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OXFORD STREET FINANCE LIMITED

Directors' report and audited financial statementsfor the year ended 31 December 2012

Bedell Trust Company LimitedPO Box 75, 26 New StreetSt. Helier, JerseyChannel Islands, JE4 8PP

Oxford Street Finance LimitedContents

31 December 2012

PageDirectors' report 2

Independent auditor's report 6

Audited statement of comprehensive income 8

Audited statement of financial position 9

Audited statement of changes in equity 10

Audited statement of cash flows 11

Audited notes to the financial statements 12

Oxford Street Finance LimitedDirectors' report

31 December 2012

The directors present their report together with the audited financial statements for Oxford Street Finance Limited(the'Company') for the year ended 31 December 2012.

Incorporation

The Company was incorporated as a public company in Jersey, Channel Islands on 7 October 2005.

Principal activities

The Company was formed for the purpose of participating in a synthetic credit default swap transaction (the'Transaction') arranged by KBC Financial Products Brussels N.V. ('KBC'). The Company raised monies pursuant tothe issuance of class A1, A2, B, C, D, E, F, G and H floating rate credit-linked notes (together, the 'Notes'), whichare listed on the Irish Stock Exchange. The total principal amount of the Notes raised was €382,000,000 dividedinto €87,000,000 class Al Notes, €80,000,000 class A2 Notes, €64,000,000 class B Notes, €43,000,000 class CNotes, €33,000,000 class D Notes, €28,000,000 class E Notes, €17,000,000 class F Notes, €16,000,000 class GNotes and €14,000,000 class H Notes. The Notes are subordinated in payment of principal and interest to eachother in reverse enforcement order of priority.

Initially the Company entered into a reverse repo agreement (the 'Reverse Repo Agreement) with KBC Bank N.V.(the 'Repo Counterparty') whereby under the agreement the Company acquired eligible investments at a purchaseprice of €382,000,000 as collateral (the'Collateral'), purchased with the proceeds of the Notes. All income receivedon the Collateral was paid to the Repo Counterparty in consideration of a repo premium paid to the Company bythe Repo Counterparty. Upon the maturity or early redemption of the Notes, the Repo Counterparty would deliver tothe Company the purchase price of €382,000,000 or such proportion of the Collateral to match the Notes to beredeemed.

On 10 October 2006 the Company transferred to the Repo Counterparty the Collateral and the funds realisedthereby (a 'Repo to GIC Transfer Amount') were invested in a guaranteed investment contract (a 'GIC' andhereafter referred to as the 'Amounts due under the Investment Agreement) pursuant to an investment agreement(the 'Investment Agreement') between the Company and KBC Investments Hong Kong Limited (the 'Eligible GICProvider').

On 7 April 2009 the Company requested the repayment of the Amounts due under the Investment Agreement bythe Eligible GIC Provider, pursuant to a repayment notice. The GIC was terminated with effect from 7 April 2009and the Company entered into a new GIC with KBG Bank N.V. Subsequent to 7 April 2009, any reference to theGIC or Eligible GIC Provider implies the new GIC and KBC Bank N.V., respectively. The funds realised and re-invested continue to be referred to as the Amounts due under the Investment Agreement.

The Company also entered into a credit default swap arrangement (the 'Swap') with KBC Investments Cayman V,Ltd (the 'Swap Counterparty') pursuant to the terms of which the Company has, in return for a fee, taken on themezzanine level credit and market risk of a diversified reference portfolio (the 'Portfolio'). The Portfolio is up to€1,500,000,000 in size. The Company has the mezzanine level credit risk for a maximum amount of €382,000,000above the first loss tranche of €30,764,000.

As security for its obligations, the Company has charged the Amounts due under the Investment Agreement to BNYCorporate Trustee Services Limited as trustee (the 'Trustee') for the secured parties (those transactional creditorsto whom security is to be provided under the security trust deed (the 'Trust Deed')). The Trustee has also beenappointed as trustee on behalf of the noteholders pursuant to a note trust deed and holds the benefit of certaincovenants made by the Company in relation to the repayment of principal and interest on the Notes on trust for thenoteholders.

By way of protecting the Company from the risks of the Transaction arising from the Company's exposure to theSwap Counterparty under the Swap, the Transaction documents contain limited recourse and bankruptcyremoteness (non-petition) provisions pursuant to which each party recognises the limited financial resources of theCompany and the intended bankruptcy remoteness of the Company. The Amounts due under the InvestmentAgreement are secured by way of support for the Company's exposure under the Swap and thereafter itsobligations under the Notes.

Certain of the Company's day to day obligations and powers in respect of the Transaction are performed on itsbehalf by KBC Bank N.V. as administrator pursuant to an administration and cash management agreement.Functions performed by the Irish paying agent, the transfer agent and the listing agent were provided by JP Morganentities prior to January 2012 when they were novated to Bank of New York Mellon entities.

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31 December 2012

Directors

The directors of the Company, who served during the year and subsequently, are:

Shane Michael HollywoodAlasdair James Hunter

Secretary

The secretary of the Company during the year and subsequently is:

Bedell Secretaries Limited

Results and dividends

The results for the year are shown in the statement of comprehensive income.

The directors have paid a final dividend during 2012 of £750 (€870) in respect of the financial year ended 31December 2011, being the 2010 Transaction fee (2011: £750 (€839) in respect of the financial year ended 31December 2010, being the 2009 Transaction fee).

The directors recommend the payment of a final dividend in the sum of £750 (€895) in respect of the financial yearended 31 December 2012, being the 2011 Transaction fee (2011: £750 (€870) being the 2010 Transaction fee).

Independent auditor

Ernst &Young LLP has previously been appointed and has expressed willingness to continue in office. Aresolution to reappoint Ernst &Young LLP as auditor will be proposed at the next annual general meeting.

Going concern

As highlighted in note 13 to the financial statements, the Company is a special purpose bankruptcy remote financialvehicle therefore exposure to risk in relation to capital management is not considered significant.

The financial risk management objectives and exposures of the Company to market risk, credit risk and liquidity riskare also disclosed in note 13.

The Transaction documents are structured such that the obligations of the Company are limited in recourse and theCompany has the benefit of bankruptcy remoteness (non-petition) provisions pursuant to which each Transactionparty recognises the limited financial resources of the Company and the intended bankruptcy remoteness of theCompany.

As a result of the structure described above, and despite the Swap Counterparty having the option to end theTransaction by terminating the Swap on, or after, any payment date following the optional termination date whichfell in January 2011, the directors have a reasonable expectation that the Company has adequate resources tocontinue in operational existence for the foreseeable future. Accordingly, the Company continues to adopt thegoing concern basis in preparing the financial statements.

Post statement of financial position events

At the date of approving these financial statements there is considerable uncertainty in the financial marketsfollowing the global liquidity and credit crisis. As a consequence there have been significant rating downgrades andwrite downs in residential mortgage backed and other asset backed securities held or issued by banking andfinancial institutions.

Credit events have occurred in the Portfolio in the form of a) bankruptcy credit events, b) restructuring credit events,c) ABS ratings downgrade credit events, and d) permanent reduction of capital credit events (together, the 'CreditEvents') with a claim date during the year ended 31 December 2012 and subsequently, for the following corporateobligations and asset backed securities:

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31 December 2012

Post statement of financial position events (continued)

a) bankruptcy credit events:

Overseas Shipholding Group, Inc., Sino-Forest Corporation and The PMI Group, Inc.

b) restructuring credit events:

Bankia SA - restructuring default, Irish Life &Permanent Public Limited Company - restructured default,

Irish Life & Permanent Public Limited Company - restructured default 2, Northern Rock (Asset

Management) plc - restructured default, The Governor and Company of the Bank of Ireland - restructured

default, and Victor Company of Japan, Limited - restructured default.

c) ABS ratings downgrade credit events:

ACE 2005-HE2 M7, ACE 2005-HE4 M7, BSABS 2005-HE5 M4, CARR 2006-NC5 M1, CMLTI 2006-WFH4

M2, CWALT 2006-OA14 1A3, CWALT 2007-OH2 A3, CWCI 2006-3A B, CWL 2004-12 MV6, EMLT 2005-

1 M7, FFML 2004-FF4 61, FFML 2004-FF8 B1, FMIC 2004-5 M4, MSAC 2004-WMC1 B1, MSAC 2005-

HE3 B1, SASC 2006-WF2 M1, and SVHE 2006-OPT5 M1.

d) permanent reduction of capital credit events:

HELT 2007-FRE1 M6, GPMF 2006-AR2 3A3, and SAMI 2006-AR4 2A3.

Credit protection valuations continue to be verified by an independent verification agent in respect of the CreditEvent claims and settlements made under the Swap. Therefore, to date, the payment of Credit Event claimsresulted in the utilisation of the cash reserve amount (the 'Cash Reserve Amount'), in full, the reduction of theAmounts due under the Investment Agreement and an equal reduction to the principal amounts due to thenoteholders.

On the cash settlement date of 7 January 2013, the Amounts due under the Investment Agreement was reduced by€1,010,768 and the principal balance of the class C Notes was reduced to €nil.

On the cash settlement date of 7 January 2013, the Amounts due under the Investment Agreement and theprincipal balance of the class B Notes were reduced by €5,368,002. The adjusted principal balance of the class BNotes was €58,631,998.

On the cash settlement date of 8 April 2013, the Amounts due under the Investment Agreement and the principal

balance of the class B Notes were reduced by €11,D64,053. The adjusted principal balance of the class B Notes

was €47,567,945.

On the cash settlement date of 8 July 2013, the Amounts due under the Investment Agreement and the principalbalance of the class B Notes were reduced by €5,667,900. The adjusted principal balance of the class B Noteswas €41,900, 045.

The Swap Agreement was amended in January 2012 to allow auctions to quantify losses in the Portfolio following

the occurrences of Credit Events with respect to corporate obligations:

notwithstanding the current provisions for the valuation of losses following the occurrence of Credit Events

with respect to corporate obligations and the satisfaction of the conditions to settlement if a) the

International Swaps and Derivatives Association, Inc. (the 'ISDA') publicly announces that the relevant

credit derivatives determinations committee has resolved that an auction will be held in connection with

such Credit Event, and b) an auction conversion event has occurred, then the final price to be used in the

valuation of the loss shall be the auction price;

if either a) an auction will not be held in connection with a Credit Event, or b) an auction conversion event

has not occurred, then the final price shall be determined in accordance with the market valuation

provisions set forth in the Swap Agreement as applicable prior to any modifications pursuant to the

extraordinary resolution; and

the calculation agent shall make commercially reasonable efforts to provide written notice to the Swap

Counterparty and the Company promptly upon a) learning of each ISDA auction announcement, and b)

the occurrence of an auction conversion event.

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31 December 2012

Statement of directors' responsibilities with regard to the financial statements

The directors are required by the Companies (Jersey) Law 1991, as amended, to prepare financial statements for

each financial year which give a true and fair view of the state of affairs of the Company as at the end of thefinancial year and of the profit or loss for that period. In preparing these financial statements, the directors are

required to:

select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and appropriate;

• state whether applicable accounting standards have been followed, subject to any material departures

disclosed and explained in the financial statements; and

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the

Company will continue in business.

The directors are responsible for keeping accounting records that are sufficient to show and explain the Company'stransactions. These records must disclose with reasonable accuracy at any time the financial position of theCompany and to enable the directors to ensure that any financial statements prepared comply with the Companies

(Jersey) Law 1991, as amended. They are also responsible for safeguarding the assets of the Company and hencefor taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law andregulations.

By order of the board

,.Secr'etary~- Bedell Secretaries~Limited

3 o au~ 203..............................Date

Registered office

26 New StreetSt HelierJerseyJE2 3RA

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IIIIIIIII~III =~ ERNST &YOUNG

INDEPENDENT AUDITOR'S REPORTTO THE MEMBERS OF OXFORD STREET FINANCE LIMITED

We have audited the financial statements of Oxford Street Finance Limited for the year ended 31December 2012 which comprise Statement of comprehensive income, Statement of financialposition, Statement of changes in equity, Statement of cash flows and the related notes 1 to 18.The financial reporting framework that has been applied in their preparation is applicable law andInternational Financial Reporting Standards.

This report is made solely to the company's members, as a body, in accordance with Article 113Aof the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we mightstate to the company's members those matters we are required to state to them in an auditor'sreport and for no other purpose. To the fullest extent permitted by law, we do not acceptorassume responsibility to anyone other than the company and the company's members as a body,for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Statement of directors' responsibilities with regards to the financialstatements set out on page 5, the directors are responsible for the preparation of the financialstatements and for being satisfied that they give a true and fair view. Our responsibility is to auditand express an opinion on the financial statements in accordance with applicable law andInternational Standards on Auditing (UK and Ireland). Those standards require us to comply withthe Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financialstatements sufficient to give reasonable assurance that the financial statements are free frommaterial misstatement, whether caused by fraud or error. This includes an assessment of:whether the accounting policies are appropriate to the company's circumstances and have beenconsistently applied and adequately disclosed; the reasonableness of significant accountingestimates made by the directors; and the overall presentation of the financial statements. Inaddition, we read all the financial and non-financial information in the Directors' report to identifymaterial inconsistencies with the audited financial statements. If we become aware of anyapparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:• give a true and fair view of the state of the company's affairs as at 31 December 2012

and of its result for the year then ended;• have been properly prepared in accordance with International Financial Reporting

Standards; and• have been prepared in accordance with the requirements of the Companies (Jersey) Law

1991.

I~~~',~

~ I I °~ ERNST &YOUNG

INDEPENDENT AUDITOR'S REPORTTO THE MEMBERS OF OXFORD STREET FINANCE LIMITED

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Jersey) Law1991 requires us to report to you if, in our opinion:• proper accounting records have not been kept, or proper returns adequate for our audit

have not been received from branches not visited by us; or• the financial statements are not in agreement with the accounting records and returns; or• we have not received all the information and explanations we require for our audit.

Kirsty Mackayfor and on behalf of Ernst &Young LLPJersey, Channel IslandsDate: 31 July 2013

Notes

IncomeMovement in fair value of the Swapthrough profit or lossInvestment income 4Swap premium 5Bank interestTransaction fee 5Movement in fair value of the Notesthrough profit or lossCash reserve income 8

ExpensesMovement in fair value of the Notesthrough profit or lossSettlement of Credit Event claims 6Interest payable on the NotesOperating expenses

Total comprehensive income forthe year

Oxford Street Finance LimitedAudited statement of comprehensive income

31 December 2012

2012€ €

115,268,0762,032,2111,417,213

3,049939

118,721,488

2011€

€

55, 861,1384,406,2963,272,683

8,297895

30,147,4943.791.667

97,488,470

65,235,051 -49,852,145 90,495,6473,527,182 6,904,385106.171 87,543

(118.720.549) (97.487,575)

939 895

The Company has no other items of income or expense for the year and accordingly the profit for the yearrepresents total comprehensive income.

The notes on pages 12 to 27 are an integral part of these financial statements.-8-

Oxford Street Finance LimitedAudited statement of financial position

31 December 2012

2012 2011Notes € €

AssetsCurrent assetsAmounts due under the InvestmentAgreement 6 232,010,768 281,862,913Trade and other receivables 7 116,103 1,039,432Cash and cash equivalents 8 317.554 452.976

Total assets 232.444.425 283.355.321

Equity and liabilitiesEquity attributable to owners of theCompanyCalled up share capital 9 3 3Retained earnings 1,834 1,765

Total equity 1.837 1.768

LiabilitiesCurrent liabilitiesSwap at fair value through profit orloss 120,148,130 235,416,206Notes at fair value through profit orloss 10 111,570,795 46,335,744Trade and other payables 11 723.663 1,601.603

Total liabilities 232.442,588 283.353.553

Total equity and liabilities 232,444,425 283.355,321

The financial statements on pages 8 to 27 were approved by the board of directors and authorised forissue n 0 July 2013, and signed on its behalf by:

Director - Alasdair James Hunter Alternate director- Ariel~Pinel


Balance at 1 January 2011

Profit for the year

Total comprehensive income for the the year ended 31 December2011

Transactions with owners:Equity dividend paid

Balance at 31 December 2011

Balance at 1 January 2012

Profit for the year

Total comprehensive income for the the year ended 31 December2012

Transactions with owners:Equity dividend paid

Balance at 31 December 2012

Oxford Street Finance LimitedAudited statement of changes in equity

31 December 2012

Called upshare Retainedcapital earnings Total

€ € €

3 1,709 1,712

_ 895 895

895 895

_ (839) (839)

3 1.765 1.768

Called upshare Retainedcapital earnings Total

€ €

€


3 1, 765 1, 768

_ 939 939

939 939

- (870) (870)

3 1,834 1,837

Oxford Street Finance LimitedAudited statement of cash flows

31 December 2012

2012 2011Notes € €

Net cash used in operatingactivities 12 (107.918) (84,302)

Cash flows generated frominvesting activitiesInvestment income 2,954,069 4,198,485Cash reserve income

-

3,791,667Swap premium 1,580,517 2,551,396Bank interest 4,564 8,601Redemption of Amounts due underthe Investment Agreement 6 49.852.145 86.703.980

Net cash flows generated frominvesting activities 54,391,295 97.254,129

Cash flows used in financingactivitiesInterest payable on the Notes (4,565,784) (7,096,543)Settlement of Credit Event claims 6 (49,852,145) (90,495,647)Equity dividend (870) (839)

Net cash flows used in financingactivities (54,418.799) (97.593.029)

Net decrease in cash and cashequivalents (135,422) (423,202)Cash and cash equivalents at 1January 8 452,976 876.178

Cash and cash equivalents at 31December 8 317,554 452,976


Oxford Street Finance LimitedAudited notes to the financial statements

31 December 2012

1 General information

The Company is a public limited company incorporated in Jersey, Channel Islands. The principal activities of theCompany are described in the directors' report.

2 Accounting policies

Statement of compliance

The financial statements for the year ended 31 December 2012 on pages 8 to 27 have been prepared inaccordance with the International Financial Reporting Standards ('IFRS').

Basis of measurement

The financial statements are prepared in accordance with accounting principles generally accepted in the island ofJersey, incorporating IFRS and have been prepared under the historical cost convention, except for the revaluationof certain financial instruments.

These financial statements are presented in Euro ('€'), which is the Company's functional and reporting currency.

A summary of the more important policies in dealing with items that are considered material to the Company areshown below:

Adoption of new and revised standards

At the date of authorisation of these financial statements the following standard, which has been applied in thesefinancial statements, was in issue and effective:

IFRS 7 Financial Instruments: Disclosures (amended) (effective 1 July 2011) ('IFRS 7 (amended) 1 July

2011').

The directors consider that the adoption of IFRS 7 (amended) 1 July 2011 has not had a significant impact uponthe Company.

Standards and interpretations in issue not yet adopted

At the date of authorisation of these financia► statements the following standards and interpretations, which havenot been applied in these financial statements, were in issue but not yet effective:

IFRS 9 Financial Instruments (effective 1 January 2015) ('IFRS 9');

IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013) ('IFRS 12'); and

IFRS 13 Fair Value Measurement (effective 1 January 2013) ('IFRS 13').

The directors anticipate that the adoption of IFRS 9, IFRS 12 and IFRS 13 will not have a significant impact uponthe results of the Company, but will have an impact on the disclosures of the Company.

The directors have reviewed and considered all other standards, amendments and interpretations issued but notyet effective as at the date the financial statements are authorised for issue. In the opinion of the directors theother standards, amendments and interpretations issued but not yet effective are either not relevant to the activitiesof the Company or will have no impact on the financial statements of the Company.

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31 December 2012

2 Accounting policies (continued)

Critical accounting judgements and key sources of estimation uncertainty

The preparation of these financial statements requires the directors to make estimates and assumptions that affectthe reported amounts of revenues, expenses, assets, liabilities and the disclosure of contingent liabilities as at thestatement of financial position date. The estimates and associated assumptions are based on historical experienceand other factors that are considered to be relevant. Actual results may differ from these estimates.

In the event such estimates and assumptions which are based on the best judgement of the directors as at thestatement of financial position date deviate from the actual circumstances in the future, the original estimates andassumptions will be modified as appropriate in the year or period in which the circumstances change.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimatesare recognised in the period in which the estimate is revised if the revision affects only that period, or in the periodof the revision and future periods if the revision affects both current and future periods.

The assumptions made in calculating the fair value and the models used are detailed in note 13(d).

There are no other significant assumptions made concerning the future or other sources of estimation uncertaintythat have been identified as giving rise to a significant risk of causing material adjustment to the carrying amount ofassets and liabilities within the next financial year.

Foreign exchange

Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of transaction.

Monetary assets and liabilities denominated in foreign currencies are revalued at the rate of exchange ruling at thestatement of financial position date.

Foreign exchange gains and losses are included in the statement of comprehensive income for the period.

Financial instruments

In pursuing its objectives as a special purpose bankruptcy remote financing vehicle, the Company holds, held orhas issued a number of financial instruments. These comprise:

• Amounts due under the Investment Agreement;

• trade and other receivables;

• cash and cash equivalents;

• Notes;

• Cash Reserve Amount;

• Swap; and

• trade and other payables.

The Company has applied the Fair Value Option revision to International Accounting Standard 39 FinancialInstruments: Recognition and Measurement (amended 17 June 2005) ('IAS 39'). Accordingly all financialinstruments except trade and other receivables, cash and cash equivalents and trade and other payables areclassified as financial instruments at fair value through profit or loss in accordance with the provisions set out in IAS39.

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31 December 2012


Financial instruments (continued)

All financial instruments are initially recorded at cost, which corresponds with the fair value of such instruments.Subsequently, with the exception of trade and other receivables, cash and cash equivalents and trade and otherpayables, which are measured at amortised cost, they are re-measured at fair value in accordance with theguidance provided in IAS 39 and established industry practices for the determination of fair values. Any gain orloss resulting from changes in fair value is included in the statement of comprehensive income in the period inwhich they arise. Trade and other receivables, cash and cash equivalents and trade and other payables arerecorded at amortised cost.

The Swap is a derivative financial instrument which is classified as held for trading under IAS 39. This instrument istherefore measured at fair value through profit or loss. The Notes issued by the Company and the Amounts dueunder the Investment Agreement have also been measured at fair value through profit or loss as it eliminates ameasurement inconsistency, an accounting mismatch, that would otherwise arise from measuring the derivatives atfair value through profit and loss and the related Notes and the Amounts due under the Investment Agreement atamortised cost.

Recognition and derecognition of financial assets and liabilities

The Company initially recognises financial assets and liabilities on the date they originated. Purchases and salesof financial assets are recognised on the date on which the Company commits to purchase or sell the asset. Allother financial assets and liabilities (including assets and liabilities designated at fair value through profit or loss)are initially recognised on the date on which the Company becomes a party to the contractual provisions of theinstrument.

Financial assets are derecognised when the right to receive cash flows from the assets has expired or when theCompany has transferred its contractual right to receive the cash flows of the financial assets and substantially allthe risks and rewards of ownership have been transferred. Financial liabilities are derecognised when they areextinguished, that is when the obligation is discharged, cancelled or expires.

Impairment of financial assets

Financial assets are assessed at each reporting date to determine whether there is any objective evidence that theasset is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or moreevents have had a negative effect on the estimated future cash flows of such asset. An impairment loss in respectof an asset measured at amortised cost is calculated as the difference between the carrying value of the asset andthe present value of the estimated future cash flows discounted at the original effective interest rate.

All impairment losses are recognised in the statement of comprehensive income. An impairment loss is reversed ifthe reversal can be related objectively to an event occurring after the impairment loss was recognised.

Fair value

The determination of fair values for financial assets and liabilities for which there is no observable market pricerequires the use of valuation techniques as described below.

For financial instruments that trade infrequently and have little price transparency, fair value is less objective andrequires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricingassumptions and other risk factors affecting each financial instrument.

For complex financial instruments the Company uses proprietary models which are developed from recognisedvaluation models. Some or all of the significant inputs into these models may not be market observable and arederived from market prices or rates or are estimates based on assumptions.

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31 December 2012


Fair value (continued)

The value produced by a model or other valuation techniques is adjusted to allow for a number of factors asappropriate, since valuation techniques cannot appropriately reflect all factors market participants consider whenentering into a transaction. Valuation adjustments are recorded to allow for model risk, bid-ask spreads, liquidityrisks and other contributing factors.

The directors believe that these valuation adjustments are necessary and appropriate to disclose the fair value ofthe financial instruments on the statement of financial position that give a true and fair view.

Amounts due under the Investment Agreement

Amounts due under the Investment Agreement initially represented an amount equal to €382,000,000 and wasinvested pursuant to the Investment Agreement between the Company and the Eligible GIC Provider under a GIC.Amounts due under the Investment Agreement are measured at fair value through profit or loss.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits with banks and other financial institutionsand comprised amounts payable in relation to the Cash Reserve Amount and are or were measured at amortisedcost.

Interest payable on the Notes

Interest payable on the Notes is accounted for using the effective interest basis in accordance with IAS 39.

Revenue recognition

Investment income under the Investment Agreement will accrue from time to time on the Amounts due under theInvestment Agreement. On each payment date prior to the termination date, the Eligible GIC Provider will pay tothe Company the amount of investment income accrued during the interest period ending on such payment date.Investment income wild be determined by the daily application of:

a per annum rate equal to EURIBOR; to

• the Amounts due under the Investment Agreement, on the basis of the actual number of days elapsedduring such interest accrual period and a 360 day year.

Swap premium is receivable under the Swap from the Swap Counterparty in return for the Company taking on themezzanine level credit and market risk of the Portfolio. The Company receives a Swap premium which will equalthe difference between the investment income (excluding the Transaction fee) and expenses and all other operatingexpenses of the Company.

Investment income and Swap premium are recognised on an accruals basis.

The annual Transaction fee receivable is recognised on an accruals basis and is due to the Company inaccordance with the Transaction documentation.

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31 December 2012


Dividends

Under International Accounting Standard 10 Events after the Reporting Period ('IAS 10'), proposed dividends are

not considered to be a liability until the dividends are approved and declared by the directors of a company forinterim dividends or the shareholders of a company, at the annual general meeting, for final dividends.

Under IAS 10 dividends are recorded in the period in which they are declared.

Going concern

As highlighted in note 13 to the financial statements, the Company is a special purpose bankruptcy remote financial

vehicle therefore exposure to risk in relation to capital management is not considered significant.

The financial risk management objectives and exposures of the Company to market risk, credit risk and liquidity risk

are also disclosed in note 13.

The Transaction documents are structured such that the obligations of the Company are limited in recourse and theCompany has the benefit of bankruptcy remoteness (non-petition) provisions pursuant to which each Transaction

party recognises the limited financial resources of the Company and the intended bankruptcy remoteness of theCompany.

As a result of the structure described above, and despite the Swap Counterparty having the option to end the

Transaction by terminating the Swap on, or after, any payment date following the optional termination date which

fell in January 2011, the directors have a reasonable expectation that the Company has adequate resources to

continue in operational existence for the foreseeable future. Accordingly, the Company continues to adopt the

going concern basis in preparing the financial statements.

3 Taxation

The Company is registered in Jersey, Channel Islands as an income tax paying company. The general rate of

income tax for companies resident in Jersey (such as the Company) is 0% for the current year of assessment

(2011:0%).

4 Investment income

Investment income

2012 2011€

€

2,032,211 4,406,296

Investment income is received on the Amounts due under the Investment Agreement held with the Eligible GIC

Provider and is received on each quarterly payment date pursuant to the terms of the Investment Agreement,

calculated on the basis of EURIBOR. There is no premium or discount on the Amounts due under the Investment

Agreement therefore the EURIBOR rate will equal the effective interest rate.

5 Swap premium and Transaction fee

Swap premiumTransaction fee

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2012 2011€

€

1,417,213 3,272,683939 895

1.418,152 3.273,578


31 December 2012

5 Swap premium and Transaction fee (continued)

The Company entered into the Swap with-the Swap Counterparty pursuant to the terms of which the Company has,in return for the Swap premium, taken on the mezzanine level credit and market risk of the Portfolio. The Portfoliois up to €1,500,000,000 in size. The Swap Counterparty originally retained the first loss tranche of €30,764,000.

6 Amounts due under the Investment Agreement

Amounts due under the Investment Agreement

2012 2011€ €

232,010.768 281,862,913

The Amounts due under the Investment Agreement comprise the sum of all amounts deposited with or transferredto the Eligible GIC Provider at the direction of the Eligible GIC Provider less all amounts withdrawn from sucharrangement, other than payments of investment income.

The Company has pledged the Amounts due under the Investment Agreement to the Trustee to secure the trusteeclaims under the Trust Deed. The trustee claims entitle the Trustee to demand that all present and futureobligations under the Notes are fulfilled.

On the legal maturity date or such earlier date on which the last outstanding notes are to be redeemed in whole,the Eligible GIC Provider shall transfer to the Company the balance of the Amounts due under the InvestmentAgreement to the Company's principal collections account on such date.

During the year the Company realised Amounts due under the Investment Agreement in the sum of €49,852,145(2011: €86,703,980) and used the proceeds together with €nil (2011: €3,791,667) from the Cash Reserve Amountto settle Credit Event claims totalling €49,852,145 (2011: €90,495,647).

The Amounts due under the Investment Agreement have been classified as a current asset in recognition of theSwap Counterparty's option to end the Transaction by terminating the Swap on, or after, any payment datefollowing the optional termination date which fell in April 2012.

7 Trade and other receivables

Accrued investment incomeAccrued bank interestTransaction fee

8 Cash and cash equivalents

Balance as at 1 January

Net decrease in cash and cash equivalents

Balance as at 31 December

-17-

2012 2011€

€

115,006 1, 036, 864158 1,673939 895

716.103 1, 039,432

2012 2011€ €

452,976 876,178

(135.422) (423,202)

317.554 452,976


31 December 2012

8 Cash and cash equivalents (continued)

The Company received the Cash Reserve Amount from KBC equivalent to 0.25% per annum of the underlyingPortfolio payable on each payment date until the earlier of the payment date which fell in October 2011 or thetermination date. The Cash Reserve Amount was retained in a cash reserve bank account held with KBC BankN.V. and was pledged in priority to the Amounts due under the Investment Agreement to secure all present andfuture obligations under the Notes.

Application of the Cash Reserve Amount:

the Company paid to the Swap Counterparty cash settlement amounts in an amount equal to the CreditEvent claims which exceeded the first loss tranche; and

in the event that a principal shortfall existed on the Notes the Company would reinstate the principalamount of the Notes. Such reinstatements would have been allocated to the Notes in enforcement orderof priority until the adjusted principal balance was reinstated to its initial principal balance.

The Company was called to settle amounts under the Swap and used the Cash Reserve Amount, in full, before theCompany realised Amounts due under the Investment Agreement equal to the amounts due. Due to the limitedrecourse nature of the Transaction, such settlement amounts reduced the principal amounts due to thenoteholders in reverse enforcement order of priority.

The Company continued to receive the Cash Reserve Amount until the payment date which fell in October 2011.During the prior year the Company received a total of €3,791,667 into the cash reserve bank account and used thisamount in order to settle its obligations under the Swap due to Credit Event claims. Income receivable under theCash Reserve Amount in the sum of €3,791,667 was recognised during the prior year.

9 Called up share capital

2012 2011€ €

Authorised:2 ordinary shares of £1.00 each - at historical cost 3 3

Issued and fully paid:2 ordinary shares of £1.00 each - at historical cost 3 3

There are no other share classes which would dilute the rights of the ordinary members. Amongst other rights asprescribed in the articles of association of the Company, the rights of the ordinary members include:

the right to attend meetings of members. On a show of hands every member present in person or byproxy shall have one vote and on a poll every member shall have one vote for each share of which themember is a shareholder; and

the right to receive dividends recommended by the directors and approved by the shareholders.

10 Notes

The Company issued the following classes of Notes which have a legal maturity date of April 2044 and an optionalmaturity date which is exercisable by the Swap Counterparty on, or after, the payment date which fell in January2011.

Credit protection valuations continue to be verified by an independent verification agent in respect of the CreditEvent claims and settlements made under the Swap. Therefore, the occurrence of the Credit Event claimsresulted in the utilisation of the Cash Reserve Amount, in full, and impacted upon the principal amounts due to thenoteholders, as follows:

-18-


31 December 2012

10 Notes (continued)

At cost Reduction of At cost At fair value At fair value1 January principal in 31 December 31 December 31 December

2012 the year 2012 2012 2011€ € €

€ €

Class Al 87,000,000 - 87,000,000 56,844,461 28,053,374Class A2 80,000,000 - 80,000,000 43,243,030 16,125,093Class B 64,000,000 - 64,000,000 11,483,304 2,157,277Class C 43,000,000 (41,989,232) 1,010,768 - -Class D 7.862,913 (7.862,913) -

281.862.913 (49.852.145) 232.010.768 111.570.795 46.335.744

The aggregate amount of realised losses were allocated in reverse enforcement order of priority whereby class HNotes suffered the first realised loss, then class G, then class F, then class E, then class D and then, in part, classC. The aggregate amount of any future realised losses will be allocated to each class of Note in reverseenforcement order of priority whereby the remaining class C will suffer the next realised loss, then class B Notes,then class A2 Notes and thereafter class Al Notes. The payment obligations of the Company under the Notes inrespect to interest and principal amounts is secured by the Cash Reserve Amount and by the Amounts due underthe Investment Agreement.

Issue costs in respect of the Notes have been paid by KBC Bank N.V.

The agent bank is required, as soon as practicable after the interest determination date in relation to each interestperiod, to calculate the amount of interest (the 'Interest Amount) payable in respect of each Note for such interestperiod.

The Interest Amount for each Note is calculated by applying the rate of interest applicable to such Note for therelevant interest period to the adjusted principal balance of such Note on the first day of such interest period,multiplying the product by the actual number of days in such interest period divided by 360 and rounding theresulting figure to the nearest cent (half a cent being rounded upwards).

The interest margin means:

(a) subject to (b) and (c) below, in respect of each class of Notes listed below, the rate and margin per annum setout next to such:

Class, rate and interest margin

Class Al - 3 month EURIBOR +0.40°/oClass A2 - 3 month EURIBOR +0.55%Class B - 3 month EURIBOR +0.75%Class C - 3 month EURIBOR +0.90%Class D - 3 month EURIBOR +1.10%

or,

(b) subject to (c) below if the Swap Counterparty has not exercised the Swap termination option by the paymentdate scheduled to fall in January 2016 (the 'Coupon Step-Up Date') and the termination date has not otherwiseoccurred, for each interest period commencing on or after the Coupon Step-Up Date and in respect of each classof Notes listed below, the rate and margin per annum set out next to such:

Class, rate and interest margin

Class Al - 3 month EURIBOR +0.80%Class A2 - 3 month EURIBOR +x,10%Class B - 3 month EURIBOR +1.50%Class C - 3 month EURIBOR +1.80%Class D - 3 month EURIBOR +2.20%

or,

(c) for each interest period commencing on or after the termination date and in respect of each class of Notes,zero.

-19-


31 December 2012

11 Trade and other payables

Interest accrued on NotesSwap premium received in advanceOther creditors

12 Cash flows from operating activities

Reconciliation of operating profit to net cash flows used in operating activities.

Profit for the yearInvestment incomeCash reserve incomeSwap premiumBank interestSettlement of Credit Event claimsInterest payable on the NotesIncrease in trade and other receivables(Decrease)/increase in trade and other payablesMovement in fair value of the Swap through profit or lossMovement in fair value of the Notes through profit or loss

Cash flows used in operations

13 Financial instruments

2012 2011€

€

409,448 1,448,050283,316 120,01230,899 33,541

723.663 1.601.603

2012

939(2,032,211)

(1,417,213)(3,049)

49,852,1453,527,182

(44)(2,642)

(115,268,076)65,235.051

2011

895(4,406,296)(3,791,667)(3,272,683)

(8,297)90,495,6476,904,385

(25)2, 371

(55,861,138)(30.147,494)

(107.918) (84,302)

In pursuing its objectives as a special purpose bankruptcy remote financing vehicle, the Company holds, held orhas issued a number of financial instruments. These comprise:

• Amounts due under the Investment Agreement;

• trade and other receivables;

• cash and cash equivalents;

Notes;

• Cash Reserve Amount;

• Swap; and

• trade and other payables.

The main risks from holding or issuing the Company's financial instruments are detailed below together with thepolicies adopted by the board of directors to manage the risk:

-20-


31 December 2012

13 Financial instruments (continued)

(a) Market risk

The Company's exposure to market risk is comprised of the following risks:

(i) Foreign exchange risk

The Notes issued by the Company are or were denominated in €. The Amounts due under the InvestmentAgreement are represented by funds deposited with the Eligible GIC Provider and are denominated in €. ThePortfolio contains securities denominated in currencies other than €but the Company only takes on the credit riskand market risk of such securities. Any credit or market risk, regardless of currency, which materialises istransferred to the noteholders. Accordingly, the directors are of the opinion that there is no material currency riskexposure to the Company.

(ii) Inferest rate risk

Amounts due under the Investment Agreement -the Company receives investment income at a rate equal toEURIBOR.

Notes -the Company pays interest on the Notes in accordance with the terms of the Notes as described in note 10.

Swap -the Company receives funds under the Swap (Swap premium), this is calculated as the difference betweenthe investment income (excluding the Transaction fee) and expenses comprising interest payable on Notes and allother operating expenses of the Company.

The directors consider that the Company is not exposed to the risk of interest rate fluctuations.

(b) Credit risk

The Company has two types of risk. Firstly there is a risk that the Company will lose title over its deposits held byKBC and Amounts due under the Investment Agreement. The risk of this is considered remote. Secondly, there isthe risk of a claim being made on the Amounts due under the Investment Agreement as a result of Credit Events inthe Portfolio.

The Transaction documents are structured such that the obligations of the Company are limited in recourse andsuch documents contain bankruptcy remoteness (non-petition) provisions. In the event of Credit Events occurringbefore the redemption of the Notes, the Company will be obliged, subject to certain conditions, to make payments)to the Swap Counterparty.

This obligation was met initially by use of the Cash Reserve Amount and once this was utilised and, subsequent tothis, by utilising a proportionate amount of the Amounts due under the Investment Agreement. The credit risk istransferred to the noteholders who receive a reduced amount of interest and principal. Accordingly the directorsare of the opinion that there is no net credit risk to the Company.

The maximum credit risk at the year end is €232,444,425 (2011: €283,355,321).

(c) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with financialliabilities. In the opinion of the directors the risk of liquidity is reduced as the Transaction documents are structuredsuch that the obligations of the Company are limited in recourse and the Company has the benefit of bankruptcyremoteness.

-21-


31 December 2012


(c) Liquidity risk (continued)

The undiscounted contractual cash flows maturity profile of the Company's significant financial liabilities is asfollows:

NotesLess than 1 yearBetween 1 and 5 yearsMore than 5 years

SwapLess than 1 yearBetween 1 and 5 yearsMore than 5 years

Other liabilitiesTrade and other payables - maturity within 1 year

2012 2011€ €

230, 055,161 246, 837, 530

230.055.161 246.837, 530

120,148,130 235,416,206

120,148.130 235,416,206

314,215 153.553

The maturity profile of the Notes in the current and prior year is less than one year in recognition of the optionaltermination date which is on, or after, the payment date which fell in January 2011. Amounts of interest payable onthe Notes have been calculated based on a twelve month maturity period notwithstanding the fact that the SwapCounterparty may exercise their option to cause the Transaction to terminate on any payment date prior to the legalmaturity date.

Credit Events have occurred in the Portfolio. In accordance with the Swap and prior to the redemption of the Notes,the Company will be obliged, subject to certain conditions, to make payments) to the Swap Counterparty in theform of a Credit Event claim.

Pursuant to the Swap, the Swap Counterparty retained the first loss tranche of €30,764,000. The Company has themezzanine level credit risk for a maximum amount of €382,000,000 above the first loss tranche. This obligationwas met initially by the Cash Reserve Amount and, subsequent to this, by utilising a proportionate amount of theAmounts due under the Investment Agreement. The liquidity risk is transferred to the noteholders who will receivea reduced amount of interest and principal.

The minimum future amount that may be settled under the Swap will be in the sum of €nil and the maximumamount that may be settled will be in the sum of €232,010,768 (2011: €281,862,913). In the opinion of thedirectors, the best estimate for the amount that shall be settled under the Swap equates to the fair value of theSwap as at 31 December 2012. Consequently, as disclosed in the above maturity analysis, the Cash ReserveAmount has been utilised in full and the payment of principal on the Notes has been reduced in the reverseenforcement order of priority with reference to the best estimate of the amount to be settled under the Swap and inaccordance with the structure of the Transaction.

Upon receipt of the valuation of the Credit Event claims within two years of such occurrence, the amount to besettled under the Swap may differ from the fair value of the Swap. Therefore the amount of interest and principalpayable to the noteholders may differ from the amounts included in the above maturity analysis.

In the event the aggregate value of a Credit Event claim exceeds the first loss tranche of €30,764,000, payment tothe Swap Counterparty will occur on the first payment date which falls four or more business days after thecalculation verification date, as described in the Transaction documentation. The amount to be paid to the SwapCounterparty will be the least of:

the aggregate amount of a Credit Event claim eligible for payment on such date;

-22-


31 December 2012


(c) Liquidity risk (continued)

the excess of aggregate amount of the Credit Event claim over the first loss tranche on such date; and

the mezzanine level credit risk of €382,000,000 plus the Cash Reserve Amount less the sum of eachCredit Event claim paid prior to such date.

The payment of Credit Event claims resulted in the Cash Reserve Amount being used, in full, and impacted on theAmounts due under the Investment Agreement and the principal due to the noteholders as described in notes 6and 10 respectively.

(d) Fair value estimation

All financial instruments except trade and other receivables, cash and cash equivalents and trade and otherpayables are classified as financial assets at fair value through profit or loss in accordance with the provisions setout in IAS 39. Changes in fair value of the financial instruments are included in the statement of comprehensiveincome in the period in which they occur.

Further to the issuance of amendments to IFRS 7 Financial Instruments: Disclosures (effective 1 January 2009)('IFRS 7 (amended) 1 January 2009'), a hierarchal disclosure framework has been established which prioritises andranks the level of market price observability used in measuring financial instruments at fair value.

Market price observability is impacted by a number of factors, including the type of financial instrument and thecharacteristics specific to that type of financial instrument. Financial instruments with readily available quotedprices or for which fair value can be measured from actively quoted prices generally will have a higher degree ofmarket price observability and a lesser degree of judgement used in measuring fair value.

Financial instruments measured and reported at fair value are classified and disclosed in one of the followingcategories:

level I - an unadjusted quoted price in an active market provides the most reliable evidence of fair valueand is used to measure fair value whenever available. As required by IFRS 7 Financial Instruments:Disclosures, the Company will not adjust the quoted price for these financial instruments, even insituations where it holds a large position and a sale could reasonably impact the quoted price;

level II - inputs are other than quoted prices in active markets, which are either directly or indirectlyobservable as of the reporting date and fair value is determined through the use of models or othervaluation methodologies; or

level III - significant inputs are unobservable for the financial instrument and include situations where thereis little, if any, market activity for the financial instrument. The inputs into the determination of fair valuerequire significant management judgment or estimation.

The fair value of the Notes have been categorised under the IFRS 7 (amended) 1 January 2009 fair value hierarchyas level III as a market quotation is not readily available. Instead the fair value has been determined through theuse of the models described below.

The fair value of the Notes has been calculated using the Gaussian Copula Mixture model (the 'GCM'). Thismethod is used to model the distribution of default times of the underlying corporate obligations and asset backedsecurities in the Portfolio. The asset default trigger in the GCM is derived from the Swap spreads in the market. Bydiscounting the cash flows resulting from the default time curves on the underlying assets, a value for a specifictranche of Notes is reached. The GCM models the fair value of the Notes via the following steps:

for each individual underlying asset in the Portfolio, the Swap spread curve in the market is observed anda recovery rate is assumed, consistent with the market's expectations towards the recovery rate. TheSwap spreads reflect the markets perception of the creditworthiness of the underlying asset. The Swapspread curves and assumed recovery rates are then translated into individual survival probability curves.The probability curve provides an indication of the probability and timing of default. For example, theprobability curve can show that for a certain underlying asset, there is percentage probability that theunderlying asset will not be in default in one year and a percentage probability the underlying asset will notbe in default after two years;

-23-


31 December 2012


(d) Fair value estimation (continued)

given the recovery rate assumption and the survival probability curve for each underlying asset, an

immense number of scenarios are simulated. The scenarios are randomly generated through a Monte

Carlo simulation, consistent with the individual survival probability curves and taking into account base

correlations in the Portfolio;

• the Notes comprise different inner tranches and a direct bucket of corporate obligations and asset backed

securities. The latter can be viewed as one entire inner tranche. The prior two steps are repeated for

each of the inner tranches included in the Notes. The result of immense simulations is a Portfolio loss

distribution for each of the inner tranches;

• the individual loss distributions for each inner tranche are mapped to market observations. Mechanically

calibrating a model to a developing market might not result in a rational model and stable parameters.

Therefore, a balance is created between the economically plausible model while pricing to the market.

Initially the implied loss distribution from the index tranche market is derived then a mapping is created

between the market implied loss distribution and the modelled loss distribution; and

given a set of GCM parameters and a set of calibrated loss distributions for the individual underlying inner

tranches, the Note tranches can be fair valued. The GCM takes into account the correlation between the

different inner tranches, reflecting the overlap in underlying asset pools. The GCM also takes into account

'correlation skew'. In a good state of the economy, correlation is less than in a bad state of the economy.

A mixture of parameter weights reflects the percentage of time that the economy is in either state.

The fair value of the Swap has been categorised by the IFRS 7 (amended) 1 January 2009 fair value hierarchy aslevel III as a market quotation is not readily available. Instead the fair value of the Swap has been calculated, using

the model of the Notes above, as the net present value of future cash flows to maturity. The discount rate used in

this model is the weighted coupon. The weighted coupon is calculated using individual coupons weightedaccording to the notional balance for each class of Notes.

There has been a significant cumulative decrease, since issue, in the fair value of the Notes due to Credit Eventsoccurring. The Cash Reserve Amount was utilised, in full, then Amounts due under the Investment Agreementwere realised in payment of the Credit Event claims. The fair value of the Swap has significantly decreased andaccordingly reflects the amounts still due and payable due to further Credit Events.

The Company's financial assets and liabilities have been measured using valuation techniques and assumptions as

set out above. Underlying the definition of fair value (as defined by IAS 39) is a presumption that the Company is agoing concern without any intention or need to liquidate, to curtail materially the scale of its operations or to

undertake a transaction on adverse terms.

Financial assetsAmounts due under Investment AgreementTrade and other receivablesCash and cash equivalents

Financial liabilitiesSwapNotesTrade and other payables

Cost Fair Value Fair value2012 2012 2011

€

€

€

232,010,768 232,010,768 281,862,913116,103 116,103 1,039,432317,554 317,554 452,976

- 120,148,130 235,416,206232,010,768 111,570,795 46,335,744

723,663 723,663 1,601,603

Whilst the Company's limited recourse Notes are listed on the Irish Stock Exchange, they are not priced, there

being no liquid secondary market for this type of note. The purchase price of the Company's main financial asset,

the Amounts due under the Investment Agreement, is considered to be the fair value of the asset.

-24-


31 December 2012


(d) Fair value estimation (continued)

Given the limited recourse nature of the Transaction, any differences between fair value and book value of thefinancial instruments would have no net effect on the position of the Company. Furthermore, the holders of theCompany's limited recourse Notes, as sophisticated investors, are aware of the link between their investment andthe underlying assets.

Fair value is not, therefore, the amount that the Company would receive or pay in a forced transaction, involuntaryliquidation or distress sale. However, fair value reflects the credit quality of the financial assets and liabilitiesmeasured. The objective of using these valuation techniques is to establish what the transaction price would havebeen at the balance sheet date in an arm's length exchange motivated by normal business considerations.

In the opinion of the directors the fair value of Amounts due under the Investment Agreement approximates to thesum of all amounts deposited with or transferred to the Eligible GIC Provider less all amounts withdrawn from sucharrangement, other than payments of investment income. The Amounts due under the Investment Agreementgenerate the credit support for the Notes and thus the fair value of the Notes approximates the combined fair valueof the Swap and the Amounts due under the Investment Agreement.

(e) Capital management

The Company is a special purpose entity therefore exposure to risk in relation to capital management is notconsidered significant.

14 Derivative financial instruments

The Company enters into derivative financial instruments to allow the noteholders the opportunity to participate inthe risks and rewards in relation to the Portfolio whilst allowing the Company to benefit from a Transaction fee andcosts of administration being met.

The Company entered into the Swap with the Swap Counterparty pursuant to the terms of which, the Company inreturn for a Swap premium fee, took on the credit and market risk of the Portfolio which is scheduled to terminatein January 2042.

In the event Credit Events in respect of the Portfolio occur on or before a redemption date of the Notes, theCompany is obliged, subject to certain other conditions as set out in the Swap, to make payment of cashsettlement amounts to the Swap Counterparty. The interest and principal balance of the Notes will be reducedaccordingly by the proportion of the Cash Reserve Amount and the Amounts due under the Investment Agreementwhich have been utilised to make payment of cash settlement amounts to the Swap Counterparty, as per the termsof the Notes.

KBC Bank N.V., as Portfolio manager, is permitted to add or delete reference entities in the Portfolio. This issubject to a minimum rating for the reference entity of at least BBB- by Standard & Poor's and Baa3 by Moody's.On issue, the Portfolio size was approximately 3.93 times the nominal amount of the Notes.

As security for its obligation under the Swap, the Company has pledged the Amounts due under the InvestmentAgreement to the Trustee.

15 Ultimate controlling party

The Company is owned by Bedell Trustees Limited, in its capacity as trustee of the Oxford Street Charitable Trust.

The Company is consolidated for accounting purposes with KBC Investments Cayman Islands Ltd and KBCInvestments Cayman Islands Ltd is consolidated for accounting purposes with KBC Group N.V. In the opinion ofthe directors the ultimate parent company is KBC Group N.V.

-25-


31 December 2012

16 Related party transactions

The Company was formed for the purpose of participating in the Transaction arranged by KBC. The Companyraised funds from the issuance of the Notes in the sum of €382,000,000 and subsequently on 10 October 2006 theRepo to GIC Transfer Amount was invested pursuant to the Investment Agreement between the Company and theEligible GIC Provider. All income received on the Amounts due under the Investment Agreement is paid by theEligible GIC Provider to the Company.

On the legal maturity date or such earlier date on which the last outstanding notes are to be redeemed in whole,the Eligible GIC Provider shall transfer to the Company the balance of the Amounts due under the InvestmentAgreement on such date. For the year ended 31 December 2012 the Company had received from the Eligible GICProvider investment income in the sum of €2,954,069 (2011: €4,198,485) and investment income in the sum of€115,006 was receivable (2011: €1,036,864).

The Company also entered into the Swap with the Swap Counterparty pursuant to the terms of which the Companyhas, in return for a fee, taken on the mezzanine level credit and market risk of the Portfolio which is up to€1,500,000,000 in size. The Swap Counterparty retained the first loss tranche of €30,764,000. The Company hasthe mezzanine level credit risk for a maximum amount of €382,000,000 above the first loss tranche. For the yearended 31 December 2012 the Company had received from the Swap Counterparty Swap premium in the sum of€1,580,517 (2011: €2,551,396) and had received excess Swap premium in the sum of€283,316 (2011: €120,012).

The 2012 financial statements of the Company are consolidated in the financial statements of KBC InvestmentsCayman Islands Ltd. Prior to this the financial statements of the Company were consolidated in the financialstatements of KBC Bank. N.V.

The directors of the Company are the Company's only key management personnel. Corporate administrationservices are provided to the Company by Bedell Trust Company Limited, including the provision of Companysecretary, Bedell Secretaries Limited and the directors. Shane Michael Hollywood and Alasdair James Hunter aredirectors of Bedell Trustees Limited and Bedell Secretaries Limited and are partners of Bedell Group. ShaneMichael Hollywood is also a director of Bedell Trust Company Limited. The directors' fees are included in the feeexpense payable to Bedell Trust Company Limited.

Total fees charged to Bedell Trust Company Limited during the year amounted to £25,374 (€31,082) (2011:£22,833 (€27,233)). Fees were payable to Bedell Trust Company Limited in the sum of £1,443 (€1,768) as at theyear end (2011: £626 (€747)).

Legal services are provided to the Company by Bedell Cristin, from time to time. Alasdair James Hunter is also apartner of Bedell Cristin.

17 Dividends

A dividend was paid during the year in the sum of £750 (€870) which equates to £375 (€435) per share (2011:£750 (€839) which equates to £375 (€420) per share).

A dividend in the sum of £750 (€895) is recommended for the financial year ended 31 December 2012 whichequates to £375 (€447) per share (2011: £750 (€870) equates to £375 (€435) per share).

18 Post statement of financial position events

At the date of approving these financial statements there is considerable uncertainty in the financial marketsfollowing the global liquidity and credit crisis. As a consequence there have been significant rating downgradesand write downs in residential mortgage backed and other asset backed securities held or issued by banking andfinancial institutions.

Credit Events have occurred in the Portfolio with a claim date during the year ended 31 December 2012 andsubsequently, for the following corporate obligations and asset backed securities:

a) bankruptcy credit events:

Overseas Shipholding Group, Inc., Sino-Forest Corporation and The PMI Group, Inc.

-26-


31 December 2012

18 Post statement of financial position events (continued)

b) restructuring credit events:

Bankia SA - restructuring default, Irish Life &Permanent Public Limited Company - restructured default,Irish Life & Permanent Public Limited Company - restructured default 2, Northern Rock (AssetManagement) plc - restructured default, The Governor and Company of the Bank of Ireland - restructureddefault, and Victor Company of Japan, Limited - restructured default.

c) ABS ratings downgrade credit events:

ACE 2005-HE2 M7, ACE 2005-HE4 M7, BSABS 2005-HE5 M4, CARR 2006-NC5 M1, CMLTI 2006-WFH4M2, CWALT 2006-OA14 1A3, CWALT 2007-OH2 A3, CWCI 2006-3A B, CWL 2004-12 MV6, EMLT 2005-1 M7, FFML 2004-FF4 B1, FFML 2004-FF8 B1, FMIC 2004-5 M4, MSAC 2004-WMC1 B1, MSAC 2005-HE3 61, SASC 2006-WF2 M1, and SVHE 2006-OPT5 M1.

d) permanent reduction of capital credit events:

HELT 2007-FRE1 M6, GPMF 2006-AR2 3A3, and SAMI 2006-AR4 2A3.

Credit protection valuations continue to be verified by an independent verification agent in respect of the CreditEvent claims and settlements made under the Swap. Therefore, to date, the occurrence of the Credit Event claimsresulted in the utilisation of the Cash Reserve Amount, in full, the reduction of the Amounts due under theInvestment Agreement and an equal reduction to the principal amounts due to the noteholders.

On the cash settlement date of 7 January 2013, the Amounts due under the Investment Agreement was reducedby €1,010,768 and the principal balance of the class C Notes was reduced to €nil.

On the cash settlement date of 7 January 2013, the Amounts due under the Investment Agreement and theprincipal balance of the class B Notes were reduced by €5,368,002. The adjusted principal balance of the class BNotes was €58,631,998.

On the cash settlement date of 8 April 2013, the Amounts due under the Investment Agreement and the principalbalance of the class B Notes were reduced by €11,064,053. The adjusted principal balance of the class B Noteswas €47,567,945.

On the cash settlement date of 8 July 2013, the Amounts due under the Investment Agreement and the principalbalance of the class B Notes were reduced by €5,667,900. The adjusted principal balance of the class B Noteswas €41,900,045.

The Swap Agreement was amended in January 2012 to allow auctions to quantify losses in the Portfolio followingthe occurrences of Credit Events with respect to corporate obligations:

notwithstanding the current provisions for the valuation of losses following the occurrence of CreditEvents with respect to corporate obligations and the satisfaction of the conditions to settlement if a) theISDA publicly announces that the relevant credit derivatives determinations committee has resolved thatan auction will be held in connection with such Credit Event, and b) an auction conversion event hasoccurred, then the final price to be used in the valuation of the loss shall be the auction price;

if either a) an auction will not be held in connection with a Credit Event, orb) an auction conversion eventhas not occurred, then the final price shall be determined in accordance with the market valuationprovisions set forth in the Swap Agreement as applicable prior to any modifications pursuant to theextraordinary resolution; and

the calculation agent shall make commercially reasonable efforts to provide written notice to the SwapCounterparty and the Company promptly upon a) learning of each ISDA auction announcement, and b)the occurrence of an auction conversion event.

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oxford street finance limited - rns submit2013/07/31 · oxford street finance limited contents 31...

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