27 December 2018 - arcratings.com

Structured Finance – Rating Report

27 December 2018

ARC Ratings, S.A. 1

PAF Securitisation No.1PAF Securitisation No.1PAF Securitisation No.1PAF Securitisation No.1 PLCPLCPLCPLC

INTRODUCTIONINTRODUCTIONINTRODUCTIONINTRODUCTION

ARC Ratings, S.A. (ARC) has accorded final, long-term public ratings of ‘AAA(sf)’ to the

Class A1 and Class A2 Notes (Class A Notes) and ‘A(sf)’ to the Class B1 and Class B2 Notes

(Class B Notes) to be issued by PAF Securitisation No.1 PLC, together representing a

GBP 75.0m commitment, both with stable outlook.

This transaction relates to the acquisition of Kingsway Asset Finance Limited (KAF) by

Praetura Asset Finance Limited (PAF) and the subsequent refinancing of the receivables portfolio.

PAF Securitisation No.1 PLC (the Debtor) is a newly set up limited liability company

incorporated and registered in England (company number: 11690177) acting as a

bankruptcy remote SPV with NatWest Markets PLC (NWM, the Original Class A2 & B2

Noteholder) and PAF (the Master Servicer, Seller, Approved Originator and Servicer). PAF

will be buying receivables from KAF and selling receivables originated by itself and KAF to

the Debtor, pursuant to the Sale Agreement.

ARC expects to be notified of any changes to the transaction such as amendments to

concentration limits that may impact the current rating and its analysis.

RATING HIGHLIGHTSRATING HIGHLIGHTSRATING HIGHLIGHTSRATING HIGHLIGHTS

SSSSUMMARY UMMARY UMMARY UMMARY RRRRATINGATINGATINGATING RRRRATIONALEATIONALEATIONALEATIONALE

The rating reflects the legal and financial structure of the transaction, the quality of the assets

underpinning the receivables, high recoveries with a stressed base case as well as low levels

of defaults.

Key rating drivers include:Key rating drivers include:Key rating drivers include:Key rating drivers include:

- Credit Enhancement (CE): CE is provided by the transaction structure in the form of

subordination. The advance rate, as identified in the transaction documentation is

87.50% for the Class A and Class B Notes. ARC believes this is sufficient to protect the

Senior Class A and Class B Notes against losses at an ‘AAA(sf)’ and ‘A(sf)’ rating level,

respectively (considering default and recovery expectations, amongst others).

- Strong Recovery Expectations: As part of the rating process, ARC stressed the recoveries

of the underlying assets by assuming a higher concentration of assets with weak recovery

prospects, applying a haircut of 60% to the base case for Class A Notes in ARC’s ‘AAA(sf)’

scenario and 40% to the base case for Class B Notes in ARC’s ‘A(sf)’ scenario. The

calculated recovery expectations are considered reasonable for the asset class in

question, particularly given the magnitude of the applied stresses.

- Diversification of underlying assets: The initial portfolio is diversified across industries

with Plant (24.6%), Machinery (10.9%), HGV (10.9%), Cars (8.4%), Bus/Coach (6.0%)

Trailer (4.1%), Light Commercial Vehicle (4.0%), Agriculture (3.4%), Printing (2.6%)

collectively representing approx. 75% of the obligations in the portfolio.

SSSSUMMARY OF UMMARY OF UMMARY OF UMMARY OF RRRRATING ATING ATING ATING MMMMETHODOLOGIESETHODOLOGIESETHODOLOGIESETHODOLOGIES

ARC has applied the ARC Ratings’ Global Structured Finance Rating Criteria in conjunction

with the ARC Ratings’ Global Consumer ABS Rating Criteria (both updated in

September 2018). These methodologies are available from www.arcratings.com.

RRRRATINGSATINGSATINGSATINGS

Issue Issue Rating

Outlook

Class A1/A2 AAA(sf) Stable

Class B1/B2 A(sf) Stable

IIIISSUER SSUER SSUER SSUER &&&& DDDDEBTOREBTOREBTOREBTOR PAF Securitisation No.1 PLC

MMMMASTER ASTER ASTER ASTER SSSSERVICERERVICERERVICERERVICER,,,, SSSSELLERELLERELLERELLER,,,, AAAAPPROVED PPROVED PPROVED PPROVED

OOOORIGINATOR RIGINATOR RIGINATOR RIGINATOR &&&& SSSSERVICERERVICERERVICERERVICER Praetura Asset Finance Limited

AAAAPPROVED PPROVED PPROVED PPROVED OOOORIGINATOR RIGINATOR RIGINATOR RIGINATOR &&&& SSSSERVICERERVICERERVICERERVICER Kingsway Asset Finance Limited

SSSSECURITY ECURITY ECURITY ECURITY TTTTRUSTEERUSTEERUSTEERUSTEE U.S. Bank Trustees Limited

CCCCOLLECTION OLLECTION OLLECTION OLLECTION AAAACCOUNT CCOUNT CCOUNT CCOUNT BBBBANKANKANKANK National Westminster Bank PLC

AAAACCOUNT CCOUNT CCOUNT CCOUNT BBBBANK ANK ANK ANK &&&& SSSSWAP WAP WAP WAP CCCCOLLATERAL OLLATERAL OLLATERAL OLLATERAL

AAAACCOUNT CCOUNT CCOUNT CCOUNT BBBBANKANKANKANK Elavon Financial Services DAC, UK

SSSSTANDBY TANDBY TANDBY TANDBY SSSSERVICERERVICERERVICERERVICER The Nostrum Group Limited t/a Equiniti Credit Services

RRRRATING ATING ATING ATING DDDDATEATEATEATE 27 December 2018

RRRRATING ATING ATING ATING VVVVALIDITYALIDITYALIDITYALIDITY 27 December 2019

NNNNEXT EXT EXT EXT RRRREVIEW EVIEW EVIEW EVIEW DDDDATEATEATEATE 27 December 2019

RRRRELATED ELATED ELATED ELATED RRRRESEARCHESEARCHESEARCHESEARCH ARC Ratings’ Global Structured Finance Rating Criteria ARC Ratings’ Global Consumer ABS Rating Criteria available at www.arcratings.com

AAAARC RC RC RC CCCCONTACT ONTACT ONTACT ONTACT DDDDETAILSETAILSETAILSETAILS

Junaid LatifJunaid LatifJunaid LatifJunaid Latif Lead Analyst [email protected]

EmmaEmmaEmmaEmma----Jane FulcherJane FulcherJane FulcherJane Fulcher Chief Ratings Officer & Panel Chairperson [email protected]

11 Hollingworth Court Turkey Mill, Ashford Road Maidstone, Kent ME14 5PP UNITED KINGDOM Tel: +44 (0) 1622 397350 Website: www.arcratings.com

For t

PAF Securitisation No.1 PLC Structured Finance – Rating Report

ARC Ratings, S.A. 2222////22226666

TRANSACTION TRANSACTION TRANSACTION TRANSACTION OVERVIEW & OVERVIEW & OVERVIEW & OVERVIEW & CAPITAL CAPITAL CAPITAL CAPITAL STRUCTURESTRUCTURESTRUCTURESTRUCTURE

OOOOVERVIEWVERVIEWVERVIEWVERVIEW

PAF is a limited liability company incorporated on 1st March 2013 and registered in England (company

number: 08426091). PAF is an asset financing firm based in Blackburn and offers asset financing to sole traders and

SME’s across England, Wales, Scotland, Northern Ireland and the Isle of Man via a variety of products including

finance lease, hire purchase (HP) and commercial loans supported by security charges. PAF mainly focuses its trade

in transport, engineering, printing, agriculture, construction, fleet and management vehicles. Loan amounts range

from GBP 10,000.00 to GBP 1,500,000.00 with terms from 12-60 months. The average loan is for GBP 76,000.00

over a 48-month term with a net yield of 10.7%. PAF is authorised and regulated by the FCA for lending to sole

traders and small partnerships. Lending under the Consumer Credit Act (CCA) accounts for less than 0.25% of their

lending book

KAF is a limited liability company incorporated on 27th June 1995 and registered in England (company number:

03072782). KAF is an asset financing firm based in Wilmslow and offers asset financing to sole traders and SME’s

across England and Wales only via a variety of products including hire purchase, finance lease, sale and leaseback

or loan agreement. The vast majority of lending is unsecured however guarantees and indemnities are generally

sought. All sole traders, partnership hirers and all limited company and limited liability partnerships (LLPs)

guarantors must be homeowners. For SME’s in general, there is a limit of GBP 15,000 per guarantor. Loan amounts

range from GBP 3000 to GBP 150,000 with terms from 12-60 months. The current average loan amount is for

GBP 31,300 with an average term of 40 months with a net yield of 12.9%. KAF does not offer lending under the

CCA.

PAF is a newly set up limited liability company incorporated and registered in England (company

number: 11690177) acting as a bankruptcy remote SPV with NWM and PAF.

The transaction is a GBP 75.0m committed revolving credit facility with the Class A1 and B1 Notes being listed and

cleared whilst the A2 and B2 Notes are Variable Funding Notes. The Senior Notes comprise of the Class A1/A2

and Class B1/B2 notes and are governed by the Loan Note Issuance Agreement (LNIA). The LNIA allows for the

Debtor and NWM to agree in writing to increase the total commitment in increments of GBP 25.0m twice in total

thus capping the total permitted facility to GBP 125.0m. The Debtor can purchase receivables sold by PAF which

will in turn originate receivables from itself and KAF (transaction diagram below).

The initial commitment is held by the Class A2 Notes and Class B2 Notes, with the proceeds from the issuance of

Class A2 and B2 Notes being used towards the costs of acquiring the aforementioned receivables. The Class A1

and B1 Notes may be issued in the future. If issued, all proceeds from the issuance of the Class A1 and B1 Notes

must be used to repay the Class A2 and B2 Notes in an amount equal to the issuance of the Class A1 and B1 Notes.

All proceed from the issuance of the Class C Notes must be used towards the costs of acquiring receivables

pursuant to the sale agreement or towards curing a senior borrowing base test fail.


ARC Ratings, S.A. 3333////22226666

TTTTRANSACTION RANSACTION RANSACTION RANSACTION DDDDIAGRAMIAGRAMIAGRAMIAGRAM

TTTTRANSACTION RANSACTION RANSACTION RANSACTION CCCCOUNTERPARTIESOUNTERPARTIESOUNTERPARTIESOUNTERPARTIES

- ELAVON FINANCIAL ELAVON FINANCIAL ELAVON FINANCIAL ELAVON FINANCIAL SERVICES DAC,SERVICES DAC,SERVICES DAC,SERVICES DAC, a designated activity company registered in Ireland with the Companies

Registration Office (registered number 418442), with its registered office at 2nd Floor, Block E, Cherrywood

Business Park, Loughlinstown, Dublin, Ireland acting as the RegistrarRegistrarRegistrarRegistrar.

NWM has a long-term rating of ‘Baa2’ and short-term rating ‘P-2’ with Positive outlook from Moody’s, long term

rating of ‘BBB+’ and short term of ‘A-2’ with Positive outlook from S&P and ‘A’ long term rating and ‘F1’ short

term rating from Fitch with Stable outlook.

- ELAVON FINANCIAL SERVICES DAC, UK BRANCH ELAVON FINANCIAL SERVICES DAC, UK BRANCH ELAVON FINANCIAL SERVICES DAC, UK BRANCH ELAVON FINANCIAL SERVICES DAC, UK BRANCH a designated activity company registered in Ireland with

the Companies Registration Office (registered number 418442) with its registered office at 2nd Floor, Block E,

Cherrywood Business Park, Loughlinstown, Dublin, Ireland acting thought its UK Branch (registered number

BR09373) from its offices at 5th Floor, 125 Old Broad Street, London EC2N 1AR, acting as the Cash Cash Cash Cash

AdministratorAdministratorAdministratorAdministrator, the Account BankAccount BankAccount BankAccount Bank, and the Swap Collateral Account BankSwap Collateral Account BankSwap Collateral Account BankSwap Collateral Account Bank.

Elavon Financial Services DAC are currently rated ‘A1’ by Moody’s, ‘AA- ‘by S&P and ‘AA’ by Fitch, all with

Stable outlook.

- U.S. BANK TRUSTEES LIMITED, U.S. BANK TRUSTEES LIMITED, U.S. BANK TRUSTEES LIMITED, U.S. BANK TRUSTEES LIMITED, (registered number 02379632), a limited liability company incorporated under

the laws of England and Wales whose registered office is at 125 Old Broad Street, Fifth Floor,

London EC2N 1AR, acting as security trustee for the Secured Creditors (the Security TrusteeSecurity TrusteeSecurity TrusteeSecurity Trustee).


ARC Ratings, S.A. 4444////22226666

- KINGSWAY ASSET FINANCE LIMITED KINGSWAY ASSET FINANCE LIMITED KINGSWAY ASSET FINANCE LIMITED KINGSWAY ASSET FINANCE LIMITED –––– as described in the transaction overview and structure is a private

limited company incorporated under the laws of England and Wales, an approved originator (the Approved Approved Approved Approved

OriginatorOriginatorOriginatorOriginator).

- PRAETURA ASSET FINANCE LIMITED PRAETURA ASSET FINANCE LIMITED PRAETURA ASSET FINANCE LIMITED PRAETURA ASSET FINANCE LIMITED –––– as described in the transaction overview and structure, is a private

limited company incorporated under the laws of England and Wales, acting as the Master Originator, Master Master Originator, Master Master Originator, Master Master Originator, Master

ServicerServicerServicerServicer andandandand Subordinated Loan ProviderSubordinated Loan ProviderSubordinated Loan ProviderSubordinated Loan Provider.

- THE THE THE THE NOSTRUM NOSTRUM NOSTRUM NOSTRUM GROUP LIMITED GROUP LIMITED GROUP LIMITED GROUP LIMITED trading astrading astrading astrading as EQUINITI CREDIT SERVICESEQUINITI CREDIT SERVICESEQUINITI CREDIT SERVICESEQUINITI CREDIT SERVICES –––– (registered number 04274181,

Equiniti), a private limited company incorporated under the laws of England and Wales whose registered office

is at 42-50 Hersham Road, Walton-On-Thames, Surrey, KT12 1RZ, as Standby Servicer).

- CSC CAPITAL MARKETS UK LIMITED CSC CAPITAL MARKETS UK LIMITED CSC CAPITAL MARKETS UK LIMITED CSC CAPITAL MARKETS UK LIMITED – (registered number 10780001), a private limited company incorporated

under the laws of England and Wales whose registered office is at Level 37, 25 Canada Square,

London E14 5LQ, acting as the Corporate Services ProviderCorporate Services ProviderCorporate Services ProviderCorporate Services Provider.

CCCCAPITAL APITAL APITAL APITAL SSSSTRUCTURETRUCTURETRUCTURETRUCTURE

The senior facility is structured to permit a maximum advance rate of 87.5% divided into two senior tranches,

thereby providing a minimum level of credit enhancement for the Class A and Class B Notes of 12.5%. This credit

enhancement is provided by way of the subordinated loan, provided by PAF and the subordinated Class C Notes,

which may be issued if the Debtor is requested to do so by PAF.

The structure of the transaction is such that the Class A1 and B1 Notes benefit from the same credit enhancement

as the Class A2 and B2 Notes, whilst ranking pro rata and pari passu with respect to principal and interest payments.

In addition, the Class A and B Notes both benefit from a reserve account which is a blocked account in the name

of the Debtor, over which security is granted to the Security Agent and the Cash Manager has signing rights. The

reserve fund has a target of 2.25% of the senior Notes, which will initially be funded to GBP 222,020.00 (0.5%) of

the total commitment by the Subordinated Lender. This initial reserve will subsequently be funded by excess spread

to reach the aforementioned target level of 2.25%. The reserve account is also credited by funds from the

pre-acceleration revenue waterfall.

The Class A Notes and Class B Notes pay an interest rate of LIBOR+2.1% for the first 24 months during the initial

revolving period, which steps up to LIBOR+3.00% during the revolving period extension adding a further 12 months

to the revolving period totalling 36 months. Following the final revolving period end date, the interest rate increases

to LIBOR+4.00%. The maturity of the notes is 9 years from the date of issuance.

The transaction sees liquidity being facilitated further by the ability of available principal receipts being used to pay

senior fees, swap obligations and Class A and Class B interest. Available principal receipts are also applied to the

Class A Notes Principal Deficiency Sub Ledger (PDSL) and to the Class B Notes PDSL. The Principal Deficiency

Ledger (PDL) is used to record the amount of any losses in respect of the receivables which may be debited to it.

Losses are debited first to the Subordinated Loan PDSL, then to the Class C Notes PDSL followed by the

Class B Notes PDSL and finally to the Class A Notes PDSL.


ARC Ratings, S.A. 5555////22226666

Elavon Financial Services DAC, UK Branch acts as the Debtor Account Bank and the Swap Collateral Account Bank

with the documentation also provisioning for potential downgrades of the Account Bank. A collection account

declaration of trust ensures that funds are held in trust for the benefit of the Debtor with the Debtor collection

portion being transferred each day subject to a minimum GBP 50,000 balance in each collection account.

The transaction also has a vanilla interest rate swap in place to hedge the interest mismatch that arises due to the

fixed rate income on the assets and the floating rate payable on the liabilities. The swap notional is based on a 0%

constant prepayment rate (CPR) amortisation profile of the fixed rate assets with the transaction being required to

maintain a hedging range between 80% and 105% of the senior note commitment, which translates to 70% and

92% of the asset balance. NWM as the swap counterparty ranks super senior to the Class A Notes, except in the

case where it is the defaulting party, in which case the swap termination payments become subordinated. The

maximum aggregate swap notional is GBP 200m. NWM pays, on a monthly basis, the product of 1-month

GBP LIBOR, the Notional Amount and Day Count Fraction and receives, on a monthly basis, the product of the

fixed rate, the Notional Amount and the Day Count Fraction.

Equiniti, under the Standby Servicing Agreement is within 90 days of the date of the agreement expected to

undertake a review of the Master Servicer’s computer hardware, software, processes and facilities employed in the

performance of its obligations under the Servicing Agreement. It is also, in conjunction with the Master Servicer, to

compile a data mapping specification which will capture data descriptions as set out by the Master Servicer’s data

and either draw up itself or arrange for the production of guidance notes (the Discovery Document) on systems

suppliers and contacts with data warehouse providers to ensure ease of access of data following invocation.

Commingling risk is mitigated by the use of the collection account declaration of trust.

A full list of the legal documentation provided to ARC is outlined later in this report.

PPPPORTFOLIO ORTFOLIO ORTFOLIO ORTFOLIO TTTTESTSESTSESTSESTS

Adjustment of the Financing Adjustment of the Financing Adjustment of the Financing Adjustment of the Financing PortfolioPortfolioPortfolioPortfolio

ReReReRe----designation of Eligible Receivablesdesignation of Eligible Receivablesdesignation of Eligible Receivablesdesignation of Eligible Receivables

On each occasion that the Debtor becomes aware or is notified by the Servicer that the Eligibility Criteria were not

satisfied with respect to an Eligible Receivable on the relevant Sale Date, it shall within one Business Day

re-designate that Receivable as an Ineligible Receivable.

General power of the Debtor to designate ReceivablesGeneral power of the Debtor to designate ReceivablesGeneral power of the Debtor to designate ReceivablesGeneral power of the Debtor to designate Receivables

The Debtor may designate or re-designate a Receivable selected by the Debtor as an Ineligible Receivable.

ReReReRe----designation of Ineligible Receivablesdesignation of Ineligible Receivablesdesignation of Ineligible Receivablesdesignation of Ineligible Receivables

The Debtor may re-designate an Ineligible Receivable as an Eligible Receivable if it was designated or

re-designated as such pursuant to the Eligibility Criteria with respect to that Ineligible Receivable are satisfied on

the date of re-designation.


ARC Ratings, S.A. 6666////22226666

Procedures on a Portfolio Test DateProcedures on a Portfolio Test DateProcedures on a Portfolio Test DateProcedures on a Portfolio Test Date

On each Portfolio Test Date, the Debtor will carry out the following procedures.

Concentration TestConcentration TestConcentration TestConcentration Test

The Debtor will determine whether the following test is a pass or a fail in respect of that Portfolio Test Date and for

such purpose the test is a pass if each Concentration Limit is complied with.

If the Concentration Test on that Portfolio Test Date is a fail, the Debtor may re-designate appropriate Receivables

as Ineligible Receivables so that the Concentration Test would be a pass if run again on the Financing Portfolio as

so adjusted.

If the Concentration Test on that Portfolio Test Date is a fail, the Debtor may sell, and the Seller may repurchase,

appropriate Receivables in accordance with the Sale Agreement so that the Concentration Test would be a pass if

run again on the Financing Portfolio as so adjusted.

The Debtor may not re-designate appropriate Receivables as Ineligible Receivables, if as a result of such re-

designation, the Senior Borrowing Base Test will be a fail as at that Portfolio Test Date.

The Debtor may not sell, and the Seller may not repurchase, appropriate Receivables in accordance with the Sale

Agreement if as a result of such sale and repurchase, the Senior Borrowing Base Test will be a fail as at that Portfolio

Test Date.

Senior Borrowing Base TestSenior Borrowing Base TestSenior Borrowing Base TestSenior Borrowing Base Test

The Debtor will (acting on the calculations provided by PAF) determine whether the following test is a pass or a fail

in respect of that Portfolio Test Date and, for such purpose, the Senior Borrowing Base Test is a pass if the then

aggregate of outstanding principal amount of the Senior Notes as at that Portfolio Test Date does not exceed the

sum of the product of:

- the Senior Borrowing Base Percentage; and

- the Financing Portfolio Adjusted Amount (in respect of each Portfolio Test Date which is a Monthly Test Date)

or the Intra-Period Financing Portfolio Adjusted Amount (in respect of each Portfolio Test Date which is not a

Monthly Test Date) as at the relevant Portfolio Test Date; plus

- the amounts standing to the credit of the Collection Accounts and the Reserve Account as at the relevant

Portfolio Test Date; plus

- the amounts in respect of Principal Receipts standing to the credit of the Transaction Account as at the relevant

Portfolio Test Date, less

- if the Portfolio Test Date is not a Monthly Test Date, the aggregate amount required to pay items((a) to (g) plus

(i) in the Pre-Acceleration Revenue Waterfall on the next Interest Payment Date.

If the Senior Borrowing Base Test on that Portfolio Test Date is a fail the Debtor may make a drawing under the

Subordinated Loan Agreement or issue additional Class C Notes so that the Senior Borrowing Base Test would be

a pass if run again following the drawing under the Subordinated Loan Agreement or issue of additional


ARC Ratings, S.A. 7777////22226666

Class C Notes, as the case may be.

Portfolio Criteria TestPortfolio Criteria TestPortfolio Criteria TestPortfolio Criteria Test

The Debtor will determine whether each of the following tests is a pass or a fail in respect of that Portfolio Test

Date and for such purpose a test is a pass if in relation to the Financing Portfolio the following limits are complied

with:

- the aggregate Principal Balance of Delinquent Receivables is less than or equal to 4.0% of the Receivable

Portfolio (including Receivables previously in the Receivable Portfolio but subsequently repurchased by the

Seller pursuant to the Sale Agreement);

- the Loss Percentage is equal to or less than 3.00%;

- the Excess Spread is equal to or more than 5.00%.

If a Portfolio Criteria Test on that Portfolio Test Date is a fail, the Debtor may re-designate appropriate Receivables

as Ineligible Receivables.

If a Portfolio Test Date is not a Monthly Test Date, then the Portfolio Criteria Tests will be determined using data

from the most recent Monthly Test Date;

Minimum Class A Subordination TestMinimum Class A Subordination TestMinimum Class A Subordination TestMinimum Class A Subordination Test

The Debtor (acting on the calculations provided by PAF) will determine whether the following test is a pass or a fail

in respect of that Portfolio Test Date and, for such purpose, the Minimum Class A Subordination Test is a pass if

the then aggregate of outstanding principal amount of the Class A Notes as at that Portfolio Test Date does not

exceed the sum of the product of:

- the Minimum Class A Subordination Amount); and

- the Financing Portfolio Adjusted Amount (in respect of each Portfolio Test Date which is a Monthly Test Date)

or the Intra-Period Financing Portfolio Adjusted Amount (in respect of each Portfolio Test Date which is not a

Monthly Test Date) as at the relevant Portfolio Test Date; plus

- the amounts standing to the credit of the Collection Accounts and the Reserve Account as at the relevant

Portfolio Test Date; plus

- the amounts in respect of Principal Receipts standing to the credit of the Transaction Account as at the relevant

Portfolio Test Date, less

- if the Portfolio Test Date is not a Monthly Test Date, the aggregate amount required to pay items (a) to (g) plus

(i) in the Pre-Acceleration Revenue Waterfall on the next Interest Payment Date.

If the Minimum Class A Subordination Test on that Portfolio Test Date is a fail the Debtor may make a drawing

under the Subordinated Loan Agreement so that the Minimum Class A Subordination Test would be a pass if run

again following the drawing under the Subordinated Loan Agreement.


ARC Ratings, S.A. 8888////22226666

Drawings under the Subordinated Loan Agreement or Class C Note Issuance may be used to cure a failDrawings under the Subordinated Loan Agreement or Class C Note Issuance may be used to cure a failDrawings under the Subordinated Loan Agreement or Class C Note Issuance may be used to cure a failDrawings under the Subordinated Loan Agreement or Class C Note Issuance may be used to cure a fail

In the event that a Senior Borrowing Base Test Fail or a Minimum Class A Subordination Test Fail occurs, the Debtor

may make a drawing under the Subordinated Loan Agreement (in so far as it is able to do so under the terms of

the Subordinated Loan Agreement) and apply the proceeds in such manner as the Debtor may decide in connection

with effecting a Senior Borrowing Base Test Cure or Minimum Class A Subordination Test Cure. The proceeds of a

drawing may be applied by the Debtor directly towards the repayment of amounts outstanding under the Senior

Notes pro rata to the Noteholders according to their participation in the outstanding Senior Notes and the

proceeds of such drawing do not have to be paid into the Transaction Account and do not have to paid in

accordance with the Waterfall or be held by the Debtor in the Transaction Account.

A drawing under the Subordinated Loan Agreement to cure a Senor Borrowing Base Test Fail or a Minimum Class

A Subordination Test Fail may only be made twice in any 12-month period.

In the event that a Senior Borrowing Base Test Fail occurs, the Debtor may issue additional Class C Notes (in so far

as it is able to do so under the Agreement) and apply the proceeds in connection with effecting a Senior Borrowing

Base Test Cure. The proceeds of a Class C Note Issuance will be applied by the Debtor directly towards the

repayment of amounts outstanding under the Senior Notes pro rata to the Noteholders according to their

participation in the outstanding Senior Notes and the proceeds of such drawing do not have to be paid into the

Transaction Account and do not have to paid in accordance with the Waterfall.

An issue of Class C Notes to cure a Senor Borrowing Base Test Fail may only be made once in any 12-month period.

ReReReRe----run test in order to effect a curerun test in order to effect a curerun test in order to effect a curerun test in order to effect a cure

In the event that a Senior Borrowing Base Test Fail, a Minimum Class A Subordination Test Fail, a Concentration

Test Fail and/or a Portfolio Criteria Test Fail occurs, the Debtor may, having taken steps which it believes will effect

a Senior Borrowing Base Test Cure, a Minimum Class A Subordination Test Cure a Concentration Test Cure and/or

a Portfolio Criteria Test Cure (as applicable), designate any Business Day as a Portfolio Test Date and re-determine

whether each of the Senior Borrowing Base Test, the Minimum Class A Subordination Test, Concentration Test and

the Portfolio Criteria Test is a pass or a fail and, if it is a pass, a Senior Borrowing Base Test Cure, a Minimum Class A

Subordination Test Cure, a Portfolio Criteria Test Cure and/or a Concentration Test Cure (as applicable) shall occur

on that Business Day.

Test reportingTest reportingTest reportingTest reporting

On each Monthly Reporting Date, the Debtor shall deliver to the Agent a copy of the Monthly Portfolio Report,

On each Intra-Period Reporting Date, the Debtor shall deliver to the Agent a copy of the Intra-Period Portfolio

Report, reporting the determinations made without limitation:

- the Senior Borrowing Base Percentage and the Financing Portfolio Adjusted Amount (in respect of each Portfolio

Test Date which is a Monthly Test Date) or the Intra-Period Financing Portfolio Adjusted Amount (in respect of

each Portfolio Test Date which is not a Monthly Test Date) as at that Portfolio Test Date and the inputs and

calculations used to obtain such amounts; and


ARC Ratings, S.A. 9999////22226666

- whether there was a pass or fail in respect of the Concentration Test, each Portfolio Criteria Test, the Minimum

Class A Subordination Test and the Senior Borrowing Base Test on that Portfolio Test Date and the calculations

carried out to reach such conclusions.

EEEEVENTS OF VENTS OF VENTS OF VENTS OF DDDDEFAULTEFAULTEFAULTEFAULT

Each of the events described in this section is an ‘event of default’ except for ‘Acceleration’.

NonNonNonNon----paymentpaymentpaymentpayment

The Debtor does not pay on the due date any amount payable pursuant to a Finance Document at the place and

in the currency in which it is expressed to be payable unless its failure to pay is caused by:

- an administrative or technical error; or

- a Disruption Event; and

- payment is made within three Business Days of its due date.

Other obligationsOther obligationsOther obligationsOther obligations

Subject to the Procedures on a Portfolio Test Date, the Debtor does not comply with any provision of the Finance

Documents.

No Event of Default will occur if the failure to comply is capable of remedy and is remedied within 15 Business Days

of the earlier of (i) the Agent giving notice to the Debtor and (ii) the Debtor becoming aware of the failure to

comply.

MisrepresentationMisrepresentationMisrepresentationMisrepresentation

Any representation or statement made or deemed to be made by the Debtor in the Finance Documents to which

it is a party is or proves to have been incorrect or misleading in any material respect when made or deemed to be

made.

No Event of Default if the matter giving rise to the misrepresentation is capable of remedy and is remedied within

15 Business Days of the earlier of (i) the Agent giving notice to the Debtor and (ii) the Debtor becoming aware of

the failure to comply.

InsolvencyInsolvencyInsolvencyInsolvency

The Debtor is unable or admits inability to pay its debts as they fall due, suspends making payments on any of its

debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its

creditors (other than the Finance Parties) with a view to rescheduling any of its indebtedness, except in the case of

any solvent liquidation or reorganisation where the Instructing Party has given its prior written consent (not to be

unreasonably withheld) to such solvent liquidation or reorganisation.

The value of the Debtor's assets is less than its liabilities (taking into account contingent and prospective liabilities

and after giving effect to any limited recourse provisions in the Transaction Documents).


ARC Ratings, S.A. 11110000////22226666

Insolvency proceedingsInsolvency proceedingsInsolvency proceedingsInsolvency proceedings

Any corporate action, legal proceedings or other formal procedure or step is taken in relation to:

- the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, examinership,

administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of the

Debtor;

- a composition, compromise, assignment, assignation, trust or arrangement with any creditor of the Debtor;

- the appointment of a liquidator, receiver, administrative receiver, examiner, administrator, compulsory manager

or other similar officer in respect of the Debtor or any of its assets; or

- enforcement of any Security Interest over any assets of the Debtor,

- or any analogous procedure or step is taken in any jurisdiction.

Creditors' processCreditors' processCreditors' processCreditors' process

Any expropriation, attachment, sequestration, distress, diligence or execution affects any asset or assets of the

Debtor and is not discharged within 20 Business Days of such asset being affected.

UnlawfulnessUnlawfulnessUnlawfulnessUnlawfulness

It is or becomes unlawful for the Debtor to perform any of its obligations under the Finance Documents, the Sale

Agreement or the Servicing Agreement.

RepudiationRepudiationRepudiationRepudiation

The Debtor repudiates or rescinds a Finance Document, the Sale Agreement, the Cash Administration Agreement

or the Servicing Agreement or evidences an intention to repudiate or rescind a Finance Document, the Sale

Agreement, the Cash Administration Agreement or the Servicing Agreement.

Security InterestsSecurity InterestsSecurity InterestsSecurity Interests

Any Security Document is not in full force and effect or does not create in favour of the Security Trustee for the

benefit of the Finance Parties the Security Interest which it is expressed to create, with the ranking and priority it is

expressed to have.

AccelerationAccelerationAccelerationAcceleration

On and at any time after the occurrence of an Event of Default which is continuing the Agent shall if so directed by

the Instructing Party, by notice to the Debtor and the Security Trustee (with a copy to each of the other Secured

Creditors) (such notice an Enforcement Notice):

- cancel the Total Commitments whereupon they shall immediately be cancelled;

- declare that all or part of the Senior Notes and the Class C Notes together with accrued interest, and all other

amounts accrued or outstanding under the Finance Documents be immediately due and payable, whereupon

they shall become immediately due and payable;


ARC Ratings, S.A. 11111111////22226666

- declare that all or part of the Senior Notes be payable on demand, whereupon they shall on demand by the

Agent on the instructions of the Instructing Party become immediately payable; and/or

- exercise or direct the Security Trustee to exercise any or all of its rights, remedies, powers or discretions under

the Security Documents.

PPPPRERERERE----AAAACCELERATIONCCELERATIONCCELERATIONCCELERATION RRRREVENUEEVENUEEVENUEEVENUE WWWWATERFALLATERFALLATERFALLATERFALL

On each Interest Payment Date prior to the delivery of an Early Amortisation Notice, the commencement of the

Term Out Period or the service of an Enforcement Notice or Sale Demand Notice, the Cash Administrator, on

behalf of the Debtor, will instruct the Account Bank to apply available revenue receipts except for any excess swap

collateral, replacement swap premium, swap tax credits and an amount equal to the value of all swap collateral

provided by the swap counterparty to the debtor; in the following order of priority.

(a) first, to pay any amounts due and payable to the Security Trustee and any Appointee any fees, costs, charges,

liabilities and expenses with VAT (if payable).

(b) second, to pay pro rata and pari passu according to the respective amounts without double counting:

(a) any amounts then due and payable to the Agent, Cash Administrator, Account Bank and Swap Collateral

Account Bank and any fees, costs, charges, liabilities and expenses with VAT (if payable).

(b) any amounts then due and payable to the Registrar and any fees, costs, charges, liabilities and expenses

with VAT (if payable).

(c) any amounts then due and payable to the Corporate Services Provider and any fees, costs, charges,

liabilities and expenses with VAT (if payable).

(d) any amounts then due and payable to the Standby Servicer and any fees, costs, charges, liabilities and

expenses with VAT (if payable).

(e) any amounts then due and payable to any Liquidation Agent; and

(f) any amounts then due and payable to any Listing Agent (including any fees and expenses then due and

payable to any Permitted Stock Exchange and incurred in connection with obtaining or maintaining a

listing of the Listed Senior Notes and/or the Class C Notes on a Permitted Stock Exchange);

(c) third, in or towards satisfaction of any amounts then due and payable by the Debtor to third parties and

incurred without breach by the Debtor of the Transaction Documents to which it is a party, and any amounts

required to pay or discharge any liability of the Debtor for corporation tax of the Debtor, which tax liability

cannot be met out of amounts previously retained by the Debtor on the Debtor Profit Ledger;

(d) fourth, to pay the Debtor an amount equal to £100 to be retained by the Debtor as profit in respect of the

business of the Debtor (the Debtor Profit Amount);

(e) fifth, to pay any amounts then due and payable pro rata and pari passu according to the respective amounts

thereof:


ARC Ratings, S.A. 11112222////22226666

(a) to the Servicer and the Standby Servicer and any fees, costs, charges, liabilities and expenses then due

with VAT (if payable) thereon as provided therein up to a maximum of an amount equal to ((1.50% of the

aggregate Principal Balance of the Receivable Portfolio) divided by 12)

(b) to PAF in respect of the Receivable Administration Fee.

(f) sixth, in payment or satisfaction of all scheduled amounts due but unpaid to any Swap Counterparty (other

than Swap Subordinated Amounts) under any Swap Agreement including any termination payment due and

payable by the Debtor to the extent it is not satisfied by the payment by the Debtor to the relevant Swap

Counterparty of any Replacement Swap Premium or amounts standing to the credit of the Swap Collateral

Accounts but excluding, if applicable, any Swap Subordinated Amount;

(g) seventh, pro rata and pari passu, in payment or satisfaction of all interest together with any fees and all other

amounts due and payable to the Class A Noteholders.

(h) eighth, to credit the Class A Notes Principal Deficiency Sub-Ledger in an amount sufficient to eliminate any

debit thereon (such amounts to be applied in repayment of principal as Available Principal Receipts).

(i) ninth, pro rata and pari passu, in payment or satisfaction of all interest together with any fees and all other

amounts due and payable to the Class B Noteholders under the Finance Documents.

(j) tenth, to credit the Class B Notes Principal Deficiency Sub-Ledger in an amount sufficient to eliminate any

debit thereon (such amounts to be applied in repayment of principal as Available Principal Receipts).

(k) eleventh, if a Senior Borrowing Base Test Fail has occurred and is continuing on the Payment Calculation Date

prior to such Interest Payment Date, to credit the Transaction Account and towards repayment pro rata and

pari passu of principal amounts outstanding on the Class A Notes until the principal amount outstanding on

the Class A Notes has been reduced and then towards repayment pro rata and pari passu of principal amounts

outstanding on the Class B Notes until the principal amount outstanding on the Class B Notes has been

reduced such that the Senior Borrowing Base Test shall be a pass on such Interest Payment Date .

(l) twelfth, to credit the Reserve Account up to the balance of the Reserve Account at the previous Payment

Calculation Date, being the amount, which was applied as Available Revenue Receipts on such Interest

Payment Date.

(m) thirteenth, pro rata and pari passu, in payment or satisfaction of all interest together with any fees and all other

amounts due and payable to the Class C Noteholders under the Finance Documents.

(n) fourteenth, to credit the Reserve Account, 75% of all remaining amounts (or if less, the amount required for

the Reserve Account to have a balance equal to the Reserve Account Required Amount).

(o) fifteenth, if the principal amount outstanding of the C Notes exceeds the Maximum Class C Note Outstanding

Amount, in or towards repayment pro rata and pari passu of principal amounts outstanding on the

Class C Notes until such principal amount outstanding equals the Maximum Class C Note Outstanding

Amount.

(p) sixteenth, to credit the Class C Notes Principal Deficiency Sub-Ledger in an amount sufficient to eliminate any


ARC Ratings, S.A. 11113333////22226666

debit thereon (to be applied in repayment of principal as Available Principal Receipts).

(q) seventeenth, to pay any Swap Subordinated Amounts due and payable to any Swap Counterparty under any

relevant Swap Agreement;

(r) eighteenth, to pay any amounts then due and payable to the Servicer and the Standby Servicer and any fees,

costs, charges, liabilities and expenses then due with VAT (if payable).

(s) nineteenth, to credit the Transaction Account for the purpose of purchasing additional Receivables pursuant

to the Sale Agreement during the Revolving Period.

(t) twentieth, on any Interest Payment Date falling within an Estimation Period, all remaining amounts to be

credited to the Transaction Account to be applied on the next Interest Payment Date.

(u) twenty first, to credit the Subordinated Loan Principal Deficiency Sub-Ledger in an amount sufficient to

eliminate any debit thereon (to be applied in repayment of principal as Available Principal Receipts).

(v) twenty second, in payment or satisfaction of all amounts of interest due and payable to the Subordinated Loan

Provider.

(w) twenty third, any remaining amounts toward the payment of Deferred Consideration to the Seller under the

Sale Agreement.

PPPPRERERERE----AAAACCELERATIONCCELERATIONCCELERATIONCCELERATION PPPPRINCIPALRINCIPALRINCIPALRINCIPAL WWWWATERFALLATERFALLATERFALLATERFALL

On each Interest Payment Date following an Early Amortisation Event, during the Term Out Period or following

service of a Sale Demand Notice, but prior to the service of an Enforcement Notice, the Cash Administrator, on

behalf of the Debtor, shall instruct the Account Bank to apply Available Revenue Receipts and Available Principal

Receipts in the following order of priority.

(a) first, to pay any amounts due and payable to the Security Trustee, Receiver and any Appointee any fees, costs,

charges, liabilities and expenses then due to the Security Trustee, Receiver and any Appointee with VAT (if

payable).

(b) second, to pay pro rata and pari passu according to the respective amounts thereof without double counting:

1. any amounts then due and payable to the Agent, Cash Administrator, Account Bank and Swap Collateral

Account Bank and any fees, costs, charges, liabilities and expenses with VAT (if payable).

2. any amounts then due and payable to the Registrar and any fees, costs, charges, liabilities and expenses

then due under the provisions of the Transaction Documents, together with VAT (if payable).

3. any amounts then due and payable to the Corporate Services Provider and any fees, costs, charges,

liabilities and expenses then due under the provisions of the Corporate Services Agreement, together

with VAT (if payable) VAT.

4. any amounts then due and payable to the Collection Account Bank and any fees, costs, charges, liabilities

and expenses then due with VAT (if applicable).


ARC Ratings, S.A. 11114444////22226666

5. any amounts then due and payable to any Liquidation Agent; and

6. any amounts then due and payable to any Listing Agent, including any fees and expenses due and


listing of the Listed Senior Notes and/or the Class C Notes on a Permitted Stock Exchange.

(c) third, to pay any amounts then due and payable pro rata and pari passu according to the respective amounts:

1. to the Servicer and the Standby Servicer and any fees, costs, charges, liabilities and expenses then due


2. to PAF in respect of the Receivable Administration Fee;

(d) fourth, in payment or satisfaction of all scheduled amounts due but unpaid to any Swap Counterparty (other

than Swap Subordinated Amounts).

(e) fifth, in the following order of priority:

1. In or towards satisfaction pro rata and pari passu of payment of all interest together with any fees and all

other amounts due and payable to the Class A Noteholders under the Finance Documents;

2. In or towards repayment pro rata and pari passu of principal amounts outstanding on the Senior Notes

until the principal amount outstanding on the Class A Notes have been reduced to zero;


other amounts due and payable to the Class B Noteholders.

4. In or towards repayment pro rata and pari passu of principal amounts outstanding on the Senior Notes

until the principal amount outstanding on the Class B Notes have been reduced to zero.


other amounts due and payable to the Class C Noteholders.

6. In or towards repayment pro rata and pari passu of principal amounts outstanding on the Class C Notes

until the principal amount outstanding on the Class C Notes have been reduced to zero;

7. In or towards satisfaction of payment of all interest together with any fees and all other amounts due and

payable to the Subordinated Loan Provider.

8. In or towards repayment of the principal balance outstanding on the Subordinated Loan until the principal

balance outstanding on the Subordinated Loan has been reduced to zero;

(f) sixth, to pay any Swap Subordinated Amounts due and payable to any Swap Counterparty.

(g) seventh, in or towards satisfaction of any amounts then due and payable by the Debtor to third parties and

incurred without breach by the Debtor of the Transaction Documents to which it is a party, and any amounts

required to pay or discharge any liability of the Debtor for corporation tax of the Debtor, which tax liability

cannot be met out of amounts previously retained by the Debtor on the Debtor Profit Ledger;

(h) eighth, to pay any amounts then due and payable to the Servicer and the Standby Servicer and any fees, costs,


ARC Ratings, S.A. 11115555////22226666

charges, liabilities and expenses then due under the provisions of the Servicing Agreement [or the Standby

Servicing Agreement], together with VAT (if payable).

(i) ninth, to pay the Debtor the Debtor Profit Amount; and

(j) tenth, any remaining amounts toward the payment of Deferred Consideration to the Seller under the Sale

Agreement.

PPPPOSTOSTOSTOST----AAAACCELERATION CCELERATION CCELERATION CCELERATION RRRREVENUE EVENUE EVENUE EVENUE WWWWATERFALLATERFALLATERFALLATERFALL

Following the service of an Enforcement Notice, the Security Trustee or the Cash Administrator on its behalf or any

Receiver appointed by the Security Trustee in connection with the enforcement of the Security shall instruct the

relevant Account Bank to apply all amounts received or recovered in the following order of priority:

(a) first, to pay any amounts then due and payable to the Security Trustee, Receiver and any Appointee any fees,

costs, charges, liabilities and expenses then due to the Security Trustee, Receiver and any Appointee under

the provisions of the other Transaction Documents together with VAT (if payable).

(b) second, to pay pro rata and pari passu according to the respective amounts thereof (in each case without

double counting) of:


Account Bank and any fees, costs, charges, liabilities and expenses then due under the provisions of the

other Transaction Documents together with VAT (if payable).





with VAT (if payable)


and expenses then due under the provisions of the Transaction Documents, together with VAT (if

applicable).


6. any amounts then due and payable to any Listing Agent (including any fees and expenses then due and



(c) third, to pay any amounts then due and payable pro rata and pari passu according to the respective amounts

thereof:


under the provisions of the Servicing Agreement and the Standby Servicing Agreement, together with

VAT (if payable) and


ARC Ratings, S.A. 11116666////22226666







(e) fifth, in the following order of priority (only if and to the extent that payments or provisions of a higher priority

have been made in full):

1. firstly, in or towards satisfaction pro rata and pari passu of payment of all interest together with any fees

and all other amounts due and payable to the Class A Noteholders under the Finance Documents;

2. secondly, in or towards repayment pro rata and pari passu of principal amounts outstanding on the Senior

Notes until the principal amount outstanding on the Class A Notes have been reduced to zero;

3. thirdly, in or towards satisfaction pro rata and pari passu of payment of all interest together with any fees

and all other amounts due and payable to the Class B Noteholders under the Finance Documents;

4. fourthly, in or towards repayment pro rata and pari passu of principal amounts outstanding on the Senior

Notes until the principal amount outstanding on the Class B Notes have been reduced to zero.

5. fifthly, in or towards satisfaction pro rata and pari passu of payment of all interest together with any fees

and all other amounts due and payable to the Class C Noteholders under the Finance Documents;

6. sixthly, in or towards repayment pro rata and pari passu of principal amounts outstanding on the

Class C Notes until the principal amount outstanding on the Class C Notes have been reduced to zero;

7. seventhly, in or towards satisfaction of payment of all interest together with any fees and all other amounts

due and payable to the Subordinated Loan Provider under the Subordinated Loan; and

8. eighthly, in or towards repayment of the principal balance outstanding on the Subordinated Loan until

the principal balance outstanding on the Subordinated Loan has been reduced to zero;

(f) sixth, to pay any Swap Subordinated Amounts due and payable to any Swap Counterparty under any relevant

Swap Agreement;


incurred without breach by the Debtor of the Transaction Documents to which it is a party (and for which

payment has not been provided for elsewhere), and any amounts required to pay or discharge any liability of

the Debtor for corporation tax of the Debtor, which tax liability cannot be met out of amounts previously

retained by the Debtor on the Debtor Profit Ledger;

(h) eighth, to pay any amounts then due and payable to the Servicer [and the Standby Servicer] and any fees,

costs, charges, liabilities and expenses then due under the provisions of the Servicing Agreement [or the

Standby Servicing Agreement], together with VAT (if payable).


ARC Ratings, S.A. 11117777////22226666

(i) ninth, to pay the Debtor the Debtor Profit Amount; and


Agreement.

(x) If any claim referred to in paragraph (a) above, is not effectively secured by either of the Deeds of Charge, it

shall be ignored for the purposes of allocating security recoveries pursuant to paragraph (a).

EEEEARLY ARLY ARLY ARLY AAAAMORTISATIONMORTISATIONMORTISATIONMORTISATION////TERMTERMTERMTERM----OUT OUT OUT OUT PPPPRIORITY OF RIORITY OF RIORITY OF RIORITY OF PPPPAYMENTSAYMENTSAYMENTSAYMENTS

On each Interest Payment Date following the occurrence of an Early Amortisation Event, during the Term Out

Period or following service of a Sale Demand Notice, but in each case prior or the service of an Enforcement Notice,

the Cash Administrator, on behalf of the Debtor, shall instruct the Account Bank to apply Available Revenue

Receipts in the following order of priority.

(a) first, to pay any amounts then due and payable to the Security Trustee, Receiver and any Appointee any fees,

costs, charges, liabilities and expenses then due to the Security Trustee, Receiver and any Appointee under

the provisions of the other Transaction Documents together with VAT (if payable).

(b) second, to pay pro rata and pari passu according to the respective amounts thereof (in each case without

double counting) of:


Account Bank and any fees, costs, charges, liabilities and expenses then due under the provisions of the

other Transaction Documents together with VAT (if payable).







and expenses then due under the provisions of the Transaction Documents, together with VAT (if

applicable).


6. any amounts then due and payable to any Listing Agent (including any fees and expenses then due and



(c) third, to pay any amounts then due and payable pro rata and pari passu according to the respective amounts

thereof:


ARC Ratings, S.A. 11118888////22226666


under the provisions of the Servicing Agreement and the Standby Servicing Agreement, together with

VAT (if payable).







(e) fifth, in the following order of priority:

1. firstly, in or towards satisfaction pro rata and pari passu of payment of all interest together with any fees

and all other amounts due and payable to the Class A Noteholders under the Finance Documents;

2. secondly, in or towards repayment pro rata and pari passu of principal amounts outstanding on the Senior

Notes until the principal amount outstanding on the Class A Notes have been reduced to zero;

3. thirdly, in or towards satisfaction pro rata and pari passu of payment of all interest together with any fees

and all other amounts due and payable to the Class B Noteholders under the Finance Documents;

4. fourthly, in or towards repayment pro rata and pari passu of principal amounts outstanding on the Senior

Notes until the principal amount outstanding on the Class B Notes have been reduced to zero.

5. fifthly, in or towards satisfaction pro rata and pari passu of payment of all interest together with any fees

and all other amounts due and payable to the Class C Noteholders under the Finance Documents;

6. sixthly, in or towards repayment pro rata and pari passu of principal amounts outstanding on the

Class C Notes until the principal amount outstanding on the Class C Notes have been reduced to zero;

7. seventhly, in or towards satisfaction of payment of all interest together with any fees and all other amounts

due and payable to the Subordinated Loan Provider under the Subordinated Loan; and

8. eighthly, in or towards repayment of the principal balance outstanding on the Subordinated Loan until

the principal balance outstanding on the Subordinated Loan has been reduced to zero;

(f) sixth, to pay any Swap Subordinated Amounts due and payable to any Swap Counterparty under any relevant

Swap Agreement;


incurred without breach by the Debtor of the Transaction Documents to which it is a party (and for which

payment has not been provided for elsewhere), and any amounts required to pay or discharge any liability of

the Debtor for corporation tax of the Debtor, which tax liability cannot be met out of amounts previously

retained by the Debtor on the Debtor Profit Ledger;


ARC Ratings, S.A. 11119999////22226666

(h) eighth, to pay any amounts then due and payable to the Servicer [and the Standby Servicer] and any fees,

costs, charges, liabilities and expenses then due under the provisions of the Servicing Agreement [or the

Standby Servicing Agreement], together with VAT (if payable).

(i) ninth , to pay the Debtor the Debtor Profit Amount; and


Agreement.

ELIGIBILITY ELIGIBILITY ELIGIBILITY ELIGIBILITY CRITERIACRITERIACRITERIACRITERIA

Each Receivable and Underlying Agreement which PAF may sell to PAF Securitisation No.1 must satisfy the

following criteria:

(a) The Receivable is not a Defaulted Receivable;

(b) The Receivable is not the obligation of an insolvent Customer;

(c) The Customer in relation to the relevant Receivable is domiciled or incorporated in the UK;

(d) The Receivable is denominated in GBP;

(e) The Underlying Agreement (excluding any Lease Agreement which is for a minimum term) has a maximum

maturity of 72 months;

(f) The Receivable is payable via monthly or quarterly instalments;

(g) The Underlying Agreement is originated in line with the Lending Policy of the Seller or KAF;

(h) At origination of the Underlying Agreement, the relevant Customer is a public body, company, sole trader,

partnership, high net worth individual or other legal entity with full legal capacity;

(i) No Underlying Agreement was made with a consumer, within the meaning of the Unfair Terms in Consumer

Contracts Regulations 1999 (as amended) or the Consumer Rights Act 2015, as applicable;

(j) At origination of the Underlying Agreement, the relevant Customer, in the case of a sole trader or a high net

worth individual, is resident or, in the case of a public body, company, partnership or other legal entity, is

incorporated in England, Wales, Scotland or Northern Ireland;

(k) The Principal Balance is greater than or equal to £2,000 and less than or equal to £1,500,000;

(l) The Underlying Agreement is originated pursuant to the Standard Documentation without addition or

alteration to the standard forms other than being completed in accordance with the relevant Approved

Originator’s policies;

(m) To the best of the Seller’s and each Approved Originator’s knowledge, the relevant Customer is not dead or

suspected of fraud;

(n) The remaining maturity of the Receivable is not shorter than one month;

(o) The relevant Customer is not an employee of or a subsidiary affiliate of or a department of part of KAFL and/or


ARC Ratings, S.A. 22220000////22226666

the Seller;

(p) The relevant Approved Originator is the legal owner of the Receivables;

(q) The Seller is, immediately prior to the sale of the Receivable to the Debtor, the beneficial owner of the

Receivable;

(r) The Receivable is free and clear of any Security Interest;

(s) The Underlying Agreements and the related Receivables can be validly transferred by way of sale or

assignment without any legal restriction or consent by the Customer;

(t) There is no restriction on disclosure to the Security Trustee, the Debtor, the Approved Servicer or Master

Servicer or delivery to these entities of a copy of the Underlying Agreement;

(u) No withholding tax is payable on amounts to be received from Customers;

(v) No stamp, registration, documentation, transfer or similar duty or tax is payable on the transfer, assignment,

assignation or holding in trust of any Receivable or Underlying Agreement;

(w) Neither the Receivable nor the related Underlying Agreement needs to be filed, recorded or enrolled with

any court and no stamp duty, registration or similar tax is required to be paid;

(x) The Receivable and the Underlying Agreement constitutes legal valid, binding and enforceable obligations of

the Customer;

(y) The status and enforceability of the Receivable and the Underlying Agreement is not impaired by set-off rights

and no Customer maintains deposits on accounts with any Approved Originator or the Seller;

(z) The Underlying Agreement does not permit the relevant Customer to terminate the contract in the event of

insolvency of the relevant Approved Originator, the Seller or the Debtor;

(aa) The Receivable is not a regulated product and no Underlying Agreement is a regulated agreement under the

CCA;

(bb) The Receivable has not been subject to any Non-Permitted Amendments;

(cc) The Receivable does not include any lending in relation to the sale of any GAP Insurance, PPI or similar

products and none of these products were offered to the Customer by the Approved Originators;

(dd) The Equipment financed in relation to the Receivable is, to the best of the relevant Approved Originator’s

knowledge, in good order at the time the Receivable was originated;

(ee) The Equipment is not marine equipment, an aircraft, or a Classic Car;

(ff) The proposed limitations or exclusions of the liability of each Approved Originator contained in each

Underlying Agreement are fair and reasonable having regard to the circumstances of the particular Customer

for the purposes of the Unfair Contract Terms Act 1977; and

(gg) A Receivable is not in respect of weapons, munitions, defence, alcohol production, adult content or gambling.


ARC Ratings, S.A. 22221111////22226666

ANALYSISANALYSISANALYSISANALYSIS

The ratings address the timely payment of interest and the ultimate repayment of the Class A and Class B Notes

by the legal maturity date nine years after the signing. Although disposals are provisioned for in the transaction

documentation provided to ARC, for the purpose of this analysis disposals have been ignored as ARC does not

deem it to be material to the analysis.

The Transaction’s performance depends on the ability of the Master Servicer to collect on receivables through PAF

and KAF. ARC is comfortable that both Authorised Originators are able to service the assets, which is evidenced

by a proven track record over a period of 5 years for PAF and over 10 years for KAF. A Standby Servicing Agreement

is also in place appointing Equiniti as Standby Servicer.

On 26th November 2018 and 27th November 2018, ARC conducted an onsite review of PAF in Blackburn and KAF

in Wilmslow respectively, covering staffing, technology, administration processes, defaulted loan management as

well as management structure and internal systems and procedures. ARC is of the view that both PAF and KAF are

able to run the programme and systems sufficiently with the systems, processes and procedures deemed to all be

adequate.

In evaluating the transaction, ARC has reviewed the performance of the portfolios originated by both PAF and KAF

over a period of 5 years and 9 years, respectively. Default, recovery, yield and summarised accounts were provided

to ARC which were used to determine a default base case. The base case represents ARC’s estimation of the

lifetime default behaviour of the underlying assets and is derived using quantitative and qualitative rationale.

From the data provided to ARC, default data was extracted, and extrapolation was used to model the forward

defaults on advances of younger vintages to achieve complete curves as seen above for PAF based on half yearly

vintages. ARC considered a very conservative scenario taking into account the full dispersion around the average.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48

PAF - Defaults on Advance - 1/2 year vintage

H2-13 H1-14 H2-14 H1-15 H2-15 H1-16

H2-16 H1-17 H2-17 AVG ST.D


ARC Ratings, S.A. 22222222////22226666

PAF Defaults SummaryPAF Defaults SummaryPAF Defaults SummaryPAF Defaults Summary

Mean 0.047864

Standard Error 0.002975

Median 0.057883

Mode 0.06045

Standard Deviation 0.020828

Sample Variance 0.000434

Kurtosis -0.23775

Skewness -1.01584

Range 0.070552

Minimum 0

Maximum 0.070552

This resulted in a base case default rate of 8.1% for PAF.

ARC attributes the higher dispersion to the relative age of PAF and the high recoverability of the underlying assets

allowing for more risk to be assumed by the management.

The base case was then stressed as per the criteria set out in ARC’s Consumer ABS methodology:

PAFPAFPAFPAF

RatingRatingRatingRating Stress FactorStress FactorStress FactorStress Factor Base Base Base Base CCCCaseaseasease Stress DefaultsStress DefaultsStress DefaultsStress Defaults

AAA(sf) 6.0x 8.10% 48.60%

A(sf) 3.3x 8.10% 26.73%

From the data provided to ARC, recovery data was extracted, and extrapolation was used to model the forward

recoveries on advances of younger vintages to achieve complete curves as seen below for PAF based on half yearly

vintages.

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48

PAF - Recoveries on defaults - 1/2 year vintage

H2-13 H1-14 H2-14 H1-15 H2-15 H1-16

H2-16 H1-17 H2-17 AVG ST.D


ARC Ratings, S.A. 22223333////22226666

ARC again considered a very conservative scenario taking into account the full dispersion around the average.

PAF Recovery SummaryPAF Recovery SummaryPAF Recovery SummaryPAF Recovery Summary

Mean 0.973088


Median 1.008056

Mode 1.008056


Sample Variance 0.02763

Kurtosis 4.224622

Skewness -1.85913

Range 0.796977

Minimum 0.333902

Maximum 1.130878

This resulted in a base case recovery rate of 84.2% for PAF.


KKKKAFAFAFAF

RatingRatingRatingRating Stress FactorStress FactorStress FactorStress Factor Base Base Base Base CCCCaseaseasease Stressed RecoveryStressed RecoveryStressed RecoveryStressed Recovery

AAA(sf) 0.6 84.20% 33.68%

A(sf) 0.4 84.20% 54.73%

For KAF, it was determined that as it was lending mostly on assets which could be considered ‘unrecoverable’

either due to costs associated to recovery being prohibitive or assets which physically cannot be recovered, only

default data was considered by ARC.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60

Duration since start (months)

KAF - Defaults on Advance - 1/2 year vintage

H1-09 H2-09 H1-10 H2-10 H1-11 H2-11

H1-12 H2-12 H1-13 H2-13 H1-14 H2-14

H1-15 H2-15 H1-16 H2-16 H1-17 H2-17

H1-18 AVG ST.D


ARC Ratings, S.A. 22224444////22226666

From the data provided to ARC, default data was extracted, and extrapolation was used to model the forward

defaults on advances of younger vintages to achieve complete curves as seen above for KAF based on half yearly

vintages. ARC again considered a very conservative scenario taking into account the full dispersion around the

average.

Stats SummaryStats SummaryStats SummaryStats Summary

Mean 0.016240988


Median 0.020991895

Mode 0.021683796


Sample Variance 6.22709E-05

Kurtosis -0.59308885

Skewness -0.95567328

Range 0.023103907

Minimum 0

Maximum 0.023103907

This resulted in a base case default rate of 3.0% for KAF.

ARC attributes the much lower dispersion as compared with PAF to KAF being more mature and the low

recoverability of the underlying assets allowing for less risk to be assumed by the management.


KAFKAFKAFKAF

RatingRatingRatingRating Stress FactorStress FactorStress FactorStress Factor Base Base Base Base CCCCaseaseasease Stressed DefaultsStressed DefaultsStressed DefaultsStressed Defaults

AAA(sf) 6.0x 3.0% 18.0%

A(sf) 3.3x 3.0% 9.9%

ARC calculated the loss rates for the combined pool based on weighted averages and weighted representation of

KAF and PAF in the pool. ARC determined that the 26.25% subordination provided by the capital structure to the

Class A Notes is sufficient to protect it from losses at a ‘AAA(sf)’ rating level whilst the 12.5% subordination provided

by the capital structure to the Class B Notes is sufficient to protect it from losses at a ‘A(sf)’ rating level.

Prepayments were not considered in ARC’s analysis as the eligibility criteria explicitly states that no receivable can

be a regulated product and that no underlying agreement may be regulated under the Consumer Credit Act (CCA).

In addition, the customer contracts for both PAF and KAF stipulate that the entire remaining contractual amount

including interest would become due upon either a voluntary or involuntary termination.

RRRRATING ATING ATING ATING MMMMEANINGEANINGEANINGEANING

All ratings accorded are final, public ratings. The final, public rating accorded to the ‘AAA(sf)’ rated

Class A1 / A2 Notes and the ‘A(sf)’ rated Class B1 / B2 Notes relate to timely payment of interest and the ultimate

payment of principal. The ratings exclude an assessment of the ability of the Issuer to pay either any (early

repayment) penalties or any default interest rate penalties.


ARC Ratings, S.A. 22225555////22226666

The suffix code ‘sf’ means that the rating is of structured finance nature. A rating outlook indicates the potential

direction of a rating over the medium term, typically a one to two-year period.

ARC will perform regular surveillance on the transaction and surveillance reports will be made available to

subscribers to ARC’s information services.

DATA RECEIVED DATA RECEIVED DATA RECEIVED DATA RECEIVED FROM FROM FROM FROM NATWEST MARKENATWEST MARKENATWEST MARKENATWEST MARKETTTTS S S S PLCPLCPLCPLC

- Master Definitions and Construction Schedule

- Loan Note Issuance Agreement

- Subordinated Loan Agreement

- Account Bank Agreement

- Deed of Charge

- Standby Servicing Agreement

- Collection Account Declaration

- Servicing Agreement

- Sale Agreement

- Cash Administration Agreement

- KAF underwriting Guide

- PAF Credit Policy v1.7

- Project Keane – KAF Data Tape – July 2018

- Project Keane – PAF Data Tape – July 2018

- Project Keane – ISDA Schedule

- Project Keane - CSA


ARC Ratings, S.A. 26

DISCLAIMERDISCLAIMERDISCLAIMERDISCLAIMER

Note that ARC is not a legal, tax or financial adviser, and only provides a credit opinion of the rated securities. For example, a rating does not cover a potential change in laws nor can it be regarded as an audit. Moreover, ARC is not a party to the transaction documents. Users of our credit ratings should familiarise themselves with the Transaction documents / mechanics and should form their own views in this respect. They should not rely on ARC for legal, tax or financial advice, and are encouraged to contact the relevant advisers.

ARC Ratings, S.A. is registered as a Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA), within the scope of the REGULATION (EC) Nº 1060/2009 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL, of 16 September, and recognised as External Credit Assessment Institution (ECAI).

Ratings assigned by ARC represent opinions on the capacity and willingness of an entity to make all required payments on a given obligation in a timely manner.

The rating(s) assigned by ARC in this report was / were sought by the entity whose financial commitments are being rated.

Prior to the assignment or revision of a rating ARC provides to the entity whose financial commitments are being rated the documents that substantiate the rating to be attributed (the Preliminary Rating Report). This entity is thus given the opportunity to clarify or correct factual details, thus allowing the rating assigned to be as accurate as possible. The comments made by the entity whose financial commitments are being rated are taken into account by ARC in the assignment of the rating.

ARC historical default rates are published in the European Securities and Markets Authority Central Repository (CEREP) which can be accessed on the website cerep.esma.europa.eu/cerep-web/. ARC default rate is the probability of lack of full and timely payment of capital or interest or of the occurrence of any event that explicitly indicates that the future full and timely payment of those commitments will not occur (e.g., in case of insolvency).

Ratings do not constitute a recommendation to buy or sell, but only one of the factors to be weighted by investors.

Throughout the entire period during which ratings are valid, ARC monitors the issuer’s performance on a constant basis and may even bring forward the date of the review unless stated as point in time. Hence, prior to an investor using a rating, ARC recommends that it be confirmed, namely by consulting the list of public ratings available at the web site www.arcratings.com.

Ratings are assigned based on information, including confidential information, collected from a wide group of sources, and in particular from the entity whose financial commitments are being rated. ARC uses and treats this information with due care and attention. Although all due care was taken in the collection, verification and processing of the information for the purposes of the rating analysis, ARC cannot be held liable for its accuracy. ARC must make sure that the information has a minimum level of quality prior to assigning a rating based on such information.

In the rating process, ARC adopts procedures and methodologies aimed at ensuring transparency, credibility and independence, and also that rating classifications are not influenced by situations of conflict of interests. Any exceptions to these principles are disclosed by ARC together with the rating of the financial commitment in question.

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