Yield
The yield to maturity on the Notes will depend upon the price paid by the Noteholders, the interest rate thereof from time to time, the rate and timing of the distributions in reduction of the Principal Amount Outstanding of the Notes and the rate, timing and severity of losses on the Mortgage Loans, as well as prevailing interest rates at the time of payment or loss realisation.
Noteholders generally will be entitled to receive distributions of principal from principal repayments on the Mortgage Loans.
The rate of distributions of principal in reduction of the Principal Amount Outstanding of the Notes, the aggregate amount of distributions in principal on the Notes and the yield to maturity on the Notes will be directly related to the rate of payments of principal on the Mortgage Loans, the amount and timing of any Borrower, or other Obligor, defaults and the severity of losses occurring upon a default and whether defaults and losses occur on the Mortgage Loans. The Borrower must repay the Brunel Loan in fixed amortisation amounts on each Loan Payment Date. In addition, a prepayment in part or full of the Notes may result from a repurchase by the Originator of some or all of the Mortgage Loans due to breaches of certain representations and warranties in the Loan Sale Agreement as described herein under ‘‘The Loan Sale Agreement’’.
Losses with respect to the Mortgage Loans may occur in connection with a default on the Mortgage Loans and/or the liquidation of all or part of any of the Mortgaged Properties.
Noteholders will only receive distributions of principal or interest when due to the extent that the related payments under the Mortgage Loans are actually received or sufficient Mortgage Loan Drawings are available under the Liquidity Facility Agreement. Consequently, any defaulted payment for which no such drawings in respect thereof can be made under the Liquidity Facility Agreement will, to the extent of the principal portion thereof, tend to extend the weighted average lives of the Notes.
The rate of payments (including voluntary and involuntary prepayments) on mortgage loans is influenced by a variety of economic, geographic, social and other factors, including the level of mortgage interest rates, the amount of prior refinancing effected by the relevant Borrower and the rate at which Borrowers default on their mortgage loans. The terms of the Mortgage Loans and, in particular, the extent to which the Borrowers are entitled to prepay the Mortgage Loans, the ability of the Borrowers to realise income from the Mortgaged Properties in excess of that required to meet scheduled payments of interest on the Mortgage Loans, the obligation of the Borrowers to ensure that certain debt service coverage tests are met as a condition to the disposal of the Mortgaged Properties, the risk of compulsory purchase of the Mortgaged Properties and the risk that payments by the Borrowers may become subject to tax or result in an increased cost for the Issuer may affect the rate of principal payments on the Mortgage Loans and, consequently, the yield to maturity of the Notes.
The timing of changes in the rate of prepayment on the Mortgage Loans may significantly affect the actual yield to maturity experienced by an investor even if the average rate of principal payments experienced over time is consistent with such investor’s expectation. In general, the earlier a prepayment of principal on the Mortgage Loans, the greater the effect on such investor’s yield to maturity. As a result, the effect on such investor’s yield of principal payments occurring at a rate higher (or lower) than the rate anticipated by the investor during the period immediately following the issuance of the Notes would not be fully offset by a subsequent like reduction (or increase) in the rate of principal payments. The Class D Noteholders may, in particular, be adversely affected by disproportionate prepayments, defaults and other unscheduled prepayments on the Mortgage Loans. See ‘‘Risk Factors – The Notes: General – Deferral of Interest on Junior Notes’’.
No representation is made as to the rate of principal payments on the Mortgage Loans or as to the yield to maturity of the Notes. An investor is urged to make an investment decision with respect to any class of Notes based on the anticipated yield to maturity of the Notes resulting from its purchase price and such investor’s own determination as to anticipated Mortgage Loan prepayment rates under a variety of scenarios. The extent to which the Notes are purchased at a discount or a premium and the degree to which the timing of payments on the Notes is sensitive to prepayments will determine the extent to which the yield to maturity of the Notes may vary from the anticipated yield. An investor should carefully consider the associated risks, including, in the case of any Notes purchased at a discount, the risk that a slower than anticipated rate of principal payments on the Mortgage Loans could result in an
actual yield to such investor that is lower than the anticipated yield and, in the case of any Notes purchased at a premium, the risk that a faster than anticipated rate of principal payments could result in an actual yield to such investor that is lower than the anticipated yield.
An investor should consider the risk that rapid rates of prepayments on the Mortgage Loans, and therefore of amounts distributable in reduction of the principal balance of the Notes may coincide with periods of low prevailing interest rates. During such periods, the effective interest rates on securities in which an investor may choose to reinvest such amounts distributed to it may be lower than the applicable rate of interest on the Notes. Conversely, slower rates of prepayments on the Mortgage Loans, and therefore, of amounts distributable in reduction of principal balance of the Notes entitled to distributions of principal, may coincide with periods of high prevailing interest rates. During such periods, the amount of principal distributions resulting from prepayments available to an investor in Notes for reinvestment at such high prevailing interest rates may be relatively small.
Weighted Average Life of the Notes
The weighted average life of a Note refers to the average amount of time that will elapse from the date of its issuance until each Pound allocable to principal of such Note is distributed to the investor. For purposes of this Prospectus, the weighted average life of a Note is determined by (i) multiplying the amount of each principal distribution thereon by the number of years from the Closing Date to the related Payment Date, (ii) summing the results and (iii) dividing the sum by the aggregate amount of the reductions in the Principal Amount Outstanding of such Note. Accordingly, the weighted average life of any such Note will be influenced by, among other things, the rate at which principal of the Mortgage Loans is paid or otherwise collected or advanced and the extent to which such payments, collections or advances of principal are in turn applied in reduction of the Principal Amount Outstanding of the Notes.
Prepayments on mortgage loans may be measured by a prepayment standard or model. The model used in this Prospectus is the Constant Prepayment Rate (CPR) model. The CPR model assumes that a mortgage loan experiences prepayments each quarter at a specified constant annual rate. For the avoidance of doubt, the CPR model assumes such prepayments do not result from the release of the Mortgaged Properties or any part of the Mortgaged Properties. As used in the following table with respect to the Notes, the table assumes that the Mortgage Loans are not prepaid before their respective Mortgage Loan Maturity Dates. There is no assurance, however, that prepayments of the Mortgage Loans will conform to any particular CPR percentage, and no representation is made that the Mortgage Loans will prepay at 0 per cent. CPR or at any other particular prepayment rate, that the Mortgage Loans will prepay in accordance with the assumptions at the same rate or the Mortgage Loans will not prepay as a result of involuntary liquidations upon default or otherwise.
Investors are urged to conduct their own analyses of the rates at which the Mortgage Loans may be expected to prepay.
Based on the following Modelling Assumptions, the tables below indicate the resulting weighted average lives of the Notes and sets forth the percentage of the initial Principal Amount Outstanding of each such class of Notes that would be outstanding after the Closing Date and on each Distribution Date, after repayment or prepayment, as applicable, of principal paid in that period, occurring in January of each year until the Final Maturity Date.
For purposes of preparing the tables, it was assumed that:
(i) the initial Principal Amount Outstanding of, and the interest rates for, each class of Notes are as set forth herein;
(ii) the scheduled quarterly payments for the Mortgage Loans are based on stated quarterly principal (assuming funds are available therefor) and interest payments;
(iii) all scheduled quarterly payments are assumed to be timely received on the due date of each quarter commencing on the first Distribution Date;
(iv) there are no delinquencies or losses in respect of the Mortgage Loans, there are no extensions of maturity in respect of the Loans (except as otherwise assumed in the Scenarios) and there are no casualties or compulsory purchases affecting the Properties;
(v) no prepayments are made on the Mortgage Loans (except as otherwise assumed in the Scenarios);
(vi) none of the Issuer, the Issuer Servicer or the Issuer Special Servicer, as applicable, exercises the rights of optional termination described herein and in Conditions 6(c) and 6(d) of the ‘‘Terms and Conditions of the Notes’’, as applicable;
(vii) no Mortgage Loans are required to be repurchased by the Originators;
(viii) there are no additional unanticipated administrative expenses;
(ix) principal and interest payments on the Notes are made on each Distribution Date, commencing in January 2006;
(x) the prepayment provisions for the Mortgage Loans are as set forth in this Offering Circular, assuming the term for the prepayment provisions begin on each Loan’s first Due Date;
(xi) the Swap Agreement remain in place and the Swap Provider makes timely payment of all amounts due under the Swap Agreement;
(xii) the Closing Date is 6 December 2005;
(xiii) no Note Acceleration Notice has been served;
Assumptions (i) through (xiii) above are collectively referred to as the ‘‘Modelling Assumptions’’.
Scenario 1: it is assumed that all of the Loans are repaid in full on their respective Loan Maturity Dates.
Scenario 2: it is assumed that the Loans are prepaid in full on the first Loan Interest Payment Date on which prepayments can be made without any prepayment penalties.
Scenarios 1 and 2 are collectively referred to herein as the ‘‘Scenarios’’.
A1 A2 B C D
Distribution Date
Scenario 1
Scenario 2
Scenario 1
Scenario 2
Scenario 1
Scenario 2
Scenario 1
Scenario 2
Scenario 1
Scenario 2
January 2006 100% 37% 100% 80% 100% 80% 100% 80% 100% 80%
January 2007 100% 37% 100% 80% 100% 80% 100% 80% 100% 80%
January 2008 99% 37% 100% 80% 100% 80% 100% 80% 100% 80%
January 2009 37% 0% 80% 70% 80% 70% 80% 70% 80% 70%
January 2010 36% 0% 80% 33% 80% 70% 80% 70% 80% 70%
January 2011 36% 0% 80% 0% 80% 0% 80% 0% 80% 0%
January 2012 35% 0% 80% 0% 80% 0% 80% 0% 80% 0%
January 2013 0% 0% 28% 0% 80% 0% 80% 0% 80% 0%
January 2014 0% 0% 28% 0% 80% 0% 80% 0% 80% 0%
January 2015 0% 0% 28% 0% 80% 0% 80% 0% 80% 0%
January 2016 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
January 2017 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
July 2017 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Weighted Average
Life (years) 3.84 0.98 6.51 3.05 8.19 3.51 8.19 3.51 8.19 3.51