VALLAURIS II CLO PLC - Irish Stock Exchange

Collateral Manager. The need to satisfy such Reinvestment Criteria and identify acceptable
investments may require the purchase by the Collateral Manager, acting on behalf of the Issuer, of
Substitute Collateral Debt Obligations with a lower yield than those initially acquired or require that
such Sale Proceeds be maintained temporarily in cash or Eligible Investments, which may reduce the
yield on the Collateral. Additionally, due to the significant restrictions imposed by the Collateral
Management Agreement on the Collateral Managers’ ability to buy and sell Collateral Debt
Obligations, during certain periods or in certain circumstances, the Collateral Managers may be
unable as a result of such restrictions to buy or sell securities or to take other actions which they
might consider to be in the best interests of the Issuer and the Noteholders. Further, obligors of
Collateral Debt Obligations may be more likely to exercise any rights they may have to redeem or
prepay such obligations when interest rates or spreads are declining. The impact, including any
adverse impact, of such disposal or potential reinvestment on the holders of the Subordinated Notes
will be magnified by the leveraged nature of the Subordinated Notes. See ‘‘Description of the
Portfolio’’.
2.8 Interest Rate Risk
The Rated Notes bear interest at floating rates based on EURIBOR. However, the amount or
proportion of the Collateral Debt Obligations securing the Notes that bear interest at floating rates
based on EURIBOR may not correspond to the amount or proportion of the Notes that bear
interest on such basis. There will be no requirement as to the amount or proportion of the Collateral
Debt Obligations securing the Notes that must bear interest on a particular basis, save that the
Portfolio Profile Tests provide that Collateral Debt Obligations with an aggregate Principal Balance
of no more than 10 per cent. of the CDO Principal Balance may bear interest at a rate of interest
other than a floating rate of interest. In addition, any payments of principal or interest received in
respect of Collateral Debt Obligations and not otherwise reinvested during any Reinvestment Period
in Substitute Collateral Debt Obligations will generally be reinvested in Eligible Investments until
shortly before the next Due Date. There is no requirement that such Eligible Investments bear interest
on a particular basis, and the interest rates available for such Eligible Investments are inherently
uncertain. Furthermore, there may be a timing mismatch in the case that Collateral Debt Obligations
and Eligible Investments adjust more or less frequently and on different dates based on different
indices. As a result of these factors, it is expected that there will be a fixed/floating rate mismatch
and/or a floating rate basis mismatch between the Notes and the underlying Collateral Debt
Obligations and Eligible Investments. Such mismatch may be material and may change from time to
time as the composition of the related Collateral Debt Obligations and Eligible Investments change
and as the Notes of various Classes are repaid. As a result of such mismatches, changes in the level
of EURIBOR could adversely affect the ability to make payments on the Notes.
To the extent set forth in the Collateral Management Agreement (and as described in this
Prospectus), the Issuer may enter into an Interest Rate Hedge Agreement to reduce the effect of any
such interest rate mismatch. (Subject to obtaining the consent of the Trustee and obtaining Rating
Agency Confirmation the Interest Rate Hedge Transactions may contain terms which are different
from those described herein.) However, despite such Interest Rate Hedge Agreement, there can be no
assurance that the Collateral Debt Obligations, Eligible Investments, Interest Rate Hedge Agreement
and the Currency Swap Agreements securing the Notes will in all circumstances generate sufficient
Interest Proceeds to make timely payments of interest on the Notes or that any particular levels of
return will be generated on the Subordinated Notes.
The Issuer will depend upon its ability to identify one or more suitable Interest Rate Hedge
Counterparties and upon each Interest Rate Hedge Counterparty performing its obligations under any
Interest Rate Hedge Agreement. If an Interest Rate Hedge Counterparty defaults or becomes unable
to perform due to insolvency or otherwise, the Issuer may not receive payments it would otherwise be
entitled to from the Interest Rate Hedge Counterparty to cover its interest rate exposure. The
payments associated with such hedging arrangements generally rank senior to payments on the Notes.
2.9 Currency Risk
The Portfolio Profile Tests provide that Collateral Debt Obligations with an aggregate Principal
Balance of not more than A60,000,000 may consist of Non-Euro Obligations denominated in United
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