Titan Europe 2007-1 (NHP) Limited - Irish Stock Exchange

which will not be treated as interest income or expense. Gain or loss attributable to fluctuations in exchange
rates will equal the difference between (i) the United States dollar value of the applicable sterling principal
amount of such Note, and any payment with respect to accrued interest, translated at the spot rate on the date
such payment is received or such Note is disposed of, and (ii) the United States dollar value of the applicable
sterling principal amount of such Note, on the date such holder acquired such Note, and the United States dollar
amounts previously included in income in respect of the accrued interest received. Such foreign currency gain
or loss will be recognised only to the extent of the total gain or loss realised by a United States holder on the
sale, exchange or retirement of the Note. The source of such sterling gain or loss will be determined by
reference to the residence of the United States holder or the qualified business unit of the United States holder
on whose books the Note is properly reflected.
A United States holder will have a tax basis in any sterling received on the receipt of principal on, or the
sale, exchange or retirement of, a Note equal to the United States dollar value of such sterling, determined at the
time of such receipt, sale, exchange or retirement. Any gain or loss realised by a United States holder on a
subsequent sale or other disposition of sterling (including its exchange for United States dollars) will generally
be ordinary income or loss.
Losses on the Notes
It is likely that the Notes will be treated as a “security” as defined in Section 165(g)(2) of the Code.
Accordingly, any loss with respect to the Notes as a result of one or more realised losses on the Libra Loan will
be treated as a loss from the sale or exchange of a capital asset at that time. In addition, no loss will be
permitted to be recognised until the Notes are wholly worthless.
Each United States holder will be required to accrue interest and any OID with respect to a Note based on
the assumption that no defaults or delinquencies will occur with respect to the Libra Loan. Accordingly,
particularly with respect to the more subordinated Notes, the amount of taxable income reported during the early
years of the term of the Notes may exceed the economic income actually realised by the holder during that
period. Although the United States holder of a Note would eventually recognise a loss or reduction in income
attributable to the previously accrued income that is ultimately not received as a result of such defaults, the law
is unclear with respect to the timing and character of such loss or reduction in income. Moreover, in these
circumstances, the present value of the tax detriment associated with the inclusion of such income early in the
term of the Notes would generally exceed the present value of the subsequent tax benefit associated with such
eventual loss or reduction in income, assuming no changes in prevailing tax rates.
Taxation of the Class V Notes
Although not free from doubt, to the extent that the Class V Notes are treated as debt instruments, it would
appear that the Class V Notes would be subject to the contingent payment debt instrument provisions of the
Treasury regulations (the “CDI regulations”). Under the CDI regulations, the comparable yield, as of the
Closing Date, would be required to be determined for the Class V Notes. Although not entirely clear as to the
Class V Notes, it appears that the comparable yield would generally be the yield at which a fixed rate debt
instrument with terms and conditions similar to the Class V Notes (including the level of subordination, term,
timing of payments and general market conditions) would be issued, not taking into consideration the risk of the
contingencies or the liquidity of the Class V Notes. Further, such a comparable yield could not be less than the
Applicable Federal Rate announced monthly by the IRS. In addition, any gain on the sale, exchange, or
retirement of the Class V Notes would be treated as ordinary income and not capital gain. However, as
mentioned above, this treatment is not free from doubt and it is possible that the IRS could assert, and a court
could ultimately hold, that some other treatment should apply to the Class V Notes. For example, there is a
strong possibility that the Class V Notes could be treated as owning undivided beneficial interests in the Class V
Amounts or could be treated as owning an equity interest in the Issuer. See “—Possible Alternative
Characterisation of the Notes” below. Investors in the Class V Notes should consult their own tax advisers as to
the U.S. federal income tax consequences of the Class V Notes.
Possible Alternative Characterisation of the Notes
Although, as described above, the Issuer intends to take the position that the Notes will be treated as debt
for United States federal income tax purposes, such position is not binding on the IRS or the courts and thus no
assurance can be given that such characterisation will prevail. In particular, because of the subordination and
other features of the Class E Notes (and to a lesser extent, each more senior class of Notes) and the fact that the
Class X Notes consist disproportionately of interest payments and the fact that the Class V Notes consist of
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