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Real Est Crd Inv Ltd (RECI)

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Monday 11 July, 2011

Real Est Crd Inv Ltd

Conversion of Securities

RNS Number : 1031K
Real Estate Credit Investments Ltd
11 July 2011
 



11 July 2011

REAL ESTATE CREDIT INVESTMENTS LIMITED

PROPOSED CONVERSION TO PROTECTED CELL COMPANY AND LISTING OF CELL ON THE SPECIALIST FUNDS MARKET

 

Real Estate Credit Investments Limited ("RECI" or the "Company") today announces plans for a restructuring of the Company and proposed conversion to a protected cell company ("Conversion"). The majority of the Company's assets, including all of the Company's Real Estate Debt Investments, will be held by the Company, whose shares will continue to be traded on the Main Market of the London Stock Exchange (the "Core"). The majority of the Residual Income Positions will be held within a cell whose shares are to be separately tradeable and listed on the Specialist Funds Market (the "Cell"). Ordinary Shareholders in the Company are to be given shares in the Cell on a pro-rata basis.

 

Existing Ordinary Shareholders are currently exposed to the performance of both Real Estate Debt Investments and Residual Income Positions. The Real Estate Debt Investments were purchased subsequent to the financial crisis and currently are the more liquid of the Asset Classes, and the Directors of the Company consider that the Real Estate Debt Investments best represent the Company's existing investment strategy.

 

In contrast, the Residual Income Positions were purchased prior to the financial crisis. The Directors consider these assets to be primarily legacy assets, having a different risk profile to the Real Estate Debt Investments and which do not reflect the Company's existing investment strategy. Most of these assets are, currently, illiquid and valued on a mark-to-model basis but are, as an Asset Class, cash generative. Following Conversion the illiquid Residual Income Positions will be allocated to the Cell.

 

Immediately following Conversion, exposure to the Asset Classes will (with some exceptions) be split such that Existing Ordinary Shareholders will have exposure to Residual Income Positions through their holding in Cell Shares and a separate exposure to the Real Estate Debt Investments through their holding in Existing Ordinary Shares. If approved by Shareholders, the Conversion should therefore result in an increased flexibility for Existing Ordinary Shareholders to manage their exposure to the Assets Classes and the liquidity underlying those Asset Classes. 

 

The Conversion will also allow the Company to calculate a separate net asset value ("NAV") for the Core and a net asset value for the Cell. A discrete Core NAV will better represent the long term investment strategy of the Company and will provide greater transparency to investors in relation to the value of the Company's assets than is currently the case when viewing the Investment Portfolio as a whole.

 

Following Conversion the Core will better reflect the investment strategy of the Company while the Cell will represent legacy positions that the Company intends to dispose of, when suitable opportunities arise, over the life of the Cell. 

 

The Company will shortly be publishing a Prospectus and Circular in connection with the Conversion and Admission of the Cell Shares to trading on the Specialist Funds Market ("Admission"). Conversion and Admission are conditional on Ordinary Shareholders approving certain resolutions to be proposed at an Extraordinary General Meeting to be convened at First Floor, Dorey Court, Admiral Park, St. Peter Port, Guernsey GY1 1HJ on 10 August 2011.

 

Summary

 

·      The Company proposes to convert into a protected cell company, with the majority of the Company's assets to be held in the Core of the Company and whose preference shares and ordinary shares will continue trading on the Main Market of the London Stock Exchange.

 

·      The Cell to be created within the Company which will be known as 'European Residual Income Investments Cell' whose shares will be traded on the Specialist Funds Market. It is intended that eight Residual Income Positions held within the Company's current Investment Portfolio will be attributed to the Cell. 

 

·      The Core will contain the Company's Real Estate Debt Investments, and best represent the Company's investing strategy.

 

·      The Cell will contain the illiquid, cash generating Residual Income Positions, which the Company intends to dispose of as appropriate over the life of the Cell. Prior to disposal, it is intended that cash dividends and distributions are made to holders of Cell Shares when it is available and appropriate to do so.

 

·      Liabilities in relation to the Company's Preference Shares shall be protected, such that dividends and distributions to holders of Cell Shares can only be made if the Preference Share Cover Test is met.

 

·      The Company intends to change its name, conditional on the approval of Shareholders at the EGM, to "Real Estate Credit Investments PCC Limited".

 

Investment policy

Following Conversion, the Company's Investment Policy will be no different to the existing Investment Policy of the Company save that it will now apply only in relation to the Core.  However, the Company's investment objective for the Cell will be to pay to Cell Shareholders the Net Cell Proceeds and to provide an exposure to an amortising portfolio of Residual Income Positions.  The Directors intend that the Company pays distributions to the Cell Shareholders from the Net Cell Proceeds when it is able and appropriate to do so.

 

Preference Share Cover

As at the date of the Prospectus, the liabilities in relation to the Preference Shares, being both periodic Preference Dividends and the repayment of the Final Capital Entitlement of the Preference Shares, are borne by the Company.

The Company intends to amend the Articles of Incorporation to protect its ability to meet the Final Capital Entitlement of the Preference Shareholders following Conversion through the introduction of a cover test. The Preference Share Cover Test is intended to prevent the erosion of the Company's asset base through the payment of dividends or other distributions out of the Cell. 

Prior to the Company declaring a dividend or making a distribution (including for these purposes a redemption) to holders of Cell Shares, the Preference Share Cover Test will need to be satisfied.



 

Tom Chandos, Chairman of Real Estate Credit Investments Limited, said:

 

'The proposed conversion of RECI to a protected cell company separates the Company's real estate debt investments from its illiquid legacy residual income positions.  The conversion will ensure that the Core fully reflects the Real Estate Debt strategy of the Company and allows for greater transparency and flexibility for shareholders.'

 

-ENDS-

 

For further information:

 

Real Estate Credit Investments Limited

Natalie Withers

Tel:  +44 20 7968 7340

 


Liberum Capital (Financial Adviser)

Chris Bowman / Tom Fyson / Richard Bootle

Tel:  +44 (0)20 3100 2000

 

M:Communications

James Wallis

Tel:  +44 (0)207 920 2329

Kate Ruck Keene

Tel:  +44 (0)207 920 2322

 

Indicative statistics

 

Proforma NAV per Exiting Ordinary Share as at 30 June 20111

€2.07

Expected NAV per Existing Ordinary Share following Admission of Cell Shares1

€1.55

Expected NAV per Cell Share following Admission1

€0.52

Maximum total number of Cell Shares in issue following Admission

39,966,985

Fixed Cover Ratio

2.39

ISIN for Cell Shares

GG00B6SKJ171

SEDOL for Cell Shares

B6SKJ17

European Residual Income Investments Cell ticker

ERII

 

_______________
1            Calculated by reference to published 31 March 2011 net asset value as adjusted to take account of (in so far as relevant): (i) unaudited Real Estate Debt Investment valuation as at 30 June 2011; (ii) unaudited cash balances as at 30 June 2011; (iii) Residual Income Position valuations as at 31 March 2011 but assuming an estimated amortisation up to 30 June 2011.

   

 

This press release appears as a matter of record only and does not constitute an offer to sell or a solicitation of an offer to purchase any security.

The Company established is a closed-ended investment company domiciled in Guernsey.  The Company has received the necessary consent from the Guernsey Financial Services Commission. 

All investments are subject to risk.  Past performance is no guarantee of future returns.

The value of investments may fluctuate.  Results achieved in the past are no guarantee of future results.  This document is not intended to constitute legal, tax or accounting advice or investment recommendations.  Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decision.  Statements contained in this document that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of the Company's investment manager.  Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon.  Additionally, this document contains "forward-looking statements".  Actual events or results or the actual performance of the Company may differ materially from those reflected or contemplated in such targets or forward-looking statements.

Liberum Capital Limited ("Liberum") is acting for the Company and no-one else in connection with Admission and will not be responsible to anyone other than the Company for providing the protections afforded to customers of Liberum or for providing advice in relation to Admission.

 

 

 

Conversion to a Protected Cell Company

A protected cell company ("PCC") is a cellular company governed by the Companies (Guernsey) Law 2008, as amended (the "Companies Law") in which different cells may be created from time to time at the discretion of the Directors, with each cell having its own portfolio of assets, investment objective and sub-section of the Investment Policy. 

The Company is proposing to convert into a PCC with one cell to be created within the Company which will be known as 'European Residual Income Investments Cell' (the "Cell") ("Conversion").  Consistent with the Companies Law, the non-cellular remainder of the Company shall be referred to as the core (the "Core").

It is intended that eight Residual Income Positions held within the Company's current Investment Portfolio will be attributed to the Cell (the "Cell Assets").  All other assets of the Company will remain non-cellular and shall therefore be referred to in the Prospectus as being assets of the Core (the "Core Assets").

Under the Companies Law, in order to undertake the Conversion, the Company will require the consent of the Guernsey Financial Services Commission.  Additionally, the Company will need to pass Special Resolutions authorising the Conversion and alterations to its Memorandum and Articles of Incorporation. 

The Registrar of Companies in Guernsey will issue the Registrar Certificate (following which the Company is able to convert into a PCC) upon receipt of copies of (i) the consent of the Guernsey Financial Services Commission; (ii) the Resolutions; (iii) the Revised Memorandum and Revised Articles; and (iv) a declaration from the Directors of the Company that the Company has fulfilled all the requirements of the Companies Law as to its conversion into a protected cell company.

Further, the Conversion is conditional upon:

a.             each Resolution being passed at the EGM;

b.            the same being approved at each of the Class Meetings; and

c.             the admission of the Cell Shares to trading on the Specialist Fund Market of the London Stock Exchange ("Admission").

It is expected that Conversion will become effective upon Admission.

 

Creation and Admission of Cell Shares

It is proposed that the Existing Ordinary Shares in the Company be sub-divided to create the Cell Shares. Immediately following Admission, each Existing Ordinary Shareholder shall continue to hold his Existing Ordinary Shares in the Company and shall have credited to his CREST account (or sent to him in certificated form) one Cell Share (in European Residual Income Investments Cell) for each Existing Ordinary Share registered in his name on the Record Date.

Application will be made to the London Stock Exchange for Admission of the Cell Shares to trading on the Specialist Fund Market of the London Stock Exchange.

Reasons for and benefits of the Conversion

Currently, Existing Ordinary Shareholders are exposed to the performance of both Real Estate Debt Investments and Residual Income Positions (together the "Asset Classes").

 

The Real Estate Debt Investments were purchased subsequent to the financial crisis and currently are the more liquid of the Asset Classes. Furthermore, they are valued on a mark-to-market basis.  The Directors consider that the Real Estate Debt Investments best represent the Company's existing investment strategy.

 

In contrast, the Residual Income Positions were purchased prior to the financial crisis and the Directors consider these assets to be primarily legacy assets which have a different risk profile to the Real Estate Debt Investments and which do not reflect the Company's existing investment strategy. Most of these assets are, currently, illiquid and valued on a mark-to-model basis but are, as an Asset Class, cash generative.

 

Following Conversion the illiquid Residual Income Positions will be allocated to the Cell. It follows that the Core will then better reflect the investment strategy of the Company while the Cell will represent legacy positions that the Company intends to dispose of, when suitable opportunities arise, over the life of the Cell. 

 

Immediately following Conversion, therefore, exposure to the Asset Classes will (with some exceptions) be split such that Existing Ordinary Shareholders will have exposure to Residual Income Positions through their holding in Cell Shares and a separate exposure to the Real Estate Debt Investments through their holding in Existing Ordinary Shares. If approved, the Conversion should therefore result in an increased flexibility for Existing Ordinary Shareholders to manage their exposure to the Assets Classes and the liquidity underlying those Asset Classes. 

 

The Conversion will also allow the Company to calculate a separate net asset value for the Core and a net asset value for the Cell. A discrete Core NAV will better represent the long term investment strategy of the Company and will provide greater transparency to investors in relation to the value of the Company's assets than is currently the case when viewing the Investment Portfolio as a whole.

 

The Investment Manager anticipates that Existing Ordinary Shareholders should benefit from an appreciation in the market price of the existing Core Assets of Real Estate Debt Investments over time.  Cell Shareholders should benefit from the distribution of the cash generated by the Cell Assets until such assets are sold in the market and the Cell is wound up.

 

Investment Policy

Following Conversion, the Company's Investment Policy will be no different to the existing Investment Policy of the Company save that it will now apply only in relation to the Core.  The Company will, however, need to add a new section to the Company's Investment Policy to take into account the existence of the Cell and its discrete pool of Cell Assets which will be managed separately from the Core Assets. The proposed Investment Policy is set out in Part II of the Prospectus. 

Following Conversion, any changes to the Investment Policy will first require the approval of Shareholders by Ordinary Resolution at a general meeting of the Company and then, if the proposed amendments relate to:

(i)         the the section of the Investment Policy relating to the Core, such amendments will require approval of the Existing Ordinary Shareholders by Ordinary Resolution at a separate class meeting of the Existing Ordinary Shareholders; or

(ii)        the section of the Investment Policy relating to the Cell, such amendments will require approval of the Cell Shareholders by Ordinary Resolution at a separate class meeting of the Cell Shareholders.

Preference Share Cover

As at the date of the Prospectus, the liabilities in relation to the Preference Shares, being both periodic Preference Dividends and the repayment of the Final Capital Entitlement of the Preference Shares, are borne by the Company.

The Company intends to amend the Articles of Incorporation to protect its ability to meet the Preference Dividends and the Final Capital Entitlement of the Preference Shareholders following Conversion through the introduction of a cover test (the "Preference Share Cover Test"). The Preference Share Cover Test is intended to prevent the erosion of the Company's asset base through the payment of dividends or other distributions out of the Cell. 

Prior to the Company declaring a dividend or making a distribution (including for these purposes a redemption) to holders of Cell Shares (a "Potential Distribution"), the Preference Share Cover Test will need to be satisfied.

If, immediately following a Potential Distribution, the PCC Cover Ratio would be equivalent to or less than the Fixed Cover Ratio, then the Preference Share Cover Test will not be satisfied and the Company will not be able to make the Potential Distribution to the Cell Shareholders. 

Conversely, if, immediately following a Potential Distribution, the PCC Cover Ratio would exceed the Fixed Cover Ratio, then the Preference Share Cover Test would be satisfied and the Company would be able to make the Potential Distribution to the Cell Shareholders.

The Directors' discretion to declare and pay a dividend to Existing Ordinary Shareholders (following Conversion) will not be affected by a failure of the Company to satisfy the Preference Share Cover Test.

The Fixed Cover Ratio is the ratio that the Company, in consultation with the Manager, has determined is sufficient to meet the Final Capital Entitlement (and which is set at 2.39).

The PCC Cover Ratio, as at any date, will be calculated as follows: 

 

 

PCC Cover Ratio =

 

 

Core Total Assets + Cell Total Assets


Final Capital Entitlement (£) x Preference Exchange Rate

 

 

where Core Total Assets and the Cell Total Assets are determined by reference to the balance sheet values from the most recent publicly available interim accounts, net of any proposed distributions expected to be made to the holders of Existing Ordinary Shares and Cell Shares and any declared but outstanding distributions to the same.

The Inter-Cellular Arrangement

Notwithstanding the Company's ability to satisfy the Preference Share Cover Test, the Company will continue to fulfil its obligations towards the Preference Shareholders with respect to the distribution of Preference Dividends.  Such obligations will be met using the income available in the Core and, if necessary, the Core Assets themselves, as augmented pursuant to the Inter-Cellular Arrangement described below. 

Following Conversion, should Core Assets be insufficient to meet the Company's liabilities in respect of Preference Dividends and/or the Final Capital Entitlement when they fall due, it is intended that the Directors will call upon the income and, where such income is insufficient to satisfy such liabilities, the assets of the Cell to satisfy the liabilities (the "Inter-Cellular Arrangement").

If the Resolutions are passed at the EGM and approved at the Class Meetings, the Articles of Incorporation will be amended such that:

·      If the income and assets of the Core are insufficient to meet a Preference Dividend (and any additional amounts due in respect of a Preference Dividend including any rolled over balance of a previously unpaid Preference Dividend) that falls due, the Directors will use available income (which, for the avoidance of doubt, shall exclude any amounts in respect of declared but unpaid distributions) in the Cell in order to satisfy such amounts as are outstanding. Should such available income be insufficient to satisfy the outstanding liabilities, the Directors will use the assets of the Cell to satisfy the liabilities.

·      If the income and assets of the Core are insufficient to meet the Final Capital Entitlement of Preference Shareholders when it falls due the Directors will use available income in the Cell (which, for the avoidance of doubt, shall exclude any amounts in respect of declared but unpaid distributions) in order to satisfy such amount as is outstanding. Should such available income be insufficient to satisfy the outstanding liabilities, the Directors will use the assets of the Cell to satisfy the liabilities.

Please refer to the section entitled "Amendments to the Memorandum and Articles of Incorporation" in Part VII of the Prospectus for further information on the proposed amendments to the Company's Articles of Incorporation.

Investment Management Agreement

 

The Company and the Manager have agreed that, following Conversion, the Investment Manager will not charge an Incentive Fee on Cell Assets.

 

The Company's existing Incentive Fee (as more fully described in the section entitled "Incentive Compensation" in Part III of the Prospectus) for each incentive period is an amount equal to 25 per cent. of the amount by which A exceeds (B x C), where:

 

A =

the Company's consolidated net income taking into account any realised or unrealised losses (to the extent that they have not already been deduced in any previous payment period) excluding any gains from the revaluation of investments, as shown in the Company's latest consolidated management accounts for the relevant payment period, before payment of any Incentive Fee (the "Consolidated Net Income").

B =

a simple interest rate equal to 2.00 per cent. per quarter (the "Hurdle Rate"), subject to a reset mechanic more fully described in the section entitled "Incentive Compensation" in Part III of the Prospectus.

C =

the weighted average number of shares outstanding in the relevant payment period multiplied by the weighted average offer price of such shares (the "Aggregated Weighted Share Price").

 

Conditional and effective upon Admission, this fee will be amended by a deed of amendment such that Consolidated Net Income refers only to the income of the Core and Aggregated Weighted Share Price refers only to Existing Ordinary Shares. The Incentive Fee will further be amended to make it clear that it will be payable only out of the assets of the Core.

 

 



Expected Timetable of Principal Events

 

.


2011

Publication of Prospectus and Circular

11 July

Latest time and date for the receipt of green Form of Proxy for the EGM

10:30 a.m. on 8 August

Latest time and date for the receipt of blue Form of Proxy for the Existing Ordinary Shareholder Class Meeting

11:00 a.m. on 8 August

Latest time and date for the receipt of red Form of Proxy for the Preference Shareholder Class Meeting

11:30 a.m. on 8 August

EGM1

10:30 on 10 August

Existing Ordinary Shareholder Class Meeting1

11:00 on 10 August

Preference Shareholder Class Meeting2

11:30 on 10 August

Admission of the Cell Shares to trading and the commencement of dealings on the Specialist Fund Market of the London Stock Exchange

 11 August

General Notes:

(a)        The times and dates set out in the expected timetable of principal events above and mentioned throughout the Prospectus may be adjusted by the Company, in which event details of the new times and dates will be notified to the UK Listing Authority, and an announcement will be made on an RIS.

(b)        References to times in the Prospectus are to London times unless otherwise stated.

 

_____________________

1             The quorum for the Extraordinary General Meeting is two Existing Ordinary Shareholders present in person or by proxy and the quorum for the Existing Ordinary Shareholder Class Meeting is two persons holding or representing by proxy at least one third of the capital committed or agreed to be committed in respect of the issued Existing Ordinary Shares.  In the event that the Extraordinary General Meeting and/or the Existing Ordinary Shareholder Class Meeting is not quorate, the Board will reconvene the Extraordinary General Meeting 30 minutes later at the same location and/or the Existing Ordinary Shareholder Class Meeting 30 minutes later at the same location; the quorum for any such adjourned EGM and/or Existing Ordinary Shareholder Class Meeting shall be those Existing Ordinary Shareholders present in person or by proxy.
2             The quorum for the Preference Shareholder Class Meeting is two persons holding or representing by proxy at least one third of the capital committed or agreed to be committed in respect of the issued Preference Shares. In the event that the Preference Shareholder Class Meeting is not quorate, the Board will reconvene the Preference Shareholder Class Meeting 30 minutes later at the same location; the quorum for any such adjourned Preference Shareholder Class Meeting shall be those Preference Shareholders present in person or by proxy.
 


Definitions

 

The following definitions apply throughout this announcement unless the context requires otherwise:

ABS

asset-backed securities which are debt securities which have their interest and principal repayments sourced principally from a generic group of income producing assets

ABS Portfolio

a portfolio of investments acquired prior to the Company's initial public offering on 23 November 2005 from, amongst other sellers, the Investing Fund

Adjusted NAV

the Net Asset Value of the Company calculated in accordance with the Company's accounting policies increased by an amount equal to the Aggregate Final Capital Entitlement

Administration Agreement

the administration agreement between the Company and the Administrator dated 8 March 2011

Admission

the proposed admission of the Cell Shares to trading on the Specialist Fund Market of the London Stock Exchange

Administrator

State Street (Guernsey) Limited

Affiliate

an affiliate of, or person affiliated with, a specified person; a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified

Aggregate Final Capital Entitlement

the Final Capital Entitlement multiplied by the number of Preference Shares in issue (excluding Preference Shares held in treasury)

AIFM Directive

the Directive on Alternative Investment Fund Managers adopted on 11 November 2010

ALBA 2005-1 Notes

ALBA 2005-1 plc Mortgage Early Repayment Certificates, subordinated notes and R certificates, as more fully described in the section entitled "The Cell Assets" in Part II of the Prospectus

ALBA 2006-1 Notes

ALBA 2006-1 plc Mortgage Early Repayment Certificates, subordinated notes and R certificates, as more fully described in the section entitled "The Cell Assets" in Part II of the Prospectus

Articles or Articles of Incorporation

the Articles of Incorporation of the Company in force from time to time

Asset Classes

the Real Estate Debt Investments and the Residual Income Positions

Associate

shall have the same meaning as given in the FSA's rules

Board of Directors or Directors or Board

the board of directors of the Company

Business Day

any day (other than a Saturday or a Sunday) on which commercial banks are open for general business in London and Guernsey

Capita Registrars

a trading name of Capita Registrars Limited

CDO

collateralised debt obligation which is a debt obligation issued in multiple classes secured by an underlying portfolio of investments

Cell

subject to the passing of the Resolutions, the cell of the Company to which the Cell Assets will be attributed

Cell Assets

the assets of the Company attributable to the Cell, being: (i) the Magellan 1 Notes; (ii) the Eirles Three Notes; (iii) the ALBA 2005-1 Notes; (iv) the ALBA 2006-1 Notes; (v) the RASC Certificates; (vi) the Cheyne High Grade Notes; (vii) the Newgate 2006-1 Notes; and (viii) the Sestante Notes, as more fully described in the section entitled "The Cell" in Part II of the Prospectus

Cell NAV

the net asset value of the Cell in the aggregate or the net asset value per Cell Share (as the context requires), calculated in accordance with the Company's accounting policies

Cell Shares

subject to the passing of the Resolutions, ordinary shares in the capital of the Cell of the Company with rights attaching over the Cell Assets

Cell Shareholders

holders of Cell Shares

Cell Total Assets

the Total Assets of the Cell

Cheyne Capital

Cheyne Capital Management (UK) LLP

Cheyne High Grade Notes

Cheyne High Grade ABS CDO Ltd Class F Notes, as more fully described in the section entitled "The Cell Assets" in Part II of the Prospectus

Circular

the circular issued by the Company dated on the date of this document in connection with the Extraordinary General Meeting and the Class Meetings

City Code

The City Code on Takeovers and Mergers

Class Meetings

the separate class meetings of the Existing Ordinary Shareholders and Preference Shareholders due to be held on 10 August 2011

CMBS

commercial mortgage-backed securities, being interests in or obligations secured by a commercial mortgage loan or a pool of commercial mortgage loans

Companies Law

The Companies (Guernsey) Law, 2008 (as amended)

Company

Real Estate Credit Investments Limited and, where relevant, its subsidiaries and subsidiary undertakings

Concert Party

the group of Shareholders and certain funds and persons deemed by the Panel to be acting in concert for the purposes of the City Code more particularly described in the City Code from time to time, further details of which are set out in paragraph 10 of Part VII of the Prospectus

Conversion

the conversion of the Company into a PCC which will occur on around 11 August 2011, as more fully described in the sub-section entitled "Conversion mechanics" in Part I of the Prospectus

Core

subject to the passing of the Resolutions, the core segment of the Company, in which the Core Assets will be retained

Core Assets or Core Portfolio

the assets of the Company from time to time excluding the Cell Assets

Core NAV

the net asset value of the Core in total or the net asset value per Existing Ordinary Share (as the context requires), calculated in accordance with the Company's accounting policies

Core Total Assets

the Total Assets of the Core

CREST

the relevant system as defined in the CREST Regulations in respect of which Euroclear is operator (as defined in the CREST Regulations) in accordance with which securities may be held in uncertificated form

CREST Manual

the rules governing the operation of CREST, consisting of the CREST Reference Manual, CREST International Manual, CREST Central Counterparty Service Manual, CREST Rules, Registrars Service Standards, Settlement Discipline Rules, CCSS Operations Manual, Daily Timetable, CREST Application Procedure and CREST Glossary of Terms (all as defined in the CREST Glossary of Terms promulgated by Euroclear on 15 July 1996 and as amended since)

CREST member

a person who has been admitted to Euroclear as a system member (as defined in the CREST Regulations)

CREST participant

a person who is, in relation to CREST, a system-participant (as defined in the CREST Regulations)

CREST Regulations

the Uncertificated Securities Regulations 2001 (SI 2001 No. 2001/3755), as amended

CREST Sponsor

CREST participant admitted to CREST as a CREST sponsor

CREST sponsored member

CREST member admitted to CREST as a sponsored member

Custodian

State Street Custodial Services (Ireland) Limited

Custody Agreement

the custody agreement between the Company and the Custodian dated 8 December 2005 (as amended)

Default Shares

Shares in the capital of the Company in respect of which the Company has requested disclosure of the identity of any person (other than the Shareholder) who has an interest in such Shares and the nature of such interest and the requested information has not been supplied to the Company within the prescribed period in accordance with the Company's Articles

Defaulting Shareholder

a Shareholder who, having been requested to do so by the Directors, fails to provide certain information regarding the interests of other persons in the Shares held by that Shareholder

Disclosure and Transparency Rules

the disclosure and transparency rules made by the FSA under Part VI of the FSMA

Dividend Lock Up Period

The period during which distributions shall not be made to holders of shares in a cell pursuant to the Preference Share Cover Test, as more fully discussed in the section entitled "Preference Share Cover" in Part I of the Prospectus

Eirles Three Notes

Eirles Three Limited Series 236 Tranche B (SMART 06-1), as more fully described in the section entitled "The Cell Assets" in Part II of the Prospectus

Euro or or EUR

the lawful single currency of member states of the European Communities that adopt or have adopted the Euro as their currency in accordance with the legislation of the European Union relating to European Monetary Union

Euroclear

Euroclear UK & Ireland Limited, the operator of CREST

Exchange Shares

shares issued or transferred to the Investing Fund in exchange for the ABS Portfolio

Excluded Territories and each an Excluded Territory

the United States, Canada, Australia, Japan and South Africa and any other jurisdiction where the extension or availability of the Admission would breach any applicable law

Existing Ordinary Shareholders

the holders of Existing Ordinary Shares

Existing Ordinary Shares

the ordinary shares in issue as at the date of the Prospectus

Extraordinary General Meeting or EGM

the extraordinary general meeting of the Company due to be held on 10 August 2011 at which Existing Ordinary Shareholders will validly vote upon, amongst other business, the Resolutions in accordance with Guernsey law

Final Capital Entitlement

the Repayment Amount for all Preference Shares on liquidation of the Company and, following Conversion, the Core

Financial Services Authority or FSA

the Financial Services Authority acting in its capacity as the competent listing authority for the purposes of Part 6 of the FSMA

Fixed Cover Ratio

the ratio of the gross value of the Investment Portfolio to the Euro value of the Final Capital Entitlement which is sufficient to ensure payment of the Final Capital Entitlement by the Company.  As at the date of the Prospectus, the Current Cover Ratio is 2.39

Form of Proxy

means the relevant forms of proxy issued to Existing Shareholders entitled to attend and vote at the EGM and/or the Class Meetings, as applicable

FSMA

Financial Services and Markets Act 2000, as amended

GBP or Sterling or £

the lawful currency of the United Kingdom

GFSC

the Guernsey Financial Services Commission

GFSC Approval

the GFSC's approval of the Company's application for Conversion

Group

the Company and its subsidiary, Trebuchet Finance Limited, and any other consolidated subsidiaries of the Company from time to time

Hurdle Rate

an amount equal to a simple interest rate equal to 2 per cent. per quarter subject to the reset mechanism more fully discussed in the section entitled "Incentive Compensation" in Part III of the Prospectus.

IFRS

International Financial Reporting Standards

Inter-Cellular Arrangement

the arrangement between the Core and the Cell whereby the Cell Assets will be used to cover any shortfall in the Core's ability to meet its obligations to the Preference Shares

Incentive Fee

the incentive fee payable by the Company to the Investment Manager in accordance with the terms of the Investment Management Agreement and as will be amended, conditional upon Conversion, in accordance with the terms of the Investment Management Agreement Side Letter

Investing Fund

Cheyne ABS Opportunities Fund LP, acting by its general partner, Cheyne ABS Opportunities General Partner Inc, and (as the context requires) such general partner itself, which is an open-ended investment fund managed by the Investment Manager from whom the Company acquired the ABS Portfolio

Investment Committee

Messrs Shamez Alibhai and Ravi Stickney

Investment Management Agreement

the investment management agreement, as amended from time to time, initially between the Company, Trebuchet and the Investment Manager dated 8 December 2005, and to which other special purpose vehicles may, if so required, become party in the future pursuant to a Deed of Adherence

Investment Management Agreement Side Letter

Conditional on the approval of the Resolutions at the EGM and the Class Meetings, the side letter to the investment management agreement to be entered into between (i) the Company; (ii) the Investment Manager; and (iii) Trebuchet amending the payment of the Incentive Fee, as more fully discussed under the section entitled "Incentive Compensation" in Part III of the Prospectus

Investment Management Team

the investment management team of Cheyne Capital led by the Investment Committee

Investment Manager

Cheyne Capital Management (UK) LLP, a limited liability partnership incorporated in England (registered number OC321484). The address of the registered office of the Investment Manager is set out in the section titled "Corporate Information"

Investment Manager Options

the Investment Manager options described in the section entitled "Investment Manager Options" in Part III of the Prospectus

Investment Policy

the investment policy of the Company

Investment Portfolio

the total assets of the Company which, when taken together, at any time, may include the ABS, MBS, RMBS, CMBS, Residual Income Positions or other investments, rights to investments, instruments and securities in which the Company's assets are invested

Liberum Capital

Liberum Capital Limited

Listing Rules

the listing rules made by the Financial Services Authority for the purposes of Part VI of the FSMA

London Stock Exchange

London Stock Exchange plc

Magellan 1 Notes

Magellan Mortgages No.1 Public Limited Company Class D Notes, as more fully described in the section entitled "The Cell Assets" in Part II of the Prospectus

Management Fee

the management fee payable by the Company to the Investment Manager in accordance with the terms of the Investment Management Agreement

MBS

mortgage backed securities

Memorandum or Memorandum of Incorporation

the Memorandum of Incorporation of the Company in force from time to time

Net Asset Value of the Company or NAV of the Company

the net asset value of the Company in total or the net asset value per Existing Ordinary Share, calculated in accordance with the Company's accounting policies

Net Cell Proceeds

the proceeds of the Cell Assets net of any fees and expenses which may be incurred and/or payable out of the Cell by the Company

Newgate 2006-1 Notes

the Newgate Funding Plc Series 2006-1, Mortgage Early Repayment Certificates and Series Residuals, as more fully described in the section entitled "The Cell Assets" in Part II of the Prospectus

Non-Qualified Holder

any person, as determined by the Directors, to whom a sale or transfer of Shares, or in relation to whom the holding of Shares (whether directly or indirectly affecting such person, and whether taken alone or in conjunction with other persons, connected or not, or any other circumstances appearing to the Directors to be relevant): (a) would or could be in breach of the laws or requirements of any jurisdiction or governmental authority; (b) might result in the Company incurring a liability to taxation; or (c) would or could (i) cause the Company's assets to be deemed "plan assets" for the purpose of the US Employee Retirement Income Security Act of 1974, as amended ("ERISA") or the US Tax Code; (ii) cause the Company to be required to register as an "investment company" under the US Investment Company Act (including because the holder of the shares is not a "qualified purchaser" as defined in Section 2(a)(51) of the US Investment Company Act and the related rules and regulations thereunder) or to lose an exemption or status thereunder to which it might otherwise be entitled; (iii) cause the Company to have to register under the US Exchange Act of 1934, as amended (the "US Exchange Act"), or any similar legislation; (iv) cause the Company not to be considered a "foreign private issuer" as such term is defined in Rule 3b-4(c) under the US Exchange Act; (v) result in a person holding shares in violation of the transfer restrictions put forth in any prospectus published by the Company, from time to time; or (vi) cause the Company to be a "controlled foreign corporation" for the purposes of the US Tax Code

Notice of Extraordinary General Meeting

the notice contained in the Circular convening the EGM dated 11 July 2011

Official List

the list maintained by the UK Listing Authority pursuant to Part VI of the FSMA

Ordinary Resolution

under the Companies Law, a resolution passed by a simple majority of the Existing Ordinary Shareholders and/or Cell Shareholders (as the context requires) present and voting in person or by proxy

Panel

the UK Panel on Takeovers and Mergers, which operates the City Code

Participation Note

the unsecured loan participation note issued to the Company by Trebuchet through which, following Conversion, the Cell will acquire an economic exposure to the Magellan 1 Notes, the ALBA 2005-1 Notes and the ALBA 2006-1 Notes, the Newgate 2006-1 Notes and the Sestante Notes held by Trebuchet

Payment Date

31 March, 30 June, 30 September and 31 December in each year from 31 December 2010 to 31 December 2017 inclusive and the date of final repayment of the Preference Shares

PCC

a protected cell company

PCC Cover Ratio

the ratio of the aggregate of the Core Total Assets and the Cell Total Assets to the Euro value of the Final Capital Entitlement as illustrated in the section entitled "Preference Share Cover" in Part I of the Prospectus 

Preference Dividend

an amount in Sterling equal to 8 per cent. per annum of the Preference Share Notional Value

Preference Dividend Payment Date

31 March, 30 June, 30 September or 31 December (as applicable) in each year

Preference Exchange Rate

the Sterling:Euro exchange rate which is, as at 31 March 2011, 1.12956

Preference Share Notional Value

£1.00

Preference Share Cover Test

the test as described in the section entitled "Preference Share Cover" in Part I of the Prospectus

Preference Shareholders

holders of Preference Shares

Preference Shares

redeemable, sterling denominated shares of no par value each in the capital of the Company designated as Preference Shares as at the date of the Prospectus and, subsequent to approval of the Resolutions, redeemable shares of no par value in the capital of the Core of the Company designated as Preference Shares

Prime

that the pool of loans underlying certain Residual Income Positions comprises mortgages made to borrowers with good credit records and whose incomes were verified by the lender at the time of loan origination

Prospectus Directive

Directive 2003/71/EC and any relevant implementing measure in each Relevant Member State

Prospectus Rules

the prospectus rules made by the Financial Services Authority for the purposes of Part VI of the FSMA

RASC Certificates

RASC Series 2006-KS2 Trust Home Equity Mortgage Asset-Backed Pass-Through Certificates, as more fully described in the section entitled "The Cell Assets" in Part II of the Prospectus

Real Estate Debt Investments

debt secured, directly or indirectly, by commercial or residential properties within Western Europe or the United Kingdom

Record Date

the record date for qualification for being issued with the Cell Shares, being 5.00 p.m. on 10 August 2011

Register

the register of members of the Company

Registrar

Capita Registrars (Guernsey) Limited

Registrar Agreement

the registrar agreement between the Company and the Registrar dated 8 December 2005

Registrar Certificate

the certificate of conversion into a protected cell company to be issued by the Guernsey Registrar of Companies upon filing of the GFSC Approval, the Resolutions as passed at the EGM, the Revised Articles, and a declaration of compliance (conversion)

Regulation S

Regulation S under the US Securities Act

Relationship Agreement

the relationship agreement between the Company and the Investing Fund dated 8 December 2005

Relevant Implementation Date

the date on which the Prospectus Directive is implemented in a Relevant Member State

Relevant Member State

any Member State of the European Economic Area which has implemented the Prospectus Directive

Repayment Amount

an amount equal to (i) the Preference Share Notional Value increased by (ii) any accrued but unpaid Preference Dividend and (iii) further sums payable in respect of the Preference Dividend (in each case calculated down to the date of the return of capital and to be payable whether or not such further sum has been declared or earned)

Residual Income Positions

assets currently held in the Investment Portfolio which are subordinated tranches of ABS that are, in most cases, unrated and, in many cases, represent the residual income typically retained by the originator of a securitisation transaction as the "equity" or "first loss" position

Resolutions

resolutions 1 to 5, inclusive, as described in the section entitled "The Resolutions" in Part I of the Prospectus

Revised Articles

the proposed restated Articles upon which Existing Ordinary Shareholders and Preference Shareholders will be asked to vote on the adoption thereof at the Extraordinary General Meeting and the Class Meetings, the amendments to be incorporated into the Revised Articles are summaries in the section entitled "Memorandum and Articles of Incorporation" in Part VII of the Prospectus

Revised Memorandum

the proposed restated Memorandum upon which Existing Ordinary Shareholders and Preference Shareholders will be asked to vote on the adoption thereof at the Extraordinary General Meeting and the Class Meetings

RIS

a regulatory information service, being one of the service providers listed in Schedule 12 of the Listing Rules

RMBS

residential mortgage-backed securities, being interests in or obligations secured by pools of residential mortgage loans

Sestante Notes

the Sestante Finance S.R.L. Junior Notes, as more fully described in the section entitled "The Cell Assets" in Part II of the Prospectus

SFM

the Specialist Fund Market of the London Stock Exchange

Shareholders

the holders of Shares

Shares

the Existing Ordinary Shares and/or the Preference Shares and/or the Cell Shares (as appropriate)

SME

Small or medium enterprise

Special Resolution

under the Companies Law, a resolution passed by a majority of not less than 75 per cent. of the Existing Ordinary Shareholders present and voting in person or by proxy

Specified Person

one of the following, for the purposes of Section 110 of the Irish Taxes Consolidation Act 1997: (i) a company which directly or indirectly controls Trebuchet; (ii) a company which is directly or indirectly controlled by Trebuchet; (iii) a company which is directly or indirectly controlled by a third company which controls Trebuchet; (iv) a person from whom Trebuchet has acquired assets with an aggregate value of not less than 75 per cent. of the aggregate assets of Trebuchet; (v) a person to whom Trebuchet has made loans or advances with an aggregate value of not less than 75 per cent. of the aggregate assets of Trebuchet; or (vi) a person with whom Trebuchet has entered into Specified Agreements with an aggregate value of not less than 75 per cent. of the aggregate assets of Trebuchet

SPV

special purpose vehicle

Sub-Administrator

State Street Fund Services (Ireland) Limited

Sub-Administration Agreement

the Sub-Administration Agreement between the Company and the Sub-Administrator dated 8 March 2011

Supplement to the Prospectus

a supplement to the Prospectus produced in accordance with rule 3.4 of the Prospectus Rules

Taxes Act

Income and Corporation Taxes Act 1988

Total Assets

 

the sum of all investments held in the Investment Portfolio and/or the Core and/or the Cell (as applicable), and including cash and cash equivalents, derivatives and other assets

Trebuchet

Trebuchet Finance Limited, a special purpose vehicle incorporated in Ireland on 19 May 2005 with registered number 402419

UK Listing Authority

the FSA in its capacity as the competent authority for listing in the United Kingdom pursuant to Part IV of the FSMA

UK Transfer Agent

Capita Registrars

US$ or US Dollars or $

the lawful currency of the United States of America

United Kingdom or UK

the United Kingdom of Great Britain and Northern Ireland

United States or US

the United States of America, its territories and possessions, any State of the United States, and the District of Columbia

US Investment Company Act

the US Investment Company Act of 1940, as amended

US Person

US person within the meaning given to it in Regulation S under the US Securities Act

US Securities Act

the US Securities Act of 1933, as amended

US Tax Code

the US Internal Revenue Code of 1986, as amended

Western Europe

means Andorra; Austria; Belgium; Denmark; Finland; France; Germany; Gibraltar; Guernsey; Iceland; Ireland, Isle of Man; Italy; Jersey; Liechtenstein; Luxembourg; Monaco; the Netherlands; Norway; Portugal; San Marino; Spain; Sweden; and Switzerland

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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