Exhibit 10.3


 


EXECUTION COPY


 


Funding 1 Swap


 


SCHEDULE


to the


Master Agreement


 


dated
as of 14th June, 2002


 


 


between


 


(1)                                  HALIFAX
PLC (“Party
A”);


 


(2)                                  PERMANENT
FUNDING (No.1) LIMITED (“Party B”); and


 


(3)                                  THE BANK OF NEW YORK (the “Security  Trustee”, which expression
will include its successors and assigns and which has agreed to become a party
to this Agreement solely for the purpose of taking the benefit of Parts 5(b)
and 5(k) of this Schedule and assuming the obligations under the final
paragraph of Part 5(f) of this Schedule).


 


This Agreement amends and restates the 1992 ISDA
Master Agreement (Funding 1 Swap) dated as of 14th June, 2002 between Party A,
Party B and the Security Trustee, as amended and supplemented from time to
time.


 


Part 1.               Termination Provisions


 


(a)                                  “Specified Entity”
means in relation to Party A for the purpose of:-


 


Section 5(a)(v), none


 


Section 5(a)(vi), none


 


Section 5(a)(vii), none


 


Section 5(b)(iv), none


 


and in relation to Party B for the
purpose of:-


 


Section 5(a)(v), none


 


Section 5(a)(vi), none


 


Section 5(a)(vii), none


 


Section 5(b)(iv), none


 


(b)                                 “Specified Transaction”
will have the meaning specified in Section 14 of this Agreement.


 


(c)                                  The “Cross Default”
provisions of Section 5(a)(vi), will not apply to Party A and will
not apply to Party B.


 


1

















 


(d)                                 The “Credit Event Upon
Merger” provisions of Section 5(b)(iv) will not apply to
Party A and will not apply to Party B.


 


(e)                                  The “Automatic Early
Termination” provision of Section 6(a) will not apply to
Party A and will not apply to Party B.


 


(f)                                    Payments on Early
Termination. 
For the purposes of Section 6(e) of this Agreement:


 


(i)                                     Market Quotation will apply.


 


(ii)                                  The Second Method will apply.


 


(g)                                 “Termination Currency”
means Sterling.


 


(h)                                 “Additional Termination
Event”  will apply.  In addition to the Additional Termination
Events set forth in Part 5(f)(vii) of this Schedule, the following will
constitute an Additional Termination Event:


 


The Additional Tax Representation (as defined in Part
2(b) of this Schedule), proves to have been incorrect or misleading in any
material respect with respect to one or more Transactions (each an “Affected
Transaction” for the purpose of this Additional Termination Event)  when
made or repeated or deemed to have been made or repeated.


 


For the
purpose of the foregoing Termination Event, the Affected Party will be Party A
only.


 


2

















 


Part 2.               Tax Representations


 


(a)                                  Payer Representations.  For the purpose of
Section 3(e) of this Agreement, Party A and Party B each make the
following representation:


 


It is not required by any applicable law,
as modified by the practice of any relevant governmental revenue authority, of
any Relevant Jurisdiction to make any deduction or withholding for or on
account of any Tax from any payment (other than interest under
Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by it to the
other party under this Agreement.  In
making this representation, it may rely on (i) the accuracy of any
representations made by the other party pursuant to Section 3(f) of this
Agreement, (ii) the satisfaction of the agreement contained in
Section 4(a)(i) or 4(a)(iii) of this Agreement and the accuracy and
effectiveness of any document provided by the other party pursuant to
Section 4(a)(i) or 4(a)(iii) of this Agreement and (iii) the satisfaction
of the agreement of the other party contained in Section 4(d) of this
Agreement, except that it will not be a breach of this representation where
reliance is placed on clause (ii) and the other party does not deliver a
form or document under Section 4(a)(iii) by reason of material prejudice
to its legal or commercial position.


 


(b)                                 Payee Representations. For the purpose of Section 3(f) of the Agreement, Party A makes
the following representation (the “Additional Tax Representation”):


 


(i)                                     it is a party to each Transaction solely for the purposes of a trade
(or part of a trade) carried on by it in the United Kingdom through a branch or
agency; or


 


(ii)                                  it is resident in the United Kingdom or in a jurisdiction with which
the United Kingdom has a double tax treaty which makes provision, whether for
relief or otherwise, in relation to interest.


 


For the purpose of Section 3(f) of the Agreement,
Party B does not make any representation.


 


3

















 


Part 3.               Agreement
to Deliver Documents


 


For the purpose of Sections 4(a)(i) and 4(a)(ii)
of this Agreement, each party agrees to deliver the following documents, as
applicable:


 


(a)                                  Tax forms, documents or certificates to be delivered are: none


 


(b)                                 Other documents to be delivered are:


 


	
  Party
  required

  to deliver

  Document

  	
   

  	
  Form/Document/

  Certificate

  	
   

  	
  Date
  by which

  to be delivered

  	
   

  	
  Covered
  by

  Section 3(d)

  Representation

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party
  A and

  Party B

  	
   

  	
  Appropriate
  evidence of

  its signatory’s authority

  	
   

  	
  On
  signing of

  this Agreement

  	
   

  	
  Yes

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party
  B

  	
   

  	
  Certified
  copy of

  board resolution

  	
   

  	
  On
  signing of

  this Agreement

  	
   

  	
  Yes

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party
  A

  	
   

  	
  Legal
  opinion in form

  and substance satisfactory

  to Party B

  	
   

  	
  On
  signing of

  this Agreement

  	
   

  	
  No

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Party
  B

  	
   

  	
  Legal
  opinion

  from Allen &

  Overy

  	
   

  	
  On
  signing of

  this Agreement

  	
   

  	
  No

  



 


4

















 


Part 4.               Miscellaneous


 


(a)                                  Addresses for Notices.  For the purpose of
Section 12(a) of this Agreement:


 


	
  Address
  for notices or communications to Party A:

  
	
   

  
	
  Address:

  	
   

  	
  Trinity
  Road

  
	
   

  	
   

  	
  Halifax

  
	
   

  	
   

  	
  West
  Yorkshire

  
	
   

  	
   

  	
  HX1
  2RG

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Mortgage
  Securitisation Manager

  
	
   

  	
   

  	
   

  
	
  Facsimile
  No.:

  	
   

  	
  01422
  391777

  
	
   

  	
   

  	
   

  
	
  With
  a copy to:

  	
   

  	
  HBOS
  Treasury Services plc

  
	
   

  	
   

  	
  33
  Old Broad Street

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2N
  1HZ

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Head
  of Capital Markets and Securitisation

  
	
   

  	
   

  	
   

  
	
  Facsimile
  No.:

  	
   

  	
  020
  7574 8784

  
	
   

  	
   

  	
   

  
	
  Address
  for notices or communications to Party B:

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Blackwell
  House

  
	
   

  	
   

  	
  Guildhall
  Yard

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2V
  5AE

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  The
  Secretary

  
	
   

  	
   

  	
   

  
	
  Facsimile
  No.:

  	
   

  	
  020
  7566 0975

  
	
   

  	
   

  	
   

  
	
  With
  a copy to:

  	
   

  	
  (i)
  HBOS Treasury Services plc:

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  33
  Old Broad Street

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2N
  1HZ

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Head
  of Capital Markets and Securitisation

  
	
   

  	
   

  	
   

  
	
  Facsimile
  No.:

  	
   

  	
  020
  7574 8784

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)
  the Security Trustee:

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  The
  Bank of New York

  
	
   

  	
   

  	
  One
  Canada Square

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  E14
  5AL

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Global Structured Finance - Corporate Trust

  



 


 


5

















 


	
  Facsimile
  No.:

  	
   

  	
  020 7964 6061/6399

  



 


(b)                                 Process Agent. For the purpose of Section 13(c) of this Agreement:


 


Party A appoints as its Process
Agent:  None.


 


Party B appoints as its Process
Agent:  None.


 


(c)                                  Offices.  The provisions of
Section 10(a) will apply to this Agreement.


 


(d)                                 Multibranch Party.  For the purpose of
Section 10(c) of this Agreement:


 


Party A is not a Multibranch Party.


 


Party B is not a Multibranch Party.


 


(e)                                  Calculation Agent.  The Calculation Agent is
Party A.


 


(f)                                    Credit Support Document.  Details of any Credit
Support Document:


 


In respect of Party A:                              None.


 


In respect of Party B:                                None.


 


(g)                                 Credit Support Provider.  Credit Support Provider
means in relation to Party A, none.


 


Credit Support Provider means in relation
to Party B, none.


 


(h)                                 Governing Law.  This Agreement will be
governed by and construed in accordance with English law.


 


(i)                                     Netting of Payments.  Subparagraph (ii) of
Section 2(c) of this Agreement will apply to Transactions entered into
under this Agreement unless otherwise specified in a Confirmation.


 


(j)                                     “Affiliate”
will have the meaning specified in Section 14 of this Agreement.


 


6

















 


Part 5.               Other Provisions


 


(a)                                  No Set-Off


 


(i)                                    All payments under this Agreement will be made without set-off or
counterclaim, except as expressly provided for in Section 6.


 


(ii)                                 Section 6(e) will be amended by the deletion of the following
sentence:


 


“The amount, if any, payable in respect of an Early
Termination Date and determined pursuant to this Section will be subject
to any Set-off.”


 


(b)                                 Security Interest


 


Notwithstanding
Section 7, Party A hereby agrees and consents to the assignment by
way of security by Party B of its interests under this Agreement (without
prejudice to, and after giving effect to, any contractual netting provision
contained in this Agreement) to the Security Trustee (or any successor thereto)
pursuant to and in accordance with the Funding 1 Deed of Charge and acknowledges
notice of such assignment.  Each of the
parties hereby confirms and agrees that the Security Trustee will not be liable
for any of the obligations of Party B hereunder.


 


(c)                                  Disapplication of Certain
Events of Default


 


Section 5(a)(ii),
Section 5(a)(iii), Section 5(a)(iv), Section 5(a)(v),
Section 5(a)(vii)(2), (5), (6), (7) and (9) and Section 5(a)(viii)
will not apply in respect of Party B.


 


Section 5(a)(vii)(8)
will not apply in respect of Party B to the extent that it applies to
Section 5(a)(vii) (2), (5), (6), (7) and (9).


 


(d)                                 Disapplication of Certain
Termination Events


 


The
“Tax Event” and “Tax Event Upon Merger” provisions of Section 5(b)(ii) and
5(b)(iii) will not apply to Party A or to Party B.


 


(e)                                  Additional Event of
Default


 


The
following will constitute an additional Event of Default with respect to
Party B:


 


An
Intercompany Loan Acceleration Notice is served on Party B (which will be
the Defaulting Party).


 


“Intercompany
Loan
Acceleration
Notice” will have the meaning ascribed to that term in the relevant
Intercompany Loan Agreement.


 


(f)                                    Ratings Event


 


(i)                                    In the event that the short-term, unsecured and unsubordinated debt
obligations of Party A (or its successor) or any Credit Support Provider from
time to time in respect of Party A cease to be rated at least as high as “A-1+”
by Standard & Poor’s Rating Services, a division of The McGraw-Hill
Companies, Inc. (“S&P”) and, as a result of such
cessation, the then current rating of the Issuer Notes is downgraded or placed
under review for possible downgrade by S&P (an “Initial S&P  Rating Event”),
then Party A will, within 30 days of the occurrence of such Initial S&P
Rating Event, at its own cost either:


 


7

















 


 


(A)                               put in place an appropriate mark-to-market collateral agreement
(which may be based on the credit support documentation published by ISDA, or
otherwise, and relates to collateral in the form of cash or securities or both)
in support of its obligations under this Agreement provided that (x) Party A
will be deemed to have satisfied the requirements of S&P if the amount of
collateral agreed to be provided in the form of cash and/or securities (the “Collateral
Amount”)
is determined on a basis which satisfies (but is no more onerous than) the criteria
of S&P published on 17th December, 2003, which enables entities rated lower
than a specified level to participate in structured finance transactions which,
through collateralisation, are rated at a higher level  (the “S&P  Criteria”) and (y) the Collateral
Amount will not be required to exceed such amount as would be required (in
accordance with the S&P Criteria) to maintain or restore the rating of the
Issuer Notes at or to the level they would have been at immediately prior to
such Initial S&P Rating Event;


 


(B)                                 transfer all of its rights and obligations with respect to this
Agreement to a replacement third party satisfactory to the Security Trustee
(whose consent will be given if S&P confirms that such transfer would
maintain the ratings of the Issuer Notes by S&P at, or restore the rating
of the Issuer Notes by S&P to, the level it would have been at immediately
prior to such Initial S&P Rating Event);


 


(C)                                 obtain a guarantee of its rights and obligations with respect to
this Agreement from a third party satisfactory to the Security Trustee (whose
consent will be given if S&P confirms that such guarantee would maintain
the rating of the Issuer Notes at, or restore the rating of the Issuer Notes
to, the level it would have been at immediately prior to such Initial S&P
Rating Event); or


 


(D)                                take such other action as Party A may agree with S&P as will
result in the rating of the Issuer Notes following the taking of such action
being maintained at, or restored to, the level it would have been at immediately
prior to such Initial S&P Rating Event.


 


If any of paragraphs (i)(B), (i)(C) or
(i)(D) above are satisfied at any time, all collateral (or the equivalent
thereof, as appropriate) transferred by Party A pursuant to paragraph (i)(A)
will be transferred to Party A and Party A will not be required to transfer any
additional collateral.


 


(ii)                                  In the event that the short-term, unsecured and unsubordinated debt
obligations of Party A (or its successor) or any Credit Support Provider from
time to time in respect of Party A cease to be rated at least as high as “A-3”
by S&P and, as a result of such downgrade, the then current rating of the
Issuer Notes may in the reasonable opinion of S&P be downgraded or placed
under review for possible downgrade (such event, a “Subsequent S&P Rating Event”),
then Party A will, within 30 days of the occurrence of such Subsequent S&P
Rating Event, at its own cost either:


 


(A)                              transfer all of its rights and obligations with respect to this
Agreement to a replacement third party satisfactory to the Security Trustee
(whose consent will be given if S&P confirms that such transfer would
maintain the rating of the Issuer Notes by S&P at, or restore the rating of
the Issuer Notes by S&P to, the level it would have been at immediately prior
to such Subsequent S&P Rating Event);


 


(B)                                take such other action as Party A may agree with S&P as will
result in the rating of the Issuer Notes following the taking of such action
being maintained at, or restored to, the level it would have been at immediately
prior to such Subsequent S&P Rating Event; or


 


8

















 


(C)                                obtain a guarantee of its rights and obligations with respect to
this Agreement from a third party satisfactory to the Security Trustee (whose consent
will be given if S&P confirms that such guarantee would maintain the rating
of the Issuer Notes at, or restore the rating of the Issuer Notes to, the level
it would have been at immediately prior to such Subsequent S&P Rating
Event),


 


and, if, at the time a
Subsequent S&P Rating Event occurs, Party A has provided collateral
pursuant to a mark-to-market collateral arrangement put in place pursuant to
paragraph (i)(A) above following an Initial S&P Rating Event, it will
continue to post collateral notwithstanding the occurrence of a Subsequent
S&P Rating Event until such time as any of paragraphs (ii)(A), (ii)(B) or
(ii)(C) above have been satisfied.


 


If any of paragraphs (ii)(A), (ii)(B) or (ii)(C) above
are satisfied at any time, all collateral (or the equivalent thereof, as
appropriate) transferred by Party A pursuant to paragraph (i)(A) above will be
transferred to Party A and Party A will not be required to transfer any
additional collateral.


 


(iii)                              In the event that:


 


(A)                               the long-term, unsecured and unsubordinated debt obligations of
Party A (or its successor) or any Credit Support Provider in respect of Party A
cease to be rated at least as high as “A1” (or its equivalent) by Moody’s; or


 


(B)                                 the short-term, unsecured and unsubordinated debt obligations of
Party A (or its successor) or any Credit Support Provider in respect of Party A
cease to be rated at least as high as “Prime-1” (or its equivalent) by Moody’s,


 


(such cessation being an “Initial
Moody’s Rating Event”), then Party A will, within 30 days of the
occurrence of such Initial Moody’s Rating Event, at its own cost either:


 


(1)                                  transfer all of its rights and obligations with respect to this
Agreement to either (x) a replacement third party with the Required Ratings (as
defined below) domiciled in the same legal jurisdiction as Party A or Party B,
or (y) a replacement third party as agreed with Moody’s;


 


(2)                                   procure another person to become co-obligor in respect of the
obligations of Party A under this Agreement, which co-obligor may be either (x)
a person with the Required Ratings (as defined below) domiciled in the same
legal jurisdiction as Party A or Party B, or (y) such other person as agreed
with Moody’s;


 


(3)                                  take
such other action as agreed with Moody’s; or


 


(4)                                   put in place a mark-to-market collateral agreement in a form and
substance acceptable to Moody’s (which may be based on the credit support
documentation published by ISDA, or otherwise, and relates to collateral in the
form of cash or securities or both) in support of its obligations under this
Agreement which complies with the Moody’s Criteria (as defined below) or such
other requirements as may be agreed with Moody’s.


 


If any of paragraphs (iii)(1), (iii)(2) or (iii)(3)
above are satisfied at any time, all collateral (or the equivalent thereof, as
appropriate) transferred by Party A pursuant to paragraph (iii)(4)


 


9

















 


will be transferred to Party A and Party A will not be
required to transfer any additional collateral.


 


(iv)                             In the event that:


 


(A)                               the long-term, unsecured and unsubordinated debt obligations of
Party A (or its successor) or any Credit Support Provider in respect of Party A
cease to be rated as high as “Baa2” (or its equivalent) by Moody’s; or


 


(B)                                 the short-term, unsecured and unsubordinated debt obligations of
Party A (or its successor) or any Credit Support Provider in respect of Party A
cease to be rated as high as “Prime-2” (or its equivalent) by Moody’s,


 


(such cessation being a “Subsequent
Moody’s Rating Event”), then Party A will:


 


(1)                                  on a best efforts basis within 30 days of the occurrence of such
Subsequent Moody’s Rating Event, at its own cost, attempt either to:


 


(aa)                            transfer all of its rights and obligations with respect to this
Agreement to either (x) a replacement third party with the Required Ratings (as
defined below) domiciled in the same legal jurisdiction as Party A or Party B,
or (y) a replacement third party as agreed with Moody’s;


 


(bb)                          procure another person to become co-obligor in respect of the
obligations of Party A under this Agreement, which co-obligor may be either (x)
a person with the Required Ratings (as defined below) domiciled in the same
legal jurisdiction as Party A or Party B, or (y) such other person as agreed
with Moody’s; or


 


(cc)                            take such other action agreed with Moody’s; and


 


(2)                                  within the later of 10 days of the occurrence of such Subsequent
Moody’s Rating Event and 30 days of the occurrence of an Initial Moody’s Rating
Event, put in place, at its own cost, pending compliance with paragraph
(iv)(1)(aa), (iv)(1)(bb) or (iv)(1)(cc) above, a mark-to-market collateral
agreement in a form and substance acceptable to Moody’s (which may be based on
the credit support documentation published by ISDA, or otherwise, and relates
to collateral in the form of cash or securities or both) in support of its
obligations under this Agreement which complies with the Moody’s Criteria (as
defined below) or such other requirements as may be agreed with Moody’s, provided that, if, at the time a Subsequent
Moody’s Rating Event occurs, Party A is required to post collateral following
an Initial Moody’s Rating Event, it will continue to post collateral
notwithstanding the occurrence of a Subsequent Moody’s Rating Event.


 


If any of paragraphs (iv)(1)(aa), (bb) or (cc) are
satisfied at any time, all collateral (or the equivalent thereof, as
appropriate) transferred by Party A pursuant to paragraph (iv)(2) will be
transferred to Party A and Party A will not be required to transfer any
additional collateral.


 


For the
purposes of paragraphs (iii) and (iv) of this Part 5(f), “Required Ratings” means, in
respect of the relevant entity, its short-term, unsecured and unsubordinated
debt obligations are rated at least as high as “Prime-1” and its long-term,
unsecured and unsubordinated debt obligations are rated at least as high as
“A1”, or such other ratings as may be agreed with Moody’s from time to time.


 


10

















 


“Moody’s
Criteria” means that the Collateral Amount will equal:


 


(a)                                  102 per cent. of the mark-to-market value of the outstanding
Transactions as determined by Party A in good faith on a weekly basis if the
long-term, unsecured and unsubordinated debt obligations of Party A (or its
successor) or any Credit Support Provider in respect of Party A are downgraded
below “A1”;


 


(b)                                 if the long-term, unsecured and unsubordinated debt obligations or
short-term, unsecured and unsubordinated debt obligations of Party A (or its
successor) or any Credit Support Provider in respect of Party A are downgraded
below “A2” or “Prime-1” by Moody’s, the sum of:


 


(i)                                     102 per cent. of the mark-to-market value of the outstanding
Transactions determined by Party A in good faith on a weekly basis; and


 


(ii)                                  the sum of:


 


(A)                              the aggregate of the amounts, determined in respect of each class
and series of Issuer Notes, equal to the Outstanding Principal Balance of that
class and series of Issuer Notes at the time of determination multiplied by the
weighted average life of that class and series of Issuer Notes, as at the date
of determination (expressed in days) divided by 365 (such aggregate, the “Buffer
Notional”) multiplied by the product of 0.2 per cent. and the Fixed
Rate Ratio; and


 


(B)                                the Buffer Notional multiplied by the product of 0.1 per cent. and
the sum of:


 


(aa)                            the
Variable Rate Ratio; and


 


(bb)                          the Tracker
Ratio; and


 


(c)                                  if the long-term, unsecured and unsubordinated debt obligations or
short-term, unsecured and unsubordinated debt obligations of Party A (or its
successor) or any Credit Support Provider in respect of Party A are downgraded
below “Baa2” or “Prime-2” by Moody’s, the sum of:


 


(i)                                     102 per cent. of the mark-to-market value of the outstanding
Transactions determined by Party A in good faith on a weekly basis; and


 


(ii)                                  the sum of:


 


(A)                              the Buffer Notional multiplied by the product of 0.4 per cent. and
the Fixed Rate Ratio; and


 


(B)                                the Buffer Notional multiplied by the product of 0.2 per cent. and
the sum of:


 


(aa)                            the
Variable Rate Ratio; and


 


(bb)                          the Tracker Ratio.


 


For the
purposes of determining the Buffer Notional, Party A will calculate the
weighted average life of each series and class of Issuer Notes using (1) such
assumptions as will reflect the then current expectations of Party A and/or be
based upon such circumstances as Party A may, in good faith, determine
applicable; and, notwithstanding for the avoidance of doubt (1) above, assuming
(2) that


 


11

















 


the
relevant Issuer will not exercise its call option to redeem such Issuer Notes
in full on the Step-up Date, if any, in respect of such Issuer Notes.


 


In relation to paragraphs (ii)(4) and (iii)(2) above,
Party A will, upon receipt of reasonable notice from Moody’s demonstrate to
Moody’s the calculation by Party A of the mark-to-market value of the
outstanding Transactions. In relation to paragraph (iii)(2) above, Party A
will, at its own cost, on receipt of reasonable notice from Moody’s (which, for
the avoidance of doubt, will be no less than 30 days) arrange an audit of the
methodology used by Party A in the calculation of the mark-to-market value of
the outstanding Transactions.


 


(v)                                In the event that the short-term, unsecured and unsubordinated debt
obligations of Party A (or its successor) or any Credit Support Provider from
time to time in respect of Party A cease to be rated at least as high as “F1”
(or its equivalent) by Fitch Ratings Ltd (“Fitch”) and, as a result of such cessation,
the then current rating of the Issuer Notes is downgraded or placed under
review for possible downgrade by Fitch (an “Initial Fitch Rating Event”)
then Party A will, on a reasonable efforts basis within 30 days of the
occurrence of such Initial Fitch Rating Event, at its own cost, either:


 


(A)                              put in place an appropriate mark-to-market collateral agreement in a
form and substance acceptable to Fitch (which may be based on the credit
support documentation published by ISDA, or otherwise, and relates to
collateral in the form of cash or securities or both to be posted on a weekly basis)
in support of its obligations under this Agreement provided that (x) Party A will be deemed to have satisfied the
requirements of Fitch if the Collateral Amount is determined on a basis which
is no more onerous than the Fitch Criteria (as defined below), and (y) the
Collateral Amount will not be required to exceed such amount as would be
required (in accordance with the Fitch Criteria) to maintain or restore the
rating of the Issuer Notes at or to the level it would have been at immediately
prior to such Initial Fitch Rating Event;


 


(B)                                transfer all of its rights and obligations with respect to this
Agreement to a replacement third party satisfactory to the Security Trustee
(whose consent will be given if Fitch confirms that such transfer would maintain
the rating of the Issuer Notes by Fitch at, or restore the rating of the Issuer
Notes by Fitch to, the level it would have been at immediately prior to such
Initial Fitch Rating Event);


 


(C)                                obtain a guarantee of its rights and obligations with respect to
this Agreement from a third party satisfactory to the Security Trustee (whose
consent will be given if Fitch confirms that such guarantee would maintain the
rating of the Issuer Notes at, or restore the rating of the Issuer Notes to,
the level it would have been at immediately prior to such Initial Fitch Rating
Event); or


 


(D)                               take such other action as Party A may agree with Fitch as will
result in the rating of the Issuer Notes following the taking of such action
being maintained at, or restored to, the level it would have been at
immediately prior to such Initial Fitch Rating Event.


 


If any of paragraphs (v)(B), (v)(C) or
(v)(D) above are satisfied at any time, all collateral (or the equivalent
thereof, as appropriate) transferred by Party A pursuant to paragraph (v)(A)
above will be transferred to Party A and Party A will not be required to
transfer any additional collateral.


 


12

















 


(vi)                             In the event that the short-term, unsecured and unsubordinated debt
obligations of Party A (or its successor) or any Credit Support Provider from
time to time in respect of Party A cease to be rated at least as high as “F2”
(or its equivalent) by Fitch and, as a result of such cessation, the then
current rating of the Issuer Notes is downgraded or placed under review for
possible downgrade by Fitch (a “Subsequent Fitch Rating Event”) then Party
A will:


 


(A)                              on a reasonable efforts basis within 30 days of the occurrence of
such Subsequent Fitch Rating Event, at its own cost, attempt either to:


 


(1)                                 transfer all of its rights and obligations with respect to this
Agreement to a replacement third party satisfactory to the Security Trustee
(whose consent will be given if Fitch confirms that such transfer would
maintain the rating of the Issuer Notes by Fitch at, or restore the rating of
the Issuer Notes by Fitch to, the level it would have been at immediately prior
to such Subsequent Fitch Rating Event);


 


(2)                                 obtain a guarantee of its rights and obligations with respect to
this Agreement from a third party satisfactory to the Security Trustee (whose
consent will be given if Fitch confirms that such guarantee would maintain the
rating of the Issuer Notes at, or restore the rating of the Issuer Notes to,
the level it would have been at immediately prior to such Subsequent Fitch
Rating Event); or


 


(3)                                 take such other action as Party A may agree with Fitch as will
result in the rating of the Issuer Notes following the taking of such action
being maintained at, or restored to, the level it would have been at
immediately prior to such Subsequent Fitch Rating Event; and


 


(B)                                within 10 days of the occurrence of such Subsequent Fitch Rating
Event, put in place, at its own cost, pending compliance with paragraph
(vi)(A)(1), (vi)(A)(2) or (vi)(A)(3) above, an appropriate mark-to-market
collateral agreement in a form and substance acceptable to Fitch (which may be
based on the credit support documentation published by ISDA, or otherwise, and
relates to collateral in the form of cash or securities or both to be posted on
a weekly basis) in support of its obligations under this Agreement provided that (x) Party A will be deemed to have
satisfied the requirements of Fitch if the Collateral Amount is determined on a
basis which is no more onerous than the Fitch Criteria (as defined below), and
(y) the Collateral Amount will not be required to exceed such amount as would
be required (in accordance with the Fitch Criteria) to maintain or restore the
rating of the Issuer Notes at or to the level it would have been at immediately
prior to such Subsequent Fitch Rating Event, and provided that, if, at the time a Subsequent Fitch Rating Event occurs,
Party A is required to post collateral following an Initial Fitch Rating Event,
it will continue to post collateral notwithstanding the occurrence of a
Subsequent Fitch Rating Event.


 


If any of paragraphs (vi)(A)(1), (2) or (3) above are
satisfied at any time, all collateral (or the equivalent thereof, as
appropriate) transferred by Party A pursuant to paragraph (vi)(B) above will be
transferred to Party A and Party A will not be required to transfer any
additional collateral.


 


“Fitch Criteria” means that the Collateral
Amount will equal the sum of:


 


(a)                                  100 per cent. of the mark-to-market
value of the outstanding Transactions as determined by Party A in good faith on
a weekly basis; and


 


13

















 


(b)                                 the product of:


 


(i)                                     the aggregate of the amounts, determined in respect of each class
and series of Issuer Notes, equal to the
Outstanding Principal Balance of such class and series of Issuer Notes as at
the date of determination multiplied by the number of days remaining
from the date of the determination to the Expected Repayment Date (as defined
below) in respect of such class and series of Issuer Notes divided by 365, and


 


(ii)                                  0.1 per cent. multiplied by the Fixed
Rate Ratio.


 


“Expected
Repayment Date” means in respect of each class and series of Issuer
Notes the earlier of the Step Up Date of such class and series of Issuer Notes
and the Final Maturity Date of such class and series of Issuer Notes.


 


(vii)                          (A)                              If Party A does not take any of the measures described in paragraph
(i) above, such failure will not be or give rise to an Event of Default but
will constitute an Additional Termination Event with respect to Party A which
will be deemed to have occurred on the thirtieth day following the S&P
Rating Event with Party A as the sole Affected Party and all Transactions as
Affected Transactions.


 


(B)                                If, at the time a Subsequent S&P Rating Event occurs, Party A
has provided collateral pursuant to a
mark-to-market collateral arrangement put in place pursuant to paragraph (i)(A)
above and fails to continue to post collateral pending compliance with
any of paragraphs (ii)(A), (ii)(B) or (ii)(C) above, such failure will not be
or give rise to an Event of Default but will constitute an Additional
Termination Event with respect to Party A and will be deemed to have occurred
on the later of the tenth day following such Subsequent S&P Rating Event
and the thirtieth day following the Initial S&P Rating Event with Party A
as the sole Affected Party and all Transactions as Affected Transactions.  Further,
it will constitute an Additional Termination Event with respect to Party A if,
even if it is posting collateral as required by paragraph (ii) above and
notwithstanding Section 5(a)(ii), Party A does not take any of the
measures described in paragraphs (ii)(A), (ii)(B) or (ii)(C) above.  Such Additional Termination Event will be
deemed to have occurred on the thirtieth day following the Subsequent S&P
Rating Event with Party A as the sole Affected Party and all Transactions as
Affected Transactions.


 


(C)                                If Party A does not take any of the measures described in paragraph
(iii)(1), (2), (3) or (4) above, such failure will not be or give rise to an
Event of Default but will constitute an Additional Termination Event with
respect to Party A and will be deemed to have occurred on the thirtieth day
following the occurrence of such Initial Moody’s Rating Event with Party A as
the sole Affected Party and all Transactions as Affected Transactions.


 


(D)                               If Party A does not take the measures described in paragraph (iv)(2)
above, such failure will give rise to an Event of Default with respect to Party
A and will be deemed to have occurred on the tenth day following such
Subsequent Moody’s Rating Event with Party A as the Defaulting Party.  Further,
it will constitute an Additional Termination Event with respect to Party A if,
even after satisfying the requirements of paragraph (iv)(2) above, Party A has
failed, having applied best efforts, to either transfer as described in
paragraph (iv)(1)(aa), find a co-obligor as described in paragraph (iv)(1)(bb)
or take such other action as described in paragraph (iv)(1)(cc).  Such Additional Termination Event will be
deemed to have occurred on the thirtieth


 


14

















 


day following such Subsequent Moody’s Rating Event  with
Party A as the sole Affected Party and all Transactions as Affected
Transactions.


 


(E)                                 If Party A does not take the measures described in paragraph (v)
above, such failure will not be or give rise to an Event of Default but will
constitute an Additional Termination Event with respect to Party A which will
be deemed to have occurred on the thirtieth day following the Initial Fitch
Rating Event with Party A as the sole Affected Party and all Transactions as
Affected Transactions.


 


(F)                                 If Party A does not take the measures described in paragraph (vi)(B)
above, such failure will give rise to an Event of Default with respect to Party
A and will be deemed to have occurred on the tenth day following such
Subsequent Fitch Rating Event with Party A as the Defaulting Party.  Further,
it will constitute an Additional Termination Event with respect to Party A if,
even after satisfying the requirements of paragraph (vi)(B) above, Party A has
failed, within 30 days following such Subsequent Fitch Rating Event, to either
transfer as described in paragraph (vi)(A)(1), find a co-obligor as
described in paragraph (vi)(A)(2) or take such other action as described in
paragraph (vi)(A)(3).  Such Additional Termination Event will be
deemed to have occurred on the thirtieth day following such Subsequent
Fitch Rating Event with Party A as the sole Affected Party and all Transactions
as Affected Transactions.


 


(G)                                In the event that Party B were to designate an Early Termination
Date and there would be a payment due to Party A, Party B may only designate
such an Early Termination Date in respect of an Additional Termination Event
under this Part 5(f) if Party B has found a replacement counterparty willing to
enter into a new transaction on terms that reflect as closely as reasonably
possible, as determined by Party B in its sole and absolute discretion, the
economic, legal and credit terms of the Terminated Transactions with Party A,
and Party B has obtained the prior written consent of the Security Trustee.


 


Each of
Party B and the Security Trustee will use their reasonable endeavours to co-operate
with Party A in putting in place such credit support documentation, including
agreeing to such arrangements in such documentation as may satisfy S&P,
Moody’s and/or Fitch, as applicable, with respect to the operation and
management of the collateral and entering into such documents as may reasonably
be requested by Party A in connection with the provision of such collateral.


 


(g)                                 Additional
Representation


 


Section 3
is amended by the addition at the end thereof of the following additional
representations (provided that the representation in Section 3(h) will be
made by Party A only):


 


“(g)                            No Agency.  It is entering into this
Agreement, including each Transaction, as principal and not as agent of any
person or entity.


 


(h)                                  Pari Passu.  Its obligations under this
Agreement rank pari passu with all of its other unsecured, unsubordinated
obligations except those obligations preferred by operation of law.”


 


15

















 


(h)                                 Recording of
Conversations


 


Each
party to this Agreement acknowledges and agrees to the tape recording of
conversations between the parties to this Agreement whether by one or other or
both of the parties.


 


(i)                                     Relationship between the
Parties


 


The
Agreement is amended by the insertion after Section 14 of an additional
Section 15, reading in its entirety as follows:


 


“15.                           Relationship
between the Parties


 


Each
party will be deemed to represent to the other party on the date on which it
enters into a Transaction that (absent a written agreement between the parties
that expressly imposes affirmative obligations to the contrary for that
Transaction):


 


(a)                                  Non Reliance.  It is acting for its own
account, and it has made its own independent decisions to enter into that
Transaction and as to whether that Transaction is appropriate or proper for it
based upon advice from such advisers as it has deemed necessary.  It is not relying on any communication
(written or oral) of the other party as investment advice or as a
recommendation to enter into that Transaction, it being understood that
information and explanations related to the terms and conditions of a
Transaction will not be considered investment advice or a recommendation to
enter into that Transaction.  No communication
(written or oral) received from the other party will be deemed to be an
assurance or guarantee as to the expected results of that Transaction.


 


(b)                                 Assessment and
Understanding. 
It is capable of assessing the merits of and understanding (on its own
behalf or through independent professional advice), and understands and
accepts, the terms, conditions and risks of that Transaction.  It is also capable of assuming, and assumes,
the financial and other risks of that Transaction.


 


(c)                                  Status of Parties.  The other party is not
acting as a fiduciary for or an adviser for it in respect of that Transaction.”


 


(j)                                     Tax


 


The
Agreement is amended by deleting Section 2(d) in its entirety and
replacing it with the following:


 


“(d)         Deduction
or Withholding for Tax


 


(i)                                     Requirement to Withhold


 


All payments under this Agreement will be made without
any deduction or withholding for or on account of any Tax unless such deduction
or withholding is required (including, for the avoidance of doubt, if such
deduction or withholding is required in order for the payer to obtain relief
from Tax) by any applicable law, as modified by the practice of any relevant
governmental revenue authority, then in effect. If a party (“X”)
is so required to deduct or withhold, then that party (the “Deducting Party”):


 


(1)                                  will promptly notify the other party (“Y”) of such requirement;


 


(2)                                  will pay to the relevant authorities the full amount required to be
deducted or withheld (including the full amount required to be deducted or
withheld from any


 


16

















 


Gross Up Amount (as defined below) paid by the
Deducting Party to Y under this Section 2(d)) promptly upon the earlier of
determining that such deduction or withholding is required or receiving notice
that such amount has been assessed against Y;


 


(3)                                  will promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y, evidencing such
payment to such authorities; and


 


(4)                                  if X is Party A, X will promptly pay in addition to the payment to
which Party B is otherwise entitled under this Agreement, such additional
amount (the “Gross Up Amount”)
as is necessary to ensure that the net amount actually received by Party B will
equal the full amount which Party B would have received had no such deduction
or withholding been required.


 


(ii)                                  Liability


 


If:


 


(1)                                  X is required by any applicable law, as modified by the practice of
any relevant governmental revenue authority, to make any deduction or
withholding for or on account of any Tax; and


 


(2)                                  X does not so deduct or withhold; and


 


(3)                                  a liability resulting from such Tax is assessed directly against X,


 


then, except to the extent that Y has satisfied or
then satisfies the liability resulting from such Tax, (A) where X is Party B,
Party A will promptly pay to Party B the amount of such liability (the “Liability Amount”)
(including any related liability for interest and together with an amount equal
to the Tax payable by Party B on receipt of such amount but including any
related liability for penalties only if Party A has failed to comply with or
perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)) and
Party B will promptly pay to the relevant government revenue authority the
amount of such liability (including any related liability for interest and
penalties) and (B) where X is Party A and Party A would have been required to
pay a Gross Up Amount to Party B, Party A will promptly pay to the relevant
government revenue authority the amount of such liability (including any
related liability for interest and penalties).


 


(iii)                               Tax Credit etc.


 


Where Party A pays an amount in accordance with
Section 2(d)(i)(4) above, Party B undertakes as follows:


 


(1)                                  to the extent that Party B obtains any Tax credit, allowance,
set-off or repayment from the tax authorities of any jurisdiction relating to
any deduction or withholding giving rise to such payment, it will pay to Party
A as soon as practical after receipt of the same so much of the cash benefit
(as calculated below) relating thereto which it has received as will leave
Party B in substantially the same (but in any event no worse) position as Party
B would have been in if no such deduction or withholding had been required;


 


(2)                                  the “cash benefit” will, in the case of credit, allowance or set-off,
be the additional amount of Tax which would have been payable by Party B in the
jurisdiction referred


 


17

















 


to in (1) above but for the obtaining by it of the
said Tax credit, allowance or set-off and, in the case of a repayment, will be
the amount of the repayment together, in either case, with any related interest
or similar payment obtained by Party B; and


 


(3)                                  it will use all reasonable endeavours to obtain any Tax credit,
allowance, set-off or repayment as soon as is reasonably practicable and it
will, upon request by Party A, supply Party A with a reasonably detailed
explanation of its calculation of the amount of any such Tax credit, allowance,
set-off or repayment and of the date on which the same is received.”


 


(k)                                  Security, Enforcement and
Limited Recourse


 


Party A
agrees with Party B and the Security Trustee to be bound by the terms of the
Funding 1 Deed of Charge and, in particular, confirms that: (A) no sum will be
payable by or on behalf of Party B to it except in accordance with the
provisions of the Funding 1 Deed of Charge; and (B) it will not take any steps
for the winding up, dissolution or reorganisation or for the appointment of a
receiver, administrator, administrative receiver, trustee, liquidator,
sequestrator or similar officer of Party B or of any or all of its revenues and
assets nor participate in any ex parte proceedings nor seek to enforce any
judgment against Party B, subject to the provisions of the Funding 1 Deed of
Charge.


 


In
relation to all sums due and payable by Party B to Party A, Party A agrees that
it will have recourse only to Funding 1 Revenue Receipts and Funding 1
Principal Receipts, but always subject to the order of priority of payments set
out in the Third Issuer Cash Management Agreement and the Third Issuer Deed of
Charge.


 


(l)                                     Condition Precedent


 


Section 2(a)(iii)
will be amended by the deletion of the words “a Potential Event of Default” in
respect of obligations of Party A only.


 


(m)                               Representations


 


Section 3(b)
will be amended by the deletion of the words “or Potential Event of Default” in
respect of the representation given by Party B only.


 


(n)                                 Additional Definitions


 


Words
and expressions defined in the Amended and Restated Master Definitions and
Construction Schedule (the “Master Schedule”) signed on or about the
date of this Agreement and any other Master Definitions and Construction
Schedule, each as amended, varied or supplemented from time to time (together
the “Master
Definitions Schedule”) will, except so far as the context otherwise
requires, have the same meaning in this Agreement.  The rules of interpretation set out in the Master Definitions
Schedule will apply to this Agreement.


 


(o)                                Modifications to close-out provisions


 


Upon the
occurrence of an Event of Default with respect to Party A or an Additional
Termination Event which entitles Party B to terminate any Affected Transaction
pursuant to Section 6(b) of the Agreement, Party B will be entitled (but
not obliged in the event that it does not designate an Early Termination Date)
to proceed in accordance with Section 6 of this Agreement, subject to the
following:


 


(i)                                     For the purposes of
Section 6(d)(i), Party B’s obligation with respect to the extent of


 


18

















 


information to
be provided with its calculations is limited to information Party B has already
received in writing and provided Party B is able to release this information
without breaching the provisions of any law applicable to, or any contractual
restriction binding upon, Party B.


 


(ii)                                  The following amendments will
be deemed to be made to the definition of “Market Quotation”:


 


(A)                              the word “firm” will be added
before the word “quotations” in the second line; and


 


(B)                                the words “, provided that
such documentation would either be the same as this Agreement and the existing
confirmations hereto (and the long-term, unsecured and unsubordinated debt
obligations of the Reference Market-maker are rated not less than “A+” by
S&P and “A1” by Moody’s and the short-term, unsecured and unsubordinated
debt obligations of the Reference Market-maker are rated not less than
“Prime-1” by Moody’s and “F1” by Fitch (or, if such Reference Market-maker is
not rated by a Rating Agency, at such equivalent rating that is acceptable to
such Rating Agency)) or the Rating Agencies have confirmed in writing that such
proposed documentation will not adversely impact the ratings of the Notes” will
be added after “agree” in the sixteenth line; and


 


(C)                                the last sentence will be
deleted and replaced with the following:


 


“If, on the last date set for delivery of
quotations, exactly two quotations are provided, the Market Quotation will be
either (a) the lower of the two quotations where there would be a sum payable
by Party A to Party B, or (b) the higher of the two quotations where there
would be a sum payable by Party B to Party A. 
If only one quotation is provided on such date, Party B may, in its
discretion, accept such quotation as the Market Quotation and, if Party B does
not accept such quotation (or if no quotation has been provided), it will be
deemed that the Market Quotation in respect of the Terminated Transaction
cannot be determined.  If no quotation
has been provided, it will be deemed that the Market Quotation in respect of
the Terminated Transaction cannot be determined.”


 


(iii)                               For the purpose of the
definition of “Market Quotation”, and without limitation of the general rights
of Party B under the Agreement:


 


(A)                              Party B will undertake to use its reasonable efforts to obtain at
least three firm quotations as soon as reasonably practicable after the Early
Termination Date and in any event within the time period specified pursuant to
Part 5(o)(iii)(C) below;


 


(B)                                Party A will, for the purposes of Section 6(e), be permitted to
obtain on behalf of Party B quotations from Reference Market-makers;


 


(C)                                If no quotations have been obtained within 6 Local Business Days
after the occurrence of the Early Termination Date or such longer period as
Party B may specify in writing to Party A, then it will be deemed that the
Market Quotation in respect of the Terminated Transaction cannot be determined;


 


(D)                               Party B will be deemed to have discharged its obligations under Part
5(o)(iii)(A) above if it promptly requests, in writing, Party A (such request
to be made within two Local Business Days after the occurrence of the Early
Termination Date) to obtain on behalf of Party B quotations from Reference
Market-makers.  Party A agrees to act in
accordance with such request; and


 


19

















 


(E)                                 Party B will not be obliged to consult with Party A as to the day
and time of obtaining any quotations.


 


(p)                                 Transfer Policy


 


Subject
to the constraints otherwise provided by Section 7 of this Agreement, but
without prejudice to Section 6(b)(ii) as amended in this Schedule, Party A
may transfer all (but not part only) of its interests and obligations in and
under this Agreement to another entity (a “Transferee”) with the prior written consent
of the Note Trustee, provided that:


 


(i)                                     the Transferee’s short-term, unsecured
and unsubordinated debt obligations are then rated not less than “A-1+” by
S&P, “Prime-1” by Moody’s and “F1” by Fitch and its long-term, unsecured
and unsubordinated debt obligations are then rated not less than “A+” by
S&P, “A1” by Moody’s and “A+” by Fitch (or its equivalent by any substitute
rating agency) or such Transferee’s obligations under this Agreement are
guaranteed by an entity whose short-term, unsecured and unsubordinated debt
obligations are then rated not less than 
“A-1+” by S&P, “Prime-1” by Moody’s and “F1” by Fitch and whose
long-term, unsecured and unsubordinated debt obligations are then rated not
less “AA-” by S&P, “A1” by Moody’s and “A+” by Fitch (or its equivalent by
any substitute rating agency);


 


(ii)                                  the Ratings Agencies have confirmed that the transfer will not
result in the then current rating of the Issuer Notes being downgraded;


 


(iii)                               the Transferee will not, as a result of such transfer, be required
on the next succeeding Scheduled Payment Date to withhold or deduct on account
of any Tax (except in respect of default interest) amounts in excess of that
which Party A would, on the next succeeding Scheduled Payment Date have been
required to so withhold or deduct unless the Transferee would be required to
make additional payments pursuant to Section 2(d)(i)(4) corresponding to
such excess;


 


(iv)                              a Termination Event or Event of Default does not occur as a result
of such transfer;


 


(v)                                 no additional amount will be payable by Party B to Party A or the
Transferee on the next succeeding Scheduled Payment Date as a result of such
transfer; and


 


(vi)                              the Transferee confirms in writing that it will accept all of the
interests and obligations in and under this Agreement which are to be
transferred to it in accordance with the terms of this provision.


 


With
respect to paragraph (iii) above, each party agrees to make such Payee Tax
Representations and Payer Tax Representations as may reasonably be requested by
the other party in order to reasonably satisfy such other party that such
withholding or deduction will not occur.


 


Following the transfer, all references to Party
A will be deemed to be references to the Transferee.


 


20

















 


Funding 1 Swap
Confirmation


 


	
  From:

  	
   

  	
  Halifax
  plc

  
	
   

  	
   

  	
  Trinity
  Road

  
	
   

  	
   

  	
  Halifax

  
	
   

  	
   

  	
  West
  Yorkshire

  
	
   

  	
   

  	
  HX1
  2RG

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
  Permanent
  Funding (No. 1) Limited

  
	
   

  	
   

  	
  Blackwell
  House

  
	
   

  	
   

  	
  Guildhall
  Yard

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2V
  5AE

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  The
  Secretary

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
  The
  Bank of New York

  
	
   

  	
   

  	
  One
  Canada Square

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  E14
  5AL

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Global Structured Finance - Corporate Trust

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  25th
  November, 2003

  



 


 


Dear
Sirs,


 


Confirmation - Funding 1
Swap


 


This
confirmation hereby amends and replaces the confirmation entered into between
us, you and the Security Trustee on 14th June, 2002, as amended and restated on
6th March, 2003 (the Previous Confirmation).


 


This
confirmation constitutes a “Confirmation” as referred to in the 1992 ISDA
Master Agreement (Multicurrency-Cross Border) dated as of 14th June, 2002 as
amended and restated by us, you and the Security Trustee on 6th March, 2003 and
the date hereof and as amended and supplemented from time to time (the Agreement).  As of the date hereof, all rights and obligations
of the parties to the Previous Confirmation shall cease to exist and shall be
replaced in their entirety by the rights and obligations arising pursuant to
this Confirmation.


 


The
purpose of this letter (the Confirmation) is to confirm the terms and conditions
of the Swap Transaction entered into between us on the Trade Date specified
below.


 


The
definitions and provisions contained in the 2000 ISDA Definitions as published
by the International Swaps and Derivatives Association, Inc. (the Definitions)
are incorporated into this Confirmation.


 


In the
event of any inconsistency between any of the following, the first listed shall
govern: (i) this Confirmation; (ii) the Master Definitions Schedule; and (iii)
the Definitions.


 


21

















 


The
following expressions shall, for the purpose of this Confirmation, have the
following meanings:


 


Average Fixed Rate Loan
Balance means, in respect of a Calculation
Period, the average daily aggregate Outstanding Principal Balance of the Fixed
Rate Loans during the relevant Calculation Period as notified by the Cash
Manager in accordance with the Cash Management Agreement.


 


Average Loan Balance means, in respect of a Calculation Period, the sum of the Average
Fixed Rate Loan Balance, the Average Variable Rate Loan Balance and the Average
Tracker Rate Loan Balance.


 


Average Tracker Rate Loan
Balance means, in respect of a Calculation
Period, the average daily aggregate Outstanding Principal Balance of the
Tracker Rate Loans during the relevant Calculation Period as notified by the
Cash Manager in accordance with the provisions of the Cash Management
Agreement.


 


Average Variable Rate Loan
Balance means, in respect of a Calculation
Period, the average daily aggregate Outstanding Principal Balance of the
Variable Rate Loans during the relevant Calculation Period as notified by the
Cash Manager in accordance with the provisions of the Cash Management
Agreement.


 


Blended Rate means, in respect of a Calculation Period, a rate of interest equal
to the sum of (i) the Weighted Average Fixed Rate for such Calculation Period
multiplied by the Fixed Rate Ratio for such Calculation Period; (ii) the
Variable Rate Swap SVR for such Calculation Period multiplied by the Variable
Rate Ratio for such Calculation Period and (iii) the Tracker Swap Rate for such
Calculation Period multiplied by the Tracker Ratio for such Calculation Period.


 


Blended Spread means, in respect of a Calculation Period, a percentage equal to the
sum of (i) the Fixed Rate Spread multiplied by the Fixed Rate Ratio for such
Calculation Period; (ii) the Variable Rate Spread multiplied by the Variable
Rate Ratio for such Calculation Period and (iii) the Tracker Spread multiplied
by the Tracker Ratio for such Calculation Period.


 


Calculation Date means the first day (or if not a London Business Day, the next
succeeding London Business Day) of each month and any other day on which
Funding 1 acquires a further interest in the Trust Property from and including
the Calculation Date immediately preceding the Effective Date.


 


Calculation Period means, each period from and including the Closing Date to but
excluding the first Calculation Date and thereafter the period from and
including one Calculation Date to but excluding the next following Calculation
Date.


 


Calculation Period Funding
1 Amount means, in respect of  a Calculation
Period, an amount in Sterling equal to the amount produced by applying the
Blended Rate for such Calculation Period to the Notional Amount, such amount to
be calculated by the Calculation Agent on the basis of the actual number of
days in such Calculation Period, divided by 365.


 


Calculation Period Swap
Provider Amount means, in respect of  a Calculation
Period, an amount in Sterling which is equal to the amount produced by applying
a rate equal to the Three Month LIBOR prevailing on the first day of such
Calculation Period plus the Blended Spread to the Notional Amount for such
Calculation Period, such amount to be calculated by the Calculation Agent on
the basis of the actual number of days in such Calculation Period, divided by
365.


 


First Issuer means Permanent Financing (No. 1) PLC.


 


Fixed Rate Ratio means, in respect of a Calculation Period, the Average Fixed Rate
Loan Balance divided by the Average Loan Balance.


 


22

















 


Fixed Rate Spread means 0.34 per cent. per annum.


 


Funding 1 Amount means, in respect of an Interest Period, an amount equal to the sum
of each of the Calculation Period Funding 1 Amounts calculated in respect of
the Calculation Periods which end on a date falling within such Interest
Period.


 


Intercompany Loans means, the First Issuer Intercompany Loan entered into between
Funding 1, the First Issuer and the Security Trustee, the Second Issuer
Intercompany Loan entered into between Funding 1, the Second Issuer, and the
Security Trustee and any New Intercompany Loan.


 


Interest Payment Date means each Funding 1 Interest Payment Date.


 


Interest Period means the period from (and including) the Second Issuer Closing Date
to (but excluding) the Interest Payment Date falling in June 2003 and
thereafter from (and including) one Interest Payment Date to (but excluding)
the next succeeding Interest Payment Date.


 


Notional Amount means in respect of a Calculation Period, an amount in Sterling
equal to:


 


(a)                        the Outstanding Principal Balance of the Intercompany Loans on the
first day of the relevant Calculation Period, less


 


(b)                       the balance of the Principal Deficiency Ledger attributable to the
Intercompany Loans on the first day of the relevant Calculation Period, less


 


(c)                        the amount of the Principal Receipts in the Funding 1 GIC Account
attributable to the Intercompany Loans on the first day of the relevant
Calculation Period.


 


The
Notional Amount shall be determined on the first day of the relevant
Calculation Period after any changes made on such date to the Outstanding
Principal Balance of the Intercompany Loans, the balance of the Principal
Deficiency Ledger attributable to the Intercompany Loans and the amount of Principal
Receipts in the Funding 1 GIC Account have become effective.


 


Reference Lenders means Abbey National plc, HSBC Bank plc, Lloyds TSB plc, Nationwide
Building Society, National Westminster Bank Plc, Northern Rock plc and Woolwich
plc (or their respective successors) and such additional or replacement
residential mortgage lenders as shall be determined by the Calculation Agent
and Reference
Lender means any one of them.


 


Second Issuer means Permanent Financing (No. 2) PLC.


 


Swap Provider Amount means, in respect of an Interest Period, an amount equal to the sum
of each of the Calculation Period Swap Provider Amounts calculated in respect
of the Calculation Periods which end on a date falling within such Interest
Period.


 


Three Month LIBOR means the weighted average of the rates of interest (excluding
spreads) applicable to any outstanding Intercompany Loan.


 


Tracker Ratio means, in respect of a Calculation Period, the Average Tracker Rate
Loan Balance divided by the Average Loan Balance.


 


Tracker Spread means -0.07 per cent. per annum.


 


23

















 


Tracker Swap Rate means, in respect of a Calculation Period, a rate of interest,
linked to the Bank of England repo rate, as determined by the Cash Manager in
accordance with the provisions of the Cash Management Agreement.


 


Variable Rate Ratio means, in respect of a Calculation Period, the Average Variable
Rate Loan Balance divided by the Average Loan Balance.


 


Variable Rate Spread means 1.90 per cent. per annum.


 


Variable Rate Swap SVR means, in respect of a Calculation Period, the rate of interest
equal to the average of the standard variable rate or its equivalent charged to
existing borrowers on residential mortgage loans as published from time to time
after excluding the highest and lowest rate, of the Reference Lenders, as
determined by the Cash Manager in good faith and notified to the Calculation
Agent from time to time in accordance with the Cash Management Agreement.


 


Weighted Average Fixed
Rate means, in respect of a Calculation
Period, the weighted average (by Outstanding Principal Balance) of the fixed
rates of interest charged to borrowers of Fixed Rate Loans during the relevant
Calculation Period as notified by the Cash Manager in accordance with the
provisions of the Cash Management Agreement.


 


1.                                       This Confirmation supplements, forms part of, and is subject to, the
Agreement. All provisions contained in the Agreement govern this Confirmation
except as expressly modified below.


 


2.                                       The terms of the Transaction to which this Confirmation relates are
as follows:


 


	
  Party A:

  	
   

  	
  Halifax
  plc

  
	
   

  	
   

  	
   

  
	
  Party B:

  	
   

  	
  Permanent
  Funding (No. 1) Limited

  
	
   

  	
   

  	
   

  
	
  Trade Date:

  	
   

  	
  14th
  June, 2002

  
	
   

  	
   

  	
   

  
	
  Termination Date:

  	
   

  	
  The
  date on which the amount outstanding under the Intercompany Loans is reduced
  to zero.

  
	
   

  	
   

  	
   

  
	
  Effective Date:

  	
   

  	
  14th
  June, 2002

  
	
   

  	
   

  	
   

  
	
  Business Day centres

  for all Payments:

  	
   

  	
  London

  
	
   

  	
   

  	
   

  
	
  Calculation of

  	
   

  	
   

  
	
  Amounts:

  	
   

  	
  On
  each Interest Payment Date, the Calculation Agent shall calculate the Swap
  Provider Amount and the Funding 1 Amount for the then current Interest
  Period, and forthwith notify Party A, Party B and the Cash Manager of the
  amounts so determined and of the net amount determined as set out below.

  
	
   

  	
   

  	
   

  
	
  Payments:

  	
   

  	
  If in
  relation to any Interest Payment Date:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  the
  Swap Provider Amount for the relevant Interest Period exceeds the Funding 1
  Amount for the relevant Interest Period, Party A shall pay the amount of such
  excess to Party B on such Interest Payment Date;

  



 


24

















 


	
   

  	
   

  	
  (ii)

  	
  the
  Funding 1 Amount for the relevant Interest Period exceeds the Swap Provider
  Amount for the relevant Interest Period, Party B shall pay the amount of such
  excess to Party A on such Interest Payment Date;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)

  	
  the
  Swap Provider Amount for the relevant Interest Period is equal to the Funding
  1 Amount for the relevant Interest Period, no amount shall be due and payable
  by either party hereunder in relation to such Interest Payment Date.

  
	
   

  	
   

  	
   

  	
   

  
	
  Calculation Agent:

  	
   

  	
   

  	
  Halifax
  plc acting in its capacity of Servicer pursuant to the Servicing Agreement or
  of Cash Manager pursuant to the Cash Management Agreement, as the case may
  be.

  



 


3.                                       Miscellaneous:


 


Subject to Clause 25 of the Funding 1 Deed
of Charge (Supplemental Provisions Regarding the Security Trustee), any
amendments to this Confirmation or the Agreement will be made only with the
prior written consent of each party to the Agreement.


 


4.                                       Account
Details:


 


	
  Payments
  to Party A:

  	
   

  	
  Bank:

  	
   

  	
  Halifax
  plc

  
	
   

  	
   

  	
   

  	
   

  	
  Domestic
  Banking

  
	
   

  	
   

  	
   

  	
   

  	
  Trinity
  Road

  
	
   

  	
   

  	
   

  	
   

  	
  Halifax

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sort
  Code:

  	
   

  	
  11-99-06

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Account
  Number:

  	
   

  	
  00000000

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Account
  Name:

  	
   

  	
  Halifax
  CHAPS Funding

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Beneficiary
  Name:

  	
   

  	
  Securitisation
  E/04101-06

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Payments
  to Party B:

  	
   

  	
  Bank:

  	
   

  	
  The
  Governor and Company of the Bank of Scotland

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Account
  Number:

  	
   

  	
  00998318

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Sort
  Code:

  	
   

  	
  12-24-55

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Account
  Name:

  	
   

  	
  Permanent
  Funding (No. 1) Ltd - Transaction Account

  



 


5.                                       Notice
Details:


 


	
  Party
  A:

  	
   

  	
  Halifax
  plc

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Trinity
  House

  
	
   

  	
   

  	
  Halifax

  
	
   

  	
   

  	
  West
  Yorkshire HX1 2RG

  



 


25

















 


	
  Facsimile
  Number:

  	
   

  	
  +44 (0) 1422 391777

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Head
  of Mortgage Securitisation

  
	
   

  	
   

  	
   

  
	
  with a copy to:-

  	
   

  	
  HBOS Treasury Services plc,

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  33 Old Broad Street

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2N 1HZ

  
	
   

  	
   

  	
   

  
	
  Facsimile Number:

  	
   

  	
  020 7574 8784

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Head of Capital Markets and Securitisation

  
	
   

  	
   

  	
   

  
	
  Party
  B:

  	
   

  	
  Permanent
  Funding (No. 1) Limited

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Blackwell
  House

  
	
   

  	
   

  	
  Guildhall
  Yard

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2V
  5AE

  
	
   

  	
   

  	
   

  
	
  Facsimile
  Number:

  	
   

  	
  020
  7566 0975

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  The
  Secretary

  
	
   

  	
   

  	
   

  
	
  With
  a copy to:-

  	
   

  	
  (i)
  HBOS Treasury Services plc

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  33 Old Broad Street

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  EC2N 1HZ

  
	
   

  	
   

  	
   

  
	
  Facsimile Number:

  	
   

  	
  020 7574 8784

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Head of Capital Markets and Securitisation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)
  the Security Trustee:

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  The
  Bank of New York

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  One
  Canada Square

  
	
   

  	
   

  	
  London

  
	
   

  	
   

  	
  E14
  5AL

  
	
   

  	
   

  	
   

  
	
  Facsimile
  Number:

  	
   

  	
  020 7964 6061/6399

  
	
   

  	
   

  	
   

  
	
  Attention:

  	
   

  	
  Global Structured Finance - Corporate Trust

  



 


26

















 


	
  Yours
  faithfully,

  
	
   

  
	
  HALIFAX PLC

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
	
   

  
	
   

  
	
  Confirmed
  as of the date first written:

  
	
   

  
	
  PERMANENT FUNDING (NO.
  1) LIMITED

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  
	
   

  
	
  THE BANK OF NEW YORK

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  



 


27