The principal agreement governing the loan notes will be the security trust deed. The security trust deed is a framework document, which is modified for each series by a supplement — which we will call a
"loan note supplement". The security trust deed, together with the loan note supplement for a series, has six primary functions:
• it constitutes the loan note for the relevant series;
• it sets out the covenants of the loan note issuing entity in relation to that loan note;
• it creates the security for that loan note;
• it sets out the pre-enforcement and post-enforcement procedures relating to that loan note;
• it contains provisions necessary to comply with the US Trust Indenture Act (as defined below);
and
• it sets out the appointment of the security trustee, its powers and responsibilities and the limitations on those responsibilities.
Each function is summarised below.
Constitution of Loan Notes
The security trust deed, when supplemented by a loan note supplement, sets out the form of the loan note, the terms and conditions of the loan note and the conditions for the cancellation of any loan note. It also stipulates the name of the registered holder of each loan note.
Covenants of the Loan Note Issuing Entity
The security trust deed also contains covenants made by the loan note issuing entity in favour of the security trustee on trust for each loan noteholder. The main covenant is that the loan note issuing entity will pay interest and repay principal on each loan note when due. Covenants are included to ensure that the loan note issuing entity remains insolvency remote, and to give the security trustee access to all information and reports that it may need in order to discharge its responsibilities in relation to the loan noteholders.
Loan Note Security
The security trust deed and the loan note supplement together create the security for a loan note. The security trust deed creates security for all series of the loan note issuance programme, comprising:
• an assignment by way of first fixed security of the loan note issuing entity's right, title and interest in the administration agreement; and
• a floating charge granted by the loan note issuing entity over all of its business and assets not otherwise secured under any loan note supplement in favour of the security trustee.
Each loan note supplement will create separate security interests in respect of each loan note. The security created in each series loan note supplement includes an assignment by way of first fixed security of all of the loan note issuing entity's right, title and interest:
• as the investor beneficiary of the receivables trust in respect of such series;
• to any agreement relating to that series;
• to any sums of money standing to the credit of the loan note issuing entity distribution account in respect of such series or any other bank account of the loan note issuing entity which has not been expressly charged in favour of another series;
• to any permitted investments in respect of such series; and
• to any amounts credited in respect of such series to any of the bank accounts of the receivables trust.
The loan note supplement for each series also creates Jersey security interests in relation to assets of the loan note issuing entity which are situated in Jersey.
Enforcement and Priority of Payments
The security trust deed sets out the general procedures by which the security trustee may take steps to enforce the security created by the loan note issuing entity so that the security trustee can protect the interests of each of the loan noteholders in accordance with the terms and conditions of the relevant loan note. The security trust deed gives the security trustee a general discretion to enforce the security situated outside Jersey, but also provides for the security trustee to be instructed by the note trustee to take action in relation to the enforcement of the loan note and security in Jersey. The security trustee anticipates that it will always consult the note trustee prior to taking any enforcement action in respect of secured assets situated outside Jersey. The note trustee expects that it will always consult the noteholders before taking any action. The security trustee is not, however, obliged to act on the note trustee's directions unless it is indemnified and/or secured to its satisfaction.
The security trust deed and the loan note supplement together set out the priority in which the security trustee will pay out any monies that it receives under the relevant loan note before and after the security is enforced.
Trust Indenture Act Compliance
The security trust deed includes certain provisions required by the US Trust Indenture Act of 1939 (the
"US Trust Indenture Act"). Generally, these provisions outline the duties, rights and responsibilities of the security trustee and the loan note issuing entity and the rights of the loan noteholders. Specifically these include, but are not limited to:
• the maintenance of a list of loan noteholders by the security trustee;
• the provision of financial statements and other information by the loan note issuing entity to the security trustee;
• the duty of the security trustee to use the same degree of care in exercising its responsibilities as would be exercised by a prudent person conducting its own affairs;
• the duty of the security trustee to notify all loan noteholders of any events of default of which it has actual knowledge;
• the right of the security trustee to resign at any time by notifying the loan note issuing entity in writing, and the ability of the loan note issuing entity to remove the security trustee under certain circumstances; and
• the requirement that the loan note issuing entity provide an annual certificate to the note trustee as to the loan note issuing entity's compliance with the conditions and covenants contained in the security trust deed.
The security trust deed contains a provision that, if any other provision of the security trust deed limits, qualifies or conflicts with another provision which is required to be included in the security trust deed, and is not subject to contractual waiver under the Trust Indenture Act, the Trust Indenture Act will prevail.
Appointment, Powers, Responsibilities and Liability of the Security Trustee
The security trust deed also sets out the terms on which the security trustee is appointed, the indemnification of the security trustee, the payment it receives and the extent of the security trustee's authority to act beyond its powers under English law. It also contains provisions limiting or excluding liability in certain circumstances. The security trustee is also given the ability to appoint a delegate or agent in the execution of any of its duties under the security trust deed. The security trust deed also sets
The security trust deed states that the security trustee is entitled to be indemnified and/or secured and relieved from responsibility in certain circumstances including, without restriction, in relation to taking action to enforce security or debt which it holds. The security trustee is also entitled to be paid its properly incurred costs and expenses in priority to the claims of the loan noteholders.
The security trustee is not responsible for any liability which may be suffered because any assets comprised in the security, or any deeds or documents of title to such assets, are inadequately insured or are held by custodians on behalf of the security trustee. The security trustee is not bound or concerned to examine or enquire into or be liable for any defect or failure in the right or title of the loan note issuing entity to all or any of the property in respect of which the loan note issuing entity has created security.
The security trustee is not liable for any failure, omission or defect in perfecting, protecting or further assuring the security.
The security trustee and its related companies are entitled to enter into business transactions with the issuing entity, the loan note issuing entity, RBS, NatWest or related companies of any of these, without accounting for any profit resulting from those transactions.
The security trustee is relieved of liability for making searches or other enquiries in relation to the assets comprising the security. The security trustee has no responsibility in relation to the legality and the enforceability of the trust arrangements and the connected security. The security trustee will not be obliged to take any action which might result in its incurring personal liabilities. The security trustee is not obliged to monitor or investigate the performance of any other person under the documents relating to the issuing entity, the loan note issuing entity or the documents relating to the receivables trust and shall be entitled to assume, until it has actual notice to the contrary, that all such persons are properly performing their duties and that no pay-out event has occurred, unless it receives express notice to the contrary.
The security trustee may agree, without the consent of the issuing entity, to (a) (except in relation to a basic terms modification (as defined in the security trust deed)) any modification of, or to the waiver or authorisation of any breach or proposed breach of any loan note or loan note supplement or the security trust deed, which is not, in the opinion of the security trustee, materially prejudicial to the interests of the issuing entity or (b) any modification of any loan note or loan note supplement or the security trust deed, which in the security trustee's opinion is to correct a manifest error or is of a formal minor or technical nature. Any such modification, waiver, authorisation or determination shall be binding on the issuing entity and, unless the security trustee agrees otherwise, any such modification shall be notified to the issuing entity in accordance with the terms and conditions of the notes.
The security trustee is neither responsible for any deficiency which may arise because it is liable to tax in respect of the proceeds of security, nor for checking the calculations contained in or otherwise verifying any information coming into its possession in relation to the receivables trust nor for monitoring whether or not a loan event of default or event of default has occurred.
The security trustee may resign at any time. The relevant secured creditors may, by direction in writing addressed to the security trustee and the loan note issuing entity, remove the security trustee. The loan note issuing entity may also remove the security trustee if the security trustee is no longer eligible to act as security trustee under the security trust deed or if the security trustee is adjudged insolvent. In all circumstances, the loan note issuing entity must appoint a successor security trustee for the loan notes.
Any resignation or removal of the security trustee and appointment of a successor security trustee will not become effective until the successor security trustee accepts the appointment.
The security trust deed is governed by English law and, to the extent that it relates to security interests over assets in Jersey, by Jersey law.