The purchase of the Notes involves substantial risks. Each prospective purchaser of the Notes should be familiar with instruments having characteristics similar to the Notes and should fully understand the terms of the Notes and the nature and extent of its exposure to risk of loss.
Before making an investment decision, prospective purchasers of the Notes should conduct such independent investigation and analysis regarding the Issuer, the Portfolio Manager, the Charged Assets, the Notes and all other relevant persons and such market and economic factors as they deem appropriate to evaluate the merits and risks of an investment in the Notes.
Investment in the Notes is only suitable for investors who have the knowledge and experience in financial and business matters necessary to enable them to evaluate the merits and risks of an investment in the Notes in the context of the investor’s own financial circumstances and investment objectives.
Investment in the Notes (or a participation therein) is only suitable for investors who:
1. Are capable of bearing the economic risk of an investment in the Notes (or a participation therein) for a period up to and until the redemption of the Notes;
2. Are acquiring an interest in the Notes (or a participation therein) for their own account for investment, not with a view to resale, distribution or other disposition of such interest (subject to any applicable law requiring that the disposition of the investor’s property be within its control); and
3. Recognise that it may not be possible to make any transfer of the Notes (or a participation therein) for a substantial period of time, if at all.
The Issuer in its discretion, disregard interest shown by a prospective investor even though that investor satisfies the foregoing suitability standards.
Each prospective investor should ensure that it fully understands the nature of the transaction into which it is entering and the nature and extent of its exposure to the risk of loss of all or a substantial part of its investment.
Special purpose company
The Issuer is a special purpose company and has been established for the purpose of issuing multiple series of secured notes under the ETPCAP2 Programme. Should any unforeseen expenses or liabilities (which have not been provided for) arise, the Issuer may be unable to meet them, leading to an Event of Default under the Notes.
There is no certainty that Noteholders will recover any amounts payable under the Notes. Due to the limited recourse nature of the Notes (see ‘Limited recourse’ below), claims in respect of the Notes are limited to the proceeds of enforcement of the Mortgaged Property subject to the prior security interests of the Custodian and Securities Account Provider and after the deduction of any applicable expenses. In addition, if a claim is brought against the Issuer (whether under statute, common law or otherwise) which is not subject to such contractual limited recourse provisions, the only assets available to meet such claim would be the proceeds of the issuance of the Issuer’s ordinary shares and any transaction fees (see ‘Fees’ below), to the extent any remain as at the date of such claim and are available to meet such claim. The only other assets of the Issuer will be the assets on which each series of secured notes under the ETPCAP2 Programme is secured, which will be subject to the prior security interests of the relevant Noteholders, any other secured parties under that Series and the prior security interests of the Custodian and the Securities Account Provider.
The Notes will be limited recourse obligations of the Issuer secured on the Charged Assets and are not or will not (as the case may be) be obligations or responsibilities of, or guaranteed by, any other person or entity. For the avoidance of doubt, none of the Trustee, the Arranger, the Portfolio Manager, any other Agent appointed by the Issuer or any other person has any obligation to any Noteholder for payment of any amount by the Issuer in respect of the Notes. There is no person that guarantees to Noteholders that they will recover any amounts payable under the Notes.
Risks relating to the Notes
These Notes are not principal protected and are a high-risk investment in the form of a debt instrument. The Noteholders are neither assured of repayment of the capital invested nor are they assured of payment of a stated rate of interest or of any interest at all. The Notes give Noteholders exposure to certain securities and other financial assets that the Issuer may invest in acting through the Portfolio Manager.
Any payments to be made on the Notes depend on the value of the Charged Assets held by the Issuer, which is the value of the amounts received by the Issuer in respect of the Charged Assets. Should the Charged Assets decrease in value, Noteholders will incur a partial or total loss of their investment. Even if the Charged Assets increase in value, Noteholders may incur a partial or total loss of their investment to the extent that the appreciation of the Charged Assets is not sufficient to account for fees, costs and expenses of the Issuer.
In certain circumstances the Notes will be redeemed early pursuant to a Mandatory Redemption Event or an Additional Mandatory Redemption Event or Optional Redemption and Noteholders shall be entitled to receive only such amount as is available following the sale, redemption or other means of realisation of the Charged Assets, subject to the provisions of the Notes described under ‘Limited recourse’ above.
In general, redemption payments to be made on the Notes are calculated with reference to the value of the Charged Assets. However, if and to the extent that the amount payable by the Issuer in accordance with the Notes to the Noteholders is greater than the amount received by the Issuer in respect of the redemption of the Charged Assets, the Noteholder shall be entitled to receive only its pro rata share of such amount as is received by the Issuer under the Charged Assets after deduction of any applicable costs and expenses.
Change of law, tax and administrative practice
Foreign exchange risk
Restrictions on Transfer
Market and legal risk
The Notes will constitute secured, limited recourse obligations of the Issuer, recourse in respect of which will, in effect, be limited to the proceeds of the Mortgaged Property (which principally comprises the Charged Assets) relating to the Notes and no other assets of the Issuer will be available to satisfy claims of Noteholders. The Issuer’s obligations to the Noteholders are solely funded by, and primarily secured on, the Charged Assets. Therefore, to the extent that the value of the Charged Assets falls, payment under the Charged Assets is not made, the Charged Assets cannot be sold or if the relevant security arrangements would not be enforceable, a loss of principal or interest or both under the Notes will result. Noteholders therefore assume the market and legal risk of the Charged Assets.
None of the Transaction Participants (as defined below but excluding the Portfolio Manager) nor any affiliate of any of them or other person on their behalf has made any investigation of, or makes any representation or warranty, express or implied, as to the standing or suitability of the Portfolio Manager or the financial or other condition of the Charged Assets.
None of the Issuer, the Arranger, the Trustee, the Principal Paying Agent, the Charged Assets Realisation Agent, the Calculation Agent, the Placing Agent, the Broker Dealer of Record, the Portfolio Manager or any other Agent, nor any affiliate of any of them (or any person on their behalf) assume any responsibility vis-à-vis the Noteholders for the economic success or lack of success of an investment in the Notes, or the performance, the value or terms of the Charged Assets. No Transaction Participant will have any responsibility or duty to make any such investigations, to keep any such matters under review, to provide the Noteholders, or prospective purchasers of the Notes, with any information in relation to such matters or to advise as to the attendant risks.
Legality of purchase
Conflict of interests
The Notes will be represented by one or more Temporary Global Notes and Permanent Global Notes. Such Global Notes will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. Except in the limited circumstances described in the relevant Global Note, investors will not be entitled to receive definitive Notes. Euroclear and Clearstream, Luxembourg will maintain records of the beneficial interests in the Global Notes. While the Notes are represented by one or more Global Notes, investors will be able to trade their beneficial interests only through Euroclear and Clearstream, Luxembourg.
While the Notes are represented by one or more Global Notes the Issuer will discharge its payment obligations under the Notes by making payments through the Principal Paying Agent to the common depositary for Euroclear and Clearstream, Luxembourg for distribution to their account holders. A holder of a beneficial interest in a Global Note must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the Notes. The Issuer has no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Notes.
Holders of beneficial interests in the Global Notes will not have a direct right to vote in respect of the relevant Notes. Instead, such holders will be permitted to act only to the extent that they are enabled by Euroclear and Clearstream, Luxembourg to appoint appropriate proxies.
Limitations of the ability to grant security over Notes while in global form
Risks Relating to the Charged Assets
The Securities Account is a margin account to be used to invest in securities or other products on margin which involves the extension of credit to the Issuer from the Securities Account Provider. As a result, the Issuer’s financial exposure could exceed the value of securities or other products in the Securities Account. Any such credit will accrue interest at the agreed rates.
The Securities Account Provider may, whenever it deems it desirable or for the Securities Account Provider’s protection, sell any or all securities or related contracts in the Securities Account, or buy any securities or related contracts relating thereto, in order to close out in whole or in part any obligations of the Issuer pursuant to the Securities Account Agreement. Therefore, Securities or other Related Rights that the Issuer may hold in the Securities Account may be sold or bought at sub-optimal prices or times that are ill-suited to such trades being executed, and the value of the Notes may be adversely affected.
In return for the Securities Account Provider agreeing to the extension or maintenance of credit in connection with the Securities Account, the Issuer has agreed that the securities in the Securities Account, together with all attendant rights of ownership, may be the subject of securities lending transactions, whether to the Securities Account Provider or by the Securities Account Provider to third parties. In connection with such loans, the Securities Account Provider may receive and retain certain benefits to which the Issuer will not be entitled.
Further, there is a risk that substitute payments that the Issuer may be entitled to as a result of such securities loans may not be afforded the same tax treatment as actual interest, dividends and / or other distributions, that the Issuer may have been entitled to but for such securities loans, and the Issuer may incur additional tax liability for substitute payments that it receives. The Issuer would not be entitled to any compensation in connection with securities lent from the Securities Account or for additional taxes the Issuer may be required to pay as a result of any tax treatment differential between substitute payments and actual interest, dividends, and / or other distributions.
Charged Assets held in the Securities Account are subject to the security interests created pursuant to the Securities Account Agreement over the assets held in the Securities Account, that rank in priority to any security interests created by either the Trust Deed or the Charging Instrument. The Securities Account Provider takes such security interests as security for its fees, costs and expenses pursuant to the Securities Account Agreement, as well as all its reasonable costs and expenses incurred in the collection of any debit balance or unpaid deficiency in the Securities Account, including, but not limited to, attorneys’ fees. Therefore, the value of the Notes will be reduced by such fees, costs, expenses and charges.
The Charged Assets are held in the Custody Account, and are subject to a lien and right of set-off retained by the Custodian over the assets held in the Custody Account, which in each case rank in priority to any security interests created by the Trust Deed or Charging Instrument in favour of the Trustee. The Custodian takes such lien and set off rights as security for its fees, costs and expenses pursuant to the Custody Agreement, as well as all its reasonable costs and expenses incurred in the collection of any debit balance or unpaid deficiency in the Custody Account, including, but not limited to, attorneys’ fees. Therefore, the value of the Notes will be reduced by such fees, costs, expenses and charges.
As the ability of the Issuer to make payments under the Notes is contingent on the performance of the Portfolio held in the Custody Account, the interests of the Noteholders may be negatively affected by an insolvency or winding up of the Custodian, or should any administrative or regulatory sanctions be imposed on the Custodian.
Noteholders should be aware that the Custodian may, pursuant to the Custody Agreement, hold Charged Assets with sub-custodians selected by it (and not subject to prior approval of the Issuer or Trustee). Therefore, the Noteholders may be negatively affected by an insolvency or winding up of any sub-custodian holding Charged Assets, or should any administrative or regulatory sanctions be imposed on any relevant sub-custodian. The liability of the Custodian for Charged Assets held by certain sub-custodians may be lower than its liability were it to hold the Charged Assets directly.
The Charged Assets may be held by the Custodian (or sub-custodian) in omnibus accounts such that the Charged Assets are not segregated from other assets held in such accounts. In the case of any shortfall of securities held in such accounts (i.e. there are not enough securities to meet the claims of all custody clients) the Issuer (and therefore Noteholders) may be negatively affected by such shortfall.
Investment in Securities by the Portfolio Manager
The Portfolio Manager may invest in Securities that meet the Management Criteria. The Management Criteria are very wide and allow the Portfolio Manager a wide discretion in selecting the Securities that it wishes to invest in.
Potential investors should be aware that an investment in Securities involves a high degree of risk. Typically, the success of any investment in Securities depends on the ability of the Portfolio Manager to choose, develop and realise appropriate investments, and there will be no guarantee that the Portfolio Manager will be able to choose, make and realise investments in any particular company or portfolio of companies.
An investor in the Notes should ensure that they have considered the operational history of the Portfolio Manager and whether the Portfolio Manager has a proven track record, to the satisfaction of the investor in the Notes. Subject to the Management Criteria, the Portfolio Manager may invest in less established companies with lower capitalisations, fewer resources and little or no performance record. As the investments in Securities are likely to be minority interests, it cannot be certain that investors’ interests will be effectively protected. There can be no assurance that the investments in the Securities will produce gains. Some or all of the investment in any Securities may be lost which could have a negative impact on the value of the Notes.
The Portfolio Manager’s investments may be exposed, directly or indirectly, to the performance of companies which may be highly leveraged and therefore may be more sensitive to adverse business or financial developments or economic factors. Such companies may face intense competition, changing business or economic conditions or other developments that may adversely affect their performance.
The activity of identifying, completing and realising attractive investments is highly competitive, and involves a significant degree of uncertainty. Other investors such as funds and vehicles with similar investment objectives to the Issuer may be formed in the future by other unrelated parties and further consolidation may occur. There is no assurance that the Portfolio Manager will be able to locate, complete and exit investments that satisfy the Investment Objectives, or realise the value of such investments, or that it will be able to invest fully the amount committed.
Investments may not be liquidated for a number of years after the initial investment and may require a substantial length of time to liquidate. As a result, there is a risk that the Portfolio Manager may be unable to realise the Investment Objectives by sale or other disposition at attractive prices or will otherwise be unable to complete any exit strategy.
In respect of the Custody Account and Securities Account, the Issuer (and, accordingly, the Noteholders also) is exposed to a fall in the prices of the Securities in the Portfolio.
The Issuer may hold a significant number of investments which are not actively traded or which may not be traded at all. This may make it difficult or impossible to obtain accurate prices for the purpose of valuing such investments. This may necessitate using financial modelling or other valuation techniques to obtain fair value for the investments. Nevertheless, to the extent that estimates and assumptions are used to value investments there may be alternations in circumstances or market conditions that may lead to the revaluation of certain assets, which may result in material increase or decrease in the Net Asset Value of the Portfolio. There may also be significant discrepancies between valuations and sale prices obtained by the Issuer, due in part to the fact that purchases of assets are using different information or methodologies to value the assets, In particular where the Issuer is required to dispose of investments hastily, e.g. to fund redemption requests or in adverse market conditions, this may have a deleterious effect on the sale price realised by the Issuer.
In determining the Net Asset Value the Calculation Agent may assign an estimated value based on comparable and internally designed assumptions for illiquid securities that do not have a tradeable market and for which a valuation report (or other means of valuation as contemplated above) is not available.
Security of the Notes
Security may be declared invalid
Not a bank deposit
Redemption and transfer of the Charged Assets
Summary of Principal Underlying Investment Risks
Asset Class Risk
Emerging Markets Risk
Portfolio Turnover Risk
Short Sales Risk
The Notes may not be offered, sold, placed or underwritten in Ireland otherwise than in conformity with the provisions of:
(i) the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 and any rules issued by the Central Bank of Ireland under Section 51 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 of Ireland (as amended) (the “2005 Act”);
(ii) the Irish Companies Acts 1963 to 2009;
(iii) the European Communities (Markets in Financial Instruments) Regulations 2007 (as amended) of Ireland and it will conduct itself in accordance with any rules or codes of conduct and any conditions or requirements, or any other enactment, imposed or approved by the Central Bank of Ireland; and
(iv) the Irish Market Abuse (Directive 2003/6/EC) Regulations 2005 and any rules issued by the Central Bank of Ireland under Section 34 of 2005 Act, and will assist the Issuer in complying with its obligations thereunder.
The Notes have not been and will not be registered under the U.S Securities Act of 1933, as amended, and may not at any time be directly or indirectly offered or sold in the United States or to or for the benefit of any U.S person.
“U.S person” means a “US person”, as the term is defined in Regulation S under the Securities Act of 1933 or the Investment Company Act of 1940 or the Internal Revenue Code (as each may be amended from time to time) and more particularly are references to: (i) any natural person that resides in the U.S or is a U.S citizen; (ii) any entity organised or incorporated under the laws of the U.S; (iii) any entity organised or incorporated outside the U.S the beneficial owners of which include U.S persons; (iv) any estate of which any executor or administrator is a US person ; (v) any trust of which any trustee is a U.S person; or (vi) any agency or branch of a foreign entity located in the U.S. For the purposes hereof, the term “U.S person” shall not include any discretionary or non-discretionary account (other than an estate or trust) held for the benefit or account of a non-U.S person by a dealer or other professional fiduciary organised or incorporated in the US. The term “U.S person” includes entities that are subject to the U.S Employee Retirement Income Securities Act of 1974, as amended, or other tax-exempt investors or entities in which substantially all of the ownership is held by U.S tax-exempt investors.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) the Notes will not be offered to the public in that Relevant Member State except that it may, with effect from and including the Relevant Implementation Date, be offered to the public in that Relevant Member State:
(A) at any time to any legal entity which is a qualified investor as defined in the Prospectus Directive;
(B) at any time to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or
(C) at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive, including offering the Notes in minimum lots with a Principal Amount of EUR 100,000 or more and subject to a minimum consideration payable of at least EUR 100,000 per investor,
provided that no such offer of Notes referred to in (A) to (C) above shall require the Issuer, the Arranger or the Placing Agent to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of Notes to the public” in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
NO OFFER, SALE OR DELIVERY OF THE NOTES, OR DISTRIBUTION OR PUBLICATION OF ANYOFFERING MATERIAL RELATING TO THE NOTES, MAY BE MADE IN OR FROM ANY JURISDICTION EXCEPT IN CIRCUMSTANCES WHICH WILL RESULT IN COMPLIANCE WITH ANY APPLICABLE LAWS AND REGULATIONS. ANY OFFER OR SALE OF THE NOTES SHALLCOMPLY WITH THE SELLING RESTRICTIONS AS SET OUT IN THE ISSUER’S OFFERING DOCUMENTS AND ALL APPLICABLE LAWS AND REGULATIONS.