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«IMPORTANT NOTICE Attached please find an electronic copy of the Offering Circular (the “Offering Circular”), dated September 22, 2006 relating to ...»

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In addition, any payments of principal of or interest on Pledged Collateral Debt Securities received during a Due Period will be reinvested in Eligible Investments maturing not later than the Business Day immediately preceding the next Quarterly Distribution Date. There is no requirement that Eligible Investments bear interest at LIBOR, and the interest rates available for Eligible Investments are inherently uncertain. There can also be no assurance that the Collateral Debt Securities included in the Collateral, the U.S. Agency Securities and Eligible Investments, together with the Hedge Agreement, will in all circumstances generate sufficient Interest Proceeds to make timely payments of interest on the Notes. Moreover, the benefits of the Hedge Agreement may not be achieved in the event of the early termination of such Hedge Agreement, including termination upon the failure of the Hedge Counterparty to perform its obligations thereunder, or if additional swap transactions are not entered into. See “Security for the Notes—The Hedge Agreement”.

Subject to satisfaction of the Rating Condition and the prior consent of the Hedge Counterparty with respect to such reduction, the Collateral Servicer may cause the Issuer to reduce the notional amount of the interest rate swap transaction and the interest rate cap transaction under the Hedge Agreement. In addition, after the last day of the Reinvestment Period, the notional amount of the interest rate swap transaction and the interest rate cap transaction under the Hedge Agreement may be adjusted if the aggregate principal amount of the Notes covered by the Hedge Agreement changes because of redemption or other principal payments made on such Notes. In the event of any such reduction, the Hedge Counterparty or the Issuer may be required to make a termination payment in respect of such reduction to the other party. See “Security for the Notes—The Hedge Agreement”.

Liquidity Risk Associated with PIK Bonds. A portion of the Collateral Debt Securities may consist of PIK Bonds, i.e., securities that permit the deferral of interest, even though such deferral does not result in the occurrence of an event of default or other similar event that would permit the holders of such Collateral Debt Securities to exercise remedies, including CDO Securities that permit such deferral. As a result, the Issuer may not receive sufficient current payments of interest on the Collateral Debt Securities in order to finance current payments of interest on the Notes.

Average Life of the Notes and Prepayment Considerations. The average life of each Class of Notes is expected to be shorter than the number of years until the Stated Maturity. See “Maturity, Prepayment and Yield Considerations”.

The average life of each Class of Notes will be affected by the financial condition of the obligors on or issuers of the Collateral Debt Securities included in the Collateral and the characteristics of such Collateral Debt Securities, including the existence and frequency of exercise of any prepayment, optional redemption or sinking fund features, the prevailing level of interest rates, the redemption price, the actual default rate and the actual level of recoveries on any Defaulted Securities, the frequency of tender or exchange offers for such Collateral Debt Securities and any dispositions of such Collateral Debt Securities and any dividends or other distributions received in respect of Equity Securities, as well as the risks unique to investments in obligations of foreign issuers described above. Four Business Days prior to any Quarterly Distribution Date occurring on or before the last day of the Reinvestment Period, the Collateral Servicer may, in its sole discretion and in accordance with the Priority of Payments, direct the Issuer to apply all or any portion of Principal Proceeds that would otherwise be available for reinvestment to pay principal of the Notes, and after the Reinvestment Period, all Principal Proceeds received by the Issuer will be used to pay principal of the Notes in accordance with the Priority of Payments. Accordingly, the average life of the Notes may be affected by the rate of principal payments on the underlying Collateral Debt Securities and by the Collateral Servicer’s decision to use Principal Proceeds to pay principal of the Notes during the Reinvestment Period. See “Maturity, Prepayment and Yield Considerations” and “Security for the Notes”.

Distributions on the Preference Shares; Investment Term; Non-Petition Agreement. Prior to the payment in full of the Notes and all other amounts owing under the Indenture, Preference Shareholders will be entitled to receive distributions only to the extent permissible under the Indenture and Cayman Islands law (as described herein). The timing and amount of distributions payable to Preference Shareholders and the duration of the Preference Shareholders’ investment in the Issuer therefore will be affected by the average life of the Notes. See “—Average Life of the Notes and Prepayment Considerations” above. Each initial purchaser of Preference Shares will be required to covenant in an Investor Application Letter (and each transferee of Preference Shares will be required to covenant in a transfer certificate) that it will not cause the filing of a petition in bankruptcy against the Issuer before one year and one day have elapsed since the payment in full of the Notes or, if longer, the applicable preference period then in effect. If such provision failed to be effective to preclude the filing of a petition under applicable bankruptcy laws, then the filing of such a petition could result in one or more payments on the Notes made during the period prior to such filing being deemed to be preferential transfers subject to avoidance by the bankruptcy trustee or similar official exercising authority with respect to the Issuer’s bankruptcy estate.





Early Termination of the Reinvestment Period. Although the Reinvestment Period is expected to terminate on the day after the Quarterly Distribution Date occurring in September 2010, the Reinvestment Period may terminate prior to such Quarterly Distribution Date if (i) (x) the Collateral Servicer (in its sole discretion) determines that in light of the composition of Collateral Debt Securities, general market conditions and other factors (including any change in accounting principles, in any regulations or laws or any change in U.S. Federal tax law requiring tax to be withheld on payments to the Issuer with respect to obligations or securities held by the Issuer), investments in additional Collateral Debt Securities within the foreseeable future would either be impractical or not beneficial to the Issuer and (y) the Collateral Servicer notifies the Trustee that no further investments in additional Collateral Debt Securities will occur, (ii) the Notes are redeemed as described below under “Description of the Notes—Optional Redemption and Tax Redemption” or (iii) an Event of Default occurs. If the Reinvestment Period terminates prior to the day after the Quarterly Distribution Date occurring in September 2010, such early termination may affect the expected average lives of the Notes and the duration of the Preference Shares described under “Maturity, Prepayment and Yield Considerations”.

Dispositions of Collateral Debt Securities. The Issuer is required to dispose of certain types of Equity Securities and Defaulted Securities within five Business Days of receipt thereof (or within five Business Days after such later date as such Equity Security or Defaulted Security may first be disposed of in accordance with its terms and applicable law) and other types of Equity Securities as soon as is reasonably and commercially practicable, but in any event within one year of receipt thereof (or within one year after such later date as such Equity Security may first be disposed of in accordance with its terms and applicable law). The Issuer is required to, at the direction of the Collateral Servicer, dispose of as soon as is reasonably and commercially practicable, but in any event within one year, any Defaulted Security (including, in the case of a Defaulted Credit Default Swap, by exercising its right to terminate), Deferred Interest PIK Bond, Written Down Security or Credit Risk Security subject to the procedures and limitations as set forth in “Security for the Notes—Acquisitions and Dispositions of Collateral Debt Securities”. The Issuer may, at the direction of the Collateral Servicer, dispose of any other Collateral Debt Security only if such disposition is during the Reinvestment Period and the Collateral Servicer reasonably believes that the disposition of such Collateral Debt Security and any related reinvestment of the Sale Proceeds thereof will cause, maintain or restore compliance with a Collateral Quality Test, Coverage Test or Eligibility Criteria that, in each case, would not be satisfied in the absence of such disposition and reinvestment (or result in the improvement in the degree of compliance with such unsatisfied Collateral Quality Test, Coverage Test or Eligibility Criteria), as set forth in “Security for the Notes—Acquisitions and Dispositions of Collateral Debt Securities”. During the Reinvestment Period, Principal Proceeds from the disposition of Collateral Debt Securities (other than Sale Proceeds received in connection with a redemption of the Notes) may be reinvested by the Collateral Servicer in additional Collateral Debt Securities subject to the restrictions as set forth in “Security for the Notes—Acquisitions and Dispositions of Collateral Debt Securities”. No acquisition or disposition of a Collateral Debt Security or eligible asset (as defined in Rule 3a-7 under the Investment Company Act) will be effected by or on behalf of the Issuer for the primary purpose of recognizing gains or decreasing losses resulting from market value changes. In connection with any acquisition or disposition of a Collateral Debt Security, pursuant to the Collateral Servicing Agreement, the Collateral Servicer will represent that the Collateral Servicer reasonably believes that such acquisition or disposition will not result in the downgrade in any of the ratings assigned by any Rating Agency to any of the Notes. Any such acquisition or disposition that would result, or that the Collateral Servicer reasonably believes would result, in such a downgrade is prohibited. Although procedures relating to the disposition of Defaulted Securities, Deferred Interest PIK Bonds, Credit Risk Securities, Written Down Securities, Equity Securities and other Collateral Debt Securities held by the Issuer are set forth in the Indenture, the Collateral Servicer will not be able to exercise discretion outside of those procedures in connection with such dispositions and, after the end of the Reinvestment Period, the Issuer will not be able to dispose of any Collateral Debt Securities other than Defaulted Securities, Deferred Interest PIK Bonds, Written Down Securities, Credit Risk Securities or Equity Securities. See “Security for the Notes—Acquisitions and Dispositions of Collateral Debt Securities”.

Taxes on the Issuer. The Issuer expects to conduct its affairs so that its income generally will not be subject to tax on a net income basis in the United States or any other jurisdiction. The Issuer also expects that payments received on the Collateral Debt Securities, Eligible Investments and U.S. Agency Securities and under the Hedge Agreement generally will not be subject to taxes imposed by the United States or other countries from which such payments are sourced. The Issuer’s income might become subject to net income or withholding taxes in the United States or other jurisdictions due to unanticipated circumstances, a change in law, contrary positions of relevant taxing authorities or other causes. Payments with respect to any equity securities held by the Issuer likely will be subject to withholding taxes imposed by the United States or other countries from which such payments are sourced. The imposition of unanticipated withholding taxes or tax on the Issuer’s net income could materially impair the Issuer’s ability to make payments on the Offered Securities.

Withholding on the Notes and Preference Shares. The Issuer expects that payments on the Offered Securities ordinarily will not be subject to any withholding tax in the Cayman Islands, the United States or any other jurisdiction. See “Certain United States Tax Considerations”. If withholding or deduction of taxes is required in any jurisdiction, neither Co-Issuer shall be under any obligation to make any additional payments to the holders of Notes or Preference Shares in respect of such withholding or deduction.

Tax Treatment of Holders of Class C Notes, Class D Notes and Preference Shares. Because the Issuer will be a passive foreign investment company, a U.S. person holding Preference Shares may be subject to additional taxes unless it elects to treat the Issuer as a qualified electing fund and to recognize currently its proportionate share of the Issuer’s income. The Issuer also may be a controlled foreign corporation, in which case U.S. persons holding Preference Shares could be subject to different tax treatments. See “Certain United States Tax Considerations”.

The Issuer intends to treat the Notes, and the Indenture requires that holders agree to treat the Notes, as debt for U.S. Federal, state and local income and franchise tax purposes. The U.S. Internal Revenue Service may challenge the treatment of the Notes, and particularly the Class D Notes, as debt of the Issuer. If such a challenge were successful, the affected Notes would be treated as equity interests in the Issuer, and the U.S. Federal income tax consequences of investing in such Notes would be the same as those of having invested in the Preference Shares without having made an election to treat the Issuer as a qualified electing fund. See “Certain United States Tax Considerations”.



Pages:     | 1 |   ...   | 13 | 14 || 16 | 17 |   ...   | 57 |


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