VALLAURIS II CLO PLC - Irish Stock Exchange

3.9 Mandatory Redemption of the Notes upon Breach of Coverage Tests
In certain circumstances, including breach of Coverage Tests (other than the Interest
Reinvestment Test), Interest Proceeds and thereafter Principal Proceeds may be applied in redemption
of the Notes in accordance with the Priorities of Payment to the extent required to cause any
Coverage Test so breached to be satisfied if recalculated following such redemption. This could result
in an elimination, deferral or reduction of interest and/or principal payments made to the holders of
the Class II Senior Notes, Class III Mezzanine Notes, Class IV Mezzanine Notes and/or
Subordinated Notes, as the case may be, and, in the case of application of Principal Proceeds in
redemption of the Notes during the Reinvestment Period rather than in reinvestment in Substitute
Collateral Debt Obligations, may also reduce the leverage ratio of the Subordinated Notes to the
Collateral which could adversely impact the level of the returns to the holders of the Subordinated
Notes and will affect the average life of the Notes redeemed to satisfy the Coverage Tests.
3.10 Optional Redemption and Volatility of Portfolio Market Value
A form of liquidity for the Subordinated Notes is the optional redemption provision set out in
Condition 7(b)(i) (Redemption at the Option of the Subordinated Noteholders), which allows for such
redemption after the Non-Call Period. There can be no assurance however that such optional
redemption provision will be capable of exercise in accordance with the conditions set out in
Condition 7(b)(ii) (Conditions to Optional Redemption). The market value of the Collateral Debt
Obligations may fluctuate, with, among other things, changes in prevailing interest rates, general
economic conditions, the conditions of financial markets, European and international political events,
events in the home countries of the obligors of the Collateral Debt Obligations, developments or
trends in any particular industry and the financial condition of such obligors. The secondary market
for leveraged loans is still limited. See ‘‘Nature of the Collateral’’ above. A decrease in the market
value of the Portfolio would adversely affect the amount of proceeds which could be realised upon
liquidation of the Portfolio and ultimately the ability of the Issuer to redeem the Subordinated Notes
pursuant to the right of optional redemption set out in Condition 7(b)(i) (Redemption at the Option of
the Subordinated Noteholders) due to the threshold requirements set out therein. There can be no
assurance that, upon any such redemption, the proceeds realised would permit any payment on the
Subordinated Notes after required payments are made in respect of the Class I Senior Notes, the
Class II Senior Note, the Class III Mezzanine Notes and/or the Class IV Mezzanine Notes and the
other creditors of the Issuer which rank in priority to the holders of the Subordinated Notes pursuant
to the Priorities of Payment.
3.11 Volatility of Subordinated Notes
The Subordinated Notes represent a leveraged investment in the underlying Collateral Debt
Obligations. It is therefore anticipated that changes in the market value of the Subordinated Notes
will be greater than changes in the market value of the underlying Collateral Debt Obligations, the
obligations comprising which are subject to the credit, liquidity, interest rate and currency exchange
rate risks discussed elsewhere herein.
3.12 Future Ratings of the Notes Not Assured and Limited in Scope
It is a condition to the issuance and sale of the Notes that the Class I Senior Notes be rated
‘‘Aaa’’ by Moody’s and ‘‘AAA’’ by S&P, that the Class II Senior Notes be rated at least ‘‘Aa2’’ by
Moody’s and ‘‘AA’’ from S&P, that the Class III Mezzanine Notes be rated at least ‘‘Baa2’’ by
Moody’s and ‘‘BBB’’ by S&P, that the Class IV Mezzanine Notes be rated at least ‘‘Ba2’’ by
Moody’s and ‘‘BB’’ by S&P. The ratings of S&P of the Class I Senior Notes relate to the timely
payment of interest and ultimate payment of principal on the Class I Senior Notes and Class II
Senior Notes by the Issuer. The ratings of the Mezzanine Notes relate to the ultimate (rather than
the timely) payment of interest and ultimate payment of principal on those Notes by the Issuer. The
ratings of Moody’s address the expected loss posed to investors by the Maturity Date. While the
Moody’s rating primarily addresses expected loss, in respect of the Senior Notes, Moody’s has also
assessed the likelihood of timely cash payment of interest on these particular obligations and views it
at closing as consistent with the expected loss rating assigned.
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