Gresham Capital CLO IV B.V. - Irish Stock Exchange

Portfolio—Eligibility Criteria” and “Description of the Portfolio—Reinvestment Criteria”. The amount and
nature of Collateral securing the Notes have been established to withstand certain assumed deficiencies in
payment resulting from defaults in respect of the Collateral Debt Securities. See “Rating of the Notes”. If any
deficiencies exceed such assumed levels, however, payment of the Notes could be adversely affected. If a
default occurs with respect to any Collateral Debt Security securing the Notes and the Collateral Manager, on
behalf of the Issuer (acting on the advice of the Collateral Manager) sells or otherwise disposes of such
Collateral Debt Security, it is not likely that the proceeds of such sale or disposition will be equal to the amount
of principal and interest owing to the Issuer in respect of such Collateral Debt Security. If the Collateral
Manager, on behalf of the Issuer is unable to acquire Collateral that satisfies the constraints set out below under
“Description of the Portfolio—Eligibility Criteria” and “Description of the Portfolio—Reinvestment Criteria”,
the Issuer may not be able to satisfy one or more of the Coverage Tests, which could result in prepayment of the
Notes.
The market value of the Collateral Debt Securities in the Portfolio will generally fluctuate with, among
other things, the financial condition of the obligors on or issuers of the Collateral Debt Securities or, with
respect to Synthetic Securities, of the obligors on or issuers of the Reference Obligations, general economic
conditions, the condition of certain financial markets, political events, developments or trends in any particular
industry and changes in prevailing interest rates. The public markets for non-investment grade corporate debt
securities have in the past experienced periods of volatility and periods of reduced liquidity. Changes in the
market value of the Collateral Debt Securities in the Portfolio generally do not affect the Issuer’s interest or
principal collections. However, a decrease in the market value of the Collateral Debt Securities in the Portfolio
would adversely affect the sale proceeds that could be obtained upon the sale of the Collateral Debt Securities in
the Portfolio and could ultimately affect the ability of the Issuer to pay in full or redeem the Notes.
The ability of the Collateral Manager, on behalf of the Issuer to sell Collateral Debt Securities in the
Portfolio prior to maturity is subject to certain restrictions in the Collateral Management Agreement as described
below under “Description of the Portfolio—Sale of Collateral Debt Securities and Reinvestment Criteria”. If a
Collateral Debt Security is sold or principal payments are received in respect of a Collateral Debt Security, the
Collateral Manager may at times be unable to identify a suitable substitute investment or the Collateral
Manager, on behalf of the Issuer may be unable to purchase a suitable substitute investment in periods of market
volatility or disruption or for any number of other reasons, including the constraints set out below under
“Description of the Portfolio—Eligibility Criteria” and “Description of the Portfolio—Reinvestment Criteria”.
Bank Loans; Mezzanine Loans; Second Lien Loans. The Collateral Debt Securities in the Portfolio may
include Bank Loans lent predominantly to a variety of European borrowers which are rated below investment
grade. Such loans are of a type generally incurred by the borrowers thereunder in connection with highly
leveraged transactions, often (although not exclusively) to finance internal growth, acquisitions, mergers, or
recapitalisations. As a result of the additional debt incurred by the borrower in the course of such a transaction,
the borrower’s creditworthiness is often judged by the rating agencies to be below investment grade.
The Collateral Debt Securities in the Portfolio may include Mezzanine Loans and Second Lien Loans lent
predominantly to a variety of European borrowers which are rated below investment grade. Mezzanine finance
generally comprises a secured loan which is subordinated in terms of priority of repayment and security behind
the senior debt and therefore has a higher risk profile than senior debt. Because of the greater risk, mezzanine
lenders may be granted share options or warrants in the borrower which can be exercised in certain
circumstances, principally being immediately prior to the borrower’s shares being sold or floated in an initial
public offering.
Many of the Bank Loans, Mezzanine Loans and Second Lien Loans purchased by the Collateral Manager,
on behalf of the Issuer will have no, or only a limited, trading market. The Collateral Manager, on behalf of the
Issuer may purchase Bank Loans, Mezzanine Loans and Second Lien Loans that are significantly less liquid
than bank loans typically made to investment grade borrowers. Although the Collateral Manager, on behalf of
the Issuer does not generally intend to dispose of Bank Loans, Mezzanine Loans and Second Lien Loans prior to
their maturity, the Issuer’s investment in illiquid Bank Loans, Mezzanine Loans and Second Lien Loans may
restrict its ability to dispose of investments in a timely fashion and for a fair price. Illiquid Bank Loans,
Mezzanine Loans and Second Lien Loans may trade at a discount to comparable, more liquid investments. In
addition, because of the provision of confidential information, the unique and customised nature of a loan
agreement and the private syndication of a loan, certain Bank Loans, Mezzanine Loans and Second Lien Loans
may not be purchased or sold as easily as publicly traded securities, particularly as a result of the increased
degree of complexity in negotiating a secondary market purchase or sale, which complexity does not exist, for
example, in the high yield bond market. Historically, the trading volume in the bank loan market has been small
33