Document:

Exhibit 4.35

 

 

Dated 18 August 2011

 

 

 

 

The Commissioners of Her Majesty’s Treasury

 

The Royal Bank of Scotland plc

 

and

 

The Royal Bank of Scotland Group plc

 

 

 

 

 

 

SIXTH SUPPLEMENTAL AGREEMENT

relating to The Royal Bank of Scotland plc’s

participation in the UK Asset Protection Scheme

 

  

 

 

 

 

 

 

Slaughter and May

One Bunhill Row

London EC1Y 8YY

(MJXT/GBC)

506975378

 

  

  

  

 

CONTENTS

 

	
1

	
INTERPRETATION

	
3

	 	 	 
	
2

	
AMENDMENT

	
4

	 	 	 
	
3

	
REPRESENTATIONS AND WARRANTIES

	
6

	 	 	 
	
4

	
CONDITIONS PRECEDENT

	
10

	 	 	 
	
5

	
COSTS AND EXPENSES

	
11

	 	 	 
	
6

	
COUNTERPARTS

	
11

	 	 	 
	
SCHEDULE 1 (New definitions to be inserted into clause 1 of the Accession Agreement)

	
12

	 	 
	
SCHEDULE 2 (New clauses 12.7 to 12.20 of the Accession Agreement)

	
15

	 	 
	
SCHEDULE 3 (New clauses 12.21 and 12.22 of the Accession Agreement)

	
23

	 	 
	
SCHEDULE 4 (Additions to schedule 4 to the Accession Agreement)

	
24

 

  

  

  

 

DATE: 18 August 2011

 

PARTIES:

 

	
1.

	
The Commissioners of Her Majesty’s Treasury of 1 Horse Guards Road, London SW1A 2HQ (the “Treasury”);

 

	
2.

	
The Royal Bank of Scotland plc, a public limited company incorporated in Scotland with registered number SC090312, whose registered office is at 36 St Andrew Square, Edinburgh, Midlothian EH2 2YB (the “Participant”); and

 

	
3.

	
The Royal Bank of Scotland Group plc, a public limited company incorporated in Scotland with registered number SC045551, whose registered office is at 36 St Andrew Square, Edinburgh, Midlothian EH2 2YB (the “Initial Parent”).

 

BACKGROUND:

 

	
A.

	
On 19 January 2009, Her Majesty’s Government of the United Kingdom announced its intention to offer the UK Asset Protection Scheme (the “Scheme”).

 

	
B.

	
On 26 November 2009, the Participant agreed to participate in the Scheme pursuant to an accession agreement (the “Accession Agreement”) made between the Treasury, the Participant and the Initial Parent.

 

	
C.

	
On 27 August 2010, 20 December 2010, 10 February 2011, 30 June 2011 and 22 July 2011, the parties to this Agreement (the “Parties”) agreed to amend certain terms of the Accession Agreement and the terms and conditions of the Scheme (as such terms and conditions apply to the Participant) and the Participant agreed to enter into certain supplemental obligations pursuant to supplemental agreements between the Parties.

 

	
D.

	
The Parties have agreed further to amend the Accession Agreement and the terms and conditions of the Scheme (as such terms and conditions apply to the Participant) and the Participant has agreed to enter into certain supplemental obligations as further detailed in this Agreement.

 

IT IS AGREED:

 

	
1.  

	
INTERPRETATION

 

	
1.1  

	
In this Agreement:

 

	 	
(A)  

	
“Account Based Overdraft” has the meaning given to it in Schedule 1;

 

	 	
(B)  

	
“Conditions Precedent” has the meaning given to it in Clause 4.1;

 

	 	
(C)  

	
“Effective Date” means the date the Treasury notifies the Participant in writing of it being satisfied that the Conditions Precedent have been fulfilled (or waived) in accordance with Clause 4.2;

 

  

  

  

 

	 	
(D)  

	
“Loss Credit” has the meaning given to it in Schedule 3;

 

	 	
(E)  

	
“Participant Entities” means the Participant and the Initial Parent;

 

	 	
(F)  

	
“Revised Agreed Model” means the spreadsheet in the form of a password-protected file, representing a revised Agreed Model, placed into the eRoom (being the web-based repository that provides protection and access control for data transferred electronically between the Agency and the Participant, to which the Agency has given staff of the Participant nominated by the Participant access via user IDs and passwords) at 11:39 a.m. on 11 August 2011; and

 

	 	
(G)  

	
“Side Letter” means the letter dated 31 January 2011 from the Agency to the Participant and the Initial Parent entitled “Reporting issues relating to Post-Accession Data, Quarterly Statements and Quarterly Statement Data”.

 

	
1.2  

	
Capitalised terms used but not defined in this Agreement shall have the respective meanings given to them in the Accession Agreement (including on the basis set out in clause 1.1(B) of the Accession Agreement).

 

	
1.3  

	
Condition 57 shall apply to this Agreement mutatis mutandis except that in this Agreement references to Clauses and Schedules are references to clauses of, and schedules to, this Agreement.

 

	
1.4  

	
The Schedules form part of this Agreement.

 

	
1.5  

	
This Agreement is hereby designated a Scheme Document.

 

	
2.  

	
AMENDMENT

 

Accession Agreement

 

	
2.1  

	
The Accession Agreement shall be amended with effect from and including the Effective Date by:

 

	 	
(A)  

	
the insertion (in alphabetical order) of new definitions into clause 1.1(A) of the Accession Agreement, as set out in Schedule 1;

 

	 	
(B)  

	
the insertion of the words “and provided further that this definition shall also not apply in (i) the definitions of Overdraft Recovery Calculation Date and Overdraft Write-Off Amount, (ii) Clauses 12.8 to 12.20 and (iii) the Overdrafts Supplemental Agreement” immediately after the words “the Simplification Supplemental Agreement” in the definition of “write-off” in clause 1.1(A) of the Accession Agreement;

 

	 	
(C)  

	
the insertion of new clauses 12.7 to 12.20 into the Accession Agreement immediately after clause 12.6 thereof, as set out in Schedule 2;

 

  

4

  

 

	 	
(D)  

	
the insertion of new clauses 12.21 and 12.22 into the Accession Agreement immediately after clause 12.20 thereof, as set out in Schedule 3;

 

	 	
(E)  

	
the addition of new rows to the table set out in schedule 4 to the Accession Agreement, as set out in Schedule 4;

 

	 	
(F)  

	
the addition of two new Realisation Types to Annex 1 to the QS Data Field Rules, as follows:

 

"Overdraft three years expired"

 

"Overdraft account closed"; and

 

	 	
(G)  

	
the insertion of a new rule 38.2 into QS Data Field Rules immediately after rule 38.1 thereof, as follows:

 

	
  

	
"38.2

	
If Clause 12.14 applies, this field must be completed with "Overdraft three years expired".  If Clause 12.15 applies, this field must be completed with "Overdraft account closed".  Rule 38.1 above shall be subject to this rule 38.2."

 

	
2.2  

	
The provisions of such new clauses 12.7 to 12.22 of the Accession Agreement, including the definitions used therein, vary the Conditions and shall, for the purpose of construing references in the Scheme Documents to the Conditions, be deemed to form part of the Conditions.  References in this Clause 2.2 to the Conditions are to the Conditions as they apply in respect of the Participant and references in such new clauses 12.7 to 12.22 of the Accession Agreement to variations and amendments to the Conditions shall be construed accordingly.

 

	
2.3  

	
The Accession Agreement shall, save as expressly provided in this Agreement, continue in full force and effect.

 

	
2.4  

	
The Parties acknowledge and agree that this Agreement shall constitute the performance and discharge of their respective obligations under clause 8.5(E) of the Accession Agreement.

 

Loss Credits

 

	
2.5  

	
The Participant Entities acknowledge and the Parties agree that all the loss credits (including where they were referred to as “Other Amounts”) granted by the Agency (on behalf of the Treasury) to the Participant before the date of this Agreement were accepted and agreed by the Participant and shall, with effect from and including the Effective Date, be treated as Loss Credits (and not as Other Amounts) in respect of the Quarters for which they were granted.

 

  

5

  

 

Agreed Model

 

	
2.6  

	
The Parties agree that, with effect from and including the Effective Date, the current Agreed Model shall be replaced with the Revised Agreed Model so that all references in the Scheme Documents to the Agreed Model are deemed to be references to the Revised Agreed Model.

 

	
3.  

	
REPRESENTATIONS AND WARRANTIES

 

General

 

	
3.1  

	
Each Participant Entity represents and warrants to the Treasury on the date of this Agreement and on the Effective Date as follows:

 

	 	
(A)  

	
it is a company with limited liability, duly incorporated and validly existing under the law of its jurisdiction of incorporation;

 

	 	
(B)  

	
it has the power to own its assets and carry on its business as it is being conducted;

 

	 	
(C)  

	
the obligations expressed to be assumed by it in this Agreement and the Side Letter are legal, valid, binding and enforceable obligations, subject to any general principles of law limiting such obligations;

 

	 	
(D)  

	
it has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, this Agreement and the Side Letter and the transactions contemplated by this Agreement and the Side Letter;

 

	 	
(E)  

	
the entry into and performance by it of this Agreement and the Side Letter and the transactions contemplated by this Agreement and the Side Letter do not conflict with (i) any Applicable Law or (ii) the constitutional documents of any member of the Participant’s Group; and

 

	
  

	
(F)

	
(i)

	
all Authorisations that are (singly or in the aggregate) material in the context of this Agreement and the Side Letter and are required (a) to enable it lawfully to enter into, and exercise its rights and comply with its obligations pursuant to, this Agreement and the Side Letter and (b) to make this Agreement and the Side Letter admissible in evidence in its jurisdiction of incorporation; and

 

	 	
(ii)  

	
all material Authorisations required to enable it lawfully to carry on its business,

 

have been obtained or effected and are in full force and effect and, so far as it (acting reasonably and having made all due and reasonable enquiries) is aware, there are no circumstances which might reasonably be expected to lead to any of such Authorisations being revoked, suspended, varied or refused

 

  

6

  

 

renewal to an extent which would be, or would be reasonably likely to be, (singly or in the aggregate) material in the context of this Agreement and the Side Letter.

 

	
3.2  

	
The Participant represents and warrants to the Treasury on the date of this Agreement and on the Effective Date as follows:

 

	 	
(A)  

	
no member of the Participant’s Group has, during the period from and including 1 January 2009, treated (for the purposes of the Relevant Records, in recording and calculating individual asset level write-offs and in performing account closures) assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which form part of Covered Assets (or Non-Cash Realisations) differently from assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which do not form part of Covered Assets (or Non-Cash Realisations) by reason of the former’s status as forming part of Covered Assets (or Non-Cash Realisations, as the case may be), which status shall not be a relevant consideration in determining such treatment;

 

	 	
(B)  

	
each member of the Participant's Group has, during the period from and including 1 January 2009, in respect of assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which form part of Covered Assets (or Non-Cash Realisations):

 

	 	
(i)  

	
(for the purposes of the Relevant Records) recorded and calculated individual asset level write-offs:

 

	 	
(a)  

	
in accordance with the ordinary business practices from time to time of the relevant business within the Participant's Group (consistently applied); and

 

	 	
(b)  

	
in accordance with the accounting policies from time to time of the Participant’s Group (consistently applied); and

 

	 	
(ii)  

	
performed account closures in accordance with the ordinary business practices from time to time of the relevant business within the Participant’s Group (consistently applied);

 

	 	
(C)  

	
the ordinary business practices of the Participant's Group have at all times during the period from and including 1 January 2009 and in respect of assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which form part of Covered Assets (or Non-Cash Realisations) been (except to an extent that is not material in the context of aggregate Losses net of aggregate Recoveries):

 

	 	
(i)  

	
to suspend the debiting of fees, interest and charges:

 

  

7

  

 

	 	
(a)  

	
(in the case of retail assets and exposures) on or before the applicable assets and exposures are transferred to a recoveries department; and

 

	 	
(b)  

	
(in the case of non-retail assets and exposures) on or before the applicable assets and exposures or any applicable customer, or other Obligor or counterparty, is considered by the relevant member of the Participant's Group to be in default or impaired, for which purpose the applicable assets and exposures are deemed to be in default or impaired if any one or more of the following occurs:

 

	 	
(1)  

	
any applicable customer, or other Obligor or counterparty, is in significant financial difficulties;

 

	 	
(2)  

	
the relevant member of the Participant's Group, for economic or legal reasons relating to any applicable customer's, or other Obligor's or counterparty's, financial difficulties, makes a concession to such customer, Obligor or counterparty which it would not have made but for such economic or legal reasons relating to such customer's, Obligor's or counterparty's financial difficulties; and

 

	 	
(3)  

	
any event which is (or would, if such assets and exposures were a Covered Asset, be) a Bankruptcy event in respect of such assets and exposures under paragraphs (A) or (C) of Condition 5.16 mutatis mutandis;

 

	 	
(ii)  

	
(in the case of retail assets and exposures) to transfer the applicable assets and exposures to a recoveries department before the occurrence of a Trigger in respect of the Covered Asset of which such assets and exposures form part (or the Covered Asset to which the Non-Cash Realisation of which such assets and exposures form part relates, as the case may be); and

 

	 	
(iii)  

	
(in the case of non-retail assets and exposures) for the relevant member of the Participant’s Group to consider the applicable assets and exposures or an applicable customer, or other Obligor or counterparty, to be in default or impaired (including where this is the case as a result of the occurrence of any one or more of the events referred to in sub-paragraphs (1) to (3) of sub-paragraph (i)(b) above) on or very soon after the occurrence of a Trigger in respect of the Covered Asset of which such assets and exposures form part (or the Covered Asset to which the Non-Cash Realisation of which such assets and exposures form part relates, as the case may be);

 

  

8

  

 

	 	
(D)  

	
the ordinary business practices of businesses within the Participant's Group have at all times during the period from and including 1 January 2009 and in respect of assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which form part of Covered Assets (or Non-Cash Realisations) been (except to an extent that is not material in the context of aggregate Losses net of aggregate Recoveries):

 

	 	
(i)  

	
not to write off all or any part of the debit balance of the account to which the Account Based Overdraft relates unless (and then only to the extent):

 

	 	
(a)  

	
the relevant member of the Participant’s Group agrees with the applicable customer, or other Obligor or counterparty, to reduce such debit balance; or

 

	 	
(b)  

	
the relevant member of the Participant’s Group considers there to be no reasonable prospect of any further recovery in respect of such debit balance;

 

	 	
(ii)  

	
to apply Cash Realisations with respect to, resulting from or arising out of such assets and exposures to the debit balance of the account to which the relevant Account Based Overdraft relates; and

 

	 	
(iii)  

	
not to close the account and write off in full the remaining debit balance of such account if there are any subsisting Realisations which are Realisations by reason of such assets and exposures forming part of the Covered Asset or Non-Cash Realisation (as the case may be), comprising rights of set-off or netting, or rights to any other process or arrangement (including counterclaim) having a substantially similar effect; and

 

	 	
(E)  

	
the effect of the ordinary business practices referred to in paragraph (D) above is that, in respect of assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which form part of Covered Assets (or Non-Cash Realisations), the aggregate amount of the debit balances of the accounts to which such Account Based Overdrafts relate written-off in the circumstances referred to in sub-paragraph (D)(i)(b) above reflects all prospective Cash Realisations expected by any relevant member of the Participant's Group (acting in good faith and based on reasonable criteria) with respect to, resulting from or arising out of such assets and exposures (except to an extent that is not material in the context of aggregate Losses net of aggregate Recoveries).

 

	
3.3  

	
The representations and warranties set out in Clause 3.2 shall be deemed to:

 

	 	
(A)  

	
be Representations (as defined in the Conditions) for the purpose only of construing the reference to Representations in Condition 33.1(C); and

 

  

9

  

 

	 	
(B)  

	
form part of the Asset Management Conditions (as defined in the Conditions) for the purposes only of construing the references to the Asset Management Conditions in Conditions 15.2(P), 19.1(F), 20.5 and 32.3(C).

 

	
4.  

	
CONDITIONS PRECEDENT

 

	
4.1  

	
It shall be a condition precedent to the effectiveness of Clause 2.1 that the conditions set out in Clause 4.4 (the “Conditions Precedent”) shall have been fulfilled to the satisfaction of the Treasury (or waived in its sole discretion).

 

	
4.2  

	
The Treasury shall, as soon as reasonably practicable, notify the Participant upon it being satisfied that the Conditions Precedent have been fulfilled (or waived).  Such notification shall be conclusive evidence of fulfilment (or waiver) of the Conditions Precedent but shall not otherwise constitute any waiver, agreement or consent.

 

	
4.3  

	
If any of the Conditions Precedent shall not have been fulfilled (or waived) on or before the date that is five Business Days (or such other period as may be agreed in writing between the Parties) after the date of this Agreement, this Agreement shall terminate with immediate effect.  The Parties acknowledge and agree that if this Agreement is terminated pursuant to this Clause 4.3, the amendments and variations referred to in Clause 2.1 shall not take effect.

 

	
4.4  

	
The Conditions Precedent are as follows:

 

	 	
(A)  

	
the receipt by the Treasury of:

 

	
  

	
(i)

	
(a)

	
a copy of a resolution of the board of directors of the Participant which approves and authorises the Participant to execute, and perform its obligations under, this Agreement and the Side Letter; or

 

	
  

	
(b)

	
a copy of an alternative corporate authority of the Participant; and

 

	
  

	
(ii)

	
a certificate of a director, the secretary, the deputy secretary / head of group secretariat, the senior assistant secretary or the assistant secretary of the Participant certifying that, so far as he or she is aware having made all due and reasonable enquiries, the copy document referred to in, and delivered to the Treasury pursuant to, sub-paragraph (i)(a) above or (i)(b) above (as the case may be) is a true, complete and accurate copy of the original and in full force and effect,

 

in each case in form and substance satisfactory to the Treasury; and

 

	 	
(B)  

	
the receipt by the Treasury of:

 

	
  

	
(i)

	
(a)

	
a copy of a resolution of the board of directors of the Initial Parent which approves and authorises the Initial Parent to

 

  

10

  

 

execute, and perform its obligations under, this Agreement and the Side Letter; or

 

	
  

	
(b)

	
a copy of an alternative corporate authority of the Initial Parent; and

 

	
  

	
(ii)

	
a certificate of a director, the secretary, the deputy secretary / head of group secretariat, the senior assistant secretary or the assistant secretary of the Initial Parent certifying that, so far as he or she is aware having made all due and reasonable enquiries, the copy document referred to in, and delivered to the Treasury pursuant to, sub-paragraph (i)(a) above or (i)(b) above (as the case may be) is a true, complete and accurate copy of the original and in full force and effect,

 

in each case in form and substance satisfactory to the Treasury.

 

	
5.  

	
COSTS AND EXPENSES

 

	
5.1  

	
The Participant acknowledges and agrees for the purpose of Condition 9.10 that the costs and expenses incurred by the Treasury, the Treasury Solicitor and any other Government Entity arising out of or in connection with the negotiation, preparation, execution and carrying into effect of this Agreement are Management and Administration Costs.

 

	
5.2  

	
In this Clause 5, “costs and expenses” shall have the meaning given to it in Condition 9.2.

 

	
6.  

	
COUNTERPARTS

 

Clause 23 of the Accession Agreement shall apply to this Agreement mutatis mutandis.

 

  

11

  

 

SCHEDULE 1

 

(New definitions to be inserted into clause 1 of the Accession Agreement)

 

“Account Based Overdraft” means an Overdraft which is made available in respect of a money transmission account or current account, provided that, for the purpose of any reference to an Account Based Overdraft which is not, and does not form part of, a Covered Asset (including where it is, or forms part of, a Non-Cash Realisation but is not, and does not form part of, a Covered Asset), the definition of Overdraft in Condition 6.8(D) shall be deemed to be replaced with the following: an "Overdraft" means an overdraft or other similar indebtedness (or a facility, to the extent an overdraft or other similar indebtedness may be incurred pursuant to that facility) which any member of the Participant's Group (or, in the case of such an overdraft, other similar indebtedness or facility which is the subject of a Permitted Arrangement, a relevant Applicable Entity) is entitled at any time (whether on demand or on notice but without the need for any contractual event of default, termination event or specified repayment or prepayment requirement to have arisen) to terminate or require to be repaid in full or fully cash collateralised, provided that (for the avoidance of doubt) a Revolving Facility is not an Overdraft;

 

“Non-overdraft Proportion” means, in respect of a Triggered Asset, a proportion determined as follows:

 

(A – B) / A

 

where:

 

	
A

	
is the Outstanding Amount, on the Trigger Date (or, if later, on 31 December 2008) of that Triggered Asset

 

	
B

	
is the sum of the Outstanding Amounts, on the Trigger Date (or, if later, on 31 December 2008), of all the Account Based Overdrafts which form part of that Triggered Asset on the Trigger Date (or, if later, on 31 December 2008)

 

For the purpose of this definition, the Outstanding Amount of an Account Based Overdraft which forms part only of a Triggered Asset shall be determined, mutatis mutandis, as if such Account Based Overdraft were a Triggered Asset;

 

“Overdraft Loss Amount” means, in respect of an Account Based Overdraft which was, or formed part of, a Triggered Asset on the Trigger Date (or, if later, on 31 December 2008), an amount determined as follows:

 

L * (A/B)

 

where:

 

	
L 

	
is an amount equal to the lesser of:

 

	
  

	
(i)

	
the Outstanding Amount on the Trigger Date (or, if later, on 31 December 2008) of such Triggered Asset; and

 

  

12

  

 

	
  

	
(ii)

	
the Covered Amount on the Initial Event Date (or, if later, on 31 December 2008) of such Triggered Asset,

 

converted, if necessary, into the currency in which such Account Based Overdraft is denominated at the inverse of the rate used pursuant to Condition 6.30 to convert such currency into the Covered Amount Currency of that Triggered Asset for the purpose of calculating the Outstanding Amount, on the Trigger Date (or, if later, on 31 December 2008), of such Account Based Overdraft

 

	
A

	
is the Outstanding Amount, on the Trigger Date (or, if later, on 31 December 2008), of that Account Based Overdraft

 

	
B

	
is the Outstanding Amount, on the Trigger Date (or, if later, on 31 December 2008), of that Triggered Asset

 

For the purpose of this definition, the Outstanding Amount of an Account Based Overdraft which forms part only of a Triggered Asset shall be determined, mutatis mutandis, as if such Account Based Overdraft were a Triggered Asset;

 

“Overdraft Recovery Calculation Date” means, in respect of an Account Based Overdraft which was, or formed part of, a Triggered Asset on the Trigger Date (or, if later on 31 December 2008), the date that is the earlier of:

 

	
(A)

	
the later of the third anniversary of the Trigger Date for such Triggered Asset and 31 December 2011; and

 

	
(B)

	
the first date on which:

 

	
  

	
(i)

	
the account to which such Account Based Overdraft relates is or has been closed; and

 

	
  

	
(ii)

	
the remaining debit balance (if any) of such account is or has been written-off in full at an individual asset level in the Relevant Records,

 

in each case in accordance with the ordinary business practices from time to time of the relevant business within the Participant’s Group (consistently applied) and in the case of sub-paragraph (ii) above in accordance with the accounting policies from time to time of the Participant’s Group (consistently applied);

 

“Overdraft Supplemental Agreement” means the supplemental agreement dated on or around 17 August 2011 and made between the parties to this Agreement, pursuant to which, in connection with the performance and discharge by the parties to this Agreement of their respective obligations under Clause 8.5(E), such parties agreed to amend certain terms of this Agreement and the Conditions (as such Conditions apply to the Participant) and the Participant agreed to enter into certain supplemental obligations;

 

  

13

  

 

“Overdraft Write-Off Amount” means, in respect of an Account Based Overdraft which was, or formed part of, a Triggered Asset on the Trigger Date (or, if later, on 31 December 2008), an amount determined as follows:

 

W * (A/B)

 

where:

 

	
W

	
is the aggregate of the debit balances of the account to which such Account Based Overdraft relates:

 

	
  

	
(i)

	
which have been written off at any time during the period from and including the day after the Trigger Date for such Triggered Asset (or, if later, 31 December 2008) to and including the Overdraft Recovery Calculation Date for such Account Based Overdraft; and

 

	
  

	
(ii)

	
in respect of which the applicable write-off has not been reversed as at such Overdraft Recovery Calculation Date

 

	
A

	
is an amount equal to the lesser of:

 

	
  

	
(i)

	
the Covered Amount on the Initial Event Date (or, if later, on 31 December 2008) of such Triggered Asset; and

 

	
  

	
(ii)

	
the Outstanding Amount on the Trigger Date (or, if later, on 31 December 2008) of such Triggered Asset

 

	
B

	
is the Outstanding Amount on the Trigger Date (or, if later, on 31 December 2008) of such Triggered Asset

 

For the purpose of this definition, “written off” means written off at an individual asset level in the Relevant Records:

 

	
(A)

	
in accordance with the ordinary business practices from time to time of the relevant business within the Participant’s Group (consistently applied); and

 

	
(B)

	
in accordance with the accounting policies from time to time of the Participant’s Group (consistently applied);

 

  

14

  

 

SCHEDULE 2

 

(New clauses 12.7 to 12.20 of the Accession Agreement)

 

	
12.7 

	
Clauses 12.8 to 12.20 shall not apply to a Covered Asset which is an AV Asset.

 

Amendments to the Scheme Principles in relation to Account Based Overdrafts

 

	
12.8 

	
The Scheme Principles shall be amended by:

 

	 	
(A)  

	
the insertion of a new Scheme Principle (A2) immediately after Scheme Principle (A1), as follows:

 

	
  

	
(A2)

	
Covered assets which are not AV assets and are, or to the extent they include, an overdraft or other similar indebtedness (or a facility, to the extent an overdraft or other similar indebtedness may be incurred pursuant to that facility) made available in respect of a money transmission account or current account (an "account based overdraft") on or after the trigger date (as described in Scheme Principle (H)) or, if later, 31 December 2008 and covered assets which are not AV assets and in respect of which a non-cash recovery (as described in Scheme Principle (M)) arising after the trigger date or, if later, 31 December 2008 is an account based overdraft have become the subject of "account based overdraft rules" which are intended to simplify the application of the Scheme to account based overdrafts.  It is intended that, save as expressly provided in the account based overdraft rules, the application of the Scheme to such covered assets should be consistent with the application of the Scheme to the other covered assets.”;

 

	 	
(B)  

	
the insertion of a new Scheme Principle (I6) immediately after Scheme Principle (I5), as follows:

 

	
  

	
"(I6)

	
There are specific account based overdraft rules for determining losses in respect of the covered assets referred to in Scheme Principle (A2)."; and

 

	 	
(C)  

	
the insertion of a new Scheme Principle (M1) immediately after Scheme Principle (M), as follows:

 

	
  

	
"(M1)

	
There are specific account based overdraft rules for determining recoveries in respect of the covered assets referred to in Scheme Principle (A2).".

 

Preclusion of further Losses on Account Based Overdrafts

 

	
12.9

	
For the purposes of Conditions 6.22 and 6.24 to 6.26 and rule 20 of the Data Field Rules for the Post Accession Data Fields:

 

  

15

  

 

	
  

	
(A)

	
(subject to paragraph (C) below) including for the purpose of calculating the Covered Amount in respect of such Conditions and rule; and

 

	
  

	
(B)

	
(without prejudice to the generality of paragraph (A) above) including for the purpose of calculating the Actual Exposure in respect of such Conditions and rule; but

 

	
  

	
(C)

	
not for the purpose of calculating the Original Maximum Exposure and the Imputed Maximum Exposure in respect of such Conditions and rule,

 

an Account Based Overdraft which is or forms part of a Triggered Asset on the Trigger Date (or, if later, on 31 December 2008) shall, with effect from and including the day after the Trigger Date (or, if later, 31 December 2008), be deemed not to be or, as the case may be, form part of such Triggered Asset.  This Clause 12.9 varies Conditions 6.22, 6.24 to 6.26 and (in respect of Conditions 6.22 and 6.24 to 6.26) 6.8(A) and varies rule 20 of the Data Field Rules for the Post-Accession Data Fields.

 

Adjustments to the Original Maximum Exposure and the Imputed Maximum Exposure

 

	
12.10

	
For the purposes of Conditions 6.22 and 6.24 to 6.26 and rule 20 of the Data Field Rules for the Post-Accession Data Fields, in calculating the Covered Amount, on any day after the Trigger Date (or, if later, 31 December 2008), of a Covered Asset which is (or includes) an Account Based Overdraft on the Trigger Date (or, if later, on 31 December 2008), the Original Maximum Exposure and the Imputed Maximum Exposure shall be multiplied by the Non-overdraft Proportion.  This Clause 12.10 varies Conditions 6.22, 6.24 and 6.26 and (in respect of Conditions 6.22 and 6.24 to 6.26) paragraphs (B) and (C) of Condition 6.8 and varies rule 20 of the Data Field Rules of the Post-Accession Data Fields.

 

Preclusion of certain Realisations on Account Based Overdrafts

 

	
12.11  

	
For the purpose of determining Realisations (except for the purposes of clause 3.2 of the Overdrafts Supplemental Agreement, Clause 12.16, Conditions 7.15, 7.22, 7.25, 7.26, 7.27, 7.28, 10.6, 10.8, 10.17, 10.18, 12.2, 13.2, 13.4, 14.3, 15.1, 15.2, 19.1 and 57.2 and the definition of "Management and Administration" in Condition 56.1), an Account Based Overdraft which is or forms part of a Triggered Asset on the Trigger Date (or, if later, on 31 December 2008) shall be deemed not to be or, as the case may be, form part of such Triggered Asset.  This Clause 12.11 does not apply to Realisations with respect to, resulting from or arising out of any Closely Related Hedge with respect to such Triggered Asset or any Related Junior Asset in respect of such Triggered Asset.  This Clause 12.11 varies Condition 7.8.

 

	
12.12

	
For the purpose of determining Cash Realisations (except for the purposes of clause 3.2 of the Overdrafts Supplemental Agreement, Clause 12.16, Conditions 7.22, 7.25, 7.26, 7.27, 7.28, 14.3, 15.1 and 19.1 and the definition of "Management and Administration" in Condition 56.1) having a Cash Realisation Date after the applicable Overdraft Recovery Calculation Date, an Account Based Overdraft which is or forms part of a Triggered Asset on the Trigger Date (or, if later, on 31 December 2008) shall be

 

  

16

  

 

deemed not to be or, as the case may be, form part of such Triggered Asset.  This Clause 12.12 varies Condition 7.8.

 

	
12.13

	
Paragraphs (C) and, for the avoidance of doubt, (D) of Condition 7.26 shall not apply to any part of a Triggered Asset which is an Account Based Overdraft on the Trigger Date (or, if later, on 31 December 2008).  This Clause 12.13 varies Condition 7.26.

 

Deemed Recoveries on Account Based Overdrafts – not closed with any remaining balance written-off within three years

 

	
12.14

	
If the Overdraft Recovery Calculation Date for an Account Based Overdraft which was, or formed part of, a Triggered Asset on the Trigger Date (or, if later, on 31 December 2008) is the third anniversary of the Trigger Date for such Triggered Asset or, if later than such third anniversary, 31 December 2011 then there shall be deemed to be a Recovery in respect of such Triggered Asset on such Overdraft Recovery Calculation Date in an amount equal to the Sterling Equivalent (the Exchange Date being such Overdraft Recovery Calculation Date) of the Overdraft Loss Amount for such Account Based Overdraft.

 

Deemed Recoveries on Account Based Overdrafts –closed and any remaining balance written-off within three years

 

	
12.15 

	
If:

 

	
  

	
(A)

	
the Overdraft Recovery Calculation Date for an Account Based Overdraft which was, or formed part of, a Triggered Asset on the Trigger Date (or, if later, on 31 December 2008) is before the third anniversary of the Trigger Date for such Triggered Asset or, if later than such third anniversary, 31 December 2011; and

 

	
  

	
(B)

	
on such Overdraft Recovery Calculation Date the Overdraft Loss Amount exceeds the Overdraft Write-Off Amount, in each case for such Account Based Overdraft,

 

then there shall be deemed to be a Recovery in respect of such Triggered Asset on such Overdraft Recovery Calculation Date in an amount equal to the Sterling Equivalent (the Exchange Date being such Overdraft Recovery Calculation Date) of such excess.

 

Retrospective effect of provisions relating to Account Based Overdrafts

 

	
12.16

	
Clauses 12.9 to 12.15 and Clause 12.20 shall have retrospective effect and such adjustments shall be made pursuant to and in accordance with Condition 8.7 as are required to give effect to such Clauses, provided that for the purposes only of the adjustments to amounts to be made pursuant to this Clause 12.16, Condition 8.7 shall be deemed to be amended by replacing the words “in the Quarterly Statement for a subsequent Quarter” with the words “in the Quarterly Statement and the corresponding Quarterly Statement Data for the Quarter during which the Effective Date (as defined in the Overdrafts Supplemental Agreement) falls”.

 

  

17

  

 

Undertakings relating to Account Based Overdrafts

 

	
12.17 

	
The Participant undertakes to the Treasury as follows:

 

	
  

	
(A)

	
it shall not, and shall procure that each other member of the Participant’s Group will not, treat (for the purposes of the Relevant Records, in recording and calculating individual asset level write-offs and in performing account closures) assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which form part of Covered Assets (or Non-Cash Realisations) differently from assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which do not form part of Covered Assets (or Non-Cash Realisations) by reason of the former’s status as forming part of Covered Assets (or Non-Cash Realisations, as the case may be), which status shall not be a relevant consideration in determining such treatment;

 

	
  

	
(B)

	
it shall, and shall procure that each other member of the Participant’s Group will, in respect of assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which form part of Covered Assets (or Non-Cash Realisations):

 

	 	
(i)  

	
(for the purposes of the Relevant Records) record and calculate individual asset level write-offs:

 

	 	
(a)  

	
in accordance with the ordinary business practices from time to time of the relevant business within the Participant's Group (consistently applied); and

 

	 	
(b)  

	
in accordance with the accounting policies from time to time of the Participant’s Group (consistently applied); and

 

	 	
(ii)  

	
perform account closures in accordance with the ordinary business practices from time to time of the relevant business within the Participant’s Group (consistently applied);

 

	
  

	
(C)

	
it shall ensure that the ordinary business practices from time to time of the Participant's Group in respect of assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which form part of Covered Assets (or Non-Cash Realisations) are at all times (except to an extent that is not material in the context of aggregate Losses net of aggregate Recoveries):

 

	 	
(i) 

	
to suspend the debiting of fees, interest and charges:

 

	 	
(a)  

	
(in the case of retail assets and exposures) on or before the applicable assets and exposures are transferred to a recoveries department; and

 

  

18

  

 

	 	
(b)  

	
(in the case of non-retail assets and exposures) on or before the applicable assets and exposures or any applicable customer, or other Obligor or counterparty, is considered by the relevant member of the Participant's Group to be in default or impaired, for which purpose the applicable assets and exposures are deemed to be in default or impaired if any one or more of the following occurs:

 

	 	
(1)  

	
any applicable customer, or other Obligor or counterparty, is in significant financial difficulties;

 

	 	
(2)  

	
the relevant member of the Participant's Group, for economic or legal reasons relating to any applicable customer's, or other Obligor's or counterparty's, financial difficulties, makes a concession to such customer, Obligor or counterparty which it would not have made but for such economic or legal reasons relating to such customer's, Obligor's or counterparty's financial difficulties; and

 

	 	
(3)  

	
any event which is (or would, if such assets and exposures were a Covered Asset, be) a Bankruptcy event in respect of such assets and exposures under paragraphs (A) or (C) of Condition 5.16 mutatis mutandis;

 

	
  

	
(ii)

	
(in the case of retail assets and exposures) to transfer the applicable assets and exposures to a recoveries department before the occurrence of a Trigger in respect of the Covered Asset of which such assets and exposures form part (or the Covered Asset to which the Non-Cash Realisation of which such assets and exposures form part relates, as the case may be); and

 

	
  

	
(iii)

	
(in the case of non-retail assets and exposures) for the relevant member of the Participant’s Group to consider the applicable assets and exposures or an applicable customer, or other Obligor or counterparty, to be in default or impaired (including where this is the case as a result of the occurrence of any one or more of the events referred to in sub-paragraphs (1) to (3) of sub-paragraph (i)(b) above) on or very soon after the occurrence of a Trigger in respect of the Covered Asset of which such assets and exposures form part (or the Covered Asset to which the Non-Cash Realisation of which such assets and exposures form part relates, as the case may be);

 

	
  

	
(D)

	
it shall ensure that the ordinary business practices from time to time of businesses within the Participant's Group in respect of assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which form part of Covered Assets (or Non-Cash Realisations) are at all

 

  

19

  

 

times (except to an extent that is not material in the context of aggregate Losses net of aggregate Recoveries):

 

	
  

	
(i)

	
not to write off all or any part of the debit balance of the account to which the Account Based Overdraft relates unless (and then only to the extent):

 

	
  

	
(a)

	
the relevant member of the Participant’s Group agrees with the applicable customer, or other Obligor or counterparty, to reduce such debit balance; or

 

	
  

	
(b)

	
the relevant member of the Participant’s Group considers there to be no reasonable prospect of any further recovery in respect of such debit balance;

 

	
  

	
(ii)

	
to apply Cash Realisations with respect to, resulting from or arising out of such assets and exposures to the debit balance of the account to which the relevant Account Based Overdraft relates; and

 

	
  

	
(iii)

	
not to close the account and write off in full the remaining debit balance of such account if there are any subsisting Realisations which are Realisations by reason of such assets and exposures forming part of the Covered Asset or Non-Cash Realisation (as the case may be), comprising rights of set-off or netting, or rights to any other process or arrangement (including counterclaim) having a substantially similar effect; and

 

	
  

	
(E)

	
it shall ensure that the effect of the ordinary business practices referred to in paragraph (D) above is that, at all times in respect of assets and exposures comprising Account Based Overdrafts (together with the accounts to which they relate) which form part of Covered Assets (or Non-Cash Realisations), the aggregate amount of the debit balances of the accounts to which such Account Based Overdrafts relate written-off in the circumstances referred to in sub-paragraph (D)(i)(b) above reflects all prospective Cash Realisations expected by any relevant member of the Participant's Group (acting in good faith and based on reasonable criteria) with respect to, resulting from or arising out of such assets and exposures (except to an extent that is not material in the context of aggregate Losses net of aggregate Recoveries).

 

	
12.18

	
The undertakings set out in Clause 12.17 shall be deemed to form part of the Asset Management Conditions (as defined in the Conditions) for the purposes only of construing the references to the Asset Management Conditions in Conditions 15.2(P), 19.1(F), 20.5 and 32.3(C).

 

Breach of Specified Obligations relating to Account Based Overdrafts

 

	
12.19

	
A breach of the Specified Obligations referred to in paragraphs (A) to (E) of Clause 12.17 and paragraphs (A) to (E) of clause 3.2 of the Overdrafts Supplemental

 

  

20

  

 

Agreement shall (except, in the case of paragraphs (A) and (B) of Clause 12.17 and paragraphs (A) and (B) of clause 3.2 of the Overdrafts Supplemental Agreement, in so far as such paragraphs relate to the performance of account closures) be capable of remedy by means of making such adjustments pursuant to and in accordance with Condition 8.7 as are required to reflect the adjustment, recording or removal (as applicable) of the relevant individual asset level write-off with retrospective effect.  For the avoidance of doubt, this remedy does not require the Participant to in fact adjust, record or remove (as applicable) the relevant individual asset level write-off in the Relevant Records.

 

Satisfaction of obligations out of Account Based Overdrafts after the Trigger Date

 

	
12.20

	
Unless otherwise agreed between the Treasury and the Participant in writing, if and to the extent an Account Based Overdraft (or, where sub-paragraph (A)(ii) below applies, any rights thereunder):

 

	
  

	
(A)

	
(i)

	
is, or forms part of, a Triggered Asset on any day after the Trigger Date (or, if later, 31 December 2008); or

 

	
  

	
(ii)

	
is a Non-Cash Realisation, having a Non-Cash Realisation Date after the Trigger Date (or, if later, 31 December 2008), in respect of a Triggered Asset; and

 

	
  

	
(B)

	
was not, and did not form part of, such Triggered Asset on the Trigger Date (or, if later, on 31 December 2008),

 

	
  

	
then:

 

	
  

	
(a)

	
such Account Based Overdraft (including any rights thereunder) shall be deemed not to be or form part of, and shall be deemed not at any time to have been or formed part of, such Triggered Asset and shall be deemed not to be, and shall be deemed not at any time to have been, a Non-Cash Realisation in respect of such Triggered Asset, in each case:

 

	
  

	
(1)

	
for the purposes of determining Losses, and (subject to paragraph (b) below) Recoveries, in respect of such Triggered Asset; and

 

	
  

	
(2)

	
for the purposes of reporting Losses, and (subject to paragraph (b) below) Recoveries and Realisations, in respect of such Triggered Asset in Quarterly Statements and Quarterly Statement Data; and

 

	
  

	
(b)

	
there shall be a Cash Realisation in an amount equal to such part (if any) of the debit balance (if any) of the account to which such Account Based Overdraft relates as arises in satisfaction or discharge of obligations or liabilities (whether or not such obligations or liabilities are so satisfied or discharged in full), under such Triggered Asset and/or any Non-Cash Realisation in respect of such Triggered Asset, of any Counterparty, but only if and to the extent such satisfaction or discharge would not otherwise be treated under the Conditions

 

  

21

  

 

as giving rise to a Cash Realisation in respect of such Triggered Asset (and this paragraph (b) shall be without prejudice to any such Cash Realisation as may arise under the Conditions).

 

The Cash Realisation Date for a Cash Realisation arising under paragraph (b) above shall be the date on which the debit balance (or the relevant part thereof) arises.  For the purpose only of paragraph (b) above, in determining whether, and the extent to which, the debit balance arises in satisfaction or discharge (in each case, whether in whole or in part) of the obligations or liabilities, under such Triggered Asset and/or any Non-Cash Realisation in respect of such Triggered Asset, of any Counterparty, it shall be deemed that no other Account Based Overdraft (or any rights thereunder) forms part of (or shall ever have formed part of, as the case may be) such Triggered Asset or any Non-Cash Realisation in respect of such Triggered Asset.  This Clause 12.20 varies Conditions 6 and 7.

 

  

22

  

 

SCHEDULE 3

 

(New clauses 12.21 and 12.22 of the Accession Agreement)

 

Other Amounts

 

	
12.21

	
The definition of Pending Treasury Payments set out in Condition 8.2 shall be amended by:

 

	
  

	
(A)

	
adding the words “sum of the” immediately after the words “plus the” therein; and

 

	
  

	
(B)

	
adding the words “and the Other Amount in respect of such Quarter as determined pursuant to Condition 8.3” immediately after the words “Condition 8.1” therein.

 

Loss Credits

 

	
12.22 

	
Condition 8 shall be amended by:

 

	 	
(A) 

	
adding the words “and Loss Credits”:

 

	 	
(i) 

	
immediately after the words “share of Losses” in Condition 8.1;

 

	
  

	
(ii)

	
immediately after the words “all Losses” in the definition of Current Excess Losses in Condition 8.1; and

 

	
  

	
(iii)

	
immediately after the words “all Losses” in the definition of Previous Excess Losses in Condition 8.1;

 

	 	
(B) 

	
adding the words “and Loss Credits” to the end of the heading to Condition 8.3;

 

	 	
(C) 

	
adding the following words to the end of Condition 8.3:

 

""Loss Credit" means an adjusting amount (which may be positive or negative) agreed in writing between the Treasury and the Participant (each acting in its sole discretion) with specific reference to this Condition 8.3 and the term "Loss Credit".  Any such agreement shall designate the date upon which the applicable Loss Credit shall be deemed for the purpose of this Condition 8 to have occurred. "; and

 

	
  

	
(D)

	
adding the words “or Loss Credit” immediately after the words “any Other Amount” in Condition 8.19(iii).

 

  

23

  

 

SCHEDULE 4

 

(Additions to schedule 4 to the Accession Agreement)

 

	
Specified Obligation

	
Whether capable of being remedied

	
Paragraph (A) of Clause 12.17 – Not to treat Account Based Overdrafts which form part of Covered Assets (or Non-Cash Realisations) differently from Account Based Overdrafts which do not form part of Covered Assets (or Non-Cash Realisations)

	
Yes, except in so far as the representation and warranty relates to the performance of account closures

 

No, in so far as the representation and warranty relates to the performance of account closures

	
Paragraph (B) of Clause 12.17 – To record and calculate individual asset level write-offs and perform account closures in a particular manner

	
Yes, except in so far as the representation and warranty relates to the performance of account closures

 

No, in so far as the representation and warranty relates to the performance of account closures

	
Paragraph (C) of Clause 12.17 – To ensure the ordinary business practices of the Participant’s Group are (i) to suspend the debiting of fees, interest and charges, (ii) to transfer assets and exposures to a recoveries department and (iii) to consider assets and exposures, or a counterparty, to be in default or impaired, in each case in certain circumstances

	
Yes

	
Paragraph (D) of Clause 12.17 – To ensure there are specified ordinary business practices of businesses within the Participant’s Group in relation to (i) writing off debit balances in particular circumstances, (ii) the application of Cash Realisations to debit balances and (iii) closing accounts and writing off in full the remaining debit balances in particular circumstances.

	
Yes

	
Paragraph (E) of Clause 12.17 – To ensure a specified effect of the ordinary business practices of businesses within the Participant’s Group.

	
Yes

 

  

24

  

 

	
Specified Obligation

	
Whether capable of being remedied

	
Paragraph (A) of clause 3.2 of the Overdrafts Supplemental Agreement – Representation and warranty as to not treating assets and exposures comprising Account Based Overdrafts which form part of Covered Assets (or Non-Cash Realisations) differently from assets and exposures comprising Account Based Overdrafts which do not form part of Covered Assets (or Non-Cash Realisations)

	
Yes, except in so far as the undertaking relates to the performance of account closures

 

No, in so far as the undertaking relates to the performance of account closures

	
Paragraph (B) of clause 3.2 of the Overdrafts Supplemental Agreement – Representation and warranty as to recording and calculating individual asset level write-offs and performing account closures in a particular manner

	
Yes, except in so far as the undertaking relates to the performance of account closures

 

No, in so far as the undertaking relates to the performance of account closures

	
Paragraph (C) of clause 3.2 of the Overdrafts Supplemental Agreement – Representation and warranty as to the ordinary business practices of the Participant’s Group being (i) to suspend the debiting of fees, interest and charges, (ii) to transfer assets and exposures to a recoveries department and (iii) to consider assets and exposures, or a counterparty, to be in default or impaired, in each case in certain circumstances

	
Yes

	
Paragraph (D) of clause 3.2 of the Overdrafts Supplemental Agreement – Representation and warranty as to the ordinary business practices of businesses within the Participant’s Group in relation to (i) writing off debit balances in particular circumstances, (ii) the application of Cash Realisations to debit balances and (iii) closing accounts and writing off in full the remaining debit balances in particular circumstances.

	
Yes

	
Paragraph (E) of clause 3.2 of the Overdrafts Supplemental Agreement – Representation and warranty as to the ordinary business practices of businesses within the Participant’s Group having a specified effect.

	
Yes

  

25

  

 

IN WITNESS of which this Agreement has been entered into on the date which first appears on page 1 above.

 

	
Signed by two of

The Commissioners of Her Majesty’s Treasury

 

	
)

)

)

)

)

	
Angela Watkinson

 

ANGELA WATKINSON

 

18/8/11                       

	
(sign)

 

(print)

 

(dated)

	 	 	 	 
	  	
)

)

)

)

)

	
J Duddrige

 

J DUDDRIDGE

 

18/8/11

	

(sign)

 

(print)

 

(dated)

	 	 	 	 
	
Signed for and on behalf of

The Royal Bank of Scotland plc

acting by its duly appointed attorney

 

	
)

)

)

)

)

	
R Wild

 

R D WILD

 

12/8/11

	

(sign)

 

(print)

 

(dated)

	 	 	 	 
	
Signed for and on behalf of

The Royal Bank of Scotland Group plc

acting by its duly appointed attorney

 

	
)

)

)

)

)

	
R Wild

 

R D WILD

 

12/8/11

	

(sign)

 

(print)

 

(dated)

 

26Exhibit 4.36

 

 

Stephan Wilcke

	
Chief Executive

	
020 7877 3400

	
stephan.wilcke@apa.gsi.gov.uk

	  
	  
	
Eastcheap Court, 11 Philpot Lane, London, EC3M 8UD

	
 31 January 2011

	  
	  	  	  	  
	
The Royal Bank of Scotland plc

	  	  	  
	
135 Bishopsgate

	  	  	  
	
London

	  	  	  
	
EC2M 3UR

	  	  	  
	  	  	  	  
	
Attention: APS Management

	  	  	  
	  	  	  	  
	
The Royal Bank of Scotland Group plc

	  	  	  
	
135 Bishopsgate

	  	  	  
	
London

	  	  	  
	
EC2M 3UR

	  	  	  
	  	  	  	  
	
Attention: APS Management

	  	  	  

 

Dear Sirs

 

Reporting issues relating to Post-Accession Data, Quarterly Statements and Quarterly Statement Data

 

	
1.

	
Introduction

 

	
1.1

	
We refer to the Accession Agreement dated 26 November 2009 between The Commissioners of Her Majesty’s Treasury, The Royal Bank of Scotland plc and The Royal Bank of Scotland Group plc, as amended and supplemented from time to time (the “Accession Agreement”).

 

	
1.2

	
Any words or expressions used but not otherwise defined in this letter shall have the respective meanings given to them pursuant to the Accession Agreement.

 

	
1.3

	
Unless stated otherwise, references in this letter to paragraphs and sub-paragraphs are references to paragraphs and sub-paragraphs of this letter.

 

	
1.4

	
The Schedules and the Appendix form part of this letter.

 

	
1.5

	
It is noted and acknowledged that pursuant to Condition 17.13, this letter documents the agreement reached between the Treasury and the Participant as to certain matters relating to the Post-Accession Data, Quarterly Statements and the Quarterly Statement Data to be prepared and produced, and to be delivered by the Participant to the Treasury, pursuant to the Scheme Documents.

 

  

1

  

 

 

	
2.

	
Modifications to Post-Accession Data reporting and the Post-Accession Data Fields

 

	
2.1

	
Part I (General Rules) of the Data Field Rules for the Post-Accession Data Fields shall be modified by:

 

	
  

	
(A)

	
the deletion in its entirety of rule 1.7(C) and the insertion of a new rule 1.7(C) as set out in Schedule 1 to this letter in its place;

 

	
  

	
(B)

	
the replacement of the words “calendar month” in rule 1.9(B) with the word “Quarter”; and

 

	
  

	
(C)

	
the insertion of:

 

	
  

	
(i)

	
a new rule 1.11A (with the heading “Division or consolidation of assets or exposures”) as set out in Schedule 1 to this letter; and

 

	
  

	
(ii)

	
a new Annex H in the form set out in Appendix 1 to this letter.

 

	
2.2

	
Part II (Completion Rules for Post-Accession Data Fields) of the Data Field Rules for the Post-Accession Data Fields shall be modified by the replacement of the word “month” in rule 23.1 with the word “Quarter”.

 

	
2.3

	
Part III (Specific Rules for Timing of Completion and Delivery) of the Data Field Rules for the Post-Accession Data Fields shall be modified by the replacement of each reference to “monthly” in the column headed “Update Frequency” with a reference to “quarterly”.

 

	
3.

	
Modifications to the Quarterly Statement Data Fields

 

Part 1 (General)

 

	
3.1

	
Part 1 (General Rules) of the Data Field Rules for the Quarterly Statement Data Fields shall be modified by the insertion of:

 

	
  

	
(A)

	
a new rule 1.10A (with the heading “Division or consolidation of assets or exposures”) as set out in Part A of Schedule 2 to this letter; and

 

	
  

	
(B)

	
a new Annex 4 in the form set out in Appendix 2 to this letter.

 

Part 2 (Trigger)

 

	
3.2

	
Part 2 (Trigger) of the Data Field Rules for the Quarterly Statement Data Fields shall be modified by:

 

	
  

	
(A)

	
the insertion of new rules 5.2 to 5.5 (inclusive) as set out in Part B of Schedule 2 to this letter; and

 

	
  

	
(B)

	
the deletion of rule 6.2 and the insertion of new rules 6.2 to 6.4 (inclusive) as set out in Part B of Schedule 2 to this letter in its place.

 

  

2

  

 

Part 4 (Loss)

 

	
3.3

	
Part 4 (Loss) of the Data Field Rules for the Quarterly Statement Data Fields shall be modified by:

 

	
  

	
(A)

	
the deletion of rule 14.1 and the insertion of a new rule 14.1 in its place;

 

	
  

	
(B)

	
the insertion of a new rule 14.4;

 

	
  

	
(C)

	
the deletion of rules 15.1 to 15.4 (inclusive) and the insertion of new rules 15.1 to 15.3 (inclusive) in their place;

 

	
  

	
(D)

	
the deletion of rule 16.1 and the insertion of a new rule 16.1 in its place;

 

	
  

	
(E)

	
the insertion of a new rule 16.5;

 

	
  

	
(F)

	
the deletion of rule 17.1 and the insertion of a new rule 17.1 in its place;

 

	
  

	
(G)

	
the insertion of a new rule 17.5;

 

	
  

	
(H)

	
the deletion of rule 18.1 and the insertion of a new rule 18.1 in its place;

 

	
  

	
(I)

	
the insertion of new rules 18.1A (immediately after the new rule 18.1 inserted pursuant to paragraph ‎3.3‎(H)) and 18.5,

 

each such new rule being as set out in Part C of Schedule 2 to this letter.

 

Part 5 (Recovery or Realisation)

 

	
3.4

	
Part 5 (Recovery or Realisation) of the Data Field Rules for the Quarterly Statement Data Fields shall be modified by the insertion (immediately after rule 48) of new rules 48A and 48B each as set out in Part D of Schedule 2 to this letter.

 

	
4.

	
Modifications to the Accession Agreement

 

The Accession Agreement shall be modified by:

 

	
  

	
(A)

	
the insertion of new definitions in alphabetical order as set out in Part A of Schedule 3 to this letter into clause 1.1(A);

 

	
  

	
(B)

	
the insertion of new clauses 5.24 and 5.25 (with the heading “Covered Assets that divide or are consolidated”) as set out in Part B of Schedule 3 to this letter;

 

	
  

	
(C)

	
the deletion of clause 18.2(B) and the insertion of a new clause 18.2(B) in its place as set out in Part C of Schedule 3 to this letter; and

 

	
  

	
(D)

	
the insertion (immediately after clause 18) of a new clause 18A as set out in Part D of Schedule 3 to this letter.

 

  

3

  

 

 

	
5.

	
General

 

This letter is designated as a Scheme Document.

 

Please confirm your agreement to the foregoing by signing and returning the enclosed copy of this letter.

 

Yours faithfully,

 

 

/s/ Stephan Wilcke

 

................................................................

For and on behalf of the Commissioners of HM Treasury

(acting through the Asset Protection Agency)

 

 

Confirmed and agreed for and on behalf of The Royal Bank of Scotland plc

 

Signature:

 

 

Name: /s/ John Collins    Date: 31 January 2012

 

 

Confirmed and agreed for and on behalf of The Royal Bank of Scotland Group plc

 

Signature:

 

 

Name: /s/ John Collins    Date: 31 January 2012

 

  

4

  

 

Schedule 1

 

(New rules to be added to Part I (General Rules) of the Data Field Rules for the Post-Accession Data Fields)

 

	
1.7(C)

	
20 Business Days after the end of each Quarter following the last Phased Delivery Date (each a “Subsequent Delivery Date”).

 

Division or consolidation of assets or exposures

 

	
1.11A

	
Where assets or exposures that comprise a Covered Asset are, on or prior to the Trigger Date in respect of the relevant Covered Asset, divided or consolidated, the Participant shall complete the Post-Accession Data Fields in respect of such assets or exposures (as they are divided or consolidated) in a manner consistent with Annex H.

 

  

5

  

 

Schedule 2

 

(New rules to be added to the Data Field Rules for the Quarterly Statement Data Fields)

 

Part A

 

(New rule to be added to Part 1 (General Rules))

 

Division or consolidation of assets or exposures

 

	
1.10A

	
Where assets or exposures that comprise a Covered Asset are, on or prior to the Trigger Date in respect of the relevant Covered Asset, divided or consolidated, the Participant shall complete the Quarterly Statement Data Fields in respect of such assets or exposures (as they are divided or consolidated) in a manner consistent with Annex 4.

 

Part B

 

(New rules to be added to Part 2 (Trigger))

 

	
5.2

	
Subject to rule 5.5, if in relation to the Covered Asset the Trigger Date (or the date to be reported in accordance with rule 5.3) occurred prior to 1 January 2009 and the Participant cannot readily determine the actual Trigger Date, this field must be completed as 31 December 2008.

 

	
5.3

	
Solely for the purpose of completing this field in relation to a Covered Asset allocated either to the “Consumer Finance” or the “Residential Mortgage” Covered Asset Class and in respect of which a Failure to Pay has occurred:

 

	
  

	
(A)

	
where the Days Past Due at the end of any calendar month first equals (and has not at a previous month-end exceeded) the relevant threshold, this field shall be completed with the date of that month-end;

 

	
  

	
(B)

	
where the Days Past Due at the end of any calendar month first exceeds the relevant threshold and the excess is equal to or less than the number of days in that month, the date to be included in this field shall be calculated by counting from the month-end back a number of days equal to the excess.  By way of example (which is illustrative only) if, in respect of a Covered Asset allocated to the “Consumer Finance” Covered Asset Class, the Days Past Due as at the end of November is 190 days, the Participant shall calculate the Trigger Date to be reported by counting back 10 days from the last day of the month, i.e. 20 November; and

 

	
  

	
(C)

	
where the Days Past Due at the end of any calendar month first exceeds the relevant threshold and the excess is greater than the number of the days in that month, this field must be completed with the first day of that month.  By way of example (which is illustrative only) if, in respect of a Covered Asset allocated to the “Residential Mortgage” Covered Asset Class, the Days Past Due as at the end of November is 400 days, the excess (being 35 days) is greater than the number of days in November and the field would be completed as 1 November.

 

5.4           In rule 5.3 “relevant threshold” means:

 

  

6

  

 

	
  

	
(A)

	
in respect of Covered Assets allocated to the “Consumer Finance” Covered Asset Class, 180 Days Past Due; and

 

	
  

	
(B)

	
in respect of Covered Assets allocated to the “Residential Mortgage” Covered Asset Class, 365 Days Past Due.

 

	
5.5

	
For the purpose of completing this field with respect to a Covered Asset in relation to which the Participant completes Quarterly Statement Data Fields set out in Part 6 (Realisation Expense) in respect of any Realisation Expense that falls within Condition 7.21(E), this field must be completed with the actual Trigger Date of that Covered Asset (or the date calculated in accordance with rule 5.3).

 

	
6.2

	
Subject to rule 6.4, if in relation to the Covered Asset the Initial Event Date (or the date to be reported in accordance with rule 6.3) occurred prior to 1 January 2009 and the Participant cannot readily determine the actual Initial Event Date, this field must be completed as 31 December 2008.

 

	
6.3

	
Solely for the purpose of completing this field in relation to a Covered Asset allocated to the “Consumer Finance” Covered Asset Class which includes or comprises an overdraft:

 

	
  

	
(A)

	
if it is possible, by reference to the systems and records of the relevant Covered Entity, to determine that a formal demand for repayment of an overdraft was issued, then for the purpose of determining the Initial Failure to Pay Date (if any) in respect of the relevant Covered Asset, the overdraft will be treated as due:

 

	
  

	
(i)

	
in the case of Covered Assets managed by the UK Retail or Ulster Divisions of the Participant’s Group, eight days after the date on which the demand for repayment of the overdraft was issued by (or on behalf of) the relevant Covered Entity; or

 

	
  

	
(ii)

	
in the case of Covered Assets managed by any other division of the Participant’s Group, on the date on which the demand for repayment of the overdraft was issued by (or on behalf of) the relevant Covered Entity; or

 

	
  

	
(B)

	
if it is not possible, by reference to the systems and records of the relevant Covered Entity, to determine whether a formal demand for repayment of an overdraft was issued, then for the purpose of completing this field:

 

	
  

	
(i)

	
it shall be assumed that there is no Potential Failure to Pay in respect of the overdraft; and

 

	
  

	
(ii)

	
where the foregoing assumption results in there being no Potential Failure to Pay with respect to the Covered Asset which is continuing at the Trigger Date, this field must be completed with the same date as the date included in the “Trigger Date” field in respect of the Covered Asset in accordance with rule 5.

 

  

7

  

 

	
6.4

	
For the purpose of completing this field with respect to a Covered Asset in relation to which the Participant is required to complete Quarterly Statement Data Fields set out in Part 5 (Recovery and Realisation) in respect of any Cash Realisation that falls within Condition 7.2(iv) or Condition 7.2(v), this field must be completed with the actual Initial Event Date (which shall include any date determined by the application of rule 6.3) of that Covered Asset.

 

Part C

 

(New rules to be added to Part 4 (Loss))

 

	
14.1

	
Where the relevant Loss arises under Condition 6.1 (which deals with a Loss arising on a Trigger), this field must be completed with:

 

	
  

	
(A)

	
if the Initial Event Date of the Covered Asset is prior to 1 January 2009, the amount to be specified by the Participant in the Initial Data as the “Covered Amount” of the Covered Asset;

 

	
  

	
(B)

	
if the Initial Event Date of the Covered Asset is on or after 1 January 2009 and the Participant can readily determine the Covered Amount as at the Initial Event Date, the Covered Amount as at the Initial Event Date; or

 

	
  

	
(C)

	
if: (i) the Initial Event Date of the Covered Asset is on or after 1 January 2009 and on or prior to the Cover Termination Date of the Covered Asset; and (ii) the Participant cannot readily determine the Covered Amount as at the Initial Event Date, the Covered Amount as at the last day of the calendar month ending on or immediately after the Initial Event Date applicable to such Covered Asset,

 

stated in the Covered Amount Currency, in each case in respect of the relevant Covered Asset.  For the purpose of reporting the Covered Amount in accordance with rule 14.1(C), the Participant may calculate such Covered Amount: (i) as if Condition 6.5(B) were amended to require calculation of the Covered Amount only on month-end dates, so that the Covered Amount for a relevant month-end falling after 31 December 2008 but on or prior to the Initial Event Date would be determined as the lesser of the Covered Amount Cap on that month-end date and the Covered Amount for the preceding month-end date; (ii) as if the Covered Amount Cap for a month-end date were calculated by reference to the Actual Exposure on such month-end date, rather than the Actual Exposure on the day preceding such month-end date; and (iii) as if Condition 6.5(C) were replaced by a requirement, in a case where the Initial Event Date falls on a date other than a month-end date, to determine the Covered Amount on the final day of the month ending immediately after the Initial Event Date as the lowest of (x) the Covered Amount on the preceding month-end date, (y) the Actual Exposure on the final day of the month immediately after the Initial Event Date, and (z) the Original Maximum Exposure on the day immediately preceding the Initial Event Date.

 

	
14.4

	
References in this rule 14 to the Initial Event Date are to the Initial Event Date as reported in accordance with rule 6.

 

  

8

  

 

	
15.1

	
Where the relevant Loss arises under Condition 6.1 (which deals with a Loss arising on a Trigger), this field must be completed by conversion of the amount reported in the “Covered Amount at Initial Event Date in Covered Amount Currency” Quarterly Statement Data Field in accordance with rule 14 in respect of the relevant Covered Asset to sterling.

 

	
15.2

	
For the purpose of completing this field, the Exchange Date shall be the Trigger Date reported in accordance with rule 5 in respect of the relevant Covered Asset.

 

	
15.3

	
Where the “Covered Amount at Initial Event Date in Covered Amount Currency” Quarterly Statement Data Field is completed with “N/A” in accordance with rule 14, this field must also be completed with “N/A”.

 

	
16.1

	
Where the relevant Loss arises under Condition 6.1 (which deals with a Loss arising on a Trigger), this field must be completed with:

 

	
  

	
(A)

	
if the Trigger Date of the Covered Asset is prior to 1 January 2009, the Outstanding Amount of the Covered Asset on 31 December 2008;

 

	
  

	
(B)

	
if the Trigger Date of the Covered Asset is on or after 1 January 2009 and the Participant can readily determine the Outstanding Amount as at the Trigger Date, the Outstanding Amount as at the Trigger Date; or

 

	
  

	
(C)

	
if the Trigger Date of the Covered Asset is on or after 1 January 2009 and the Participant cannot readily determine the Outstanding Amount as at the Trigger Date, the Outstanding Amount as at the end of the calendar month ending on or immediately prior to the Trigger Date applicable to such Covered Asset,

 

stated in the actual underlying currency, in each case in respect of the relevant Covered Asset.

 

	
16.5

	
References in this rule 16 to the Trigger Date are to the Trigger Date as reported in accordance with rule 5.

 

 

	
17.1

	
Where the relevant Loss arises under Condition 6.1 (which deals with a Loss arising on a Trigger), this field must be completed with:

 

	
  

	
(A)

	
if the Trigger Date of the Covered Asset is prior to 1 January 2009, the Outstanding Amount of the Covered Asset on 31 December 2008;

 

	
  

	
(B)

	
if the Trigger Date of the Covered Asset is on or after 1 January 2009 and the Participant can readily determine the Outstanding Amount as at the Trigger Date, the Outstanding Amount as at the Trigger Date; or

 

	
  

	
(C)

	
if the Trigger Date of the Covered Asset is on or after 1 January 2009 and the Participant cannot readily determine the Outstanding Amount as at the Trigger Date,

 

 

  

9

  

 

 

the Outstanding Amount as at the end of the calendar month ending on or immediately prior to the Trigger Date applicable to such Covered Asset,

 

stated in the Covered Amount Currency, in each case in respect of the relevant Covered Asset.

 

	
17.5

	
References in this rule 17 to the Trigger Date are to the Trigger Date as reported in accordance with rule 5.

 

 

	
18.1

	
Where the relevant Loss arises under Condition 6.1 (which deals with a Loss arising on a Trigger), this field must be completed with:

 

	
  

	
(A)

	
if the Trigger Date of the Covered Asset is prior to 1 January 2009, the “Outstanding Amount of the Covered Asset on 31 December 2008;

 

	
  

	
(B)

	
if the Trigger Date of the Covered Asset is on or after 1 January 2009 and the Participant can readily determine the Outstanding Amount as at the Trigger Date, the Outstanding Amount as at the Trigger Date; or

 

	
  

	
(C)

	
if the Trigger Date of the Covered Asset is on or after 1 January 2009 and the Participant cannot readily determine the Outstanding Amount as at the Trigger Date, the Outstanding Amount as at the end of the calendar month ending on or immediately prior to the Trigger Date applicable to such Covered Asset,

 

in each case in respect of the relevant Covered Asset, stated in sterling.

 

	
18.1A

	
For the purpose of completing this field, the Exchange Date shall be the Trigger Date in respect of the relevant Covered Asset.

 

	
18.5

	
References in this rule 18 to the Trigger Date are to the Trigger Date as reported in accordance with rule 5.

 

 

Part D

 

(New rules to be added to Part 5 (Recovery or Realisation))

 

48A.           RECOVERIES OR REALISATIONS WITH RESPECT TO RELATED JUNIOR ASSETS

 

	
48A.1

	
The Participant shall not be required to include as part of any Quarterly Statement Data in respect of any Quarter ending on or before 31 December 2010 any information relating to Recoveries or Realisations (whether or not any such Realisations are Cash Realisations) with respect to, resulting from or arising out of any Related Junior Asset in respect of any Triggered Asset.

 

  

10

  

 

	
48A.2

	
The Participant shall not be required to include as part of any Quarterly Statement Data in respect of any Quarter ending after 1 January 2011 any information relating to Recoveries or Realisations (whether or not any such Realisations are Cash Realisations) with respect to, resulting from or arising out of any Related Junior Asset in respect of a Triggered Asset which is allocated either to the “Consumer Finance” or the “Residential Mortgage” Covered Asset Class.

 

	
48A.3

	
The Participant shall be required to include in any Quarterly Statement Data in respect of any Quarter ending after 1 January 2011, information relating to Recoveries or Realisations (whether or not any such Realisations are Cash Realisations) with respect to, resulting from or arising out of any Related Junior Asset in respect of a Triggered Asset which is allocated to a Covered Asset Class other than the “Consumer Finance” and the “Residential Mortgage” Covered Asset Classes only if:

 

	
  

	
(A)

	
there has been, since 1 January 2011, a full or partial write-off in respect of such Triggered Asset;

 

	
  

	
(B)

	
the aggregate amount of all write-offs that are determined by the Participant’s Group as at the time of the determination of the write-off referred to in sub-paragraph (A) above in respect of:

 

	
  

	
(i)

	
such Triggered Asset; and

 

	
  

	
(ii)

	
any and all other assets and exposures which, at the time of the write-off in respect of the relevant Triggered Asset, are connected to such Triggered Asset

 

exceeds £50,000,000 (fifty million pounds); and

 

	
  

	
(C)

	
the Recoveries or Realisations were made, realised, received, recovered or derived on or prior to the date on which the write-off referred to in sub-paragraph (A) above was recorded in the accounts of the relevant Covered Entity,

 

and the assessment of whether an asset or exposure is a Related Junior Asset in respect of any Triggered Asset shall be determined as at the time of the write-off referred to in sub-paragraph (A) above solely by reference to the rights attaching to such asset or exposure, and the relevant Covered Asset, at such time.

 

	
48A.4

	
For the purpose of applying the threshold in rule 48A.2 (B) above, where the amount of a write-off in respect of a Triggered Asset or an asset or exposure connected to a Triggered Asset is denominated in any Other Currency, such amount shall be converted into sterling using a market rate as reasonably determined by the Participant based on its ordinary course business and banking policies, practices and procedures consistently applied.

 

48A.5           For the purpose of this rule 48A:

 

	
  

	
(A)

	
an asset or exposure shall be deemed to be “connected” to a Triggered Asset if it is an asset or exposure of any person falling within paragraph (A) or (C) of the definition of Applicable Entity in respect of which the credit limit, credit line or trading line (or equivalent) in respect of a Counterparty is aggregated with the credit limit, credit line or

 

  

11

  

 

trading line (or equivalent) of a Counterparty in respect of such Triggered Asset pursuant to the Credit Aggregation Policy, or would be so aggregated if the Credit Aggregation Policy were to be consistently applied between Protected Assets and assets and exposures that do not comprise Protected Assets, and an asset or exposure of any person falling within paragraph (A) or (C) of the definition of Applicable Entity in respect of which any Counterparty (or any Group Member of a Counterparty) is also a Counterparty (including an Obligor) in respect of such Triggered Asset shall be deemed to be connected to such Triggered Asset; and

 

	
  

	
(B)

	
“write-off” shall have the meaning given to it in the Accession Agreement.

 

48B.           TREATING CUSTOMERS FAIRLY

 

For the purposes of the completion of Quarterly Statement Data Fields in this Part 5, the Participant may report obligor receipts in accordance with the ordinary business practices and procedures of the Participant’s Group provided that:

 

	
  

	
(A)

	
such practices and procedures are at all times consistent with the relevant terms of (or relating to) the obligations of the obligor, Applicable Law and the TCF Principles; and

 

	
  

	
(B)

	
the basis on which such practices and processes treat assets and exposures which form part of Covered Assets does not differ from the basis on which such practices and processes treat equivalent assets and exposures which do not form part of Covered Assets.

 

  

12

  

 

Schedule 3

 

Part A

 

 

(New definitions to be inserted in clause 1.1(A) of the Accession Agreement)

 

“Reporting Issues Side Letter” means the letter headed “Reporting issues relating to Post-Accession Data, Quarterly Statements and Quarterly Statement Data” from the Commissioners of HM Treasury (acting through the Asset Protection Agency) to the Participant and the Initial Parent and dated on or around 31 January 2011;

 

“write-off” means, in respect of a Triggered Asset (or in respect of any asset or exposure which is connected to a Triggered Asset), a write-off in the accounts of the relevant Covered Entity in accordance with its ordinary business practices from time to time, consistently applied, provided that the basis on which that Covered Entity and the Participant's Group treat assets and exposures which form part of Covered Assets does not differ from the basis on which that Covered Entity and the Participant's Group treat equivalent assets and exposures of that Covered Entity and the Participant's Group which do not form part of Covered Assets.

 

 

Part B

 

(New Clauses 5.24 and 5.25 of the Accession Agreement)

 

Covered Assets that divide or are consolidated

 

	
5.24

	
For the avoidance of doubt, the requirements in rule 1.11A of Part 2 of the Data Field Rules, rule 1.10A of Part 3 of the Data Field Rules and Clause 18A.2 that, where assets or exposures that comprise a Covered Asset are divided or consolidated, the Participant shall complete the Quarterly Statement Data Fields and the Post-Accession Data Fields, and prepare Quarterly Statements, in respect of such assets or exposures (as they are divided or consolidated) in a manner consistent with Annex H to Part 2 of the Data Field Rules or Annex 4 to Part 3 of the Data Field Rules (as the case may be) shall be without prejudice to the provisions of any Scheme Document (including, without limitation, Condition 4.4).

 

	
5.25

	
If the Treasury or the Participant is of the opinion that the application of Annex H to Part 2 of the Data Field Rules and / or Annex 4 to Part 3 of the Data Field Rules does not produce the intended effect in respect of the completion of any Quarterly Statement Data Field and / or any Post-Accession Data Field and / or the preparation of Quarterly Statements (whether or not in respect of a particular asset or exposure), then the Treasury and the Participant shall, as soon as reasonably practicable, participate in good faith discussions and seek to agree the manner in which the Quarterly Statement Data Fields and / or the Post-Accession Data Fields should be completed, and /or Quarterly Statements should be prepared.

 

  

13

  

 

Part C

 

(New Clause 18.2(B) of the Accession Agreement)

 

	
(B)

	
contains a confirmation from the Scheme Head (or another member of the Scheme Executive Team acceptable to the Treasury) that, to the best of his or her knowledge and belief, having made all due and reasonable enquiries, such QS data deficiencies result in the Quarterly Statement Data (and/or the Information contained in the relevant Quarterly Statement derived from such Quarterly Statement Data) containing amounts in respect of Losses and Recoveries which are such that, in relation to each Covered Asset individually or, if the Treasury in its sole discretion determines, all Covered Assets collectively to which in either case the QS data deficiencies relate:

 

	
  

	
(i)

	
the aggregate amount of Losses in respect of such Covered Asset or Covered Assets; minus

 

	
  

	
(ii)

	
the aggregate amount of Recoveries in respect of such Covered Asset or Covered Assets,

 

is no more than would have been the case if there were no such QS data deficiencies.

 

 

Part D

 

(New Clause 18A of the Accession Agreement)

 

18A.           Reporting Issues Side Letter

 

18A.1           It is acknowledged that:

 

	
  

	
(A)

	
in so far as the Reporting Issues Side Letter sets out certain agreed modifications to the reporting obligations of the Participant in respect of Post-Accession Data, Quarterly Statements and Quarterly Statement Data, such modifications are not intended to, and shall not, in any way amend the financial extent of the protection provided to the Participant under the Scheme (in particular, but without limitation, with respect to the Losses and Recoveries attributable to any Covered Asset);

 

	
  

	
(B)

	
the operation of Condition 8 on the basis of the Quarterly Statement Data completed, and Quarterly Statements prepared, in accordance with the Participant’s reporting obligations as modified by the Reporting Issues Side Letter may produce a different outcome compared with the operation of Condition 8 on the basis of Quarterly Statement Data completed, and Quarterly Statements prepared, in accordance with the Participant’s reporting obligations prior to the application of such modifications; and notwithstanding the foregoing it is agreed that Condition 8 shall be applied on the basis of the Quarterly Statement Data completed, and the Quarterly Statements prepared, in accordance with the Scheme Documents (as amended or modified by the Reporting Issues Side Letter) including, for the avoidance of doubt, as the Quarterly Statement Data and / or Quarterly Statements are required to be prepared and / or re-stated pursuant to the application of Clause 18A.4; and

 

  

14

  

 

 

	
  

	
(C)

	
the terms of the Reporting Issues Side Letter are not intended to, and shall not, in any way affect the Treasury’s rights to request Information pursuant to any Scheme Document or otherwise (including, without limitation, pursuant to Condition 15).

 

	
18A.2

	
The modifications made to the Participant’s reporting obligations by the deletion of rules in, and / or the insertion of rules into, Part 3 (Rules for Quarterly Statement Data Fields) of the Data Field Rules pursuant to the Reporting Issues Side Letter shall also apply, mutatis mutandis and notwithstanding Condition 16, to the preparation of each Quarterly Statement in so far as it is based on the Quarterly Statement Data provided by the application of the Quarterly Statement Data Field Rules as modified pursuant to the Reporting Issues Side Letter.

 

	
18A.3

	
It is acknowledged and agreed that the reporting of any Information in any Quarterly Statement Data Field or Quarterly Statement in accordance with the modifications made to the Participant’s reporting obligations by the deletion of rules in, and / or the insertion of rules into, Part 3 (Rules for Quarterly Statement Data Fields) of the Data Field Rules pursuant to the Reporting Issues Side Letter shall not, save where the Treasury disapplies any or all of such modifications or requires the Participant to re-state and / or provide any information or data (in each case pursuant to Clause 18A.4), be treated as giving rise to any breach of Condition 16 or as constituting any QS data deficiency or any error, inaccuracy or data deficiency for the purposes of any of Conditions 16, 31, 32, 33 or 34.

 

	
18A.4

	
Notwithstanding Clause 18A.1 and any of the other provisions of the Reporting Issues Side Letter, the Treasury may by giving reasonable written notice to the Participant:

 

	
  

	
(A)

	
disapply any or all of the modifications to the Participant’s reporting obligations which are specified in, or effected by, the Reporting Issues Side Letter; and / or

 

	
  

	
(B)

	
require the Participant:

 

	
  

	
(i)

	
to re-state (and provide to the Treasury) any or all of the information or data provided pursuant to the Scheme Documents in accordance with the modifications to the Participant’s reporting obligations which are specified in, or effected by, the Reporting Issues Side Letter such that the information or data is accurately completed in accordance with the terms and requirements of the Scheme Documents without application of any or all of the modifications specified in the Reporting Issues Side Letter; and / or

 

	
  

	
(ii)

	
to provide to the Treasury any or all of the information or data which, by virtue of the modifications to the Participant’s reporting obligations specified in, or effected by, the Reporting Issues Side Letter, the Participant has not provided to the Treasury.

 

	
18A.5

	
If under Clause 18A.4 the Treasury requires: (A) the disapplication of all of the modifications which are specified in, or effected by, the Reporting Issues Side Letter; (B) the restatement of all information or data which has been provided in accordance with the modifications specified in, or effected by, the Reporting Issues Side Letter; or (C) the provision of all the information or data which has not been provided by the Participant by virtue of the modifications specified 

 

  

15

  

 

in, or effected by, the Reporting Issues Side Letter, the Treasury shall give not less than 12 months’ written notice to the Participant.

 

	
18A.6

	
Where the Treasury requires the Participant to re-state any information or data pursuant to Clause 18A.4 and, as a result, any amount set out in a Quarterly Statement requires adjustment (including as a result of adjustments to the underlying Quarterly Statement Data), Condition 8.7 (and the other provisions in Condition 8 (other than Condition 8.11)) shall apply with respect to the adjustment of such amount.

 

 

  

16

  

 

 

Appendix 1

 

 

(Paper titled “Post-Accession Data Reporting: Division or

Consolidation of Assets or Exposures”)

 

 

 

 

 

 

 

  

  

  

 

	

	

Appendix 1

Post Accession Reporting:
Division or Consolidation of Assets or Exposures

1

 

 

 

 

 

 

	

	

Asset Continuity in Post Accession Data: Introduction

Background:

Over time, the structure of a Covered Asset may change. This may take many
forms from a simple debt consolidation (where many Covered Assets are replaced
by one new asset / component); to the more complex arrangements (for example
where many Covered Assets are replaced by many new components. ) In each case
RBSG must calculate the covered amount against the original APS asset(s) and
allocate this cover across the resulting restructured asset(s) . For
transparency purposes in PAD reporting we report against both the APS asset
(using APS Covered Asset ID(ACAID)) and the restructured asset(s) (using Bank
Covered Asset ID(BCAID)) . The number of rows of data post refinancing will
equal the number of old loans multiplied by the number of new loans. Each row
will be identified by the unique ACAID -BCAID combination At a high level there
are three restructuring scenarios:

[] Debt split (One to Many) -- This occurs where a single asset is refinanced
into more than one assets. For example a single loan may be agreed for general
property development purposes but then split into a number of individual loans
for each of the properties (to facilitate monitoring, draw downs and repayments
following sales).

[] Debt consolidation (Many to One) -- This occurs where more than one asset is
refinanced into a single asset. For example five loans may be consolidated onto
a single loan to for the administrative convenience of the customer.

[] Complex debt rearrangements (Many to Many) -- This occurs where more than
one asset is refinanced into across several assets but not in a one-to-one
relationship. For example two loans may be converted into three

Purpose of this paper:

The purpose of this paper is to outline the proposed cover re-allocation across
refinanced assets for each of the above scenarios in relation to PAD Reporting
and seek your approval for the same.

Assumptions:

1. As this paper focuses on Post Accession Data reporting requirements, it is
assumed in each case that Covered Assets remain covered under the Scheme and
the Asset Continuity Requirements have not been breached.

2. Note that the reporting of Consumer Finance assets in Post Accession Data
should not be affected by such changes to the structure of Covered Assets. This
is because these assets are already reported at customer level, which would be
unaffected by these changes.

3. For simplicity, the assets considered in these examples are amortising
assets unless stated otherwise

4. This paper only deals with PAD reporting requirements; QS requirements are
discussed in a separate paper

2

 

 

 

 

 

 

	

	

Allocation and reporting of covered amount for refinanced assets

Principles:

1.Covere Covere d Amount calculation for APS assetsassets follows the rules
exactly:

[] Covered Amount cap is always applied based on Original OME and current
Actual Exposure

2.Covered Amount apportionment to refinanced facilities is based on Actual
Exposure of new facilities 3.Outstanding Amount and Actual Exposure are
apportioned based on initial data covered amount

Steps to allocate Covered Amount to refinanced assets:

Step 1: Identify new facilities

Step 2: Calculate the total Actual Exposure of new facilities

Step 3: Calculate total Covered Amount of APS Assets: CAAPS Asset = min {OME,
AE, CAmin since 31/12/08} Step 4: Covered Amount for restructured asset: CARes.
Asset = AE/Total AE * Total CA

Step 5: Actual Exposure for restructured asset: AERes. Asset = Init. CA/Total
Initial CA * Total AE

Reporting:

For transparency purposes in PAD reporting we report against both the APS asset
(using APS Covered Asset ID(ACAID)) and the restructured asset(s) (using Bank
Covered Asset ID(BCAID))

[] A separate row of data is reported for each replacement loan

* Each row will quote the same APS Covered Asset ID but different Bank Covered
Asset ID (so the combination of APS and Bank Covered Asset ID will be unique*
Certain data will be consistent across each row of data -- notably Triggered
Asset Flag (because an asset cannot partially trigger), Imputed Maturity Flag
and Currency

[] The number of rows of data post refinancing will equal the number of old
loans multiplied by the number of new loans

Definitions (See Appendix for legal definitions) :

Outstanding Amount (OA) -- Drawn balance as at the month-end reporting date

Actual Exposure (AE) -- Sum of Drawn and Undrawn balances as at the month-end
reporting date Covered Amount (CA) -- Covered Amount at the month-end reporting
date

Original Maximum Exposure (OME) -- The maximum amount of exposure with respect
to the Covered Asset, amortised over time, in accordance with its terms as at
31st December 2008. Must be captured as at the day immediately before the
relevant date.

Cover Termination Date (CTD) -- The date on which the cover for an APS asset
terminates

3

 

 

 

 

 

 

	

	

Asset Continuity: Debt Split in Post Accession Reporting (One to Many, AE >
CA)

Example: A single APS asset (loan) is refinanced into three loans such that
there is a 50% increase in the total actual exposure.

Proposal: To allocate the cover to refinanced loans apportion the Covered
Amount of the APS asset across the new loans based on their Actual Exposures.

CARes. Asset = AE/Total AE * Total CA

Initial Data Before Refinancing: Post- Refinancing:

Restructured asset Cover Allocation BCAID : 1 ACAID : A
AE = 300 BCAID : 1
OA = 250 Alloc.  CA = 20% of 1000 = 200
                                                             (20% of total AE)
OA = 250 CA calculation

ACAID : A
BCAID : 2 ACAID : A
ACAID : A BCAID : A Debt Split

                              AE = 600 BCAID : 2 BCAID : A OME = 1,200
OA = 800 Alloc.  CA = 40% of 1000 = 400
Initial CA = 2,000 OA = 500
AE = 1000 OA = 500 (40% of total AE)
Calc.  CA = 1,000

BCAID : 3 ACAID : A
BCAID : 3
AE = 600
Alloc.  CA = 40% of1000 = 400
OA = 500
OA = 500
(40% of total AE)

Total for APS asset

    Total for APS asset Total for APS asset CA = 1,000 Total for restructured
asset CA = min{1200, 1500, 1000} = 1,000 Initial CA = 2,000 AE = 1,000 AE = 300
+ 600 + 600 = 1,500 OA = 250 + 500 + 500 = 1,250 OA = 800

Formulae used:

(CA)APS Asset = min {OME, (AE, CA)min since 31/12/08} (CA)Res. Asset = AE/Total
AE * Total CA

4

 

 

 

 

 

 

	

	

Asset Continuity: Debt Split in Post Accession Reporting (One to Many, AE
CA)

Example: A single APS asset (loan) is refinanced into three loans such that
there is a 25% decrease in the total actual exposure.

Proposal: To allocate the cover to refinanced loans apportion the Covered
Amount of the APS asset across the new loans based on their Actual Exposures.

CARes. Asset = AE/Total AE * Total CA

Initial Data Before Refinancing: Post- Refinancing:

Restructured asset Cover Allocation

BCAID : 1 ACAID : A
AE = 150 BCAID : 1 OA = 125 Alloc.  CA = 20% of 750 = 150
                                                             (20% of total AE)
OA = 125 CA calculation

ACAID : A

                            BCAID : 2 ACAID : A ACAID : A BCAID : A Debt Split
BCAID : A OME = 1,200 AE = 300 BCAID : 2 OA = 800 OA = 250 Alloc.  CA = 40% of
750 = 300
Initial CA = 2,000 OA = 250 AE = 1000 (40% of total AE)
Calc.  CA = 1,000

BCAID : 3 ACAID : A AE = 300 BCAID : 3
OA = 275 Alloc.  CA = 40% of 750 = 300 OA = 275
(40% of total AE)

Total for APS asset

    Total for APS asset Total for APS asset CA = 1,000 Total for restructured
asset CA = min{1200, 750, 1000} = 750 Initial CA = 2,000 AE = 1,000 AE = 150 +
300 + 300 = 750 OA = 125 + 250 + 275 = 650 OA = 800

Formulae used:

(CA)APS Asset = min {OME, (AE, CA)min since 31/12/08} (CA)Res. Asset = AE/Total
AE * Total CA

5

 

 

 

 

 

 

	

	

Asset Continuity: Debt Split in Post Accession Reporting (One to Many,
Different CTDs)

Example: A single APS asset (loan) is refinanced into three loans such that one
loan has an earlier CTD.

Proposal: To allocate the cover to refinanced loans apportion the Covered
Amount of the APS asset across the new loans based on their Actual Exposures.

CARes. Asset = AE/Total AE * Total CA. Post-CTD of the first loan its cover
drops to zero and the cover on the APS asset is reallocated between the
remaining two assets in proportion to their Actual Exposures.

Initial Data Before Refinancing: Post- Refinancing:

                               Time 1: Allocated CA post- Time 2: Allocated CA
after Time 3: Allocated CA after Restructured asset refinancing 31/05/10 before
31/10/10 31/10/10

BCAID : 1 ACAID : A ACAID: A ACAID : A
AE = 300 BCAID : 1 BCAID: 1
BCAID : 1 Alloc.  CA = 0
CTD = 1/06/10 CA = 0
(20% of total AE) Alloc.  CA = 20% of 1000 = 200

CA calculation
Debt Split
ACAID : A
ACAID : A BCAID : A BCAID : 2 ACAID : A ACAID : A
BCAID : A OME = 1,200 AE = 525 BCAID : 2 ACAID: A
Initial CA = 2,000 OA = 900 BCAID : 2 BCAID: 2 CTD = 31/10/10 AE = 500 CTD =
31/10/2010 AE = 1000 Alloc.  CA = 35% of 1000 = 350 Alloc.  CA = 0 (35% of
total AE) Calc.  CA = 500/1100*900 = 409 Calc.  CA = 1,000

BCAID : 3 ACAID : A ACAID : A
AE = 675 BCAID : 3 ACAID: A
BCAID : 3 BCAID: 3
CTD = 31/10/10 AE = 600
                            Alloc.  CA = 45% of 1000 = 450 Alloc.  CA = 0 (45%
of total AE) Calc.  CA = 600/1100*900 = 491

Total for APS asset

                             Total for APS asset OME = 1,200 Total for APS
asset
Total for APS asset Total for restructured asset OME = 900 Total for APS asset
AE = 1,000 OME = 1,200 Initial CA = 2,000 AE = 300 + 525 + 675 = 1,500 Total AE
=1100 CA = 0 OA = 900 CA = 1,000 CA = min{900, 1100, 1000} = 900 CA = 1,000

Formulae used:

(CA)APS Asset = min {OME, (AE, CA)min since 31/12/08} (CA)Res. Asset = AE/Total
AE * Total CA

6

 

 

 

 

 

 

	

	

Asset Continuity: Debt Consolidation in Post Accession Reporting (Many to One,
AE CA)

Example: Three APS covered loans are consolidated into a single loan such that
there is a 50% increase in the total actual exposure Proposal: To calculate
cover for restructured APS loans: Step 1: Apportion total exposure based on
initial covered amount. AERes. Asset = Init. CA/Total Initial CA * Total AE
Step 2: Calculate the cover as the lesser of OME, apportioned AE and CA since
Dec'08. CAAPS Asset = min {OME, AE, CAmin since 31/12/08}

      Initial Data    Before Refinancing:                                       Post- Refinancing:
-------------------- --------------------
 -----------------------------------------------------------------------
                      CA calculation                                                                       Cover allocation
                        ACAID :      A                                                                        ACAID : A
    ACAID : A           BCAID :      A                                                                         BCAID : 1
   BCAID : A              OME = 300                                                                             OME = 300
   Initial CA = 300        OA = 200                                                                              OA = 360
    (30% of total)         AE = 250                                                                   Alloc. AE = 300/1000*1500 =
 450
                        Calc. CA = 250                                                              Calc. CA = min{300, 450, 250} =
 250
                                                             Restructured asset
                        ACAID :      B                                                                        ACAID : B
   ACAID : B            BCAID :      B    Debts consolidated                                                   BCAID : 1
   BCAID : B              OME = 300                               BCAID : 1                                     OME = 300
   Initial CA = 300        OA = 200                                AE = 1,500                                    OA = 360
    (30% of total)         AE = 250                                OA = 1,200                         Alloc. AE = 300/1000*1500 =
 450
                        Calc. CA = 250                                                              Calc. CA = min{300, 450, 250} =
 250
                        ACAID : C                                                                             ACAID : C
   ACAID : C            BCAID : C                                                                              BCAID : 1
   BCAID : C              OME = 300                                                                             OME = 300
   Initial CA = 400        OA = 250                                                                              OA = 480
    (40% of total)         AE = 500                                                                   Alloc. AE = 400/1000*1500 =
 600
                        Calc. CA = 300                                                              Calc. CA = min{300, 600, 300} =
 300
                     Total for APS assets
Total for APS assets                                                                                       Total for APS assets
                           CA = 800
  Initial CA = 1,000                                                                                             CA = 800
                          AE = 1,000
                                                                                                    Formulae used:
                                                                                                    AERes. Asset = Init. CA/Total
 Initial CA * Total AE
                                                                                                    CAAPS Asset = min {OME, AE,
 CAmin since 31/12/08 }
-------------------- --------------- ---- ------------------ ------------------

7

 

 

 

 

 

 

	

	

Asset Continuity: Debt Consolidation in Post Accession Reporting (Many to One,
AE CA)

Example: Three APS covered loans are consolidated into a single loan such that
there is a 50% decrease in the total actual exposure Proposal: To calculate
cover for restructured APS loans: Step 1: Apportion total exposure based on
initial covered amount. AERes. Asset = Init. CA/Total Initial CA * Total AE
Step 2: Calculate the cover as the lesser of OME, apportioned AE and CA since
Dec'08. CAAPS Asset = min {OME, AE, CAmin since 31/12/08}

      Initial Data    Before Refinancing:                                       Post- Refinancing:
-------------------- --------------------
 -----------------------------------------------------------------------
                      CA calculation                                                                       Cover allocation
                        ACAID :      A                                                                        ACAID : A
    ACAID : A           BCAID :      A                                                                         BCAID : 1
   BCAID : A              OME = 300                                                                             OME = 300
   Initial CA = 300        OA = 200                                                                              OA = 120
    (30% of total)         AE = 250                                                                    Alloc. AE = 300/1000*500 =
 150
                        Calc. CA = 250                                                              Alloc. CA = min{300, 150, 250} =
 150
                                                             Restructured asset
                        ACAID :      B                                                                        ACAID : B
   ACAID : B            BCAID :      B    Debts consolidated                                                   BCAID : 1
   BCAID : B              OME = 300                               BCAID : 1                                     OME = 300
   Initial CA = 300        OA = 200                                  AE = 500                                    OA = 120
    (30% of total)         AE = 250                                  OA = 400                          Alloc. AE = 300/1000*500 =
 150
                        Calc. CA = 250                                                              Alloc. CA = min{300, 150, 250} =
 150
                        ACAID : C                                                                             ACAID : C
   ACAID : C            BCAID : C                                                                              BCAID : 1
   BCAID : C              OME = 300                                                                             OME = 300
   Initial CA = 400        OA = 250                                                                              OA = 160
    (40% of total)         AE = 500                                                                    Alloc. AE = 400/1000*500 =
 200
                        Calc. CA = 300                                                              Alloc. CA = min{300, 200, 300} =
 200
Total for APS assets Total for APS assets                                                                  Total for APS assets
                           CA = 800
  Initial CA = 1,000                                                                                             CA = 500
                          AE = 1,000
                                                                                                    Formulae used:
                                                                                                    AERes. Asset = Init. CA/Total
 Initial CA * Total AE
                                                                                                    CAAPS Asset = min {OME, AE,
 CAmin since 31/12/08 }
-------------------- --------------- ---- ------------------ ------------------

8

 

 

 

 

 

 

	

	

Asset Continuity: Complex Debt Rearrangement in Post Accession Reporting (Many
to Many, AE CA) -- Detailed example

Example: Two APS covered loans are refinanced into three single loans such that
there is a 50% increase in the total actual exposure
Proposal: Our approach will combine the approach used for One to Many and Many
to One cases. The number of rows of data post refinancing will equal the number
of old loans multiplied by the number of new loans.
Step 1: The Actual Exposure is apportioned across the new loans according to
their initial cover. AERes. Asset = Init. CA/Total Initial CA * Total AE
Step 2: The Covered amount for the APS assets is calculated as the lesser of
OME, apportioned AE and CA since Dec'08. CAAPS Asset = min {OME, AE, CAmin
since 31/12/08} Step 3: The cover calculated above is allocated to refinanced
loans in proportion to their Actual Exposure. CARes. Asset = AE/Total AE *
Total CA

Initial Data      Before
               Refinancing:
               ACAID :     A
ACAID : A      BCAID : A
BCAID :    A     OME = 400
  CA = 600        OA = 450
(60% of total)    AE = 500
                  CA = 400
                               Debt Split
               ACAID :     B
ACAID :    B   BCAID :     B
BCAID :    B     OME = 300
  CA = 400        OA = 400
(40% of total)    AE = 500
                  CA = 300

Total for APS assets
CA = 1,000

Total for APS assets
CA = 700

Restructured asset

BCAID : 1

AE = 300
(20% of total)

BCAID : 2
AE = 600
(40% of total)

BCAID : 3
AE = 600
(40% of total)

Total for restructured assets AE = 1,500

                       Post- Refinancing:
 AE allocation             CA calculation
   ACAID : A
   BCAID : 1
AE = 180 (60% of 300)
                           ACAID : A
   ACAID : A                 OME = 400
   BCAID : 2
AE = 360 (60% of 600) AE = 180 + 360 + 360 = 900
                         CA = min{400, 900,
                               400}=400
   ACAID : A
   BCAID : 3
AE = 360 (60% of 600)
   ACAID : B
   BCAID : 1
AE = 120 (40% of 300)
                           ACAID : B
   ACAID : B
   BCAID : 2                 OME = 300
AE = 240 (40% of 600) AE = 120 + 240 + 240 = 600
                      CA = min{300, 600, 300} =
   ACAID : B                     300
   BCAID : 3
AE = 240 (40% of 600)

CA allocation

ACAID : A
BCAID : 1

Alloc. CA = 80 (300/1500x400)

ACAID : A
BCAID : 2

Alloc. CA = 160 (600/1500x400)

ACAID : A
BCAID : 3

Alloc. CA = 160 (600/1500x400)

ACAID : B
BCAID : 1

Alloc. CA = 60 (300/1500x300)

ACAID : B
BCAID : 2

Alloc. CA = 120 (600/1500x300)

ACAID : B
BCAID : 3

Total for APS assets CA = 700

9

Total for APS assets AE = 1,500

Total for APS assets CA = 700

 

 

 

 

 

 

	

	

Asset Continuity: Complex Debt Rearrangement in Post Accession Reporting (Many
to Many, AE CA) -- Detailed example

Example: Two APS covered loans are refinanced into three single loans such that
there is a 50% decrease in the total actual exposure
Proposal: Our approach will combine the approach used for One to Many and Many
to One cases. The number of rows of data post refinancing will equal the number
of old loans multiplied by the number of new loans.
Step 1: The Actual Exposure is apportioned across the new loans according to
their initial cover. AERes. Asset = Init. CA/Total Initial CA * Total AE
Step 2: The Covered amount for the APS assets is calculated as the lesser of
OME, apportioned AE and CA since Dec'08. CAAPS Asset = min {OME, AE, CAmin
since 31/12/08} Step 3: The cover calculated above is allocated to refinanced
loans in proportion to their Actual Exposure. CARes. Asset = AE/Total AE *
Total CA

Initial Data      Before
               Refinancing:
               ACAID :     A
ACAID : A      BCAID : A
BCAID :    A     OME = 400
  CA = 600        OA = 450
(60% of total)    AE = 500
                  CA = 400
                               Debt Split
               ACAID :     B
ACAID :    B   BCAID :     B
BCAID :    B     OME = 300
  CA = 400        OA = 400
(40% of total)    AE = 500
                  CA = 300

Total for APS assets
CA = 1,000

Total for APS assets
CA = 700

Restructured asset

BCAID : 1

AE = 100
(20% of total)

BCAID : 2
AE = 200
(40% of total)

BCAID : 3
AE = 200
(40% of total)

Total for restructured assets AE = 500

                      Post- Refinancing:
  AE allocation        CA calculation
   ACAID :     A
   BCAID :     1
AE = 60 (60% of 100)
                           ACAID : A
   ACAID :     A             OME = 400
   BCAID :     2
AE = 120 (60% of 200) AE = 60 + 120 + 120 = 300
                         CA = min{400, 300,
                              400}=300
   ACAID :     A
   BCAID :     3
AE = 120 (60% of 200)
   ACAID :     B
   BCAID :     1
AE = 40 (40% of 100)
                           ACAID : B
   ACAID :     B
   BCAID :     2             OME = 300
AE = 80 (40% of 200)   AE = 40 + 80 + 80 = 200
                      CA = min{300, 200, 300} =
   ACAID : B                     200
   BCAID :     3
AE = 80 (40% of 200)
Total for APS assets   Total for APS assets
      AE = 500               CA = 500

CA allocation

ACAID : A
BCAID : 1

Alloc. CA = 60 (100/500x300)

ACAID : A
BCAID : 2

Alloc. CA = 120 (200/500x300)

ACAID : A
BCAID : 3

Alloc. CA = 120 (200/500x300)

ACAID : B
BCAID : 1

Alloc. CA = 40 (100/500x200)
      ACAID :  B
       BCAID : 2
Alloc. CA = 80 (200/500x200)
      ACAID :  B
       BCAID : 3
Alloc. CA = 80 (200/500x200)

Total for APS assets CA = 500

10

 

 

 

 

 

 

	

	

Asset Continuity: Complex Debt Rearrangement in Post Accession Reporting (Many
to Many)

Example -- More Complex Refinancing: Sometimes the original APS assets will not
be linked to all the refinanced loans. E.g. if a customer had a loan and an
overdraft facility then this may get refinanced such that a part of the
overdraft is consolidated with the loan, resulting in a new loan and a new
reduced overdraft facility. We illustrate this in the example below, where we
consider two assets A and B such that Asset A is refinanced into two new
facilities, while Asset B is refinanced to only one of these new facilities.

Proposal: To allocate cover to new facilities we only apportion cover from the
APS assets that feed into that new facility. So that in the example below,
post-refinancing APS asset B's cover will be distributed only across new
facility 2 and NOT to the new facility 1.

Initial Data               Before                                                             Post- Refinancing:

----------------------- -----------                                                           -------------------------

                        Refinancing:                                     AE allocation            CA calculation             CA
 allocation
                        ---------------

                                                                           ACAID : A                                           ACAID
 : A
                                                   Restructured asset      BCAID : 1               ACAID : A                   BCAID
 : 1
                                                                       AE = 200 (100% of 200)                           Alloc. CA =
 33% of 400 = 133
                                                   -------------------

ACAID : A               ACAID :     A                                                                OME = 500

                                                                       ----------- ----------

                        BCAID :     A                   BCAID : 1                               AE = 200 + 240 = 440

BCAID :    A              OME = 500                       AE = 200         ACAID : A             CA                            ACAID
 : A
  CA = 600                                                                 BCAID : 2                = min{500, 440,            BCAID
 : 2
                           AE = 400                     (33% of total)                                400}=400

(60% of total)             CA = 400                                    AE = 240 (60% of 400)                            Alloc. CA
 =66% of 400 = 267
                                        Debt Split

                                                                                                                            In
 practice this would not be
---------- ------------ ----------- --- ----------

                                                                                                                            reported

ACAID :    B            ACAID :     B

                        BCAID :     B                  BCAID : 2

BCAID :    B              OME = 300                       AE = 400         ACAID : B                                           ACAID
 : B
(40% CA = of 400 total)    AE = 200                     (67% of total)     BCAID : 1               ACAID : B                   BCAID
 : 1
                           CA = 200                                      AE = 0 (0% of 300)                              Alloc. CA =
 0% of 160 = 0
                                                                                                     OME = 300

                                                                           ACAID : B             AE = 0 + 160 = 160            ACAID
 : B
                                                                           BCAID : 2          CA = min{300, 160, 200} =        BCAID
 : 2
                                                                       AE = 160 (40% of 400)             160            Alloc. CA =
 1005 of 160 = 160

Total for APS assets
CA = 600 + 400 = 1,000

Total for APS assets
CA = 400 + 200 = 600

Total for restructured assets
AE = 200 + 400 = 600

Total for APS assets
AE = 200 + 240 + 0 + 160 = 600

Total for APS assets
CA = 400 + 160 = 560

Total for APS assets
CA = 133 + 267 + 0 + 160 = 560

11

 

 

 

 

 

 

	

	

Asset Continuity: Debt Consolidation in Post Accession Reporting (Inclusion of
Covered and Non Covered Assets)

Example -- AE< CA: In the example below, two covered assets are consolidated
with one non-covered asset to form a single new loan such that AE of the new
loan is less than the prior period cover of the APS assets.
Proposal: AE of the consolidated loan is spread across both the Covered Assets
and the non-Covered assets --

[] Determine the covered proportion of the AE of the refinanced assets based on
the AEs of the covered/non-covered  assets prior to refinancing in the Risk
Management systems.
[] Apportion this `Covered AE' across the APS assets as based on the Initial
Cover

  Formulae used:

  AECovered = [] {AEAPS Assets prior to refinancing } * Total AERestructured assets
                RCovered = []{AEAPS Assets prior to refinancing } * Total RRestructured assets

                          ------------------------------------------------------------------------------------------
                          ------------------------------------------------------------------------------------------

                          [] {AEAPS Assets prior to refinancing } + []{AEUncovered assets prior to refinancing }
                          []{AEAPS assets prior to refinancing } + []{AEUncovered assets prior to refinancing }

  AERes. Asset = Init. CA/ []{InitialCA} * []{AECovered(})
                RRes. Asset = Init. CA/ []{InitialCA} * []{AECovered(})

                                         Data immediately
                 Post Refinancing

                                        ------------------------------------------------------------------------
                ---------------------

                       Initial Data     prior to refinancing                                                     Restructured asset
                        PAD           Data at Trigger Date:                                                       QS Reporting:

                    =================== ========================================================================
 ---------------------------------- ===================== -------------------------------------------------------------------------
 =====================
                                             ACAID : A
                     ACAID : A                                                                                       ACAID : A

                        ACAID : A            BCAID : 1
                  Appor. AE = OA =                                                                                Appor. AE = OA =

                        BCAID :  1
                                                                                                                300/(300+300) * 250
 =
                         CA = 300           AE = OA = 250
                300/(300+300) * 250 =                                                                                    125

                       (50% of total)          CA = 250
                         125                 BCAID: 4                                                              Calc. CA = 125

                                         (25% of total OA/AE)
                   Calc. CA = 125                                                                                R = 50% of 50 = 25

                                                                                                                        BCAID: 4

                                             ACAID : B
                     ACAID : B               OA = 500

                       ACAID : B
                                             AE = 500                                                                ACAID : B

                        BCAID :  2           BCAID : 2                                                                  OA = 500
                  Appor. AE = OA =           AECovered =                                                          Appor. AE = OA =

Cov ered Assets          CA = 300           AE = OA = 250                                                               AE = 500
                300/(300+300) * 250 = (250+250)/(250+250+50                                                     300/(300+300) * =
 250
                                               CA = 250
                         125                0)*500 = 250                                                           Calc. CA = 125

                       (50% of total)    (25% of total OA/AE)                                                          AECovered =
                   Calc. CA = 125             R = 100                                                            R =50% of 50 = 25

 (250+250)/(250+250+50 0)*500 = 250                              RCovered =

                                      (250+250)/(250+250+50                                                      Total for Covered

                    Total for Covered    Total for Covered
                 Total for Covered          0)*100 = 50                                                                Assets

                          Assets               Assets
                       Assets                                                                                      AE = OA = 250

                                            AE = OA = 500
                   AE = OA = 250

                    ------------ ------
                                      -------------------------------------------------------------------------
 ---------------------
                        CA = [pound]600       CA = 500
                      CA = 250                                                                                        CA R = = 50
 250
------------------- ------------------- ========================================================================
 ---------------------------------- ===================== -------------------------------------------------------------------------
 --------------------- ---
                                              BCAID: 3

                        BCAID: 3        AE immediately prior to

                    (non covered asset)    refinancing = 500

                                         (50% of total OA/AE)

                                            Total assets

Non C overed Assets                         consolidated

                                           AE = OA = 1,000

                                               CA = 500

------------------- ------------ ------ ------------------------------------------------------------------------
 ---------------------------------- --------------------- -------------------------------------------------------------------------
 --------------------- ---
                                 For simplicity, the OME in the above example is assumed to be the same as the Initial Data Covered
 Amount and AE is assumed equal to OA.
   12

 

 

 

 

 

 

	

	

Appendix

 

 

 

 

 

 

	

	

Appendix -- Why we use Initial Covered Amount (CA) data to apportion Actual
Exposure (AE)

Outlined below are the two options for apportioning Actual Exposure
post-restructuring and the merits of each of these approaches.

Based on the considerations provided below, RBS had decided to use Option A,
i.e. use initial covered amount data for apportioning AE, primarily made for
operational reasons in terms of doability.

Description

Accuracy

Materiality

Traceability / Auditability

Data Sourcing

Technical Implementation

Option A: Use initial covered amount as at 31(st) Dec 2008

(Currently being used)

Use the Initial CA of APS Assets as at 31(st) Dec'08 to apportion AE across
refinanced facilities This approach is less accurate if the facilities are
amortizing at different rates, however, the impact of using this approach is to
understate the AE of gradually amortising facilities and is therefore in APA's
favour []Loss of cover for RBS for a small number of cases where ALL of the
following conditions are met: --There is debt consolidation; and --The assets
are amortizing at different rates; and --The CA is capped by AE (i.e. AE of the
restructured asset(s) is less than OME and prior period CA) []In all other
scenarios the CA calculated under both Option A and B will be the same Easy to
trace and audit APS assets through their life as initial covered amount for all
assets as at 31(st) Dec'08 is fixed

Easy to source data as initial covered amount for all assets as at 31(st)
Dec'08 is fixed

This option is easier to implement technically as this always only uses the
static data e.g. Initial CA

Option B: Use covered amount prior to refinancing

Use the CA of APS Assets just prior to refinancing to apportion AE across
refinanced facilities This approach is more accurate to apportion AE if the
facilities are amortizing at different rates

No loss in cover to RBS and no impact on APA

Difficult to audit covered amount calculations as it needs the data prior to
refinancing; the calculation gets more complex is there is a restructure of a
restructure It is difficult to source the CA data prior to refinancing

-- Intra-month CA data is not available (refer to QS practice statement)

-- Month-end CA only available for Sep'09, Dec'09, Mar'10 and then monthly from
May'10 onwards

It is difficult to implement this technically as the solution needs to be able
to store and retrieve restructuring data e.g. date of restructure, covered
amount etc. The solution becomes more complicated if the restructured asset
gets further restructured

Note: Option A is currently in practice and to now change the approach to
Option B would necessitate a restatement of all previously reported PAD data
for restructuring scenarios so that the assets are consistently traceable
through their life. This will involve a disproportionately huge amount of time
and effort and we do not recommend doing this

14

 

 

 

 

 

 

	

	

Appendix -- Reporting Treatment of PAD fields for refinanced Assets (1 : Many, Many : 1, Many : Many)
=====================================================================================================
       HMT Ref. No. Field Name Reported Data Source
------------------- ---------- ----------------------------------------------------------------------

2   Bank Covered Asset ID                        Bank asset attribute
=== ============================================ ===============================================
3   APS Covered Asset ID                         APS asset attribute
=== ============================================ ===============================================
4   EPA ID                                       APS asset attribute
=== ============================================ ===============================================
5   Covered Asset Class                          Sourced from Initial Data
=== ============================================ ===============================================
6   Long Dated Asset Flag                        APS asset attribute
=== ============================================ ===============================================
7   Limited Recourse Asset Flag                  APS asset attribute
=== ============================================ ===============================================
8   Sub Participation Flag                       Sourced from Initial Data
=== ============================================ ===============================================
9   Sub Participation Grantor Name               APS asset attribute
=== ============================================ ===============================================
10  Sub Participation Grantor ID                 APS asset attribute
=== ============================================ ===============================================
11  ISIN                                         APS asset attribute
=== ============================================ ===============================================
12  CUSIP                                        APS asset attribute
=== ============================================ ===============================================
                                                 Bank asset attribute for loans
13  Covered Asset Sub Class                      APS Asset attribute for all other asset classes
=== ============================================ ===============================================
14  Multi Currency Flag                          Bank asset attribute
=== ============================================ ===============================================
15  Booking Entity ID                            Bank asset attribute
=== ============================================ ===============================================
16  Management Entity ID                         Bank asset attribute
=== ============================================ ===============================================
17  Cover Termination Date                       APS asset attribute
=== ============================================ ===============================================
18  Imputed Maturity Flag                        APS asset attribute
=== ============================================ ===============================================
19  Covered Amount Currency                      Sourced from Initial Data
=== ============================================ ===============================================
20  Covered Amount                               Apportioned using asset continuity rules
=== ============================================ ===============================================
21  Outstanding Amount                           Apportioned using asset continuity rules
=== ============================================ ===============================================
22  Current Maturity Date                        Bank asset attribute
=== ============================================ ===============================================
23  Total Mark to Market (Derivatives)           Apportioned using asset continuity rules
=== ============================================ ===============================================
24  Obligor Name                                 Bank asset attribute
=== ============================================ ===============================================
25  Unique Internal Obligor ID                   Bank asset attribute
=== ============================================ ===============================================
26  Country of Obligor Incorporation / Domicile  Bank asset attribute
=== ============================================ ===============================================
27  Obligor Industry Code                        Bank asset attribute
=== ============================================ ===============================================
28  Ultimate Parent Name                         Bank asset attribute
=== ============================================ ===============================================
29  Ultimate Parent ID                           Bank asset attribute
=== ============================================ ===============================================
30  Country of Ultimate Parent Incorporation     Bank asset attribute
=== ============================================ ===============================================
31  Ultimate Parent Industry Code                Bank asset attribute
=== ============================================ ===============================================
32  Collateral Flag                              Bank asset attribute
=== ============================================ ===============================================
33  Collateral Type                              Bank asset attribute
=== ============================================ ===============================================
34  Current Collateral Value                     Apportioned using asset continuity rules
=== ============================================ ===============================================
35  Current Collateral Currency                  Bank asset attribute
=== ============================================ ===============================================
36  Current Collateral Valuation Type            Bank asset attribute
=== ============================================ ===============================================
37  Date of Latest Collateral Valuation          Bank asset attribute
=== ============================================ ===============================================
38  Country of Exposure to Underlying Collateral Bank asset attribute
=== ============================================ ===============================================
39  Origination Date                             APS asset attribute
=== ============================================ ===============================================
40  Guarantor Name                               Bank asset attribute
=== ============================================ ===============================================
41  Internal guarantor ID                        Bank asset attribute
=== ============================================ ===============================================
42  Guarantor PD                                 Bank asset attribute
=== ============================================ ===============================================
43  Guarantor Internal Rating                    Bank asset attribute
=== ============================================ ===============================================

15

 

 

 

 

 

 

	

	

Appendix -- Reporting Treatment of PAD fields for refinanced Assets (1 : Many,
Many : 1, Many : Many) --
Contd.

HMT Ref. No.                                Field Name                                                          Reported Data Source
============ ============================================================================== ========================================
    44       Most Recent Date of Credit Assessment / Rating of the Guarantor                Bank asset attribute
============ ============================================================================== ========================================
    45       Guarantor S and P rating                                                           Bank asset attribute
============ ============================================================================== ========================================
    46       Guarantor Moody's rating                                                       Bank asset attribute
============ ============================================================================== ========================================
    47       Guarantor Fitch Rating                                                         Bank asset attribute
============ ============================================================================== ========================================
    48       Restricted Securitisation Flag                                                 APS asset attribute
============ ============================================================================== ========================================
    49       Restricted Conduit Flag                                                        APS asset attribute
============ ============================================================================== ========================================
    50       Restricted Arrangement ID                                                      APS asset attribute
============ ============================================================================== ========================================
    51       Rollover Asset Flag                                                            APS asset attribute
============ ============================================================================== ========================================
    52       Date of Rollover                                                               APS asset attribute
============ ============================================================================== ========================================
    53       Total Bank Exposure to Ultimate Parent Group                                   Bank asset attribute
============ ============================================================================== ========================================
    54       Triggered Asset Flag                                                           APS asset attribute
============ ============================================================================== ========================================
    55       Asset Probability of Default                                                   Bank asset attribute
============ ============================================================================== ========================================
    56       Loss Given Default                                                             Bank asset attribute
============ ============================================================================== ========================================
    57       Current Obligor Rating                                                         Bank asset attribute
============ ============================================================================== ========================================
    58       Most Recent Date of Credit Assessment/Rating of the Obligor                    Bank asset attribute
============ ============================================================================== ========================================
    59       Obligor S and P Rating                                                             Bank asset attribute
============ ============================================================================== ========================================
    60       Obligor Moody's Rating                                                         Bank asset attribute
============ ============================================================================== ========================================
    61       Obligor Fitch Rating                                                           Bank asset attribute
============ ============================================================================== ========================================
    62       Fair Value                                                                     Apportioned using asset continuity rules
============ ============================================================================== ========================================
    63       Historical impairment and/or write-down amount and/or credit value adjustments Bank asset attribute
============ ============================================================================== ========================================
    64       Current Ultimate Parent Internal Rating                                        Bank asset attribute
============ ============================================================================== ========================================
    65       Most Recent Date of Internal Rating of the Ultimate Parent                     Bank asset attribute
============ ============================================================================== ========================================
    66       Current Ultimate Parent S and P Rating                                             Bank asset attribute
============ ============================================================================== ========================================
    67       Current Ultimate Parent Moody's Rating                                         Bank asset attribute
============ ============================================================================== ========================================
    68       Current Ultimate Parent Fitch Rating                                           Bank asset attribute
============ ============================================================================== ========================================
    69       Buy to Let Flag                                                                Bank asset attribute
============ ============================================================================== ========================================
    70       Self Cert Flag                                                                 Bank asset attribute
============ ============================================================================== ========================================
    71       Asset in Construction Flag                                                     APS asset attribute
============ ============================================================================== ========================================
    72       Interest Cover                                                                 APS asset attribute
============ ============================================================================== ========================================
    73       Postcode                                                                       APS asset attribute
============ ============================================================================== ========================================
    74       Amortisation Type                                                              APS asset attribute
============ ============================================================================== ========================================

Description:

APS asset attribute Bank asset attribute Apportioned using asset continuity
rules Sourced from Initial Data

This attribute will be populated using the APS asset level data and will remain
the same across all rows of ACAID -BCAID combinations for an APS asset This
attribute will be populated using the Bank asset level data for all rows of
ACAID -BCAID combinations for an APS asset

As specified in the RI0020 paper on Asset Continuity

This attribute will be sourced from Initial Data, as at 31/12/2008, and will be
the same across all rows of ACAID -BCAID combinations for an APS asset

16

 

 

 

 

 

 

	

	

Appendix -- Glossary of terms as defined in APS TandCs

       Term                                                                                               Definition
               6.5 Subject to Condition 34, the "Covered Amount" of a Covered Asset means: (A) on 31 December 2008, the amount
 specified by the Participant in the Initial Data as the "Covered Amount"
Covered Amount of that Covered Asset, being an amount denominated in the currency (the "Covered Amount Currency") specified by the
 Participant in the Initial Data as the "Currency" of that Covered Asset
(CA)           (or, if no such amount or currency is specified by the Participant in the Initial Data, zero); (B) on each day (for
 the purpose of this paragraph (B), the "relevant day") from (and including) 1
               January 2009 to (and including) the Cover Termination Date, the lesser of: (i) the Covered Amount Cap on the relevant
 day; and (ii) the Covered Amount of that Covered Asset on the day
               immediately preceding the relevant day; and (C) on each day falling after the later of (i) the Cover Termination Date
 and (ii) 31 December 2008, zero.

Cover Termination 6.6 The "Cover Termination Date" means, in respect of a
Covered Asset, but subject to Condition 6.35(A)(ii), the date specified by the
Participant in the Initial Data as the "Cover Termination

Date (CTD)      Date" of that Covered Asset.
                6.7 The "Covered Amount Cap" of a Covered Asset on any day (for the purpose of this Condition 6.7, the "relevant
 day") means an amount denominated in the Covered Amount Currency of
                that Covered Asset which: (A) if that Covered Asset is within neither the "Consumer Finance" nor the "Derivative"
 Covered Asset Class, is an amount equal to the sum of: (i) the lesser of: (a)
                the Original Maximum Exposure; and (b) the Actual Exposure, with respect to that Covered Asset on the day
 immediately preceding the relevant day; and (ii) the overdraft proportion of the
                Imputed Maximum Exposure with respect to that Covered Asset on the relevant day, where the "overdraft proportion"
 is: (1) if that Covered Asset did not include or comprise an Overdraft on
Covered Amount  31 December 2008, zero; and (2) if that Covered Asset did include or comprise an Overdraft on 31 December 2008, a
 fraction determined as follows: A / B where: A is an amount equal to the
Cap (CA cap)    lesser of: (x) the Advised Amount with respect to that Overdraft; and (y) the Covered Amount of that Covered Asset
 on 31 December 2008 less the Original Maximum Exposure with respect
                to that Covered Asset on 31 December 2008 (or, if greater, zero) B is the Covered Amount of that Covered Asset on 31
 December 2008; (B) if that Covered Asset is within the "Derivative"
                Covered Asset Class, is an amount equal to the Covered Amount of that Covered Asset on 31 December 2008; and (C) if
 that Covered Asset is within the "Consumer Finance" Covered Asset
                Class, is an amount equal to the higher of: (i) the Imputed Maximum Exposure with respect to that Covered Asset on
 the relevant day; and (ii) the lesser of: (a) the Original Maximum
                Exposure; and (b) the Actual Exposure, with respect to that Covered Asset on the day immediately preceding the
 relevant day.
                6.8(A) The "Actual Exposure" with respect to a Covered Asset on any day means an amount denominated in the Covered
 Amount Currency of that Covered Asset equal to the sum of: (i) the
Actual Exposure Outstanding Amount of that Covered Asset on that day; and (ii) if that Covered Asset is or includes a Covered
 Liability (but without double counting amounts), the maximum aggregate
(AE)            amount as of that day which the applicable Covered Entity or Covered Entities have (or, in the case of a Covered
 Asset that is the subject of a Permitted Arrangement, the relevant Applicable
                Entity or Applicable Entities have) an actual or contingent liability to pay in respect of CL Payment Amounts
 relating to that Covered Liability (but, for these purposes, excluding any Covered
                Liability which is an undrawn Overdraft);

                     6.8(B) The "Original Maximum Exposure" with respect to a
Covered Asset on any day (in this paragraph (B), the "relevant day") means
(subject to Condition 6.35(A)(i)), an amount denominated in the Covered Amount
Currency of that Covered Asset equal to the maximum aggregate amount of the
exposure which the terms of that Covered Asset in effect on 31 December 2008
commit the applicable Covered Entity or Covered Entities (or, in the case of a
Covered Asset that is the subject of a Permitted Arrangement, the relevant
Applicable Entity or Applicable Entities) to have on the relevant day, such
amount to be determined without regard to any amendment or replacement
affecting that Covered Asset or its terms after 31 December 2008 and on the
basis that: (i) the exposure of the applicable Covered Entity or Covered
Entities (or, in the case of a Covered Asset that is the subject of a Permitted
Arrangement, the relevant Applicable Entity or Applicable Entities) with
respect to a Covered Asset on any day is an amount denominated in the Covered
Amount Currency of that Covered Asset equal to the sum of (a) the Outstanding
Amount of that Covered Asset on that day and (b) if that Covered Asset is or
includes a Covered Liability (but without double counting amounts) , the
maximum aggregate amount as of that day which the applicable Covered Entity or
Covered Entities have (or, in the case of a Covered Asset that is the subject
of a Permitted Arrangement, the relevant Original Maximum Applicable Entity or
Applicable Entities have) an actual or contingent liability to pay in respect
of CL Payment Amounts relating to that Covered Liability; (ii) the applicable
Obligors comply with Exposure (OME) their payment obligations under the terms
of that Covered Asset; (iii) all conditions precedent to the effectiveness of:
(a) the obligations and liabilities (whether actual or contingent) of the
applicable Covered Entity or Covered Entities or the relevant Applicable Entity
(as the case may be); and (b) the rights and assets (whether actual or
contingent) of the applicable Obligors, with respect to that Covered Asset are
satisfied; (iv) no events of default, early termination events or mandatory
prepayment events (however described) have occurred or will occur in respect of
that Covered Asset; (v) the applicable Covered Entity or Covered Entities do
not (or, in the case of a Covered Asset that is the subject of a Permitted
Arrangement, the relevant Applicable Entity or Applicable Entities do not) make
any election, exercise any discretion or grant any consent which would increase
the amount of the Original Maximum Exposure with respect to that Covered Asset
on any day; and (vi) the Original Maximum Exposure on any day with respect to
any part of that Covered Asset which on 31 December 2008 was an Overdraft shall
be deemed to be zero, provided that, if and for so long as there is, following
the notification to the Treasury in a Quarterly Statement of any Loss in
respect of that Covered Asset, an absence of reasonable evidence as to the
terms of that Covered Asset in effect on 31 December 2008 that needs to be
known in order to calculate the Original Maximum Exposure with respect to that
Covered Asset on any day, the Original Maximum Exposure with respect to that
Covered Asset on that day shall be deemed to be zero;

17

 

 

 

 

 

 

	

	

Appendix -- Glossary of terms as defined in APS T and Cs (contd. )

       Term                                                                                                  Definition
                  6.8(C) The "Imputed Maximum Exposure" with respect to a Covered Asset on any day (in this paragraph (C), the
 "relevant day") means: (i) if the relevant day falls during the period from 1
                  January 2009 to 31 December 2010 (both dates inclusive), an amount equal to the Covered Amount of that Covered
 Asset on 31 December 2008; and (ii) if the relevant day falls during the
Imputed (Maximum) period from 1 January 2011 to 31 December 2012 (both dates inclusive), an amount determined as follows: (A / 25) *
 B where: A is the actual number of calendar months in the period from
Exposure (IME)    (and including) the month in which the relevant day occurs to (and including) December 2012; B is the Covered
 Amount of that Covered Asset on 31 December 2008; and (iii) if the relevant
                  day falls on or after 1 January 2013, zero;
                  6.8(D) an "Overdraft" means a Covered Asset which is (or to the extent it includes) an overdraft or other similar
 indebtedness (or a facility, to the extent an overdraft or other similar
                  indebtedness may be incurred pursuant to that facility) which any member of the Participant's Group (or, in the
 case of a Covered Asset that is the subject of a Permitted Arrangement, a
Overdraft (O/D)   relevant Applicable Entity) is entitled at any time (whether on demand or on notice but without the need for any
 contractual event of default, termination event or specified repayment or
                  prepayment requirement to have arisen) to terminate or require to be repaid in full or fully cash collateralised,
 provided that (for the avoidance of doubt) a Revolving Facility is not an
                  Overdraft; and
                  6.8(E) the "Advised Amount" with respect to a Covered Asset which is or includes an Overdraft means an amount
 denominated in the Covered Amount Currency equal to the sum (without
                  double counting) of the following as at 31 December 2008: (i) the Outstanding Amount of that Covered Asset (to the
 extent it is an Overdraft); (ii) if and to the extent that Overdraft includes a
                  Covered Liability falling within Condition 6.23(A)(i), the maximum aggregate amount of cash collateral for which
 the applicable Covered Entity or Covered Entities are (or, in the case of an
Advised Amount    Overdraft that is the subject of a Permitted Arrangement, the relevant Applicable Entity or Applicable Entities
 are) entitled to call in respect of liabilities under letters of credit, guarantees,
                  performance bonds or analogous instruments issued or granted by them or it which are comprised within that
 Overdraft; and (iii) the maximum aggregate amount of any unutilised portion of
(AA)              that Overdraft which the applicable Covered Entity or Covered Entities have (or, in the case of an Overdraft that
 is the subject of a Permitted Arrangement, the relevant Applicable Entity or
                  Applicable Entities have) advised the applicable Obligors is available for utilisation, provided that, if and for
 so long as there is, following the notification to the Treasury in a Quarterly
                  Statement of any Loss in respect of that Covered Asset, an absence of reasonable evidence as to the facts that
 need to be known in order to calculate the Advised Amount with respect to
                  that Covered Asset, the Advised Amount with respect to that Covered Asset shall be deemed to be zero.
                  6.9 Save as otherwise provided in these Conditions, the "Outstanding Amount" of a Covered Asset on any day means
 an amount denominated in the Covered Amount Currency of that
                  Covered Asset equal to the sum (without double counting) of: (A) the aggregate outstanding principal amount (if
 any) of that Covered Asset on that day (after taking into account any
                  reduction in the aggregate outstanding principal amount on that day) and shall exclude: (i) any interest, fee,
 premium or other non-principal sum which has accrued or is payable in respect of
                  that Covered Asset (save to the extent it was capitalised on or before 31 December 2008 or capitalised in respect
 of an overdraft), provided that the exclusion of such nonprincipal sums shall
                  not apply to (i) any outstanding principal amount that was drawn to pay such non-principal sums in cash before the
 Trigger Date and (ii) in the case only of a Covered Asset within the
                  "Consumer Finance" or "Residential Mortgage" Covered Asset Class, any outstanding principal amount representing
 the premium in respect of a related loan or mortgage payment protection
                  insurance policy; and (ii) any amount payable or paid by the applicable Covered Entity or Covered Entities (or, in
 the case of a Covered Asset that is the subject of a Permitted Arrangement,
                  the relevant Applicable Entity or Applicable Entities) pursuant to a Covered Liability falling within Condition
 6.23(A)(i) (if and to the extent such amount would, but for this subparagraph (ii), be
Outstanding       regarded as an outstanding principal amount) (and without prejudice to paragraph (B) below); and (B) in the case
 of a Covered Asset which is or includes a Covered Liability falling within
Amount (OA)       Condition 6.23(A)(i), the aggregate amount which the applicable Covered Entity or Covered Entities have (or, in
 the case of a Covered Asset that is the subject of a Permitted Arrangement,
                  the relevant Applicable Entity or Applicable Entities have) paid pursuant to such Covered Liability and for which
 the applicable Covered Entity or Covered Entities have or relevant Applicable
                  Entity has (as the case may be) neither been reimbursed, nor waived (as such term is defined in Condition 5.2)
 their or its right to reimbursement, in each case as at that day. 6.10 If and to
                  the extent that, on or after the Trigger Date in respect of a Covered Asset (or, if later, 31 December 2008), any
 payment which had the effect of reducing the Outstanding Amount of that
                  Covered Asset becomes repayable as a result of Applicable Law which is binding on the applicable Covered Entity or
 Covered Entities or relevant Applicable Entity (as the case may be) or in
                  accordance with the terms of the Covered Asset (including equalisation, turnover or loss-sharing provisions) and
 is repaid (including by way of set-off or true-up), the amount of such
                  repayment shall be deemed to be added for the purposes of Conditions 6.1, 6.22 and 6.38 to the Outstanding Amount
 of that Covered Asset on its Trigger Date (or, if later, 31 December
                  2008) and (if and to the extent necessary) such adjustments shall be made pursuant to and in accordance with
 Condition 8.7 as are required to give effect to such deemed addition.
                  6.23 A "Covered Liability" means a Covered Asset (other than a Derivative Agreement) which is (or to the extent it
 includes): (A) an actual or contingent liability of a Covered Entity (or, in the
                  case of a Covered Asset that is the subject of a Permitted Arrangement, a relevant Applicable Entity) to pay
 money: (i) under (or by way of reimbursement or indemnification of another
Covered Liability person's obligations under) a letter of credit, guarantee, performance bond or analogous instrument issued or
 granted on or before the Trigger Date; (ii) under (or by way of reimbursement or
(CL)              indemnification of another person's obligations under) a letter of credit, guarantee, performance bond or
 analogous instrument issued or granted after the Trigger Date pursuant to a binding
                  commitment to do so; or (iii) by way of the advance of money under a binding commitment to lend; or (B) an undrawn
 Overdraft

18

 

 

 

 

\

  

  

  

 

Appendix 2

 

(Paper titled “Quarterly Statement Data Reporting: Division or

Consolidation of Assets or Exposures”)

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

 

 

	

	

Appendix 2

Quarterly Statement Data Reporting:
Division or Consolidation of Assets or Exposures

 

 

 

 

 

 

	

	

Asset Continuity: Introduction

Over time, the structure of a Covered Asset may change. This may take many
forms from a simple debt consolidation (where many Covered Assets are replaced
by one new asset / component); to the more complex arrangements (for example
where many Covered Assets are replaced by many new components. ) Also under the
Consumer Finance approach, where new sub-assets have been opened post
accession.

In each case RBSG must consider whether the Asset(s) are still covered under
the Scheme and satisfy the Asset Continuity Requirements. As this paper focuses
on Quarterly Statement reporting requirements, it is assumed in each case that
Covered Assets remain covered under the Scheme and the Asset Continuity
Requirements have not been breached.

Purpose:

The purpose of this paper is to outline the proposed reporting treatment that
would apply in each of the asset continuity scenarios in relation to the
Quarterly Statement: Consumer Finance

          [] Consumer Finance Customer View -- see slides 10-12 Non Consumer
Finance

[] Debt split (One to Many) -- see slide 3

[] Debt consolidation (Many to One) -- see slide 4

[] Complex debt rearrangements (Many to Many) -- see slide 5 and 6

There are also other factors that may impact any of the above non consumer
finance scenarios. These have been illustrated separately and are:

[] Variable Cover Termination Dates -- see slide 7

[] Combining Covered and Non Covered Assets -- see slide 8

Non Consumer Finance Examples:

To illustrate the proposed approach, examples have been provided for each
scenario (see above) . In order to simplify the examples and clearly
demonstrate the principles to be applied, the following assumptions have been
made:

* Assets are not Rollover Assets and do not contain an overdraft.

* The Original Maximum Exposure (OME) is assumed to be the equal to the value
of the Initial Data Covered Amount for each Asset. In reality the OME is
calculated in accordance with the expected payment profile of the Covered Asset
per the Asset's terms in place at 31/12/08.

The notes as outlined in Appendix A illustrate the further details and rules that
need to be considered in each case

2

Legend for all examples:
=====================================================================================================
Acronym Description
------- ---------------------------------------------------------------------------------------------
OA      Outstanding Amount
------- ---------------------------------------------------------------------------------------------
CA      Covered Amount
------- ---------------------------------------------------------------------------------------------
R       Recoveries (note these generally occur post-Trigger
------- ---------------------------------------------------------------------------------------------
CL      Covered Liabilities (note CL arises post-Trigger
------- ---------------------------------------------------------------------------------------------
AE      Actual Exposure (component of CA calculation taken day prior to Initial Event Date)
------- ---------------------------------------------------------------------------------------------
OME     Original Maximum Exposure (component of CA calculation taken day prior to Initial Event Date)

 

 

 

 

 

 

	

	

Asset Continuity: Debt Split (One to Many)

Requirement: For the purposes of the Quarterly Statement, regardless of changes
to an asset's components, the Triggered Asset is to be reported in line with
the asset as specified in the Initial Data.

Treatment: Where a single asset is refinanced into more than one account, the
approach is to sum the relevant values for each of the relevant accounts
(BCAID's) and report as a single APS Covered Asset ID (ACAID) .

Example: Single ACAID and single corresponding BCAID was reported in the
Initial Data. Asset subsequently refinanced into 3 separate loans (3 new
BCAID's) .

Initial Data: Data at Trigger Date: Quarterly Statement Reporting:

OA = [pound]300
BCAID : 2
AE = [pound]400 R = [pound]100 CL = [pound]50

                             OA = [pound]500 (300 + 100 + 100) OA = [pound]100
BCAID : 3 CA = [pound]1,000 -- see table AE = [pound]300 ACAID : A
    ACAID : A R = [pound]300 (100 + 100 + 100) R = [pound]100 Debt Split BCAID
: 1 CL = [pound]0 CL = [pound]100 (50 + 0 + 50) Covered Amt = [pound] 1,200 OA
= [pound]100 BCAID : 4 AE = [pound]300 R = [pound]100 CL = [pound]50

                               OA = [pound]500 TOTAL BCAID's AE = [pound]1,000
R = [pound]300 CL = [pound]100

Calculation of Reported Covered Amount

ACAID AE OME CA (lower of AE and OME)

A [pound]1,000 [pound]1,200 [pound]1,000 (400 + 300 + 300)

For illustrative purposes, the OME in the above example is assumed to be the
same as the Initial Data Covered Amount. See notes 4 and 5 in Appendix A for
rules pertaining to Covered Amount calculation.

3

 

 

 

 

 

 

	

	

Asset Continuity: Debt Consolidation (Many to One)

Debt consolidation may occur for example where there is a direct refinancing or
where an additional drawing is made and there is an obligation to use the
proceeds to pay out the original Assets.

Requirement: Regardless of changes to an asset's components, the Triggered
Asset is to be reported in line with the asset as specified in the Initial
Data. This means that where Covered Assets have been consolidated into a single
asset, the assets are to be reported in the Quarterly Statement as if the
consolidation had not occurred.

Treatment: Strict interpretation of the Rules would indicate that the
consolidated asset could be seen as a continuation of all three original
Covered Assets, and therefore the values for the consolidated asset could be
applied individually across the original Covered Assets. (eg Outstanding Amount
of 500 could be applied to each asset separately. Therefore total claim would
be 1500, subject to covered amount cap.) However, given the loss in reality
would only arise in relation to the consolidated asset, the proposed treatment
is to apportion this asset's values across each of the 'original' individual
Covered Assets. This will be done on the basis of the percentage split of the
Initial Data Covered Amount for each of the individual Covered Assets. This
treatment will ensure consistency of approach between PAD and QS, and between
the various asset continuity scenarios.

Initial Data: Data at Trigger Date:

ACAID : A
    BCAID 1 Covered Amt = 300
(30% of total) 30% OA = [pound]500
Debts consolidated AE = [pound]700
                                                                  BCAID : 4 30%
ACAID : B R = [pound]100
BCAID 2

                 CL = [pound]200 40% Covered Amt = 300 (30% of total)

ACAID : C
BCAID 3
Calculation of Reported Covered Amount
Covered Amt = 400
ACAID AE OME CA (lower of AE
(40% of total) and OME)
A [pound]210 (700 * 30%) [pound]300 [pound]210

B [pound]210 (700 * 30%) [pound]300 [pound]210

                                                     C [pound]280 (700 * 40%)
[pound]400 [pound]280 TOTAL ASSETS
Covered Amt = [pound]1,000 TOTAL ASSETS [pound]700 [pound]1,000 [pound]700

Quarterly Statement Reporting:

                            OA = [pound]150 (500 * 30%)
                            -----------------------------
     ACAID : A               CA = [pound]210 -- see table
                            -----------------------------
                              R = [pound]30 (100 * 30%)
(30% of total BCAID values)
                            -----------------------------
                             CL = [pound]60 (200 * 40%)
                            =============================
                            OA = [pound]150 (500 * 30%)
                            -----------------------------
     ACAID : B              CA = [pound]210 -- see table
                            -----------------------------
                             R = [pound]30 (100 * 30%)
(30% of total BCAID values)
                            -----------------------------
                            CL = [pound]60 (200 * 30%)
                            =============================
                            OA = [pound]200 (500 * 40%)
                            -----------------------------
      ACAID : C             CA = [pound]280 -- see table
                            -----------------------------
                             R = [pound]40 (100 * 40%)
(40% of total BCAID values)
                            -----------------------------
                            CL = [pound]80 (200 * 40%)
                            =============================
                                  OA = [pound]500
                            -----------------------------
                                  CA = [pound]700
                            -----------------------------
    TOTAL ASSETS                   R = [pound]100
                            -----------------------------
                                  CL = [pound]200
--------------------------- -----------------------------

For illustrative purposes, the OME in the above example is assumed to be the
same as the Initial Data Covered Amount. See notes 4 and 5 in Appendix A for
rules pertaining to Covered Amount calculation.

4

 

 

 

 

 

 

	

	

Asset Continuity: Complex Debt Rearrangement (Many to Many)

Requirement: For the purposes of the Quarterly Statement, regardless of changes
to an asset's components, the Triggered Asset is to be reported in line with
the asset as specified in the Initial Data.

Treatment: In line with the one to many approach, the restructured assets
values will be apportioned to each of the 'original' Covered Assets. The values
will be apportioned on the basis of the percentage split of the Initial Data
Covered Amount for each of the individual Covered Assets. This treatment will
ensure consistency of approach between Post Accession Data and QS; and also
between the various asset continuity scenarios.

Example 1: Two loans converted into three. Values for each individual BCAID are
ascertained and added to provide overall BCAID total for each value. Each value
is then apportioned to each ACAID on the basis of the Covered Amount as
reported for each ACAID in the Initial Data.
In this example further monies have been advanced upon refinancing, and the
Outstanding Amount and Actual Exposure are now greater than the Initial Data
values. Outstanding Amount at Trigger is [pound]1,100 compared to [pound]800 at
Initial Data. Note that the Loss is capped by the Covered Amount (in this case
[pound]1k), and all post-Trigger Recoveries received on the replacement assets
must be reported.

Initial Data:

ACAID : A BCAID : 1
 Covered Amt = 600 (60% of total) Outstanding Amt = 500

ACAID : B
BCAID : 2
 Covered Amt = 400 (40% of total) Outstanding Amt = 300

   TOTAL ASSETS Covered Amt = [pound]1,000 Outstanding Amt = [pound]800

Debt Split

Data at Trigger Date:
                            OA = [pound]500 BCAID : 3 AE = [pound]600 R =
[pound]100 CL = [pound]0

                           OA = [pound]300 BCAID : 4 AE = [pound]300 R =
[pound]100 CL = [pound]0

                            OA = [pound]300 BCAID : 5 AE = [pound]300 R =
[pound]0 CL = [pound]100

TOTAL BCAID's OA = [pound]1,100
AE = [pound]1,200 R = [pound]200 CL = [pound]100

60%

40%

QS Reporting:
OA = [pound]660 (1100 * 60%)
ACAID : A
                                CA = [pound]600 -- see below R = [pound]120
(200 * 60%) (60% of total BCAID value) CL = [pound]60 (100 * 60%)

OA = [pound]440 (1100 * 40%)
ACAID : B
                                CA = [pound]400 -- see below R = [pound]80 (200
* 40%) (40% of total BCAID value) CL = [pound]40 (100 * 40%)

                                  OA = [pound]1,100 TOTAL ASSETS CA =
[pound]1,000 R = [pound]200 CL = [pound]100

             Calculation of Reported Covered Amount
------------ -------------------------------------- -----------------
    ACAID             AE               OME          CA (lower of AE
                                                       and OME)
------------ ------------------------- ------------ -----------------
       A      [pound]720 (60% * 1,200) [pound]600         [pound]600
------------ ------------------------- ------------ -----------------
       B      [pound]480 (40% * 1,200) [pound]400         [pound]400
------------ ------------------------- ------------ -----------------
TOTAL ASSETS         1,200             [pound]1,000      [pound]1,000
------------ ------------------------- ------------ -----------------

For illustrative purposes, the OME in the above example is assumed to be the
same as the Initial Data Covered Amount. See notes 4 and 5 in Appendix A for
rules pertaining to Covered Amount calculation.

5

 

 

 

 

 

 

	

	

Asset Continuity: Complex Debt Rearrangement (Many to Many)

Example 2: Three loans is converted into two. the Covered Amount reported in
the Initial Data.

Same methodology applied -- values are ascertain for each individual BCAID and
the total is apportioned on the basis of

Initial Data:

ACAID : A BCAID : 1
Covered Amt = 700 (50% of total)

ACAID : B
BCAID : 2
Covered Amt = 350 (25% of total)

ACAID : C
BCAID : 3
Covered Amt = 350 (25% of total)

TOTAL ASSETS

Covered Amt = [pound]1, 400

Data at Trigger Date:

OA = [pound]400
BCAID : 4
AE = [pound]500 R = [pound]50 CL = [pound]0

                          OA = [pound]200 BCAID : 5 AE = [pound]300 R =
[pound]50 CL = [pound]100

OA = [pound]600
Total BCAID's AE = [pound]800
R = [pound]100 CL = [pound]100

50% 25%

25%

Quarterly Statement Reporting:

OA = [pound]300 (600 * 50%)
ACAID : A
                              CA = [pound]400 -- see below 50% of total BCAID
value R = [pound]50 (100 * 50%) CL = [pound]50 (100 * 50%)

OA = [pound]150 (600 * 25%)
ACAID : B
                              CA = [pound]200 -- see below R = [pound]25 (100 *
25%) 25% of total BCAID value CL = [pound]25 (100 * 25%)

OA = [pound]150 (600 * 25%)
ACAID : C
                              CA = [pound]200 -- see below R = [pound]25 (100 *
25%) 25% of total BCAID value CL = [pound]25 (100 * 25%)

TOTAL ASSETS OA = [pound]600 CA = [pound]800 R = [pound]100 CL = [pound]100

              Calculation of Reported Covered Amount
-----------------------------------------------------------------
    ACAID           AE              OME          CA (lower of AE
------------ ---------------------- ------------ ----------------
                                                    and OME)
------------ ---------------------- ------------ ----------------
       A     [pound]400 (800 * 50%) [pound]700         [pound]400
------------ ---------------------- ------------ ----------------
       B     [pound]200 (800 * 25%) [pound]350         [pound]200
------------ ---------------------- ------------ ----------------
       C     [pound]200 (800 * 25%) [pound]350         [pound]200
------------ ---------------------- ------------ ----------------
TOTAL ASSETS        800             [pound]1,400       [pound]800

For illustrative purposes, the OME in the above example is assumed to be the
same as the Initial Data Covered Amount. See notes 4 and 5 in Appendix A for
rules pertaining to Covered Amount calculation.

6

 

 

 

 

 

 

	

	

Asset Continuity: Variable Cover Termination Dates (CTD's)

In each Asset Continuity scenario, it is likely that the Cover Termination
Dates of the original Covered Assets will be different. The values of the
replacement asset are apportioned in line with existing proposals, however the
validity of reporting in respect of the Cover Termination Date is examined for
each Asset. Where the Initial Event Date as determined by the replacement asset
is after the Cover Termination Date of any of the original Covered Assets, that
Asset cannot reported as Triggered. Similarly, Recoveries and Covered
Liabilities apportioned to that Asset are not reported. Though this concept is
illustrated below using the many to one scenario below, it would equally apply
across all Asset Continuity scenarios (one to many, many to one, many to
many).

Initial Data:

ACAID : A
    BCAID 1 Covered Amt = 300 (30% of total) CTD = 15/02/2010

ACAID : B
    BCAID 2 Covered Amt = 300 (30% of total) CTD = 31/12/2015

ACAID : C
    BCAID 3 Covered Amt = 400 (40% of total) CTD = 15/03/2011

TOTAL ASSETS

Covered Amt = [pound]1,000

Debts consolidated

Data at Trigger Date:

                                OA = [pound]500
       BCAID : 4                AE = [pound]700
Initial Event Date = 10/06/2010 R = [pound]100
                                CL = [pound]200

30% 30% 40%

Quarterly Statement Reporting:
      Not reported             OA = [pound]150 (500 * 30%)
        ACAID : A               CA = [pound]210 -- see table
                                 R = [pound]30 (100 * 30%)
  (30% of total BCAID values)
       CTD = 15/02/2010         CL = [pound]60 (200 * 30%)
                               OA = [pound]150 (500 * 30%)
        ACAID : B              CA = [pound]210 -- see table
                                R = [pound]30 (100 * 30%)
  (30% of total BCAID values)
      CTD = 31/12/2015         CL = [pound]60 (200 * 30%)
                               OA = [pound]200 (500 * 40%)
        ACAID : C              CA = [pound]280 -- see table
                                R = [pound]40 (100 * 40%)
   (40% of total BCAID values)
            CTD =              CL = [pound]80 (200 * 40%)
      TOTAL ASSETS                   OA = [pound]500
  (Total includes ACAID A,           CA = [pound]700
   though note ACAID A not
           reported)                  R = [pound]100
                                     CL = [pound]200

                 Calculation of Reported Covered Amount
================ ====================================== =========================
    ACAID                 AE              OME            CA (lower of AE
                                                            and OME)
---------------- ------------------------ ------------- -------------------------
A (not reported)   [pound]210 (700 * 30%) [pound]300    [pound]210 (not reported)
---------------- ------------------------ ------------- -------------------------
       B           [pound]210 (700 * 30%) [pound]300           [pound]210
---------------- ------------------------ ------------- -------------------------
       C           [pound]280 (700 * 40%) [pound]400           [pound]280
---------------- ------------------------ ------------- -------------------------
    TOTAL                [pound]700       [pound]1,000         [pound]700

Total includes ACAID A, but note ACAID A is not reported

Only ACAID B and C are reported as Triggered. For each of these Assets the
Initial Event Date is before the Cover Termination Date. Reported values for
these Assets are as listed above. ACAID A is not reported as Triggered. The
Initial Event Date of the replacement asset is after ACAID A's Cover
Termination Date. ACAID A not reported as Triggered. Recoveries and Covered
Liabilities are also not reported for ACAID A.

For illustrative purposes, the OME in the above example is assumed to be the
same as the Initial Data Covered Amount. See notes 4 and 5 in Appendix A for
rules pertaining to Covered Amount calculation.

7

 

 

 

 

 

 

	

	

Asset Continuity: Combining Covered and Non Covered Assets

When combining Covered and Non Covered Assets the approach to apportionment is
slightly different as RBS is unable to claim against the Non-Covered Asset. To
enable the calculation of the reportable values for the Covered Assets, the
limit (as per Risk Management systems) immediately prior to refinancing must be
obtained for all of the assets involved in the refinancing. This will be used
to determine the proportion of the replacement asset that is covered under the
Scheme. It is this covered portion that will be allocated across the original
Covered Assets. The covered element will be allocated to the Covered Assets,
proportionally based on the Initial Data Covered Amounts for those Assets.
These rules would apply across every Asset Continuity scenario, not just the
one to many scenario as illustrated below.

Initial Data:

ACAID : A BCAID : 1
Covered Amt = 600 (60% of total)

ts
ACAID : B
BCAID : 2
        Covered Amt = 400 Covered Asse (40% of total) TOTAL COVERED
ASSETS

Covered Amt = [pound]1,000

Asset : 3
Assets (non covered asset)
Non Covered

Data immediately prior to refinancing:*

ACAID : A BCAID : 1
Limit* = 300 (25% of total)

ACAID : B
BCAID : 2
Limit* = 300 (25% of total)

TOTAL COVERED ASSETS = [pound]600 (50% of total)

Asset : 3
Limit* = 600 (50% of total)

TOTAL ASSETS TO BE CONSOLIDATED

= [pound]1,200

Data at Trigger Date:

Total replacement asset

OA = [pound]800

AE = [pound]1,000 50 % covered
BCAID : 4
R = [pound]100 CL = [pound]100

Covered Portion

OA = [pound]400 AE = [pound]500 R = [pound]50 CL = [pound]50

60 %

40 %

QS Reporting:

    ACAID : A OA = [pound]240 (400 * 60%) CA = [pound]300 -- see table (60% of
covered portion) R = [pound]30 (50 * 60%) CL = [pound]30 (50 * 60%)

    ACAID : B OA = [pound]160 (400 * 40%) CA = [pound]200 -- see table R =
[pound]20 (50 * 40%) (40% of covered portion) CL = [pound]20 (50 * 40%)

                              OA = [pound]400 TOTAL COVERED
ASSETS CA = [pound]500 R = [pound]50 CL = [pound]50

50% of the values of BCAID 4 are attributable to Covered Assets.

Covered portion allocated to Covered Assets based on proportion of Initial Data
Covered Amount (60/40 split in this example)

                        Calculation of Reported Covered Amount
--------------------- ----------------------------------------- -------------------
        ACAID         AE of Covered Portion         OME         CA (lower of AE and
--------------------- ------------------------- --------------- -------------------
                                                                        OME)
--------------------- ------------------------- --------------- -------------------
           A             [pound]300 (60% * 500)     [pound]600          [pound]300
--------------------- ------------------------- --------------- -------------------
           B             [pound]200 (40% * 500)     [pound]400          [pound]200
--------------------- ------------------------- --------------- -------------------
BCAID 3 - Non Covered     Not applicable        Not applicable     Not applicable
         Asset
--------------------- ------------------------- --------------- -------------------
        TOTAL:                 [pound]500          [pound]1,000         [pound]500
--------------------- ------------------------- --------------- -------------------

Note: In calculating the covered portion the limit as outlined above is to be
obtained immediately prior to refinancing. This means the limit per the Risk
Management Systems as at the date the monies were transferred. The limit in
this case does not refer to the Actual Exposure required for the Covered Amount
calculation (the Actual Exposure for QS must exclude interest, fees, charges
etc unless capitalised on or before 31/12/08 or capitalised in respect of an
overdraft. )

For illustrative purposes, the OME in the above example is assumed to be the
same as the Initial Data Covered Amount. See also notes 4 and 5 overleaf.

8

 

 

 

 

 

 

	

	

Asset Continuity: Appendix A (Notes)

The following notes to all previous examples unless otherwise stated:

1) Triggers (one to many, many to many examples):

 a) Failure to pay -- the first 'Trigger' for a part of the Covered Asset will
be a Trigger for the whole Covered Asset (except in the case of Long Dated
Assets or Limited Recourse Assets for which the additional Trigger tests must
be applied to the Covered Asset as a whole

 b) Bankruptcy -- A 'Trigger' in relation to part of the Covered Asset would
generally give rise to a Trigger as a whole. In relation to "charging off" of
an asset in the Consumer Finance or Residential Mortgage Asset Classes however,
'charging off' of part of the Covered Asset would not give rise to a Trigger in
respect of the Covered Asset as a whole.

  In practice, it may be unusual for one account in respect of such a Covered
Asset to remain open when the others are closed.

c)  Restructuring A 'Trigger' in relation to part of the Covered Asset would generally give rise to a Trigger as a whole, except
 where the 'Trigger' arises from the Restructuring

Event in condition 5.18F(release or discharge of all Security) . The fact that
this is satisfied in relation to part of a Covered Asset does not entail a
release or discharge of all Security in respect of the Covered Asset as a
whole.

2) Triggers (many to one examples):

It is assumed that a 'Trigger' of the BCAID would represent a Trigger of all
the original Covered Assets (ACAIDs) . For example:

- Failure to Pay under BCAID D (the replacement asset) would represent a
Failure To Pay across all the original ACAID's.

- Given that it is the counterparty which becomes Bankrupt, this would apply
across all the original ACAID's

3) Variable Cover Termination Dates: The Cover Termination Date (CTD) for each
of the original Covered Assets needs to be examined as illustrated in slide 7.
Eligibility for Rollover would need to be considered for each of the original
Covered Assets. The Cover Termination Date for assets that have been subject to
a Rollover is deemed to be 31 December 2013 (see also note 5).

4) Covered Amount calculation: To calculate the Covered Amount, the Actual
Exposure (AE) is sourced by reference to the relevant BCAID's, and apportioned
to the Covered Assets as outlined in each of the relevant examples. The
Original Maximum Exposure (OME) sourced by reference to the original Covered
Asset(s) and is calculated in accordance with the expected payment profile per
the Asset's terms in place at 31/12/08. The lower of the AE and OME reported as
the Covered Amount in line with the Covered Amount requirement. If the Covered
Asset was an Overdraft, the Covered Amount is calculated by reference to the
Advised Amount and Imputed Maximum Exposure in line with the Scheme Rules.
Further examples relating to Overdrafts will be developed upon finalisation of
the Operational Accounts practice statement. Note also the Rollover requirement
below.

5) Rollovers: Eligibility for Rollover will need to be considered for each of
the original Covered Assets on an individual basis. Where the original Covered
Asset has been subject to a Rollover, the Actual Exposure is to be apportioned
in accordance with the methodology outlined in the relevant examples, and the
Rules pertaining to calculation of Covered Amount for Rollovers is to be
applied.

6) Additional lending : Where additional lending forms part of the refinancing,
this will be included as part of the Outstanding Amount. Note that Loss is
capped by the Covered Amount however Realisations would need to be reported on
the full amount of the refinanced asset (ie including the additional lending).

7) Refinancing to an overdraft: Where the Covered Asset is refinanced into an
overdraft, the approach outlined in the Operational Accounts practice statement
is to be applied from that point. Note that treatment of Operational Accounts
is still under discussion with the APA.

8) Realisations: In each example, the amounts pertaining to Realisations
indicate the raw data as calculated at the Divisional level. It assumes correct
allocation of Realisations has taken place (approach to be outlined in the
Allocation of Recoveries practice statement). Any pro-rating necessary under
S7.26C will be performed by the Scheme Ledger and correct pro- rated values
reported to HMT.

9) Refinancings post Trigger: Realisations, Expenses and Covered Liabilities
would need to be reported for any post-Trigger amendments in line with the
post-Trigger structure in existence at applicable QS quarter end.

10) Limitations: As outlined in the PAD asset continuity paper, the solutions
outlined in this document may result in loss of Cover in some cases. Please
refer to 'Asset Continuity in Post Accession Data: Limitations' for more
information.

9

 

 

 

 

 

 

	

	

Asset Continuity: Consumer Finance

Overview:

Consumer Finance is slightly different to other asset classes in that there may
be many sub-assets that existed within the Covered Asset at Initial Data.

The combination of these sub-assets may vary over time, as sub-assets are
closed or new sub-assets are opened. This raises a question as to how these
subcomponents should be treated and "rolled up" for reporting purposes.

Proposed Treatment:

Out of Scheme : Accounts / sub-assets that were deemed to be outside the Scheme
at Initial Data will continue to be excluded for reporting purposes on the
basis that they were not part of the Covered Asset as reported in Initial Data.
This includes products that were out of scope (eg credit cards, savings
accounts) or other sub-assets that were not included in the Covered Asset pool
(eg overdraft deemed low risk at the time of Initial Data).

New sub-assets at Trigger Date: Where new sub-assets have been opened since
31/12/08 but on or before Trigger Date, these sub-assets will be included for
reporting purposes. This means that the Outstanding Amount is included in the
loss claim (capped by 31/12/08 Covered Amount), and any Recoveries and Covered
Liabilities arising will be reported.

New sub-assets after Trigger Date: As no Loss was claimed for these sub-assets,
Recoveries and Covered Liabilities will not be reported.

The example overleaf illustrates the above proposed treatment.

Note: Similar concept exists for Group Accounts (which may or may not be
Consumer Finance Asset Class), in that a single Covered Asset exists which is
comprised of a number of sub-assets. The number of children (sub-assets) under
the master account (Covered Asset) will change over time. It is expected that a
similar approach will apply.

10

 

 

 

 

 

 

	

	

Asset Continuity: Consumer Finance
------------------------------------------------------------------------------------------------------------------------------------
----------------------------------------
Example: In line with the proposal overleaf, all assets outside the scheme are not included for reporting purposes. Loan 2, which
 was opened post 31/12/08 but before
Trigger Date is included. The reported values for the ACAID being the sum of the individual sub-assets (loan 1, Overdraft 1 and loan
 2 in this example) (2). Similarly , any
Recoveries arising post-Trigger and Covered Liabilities will be reported in the applicable Quarterly Statement. Recoveries and
 Covered Liabilities arising from Loan 3
however, will not be included on the basis that this sub-asset was not included in the loss claim at Trigger Date.(4) Formal
 feedback from APA yet to be provided.

Initial Data

ACAID : Customer 1 BCAID : Custome omer r 1

Loan 1
 Scheme
Accounts In Overdraft 1

Legend:
OA = Outstanding Amount at Trigger Date CA = Covered Amount at Initial Event
Date
R = Recoveries (note Recoveries generally occur post Trigger) CL = Covered
Liabilities (note CL arises post Trigger)
AE = Actual Exposure (component of CA calculation taken day prior to Initial
Event Date)

Trigger Date
OA = [pound]900
ACAID : Customer 1
CA = [pound]1,200
BCAID : Customer 1
R = [pound]300

                       OA = [pound]300 Loan 1 AE = [pound]500 R = [pound]100

                         OA = [pound]300 Overdraft 1 CA = [pound]400 R =
[pound]100

                       OA = [pound]300 Loan 2 AE = [pound]300 R = [pound]100

Post Trigger Date
R = [pound]250
ACAID : Customer 1
BCAID : Customer 1 CL = [pound]400

                         R = [pound]0 Loan 1 CL = [pound]100

                          R = [pound]100 Overdraft 1 CL = [pound]0 R =
[pound]50 Loan 2 CL = [pound]0

                       Not included in Loss claim at Trigger Date: Loan 3 R and
CL not reported (not reported)

                                                Outside Covered
                         Account C: Credit Card    Asset pool
                                                Outside Covered
                         Account D: Overdraft 2   Asset pool
Account s Outside Scheme                        Outside Covered
                         Account E: Savings Ac    Asset pool

                        No claim: Outside
Account C: Credit Card Covered Asset pool
                       No claim: Outside
Account D: Overdraft 2 Covered Asset pool
                       No Claim: Outside
Account E: Savings Ac  Covered Asset pool

                          R and CL not
Account C: Credit Card reported: Outside
                       Covered Asset pool
                          R and CL not
Account D: Overdraft 2  reported: Outside
                       Covered Asset pool
                          R and CL not
Account E: Savings Ac   reported: Outside
                       Covered Asset pool

Inclusion of Overdrafts is included in the above for illustration purposes
only. Reporting of Overdrafts is covered in the Operational Accounts paper. For
additional notes see overleaf. 11

 

 

 

 

 

 

	

	

Asset Continuity: Consumer Finance

Notes relating to example overleaf:
1) Triggers: a) Failure to pay -- the first 'Trigger' for a part of the Covered
Asset will be a Trigger for the whole Covered Asset (except in the case of Long
Dated Assets or Limited Recourse Assets for which the additional Trigger tests
must be applied to the Covered Asset as a whole

b) Bankruptcy -- A 'Trigger' in relation to part of the Covered Asset would
generally give rise to a Trigger as a whole. In relation to "charging off" of
an asset in the Consumer Finance Asset Class however, 'charging off' of part of
the Covered Asset would not give rise to a Trigger in respect of the Covered
Asset as a whole. In practice, it may be unusual for one account in respect of
such a Covered Asset to remain open when the others are closed.

c) Restructuring -- A 'Trigger' in relation to part of the Covered Asset would
generally give rise to a Trigger as a whole, except where the 'Trigger' arises
from the Restructuring Event in condition 5.18F(release or discharge of all
Security) . The fact that this is satisfied in relation to part of a Covered
Asset does not entail a release or discharge of all Security in respect of the
Covered Asset as a whole.

2) Where the Cover Termination Date of the Covered Asset is before the Initial
Event Date, the Asset is not reported as Triggered, and therefore Realisations
and Covered Liabilities are not reported.

3) Covered amount components are generally the Original Maximum Exposure (taken
by reference to 31/12/08 expected amortisation profile of the sub-asset), and
the Actual Exposure by reference to the relevant sub asset as at day prior to
Initial Event Date.

4) Treatment is to be applied regardless of whether the 'new' sub- asset
represents refinancing or new lending.

5) In some Divisions there will be different Covered Assets (Customers) which
are the same customer. This arises where the Customer has assets across several
brands -- eg Natwest, RBS, Direct Line (eg. direct loans). Where this occurs,
any 'new' assets within a brand will be aggregated into the relevant Customer
(Covered Asset) within that brand.

12

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