regent street finance limited - london stock exchange2013/07/31 · regent street finance limited...

REGENT STREET FINANCE LIMITED

Directors' report and audited financial statements

for the year ended 31 December 2012

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

Regent Street Finance LimitedContents

31 December 2012

Page

Directors' 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

Regent Street Finance LimitedDirectors' report

31 December 2012

The directors present their report together with the audited financial statements of Regent 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 12 February 2007.

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 to

the issuance of class A1, A2, B, C, D, E, F, G and H floating rate credit-linked notes (together, the 'Notes'), which

are listed on the Irish Stock Exchange. The total principal amount of the Notes raised was €688,550,000 divided

into €93,550,000 class Al Notes, €120,000,000 class A2 Notes, €112,500,000 class B Notes, €105,000,000 class

C Notes, €82,500,000 class D Notes, €67,500,000 class E Notes, €40,000,000 class F Notes, €37,500,000 class G

Notes and €30,000,000 class H Notes. The Notes are subordinated in payment of principal and interest in

accordance with the order of seniority. Any amounts by which the adjusted principal balance of the Notes is to be

reduced without payment to the noteholders is in accordance with the reverse order of seniority.

The Company invested the proceeds of the Notes in a guaranteed investment contract arrangement (a 'GIC' and

hereafter referred to as the 'Amounts due under the Investment Agreement) pursuant to a guaranteed investment

on the Amounts due under the Investment Agreement (the 'Investment Agreement') entered into between the

Company and KBC Investments Hong Kong Limited (the 'Eligible GIC Provider'). All income received on the

Amounts due under the Investment Agreement is paid to the Company by the Eligible GIC Provider. Upon the

maturity or early redemption of the Notes, the Eligible GIC Provider will deliver to the Company the purchase price

of €688,550,000 or such proportion of the Amounts due under the Investment Agreement to match the Notes to be

redeemed.

On 7 April 2009 the Company requested the repayment of the Amounts due under the Investment Agreement by

the Eligible GIC Provider, pursuant to a repayment notice. The GIC was terminated with effect from 7 April 2009

and the Company entered into a new GIC with KBC Bank N.V. Subsequent to 7 April 2009, any reference to the

GIC 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 the

mezzanine level credit and market risk of a diversified reference portfolio (the 'Portfolio') which is up to

€3,000,000,000 in size. The Company has the mezzanine level credit risk for a maximum amount of €688,550,000

above the first foss tranche of €22,500,000.

As security for its obligations, the Company has charged the Amounts due under the Investment Agreement to BNY

Corporate Trustee Services Limited as trustee (the 'Security Trustee') for the secured parties (those transactional

creditors to whom security is to be provided under the security trust deed (the 'Security Trust Deed')). The Security

Trustee has also been appointed as trustee on behalf of the noteholders pursuant to a note trust deed and holds

the benefit of certain covenants made by the Company in relation to the repayment of principal and interest on the

Notes on trust for the noteholders.

By way of protecting the Company from the risks of the Transaction arising from the Company's exposure to the

Swap Counterparty under the Swap, the Transaction documents contain limited recourse and bankruptcy

remoteness (non-petition) provisions pursuant to which each party recognises the limited financial resources of the

Company and the intended bankruptcy remoteness of the Company. The Amounts due under the Investment

Agreement are secured by way of support for the Company's exposure under the Swap and thereafter its

obligations under the Notes.

Certain of the Company's day to day obligations and powers in respect of the Transaction are performed on its

behalf by KBC Bank N.V. as administrator pursuant to an administration and cash management agreement.

Functions performed by the Irish paying agent were provided by JP Morgan entities prior to January 2012 when

they were novated to Bank of New York Mellon entities.

-2-


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 (€895) in respect of the financial year ended 31

December 2011, being the 2011 Transaction fee (2011: £750 (€870) in respect of the financial year ended 31

December 2010, being the 2010 Transaction fee).

The directors recommend the payment of a final dividend in the sum of £750 (€939) in respect of the financial year

ended 31 December 2012, being the 2012 Transaction fee (2011: £750 (€895) being the 2011 Transaction fee).

Independent auditor

Ernst &Young LLP has previously been appointed and has expressed willingness to continue in office. A

resolution 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 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 the

Company 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 the

Company.

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 April 2012, 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.

Post statement of financial position events

At the date of approving these financial statements there is considerable uncertainty in the financial markets

following the global liquidity and credit crisis. As a consequence there have been significant rating downgrades and

write downs in residential mortgage backed and other asset backed securities held or issued by banking and

financial institutions.

Credit events have occurred in the Portfolio in the form of a) bankruptcy credit events, b) restructuring credit events,

c) permanent reduction of capital credit events, and d) ABS ratings downgrade credit events (together, the 'Credit

Events') with a claim date during the year ended 31 December 2012 and subsequently, for the following corporate

obligations and asset backed securities:

-3-


31 December 2012

Post statement of financial position events (continued)

a) bankruptcy credit events:

Irish Bank Resolution Corporation Limited, Overseas Shipholding Group, Inc., and The PMI Group, Inc.

b) restructuring credit events:

Bankia SA - restructured default, Irish Life &Permanent Public Limited Company - restructured default 2,

Northern Rock (Asset Management) plc - restructured dfefault, The Governor and Company of the Bank of

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

c) permanent reduction of capital credit events:

BSABS 2006-HE10 2M4, CMLTI 2007-AHL1 M4, CMLTI 2007-AMC1 M4, CWL 2007-1 M4, and MSAC

2006-HE7 M4.

d) ABS ratings downgrade credit events:

OOMLT 2005-4 M2, RASC 2005-AHL3 M2, and RASC 2006-KS3 M2.

Credit protection valuations continue to be verified by an independent verification agent in respect of the Credit

Event claims and settlements made under the Swap. Therefore, to date, the payment of the Credit Event claims

resulted in the utilisation of the cash reserve amount (the 'Cash Reserve Amount'), in full, the reduction of the

Amounts due under the Investment 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 and the

principal balance of the class C Notes were reduced by €10,782,944. The adjusted principal balance of the class C

Notes was €43,426,027.

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

balance of the class C Notes were reduced by €1,720,000. The adjusted principal balance of the class C Notes

was €41, 706, 027.

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.

-4-


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 the

financial 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's

transactions. These records must disclose with reasonable accuracy at any time the financial position of the

Company 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

hence for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law and

regulations.

By order of the board

Secretary - Bedell Secretaries~Limited

3 0 JUL 2013.. ............................Date

Registered office

26 New StreetSt HelierJerseyJE2 3RA

-5-

(I I I I I I I I I I I I °~ ERNST & YOUNG

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

We have audited the financial statements of Regent 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 accept orassume 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 f I °~ ERNST &YOUNG

INDEPENDENT AUDITOR'S REPORTTO THE MEMBERS OF REGENT 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

Regent Street Finance LimitedAudited statement of comprehensive income

31 December 2012

2012 2011Notes € € € €

IncomeMovement in fair value of the Swapthrough profit or loss 118,303,743 127,881,119

Investment income 4 3,134,776 6,734,995

Swap premium 5 2,775,391 4,363,805

Cash reserve income 8 1,916,667 7,645,833

Transaction fee 5 939 895

Movement in fair value of the Notesthrough profit orloss - 41,455,185

Bank interest 7 4.960

126,131,516 188, 086, 792

ExpensesMovement in fair value of the Notesthrough profit or loss 81,109,018 -

Settlement of Credit Event claims 6 39,191,983 177,514,033

Interest payable on the Notes 5,719,912 10,481,071

Operating expenses 109.664 90,793

(126.130.577) (188.085.897)

Total comprehensive income forthe year 939 895

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

represents total comprehensive income.

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

Regent Street Finance LimitedAudited statement of financial position

31 December 2012

2012 2011Notes € €

AssetsCurrent assetsAmounts due under the InvestmentAgreement 6 380,258,971 417,534,287

Trade and other receivables 7 188,699 1,537,214

Cash and cash equivalents 8 1.180.505 1,399.229

Total assets 381.628.175 420.470.730

Equity and liabilitiesEquity attributable to owners of theCompanyCalled up share capital 9 3 3

Retained earnings 939 895

Total equity 942 898

LiabilitiesCurrent liabilitiesSwap at fair value through profit orloss 203,606,948 321,910,691

Notes at fair value through profit orloss 10 176,098,982 94,989,964

Trade and other payables 11 1.921,303 3.569,177

Tota I liabilities 381.627, 233 420.469, 832

Total equity and liabilities 381.628,175 420.470,730

The financial statements on pages 8 to 27 were approved by the board of directors and authorised for

issue n 30 Jul 2013 and signed on its behalf by:

~"\

.. .. .. . . ...... .. . .it ctor - Alasdair James Hunter Alternate director - Ariel~Pinel


Regent Street Finance LimitedAudited statement of changes in equity

31 December 2012

Called upshare Retainedcapital earnings Total

€ €

€

Balance at 1 January 2011 3 870 873

Profit for the year - 895 895

Total comprehensive income for the the year ended 31 December2011 895 895

Transactions with owners:Equity dividend paid - (870) (870)

Balance at 31 December 2011 3 895 898

Called upshare Retainedcapital earnings Total

€

€

€

Balance at 1 January 2012 3 895 898

Profit for the year - 939 939

Total comprehensive income for the the year ended 31 December

2012 939 939

Transactions with owners:Equity dividend paid - (895) (895)

Balance at 31 December 2012 3 939 942


Regent Street Finance LimitedAudited statement of cash flows

31 December 2012

2012 2011Notes € €

Net cash used in operatingactivities 12 (112, 248) (86, 542)

Cash flows generated frominvesting activitiesCash reserve income 1,916,667 7,645,833

Investment income 4,482,230 6,524,947

Swap premium 2,566,630 3,249,278

Bank interest 1,061 3,692

Redemption of Amounts due underthe Investment Agreement 6 37.275.316 169,868.200

Net cash flows generated frominvesting activities 46,241.904 187,291,950

Cash flows used in financingactivitiesInterest payable on the Notes (7,155,502) (10,795,375)

Settlement of Credit Event claims 6 (39,191,983) (177,514,033)

Equity dividend (895) (870)

Net cash flows used in financingactivities (46.348.380) (188.310.278)

Net decrease in cash and cashequivalents (218,724) (1,104, 870)

Cash and cash equivalents at 1January 8 1.399,229 2.504,099

Cash and cash equivalents at 31December 8 1.180.505 1,399,229


Regent Street Finance LimitedAudited notes to the financial statements

31 December 2012

1 General information

The Company is a public 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 in

accordance 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 of

Jersey, incorporating IFRS and have been prepared under the historical cost convention, except for the revaluation

of 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 are

shown below:

Adoption of new and revised standards

At the date of authorisation of these financial statements the following standard, which has been applied in these

financial 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 upon

the Company.

Standards and interpretations in issue not yet adopted

At the date of authorisation of these financial statements the following standards and interpretations, which have

not 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 upon

the 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 not

yet effective as at the date the financial statements are authorised for issue. In the opinion of the directors the

other standards, amendments and interpretations issued but not yet effective are either not relevant to the activities

of the Company or will have no impact on the financial statements of the Company.

-12-


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 affect

the reported amounts of revenues, expenses, assets, liabilities and the disclosure of contingent liabilities as at the

statement of financial position date. The estimates and associated assumptions are based on historical experience

and 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 the

statement of financial position date deviate from the actual circumstances in the future, the original estimates and

assumptions 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 estimates

are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period

of 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 uncertainty

that have been identified as giving rise to a significant risk of causing material adjustment to the carrying amount of

assets 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 the

statement 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 or

has 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 Financial

Instruments: Recognition and Measurement (amended 17 June 2005) ('IAS 39'). Accordingly all financial

instruments except trade and other receivables, cash and cash equivalents and trade and other payables are

classified as financial instruments at fair value through profit or loss in accordance with the provisions set out in IAS

39.

-13-


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 other

payables, which are measured at amortised cost, they are re-measured at fair value in accordance with the

guidance provided in IAS 39 and established industry practices for the determination of fair values. Any gain or

loss resulting from changes in fair value is included in the statement of comprehensive income in the period in

which they arise. Trade and other receivables, cash and cash equivalents and trade and other payables are

recorded at amortised cost.

The Swap is a derivative financial instrument which is classified as held for trading under IAS 39. This instrument is

therefore measured at fair value through profit or loss. The Notes issued by the Company and the Amounts due

under the Investment Agreement have also been measured at fair value through profit or loss as it eliminates a

measurement inconsistency, an accounting mismatch, that would otherwise arise from measuring the derivatives at

fair value through profit and loss and the related Notes and the Amounts due under the Investment Agreement at

amortised cost.

Recognition and derecognition of financial assets and liabilities

The Company initially recognises financial assets and liabilities on the date they originated. Purchases and sales

of financial assets are recognised on the date on which the Company commits to purchase or sell the asset. All

other 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 the

instrument.

Financial assets are derecognised when the right to receive cash flows from the assets has expired or when the

Company has transferred its contractual right to receive the cash flows of the financial assets and substantially all

the risks and rewards of ownership have been transferred. Financial liabilities are derecognised when they are

extinguished, 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 the

asset is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more

events have had a negative effect on the estimated future cash flows of such asset. An impairment loss in respect

of an asset measured at amortised cost is calculated as the difference between the carrying value of the asset and

the 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 if

the 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 price

requires the use of valuation techniques as described below.

For financial instruments that trade infrequently and have little price transparency, fair value is less objective and

requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing

assumptions and other risk factors affecting each financial instrument.

For complex financial instruments the Company uses proprietary models which are developed from recognised

valuation models. Some or all of the significant inputs into these models may not be market observable and are

derived from market prices or rates or are estimates based on assumptions.

-14-


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 as

appropriate, since valuation techniques cannot appropriately reflect all factors market participants consider when

entering into a transaction. Valuation adjustments are recorded to allow for model risk, bid-ask spreads, liquidity

risks and other contributing factors.

The directors believe that these valuation adjustments are necessary and appropriate to disclose the fair value of

the 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 represented amounts invested by the Company with the Eligible

GIC Provider pursuant to the Investment Agreement which on the effective date were in the sum of €688,550,000.

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 institutions

and comprised amounts payable in relation to the Cash Reserve Amount and are or were measured at amortised

cost.

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 received on the Amounts due under the Investment Agreement will accrue on a daily basis on

the outstanding balance of invested funds during the period from the effective date up to but excluding the

termination date of the GIC, at the GIC interest rate which equates to EURIBOR. Such interest shall be paid to the

Company in arrears on each payment date in immediately available same day funds. Each amount payable

pursuant to clause 3.1 interest on the invested funds of the Investment Agreement shall be calculated by the

Eligible GIC Provider and notified to the Company by the administrator prior to the first day of each relevant interest

period. The administrator shall notify the Eligible GIC Provider, as soon as reasonably practical after notification

thereof from the agent bank, of:

the EURIBOR rate for each interest period; and

the first and last day of each interest period.

Swap premium is receivable under the Swap from the Swap Counterparry in return for the Company taking on the

mezzanine level credit and market risk of the Portfolio. The Company receives a Swap premium which will equal

the difference between the investment income (excluding the Transaction fee) and expenses and all other operating

expenses 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 in

accordance with the Transaction documentation on the anniversary of the close of the Transaction.

-15-


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 for

interim 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 the

Company 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 the

Company.

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 April 2012, 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€

€

3.134.776 6.734,995

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

-16-

2012 2011€

€

2,775,391 4,363,805939 895

2.776,330 4,364.700


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 Portfolio

is up to €3,000,000,000 in size. The Swap Counterparty originally retained the first loss tranche of €22,500,000.

6 Amounts due under the Investment Agreement

Amounts due under the Investment Agreement

2012 2011€

€

380,258.971 417,534, 287

The Amounts due under the Investment Agreement comprise the sum of all amounts deposited with or transferred

to the Eligible GIC Provider at the direction of the Eligible GIC Provider less all amounts withdrawn from such

arrangement, other than payments of investment income.

The Company has pledged the Amounts due under the Investment Agreement to the Security Trustee to secure

the trustee claims under the Security Trust Deed. The trustee claims entitled the Security Trustee to demand that

all present and future obligations 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 Investment

Agreement 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 €37,275,317

(2011: €169,868,200) and used the proceeds together with €1,916,667 (2011: €7,645,833) from the Cash Reserve

Amount to settle Credit Event claims totalling €39,191,983 (2011: €177,514,033).

The Amounts due under the Investment Agreement have been classified as a current asset in recognition of the

Swap Counterparty's option to end the Transaction by terminating the Swap on, or after, any payment date

following the optional termination date which fell in April 2012.

7 Trade and other receivables

Accrued investment incomeAccrued bank interest

2012 2011€

€

188,492 1, 535, 946207 1.268

188,699 1,537,214

An overaccrual of bank interest as at 31 December 2011 has resulted in no bank interest income for the year

ended 31 December 2012.

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€

€

1,399.229 2,504.099

(218,724) (1.104,870)

1.180,505 1.399.229


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 underlying

Portfolio payable on each payment date until the earlier of the payment date which fell in April 2012 or the

termination date. The Cash Reserve Amount was retained in a cash reserve bank account held with KBC Bank

N.V. and was pledged in priority to the Amounts due under the Investment Agreement to secure all present and

future 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 Credit

Event claims which exceeded the first loss tranche; and

in the event that a principal shortfall existed on the Notes the Company would reinstate the principal

amount of the Notes. Such reinstatements would have been allocated to the Notes in enforcement order

of seniority 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 the

Company realised Amounts due under the Investment Agreement equal to the amounts due. Due to the limited

recourse nature of the Transaction, such settlement amounts reduced the principal amounts due to the

noteholders in reverse enforcement order of seniority.

The Company continued to receive the Cash Reserve Amount until the payment date which fell in April 2012.

During the year the Company received a total of €1,916,667 (2011: €7,645,833) into the cash reserve bank

account and used this amount in order to settle its obligations under the Swap due to Credit Event claims. Income

receivable under the Cash Reserve Amount in the sum of €1,916,667 was recognised during the year (2011:

€7, 645, 833).

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 as

prescribed 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 by

proxy shall have one vote and on a poll every member shall have one vote for each share of which the

member 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 2040 and an optional

termination date which is exercisable by the Swap Counterparty on, or after, the payment date which fell in April

2012.


Event claims and settlements made under the Swap. Therefore, the occurrence of the Credit Event claims

resulted in the utilisation of the Cash Reserve Amount, in full, and impacted upon the principal amounts due to the

noteholders, 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 93,550,000 - 93,550,000 55,455,280 31,762,979

Class A2 120,000,000 - 120,000,000 64,417,552 35,291,521

Class B 112,500,000 - 112,500,000 46,109,203 22,848,244

Class C 91.484,287 (37,275.317) 54.208,971 10,116,947 5.087.220

417,534,287 (37.275.317) 380,258.971 176.098.982 94,989,964

The aggregate amount of realised losses were allocated in reverse order of seniority whereby class H suffered the

first realised loss, then class G, then class F, then class E, then class D and then, in part, class C. The aggregate

amount of any future realised losses will be allocated to each class of Note in reverse order of seniority whereby

the remaining class C will suffer the next realised loss, then class B, then class A2 and then class Al Notes. The

payment obligations of the Company under the Notes in respect to interest and principal amounts was secured by

the Cash Reserve Amount and continues to be secured by the Amounts due under the 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 interest

period, calculate the amount of interest (the 'Interest Amount) payable in respect of each Note for such interest

period.

The Interest Amount for each Note is calculated by applying the rate of interest applicable to such Note for the

relevant 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 the

resulting 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 interest margin per

annum set out next to such:

Class, rate and interest margin

Class Al - 3 month EURIBOR +0.40%Class A2 - 3 month EURIBOR +0.60%Class B - 3 month EURIBOR +0.75%Class C - 3 month EURIBOR +0.85%

or,

(b) subject to (c) below if the Swap Counterparty has not exercised the Swap termination option by the payment

date scheduled to fall in April 2017 (the 'Coupon Step-Up Date') and the termination date has not otherwise

occurred, for each interest period commencing on or after the Coupon Step-Up Date and in respect of each class

of Notes listed below, the rate and interest 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 +1.20%Class B - 3 month EURIBOR +1.50%Class C - 3 month EURIBOR +1.70%

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 yearCash reserve incomeInvestment incomeSwap premiumBank interestSettlement of Credit Event claimsInterest payable on the Notes(Decrease)/increase in trade and other payablesMovement in fair value of the Swap through profit or loss

Movement in fair value of the Notes through profit or loss

Cash flows used in operations

13 Financial instruments

2012 2011€

€

741,532 2,177,1221,168,120 1, 376, 881

11.651 15.174

1.921.303 3.569.177

2012 2011€

€

939 895(1,916,667) (7,645,833)(3,134,776) (6,734,995)(2,775,391) (4,363,805)

- (4,960)39,191,983 177, 514,0335,719,912 10,481, 071

(3,523) 3,356(118,303,743) (127,881,119)

81.109,018 (41,455,185)

(112,248) (86,542)

In pursuing its objectives as a special purpose bankruptcy remote financing vehicle, the Company holds, held or

has 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 the

policies 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 Investment

Agreement are represented by funds deposited with the Eligible GIC Provider and are denominated in €. The

Portfolio contains securities denominated in currencies other than €but the Company only takes on the credit risk

and market risk of such securities. Any credit or market risk, regardless of currency, which materialises is

transferred to the noteholders. Accordingly, the directors are of the opinion that there is no material currency risk

exposure to the Company.

(ii) Interest rate risk

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

EURIBOR.

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 between

the investment income (excluding the Transaction fee) and expenses comprising interest payable on Notes and all

other 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 by

KBC and Amounts due under the Investment Agreement. The risk of this is considered remote. Secondly, there is

the risk of a claim being made on the Amounts due under the Investment Agreement as a result of Credit Events in

the Portfolio.

The Transaction documents are structured such that the obligations of the Company are limited in recourse and

such documents contain bankruptcy remoteness (non-petition) provisions. In the event of Credit Events occurring

before 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 to

this, by utilising a proportionate amount of the Amounts due under the Investment Agreement. The credit risk is

transferred to the noteholders wha receive a reduced amount of interest and principal. Accordingly the directors

are of the opinion that there is no net credit risk to the Company.

The maximum credit risk at the year end is €381,628,175 (2011: €420,470,730)

(c) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with financial

liabilities. In the opinion of the directors the risk of liquidity is reduced as the Transaction documents are structured

such that the obligations of the Company are limited in recourse and the Company has the benefit of bankruptcy

remoteness.

-21-


31 December 2012


(c) Liquidity risk (continued)

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

follows:

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€

€

377,031,065 401,382,027

377,031,065 401,382.027

203,606,948 321,910,691

203.606.948 321.910.691

1,179.771 1, 392,055

The maturity profile of the Notes in the current and prior year is less than one year in recognition of the optional

termination date which is on, or after, the payment date which fell in April 2012. Amounts of interest payable on the

Notes have been calculated based on a twelve month maturity period notwithstanding the fact that the Swap

Counterparty may exercise their option to cause the Transaction to terminate on any payment date prior to the legal

maturity 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 the

form of a Credit Event claim.

Pursuant to the Swap, the Swap Counterparty retained the first loss tranche of €22,500,000. The Company has the

mezzanine level credit risk for a maximum amount of €688,550,000 above the first loss tranche. This obligation

was met initially the Cash Reserve Amount and, subsequent to this, by utilising a proportionate amount of the

Amounts due under the Investment Agreement. The liquidity risk is transferred to the noteholders who will receive

a 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 maximum

amount that may be settled will be in the sum of €380,258,971 (2011: €417,534,287). In the opinion of the

directors, the best estimate for the amount that shall be settled under the Swap equates to the fair value of the

Swap as at 31 December 2012. Consequently, as disclosed in the above maturity analysis, the Cash Reserve

Amount has been utilised in full and the payment of principal on the Notes has been reduced in the reverse order of

seniority with reference to the best estimate of the amount to be settled under the Swap and in accordance 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 be

settled under the Swap may differ from the fair value of the Swap. Therefore the amount of interest and principal

payable 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 €22,500,000, payment to

the Swap Counterparty will occur on the first payment date which falls four or more business days after the

calculation verification date, as described in the Transaction documentation. The amount to be paid to the Swap

Counterparty 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 €688,550,000 plus the Cash Reserve Amount less the sum of each

Credit Event claim paid prior to such date.

The payment of Credit Event claims has resulted in the Cash Reserve Amount being used, in full, and impacted on

the Amounts due under the Investment Agreement and the principal due to the noteholders as described in notes 6

and 10 respectively.

(d) Fair value estimation

All financial instruments except trade and other receivables, cash and cash equivalents and trade and other

payables are classified as financial assets at fair value through profit or loss in accordance with the provisions set

out in IAS 39. Changes in fair value of the financial instruments are included in the statement of comprehensive

income 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 and

ranks 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 the

characteristics specific to that type of financial instrument. Financial instruments with readily available quoted

prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of

market 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 following

categories:

• level I - an unadjusted quoted price in an active market provides the most reliable evidence of fair value

and 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 in

situations 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 indirectly

observable as of the reporting date and fair value is determined through the use of models or other

valuation methodologies; or

• level III - significant inputs are unobservable for the financial instrument and include situations where there

is little, if any, market activity for the financial instrument. The inputs into the determination of fair value

require significant management judgment or estimation.

The fair value of the Notes has been categorised under the IFRS 7 (amended) 1 January 2009 fair value hierarchy

as level III as a market quotation is not readily available. Instead the fair value has been determined through the

use of the models described below.

The fair value of the Notes has been calculated using the Gaussian Copula Mixture model (the 'GCM'). This

method is used to model the distribution of default times of the underlying corporate obligations and asset backed

securities in the Portfolio. The asset default trigger in the GCM is derived from the Swap spreads in the market. By

discounting the cash flows resulting from the default time curves on the underlying assets, a value for a specific

tranche 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 and

a recovery rate is assumed, consistent with the markets expectations towards the recovery rate. The

Swap spreads reflect the markets perception of the credifinrorthiness of the underlying asset. The Swap

spread 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, the

probability curve can show that for a certain underlying asset, there is percentage probability that the

underlying asset will not be in default in one year and a percentage probability the underlying asset will not

be 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 as

level 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 weighted

according 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 Events

occurring. The Cash Reserve Amount was utilised, in full, then Amounts due under the Investment Agreement

were realised in payment of the Credit Event claims. The fair value of the Swap has significantly decreased and

accordingly 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 a

going concern without any intention or need to liquidate, to curtail materially the scale of its operations or to

undertake a transaction on adverse terms.

Cost Fair Value Fair value2012 2012 2011

€

€

€

Financial assetsAmounts due under Investment Agreement 380,258,971 380,258,971 417,534,287

Trade and receivables 188,699 188,699 1,537,214

Cash and cash equivalents 1,180,505 1,180,505 1,399,229

Financial liabilitiesSwapNotesTrade and other payables

- 203,606,948 321,910,691380,258,971 176,098,982 94,989,964

1,921,303 1,921,303 3,569,177

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 the

financial instruments would have no net effect on the position of the Company. Furthermore, the holders of the

Company's limited recourse Notes, as sophisticated investors, are aware of the link between their investment and

the underlying assets.

Fair value is not, therefore, the amount that the Company would receive or pay in a forced transaction, involuntary

liquidation or distress sale. However, fair value reflects the credit quality of the financial assets and liabilities

measured. The objective of using these valuation techniques is to establish what the transaction price would have

been 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 the

sum of all amounts deposited with or transferred to the Eligible GIC Provider less all amounts withdrawn from such

arrangement, other than payments of investment income. The Amounts due under the Investment Agreement

generate the credit support for the Notes and thus the fair value of the Notes approximates the combined fair value

of 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 not

considered significant.

14 Derivative financial instruments

The Company enters into derivative financial instruments to allow the noteholders the opportunity to participate in

the risks and rewards in relation to the Portfolio whilst allowing the Company to benefit from a Transaction fee and

costs of administration being met.

The Company entered into the Swap with the Swap Counterparty pursuant to the terms of which, the Company in

return for a Swap premium fee, took on the credit and market risk of the Portfolio which is scheduled to terminate

in January 2038.

In the event Credit Events in respect of the Portfolio occur on or before a redemption date of the Notes, the

Company is obliged, subject to certain other conditions as set out in the Swap, to make payment of cash

settlement amounts to the Swap Counterparty. The interest and principal balance of the Notes will be reduced

accordingly by the proportion of the Cash Reserve Amount and the Amounts due under the Investment Agreement

which have been utilised to make payment of cash settlement amounts to the Swap Counterparty, as per the terms

of the Notes.

The Swap Counterparty is permitted to add or delete reference entities in the Portfolio subject to a minimum rating

for a reference entity of at least BB+ by Fitch, Bat by Moody's or BB+ by Standard and Poor's. On issue, the

Portfolio size was approximately 2.5 times the nominal amount of the Notes.

As security for its obligation under the Swap, the Company has pledged the Amounts due under the Investment

Agreement to the Security Trustee.

15 Ultimate controlling party

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

The Company is consolidated for accounting purposes with KBC Investments Cayman Islands Ltd and KBC

Investments Cayman Islands Ltd is consolidated for accounting purposes with KBC Group N.V. In the opinion of

the 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 €688,550,000 and the Company entered into an

Investment Agreement with the Eligible GIC Provider whereby the Company invested the proceeds of the Notes at

a purchase price of €688,550,000 as the Amounts due under the Investment Agreement.

All income received on the Amounts due under the Investment Agreement is paid to Company as investment

income. Upon the maturity or early redemption of the Notes, the Eligible GIC Provider will deliver to the Company

the purchase price of €688,550,000 or such proportion of the Amounts due under the Investment Agreement to

match the Notes to be redeemed. For the year ended 31 December 2012 the Company had received investment

income in the sum of €4,482,230 (2011: €6,524,947) and investment income in the sum of €188,492 (2011:

€1,535,946) was receivable.

The Company also entered into the Swap with the Swap Counterparty pursuant to the terms of which the Company

has, in return for a fee, taken on the mezzanine level credit and market risk of the Portfolio which is up to

€3,000,000,000 in size. The Swap Counterparty retained the first loss tranche of €22,500,000. The Company has

the mezzanine level credit risk for a maximum amount of €688,550,000 above the first loss tranche. For the year

ended 31 December 2012 the Company had received from the Swap Counterparty Swap premium in the sum of

€2,566,630 (2011: €3,249,278) and had received excess Swap premium in the sum of €1,168,120 (2011:

€1, 376, 881).

The 2012 financial statements of the Company are consolidated in the financial statements of KBC Investments

Cayman Islands Ltd. Prior to this the financial statements of the Company were consolidated in the financial

statements of KBC Bank. N.V.

The directors of the Company are the Company's only key management personnel. Corporate administration

services are provided to the Company by Bedell Trust Company Limited, including the provision of Company

secretary, Bedell Secretaries Limited and the directors. Shane Michael Hollywood and Alasdair James Hunter are

directors of Bedell Trustees Limited and Bedell Secretaries Limited and are partners of Bedell Group. Shane

Michael Hollywood is also a director of Bedell Trust Company Limited. The directors' fees are included in the fee

expense payable to Bedeil Trust Company Limited.

Total fees charged to Bedell Trust Company Limited during the year amounted to £23,760 (€29,104) (2011:

£22,055 (€26,305)). Fees were payable to Bedell Trust Company Limited in the sum of £1,423 (€1,743) as at the

year end (2011: £759 (€905)).

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

partner of Bedell Cristin.

17 Dividends

A dividend was paid during the year in the sum of £750 (€895) which equates to £375 (€478) per share (2011:

£750 (€870) which equates to £375 (€435) per share).

A dividend in the sum of £750 (€939) is recommended in respect of the financial year ended 31 December 2012

which equates to £375 (€470) per share (2011: £750 (€895) equates to £375 (€478) per share).

18 Post statement of financial position events

At the date of approving these financial statements there is considerable uncertainty in the financial markets

following the global liquidity and credit crisis. As a consequence there have been significant rating downgrades

and write downs in residential mortgage backed and other asset backed securities held or issued by banking and

financial institutions.

Credit Events have occurred in the Portfolio with a claim date during the year ended 31 December 2012 and

subsequently, for the following corporate obligations and asset backed securities:

a) bankruptcy credit events:

Irish Bank Resolution Corporation Limited, Overseas Shipholding Group, Inc., and The PMI Group, Inc.

-26-


31 December 2012

18 Post statement of financial position events (continued)

b) restructuring credit events:

Bankia SA - restructured default, Irish Life &Permanent Public Limited Company - restructured default 2,

Northern Rock (Asset Management) plc - restructured dfefault, The Governor and Company of the Bank

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

c) permanent reduction of capital credit events:

BSABS 2006-HE10 2M4, CMLTI 2007-AHL1 M4, CMLTI 2007-AMC1 M4, CWL 2007-1 M4, and MSAC

2006-HE7 M4.

d) ABS ratings downgrade credit events:

OOMLT 2005-4 M2, RASC 2005-AHL3 M2, and RASC 2006-KS3 M2.


Event claims and settlements made under the Swap. Therefore, to date, the occurrence of the Credit Event claims

resulted in the utilisation of the Cash Reserve Amount, in full, the reduction of the Amounts due under the

Investment 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 and the

principal balance of the class C Notes were reduced by €10,782,944. The adjusted principal balance of the class

C Notes was €43,426,027.

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

balance of the class C Notes were reduced by €1,720,000. The adjusted principal balance of the class C Notes

was €41,706,027.

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

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, orb) 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.

-27-

regent street finance limited - london stock exchange2013/07/31 · regent street finance limited...

Documents