Equity Release Funding (No. 2) plc Notice to the holders (1905I)

TIDMAS13

RNS Number : 1905I

Equity Release Funding (No. 2) plc

10 August 2021

THIS NOTICE IS IMPORTANT AND REQUIRES THE IMMEDIATE ATTENTION OF NOTEHOLDERS. IF ANY NOTEHOLDER IS IN ANY DOUBT AS TO THE ACTION IT SHOULD TAKE OR IS UNSURE OF THE IMPACT OF THE IMPLEMENTATION OF ANY EXTRAORDINARY RESOLUTION TO BE PROPOSED AT A MEETING, IT SHOULD SEEK ITS OWN FINANCIAL AND LEGAL ADVICE, INCLUDING AS TO ANY TAX CONSEQUENCES, IMMEDIATELY FROM ITS STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR OTHER INDEPENDENT FINANCIAL OR LEGAL ADVISER.

EQUITY RELEASE FUNDING (NO.2) PLC

(incorporated in England and Wales with limited liability under registered number 04414548)

(the "Issuer")

NOTICE

to the holders of the following outstanding notes

GBP255,000,000 5.88 per cent. Class A2 Mortgage Backed Notes due 2032 (the "Notes")

(ISIN: XS0147706237 Common Code: 014770623)

Capitalised terms used but not otherwise defined herein shall have the meanings ascribed to them in terms and conditions of the Notes (the "Conditions") and the master definitions and construction schedule dated 11 June 2002 and as amended on 21 December 2005 (the "Master Definitions and Construction Schedule") and the Amendment Deed (as defined below).

Background

On 5 March 2021 (the "LIBOR Announcement Date"), the UK Financial Conduct Authority (the "FCA") confirmed that all Sterling LIBOR settings will either cease to be provided by any administrator or no longer be representative of their underlying market immediately after 31 December 2021 (the "LIBOR Announcement"). The FCA has also made a number of previous announcements regarding the proposed cessation of LIBOR. In relation to 3-month Sterling LIBOR in particular, the LIBOR Announcement provided that immediately after 31 December 2021, such LIBOR setting would no longer be representative of the underlying market and economic reality and that such representativeness will not be restored. For additional background to the LIBOR Announcement, we refer to:

(a) the speech of Andrew Bailey, the Chief Executive of the FCA, on 27 July 2017 entitled "The Future of LIBOR";

(b) the statement of the FCA entitled "FCA Statement on LIBOR panels" dated 24 November 2017;

(c) the speech of Andrew Bailey, the Chief Executive of the FCA, on 12 July 2017 entitled "Interest rate benchmark reform - transition to a world without LIBOR";

(d) the "Dear CEO Letter" sent by the FCA and the Prudential Regulation Authority to major banks and insurers and published on the FCA website, dated 19 September 2018, relating to the need to transition from LIBOR to alternative benchmarks;

(e) the speech of Andrew Bailey, the Chief Executive of the FCA, on 15 July 2019 entitled "The Future of LIBOR"; and

   (f)            the statement of the FCA entitled "Transition from LIBOR" dated 4 September 2019.

(a) to (f) of the above is available from the website of the FCA at www.fca.org.uk.

In 2017, the Bank of England (the "BoE") and the FCA announced that they had mandated a working group (the "Working Group") to implement a broad-based transition to the Sterling Overnight Index Average ("SONIA") across sterling bond, loan and derivative markets, so that SONIA is established as the primary sterling interest rate benchmark by the end of 2021. Therefore, Sterling LIBOR will not continue on the current basis after 2021, and regulators have urged market participants to take active steps to implement the transition to SONIA and other risk-free rates ahead of this deadline.

While a fixed interest rate applies to the Notes, the Guaranteed Investment Contract and the Liquidity Facility Agreement (the "Original Transaction Documents") include references to Sterling LIBOR. As such, the Issuer has considered the above regulatory guidance for parties to replace Sterling LIBOR in a timely manner prior to the end of 2021, the uncertainty around the continued availability of Sterling LIBOR for the Original Transaction Documents and the potential for unintended results following the operation of the Sterling LIBOR fallbacks in such Original Transaction Documents.

In light of the above, the Issuer confirmed to Citigroup Trustee Company Limited ("the Trustee") that it was in the interests of the Noteholders for the Trustee to consent to certain amendments to the Original Transaction Documents to be effected by the entry into an amendment deed (the "Amendment Deed" and the amendments as further described in the Amendment Deed, the "Amendments"). In respect of the Guaranteed Investment Contract, references to Sterling LIBOR will be replaced with the Bank of England's Base Rate in the interim and thereafter with SONIA. In respect of the Liquidity Facility Agreement, references to Sterling LIBOR will be replaced with SONIA. The interest rate benchmarks applicable to the Notes will not be amended as part of the Amendments.

Due to the differences in the nature of LIBOR and SONIA, the replacement of LIBOR as the reference rate for the Original Transaction Documents requires a corresponding credit adjustment spread to the existing Relevant Margin payable on the Original Transaction Documents. Under the Amendments, the credit adjustment spread in respect of the Liquidity Facility Agreement is determined on a LIBOR vs SONIA interpolated basis, which applies a "weighted average life" methodology and the rates published by Bloomberg Index Services Limited on the LIBOR Announcement Date and as referenced on Bloomberg page ICAP > SONIA Basis. Using this methodology, the applicable credit adjustment spread is 0.1110 per cent.

The Issuer has informed the Rating Agencies of the Amendments. Given that no Rating Agency has indicated that the proposed Amendments would have an adverse effect on the current ratings of the Notes, the Issuer was satisfied that the amendments to the Original Transaction Documents were not materially prejudicial to the interest of the Noteholders.

In light of the above, an amendment deed dated 10 August 2021 (the "Amendment Deed") was entered into between, among others, the Issuer and the Trustee in order to effect the Amendments. Such Amendment Deed is available for inspection at the registered office of the Issuer during normal business hours.

This Notice is given by the Issuer.

Dated: 10 August 2021

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