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FSQ 21-1 Green Offering Circular
Issuer and Key Parties
Issuer Details
- Name: Finsbury Square 2021 1 Green plc
- Country: United Kingdom
- Address: 1 Bartholomew Lane, London, EC2N 2AX, United Kingdom
Key Parties Involved
| Role | Name | Country | Address |
|---|---|---|---|
| Issuer | Finsbury Square 2021 1 Green plc | United Kingdom | 1 Bartholomew Lane, London, EC2N 2AX, United Kingdom |
| Trustee | Apex Corporate Trustees (UK) Limited | United Kingdom | 6th Floor, 125 Wood Street, London, EC2V 7AN, United Kingdom |
| Arranger | BNP Paribas | United Kingdom | 10 Harewood Avenue, London, NW1 6AA, United Kingdom |
| Joint Lead Manager | BNP Paribas | United Kingdom | 10 Harewood Avenue, London, NW1 6AA, United Kingdom |
| National Australia Bank Limited | United Kingdom | 52 Lime Street, London, EC3M 7AF, United Kingdom | |
| Lloyds Bank Corporate Markets plc | United Kingdom | 10 Gresham Street, London, EC2V 7AE, United Kingdom | |
| Cash/Bond Administrator | Citibank, N.A., London Branch | United Kingdom | Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB, United Kingdom |
Note Class Details and Payment Information
Note Class Attributes
| Attribute | Class A | Class B | Class C | Class D | Class X1 | Class X2 | Class Z |
|---|---|---|---|---|---|---|---|
| Principal Amount | TBD | TBD | TBD | TBD | TBD | TBD | TBD |
| Notional Value | TBD | TBD | TBD | TBD | TBD | TBD | TBD |
| Issue Price | TBD | TBD | TBD | TBD | TBD | TBD | TBD |
| Interest Rate | 3.00% | 5.25% | 5.25% | 7.50% | N/A | N/A | N/A |
| Ratings or Expected Ratings | TBD | TBD | TBD | TBD | TBD | TBD | TBD |
| First Notes Payment Date | September 2021 | September 2021 | September 2021 | September 2021 | September 2021 | September 2021 | September 2021 |
| Pre Enforcement Redemption Profile | Sequential pass through | Sequential pass through | Sequential pass through | Sequential pass through | Sequential pass through | Sequential pass through | Sequential pass through |
| Post Enforcement Redemption Profile | Pass through redemption in accordance with the Post Enforcement Priority of Payments | Pass through redemption in accordance with the Post Enforcement Priority of Payments | Pass through redemption in accordance with the Post Enforcement Priority of Payments | Pass through redemption in accordance with the Post Enforcement Priority of Payments | Pass through redemption in accordance with the Post Enforcement Priority of Payments | Pass through redemption in accordance with the Post Enforcement Priority of Payments | Pass through redemption in accordance with the Post Enforcement Priority of Payments |
| Call Option Date | Any Interest Payment Date falling on or after June 2026 | Any Interest Payment Date falling on or after June 2026 | Any Interest Payment Date falling on or after June 2026 | Any Interest Payment Date falling on or after June 2026 | Any Interest Payment Date falling on or after June 2026 | Any Interest Payment Date falling on or after June 2026 | Any Interest Payment Date falling on or after June 2026 |
| Clean Up Call | Applicable | Applicable | Applicable | Applicable | Applicable | Applicable | Applicable |
| Final Maturity Date | December 2067 | December 2067 | December 2067 | December 2067 | December 2067 | December 2067 | December 2067 |
Payment Cadence for Interest and Principal
- Interest Payment Dates: Payments are made quarterly in arrear on the 16th day of the following months:
- March
- June
- September
-
December
-
First Interest Payment Date: The first Interest Payment Date for the Notes will occur in September 2021.
Additional Payment Details
- Payments of principal and interest will be made by transfer to an account in Sterling, maintained by the payee with a bank in London.
- For final redemption, surrender (or endorsement in case of part payment) of the relevant Notes is required at the specified office of any Paying Agent.
- Payments will be made to the person shown as the Noteholder in the Register at the opening of business on the fifteenth day before the due date for such payment (the Record Date).
Dates and Timelines
Important Dates and Timelines
| Event | Date/Details |
|---|---|
| Issue Date | 28 June 2021 |
| First Interest Payment Date | September 2021 |
| First Optional Redemption Date | Any Interest Payment Date falling on or after June 2026 |
| Final Maturity Date | December 2067 |
| Interest Payment Dates | Quarterly on the 16th day of March, June, September, and December each year, or the next following Business Day if such day is not a Business Day. |
| Determination Date | The second Business Day prior to each Interest Payment Date, or the immediately preceding Business Day if that day is not a Business Day. |
| Interest Determination Date | The fifth Interest Banking Day before the Payment Date for which the Floating Rate of Interest will apply. |
Cash Flow Waterfall and Payment Model
Principal Priority of Payments Model (Payment Waterfall Model)
- Issuer Profit Retention: Retain an amount equal to the Issuer Profit.
- Payments to Swap Counterparties: Pay pro rata and pari passu amounts to any Swap Counterparty.
- Payments to A GREEN Notes: Pay amounts (other than principal) to A Noteholders pro rata according to interest entitlements.
- Payments to B Notes: Pay amounts (other than principal) to B Noteholders pro rata according to interest entitlements.
- Payments to C Notes: Pay amounts (other than principal) to C Noteholders pro rata according to interest entitlements.
- Payments to X1 Notes: Pay amounts (other than principal) to X1 Noteholders pro rata according to interest entitlements.
- Payments to X2 Notes: Pay amounts (other than principal) to X2 Noteholders pro rata according to interest entitlements.
- Payments to D Notes: Pay amounts (other than principal) to D Noteholders pro rata according to interest entitlements.
- Payments to Swap Counterparties (Subordinated Amounts): Pay pro rata and pari passu any Swap Subordinated Amounts.
- Payments to Third Parties: Pay amounts owing to any third parties, including any tax payable by the Issuer.
- Payments to Z Notes: Pay amounts (other than principal) to Z Noteholders pro rata according to interest entitlements.
- Payments to Subordinated Loan Provider: Pay all amounts of interest due or accrued but unpaid and any deferred interest due under the Subordinated Loan Agreement.
- Remaining Amounts to Certificate Holders: Pay any remaining amounts pro rata and pari passu to the holders of the Certificates.
Interest Priority of Payments Model (Interest Payment Waterfall Model)
| Priority | Description |
|---|---|
| 1 | Interest Payment on B Notes and C Notes (may be deferred if insufficient funds) |
| 2 | Interest Payment on D Notes, X1 Notes, X2 Notes, and Z Notes (may be deferred if insufficient funds) |
| 3 | Accrual of Interest Shortfall (accrues additional interest) |
| 4 | Payment of Deferred Interest (due on first Interest Payment Date with sufficient funds) |
Pre-Enforcement Priority of Payments Model (Pre-Enforcement Waterfall Model)
| Priority | Description |
|---|---|
| 1 | Payments from Available Revenue Funds (only payable out of Available Revenue Funds) |
| 2 | Payments from Available Principal Funds (only payable out of Available Principal Funds) |
| 3 | Post-Enforcement Payments (after Enforcement Notice or Redemption Event) |
| 4 | Interest Payment Dates (payments may be made from various sources) |
| 5 | Residual Balances (payable to X1 Notes, X2 Notes, Z Notes, and Certificates) |
Post-Enforcement Payment Model (Acceleration Payment Model)
| Priority | Description |
|---|---|
| 1 | Trustee and Receiver Payments (cover remuneration due) |
| 2 | Mortgage and Cash/Bond Administrator Payments (fees, costs, and expenses) |
| 3 | Issuer Profit Retention (amount equal to Issuer Profit) |
| 4 | Payments to Swap Counterparties (excluding subordinated amounts) |
| 5 | Payments to A GREEN Notes (amounts and principal until fully redeemed) |
| 6 | Payments to B Notes (amounts and principal until fully redeemed) |
| 7 | Payments to C Notes (amounts and principal until fully redeemed) |
| 8 | Payments to X1 Notes, X2 Notes, and Z Notes (only if sufficient funds available) |
| 9 | Payments to Certificates (only after all senior items satisfied) |
Other Priority of Payment Phases
- Ramp-Up Waterfall Model: Focus on building cash reserves and liquidity.
- Wind-Down Waterfall Model: Distribution of remaining cash flows as assets are liquidated.
- Acceleration Waterfall Model: Activated upon an Event of Default, prioritizing immediate settlement of obligations.
Events or Triggers for Changes in Priority of Payments
| Event | Description |
|---|---|
| 1 | Service of an Enforcement Notice (triggers transition to post-enforcement priority) |
| 2 | Occurrence of a Redemption Event (utilization of funds for payments) |
| 3 | Cash/Bond Administrator Termination Event (affects cash flow management) |
| 4 | Default by Cash/Bond Administrator (triggers review of payment priorities) |
| 5 | Insufficient Funds (leads to deferral of payments) |
Triggers for Events of Default or Enforcement
| Trigger | Description |
|---|---|
| 1 | Default in Payment (failure to make payment on senior notes) |
| 2 | Insolvency Events (ceasing business or inability to pay debts) |
| 3 | Winding Up Orders (order for winding up of the Issuer) |
| 4 | Legal Proceedings (initiation of legal actions against the Issuer) |
| 5 | Unlawfulness of Obligations (if obligations become unlawful) |
Breakdown of Fees and Expenses
| Fee/Expense | Amount | Impact on Cash Flow |
|---|---|---|
| Base Fee | 0.15% of aggregate Current Balance | Reduces cash flow available for distribution |
| Supplemental Fee | £45 per Loan in arrears | Increases with more loans in arrears, reducing cash flow |
| Accounting Services Fee | £25,000 per Determination Period | Fixed cost impacting cash flow |
| Senior Servicing Fee Cap | 0.50% of aggregate Current Balance | Limits total servicing fees, preserving cash flow |
| Legal Title Holder Expenses | £75,000 per year | Reduces cash flow for distribution |
| Facilitator and Legal Title Holder Fees | £11,740 | One-time fee impacting initial cash flow |
Summary of Impact on Cash Flow
- Reduction in Available Cash Flow: All fees and expenses reduce cash flow available for distribution.
- Prioritization of Payments: Fees are paid before distributions to noteholders, affecting expected payments.
- Risk Indicators: Increased fees due to arrears signal higher risk, impacting investor confidence.
Underlying Assets, Security, and Redemption Provisions
Underlying Assets
- Type: Loans and Mortgages
- Collateral Security: Related to the Loans and Mortgages
- Issuer's Rights: The Issuer holds rights, title, benefit, and interest in these assets, secured under the Deed of Charge.
Security for the Notes
| Security Type | Description |
|---|---|
| First Fixed Equitable Charges | Over the Issuer's rights in the Loans, Mortgages, and related Collateral Security. |
| Equitable Assignment | Of the Issuer's interests in Insurance Contracts related to the Loans. |
| Assignment | Of the Issuer's rights in various agreements including the Bank Agreement, Collection Account Agreements, and other Charged Obligation Documents. |
| First Fixed Charge | Over the Issuer's interests in Bank Accounts, Authorised Investments, and Collection Accounts. |
| Scottish Trust Security | For the Issuer's beneficial interest in Scottish Loans and their Collateral Security. |
| First Floating Charge | Over the whole of the Issuer's undertaking, property, assets, and rights, ranking after the fixed charges. |
Redemption Provisions
| Provision Type | Conditions | Redemption Amount |
|---|---|---|
| Optional Redemption (General) | - Aggregate Principal Amount Outstanding of Senior Notes ≤ 20% of original amount. | |
| - Certificate from two directors confirming necessary funds. | ||
| - No Enforcement Notice served. | ||
| - Notice period: 15 to 30 days. | Principal Amount Outstanding + accrued (and unpaid) interest. | |
| Optional Redemption (Risk Retention Regulatory Change) | - Similar to general conditions. | |
| - Certificate confirming necessary funds and no Enforcement Notice. | ||
| - Notice period: 15 to 30 days. | Principal Amount Outstanding + accrued (and unpaid) interest. | |
| Optional Redemption (Taxation or Other Reasons) | - Change in tax law requires deduction or withholding. | |
| - Certificate from two directors confirming event is continuing. | ||
| - Notice period: 30 to 45 days. | Principal Amount Outstanding + accrued (and unpaid) interest. |
Post-Enforcement Interest Rates
- Details: Not explicitly detailed; implied that accrued interest will be paid up to the date of redemption, including any deferred interest.
Fund Reserve
Fund Reserve Details
General Reserve Fund
- Establishment: Established on the Issue Date from the proceeds of the Z Notes.
- Minimum Balance: Must maintain a minimum balance equal to the General Reserve Fund Required Amount at all times.
- Required Amount:
- (a) On the Issue Date and any Interest Payment Date: 2.00% of the Principal Amount Outstanding of the aggregate of the A GREEN Notes, B Notes, C Notes, and D Notes, totaling 15,000,000.
- (b) Following the full redemption of the A GREEN Notes to C Notes (inclusive): zero.
- Excess Amounts: Any amounts exceeding the General Reserve Fund Required Amount will be transferred to the Transaction Account on the relevant Determination Date and applied as Available Revenue Funds.
- Application: Applied as specified in the relevant sections regarding Shortfall and Revenue Shortfall.
Liquidity Reserve Fund
- Establishment: Established on the Issue Date.
- Required Amount:
- (a) On the Issue Date: zero.
- (b) On any Interest Payment Date where the General Reserve Fund is less than 1.50% of the aggregate Principal Amount Outstanding of the A GREEN Notes, B Notes, and D Notes: 2.00% of the aggregate Principal Amount Outstanding of the A GREEN Notes and B Notes.
- (c) After the Liquidity Reserve Fund Trigger Event: 2.00% of the aggregate Principal Amount Outstanding of the A GREEN Notes and B Notes on subsequent Interest Payment Dates.
- Excess Amounts: Surplus amounts above the Liquidity Reserve Fund Required Amount will be transferred to the Transaction Account on the relevant Determination Date to form part of Available Principal Funds.
Application of Funds
- Shortfall Handling:
- The Issuer will first utilize the General Reserve Fund to cover the Shortfall.
- If there is a Revenue Shortfall, the Liquidity Reserve Fund will be used to address that shortfall, subject to relevant conditions.
Summary of Fund Reserves
| Fund Type | Establishment Date | Minimum Balance Requirement | Required Amount (on Issue Date) | Excess Amount Handling | Application of Funds |
|---|---|---|---|---|---|
| General Reserve Fund | Issue Date | Equal to Required Amount | 2.00% of Principal Amount Outstanding (15,000,000) | Transferred to Transaction Account | Covers Shortfall and Revenue Shortfall |
| Liquidity Reserve Fund | Issue Date | None | Zero (on Issue Date) | Transferred to Transaction Account | Covers Revenue Shortfall |
Additional Notes
- The General Reserve Fund and Liquidity Reserve Fund are critical for ensuring liquidity and covering potential shortfalls in payments to noteholders, thereby maintaining the financial stability of the Issuer's obligations.
Risk Retention and Credit Enhancements
Risk Retention in the UK
- Legal Requirements:
- Retention Requirement: At least 5% net economic interest retained by the originator, sponsor, or original lender.
- Ongoing Monitoring: Written procedures to monitor compliance and performance.
-
Penalties for Non-Compliance: Potential penal capital charge on acquired notes.
-
Contractual Undertakings:
- Holding Exposure: KHL must hold at least 5% exposure to D Notes and Z Notes.
- Notification Obligations: Notify Issuer, Trustee, and Cash/Bond Administrator of retention status.
- Data Access: Provide access to relevant data for compliance.
- Restrictions on Transfer: Cannot sell, hedge, or transfer without conditions.
Risk Retention in the U.S.
- Legal Requirements:
- Retention Requirement: U.S. Risk Retention Holder must retain at least 5% of credit risk.
- Prohibition on Hedging: No hedging transactions until the Sunset Date.
-
Full Recourse Financing: Financing must provide full recourse to the holder.
-
Contractual Undertakings:
- Hold 100% of D Notes and Z Notes: Retain 100% of D Notes and Z Notes, totaling at least 5% of fair value.
- Transfer of Excess Interest: Excess interest can be transferred without affecting compliance.
- No Hedging Transactions: Same restrictions as legal requirements.
Risk Retention in the EU
- Legal Requirements:
- Retention Requirement: Originator must retain at least 5% net economic interest.
- Ongoing Compliance: Obligation must be maintained throughout the securitisation.
-
Notification of Changes: Changes to retention must be communicated to investors.
-
Contractual Undertakings:
- Holding Exposure: KHL must hold at least 5% exposure to D Notes and Z Notes.
- Notification Obligations: Notify Issuer, Trustee, and Cash/Bond Administrator at the end of each Determination Period.
- Data Access: Provide access to relevant data for compliance.
- Restrictions on Transfer: Cannot sell, hedge, or transfer without conditions.
- Disclosure Obligations: Confirm risk retention in Prospectus and EU SR Investor Reports.
Summary of Risk Retention Modalities
| Region | Legal Requirement Modality | Contractual Undertaking Modality |
|---|---|---|
| UK | Retain at least 5% net economic interest | KHL holds 5% exposure to D Notes and Z Notes |
| U.S. | Retain at least 5% of credit risk | KHL retains 100% of D Notes and Z Notes |
| EU | Retain at least 5% net economic interest | KHL holds 5% exposure to D Notes and Z Notes |
Types and Details of Credit Enhancements
- Overcollateralization:
-
Total value of mortgage loans exceeds the total value of issued securities.
-
Reserve Accounts:
- General Reserve Fund: Covers potential cash flow shortfalls.
- Liquidity Reserve Fund: Provides liquidity support during cash flow volatility.
-
Pre-Funding Reserves: Set aside for future loan purchases.
-
Subordination:
- Hierarchical structure prioritizes senior classes over junior classes in payment.
Summary of Credit Enhancements
| Type | Description |
|---|---|
| Overcollateralization | Ensures collateral value exceeds issued securities, providing a safety net. |
| Reserve Accounts | Includes General Reserve Fund, Liquidity Reserve Fund, and Pre-Funding Reserves for cash flow support. |
| Subordination | Protects senior noteholders by prioritizing their payments and absorbing losses through junior classes. |
Impact of Credit Enhancements on Cash Flow
- Overcollateralization: Provides stability and loss absorption, ensuring consistent cash flow.
- Reserve Accounts: Offer liquidity support and enhance cash flow stability during volatility.
- Subordination: Protects senior noteholders, ensuring consistent cash flow by prioritizing payments.
Legal, Regulatory and Tax Implications
Key Legal and Regulatory Factors Affecting Cash Flows
- MCOB Regulations: Rules may require forbearance actions affecting payments on Notes.
- Contravention of Regulations: Borrowers may claim damages affecting Issuer's payment capabilities.
- Enforcement Delays: Delays in mortgage enforcement can postpone proceeds receipt.
- Unfair Terms under UTCCR: Unenforceable loan terms may impact payments to Noteholders.
- Investment Company Act Exemption: Issuer structured to avoid classification as a covered fund.
- Transfer Restrictions: Notes subject to transferability restrictions affecting liquidity.
- Jurisdictional Considerations: Issuer registered in England and Wales complicates U.S. legal enforcement.
Compliance Requirements and Their Impact on the Cash Flow Model
| Compliance Aspect | Impact on Cash Flow Model |
|---|---|
| UK and EU Securitisation Regulation | Non-compliance may lead to legal repercussions affecting distributions. |
| Risk Retention Requirements | Ensures risk remains with originator, stabilizing cash flows but limits capital for distribution. |
| Jurisdictional Compliance | Non-compliance may result in penalties hindering cash flow management. |
| Liability Limitations | Uncertainties in cash flow projections due to lack of recourse for investors. |
| Regulatory Guidance | Delays and costs from seeking external guidance may impact cash flows. |
| Impact on Investor Confidence | Compliance can enhance confidence, stabilizing cash flows; perceived risks may deter investment. |
| Legal and Regulatory Risks | Compliance issues or legal challenges can directly impact cash flows. |
Tax Considerations Impacting Cash Flows
| Tax Factor | Implication |
|---|---|
| UK Withholding Tax | Interest may be subject to 20% tax; non-residents may recover tax under treaties. |
| Taxation of Securitisation Companies | Issuer subject to corporation tax on retained cash profits, impacting distributions. |
| Diverted Profits Tax (DPT) | Unlikely to apply to Issuer, favorably influencing cash flows. |
| FATCA Compliance | Withholding may reduce cash flows; Issuer not liable for withheld amounts. |
| PFIC Status | Adverse tax consequences for U.S. investors may affect demand and cash flow stability. |
| Tax Forms and Certifications | Failure to provide may result in withholding, impacting cash flows. |
| Impact of Local Tax Regulations | Varying regulations may affect net cash flows based on investor residency. |
Jurisdictional Tax Differences and Implications
| Jurisdiction | Tax Implication |
|---|---|
| United Kingdom | Interest subject to 20% income tax; non-residents may recover under treaties. |
| Taxation of Securitisation Companies | Corporation tax on retained profits specific to the UK. |
| Diverted Profits Tax (DPT) | Unlikely to apply to Issuer, favoring cash flows compared to other jurisdictions. |
| FATCA Compliance | Withholding may affect payments; Issuer not compensating for withheld amounts. |
| PFIC Status | Adverse consequences for U.S. Holders may deter investment. |
| Tax Forms and Certifications | Necessary for payments without withholding; failure impacts cash flows. |
| Local Tax Regulations | Different jurisdictions may have varying impacts on interest income and capital gains. |
Secondary Market Information
Liquidity and Trading in the Secondary Market for Mortgage-Backed Securities
- Limited Liquidity: During severe market disruptions, the liquidity in the secondary market for MBS can become very restricted, adversely affecting market value.
- Sensitivity to Risks: Securities sensitive to prepayment, credit, or interest rate risk are particularly vulnerable during limited liquidity periods.
- Investor Categories: Securities structured for specific investor categories may experience heightened sensitivity to market disruptions.
Central Bank Liquidity Schemes
| Entity | Scheme Name | Impact on Liquidity |
|---|---|---|
| Bank of England | Discount Window Facility | Provides liquidity; future restrictions on collateral eligibility could negatively impact MBS liquidity. |
| European Central Bank | Liquidity Scheme | Provides liquidity; eligibility criteria must be met for Notes to qualify. |
- Eligibility Criteria: Recognition of the Notes as eligible securities depends on meeting specific criteria. No guarantee of satisfaction of these requirements.
- Investor Responsibility: Investors should assess the eligibility of the Notes as collateral for liquidity schemes and consider potential funding haircuts.
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