VALLAURIS II CLO PLC - Irish Stock Exchange

eferred to herein as ‘‘Participations’’. As described in more detail below, holders of Participations are
subject to additional risks not applicable to a holder of a direct interest in a loan.
The purchaser of an Assignment typically succeeds to all the rights of the assigning Selling
Institution and becomes entitled to the benefit of the loans and the other rights of the lender under
the loan agreement. The Issuer, as an assignee, will generally have the right to receive directly from
the borrower all payments of principal and interest to which it is entitled, provided that notice of such
Assignment has been given to the borrower. In the case of a novation, the Issuer will obtain the right
to receive from the borrower all payments of principal and interest to which it is entitled. As a
purchaser of an Assignment, the Issuer typically will have the same voting rights as other lenders
under the applicable loan agreement and will have the right to vote to waive enforcement of breaches
of covenants. The Issuer will generally also have the same rights as other lenders to enforce
compliance by the borrower with the terms of the loan agreement, to set off claims against the
borrower and to have recourse to collateral supporting the loan. As a result, the Issuer will generally
not bear the credit risk of the Selling Institution and the insolvency of the Selling Institution should
have no effect on the ability of the Issuer to continue to receive payment of principal or interest from
the borrower. The Issuer will, however, assume the credit risk of the borrower.
Participations by the Issuer in a Selling Institution’s portion of the loan typically results in a
contractual relationship only with such Selling Institution and not with the borrower under such loan.
The Issuer would, in such case, only be entitled to receive payments of principal and interest to the
extent that the Selling Institution has received such payments from the borrower. In purchasing
Participations, the Issuer generally will have no rights of set-off against the borrower and no right to
enforce compliance by the borrower with the terms of the applicable loan agreement and the Issuer
may not directly benefit from the collateral supporting the loan in respect of which it has purchased a
Participation. As a result, the Issuer will assume the credit risk of both the borrower and the Selling
Institution selling the Participation. In the event of the insolvency of the Selling Institution selling a
Participation, the Issuer may experience delays in receiving payments made to the Selling Institution
by the borrower or may be treated as a general creditor of the Selling Institution and may not benefit
from any set-off between the Selling Institution and the borrower and the Issuer may suffer a loss to
the extent that the borrower may set-off claims against the Selling Institution. If the Issuer is treated
as a general creditor of the Selling Institution, it may not have any exclusive or senior claim with
respect to the Selling Institution’s interest in, or the collateral with respect to, the loan. The Collateral
Manager has not and will not perform independent credit analyses of the Selling Institution. The
Issuer may purchase a Participation from a Selling Institution that does not itself retain any economic
interest of the loan, and therefore, may have limited interest in monitoring the terms of the loan
agreement and the continuing creditworthiness of the borrower. When the Issuer holds a Participation
in a loan it generally will not have the right to participate directly in any vote to waive enforcement
of any covenants breached by a borrower. A Selling Institution voting in connection with a potential
waiver of a restrictive covenant may have interests which are different from those of the Issuer and
such Selling Institutions are generally not required to consider the interest of the Issuer in connection
with the exercise of its votes.
Assignments and Participations are sold strictly without recourse to the Selling Institutions and
the Selling Institution will generally make no representations or warranties about the underlying loan,
the borrowers, the documentation of the loans or any collateral securing the loans. In addition, the
Issuer will be bound by provisions of the underlying loan agreements, if any, that require the
preservation of the confidentiality of information provided by the borrower.
Additional risks are therefore associated with the purchase of Participations by the Issuer as
opposed to Assignments. The Portfolio Profile Tests provide that Collateral Debt Obligations with an
aggregate Principal Balance of not more than 20 per cent. of the CDO Principal Balance may consist
of Synthetic Securities and not more than 30 per cent. of the CDO Principal Balance may consist of
Participations together with Synthetic Securities, subject to further limits relating to the credit ratings
assigned to the obligors in respect of such Participations and Synthetic Securities.
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