounts due to the noteholders (see "RISK FACTORS -- YOU
MAY BE SUBJECT TO EXCHANGE RATE RISKS").
If the issuer receives a termination payment from the dollar currency swap
providers and/or the euro currency swap provider, then the issuer shall use
those funds towards meeting its costs in effecting currency exchanges at the
spot rate of exchange until a new dollar currency swap and/or a new euro
currency swap is entered into and/or to acquire a new dollar currency swap and/
or a new euro currency swap. You will not receive extra amounts (over and above
interest and principal payable on the notes) as a result of the issuer
receiving a termination payment.
TAXATION
The issuer is not obliged under any of the swaps to gross up payments made
by it if withholding taxes are imposed on payments made under the swaps.
A swap provider is always obliged to gross up payments made by it to the
issuer if withholding taxes are imposed on payments made under the swaps.
240
If such withholding taxes are imposed due to a change in tax law, a swap
provider may have the right to terminate the relevant swap. In the event that
such swap provider would be obliged to gross up payments made to the issuer
only as a result of the issuer's failure to comply with any obligation to
provide certain tax related documentation, such swap provider will not be
required to gross up.
LIMITED RECOURSE AND SWAP PAYMENT OBLIGATION
On any payment date the issuer will only be obliged to pay an amount to a
swap provider to the extent that the issuer has received from Funding
sufficient funds under the intercompany loan to pay that amount to that swap
provider, subject to and in accordance with the relevant issuer priority of
payments. On any payment date, each of the dollar currency swap providers and
the euro currency swap provider will only be obliged to pay to the issuer an
amount that is proportionate to the amount of the payment that it has received
from the issuer on that payment date.
CASH MANAGEMENT FOR THE MORTGAGES TRUSTEE AND FUNDING
The material terms of the cash management agreement are summarized in this
section. The summary does not purport to be complete and it is subject to the
provisions of the cash management agreement. A form of the cash management
agreement has been filed as an exhibit to the registration statement of which
this prospectus is a part.
Northern Rock has been appointed by the mortgages trustee, Funding and the
security trustee to provide cash management services in relation to the
mortgages trustee and Funding.
CASH MANAGEMENT SERVICES TO BE PROVIDED IN RELATION TO THE MORTGAGES TRUST
The cash manager's duties in relation to the mortgages trust include, but
are not limited to:
(A) determining the current shares and share percentages of Funding
and the seller in the trust property (including the relevant
weighted average Funding share percentage and the relevant
weighted average seller share percentage, as applicable) in
accordance with the terms of the mortgages trust deed;
(B) maintaining the following ledgers on behalf of the mortgages
trustee:
* the Funding share/seller share ledger, which will record
the current shares of the seller and Funding in the trust
property;
* the losses ledger, which will record losses on the mortgage
loans;
* the principal ledger, which will record principal receipts
on the mortgage loans received by the mortgages trustee,
payments of principal from the mortgages trustee GIC
account to Funding and the seller and any mortgages trustee
retained principal receipts;
* the revenue ledger, which will record revenue receipts on
the mortgage loans received by the mortgages trustee and
payments of revenue receipts from the mortgages trustee GIC
account to Funding and the seller;
* the overpayments ledger, which will record each revenue
receipt and/ or principal receipt paid by a borrower in
excess of the amount required under the terms of the
relevant mortgage loan (and in the case of any non-flexible
mortgage loan by an amount equal to or less than
[GBP]199.99), and which will be sub- divided into
subledgers to record overpayments made on non- flexible
mortgage loans and flexible mortgage loans;
* the non-flexible underpayments ledger, which will record
underpayments on non-flexible mortgage loans;
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* the re-draws ledger, which will record re-draws on the
flexible mortgage loans and which will be sub-divided into
subledgers to record cash re-draws and non-cash re-draws;
* the contributions ledger, which will record the making by
Funding and the seller of contributions to the mortgages
trust and the application of such contributions in
accordance with the terms of the mortgages trust deed; and
* the further draw ledger which will record further draws on
personal secured loans.
(C) distributing the mortgages trustee available revenue receipts and
the mortgages trustee available principal receipts to Funding and
the seller in accordance with the terms of the mortgages trust
deed;
(D) providing the mortgages trustee, Funding, the security trustee and
the rating agencies with a quarterly report in relation to the
trust property; and
(E) providing the mortgages trustee and Funding with quarterly
management accounts.
CASH MANAGEMENT SERVICES TO BE PROVIDED TO FUNDING
The cash manager's duties in relation to Funding include, but are not
limited to:
(A) determining no later than the distribution date immediately
preceding the relevant payment date:
* the amount of Funding available revenue receipts to be
applied to pay interest and fees in relation to the
intercompany loan and any other intercompany loan on that
relevant payment date; and
* the amount of Funding available principal receipts to be
applied to repay the intercompany loan and any other
intercompany loan on that relevant payment date;
(B) maintaining the following ledgers on behalf of Funding:
* any issuer reserve ledger(s), which will record the amount
credited to the issuer reserve fund of the issuer and of
any other issuer from time to time, and subsequent
withdrawals and deposits in respect of such issuer reserve
fund(s);
* any issuer liquidity reserve fund ledger(s), which will
record the amount credited to the issuer liquidity reserve
fund from time to time of the issuer and any other issuer,
and subsequent withdrawals and deposits in respect of such
issuer liquidity reserve fund(s);
* the Funding principal ledger, which will record the amount
of principal receipts received by Funding on each
distribution date;
* the Funding revenue ledger, which will record all other
amounts received by Funding on each distribution date;
* the Funding reserve ledger, which will record the amount
credited to the Funding reserve fund from time to time, and
subsequent withdrawals and deposits in respect of the
Funding reserve fund; and
* the intercompany loan ledger(s), which will record payments
of interest and repayments of principal made under the
intercompany loan and any other intercompany loan;
(C) investing sums standing to the credit of the Funding GIC account,
the Funding (Issuer) GIC accounts, or any other Funding bank
account in short-term authorized investments (as defined in the
glossary) on behalf of Funding or the security trustee (as the
case may be);
(D) making withdrawals from the Funding reserve account as and when
required;
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(E) making withdrawals from the issuer reserve fund(s), if required;
(F) making any required withdrawals under the issuer liquidity reserve
fund(s), if any;
(G) applying the Funding available revenue receipts and Funding
available principal receipts in accordance with the relevant order
of priority of payments for Funding contained in the Funding deed
of charge;
(H) providing Funding, each issuer, the security trustee and the
rating agencies with a quarterly report in relation to Funding;
(I) making all returns and filings in relation to Funding and the
mortgages trustee and providing or procuring the provision of
company secretarial and administration services to them; and
(J) maintaining the Funding principal deficiency ledger.
For the definitions of Funding available revenue receipts, Funding available
principal receipts and the Funding pre-enforcement priorities of payments, see
"CASHFLOWS".
COMPENSATION OF CASH MANAGER
The cash manager is paid an annual fee of [GBP]100,000 for its services
which is paid in four equal installments quarterly in arrears on each payment
date. The fee is inclusive of VAT. The fee is subject to adjustment if the
applicable rate of VAT changes.
In addition, the cash manager is entitled to be indemnified for any expenses
or other amounts properly incurred by it in carrying out its duties. The cash
manager is paid by the mortgages trustee and Funding proportionately in
accordance with and subject to the terms of the mortgages trust deed and the
relevant Funding priority of payments, prior to amounts due to any issuer under
any intercompany loan.
RESIGNATION OF CASH MANAGER
The cash manager may resign only on giving 12 months notice to the security
trustee, Funding and the mortgages trustee and provided the security trustee,
Funding and the mortgages trustee each consent in writing to the cash manager's
resignation and provided that:
* a substitute cash manager has been appointed and a new cash
management agreement is entered into on terms satisfactory to the
security trustee, the mortgages trustee and Funding; and
* the then current ratings of each issuer's notes would not be
adversely affected as a result of that replacement.
TERMINATION OF APPOINTMENT OF CASH MANAGER
The security trustee may, upon written notice to the cash manager, terminate
the cash manager's rights and obligations immediately if any of the following
events occurs:
* the cash manager defaults in the payment of any amount due and
fails to remedy such default for a period of 5 London business
days after the earlier of becoming aware of the default and
receiving a written notice from the security trustee;
* the cash manager fails to comply with any of its other obligations
under the cash management agreement which in the opinion of the
security trustee, acting at the direction of the note trustee, is
materially prejudicial to the noteholders and does not remedy that
failure within 20 days after the earlier of becoming aware of the
failure and receiving written notice from the security trustee; or
* the cash manager suffers an insolvency event.
Upon termination of the appointment of the cash manager, the security
trustee has agreed to use its reasonable endeavors to appoint a substitute cash
manager. Any such substitute cash manager will be required to enter into an
agreement on substantially the
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same terms as the provisions of the cash management agreement and any
termination is conditional upon the rating agencies having previously confirmed
in writing to each issuer and the security trustee that the then current
ratings of each issuer's notes will not be downgraded, withdrawn or qualified.
If the appointment of the cash manager is terminated or it resigns, the cash
manager must deliver its books of account relating to the mortgage loans to or
at the direction of the mortgages trustee, Funding or the security trustee, as
the case may be. The cash management agreement will terminate automatically
when Funding has no further interest in the trust property and the intercompany
loan and all other intercompany loans have been repaid or otherwise discharged.
GOVERNING LAW
The cash management agreement is governed by English law.
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CASH MANAGEMENT FOR THE ISSUER
The material terms of the issuer cash management agreement are summarized in
this section. The summary does not purport to be complete and it is subject to
the terms of the issuer cash management agreement. A form of the issuer cash
management agreement has been filed as an exhibit to the registration statement
of which this prospectus is a part.
On the closing date, the issuer and the note trustee will appoint Northern
Rock to provide cash management services to the issuer.
CASH MANAGEMENT SERVICES TO BE PROVIDED TO THE ISSUER
The issuer cash manager's duties will include, but are not limited to:
(A) determining no later than the distribution date immediately
preceding the relevant payment date:
* the issuer available revenue receipts to be applied to pay
interest on the notes on that relevant payment date to the
applicable swap provider or to the noteholders, as
applicable, and to pay amounts due to other creditors of
the issuer;
* the issuer available principal receipts to be applied to
repay principal of the notes on that relevant payment date;
and
* such other amounts as are expressed to be calculations and
determinations made by the issuer cash manager under the
conditions of the notes;
(B) applying issuer available revenue receipts and issuer available
principal receipts in accordance with the relevant order of
priority of payments for the issuer set out in the issuer cash
management agreement;
(C) maintaining the issuer principal deficiency ledger, which will
record principal deficiencies arising from losses on the mortgage
loans which have been allocated to the intercompany loan of the
issuer, the use of issuer available principal receipts to meet any
deficiency in issuer available revenue receipts and the use of
Funding available principal receipts to fund the issuer liquidity
reserve fund, if any;
(D) providing the issuer, Funding, the note trustee and the rating
agencies with quarterly reports in relation to the issuer;
(E) making all returns and filings required of the issuer and
procuring the provision of company secretarial and administration
services to the issuer;
(F) arranging payment of all fees to the London Stock Exchange plc or,
as applicable, the Financial Services Authority; and
(G) performing, if necessary, all currency and interest rate
conversions free of charge, cost or expense at the relevant
exchange rate, whether it be a conversion from sterling to dollars
or vice versa, sterling to euro or vice versa, or floating rates
of interest to fixed rates of interest or vice versa.
ISSUER'S BANK ACCOUNT
On the closing date, the issuer will maintain a bank account with the issuer
account bank (the "ISSUER TRANSACTION ACCOUNT"). The issuer may, with the prior
written consent of the note trustee, open additional or replacement bank
accounts.
If the short-term, unguaranteed and unsubordinated ratings of the issuer
account bank cease to be rated "A-1+" by Standard & Poor's, "P-1" by Moody's or
"F1+" by Fitch, then the issuer transaction account will be closed and a new
issuer transaction account opened with a bank that has the requisite ratings.
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COMPENSATION OF ISSUER CASH MANAGER
The issuer cash manager will be paid for its services an annual fee of
[GBP]117,500 which will be paid in four equal installments quarterly in arrears
on each payment date. The fee is inclusive of VAT. The fees will be subject to
adjustment if the applicable rate of VAT changes.
In addition, the issuer cash manager will be entitled to reimbursement for
any expenses or other amounts properly incurred by it in carrying out its
duties. The issuer cash manager will be paid by the issuer prior to amounts due
on the notes.
RESIGNATION OF ISSUER CASH MANAGER
The issuer cash manager may resign only on giving 12 months notice to the
note trustee and the issuer provided that we and the note trustee consent in
writing to the issuer cash manager's resignation and provided that:
* a substitute issuer cash manager has been appointed and a new
issuer cash management agreement is entered into on terms
satisfactory to the note trustee and the issuer; and
* that replacement would not adversely affect the then current
ratings of the notes.
TERMINATION OF APPOINTMENT OF ISSUER CASH MANAGER
The issuer or the note trustee may, upon written notice to the issuer cash
manager, terminate the issuer cash manager's rights and obligations immediately
if any of the following events occurs:
* the issuer cash manager defaults in the payment of any amount due
and fails to remedy such default for a period of 5 London business
days after the earlier of becoming aware of the default and
receiving written notice from us or the note trustee;
* the issuer cash manager fails to comply with any of its other
obligations under the issuer cash management agreement which in
the opinion of the note trustee is materially prejudicial to the
noteholders and does not remedy that failure within 20 days after
the earlier of becoming aware of the failure and receiving a
notice from the note trustee; or
* the issuer cash manager suffers an insolvency event.
Upon termination of the appointment of the issuer cash manager, the note
trustee will agree to use its reasonable endeavors to appoint a substitute
issuer cash manager. Any such substitute issuer cash manager will be required
to enter into an agreement on substantially the same terms as the provisions of
the issuer cash management agreement and any termination is conditional upon
the rating agencies having previously confirmed in writing to the issuer and
the note trustee that the then current ratings of the issuer's notes will not
be downgraded, withdrawn or qualified.
If the appointment of the issuer cash manager is terminated or the issuer
cash manager resigns, the issuer cash manager must deliver its books of account
relating to the notes to or at the direction of the note trustee. The issuer
cash management agreement will terminate automatically when the notes have been
fully redeemed.
GOVERNING LAW
The issuer cash management agreement will be governed by English law.
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SECURITY FOR FUNDING'S OBLIGATIONS
To provide security for its obligations under the previous intercompany loan
agreements and the other transaction documents relating to the previous
issuers, Funding has entered into the Funding deed of charge with the Funding
secured creditors. The issuer, Funding and the other Funding secured creditors
will enter into the Funding deed of charge to enable the issuer to share in the
Funding security with the existing Funding secured creditors with respect to
Funding's obligations to the issuer under the intercompany loan agreement and
the other transaction documents. If Funding enters into new intercompany loan
agreements with new issuers, then each new issuer (and any new start-up loan
provider (if any)) will enter into one or more deeds of accession or a
supplemental deed in relation to the Funding deed of charge and share in the
Funding security with the existing Funding secured creditors with respect to
Funding's obligations to any such new issuer under any new intercompany loan
agreement and related transaction documents. A summary of the material terms of
the Funding deed of charge is set out below. The summary does not purport to be
complete and is subject to the provisions of the Funding deed of charge. This
prospectus forms part of the registration statement and a form of the Funding
deed of charge has been filed as an exhibit to that registration statement.
COVENANT TO PAY
Funding has covenanted in favor of the security trustee for the benefit of
the Funding secured creditors (including the security trustee) that Funding
will pay all amounts due to each of the Funding secured creditors as they
become due and payable (subject to the limited recourse provisions of the
intercompany loan and of the other transaction documents) and that Funding will
comply with its other obligations under the transaction documents.
FUNDING SECURITY
Subject as provided in the following paragraph, Funding has granted the
following security to be held by the security trustee for itself and on trust
for the benefit of the Funding secured creditors:
* a first fixed charge over the Funding share of the trust property,
save to the extent that any of the trust property is situated in
Jersey. Funding's share of the trust property that is situated in
Jersey will be assigned to the security trustee for the purpose of
creating a security interest in accordance with Jersey law;
* an assignment by way of first fixed security of all of Funding's
right, title, interest and benefit in the transaction documents
(including for the avoidance of doubt rights against the mortgages
trustee under the mortgages trust deed, but excluding all of
Funding's right, title, interest and benefit in the Funding deed
of charge) to which Funding is a party from time to time, save to
the extent that such right, title, interest and benefit are
situated in Jersey. To the extent that the same are situated in
Jersey, Funding will assign such right, title, interest and
benefit to the security trustee for the purpose of creating a
security interest in those rights, title, interest and benefit in
accordance with Jersey law;
* an assignment by way of first fixed security over Funding's right,
title, interest and benefit in the Funding GIC account, the
Funding transaction account, and each other account (if any) of
Funding (other than the Funding (Issuer) GIC accounts, and any
other account established to hold the issuer reserve fund of any
new issuer), all amounts standing to the credit of those accounts
(including all interest accrued on such amounts);
* a first fixed charge (which may take effect as a floating charge)
of Funding's right, title, interest and benefit in all authorized
investments purchased from the Funding GIC account, the Funding
transaction account and each other account (if
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any) of Funding (other than the Funding (Issuer) GIC accounts, and
any other account established to hold the issuer reserve fund and
issuer liquidity reserve fund (if any) of any new issuer) and all
income on such investments; and
* a first floating charge over all the assets and the undertaking of
Funding which are not otherwise effectively subject to a fixed
charge or assignment by way of security as described in the
preceding paragraphs or as described in the following paragraph
(and also extending over all assets and undertaking of Funding
situated in or governed by the law of Scotland whether or not
effectively charged or assigned by way of security as aforesaid).
Security which is expressed to be fixed in nature may take effect as
floating security depending on the degree of control which the secured party is
given over the relevant assets and the degree to which the secured party
actually exercises such control.
Funding has granted a security interest to be held by the security trustee
on trust for the benefit of the relevant previous issuer over Funding's right,
title, interest and benefit in the Funding (Issuer) GIC account for that
issuer. In addition, Funding will grant a security interest to be held by the
security trustee on trust for the benefit of the issuer (and will grant a
separate security interest to be held by the security trustee on trust for the
benefit of each new issuer) over Funding's right, title, interest and benefit
in the Funding (Granite 04-3) GIC account established for the issuer (or, in
the case of any new issuer, in the relevant Funding bank account established to
hold any issuer reserve fund and issuer liquidity reserve fund (if any) of that
new issuer), and all amounts standing to the credit of such account or accounts
(including all interest accrued on such amounts).
In addition pursuant to the second priority Funding deed of charge Funding
granted, on January 28, 2004, second ranking fixed and floating security over
all of its assets in favor of the security trustee, to secure the same
obligations as under the Funding deed of charge. Such second priority Funding
deed of charge is principally governed by English law but contains certain
Scots law provisions. It is enforceable in the same circumstances as the
Funding deed of charge and proceeds of enforcement thereof are applied in the
same order as those following enforcement of the Funding deed of charge.
NATURE OF SECURITY -- FIXED CHARGE OR FLOATING 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 will
not be 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.
Unlike fixed charges, a floating charge does not attach to specific assets
but "FLOATS" over a class of assets which may change from time to time. Funding
is able to deal with assets which are subject to a floating charge only and to
give third parties title to those assets free from the floating charge in the
event of sale, discharge or modification, provided that such dealings and
transfers of title are in the ordinary course of Funding's business. Assets
which are acquired by Funding after the closing date (including assets acquired
upon the disposition of any other asset) and which are not subject to any fixed
charge mentioned in the section above will be subject to the floating charge
created by the Funding deed of charge.
The Funding deed of charge was created prior to September 15, 2003, and
therefore the prohibition in Section 72A of the Insolvency Act 1986 on the
appointment of an administrative receiver under 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 may allow the security trustee to
appoint a receiver of Funding. Whether such a receiver would be deemed to be an
administrative receiver under the United Kingdom insolvency legislation is
unclear as Funding is incorporated in Jersey. However, as the receiver will be
given wide powers in the Funding
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deed of charge, the main advantage of the receiver being an administrative
receiver is that a person entitled to appoint an administrative receiver can
prevent the appointment of an administrator, ensuring that in the event of
enforcement proceedings commenced in respect of amounts due and owing by
Funding, the security trustee will be able to control those proceedings in the
best interest of the Funding secured creditors. If an administrator of Funding
were appointed this would prevent the appointment of a receiver and freeze the
enforcement of rights and remedies without the consent of the administrator or
leave of the court. The interest of the Funding secured creditors in property
and assets over which there is a floating charge only will rank behind the
claims of certain preferential creditors on enforcement of the Funding security
- -- for example, any amounts due to the UK tax authorities. This means that
amounts due to preferential creditors will be paid ahead of amounts due to the
issuer under the intercompany loan agreement.
The floating charge created by the Funding deed of charge may "CRYSTALLIZE"
and become a fixed charge over the relevant class of assets owned by Funding at
the time of crystallization. Crystallization 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
following an intercompany loan event of default. A crystallized floating charge
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 AND POST-ENFORCEMENT PRIORITY OF PAYMENTS
The Funding deed of charge also sets out the order of priority, as at the
closing date, for the application by the cash manager, prior to the service of
an intercompany loan enforcement notice, of amounts standing to the credit of
the Funding transaction account on each payment date. This order of priority is
described under "CASHFLOWS -- DISTRIBUTION OF FUNDING AVAILABLE REVENUE
RECEIPTS" and "CASHFLOWS -- DISTRIBUTION OF FUNDING AVAILABLE PRINCIPAL
RECEIPTS PRIOR TO ENFORCEMENT OF THE FUNDING SECURITY".
The Funding deed of charge sets out the order of priority, as at the closing
date, for the application by the security trustee (or the cash manager on
behalf of 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 under
"CASHFLOWS -- DISTRIBUTION OF MONIES FOLLOWING ENFORCEMENT OF THE FUNDING
SECURITY".
As new issuers are established to issue new notes and accordingly to make
new advances to Funding, those new issuers (together with the new start-up loan
providers (if any)) will enter into deeds of accession or supplemental deeds in
relation to the Funding deed of charge which may, depending on the type of
notes to be issued, require amendments to any of the Funding pre-enforcement
revenue priority of payments, the Funding pre-enforcement principal priority of
payments, and the Funding post-enforcement priority of payments.
ENFORCEMENT
The Funding deed of charge sets out the circumstances upon which and the
procedures by which the security trustee may take steps to enforce the Funding
security.
The Funding security will become enforceable upon the service on Funding by
the security trustee of an intercompany loan enforcement notice (see "THE
INTERCOMPANY LOAN AGREEMENT -- INTERCOMPANY LOAN EVENTS OF DEFAULT") provided
that, if the Funding security has become enforceable otherwise than by reason
of a default in payment of any amount due in respect of any intercompany loan
which would be utilized to fund the payment of any class A notes of any issuer
under any intercompany loan, the security trustee will not be entitled to
dispose of all or part of the assets comprised in the Funding security unless
either:
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* a sufficient amount would be realized to allow a full and
immediate discharge of such amount under each intercompany loan as
would be sufficient to fund the payment in full of all amounts
owing in respect of the class A notes of any issuer series and all
prior ranking amounts due by Funding; or
* the security trustee is of the opinion (which shall be binding on
the Funding secured creditors), reached after considering the
advice of any financial or professional advisers selected by the
security trustee (and if the security trustee is unable to obtain
such advice having made reasonable efforts to do this, this
proviso shall not apply), that the cash flow expected to be
received by Funding will not, or that there is a significant risk
that it will not, be sufficient (as certified to it by Funding),
having regard to any other relevant actual, contingent or
prospective liabilities of Funding, to discharge in full over time
such amount under each intercompany loan as would be sufficient to
fund the payment in full of all amounts owing in respect of the
class A notes of each issuer and all prior ranking amounts due by
Funding; and
* the security trustee shall not be bound to make the determination
set out above unless it shall have been indemnified and/or secured
to its satisfaction against all liabilities to which it may
thereby become liable or which it may incur by so doing.
In respect of property which is secured in accordance with Jersey law, the
security will not be enforceable until the security trustee serves a Jersey
enforcement notice on Funding. Enforcement must take place in accordance with
Jersey security law, which provides that the Jersey enforcement notice must
specify the event of default and, if the event of default is remediable,
require the assignor to remedy the default within 14 days of receiving the
notice. Thereafter enforcement may take place, and in order to enforce the
Jersey security interest, the security trustee is required to take all
reasonable steps to ensure that the property secured by Funding is sold within
a reasonable time and for a price corresponding to the value on the open market
at the time that the collateral is sold.
CONFLICTS
The Funding deed of charge provides that, when exercising its discretion
and/or when exercising the rights, benefits, powers, trusts, authorities,
directions and obligations expressed to be granted by the Funding deed of
charge, the security trustee shall act only at the request or direction of the
note trustee. The authority of the note trustee to direct the security trustee
to act derives from the issuer's (and each other issuer's) assignment to the
note trustee of its rights under the relevant intercompany loan made by such
issuer to Funding. If notes are outstanding that have been issued by the issuer
and one or more other issuers, and resolutions of holders of such notes result
in conflicting directions being given to the note trustee (and, ultimately,
from the note trustee to the security trustee), the note trustee shall have
regard only to the directions of the noteholders of the issuer or other issuers
that has or have the highest ranking class of notes outstanding at such time
(meaning the class A notes for so long as there are any class A notes
outstanding and thereafter the class B notes so long as there are no class A
notes outstanding and thereafter the class M notes so long as there are neither
class A notes nor class B notes outstanding and thereafter the class C notes so
long as there are no class A notes, class B notes or class M notes outstanding
and thereafter special repayment notes so long as there are no class A notes,
class B notes, class M notes or class C notes outstanding). However, if more
than one issuer has notes outstanding that are the highest ranking notes
outstanding among all issuers, the note trustee shall instead have regard to
the resolutions of the holders of notes of that issuer that has the greatest
aggregate principal amount of notes of the highest rank outstanding at such
time. In all cases, the note trustee and the security trustee will only be
obligated to act if they are indemnified to their satisfaction.
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DELEGATION BY THE SECURITY TRUSTEE TO AN AUTHORIZED THIRD PARTY
Subject as provided further in the transaction documents, the security
trustee shall be entitled to delegate certain of its functions and rights under
the transaction documents pursuant to the administration agreement to one or
more authorized third parties whom the rating agencies have previously
confirmed in writing to the security trustee and the issuer will not result in
the ratings on the notes being downgraded, qualified or withdrawn. The security
trustee shall be obliged to use reasonable endeavors to procure the appointment
of an authorized third party and in the event of any such appointment shall not
be required to monitor or supervise the third party's performance and shall not
be responsible for any act or omission of such third party or for any loss
caused thereby.
NO ENFORCEMENT BY FUNDING SECURED CREDITORS
Each of the Funding secured creditors (other than the security trustee and
any receiver) has agreed under the Funding deed of charge that only the
security trustee may enforce the security created by the Funding deed of
charge.
MODIFICATION AND WAIVER, FEES, RETIREMENT AND RESPONSIBILITIES OF THE SECURITY
TRUSTEE
MODIFICATION AND WAIVER
Without the consent of any of the Funding secured creditors, the security
trustee (at the direction of the note trustee) may:
* agree to modifications to the transaction documents provided that
the security trustee is of the opinion that any such modification
would not materially harm the interests of the noteholders or that
such modification is of a formal, minor or technical nature or is
required by the rating agencies in respect of any new issuer or
new start-up loan provider or other person which accedes to the
Funding deed of charge. Any such modification will be binding on
the Funding secured creditors; and
* authorize or waive a proposed or actual breach of any provisions
of the transaction documents provided that the security trustee is
of the opinion that such breach would not materially harm the
interests of the noteholders. Any such authorization or waiver
will be binding on the Funding secured creditors.
FEES, EXPENSES AND INDEMNITY
Funding shall reimburse the security trustee for all its costs and expenses
properly incurred in acting as security trustee (including but not limited to
the cost of using its reasonable endeavors to appoint and maintain an
authorized third party). In addition, Funding shall pay to the security trustee
a fee of such amount and on such dates as will be agreed from time to time by
the security trustee and Funding. Funding shall indemnify the security trustee
from and against all proceedings, claims, demands, losses, costs, charges,
expenses and liabilities incurred by it or to which it may become liable in
connection with the exercise of its trusts, powers, authorities and
discretions, or otherwise in respect of any matter done or not done relating to
the transaction documents, except where the same is caused by the fraud, gross
negligence, willful default 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. If
within 60 days of having given notice of its intention to retire, Funding has
failed to appoint a replacement security trustee, the outgoing security trustee
will be entitled to appoint its successor (provided that such successor is
acceptable to the rating agencies and agrees to be bound by the terms of the
Funding deed of charge). Funding may remove the security trustee or appoint a
new security trustee at any time provided that it has the approval, which must
not be
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unreasonably withheld or delayed, of each of the Funding secured creditors. 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 limiting the scope
of the security trustee's duties and liabilities. These provisions include,
among others, that the security trustee:
* may rely on 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
and on the advice of any lawyer, banker, accountant or other
expert;
* is not responsible for the legality, admissibility in evidence,
adequacy or enforceability of the Funding deed of charge or any
other transaction document;
* may rely on documents believed by it to be genuine provided by any
of the mortgages trustee, Funding or the cash manager and on the
advice of any lawyer, banker, accountant or other expert;
* may assume that no intercompany loan event of default has occurred
unless it 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;
* is not required to monitor or supervise the functions of the
account bank or of any other person under any transaction
document;
* has the power to determine all questions arising in relation to
the Funding deed of charge or other transaction document and every
determination made shall bind all of the Funding secured
creditors;
* each Funding secured creditor must make its own independent
appraisal, without reliance on the security trustee, as to the
financial condition and affairs of Funding;
* the security trustee will not be liable for any loss, cost, damage
or expense which may be caused by anything done or not done by it
under the Funding deed of charge or any other transaction document
unless caused by the security trustee's fraud, negligence, willful
default or breach of the terms of the Funding deed of charge;
* the security trustee may accept such title as Funding has to the
Funding charged property and will not be required to investigate
or make inquiry into Funding's titles to such property; and
* the security trustee will not be responsible for any shortfall
which may arise because it is liable to tax in respect of the
Funding charged property or the proceeds of such property.
The security trustee makes no statement or representation in this
prospectus, has not authorized 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 notes or the payment of principal or interest on the
notes.
GOVERNING LAW
The Funding deed of charge is governed by English law, except for the
provisions which relate to security interests created in property situated in
Jersey, which are governed by Jersey law and any terms of the second priority
Funding deed of charge which are particular to the law of Scotland, which are
governed by and construed in accordance with Scots law.
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SECURITY FOR THE ISSUER'S OBLIGATIONS
To provide security for its obligations under the notes and the other
transaction documents, the issuer will enter into the issuer deed of charge
with the issuer secured creditors. A summary of the material terms of the
issuer deed of charge is set out below. The summary does not purport to be
complete and is subject to the provisions of the issuer deed of charge. This
prospectus is a part of the registration statement, and a form of the issuer
deed of charge has been filed as an exhibit to that registration statement.
COVENANT TO PAY
The issuer will covenant in favor of the note trustee for the benefit of the
issuer secured creditors (including the note trustee) that the issuer will pay
all amounts due to each of the issuer secured creditors as they become due and
payable and that the issuer will comply with its other obligations under the
transaction documents.
ISSUER SECURITY
The issuer will grant the following security to be held by the note trustee
for itself and on trust for the benefit of the issuer secured creditors (which
definition includes the noteholders):
* an assignment by way of first fixed security of the issuer's
rights and claims in respect of all security and other rights held
on trust by the security trustee pursuant to the Funding deed of
charge, save to the extent that any of those issuer's rights and
claims derive from property that is situated in Jersey, which will
be assigned to the note trustee for the purpose of creating a
security interest in accordance with Jersey law;
* an assignment by way of first fixed security of the issuer's
right, title, interest and benefit in the transaction documents to
which it is a party, including the intercompany loan agreement,
the Funding deed of charge, any swap agreement, the paying agent
and agent bank agreement, the subscription agreement, the
underwriting agreement, the corporate services agreement, the
issuer bank account agreement, the issuer cash management
agreement, the trust deed, save to the extent that such right,
title, interest and benefit derive from property that is situated
in Jersey. To the extent that the same are derived from property
situated in Jersey, the issuer will assign such right, title,
interest and benefit to the note trustee for the purpose of
creating a security interest in those rights, title, interest and
benefit in accordance with Jersey law;
* an assignment by way of first fixed security over the issuer's
right, title, interest and benefit in the issuer transaction
accounts, any swap collateral account and each other account (if
any) of the issuer, and all amounts or securities standing to the
credit of those accounts (including all interest or other income
or distributions earned on such amounts or securities);
* a first fixed charge (which may take effect as a floating charge)
of the issuer's right, title, interest and benefit in all
authorized investments made by or on behalf of the issuer,
including all monies and income payable under those investments;
and
* a first floating charge over all the assets and undertaking of the
issuer which are not otherwise effectively subject to a fixed
charge or assignment by way of security as described in the
preceding paragraphs.
NATURE OF SECURITY -- FIXED CHARGE OR FLOATING CHARGE
For a description of the nature and certain consequences of taking fixed
charges and floating charges see "SECURITY FOR FUNDING'S OBLIGATIONS -- FUNDING
SECURITY -- NATURE OF SECURITY -- FIXED CHARGE OR FLOATING CHARGE". However,
unlike Funding, the issuer is incorporated in England and an English court may,
in certain circumstances, appoint an
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administrator of the issuer. However, the existence of the floating charge will
allow the note trustee to appoint an administrative receiver of the issuer and
thereby prevent the appointment of an administrator. We expect that an
appointment of an administrative receiver by the note trustee under the issuer
deed of charge will not be prohibited by Section 72A of the Insolvency Act 1986
as the appointment will fall within the exception set out under Section 72B of
the Insolvency Act 1986 (First Exception: Capital Market).
ISSUER PRE-ENFORCEMENT AND POST-ENFORCEMENT PRIORITY OF PAYMENTS
The issuer cash management agreement sets out the order of priority for the
application of cash by the issuer cash manager prior to the service of a note
enforcement notice. This payment order of priority is described under
"CASHFLOWS".
The issuer deed of charge will also set out the order of priority for the
application by the note trustee (or the issuer cash manager on its behalf),
following service of a note enforcement notice, of amounts received or
recovered by the note trustee or a receiver appointed on its behalf. This order
of priority is described under "CASHFLOWS".
ENFORCEMENT
The issuer deed of charge will set out the circumstances in which and the
procedures by which the note trustee may take steps to enforce the issuer
security.
The issuer security will become enforceable upon either (1) the enforcement
of the Funding security or (2) the occurrence of a note event of default which
is not waived by the note trustee. However, as the note trustee will not be
entitled to assign to a third party its or the issuer's rights under the
intercompany loan agreement following the service of a note enforcement notice,
the most likely consequence of the issuer security becoming enforceable will be
that monies received by the note trustee from Funding will be applied in
accordance with the issuer post-enforcement priority of payments.
In respect of property which is secured in accordance with Jersey law, the
security will not be enforceable until the note trustee serves a Jersey
enforcement notice on the issuer. Enforcement must take place in accordance
with Jersey security law, which provides that the Jersey enforcement notice
must specify the event of default and, if the event of default is remediable,
require the assignor to remedy the default within 14 days of receiving the
notice.
CONFLICTS
The issuer deed of charge will contain provisions which require the note
trustee to consider the interests of the noteholders as to the exercise of its
powers, trusts, authorities, duties and discretions. In the event of a conflict
between the interests of the noteholders and the interests of any other issuer
secured creditor, the note trustee is required to consider only, unless stated
otherwise, the interests of the noteholders. If, in the sole opinion of the
note trustee, there may be a conflict as among noteholders, the note trustee
will have regard to the interests of the class of noteholders with the highest-
ranking notes only. 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 then a resolution directing the note trustee to take any action must be
passed at a single meeting comprising the holders of each series of the class A
notes or, as applicable, each series of the class B notes, each series of the
class M notes or each series of the class C notes subject to the conflict. In
all cases, the note trustee will only be obliged to act if it is indemnified to
its satisfaction. For more information on how the note trustee will resolve
conflicts between noteholders, see "DESCRIPTION OF THE OFFERED NOTES -- 11.
MEETINGS OF NOTEHOLDERS, MODIFICATIONS AND WAIVER".
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NO ENFORCEMENT BY ISSUER SECURED CREDITORS
Each of the issuer secured creditors (other than the note trustee acting on
behalf of the noteholders) will agree under the issuer deed of charge that only
the note trustee may enforce the security created by the issuer deed of charge
and it will not take steps directly against the issuer to recover amounts owing
to it by the issuer unless the note trustee has become bound to enforce the
issuer security but has failed to do so within 30 days of becoming so bound.
MODIFICATION AND WAIVER, FEES, RETIREMENT AND RESPONSIBILITIES OF THE NOTE
TRUSTEE
MODIFICATION AND WAIVER
Without the consent of any of the issuer secured creditors, the note trustee
may:
* agree to modifications to the transaction documents provided that
the note trustee is of the opinion that such modification will not
materially harm the interests of the noteholders or that such
modification is of a formal, minor or technical nature. A proposed
modification will not materially harm the interest of any
noteholders solely because new issuers accede to the Funding deed
of charge. Any such modification will be binding on the issuer
secured creditors; and
* authorize or waive a proposed or actual breach of any provisions
of the notes or of any other transaction documents provided that
the note trustee is of the opinion that such breach will not
materially harm the interests of the noteholders. Any such
authorization or waiver will be binding on the noteholders and the
other issuer secured creditors.
FEES, EXPENSES AND INDEMNITY
The issuer will reimburse the note trustee for all costs and expenses
properly incurred in acting as note trustee. In addition, the issuer shall pay
to the note trustee a fee of such amount and on such dates as will be agreed
from time to time by the note trustee and the issuer. The issuer shall
indemnify the note trustee from and against all proceedings, claims, demands,
losses, costs, charges, expenses and liabilities incurred by it or to which it
may become liable in connection with the exercise of its trusts, powers,
authorities and discretions, or otherwise in respect of any matter done or not
done relating to the transaction documents, except where the same is caused by
the fraud, gross negligence, willful default or breach of the terms of the
issuer deed of charge by the note trustee or any of its officers or employees.
RETIREMENT AND REMOVAL
Subject to the appointment of a successor note trustee, the note trustee may
retire after giving three months' notice in writing to the issuer. If within 60
days of having given notice of its intention to retire, the issuer has failed
to appoint a replacement note trustee, the outgoing note trustee will be
entitled to appoint a successor (provided that such successor is acceptable to
the rating agencies and agrees to be bound by the terms of the issuer deed of
charge). The issuer may remove the note trustee or appoint a new note trustee
at any time provided that it has the approval, which must not be unreasonably
withheld or delayed, of the issuer secured creditors. In addition, the note
trustee may, subject to the conditions specified in the issuer deed of charge,
appoint a co-trustee to act jointly with it.
ADDITIONAL PROVISIONS OF THE ISSUER DEED OF CHARGE
The issuer deed of charge will contain a range of provisions regulating the
scope of the note trustee's duties and liabilities. These include the
following:
* the note trustee is not responsible for the legality,
admissibility in evidence, adequacy or enforceability of the
issuer deed of charge or any other transaction document;
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* the note trustee may assume that no note event of default has
occurred unless the note trustee has received notice from an
issuer secured creditor stating that a note event of default has
occurred and describing that note event of default;
* the note trustee is not required to monitor or supervise the
functions of the account bank or of any other person under any
transaction document;
* the note trustee has the power to determine all questions arising
in relation to the issuer deed of charge or other transaction
document entered into by the issuer and every determination made
shall bind the note trustee and all of the issuer secured
creditors;
* each issuer secured creditor must make its own independent
appraisal, without reliance on the note trustee, as to the
financial condition and affairs of the issuer;
* the note trustee will not be liable for any loss, cost, damage or
expense which may be caused by anything done or not done by it
under the issuer deed of charge or any other transaction document
unless caused by the note trustee's fraud, gross negligence,
willful default or breach of the terms of the issuer deed of
charge;
* the note trustee may accept such title as the issuer has to the
issuer charged property and will not be required to investigate or
make inquiry into the issuer's title to such property;
* the note trustee will not be responsible for any shortfall which
may arise because it is liable to tax in respect of the issuer
charged property or the proceeds of such property; and
* the note trustee is not required to take steps or action in
connection with the transaction documents (including enforcing the
issuer security) unless (1) it has been directed or instructed to
do so by an extraordinary resolution of a class of noteholders or
in writing by the holders of at least 25% of the aggregate
principal amount of the notes of a class then outstanding or (if
there are no remaining notes outstanding) by any other issuer
secured creditor provided that:
(1) the note trustee will not act at the direction or request
of the class B noteholders unless either to do so would
not, in its opinion, be materially prejudicial to the
interests of the class A noteholders or such action is
sanctioned by an extraordinary resolution of the class A
noteholders;
(2) the note trustee will not act at the direction or request
of the class M noteholders unless either to do so would
not, in its opinion, be materially prejudicial to the
interests of the class A noteholders and/or the class B
noteholders or such action is sanctioned by extraordinary
resolutions of the class A noteholders and/or the class B
noteholders, as the case may be;
(3) the note trustee will not act at the direction or request
of the class C noteholders unless either to do so 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 such 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; and
(4) it has been indemnified to its satisfaction against all
costs, liabilities and claims which it may incur or in
respect of which it may become liable.
The note trustee makes no statement or representation in this prospectus,
has not authorized or caused the issue of any part of it and takes no
responsibility for any part of it. The note trustee does not guarantee the
performance of the notes or the payment of principal or interest on the notes.
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GOVERNING LAW
The issuer deed of charge will be governed by English law, except for the
provisions which relate to security interests created in property situated in
Jersey, which will be governed by Jersey law.
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DESCRIPTION OF THE TRUST DEED
The principal agreement governing the notes will be the trust deed dated on
or about the closing date and made between the issuer and the note trustee. A
summary of the material terms of the trust deed is set out below. The summary
does not purport to be complete and it is subject to the provisions of the
trust deed. A form of the trust deed has been filed as an exhibit to the
registration statement and this prospectus forms part of the registration
statement.
The trust deed sets out the forms of the global note certificates and the
individual note certificates. It also sets out the terms and conditions of the
notes, and the conditions for the issue of individual note certificates and/or
the cancellation of any notes. The paying agent and agent bank agreement
contains detailed provisions regulating the appointments of the paying agents
and other agents.
The trust deed also contains covenants made by the issuer in favor of the
note trustee and the noteholders. The main covenants are that the issuer will
pay interest and repay principal of each of the notes when due. Some of the
covenants also appear in the terms and conditions of the notes (see
"DESCRIPTION OF THE OFFERED NOTES"). The issuer also covenants that it will do
all things necessary to maintain the listing on the official list of the UK
Listing Authority and to maintain trading of the notes on the London Stock
Exchange plc and to keep in place a common depository, paying agents and an
agent bank, and further covenants with the note trustee that it will comply
with and perform and observe all its obligations in the trust deed. The trust
deed provides for delivery to the note trustee of an annual statement signed by
an officer of the issuer to the effect that the issuer has fulfilled its
material obligations under the trust deed throughout the preceding financial
year, except as specified in such statement.
The trust deed provides that the class A noteholders' interests take
precedence for so long as the class A notes are outstanding and thereafter the
interests of class B noteholders take precedence for so long as the class B
notes are outstanding and thereafter the interests of class M noteholders take
precedence for so long as the class M notes are outstanding and thereafter the
interests of the class C noteholders take precedence for so long as the class C
notes are outstanding. Certain basic terms of each class of notes may not be
amended without the consent of the majority of the holders of that class of
note and the consent of the majority of the holders of the other classes of
notes outstanding (see "DESCRIPTION OF THE OFFERED NOTES").
The trust deed sets out the terms under which the note trustee is appointed,
the indemnification of the note trustee, the payment it receives and the extent
of the note trustee's authority to act beyond its statutory powers under
English law. The note trustee is also given the ability to appoint a delegate
or agent in the execution of any of its duties under the trust deed. The trust
deed sets out the circumstances in which the note trustee may resign or retire.
The trust deed includes certain provisions required by the US Trust
Indenture Act of 1939. These provisions include, but are not limited to:
(a) maintenance of a noteholder list by the note trustee;
(b) provision of annual reports and other information by the issuer to
the note trustee;
(c) ability of noteholders to waive certain past defaults of the
issuer;
(d) duty of the note trustee (following a note event of default) to
use the same degree of care in exercising its responsibilities as
would be exercised by a prudent person conducting their own
affairs;
(e) duty of the note trustee to notify all noteholders of any note
event of default of which it has actual knowledge; and
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(f) right of the note trustee to resign at any time by notifying the
issuer in writing, and the ability of the issuer to remove the
note trustee under certain circumstances.
Finally, the trust deed provides that until the notes have been paid in
full, they shall be entitled to the benefit of and be bound by the terms and
conditions of the trust deed. The trust deed will be discharged with respect to
the collateral securing the notes upon the delivery to the note trustee for
cancellation of all the notes or, with certain limitations, upon deposit with
the note trustee of funds sufficient for the payment in full of all the notes.
TRUST INDENTURE ACT PREVAILS
The trust deed contains a stipulation that, if any provision of the trust
deed limits, qualifies or conflicts with another provision which is required to
be included in the trust deed by, and is not subject to a contractual waiver
under, the US Trust Indenture Act of 1939, as amended, the required provision
of that Act shall be deemed to be incorporated into the trust deed and shall
prevail.
GOVERNING LAW
The trust deed will be governed by English law.
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THE NOTES
The issue of the notes will be authorized by a resolution of the board of
directors of the issuer passed prior to the closing date. The notes will be
constituted by a trust deed to be dated the closing date, between the issuer
and the note trustee, as trustee for, among others, the holders for the time
being of the notes. The trust deed includes provisions which enable it to be
modified or supplemented and any reference to the trust deed is a reference
also to the document as modified or supplemented in accordance with its terms.
The material terms of the notes are described in this prospectus. However,
the statements set out in this section with regard to the notes and the global
note certificates representing the notes are subject to the detailed provisions
of the trust deed. The trust deed will include the forms of the global note
certificates and the forms of the individual note certificates. A paying agent
and agent bank agreement between the issuer, the note trustee, Citibank, N.A.
in London as "PRINCIPAL PAYING AGENT", the other paying agents (together with
the principal paying agent, called the "PAYING AGENTS"), the transfer agent,
the registrar and the agent bank, regulates how payments will be made on the
notes and how determinations and notifications will be made. It will be dated
as of the closing date and the parties will include, on an ongoing basis, any
successor party appointed in accordance with its terms.
Each class of each series of notes will be represented initially by a global
note certificate in registered form without interest coupons attached. The
dollar notes will initially be offered and sold pursuant to a registration
statement, of which this prospectus forms a part, filed with the SEC. The euro
notes and the sterling notes, which are not being offered by this prospectus,
will initially be offered and sold outside the United States to non-US persons
pursuant to Regulation S under the Securities Act. The global note certificates
representing the dollar notes offered by this prospectus (the "OFFERED GLOBAL
NOTE CERTIFICATES") will be deposited with Citibank, N.A., as the custodian
for, and registered in the name of Cede & Co., as nominee of The Depository
Trust Company, referred to in this prospectus as "DTC". On confirmation from
the custodian that it holds the offered global note certificates, DTC will
record book-entry interests in the beneficial owner's account or the
participant account through which the beneficial owner holds its interests in
the notes. These book-entry interests will represent the beneficial owner's
beneficial interest in the relevant offered global note certificates.
The amount of notes represented by each global note certificate is evidenced
by the register maintained for that purpose by the registrar. Together, the
notes represented by the global note certificates and any outstanding
individual note certificates will equal the aggregate principal amount of the
notes outstanding at any time. However, except as described under "--
INDIVIDUAL NOTE CERTIFICATES", individual note certificates shall not be
issued.
Beneficial owners may hold their interests in the global note certificates
only through DTC, Clearstream, Luxembourg or Euroclear, as applicable, or
indirectly through organizations that are participants in any of those systems.
Ownership of these beneficial interests in a global note certificate will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC, Clearstream, Luxembourg or Euroclear (with respect
to interests of their participants) and the records of their participants (with
respect to interests of persons other than their participants). By contrast,
ownership of direct interests in a global note certificate will be shown on,
and the transfer of that ownership will be effected through, the register
maintained by the registrar. Because of this holding structure of the notes,
beneficial owners of notes may look only to DTC, Clearstream, Luxembourg or
Euroclear, as applicable, or their respective participants for their beneficial
entitlement to those notes. The issuer expects that DTC, Clearstream,
Luxembourg or Euroclear will take any action permitted to be taken by a
beneficial owner of notes only at the direction of one or more participants to
whose account the interests in
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a global note certificate is credited and only in respect of that portion of
the aggregate principal amount of notes as to which that participant or those
participants has or have given that direction.
Beneficial owners will be entitled to the benefit of, will be bound by and
will be deemed to have notice of, all the provisions of the trust deed and the
paying agent and agent bank agreement. Beneficial owners can see copies of
these agreements at the principal office for the time being of the note
trustee, which is, as of the date of this document, The Bank of New York,
London Branch and at the specified office for the time being of each of the
paying agents. Pursuant to its obligations under the Listing Rules made by the
UK Listing Authority, the issuer will maintain a paying agent in the United
Kingdom until the date on which the notes are finally redeemed.
PAYMENT
Principal and interest payments on the offered notes will be made via the
paying agents to DTC or its nominee, as the registered holder of the offered
global note certificates. DTC's practice is to credit its participants'
accounts on the applicable payment date according to their respective holdings
shown on DTC's records unless DTC has reason to believe that it will not
receive payment on that payment date.
Payments by DTC, Clearstream, Luxembourg and Euroclear participants to the
beneficial owners of notes will be governed by standing instructions, customary
practice, and any statutory or regulatory requirements as may be in effect from
time to time, as is now the case with securities held by the accounts of
customers registered in "STREET NAME". These payments will be the
responsibility of the DTC, Clearstream, Luxembourg or Euroclear participant and
not of DTC, Clearstream, Luxembourg, Euroclear, any paying agent, the note
trustee or the issuer. None of the issuer, the note trustee, any underwriter
nor any paying agent will have any responsibility or liability for any aspect
of the records of DTC, Clearstream, Luxembourg or Euroclear relating to or
payments made by DTC, Clearstream, Luxembourg or Euroclear on account of
beneficial interests in the global note certificates or for maintaining,
supervising or reviewing any records of DTC, Clearstream, Luxembourg or
Euroclear relating to those beneficial interests.
CLEARANCE AND SETTLEMENT
THE CLEARING SYSTEMS
DTC has advised us and the underwriters that it intends to follow the
following procedures:
DTC will act as securities depository for the offered global note
certificates. The offered notes represented by the offered global note
certificates will be issued as securities registered in the name of Cede & Co.
(DTC's nominee).
DTC has advised us that it is a:
* limited-purpose trust company organized under New York Banking
Law;
* "BANKING ORGANIZATION" within the meaning of New York Banking Law;
* member of the Federal Reserve System;
* "CLEARING CORPORATION" within the meaning of the New York Uniform
Commercial Code; and
* "CLEARING AGENCY" registered under the provisions of Section 17A
of the Exchange Act.
DTC holds securities for its participants and facilitates the clearance and
settlement among its participants of securities transactions, including
transfers and pledges, in deposited securities through electronic book-entry
changes in its participants' accounts. This eliminates the need for physical
movement of securities certificates. DTC participants include securities
brokers and dealers, banks, trust companies, clearing corporations and other
organizations. Indirect access to the DTC system is also available to others
including
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securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly. The rules applicable to DTC and its participants are on file with
the SEC.
Transfers between participants on the DTC system will occur under DTC rules.
Transfers between participants on the Clearstream, Luxembourg system and
participants in the Euroclear system will occur under their rules and operating
procedures.
Purchases of notes under the DTC system must be made by or through DTC
participants, which will receive a credit for the notes on DTC's records. The
ownership interest of each actual beneficial owner is in turn to be recorded on
the DTC participants' and indirect participants' records. Beneficial owners
will not receive written confirmation from DTC of their purchase. However,
beneficial owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the DTC participant or indirect participant through which the beneficial
owner entered into the transaction. Transfer of ownership interests in the
offered notes are to be accomplished by entries made on the books of DTC
participants acting on behalf of beneficial owners. Beneficial owners will not
receive certificates representing their ownership interest in notes unless use
of the book-entry system for the notes described in this section is
discontinued.
To facilitate subsequent transfers, all offered global note certificates
deposited with DTC are registered in the name of DTC's nominee, Cede & Co. The
deposit of these offered global note certificates with DTC and their
registration in the name of Cede & Co. effect no change in beneficial
ownership. DTC has no knowledge of the ultimate beneficial owners of the notes.
DTC's records reflect only the identity of the DTC participants to whose
accounts the beneficial interests are credited, which may or may not be the
actual beneficial owners of the notes. The DTC participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC participants,
by DTC participants to indirect participants, and by DTC participants and
indirect participants to beneficial owners will be governed by arrangements
among them and by any statutory or regulatory requirements in effect from time
to time.
Redemption notices for the offered notes represented by the offered global
note certificates will be sent to DTC. If less than all of those notes are
being redeemed by investors, DTC's practice is to determine by lot the amount
of the interest of each participant in those notes to be redeemed.
Neither DTC nor Cede & Co. will consent or vote on behalf of the offered
notes. Under its usual procedures, DTC will mail an omnibus proxy to the issuer
as soon as possible after the record date, which assigns the consenting or
voting rights of Cede & Co. to those DTC participants to whose accounts the
book-entry interests are credited on the record date, identified in a list
attached to the proxy.
The issuer understands that under existing industry practices, when the
issuer requests any action of noteholders or when a beneficial owner desires to
give or take any action which a noteholder is entitled to give or take under
the trust deed, DTC generally will give or take that action, or authorize the
relevant participants to give or take that action, and those participants would
authorize beneficial owners owning through those participants to give or take
that action or would otherwise act upon the instructions of beneficial owners
through them.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the issuer believes to be reliable, but the
issuer takes no responsibility for the accuracy thereof.
Clearstream, Luxembourg and Euroclear each hold securities for their
participating organizations and facilitate the clearance and settlement of
securities transactions between their respective participants through
electronic book-entry changes in accounts of those participants, thereby
eliminating the need for physical movement of securities. Clearstream,
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Luxembourg and Euroclear provide various services including safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream, Luxembourg and Euroclear
also deal with domestic securities markets in several countries through
established depository and custodial relationships.
Clearstream, Luxembourg and Euroclear have established an electronic bridge
between their two systems across which their respective participants may settle
trades with each other. Transactions may be settled in Clearstream, Luxembourg
and Euroclear in any of numerous currencies, including United States dollars
and euro. Clearstream, Luxembourg is incorporated under the laws of Luxembourg
as a professional depository. Clearstream, Luxembourg participants are
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, and clearing corporations.
Indirect access to Clearstream, Luxembourg is also available to others,
including banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Clearstream, Luxembourg participant,
either directly or indirectly.
The Euroclear system was created in 1968 to hold securities for its
participants and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment. The Euroclear system is operated by Euroclear Bank S.A./N.V. (the
"EUROCLEAR OPERATOR"). All operations are conducted by the Euroclear operator.
All Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear operator.
Euroclear participants include banks -- including central banks --
securities brokers and dealers and other professional financial intermediaries.
Indirect access to the Euroclear system is also available to other firms that
maintain a custodial relationship with a Euroclear participant, either directly
or indirectly.
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing use of Euroclear and the
related Operating Procedures of the Euroclear system. These terms and
conditions govern transfers of securities and cash within the Euroclear system,
withdrawal of securities and cash from the Euroclear system, and receipts of
payments for securities in the Euroclear system. All securities in the
Euroclear system are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear operator
acts under these terms and conditions only on behalf of Euroclear participants
and has no record of or relationship with persons holding through Euroclear
participants.
As the holders of book-entry interests, beneficial owners will not have the
right under the trust deed to act on solicitations by the issuer for action by
noteholders. Beneficial owners will only be able to act to the extent they
receive the appropriate proxies to do so from DTC, Clearstream, Luxembourg or
Euroclear or, if applicable, their respective participants. No assurances are
made about these procedures or their adequacy for ensuring timely exercise of
remedies under the trust deed.
No beneficial owner of an interest in a note represented by a global note
certificate will be able to transfer that interest except in accordance with
applicable procedures, in addition to those provided for under the trust deed,
of DTC, Clearstream, Luxembourg and Euroclear, as applicable. The laws of some
jurisdictions require that some purchasers of securities take physical delivery
of those securities in definitive form. These laws and limitations may impair
the ability to transfer beneficial interests in a note represented by a global
note certificate. See "RISK FACTORS -- YOU WILL NOT RECEIVE PHYSICAL NOTES,
WHICH MAY CAUSE DELAYS IN DISTRIBUTIONS AND HAMPER YOUR ABILITY TO PLEDGE OR
RESELL THE NOTES".
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CLEARANCE AND SETTLEMENT
Initial settlement
The offered global note certificates will be delivered on the closing date
to Citibank, N.A., as custodian for DTC. Customary settlement procedures will
be followed for participants of each system on the closing date. Notes will be
credited to investors' securities accounts on the closing date against payment
in same-day funds.
Secondary trading
Secondary market sales of book-entry interests in offered notes between DTC
participants will occur in the ordinary way in accordance with DTC rules and
will be settled using the procedures applicable to conventional United States
corporate debt obligations.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to these
procedures to facilitate transfers of interests in securities among
participants of DTC, Clearstream, Luxembourg and Euroclear, they are not
obligated to perform these procedures. Additionally, these procedures may be
discontinued at any time. None of the issuer, any agent, the underwriters or
any affiliate of any of the foregoing, or any person by whom any of the
foregoing is controlled for the purposes of the Securities Act, will have any
responsibility for the performance by DTC, Clearstream, Luxembourg, Euroclear
or their respective direct or indirect participants or accountholders of their
respective obligations under the rules and procedures governing their
operations or for the sufficiency for any purpose of the arrangements described
in this prospectus.
INDIVIDUAL NOTE CERTIFICATES
Beneficial owners of offered notes will only be entitled to receive
individual note certificates under the following limited circumstances:
* as a result of any amendment to, or change in, the laws or
regulations of the United Kingdom (or any political subdivision
thereof) or of any authority therein or thereof having power to
tax or in the interpretation or administration of such laws or
regulations which becomes effective on or after the closing date,
the issuer or any paying agent is or will be required to make any
deduction or withholding from any payment on the notes that would
not be required if the notes were represented by individual note
certificates; or
* DTC notifies the issuer that it is unwilling or unable to hold the
offered global note certificates or is unwilling or unable to
continue as, or has ceased to be, a clearing agency registered
under the Exchange Act and, in each case, the issuer cannot
appoint a successor within 90 days of such notification.
In no event will individual note certificates in bearer form be issued. Any
individual note certificate will be issued in registered form in minimum
denominations of $100,000 and increments of $1,000 thereafter in the case of
individual note certificates representing the dollar notes. Any individual note
certificates will be registered in that name or those names as the registrar
shall be instructed by DTC, Clearstream, Luxembourg and Euroclear, as
applicable. It is expected that these instructions will be based upon
directions received by DTC, Clearstream, Luxembourg and Euroclear from their
participants reflecting the ownership of book-entry interests. To the extent
permitted by law, the issuer, the note trustee and any paying agent shall be
entitled to treat the person in whose names any individual note certificate is
registered as the absolute owner thereof. The paying agent and agent bank
agreement contains provisions relating to the maintenance by a registrar of a
register reflecting ownership of the notes and other provisions customary for a
registered debt security.
Any person receiving individual note certificates will not be obligated to
pay or otherwise bear the cost of any tax or governmental charge or any cost or
expense relating to insurance, postage, transportation or any similar charge,
which will be solely the responsibility of the issuer. No service charge will
be made for any registration of transfer or exchange of any individual note
certificates.
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DESCRIPTION OF THE OFFERED NOTES
The following is a summary of the material terms and conditions of the
offered notes, numbered 1 to 15. This summary does not need to be read with the
actual terms and conditions of the offered notes in order to learn all the
material terms and conditions of the offered notes. The complete terms and
conditions of the offered notes are set out in the trust deed, a form of which
has been filed as an exhibit to the registration statement, and in the event of
a conflict, the terms and conditions of the notes set out in the trust deed
will prevail.
References in this section to the "OFFERED NOTES" mean the dollar notes
offered by this prospectus. References in this section to the "NOTES" mean
collectively the series 1 notes, the series 2 notes and the series 3 notes.
Furthermore, this section, as elsewhere in this prospectus, provides
information on the euro notes and sterling notes that are not being offered to
the public in the United States by this prospectus. This information is
provided only to enhance your understanding of the offered notes. You should be
aware that, as explained elsewhere in this prospectus, the series 2 notes and
the series 3 notes as a group do not provide credit support for the series 1
notes, the series 3 notes as a group do not provide credit support for the
series 2 notes or the series 1 notes and the series 2 notes as a group do not
provide credit support for the series 3 notes.
The notes are the subject of the following documents:
* a trust deed dated the closing date between the issuer and the
note trustee;
* a paying agent and agent bank agreement dated the closing date
between the issuer, the principal paying agent, the agent bank,
the other paying agents, the transfer agent, the registrar and the
note trustee;
* an issuer deed of charge dated the closing date between the
issuer, the note trustee, the swap providers and certain other
parties;
* the dollar currency swap agreements dated the closing date between
the issuer, the dollar currency swap providers and the note
trustee;
* the euro currency swap agreements dated the closing date between
the issuer, the euro currency swap provider and the note trustee;
* the interest rate swap agreement dated the closing date between
the issuer, the interest rate swap provider and the note trustee;
and
* the basis rate swap agreement dated the closing date between the
issuer, the basis rate swap provider and the note trustee.
When we refer to the parties to these documents, the reference includes any
successor to that party validly appointed.
Initially the parties will be as follows:
* Granite Mortgages 04-3 plc, as issuer;
* Citibank, N.A., as principal paying agent, US paying agent, agent
bank, transfer agent and registrar;
* The Bank of New York, as security trustee and note trustee;
* Barclays Bank PLC and Swiss Re Financial Products Corporation, as
dollar currency swap providers;
* Citibank, N.A., acting through its London Branch, as euro currency
swap provider;
* UBS Limited, as interest rate swap provider; and
* Northern Rock plc, as basis rate swap provider.
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The noteholders are bound by and deemed to have notice of all of the
provisions of the trust deed, the issuer deed of charge, the intercompany loan
agreement, the Funding deed of charge, the issuer cash management agreement,
the paying agent and agent bank agreement, the basis rate swap agreement, the
interest rate swap agreement, the dollar currency swap agreements and the euro
currency swap agreements which are applicable to them. Noteholders can view
drafts of those documents at the specified office of any of the paying agents
after the closing date.
There is no English law which prohibits US residents from holding notes
solely because of their residence outside the UK.
There are no UK governmental laws or regulations other than in relation to
withholding tax, as described under "MATERIAL UNITED KINGDOM TAX CONSEQUENCES
- -- WITHHOLDING TAX", that restrict payments made to non-UK resident
noteholders.
1. FORM, DENOMINATION, REGISTER, TITLE AND TRANSFERS
The offered notes are being offered and sold to the public in the United
States and to institutional investors outside the United States.
The offered notes are in global registered form, without coupons attached.
Transfers and exchanges of beneficial interests in notes represented by global
note certificates are made in accordance with the rules and procedures of DTC,
Euroclear and/or Clearstream, Luxembourg, as applicable. The offered notes are
being offered in minimum denominations of $100,000 and increments of $1,000
thereafter ("AUTHORIZED HOLDINGS").
Global note certificates will be exchanged for individual note certificates
in definitive registered form only under certain limited circumstances. If
individual note certificates are issued, they will be serially numbered and
issued in an aggregate principal amount equal to the principal amount
outstanding of the relevant global note certificates and in registered form
only.
The registrar will maintain a register in respect of the offered notes in
accordance with the provisions of the paying agent and agent bank agreement.
References in this section to a "HOLDER" of an offered note means the person in
whose name such offered note is for the time being registered in the register
(or, in the case of a joint holding, the first named thereof) and "NOTEHOLDER"
shall be construed accordingly. A "NOTE CERTIFICATE" will be issued to each
noteholder in respect of its registered holding. Each note certificate will be
numbered serially with an identifying number which will be recorded in the
register.
The holder of each offered note shall (except as otherwise required by law)
be treated as the absolute owner of such offered note for all purposes (whether
or not it is overdue and regardless of any notice of ownership, trust or any
other interest therein, any writing on the note certificate relating thereto
(other than the endorsed form of transfer) or any notice of any previous loss
or theft of such note certificate) and no person shall be liable for so
treating such holder.
Subject to the provisions below, an offered note may be transferred upon
surrender of the relevant note certificate, with the endorsed form of transfer
duly completed, at the offices of the registrar or any transfer agent specified
in the paying agent and agent bank agreement, together with such evidence as
the registrar or (as the case may be) such transfer agent may reasonably
require to prove the title of the transferor and the authority of the
individuals who have executed the form of transfer; provided, however, that an
offered note may not be transferred unless the principal amount of offered
notes transferred and (where not all of the offered notes held by a holder are
being transferred) the principal amount of the balance of offered notes not
transferred are authorized holdings. Where not all the offered notes
represented by the surrendered note certificate are the subject of the
transfer, a new note certificate in respect of the balance of the offered notes
will be issued to the transferor.
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Within five business days of such surrender of a note certificate, the
registrar will register the transfer in question and deliver a new note
certificate of a like principal amount to the offered notes transferred to each
relevant holder at its office or (as the case may be) the office of any
transfer agent specified in the paying agent and agent bank agreement or (at
the request and risk of any such relevant holder) by uninsured first class mail
(and by airmail if the holder is overseas) to the address specified for the
purpose by such relevant holder. In this paragraph, "BUSINESS DAY" means a day
on which commercial banks are open for business (including dealings in foreign
currencies) in the city where the registrar or (as the case may be) the
relevant transfer agent has its specified office.
The transfer of an offered note will be effected without charge by or on
behalf of the issuer, the registrar or any transfer agent but against such
indemnity as the registrar or (as the case may be) such transfer agent may
require in respect of any tax or other duty of whatsoever nature which may be
levied or imposed in connection with such transfer.
Noteholders may not require transfers to be registered during the period of
15 days ending on the due date for any payment of principal or interest in
respect of the offered notes.
All transfers of offered notes and entries on the register are subject to
the detailed regulations concerning the transfer of offered notes scheduled to
the paying agent and agent bank agreement. The regulations may be changed by
the issuer with the prior written approval of the note trustee and the
registrar. A copy of the current regulations will be mailed (free of charge) by
the registrar to any noteholder who requests in writing a copy of such
regulations.
2. STATUS, SECURITY AND PRIORITY
The class A notes, the class B notes, the class M notes and the class C
notes are direct, secured and unconditional obligations of the issuer and are
all secured by the same security. Payments on each class of notes will be made
equally amongst all notes of that class.
(A) Interest
Among the series 1 notes, payments of interest on the series 1 class A notes
will be made ahead of payments of interest on the series 1 class B notes, the
series 1 class M notes and the series 1 class C notes, payments of interest on
the series 1 class B notes will be made ahead of payments of interest on the
series 1 class M notes and the series 1 class C notes, and payments of interest
on the series 1 class M notes will be made ahead of payments of interest on the
series 1 class C Notes.
Among the series 2 notes, payments of interest on the series 2 class A notes
will be made ahead of payments of interest on the series 2 class B notes, the
series 2 class M notes and the series 2 class C notes, payments of interest on
the series 2 class B notes will be made ahead of payments of interest on the
series 2 class M notes and the series 2 class C notes, and payments of interest
on the series 2 class M notes will be made ahead of payments of interest on the
series 2 class C notes.
Among the series 3 notes, payments of interest on the series 3 class A notes
will be made ahead of payments of interest on the series 3 class B notes, the
series 3 class M notes and the series 3 class C notes, payments of interest on
the series 3 class B notes will be made ahead of payments of interest on the
series 3 class M notes and the series 3 class C notes, and payments of interest
on the series 3 class M notes will be made ahead of payments of interest on the
series 3 class C notes.
As among the series 1 notes, the series 2 notes and the series 3 notes:
* payments of interest on the series 1 class A1 notes, the series 1
class A2 notes, the series 1 class A3 notes, the series 2 class A1
notes, the series 2 class A2 notes, the series 3 class A1 notes
and the series 3 class A2 notes will be made
267
in no order of priority among them but in proportion to the
respective amounts due on the class A notes. These payments of
interest will be made ahead of payments of interest on each series
of class B notes, each series of class M notes and each series of
class C notes;
* payments of interest on the series 1 class B notes, the series 2
class B notes and the series 3 class B notes will be made in no
order of priority among them but in proportion to the respective
amounts due on the class B notes. These payments of interest will
be made ahead of payments of interest on each series of class M
notes and each series of class C notes;
* payments of interest on the series 1 class M notes, the series 2
class M notes and the series 3 class M notes will be made in no
order of priority among them but in proportion to the respective
amounts due on the class M notes. These payments of interest will
be made ahead of payments of interest on each series of the class
C notes; and
* payments of interest on the series 1 class C notes, the series 2
class C notes and the series 3 class C notes will be made in no
order of priority among them but in proportion to the respective
amounts due on the class C notes.
(B) Principal
Subject to there being no trigger event and no enforcement of the Funding
security and/or the issuer security, no class of notes will be repaid an amount
of principal which is greater than the controlled amortization amount in
respect of that class of notes for the relevant payment date and, subject also
to the satisfaction of certain conditions in relation to the payment of
principal of the class B notes, the class M notes and the class C notes at any
time when class A notes are outstanding as specified below, payments of
principal will be made in accordance with the following priority.
Repayment of principal in respect of the controlled amortization amount on
the series 1 class A1 notes will be made ahead of repayment of principal in
respect of the controlled amortization amount on each of the series 1 class A2
notes, the series 1 class A3 notes, the series 2 class A1 notes, the series 2
class A2 notes, the series 3 class A1 notes and the series 3 class A2 notes.
Repayment of principal in respect of the controlled amortization amount on the
series 1 class A2 notes will be made ahead of repayment of principal in respect
of the controlled amortization amount on each of the series 1 class A3 notes,
the series 2 class A1 notes, the series 2 class A2 notes, the series 3 class A1
notes and the series 3 class A2 notes. Repayment of principal in respect of the
controlled amortization amount on the series 1 class A3 notes, the series 2
class A1 notes, the series 2 class A2 notes, the series 3 class A1 notes and
the series 3 class A2 notes will be made in no order of priority among them but
in proportion to the respective controlled amortization amounts due on the
series 1 class A3 notes, the series 2 class A1 notes, the series 2 class A2
notes, the series 3 class A1 notes and the series 3 class A2 notes and will be
made ahead of repayment of principal in respect of the controlled amortization
amount on the class B notes. Repayment of principal in respect of the
controlled amortization amount on the series 1 class B notes, series 2 class B
notes and the series 3 class B notes will be made in no order of priority among
them but in proportion to the respective controlled amortization amounts due on
the class B notes. However, repayment of principal in respect of the controlled
amortization amount on the class B notes will be made ahead of repayment of
principal in respect of the controlled amortization amount on the class M
notes. Repayment of principal in respect of the controlled amortization amount
on the series 1 class M notes, the series 2 class M notes and the series 3
class M notes will be made in no order of priority among them but in proportion
to the respective controlled amortization amounts due on the class M notes.
However, repayment of principal in respect of the class M notes will be made
ahead of repayment of principal in respect of the controlled amortization
amount on the class C notes. Repayment of principal in respect of the
controlled amortization amount on the series 1 class C notes, series 2
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class C notes and the series 3 class C notes will be made in no order of
priority among them but in proportion to the respective controlled amortization
amounts due on the class C notes.
The above priority of payments will change and the issuer will make
repayments of principal in accordance with and subject to the relevant issuer
priority of payments as set out in the issuer cash management agreement or, as
the case may be, the issuer deed of charge (1) following the occurrence of a
trigger event, and/or (2) following the enforcement of the Funding security
and/or the enforcement of the issuer security.
If any class A notes remain outstanding and either the issuer arrears test
or the issuer reserve requirement is not satisfied on the relevant payment
date, no amount of principal will be payable in respect of the class B notes,
the class M notes or the class C notes.
Notwithstanding the foregoing priorities, the controlled amortization amount
payable in respect of each class of notes is determined by a schedule that
indicates the target balance for that class of notes on the relevant payment
date and not all classes of notes are scheduled to receive payments of
principal on each payment date, with some lower ranking classes of notes being
repaid principal before higher ranking classes of notes. The controlled
amortization amount payable on the series 3 class A2 notes will also be zero.
The issuer reserve fund provides credit enhancement for the class C notes.
The issuer reserve fund and the class C notes provide credit enhancement for
the class M notes. The issuer reserve fund, the class C notes and the class M
notes provide credit enhancement for the class B notes. The issuer reserve
fund, the class C notes, the class M notes and the class B notes provide credit
enhancement for the class A notes. You should note, however, that the series 3
notes as a group do not provide credit enhancement for either the series 1
notes or the series 2 notes, and the series 2 notes and the series 3 notes as a
group do not provide credit enhancement for the series 1 notes.
For more information on the priority of principal repayments to you, see
"CASHFLOWS". For more information on the redemption of the notes, including a
description of asset trigger events, non-asset trigger events and seller share
events, see "THE MORTGAGES TRUST -- CASH MANAGEMENT OF TRUST PROPERTY --
PRINCIPAL RECEIPTS" and "CASHFLOWS".
The note trustee is required to have regard to the interests of all classes
of noteholders equally. However, if there are any class A notes outstanding and
if there is or may be a conflict between the interests of the class A
noteholders and the interests of the class B noteholders and/or the class M
noteholders and/or the class C noteholders, then the note trustee will have
regard to the interests of the class A noteholders only. If there are no class
A notes outstanding and there are any class B notes outstanding, and if there
is or may be a conflict between the interests of the class B noteholders and
the interests of the class M noteholders and/or the class C noteholders, then
the note trustee will have regard to the interests of the class B noteholders
only. If there are no class A notes outstanding and no class B notes
outstanding and there are any class M notes outstanding, and if there is or may
be a conflict between the interests of the class M noteholders and the
interests of the class C noteholders, then the note trustee will have regard to
the interests of the class M noteholders only.
Except in certain limited circumstances described in number 11, there is no
limitation on the power of class A noteholders to pass an effective
extraordinary resolution the exercise of which is binding on the class B
noteholders, the class M noteholders and the class C noteholders. As described
in number 11 there are provisions limiting the power of the class B
noteholders, the class M noteholders and the class C noteholders to pass an
effective extraordinary resolution, depending on its effect on the class A
noteholders. Likewise, except in the limited circumstances described in number
11, there is no limitation on the power of class B noteholders to pass an
effective extraordinary resolution the exercise of which is binding on the
class M noteholders and the class C noteholders. As
269
described in number 11 there are provisions limiting the power of the class M
noteholders and the class C noteholders to pass an effective extraordinary
resolution, depending on its effect on the class B noteholders. Likewise,
except in the limited circumstances described in number 11, there is no
limitation on the power of class M noteholders to pass an effective
extraordinary resolution the exercise of which is binding on the class C
noteholders. As described in number 11 there are provisions limiting the power
of the class C noteholders to pass an effective extraordinary resolution,
depending on its effect on the class M noteholders.
The note trustee is entitled to assume that any exercise by it of any power,
discretion or duty under the transaction documents will not be materially
prejudicial to the interests of the noteholders (or any series and/or class of
noteholders) if the rating agencies have confirmed that the current ratings of
the notes will not be adversely affected by that exercise.
The security for the payment of amounts due under the notes is created by
the issuer deed of charge. The security is created by the issuer in favor of
the note trustee who will hold it for itself and on behalf of the issuer
secured creditors (which definition includes the noteholders). The security
consists of the following:
(1) an assignment by way of first fixed security of the issuer's
rights and claims in respect of all security and other rights held
on trust by the security trustee pursuant to the Funding deed of
charge, save to the extent that any of those issuer's rights and
claims derive from property that is situated in Jersey, which will
be assigned to the note trustee for the purpose of creating a
security interest in accordance with Jersey law;
(2) an assignment by way of first fixed security of the issuer's
rights, title, interest and benefit in and to the transaction
documents to which it is a party, including the intercompany loan
agreement, the funding deed of charge, the basis rate swap
agreement, the interest rate swap agreement, the dollar currency
swap agreements, the euro currency swap agreements, any swap
collateral ancillary document, the paying agent and agent bank
agreement, the subscription agreement, the underwriting agreement,
the corporate services agreement, the issuer bank account
agreement, the issuer cash management agreement and the trust
deed, save to the extent that such rights, title, interest and
benefit derive from property that is situated in Jersey. To the
extent that the same are derived from property situated in Jersey,
the issuer will assign such rights, title, interest and benefit to
the note trustee for the purpose of creating a security interest
in those rights, title, interest and benefit in accordance with
Jersey law;
(3) an assignment by way of first fixed security of the issuer's
right, title, interest and benefit in the issuer transaction
account, any swap collateral account and each other account (if
any of the issuer), and all amounts or securities standing to the
credit of those accounts (including all interest or other income
or distributions accrued on such amounts or securities);
(4) a first fixed charge (which may take effect as a floating charge)
of the issuer's right, title, interest and benefit in all
authorized investments made by or on behalf of the issuer,
including all monies and income payable under those investments;
and
(5) a first ranking floating charge over all the assets and
undertaking of the issuer which are not otherwise effectively
subject to a fixed charge or assignment by way of security as
described in (1), (2), (3) or (4) above.
3. COVENANTS
If any note is outstanding, the issuer will not, unless it is provided in or
permitted by the terms of the transaction documents to which the issuer is a
party or by the written consent of the note trustee:
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* create or permit to subsist any mortgage, standard security,
pledge, lien, charge or other security interest on the whole or
any part of its present or future assets or undertakings;
* sell, assign, transfer, lease or otherwise dispose of or grant any
option or right to acquire over, all or any of its assets,
properties or undertakings or any interest or benefit in its
assets or undertakings;
* permit any other person other than itself and the note trustee (as
to itself and on behalf of the issuer secured creditors) to have
any equitable or beneficial interest in any of its assets or
undertakings;
* have an interest in any bank account other than the bank accounts
of the issuer maintained pursuant to the transaction documents;
* carry on any business other than as described in this prospectus
or as contemplated in the transaction documents relating to the
issue of the notes and the making of the intercompany loan;
* incur any indebtedness in respect of borrowed money whatsoever or
give any guarantee or indemnity in respect of any indebtedness or
obligation of any person;
* consolidate with or merge with any person or transfer
substantially all of its properties or assets to any person;
* waive or consent to the modification or waiver of any of the
obligations relating to the security;
* have any employees, premises or subsidiaries;
* pay any dividend or make any other distributions to its
shareholders or issue any further shares or alter any rights
attaching to its shares as at the date of the issuer deed of
charge;
* purchase or otherwise acquire any notes; or
* engage in any activities in the United States (directly or through
agents), or derive any income from United States sources as
determined under United States income tax principles, or hold any
property if doing so would cause it to be engaged in a trade or
business within the United States as determined under United
States income tax principles.
4. INTEREST
Each note bears interest on its principal amount outstanding from, and
including, the closing date. Interest will stop accruing on the principal
amount outstanding of any note from the date it is due for redemption unless,
when it is presented, payment of principal is improperly withheld or refused.
If this happens it will continue to bear interest on the unpaid amount both
before and after any judgement is given, up to (but excluding) whichever is the
earlier of the following:
* the day on which all sums due in respect of that note, up to that
day, are paid; and
* the day which is seven days after the principal paying agent or
other paying agent has notified the relevant noteholder or class
of noteholders, either in accordance with number 14 or
individually, that such payment will be made, provided that
subsequently on presentation of the note payment is in fact made.
Interest on the offered notes will be paid in arrears on each payment date
for such note. Each period (i) with respect to the first payment date, from and
including the closing date to but excluding such first payment date and (ii)
thereafter, with respect to each payment date, from and including the preceding
payment date to but excluding such
271
current payment date is called an interest period. The first interest payment
for the offered notes will be made on the payment date occurring in December
2004 for the interest period from and including the closing date to but
excluding that payment date.
The order of payments of interest to be made on the classes of notes will be
prioritized so that interest payments due and payable on the class C notes will
be subordinated to interest payments due and payable on the class M notes, the
class B notes and the class A notes, interest payments due and payable on the
class M notes will be subordinated to interest payments due and payable on the
class B notes and the class A notes and interest payments due and payable on
the class B notes will be subordinated to interest payments due and payable on
the class A notes, in each case in accordance with the issuer priority of
payments.
Any revenue shortfall in payments of interest on the class B notes and/or
the class M notes and/or the class C notes (for the reason that the issuer has
not received sufficient interest payments from Funding under the intercompany
loan to fund such payments) will not be an event of default and the unpaid
interest will be deferred until the first payment date after such date when
funds are available (after allowing for liabilities of the issuer having a
higher priority and subject to and in accordance with the relevant issuer
priority of payments), to the issuer to pay such interest. Any interest so
deferred will bear interest at the rate of interest applicable to the relevant
class of notes from time to time and payment of such additional interest will
also be deferred until the first payment date after such date when funds are
available (after allowing for liabilities of the issuer having a higher
priority) to the issuer to pay such additional interest. Neither deferred
interest nor additional interest shall be deferred beyond the final maturity
date of the relevant class of notes when such amounts will be due and payable,
at which point, if the issuer has not received sufficient interest payments
from Funding under the intercompany loan to pay interest on the class B notes
and/or the class M notes and/or the class C notes, as the case may be, then
noteholders may never receive all interest amounts payable on those classes of
notes.
Payments of interest due on a payment date in respect of the class A notes
will not be deferred. In the event of the delivery of a class A note
enforcement notice (as described in number 9), the amount of interest that was
due but not paid on any payment date will itself bear interest at the
applicable rate until both the unpaid interest and the interest on that
interest are paid.
The rate of interest applicable to the offered notes for each interest
period will be determined by the agent bank on the following basis:
(1) on the interest determination date for each class of the offered
notes, the agent bank will determine the offered quotation to
leading banks for US dollar deposits for a period equal to the
relevant interest period. This will be determined by reference to
the display as quoted on the Dow Jones/Telerate Monitor at
Telerate Page No. 3750. If the Telerate Page No. 3750 stops
providing these quotations, the replacement page for the purposes
of displaying this information will be used. If the replacement
page stops displaying the information, another service as
determined by the issuer (with the approval of the note trustee,
in its sole discretion) will be used. In each of these cases, the
determination will be made as at or about 11:00 a.m., London time,
on that date. This is called the "SCREEN RATE" for the respective
classes of the offered notes. The "INTEREST DETERMINATION DATE"
for the offered notes means the second London business day before
the first day of an interest period;
(2) if, on any interest determination date, the screen rate is
unavailable, the agent bank will:
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* request the principal London office of each of four major
banks -- the reference banks -- in the London interbank
market to provide the agent bank with its offered quotation
to leading banks of the equivalent of the screen rate on
that interest determination date in an amount that
represents a single transaction in that market at that
time; and
* calculate the arithmetic mean, rounded upwards to five
decimal places, of those quotations;
(3) if on any interest determination date the screen rate is
unavailable and only two or three of the reference banks provide
offered quotations, the relevant rate for that interest period
will be the arithmetic mean of the quotations as calculated in
(2); and
(4) if fewer than two reference banks provide quotations, the agent
bank will consult with the note trustee and the issuer for the
purpose of agreeing a total of two banks to provide such
quotations and the relevant rate for that interest period will be
the arithmetic mean of the quotations as calculated in (2). If no
such banks are agreed or such banks do not provide a quotation
then the relevant rate for that interest period will be the rate
in effect for the immediately preceding interest period for which
(1) or (2) was applicable (taking account of any relevant change
in margin).
The rate of interest for each interest period for the:
* series 1 class A1 notes will be the sum of [__]% per annum up to
and including the interest period ending on the payment date in
September 2011 (and thereafter [__]% per annum) and the screen
rate or rate calculated to replace the screen rate;
* series 1 class A3 notes will be the sum of [__]% per annum up to
and including the interest period ending on the payment date in
September 2011 (and thereafter [__]% per annum) and the screen
rate or rate calculated to replace the screen rate;
* series 1 class B notes will be the sum of [__]% per annum up to
and including the interest period ending on the payment date in
September 2011 (and thereafter [__]% per annum) and the screen
rate or rate calculated to replace the screen rate;
* series 1 class M notes will be the sum of [__]% per annum up to
and including the interest period ending on the payment date in
September 2011 (and thereafter [__]% per annum) and the screen
rate or rate calculated to replace the screen rate;
* series 1 class C notes will be the sum of [__]% per annum up to
and including the interest period ending on the payment date in
September 2011 (and thereafter [__]% per annum) and the screen
rate or rate calculated to replace the screen rate; and
* series 2 class A1 notes will be the sum of [__]% per annum up to
and including the interest period ending on the payment date in
September 2011 (and thereafter [__]% per annum) and the screen
rate or rate calculated to replace the screen rate.
The agent bank will, as soon as practicable after 11:00 a.m. (London time)
on each interest determination date, calculate (i) the amount of interest
payable on each offered note and (ii) the rate of interest applicable to each
class of offered notes, in each case for that interest period. The amount of
interest in respect of each class of offered notes will be calculated by
applying the relevant rate of interest for that interest period to the
aggregate principal amount outstanding of the relevant class of notes during
that interest period and, in the case of the offered notes, multiplying the
product by the actual number of days in that interest period divided by 360 and
rounding the resultant figure to the
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nearest cent, amounts equal to or above half a cent being rounded upwards and
amounts below half a cent being rounded downwards. The amount of interest in
respect of each offered note in respect of an interest period shall be the
proportion of the relevant amount of interest in relation to the relevant class
of offered notes on such date e qual to the proportion that the principal amount
outstanding of the relevant offered note bears to the aggregate principal
amount outstanding of the relevant class of offered notes rounding the
resulting figure to the nearest cent, amounts equal to or above half a cent
being rounded upwards and amounts below half a cent being rounded downwards.
The rates and amounts determined by the agent bank will be notified to the
issuer, the issuer cash manager, the note trustee and the paying agents. The
agent bank will also notify such rates and amount, to each stock exchange on
which the notes are listed and to the relevant class of noteholders in
accordance with number 14 as soon as possible.
If the agent bank fails to make a required determination or calculation as
described, the note trustee will make this determination or calculation as it
shall in its sole discretion deem fair and reasonable or as described in this
number 4. If this happens, the determination or calculation will be deemed to
have been made by the agent bank.
The issuer, the issuer cash manager, the note trustee, the reference banks,
the agent bank and the noteholders will be bound by the determinations properly
made as described above.
The agent bank will ensure that there will be four reference banks with
offices in London and an agent bank while there are notes outstanding.
5. REDEMPTION, PURCHASE AND CANCELLATION
(A) Final Redemption
If the offered notes have not previously been redeemed in full as described
in this number 5, the issuer will redeem each class of notes at their then
principal amount outstanding together with all accrued interest on the final
maturity date in respect of such class of notes.
(B) Mandatory Redemption of the Notes in Part
On each payment date, other than a payment date on which the notes are to be
redeemed under numbers 5(A), (D), (E) or (F), the issuer shall repay principal
in respect of the notes in accordance with and subject to the relevant issuer
priority of payments applicable to the issuer on such payment date and then
only to the extent of issuer available principal receipts on such payment date
in the manner described in and subject to the issuer cash management agreement
and/or, as applicable, the issuer deed of charge. See "CASHFLOWS --
DISTRIBUTION OF ISSUER AVAILABLE PRINCIPAL RECEIPTS".
(C) Note Principal Payments, Principal Amount Outstanding and Pool Factor
On the distribution date immediately preceding each payment date (the "NOTE
DETERMINATION DATE"), the issuer or the issuer cash manager will determine the
following:
* the amount of each principal payment payable on each offered note,
called the "NOTE PRINCIPAL PAYMENT";
* the principal amount outstanding of each offered note of that
class on the note determination date which is the principal amount
outstanding of that offered note as at the closing date less the
aggregate of all note principal payments that have been paid in
respect of that note; and
* the fraction, or pool factor, obtained by dividing the principal
amount outstanding of each offered note by the original principal
amount outstanding of each note as at the closing date.
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The issuer will notify the amounts and dates determined to the agent bank,
paying agents, note trustee, the registrar and each stock exchange on which the
notes are listed and the agent bank shall publish such amounts and dates in
accordance with number 14 by no later than the business day after the relevant
payment date or as soon as reasonably practicable thereafter in the case of
individual note certificates.
If the issuer or issuer cash manager fails to make a determination as
described, the note trustee will calculate the note principal payment,
principal amount outstanding and pool factor as described in this paragraph (C)
in the manner the note trustee in its discretion considers fair and reasonable
in the circumstances, having regard to paragraph (C) above, and each of these
determinations or calculations will be deemed to have been made by the issuer.
If this happens, the issuer, the issuer cash manager and the noteholders will
be bound by the determinations made.
(D) Optional Redemption in Full
The issuer may by giving not less than thirty and not more than sixty days
prior notice to the note trustee and the noteholders redeem the notes specified
below at the principal amount outstanding together with any accrued interest on
the following dates:
* in the case of all of the notes (other than the series 1 class A2
notes), the payment date falling in September 2011 and on any
payment date thereafter. This gives the issuer the option to
redeem the notes (other than the series 1 class A2 notes) on or
after the September 2011 step-up date for interest;
* in the case of the series 1 class A2 notes, on the payment date
falling in March 2006 and on any payment date thereafter. This
gives us the option to redeem the series 1 class A2 notes on or
after the March 2006 step-up date for interest in respect of the
series 1 class A2 notes; or
* in the case of all of the notes, any payment date on which the
aggregate principal amount outstanding of the notes is less than
10% of the aggregate principal amount outstanding of the notes as
at the closing date.
The issuer may only redeem the notes as described above if it has prior to
the date of such redemption provided to the note trustee a certificate to the
effect that it will have funds available to it to make the required payment of
principal and interest due in respect of the notes on the relevant payment
date, including any amounts required to be paid in priority to or in the same
priority as the notes outstanding in accordance with the issuer cash management
agreement, and the note trustee is satisfied in accordance with the transaction
documents that such funds are available.
(E) Optional Redemption for Tax and Other Reasons
If the issuer satisfies the note trustee that on the next payment date
either:
(i) the issuer would be required to withhold or deduct from amounts
due on the notes, any amount on account of any present or future
taxes or duties or governmental charges; or
(ii) Funding would be required to withhold or deduct from amounts due
on the intercompany loan, any amount on account of any present or
future taxes or duties or governmental charges; and
(iii) such obligation of the issuer or Funding, as the case may be,
cannot be avoided by the issuer or Funding, as the case may be,
taking reasonable measures available to it,
then the issuer will use reasonable endeavors to arrange the substitution of a
company incorporated in another jurisdiction and approved by the note trustee
in order to avoid such a situation, provided that the issuer will not be
required to do so if that would require registration of any new security under
US securities laws or would materially increase the disclosure requirements
under US law or the costs of issuance.
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If the issuer is unable to arrange a substitution as described above, then
the issuer may, by giving not less than thirty and not more than sixty days'
prior notice to the note trustee and the noteholders, redeem all (but not some
only) of the notes at their principal amount outstanding together with any
accrued interest on the next following payment date, provided that, prior to
giving any such notice, the issuer shall deliver to the note trustee (1) a
certificate signed by two directors of the issuer stating that the
circumstances referred to in (i) or (ii) and (iii) above prevail and setting
out details of such circumstances, and (2) an opinion in form and substance
satisfactory to the note trustee of independent legal advisers of recognised
standing to the effect that the issuer has or will become obliged to pay such
additional amounts as a result of such change or amendment. The note trustee
shall be entitled to accept such certificate and opinion as sufficient evidence
of the satisfaction of the circumstance set out in (i) or (ii) and (iii) above,
in which event they shall be conclusive and binding on the noteholders. The
issuer may only redeem the notes as described above if the note trustee is
satisfied in accordance with the transaction documents that the issuer will
have funds available to it to make the required payment of principal and
interest due in respect of the notes on the relevant payment date, including
any amounts required to be paid in priority to or in the same priority as the
notes outstanding in accordance with the issuer pre-enforcement priority of
payments.
In addition to the foregoing, if at any time it becomes unlawful for the
issuer to make, fund or allow to remain outstanding the intercompany loan, then
the issuer may require Funding upon giving not more than 60 nor less than 30
days' (or such shorter period as may be required under any relevant law) prior
written notice to the issuer and the note trustee, to prepay the intercompany
loan on any payment date subject to and in accordance with the provisions of
the intercompany loan agreement to the extent necessary to cure such
illegality. Such monies received by the issuer shall be used to prepay the
notes in full on that payment date.
(F) Optional Redemption for Implementation of New Basel Capital Accord
If the New Basel Capital Accord has been implemented in the United Kingdom,
whether by rule of law, recommendation or best practice or by any other
regulation, then on the payment date falling in June 2008 and any payment date
thereafter, the issuer may, by giving not more than 60 nor less than 30 days'
(or such shorter period as may be required under any relevant law) prior notice
to the note trustee and the noteholders, redeem all (but not some only) of the
notes at their principal amount outstanding together with any accrued interest
on the next following payment date, provided that a note enforcement notice has
not been served. The issuer may only redeem the notes as described above if the
note trustee is satisfied in accordance with the transaction documents that the
issuer will have funds available to it to make the required payment of
principal, interest and redemption premium, if any, due in respect of the notes
on the relevant payment date, including any amounts required to be paid in
priority to or in the same priority as the notes outstanding in accordance with
the issuer pre-enforcement priority of payments.
6. PAYMENTS
Payments of principal and interest in respect of the notes will be made to
the persons in whose names the global note certificates are registered on the
register at the opening of business in the place of the registrar's specified
office on the fifteenth day before the due date for such payment. Such date is
called the "RECORD DATE". Payments shall be made by wire transfer of
immediately available funds, if such registered holder shall have provided
wiring instructions no less than five business days prior to the record date,
or otherwise by check mailed to the address of such registered holder as it
appears in the register at the opening of business on the record date. In the
case of the final redemption, and provided that payment is made in full,
payment will only be made against surrender of those global note certificates
to the registrar.
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All payments on the offered notes are subject to any applicable fiscal or
other laws and regulations. Noteholders will not be charged commissions or
expenses on these payments.
If the due date for payment of any amount on the offered notes is not a
business day in the place it is presented, noteholders will not be entitled to
payment of the amount due in that place until the next business day in that
place and noteholders shall not be entitled to any further interest or other
payment as a result of that delay.
If a paying agent makes a partial payment on an offered note, the registrar
will endorse on that offered global note certificate a statement indicating the
amount and date of that payment.
If a noteholder holds individual note certificates with respect to offered
notes, payments of principal and interest on an offered note (except in the
case of a final payment that pays off the entire principal of the offered note)
will be made by US dollar check and mailed to the noteholder at the address
shown in the register. In the case of final redemption, payment will be made
only when the offered note certificate is surrendered. If the noteholder makes
an application to the registrar, payments can instead be made by transfer to a
bank account.
If payment of principal of an offered note is improperly withheld or
refused, the interest which continues to accrue will still be payable in
accordance with the usual procedures.
The issuer can, at any time, vary or terminate the appointment of any paying
agent and can appoint successor or additional paying agents, registrar or
transfer agent. If the issuer does this it must ensure that it maintains a
paying agent in London, a paying agent in New York and a registrar. The issuer
will ensure that at least 30 days' notice of any change in the paying agents,
registrar or transfer agent or their specified offices is given to noteholders
in accordance with number 14.
Subject as described earlier in relation to the deferral of interest, if
payment of interest on a note is not paid for any other reason when due and
payable, the unpaid interest will itself bear interest at the applicable rate
until both the unpaid interest and the interest on that interest are paid.
7. PRESCRIPTION
Claims against the issuer for payment of interest and principal on
redemption will become void if the relevant note certificates are not
surrendered for payment within the time limit for payment. That time limit is
ten years from the due date of such notes. If there is a delay in the paying
agents or, as applicable, the note trustee, receiving the funds, then the due
date, for the purposes of this time limit, is the date on which it notifies
you, in accordance with number 14, that it has received the relevant payment.
8. TAXATION
Payments of interest and principal will be made without making any
withholding or deduction for any tax unless a withholding or deduction is
required by any applicable law. If a withholding or deduction for tax is made,
the issuer or the relevant paying agent will account to the relevant authority
for the amount so withheld or deducted. Neither the issuer nor any paying agent
is required to make any additional payments to noteholders for such withholding
or deduction.
9. EVENTS OF DEFAULT
(A) Class A noteholders
The note trustee in its absolute discretion may give notice to the issuer of
a class A note event of default (as defined below) in respect of the class A
notes (a "CLASS A NOTE ENFORCEMENT NOTICE"), and shall give such notice if it
is indemnified to its satisfaction and it is:
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* requested to do so in writing by the holders of at least one
quarter of the aggregate principal amount outstanding of the class
A notes; or
* directed to do so by an extraordinary resolution passed at a
meeting of the class A noteholders.
If any of the following events occurs and is continuing it is called a
"CLASS A NOTE EVENT OF DEFAULT":
* the issuer fails to pay for a period of seven business days any
amount of principal of the class A notes when such payment is due
and payable in accordance with the conditions or the issuer fails
to pay for a period of fifteen business days any amount of
interest on the class A notes when such payment is due and payable
in accordance with the conditions; or
* the issuer fails to perform or observe any of its other
obligations under the class A notes, the trust deed, the issuer
deed of charge or any other transaction document, and (except
where the note trustee certifies that, in its opinion, such
failure is incapable of remedy, in which case no notice will be
required) it remains unremedied for 30 days after the note trustee
has given notice of it to the issuer requiring the same to be
remedied; and the note trustee has certified that the failure to
perform or observe is materially prejudicial to the interests of
the class A noteholders; or
* except for the purposes of an amalgamation or restructuring as
described in the point immediately following, the issuer ceases or
threatens to cease carrying on all or a substantial part of its
business or the issuer is deemed unable to pay its debts within
the meaning of section 123(1)(a), (b), (c) or (d) of the
Insolvency Act 1986 (as that section may be amended, modified or
re-enacted) or becomes unable to pay its debts within the meaning
of section 123(2) of the Insolvency Act 1986 (as that section may
be amended, modified or re-enacted); or
* an order is made or an effective resolution is passed for the
winding up of the issuer except for the purposes of or pursuant to
an amalgamation, restructuring or merger previously approved by
the note trustee in writing or by an extraordinary resolution (as
defined in the trust deed) of the class A noteholders; or
* proceedings are otherwise initiated against the issuer under any
applicable liquidation, insolvency, composition, reorganization or
other similar laws (including, but not limited to, presentation of
a petition for administration or the filing of documents with the
court for an administration) and (except in the case of
presentation of a petition for an administration order) such
proceedings are not, in the opinion of the note trustee, being
disputed in good faith with a reasonable prospect of success, a
formal notice is given of intention to appoint an administrator in
relation to the issuer or an administration order being granted or
an administrative receiver or other receiver, liquidator or other
similar official being appointed in relation to the issuer or in
relation to the whole or any substantial part of the undertaking
or assets of the issuer, or an encumbrancer taking possession of
the whole or any substantial part of the undertaking or assets of
the issuer, or a distress, execution, diligence or other process
being levied or enforced upon or sued out against the whole or any
substantial part of the undertaking or assets of the issuer and
such possession or process (as the case may be) not being
discharged or not otherwise ceasing to apply within 30 days, or
the issuer initiating or consenting to judicial proceedings
relating to itself under applicable liquidation, insolvency,
composition, reorganization or other similar laws or making a
conveyance or assignment for the benefit of its creditors
generally or a composition or similar arrangement with the
creditors or takes steps with a view to obtaining a moratorium in
respect of its indebtedness, including without limitation, the
filing of documents with the court; or
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* if an intercompany loan enforcement notice is served in respect of
any intercompany loan agreement while any of the class A notes are
outstanding.
(B) Class B noteholders
The terms described in this number 9(B) will have no effect so long as any
of the class A notes are outstanding. Subject thereto, for so long as any class
B notes are outstanding, the note trustee may in its absolute discretion give
notice of a class B note event of default (as defined below) in respect of the
class B notes (a "CLASS B NOTE ENFORCEMENT NOTICE"), and shall give such notice
if it is indemnified to its satisfaction and it is:
* requested to do so in writing by the holders of at least one
quarter of the aggregate principal amount outstanding of the class
B notes; or
* directed to do so by an extraordinary resolution passed at a
meeting of the class B noteholders.
If any of the following events occurs and is continuing it is called a
"CLASS B NOTE EVENT OF DEFAULT":
* the issuer fails to pay for a period of seven business days any
amount of principal of the class B notes when such payment is due
and payable in accordance with the conditions or the issuer fails
to pay for a period of fifteen business days any amount of
interest on the class B notes when such payment is due and payable
in accordance with the conditions; or
* the occurrence of any of the events in number 9(A) described above
but so that any reference to the class A notes and the class A
noteholders shall be read as references to the class B notes and
the class B noteholders.
(C) Class M noteholders
The terms described in this number 9(C) will have no effect so long as any
of the class A notes or the class B notes are outstanding. Subject thereto, for
so long as any class M notes are outstanding, the note trustee may in its
absolute discretion give notice of a class M note event of default (as defined
below) in respect of the class M notes (a "CLASS M NOTE ENFORCEMENT NOTICE"),
and shall give such notice if it is indemnified to its satisfaction and it is:
* requested to do so in writing by the holders of at least one
quarter of the aggregate principal amount outstanding of the class
M notes; or
* directed to do so by an extraordinary resolution passed at a
meeting of the class M noteholders.
If any of the following events occurs and is continuing it is called a
"CLASS M NOTE EVENT OF DEFAULT":
* the issuer fails to pay for a period of seven business days any
amount of principal of the class M notes when such payment is due
and payable in accordance with the conditions or the issuer fails
to pay for a period of fifteen business days any amount of
interest on the class M notes when such payment is due and payable
in accordance with the conditions; or
* the occurrence of any of the events in number 9(A) described above
but so that any reference to the class A notes and the class A
noteholders shall be read as references to the class M notes and
the class M noteholders.
(D) Class C noteholders
The terms described in this number 9(D) will have no effect so long as any
of the class A notes, the class B notes or the class M notes are outstanding.
Subject thereto, for so long as any class C notes are outstanding, the note
trustee may in its absolute
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discretion give notice of a class C note event of default (as defined below) in
respect of the class C notes (a "CLASS C NOTE ENFORCEMENT NOTICE"), and shall
give such notice if it is indemnified to its satisfaction and it is:
* requested to do so in writing by the holders of at least one
quarter of the aggregate principal amount outstanding of the class
C notes; or
* directed to do so by an extraordinary resolution passed at a
meeting of the class C noteholders.
If any of the following events occurs and is continuing it is called a
"CLASS C NOTE EVENT OF DEFAULT":
* the issuer fails to pay for a period of seven business days any
amount of principal of the class C notes when such payment is due
and payable in accordance with the conditions or the issuer fails
to pay for a period of fifteen business days any amount of
interest on the class C notes when such payment is due and payable
in accordance with the conditions; or
* the occurrence of any of the events in number 9(A) described above
but so that any reference to the class A notes and the class A
noteholders shall be read as references to the class C notes and
the class C noteholders.
The security created under the issuer deed of charge will become enforceable
on the occurrence of a class A note event of default, a class B note event of
default, a class M note event of default or, as the case may be, a class C note
event of default.
A class A note enforcement notice, a class B note enforcement notice, a
class M note enforcement notice and a class C note enforcement notice are alone
or together referred to in this prospectus as a "NOTE ENFORCEMENT NOTICE". A
note enforcement notice is a written notice from the note trustee to the issuer
and the security trustee declaring the notes to be immediately due and payable.
When it is given, all notes will become immediately due and payable at their
principal amount outstanding together with accrued and unpaid interest without
further action or formality.
10. ENFORCEMENT OF NOTES
The note trustee may, at its discretion and without notice at any time and
from time to time, take such steps and institute such proceedings against the
issuer or any other person as it may think fit to enforce the provisions of the
notes, the trust deed, the issuer deed of charge or any of the other
transaction documents. The note trustee may, at its discretion and without
notice, at any time after the issuer security has become enforceable, take such
steps as it may think fit to enforce the issuer security. The note trustee
shall not be bound to take any such proceedings or steps unless:
* (subject in all cases to restrictions contained in the trust deed
or, as the case may be, the issuer deed of charge to protect the
interests of any higher ranking class of noteholders) it shall
have been so directed by an extraordinary resolution (as described
in number 11) of the class A noteholders, the class B noteholders,
the class M noteholders or the class C noteholders or so requested
in writing by the holders of at least 25% in principal amount
outstanding of the class A notes, the class B notes, the class M
notes or the class C notes (as the case may be); and
* it shall have been indemnified to its satisfaction.
Amounts available for distribution after enforcement of the issuer security
shall be distributed in accordance with the terms of the issuer deed of charge.
No noteholder may institute any proceedings against the issuer to enforce
its rights under or in respect of the notes or the trust deed unless (1) the
note trustee has become bound to institute proceedings and has failed to do so
within 30 days of becoming so bound and (2) such failure is continuing;
provided that, notwithstanding the foregoing and notwithstanding any other
provision of the trust deed, the right of any noteholder to receive
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payment of principal of and interest on its notes on or after the due date for
such principal or interest, or to institute suit for the enforcement of payment
of that principal or interest, may not be impaired or affected without the
consent of that noteholder. In addition, no class B noteholder, class M
noteholder or class C noteholder will be entitled to commence proceedings for
the winding up or administration of the issuer unless there are no outstanding
notes of a class with higher priority, or if notes of a class with higher
priority are outstanding, there is consent of noteholders of at least 25% of
the aggregate principal amount of the class or classes of notes outstanding (as
defined in the trust deed) with higher priority.
In the event that (a) the issuer security is enforced and the proceeds of
that enforcement (such proceeds having been distributed) are insufficient,
after payment of all other claims ranking in priority, to pay in full any
amount due on the notes and any claims ranking equally with such claims, or (b)
within 20 days following the final maturity date of the latest maturing note
the note trustee certifies that there is no further amount outstanding under
the related intercompany loan, the noteholders are required and the note
trustee is required on their behalf, at the request of GPCH Limited, to
transfer or (as the case may be) to procure the transfer of all of the notes to
GPCH Limited pursuant to the option granted by the note trustee to GPCH
Limited. The option is granted to acquire all of the notes plus accrued
interest on the notes. This is called the post enforcement call option. The
noteholders will not be paid for that transfer. Each noteholder acknowledges
that the note trustee has the authority and the power to bind it in accordance
with the terms and conditions set out in the post enforcement call option and,
by subscribing for or acquiring the notes, it agrees to be bound in this way.
11. MEETINGS OF NOTEHOLDERS, MODIFICATIONS AND WAIVER
(1) MEETINGS OF NOTEHOLDERS
The trust deed contains provisions for convening meetings of each class of
noteholders to consider any matter affecting their interests, including the
sanctioning by extraordinary resolution of a modification of any provision of
the terms and conditions of the notes or the provisions of any of the
transaction documents.
In respect of the class A notes the trust deed provides that:
* a single meeting of the holders of all series of the class A notes
may be held whether or not there is a conflict of interest between
the holders of such series of the class A notes; there shall be no
provision for meetings of the holders of one series only of the
class A notes; and
* as the class A notes are not all denominated in the same currency,
the principal amount outstanding of any class A note denominated
in US dollars or euro shall be converted into sterling at the
dollar currency swap rate or the euro currency swap rate, as the
case may be.
In respect of the class B notes the trust deed provides that:
* a single meeting of the holders of all series of the class B notes
may be held whether or not there is a conflict of interest between
the holders of such series of the class B notes; there shall be no
provision for meetings of the holders of one series only of the
class B notes; and
* as the class B notes are not all denominated in the same currency,
the principal amount outstanding of any class B note denominated
in US dollars or euro shall be converted into sterling at the
dollar currency swap rate or the euro currency swap rate, as the
case may be.
In respect of the class M notes the trust deed provides that:
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* a single meeting of the holders of all series of the class M notes
may be held whether or not there is a conflict of interest between
the holders of such series of the class M notes; there shall be no
provision for meetings of the holders of one series only of the
class M notes; and
* as the class M notes are not all denominated in the same currency,
the principal amount outstanding of any class M note denominated
in US dollars or euro shall be converted into sterling at the
dollar currency swap rate or the euro currency swap rate, as the
case may be.
In respect of the class C notes the trust deed provides that:
* a single meeting of the holders of all series of the class C notes
may be held whether or not there is a conflict of interest between
the holders of such series of the class C notes; there shall be no
provision for meetings of the holders of one series only of the
class C notes; and
* as the class C notes are not all denominated in the same currency,
the principal amount outstanding of any class C note denominated
in US dollars or euro shall be converted into sterling at the
dollar currency swap rate or the euro currency swap rate, as the
case may be.
Subject as provided in the following paragraph, the quorum for any meeting
of the noteholders of any class convened to consider an extraordinary
resolution will be two or more persons holding or representing not less than
half of the aggregate principal amount outstanding of the notes of that class
or, at any adjourned meeting, two or more persons representing noteholders of
that class, whatever the total principal amount of the outstanding notes so
represented.
Certain terms including the alteration of the amount, rate or timing of
payments on the notes, the currency of payment, the priority of payments or the
quorum or majority required in relation to these terms, require a quorum for
passing an extraordinary resolution of two or more persons holding or
representing in total not less than three quarters of the total principal
amount outstanding of the notes of that class or, at any adjourned meeting, at
least one quarter of the total principal amount of the notes outstanding of
such class. These modifications are called "BASIC TERMS MODIFICATIONS".
A resolution signed by or on behalf of all the noteholders of the relevant
class who for the time being are entitled to receive notice of a meeting under
the issuer trust deed shall for all purposes be as valid and effective as an
extraordinary resolution passed at a meeting of such class of noteholders.
Subject as provided below in relation to an extraordinary resolution
concerning a basic terms modification, no extraordinary resolution of the class
B noteholders shall take effect while any class A notes remain outstanding
unless sanctioned by an extraordinary resolution of the class A noteholders, or
the note trustee is of the opinion that it would not be materially prejudicial
to the interests of the class A noteholders.
Subject as provided below in relation to an extraordinary resolution
concerning a basic terms modification, no extraordinary resolution of the class
M noteholders shall take effect while any class A notes or class B notes remain
outstanding unless sanctioned by an extraordinary resolution of the class A
noteholders and an extraordinary resolution of the class B noteholders, or the
note trustee is of the opinion that it would not be materially prejudicial to
the interests of the class A noteholders and the class B noteholders.
Subject as provided below in relation to an extraordinary resolution
concerning a basic terms modification, no extraordinary resolution of the class
C noteholders shall take effect while any class A notes, class B notes or class
M notes remain outstanding unless sanctioned by an extraordinary resolution of
the class A noteholders, an extraordinary resolution of the class B noteholders
and an extraordinary resolution of the class M
282
noteholders, or the note trustee is of the opinion that it would not be
materially prejudicial to the interests of the class A noteholders, the class B
noteholders and the class M noteholders.
Furthermore, an extraordinary resolution of the class A noteholders
concerning a basic terms modification will not be effective unless it is also
sanctioned by extraordinary resolutions of the class B noteholders, the class M
noteholders and the class C noteholders. An extraordinary resolution of the
class B noteholders concerning a basic terms modification will not be effective
unless it is also sanctioned by extraordinary resolutions of the class A
noteholders, the class M noteholders and the class C noteholders. An
extraordinary resolution of the class M noteholders concerning a basic terms
modification will not be effective unless it is also sanctioned by
extraordinary resolutions of the class A noteholders, the class B noteholders
and the class C noteholders. An extraordinary resolution of the class C
noteholders concerning a basic terms modification will not be effective unless
it is also sanctioned by extraordinary resolutions of the class A noteholders,
the class B noteholders and the class M noteholders.
(2) MODIFICATIONS AND WAIVER
The note trustee may agree, without the consent of the relevant class of
noteholders, (1) to any modification (other than a basic terms modification)
of, or to the waiver or authorization of any breach or proposed breach of, the
terms and conditions of the notes or any of the transaction documents which is
not, in the opinion of the note trustee, materially prejudicial to the
interests of the relevant class or classes of noteholders or (2) to any
modification of any of the terms and conditions or any of the transaction
documents which, in the opinion of the note trustee, is of a formal, minor or
technical nature or is to correct a manifest error.
For the avoidance of doubt (in the context of deciding material prejudice in
respect of the above provisions), if the note trustee considers in its sole
opinion that the noteholders of the same class of one or more series to which
the modification or waiver relates are materially prejudiced, the note trustee
will not be able to sanction such modification or waiver itself, and will
instead require an extraordinary resolution of the noteholders of the notes of
such class outstanding to be passed by means of a meeting. In accordance with
the general provisions contained herein, such extraordinary resolution must
also be ratified by the noteholders of the notes of the higher class or classes
in order for the extraordinary resolution which seeks approval of the
modification or waiver to be valid and effective.
Any of these modifications, authorizations or waivers will be binding on the
noteholders and, unless the note trustee agrees otherwise, shall be promptly
notified to the noteholders and the rating agencies in accordance with number
14 as soon as practicable thereafter.
Where the note trustee is required in connection with the exercise of its
powers to have regard to the interests of the noteholders of one class of any
series, it shall have regard to the interests of such noteholders as a class.
In particular, the note trustee shall not have regard to, or be liable for, the
consequences of such exercise for individual noteholders resulting from their
being domiciled or resident in or connected with any particular territory. In
connection with any such exercise, the note trustee shall not be entitled to
require, and no noteholder shall be entitled to claim, from the issuer or any
other person, any indemnification or payment in respect of any tax consequence
of any such exercise upon individual noteholders.
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12. INDEMNIFICATION OF THE NOTE TRUSTEE
The note trustee is entitled to be indemnified and relieved from
responsibility in certain circumstances, including provisions, among others,
relieving them from taking enforcement proceedings unless indemnified to its
satisfaction. The note trustee is also entitled to be paid its costs and
expenses in priority to any interest payments to noteholders.
The note trustee and its related companies are entitled to enter into
business transactions with the issuer, Northern Rock plc or related companies
of either of them and to act as note trustee for the holders of any new notes
and for any person who is a party to any transaction document or whose
obligations are comprised in the issuer security or any of their subsidiary or
associated companies, without accounting for any profit resulting from those
transactions.
The note trustee will not be responsible for any loss or liability suffered
as a result of any assets in the issuer security being uninsured or
inadequately insured or being held by clearing operations or their operators or
by intermediaries on behalf of the note trustee.
Furthermore, the note trustee will be relieved of liability for making
searches or other inquiries in relation to the assets comprising the issuer
security. The note trustee does not have any responsibility in relation to the
legality and the enforceability of the trust arrangements and the related
issuer security. The note trustee will not be obliged to take any action which
might result in its incurring personal liabilities. The note trustee is not
obliged to monitor or investigate the performance of any other person under the
issuer related documents or the documents relating to the intercompany loan and
the mortgages trust and is entitled to assume, until it has actual knowledge to
the contrary, that all such persons are properly performing their duties,
unless it receives express notice to the contrary.
The note trustee will not be responsible for any deficiency which may arise
because it is liable to tax in respect of the proceeds of any security.
Similar provisions in respect of the indemnification of the security trustee
are set out in the transaction documents.
13. REPLACEMENT OF NOTES
If individual note certificates are lost, stolen, mutilated, defaced or
destroyed, the noteholder can replace them at the specified office of any
paying agent. The noteholder will be required both to pay the expenses of
producing a replacement and to comply with the issuer's, registrar's and paying
agent's reasonable requests for evidence and indemnity. The noteholder must
surrender any defaced or mutilated note certificates before replacements will
be issued.
If a global note certificate is lost, stolen, mutilated, defaced or
destroyed, the issuer will deliver a replacement global note certificate to the
registered holder upon satisfactory evidence and surrender of any defaced or
mutilated global note certificate. Replacement will only be made upon payment
of the expenses for a replacement and compliance with the issuer's, registrar's
and paying agents' reasonable requests as to evidence and indemnity.
14. NOTICE TO NOTEHOLDERS
Notices to noteholders will be sent to them by first class mail (or its
equivalent) or (if posted to a non-UK address) by airmail at the respective
addresses on the register. Any such notice shall have been deemed to have been
given on the fourth day after the date of mailing. In addition, so long as
amounts are outstanding on the offered notes, notices to noteholders will be
published on the date of such mailing in a daily newspaper of general
circulation in New York (which is expected to be The New York Times) or, if
such publication is not practicable, in a leading English language daily
newspaper having general circulation in the United States; provided that if, at
any time, the issuer procures
284
that the information concerned in such notice shall appear on a page of the
Reuters screen, or any other medium for electronic display of data as may be
previously approved in writing by the note trustee and notified to noteholders
(in each case a "RELEVANT SCREEN"), publication in the newspapers set out above
or such other newspaper or newspapers shall not be required with respect to
such information, provided however, that in the case that any notes are listed
on the Official List of the UK Listing Authority and admitted to trading by the
London Stock Exchange plc, notices of noteholder meetings shall continue to be
published as set forth above. Any such notice shall be deemed to have been
given on the date of such publication or, if published more than once or on
different dates, on the first date on which publication shall have been made in
the newspaper or newspapers in which (or on the relevant screen on which)
publication is required.
So long as any notes are represented by global note certificates, and such
global note certificates are held by or on behalf of DTC, Euroclear,
Clearstream, Luxembourg or any other clearing system (an "ALTERNATIVE CLEARING
SYSTEM"), notices to holders of the notes represented by such global note
certificates may be given by delivery of the relevant notice to DTC, Euroclear,
Clearstream, Luxembourg or (as the case may be) such alternative clearing
system. Any notice delivered to DTC, Euroclear, Clearstream, Luxembourg or (as
the case may be) such alternative clearing system shall be deemed to have been
given on the day of delivery.
The note trustee shall be at liberty to sanction some other method of giving
notice to noteholders or any class or category of noteholders if, in its
opinion, such other method is reasonable having regard to market practice then
prevailing and to the requirements of the stock exchanges on which the notes
are then listed and provided that notice of such other method is given to the
noteholders in such manner as the note trustee shall require.
15. GOVERNING LAW
The transaction documents and the notes will be governed by English law,
except for those provisions in which security is taken over property situated
in Jersey, to which Jersey law shall apply, and certain provisions relating to
property situated in Scotland, to which Scots law shall apply. The courts of
England are to have non-exclusive jurisdiction to settle any disputes which may
arise out of or in connection with the transaction documents and the notes. The
issuer and the other parties to the transaction documents irrevocably submit to
the non-exclusive jurisdiction of the courts of England.
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RATINGS OF THE OFFERED NOTES
The offered notes are expected to be issued with the following ratings
assigned by Moody's, Standard & Poor's and Fitch. A 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 organization if,
in its judgement, circumstances (including, without limitation, a reduction in
the credit rating of the mortgages trustee GIC provider and/or the Funding GIC
provider and/or the swap providers) in the future so warrant.
EXPECTED RATINGS
------------------------
STANDARD
CLASS OF NOTES MOODY'S & POOR'S FITCH
- ------------------------------------------------------ ------- -------- -----
Series 1 class A1 Aaa AAA AAA
Series 1 class A3 Aaa AAA AAA
Series 2 class A1 Aaa AAA AAA
Series 1 class B Aa3 AA AA
Series 1 class M A2 A A
Series 1 class C Baa2 BBB BBB
The ratings assigned by Standard & Poor's and Fitch to each class of the
offered notes address the likelihood of full and timely payment to you of all
payments of interest on each payment date under those classes of notes. Such
ratings also address the likelihood of ultimate repayment of principal on or
before the final maturity date of each class of notes. The ratings assigned by
Moody's to each class of notes address the expected loss in proportion to the
initial principal amount of such class posed to investors by the final maturity
date. In Moody's opinion, the structure allows for timely payment of interest
and ultimate repayment of principal at par on or before the final maturity
date. The ratings do not address the likely actual rate of prepayments on the
mortgage loans. The rate of prepayments, if different than originally
anticipated, could adversely affect the yield realized on your notes.
Assignment of the expected ratings to the notes of each class will be a
condition to issue of the offered notes.
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MATURITY AND REPAYMENT CONSIDERATIONS
The average lives of the dollar notes cannot be stated, because the actual
rate of repayment of the mortgage loans and redemption of the mortgage loans
and a number of other relevant factors are unknown. Calculations of the
possible average lives of the dollar notes can be made, however, based on
certain assumptions. The assumptions used to calculate the possible average
lives of the dollar notes in the following table include that:
(1) each class of notes is repaid in full by its final maturity date;
(2) neither the issuer security nor the Funding security has been
enforced;
(3) the aggregate current balance of mortgage loans in the mortgages
trust will not fall below an amount equal to the product of 1.05
and the principal amount outstanding of all notes of all issuers
at any time;
(4) no asset trigger event or non-asset trigger event occurs;
(5) no event occurs that would cause payments on the notes to be
deferred;
(6) the issuer exercises its option to redeem the notes on the payment
date falling in (in the case of all of the notes (other than the
series 1 class A2 notes)) September 2011 and (in the case of the
series 1 class A2 notes only) March 2006, and each previous issuer
exercises its option to redeem the previous notes on the step-up
date relating to such issuer;
(7) the notes are issued on September 22, 2004;
(8) each payment made by the issuer to the noteholders is paid on the
20th day of the relevant month in which such payment is payable,
regardless of whether such date is a business day;
(9) no interest or fees are paid from mortgages trustee principal
receipts, Funding available principal receipts or issuer available
principal receipts;
(10) the mortgage loans are not subject to any defaults or losses, and
no mortgage loan falls into arrears; and
(11) the long-term, unsecured, unsubordinated and unguaranteed debt
obligations of the seller continue to be rated at least "A2" by
Moody's, "A+" by Fitch and "A" by Standard & Poor's.
Assumptions (1), (6) and (7) reflect the issuer's current expectations,
although no assurance can be given that repayment of the notes will occur as
described. Assumptions (2) through (5) and (9) through (11) relate to
unpredictable circumstances.
Based upon the foregoing assumptions, the approximate average lives of the
dollar notes, at various constant payment rates for the mortgage loans, would
be as follows:
POSSIBLE POSSIBLE POSSIBLE POSSIBLE POSSIBLE POSSIBLE
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
LIFE OF THE LIFE OF THE LIFE OF THE LIFE OF THE LIFE OF THE LIFE OF THE
SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 1 SERIES 2
CONSTANT PAYMENT CLASS A1 CLASS A3 CLASS B CLASS M CLASS C CLASS A1
RATE (% PER ANNUM) NOTES NOTES NOTES NOTES NOTES NOTES
- ------------------ ----------- ----------- ----------- ----------- ----------- -----------
(YEARS) (YEARS) (YEARS) (YEARS) (YEARS) (YEARS)
----------- ----------- ----------- ----------- ----------- -----------
5% [0.88] [4.50] [7.00] [7.00] [7.00] [5.48]
10% [0.55] [2.75] [5.14] [5.26] [5.57] [4.26]
15% [0.46] [1.92] [2.74] [2.96] [3.12] [3.85]
20% [0.45] [1.86] [1.86] [1.86] [1.86] [3.85]
25% [0.45] [1.86] [1.86] [1.86] [1.86] [3.85]
30% [0.45] [1.86] [1.86] [1.86] [1.86] [3.85]
287
The average lives of the notes are subject to factors largely outside the
control of the issuer and consequently no assurance can be given that these
assumptions and estimates are realistic and they must therefore be viewed with
considerable caution. For more information relating to the risks involved in
the use of these estimated average lives, see "RISK FACTORS -- THE YIELD TO
MATURITY OF THE NOTES MAY BE ADVERSELY AFFECTED BY PREPAYMENTS OR REDEMPTIONS
ON THE MORTGAGE LOANS OR REPURCHASES OF MORTGAGE LOANS BY THE SELLER".
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MATERIAL LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE RELATED SECURITY
The following discussion describes, in summary, the material legal aspects
in respect of the assignment of the mortgage loans and related security and of
English and Scottish residential property and mortgages. It is a brief summary
and not an exhaustive analysis of the relevant law.
ENGLISH MORTGAGE LOANS
GENERAL
The parties to a mortgage are the mortgagor, who is the borrower and
homeowner and who grants the mortgage over its property, and the mortgagee, who
is the lender. Each mortgage loan is secured by a mortgage on the property (the
mortgaged property). Since the most common form of creating a mortgage on
residential property, namely, by means of a legal charge by deed, means that a
mortgagor does not cease to be the owner of the property, generally a mortgagor
will be free to create further mortgages on the mortgaged property (subject to
any restrictions imposed by the mortgagee in the mortgage deed). Each mortgage
loan to be assigned to the mortgages trustee will be secured by a mortgage
which has a first ranking priority (except in the case of a personal secured
loan) over all other mortgages secured on the mortgaged property and over all
unsecured creditors of the borrower, except in respect of certain statutory
rights, such as the rights of the Inland Revenue, which are granted statutory
priority. There are two forms of title to land in England and Wales: registered
and unregistered. Both systems of title can include both freehold and leasehold
estates.
REGISTERED TITLE
Title to registered land is registered at H.M. Land Registry. The registrar
allocates a unique title number. Consequently if there are freehold and
leasehold registered interests then there will be more than one register of
title and more than one title number to a particular property. Each individual
register consists of three parts: the property register, the proprietorship
register and the charges register.
The property register describes the land and the type of estate, freehold or
leasehold. In some instances it may also refer to third party rights that
burden the property although these may also be mentioned in the charges
register as practice varies between the various District Land Registries around
the country.
The proprietorship register details the following:
* The class of registered title. There are three classes of
registered title for freehold and four classes for leasehold. The
most common title (and the best grade of title available) is title
absolute. A person registered with title absolute owns the estate
in the land free from all interests other than those entered on
the register, those classified as overriding interests or minor
interests (referred to below) and (in the case of leasehold land)
all express and implied covenants, obligations and liabilities
imposed by the lease or incidental to the land.
* Restrictions on the ability of the registered proprietor to deal
with the property e.g. a restriction imposed by a mortgagee
prohibiting registration of subsequent mortgagees.
The charges register details security interests and encumbrances registered
against the property.
The property is also identified by a plan retained at H.M. Land Registry
indicating the location of the related land (the "FILED PLAN"). However, the
filed plan is not conclusive as to matters such as the location of boundaries.
The Land Registration Act 2002 provides that some interests in land will
bind the land even though they are not capable of registration at H.M. Land
Registry. These fall into two categories:
289
* Overriding interests; and
* adverse rights affecting the title to the estate or charge.
Title to registered land is established and evidenced by the entries on the
register and the title plan recorded at H.M. Land Registry containing official
copies of the entries on the register relating to that land.
UNREGISTERED TITLE
All land in England and Wales is now subject to compulsory registration on
the happening of any of a number of trigger events. The most common trigger
event is a sale of the land, but since April 1998 the triggers have also
included the creation of a first priority legal mortgage over unregistered
land. However, an increasingly small but still significant proportion of land
in England and Wales (typically where the land has been in the same ownership
for a number of years) is still unregistered. Title to unregistered land is
proved by establishing a chain of documentary evidence to title going back at
least 15 years. Where the land is affected by third party rights, some of those
rights or interests, including a legal mortgage where the mortgagee has taken
possession of the title deeds, can be proved by documentary evidence or by
proof of continuous exercise of the rights for a prescribed period and do not
require registration. However, other interests, including equitable charges,
must be registered at H.M. Land Charges Registry in order to be effective
against a subsequent purchaser or mortgagee of the land.
TAKING SECURITY OVER LAND
A legal mortgage of registered land may only be effected once the charge has
been registered with H.M. Land Registry. Prior to registration, it will take
effect only as an equitable mortgage or charge. A registered legal mortgage is
subject to pre-existing registered legal charges but has priority over pre-
existing charges which are not registered and mortgages registered subsequent
to it. Where land is registered therefore, a mortgagee must register its
mortgage at H.M. Land Registry in order to secure priority over any subsequent
mortgagee. Priority of mortgages (whether legal or equitable) over registered
land is generally governed by the date of registration of the mortgage rather
than the date of creation. However, a prospective mortgagee is able to obtain a
priority period within which to register its mortgage. If the mortgagee submits
a proper application for registration during this period, its interest will
take priority over any application for registration of any interest which is
received by H.M. Land Registry during this priority period.
In the system of unregistered land, the mortgagee protects its interest by
retaining possession of the title deeds to the mortgaged property. Without the
title deeds to the mortgaged property, the borrower is unable to establish the
necessary chain of ownership, and is therefore prevented from dealing with its
land without the consent of the mortgagee. Priority of mortgages over
unregistered land depends on a number of factors including, whether the
mortgagee has taken possession of the title deeds, whether the interest is
registerable and whether it has been registered at H.M. Land Charges Registry
and the date of creation of the charge. Generally speaking where all else is
equal between two competing mortgages, the priority will be determined by the
date of creation of the charge.
THE SELLER AS MORTGAGEE
The sale to the mortgages trustee of the mortgage loans together with their
related security will take effect in equity only and the mortgages trustee will
not apply to H.M. Land Registry or H.M. Land Charges Registry to register or
record its equitable interest in the mortgages. The consequences of this are
explained in the section "RISK FACTORS -- THERE MAY BE RISKS ASSOCIATED WITH
THE FACT THAT THE MORTGAGES TRUSTEE HAS NO LEGAL TITLE TO THE MORTGAGE LOANS
AND THEIR RELATED SECURITY, WHICH MAY ADVERSELY AFFECT PAYMENTS ON THE NOTES".
290
ENFORCEMENT OF MORTGAGES
If a borrower breaches the mortgage conditions of its mortgage loan, the
mortgage loan generally provides that all monies under the mortgage loan will
become immediately due and payable. The mortgagee would then be entitled to
recover all outstanding principal, interest and fees under the covenant of the
borrower contained expressly or impliedly in the mortgage deed to pay or repay
those amounts. In addition, the mortgagee would then be entitled to enforce its
mortgage in relation to the defaulted mortgage loan. Enforcement may occur in a
number of ways, including the following:
* The mortgagee may enter into possession of the mortgaged property.
If it does so, it does so in its own right and not as agent of the
mortgagor, and so may be personally liable for mismanagement of
the mortgaged property and to third parties as occupier of the
mortgaged property.
* The mortgagee may lease the mortgaged property to third parties.
* The mortgagee may foreclose on the mortgaged property. Under
foreclosure procedures, the mortgagor's title to the mortgaged
property is extinguished so that the mortgagee becomes the owner
of the mortgaged property. The remedy is, because of procedural
constraints, rarely used.
* The mortgagee may appoint a receiver to deal with income from the
mortgaged property or exercise other rights delegated to the
receiver by the mortgagee. A receiver is the agent of the
mortgagor and so, unlike when the mortgagee enters into possession
of the mortgaged property, in theory the mortgagee is not liable
for the receiver's acts or as occupier of the mortgaged property.
In practice, however, the receiver will require indemnities from
the mortgagee that appoints it. Similar duties of care will apply
to a sale by a receiver as set out below in relation to a sale by
a mortgagee.
* The mortgagee may sell the mortgaged property, subject to various
duties to ensure that the mortgagee exercises proper care in
relation to the sale. This power of sale arises under the Law of
Property Act 1925. The purchaser of a mortgaged property sold
pursuant to a mortgagee's power of sale becomes the owner of the
mortgaged property.
Notwithstanding the above, in order to enforce a power of sale in respect of
a mortgaged property, the mortgagee must generally obtain possession of the
mortgaged property (to sell the mortgaged property with vacant possession)
either voluntarily or by a court order. Actions for possession are regulated by
statute and the courts have certain powers to adjourn possession proceedings,
to stay any possession order or postpone the date for delivery of possession.
The court will exercise such powers in favor of a borrower broadly where it
appears to the court that the borrower is likely to be able, within a
reasonable time period, to pay any sums due under the mortgage loan or to
remedy any other breach of obligation under the mortgage loan or its related
security. If a possession order in favor of the mortgagee is granted it may be
suspended to allow the borrower more time to pay. Once possession is obtained
the mortgagee has a duty to the borrower to take reasonable care to obtain a
proper price for the mortgaged property. Failure to do so will put the
mortgagee at risk of an action by the borrower for breach of such duty,
although it is for the borrower to prove breach of such duty. There is also a
risk that a borrower may also take court action to force the relevant mortgagee
to sell the property within a reasonable time.
SCOTTISH MORTGAGE LOANS
GENERAL
A standard security is the only means of creating a fixed charge over
heritable or long leasehold property in Scotland. Its form must comply with the
requirements of the Conveyancing and Feudal Reform (Scotland) Act 1970 (the
"1970 ACT"). There are two parties to a standard security. The first party is
the grantor, who is the borrower and
291
homeowner. The grantor grants the standard security over the property (the
"SECURED PROPERTY ") and is generally the only party to execute the standard
security. The second party, who is the lender, is termed the heritable
creditor. As the grantor of a standard security remains the owner of the
secured property, generally the grantor will be free to grant further standard
securities over the secured property (subject to any restriction imposed by the
heritable creditor in the standard security). Each Scottish mortgage loan
(other than any personal secured loan) in the mortgage portfolio will be
secured by a standard security which has a first ranking priority over all
other standard securities granted over the secured property and which will also
rank in priority to all unsecured creditors of the borrower.
The 1970 Act automatically imports a statutory set of "STANDARD CONDITIONS"
into all standard securities, although the majority of these may be varied by
agreement between the parties. The seller, along with most major lenders in the
residential mortgage market in Scotland, has elected to vary the Standard
Conditions by means of its own set of Scottish mortgage conditions, the terms
of which are in turn imported into each standard security. The main provisions
of the Standard Conditions which cannot be varied by agreement relate to
enforcement, and in particular the notice and other procedures required as a
preliminary to the exercise of the heritable creditor's rights on a default by
the borrower.
NATURE OF PROPERTY AS SECURITY
While title to all land in Scotland is registered there are currently two
possible forms of registration namely the Land Register and Sasine Register.
Both systems of registration can include both heritable (the Scottish
equivalent to freehold) and long leasehold land.
LAND REGISTER
This system of registration was established by the Land Registration
(Scotland) Act 1979. Since that time it has been introduced on a county by
county basis, and with effect from 1 April 2003 has applied to the whole of
Scotland. Once a county has been designated as falling within the system, the
first sale of any parcel of land (including a long leasehold) therein or the
occurrence of certain other events in relation thereto (but not the granting of
a standard security alone) triggers its registration in the Land Register, when
it is given a unique title number. Title to the land is established by a land
certificate containing official copies of the entries on the Land Register
relating to that land. Similarly, the holder of any standard security over the
land in question receives a charge certificate containing official copies of
the entries relating to that security. A person registered in the Land Register
owns the land free from all interests other than those entered on the Land
Register, those classified as overriding interests and any other interests
implied by law.
The land certificate will reveal the present owners of the land, together
with any standard securities and other interests (other than certain overriding
interests) affecting the land. The land certificate will also contain a plan
indicating the location of the land. While this plan is not in all
circumstances conclusive as to the location of the boundaries of the land, it
cannot be amended if this would be to the prejudice of a proprietor in
possession of the land, unless this indemnity has been expressly excluded in
the land certificate itself.
SASINE REGISTER
Title to all land in Scotland where no event has yet occurred to trigger
registration in the Land Register falls to be recorded in the General Register
of Sasines. Title to such land is proved by establishing a chain of documentary
evidence of title going back at least ten years. Where the land is affected by
third party rights, some of those rights can be proved by documentary evidence
or by proof of continuous exercise of the rights for a prescribed period and do
not require registration. However, other rights (including standard securities)
would have to be recorded in the Sasine Register in order to be effective
against a subsequent purchaser of the land.
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TAKING SECURITY OVER LAND
A heritable creditor must register its standard security in the Land
Register or the Sasine Register (as applicable) in order to perfect its
security and to secure priority over any subsequent standard security. Until
such registration occurs, a standard security will not be effective against a
subsequent purchaser or the heritable creditor under another standard security
over the secured property. Priority of standard securities is (subject to
express agreement to the contrary between the security holders) governed by the
date of registration (being the date of creation) rather than the date of
execution. There is no equivalent in Scotland to the priority period system
which operates in relation to registered land in England and Wales.
THE SELLER AS HERITABLE CREDITOR
The sale of the Scottish mortgage loans by the seller to the mortgages
trustee will be given effect by a declaration of trust by the seller (and any
sale of Scottish mortgage loans in the future will be given effect by further
declarations of trust), by which the beneficial interest in the Scottish
mortgage loans will be transferred to the mortgages trustee. Such beneficial
interest (as opposed to the legal title) cannot be registered in the Land or
Sasine Registers. The consequences of this are explained in the section "RISK
FACTORS -- THERE MAY BE RISKS ASSOCIATED WITH THE FACT THAT THE MORTGAGES
TRUSTEE HAS NO LEGAL TITLE TO THE MORTGAGE LOANS AND THEIR RELATED SECURITY
WHICH MAY ADVERSELY AFFECT PAYMENTS ON THE NOTES".
ENFORCEMENT OF MORTGAGES
If a borrower defaults under a mortgage loan, the Scottish mortgage
conditions provide that all monies under the mortgage loan will become
immediately due and payable. The seller would then be entitled to recover all
outstanding principal, interest and fees under the obligation of the borrower
contained in the Scottish mortgage conditions to pay or repay those amounts. In
addition, the seller as heritable creditor may enforce its standard security in
relation to the defaulted mortgage loan. Enforcement may occur in a number of
ways, including the following (all of which arise under the 1970 Act):
(i) the heritable creditor may enter into possession of the secured
property. If it does so, it does so in its own right and not as
agent of the borrower, and so may be personally liable for
mismanagement of the secured property and to third parties as
occupier of the secured property;
(ii) the heritable creditor may lease the secured property to third
parties;
(iii) the heritable creditor may sell the secured property, subject to
various duties to ensure that the sale price is the best that can
reasonably be obtained. The purchaser of a property sold pursuant
to a heritable creditor's power of sale becomes the owner of the
property; and
(iv) the heritable creditor may, in the event that a sale cannot be
achieved, foreclose on the secured property. Under foreclosure
procedures the borrower's title to the property is extinguished so
that the heritable creditor becomes the owner of the property.
This remedy is however rarely used.
In contrast to the position in England and Wales, the heritable creditor has
no power to appoint a receiver under the standard security.
Notwithstanding the above, in order to enforce its security in respect of a
secured property, the heritable creditor must generally obtain possession of
the secured property (for example, in order to sell the secured property with
vacant possession) either voluntarily or by a court order. Actions for
possession are regulated by statute (in particular the 1970 Act and the
Mortgage Rights (Scotland) Act 2001 (the "2001 ACT")) and, since the coming
into effect of the 2001 Act on December 3, 2001, the courts have certain powers
to suspend the enforcement of the security. The court will exercise such powers
in favour of a borrower broadly where it appears to the court that the borrower
is likely to be able, within a reasonable time period, to pay any sums due
under the mortgage loan or to
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remedy any other breach of obligation under the mortgage loan or its related
security, or to permit the borrower time to find alternative accommodation.
Once possession is obtained the heritable creditor has a duty to the borrower
to obtain the best price that can reasonably be obtained for the secured
property. Failure to do so will put the heritable creditor at risk of an action
by the borrower for breach of such duty, although it is for the borrower to
prove breach of such duty. There is also a risk that a borrower may also take
court action to force the relevant heritable creditor to sell the secured
property within a reasonable time.
BORROWER'S RIGHT OF REDEMPTION
Under Section 11 of the Land Tenure Reform (Scotland) Act 1974 the grantor
of any standard security has an absolute right, on giving appropriate notice,
to redeem that standard security once it has subsisted for a period of 20 years
subject only to the payment of certain sums specified in Section 11 of that
Act. These specified sums consist essentially of the principal monies advanced
by the lender, interest thereon and expenses incurred by the lender in relation
to that standard security.
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MATERIAL UNITED KINGDOM TAX CONSEQUENCES
The following section summarizes the material UK tax consequences of the
purchase, ownership and disposition of the notes based on current law and
practice in the UK. Sidley Austin Brown & Wood, UK tax advisers to the issuer
("UK TAX COUNSEL"), has prepared and reviewed this summary and the opinions of
UK tax counsel are contained in this summary. The summary assumes that the
final documentation conforms with the description in the prospectus. The
summary also assumes that the representations made by each of Funding and the
issuer, respectively, to UK tax counsel that the profit in Funding's profit and
loss account will not exceed 0.01% of the Funding available revenue receipts
and that the profit in the issuer's profit and loss account will not exceed
0.01% of the interest on the intercompany loan are correct. It further assumes
that all payments made pursuant to the final documentation are calculated on
arms' length terms. The summary does not purport to be a complete analysis of
all tax considerations of the purchase, ownership and disposition of the notes.
It relates to the position of persons who are the absolute beneficial owners of
notes such as individuals, partnerships and non- financial trade corporate
entities, and may not apply to certain classes of persons such as financial
trade corporate entities (such as banks, securities dealers and securities
brokers), investment managers, insurance companies, pension funds and UK unit
and investment trusts. You should consult your own tax adviser if you are
uncertain of your current tax position.
TAXATION OF US RESIDENTS
As discussed in more detail under "-- WITHHOLDING TAX" below, UK tax counsel
is of the opinion that a noteholder who is resident in the US for US tax
purposes may obtain payment of interest on his notes without deduction of UK
tax if and for so long as the notes are listed on a "RECOGNISED STOCK
EXCHANGE". If the notes cease to be listed on a recognised stock exchange, an
amount must generally be withheld on account of UK income tax at the lower rate
(currently 20%) from interest paid on them subject to any direction to the
contrary from the Inland Revenue in respect of such relief as may be available
pursuant to the provisions of an applicable double taxation treaty.
Residents of the US are generally not subject to tax in the UK on payments
of interest on the notes under the double taxation treaty between the US and
the UK, subject to completion of administrative formalities, except where the
notes are effectively connected with a permanent establishment or a fixed base
of the noteholder situated in the UK. The benefit of the double taxation treaty
between the US and the UK is excluded in respect of any interest paid under, or
as part of, a conduit arrangement and is also subject to comprehensive
limitation on benefits provisions.
In addition, UK tax counsel is of the opinion that, as discussed in more
detail under "-- DIRECT ASSESSMENT OF NON-UK RESIDENT HOLDERS OF NOTES TO UK
TAX ON INTEREST" below, a noteholder who is resident in the US for US tax
purposes and who is not resident in the UK for UK tax purposes will not be
subject to UK tax (other than any withholding tax, as regards which see above)
in respect of any payments on the notes unless they are held by or for a trade,
profession or vocation carried on by him through a branch or agency (or, in the
case of a noteholder which is a company, for a trade carried on by it through a
permanent establishment) in the UK.
It is the opinion of UK tax counsel that US resident noteholders will not be
liable to UK tax in respect of a disposal of the notes provided they are not
within the charge to UK corporation tax and (i) are not resident or ordinarily
resident in the UK, and (ii) do not carry on a trade, profession or vocation in
the UK through a branch or agency in connection with which interest is received
or to which the notes are attributable.
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It is the opinion of UK tax counsel that, as discussed in more detail below
under "-- UK TAXATION OF FUNDING AND THE ISSUER", Funding and the issuer will
generally be subject to UK corporation tax, currently at a rate of 30%, on the
profit reflected in their respective profit and loss accounts as increased by
the amounts of any non-deductible expenses or losses.
It is the opinion of UK tax counsel that, as discussed in more detail below
under "-- UK TAXATION OF THE MORTGAGES TRUSTEE", the mortgages trustee will have
no liability to UK tax in relation to amounts which it receives on behalf of
Funding or the seller under the mortgages trust.
Except as described in the preceding paragraphs (and as further developed
in the corresponding opinions below), UK tax counsel will render no opinions
relating to the notes, the parties to the transaction, or any aspects of the
transaction.
WITHHOLDING TAX
For so long as the notes are and continue to be listed on a "RECOGNISED
STOCK EXCHANGE" within the meaning of section 841 of the Income and Corporation
Taxes Act 1988 (the London Stock Exchange plc is such a recognised stock
exchange for this purpose) interest payments on each of the notes will be
treated as a "PAYMENT OF INTEREST ON A QUOTED EUROBOND" within the meaning of
section 349 of the Income and Corporation Taxes Act 1988. Under an Inland
Revenue interpretation, securities will be regarded as listed on a recognised
stock exchange if they are listed by a competent authority in a country which
is a member state of the European Union or which is part of the European
Economic Area and are admitted to trading on a recognised stock exchange in
that country. In these circumstances, payments of interest on the notes may be
made without withholding or deduction for or on account of UK income tax
irrespective of whether the notes are in global form or in definitive form.
If the notes cease to be listed on a recognised stock exchange, an amount
must be withheld on account of UK income tax at the lower rate (currently 20%)
from interest paid on them, subject to any direction to the contrary from the
Inland Revenue in respect of such relief as may be available pursuant to the
provisions of an applicable double taxation treaty or to the interest being
paid to the persons (including companies within the charge to UK corporation
tax) and in the circumstances specified in sections 349A to 349D of the Income
and Corporation Taxes Act 1988.
The European Union has adopted a Directive regarding the taxation of savings
income. Subject to a number of important conditions being met, it is proposed
that member states will be required from July 1, 2005, to provide to the tax
authorities of other member states details of payments of interest and other
similar income paid by a person 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.
Payments of interest and principal with respect to the notes will be subject
to any applicable withholding taxes and the issuer will not be obliged to pay
additional amounts in relation thereto.
DIRECT ASSESSMENT OF NON-UK RESIDENT HOLDERS OF NOTES TO UK TAX ON INTEREST
Interest on the notes constitutes UK source income and, as such, may be
subject to income tax by direct assessment even where paid without withholding,
subject to any direction to the contrary from the Inland Revenue in respect of
such relief as may be available pursuant to the provisions of an applicable
double taxation treaty.
However, interest with a UK source received without deduction or withholding
on account of UK tax will not be chargeable to UK tax in the hands of a
noteholder (other than certain trustees) who is not resident for tax purposes
in the UK unless that noteholder carries on a trade, profession or vocation
through a branch or agency (or, in the case of a
296
noteholder which is a company, which carries on a trade through a permanent
establishment) in the UK in connection with which the interest is received or
to which the notes are attributable. There are exemptions for interest received
by certain categories of agent (such as some brokers and investment managers).
Where interest has been paid under deduction of UK income tax, noteholders
who are not resident in the UK may be able to recover all or part of the tax
deducted if there is an appropriate provision under an applicable double
taxation treaty.
TAXATION OF RETURNS: COMPANIES WITHIN THE CHARGE TO UK CORPORATION TAX
In general, noteholders which are within the charge to UK corporation tax in
respect of notes will be charged to tax and obtain relief as income on all
returns, profits or gains on, and fluctuations in value of the notes (whether
attributable to currency fluctuations or otherwise) broadly in accordance with
their statutory accounting treatment.
TAXATION OF RETURNS: OTHER NOTEHOLDERS
Noteholders who are not within the charge to UK corporation tax and who are
resident or ordinarily resident in the UK for tax purposes or who carry on a
trade, profession or vocation in the UK through a branch or agency in
connection with which interest on the notes is received or to which the notes
are attributable will generally be liable to UK tax on the amount of any
interest received in respect of the notes.
As the dollar notes are denominated in US dollars and the euro notes are
denominated in euro, the series 1 notes and the series 2 notes will not be
regarded by the Inland Revenue as constituting "QUALIFYING CORPORATE BONDS"
within the meaning of Section 117 of the Taxation of Chargeable Gains Act 1992.
Accordingly, a disposal of any of these notes may give rise to a chargeable
gain or an allowable loss for the purposes of the UK taxation of chargeable
gains.
It is expected that the sterling notes will be regarded by the Inland
Revenue as constituting "QUALIFYING CORPORATE BONDS" within the meaning of
Section 117 of the Taxation of Chargeable Gains Act 1992. Accordingly, a
disposal of any of these notes is not expected to give rise to a chargeable
gain or an allowable loss for the purposes of the UK taxation of chargeable
gains.
There are provisions to prevent any particular gain (or loss) from being
charged (or relieved) at the same time under these provisions and also under
the provisions of the "ACCRUED INCOME SCHEME" described below.
On a disposal of notes by a noteholder, any interest which has accrued since
the last payment date may be chargeable to tax as income under the rules of the
"ACCRUED INCOME SCHEME" if that noteholder is resident or ordinarily resident
in the UK or carries on a trade in the UK through a branch or agency to which
the notes are attributable.
The notes are likely to constitute variable rate securities for the purposes
of the accrued income scheme. Under the accrued income scheme, upon a disposal
of notes by a noteholder who is resident or ordinarily resident in the United
Kingdom or who carries on a trade in the United Kingdom through a branch or
agency to which the notes are attributable, the noteholder may be charged to
income tax on an amount of interest which is just and reasonable in the
circumstances. The purchaser of such a note will not be entitled to any
equivalent tax credit under the accrued income scheme to set against any actual
interest received by the purchaser in respect of the notes (which may therefore
be taxable in full).
STAMP DUTY AND STAMP DUTY RESERVE TAX
No UK stamp duty or stamp duty reserve tax is payable on the issue or
transfer of the offered notes, whether such offered note is in global or
definitive form.
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UK TAXATION OF FUNDING AND THE ISSUER
It is the opinion of UK tax counsel that Funding and the issuer will
generally be subject to UK corporation tax, currently at a rate of 30%, on the
profit reflected in their respective profit and loss accounts as increased by
the amounts of any non-deductible expenses or losses. In respect of Funding,
the profit in the profit and loss account will not exceed 0.01% of the Funding
available revenue receipts. In respect of the issuer, the profit in the profit
and loss account will not exceed 0.01% of the interest on the intercompany
loan. Any liability to UK corporation tax will be paid out of the available
revenue receipts of Funding and the issuer, respectively.
UK TAXATION OF THE MORTGAGES TRUSTEE
It is the opinion of UK tax counsel that the mortgages trustee will have no
liability to UK tax in respect of any income, profit or gain arising under
these arrangements. Accordingly, the mortgages trustee will have no liability
to UK tax in relation to amounts which it receives on behalf of Funding or the
seller under the mortgages trust.
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MATERIAL UNITED STATES TAX CONSEQUENCES
GENERAL
The following section summarizes the material United States federal income
tax consequences of the purchase, ownership and disposition of the dollar notes
that may be relevant to a holder of dollar notes that is a "UNITED STATES
PERSON" (as defined later in this section) or that otherwise is subject to US
federal income taxation on a net income basis in respect of a dollar note (any
such United States person or holder, a "US HOLDER"). In general, the summary
assumes that a holder acquires a dollar note at original issuance and holds
such note as a capital asset. It does not purport to be a comprehensive
description of all the tax considerations that may be relevant to a decision to
purchase the dollar notes. In particular, it does not discuss special tax
considerations that may apply to certain types of taxpayers, including dealers
in stocks, securities or notional principal contracts; traders in securities
electing to mark to market; banks, savings and loan associations and similar
financial institutions; taxpayers whose functional currency is other than the
US dollar; taxpayers that hold a dollar note as part of a hedge or straddle or
a conversion transaction, within the meaning of section 1258 of the US Internal
Revenue Code of 1986, as amended (the "CODE"); and subsequent purchasers of
dollar notes. In addition, this summary does not describe any tax consequences
arising under the laws of any taxing jurisdiction other than the US federal
government.
This summary is based on the US tax laws, regulations, rulings and decisions
in effect or available as of the date of this prospectus. All of the foregoing
are subject to change, and any change may apply retroactively and could affect
the continued validity of this summary.
Sidley Austin Brown & Wood LLP, US tax advisers to the issuer ("US TAX
COUNSEL"), has prepared and reviewed this summary of material US federal income
tax consequences. As described under "-- TAX STATUS OF THE ISSUER, FUNDING,
MORTGAGES TRUSTEE AND MORTGAGES TRUST", US tax counsel is of the opinion that
the mortgages trustee acting as trustee of the mortgages trust, Funding, and
the issuer will not be subject to US federal income tax as a result of their
contemplated activities. As described further under "-- CHARACTERIZATION OF THE
DOLLAR NOTES", US tax counsel is also of the opinion that, although there is no
authority on the treatment of instruments substantially similar to the dollar
notes, and while not free from doubt, the dollar notes will be treated as debt
for US federal income tax purposes. Except as described in the two preceding
sentences (and set forth in the corresponding opinions), US tax counsel will
render no opinions relating to the notes or the parties to the transaction.
An opinion of US tax counsel is not binding on the US Internal Revenue
Service (the "IRS") or the courts, and no rulings will be sought from the IRS
on any of the issues discussed in this section. ACCORDINGLY, THE ISSUER
SUGGESTS THAT PERSONS CONSIDERING THE PURCHASE OF DOLLAR NOTES CONSULT THEIR
OWN TAX ADVISORS AS TO THE US FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE DOLLAR NOTES, INCLUDING THE POSSIBLE
APPLICATION OF STATE, LOCAL, NON-US OR OTHER TAX LAWS, AND OTHER US TAX ISSUES
AFFECTING THE TRANSACTION.
As used in this section the term "UNITED STATES PERSON" means (a) an
individual who is a citizen or resident of the United States, (b) an entity
treated as a corporation or partnership for United States federal income tax
purposes that is organized or created under the law of the United States, a
State thereof, or the District of Columbia, (c) any estate the income of which
is subject to taxation in the United States regardless of source, and (d) any
trust if a court within the United States is able to exercise primary
supervision over its administration and one or more United States persons have
the authority to control all substantial decisions of the trust, or the trust
was in existence on August 20, 1996 and is eligible to elect, and has made a
valid election, to be treated as a United States person despite not meeting
those requirements.
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TAX STATUS OF THE ISSUER, FUNDING, MORTGAGES TRUSTEE AND MORTGAGES TRUST
Under the transaction documents, each of the issuer, Funding, and the
mortgages trustee, acting in its capacity as trustee of the mortgages trust,
covenants not to engage in any activities in the United States (directly or
through agents), not to derive any income from sources within the United States
as determined under US federal income tax principles, and not to hold any
mortgaged property if doing so would cause it to be engaged or deemed to be
engaged in a trade or business within the United States as determined under US
federal income tax principles. US tax counsel is of the opinion that, assuming
compliance with the transaction documents, none of the issuer, Funding or the
mortgages trustee, acting in its capacity as trustee of the mortgages trust,
will be subject to US federal income tax. No elections will be made to treat
the issuer, Funding, or the mortgage trust or any of their assets as a REMIC or
a FASIT (two types of securitization vehicles having a special tax status under
the Code).
CHARACTERIZATION OF THE DOLLAR NOTES
Although there is no authority regarding the treatment of instruments that
are substantially similar to the dollar notes, and while not free from doubt,
it is the opinion of US tax counsel that the dollar notes will be treated as
debt for US federal income tax purposes. The issuer intends to treat the dollar
notes as indebtedness of the issuer for all purposes, including US tax
purposes. The discussion in the next section assumes this result.
The dollar notes will not be qualifying real property mortgage loans in the
hands of domestic savings and loan associations, real estate investment trusts,
or REMICs under sections 7701(a)(19)(C), 856(c) or 860G(a)(3) of the Code,
respectively.
TAXATION OF US HOLDERS OF THE DOLLAR NOTES
Qualified Stated Interest and Original Issue Discount ("OID"). The issuer
intends to treat interest on the dollar notes as "QUALIFIED STATED INTEREST"
under United States Treasury regulations relating to original issue discount
(hereafter, the "OID REGULATIONS"). As a consequence, discount on the dollar
notes arising from an issuance at less than par will only be required to be
accrued under the OID regulations if such discount exceeds a statutorily
defined de minimis amount. Qualified stated interest, which generally must be
unconditionally payable at least annually, is taxed under a holder's normal
method of accounting. De minimis OID is included in income on a pro rata basis
as principal payments are made on the dollar notes. It is possible that
interest on the dollar notes could be treated as OID because such interest is
subject to deferral in certain limited circumstances.
A US holder of a dollar note issued with OID must include OID in income over
the term of such dollar note under a constant yield method that takes into
account the compounding of interest. Under the Code, OID is calculated and
accrued using prepayment assumptions where payments on a debt instrument may be
accelerated by reason of prepayments of other obligations securing such debt
instrument. Moreover, the legislative history to the provisions provides that
the same prepayment assumptions used to price a debt instrument be used to
calculate OID, as well as to accrue market discount and amortize premium. Here,
prepayment of the mortgage loans is not expected to alter the scheduled
principal payments on the dollar notes and accordingly, the issuer intends to
assume that the dollar notes will have their principal repaid according to the
schedule for purposes of accruing any OID. No representation is made that the
mortgage loans will pay on the basis of such prepayment assumption or in
accordance with any other prepayment scenario.
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As an alternative to the above treatments, US holders may elect to include
in gross income all interest with respect to the dollar notes, including stated
interest, acquisition discount, OID, de minimis OID, market discount, de
minimis market discount, and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium, using the constant yield method described
above.
Sales and Retirement. In general, a US holder of a dollar note will have a
basis in such note equal to the cost of the note to such holder, and reduced by
any payments thereon other than payments of stated interest. Upon a sale or
exchange of the note, a US holder will generally recognize gain or loss equal
to the difference between the amount realized (less any accrued interest, which
would be taxable as such) and the holder's tax basis in the note. Such gain or
loss will be long-term capital gain or loss if the US holder has held the note
for more than one year at the time of disposition. In certain circumstances, US
holders that are individuals may be entitled to preferential treatment for net
long-term capital gains. The ability of US holders to offset capital losses
against ordinary income is limited.
Alternative Characterization of the dollar Notes. The proper
characterization of the arrangement involving the issuer and the holders of the
dollar notes is not clear because there is no authority on transactions
comparable to that contemplated herein. The issuer intends to treat the dollar
notes as debt of the issuer for all US federal income tax purposes. Prospective
investors should consult their own tax advisors with respect to the potential
impact of an alternative characterization of the dollar notes for US tax
purposes. One possible alternative characterization is that the IRS could
assert that the series 1 class C notes or any other class of notes should be
treated as equity in the issuer for US federal income tax purposes. If the
series 1 class C notes or any other class of notes were treated as equity, US
holders of such notes would be treated as owning equity in a passive foreign
investment company ("PFIC") which, depending on the level of ownership of such
US holder and certain other factors, might also constitute an interest in a
controlled foreign corporation for such US holder. This would have certain
timing and character consequences for US holders and could require certain
elections and disclosures that would need to be made shortly after acquisition
to avoid potentially adverse US tax consequences.
If the issuer was treated as a PFIC, unless a United States person makes a
"QEF ELECTION" or "MARK TO MARKET ELECTION", such person will be subject to a
special tax regime (i) in respect of gains realized on the sale or other
disposition of its dollar notes, and (ii) in respect of distributions on its
dollar notes held for more than one taxable year to the extent those
distributions constitute "EXCESS DISTRIBUTIONS". Although not free from doubt,
the PFIC rules should not apply to gain realized in respect of any dollar notes
disposed of during the same taxable year in which such dollar notes are
acquired. An excess distribution generally includes dividends or other
distributions received from a PFIC in any taxable year to the extent the amount
of such distributions exceeds 125% of the average distributions for the three
preceding years (or, if shorter, the investor's holding period). Because the
dollar notes pay interest at a floating rate, it is possible that a United
States person will receive "EXCESS DISTRIBUTIONS" as a result of fluctuations
in the rate of three-month US dollar LIBOR over the term of the dollar notes.
In general, under the PFIC rules, a United States person will be required to
allocate such excess distributions and any gain realized on a sale of its
dollar notes to each day during the such person's holding period for the dollar
notes, and will be taxable at the highest rate of taxation applicable to the
dollar notes for the year to which the excess distribution or gain is allocable
(without regard to the such person's other items of income and loss for such
taxable year) (the "DEFERRED TAX"). The deferred tax (other than the tax on
amounts allocable to the year of disposition or receipt of the distribution)
will then be increased by an interest charge computed by reference to the rate
generally applicable to underpayments of tax (which interest charge generally
will be non-deductible interest expense for individual taxpayers).
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BACKUP WITHHOLDING
Backup withholding of US federal income tax may apply to payments made in
respect of the notes to registered owners who are not "EXEMPT RECIPIENTS" and
who fail to provide certain identifying information (such as the registered
owner's taxpayer identification number) in the required manner. Generally,
individuals are not exempt recipients, whereas corporations and certain other
entities generally are exempt recipients. Payments made in respect of the
dollar notes to a United States person must be reported to the IRS, unless such
person is an exempt recipient or establishes an exemption. With respect to non-
United States persons investing in the dollar notes, to ensure they qualify for
an exemption, the paying agent will require such beneficial holder to provide a
statement from the individual or corporation that:
* is signed under penalties of perjury by the beneficial owner of
the note,
* certifies that such owner is not a United States person, and
* provides the beneficial owner's name and address.
Generally, this statement is made on an IRS Form W-8BEN ("W-8BEN"), which is
effective for the remainder of the year of signature plus three full calendar
years unless a change in circumstances makes any information on the form
incorrect. The noteholder must inform the paying agent within 30 days of such
change and furnish a new W-8BEN. A noteholder that is not an individual or an
entity treated as a corporation for US federal income tax purposes or that is
not holding the notes on its own behalf may have substantially increased
reporting requirements. For example, a non-US partnership or non- US trust
generally must provide the certification from each of its partners or
beneficiaries along with certain additional information. Certain securities
clearing organizations, and other entities who are not beneficial owners, may
be able to provide a signed statement to the paying agent. However, in such
case, the signed statement may require a copy of the beneficial owner's W-8BEN
(or the substitute form).
In addition, upon the sale of a note to (or through) a broker, the broker
must report the sale and backup withholding on the entire purchase price,
unless (i) the broker determines that the seller is a corporation or other
exempt recipient, (ii) the seller certifies (as described above) that such
seller is a non-United States person and certain other conditions are met or
(iii) the broker has the taxpayer identification number of the recipient
properly certified as correct.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's US federal income tax provided the required information is
furnished to the IRS.
Prospective investors should consult their own tax advisors with respect to
the foregoing withholding tax requirements.
THE US FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON AN OWNER'S PARTICULAR
SITUATION. HOLDERS OF DOLLAR NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF
DOLLAR NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX
LAWS.
302
MATERIAL JERSEY (CHANNEL ISLANDS) TAX CONSIDERATIONS
TAX STATUS OF THE MORTGAGES TRUSTEE AND THE MORTGAGES TRUST
It is the opinion of Jersey (Channel Islands) tax counsel that the mortgages
trustee will be resident in Jersey for taxation purposes and will be liable to
income tax in Jersey at a rate of 20% in respect of the profits it makes from
acting as trustee of the mortgages trust. The mortgages trustee will not be
liable for any income tax in Jersey in respect of any income it receives in its
capacity as mortgages trustee on behalf of the beneficiaries of the mortgages
trust.
TAX STATUS OF FUNDING
Funding has "EXEMPT COMPANY" status within the meaning of Article 123A of
the Income Tax (Jersey) Law, 1961, as amended, for the calendar year ending
December 31, 2004. Funding will be required to pay an annual exempt company
charge (currently [GBP]600) in respect of each calendar year during which it
wishes to retain exempt company status. The retention of exempt company status
(for as long as such status is available under Jersey law) is conditional upon
the exempt company charge being paid, Funding disclosing its beneficial
ownership within the required time limits and the Comptroller of Income Tax in
Jersey being satisfied that no Jersey resident has a beneficial interest in
Funding, except as permitted by concessions granted by the Comptroller of
Income Tax. As at the date of this prospectus no Jersey resident person has or
is anticipated to have any beneficial interest in Funding, and therefore such
concessions are not expected to be relied upon.
As an exempt company, Funding will not be liable to Jersey income tax other
than on Jersey source income (except bank deposit interest on Jersey bank
accounts). It is the opinion of Jersey (Channel Islands) tax counsel that, for
so long as Funding is an exempt company, payments in respect of the
intercompany loan will not be subject to Jersey taxation and no withholding in
respect of taxation will be required on such payments to the issuer under the
intercompany loan.
It is the opinion of Jersey (Channel Islands) tax counsel that the income of
Funding will not be Jersey source income insofar as the income of Funding
arises only from the mortgages trust property and that property is either
situated outside Jersey or is interest on bank or building society deposits in
Jersey.
On June 3, 2003, the European Union Council of Economic and Finance
Ministers reached political agreement on the adoption of a Code of Conduct on
Business Taxation. Although Jersey is not a member of the European Union, the
Policy & Resources Committee of the States of Jersey has announced that, in
keeping with Jersey's policy of constructive international engagement, it
intends to propose legislation to replace the Jersey exempt company regime by
the end of 2008 with a general zero rate of corporate tax.
303
ERISA CONSIDERATIONS
The dollar notes are eligible for purchase by employee benefit plans and
other plans subject to the US Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and/or the provisions of Section 4975 of the Code and by
governmental plans that are subject to state, local or other federal law of the
United States that is substantially similar to ERISA or Section 4975 of the
Code, subject to consideration of the issues described in this section. ERISA
imposes certain requirements on "EMPLOYEE BENEFIT PLANS" (as defined in Section
3(3) of ERISA) subject to ERISA, including entities such as collective
investment funds and separate accounts whose underlying assets include the
assets of such plans (collectively, "ERISA PLANS") and on those persons who are
fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject
to ERISA's general fiduciary requirements, including the requirements of
investment prudence and diversification and the requirement that an ERISA
Plan's investments be made in accordance with the documents governing the Plan.
The prudence of a particular investment must be determined by the responsible
fiduciary of an ERISA Plan by taking into account the ERISA Plan's particular
circumstances and all of the facts and circumstances of the investment
including, but not limited to, the matters discussed under "RISK FACTORS" and
the fact that in the future there may be no market in which such fiduciary will
be able to sell or otherwise dispose of the notes.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of an ERISA Plan (as well as those plans that
are not subject to ERISA but which are subject to Section 4975 of the Code,
such as individual retirement accounts (together with ERISA Plans, the
"PLANS")) and certain persons (referred to as "PARTIES IN INTEREST" or
"DISQUALIFIED PERSONS") having certain relationships to such Plans, unless a
statutory or administrative exemption is applicable to the transaction. A party
in interest or disqualified person who engages in a prohibited transaction may
be subject to excise taxes and other penalties and liabilities under ERISA and
the Code.
The seller, the issuer, the administrator, the mortgages trustee, Funding or
any other party to the transactions contemplated by the transaction documents
may be parties in interest or disqualified persons with respect to many Plans.
Prohibited transactions within the meaning of Section 406 of ERISA or Section
4975 of the Code may arise if any of the dollar notes are acquired or held by a
Plan with respect to which the issuer, the administrator, the mortgages
trustee, Funding or any other party to such transactions, is a party in
interest or a disqualified person. Certain exemptions from the prohibited
transaction provisions of Section 406 of ERISA and Section 4975 of the Code may
be applicable, however, depending in part on the type of Plan fiduciary making
the decision to acquire any such notes and the circumstances under which such
decision is made. Included among these exemptions are Prohibited Transaction
Class Exemption ("PTCE") 91-38 (relating to investments by bank collective
investment funds), PTCE 84-14 (relating to transactions effected by a
"QUALIFIED PROFESSIONAL ASSET MANAGER"), PTCE 95-60 (relating to transactions
involving insurance company general accounts), PTCE 90-1 (relating to
investments by insurance company pooled separate accounts) and PTCE 96-23
(relating to transactions determined by in-house asset managers). There can be
no assurance that any of these class exemptions or any other exemption will be
available with respect to any particular transaction involving the notes.
Each purchaser and subsequent transferee of any dollar note will be deemed
by such purchase or acquisition of any such note to have represented and
warranted, on each day from the date on which the purchaser or transferee
acquires such note through and including the date on which the purchaser or
transferee disposes of such note, either that (A) it is not an ERISA Plan or
other Plan, an entity whose underlying assets include the assets of any such
ERISA Plan or other Plan, or a governmental plan which is subject to any
federal, state or local law of the United States that is substantially similar
to the provisions of section 406 of ERISA or section 4975 of the Code or (B)
its purchase, holding and disposition of such note will not result in a
prohibited transaction under section
304
406 of ERISA or section 4975 of the Code (or, in the case of a governmental
plan, any substantially similar federal, state or local law of the United
States) for which an exemption is not available.
In addition, the US Department of Labor has promulgated a regulation, 29
C.F.R. Section 2510.3-101 (the "PLAN ASSET REGULATION"), describing what
constitutes the assets of a Plan with respect to the Plan's investment in an
entity for purposes of certain provisions of ERISA, including the fiduciary
responsibility provisions of Title I of ERISA, and Section 4975 of the Code.
Under the Plan Asset Regulation, if a Plan invests in an "EQUITY INTEREST" of
an entity that is neither a "PUBLICLY-OFFERED SECURITY" nor a security issued
by an investment company registered under the 1940 Act, the Plan's assets
include both the equity interest and an undivided interest in each of the
entity's underlying assets, unless one of the exceptions to such treatment
described in the Plan Asset Regulation applies. Under the Plan Asset
Regulation, a security which is in debt form may be considered an "EQUITY
INTEREST" if it has "SUBSTANTIAL EQUITY FEATURES". If the issuer were deemed
under the Plan Asset Regulation to hold plan assets by reason of a Plan's
investment in any of the dollar notes, such plan assets would include an
undivided interest in the assets held by the issuer and transactions by the
issuer would be subject to the fiduciary responsibility provisions of Title I
of ERISA and the prohibited transaction provisions of ERISA and Section 4975 of
the Code. Investors should note that concerns in respect of the foregoing may
be magnified here, particularly in the case of the series 1 class C notes. In
addition, in analyzing these issues with their own counsel, prospective
purchasers of notes should consider, among other things, that, although special
tax counsel has concluded that the notes are debt for federal income tax
purposes, see "MATERIAL UNITED STATES TAX CONSEQUENCES", it is not clear
whether the debt would be treated for tax purposes as issued by the issuer. If
the underlying assets of the issuer are deemed to be Plan assets, the
obligations and other responsibilities of Plan sponsors, Plan fiduciaries and
Plan administrators, and of parties in interest and disqualified persons, under
parts 1 and 4 of subtitle B of title I of ERISA and section 4975 of the Code,
as applicable, may be expanded, and there may be an increase in their liability
under these and other provisions of ERISA and the Code (except to the extent
(if any) that a favorable statutory or administrative exemption or exception
applies). In addition, various providers of fiduciary or other services to the
issuer, and any other parties with authority or control with respect to the
issuer, could be deemed to be Plan fiduciaries or otherwise parties in interest
or disqualified persons by virtue of their provision of such services.
Any insurance company proposing to purchase any of the dollar notes using
the assets of its general account should consider the extent to which such
investment would be subject to the requirements of ERISA in light of the US
Supreme Court's decision in John Hancock Mutual Life Insurance Co. v. Harris
Trust and Savings Bank and under any subsequent guidance that may become
available relating to that decision. In particular, such an insurance company
should consider the retroactive and prospective exemptive relief granted by the
Department of Labor for transactions involving insurance company general
accounts in PTCE 95-60, 60 Fed. Reg. 35925 (July 12, 1995), the enactment of
Section 401(c) of ERISA by the Small Business Job Protection Act of 1996
(including, without limitation, the expiration of any relief granted
thereunder) and the regulations thereunder.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold any of the dollar notes
should determine whether, under the documents and instruments governing the
Plan, an investment in the notes is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment mortgage portfolio. Any Plan proposing to invest in such
notes (including any governmental plan) should consult with its counsel to
confirm, among other things, that such investment will not result in a non-
exempt prohibited transaction and will satisfy the other requirements of ERISA
and the Code (or, in the case of a governmental plan, any substantially similar
state, local or other federal law).
305
The sale of any notes to a Plan is in no respect a representation by the
seller, the issuer, the administrator, the mortgages trustee, Funding or any
other party to the transactions that such an investment meets all relevant
legal requirements with respect to investments by Plans generally or any
particular Plan, or that such an investment is appropriate for Plans generally
or any particular Plan.
306
ENFORCEMENT OF FOREIGN JUDGMENTS IN ENGLAND AND WALES
The issuer is a UK public company incorporated with limited liability in
England and Wales.
Any final and conclusive judgment of any New York State or United States
Federal Court sitting in the Borough of Manhattan in the City of New York
having jurisdiction recognized by England or Wales in respect of an obligation
of the issuer in respect of the notes for a fixed sum of money and which has
not been stayed or satisfied in full, would be enforceable by action against
the issuer in the courts of England and Wales without a re- examination of the
merits of the issues determined by the proceedings in the New York State or
United States Federal Court.
This will be the case unless the following occurs:
* the proceedings in the New York State or the United States Federal
Court in which the judgment was obtained were contrary to the
principles of natural or substantive justice;
* enforcement of the judgment is contrary to the public policy of
England or Wales;
* the judgment was obtained by fraud or duress or was based on a
clear mistake of fact;
* the judgment is of a public nature (for example, a penal or
revenue judgment);
* there has been a prior judgment in another court concerning the
same issues between the same parties as are dealt with in the
judgment of the New York State or the United States Federal Court;
* the enforcement would contravene section 5 of the Protection of
Trading Interests Act 1980; or
* the enforcement proceedings are not instituted within six years
after the date of the judgment.
The issuer expressly submits to the non-exclusive jurisdiction of the courts
of England for the purpose of any suit, action or proceedings arising out of
this offering. A judgment by a court may be given in some cases only in
sterling.
All of the directors and executive officers of the issuer reside outside the
United States. Substantially all of the assets of all or many of such persons
are located outside the United States. As a result, it may not be possible for
the noteholders to effect service of process within the United States upon such
persons with respect to matters arising under the federal securities laws of
the United States or to enforce against them judgments obtained in United
States courts predicated upon the civil liability provisions of such laws.
The issuer has been advised by Sidley Austin Brown & Wood, its English
counsel, that there is doubt as to the enforceability in England and Wales, in
original actions or in actions for enforcement of judgments of United States
courts, of civil liabilities predicated upon the Federal securities laws of the
United States based on the restrictions referred to above.
307
UNITED STATES LEGAL INVESTMENT CONSIDERATIONS
None of the notes is a "MORTGAGE RELATED SECURITY" under the United States
Secondary Mortgage Market Enhancement Act of 1984, as amended.
The appropriate characterization of the notes under various legal investment
restrictions and, consequently, the ability of investors subject to these
restrictions to purchase such notes, is subject to significant interpretative
uncertainties. These uncertainties may adversely affect the liquidity of, and
the creation of any secondary market for, the notes. Accordingly, investors
should consult their own legal advisors in determining whether and the extent
to which the notes constitute legal investments or are subject to investment,
capital or other restrictions.
EXPERTS
The financial statements of Granite Finance Funding Limited for the period
from February 14, 2001 to December 31, 2001 and for the years ended December
31, 2003 and December 31, 2002 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the authority of that
firm as experts in auditing and accounting.
The balance sheet of Granite Mortgages 04-3 plc as at August 27, 2004
included in this prospectus has been so included in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of that firm as experts in auditing and accounting.
LEGAL MATTERS
Certain matters of English law and United States law regarding the notes,
including matters relating to the validity of the issuance of the notes, will
be passed upon for the issuer by Sidley Austin Brown & Wood, London. Certain
matters of United States law regarding matters of United States federal income
tax law with respect to the dollar notes will be passed upon for the issuer by
Sidley Austin Brown & Wood LLP, New York. Certain matters of English law and
United States law will be passed upon for the underwriters by Allen & Overy
LLP, London.
Certain matters of Jersey (Channel Islands) law regarding the mortgages
trustee and Funding will be passed upon for the mortgages trustee and Funding,
respectively, by Mourant du Feu & Jeune, London.
308
UNDERWRITING
UNITED STATES
The issuer has agreed to sell, and Deutsche Bank Securities Inc., Lehman
Brothers Inc. and UBS Limited (the "LEAD UNDERWRITERS") and the other
underwriters for the dollar notes listed in the following table have agreed to
purchase, the principal amount of those notes listed in that table (also called
the "OFFERED NOTES"). The terms of these purchases are governed by an
underwriting agreement among the issuer, the lead underwriters and the
underwriters. The underwriters or affiliates of certain of the underwriters
have also agreed to pay and subscribe for the other classes of notes not being
offered pursuant to this prospectus on the closing date.
PRINCIPAL
AMOUNT OF THE
SERIES 1 CLASS
UNDERWRITERS OF THE SERIES 1 CLASS A1 NOTES A1 NOTES
- ---------------------------------------------------------------- --------------
Barclays Capital Inc. USD[__]
Citigroup Global Markets Limited USD[__]
Deutsche Bank Securities Inc. USD[__]
HSBC Bank plc USD[__]
J.P. Morgan Securities Inc. USD[__]
Lehman Brothers Inc. USD[__]
Merrill Lynch, Pierce, Fenner & Smith
Incorporated USD[__]
UBS Limited USD[__]
--------------
Total USD[__]
==============
PRINCIPAL
AMOUNT OF THE
SERIES 1 CLASS
UNDERWRITERS OF THE SERIES 1 CLASS A3 NOTES A3 NOTES
- ---------------------------------------------------------------- --------------
Barclays Capital Inc. USD[__]
Citigroup Global Markets Limited USD[__]
Deutsche Bank Securities Inc. USD[__]
HSBC Bank plc USD[__]
J.P. Morgan Securities Inc. USD[__]
Lehman Brothers Inc. USD[__]
Merrill Lynch, Pierce, Fenner & Smith
Incorporated USD[__]
UBS Limited USD[__]
--------------
Total USD[__]
==============
PRINCIPAL
AMOUNT OF THE
SERIES 1 CLASS
UNDERWRITERS OF THE SERIES 1 CLASS B NOTES B NOTES
- ---------------------------------------------------------------- --------------
Deutsche Bank Securities Inc. USD[__]
Lehman Brothers Inc. USD[__]
UBS Limited USD[__]
--------------
Total USD[__]
==============
309
PRINCIPAL
AMOUNT OF THE
SERIES 1 CLASS
UNDERWRITERS OF THE SERIES 1 CLASS M NOTES M NOTES
- ---------------------------------------------------------------- --------------
Deutsche Bank Securities Inc. USD[__]
Lehman Brothers Inc. USD[__]
UBS Limited USD[__]
--------------
Total USD[__]
==============
PRINCIPAL
AMOUNT OF THE
SERIES 1 CLASS
UNDERWRITERS OF THE SERIES 1 CLASS C NOTES C NOTES
- ---------------------------------------------------------------- --------------
Deutsche Bank Securities Inc. USD[__]
Lehman Brothers Inc. USD[__]
UBS Limited USD[__]
--------------
Total USD[__]
==============
PRINCIPAL
AMOUNT OF
THE
SERIES 2
CLASS A1
UNDERWRITERS OF THE SERIES 2 CLASS A1 NOTES NOTES
- --------------------------------------------------------------------- ---------
Barclays Capital Inc. USD [__]
Citigroup Global Markets Limited USD [__]
Deutsche Bank Securities Inc. USD [__]
HSBC Bank plc USD [__]
J.P. Morgan Securities Inc. USD [__]
Lehman Brothers Inc. USD [__]
Merrill Lynch, Pierce, Fenner & Smith
Incorporated USD [__]
UBS Limited USD [__]
---------
Total USD [__]
=========
The price to the public as a percentage of the principal balance of the
offered notes will be [__]%.
The issuer has agreed to pay to the underwriters of the series 1 class A1
notes a selling commission of [__]% of the aggregate principal amount of the
series 1 class A1 notes and a management and underwriting fee of [__]% of the
aggregate principal amount of the series 1 class A1 notes. The issuer has also
agreed to pay to the underwriters of the series 1 class A3 notes a selling
commission of [__]% of the aggregate principal amount of the series 1 class A3
notes and a management and underwriting fee of [__]% of the aggregate principal
amount of the series 1 class A3 notes. The issuer has also agreed to pay to the
underwriters of the series 1 class B notes a selling commission of [__]% of the
aggregate principal amount of the series 1 class B notes and a management and
underwriting fee of [__]% of the aggregate principal amount of the series 1
class B notes. The issuer has also agreed to pay to the underwriters of the
series 1 class M notes a selling commission of [__]% of the aggregate principal
amount of the series 1 class M
310
notes and a management and underwriting fee of [__]% of the aggregate principal
amount of the series 1 class M notes. The issuer has also agreed to pay to the
underwriters of the series 1 class C notes a selling commission of [__]% of the
aggregate principal amount of the series 1 class C notes and a management and
underwriting fee of [__]% of the aggregate principal amount of the series 1
class C notes. The issuer has agreed to pay to the underwriters of the series 2
class A1 notes a selling commission of [__]% of the aggregate principal amount
of the series 2 class A1 notes and a management and underwriting fee of [__]% of
the aggregate principal amount of the series 2 class A1 notes.
The lead underwriters of the offered notes have advised the issuer 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, and to some dealers
at that price, less a concession not in excess of [__]% per series 1 class A1
note, [__]% per series 1 class A3 note, [__]% per series 1 class B note, [__]%
per series 1 class M note, [__]% per series 1 class C note and [__]% per series
2 class A1 note. The underwriters may allow, and those dealers may re-allow, a
concession not in excess of [__]% per series 1 class A1 note, [__]% per series
1 class A3 note, [__]% per series 1 class B note, [__]% per series 1 class M
note, [__]% per series 1 class C note and [__]% per series 2 class A1 note to
certain other brokers and dealers.
Additional out-of-pocket expenses (other than underwriting discounts and
commissions stated above) solely in relation to the offered notes are estimated
to be approximately $[__].
The issuer and Northern Rock have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the United States
Securities Act of 1933, as amended.
The underwriters or their affiliates may engage in over-allotment
transactions (also known as short sales), stabilizing transactions, syndicate
covering transactions and penalty bids for the notes under Regulation M under
the United States Securities Exchange Act of 1934, as amended.
* Over-allotment transactions involve sales by an underwriter in
excess of the total offering size, which creates what is known as
a naked short position. A naked short position is more likely to
be created if the underwriters are concerned that there may be
downward pressure on the price of the offered notes in the open
market after pricing that could adversely affect investors who
purchase in the offering.
* Stabilizing transactions permit bids to purchase the notes so long
as the stabilizing bids do not exceed a specified maximum.
* Short covering transactions involve purchases of the notes in the
open market after the distribution has been completed in order to
cover naked short positions.
* Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the notes originally sold
by that syndicate member are purchased in a syndicate covering
transaction.
Similar to other purchase transactions, these transactions may have the
effect of raising or maintaining the market price of the notes or preventing or
retarding a decline in the market price of the notes. As a result, these
transactions may cause the prices of the notes to be higher than they would
otherwise be in the absence of those transactions. Neither the issuer nor any
of the underwriters represent that any underwriter will engage in any of these
transactions or that these transactions, once begun, will not be discontinued
without notice at any time.
The offered notes will be registered under the United States Securities Act
of 1933, as amended. The underwriters of the offered notes have agreed that
they will offer and sell the offered notes within the United States through
their US registered broker-dealers.
311
The offered notes will not be offered or sold via the internet, e-mail or
through similar electronic channels except that certain underwriters may
deliver copies of this prospectus via e-mail to persons who have given, and not
withdrawn, their prior consent to receive copies of this prospectus in that
format.
UNITED KINGDOM
Each underwriter will represent and agree that:
* it has not offered or sold, and will not offer or sell any notes
to persons in the United Kingdom prior to admission of the notes
to listing in accordance with Part VI of the FSMA, except to
persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995 (as amended) or
the FSMA;
* it has only communicated or caused to be communicated and will
only communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning of
section 21 of the FSMA) received by it in connection with the
issue or sale of any notes in circumstances in which section 21(1)
of the FSMA does not apply to the issuer; and
* it has complied and will comply with all applicable provisions of
the FSMA with respect to anything done by it in relation to the
notes in, from or otherwise involving the United Kingdom.
ITALY
Each underwriter will represent and agree that the offering of the notes has
not been cleared by CONSOB (the Italian Securities Exchange Commission)
pursuant to Italian securities legislation and, accordingly, no notes may be
offered, sold or delivered by it, nor may copies of this prospectus or of any
other document relating to the notes be distributed by it in the Republic of
Italy, except:
(i) to professional investors (operatori qualificati), as defined in
Article 31, second paragraph, of CONSOB Regulation No. 11522 of
July 1, 1998, as amended; or
(ii) in circumstances which are exempted from the rules on solicitation
of investments pursuant to Article 100 of Legislative Decree No.
58 of February 24, 1998 (the "FINANCIAL SERVICES ACT") and Article
33, first paragraph, of CONSOB Regulation No. 11971 of May 14,
1999, as amended.
Any offer, sale or delivery of the notes or distribution of copies of this
prospectus or any other document relating to the notes made by it in the
Republic of Italy under (i) or (ii) above must be:
(a) made by an investment firm, bank or financial intermediary
permitted to conduct such activities in the Republic of Italy in
accordance with the Financial Services Act and Legislative Decree
No. 385 of September 1, 1993 (the "BANKING ACT");
(b) in compliance with Article 129 of the Banking Act and the
implementing guidelines of the Bank of Italy, as amended from time
to time, pursuant to which the issue or the offer of securities in
the Republic of Italy may need to be preceded and followed by an
appropriate notice to be filed with the Bank of Italy depending,
inter alia, on the aggregate value of the securities issued or
offered in the Republic of Italy and their characteristics; and
(c) in accordance with any other applicable laws and regulations.
312
SPAIN
Each underwriter will acknowledge that the notes may not be offered or sold
in Spain by means of a public offer as defined and construed by Spanish law
unless such public offer is made in compliance with the requirements of Law 24/
1988 of July 28 (as amended by Law 37/1998 of November 16), on the Spanish
Securities Market and the Royal Decree 291/1992 of March 27 (as amended by
Royal Decree 2590/1998 of December 7 and Royal Decree 705/2002 of July 19), on
issues and public offers for the sale of securities.
IRELAND
Each underwriter will represent and agree that it has not, directly or
indirectly, offered or sold and will not, directly or indirectly, offer or sell
in Ireland any notes other than to persons whose ordinary business it is to buy
or sell shares or debentures whether as principal or agent.
THE NETHERLANDS
Each underwriter will represent to and agree it has not, directly or
indirectly, offered or sold and will not, directly or indirectly, offer and
sell any offered notes in The Netherlands.
GENERAL
The underwriters have represented and agreed that they have complied and
will comply with all applicable laws and regulations in force in any
jurisdiction in which they purchase, offer, sell or deliver offered notes or
possess them or distribute the prospectus and will obtain any consent, approval
or permission required by them for the purchase, offer, sale or delivery by
them of offered notes under the laws and regulations in force in any
jurisdiction to which they are subject or in which they make such purchases,
offers, sales or deliveries and the issuer shall have no responsibility for
them. Furthermore, they will not directly or indirectly offer, sell or deliver
any offered notes or distribute or publish any prospectus, form of application,
offering circular, advertisement or other offering material except under
circumstances that will, to the best of its knowledge and belief, result in
compliance with any applicable laws and regulations, and all offers, sales and
deliveries of offered notes by it will be made on the same terms.
Neither the issuer nor the underwriters represent that offered notes may at
any time lawfully be sold in compliance with any application, registration or
other requirements in any jurisdiction, or pursuant to any exemption available
thereunder, or assume any responsibility for facilitating such sale.
The underwriters will, unless prohibited by applicable law, furnish to each
person to whom they offer or sell offered notes a copy of the prospectus as
then amended or supplemented or, unless delivery of the prospectus is required
by applicable law, inform each such person that a copy will be made available
upon request. The underwriters are not authorized to give any information or to
make any representation not contained in the prospectus in connection with the
offer and sale of offered notes to which the prospectus relates.
This prospectus may be used by Deutsche Bank Securities Inc., Lehman
Brothers Inc. and UBS Limited for offers and sales related to market-making
transactions in the offered notes. Deutsche Bank Securities Inc., Lehman
Brothers Inc. and UBS Limited may act as principal or agent in these
transactions. These sales will be made at prices relating to prevailing market
prices at the time of sale. Deutsche Bank Securities Inc., Lehman Brothers Inc.
and UBS Limited have no obligation to make a market in the offered notes, and
any market-making may be discontinued at any time without notice. Deutsche Bank
Securities Inc., Lehman Brothers Inc. and UBS Limited are among the
underwriters participating in the initial distribution of the offered notes.
Citibank, N.A., which is acting as the euro currency swap provider, is an
affiliate of Citigroup Global Markets Limited, one of the underwriters for the
dollar notes. UBS Limited, which is acting as the interest rate swap provider,
is also one of the lead underwriters for the dollar notes.
313
REPORTS TO NOTEHOLDERS
The administrator will prepare quarterly and annual reports that will
contain information about the notes. The financial information contained in the
reports will not be prepared in accordance with generally accepted accounting
principles of any jurisdiction. The reports will be sent to Cede & Co. and
Citivic, as applicable, as the holder of the notes, unless and until individual
note certificates are issued. Reports will not be sent to investors by the
administrator.
WHERE INVESTORS CAN FIND MORE INFORMATION
The issuer has filed a registration statement with the SEC for the offered
notes. This prospectus is one portion of the registration statement, which also
includes additional information.
The administrator will file with the SEC all required periodic and special
SEC reports and other information about the offered notes.
Investors may read and copy any reports, statements or other information
filed at the SEC's public reference room in Washington, D.C. and may receive
copies of these documents upon writing to the SEC and paying a duplicating fee.
Investors can call the SEC at 1 800 732 0330 for further information on the
operation of the public reference room. The SEC filings are also available to
the public on the SEC's Internet site at http:// www.sec.gov.
314
LISTING AND GENERAL INFORMATION
AUTHORIZATION
The issue of the notes will be authorized by resolution of the board of
directors of the issuer passed on or about September 22, 2004.
LISTING OF NOTES
Application has been made to the Financial Services Authority in its
capacity as competent authority for the purposes of Part VI of the FSMA for the
notes to be admitted to the official list maintained by the UK Listing
Authority. Application has also been made to the London Stock Exchange plc for
each class of the notes to be admitted to trading by the London Stock Exchange
plc. It is expected that listing of the notes on the official list of the UK
Listing Authority and the admission to trading of the notes by the London Stock
Exchange plc will be granted on or about September 22, 2004, subject only to
the issue of the notes in global form and assignment of the expected ratings of
the notes by the rating agencies.
This prospectus has been prepared in compliance with the listing rules made
under Section 74 of the FSMA by the UK Listing Authority. Copies have been
delivered to the Registrar of Companies in England and Wales for registration
in accordance with Section 83 of that Act.
The issuer and the directors of the issuer, whose names appear on page 66 of
this prospectus, accept responsibility for the information contained in this
prospectus. To the best of the knowledge and belief of the issuer and the
directors of the issuer (who have taken all reasonable care to ensure that such
is the case), the information contained in this prospectus is in accordance
with the facts and does not omit anything likely to affect the import of such
information. The issuer and the directors of the issuer accept responsibility
accordingly.
CLEARING AND SETTLEMENT
Transactions will normally be effected for settlement in US dollars (in
respect of the dollar notes), euro (in respect of the euro notes) and sterling
(in respect of the sterling notes) and for delivery on the third working day
after the date of the transaction. Prior to listing, however, dealings will be
permitted by the London Stock Exchange plc in accordance with its rules.
The dollar notes have been accepted for clearance through DTC, Clearstream,
Luxembourg and Euroclear under the following CUSIP numbers, common codes and
ISINs:
COMMON
CLASS OF NOTES CUSIP ISIN CODE
- ----------------- ----- ---- ------
series 1 class A1 [__] [__] [__]
series 1 class A3 [__] [__] [__]
series 1 class B [__] [__] [__]
series 1 class M [__] [__] [__]
series 1 class C [__] [__] [__]
series 2 class A1 [__] [__] [__]
LITIGATION
None of the issuer, Funding, the previous issuers (together with the issuer
and Funding, the "FUNDING GROUP"), Holdings, the post-enforcement call option
holder or the mortgages trustee is or has been involved since its incorporation
in any legal or arbitration proceedings which may have, or have had since its
incorporation, a significant effect upon the financial position of the issuer,
the Funding Group, Holdings, the post-enforcement call option holder or the
mortgages trustee (as the case may be) nor, so far as the issuer, the
315
Funding Group, Holdings, the post-enforcement call option holder or the
mortgages trustee (respectively) is aware, are any such legal or arbitration
proceedings pending or threatened.
ACCOUNTS
No statutory or non-statutory accounts within the meaning of Section 240(5)
of the Companies Act 1985 in respect of any financial year of the issuer have
been prepared. So long as the notes are listed on the official list of the UK
Listing Authority and are trading by the London Stock Exchange plc the most
recently published audited annual accounts of the issuer from time to time
shall be available at the specified office of the UK principal paying agent in
London. The issuer does not publish interim accounts.
Since the date of its incorporation, the issuer has not entered into any
contracts or arrangements not being in the ordinary course of business other
than the underwriting agreement and the subscription agreement.
CONSENTS
PricewaterhouseCoopers LLP, an independent registered public accounting
firm, whose address is 89 Sandyford Road, Newcastle upon Tyne, NE99 1PL, has
given and has not withdrawn its consent to the inclusion in this prospectus of
its reports on the issuer and Funding and the references to their name in the
form and context in which they appear, and has authorized the contents of that
part of the listing particulars containing their report for the purposes of
Article 6(1)(e) of the UK Financial Services and Markets Act 2000 (Official
Listing of Securities) Regulations 2001.
SIGNIFICANT OR MATERIAL CHANGE
Other than as described in this prospectus, since the date of incorporation
of the issuer (July 1, 2004), the date of incorporation of each previous
issuer, the date of the most current financial reports of Funding (December 31,
2003), the date of incorporation of Holdings (December 14, 2000), the date of
incorporation of the mortgages trustee (February 14, 2001), and the date of
incorporation of the post-enforcement call option holder (December 15, 2000),
there has been:
* no material adverse change in the financial position or prospects
of the issuer, Funding Group, Holdings, the post-enforcement call
option holder or the mortgages trustee; and
* no significant change in the financial or trading position of the
issuer, Funding Group, Holdings, the post-enforcement call option
holder or the mortgages trustee.
DOCUMENTS AVAILABLE
Copies of the following documents may be inspected at the offices of Sidley
Austin Brown & Wood, Woolgate Exchange, 25 Basinghall Street, London EC2V 5HA
during usual business hours, on any weekday (public holidays excepted) for 14
days from the date of this prospectus:
(A) the Memorandum and Articles of Association of each of the issuer,
Funding, Holdings, the mortgages trustee and the post-enforcement
call option holder;
(B) the balance sheet of the issuer as at August 27, 2004 and the
independent registered public accounting firm's report thereon;
(C) the financial statements of Funding for the years ended December
31, 2003 and December 31, 2002 and for the period from February
14, 2001 to December 31, 2001 and the independent registered
public accounting firm's reports thereon;
(D) prior to the closing date, drafts (subject to minor amendment),
and after the closing date, copies, of the following documents:
316
* the underwriting agreement;
* the subscription agreement;
* the intercompany loan agreement;
* the mortgages trust deed;
* the mortgage sale agreement;
* the issuer deed of charge;
* the deed(s) of accession to the Funding deed of charge;
* the second priority Funding deed of charge;
* the basis rate swap agreement;
* the interest rate swap agreement;
* the dollar currency swap agreements;
* the euro currency swap agreements;
* the trust deed;
* the paying agent and agent bank agreement;
* the administration agreement;
* the cash management agreement;
* the issuer cash management agreement;
* the Funding guaranteed investment contract;
* the Funding (Granite 04-3) guaranteed investment contract;
* the mortgages trustee guaranteed investment contract;
* the post-enforcement call option agreement;
* the bank account agreement;
* the stand-by bank account agreement;
* the Funding (Granite 04-3) bank account agreement;
* the issuer bank account agreement;
* the collection bank agreement;
* the master definitions schedule;
* the start-up loan agreement;
* the corporate services agreement;
* any other deeds of accession or supplemental deeds relating
to any such documents;
* documents relating to the issuance of the previous notes to
the previous issuers; and
(E) independent registered public accounting firm's consent letter.
317
GLOSSARY
All of the defined terms that are used in this prospectus are defined in the
following glossary. These terms are defined as follows:
"$", "US$", "USD", "US DOLLARS" and "DOLLARS"
The lawful currency for the time being of the United States
of America
"[E]" or "EURO"
The currency of the member states of the European Union that
adopt the single currency in accordance with the Treaty of
Rome of March 25, 1957, establishing the European Community,
as amended from time to time
"[GBP]", "STERLING" or "POUNDS STERLING"
The lawful currency for the time being of the United Kingdom
of Great Britain and Northern Ireland
"ACA ISSUER"
The ninth issuer, Granite Mortgages 04-3 plc and any new
issuer designated as such
"ACA LIMIT AMOUNT"
In respect of an ACA issuer, an amount equal to the greater
of:
(A) the product of:
(i) the product of (a) the mortgages trustee
principal receipts for that distribution
date, and (b) the Funding share percentage
or, as applicable, the weighted average
Funding share percentage applicable as at the
later to occur of the immediately preceding
assignment date, the immediately preceding
Funding contribution date and the immediately
preceding distribution date; and
(ii) the quotient of (a) the outstanding principal
balance of such ACA issuer's intercompany
loan as at the immediately preceding payment
date (after taking into account principal
payments on such payment date) less the
aggregate of amounts recorded on the
principal deficiency ledger of such ACA
issuer (but only to the extent of losses on
the mortgage loans allocated to such ACA
issuer and application of Funding available
principal receipts to fund such ACA issuer's
liquidity reserve fund), divided by (b) the
aggregate outstanding principal balance on
all intercompany loans as at the immediately
preceding payment date (after taking into
account principal payments on such payment
date) less the sum of (1) the aggregate
outstanding principal balance of all special
repayment notes and (2) the aggregate of
amounts recorded on the principal deficiency
ledgers of all issuers (but only to the
extent of losses on the mortgage loans
allocated to an issuer and application of
Funding available principal receipts to fund
the issuer liquidity reserve fund of that
issuer); and
318
(B) in respect of such ACA issuer's notes, the
controlled amortization amount for each class of
notes of such ACA issuer as if an ACA trigger event
had not occurred
"ACA TRIGGER EVENT"
In respect of any ACA issuer, an ACA trigger event occurs
when any issuer fails to exercise its option to redeem its
notes on the relevant step-up date pursuant to the terms and
conditions of its notes
"ACCOUNT BANK"
In respect of the issuer, Citibank, N.A.; in respect of
Funding (excluding in respect of the Funding GIC account, the
Funding (Issuer) GIC account for the ninth issuer and the
Funding (Granite 04-3) GIC account), Lloyds TSB Bank plc; in
respect of the mortgages trustee (excluding in respect of the
mortgages trustee GIC account), Lloyds TSB Bank plc, Jersey
International Branch; and in respect of the Funding GIC
account, the mortgages trustee GIC account, the Funding
(Issuer) GIC account for the ninth issuer and the Funding
(Granite 04-3) GIC account, Northern Rock
"ACCRUED INTEREST"
In respect of a mortgage loan as at any date (the "RELEVANT
DATE"), the aggregate of all interest accrued but not yet due
and payable on that mortgage loan from (and including) the
monthly payment date immediately preceding the relevant date
until (but excluding) the relevant date
"ADDITIONAL ASSIGNED MORTGAGE LOAN"
Any mortgage loan which was assigned by the seller to the
mortgages trustee on August 23, 2004 under the terms of the
mortgage sale agreement and referenced by its mortgage loan
identifier number and comprising the aggregate of all
principal sums, interest, costs, charges, expenses and other
monies (including all further advances) due or owing with
respect to that mortgage loan under the relevant mortgage
conditions by a borrower on the security of a mortgage from
time to time outstanding or, as the context may require, the
borrower's obligations in respect of the same
"ADDITIONAL ASSIGNED MORTGAGE PORTFOLIO"
The portfolio of additional mortgage loans, their related
security, accrued interest and other amounts derived from
such additional mortgage loans that the seller actually
assigned to the mortgages trustee on August 23, 2004
"ADDITIONAL ASSIGNED TRUST PROPERTY"
The additional assigned mortgage portfolio assigned to the
mortgages trustee by the seller on August 23, 2004, including
the additional assigned mortgage loans and their related
security, the rights under the MIG policies and the other
seller arranged insurance policies
"ADDITIONAL MORTGAGE LOAN"
Any mortgage loan (being an English mortgage loan or a
Scottish mortgage loan, as applicable) which the seller
anticipated assigning to the mortgages trustee on August 23,
2004 under the terms of the mortgage sale agreement and
referenced by its mortgage loan identifier number and
comprising the aggregate of all principal sums, interest,
costs, charges, expenses and other monies (including all
further advances) due or owing with respect to that mortgage
loan under the relevant mortgage conditions by a
319
borrower on the security of a mortgage from time to time
outstanding or, as the context may require, the borrower's
obligations in respect of the same
"ADDITIONAL MORTGAGE PORTFOLIO"
The portfolio of additional mortgage loans, their related
security, accrued interest and other amounts derived from
such additional mortgage loans that the seller, as of the
cut-off date, anticipated assigning to the mortgages trustee
on August 23, 2004
"ADMINISTRATION AGREEMENT"
The agreement dated March 26, 2001, as amended from time to
time, among the administrator, the mortgages trustee, the
security trustee, Funding and the seller under which the
administrator has agreed to administer the mortgage loans and
their related security comprised in the mortgage portfolio,
as described further under "THE ADMINISTRATION AGREEMENT"
"ADMINISTRATION FEE"
The fee payable by the mortgages trustee to the administrator
on each distribution date in payment for the administering of
the mortgage loans by the administrator. The administration
fee equals 0.08% per annum (inclusive of VAT) on the amount
of the Funding share of the trust property as determined on
that distribution date in respect of the then current trust
calculation period, but is payable on each distribution date
only to the extent that the mortgages trustee has sufficient
funds available to pay that amount in accordance with the
mortgages trust allocation of revenue receipts
"ADMINISTRATION PROCEDURES"
The administration, arrears and enforcement policies and
procedures forming part of the seller's policy from time to
time or, at any time when the administrator is not also the
seller, the policies and procedures from time to time which
would be adopted by a reasonable, prudent mortgage lender
"ADMINISTRATOR"
Northern Rock or such other person as may from time to time
be appointed as administrator of the mortgage portfolio under
the administration agreement
"ADMINISTRATOR TERMINATION EVENT"
The meaning given to it on page 140
"AGENT BANK"
Citibank, N.A, acting through its London branch at 5
Carmelite Street, London EC4Y 0PA, or such other person for
the time being acting as agent bank under the paying agent
and agent bank agreement
"ALTERNATIVE CLEARING SYSTEM"
The meaning given to it on page 285
"ALTERNATIVE INSURANCE REQUIREMENTS"
Requirements which vary the insurance provisions of the
mortgage conditions
"ARREARS OF INTEREST"
As at any date and for any mortgage loan, interest (other
than capitalized interest or accrued interest) on that
mortgage loan which is currently due and payable on that date
"ARREARS OR STEP-UP TRIGGER EVENT"
An arrears or step-up trigger event occurs when (i) the
outstanding principal balance of the mortgage loans in
arrears for more than 90 days divided by the outstanding
principal balance of all of the mortgage loans in the
mortgages trust (expressed as a percentage) exceeds 2%
320
or (ii) if any issuer fails to exercise its option to
redeem its notes on the relevant step-up date pursuant to
the terms and conditions of its notes
"ASSET TRIGGER EVENT"
The meaning given to it on page 166
"ASSIGNMENT DATE"
The date of assignment of any new mortgage portfolio to the
mortgages trustee
"AUTHORIZED HOLDINGS"
In respect of the offered notes, $100,000 and increments of
$1,000 thereafter
"AUTHORIZED INVESTMENTS"
(a) sterling gilt-edged securities; and
(b) sterling demand or time deposits, certificates of
deposit and short-term debt obligations (including
commercial paper) (which may include deposits into
any account which earns a rate of interest related
to LIBOR) provided that in all cases these
investments have a maturity date of 90 days or less
and mature on or before the next following payment
date or, in relation to any mortgages trustee bank
account, the next following distribution date and
the short- term unsecured, unguaranteed and
unsubordinated debt obligations of the issuing or
guaranteeing entity or the entity with which the
demand or time deposits are made (being an
authorized institution under the FSMA) are rated at
least equal to "A-1+" by Standard & Poor's, "P-1" by
Moody's and "F1+" by Fitch or which are otherwise
acceptable to the rating agencies (if they are
notified in advance) to maintain the then current
rating of the notes
"AUTHORIZED UNDERPAYMENT"
The meaning given to it on page 101
"AXA"
The AXA Group of Companies
"BANK ACCOUNT AGREEMENT"
The agreement dated March 26, 2001, as amended from time to
time, among the account bank, the cash manager, the mortgages
trustee, Funding and the security trustee which governs the
operation of the mortgages trustee bank accounts and the
Funding bank accounts (other than the Funding (Issuer) GIC
accounts)
"BANKING ACT"
The meaning given to it on page 312
"BANK OF ENGLAND BASE RATE"
The Bank of England's official dealing rate (the repo rate)
as set by the UK Monetary Policy Committee, and in the event
that this rate ceases to exist or becomes inappropriate as an
index for the base rate pledge, such alternative rate or
index, which is not controlled by the seller, that the seller
considers to be the most appropriate in the circumstances
"BARCLAYS"
Barclays Bank plc, acting through its office at City Group
Office, Percy Street, Newcastle upon Tyne NE99 1JP
"BARCLAYS BANK"
Barclays Bank PLC, acting through its office at 54 Lombard
Street, London EC3P 3AH
"BARCLAYS GROUP"
Barclays Bank and its subsidiary undertakings
"BARCLAYS COLLECTION ACCOUNT"
The account of the administrator held at Barclays as may be
utilized from time to time for the purpose of collecting
amounts which are paid to the seller on the mortgage loans
and/or the related security
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"BASE RATE PLEDGE"
The meaning given to it on page 99
"BASEL COMMITTEE"
The meaning given to it on page 62
"BASIC TERMS MODIFICATIONS"
The meaning given to it on page 282
"BASIS RATE SWAP"
The swap documented under the basis rate swap agreement, as
described further under "THE SWAP AGREEMENTS -- THE BASIS
RATE SWAP"
"BASIS RATE SWAP AGREEMENT"
The ISDA master agreement, the schedule thereto and the
confirmation thereunder to be entered into on or before the
closing date, and any credit support annex entered into at
any time, as amended from time to time, among the issuer, the
basis rate swap provider and the note trustee, which includes
any additional and/or replacement basis rate swap agreement
entered into by the issuer from time to time in connection
with the notes
"BASIS RATE SWAP PROVIDER"
Northern Rock and/or, as applicable, any other basis rate
swap provider appointed from time to time in accordance with
the transaction documents
"BASIS RATE SWAP PROVIDER DEFAULT"
The meaning given to it on page 190
"BENEFICIARIES"
Funding and the seller together as beneficiaries of the
mortgages trust
"BENEFIT PLAN INVESTORS"
An investor in a pension, profit-sharing or other employee
benefit plan, as well as individual retirement accounts and
certain types of Keogh Plans, as described further in "ERISA
CONSIDERATIONS"
"BORROWER"
For each mortgage loan, the person or persons who is or are
named and defined as such in the relevant mortgage deed, or
the other person or persons (other than a guarantor) who
shall become legally obligated to comply with the borrower's
obligations under the related mortgage
"BUSINESS DAY"
A day that is a London business day, a New York business day
and a TARGET business day
"CALCULATION PERIOD ISSUER AMOUNT"
The meaning given to it on page 233
"CALCULATION PERIOD SWAP PROVIDER AMOUNT"
The meaning given to it on page 233
"CALENDAR YEAR"
A year from the beginning of January 1 to the end of December
31
"CALL REPORTS"
The meaning given to it on page 80
"CAPITAL BALANCE"
For any mortgage loan at any date, the principal balance of
that mortgage loan to which the seller applies the relevant
interest rate at which interest on that mortgage loan accrues
"CAPITAL PAYMENT"
The meaning given to it on page 96
"CAPITALIZED"
In respect of a fee, an interest amount or any other amount,
means that amount which is added to the capital balance of a
mortgage loan
"CAPITALIZED ARREARS"
For any mortgage loan at any date, interest or other amounts
which are overdue in respect of that mortgage loan and which
as at that date have been added to the capital
322
balance of that mortgage loan either in accordance with the
mortgage conditions or otherwise by arrangement with the
relevant borrower
"CAPITALIZED INTEREST"
For any mortgage loan at any date, interest which is overdue
in respect of that mortgage loan and which as at that date
has been added to the capital balance of that mortgage loan
in accordance with the mortgage conditions or otherwise by
arrangement with the relevant borrower (excluding for the
avoidance of doubt any arrears of interest which have not
been so capitalized on that date)
"CAPPED RATE MORTGAGE LOANS"
Mortgage loans that are subject to a maximum rate of interest
and charge interest at the lesser of the seller's standard
variable rate or the specified capped rate
"CASH MANAGEMENT AGREEMENT"
The cash management agreement dated March 26, 2001, as
amended from time to time, among the cash manager, the
mortgages trustee, Funding and the security trustee, as
described further under "CASH MANAGEMENT FOR THE MORTGAGES
TRUSTEE AND FUNDING"
"CASH MANAGER"
Northern Rock or such other person or persons for the time
being acting, under the cash management agreement, as agent
for the mortgages trustee, Funding and (following enforcement
of the Funding security) the security trustee for the
purposes of, inter alia, managing all cash transactions and
maintaining certain ledgers on behalf of the mortgages
trustee, Funding and (following enforcement of the Funding
security) the security trustee
"CASH RE-DRAW"
The meaning given to it on page 102
"CASHBACK"
An amount agreed by the seller to be paid to the relevant
borrower on the completion of the relevant mortgage loan
"CASHBACK MORTGAGE LOAN"
A type of mortgage loan, the primary characteristics of which
are described on page 95
"CAT STANDARD MORTGAGE LOAN"
A type of flexible mortgage loan, the primary characteristics
of which are described on page 94
"CCA"
The Consumer Credit Act 1974
"CITIBANK"
The meaning given to it on page 79
"CITIBANK, N.A."
Citibank, N.A., acting through its London branch at 5
Carmelite Street, London EC4Y 0PA
"CITIGROUP"
Citigroup Inc.
"CLASS"
Any of the series 1 class A1 notes, the series 1 class A2
notes, the series 1 class A3 notes, the series 1 class B
notes, the series 1 class M notes, the series 1 class C
notes, the series 2 class A1 notes, the series 2 class A2
notes, the series 2 class B notes, the series 2 class M
notes, the series 2 class C notes, the series 3 class A1
notes, the series 3 class A2 notes, the series 3 class B
notes, the series 3 class M notes and the series 3 class C
notes
"CLASS A NOTE ENFORCEMENT NOTICE"
The meaning given to it on page 276
"CLASS A NOTE EVENT OF DEFAULT"
The meaning given to it on page 278
323
"CLASS A NOTES"
The series 1 class A1 notes, the series 1 class A2 notes, the
series 1 class A3 notes, the series 2 class A1 notes, the
series 2 class A2 notes, the series 3 class A1 notes and the
series 3 class A2 notes and, in relation to any previous
issuer or any new issuer, such previous notes or new notes as
may be identified as such for that issuer
"CLASS A NOTEHOLDERS"
The holders of the class A notes
"CLASS A PRINCIPAL DEFICIENCY SUBLEDGER"
For any issuer, the subledger of the issuer principal
deficiency ledger of that issuer corresponding to the class A
notes issued by that issuer
"CLASS B NOTE ENFORCEMENT NOTICE"
The meaning given to it on page 279
"CLASS B NOTE EVENT OF DEFAULT"
The meaning given to it on page 279
"CLASS B NOTES"
The series 1 class B notes, the series 2 class B notes and
the series 3 class B notes and, in relation to the previous
issuers or any new issuer, such previous notes or new notes
as may be identified as such for that issuer
"CLASS B NOTEHOLDERS"
The holders of the class B notes
"CLASS B PRINCIPAL DEFICIENCY SUBLEDGER"
For any issuer, the subledger of the issuer principal
deficiency ledger of that issuer corresponding to the class B
notes issued by that issuer
"CLASS C NOTE ENFORCEMENT NOTICE"
The meaning given to it on page 280
"CLASS C NOTE EVENT OF DEFAULT"
The meaning given to it on page 280
"CLASS C NOTES"
The series 1 class C notes, the series 2 class C notes and
the series 3 class C notes and, in relation to the previous
issuers or any new issuer, such previous notes or new notes
as may be identified as such for that issuer
"CLASS C NOTEHOLDERS"
The holders of the class C notes
"CLASS C PRINCIPAL DEFICIENCY SUBLEDGER"
For any issuer, the subledger of the issuer principal
deficiency ledger of that issuer corresponding to the class C
notes issued by that issuer
"CLASS M NOTE ENFORCEMENT NOTICE"
The meaning given to it on page 279
"CLASS M NOTE EVENT OF DEFAULT"
The meaning given to it on page 279
"CLASS M NOTES"
The series 1 class M notes, the series 2 class M notes and
the series 3 class M notes and, in relation to the previous
issuers or any new issuer, such previous notes or new notes
as may be identified as such for that issuer
"CLASS M NOTEHOLDERS"
The holders of the class M notes
"CLASS M PRINCIPAL DEFICIENCY SUBLEDGER"
For any issuer, the subledger of the issuer principal
deficiency ledger of that issuer corresponding to the class M
notes issued by that issuer
"CLEARING AGENCY"
An agency registered under the provisions of section 17A of
the Exchange Act
324
"CLEARING CORPORATION"
A corporation within the meaning of the New York Uniform
Commercial Code
"CLEARSTREAM, LUXEMBOURG"
Clearstream Banking, societe anonyme
"CLOSING DATE"
On or about September 22, 2004
"CML"
The Council of Mortgage Lenders of which the seller is a
member
"CML CODE"
The meaning given to it on page 57
"CODE"
United States Internal Revenue Code of 1986, as amended
"COLLECTION ACCOUNT"
The Barclays collection account, the Lloyds TSB collection
account and each other account in the name of the
administrator which is from time to time used for the purpose
of collecting, directly or indirectly, monies due in respect
of mortgage loans and/or the related security
"COLLECTION BANKS"
Barclays Bank plc acting through its branch at Percy Street,
Newcastle upon Tyne NE99 1JP and Lloyds TSB Bank plc acting
through its branch at City Office, Bailey Drive, Gillingham
Business Park, Kent ME8 0LS and each other bank as may be
appointed as such under and in accordance with the
transaction documents
"COLLECTION BANK AGREEMENT"
The agreement dated March 26, 2001, as amended from time to
time, among the mortgages trustee, Funding, the seller, the
administrator, the security trustee and the collection banks
"COMBINATION MORTGAGE LOAN"
A mortgage loan that combines the features of a repayment
mortgage loan and an interest-only loan in that only part of
the principal of the mortgage loan will be repaid by way of
monthly payments
"COMBINED CREDIT BALANCE"
The meaning given to it on page 93
"COMBINED DEBIT BALANCE"
The meaning given to it on page 93
"COMPTROLLER"
The United States Office of the Comptroller of the Currency
"CONNECTIONS BENEFIT"
The meaning given to it on page 94
"CONNECTIONS COMBINED CREDIT BALANCE"
The meaning given to it on page 94
"CONNECTIONS DEBIT BALANCE"
The meaning given to it on page 94
"CONNECTIONS INTEREST"
The meaning given to it on page 94
"CONNECTIONS MORTGAGE LOAN"
A type of flexible mortgage loan, the primary characteristics
of which are described on page 94
"CONTRIBUTION"
The consideration in the form of cash provided to the
mortgages trustee by any beneficiary in respect of the share
of that beneficiary in the trust property under the mortgages
trust deed, being any of an initial contribution, a further
contribution or a deferred contribution
"CONTRIBUTIONS LEDGER"
The ledger on which contributions to the mortgages trust made
by Funding and the seller to the mortgages trustee and the
application of such contributions in accordance with the
terms of the mortgages trust deed shall be recorded
325
"CONTROLLED AMORTIZATION AMOUNT"
On any payment date before the occurrence of a trigger event
or the enforcement of the issuer security in respect of any
issuer:
(a) for any note or class of notes issued by an issuer
which is a controlled amortization note or class of
such notes, the maximum aggregate principal amount
which may be repaid by such issuer to the relevant
noteholder or noteholders of such class on that
payment date in accordance with the relevant note;
or
(b) for an intercompany loan, the maximum aggregate
principal amount which may be repaid by Funding to
an issuer in respect of the related intercompany
loan on that payment date (which will be equal to
the aggregate of the controlled amortization amounts
due on that payment date under the notes issued by
such issuer)
"CONTROLLED AMORTIZATION NOTE"
Any note where, before the occurrence of a trigger event or
the enforcement of the issuer security, the conditions of
that note impose a limit on the amount of principal which may
be repaid by the issuer of such note to the relevant
noteholder for that note on any payment date. All of the
notes issued by the issuer and the previous issuers are
controlled amortization notes
"CORE TERMS"
The main subject matter of the contract
"CORPORATE SERVICES AGREEMENT"
With respect to any issuer, the corporate services agreement,
as amended from time to time, entered into on or before the
closing date of the issue of the relevant notes among, inter
alios, the corporate services provider, Holdings, the post
enforcement call option holder and such issuer, for the
provision by the corporate services provider of certain
corporate services, and with respect to Funding and the
mortgages trustee, the corporate services agreement entered
into on March 26, 2001, as amended from time to time, among,
inter alios, the corporate services provider, Funding and the
mortgages trustee for the provision by the corporate services
provider of certain corporate services
"CORPORATE SERVICES PROVIDER"
With respect to the issuer, Law Debenture Corporate Services
Limited, and with respect to Funding, Mourant & Co. Capital
(SPV) Limited, and with respect to the mortgages trustee,
Mourant & Co. Limited, or any other person or persons for the
time being acting as corporate services provider under the
corporate services agreement
"CPR" or "CONSTANT PAYMENT RATE"
Unless otherwise defined in this prospectus, represents a
constant rate of scheduled and unscheduled repayments on the
mortgage loans in the mortgage portfolio each month relative
to the aggregate principal amount outstanding of those
mortgage loans
"CRYSTALLIZE"
When a floating charge becomes a fixed charge
"CURRENCY RATE SWAP PROVIDER"
Either of the dollar currency swap providers and/or the euro
currency swap provider
326
"CURRENCY SWAP AGREEMENTS"
The dollar currency swap agreements and the euro currency
swap agreements
"CURRENCY SWAPS"
The dollar currency swaps and the euro currency swaps
"CURRENT BALANCE"
For any mortgage loan as at any given date, the aggregate
(but avoiding double counting) of:
(1) the original principal amount advanced to the
relevant borrower and any further amount advanced on
or before the given date to the relevant borrower
secured or intended to be secured by the related
mortgage; and
(2) the amount of any re-draw under any flexible
mortgage loan or any further draw under any personal
secured loan secured or intended to be secured by
the related mortgage; and
(3) any interest, disbursement, legal expense, fee,
charge, rent, service charge, premium or payment
which has been properly capitalized in accordance
with the relevant mortgage conditions or with the
relevant borrower's consent and added to the amounts
secured or intended to be secured by that mortgage
loan (including interest capitalized on any re-draw
under a flexible mortgage loan); and
(4) any other amount (other than unpaid interest) which
is due or accrued (whether or not due) and which has
not been paid by the relevant borrower and has not
been capitalized in accordance with the relevant
mortgage conditions or with the relevant borrower's
consent but which is secured or intended to be
secured by that mortgage loan as at the end of the
London business day immediately preceding that given
date less any repayment or payment of any of the
foregoing made on or before the end of the London
business day immediately preceding that given date
and excluding any retentions made but not released
and any further advances committed to be made but
not made by the end of the London business day
immediately preceding that given date
"CURRENT FUNDING SHARE"
The amount of trust property beneficially owned by Funding
from time to time, as described further in "THE MORTGAGES
TRUST"
"CURRENT FUNDING SHARE PERCENTAGE"
The percentage share of Funding's interest in the trust
property from time to time, as described further in "THE
MORTGAGES TRUST"
"CURRENT SELLER SHARE"
The amount of trust property beneficially owned by the seller
from time to time, as described further in "THE MORTGAGES
TRUST"
"CURRENT SELLER SHARE PERCENTAGE"
The percentage share of the seller's interest in the trust
property from time to time, as described further in "THE
MORTGAGES TRUST"
"CUT-OFF DATE"
July 31, 2004
327
"CUT-OFF DATE MORTGAGE PORTFOLIO"
As of the cut off date, the initial mortgage portfolio and
the further mortgage portfolios (taking account of, among
other things, amortization of mortgage loans in that
portfolio and the addition and/or removal of any mortgage
loans to or from that portfolio since March 26, 2001)
combined with the additional mortgage portfolio
"DEFERRED CONTRIBUTION"
The consideration in the form of cash payable by Funding to
the mortgages trustee from time to time in respect of the
Funding share of the trust property pursuant to and in
accordance with the mortgages trust deed and/or the Funding
deed of charge, which contribution will fund the payment by
the mortgages trustee to the seller of the deferred purchase
price payable by the mortgages trustee to the seller from
time to time pursuant to and in accordance with the mortgage
sale agreement
"DEFERRED PURCHASE PRICE"
That portion of the purchase price for the initial mortgage
portfolio and of the purchase price (if any) of any other
mortgage portfolio assigned to the mortgages trustee which
was not paid to the seller on the initial closing date or (in
the case of any other mortgage portfolio) the relevant
assignment date and which is to be paid by the mortgages
trustee from time to time to the seller from deferred
contributions received by the mortgages trustee from Funding
and otherwise in accordance with the mortgage sale agreement
"DIRECT DEBIT"
A payment made directly by a borrower from its bank account
to a collection account
"DISCOUNT RATE MORTGAGE LOAN"
A type of mortgage loan, the primary characteristics of which
are described on page 94
"DISTRIBUTION DATE"
The date on which the mortgages trust terminates and the
London business day determined by the cash manager falling no
later than 6 business days after each trust determination
date
"DOLLAR CURRENCY SWAP AGREEMENTS"
The ISDA master agreements, schedules thereto and
confirmations thereunder relating to the dollar currency
swaps to be entered into on or about the closing date, and
any credit support annexes or other credit support documents
entered into at any time, as amended from time to time, among
the issuer, the dollar currency swap providers and the note
trustee and/or any credit support provider and includes any
additional and/or replacement dollar currency swap agreement
entered into by the issuer from time to time in connection
with the notes
"DOLLAR CURRENCY SWAP PROVIDERS"
Barclays Bank PLC and Swiss Re Financial Products
Corporation and/or, as applicable, any other dollar
currency swap provider appointed from time to time in
accordance with the transaction documents
"DOLLAR CURRENCY SWAP PROVIDER DEFAULT"
The meaning given to it on page 189
"DOLLAR CURRENCY SWAP RATE"
The rate at which dollars are converted to sterling or, as
the case may be, sterling is converted to dollars under the
relevant dollar currency swap
328
"DOLLAR CURRENCY SWAPS"
The sterling-dollar currency swaps which enable the issuer to
receive and pay amounts under the intercompany loan in
sterling and to receive and pay amounts under the dollar
notes in dollars, as described further under "THE SWAP
AGREEMENTS -- THE DOLLAR CURRENCY SWAPS"
"DOLLAR NOTES"
The meaning given to it on page 10
"DTC"
The Depository Trust Company
"DTI"
The UK Department of Trade and Industry
"EARLY REPAYMENT CHARGE"
Any charge or fee for which the mortgage conditions
applicable to a mortgage loan require the relevant borrower
to pay in the event that all or part of that mortgage loan is
repaid before a certain date, including repayment of any
cashback
"EIGHTH ISSUER"
Granite Mortgages 04-1 plc
"EIGHTH ISSUER NOTES"
The notes issued by the eighth issuer on January 28, 2004
"EIGHTH ISSUER INTERCOMPANY LOAN"
The intercompany loan entered into on January 28, 2004
between the eighth issuer and Funding
"ENCUMBRANCE"
The same meaning as "SECURITY INTEREST"
"ENFORCEMENT PROCEDURES"
The procedures for the enforcement of mortgages undertaken by
the administrator from time to time in accordance with the
administration procedures
"ENGLISH MORTGAGE"
For any mortgage loan in the mortgage portfolio, the charge
by way of legal mortgage over a residential property in
England or Wales
"ENGLISH MORTGAGE LOAN"
Each mortgage loan secured over a property located in England
or Wales
"ERISA"
The United States Employee Retirement Income Security Act of
1974, as amended. See further "ERISA CONSIDERATIONS"
"ESIS"
The meaning given to it on page 58
"EURIBOR"
EURIBOR will be determined by the agent bank on the following
basis:
(1) on the applicable interest determination date the
agent bank will determine the offered quotation to
leading banks for deposits in euro for a period
equal to the relevant interest period.
This will be determined by reference to the display
as quoted on the Dow Jones/Telerate Page No. 248. If
the Dow Jones/Telerate Page No. 248 stops providing
these quotations, the replacement service for the
purposes of displaying this information will be
used.
If the replacement service stops displaying the
information, another page as determined by the
issuer with the approval of the note trustee will be
used.
In each of these cases, the determination will be
made as at or about 11:00 a.m., Brussels time, on
that date. This is called the screen rate for the
euro notes;
329
(2) if, on any of these interest determination dates,
the screen rate is unavailable, the agent bank will:
request the principal London office of each of the
reference banks to provide the agent bank with its
offered quotation to prime banks for euro deposits
of the equivalent amount, and for a time equal to
the relevant interest period, in the Eurozone
inter-bank market as at or about 11:00 a.m.
(Brussels time); and
calculate the arithmetic mean, rounded upwards to
five decimal places, of those quotations;
(3) if on any of these interest determination dates the
screen rate is unavailable and only two or three of
the reference banks provide offered quotations, the
relevant rate for that interest period will be the
arithmetic mean of the quotations as calculated in
(2);
and
(4) if fewer than two reference banks provide
quotations, the agent bank will consult with the
note trustee and the issuer for the purpose of
agreeing a total of two banks to provide these
quotations and the relevant rate for that interest
period will be the arithmetic mean of the quotations
as calculated in (2). If none of these banks agree,
then the relevant rate for that interest period will
be the rate in effect for the last preceding
interest period for which (1) or (2) was applicable
"EURO CURRENCY SWAP AGREEMENTS"
The ISDA master agreements, schedules thereto and
confirmations thereunder relating to the euro currency swaps
to be entered into on or about the closing date, and any
credit support annexes or other credit support documents
entered into at any time, as amended from time to time,
between the issuer, the euro currency swap provider and the
note trustee and/or any credit support provider and includes
any additional and/or replacement euro currency swap
agreement entered into by the issuer from time to time in
connection with the notes
"EURO CURRENCY SWAP PROVIDER"
Citibank, N.A., acting through its London Branch and/or, as
applicable, any other euro currency swap provider appointed
from time to time in accordance with the transaction
documents
"EURO CURRENCY SWAP PROVIDER DEFAULT"
The meaning given to it on page 190
"EURO CURRENCY SWAP RATE"
The rate at which euro are converted to sterling or, as the
case may be, sterling is converted to euro, under the
relevant euro currency swap
"EURO CURRENCY SWAPS"
The sterling-euro currency swaps which enable the issuer to
receive and pay amounts under the intercompany loan in
sterling and to receive and pay amounts under the euro notes
in euro, as described further in "THE SWAP AGREEMENTS -- THE
EURO CURRENCY SWAPS"
330
"EURO NOTES"
The meaning given to it on page 10
"EUROCLEAR"
The Euroclear system
"EUROCLEAR OPERATOR"
Euroclear Bank S.A./N.V., as operator of the Euroclear system
"EUROZONE"
The region comprised of the member states of the European
Union that adopt the single currency in accordance with the
Treaty of Rome of March 25, 1957, establishing the European
Community, as amended from time to time
"EVENT OF DEFAULT"
as the context requires, any of the following:
(a) for any notes, an event of default under the terms
and condition of those notes; or
(b) for an intercompany loan agreement, the occurrence
of an event of default under the terms and
conditions of that intercompany loan
"EXCHANGE ACT"
The United States Securities Exchange Act of 1934, as amended
"EXISTING BORROWERS' RE-FIX RATE"
At any date, the fixed rate then being offered to those of
the seller's existing borrowers who at that date are seeking
to fix the rate of interest payable under their existing
fixed rate mortgage loans
"FIFTH ISSUER"
Granite Mortgages 03-1 plc
"FIFTH ISSUER NOTES"
The notes issued by the fifth issuer on January 27, 2003
"FIFTH ISSUER INTERCOMPANY LOAN"
The intercompany loan entered into on January 27, 2003
between the fifth issuer and Funding
"FILED PLAN"
With respect to the identification of a property, a plan
retained at H.M. Land Registry indicating the location of the
related land
"FINAL DEFERRED CONTRIBUTION"
An amount equal to the aggregate amount standing to the
credit of the Funding bank accounts (including any account
established by Funding for the purpose of any issuer reserve
fund and/or any issuer liquidity reserve fund of any issuer)
after making any payments ranking in priority, subject to and
in accordance with the relevant Funding priority of payments
"FINAL MATURITY DATE"
For the series 1 class A1 notes, the payment date falling in
September 2025;
For the series 1 class A2 notes, the payment date falling in
September 2028;
For the series 1 class A3 notes, the payment date falling in
September 2044;
For the series 1 class B notes, the payment date falling in
September 2044;
For the series 1 class M notes, the payment date falling in
September 2044;
For the series 1 class C notes, the payment date falling in
September 2044;
For the series 2 class A1 notes, the payment date falling in
September 2044;
For the series 2 class A2 notes, the payment date falling in
September 2044;
331
For the series 2 class B notes, the payment date falling in
September 2044;
For the series 2 class M notes, the payment date falling in
September 2044;
For the series 2 class C notes, the payment date falling in
September 2044;
For the series 3 class A1 notes, the payment date falling in
September 2044;
For the series 3 class A2 notes, the payment date falling in
September 2044;
For the series 3 class B notes, the payment date falling in
September 2044;
For the series 3 class M notes, the payment date falling in
September 2044;
For the series 3 class C notes, the payment date falling in
September 2044;
and, in relation to any series and class of notes of a
previous issuer or a new issuer, such final maturity date as
may be identified as such for that series and class of notes
of that issuer
"FINAL REPAYMENT DATE"
For the intercompany loan, the payment date falling in
September 2044; for the intercompany loan made by the first
issuer, the payment date falling in January 2041; for the
intercompany loan made by the second issuer, the payment date
falling in October 2041; for the intercompany loans made by
the third issuer and the fourth issuer, the payment date
falling in April 2042; for the intercompany loan made by the
fifth issuer, the payment date falling in January 2043; for
the intercompany loan made by the sixth issuer, the payment
date falling in July 2043; for the intercompany loan made by
the seventh issuer, the payment date falling in January 2044;
for the intercompany loan made by the eighth issuer, the
payment date falling in March 2044; and for the intercompany
loan made by the ninth issuer, the payment date falling in
June 2044
"FINANCIAL SERVICES ACT"
The Legislative Decree No.58 of February 24, 1998 of the
Republic of Italy
"FIRST ISSUER"
Granite Mortgages 01-1 plc
"FIRST ISSUER NOTES"
The notes issued by the first issuer on March 26, 2001
"FIRST ISSUER INTERCOMPANY LOAN"
The intercompany loan entered into on March 26, 2001 between
the first issuer and Funding
"FITCH"
Fitch Ratings Ltd., including any successor to its ratings
business
"FIXED RATE MORTGAGE LOAN"
A mortgage loan which is subject to a fixed rate of interest
set by reference to a predetermined rate or series of rates
for a fixed period or periods
"FIXED RATE PERIOD"
For any fixed rate mortgage loan or other mortgage loan
offered with a fixed rate, the period agreed between the
borrower and the seller as set out under the mortgage
332
conditions, during which the interest rate applicable to
that mortgage loan will remain fixed and after which the
borrower may be entitled to apply for a new fixed rate of
interest
"FIXED SECURITY"
A form of security which means that the chargor is not
allowed to deal with the assets subject to the charge without
the consent of the chargee
"FLEXIBLE CAPPED RATE MORTGAGE LOANS"
Flexible mortgage loans with the same basic features as a
Together mortgage loan (other than allowing the borrower to
obtain an unsecured loan) which are subject to a maximum rate
of interest for a specified period of time, and at the
expiration of that period are generally subject to the
seller's standard variable rate
"FLEXIBLE CASH RE-DRAW CAPACITY"
The meaning given to it on page 164
"FLEXIBLE FIXED RATE MORTGAGE LOAN"
Flexible mortgage loans with the same basic features as a
Together mortgage loan (other than allowing the borrower to
obtain an unsecured loan) which are subject to a fixed rate
of interest for a specified period of time, and at the
expiration of that period are generally subject to the
seller's standard variable rate
"FLEXIBLE MORTGAGE LOAN"
A type of mortgage loan product that typically incorporates
features that give the borrower options (which may be subject
to certain conditions) to, among other things, make further
drawings on the mortgage loan account, and/or to overpay or
underpay interest and principal in a given month and/or to
take a payment holiday. The types of flexible mortgage loan
products currently offered by the seller are described under
"THE MORTGAGE LOANS -- CHARACTERISTICS OF THE MORTGAGE LOANS
-- FLEXIBLE MORTGAGE LOANS"
"FLEXIBLE TRACKER RATE MORTGAGE LOANS"
A type of flexible mortgage loan, the primary characteristics
of which are described on page 95
"FLOATING SECURITY"
A form of security which is not attached to specific assets
but which "FLOATS" over a class of them and which allows the
chargor to deal with those assets in the every day course of
its business, up until the point that the floating security
is enforced if other specified events occur (most often a
default), at which point it crystallizes into a fixed
security
"FOURTH ISSUER"
Granite Mortgages 02-2 plc
"FOURTH ISSUER NOTES"
The notes issued by the fourth issuer on September 23, 2002
"FOURTH ISSUER INTERCOMPANY LOAN"
The intercompany loan entered into on September 23, 2002
between the fourth issuer and Funding
"FSA"
The UK Financial Services Authority
"FSMA"
The UK Financial Services and Markets Act 2000
"FUNDING"
Granite Finance Funding Limited
"FUNDING AVAILABLE PRINCIPAL RECEIPTS"
The meaning given to it on page 196
"FUNDING AVAILABLE REVENUE RECEIPTS"
The meaning given to it on page 181
333
"FUNDING BANK ACCOUNTS"
The Funding GIC account, the Funding (Granite 04-3) GIC
account, the Funding (Issuer) GIC accounts for all previous
issuers and the Funding transaction account, each as further
described under "FUNDING'S BANK ACCOUNTS" and each other bank
account (if any) opened in the name of Funding
"FUNDING CHARGED PROPERTY"
The property, assets and undertaking of Funding which from
time to time are or are expressed to be mortgaged, charged,
assigned, pledged or otherwise encumbered to, or in favor of
the security trustee for itself and for the Funding secured
creditors under the Funding deed of charge
"FUNDING CONTRIBUTION DATE"
Any date (including, in connection with the issuance of the
notes, the closing date) on which Funding makes a further
contribution to the mortgages trustee in connection with
Funding's purchase of an increased beneficial interest in the
trust property, on which date the mortgages trustee will also
pay to the seller an initial consideration equal to the
amount of such further contribution
"FUNDING DEED OF CHARGE"
The deed of charge entered into on March 26, 2001, as amended
and restated from time to time, among Funding, the security
trustee, and the Funding secured creditors as at the closing
date including any deeds of accession or supplements thereto
(including, where the context admits and for the avoidance of
doubt, the second priority Funding deed of charge)
"FUNDING EXPENSE SUB-LEDGER"
The ledger on which receipts and payments of Funding revenue
receipts allocable to the payment of expenses will be
recorded by the cash manager
"FUNDING GIC ACCOUNT"
The account in the name of Funding held at Northern Rock and
maintained subject to the terms of the Funding guaranteed
investment contract, the bank account agreement and the
Funding deed of charge, or any additional or replacement
account as may for the time being be in place with the prior
consent of the security trustee
"FUNDING GIC PROVIDER"
Northern Rock or any other person or persons as are for the
time being the Funding GIC provider under the applicable
Funding guaranteed investment contract and any applicable
Funding (Issuer) guaranteed investment contract
"FUNDING (GRANITE 04-3) BANK ACCOUNT AGREEMENT"
The agreement to be entered into on or about the closing
date, as amended from time to time, among Northern Rock,
Funding and others which governs the operation of the Funding
(Granite 04-3) GIC account
"FUNDING (GRANITE 04-3) GIC ACCOUNT"
The account in the name of Funding into which is deposited
amounts in respect of the related issuer reserve fund and the
issuer liquidity reserve fund, if any, established for the
benefit of the issuer, which account is held at the account
bank and maintained subject to the terms of the related
Funding (Granite 04-3) guaranteed investment contract, the
related Funding (Granite 04-3) bank account agreement and the
Funding deed of charge, or any additional or replacement
account as may for the time being be in place with the prior
consent of the security trustee
334
"FUNDING (GRANITE 04-3) GUARANTEED INVESTMENT CONTRACT"
The guaranteed investment contract to be entered into on or
about the closing date with respect to the issuer among
Funding, the Funding GIC provider and others, as amended from
time to time, under which the Funding GIC provider agrees to
pay Funding a guaranteed rate of interest on the balance from
time to time of the Funding (Granite 04-3) GIC account
"FUNDING GROUP"
Collectively, the issuer, the previous issuers and Funding
"FUNDING GUARANTEED INVESTMENT CONTRACT"
(i) Until (and including) the July 2004 payment date, the
guaranteed investment contract entered into on March 21,
2001, as amended, restated, supplemented or otherwise
modified from time to time, among Funding, the previous
Funding GIC provider and others and (ii) following the July
2004 payment date, the guaranteed investment contract entered
into on May 26, 2004, as amended, restated supplemented or
otherwise modified from time to time, among Funding, the
Funding GIC provider and others, in each case under which the
previous Funding GIC provider or the Funding GIC provider, as
applicable, agrees to pay Funding a guaranteed rate of
interest on the balance from time to time of the Funding GIC
account
"FUNDING (ISSUER) BANK ACCOUNT AGREEMENT"
In respect of any issuer, the agreement, as amended from time
to time, entered into among Lloyds TSB Bank plc or Northern
Rock, as applicable, Funding and others which governs the
operation of the Funding (Issuer) GIC account for the related
issuer
"FUNDING (ISSUER) GIC ACCOUNT"
In respect of any issuer, the account in the name of Funding
and identified by reference to the related issuer into which
amounts in respect of the related issuer reserve fund and the
related issuer liquidity reserve fund will be deposited, if
any, which account is held at Lloyds TSB Bank plc or Northern
Rock, as applicable, and maintained subject to the terms of
the related Funding (Issuer) guaranteed investment contract,
the related Funding (Issuer) bank account agreement and the
Funding deed of charge, or any additional or replacement
account as may for the time being be in place with the prior
consent of the security trustee
"FUNDING (ISSUER) GUARANTEED INVESTMENT CONTRACT"
In respect of any issuer, the guaranteed investment contract
entered into with respect to that issuer, each among Funding,
the previous Funding GIC provider or the Funding GIC
provider, as applicable, and others under which the previous
Funding GIC provider and the Funding GIC provider, as
applicable, agree to pay Funding a guaranteed rate of
interest on the balance from time to time of the Funding
(Issuer) GIC account for the related issuer
"FUNDING POST-ENFORCEMENT PRIORITY OF PAYMENTS"
The provisions and the order of priority set out in a
schedule to the Funding deed of charge in which Funding
available revenue receipts, Funding available principal
receipts and all other monies, income, receipts and
recoveries of Funding or the security trustee or any receiver
of Funding and the proceeds of enforcement of the Funding
security are to be applied following service of an
intercompany loan enforcement notice or otherwise following
an enforcement of the Funding security, as described under
"CASHFLOWS --
335
DISTRIBUTION OF FUNDING AVAILABLE PRINCIPAL RECEIPTS AND
FUNDING AVAILABLE REVENUE RECEIPTS FOLLOWING ENFORCEMENT OF
THE FUNDING SECURITY"
"FUNDING PRE-ENFORCEMENT PRINCIPAL PRIORITY OF PAYMENTS"
The provisions and the order of priority of payments set out
in a schedule to the Funding deed of charge in which Funding
available principal receipts will be applied until
enforcement of the Funding security, which is as described
under "CASHFLOWS -- DISTRIBUTION OF FUNDING AVAILABLE
PRINCIPAL RECEIPTS PRIOR TO ENFORCEMENT OF THE FUNDING
SECURITY"
"FUNDING PRE-ENFORCEMENT REVENUE PRIORITY OF PAYMENTS"
The provisions and the order of priority of payments set out
in a schedule to the Funding deed of charge in which Funding
available revenue receipts will be applied until enforcement
of the Funding security, which is as described under
"CASHFLOWS -- DISTRIBUTION OF FUNDING AVAILABLE REVENUE
RECEIPTS"
"FUNDING PRINCIPAL LEDGER"
The ledger on which receipts and payments of Funding
principal receipts will be recorded by the cash manager
"FUNDING PRINCIPAL RECEIPTS"
The mortgage trustee principal receipts paid by the mortgages
trustee to Funding on each distribution date
"FUNDING PRIORITY OF PAYMENTS"
As the context requires, any of the Funding pre-enforcement
revenue priority of payments, the Funding pre-enforcement
principal priority of payments and/or the Funding post-
enforcement priority of payments
"FUNDING RESERVE ADJUSTMENT DATE"
A payment date in respect of which (i) a Funding reserve
decrease has occurred on the immediately preceding payment
date and (ii) such immediately preceding payment date was not
also a Funding reserve adjustment date; provided, that a
Funding reserve adjustment date shall not occur on any
payment date for group 1 issuers or payment date for group 2
issuers if only notes of group 1 issuers or group 2 issuers,
respectively, are outstanding
"FUNDING RESERVE DECREASE"
A reduction in the amount standing to the credit of the
Funding reserve ledger resulting from the application of such
amount to the payment of items in accordance with the Funding
pre-enforcement revenue priority of payments (except items
(A)-(D)) or the Funding post-enforcement priority of payments
(except items (A)-(C))
"FUNDING RESERVE FUND"
The reserve fund established in the name of Funding on March
26, 2001 up to an amount not exceeding the Funding reserve
required amount as further described under "CREDIT STRUCTURE
-- FUNDING RESERVE FUND"
"FUNDING RESERVE LEDGER"
The ledger maintained by the cash manager in the name of
Funding to record the amount credited to the Funding reserve
fund on the initial closing date, and subsequent withdrawals
from and deposits into the Funding reserve fund
"FUNDING RESERVE REQUIRED AMOUNT"
As of any date of determination an amount calculated in
accordance with the formula set out on page 223
"FUNDING REVENUE LEDGER"
The ledger on which the cash manager records all monies
received and paid out by Funding during an interest period
other than the Funding principal receipts
336
"FUNDING SECURED CREDITORS"
The security trustee (and any receiver of Funding appointed
under the Funding deed of charge), the issuer, the previous
issuers, the corporate services provider in respect of
Funding, the account bank, the Funding GIC provider, the
mortgages trustee, the start-up loan provider, the cash
manager and any new Funding secured creditor who accedes to
the Funding deed of charge from time to time under a deed of
accession or supplemental deed
"FUNDING SECURITY"
The mortgages, charges, assignments, pledges and/or any other
security created by Funding under or pursuant to the Funding
deed of charge in favor of the security trustee for the
benefit of the Funding secured creditors
"FUNDING SHARE"
The current Funding share of the trust property calculated in
accordance with the formula set out on pages 157, 158 and 159
"FUNDING SHARE PERCENTAGE"
The current Funding share percentage of the trust property
calculated in accordance with the formula set out on pages
161 and 162
"FUNDING SHARE/SELLER SHARE LEDGER"
The ledger maintained by the cash manager, on behalf of the
mortgages trustee and the beneficiaries, to record the
current Funding share, the current Funding share percentage,
the current seller share and the current seller share
percentage of the trust property
"FUNDING STEP-UP TRIGGER EVENT"
A Funding step-up trigger event occurs if any issuer fails to
exercise its option to redeem its notes on the relevant step-
up date pursuant to the terms and conditions of its notes
"FUNDING TRANSACTION ACCOUNT"
The account in the name of Funding held with the account bank
and maintained subject to the terms of the bank account
agreement and the Funding deed of charge, or any additional
or replacement account as may, for the time being, be in
place with the prior consent of the security trustee
"FUNDING TRANSACTION DOCUMENTS"
Each of the following documents:
(a) the mortgages trust deed;
(b) the mortgage sale agreement;
(c) the administration agreement;
(d) the Funding deed of charge;
(e) the second priority Funding deed of charge;
(f) the corporate services agreement;
(g) the bank account agreement;
(h) each Funding (Issuer) bank account agreement;
(i) Funding (Issuer) guaranteed investment contracts;
(j) the Funding guaranteed investment contract;
(k) the cash management agreement;
(l) the start-up loan agreements;
(m) the collection bank agreement;
(n) the intercompany loan agreement;
337
(o) each previous intercompany loan agreement;
(p) each new intercompany loan agreement to be entered
into by Funding; and
(q) each other deed, document, agreement, instrument or
certificate entered into or to be entered into by
Funding under or in connection with any of the
documents set out in paragraphs (a) through (p)
above or the transactions contemplated in them
"FURTHER ADVANCE"
For any mortgage loan, any advance of further money to the
relevant borrower following the making of the initial advance
of monies under the mortgage and which is secured by the same
mortgage, excluding the amount of any retention in respect of
the initial advance and excluding any re-draw in respect of
any flexible mortgage loan or further draw in respect of any
personal secured loan
"FURTHER CONTRIBUTION"
The consideration in the form of cash payable by any
beneficiary to the mortgages trustee to increase the Funding
share or, as the case may be, the seller share of the trust
property pursuant to and in accordance with the terms of the
mortgages trust deed, but excluding any initial contribution
or deferred contribution paid by Funding
"FURTHER DRAW"
The meaning given to it on page 95
"FURTHER DRAW CAPACITY"
The meaning given to it on page 164
"FURTHER DRAW LEDGER"
The ledger on which further draws under personal secured
loans will be recorded by the cash manager
"FURTHER MORTGAGE LOAN"
Any mortgage loan which was assigned by the seller to the
mortgages trustee after March 26, 2001 and before the
assignment date on August 23, 2004 under the terms of the
mortgage sale agreement and referenced by its mortgage loan
identifier number and comprising the aggregate of all
principal sums, interest, costs, charges, expenses and other
monies (including all further advances) due or owing with
respect to that mortgage loan under the relevant mortgage
conditions by a borrower on the security of a mortgage from
time to time outstanding or, as the context may require, the
borrower's obligations in respect of the same
"FURTHER MORTGAGE PORTFOLIOS"
The portfolios of further mortgage loans, their related
security, accrued interest and other amounts derived from
such further mortgage loans that the seller assigned to the
mortgages trustee after March 26, 2001 and before August 23,
2004
"GLOBAL NOTE CERTIFICATES"
The note certificates representing the notes in global form
"GROUP"
Either of group 1 or group 2
"GROUP 1"
All group 1 issuers
"GROUP 2"
All group 2 issuers
"GROUP 1 AVAILABLE PRINCIPAL RECEIPTS"
The meaning given to it on page 197
"GROUP 2 AVAILABLE PRINCIPAL RECEIPTS"
The meaning given to it on page 197
338
"GROUP 1 AVAILABLE REVENUE RECEIPTS"
The meaning given to it on page 181
"GROUP 2 AVAILABLE REVENUE RECEIPTS"
The meaning given to it on page 182
"GROUP 1 ISSUER"
Any of the first issuer, the second issuer, the third issuer,
the fourth issuer, the fifth issuer, the sixth issuer and the
seventh issuer
"GROUP 2 ISSUER"
Any of the eighth issuer, the ninth issuer or Granite
Mortgages 04-3 plc
"GROUP 1 PRINCIPAL SUBLEDGER"
The ledger on which receipts and payments of Funding
principal receipts allocable to group 1 are recorded by the
cash manager
"GROUP 2 PRINCIPAL SUBLEDGER"
The ledger on which receipts and payments of Funding
principal receipts allocable to group 2 are recorded by the
cash manager
"GROUP 1 REVENUE SUBLEDGER"
The ledger on which receipts and payments of Funding revenue
receipts allocable to group 1 are recorded by the cash
manager
"GROUP 2 REVENUE SUBLEDGER"
The ledger on which receipts and payments of Funding revenue
receipts allocable to group 2 are recorded by the cash
manager
"GROUP 1 SHARE PERCENTAGE"
Aggregate outstanding principal balance of all group 1
intercompany loans
--------------------------------------------------------------
aggregate outstanding principal balance of all intercompany
loans
PROVIDED THAT on any distribution date with respect to which
Funding has made a further contribution to the mortgages
trustee in connection with Funding's purchase of an increased
beneficial interest in the trust property during the
immediately preceding trust calculation period, the
outstanding principal balance of any intercompany loan
entered into during such trust calculation period shall be
deemed to be (only for the purposes of the numerator and
denominator of the formula above) the outstanding principal
balance of such intercompany loan multiplied by the number of
days during which such intercompany loan was outstanding
during such trust calculation period divided by the number of
days in such trust calculation period.
"GROUP 2 SHARE PERCENTAGE"
Aggregate outstanding principal balance of all group 2
intercompany loans
--------------------------------------------------------------
aggregate outstanding principal balance of all intercompany
loans
PROVIDED THAT on any distribution date with respect to which
Funding has made a further contribution to the mortgages
trustee in connection with Funding's purchase of an increased
beneficial interest in the trust property during the
immediately preceding trust calculation period, the
outstanding principal balance of any intercompany loan
entered into during such trust calculation period shall be
deemed to be (only for the purposes of the numerator and
339
denominator of the formula above) the outstanding principal
balance of such intercompany loan multiplied by the number
of days during which such intercompany loan was outstanding
during such trust calculation period divided by the number
of days in such trust calculation period.
"GROUP 1 SHARED ISSUER REVENUE RECEIPTS"
The meaning given to it on page 183
"GROUP 2 SHARED ISSUER REVENUE RECEIPTS"
The meaning given to it on page 184
"GROUP 1 SHARED ISSUER PRINCIPAL RECEIPTS"
The meaning given to it on page 200
"GROUP 2 SHARED ISSUER PRINCIPAL RECEIPTS"
The meaning given to it on page 200
"HERITABLE CREDITOR"
The meaning given to it on page 114
"HOLDER"
In respect of the issuer, each person in whose name an
offered note is for the time being registered in the register
or, in respect of any previous issuer or any new issuer, the
persons in whose name the notes issued by such issuer are for
the time being registered in the register
"HOLDINGS"
Granite Finance Holdings Limited
"HOUSING INDICES"
The UK Nationwide House Price Index and Halifax Price Index
"IN ARREARS"
For a mortgage account, occurs when one or more monthly
payments on that mortgage account have become due and unpaid
by a borrower
"INDIVIDUAL NOTE CERTIFICATES"
The note certificates representing the notes in definitive
form
"INITIAL CLOSING DATE"
March 26, 2001
"INITIAL CONSIDERATION"
A payment made by the mortgages trustee to the seller from
principal receipts held by the mortgages trustee for the
purpose of increasing Funding's beneficial interest in the
trust property as of the closing date in respect of any
further contribution paid by Funding to the mortgages
trustee, which payment may be made on any date, including any
payment date, as further described under "THE MORTGAGES TRUST
-- INCREASING THE FUNDING SHARE OF THE TRUST PROPERTY"
"INITIAL CONTRIBUTION"
The consideration in the form of cash paid by Funding to the
mortgages trustee in respect of the Funding share of the
trust property pursuant to and in accordance with the
mortgages trust deed, which contribution is to fund the
payment to the seller by the mortgages trustee of (and is
equal to) the initial purchase price in respect of the
initial mortgage portfolio or, as the case may be, the
further mortgage portfolio, the additional assigned mortgage
portfolio or (if any is payable) any new mortgage portfolio
assigned to the mortgages trustee and is to be funded from
the proceeds of the intercompany loan, each previous
intercompany loan or any new intercompany loan, as the case
may be
340
"INITIAL MORTGAGE PORTFOLIO"
The portfolio of mortgage loans, their related security,
accrued interest and other amounts, proceeds, powers, rights,
benefits and interests derived from such mortgage loans that
the seller assigned to the mortgages trustee on March 26,
2001
"INITIAL PURCHASE PRICE"
That portion of the purchase price paid by the mortgages
trustee to the seller on the initial closing date in
consideration for the assignment to the mortgages trustee of
the initial mortgage portfolio or that portion of the
purchase price (if any) payable by the mortgages trustee to
the seller on the relevant assignment date in consideration
for the assignment to the mortgages trustee of the further
mortgage portfolios or any new mortgage portfolio, in each
case in accordance with the provisions of the mortgage sale
agreement
"INITIAL TRUST PROPERTY"
The sum of [GBP]100 that the corporate services provider
settled on trust and held on trust absolutely as to both
capital and income by the mortgages trustee for the benefit
of the beneficiaries
"INSOLVENCY EVENT"
For the seller, the administrator, the cash manager or the
issuer cash manager (each, for the purposes of this
definition, a "RELEVANT ENTITY"):
(a) an order is made or an effective resolution passed
for the winding up of the relevant entity or the
appointment of an administrator over the relevant
entity (except, in any such case, a winding-up or
dissolution for the purpose of a reconstruction or
amalgamation the terms of which have been previously
approved by the security trustee);
(b) the relevant entity ceases or threatens to cease to
carry on its business or a substantial part of its
business or stops payment or threatens to stop
payment of its debts or is deemed unable to pay its
debts within the meaning of section 123(a), (b), (c)
or (d) of the Insolvency Act 1986 (as amended,
modified or re-enacted) or becomes unable to pay its
debts as they fall due or the value of its assets
falls to less than the amounts of its liabilities
(taking into account, for both these purposes,
contingent and prospective liabilities) or otherwise
becomes insolvent;
(c) (i) proceedings are initiated against the relevant
entity under any applicable liquidation,
insolvency, composition, reorganization (other
than a reorganization where the relevant entity
is solvent) or other similar laws (including,
but not limited to, application or pending
application for an administration order or
presentation of a petition for a winding up
order), except where these proceedings are
being contested in good faith; or
341
(ii) an administration order being granted or an
administrative or other receiver,
administrator, liquidator or other similar
official is appointed in relation to the
whole or any substantial part of the
undertaking or assets of the relevant entity;
or
(iii) a distress, execution or diligence or other
process is enforced upon the whole or any
substantial part of the undertaking or assets
of the relevant entity and in any of the
foregoing cases it is not discharged within
30 London business days; or
(iv) if the relevant entity initiates or consents
to judicial proceedings relating to itself
under any applicable liquidation,
administration, insolvency, reorganization or
other similar laws or makes a conveyance or
assignment for the benefit of its creditors
generally; and
in respect of Funding or the issuer (each, for the purposes
of this definition, a "RELEVANT ENTITY") means:
(a) except for the purposes of an amalgamation or
restructuring as described under the point
immediately following, the relevant entity ceases or
threatens to cease to carry on all or a substantial
part of its business or the relevant entity is
deemed unable to pay its debts within the meaning of
section 123(1)(a), (b), (c) or (d) of the Insolvency
Act 1986 (as that section may be amended, modified
or re-enacted) or becomes unable to pay its debts
within the meaning of section 123(2) of the
Insolvency Act 1986 (as that section may be amended,
modified or re-enacted); or
(b) an order is made or an effective resolution is
passed for the winding up of the relevant entity or
the appointment of an administrator over the
relevant entity (except for the purposes of or
pursuant to an amalgamation, restructuring or merger
previously approved by the note trustee or the
security trustee, as the case may be, or as approved
in writing by an extraordinary resolution (as
defined in the trust deed) of the class A
noteholders); or
(c) (i) proceedings are otherwise initiated against the
relevant entity under any applicable
liquidation, insolvency, composition,
reorganization or other similar laws (including,
but not limited to, application or pending
application for an administration order or
presentation of a petition for a winding up
order) and (except in the case of application
or pending application for an administration
order) such proceedings are not, in the opinion
of the note trustee or the security trustee (as
the case may be), being disputed in good faith
with a reasonable prospect of success; or
342
(ii) an administration order being granted or an
administrative receiver or other receiver,
administrator, liquidator or other similar
official being appointed in relation to the
relevant entity or in relation to the whole
or any substantial part of the undertaking or
assets of the relevant entity; or
(iii) an encumbrancer taking possession of the
whole or any substantial part of the
undertaking or assets of the relevant entity,
or a distress, execution, diligence or other
process being levied or enforced upon or sued
out against the whole or any substantial part
of the undertaking or assets of the relevant
entity and such possession or process (as the
case may be) not being discharged or not
otherwise ceasing to apply within 30 days; or
(iv) the relevant entity initiating or consenting
to judicial proceedings relating to itself
under applicable liquidation, administration,
insolvency, composition, reorganization or
other similar laws or making a conveyance or
assignment for the benefit of its creditors
generally
"INTERCOMPANY LOAN"
The loan to be made by the issuer to Funding on the closing
date under the intercompany loan agreement (or, if the
context requires, a previous intercompany loan made by a
previous issuer to Funding or any new intercompany loan made
by any new issuer under any new intercompany loan agreement)
"INTERCOMPANY LOAN AGREEMENT"
The intercompany loan agreement to be entered into on the
closing date, as amended from time to time, between, among
others, Funding, the issuer and the note trustee (or, if the
context requires, the first intercompany agreement entered
into on March 26, 2001, as amended from time to time, among
Funding, the first issuer and the note trustee, the second
intercompany loan agreement entered into on September 28,
2001, as amended from time to time, among Funding, the second
issuer and the note trustee, the third intercompany loan
agreement entered into on March 20, 2002, as amended from
time to time, among Funding, the third issuer and the note
trustee, the fourth intercompany loan agreement entered into
on September 23, 2002, as amended from time to time, among
Funding, the fourth issuer and the note trustee, the fifth
intercompany loan agreement entered into on January 27, 2003,
as amended from time to time, among Funding, the fifth issuer
and the note trustee, the sixth intercompany loan agreement
entered into on May 21, 2003, as amended from time to time,
among Funding, the sixth issuer and the note trustee, the
seventh intercompany loan agreement entered into on September
24, 2003, as amended from time to time, among Funding, the
seventh issuer and the note trustee, the eighth intercompany
loan agreement entered into on January 28, 2004, as amended
from time to time, among Funding, the
343
eighth issuer and the note trustee, the ninth intercompany
loan agreement entered into on May 26, 2004, as amended
from time to time, among Funding, the ninth issuer and the
note trustee and any new intercompany loan agreement
entered into from time to time, among Funding, a new issuer
and the note trustee)
"INTERCOMPANY LOAN AGREEMENTS"
The intercompany loan agreement, each previous intercompany
loan agreement and any new intercompany loan agreements
"INTERCOMPANY LOAN ENFORCEMENT NOTICE"
An enforcement notice served by the security trustee on
Funding for the enforcement of the Funding security following
the occurrence of an intercompany loan event of default
"INTERCOMPANY LOAN EVENT OF DEFAULT"
An event of default under the intercompany loan agreement
and/or under any previous intercompany loan agreement and/ or
under any new intercompany loan agreement
"INTERCOMPANY LOAN LEDGER"
A ledger maintained by the cash manager to record payments of
interest and fees and repayments of principal made under the
intercompany loan, each previous intercompany loan or any new
intercompany loan
"INTEREST DETERMINATION DATE"
(a) in respect of the dollar notes and any interest
period for which the applicable rate of interest
shall apply, means the date which is two London
business days before the first day of such interest
period;
(b) in respect of the euro notes and any interest period
for which the applicable rate of interest shall
apply, means the date which is two TARGET business
days before the first day of such interest period;
and
(c) in respect of the sterling notes and any interest
period for which the applicable rate of interest
shall apply, means in respect of the first interest
period, the closing date, and in respect of each
subsequent interest period, the first day of such
interest period
"INTEREST PERIOD" (i) in respect of interest payments made in respect
of the notes (other than the series 3 class A2
notes), the period from (and including) a
payment date (or in respect of the first
interest period the closing date) to (but
excluding) the next following (or first)
payment date;
(ii) subject to paragraph (iii), in respect of interest
payments made in respect of the series 3 class A2
notes, (a) the period from (and including) the closing
date to (but excluding) the 20th day of September 2005;
(b) on and after 20th September 2005, the annual period
from (and including) a payment date in respect of the
series 3 class A2 notes to (but excluding) the next
payment date in respect of the series 3 class A2 notes;
and (c) on and from the payment date in respect of the
series 3 class A2 notesfalling in September 2011, the
interest period for the series 3 class A2 notes will be
the period from (and including) the immediately
preceding payment date (or in respect of the first such
interest
344
period, such payment date falling in September
2011) to (but excluding) the next following
payment date;
(iii) in relation to the series 3 class A2 notes, where a
trigger event occurs and/or the Funding security and/or
the issuer security is enforced prior to the payment
date in September 2011:
(a) the then current interest period for the series 3 class
A2 notes shall be the period from (and including) the
immediately preceding payment date in respect of the
series 3 class A2 notes (or, if applicable, the closing
date) to (but excluding), if a trigger event has
occurred, the next payment date, or, if the Funding
security and/or the issuer security has been enforced,
the date of such enforcement, and
(b) thereafter, the interest period for the series 3 class
A2 notes shall be the period from (and including) the
latest excluded date (as referred to above) to (but
excluding) the next following payment date and,
thereafter, each quarterly period calculated in
accordance with paragraph (i) above
"INTEREST RATE SWAP"
The swap documented under the interest rate swap agreement in
respect of the series 3 class A2 notes as described further
under "THE SWAP AGREEMENTS -- THE INTEREST RATE SWAP"
"INTEREST RATE SWAP AGREEMENT"
The ISDA master agreement, schedule thereto and confirmation
thereunder relating to the interest rate swap to be entered
into on or about the closing date, and any credit support
annex or other credit support document entered into at any
time, as amended from time to time, among the issuer, the
interest rate swap provider and the note trustee and/or any
credit support provider and includes any additional and/or
replacement interest rate swap agreement entered into by the
issuer from time to time in connection with the notes
"INTEREST RATE SWAP PROVIDER"
UBS Limited and/or, as applicable, any other interest rate
swap provider appointed from time to time in accordance with
the transaction documents
"INTEREST RATE SWAP PROVIDER DEFAULT"
The occurrence of an event of default or a downgrade
termination event (as defined in the interest rate swap
agreement) where the interest rate swap provider is the
defaulting party or the affected party (as defined in the
interest rate swap agreement)
"INTERIM CALCULATION PERIOD"
The meaning given to it on page 157
"INVESTMENT PLAN"
For an interest-only loan, a repayment mechanism selected by
the borrower and intended to provide sufficient funds to
redeem the full principal of a mortgage loan at maturity
"IRS"
The US Internal Revenue Service
345
"ISA"
An individual savings account within the Individual Savings
Account Regulations 1998 (as amended) and which shelters
investments in the account from income Tax or capital gains
tax
"ISSUER"
Granite Mortgages 04-3 plc and/or, if the context
specifically requires, any previous issuer and/or any new
issuer
"ISSUER ACCOUNT BANK"
Citibank, N.A., acting through its London branch at 5
Carmelite Street, London EC4Y 0PA or any other authorized
entity as the issuer may choose with the prior written
approval of the note trustee
"ISSUER ALLOCABLE PRINCIPAL RECEIPTS"
The meaning given to it on page 197
"ISSUER ALLOCABLE REVENUE RECEIPTS"
The meaning given to it on page 182
"ISSUER AVAILABLE PRINCIPAL RECEIPTS"
The meaning given to it on page 202
"ISSUER ARREARS TEST"
The meaning given to it on page 206
"ISSUER AVAILABLE REVENUE RECEIPTS"
The meaning given to it on page 189
"ISSUER BANK ACCOUNT AGREEMENT"
The bank account agreement to be entered into on or about the
closing date, as amended from time to time, among the issuer,
the issuer cash manager, the issuer account bank and the note
trustee
"ISSUER CASH MANAGEMENT AGREEMENT"
The issuer cash management agreement to be entered into on or
about the closing date, as amended from time to time, among
the issuer cash manager, the issuer and the note trustee, as
described further in "CASH MANAGEMENT FOR THE ISSUER"
"ISSUER CASH MANAGER"
Northern Rock or such other person or persons for the time
being acting, under the issuer cash management agreement, as
agent for the issuer and (following enforcement of the issuer
security) the note trustee for the purposes of, inter alia,
managing all cash transactions and maintaining certain
ledgers on behalf of the issuer and (following enforcement of
the issuer security) the note trustee
"ISSUER DEED OF CHARGE"
The deed of charge to be entered into on the closing date, as
amended from time to time, between, among others, the issuer
and the note trustee, under which the issuer charges the
issuer security in favor of the issuer secured creditors, as
described further under "SECURITY FOR THE ISSUER'S
OBLIGATIONS"
"ISSUER LIQUIDITY RESERVE FUND"
The liquidity reserve fund in Funding's name which Funding
will be required to establish 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 notes will not be adversely
affected) and, if the context so requires, any liquidity
reserve fund required to be established by Funding with
respect to any other issuer. The issuer liquidity reserve
fund, if any, will be funded up to the issuer liquidity
reserve required amount
346
"ISSUER LIQUIDITY RESERVE LEDGER"
A ledger maintained by the cash manager to record the balance
from time to time of the issuer liquidity reserve fund, if
any and, if the context so requires, any ledger maintained by
Funding with respect to the issuer liquidity reserve fund of
any other issuer
"ISSUER LIQUIDITY RESERVE REQUIRED AMOUNT"
The meaning given to it on page 225
"ISSUER POST-ENFORCEMENT PRIORITY OF PAYMENTS"
The provisions and the order of priority set out in a
schedule to the issuer deed of charge in which all issuer
available revenue receipts, issuer available principal
receipts and all other monies, income, receipts and
recoveries of the issuer or the note trustee or any receiver
of the issuer security are to be applied following service of
a note enforcement notice or otherwise following an
enforcement of the issuer security which on the closing date
will be as described under "CASHFLOWS -- DISTRIBUTION OF
ISSUER AVAILABLE PRINCIPAL RECEIPTS AND ISSUER AVAILABLE
REVENUE RECEIPTS FOLLOWING ENFORCEMENT OF THE ISSUER
SECURITY"
"ISSUER PRE-ENFORCEMENT PRINCIPAL PRIORITY OF PAYMENTS"
The provisions and the order of priority of payments set out
in a schedule to the issuer cash management agreement in
which the issuer available principal receipts will be applied
until enforcement of the issuer security, which on the
closing date will be as described under "CASHFLOWS --
DISTRIBUTION OF ISSUER AVAILABLE PRINCIPAL RECEIPTS PRIOR TO
ENFORCEMENT OF THE ISSUER SECURITY AND/OR OCCURRENCE OF A
TRIGGER EVENT"
"ISSUER PRE-ENFORCEMENT REVENUE PRIORITY OF PAYMENTS"
The provisions and the order of priority of payments set out
in a schedule to the issuer cash management agreement in
which the issuer available revenue receipts will be applied
until enforcement of the issuer security, which on the
closing date will be as described under "CASHFLOWS --
DISTRIBUTION OF ISSUER AVAILABLE REVENUE RECEIPTS PRIOR TO
ENFORCEMENT OF THE ISSUER SECURITY"
"ISSUER PRINCIPAL DEFICIENCY LEDGER"
The ledger maintained by the issuer cash manager in the name
of the issuer which will be established on the closing date
and will be sub-divided into subledgers corresponding to the
classes of notes issued by the issuer in order to record
losses allocated to the intercompany loan of the issuer which
are to be applied to the notes or the application of issuer
available principal receipts of the issuer in paying interest
on the notes and certain amounts ranking in priority thereto
in accordance with the issuer pre-enforcement revenue
priority of payments or the application by Funding of issuer
allocable principal receipts of the issuer to fund or
replenish any issuer liquidity reserve fund (if any) of the
issuer and, if the context so requires, any such ledger
maintained with respect to any other issuer)
"ISSUER PRIORITY OF PAYMENTS"
A relevant issuer pre-enforcement revenue priority of
payments, the issuer pre-enforcement principal priority of
payments and the issuer post-enforcement priority of payments
347
"ISSUER RESERVE FUND"
A reserve fund established in the name of Funding on the
closing date up to an amount not exceeding the issuer reserve
required amount, as further described under "CREDIT
STRUCTURE-ISSUER RESERVE FUND"
"ISSUER RESERVE LEDGER"
A ledger maintained by the cash manager in the name of
Funding to record the balance from time to time of the issuer
reserve fund
"ISSUER RESERVE REQUIRED AMOUNT"
An amount equal to [GBP]48,000,000 in respect of the issuer
reserve fund, [GBP]20,000,000 in respect of the issuer
reserve fund of each of the first issuer and the second
issuer, [GBP]34,372,240 in respect of the issuer reserve fund
of the third issuer, [GBP]39,000,000 in respect of the issuer
reserve fund of the fourth issuer, [GBP]45,000,000 in respect
of the issuer reserve fund of the fifth issuer,
[GBP]35,000,000 in respect of the issuer reserve fund of the
sixth issuer, [GBP]33,400,000 in respect of the issuer
reserve fund of the seventh issuer, [GBP]60,000,000 in
respect of the issuer reserve fund of the eighth issuer,
[GBP]44,900,000 in respect of the issuer reserve fund of the
ninth issuer and, in respect of any new issuer, such amount
as may be acceptable to the rating agencies at the relevant
time
"ISSUER RESERVE REQUIREMENT"
The meaning given to it on page 206
"ISSUER SECURED CREDITORS"
The note trustee (and any receiver appointed under the issuer
deed of charge), the swap providers, the corporate services
provider in respect of the issuer, the issuer account bank,
the issuer cash manager, the paying agents, the agent bank,
the transfer agent, the registrar and the noteholders
"ISSUER SECURITY"
The mortgages, charges, assignments, pledges and/or any other
security created by the issuer under the issuer deed of
charge in favor of the note trustee for the benefit of the
issuer secured creditors
"ISSUER TRANSACTION ACCOUNT"
The day to day bank accounts of the issuer, held with the
issuer account bank and comprising the issuer transaction
dollar account, the issuer transaction euro account and the
issuer transaction sterling account as at the closing date or
that may be opened, with the prior approval of the note
trustee, after the closing date
"LEAD UNDERWRITERS"
Deutsche Bank Securities Inc., Lehman Brothers Inc. and UBS
Limited
"LENDING CRITERIA"
The lending criteria of the seller, or that other criteria as
would be acceptable to a reasonable, prudent mortgage lender
"LIBOR"
The London Interbank Offered Rate for deposits in the
relevant currency, as determined by the agent bank on the
following basis:
(1) on the applicable interest determination date the
agent bank will determine the offered quotation to
leading banks for deposits in the relevant currency
for a period equal to the relevant period.
This will be determined by reference to the display
as quoted on the Dow Jones/Telerate Page No. 3750.
If the Dow Jones/Telerate Page No. 3750
348
stops providing these quotations, the replacement
page for the purposes of displaying this information
will be used. If the replacement page stops
displaying the information, another service as
determined by the issuer with the approval of the
note trustee will be used.
In each of these cases, the determination will be
made as at or about 11:00 a.m., London time, on that
date. This is called the screen rate.
(2) if on any of these interest determination dates the
screen rate is unavailable, the agent bank will:
request the principal London office of each of the
reference banks to provide the agent bank with its
offered quotation to leading banks for deposits in
the relevant currency of the equivalent amount, and
for a time equal to the relevant period, in the
London interbank market as at or about 11:00 a.m.
(London time); and
calculate the arithmetic mean, rounded upwards to
five decimal places, of those quotations;
(3) if on any of these interest determination dates the
screen rate is unavailable and only two or three of
the reference banks provide offered quotations, the
relevant rate for that period will be the arithmetic
mean of the quotations as calculated in (2); and
(4) if fewer than two reference banks provide
quotations, the agent bank will consult with the
note trustee and the issuer for the purpose of
agreeing a total of two banks to provide these
quotations and the relevant rate for that period
will be the arithmetic mean of the quotations as
calculated in (2). If none of these banks agree,
then the relevant rate for that period will be the
rate in effect for the last preceding interest
period for which (1) or (2) was applicable
"LLOYDS TSB"
Lloyds TSB Bank plc acting through its office at City Office,
Bailey Drive, Gillingham Business Park, Kent ME8 0LS, England
"LLOYDS TSB COLLECTION ACCOUNT"
The account of the administrator held at Lloyds TSB as may be
utilized from time to time for the purpose of collecting
amounts which are paid to the seller on the mortgage loans
and/or the related security
"LONDON BUSINESS DAY"
A day (other than a Saturday, Sunday or public holiday) on
which banks are generally open for business in London
"LONDON STOCK EXCHANGE"
London Stock Exchange plc
"LOSSES"
The realized losses experienced on the mortgage loans in the
mortgage portfolio
"LOSSES LEDGER"
The ledger created and maintained by the cash manager under
the cash management agreement to record the losses on the
mortgage portfolio
349
"LTV RATIO" or "LOAN TO VALUE RATIO"
In respect of any mortgage loan assigned to the mortgages
trust, the ratio of the outstanding balance of such mortgage
loan to the value of the mortgaged property securing such
mortgage loan; and in respect of the seller's decision as to
whether to make a mortgage loan to a prospective borrower and
for purposes of determining whether a MIG policy is necessary
in connection with a mortgage loan, the ratio of the
outstanding balance of such mortgage loan to the lower of the
purchase price or valuation of the mortgaged property
securing such mortgage loan as determined by the relevant
valuation by the seller
"LTV TESTS"
Two tests which assign a credit enhancement value (I) to each
mortgage loan in the mortgage portfolio based on its current
LTV ratio and the amount of mortgage indemnity cover on that
mortgage loan, and (ii) calculated to include any related
unsecured portion of a mortgage loan in respect of the
Together product based on its current LTV ratio and the
amount of mortgage indemnity cover on that mortgage loan. The
weighted average credit enhancement value for the mortgage
portfolio is then determined
"MANAGERS"
Barclays Bank PLC, Credit Suisse First Boston (Europe)
Limited, Deutsche Bank AG London, ING Belgium SA/NV, Lehman
Brothers International (Europe) and UBS Limited
"MANDATE HOLDERS"
The meaning given to it on page 107
"MASTER DEFINITIONS SCHEDULE"
Together, the master definitions schedule dated March 26,
2001, as amended from time to time, and the issuer master
definitions schedule to be dated the closing date, as amended
from time to time, which are schedules of definitions used in
the transaction documents
"MIG POLICIES"
The mortgage indemnity guarantee policies on certain of the
mortgage loans which are intended to cover losses which may
be incurred following repossession and sale of a mortgaged
property from a borrower, and which were issued by NORMIC
"MINIMUM SELLER SHARE"
An amount included in the seller share which is calculated in
accordance with the mortgages trust deed and which, as at the
closing date, is approximately [GBP]1,203 million as further
described under "THE MORTGAGES TRUST"
"MONEY MARKET NOTES"
For any issuer, any series and/or class of notes issued by
such issuer that are designated as "MONEY MARKET NOTES"
"MONTHLY PAYMENT"
For any mortgage loan, the amount a borrower is required to
pay on a monthly payment date
"MONTHLY PAYMENT DATE"
For any mortgage loan, the date in each month on which the
relevant borrower is required to make a payment of interest
and, if applicable, principal, for that mortgage loan, as
required by the applicable mortgage conditions
"MOODY'S"
Moody's Investors Services Limited, including any successor
to its rating business
"MORTGAGE" (1) For any mortgage loan in the mortgage portfolio (other
than personal secured loans), the first priority charge
by way of legal mortgage (in relation to English
mortgage loans) or first priority standard
350
security (in relation to Scottish mortgage loans),
in each case which secures the repayment of that
mortgage loan including the mortgage conditions
applicable to it; and
(2) for any personal secured loan in the mortgage
portfolio, the second or lower ranking charge by way
of legal mortgage (in relation to English mortgage
loans) or standard security (in relation to Scottish
mortgage loans) over the same property that secures
the relevant borrower's existing mortgage loan, in
each case which secures the repayment of that
personal secured loan including the mortgage
conditions applicable to it
"MORTGAGE ACCOUNT"
As the context requires, either (1) all mortgage loans
secured on the same mortgaged property and thereby forming a
single mortgage account or (2) an account maintained by the
administrator in respect of a particular mortgage loan to
record all amounts due in respect of that mortgage loan
(whether by way of principal, interest or otherwise) and all
amounts received in respect thereof
"MORTGAGE CONDITIONS"
For any mortgage loan, the terms and conditions applicable to
that mortgage loan and its related security as set out in the
seller's relevant "MORTGAGE CONDITIONS" booklet and the
seller's relevant general conditions, and in relation to each
as from time to time varied by the relevant mortgage loan
agreement and the relevant mortgage deed
"MORTGAGE DEED"
In respect of any mortgage, the deed creating that mortgage
including, unless the context otherwise requires, the
mortgage conditions applicable to that mortgage
"MORTGAGE LOAN"
Any mortgage loan (including, for the avoidance of doubt, any
personal secured loan) and any permitted replacement mortgage
loan which is assigned by the seller to the mortgages trustee
from time to time under the terms of the mortgage sale
agreement and referenced by its mortgage loan identifier
number and comprising the aggregate of all principal sums,
interest, costs, charges, expenses and other monies
(including all further advances) due or owing with respect to
that mortgage loan (or permitted replacement mortgage loan,
as applicable) under the relevant mortgage conditions by a
borrower on the security of a mortgage from time to time
outstanding or, as the context may require, the borrower's
obligations in respect of the same
"MORTGAGE LOAN FILES"
For each mortgage loan, the file or files (including files
kept in microfiche format or similar electronic data
retrieval system) containing correspondence between the
borrower and the seller and including the mortgage
documentation applicable to that mortgage loan, each letter
of offer for that mortgage loan and other relevant documents
"MORTGAGE PORTFOLIO"
The initial mortgage portfolio, the further mortgage
portfolios and the additional assigned mortgage portfolio as
it is constituted as of any date of determination since
August 23, 2004, taking account of, among other things,
amortization of mortgage loans in that portfolio and the
addition and/or
351
removal of any mortgage loans to or from that portfolio as
of such date of assignment of the additional assigned
mortgage portfolio
"MORTGAGE RELATED SECURITY"
As defined in the United States Secondary Mortgage Markets
Enhancement Act 1984, as amended
"MORTGAGE SALE AGREEMENT"
The mortgage sale agreement entered into on March 26, 2001,
as amended from time to time, among the seller, the mortgages
trustee, Funding and the security trustee regarding the
assignment of the mortgage portfolio to the mortgages trustee
including any documents ancillary thereto, and as further
described under "ASSIGNMENT OF THE MORTGAGE LOANS AND THEIR
RELATED SECURITY"
"MORTGAGED PROPERTY"
For any mortgage loan, the freehold or leasehold property in
England and Wales or (as applicable) the heritable or long
leasehold property in Scotland and (in each case) all rights
and security attached or appurtenant or related thereto and
all buildings and fixtures on the property which are subject
to the mortgage securing repayment of that mortgage loan
"MORTGAGEE"
For any mortgage loan, the person for the time being who is
entitled to exercise the rights of the mortgagee or (in
Scotland) heritable creditor under the relevant mortgage
securing repayment of that mortgage loan
"MORTGAGES"
The mortgages contained in the mortgage portfolio
"MORTGAGES TRUST"
The bare trust of the trust property as to both capital and
income, held by the mortgages trustee on trust absolutely for
Funding (as to the Funding share) and the seller (as to the
seller share) under the mortgages trust deed so that each
beneficiary has an undivided beneficial interest in it
"MORTGAGES TRUST ALLOCATION OF REVENUE RECEIPTS"
The order of priority for applying mortgages trustee
available revenue receipts as set forth on page 165
"MORTGAGES TRUST DEED"
The mortgages trust deed entered into on March 26, 2001, as
amended from time to time, among the mortgages trustee,
Funding, the seller and the corporate services provider
"MORTGAGES TRUSTEE"
Granite Finance Trustees Limited
"MORTGAGES TRUSTEE AVAILABLE REVENUE RECEIPTS"
The meaning given to it on page 164
"MORTGAGES TRUSTEE BANK ACCOUNTS"
The mortgages trustee GIC account and the mortgages trustee
transaction account
"MORTGAGES TRUSTEE GIC ACCOUNT"
The account in the name of the mortgages trustee held at
Northern Rock and maintained subject to the terms of the
mortgages trustee guaranteed investment contract and the bank
account agreement or any additional or replacement account as
may for the time being be in place with the prior consent of
the Funding, the seller and the security trustee
"MORTGAGES TRUSTEE GIC PROVIDER"
Northern Rock or any other person or persons as are for the
time being the mortgages trustee GIC provider under the
mortgages trustee guaranteed investment contract
"MORTGAGES TRUSTEE GUARANTEED INVESTMENT CONTRACT"
The guaranteed investment contract entered into on May 26,
2004, as amended, restated, supplemented or otherwise
modified from time to time, among Funding, the Funding
352
GIC provider and others, in each case under which the
previous mortgages trustee GIC provider or the mortgages
trustee GIC provider, as applicable, has agreed to pay the
mortgages trustee a guaranteed rate of interest on the
balance of the mortgages trustee GIC account
"MORTGAGES TRUSTEE PRINCIPAL PRIORITY OF PAYMENTS"
The order in which the cash manager applies principal
receipts on the mortgage loans on each distribution date to
each of Funding and the seller, as set out in "THE MORTGAGES
TRUST"
"MORTGAGES TRUSTEE PRINCIPAL RECEIPTS"
On any distribution date, any mortgages trustee retained
principal receipt plus the principal receipts received by the
mortgages trustee in the immediately preceding trust
calculation period which may be distributed by the mortgages
trustee
"MORTGAGES TRUSTEE RETAINED PRINCIPAL RECEIPTS"
The meaning given to it on page 169
"MORTGAGES TRUSTEE REVENUE PRIORITY OF PAYMENTS"
The order in which the cash manager applies the mortgages
trustee available revenue receipts on each distribution date,
as set out in "THE MORTGAGES TRUST"
"MORTGAGES TRUSTEE TRANSACTION ACCOUNT"
The account in the name of the mortgages trustee held at the
account bank and maintained subject to the terms of the bank
account agreement or any additional or replacement bank
account of the mortgages trustee as may for the time being be
in place with the prior consent of the security trustee
"N(M)"
The meaning given to it on page 57
"NEW BASEL CAPITAL ACCORD"
The meaning given to it on page 62
"NEW INTERCOMPANY LOAN AGREEMENT"
A new intercompany loan agreement entered into between
Funding and a new issuer in relation to a new intercompany
loan
"NEW INTERCOMPANY LOANS"
Intercompany loans made to Funding by new issuers under new
intercompany loan agreements
"NEW ISSUER"
A new wholly-owned subsidiary of Funding that is not
established as at the closing date and which, if established,
will issue new notes and make a new intercompany loan to
Funding
"NEW MORTGAGE LOANS"
Mortgage loans, other than the mortgage loans assigned on or
before the closing date, which the seller may assign, from
time to time, to the mortgages trustee under the terms of the
mortgage sale agreement
"NEW MORTGAGE PORTFOLIO"
Any portfolio of new mortgage loans, the mortgages and new
related security, any accrued interest and any other amounts,
proceeds, powers, rights, benefits and interests derived from
the new mortgage loans and/or the new related security, in
each case which are to be assigned by the seller to the
mortgages trustee after the closing date under the mortgage
sale agreement but excluding any mortgage loan and its
related security which has been redeemed in full on or before
the relevant assignment date
"NEW NOTES"
The notes issued by the new issuers to investors
353
"NEW RELATED SECURITY"
The security for the new mortgage loans (including the
mortgages) which the seller may assign to the mortgages
trustee under the mortgage sale agreement
"NEW TRUST PROPERTY"
As at any assignment date after the closing date, any and all
new mortgage portfolios assigned by the seller to the
mortgages trustee on an assignment date, or as at any
distribution date, any and all new mortgage portfolios
assigned by the seller to the mortgages trustee during the
immediately preceding trust calculation period
"NEW YORK BUSINESS DAY"
A day (other than a Saturday, Sunday or public holiday) on
which banks are generally open for business in the city of
New York
"NINTH ISSUER"
Granite Mortgages 04-2 plc
"NINTH ISSUER NOTES"
The notes issued by the ninth issuer on May 26, 2004
"NINTH ISSUER INTERCOMPANY LOAN"
The intercompany loan entered into on May 26, 2004 between
the ninth issuer and Funding
"NON-ASSET TRIGGER EVENT"
The meaning given to it on page 166
"NON-CASH RE-DRAW"
An authorized underpayment or a payment holiday under a
flexible mortgage loan included in the mortgages trust, which
will result in the seller being required to pay to the
mortgages trustee an amount equal to the unpaid interest
associated with that authorized underpayment or payment
holiday
"NON-PERFORMING MORTGAGE LOAN"
A mortgage loan that is in arrears and for which the related
borrower has not made any payment within any of the three
consecutive calendar months prior to the date of
determination
"NORMIC"
Northern Rock Mortgage Indemnity Company Limited
"NORTHERN ROCK"
Northern Rock plc
"NOTE CERTIFICATES"
The global note certificates and the individual note
certificates
"NOTE ENFORCEMENT NOTICE"
An enforcement notice served by the note trustee for the
enforcement of the issuer security following a note event of
default under the notes
"NOTE EVENT OF DEFAULT"
An event of default under the provisions of the notes
"NOTE PRINCIPAL PAYMENT"
The amount of each principal payment payable on each note
"NOTE TRUSTEE"
The Bank of New York, acting through its office at 48th
Floor, One Canada Square, London E14 5AL, or such other
person for the time being acting as note trustee under the
trust deed
"NOTEHOLDERS"
For the issuer, the holders of the class A notes, the class B
notes, the class M notes and/or the class C notes of any
series or, for any previous issuer or any new issuer, the
holders for the time being of the notes issued by such
previous issuer or new issuer, as the case may be
"NOTES"
Includes all of the class A notes, the class B notes, the
class M notes and the class C notes or, in relation to any
previous issuer or any new issuer, the notes issued by such
previous issuer or new issuer, as the case may be
354
"NOTICE"
In case of notice being given to the noteholders, a notice
duly given in accordance with the relevant conditions set
forth in the notes
"NOTIONAL AMOUNT OF THE BASIS RATE SWAP"
The meaning given to it on page 234
"NRG"
Northern Rock (Guernsey) Limited
"OID"
Original issue discount
"OID REGULATIONS"
The US Treasury regulations relating to original issue
discount
"OFFER CONDITIONS"
The terms and conditions applicable to a specific mortgage
loan as set out in the relevant offer letter to the borrower
"OFFERED GLOBAL NOTE CERTIFICATES"
The series 1 global note certificates and the series 2 class
A1 global note certificates
"OFFERED NOTES"
The dollar notes offered by this prospectus
"OFT"
Office of Fair Trading
"OMBUDSMAN"
The UK Financial Ombudsman Service
"OUTSTANDING AMOUNT"
Following enforcement of a mortgage loan, the amount
outstanding on the payment of that loan after deducting money
received under the applicable MIG policy
"OUTSTANDING PRINCIPAL BALANCE"
For any note, the unpaid principal amount of that note, and
for any intercompany loan, the unpaid principal balance of
that intercompany loan
"OVERPAYMENTS LEDGER"
The ledger created and maintained by the cash manager to
record overpayments received by the mortgages trustee on the
mortgage loans
"PAYING AGENT AND AGENT BANK AGREEMENT"
The paying agent and agent bank agreement entered into on or
about the closing date, as amended from time to time, among
the issuer, the principal paying agent, the paying agents,
the transfer agent, the registrar and the agent bank
"PAYING AGENTS"
The principal paying agent and the US paying agent
"PAYMENT DATE"
(i) with respect to the notes of any group 1 issuer (other
than as set forth in clause (ii)), the 20th day of January,
April, July and October of each year, (ii) with respect to
the series 2 class C1 notes and the series 3 class A notes of
the sixth issuer only, the 20th day of July in each year up
to and including the earlier of the (A) payment date in July
2010, (B) the occurrence of a trigger event or (C) the
enforcement of the issuer security, and thereafter the 20th
day of January, April, July and October of each year, (iii)
with respect to the notes of any group 2 issuer (other than
as set forth in clause (iv)), the 20th of March, June,
September and December of each year and (iv) with respect to
the series 3 class A2 notes of the issuer only, the 20th day
of September in each year up to and including the earlier of
the (A) payment date in September 2011, (B) the occurrence of
a trigger event or (C) the enforcement of the Funding
security and/or the issuer security, and thereafter the 20th
day of March, June, September and December of each year,
beginning with the first such date to occur following such
earliest event to occur (or, in each case, if such day is not
a business day, the next succeeding business day)
355
"PAYMENT HOLIDAY"
The meaning given to it on page 102
"PERMITTED PRODUCT SWITCH"
The exchange by a borrower of its then current mortgage loan
product for a different mortgage loan product offered by the
seller, which may be made only if the new mortgage loan for
which the prior mortgage loan is to be exchanged is a
permitted replacement mortgage loan
"PERMITTED REPLACEMENT MORTGAGE LOAN"
The meaning given to it on page 147
"PENSION PLAN"
A financial plan arranged by a borrower to provide for that
borrower's expenses during retirement
"PERSONAL SECURED LOANS"
A mortgage loan for unrestricted purposes offered to
borrowers with existing mortgage loans (other than a personal
secured loan) from the seller which is secured on the same
property which secures the borrowers' existing mortgage loan.
Some personal secured loans permit the borrower to make
further draws up to the fixed amount of credit extended under
the mortgage conditions at the inception of the personal
secured loan.
"PFIC"
A passive foreign investment company as more fully described
under "MATERIAL UNITED STATES TAX CONSEQUENCES"
"PLANS"
The meaning given to it on page 304
"POST-ENFORCEMENT CALL OPTION AGREEMENT"
The agreement entered into on or about the closing date, as
amended from time to time, under which the note trustee
agrees on behalf of the noteholders, that in specified
circumstances, GPCH Limited may call for the notes to be
transferred to it
"POST-ENFORCEMENT CALL OPTION HOLDER"
GPCH Limited
"PREVIOUS FUNDING GIC PROVIDER"
Lloyds TSB Bank plc acting through its office at Financial
Markets Division, 25 Monument Street, London EC3R 8BQ as the
Funding GIC provider under any applicable Funding (Issuer)
guaranteed investment contract
"PREVIOUS INTERCOMPANY LOAN"
Each of the intercompany loans made by the previous issuers
to Funding on or subsequent to the initial closing date (but
prior to the closing date), as amended from time to time,
under the relevant previous intercompany loan agreement, as
described under "DESCRIPTION OF THE PREVIOUS ISSUERS, THE
PREVIOUS NOTES AND THE PREVIOUS INTERCOMPANY LOANS"
"PREVIOUS INTERCOMPANY LOAN AGREEMENT"
Each of the intercompany loan agreements entered into on or
subsequent to the initial closing date (but prior to the
closing date), as amended from time to time, among others,
Funding, the applicable previous issuer and such previous
issuer's note trustee
"PREVIOUS ISSUERS"
Each of the first issuer, the second issuer, the third
issuer, the fourth issuer, the fifth issuer, the sixth
issuer, the seventh issuer, the eighth issuer and the ninth
issuer as described under "DESCRIPTION OF THE PREVIOUS
ISSUERS, THE PREVIOUS NOTES AND THE PREVIOUS INTERCOMPANY
LOANS"
356
"PREVIOUS MORTGAGES TRUSTEE GIC PROVIDER"
Lloyds TSB Bank plc acting through its office at Financial
Markets Division, 25 Monument Street, London EC3R 8BQ as the
mortgages trustee GIC provider under the applicable mortgages
trustee guaranteed investment contract
"PREVIOUS NOTES"
The notes issued by the previous issuers, as described under
"DESCRIPTION OF THE PREVIOUS ISSUERS, THE PREVIOUS NOTES AND
THE PREVIOUS INTERCOMPANY LOANS"
"PREVIOUS START UP LOAN AGREEMENTS"
Each of the start up loan agreements entered into on or
subsequent to the initial closing date (but prior to the
closing date), as amended from time to time, between Funding,
the start up loan provider and the security trustee
"PRINCIPAL AMOUNT OUTSTANDING"
For each class of notes and as of any date of determination,
the initial principal amount of such class of notes less (in
each case) the aggregate amount of all principal payments in
respect of such notes that have been paid since the closing
date and on or prior to that determination date
"PRINCIPAL LEDGER"
The ledger maintained by the cash manager on behalf of the
mortgages trustee under the cash management agreement to
record any mortgages trustee retained principal receipts plus
principal receipts on the mortgage loans and payments of
principal from the mortgages trustee GIC account to Funding
and the seller on each distribution date. Together the
principal ledger and the revenue ledger reflect the aggregate
of all amounts of cash standing to the credit of the
mortgages trustee in the mortgages trustee bank accounts
"PRINCIPAL PAYING AGENT"
Citibank, N.A., acting through its London branch at 5
Carmelite Street, London EC4Y 0PA, or such other person for
the time being acting as principal paying agent under the
paying agent and agent bank agreement
"PRINCIPAL RECEIPTS"
Any payment in respect of principal received in respect of
any mortgage loan, whether as all or part of a monthly
payment, on redemption (including partial redemption), on
enforcement or on the disposal of that mortgage loan or
otherwise (including payments pursuant to any insurance
policy) and which may include the amount of any overpayment
in respect of any non-flexible mortgage loan, but only to the
extent permitted by the mortgages trust deed, and which may
also include the amount of any further contribution made by
Funding from time to time
"PRODUCT SWITCH"
Any variation in the mortgage conditions (other than a
permitted product switch) applicable to any mortgage loan
which may be offered by the seller or (in limited
circumstances) the administrator from time to time
"PROPERTIES IN POSSESSION POLICY"
The insurance policy issued by AXA General Insurance Limited
which provides the seller with rebuilding insurance when the
seller takes possession of a property from a default borrower
"PROSPECTUS"
This prospectus dated September [16], 2004 relating to the
issue of the dollar notes
"RATING"
Any rating assigned by the rating agencies to the notes or
new notes
"RATING AGENCIES"
Moody's, Standard & Poor's and Fitch
357
"REAL PROPERTY"
Freehold or leasehold property in England and Wales and
heritable or long leasehold property in Scotland, and any
estate or interest therein, and any reference to "REAL
PROPERTY" includes a reference to all rights and security
from time to time attached, appurtenant or related thereto
and all buildings and fixtures from time to time thereon
"REASONABLE, PRUDENT MORTGAGE LENDER"
A reasonably prudent prime residential mortgage lender
lending to borrowers in England, Wales and Scotland who
generally satisfy the lending criteria of traditional sources
of residential mortgage capital
"RECEIVER"
A receiver appointed by the note trustee under the issuer
deed of charge and/or the security trustee under the Funding
deed of charge
"RECOGNISED STOCK EXCHANGE"
The meaning given to it on page 296
"RECORD DATE"
The fifteenth day before the due date for any payment on the
notes
"RE-DRAW"
Either a cash re-draw or a non-cash re-draw
"RE-DRAWS LEDGER"
The ledger maintained by the cash manager in the name of the
mortgages trustee under the cash management agreement to
record re-draws on flexible mortgage loans from time to time
and will be sub-divided into two subledgers to record cash
redraws and non-cash re-draws
"REFERENCE BANKS"
On the closing date, the London office of each of the
following banks: ABN Amro Bank NV, Barclays Bank plc,
Citibank, N.A. and The Royal Bank of Scotland plc
"RE-FIXED MORTGAGE LOAN"
As at any given date, a mortgage loan which on or before that
date had been a fixed rate mortgage loan but the fixed period
had come to an end, but as at or before that given date, the
interest charged under that mortgage loan was again fixed for
another fixed period by the seller or the administrator, as
the case may be (following an election by the borrower) in
accordance with the original terms of the fixed rate mortgage
loan
"REGISTER"
The register of noteholders kept by the registrar and which
records the identity of each noteholder and the number of
notes which each noteholder owns
"REGISTERED LAND"
Land in England and Wales, title to which is registered at
H.M. Land Registry
"REGISTRAR"
Citibank, N.A., acting through its London branch at 5
Carmelite Street, London EC4Y 0PA
"REGULATED MORTGAGE CONTRACT"
The meaning given to it on page 57
"REINSTATEMENT"
For a mortgaged property that has been damaged, repairing or
rebuilding that mortgaged property to the condition that it
was in before the occurrence of the damage
"RELATED SECURITY"
The security for the repayment of a mortgage loan including
the relevant mortgage and all other matters applicable to the
mortgage loan, acquired as part of the mortgage portfolio
assigned to the mortgages trustee
358
"RELEVANT DEPOSIT AMOUNT"
The sum of the following:
(a) either:
(i) prior to the step-up date in respect of any notes
(pursuant to the terms and conditions thereof) or if
the step-up date has occurred in respect of any
notes (pursuant to the terms and conditions thereof)
and the option to redeem any notes has been
exercised by the applicable issuer, an amount equal
to:
the Funding share of the trust property (as most
recently calculated)/the Funding share of the trust
property on the closing date x the outstanding
balance in the Funding reserve fund plus the
outstanding balance in the issuer reserve fund (each
as most recently calculated); or
(ii) if an issuer does not exercise its option to redeem
its notes on the relevant step-up date pursuant to
the terms and conditions thereof, an amount equal
to:
the Funding share of the trust property (as most
recently calculated)/the Funding share of the trust
property on the closing date x the outstanding
balance in the Funding reserve fund plus the
outstanding balance in the issuer reserve fund (each
as most recently calculated) x 2;
(b) any amounts standing to the credit of the Funding
GIC account which will be applied on the next
following payment date to pay amounts due under any
intercompany loan which in turn will result in any
notes having ratings of "AAA", "AA" or "A-1+" from
Standard & Poor's to be redeemed in whole or in
part;
(c) any amounts standing to the credit of the mortgages
trustee GIC account which will be distributed to
Funding on the next following distribution date and
which will be applied by Funding on the next
following payment date to pay amounts due under any
intercompany loan which in turn will result in any
notes having ratings of "AAA", "AA" or "A-1+" from
Standard & Poor's to be redeemed in whole or in
part; and
(d) any other amounts standing to the credit of accounts
maintained by the mortgages trustee, Funding or any
issuer with a bank and which would otherwise be
required by Standard & Poor's to be rated "A-1+";
less any amounts invested in authorized investments
or maintained in accounts at a bank rated at least
"A-1+" by Standard & Poor's
"RELEVANT ISSUERS"
The issuer, the previous issuers and any new issuers, as the
case may be
359
"RELEVANT DISTRIBUTION DATE"
Each distribution date or the date on which the mortgage
trust terminates
"REPAYMENT MORTGAGE LOAN"
A mortgage loan for which the borrower is under an obligation
to the mortgagee to make monthly payments of principal so
that the whole principal (in addition to interest) is repaid
by the stated maturity date for that mortgage loan
"REVENUE LEDGER"
The ledger created and maintained by the cash manager on
behalf of the mortgages trustee under the cash management
agreement to record revenue receipts on the mortgage loans
and interest from the mortgages trustee bank accounts and
payments of revenue receipts from the mortgages trustee GIC
account to Funding and the seller on each distribution date.
Together the revenue ledger and the principal ledger reflect
the aggregate of all amounts of cash standing to the credit
of the mortgages trustee bank accounts
"REVENUE RECEIPTS"
Any payment received in respect of any mortgage loan, whether
as all or part of a monthly payment, on redemption (including
partial redemption), on enforcement or on the disposal of
that mortgage loan or otherwise (including payments pursuant
to any insurance policy) which in any such case is not a
principal receipt
"REVENUE SHORTFALL"
The deficiency of Funding available revenue receipts on a
payment date over the amounts due by Funding under the
Funding pre-enforcement revenue priority of payments, and the
deficiency of issuer allocable revenue receipts on a payment
date over the amounts due by that issuer under the issuer
pre-enforcement revenue priority of payments, as the context
requires
"SCOTTISH MORTGAGE"
For any mortgage loan in the mortgage portfolio, a standard
security over a residential property in Scotland
"SCOTTISH MORTGAGE LOAN"
Each mortgage loan secured over a property located in
Scotland
"S&P" and "STANDARD & POOR'S"
Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc., including any successor to its ratings
business
"SEC"
The United States Securities and Exchange Commission
"SECOND ISSUER"
Granite Mortgages 01-2 plc
"SECOND ISSUER INTERCOMPANY LOAN"
The intercompany loan entered into on September 28, 2001
between the second issuer and Funding
"SECOND ISSUER NOTES"
The notes issued by the second issuer on September 28, 2001
"SECOND PRIORITY FUNDING DEED OF CHARGE"
The meaning given to it on page 29
"SECURED PROPERTY"
A mortgaged property situated in Scotland
"SECURITIES ACT"
The United States Securities Act of 1933, as amended
"SECURITY INTEREST" or "ENCUMBRANCE"
Any mortgage or sub mortgage, standard security, charge or
sub charge (whether legal or equitable), encumbrance, pledge,
lien, hypothecation, assignment by way of security or other
security interest or title retention arrangement and any
agreement, trust or arrangement having substantially
360
the same economic or financial effect as any of the
foregoing (other than a lien arising in the ordinary course
of business or by operation of law)
"SECURITY TRUSTEE"
The Bank of New York, acting through its office at 48th
Floor, One Canada Square, London E14 5AL, or any other
persons and all other persons for the time being acting as
the security trustee or security trustees under the Funding
deed of charge
"SELLER"
Northern Rock plc
"SELLER ARRANGED INSURER"
The meaning given to it on page 111
"SELLER SHARE"
The current seller share of the trust property calculated in
accordance with the formula set out on page 162
"SELLER SHARE EVENT"
The meaning given to it on page 167
"SELLER SHARE EVENT DISTRIBUTION DATE"
A distribution date on which a seller share event occurs
"SELLER SHARE PERCENTAGE"
The current seller share percentage of the trust property
calculated in accordance with the formula set out on page 161
"SELLER'S POLICY"
The originating, lending and underwriting, administration,
arrears and enforcement policies and procedures which are
applied from time to time by the seller to mortgage loans and
the security for their repayment which are beneficially owned
solely by the seller and which may be amended by the seller
from time to time
"SELLER'S STANDARD VARIABLE RATE"
The rate of interest set by the seller for variable rate
mortgage loans as more fully described on page 99
"SERIES 1 CLASS A NOTES"
The series 1 class A1 notes, the series 1 class A2 notes and
the series 1 class A3 notes
"SERIES 1 CLASS A1 DOLLAR CURRENCY SWAP"
The dollar currency swap with respect to the series 1 class
A1 notes
"SERIES 1 CLASS A1 DOLLAR CURRENCY SWAP PROVIDER"
Barclays Bank PLC, and/or, as applicable, any other entity
appointed from time to time in accordance with the
transaction documents
"SERIES 1 CLASS A1 NOTES"
The $[981,400,000] series 1 class A1 floating rate notes due
September 2025
"SERIES 1 CLASS A2 EURO CURRENCY SWAP"
The euro currency swap with respect to the series 1 class A2
notes
"SERIES 1 CLASS A2 EURO CURRENCY SWAP PROVIDER"
Citibank, N.A., acting through its London Branch, and/or, as
applicable, any other entity appointed from time to time in
accordance with the transaction documents
"SERIES 1 CLASS A2 NOTES"
The [e][494,000,000] series 1 class A2 floating rate notes
due September 2028
"SERIES 1 CLASS A3 DOLLAR CURRENCY SWAP"
The dollar currency swap with respect to the series 1 class
A3 notes
"SERIES 1 CLASS A3 DOLLAR CURRENCY SWAP PROVIDER"
Barclays Bank PLC, and/or, as applicable, any other entity
appointed from time to time in accordance with the
transaction documents
"SERIES 1 CLASS A3 NOTES"
The $[1,248,100,000] series 1 class A3 floating rate notes
due September 2044
361
"SERIES 1 CLASS B NOTES"
The $[59,200,000] series 1 class B floating rate notes due
September 2044
"SERIES 1 CLASS C DOLLAR CURRENCY SWAP"
The dollar currency swap with respect to the series 1 class C
notes
"SERIES 1 CLASS C DOLLAR CURRENCY SWAP PROVIDER"
Barclays Bank PLC, and/or, as applicable, any other entity
appointed from time to time in accordance with the
transaction documents
"SERIES 1 CLASS C NOTES"
The $[62,700,000] series 1 class C floating rate notes due
September 2044
"SERIES 1 CLASS M DOLLAR CURRENCY SWAP"
The dollar currency swap with respect to the series 1 class M
notes
"SERIES 1 CLASS M DOLLAR CURRENCY SWAP PROVIDER"
Barclays Bank PLC, and/or, as applicable, any other entity
appointed from time to time in accordance with the
transaction documents
"SERIES 1 CLASS M NOTES"
The $[31,400,000] series 1 class M floating rate notes due
September 2044
"SERIES 1 GLOBAL NOTE CERTIFICATES"
The global note certificates representing the series 1 notes
"SERIES 1 NOTES"
The series 1 class A1 notes, the series 1 class A2 notes, the
series 1 class A3 notes, the series 1 class B notes, the
series 1 class M notes and the series 1 class C notes
"SERIES 2 CLASS A NOTES"
The series 2 class A1 notes and the series 1 class A2 notes
"SERIES 2 CLASS A1 DOLLAR CURRENCY SWAP"
The dollar currency swap with respect to the series 2 class A
notes
"SERIES 2 CLASS A1 DOLLAR CURRENCY SWAP PROVIDER"
Swiss Re Financial Products Corporation, and/or, as
applicable, any other entity appointed from time to time in
accordance with the transaction documents
"SERIES 2 CLASS A1 GLOBAL NOTE CERTIFICATES"
The global note certificates representing the series 2 class
A1 notes
"SERIES 2 CLASS A1 NOTES"
The $[713,700,000] series 2 class A1 floating rate notes due
September 2044
"SERIES 2 CLASS A2 EURO CURRENCY SWAP"
The euro currency swap with respect to the series 2 class A2
notes
"SERIES 2 CLASS A2 EURO CURRENCY SWAP PROVIDER"
Citibank, N.A., acting through its London Branch, and/or, as
applicable, any other entity appointed from time to time in
accordance with the transaction documents
"SERIES 2 CLASS A2 NOTES"
The [e][800,150,000] series 2 class A2 floating rate notes
due September 2044
"SERIES 2 CLASS B EURO CURRENCY SWAP"
The euro currency swap with respect to the series 2 class B
notes
"SERIES 2 CLASS B EURO CURRENCY SWAP PROVIDER"
Citibank, N.A., acting through its London Branch, and/or, as
applicable, any other entity appointed from time to time in
accordance with the transaction documents
"SERIES 2 CLASS B NOTES"
The [e][74,400,000] series 2 class B floating rate notes due
September 2044
"SERIES 2 CLASS C EURO CURRENCY SWAP"
The euro currency swap with respect to the series 2 class C
notes
362
"SERIES 2 CLASS C EURO CURRENCY SWAP PROVIDER"
Citibank, N.A., acting through its London Branch, and/ or, as
applicable, any other entity appointed from time to time in
accordance with the transaction documents
"SERIES 2 CLASS C NOTES"
The [e][139,050,000] series 2 class C floating rate notes due
September 2044
"SERIES 2 CLASS M EURO CURRENCY SWAP"
The euro currency swap with respect to the series 2 class M
notes
"SERIES 2 CLASS M EURO CURRENCY SWAP PROVIDER"
Citibank, N.A., acting through its London Branch, and/or, as
applicable, any other entity appointed from time to time in
accordance with the transaction documents
"SERIES 2 CLASS M NOTES"
The [e][57,900,000] series 2 class M floating rate notes due
September 2044
"SERIES 2 NOTES"
The series 2 class A1 notes, the series 2 class A2 notes, the
series 2 class B notes, the series 2 class M notes and the
series 2 class C notes
"SERIES 3 CLASS A NOTES"
The series 3 class A1 notes and the series 3 class A2 notes
"SERIES 3 CLASS A1 NOTES"
The [GBP][411,250,000] series 3 class A1 floating rate notes
due September 2044
"SERIES 3 CLASS A2 NOTES"
The [GBP][600,000,000] series 3 class A2 fixed rate notes due
September 2044
"SERIES 3 CLASS B NOTES"
The [GBP][54,350,000] series 3 class B floating rate notes
due September 2044
"SERIES 3 CLASS C NOTES"
The [GBP][99,450,000] series 3 class C floating rate notes
due September 2044
"SERIES 3 CLASS M NOTES"
The [GBP][42,250,000] series 3 class M floating rate notes
due September 2044
"SERIES 3 NOTES"
The series 3 class A1 notes, the series 3 class A2 notes, the
series 3 class B notes, the series 3 class M notes and the
series 3 class C notes
"SEVENTH ISSUER"
Granite Mortgages 03-3 plc
"SEVENTH ISSUER NOTES"
The notes issued by the seventh issuer on September 24, 2003
"SEVENTH ISSUER INTERCOMPANY LOAN"
The intercompany loan entered into on September 24, 2003
between the seventh issuer and Funding
"SIGNIFICANT"
When we discuss ERISA considerations, a benefit plan
investors' equity participation in the issuer would not be
significant if, immediately after the most recent acquisition
of any equity interest in the issuer, less than 25% of the
value of each class of equity interests in the issuer --
excluding interests held by Funding -- is held by benefit
plan investors
"SIXTH ISSUER"
Granite Mortgages 03-2 plc
"SIXTH ISSUER NOTES"
The notes issued by the sixth issuer on May 21, 2003
"SIXTH ISSUER INTERCOMPANY LOAN"
The intercompany loan entered into on May 21, 2003 between
the sixth issuer and Funding
"SPECIAL REPAYMENT NOTES"
In relation to the second issuer, the [GBP]10,000,000 series
2 class D floating rate notes issued by the second issuer, in
relation to the third issuer, the [GBP]15,000,000 series 2
class D
363
notes issued by the third issuer and, in relation to any
other issuer, any series and/or class of notes issued by
such issuer that are either:
(a) interest only notes; or
(b) notes, the outstanding principal balance of which is
to be repaid solely from issuer available revenue
receipts;
and that are designated as special repayment notes
"SRFP"
Swiss Re Financial Products Corporation
"STANDARD VARIABLE RATE"
The Northern Rock standard variable rate and/or the standard
variable rate applicable to mortgage loans within the
mortgages trust, as applicable
"STAND-BY ACCOUNT BANK"
In respect of the Funding GIC account and the mortgages
trustee GIC account, Lloyds TSB Bank plc acting through the
office at Financial Markets Division, 25 Monument Street,
London EC3R 8BQ
"STAND-BY BANK ACCOUNT AGREEMENT"
The agreement, as amended from time to time, among the stand-
by account bank, the cash manager, the mortgages trustee,
Funding and the security trustee which governs the operation
of the stand-by bank accounts
"STAND-BY GIC PROVIDER"
In respect of the Funding GIC account and the mortgages
trustee GIC account, Lloyds TSB Bank plc acting through its
office at Financial Markets Division, 25 Monument Street,
London EC2R 8BQ
"STANDARD VARIABLE RATE MORTGAGE LOAN"
A mortgage loan which is subject to the standard variable
rate
"START-UP LOAN" or "START-UP LOANS"
Each loan made by the start-up loan provider to Funding under
each start-up loan agreement, and collectively, the "START-UP
LOANS"
"START-UP LOAN AGREEMENT"
The agreement entered into on or about the closing date, as
amended from time to time, between Funding, the start-up loan
provider and the security trustee relating to the provision
of the start-up loan to Funding or, in relation to any other
issuer, the start-up loan agreement (if any) entered into by
Funding, the relevant start-up loan provider and the security
trustee on or about the closing date for such issuer's notes
"START-UP LOAN PROVIDER"
Northern Rock, in its capacity as provider of the start- up
loans, or such other person who provides a start-up loan to
Funding pursuant to a start-up loan agreement
"STEP-UP DATE"
The payment date in respect of an issuer on which the
interest rate on the notes issued by such issuer increases by
a predetermined amount following the payment made by such
issuer on such payment date, which date in respect of (i) the
issuer is the payment date occurring in (a) in respect of all
of the notes (other than the series 1 class A1 notes),
September 2011 and (b) in respect of the series 1 class A2
notes only, March 2006, (ii) the first issuer is the payment
date occurring in January 2008, (iii) the second issuer is
the payment date occurring in October 2006, (iv) the third
issuer is the payment date occurring in April 2007, (v) the
fourth
364
issuer is the payment date occurring in January 2008, (vi)
the fifth issuer is the payment date occurring in April
2008, (vii) the sixth issuer is the payment date occurring
in July 2010, (viii) the seventh issuer is the payment date
occurring in January 2009, (ix) the eighth issuer is the
payment date occurring in March 2009 and (x) the ninth
issuer is the payment date occurring in June 2011
"STERLING NOTES"
The meaning given to it on page 10
"SUBSCRIPTION AGREEMENT"
The subscription agreement relating to the sale of the euro
notes and the sterling notes expected to be dated on or about
September [16], 2004, among the issuer, Funding, the
mortgages trustee, Deutsche Bank AG London, Lehman Brothers
International (Europe), UBS Limited and the other managers
"SUBSIDIARY"
A subsidiary within the meaning of Section 736 of the United
Kingdom Companies Act 1985, and unless the context otherwise
requires, a subsidiary undertaking within the meaning of
section 258 of the United Kingdom Companies Act 1985
"SWAP AGREEMENTS"
The basis rate swap agreement, the interest rate swap
agreement, the dollar currency swap agreements and the euro
currency swap agreements
"SWAP COLLATERAL"
At any time, any asset (including, without limitation, cash
and/ or securities) which is paid or transferred by a swap
provider to the issuer as collateral to secure the
performance by such swap provider of its obligations under
the relevant swap agreement together with any income or
distributions received in respect of such asset and any
equivalent of or replacement of such asset into which such
asset is transformed
"SWAP COLLATERAL ACCOUNT"
An account opened in the name of the issuer for the purpose
of holding swap collateral and maintained in accordance with
the issuer cash management agreement
"SWAP COLLATERAL ANCILLARY DOCUMENT"
Any document (including, without limitation, any custodial
agreement or bank account agreement but excluding the swap
agreements, the issuer cash management agreement and the
issuer deed of charge) as may be entered into by the issuer
from time to time in connection with the swap collateral
"SWAP COLLATERAL AVAILABLE PRINCIPAL AMOUNT"
At any time, the amount of swap collateral which under the
terms of the relevant swap agreement may be applied at that
time in satisfaction of the relevant swap provider's
obligations to the issuer to the extent that such obligations
relate to payments to be made in connection with the issuer
pre-enforcement principal priority of payments or the issuer
post-enforcement priority of payments, as the case may be
"SWAP COLLATERAL AVAILABLE REVENUE AMOUNT"
At any time, the amount of swap collateral which under the
terms of the relevant swap agreement may be applied at that
time in satisfaction of the relevant swap provider's
obligations to the issuer to the extent that such obligations
relate to payments to be made in connection with the issuer
pre-enforcement revenue priority of payments or the issuer
post-enforcement priority of payments, as the case may be
365
"SWAP COLLATERAL EXCLUDED AMOUNT"
At any time, the amount of swap collateral which may not be
applied at that time in satisfaction of the relevant swap
provider's obligations to the issuer under the terms of the
relevant swap agreement
"SWAP EARLY TERMINATION EVENT"
A circumstance in which a swap agreement can be terminated
before its scheduled termination date
"SWAP PROVIDERS"
Each of the basis rate swap provider, the interest rate swap
provider, the dollar currency swap providers and the euro
currency swap provider, or any one of them as the context
requires
"SWAP REPLACEMENT PAYMENT"
An amount received by the issuer from a replacement swap
provider upon entry by the issuer into an agreement with such
replacement swap provider replacing a swap agreement which
has terminated following the occurrence of a downgrade
termination event
"SWISS RE"
Swiss Reinsurance Company
"TARGET BUSINESS DAY"
A day on which the Trans-European Automated Real-time Gross
settlement Express Transfer (TARGET) System is open
"TELERATE PAGE NO. 3750" or
"TELERATE PAGE NO. 248"
The display designated as Page 3750 or 248, as applicable, on
the Dow Jones/Telerate Service (or any other page that may
replace the relevant Telerate Screen number on that service,
or any other service that may be nominated by the British
Bankers' Association (including the Reuters Screen) as the
information vendor for the purposes of displaying British
Bankers' Association Interest Settlement Rates for deposits
in the currency concerned)
"THIRD ISSUER"
Granite Mortgages 02-1 plc
"THIRD ISSUER INTERCOMPANY LOAN"
The intercompany loan entered into on March 20, 2002 between
the third issuer and Funding
"THIRD ISSUER NOTES"
The notes issued by the third issuer on March 20, 2002
"THIRD PARTY AMOUNTS"
The meaning given to it on page 165
"TITLE DEEDS"
For each mortgage loan and its related security and the
mortgaged property relating to it, all conveyancing deeds and
documents which make up the title to the mortgaged property
and the security for the mortgage loan and all searches and
inquiries undertaken in connection with the grant by the
borrower of the related mortgage
"TOGETHER CONNECTIONS BENEFIT"
The meaning given to it on page 93
"TOGETHER CONNECTIONS INTEREST"
The meaning given to it on page 93
"TOGETHER CONNECTIONS MORTGAGE LOAN"
A type of flexible mortgage loan, the primary characteristics
of which are described on page 93
"TOGETHER DISCOUNT TRACKER MORTGAGE LOAN"
A type of Together mortgage loan as more fully described on
page 103
366
"TOGETHER MORTGAGE LOAN"
A type of flexible mortgage loan which allows the borrower to
obtain an additional unsecured loan and, in some cases, a
credit card, neither of which is secured by the mortgage
relating to the mortgage loan
"TOGETHER STEPPED TRACKER MORTGAGE LOAN"
A type of Together mortgage loan as more fully described on
page 104
"TOGETHER VARIABLE MORTGAGE LOAN"
A type of Together mortgage loan as more fully described on
page 103
"TRACKER RATE MORTGAGE LOAN"
A loan where interest is linked to a variable interest rate
other than the standard variable rate; for example, the rate
on a tracker rate mortgage loan may be set at a margin above
sterling LIBOR or above rates set by the Bank of England
"TRANSACTION DOCUMENTS"
The documents listed in "LISTING AND GENERAL INFORMATION" and
any swap collateral ancillary document, any new intercompany
loan agreements, new swap agreements and other documents
relating to new issues of notes by new issuers
"TRANSFER AGENT"
Citibank, N.A., acting through its London branch at 5
Carmelite Street, London EC4Y 0PA and/or any other person for
the time being acting as transfer agent under the paying
agent and agent bank agreement
"TRANSFER OF EQUITY"
A transfer of the equitable or beneficial and legal title by
co-owners to one of the proprietors of a mortgaged property
where the transferee remains a party to the original mortgage
or enters into a new mortgage over the relevant mortgaged
property in favor of the seller
"TRIGGER EVENT"
An asset trigger event and/or a non-asset trigger event
"TRUST CALCULATION PERIOD"
The period from (and including) the first day of each
calendar month to (and including) the last day of the same
calendar month
"TRUST DEED"
The trust deed entered into on or about the closing date, as
amended from time to time, between the issuer and the note
trustee constituting the notes, as further described under
"DESCRIPTION OF THE TRUST DEED"
"TRUST DETERMINATION DATE"
The first day (or, if not a London business day, the next
succeeding London business day) of each calendar month
"TRUST PROPERTY"
The meaning given to it on page 154
"UBSL"
UBS Limited
"UK LISTING AUTHORITY"
The FSA in its capacity as competent authority under Part VI
of the FSMA
"UK TAX COUNSEL"
Sidley Austin Brown & Wood
"UNAUTHORIZED UNDERPAYMENT"
In relation to any flexible mortgage loan has the meaning
given to it on page 101
"UNDERPAYMENT"
A situation where a borrower makes a monthly payment on its
mortgage loan which is less than the required monthly payment
for that month
367
"UNDERWRITERS"
Barclays Capital Inc., Citigroup Global Markets Limited,
Deutsche Bank Securities Inc., HSBC Bank plc, J.P. Morgan
Securities Inc., Lehman Brothers Inc., Merrill Lynch, Pierce
Fenner & Smith Incorporated and UBS Limited
"UNDERWRITING AGREEMENT"
The underwriting agreement relating to the sale of the dollar
notes, expected to be dated on or about September [16], 2004,
among the issuer, Funding, the mortgages trustee, Deutsche
Bank Securities Inc., Lehman Brothers Inc., UBS Limited and
the other underwriters
"UNITED KINGDOM"
The United Kingdom of Great Britain and Northern Ireland
"UNITED STATES PERSON"
The meaning given to it on page 299
"UNPAID INTEREST"
For any non-cash re-draw of any flexible mortgage loan, the
interest which would, but for that non-cash re-draw, have
been payable in respect of that mortgage loan on the relevant
monthly payment date for that mortgage loan
"UNREGISTERED LAND"
Land in England or Wales, title to which is not registered at
H.M. Land Registry
"US HOLDER"
A beneficial owner of dollar notes who is a "United States
person" or that otherwise is subject to US federal income
taxation on a net income basis in respect of a dollar note
"US PAYING AGENT"
Citibank, N.A., acting through its office at 14th Floor Zone
3, 111 Wall Street, New York, New York 10043
"US TAX COUNSEL"
Sidley Austin Brown & Wood LLP
"UTCCR"
The Unfair Terms in Consumer Contracts Regulations 1999
"VARIABLE MORTGAGE RATE"
The rate of interest which determines the amount of interest
payable each month on a variable rate mortgage loan
"VARIABLE RATE MORTGAGE LOAN"
A mortgage loan where the interest rate payable by the
borrower varies in accordance with a specified variable rate
"VAT"
Value added tax
"W-8BEN"
An IRS Form W-8BEN
"WAFF"
On any date, the weighted average foreclosure frequency for
the mortgage portfolio as calculated by the administrator on
that date in accordance with the calculations for the initial
mortgage portfolio or as agreed by the administrator and the
rating agencies from time to time
"WALS"
On any date, the weighted average loss severity for the
mortgage portfolio as calculated by the administrator on that
date in accordance with the calculations for the initial
mortgage portfolio or as agreed by the administrator and the
rating agencies from time to time
"WE" and "US"
The issuer
"WEIGHTED AVERAGE FUNDING SHARE PERCENTAGE"
The meanings given to it under "THE MORTGAGES TRUST --
WEIGHTED AVERAGE FUNDING SHARE PERCENTAGE"
"WEIGHTED AVERAGE SELLER SHARE PERCENTAGE"
The meanings given to it under "THE MORTGAGES TRUST --
WEIGHTED AVERAGE SELLER SHARE PERCENTAGE"
"WITHHOLDING TAX"
A tax levied under English or Scots law, as further described
under "MATERIAL UNITED KINGDOM TAX CONSEQUENCES"
368
ANNEX A
The following is an extract from the current reports on Form 6-K for the
period from June 1, 2004 through June 30, 2004 for Granite Mortgages 03-1 plc,
Granite Mortgages 03-2 plc, Granite Mortgages 03-3 plc, Granite Mortgages 04-1
plc, Granite Mortgages 04-2 plc, Granite Finance Funding Limited and Granite
Finance Trustees Limited, as filed with the SEC on August 16, 2004. The
following extract describes certain aspects of the mortgage loans in the
mortgages trust during the period from June 1, 2004 through June 30, 2004. This
Annex A constitutes an integral part of this prospectus.
The monthly current reports which are filed with the SEC on behalf of
Granite Mortgages 04-3 plc, Granite Finance Funding Limited and Granite Finance
Trustees Limited may be accessed as set forth in the prospectus under "WHERE
INVESTORS CAN FIND MORE INFORMATION".
MORTGAGE LOANS
Number of Mortgage Loans in Pool 238,327
Current Balance -- Trust Mortgage Assets [GBP]19,275,323,145
Current Balance -- Trust Cash and other Assets [GBP]1,156,394,524
Last Months Closing Trust Assets [GBP]19,862,945,308
Funding Share [GBP]18,651,521,741
Funding Share Percentage 91.29%
Seller Share* [GBP]1,780,195,928
Seller Share Percentage 8.71%
Minimum Seller Share (Amount)* [GBP]934,316,452
Minimum Seller Share (% of Total) 4.57%
Excess Spread last quarter annualized (% of Total) 0.26%
- ------------------
* The overcollateralization test will be breached on any distribution date
where the aggregate current balance of mortgage loans on such distribution
date is less than an amount equal to the product of 1.05 and the principal
amount outstanding of all notes of all issuers on such distribution date. The
principal amount outstanding of such notes will be calculated on a straight-
line basis by applying the appropriate constant payment rate applicable to
each series of notes on a monthly, rather than quarterly, basis.
A non-asset trigger event will occur if the current seller share is equal to
or less the minimum seller share for two consecutive months. The one-month
cure period will now allow the seller to substitute new loans into the trust
to meet the minimum seller requirement.
The notes may be redeemed at the option of the issuer if on the payment date
falling on or after July 2008, the New Basel Capital Accord has been
implemented in the United Kingdom.
An arrears trigger event will occur if the outstanding principal balance of
90+ day arrears in the trust exceed 2%. In the event of an arrears trigger
the Granite Mortgages 04-2 issuer reserve fund will step up to 1.415%. This
trigger event is curable.
An issuer non-call trigger event will occur if any of the issuers are not
called on their step-up and call dates. In the event of a issuer non-call
trigger the Granite Mortgages 04-2 issuer reserve fund target will step up by
0.275% and the funding reserve target will step up by 0.10%.
An accelerated controlled amortization trigger will occur if any of the
issuers are not called on their step-up and call dates. In the event of an
accelerated controlled amortization trigger all Granite Mortgages 04-2
tranches become pass-through securities.
ARREARS ANALYSIS OF NON REPOSSESSED MORTGAGE LOANS
BY
NUMBER PRINCIPAL ARREARS PRINCIPAL
([GBP]) ([GBP]) (%)
------- -------------- --------- ---------
[less_than] 1 Month 234,934 19,017,798,678 0 98.66
[greater_than_equal] 1 [less_than] 3 Months 2,730 210,236,782 1,715,351 1.09
[greater_than_equal] 3 [less_than] 6 Months 515 37,419,915 892,529 0.19
[greater_than_equal] 6 [less_than] 9 Months 114 7,537,264 342,604 0.04
[greater_than_equal] 9 [less_than] 12 Months 29 1,953,249 112,126 0.01
[greater_than_equal] 12 Months 5 377,257 31,621 0.00
------- -------------- --------- ---------
Total 238,327 19,275,323,145 3,094,231 100%
======= ============== ========= =========
369
PROPERTIES IN POSSESSION
PRINCIPAL ARREARS
NUMBER ([GBP]) ([GBP])
------ --------- ----------
Total (since inception) 180 9,973,385 482,167
Properties in Possession 66
Number Brought Forward 55
Repossessed (current month) 11
Sold (since inception) 114
Sold (current month) 16
Sale Price/Last Loan Valuation 1.11
Average Time from Possession to Sale (days) 127
Average Arrears at Sale [GBP]2,388
Average Principal Loss (since inception)* [GBP]191
Average Principal Loss (current month)** [GBP]219
MIG Claims Submitted 8
MIG Claims Outstanding 1
Average Time from Claim to Payment 59
- ---------------
*This figure is calculated taking the cumulative principal losses since
inception (prior to taking account of any MIG claims) divided by the number of
properties sold since inception.
**This figure is calculated taking the cumulative principal losses for the
current month (prior to taking account of any MIG claims) divided by the number
of properties sold in the current month.
Note: The arrears analysis and repossession information is at the close of
business for the report month.
SUBSTITUTION NUMBER PRINCIPAL ([GBP])
------- -------------------
Substituted this period 4,998 [GBP]483,272,754
Substituted to date (since March 26, 2001) 409,866 [GBP]32,908,052,525
MONTHLY ANNUALISED
------- -----------
Current Month CPR Rate 5.53% 49.41%
Previous Month CPR Rate 4.84% 44.67%
Weighted Average Seasoning (by value) Months 24.37
Weighted Average Remaining Term (by value) Years 20.12
Average Loan Size [GBP]80,878
Weighted Average LTV (by value) 75.18%
Weighted Average Indexed LTV (by value) 62.15%
Fast track (by value) 31.17%
PRODUCT BREAKDOWN
Fixed Rate (by balance) 50.20%
Together (by balance) 25.37%
Capped (by balance) 1.30%
Variable (by balance) 20.16%
Tracker (by balance) 2.97%
-----------
Total 100%
===========
370
GEOGRAPHIC ANALYSIS
NUMBER % OF TOTAL VALUE ([GBP]) % OF TOTAL
------- ---------- -------------- ----------
East Anglia 4,975 2.09 404,781,786 2.10
East Midlands 17,169 7.20 1,241,330,811 6.44
Greater London 28,513 11.96 3,820,369,047 19.82
North 29,676 12.45 1,586,359,095 8.23
North West 32,996 13.84 2,127,995,675 11.04
Scotland 23,185 9.73 1,416,736,251 7.35
South East (excluding London) 34,786 14.60 3,862,774,758 20.04
South West 15,298 6.42 1,374,330,540 7.13
Wales 10,136 4.25 636,085,664 3.30
West Midlands 15,777 6.62 1,195,070,035 6.20
Yorkshire 25,816 10.83 1,609,489,483 8.35
------- ---------- -------------- ----------
Total 238,327 100% 19,275,323,145 100%
======= ========== ============== ==========
LTV LEVELS BREAKDOWN
NUMBER VALUE ([GBP]) % OF TOTAL
------- -------------- ----------
0% [less_than] 25% 8,174 314,187,767 1.63
[greater_than_equal] 25% [less_than] 50% 28,053 1,975,720,622 10.25
[greater_than_equal] 50% [less_than] 60% 17,858 1,524,678,061 7.91
[greater_than_equal] 60% [less_than] 65% 10,609 959,911,093 4.98
[greater_than_equal] 65% [less_than] 70% 12,144 1,133,389,001 5.88
[greater_than_equal] 70% [less_than] 75% 17,143 1,555,518,578 8.07
[greater_than_equal] 75% [less_than] 80% 18,093 1,917,894,653 9.95
[greater_than_equal] 80% [less_than] 85% 25,133 2,461,458,766 12.77
[greater_than_equal] 85% [less_than] 90% 34,564 2,661,922,126 13.81
[greater_than_equal] 90% [less_than] 95% 51,962 3,781,818,401 19.62
[greater_than_equal] 95% [less_than] 100% 14,414 977,258,883 5.07
[greater_than_equal] 100% 180 11,565,194 0.06
------- -------------- ----------
Total 238,327 19,275,323,145 100%
======= ============== ==========
371
REPAYMENT METHOD
NUMBER VALUE ([GBP]) % OF TOTAL
------- -------------- ----------
Endowment 29,561 2,164,618,789 11.23
Interest Only 27,089 3,644,963,607 18.91
Pension Policy 649 63,608,566 0.33
Personal Equity Plan 1,296 92,521,551 0.48
Repayment 179,732 13,309,610,632 69.05
------- -------------- ----------
Total 238,327 19,275,323,145 100%
======= ============== ==========
EMPLOYMENT STATUS
NUMBER VALUE ([GBP]) % OF TOTAL
------- -------------- ----------
Full Time 210,102 16,056,344,180 83.30
Part Time 2,939 171,550,376 0.89
Retired 504 17,347,791 0.09
Self Employed 22,448 2,924,066,521 15.17
Other 2,334 106,014,277 0.55
------- -------------- ----------
Total 238,327 19,275,323,145 100%
======= ============== ==========
NR Current Existing Borrowers' SVR 6.29%
Effective Date of Change May 1, 2004
372
ANNEX B
MORTGAGE LOANS UNDER THE SELLER'S NON-VERIFIED INCOME PROGRAM
The following tables show selected information in respect of mortgage loans
under the seller's non-verified income program pursuant to the seller's
origination guidelines. See caption "THE MORTGAGE LOANS -- LENDING CRITERIA" in
the prospectus. This Annex B constitutes an integral part of this prospectus.
% OF
CURRENT
BORROWER TYPE BALANCE(1)
-------
First time borrowers(2) 2%
Next time borrowers(2) 52%
Re-mortgagors 46%
% OF
CURRENT
AGGREGATE ORIGINAL BALANCE BALANCE(1)
-------
[GBP]0 to [GBP]100,000 14%
[GBP]100,000 to [GBP]500,000 81%
[greater_than]][GBP]500,000 5%
AVERAGE LTV AT ORIGINATION
MORTGAGE LOANS COMPLETED IN:
2002 56%
2003 65%
2004(3) 69%
% of all mortgage loans under the seller's non-verified income program
(by number of loans)
Length of arrears 3 months and above
- ---------------
Footnotes:
(1) Percentages are in relation to Northern Rock's lending for the first six
months of 2004
(2) Other than borrowers who remortgage their current home.
(3) Six months ended June 30
Source: Northern Rock as at June 30, 2004
373
INDEX OF APPENDICES
The following appendices contain the text of the independent registered
public accounting firm's reports on each of the issuer and Funding received by
the directors of the issuer and Funding, respectively, from the independent
registered public accounting firm to the issuer and Funding being, in each
case, PricewaterhouseCoopers LLP. These appendices constitute an integral part
of this prospectus. The balance sheets attached as appendices B and F and the
financial statements attached as appendices E, G and H do not comprise the
statutory accounts of either the issuer or Funding. No statutory accounts have
been prepared or delivered to the Registrar of Companies on behalf of the
issuer in England and Wales since its incorporation. The first statutory
accounts of the issuer will be drawn up to December 31, 2004. The first
statutory accounts of Funding were prepared and drawn up from the date of
incorporation to December 31, 2001 and filed with the Registrar of Companies in
England and Wales in July 2002. The second statutory accounts of Funding were
prepared and drawn up from December 31, 2001 to December 31, 2002 and filed
with the Registrar of Companies in England and Wales in July 2003. The third
statutory accounts of Funding were prepared and drawn up from December 31, 2002
to December 31, 2003 and filed with the Registrar of Companies in England and
Wales in July 2004. The accounting reference date for each of the issuer and
Funding will be the last day of December and further statutory accounts will be
drawn up to December 31 and annually on the last day of December thereafter.
During the period from incorporation on July 1, 2004 until August 27, 2004,
the issuer had not traded, and did not have any receipts or payments apart from
the subscriptions referred to in "THE ISSUER". Consequently during this period,
the issuer has neither made a profit nor loss and no profit and loss account
nor cashflow statement has been prepared.
INDEX OF APPENDICES
Appendix A Report of Independent Registered Public Accounting Firm for
Granite Mortgages 04-3 plc
Appendix B Balance Sheet as at August 27, 2004 of Granite Mortgages 04-3 plc
Appendix C Notes to the Balance Sheet of Granite Mortgages 04-3 as at August
27, 2004
Appendix D Report of Independent Registered Public Accounting Firm for
Granite Finance Funding Limited with respect to the financial statements of
Granite Finance Funding Limited for the years ended December 31, 2003 and
December 31, 2002 and for the period from February 14, 2001 to December 31,
2001
Appendix E Consolidated Statement of Income for the years ended December 31,
2003 and December 31, 2002 and for the period from February 14, 2001 to
December 31, 2001 of Granite Finance Funding Limited
Appendix F Consolidated Balance Sheet as at December 31, 2003 and December
31, 2002 of Granite Finance Funding Limited
Appendix G Consolidated Statement of Changes in Shareholders' Equity for the
years ended December 31, 2003 and December 31, 2002 and for the period from
February 14, 2001 to December 31, 2001 of Granite Finance Funding Limited
Appendix H Consolidated Statement of Cash Flows for the years ended December
31, 2003 and December 31, 2002 and for the period from February 14, 2001 to
December 31, 2001 of Granite Finance Funding Limited
Appendix I Notes to the Financial Statements of Granite Finance Funding
Limited for the years ended December 31, 2003 and December 31, 2002 and for the
period from February 14, 2001 to December 31, 2001
374
APPENDIX A
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
"To the Board of Directors and Shareholder of Granite Mortgages 04-3 plc
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Granite Mortgages 04-3 plc (the
"COMPANY") at August 27, 2004 in conformity with accounting principles
generally accepted in the United States of America. The balance sheet is the
responsibility of the Company's management; our responsibility is to express an
opinion on the balance sheet based on our audit. We conducted our audit of the
balance sheet in accordance with standards of the Public Company Accounting
Oversight Board (United States), which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Newcastle upon Tyne, England
September 14, 2004"
375
APPENDIX B
GRANITE MORTGAGES 04-3 PLC
BALANCE SHEET AS AT AUGUST 27, 2004
AUGUST 27,
2004
NOTE [GBP]
ASSETS
Cash 12,500
----------
TOTAL ASSETS 12,500
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Common Stock (authorized 50,000 shares, [GBP]1 par value, issued and
outstanding shares comprising 0 fully paid and 50,000 partly
paid to [gbp]0.25 each 3 50,000
Less receivable from shareholders 3 (37,500)
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 12,500
=========
The notes on the following page form an integral part of this financial
statement.
376
APPENDIX C
GRANITE MORTGAGES 04-3 PLC
NOTES TO THE BALANCE SHEET AS AT AUGUST 27, 2004
1 ACCOUNTING POLICIES
The financial information for Granite Mortgages 04-3 plc (the "COMPANY") set
out in the balance sheet has been prepared under the historical cost convention
and in accordance with accounting principles generally accepted in the United
States of America and in pounds sterling ([GBP]), the Company's operating
currency. The financial statements are reported in accordance with generally
accepted accounting principles in the United States (US GAAP) due to the
Group's annual reporting requirements under the United States Securities
Exchange Act of 1934, as amended (Securities Exchange Act). The statutory
financial statements of the Company required under United Kingdom legislation
are prepared and maintained under generally accepted accounting principles in
the United Kingdom (UK GAAP).
2 NATURE OF OPERATIONS
The Company was incorporated as a public limited company registered in
England and Wales on July 1, 2004 under the name of Granite Mortgages 04-3 plc.
The principal purpose of the Company is to invest the proceeds of the
issuance and sale of mortgage-backed notes. The Company has, at the date of
this report, yet to commence trading.
3 SHARE CAPITAL
The Company was incorporated with authorized capital of [GBP]50,000
comprising 50,000 ordinary shares of [GBP]1 each.
On July 1, 2004, 50,000 ordinary shares were issued each of which was partly
paid to [GBP]0.25.
4 ULTIMATE HOLDING COMPANY
As at August 27, 2004, the ultimate holding company of the Company was The
Law Debenture Intermediary Corporation plc, a company registered in England and
Wales. The Law Debenture Intermediary Corporation plc holds all of the
beneficial interest in the issued shares of Granite Finance Holdings Limited, a
company registered in England and Wales (which holds all of the beneficial
interest in the issued shares of Granite Finance Funding Limited, and which, in
turn, holds all of the beneficial interest in the issued shares of the Company)
on a discretionary trust for charitable purposes.
377
APPENDIX D
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
"To the Board of Directors and shareholder of Granite Finance Funding Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, statements of changes in shareholder's
equity and statements of cashflows present fairly, in all material respects,
the financial position of Granite Finance Funding Limited and its subsidiaries
(the "GROUP") as at December 31, 2003 and December 31, 2002 and the period from
February 14, 2001 to December 31, 2001 and the results of its operations and
cashflows for the years ended December 31, 2003 and December 31, 2002 and for
the period from February 14, 2001 to December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Group's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America,
standards of the Public Company Accounting Oversight Board (United States),
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement. As
discussed in Note 2 to the consolidated financial statements, the income
statement for the years ended December 31, 2002 and shareholders' equity as at
December 31, 2002 have been restated to correct double counting of accrued
interest payable in certain derivative valuations, deferred consideration
payable which was not previously recognised and to reverse the [GBP]20 million
discount on the original advance to Granite Finance Trustees Limited which was
previously reported as income. An audit 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, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Newcastle upon Tyne, England
May 20, 2004"
378
APPENDIX E
GRANITE FINANCE FUNDING LIMITED
CONSOLIDATED STATEMENTS OF INCOME
11 MONTHS
YEAR ENDED ENDED
DECEMBER DECEMBER
31 31
YEAR ENDED 2002 2001
DECEMBER 31 (AS (AS
NOTE 2003 RESTATED) RESTATED)
----------- ---------- ----------
[GBP]'000 [GBP]'000 [GBP]'000
OTHER REVENUE
Other income 8,158 3,536 854
Interest income 3 594,434 296,584 97,772
----------- ---------- ----------
TOTAL OTHER REVENUE -- CONTINUING
OPERATIONS 602,592 300,120 98,626
=========== ========== ==========
COSTS AND EXPENSES
Administration expenses (13,372) (6,325) (1,846)
Interest expense 4 (552,739) (272,154) (93,772)
Provision for bad and doubtful
debts 345 (5,380) ---
Unrealized loss on derivatives (362,610) (337,646) (38,550)
Foreign currency translation
(loss)/ gain 401,007 332,872 7,250
Deferred purchase consideration (36,332) (21,602) (2,994)
----------- ---------- ----------
TOTAL COSTS AND EXPENSES --
CONTINUING OPERATIONS (563,701) (310,235) (129,912)
----------- ---------- ----------
INCOME/(LOSS) BEFORE TAX EXPENSE 5 38,891 (10,115) (31,286)
Income taxes 6 (45) (12) (4)
----------- ---------- ----------
NET (LOSS)/INCOME 38,846 (10,127) (31,290)
=========== ========== ==========
EARNINGS PER SHARE FOR NET INCOME/
(LOSS)
Basic per ordinary share 482.3p (226.0)p (1,747.0)p
=========== ========== ==========
Fully diluted per ordinary share 482.3p (226.0)p (1,747.0)p
=========== ========== ==========
The notes on the following pages form an integral part of these consolidated
financial statements.
379
APPENDIX F
GRANITE FINANCE FUNDING LIMITED
CONSOLIDATED BALANCE SHEETS
DECEMBER
31
DECEMBER 2002
31 (AS
NOTE 2003 RESTATED)
---------- ---------
[GBP]'000 [GBP]'000
ASSETS
CURRENT ASSETS
Restricted cash 957,407 484,829
Issue costs 7 22,869 14,338
Accounts receivable 8 64,499 40,328
---------- ---------
TOTAL CURRENT ASSETS 1,044,775 539,495
========== =========
INVESTMENTS AND OTHER ASSETS
Advance to Granite Finance Trustees Limited 9 12,745,924 7,116,008
---------- ---------
TOTAL INVESTMENTS AND OTHER ASSETS 12,745,924 7,116,008
========== =========
TOTAL ASSETS 13,790,699 7,655,503
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Other accounts payable and accrued expenses 10 191,310 101,419
Income tax payable 48 12
Derivatives 738,806 376,196
---------- ---------
TOTAL CURRENT LIABILITIES 930,164 477,627
========== =========
LONG-TERM DEBT
Asset-backed notes 12,655,555 7,113,331
Deferred consideration 80,928 44,596
Start-up loan 126,523 61,304
---------- ---------
TOTAL LONG-TERM DEBT 11 12,863,006 7,219,231
========== =========
COMMON STOCK (authorized 100,000 shares of [GBP]1
each (2002: 100,000), issued and outstanding,
100,000 (2001: 62,500)) 12 100 62
Retained earnings (2,571) (41,417)
---------- ---------
Total shareholders' equity (2,471) (41,355)
========== =========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 13,790,699 7,655,503
========== =========
The notes on the following pages form an integral part of these consolidated
financial statements.
380
APPENDIX G
GRANITE FINANCE FUNDING LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER
31 31 31
2003 2002 2003
(AS (AS
RESTATED) RESTATED)
---------- ---------- ----------
[GBP]'000 [GBP]'000 [GBP]'000
Net income/(loss) for the period 38,846 (10,127) (31,290)
Retained deficit brought forward (41,417) (31,290) ---
---------- ---------- ----------
RETAINED EARNINGS CARRIED FORWARD (2,571) (41,417) (31,290)
========== ========== ==========
Common stock brought forward 62 37
Shares issued in the period
(37,500 ordinary shares at
[GBP]1 per share (2002:
25,000)) 38 25 37
---------- ---------- ----------
COMMON STOCK CARRIED FORWARD 100 62 37
========== ========== ==========
TOTAL SHAREHOLDERS' EQUITY (2,471) (41,355) (31,253)
========== ========== ==========
The notes on the following pages form an integral part of these consolidated
financial statements.
381
APPENDIX H
GRANITE FINANCE FUNDING LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED 11 MONTHS ENDED
YEAR ENDED DECEMBER DECEMBER
DECEMBER 31 31
31 2002 2001
2003 (AS RESTATED) (AS RESTATED)
---------- ------------- ---------------
[GBP]'000 [GBP]'000 [GBP]'000
CASH FLOWS FROM OPERATING ACTIVITIES
Net retained income/(loss) for the period 38,847 (10,127) (31,290)
Increase in accounts receivable (24,171) (23,827) (16,501)
Increase in income tax payable 36 12 ---
Increase in accounts payable 89,891 56,210 45,209
Amortization of issue costs 6,705 3,238 1,192
Provision for bad and doubtful debts (345) 5,380 ---
Gain on translation of foreign currency (401,007) (332,872) (7,250)
Increase/(Decrease) in deferred
consideration 36,332 21,602 2,994
Unrealized loss on derivatives 362,610 337,646 38,550
---------- ------------- ---------------
NET CASH FROM OPERATING ACTIVITIES 108,897 57,262 32,904
========== ============= ===============
CASH FLOWS FROM INVESTING ACTIVITIES
Payment of advance to Granite Finance
Trustees Limited (7,730,595) (5,169,025) (2,980,000)
Proceeds from repayment of advance to
Granite Finance Trustees Limited 2,101,024 813,310 234,327
---------- ------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (5,629,591) (4,355,715) (2,745,673)
========== ============= ===============
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of asset-backed notes 7,730,595 5,184,025 3,010,000
Repayment of asset-backed notes (1,787,364) (623,467) (117,105)
Net proceeds from start-up loan 65,219 47,686 13,618
Payment of issue costs of asset-backed
notes (15,236) (10,549) (8,219)
Proceeds from issue of share capital 38 25 37
---------- ------------- ---------------
NET CASH FROM FINANCING ACTIVITIES 5,993,252 (4,597,720) 2,899,331
========== ============= ===============
NET INCREASE IN CASH AND CASH EQUIVALENTS 472,578 299,267 185,562
Cash and cash equivalents at beginning of
the period 484,829 185,562 ---
---------- ------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF THE
PERIOD 957,407 484,829 185,562
========== ============= ===============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 492,922 188,055 52,562
---------- ------------- ---------------
Income taxes paid 12 --- ---
---------- ------------- ---------------
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Reserve fund --- 15,000 10,000
---------- ------------- ---------------
The notes on the following pages form an integral part of these consolidated
financial statements.
382
APPENDIX I
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
1. GENERAL INFORMATION
Granite Finance Funding Limited ("the COMPANY") was incorporated on February
14, 2001 as a company with limited liability and domiciled in Jersey for the
purposes of carrying on business. The company commenced business on March 26,
2001. Granite Finance Funding Limited and its subsidiaries, Granite Mortgages
01-1 plc, Granite Mortgages 01-2 plc, Granite Mortgages 02-1 plc, Granite
Mortgages 02-2 plc, Granite Mortgages 03-1 plc, Granite Mortgages 03-2 plc,
Granite Mortgages 03-3 plc and Granite Mortgages 04-1 plc collectively comprise
the "GROUP".
The Company borrows indirectly from the Euro markets and from the domestic
US market via its subsidiaries, which are public limited companies organized
under the laws of England and Wales. The sole businesses of the subsidiaries
are the investment of the proceeds of the issuance and sale of asset-backed
notes by lending the proceeds thereof to the Company. Granite Mortgages 04-1
plc was incorporated on November 11, 2003 and has yet to commence trading at
the balance sheet date.
The Group's capital and debt issuance proceeds are invested in the purchase
of a beneficial interest in a pool of mortgage loans and related security
interest which provide the funds used by the Company to pay interest and repay
principal to the subsidiary companies under the intercompany loans. The pool of
mortgages is owned by beneficiaries of a trust administered by Granite Finance
Trustees Limited ("THE TRUST"), a fellow subsidiary of Granite Finance Holdings
Limited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America ("US
GAAP") and in Pounds Sterling ("[GBP]"), the currency of the United Kingdom,
which is the Group's operating currency. The financial statements are reported
in accordance with US GAAP due to the Group's annual reporting requirements
under the United States Securities Exchange Act of 1934, as amended (the
"SECURITIES EXCHANGE ACT"). The statutory accounting records of the Group are
prepared and maintained under generally accepted accounting principles in the
United Kingdom ("UK GAAP").
RESTATEMENT
The Group's net income for the two years ended December 31, 2002 and
shareholders' equity as at December 31, 2002 have been restated to correct
double counting of accrued interest payable in certain derivative valuations,
deferred consideration payable not previously recognised and the reversal of
the [GBP]20 million discount on the original advance to Granite Finance
Trustees Limited previously reported as income.
383
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
The effects of these corrections are as follows:
11 MONTHS
YEAR ENDED ENDED
DECEMBER 31 DECEMBER 31
2002 2001
----------- -----------
[GBP]'000 [GBP]'000
Net income as previously reported 4,655 (9,542)
Reversal of incorrect interest accrual in derivative valuations 6,820 1,246
Deferred consideration not previously recognised (21,602) (2,994)
Discount on the original advance to Granite Finance
Trustees Limited previously reported as income --- (20,000)
----------- -----------
Restated net loss (10,127) (31,290)
=========== ===========
2002 2002
----------- -----------
PENCE PENCE
Basic earnings/(loss) per share as previously reported 104.6 (532.7)
Effect of adjustments (330.6) (1,214.3)
----------- -----------
Restated basic loss per share (226.0) (1,747.0)
=========== ===========
2002
-----------
[GBP]'000
Shareholders' equity as previously reported (4,825)
Reversal of incorrect interest accrual in derivative valuations 8,066
Deferred consideration not previously recognised (44,596)
-----------
Restated shareholders' equity (41,355)
===========
CONSOLIDATION
The consolidated financial statements include the accounts of Granite
Finance Funding Limited and its wholly owned subsidiaries Granite Mortgages 01-
1 plc, Granite Mortgages 01-2 plc, Granite Mortgages 02-1 plc, Granite
Mortgages 02-2 plc, Granite Mortgages 03-1 plc, Granite Mortgages 03-2 plc,
Granite Mortgages 03-3 plc and Granite Mortgages 04-1 plc. All intercompany
transactions and balances have been eliminated on consolidation.
FOREIGN CURRENCY TRANSLATION
All foreign currency assets and liabilities are translated into Pounds
Sterling at the exchange rates prevailing at the end of the period. Interest
income and expense denominated in foreign currencies are translated into Pounds
Sterling at the exchange rates in force when the transaction arises. Foreign
currency translation effects are reflected on the face of the income statement.
Foreign currency investment and financing activities
384
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
are economically hedged into pounds sterling to offset exposures to fluctuating
currency exchange rates. Although these instruments offset exposures, they do
not qualify for hedge accounting under Statement of Financial Accounting
Standards No. 133 "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES" ("SFAS NO. 133").
DERIVATIVES
Derivative instruments comprise interest rate swaps and currency swaps, and
are used by the Group to minimize interest rate exposures between fixed and
floating rate assets and liabilities and currency risk associated with its
financing activities. Although these instruments offset exposure, they do not
qualify for hedge accounting under SFAS No. 133 due to the differing and
unknown maturities of the underlying mortgage loan assets and the lack of
contemporaneous documentation requirements. All derivatives are recorded on the
balance sheet at fair value with changes in fair value reflected in the income
statement. All derivatives are transacted simultaneously with the purchase or
issuance of the underlying funding instrument. The derivatives are not held for
trading purposes.
INTEREST
Interest income and expense are recognized in the consolidated financial
statements on an accruals basis, except for income on loans taken into
possession which is taken to income when it is received.
FUNDING INSTRUMENTS
Asset-backed notes are stated at amortized cost on the balance sheet.
Premiums/discounts are amortized to the maturity date of each issue using the
straight-line method, which is not materially different from the interest
method.
DISTRIBUTION POLICY
Distributions to shareholders and holders of capital notes are accounted for
when approved by the Board of Directors.
RESTRICTED CASH
The Company holds deposits at banks which pay interest based on quoted 3-
month LIBOR. The use of this cash is restricted to a pre-defined priority of
payments set out in the prospectuses published when the debt securities were
issued. Cash balances can be utilised to meet third party expenses, and to pay
interest and principal to bondholders and swap counterparties with any excess
cash ultimately due as deferred consideration to Northern Rock plc in its
capacity as originator and seller of the loans. Included within restricted cash
are accumulated cash reserves of [GBP]25 million (the "RESERVE FUND") where
bonds issued by Granite Mortgages 01-2 plc and Granite Mortgages 02-1 plc
exceeded the amount which the Company advanced to Granite Finance Trustees
Limited.
ADVANCE TO GRANITE FINANCE TRUSTEES LIMITED
The advance to the Trust is carried at cost, being cash plus initial
deferred consideration, of the Company's initial contributions to the Trust in
consideration for the purchase of the Company's beneficial interest in the
mortgages trust less capital repayments received and the Company's share of
other non-cash movements in the underlying mortgage loans comprising the
mortgages trust.
385
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
LOSS PROVISIONING
Specific provision for loss is made at such time as it is determined that an
impairment has occurred and it is anticipated that there will be a loss on
realisation. As of December 31, 2003 there was no specific provision for losses
on the advance because none of the underlying mortgage loans are considered to
be impaired, such that a loss is expected to be realized. A general provision
is maintained to cover inherent losses in the mortgage portfolio related to
loans that have not yet been specifically identified as impaired. A
statistically based model is used to calculate the appropriate general
provision for each completion year. The model considers appropriate risk
factors specific to the loan portfolio and historical default experience.
DEBT ISSUANCE COSTS
The portion of the direct costs associated with the issue of the notes by
Granite Mortgages 01-1 plc, Granite Mortgages 01-2 plc, Granite Mortgages 02-1
plc and Granite Mortgages 02-2 plc, Granite Mortgages 03-1 plc, Granite
Mortgages 03-2 plc, and Granite Mortgages 03-3 plc that are attributable to the
Group are capitalized and amortized over the expected life of the notes on an
effective yield basis.
DEFERRED PURCHASE CONSIDERATION
Deferred purchase consideration represents amounts owed to Granite Finance
Trustees Limited under the Mortgage Sale Agreement dated March 26, 2001 (as
amended) to be paid out of realized income of the Group, together with an
initial deferred consideration amount of [GBP]20 million. The deferred
consideration is calculated as 99.99% of interest receivable on the loan from
Granite Finance Funding Limited, payable out of future revenue cashflows to the
Trust who in turn will pay this to Northern Rock plc. Deferred consideration is
payable out of pre tax UK GAAP profits and is only payable to the extent that
adequate cashflows are generated.
TAXATION
UK corporation tax is provided on the results for the year at amounts
expected to be paid or recovered using the tax rates and laws that have been
enacted by the balance sheet dates.
Deferred taxation -- provision for deferred tax under the liability method
is made in full for all temporary differences. Deferred tax assets are
recognized in full with valuation allowances provided where it is considered
more likely than not that some portion of the deferred tax asset will not be
realized.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingencies at the balance sheet date and the
reported amount of revenues and expenses in the reporting period. Actual
results may differ from the estimates used in the financial statements.
386
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
3. INTEREST INCOME
11 MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
2003 2002 2001
----------- ----------- -----------
[GBP]'000 [GBP]'000 [GBP]'000
Interest income on the advance to Granite
Finance Trustees Limited 557,744 279,918 92,618
Interest income on cash at bank 36,690 16,666 5,154
----------- ----------- -----------
Total 594,434 296,584 97,772
=========== =========== ===========
4. INTEREST EXPENSE
11 MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
2003 2002 2001
----------- ----------- -----------
[GBP]'000 [GBP]'000 [GBP]'000
Interest expense on the asset-backed
notes 541,174 266,909 92,281
Amortization of issue costs 6,705 3,238 1,192
Interest expense on start-up loans 4,860 2,007 299
----------- ----------- -----------
Total 552,739 272,154 93,772
=========== =========== ===========
5. NET INCOME/LOSS BEFORE TAXATION
Loss on ordinary activities before taxation is stated after charging:
11 MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
2003 2002 2001
----------- ----------- -----------
[GBP]'000 [GBP]'000 [GBP]'000
Audit fees 143 56 30
=========== =========== ===========
The Group has no employees. No emoluments were paid to the Directors by the
Group during the period.
387
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
6. TAX ON INCOME/LOSS
11 MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
2003 2002 2001
----------- ----------- -----------
[GBP]'000 [GBP]'000 [GBP]'000
The tax charge for the year comprises:
Current tax on profits for the year -- UK
corporation tax 45 12 4
----------- ----------- -----------
Total current tax 45 12 4
Increase/(decrease) in deferred taxation --- --- ---
----------- ----------- -----------
Total tax charge for the period 45 12 4
=========== =========== ===========
All tax relates to continuing operations.
A reconciliation of tax on income/(loss) from continuing operations at the
standard UK corporation tax rate to the Group's effective tax rate for each of
the years ended December 31, 2003, 2002 and 2001 is shown as follows:
11 MONTHS
YEAR ENDED ENDED
YEAR ENDED DECEMBER 31 DECEMBER 31
DECEMBER 31 2002 2001
2003 (AS RESTATED) (AS RESTATED)
----------- ------------- -------------
[GBP]'000 [GBP]'000 [GBP]'000
Tax on income/(loss) from continuing
operations at standard UK corporation
tax rate of 30% (2002 and 2001: 30%) 11,698 (3,034) (9,386)
Movement in deferred tax asset/
(liability) not recognized (11,653) 3,046 9,390
----------- ------------- -------------
Tax on income/(loss) from continuing
operations 45 12 4
=========== ============= =============
Effective tax rate 0.10% (0.1)% 0.0%
The tax charge reconciliation uses the standard rate of corporation tax in
the UK of 30%, as this is the jurisdiction in which the Group pays income tax.
388
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
DEFERRED TAX
The principal components of the Group's net deferred tax asset/(liability)
calculated under SFAS No. 109, are as follows. Deferred tax has been calculated
using the standard rate of corporation tax in the UK of 30%, as this is the
jurisdiction in which the Group pays income taxes.
11 MONTH
PERIOD ENDED
2002 2001
2003 (AS RESTATED) (AS RESTATED)
--------- ------------- -------------
[GBP]'000 [GBP]'000 [GBP]'000
DEFERRED TAX LIABILITIES:
Excess of book value of financial
instruments over tax base cost 697 --- ---
--------- ------------- -------------
Total deferred tax liabilities 697 --- ---
--------- ------------- -------------
DEFERRED TAX ASSETS:
General bad debt provision 1,510 1,614 ---
Deficit of book value of financial
instruments to tax base cost --- 10,822 9,390
--------- ------------- -------------
Total deferred tax asset before valuation
allowance 1,510 12,436 9,390
Less: valuation allowance (813) (12,436) (9,390)
--------- ------------- -------------
Deferred assets less valuation allowance 697 --- ---
========= ============= =============
Net deferred tax liability/(asset) NIL NIL NIL
========= ============= =============
Valuation allowances have been made against the net potential deferred tax
asset at December 31 2003, 2002 and 2001 (i.e. all of the assets except to the
extent that they can be offset against deferred tax liabilities) on the basis
that the directors consider it to be more likely than not that the benefit of
the deferred tax assets will not be realized.
7. ISSUE COSTS
DECEMBER 31 DECEMBER 31
2003 2002
----------- -----------
[GBP]'000 [GBP]'000
Issue costs 22,869 14,338
=========== ===========
Issue costs include [GBP]15,431,000 (2002: [GBP]10,156,000) which will be
amortized after more than one year. These costs are paid by the Group in
connection with the issue of asset-backed notes by its subsidiaries.
389
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
8. ACCOUNTS RECEIVABLE
DECEMBER 31 DECEMBER 31
2003 2002
----------- -----------
[GBP]'000 [GBP]'000
Accrued interest income 3,855 3,119
Other accounts receivable --- 24
Amounts due from Granite Finance Trustees Limited 60,644 37,185
----------- -----------
Total 64,499 40,328
=========== ===========
9. ADVANCE TO GRANITE FINANCE TRUSTEES LIMITED
DECEMBER 31 DECEMBER 31
2003 2002
----------- -----------
[GBP]'000 [GBP]'000
Balance brought forward 7,116,008 2,765,673
Advance to the Trust 7,730,595 5,169,025
Repayment of advance to the Trust (2,101,024) (813,310)
Provision for bad and doubtful debts 345 (5,380)
----------- -----------
Total 12,745,924 7,116,008
=========== ===========
The advance is secured by a pool of mortgage loans that have been equitably
assigned by Northern Rock plc to the Trust, as mortgages trustee of the
mortgages trust. The Trust uses a portion of the interest and principal
payments that it receives on the mortgage loans held by it in trust to repay
interest and principal amounts on the loan from the Company.
During the year additional residential mortgage loans were assigned to the
Trust as follows: on 26 January [GBP]4,060 million, on 23 March [GBP]522
million, on 3 April [GBP]3,526 million, on 27 July [GBP]500 million, on 17
August [GBP]2,913 million, on 7 September [GBP]750 million and on 23 November
2003 [GBP]500 million. On 27 January 2003, the Company purchased an additional
share of the beneficial interest in the trust property from Granite Finance
Trustees Limited of [GBP]3,010 million. On 21 May 2003, the Company purchased
an additional share of the beneficial interest in the trust property from
Granite Finance Trustees Limited of [GBP]2,495 million. On 24 September 2003
the Company purchased a further share of the beneficial interest in the trust
property of [GBP]2,226 million.
The total securitized loans outstanding in the trust at December 31, 2003
was [GBP]13,059 million, comprising 177,469 loans with an average balance of
[GBP]73,587. Of these loans 138 were 6 or more months in arrears accounting for
a total principal balance of [GBP]8.6 million. There were 40 properties in
possession with a total principal balance of [GBP]2.2 million. The Company and
Northern Rock plc are beneficially entitled to all of the trust property in
accordance with their respective shares in the trust. Northern Rock plc
continues to service the mortgage assets under an administration agreement
entered into when the trust was established.
390
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
The payment of interest and principal on the advance to the Trust is
dependent upon payment of interest and principal under the mortgage loans held
by the Trust , and is therefore subject to the risk of non-payment of the
mortgage loans. All of the underlying mortgage loans in the Trust were
originated by Northern Rock plc and the following factors mitigate the risks
associated with the failure of customers to settle financial obligations:
* the use of sophisticated credit scoring systems to differentiate
the credit risk associated with residential mortgage loans;
* emphasis on next time buyers and remortgage customers relative to
first time buyers as in Northern Rock's experience customers who
have proven repayment records represent lower risk;
* geographic spread -- distribution channels for new residential
mortgage lending are designed to avoid excessive reliance on any
single geographic region;
* size of loan relative to value of the property -- Northern Rock's
current policy is for at least 60% of new residential mortgage
lending to have loan to value ratios of 90% or lower.
All of the underlying mortgage assets are secured on properties in England
or Wales and hence the Company is dependent upon the state of the United
Kingdom economy and market interest rates. There can be no assurance that a
weakening in the United Kingdom economy will not have a material effect on the
Company's future performance.
10. OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
DECEMBER 31 DECEMBER 31
2003 2002
----------- -----------
[GBP]'000 [GBP]'000
Accrued interest expense 121,934 73,682
Accruals and other accounts payable 69,376 27,737
----------- -----------
Total 191,310 101,419
=========== ===========
11. LONG TERM DEBT
DECEMBER 31
DECEMBER 31 2002
2003 (AS RESTATED)
----------- -------------
[GBP]'000 [GBP]'000
Asset-backed notes 12,655,555 7,113,331
Deferred consideration 80,928 44,596
Start up loan 126,523 61,304
----------- -------------
Total 12,863,006 7,219,231
=========== =============
391
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
Interest payable on the start-up loans is based on LIBOR which resets on
January 20, 2004. At December 31, 2003 LIBOR had previously fixed at 3.7725% in
relation to [GBP]110 million of the start-up loan and had previously fixed at
3.7431% in relation to the remaining start-up loan.
The payment of interest and principal on the asset-backed notes issued by
Granite Mortgages 01-1 plc, Granite Mortgages 01-2 plc, Granite Mortgages 02-1
plc, Granite Mortgages 02-2 plc, Granite Mortgages 03-1 plc, Granite Mortgages
03-2 plc and Granite Mortgages 03-3plc is dependent upon each of those
companies receiving from the Company payment of interest and principal under
the inter-company loans made to the Company. The Company's payment of interest
and principal under the inter-company loan is dependent upon the Company
receiving from the Trust payment of interest and principal under the advance.
As both repayment of the advance and repayment of the asset-backed notes are
ultimately dependent upon payment of interest and principal under the mortgages
loans held by the Trust, the advance and the asset-backed notes are subject to
the risk of prepayment of the mortgage loans.
(A) ASSET-BACKED NOTES -- GRANITE MORTGAGES 01-1 PLC
MARGIN
MARGIN OVER
OVER LIBOR
LIBOR TO AFTER DECEMBER DECEMBER
JANUARY JANUARY 31 31
2008 2008 2003 2002
-------- -------- --------- ---------
[GBP]'000 [GBP]'000
Series 1 Class A1 Floating Rate Notes January 2011 0.12% pa 0.24% pa 25,214 186,150
Series 1 Class A2 Floating Rate Notes January 2026 0.21% pa 0.42% pa 411,835 456,069
Series 1 Class B Floating Rate Notes January 2041 0.40% pa 0.80% pa 28,016 31,025
Series 1 Class C Floating Rate Notes January 2041 1.40% pa 2.40% pa 37,822 41,884
Series 2 Class A Floating Rate Notes January 2041 0.24% pa 0.48% pa 350,000 350,000
Series 2 Class B Floating Rate Notes January 2041 0.40% pa 0.80% pa 10,000 10,000
Series 2 Class C Floating Rate Notes January 2041 1.40% pa 2.40% pa 15,000 15,000
--------- ---------
Total 877,887 1,090,128
========= =========
The notes are repayable in more than 5 years, and are subject to variable
rates of interest. The Series 1 notes are denominated in US Dollars and the
Series 2 notes in Pounds Sterling. Interest is payable on the notes based on
USD 3-month LIBOR for the Series 1 notes and sterling 3-month LIBOR for the
Series 2 notes. At the balance sheet date the rates in force are 1.16% for the
USD 3-month LIBOR and 3.7725% for the sterling 3-month LIBOR.
Both USD and Sterling 3-month LIBOR re-price quarterly, and the next re-
price date after the balance sheet date is January 20, 2004.
392
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
(B) ASSET-BACKED NOTES -- GRANITE MORTGAGES 01-2 PLC
MARGIN
MARGIN OVER
OVER LIBOR
LIBOR TO AFTER DECEMBER DECEMBER
OCTOBER OCTOBER 31 31
2006 2006 2003 2002
-------- -------- --------- ---------
[GBP]'000 [GBP]'000
Series 1 Class A1 Floating Rate Notes October 2021 0.23% pa 0.46% pa 389,421 603,748
Series 1 Class B Floating Rate Notes October 2041 0.40% pa 0.80% pa 24,374 26,992
Series 1 Class C Floating Rate Notes October 2041 1.38% pa 2.38% pa 32,498 35,989
Series 2 Class A Floating Rate Notes October 2041 0.25% pa 0.50% pa 500,000 500,000
Series 2 Class B Floating Rate Notes October 2041 0.42% pa 0.84% pa 15,000 15,000
Series 2 Class C Floating Rate Notes October 2041 1.40% pa 2.40% pa 20,000 20,000
Series 2 Class D Floating Rate Notes October 2041 4.60% pa 5.60% pa 7,000 10,000
--------- ---------
Total 988,293 1,211,729
========= =========
The notes are repayable in more than 5 years, and are subject to variable
rates of interest. The Series 1 notes are denominated in US Dollars and the
Series 2 notes in Pounds Sterling. Interest is payable on the notes based on
USD 3-month LIBOR for the Series 1 notes and sterling 3-month LIBOR for the
Series 2 notes. At the balance sheet date the rates in force are 1.16% for the
USD 3-month LIBOR and 3.7725% for the sterling 3-month LIBOR.
USD and Sterling 3-month LIBOR re-price quarterly, and the next re-price
date after the balance sheet date is January 20, 2004.
(C) ASSET-BACKED NOTES -- GRANITE MORTGAGES 02-1 PLC
MARGIN
MARGIN OVER
OVER LIBOR DECEMBER DECEMBER
LIBOR TO AFTER APRIL 31 31
APRIL 2007 2007 2003 2002
---------- ----------- --------- ---------
[GBP]'000 [GBP]'000
Series 1 Class A1 Floating Rate Notes October 2016 0.10% pa 0.20% pa --- 271,283
Series 1 Class A2 Floating Rate Notes July 2019 0.16% pa 0.32% pa 693,954 790,767
Series 1 Class B Floating Rate Notes April 2042 0.33% pa 0.66% pa 39,054 43,249
Series 1 Class C Floating Rate Notes April 2042 1.30% pa 2.30% pa 54,071 59,878
Series 2 Class A Floating Rate Notes April 2042 0.20% pa 0.40% pa 460,000 460,000
Series 2 Class B Floating Rate Notes April 2042 0.35% pa 0.70% pa 16,200 16,200
Series 2 Class C Floating Rate Notes April 2042 1.30% pa 2.30% pa 22,500 22,500
Series 2 Class D Floating Rate Notes April 2042 4.50% pa 5.50% pa 12,000 15,000
Series 3 Class A Fixed Rate Notes April 2042 N/A 0.42% pa 423,699 390,651
Series 3 Class B Floating Rate Notes April 2042 0.35% pa 0.70% pa 14,900 13,738
Series 3 Class C Floating Rate Notes April 2042 1.30% pa 2.30% pa 20,691 19,077
--------- ---------
Total 1,757,069 2,102,343
========= =========
393
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
The notes are repayable in more than 5 years, and are subject to variable
rates of interest, except for the Series 3 Class A notes which pay 5.15%
annually until the payment date in April 2007 then 3-month Euribor plus the
margin shown above. The Series 1 notes are denominated in US Dollars, the
Series 2 notes in Pounds Sterling and the Series 3 notes in Euros. Interest is
payable on the notes based on USD 3-month LIBOR for the Series 1 notes,
sterling 3-month LIBOR for the Series 2 notes and 3-month Euribor for the
Series 3 Notes. At the balance sheet date the rates in force are 1.16% for the
USD 3-month LIBOR, 3.7725% for the sterling 3-month LIBOR and 2.14% for 3-month
Euribor.
USD and Sterling 3-month LIBOR and 3-month Euribor re-price quarterly, and
the next re-price date after the balance sheet date is January 20, 2004.
(D) ASSET-BACKED NOTES -- GRANITE MORTGAGES 02-2 PLC
MARGIN
MARGIN OVER
OVER LIBOR
LIBOR TO AFTER DECEMBER DECEMBER
JANUARY JANUARY 31 31
2008 2008 2003 2002
-------- -------- --------- ---------
[GBP]'000 [GBP]'000
Series 1 Class A1 Floating Rate Notes January 2017 0.11% pa 0.22% pa --- 403,326
Series 1 Class A2 Floating Rate Notes January 2043 0.18% pa 0.36% pa 635,961 713,577
Series 1 Class B Floating Rate Notes January 2043 0.37% pa 0.74% pa 33,619 37,230
Series 1 Class C Floating Rate Notes January 2043 1.25% pa 2.25% pa 49,308 54,604
Series 2 Class A Floating Rate Notes January 2043 0.19% pa 0.38% pa 766,188 716,192
Series 2 Class B Floating Rate Notes January 2043 0.37% pa 0.74% pa 28,953 26,694
Series 2 Class C Floating Rate Notes January 2043 1.25% pa 2.25% pa 37,427 34,508
Series 3 Class A Floating Rate Notes January 2043 0.19% pa 0.38% pa 665,000 665,000
Series 3 Class B Floating Rate Notes January 2043 0.37% pa 0.74% pa 25,000 25,000
Series 3 Class C Floating Rate Notes January 2043 1.25% pa 2.25% pa 33,000 33,000
--------- ---------
Total 2,274,456 2,709,131
========= =========
The notes are repayable in more than 5 years, and are subject to variable
rates of interest. The Series 1 notes are denominated in US Dollars, the Series
2 notes in Euros and the Series 3 notes in Pounds Sterling. Interest is payable
on the notes based on USD 3-month LIBOR for the Series 1 notes, 3-month Euribor
for the Series 2 Notes and sterling 3-month LIBOR for the Series 3 notes. At
the balance sheet date the rates in force are 1.16% for the USD 3-month LIBOR,
3.7725% for the sterling 3-month LIBOR and 2.14% for 3-month Euribor.
USD and Sterling 3-month LIBOR and 3-month Euribor re-price quarterly, and
the next re-price date after the balance sheet date is January 20, 2004.
394
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
(E) ASSET-BACKED NOTES -- GRANITE MORTGAGES 03-1 PLC
MARGIN MARGIN
OVER OVER
LIBOR TO LIBOR DECEMBER DECEMBER
APRIL AFTER APRIL 31 31
2008 2008 2003 2002
---------- ----------- --------- ---------
[GBP]'000 [GBP]'000
Series 1 Class A1 Floating Rate Notes January 2004 (0.01%) pa 0.0% pa 129,574 ---
Series 1 Class A2 Floating Rate Notes January 2020 0.19% pa 0.38% pa 686,390 ---
Series 1 Class A3 Floating Rate Notes January 2020 0.40% pa 0.80% pa 168,096 ---
Series 1 Class B Floating Rate Notes January 2043 0.43% pa 0.86% pa 23,533 ---
Series 1 Class C Floating Rate Notes January 2043 1.45% pa 2.45% pa 31,378 ---
Series 2 Class A Floating Rate Notes January 2043 0.24% pa 0.48% pa 635,548 ---
Series 2 Class B Floating Rate Notes January 2043 0.43% pa 0.86% pa 43,782 ---
Series 2 Class C Floating Rate Notes January 2043 1.45% pa 2.45% pa 66,732 ---
Series 3 Class A Floating Rate Notes January 2043 0.24% pa 0.48% pa 665,000 ---
Series 3 Class B Floating Rate Notes January 2043 0.43% pa 0.86% pa 31,000 ---
Series 3 Class C Floating Rate Notes January 2043 1.45% pa 2.45% pa 41,000 ---
--------- ---------
Total 2,522,033 ---
========= =========
The notes, other than the Series 1A1 Notes which are repayable within 1
year, are repayable in more than 5 years, and are subject to variable rates of
interest. The Series 1 notes are denominated in US Dollars, the Series 2 notes
in Euros and the Series 3 notes in Pounds Sterling. Interest is payable on the
notes based on USD 3-month LIBOR for the Series 1 notes, 3-month Euribor for
the Series 2 Notes and sterling 3-month LIBOR for the Series 3 notes. At the
balance sheet date the rates in force are 1.16% for the USD 3-month LIBOR,
3.7725% for the sterling 3-month LIBOR and 2.14% for 3-month Euribor.
USD and Sterling 3-month LIBOR and 3-month Euribor re-price quarterly, and
the next re-price date after the balance sheet date is January 20, 2004.
395
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
(F) ASSET-BACKED NOTES -- GRANITE MORTGAGES 03-2 PLC
MARGIN
MARGIN OVER
OVER LIBOR DECEMBER DECEMBER
LIBOR TO AFTER JULY 31 31
JULY 2010 2010 2003 2002
--------- ---------- --------- ---------
[GBP]'000 [GBP]'000
Series 1 Class A1 Floating Rate Notes July 2017 0.08% pa 0.16% pa 514,190 ---
Series 1 Class A2 Floating Rate Notes July 2020 0.16% pa 0.32% pa 563,680 ---
Series 1 Class A3 Floating Rate Notes July 2043 0.25% pa 0.50% pa 280,159 ---
Series 1 Class B Floating Rate Notes July 2043 0.49% pa 0.98% pa 42,864 ---
Series 1 Class C Floating Rate Notes July 2043 1.55% pa 2.55% pa 5,883 ---
Series 2 Class A Floating Rate Notes July 2043 0.25% pa 0.50% pa 211,850 ---
Series 2 Class B Floating Rate Notes July 2043 0.49% pa 0.98% pa 51,479 ---
Series 2 Class M Floating Rate Notes July 2043 0.75% pa 1.50% pa 36,932 ---
Series 2 Class C1 Floating Rate Notes July 2043 N/A 2.55% pa 11,299 ---
Series 2 Class C2 Floating Rate Notes July 2043 1.55% pa 2.55% pa 46,254 ---
Series 3 Class A Floating Rate Notes July 2043 N/A 0.48% pa 352,280 ---
Series 3 Class C Floating Rate Notes July 2043 1.55% pa 2.55% pa 15,000 ---
--------- ---------
Total 2,131,870 ---
========= =========
The notes are repayable in more than 5 years, and are subject to variable
rates of interest. The Series 1 notes are denominated in US Dollars, the Series
2 notes in Euros and the Series 3 notes in Pounds Sterling. Interest is payable
on the notes based on USD 3-month LIBOR for the Series 1 notes, 3-month Euribor
for the Series 2 Notes and sterling 3-month LIBOR for the Series 3 notes. At
the balance sheet date the rates in force are 1.16% for the USD 3-month LIBOR,
3.7725% for the sterling 3-month LIBOR and 2.14% for 3-month Euribor.
USD and Sterling 3-month LIBOR and 3-month Euribor re-price quarterly, and
the next re-price date after the balance sheet date is January 20, 2004.
396
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
(G) ASSET-BACKED NOTES -- GRANITE MORTGAGES 03-3 PLC
MARGIN
MARGIN OVER
OVER LIBOR
LIBOR TO AFTER DECEMBER DECEMBER
JANUARY JANUARY 31 31
2009 2009 2003 2002
-------- -------- --------- ---------
[GBP]'000 [GBP]'000
Series 1 Class A1 Floating Rate Notes January 2019 0.08% pa 0.16% pa 420,239 ---
Series 1 Class A2 Floating Rate Notes January 2024 0.12% pa 0.24% pa 420,239 ---
Series 1 Class A3 Floating Rate Notes January 2044 0.20% pa 0.40% pa 280,159 ---
Series 1 Class B Floating Rate Notes January 2044 0.45% pa 0.90% pa 40,343 ---
Series 1 Class M Floating Rate Notes January 2044 0.70% pa 1.40% pa 15,129 ---
Series 1 Class C Floating Rate Notes January 2044 1.45% pa 2.45% pa 28,016 ---
Series 2 Class A Floating Rate Notes January 2044 0.19% pa 0.38% pa 451,945 ---
Series 2 Class B Floating Rate Notes January 2044 0.45% pa 0.90% pa 16,242 ---
Series 2 Class M Floating Rate Notes January 2044 0.70% pa 1.40% pa 5,296 ---
Series 2 Class C Floating Rate Notes January 2044 1.45% pa 2.45% pa 38,839 ---
Series 3 Class A Floating Rate Notes January 2044 0.19% pa 0.38% pa 340,000 ---
Series 3 Class B Floating Rate Notes January 2044 0.45% pa 0.90% pa 28,500 ---
Series 3 Class M Floating Rate Notes January 2044 0.70% pa 1.40% pa 11,500 ---
Series 3 Class C Floating Rate Notes January 2044 1.45% pa 2.45% pa 7,500 ---
--------- ---------
Total 2,103,947 ---
========= =========
The notes are repayable in more than 5 years, and are subject to variable
rates of interest. The Series 1 notes are denominated in US Dollars, the Series
2 notes in Euros and the Series 3 notes in Pounds Sterling. Interest is payable
on the notes based on USD 3-month LIBOR for the Series 1 notes, 3-month Euribor
for the Series 2 Notes and sterling 3-month LIBOR for the Series 3 notes. At
the balance sheet date the rates in force are 1.613% for the USD 3-month LIBOR,
3.74731% for the sterling 3-month LIBOR and 2.149% for 3-month Euribor.
USD and Sterling 3-month LIBOR and 3-month Euribor re-price quarterly, and
the next re-price date after the balance sheet date is January 20, 2003.
12. COMMON STOCK
DECEMBER 31 DECEMBER 31
2003 2002
----------- -----------
[GBP]'000 [GBP]'000
AUTHORIZED:
100,000 Ordinary shares of [GBP]1 each 100 100
=========== ===========
CALLED UP, ALLOTTED AND FULLY PAID SHARE CAPITAL
100,000 Ordinary shares of [GBP]1 each (2002: 62,500) 100 62
=========== ===========
397
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
13. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
There were no outstanding capital commitments or contingent liabilities at
December 31, 2003 and 2002, respectively.
14. RELATED PARTY TRANSACTIONS
Statement of Financial Accounting Standards No. 57 "Related party
disclosures" defines related parties as follows: Affiliates of the enterprise;
entities for which investments are accounted for by the equity method by the
enterprise; trusts for the benefit of employees, such as pension and profit-
sharing trusts that are managed by or under the trusteeship of management;
principal owners of the enterprise; its management; members of the immediate
families of principal owners of the enterprise and its management; and other
parties with which the enterprise may deal if one party controls or can
significantly influence the management or operating policies of the other to an
extent that one of the transacting parties might be prevented from fully
pursuing its own separate interests. Another party also is a related party if
it can significantly influence the management or operating policies of the
transacting parties or if it has an ownership interest in one of the
transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing
its own separate interests.
The Company, which is a special purpose company, is controlled by its board
of directors. The board of directors consists of three directors. Two of the
Company's three directors are provided by Mourant & Co. Capital (SPV) Limited,
the principal activity of which is providing directors and corporate management
services for special purpose companies. The third director of the Company is an
employee of Northern Rock plc. The Company pays a corporate services fee
pursuant to a corporate services agreement to Mourant & Co. Capital (SPV)
Limited in connection with its provision of corporate management services. The
fees payable to these directors for providing their services are immaterial in
the context of these consolidated financial statements and of the individual
directors.
The total amount paid to Northern Rock plc for administration and cash
management services during the year ended December 31, 2003 was [GBP]757,000
(period ended December 31, 2002 [GBP]459,000).
Northern Rock plc provides the interest rate swap in connection with the
notes issued by Granite Mortgages 01-1 plc, Granite Mortgages 01-2 plc, Granite
Mortgages 02-1 plc, Granite Mortgages 02-2 plc, Granite Mortgages 03-1 plc,
Granite Mortgages 03-2 plc and Granite Mortgages 03-3 plc. Northern Rock plc is
one of a number of counterparties used by the group in the normal course of its
business. Northern Rock plc does not hold any capital of the Group.
The Company receives all of its income from the Trust other than bank
interest and receipts under the interest rate and cross currency swaps. During
the period the Company received [GBP]543 million (period ended December 31,
2002: [GBP]261 million) of revenue from the Trust together with [GBP]2,038
million of principal (period ended December 31, 2002: [GBP]813 million). The
outstanding loan balance due from the Trust at the period end was [GBP]12,746
million (period ended December 31, 2002: [GBP]7,116 million) with an additional
[GBP]61 million (period ended December 31, 2002: [GBP]37 million) due in
relation to payments collected by the Trust not yet paid over.
398
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
15. DERIVATIVES AND FINANCIAL INSTRUMENTS
The Group enters into derivative transactions, principally interest rate
swaps and currency swaps. The purpose of these transactions is to manage the
interest rate and currency risk arising from the Group's operations and its
sources of finance.
The net loss reflected is attributable to the recognition of losses on
derivatives entered into for hedging purposes. Such recognition is necessary
due to non-compliance with the requirement for contemporaneous hedge
documentation under SFAS No. 133. Because the hedge documentation requirements
were not met, the Group is required to record the changes in the fair value of
the derivatives in the income statement.
Interest rate risk -- interest is received on the advance made by the Group
at various underlying rates. These assets are financed by securities on which
interest is payable at different variable rates. The Group's policy is to match
this interest income and expense by use of interest rate swaps.
Currency risk -- all of the Group's assets and associated income are
denominated in Pounds Sterling, although some of the asset-backed notes issued
by Granite Mortgages 01-1 plc, Granite Mortgages 01-2 plc, Granite Mortgages
02-1 plc and Granite Mortgages 02-2 plc and associated interest expense are
denominated in US dollars or Euros. The Group's policy is to match this
currency income and expense by the use of currency swaps.
(A) MATURITY PROFILE OF FINANCIAL LIABILITIES
DECEMBER DECEMBER DECEMBER
31 31 31
2003 2003 2003
DEBT OTHER TOTAL
SECURITIES LIABILITIES LIABILITIES
---------- ----------- -----------
[GBP]'000 [GBP]'000 [GBP]'000
Within 1 year or less or on demand 129,574 930,163 1,059,737
More than 1 year but not more than 2 years --- --- ---
More than 2 years but not more than 5 years --- --- ---
More than 5 years 12,525,981 207,451 12,733,432
---------- ----------- -----------
Total 12,655,555 1,137,614 13,793,169
========== =========== ===========
The maturity profiles reflect the legal maturity dates for the debt
securities. The actual lives of the debt securities cannot be predicted due
principally to the unknown rate at which mortgage loans will be repaid. Any
principal receipts from the Company's interest in the Trust, up to an
annualised constant prepayment rate of 15%, in respect of the notes issued by
issuers other than Granite Mortgages 03-2 plc and Granite Mortgages 03-3 plc
where the rate is 20%, are utilised to repay the debt securities. Each issuer
also has options to redeem the loan notes on the quarterly payment dates
falling in October 2006 for the debt securities issued by Granite Mortgage 01-2
plc, falling in April 2007 for the debt securities issued by Granite Mortgage
02-1 plc, falling in January 2008 for the debt securities issued by Granite
Mortgages 01-1 plc and Granite Mortgages 02-2 plc, falling in April 2008 for
the debt securities issued by Granite Mortgages 03-1 plc, falling in January
399
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
2009 for the debt securities issued by Granite Mortgages 03-3 plc and falling
in July 2010 for the debt securities issued by Granite Mortgages 03-2 plc, or
in each case on any quarterly payment date thereafter.
DECEMBER DECEMBER
DECEMBER 31 31
31 2002 2002
2002 OTHER TOTAL
DEBT LIABILITIES LIABILITIES
SECURITIES (AS RESTATED) (AS RESTATED)
---------- ------------- -------------
[GBP]'000 [GBP]'000 [GBP]'000
Within 1 year or less or on demand --- 477,627 477,627
More than 1 year but not more than 2 years --- --- ---
More than 2 years but not more than 5 years --- --- ---
More than 5 years 7,113,331 105,900 7,219,231
---------- ------------- -------------
Total 7,113,331 583,527 696,858
========== ============= =============
There are no material undrawn committed borrowing facilities.
(B) INTEREST RATE PROFILE OF FINANCIAL ASSETS AND LIABILITIES
DECEMBER
DECEMBER DECEMBER 31
31 31 2003
2003 2003 NON-INTEREST
TOTAL FLOATING RATE BEARING
---------- ------------- ------------
[GBP]'000 [GBP]'000 [GBP]'000
Assets 13,790,699 13,703,331 87,368
Liabilities and shareholders' equity 13,790,699 12,782,126 1,008,573
========== ============= ============
DECEMBER 31
DECEMBER 31 DECEMBER 31 2002
2002 2002 NON-INTEREST
TOTAL FLOATING RATE BEARING
----------- ------------- ------------
[GBP]'000 [GBP]'000 [GBP]'000
Assets 7,655,503 7,600,837 54,666
Liabilities and shareholders equity 7,655,503 7,174,635 480,868
Benchmark rates for determining interest payments for the floating rate
assets and liabilities are given in the note to the accounts relevant to the
financial instrument type. All floating rate assets and liabilities reprice
within 3 months.
400
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
(C) CURRENCY PROFILE
All the Series 1 notes listed in Note 10 are denominated in US Dollars -- a
total of [GBP]6,105 million ($10,896 million). The Series 3 Notes for Granite
Mortgages 02-1 plc, the Series 2 Notes for Granite Mortgages 02-2 plc, the
Series 2 Notes for Granite Mortgages 03-1 plc, the Series 2 Notes for Granite
Mortgages 03-2 plc and the Series 2 Notes for Granite Mortgages 03-3 plc are
denominated in Euros -- a total of [GBP]2,908 million ([e]4,118 million). At
December 31, 2002 Dollar denominated issues totalled [GBP]4,132 million ($6,053
million) and Euro denominated issues [GBP]1,164 million ([e]1,844 million).
Foreign currency investment and financing activities are economically hedged
into pounds sterling to offset exposures to fluctuating currency exchange
rates.
16. FAIR VALUES OF FINANCIAL INSTRUMENTS
Disclosures in the table below are in accordance with SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments".
Fair values have been estimated using quoted marked prices where available.
Where no ready markets exist and hence quoted market prices are not available,
appropriate techniques are used to estimate fair values which take account of
the characteristics of the instruments, including the expected future cash
flows, market interest rates and prices available for similar instruments.
DECEMBER 31 DECEMBER 31
2003 2003 DECEMBER 31
CARRYING FAIR 2003
AMOUNT VALUE DIFFERENCE
----------- ----------- -----------
[GBP]'000 [GBP]'000 [GBP]'000
NON-TRADING ASSETS
Cash and cash equivalents 957,407 957,407 ---
Advance to Granite Finance Trustees
Limited 12,745,924 12,745,924 ---
NON-TRADING LIABILITIES
Asset-backed notes 12,655,555 13,434,784 779,229
Other liabilities 207,451 207,451 ---
Derivatives 738,806 738,806 ---
=========== =========== ===========
401
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
DECEMBER 31 DECEMBER 31
2002 2002
CARRYING FAIR DECEMBER 31
AMOUNT VALUE 2002
(AS RESTATED) (AS RESTATED) DIFFERENCE
------------- ------------- -----------
[GBP]'000 [GBP]'000 [GBP]'000
NON-TRADING ASSETS
Cash and cash equivalents 484,829 484,829 ---
Advance to Granite Finance Trustees
Limited 7,116,008 7,116,008 ---
NON-TRADING LIABILITIES
Asset-backed notes 7,113,331 7,469,077 355,746
Other liabilities 105,900 105,900 ---
Derivatives 376,196 376,196 ---
============= ============= ===========
The Group had no trading assets or liabilities at December 31, 2003 and 2002
respectively.
The advance to the Trust has been valued based on future cash flows. The
asset-backed notes have been valued based on third-party quotes for the trading
price thereof as at December 31, 2003 and 2002 respectively.
Northern Rock plc has entered written fixed rate swaps with external third
parties to mitigate the interest rate risks associated with the fixed rate
mortgage loans in the mortgages trust. A blended rate was then calculated for
the swaps weighted by value in respect of the different mortgage loan products
in the mortgages trust, as each of such products carried a different interest
rate relative to each other mortgage loan product. This rate was then applied
to the fixed rate mortgage loans in the mortgages trust for the swaps between
Northern Rock plc and Granite Mortgages 01-1 plc, Granite Mortgages 01-2 plc,
Granite Mortgages 02-1 plc, Granite Mortgages 02-2 plc, Granite Mortgages 03-1
plc, Granite Mortgages 03-2 plc and Granite Mortgages 03-3 plc. The external
swaps, which were retained by Northern Rock plc, were revalued at market value
on December 31, 2002 and the revaluations as then applied to the swaps between
Northern Rock plc and Granite Mortgages 01-1 plc Granite Mortgages 01-2 plc,
Granite Mortgages 02-1 plc, Granite Mortgages 02-2 plc, Granite Mortgages 03-1
plc, Granite Mortgages 03-2 plc and Granite Mortgages 03-3 plc to revalue the
derivative.
Both the cross-currency swap agreements and the basis rate swap agreements
contain provisions whereby in the event of a ratings downgrade for the swap
counterparty, as a result of which the then-current ratings of the debt
securities in issue would be adversely affected, the counterparty will be
required to provide collateral for its obligations in order to maintain the
then-current ratings of the debt securities, or alternatively to arrange for
its obligations to be transferred to a suitably rated counterparty.
Where collateral is required to be posted, a separate weekly mark to market
valuation is undertaken for each swap and for any individual swap where the
valuation is in favour of the Company, the swap counterparty is required to
post collateral, in the form of cash or securities or both. The collateral is
held in a custodial account in the name of the Company.
402
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
17. MATERIAL SUBSEQUENT EVENTS
On 28 January 2004 the Company purchased a further beneficial interest in
the assets of the Trust for a cash consideration of [GBP]3,472 million financed
by the receipt of a loan from Granite Mortgages 04-1 plc, which commenced
trading on that date. On the same date the beneficial interest in a further
[GBP]5,000 million was assigned to the Trust by Northern Rock plc, the
originator of the loans.
On 26 February 2004 Granite Mortgages 04-2 plc was incorporated with a
called up share capital of 50,000 ordinary shares of [GBP]1 each partly paid to
[GBP]0.25. The entire share capital of Granite Mortgages 04-2 plc was acquired
by the Company funded by an increase in its issued share capital of
[GBP]12,500.
18. RECENT ACCOUNTING DEVELOPMENTS
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEE'S, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS", ("FIN 45"). FIN 45 clarifies
the requirements of SFAS No. 5, "ACCOUNTING FOR CONTINGENCIES", relating to a
guarantor's accounting for, and disclosure of, the issuance of certain types of
guarantees. The Interpretation's provisions for initial recognition and
measurement are to be applied to all obligations assumed under guarantees and
requires disclosure by guarantors in respect of guarantees issued (including
guarantees embedded in other contracts). Granite Finance Funding Limited
adopted the requirements of FIN 45 during the year ended December 31, 2003.
There was no material effect on the Group's financial position or results of
operations as a result of the adoption of this standard.
In January 2003, the FASB issued FIN 46, "CONSOLIDATION OF VARIABLE INTEREST
ENTITIES", ("FIN 46") as an interpretation of Accounting Research Bulletin No.
51, "CONSOLIDATED FINANCIAL STATEMENTS". This was revised in December 2003 and
reissued as FIN 46-R. FIN 46 addresses consolidation of variable interest
entities ("VIES") by business enterprises. An entity is considered a VIE
subject to consolidation if the equity investment at risk is not sufficient to
permit the entity to finance its activities without additional subordinated
financial support or if the equity investors lack one of three characteristics
of a controlling financial interest. First, the equity investors lack the
ability to make decisions about the entity's activities through voting rights
or similar rights. Second, they do not bear the obligation to absorb the
expected losses of the entity if they occur. Lastly, they do not claim the
right to receive expected returns of the entity if they occur, which are the
compensation for the risk of absorbing the expected losses.
FIN 46 requires that VIEs be consolidated by the entity that maintains the
majority of the risks and rewards of ownership, that is, the primary
beneficiary. For VIEs created prior to February 1, 2003, FIN 46 specifies
transitional disclosure requirements for the December 31, 2003 financial
statements in relation to the nature, size and potential maximum loss in
relation to those VIEs where the entity has involvement. Measurement and
recognition requirements are effective in 2004 for VIEs existing at February 1,
2003. For all VIEs created subsequent to February 1, 2003, public entities must
apply either the provisions of FIN 46 or early adopt the provisions of FIN 46-R
for reporting periods ending after December 15, 2003. The full provisions of
FIN 46 and FIN 46-R are to be applied to all VIEs where the entity has
involvement at the end of the first interim or annual reporting period ending
after March 15, 2004.
403
APPENDIX I (CONTINUED)
GRANITE FINANCE FUNDING LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003
AND DECEMBER 31, 2002 AND THE PERIOD FROM FEBRUARY 14, 2001 TO DECEMBER 31,
2001
As all subsidiaries of the Company are already consolidated, the adoption of
the recognition and initial measurement requirements of FIN 46 and FIN 46-R is
not expected to have any effect on the Company's financial position or results
of operations. The Company has no exposure to loss as a result of its
involvement with its subsidiaries - the principal activity of each of the
subsidiaries is the investment of the proceeds of the issue of asset backed
loan notes.
In May 2003, the FASB issued SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY", ("SFAS NO.
150"). The Statement improves the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity. The new
Statement requires that those instruments be classified as liabilities in
statements of financial position. The Standard is applied prospectively for
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective from the beginning of the first interim period beginning
after June 15, 2003.
Granite Finance Funding Limited did not enter into, or modify the terms of,
any financial instrument that would be affected by this Standard. The Group
does not believe that the adoption of SFAS No. 150 for prior periods will have
a material effect on its financial position or results of operations.
EITF Issue 03-01 "THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS
APPLICATION TO CERTAIN INVESTMENTS" was issued in January 2004. The EITF
requires certain additional disclosures to other-than-temporary impairments for
investments accounted for under the cost method or the equity method,
classified as either available-for-sale or held-to-maturity under SFAS No. 115
(including individual securities and investments in mutual funds) and
investments accounted for under SFAS No. 124.
404
REGISTERED OFFICE OF THE ISSUER
GRANITE MORTGAGES 04-3 PLC
Fifth Floor
100 Wood Street
London EC2V 7EX
ADMINISTRATOR
Northern Rock plc
Northern Rock House
Gosforth
Newcastle upon Tyne
NE3 4PL
NOTE TRUSTEE AND SECURITY TRUSTEE PRINCIPAL PAYING AGENT, COMMON
DEPOSITARY AND REGISTRAR
THE BANK OF NEW YORK CITIBANK, N.A., LONDON BRANCH
48th Floor 5 Carmelite Street
One Canada Square London EC4Y 0PA
London E14 5AL
US PAYING AGENT AGENT BANK
CITIBANK, N.A., LONDON BRANCH CITIBANK, N.A., LONDON BRANCH
14th Floor Zone 3 5 Carmelite Street
111 Wall Street London EC4Y 0PA
New York, New York 10043
LEGAL ADVISERS TO THE UNDERWRITERS, THE MANAGERS,
THE NOTE TRUSTEE AND THE SECURITY TRUSTEE
as to English and US law as to Scots Law
ALLEN & OVERY LLP DUNDAS & WILSON
One New Change Saltire Court
London EC4M 9QQ 20 Castle Terrace
Edinburgh EH1 2EN
LEGAL ADVISERS TO THE ISSUER AND THE ADMINISTRATOR
as to English and US law as to Scots Law
SIDLEY AUSTIN BROWN & WOOD TODS MURRAY LLP
Woolgate Exchange 66 Queen Street
25 Basinghall Street Edinburgh EH2 4NE
London EC2V 5HA
LEGAL ADVISERS TO FUNDING AND THE MORTGAGES TRUSTEE
as to Jersey law
MOURANT DU FEU & JEUNE
4 Royal Mint Court
London EC3N 4HJ
AUTHORIZED ADVISOR
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
25 Bank Street
London E14 5LE
THROUGH AND INCLUDING DECEMBER [15], 2004, ALL DEALERS EFFECTING TRANSACTIONS
IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
GRANITE MORTGAGES 04-3 PLC
$[981,400,000] series 1 class A1 floating rate notes due September 2025
$[1,248,100,000] series 1 class A3 floating rate notes due September 2044
$[59,200,000] series 1 class B floating rate notes due September 2044
$[31,400,000] series 1 class M floating rate notes due September 2044
$[62,700,000] series 1 class C floating rate notes due September 2044
$[713,700,000] series 2 class A1 floating rate notes due September 2044
--------------------------------
PROSPECTUS
--------------------------------
JOINT UNDERWRITERS FOR THE SERIES 1 CLASS A1 NOTES, THE SERIES 1 CLASS A3 NOTES
AND THE SERIES 2 CLASS A1 NOTES
DEUTSCHE BANK SECURITIES LEHMAN BROTHERS UBS INVESTMENT BANK
BARCLAYS CAPITAL CITIGROUP HSBC JPMORGAN MERRILL LYNCH & CO.
JOINT UNDERWRITERS FOR THE SERIES 1 CLASS B NOTES, THE SERIES 1 CLASS M NOTES
AND THE SERIES 1 CLASS C NOTES
DEUTSCHE BANK SECURITIES LEHMAN BROTHERS UBS INVESTMENT BANK
SEPTEMBER [16], 2004
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Following are the estimated expenses* (expressed in US dollars based on
an exchange rate of US$1.00=GB{pound-sterling}0.5473), other than underwriting
discounts and commissions, to be incurred in connection with the offering and
distribution of the securities being registered under this registration
statement:
Securities and Exchange Commission registration fee.... $[392,326]
Expenses of qualification under state securities laws
(including legal fees)................................. $0
Printing and engraving expenses........................ $145,000
Legal fees and expenses................................ $1,425,000
Accounting fees and expenses........................... $120,000
Trustee's fees and expenses............................ $8,000
Rating agency fees..................................... $545,000
Miscellaneous.......................................... $105,000
--------------
Total.................................................. $[2,740,326]
--------------
* All amounts are estimates except for the SEC registration fee.
ITEM 32. SALES TO SPECIAL PARTIES
Not applicable.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS
GRANITE MORTGAGES 04-3 PLC (THE "ISSUER")
Subject to the provisions of the Companies Act 1985, the laws which
govern the organization of the issuer provide for every director or other
officer or auditor of the issuer to be indemnified out of the assets of the
issuer against any liability incurred by him in defending any proceedings,
whether civil or criminal, in which judgment is given in his favor or in which
he is acquitted or in connection with any application in which relief is
granted to him by the court from liability for negligence, default, breach of
duty or breach of trust in relation to the affairs of the issuer.
GRANITE FINANCE FUNDING LIMITED ("FUNDING")
Subject to the provisions of the Companies (Jersey) Law 1991, the laws
which govern the organization of Funding permit every director or other officer
or auditor of Funding to be indemnified out of the assets of Funding against
any liability incurred by him in defending any proceedings, whether civil or
criminal, in which judgment is given in his favor or in which he is
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acquitted or in connection with any application in which relief is granted to
him by the court from liability for negligence, default, breach of duty or
breach of trust in relation to the affairs of Funding.
GRANITE FINANCE TRUSTEES LIMITED (THE "MORTGAGES TRUSTEE")
Subject to the provisions of the Companies (Jersey) Law 1991, the laws
which govern the organization of the mortgages trustee permit every director or
other officer or auditor of the mortgages trustee to be indemnified out of the
assets of the mortgages trust against any liability incurred by him in
defending any proceedings, whether civil or criminal, in which judgment is
given in his favor or in which he is acquitted or in connection with any
application in which relief is granted to him by the court from liability for
negligence, default, breach of trust in relation to the affairs of the
mortgages trustee.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Financial statements for each of Granite Mortgages 04-3 plc as at August
27, 2004 and Granite Finance Funding Limited for the period from February 14,
2001 to December 31, 2001 and for the years ended December 31, 2003 and December
31, 2002 are filed as part of this Pre-Effective Amendment No.2 to this
registration statement. There will be no additional schedules to the financial
statements.
(B) EXHIBITS:
EXHIBIT NO.DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
1.1 Form of Underwriting Agreement
3.1.1 Memorandum and Articles of Association of Granite Mortgages 04-3 plc
3.1.2 Memorandum and Articles of Association of Granite Finance Funding Limited
3.1.3 Memorandum and Articles of Association of Granite Finance Trustees Limited
4.1.1 Form of Second Amended and Restated Intercompany Loan Terms and Conditions
4.1.2 Form of Issuer Intercompany Loan Confirmation
4.2 Form of Eighth Amended and Restated Mortgages Trust Deed
4.3 Form of Ninth Amended and Restated Mortgage Sale Agreement
4.4 Form of Issuer Deed of Charge
4.5.1 Form of Funding Deed of Charge
4.5.2 Form of Deed of Accession to Funding Deed of Charge
4.5.3 Form of Second Priority Funding Deed of Charge
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4.6.1 Form of Issuer Trust Deed
4.6.2 Form of Terms and Conditions of the Notes
4.7 Form of Issuer Paying Agent and Agent Bank Agreement
4.8 Form of Fourth Amended and Restated Cash Management Agreement
4.9 Form of Issuer Cash Management Agreement
4.10 Form of Fourth Amended and Restated Administration Agreement
4.11 Form of Issuer Post-Enforcement Call Option Agreement
5.1 Opinion of Sidley Austin Brown & Wood as to legality
8.1 Opinion of Sidley Austin Brown & Wood as to U.S. tax matters
8.2 Opinion of Sidley Austin Brown & Wood as to U.K. tax matters
8.3 Opinion of Mourant du Feu & Jeune as to Jersey tax matters
10.1 Form of Issuer Basis Rate Swap Agreement
10.2 Form of Issuer Dollar Currency Swap Agreement
10.3 Form of Issuer Euro Currency Swap Agreement
10.4 Form of Issuer Interest Rate Swap Agreement
10.5 Form of Issuer Start-up Loan Agreement
10.6.1 Form of Ninth Amended and Restated Master Definitions Schedule
10.6.2 Form of Issuer Master Definitions Schedule
10.7.1 Form of Issuer Corporate Services Agreement
10.7.2 Form of Corporate Services Agreement (Mortgages Trustee)
10.7.3 Form of Corporate Services Agreement (Funding)
23.1 Consent of Sidley Austin Brown & Wood (included in Exhibits 5.1, 8.1 and 8.2)
23.2 Consent of Mourant du Feu & Jeune (included in Exhibit 8.3)
23.3 Consent of auditors
25.1 Statement of Eligibility of Trustee (Form T-1)
ITEM 37. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of each of the registrants pursuant to the foregoing provisions,
or otherwise, each registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by any of the registrants of
expenses incurred or paid by a director, officer or controlling person of
such registrant in the successful defense of any action, suit or
proceeding) is asserted against any of the registrants by such director,
officer or
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controlling person in connection with the securities being registered, the
relevant registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
B. Each of the undersigned registrants hereby undertakes that:
(1) For the purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
registration statement or amendment thereto to be signed on its behalf by the
undersigned, thereunto duly authorized on September 14, 2004.
GRANITE MORTGAGES 04-3 PLC
By: L.D.C. Securitisation Director No. 1 Limited
By: /s/ Ian Bowden
Name: Ian Bowden
Title: Director
GRANITE FINANCE FUNDING LIMITED
By: /s/ Robert Short
Name: Robert Short
Title: Director
GRANITE FINANCE TRUSTEES LIMITED
By: /s/ Daniel Le Blancq
Name: Daniel Le Blancq
Title: Director
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Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment thereto has been signed by the following
persons in the capacities and on the dates indicated.
GRANITE MORTGAGES 04-3 PLC
SIGNATURE TITLE DATE
L.D.C. SECURITISATION DIRECTOR NO. 1 LIMITED Director September 14, 2004
By: /s/ Ian Bowden
Name: Ian Bowden
Title: Director
L.D.C. SECURITISATION DIRECTOR NO. 2 LIMITED Director September 14, 2004
By: /s/ Sharon Tyson
Name: Sharon Tyson
Title: Director
[Additional Signature Pages Follow]
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GRANITE FINANCE FUNDING LIMITED
SIGNATURE TITLE DATE
By: /s/ Robert Short Director September 14, 2004
Name: Robert Short
By: /s/ Jonathan Rigby Director September 14, 2004
Name: Jonathan Rigby
[Additional Signature Pages Follow]
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GRANITE FINANCE TRUSTEES LIMITED
By: /s/ Nicola Davies Director September 14, 2004
Name: Nicola Davies
By: /s/ Julia Chapman Director September 14, 2004
Name: Julia Chapman
By: /s/ Daniel Le Blancq Director September 14, 2004
Name: Daniel Le Blancq
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SIGNATURE OF AUTHORIZED REPRESENTATIVE OF
GRANITE MORTGAGES 04-3 PLC
Pursuant to the Securities Act of 1933, as amended, the undersigned, the
duly authorized representative in the United States of Granite Mortgages 04-3
plc, has signed this registration statement or amendment thereto in New York,
New York on September 14, 2004.
By: /s/ Donald Puglisi
Name: Donald J. Puglisi
Office: Managing Director
SIGNATURE OF AUTHORIZED REPRESENTATIVE OF
GRANITE FINANCE FUNDING LIMITED
Pursuant to the Securities Act of 1933, as amended, the undersigned, the
duly authorized representative in the United States of Granite Finance Funding
Limited, has signed this registration statement or amendment thereto in New
York, New York on September 14, 2004.
By: /s/ Donald Puglisi
Name: Donald J. Puglisi
Office: Managing Director
SIGNATURE OF AUTHORIZED REPRESENTATIVE OF
GRANITE FINANCE TRUSTEES LIMITED
Pursuant to the Securities Act of 1933, as amended, the undersigned, the
duly authorized representative in the United States of Granite Finance Trustees
Limited, has signed the registration statement or amendment thereto in New
York, New York on September 14, 2004.
By: /s/ Donald Puglisi
Name: Donald J. Puglisi
Office: Managing Director
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
1.1 Form of Underwriting Agreement
3.1.1 Memorandum and Articles of Association of Granite Mortgages 04-3 plc
3.1.2 Memorandum and Articles of Association of Granite Finance Funding Limited
3.1.3 Memorandum and Articles of Association of Granite Finance Trustees Limited
4.1.1 Form of Second Amended and Restated Intercompany Loan Terms and Conditions
4.1.2 Form of Issuer Intercompany Loan Confirmation
4.2 Form of Eighth Amended and Restated Mortgages Trust Deed
4.3 Form of Ninth Amended and Restated Mortgage Sale Agreement
4.4 Form of Issuer Deed of Charge
4.5.1 Form of Funding Deed of Charge
4.5.2 Form of Deed of Accession to Funding Deed of Charge
4.5.3 Form of Second Priority Funding Deed of Charge
4.6.1 Form of Issuer Trust Deed
4.6.2 Form of Terms and Conditions of the Notes
4.7 Form of Issuer Paying Agent and Agent Bank Agreement
4.8 Form of Fourth Amended and Restated Cash Management Agreement
4.9 Form of Issuer Cash Management Agreement
4.10 Form of Fourth Amended and Restated Administration Agreement
4.11 Form of Issuer Post-Enforcement Call Option Agreement
5.1 Opinion of Sidley Austin Brown & Wood as to legality
8.1 Opinion of Sidley Austin Brown & Wood as to U.S. tax matters
8.2 Opinion of Sidley Austin Brown & Wood as to U.K. tax matters
8.3 Opinion of Mourant du Feu & Jeune as to Jersey tax matters
10.1 Form of Issuer Basis Rate Swap Agreement
10.2 Form of Issuer Dollar Currency Swap Agreement
10.3 Form of Issuer Euro Currency Swap Agreement
10.4 Form of Issuer Interest Rate Swap Agreement
10.5 Form of Issuer Start-up Loan Agreement
10.6.1 Form of Ninth Amended and Restated Master Definitions Schedule
10.6.2 Form of Issuer Master Definitions Schedule
10.7.1 Form of Issuer Corporate Services Agreement
10.7.2 Form of Corporate Services Agreement (Mortgages Trustee)
10.7.3 Form of Corporate Services Agreement (Funding)
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23.1 Consent of Sidley Austin Brown & Wood (included in Exhibits 5.1, 8.1 and 8.2)
23.2 Consent of Mourant du Feu & Jeune (included in Exhibit 8.3)
23.3 Consent of auditors
25.1 Statement of Eligibility of Trustee (Form T-1)
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