VALLAURIS II CLO PLC - Irish Stock Exchange

Exercise of Rights under Collateral Enhancement Obligations
The exercise of any rights or options under any Collateral Enhancement Obligation on behalf of
the Issuer by the relevant Collateral Manager will be dependent upon there being sufficient amounts
standing to the credit of the Collateral Enhancement Account to pay the costs of any such exercise.
If sufficient amounts are not so available, the Collateral Manager may, at its discretion, fund the
payment of any such shortfall by way of a Collateral Manager Advance. However, the Collateral
Manager is under no obligation to make any Collateral Manager Advances and there can be no
assurance that the amounts standing to the credit of the Collateral Enhancement Account will be
sufficient to fund the exercise of any right or option under any Collateral Enhancement Obligation at
any time. Collateral Manager Advances may be made for purposes other than acquiring or exercising
rights with respect to a Collateral Enhancement Obligation. Any Collateral Manager Advance will be
repaid (prior to the enforcement of security over the Collateral) from the Distributions and Sale
Proceeds of Collateral Enhancement Obligations pursuant to Condition 3(c)(i)(X) (Application of
Interest Proceeds), Condition 3(c)(ii)(P) (Application of Principal Proceeds) or Condition 3(i)(E)
(Collateral Enhancement Account). Failure to exercise any such right or option may result in a
reduction of the returns to the Subordinated Noteholders (and, potentially, Noteholders of other
Classes).
Collateral Enhancement Obligations and any income or return generated thereby are not taken
into account for the purposes of determining satisfaction of, or required to satisfy, any of the
Coverage Tests, Portfolio Profile Tests or Collateral Quality Tests.
Counterparty Risk
Participations, Synthetic Securities, Interest Rate Hedge Agreements and Currency Swap
Agreements involve the Issuer entering into contracts with counterparties. Pursuant to such contracts,
the counterparties agree to make payments to the Issuer under certain circumstances as described
therein. The Issuer will be exposed to the credit risk of the relevant counterparty with respect to any
such payments, the risks relating to which are discussed further below. See ‘‘Risks Relating to
Synthetic Securities’’ below.
2.2 Insolvency of Obligors under Collateral Debt Obligations
The Collateral Debt Obligations may be subject to various laws enacted for the protection of
creditors in the countries of the jurisdictions of incorporation of the obligors thereunder and, if
different, in which the obligors conduct their business and in which they hold their assets, which may
adversely affect such obligors’ abilities to make payment on a full or timely basis. These insolvency
considerations will differ depending on the country in which each obligor or its assets is located and
may differ depending on the legal status of the obligor. In particular, it should be noted that a
number of continental European jurisdictions operate ‘‘debtor-friendly’’ insolvency regimes which
would result in delays in payments under Collateral Debt Obligations where obligors thereunder are
subject to such regimes, in the event of their insolvency.
The different insolvency regimes applicable in the different European jurisdictions results in a
corresponding variability of recovery rates for Senior Secured Loans, Second Lien Loans and
Mezzanine Obligations entered into by obligors in such jurisdictions. No reliable historical data is
available in respect of such recovery rates.
2.3 The Target Amount
The Issuer intends to enter into agreements on or about the Closing Date to purchase a
substantial portion of the Portfolio. The prices paid for such Collateral Debt Obligations will reflect
the market value of such Collateral Debt Obligations on the date the Issuer purchased or committed
to purchase such obligations, which may be greater or less than their market value on the Closing
Date or the date of settlement of the applicable trade, if later. In addition, although such obligations
are expected to satisfy the Eligibility Criteria at the time of the Issuer (or the Collateral Manager on
behalf of the Issuer) entering into a binding commitment to purchase such obligations, it is possible
that such obligations may no longer satisfy such Eligibility Criteria after entry into such binding
commitment and therefore on or after the Closing Date due to intervening events. The requirement
that the Eligibility Criteria be satisfied applies only at the time that any commitment to purchase a
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