ALBA 2007 – 1 plc - Irish Stock Exchange

amounts paid to it by Borrowers under the Mortgage Loans. Similarly, to the extent that any premium
received by the Issuer from a replacement interest rate swap counterparty or cross currency swap
counterparty upon entry into replacement transactions together with any collateral provided by the
Interest Rate Swap Counterparty or Cross Currency Swap Counterparty, respectively, is insufficient to
satisfy any termination payment due to the respective Swap Counterparty under the Interest Rate Swap
Agreement or, as the case may be, the Cross Currency Swap Agreement, the respective Swap
Counterparty will receive any such shortfall in accordance with the applicable Priority of Payments.
No assurance can be given as to the ability of the Issuer to find (i) a replacement interest rate swap
counterparty which meets the Required Interest Rate Swap Counterparty Ratings and which will agree
to enter into replacement interest rate swap transactions, or (ii) a replacement cross currency swap
counterparty which meets the Required Cross Currency Swap Counterparty Ratings and which will
agree to enter into a replacement cross currency swap transaction.
Risks Associated with Rising Mortgage Rates
The Mortgage Rate payable under the Bank of England Repo Rate-Linked Mortgage Loans (save for
the Fixed Reverting to SVR Mortgage Loans, to the extent they accrue a fixed interest rate) is
calculated by reference to the Bank of England repo rate. The Mortgage Rate payable under the
LIBOR-Linked Mortgage Loans (save for the Fixed Reverting to LIBOR Mortgage Loans, to the extent
they accrue a fixed rate of interest) is calculated by reference to LIBOR. Both the Bank of England
repo rate and LIBOR may be subject to variations. The Issuer could be subject to a higher risk of
default in payment by a Borrower under the Bank of England Repo Rate-Linked Mortgage Loans as a
result of an increase in the Bank of England repo rate or under the LIBOR-Linked Mortgage Loans as a
result of an increase in LIBOR.
Limited Liquidity
The ability of the Issuer to redeem all of the Notes and the relevant Instruments in full, including
following the occurrence of an Event of Default in relation to the Notes and the relevant Instruments
while any of the Mortgage Loans are still outstanding, may depend upon whether the Mortgage Loans
can be realised to obtain an amount sufficient to redeem the Notes and the relevant Instruments.
There is not, at present, an active and liquid secondary market for the Notes or the Instruments. There
can be no assurance that a secondary market for the Notes will develop or, if a secondary market does
develop, that it will provide Noteholders or Instrumentholders with liquidity of investment or that it will
continue for the life of the Notes or Instruments. To date, no underwriter has indicated that they intend
to establish a secondary market in the Notes or the Instruments.
Risks Related to the MERCs
The MERCs are generally more speculative investments than the Notes and investors should be aware
of the special risks associated with the MERCs as set out below.
The MERCs represent an entitlement only to amounts received by the Issuer in respect of the obligation
of Borrowers, in certain circumstances, to pay Mortgage Early Repayment Charges. MERC Holders do
not have an entitlement to Mortgage Early Repayment Charges received or receivable from Borrowers
acquiring Ported Mortgage Loans as such amounts will be waived or refunded to the Borrowers. The
entitlement of MERC Holders to receive MERC Holder Payments from time to time will be contingent
upon the Notes remaining outstanding. High rates of prepayment or enforcement of Mortga ge Loans
are likely to result in increased Mortgage Early Repayment Charges. Correspondingly, lower rates of
prepayments or enforcements of Mortgage Loans are likely to result in reduced MERC Holder