FLEET STREET FINANCE TWO P.L.C.

THIS NOTICE CONTAINS IMPORTANT INFORMATION OF INTEREST TO THE BENEFICIAL OWNERS OF THE NOTES. IF APPLICABLE, ALL DEPOSITARIES, CUSTODIANS AND OTHER INTERMEDIARIES RECEIVING THIS NOTICE ARE REQUESTED TO PASS THIS NOTICE TO SUCH BENEFICIAL OWNERS IN A TIMELY MANNER.

NOTICE

to the holders of the outstanding

£780,000,000 Class A Commercial Mortgage Backed Floating Rate Notes due 2014

ISIN: XS0268932836

£170,000,000 Class B Commercial Mortgage Backed Floating Rate Notes due 2014

ISIN: XS0268933487

£143,100,000 Class C Commercial Mortgage Backed Floating Rate Notes due 2014

ISIN: XS0268934451

£98,921,267 Class D Commercial Mortgage Backed Floating Rate Notes due 2014

ISIN: XS0268934618

(collectively referred to as the "Notes")

This notice has been prepared by Capita Asset Services (Ireland) Limited and Capita Asset Services (UK) Limited, together as Servicer, and is issued at their request.  

Fleet Street Finance Two plc

Summary of the Noteholders' meeting held on 17 November 2009 at 2pm (London time)

At the Noteholder's meeting and conference call (the "Meeting") held on 17 November 2009 at 2pm at the offices of Paul, Hastings, Janofsky & Walker (Europe) LLP located at Ten Bishops Square, London, Capita Asset Services (Ireland) Limited and Capita Asset Services (UK) Limited ("Capita"), as Servicer for and on behalf of the Issuer as Lender under the Loan, and its advisers presented and discussed the following points:

Introduction:

• The purpose of the Meeting was to provide Noteholders with an update on the recent events and the current situation relating to the Highstreet B Loan and on the commencement of discussions by the Borrowers and its financial advisers in respect of potential modifications to the Senior Finance Documents. 

• Capita has appointed legal and financial advisers (Paul, Hastings, Janofsky & Walker (Europe) LLP and Brookland Partners) for the purposes of assessing the potential implications of the tenant insolvency proceedings, the possible modifications to the Senior Finance Documents and how collateral value and cashflows may be impacted by current and future events. 

• Capita will keep the Noteholders fully appraised of the progress and process by issuing interim notices and organising conference calls from time to time.

Respective Role of the Servicer and Financial Advisers

• Although Capita is the named Special Servicer for this transaction, the Loan is not in special servicing and is currently being managed by the Servicer.

• Brookland is acting solely in their capacity as financial adviser for Capita and the Issuer on this transaction. 

• As indicated in the Issuer's notice dated 29 October 2009, Cairn Financial Products Limited ("Cairn") has been appointed as financial adviser to the Borrower under the Loan and to its Sponsors. Cairn does not have any official role in the securitisation and its appointment as an adviser of the Borrower has no impact on the responsibilities of the Servicer with respect to the Loan.

• The Borrower and Cairn have contacted the Noteholders directly in respect of potential amendments to the Senior Finance Documents, the Master Lease Agreement and the Permitted Subleases.

• The Servicer has not been involved in the decision of the Borrower to contact the Noteholders directly in order to discuss potential amendments to the Loan and have not been a party to any of these discussions.  

• Despite any direct communications that may take place between the Borrower or Cairn and the Noteholders, the Servicer will continue to have the responsibility under the Servicing Agreement to conduct its own analysis of the events and of any potential impact these may have on the structure on behalf and for the benefit of the Noteholders as a collective whole. 

• If at any stage modifications, amendments, consents or waivers in respect of the Loan, the Master Lease and/or the Permitted Subleases are required, subject to any applicable Rating Agency confirmations and other transaction requirements, the relevant consent of Capita as Servicer will be required and the Servicer and/or the Note Trustee will be in direct communications with the Noteholders for any approval, to the extent required under the Transaction Documents. 

Tenant Insolvency

• An insolvency administrator, Dr. Klaus Hubert Görg (the "Insolvency Administrator"), has been appointed for each of the three companies, Arcandor AG, Karstadt Warenhaus GmbH and Quelle GmbH, all of which are under separate insolvency proceedings. Karstadt and Quelle represented respectively 97.1% and 2.8% of the total gross rent on the Highstreet B portfolio at closing.

• Capita as Servicer has had discussions with the Borrower in respect of the insolvency proceedings of the Major Subtenants. Because of the sensitive nature of these proceedings, it is not appropriate at this stage to disclose the content of these discussions. 

• As mentioned in the press announcements and the creditors' meetings relating to the Karstadt insolvency proceedings, the Insolvency Administrator intends to terminate operations at certain Karstadt stores and possibly implement certain rent reductions for some of the stores.

• at the creditors' meeting held on 10 November 2009, Mr. Ralf Weidmann as representative of Dr. Görg explained that potentially up to 19 leased premises could be closed; of the six identified at the meeting, none relates to the secured Properties for the Highstreet B Loan.

• The Issuer, in its capacity as Lender under the Loan, is not a direct creditor of Karstadt and Quelle and therefore neither Capita as Servicer nor the Noteholders have any direct representation on the creditors' committee of each of Quelle and Karstadt.

• As with respect to rental payments under the Permitted Subleases, following the non-payment in June 2009, the Insolvency Administrator has been making full rental payments since July 2009 on all of the Permitted Subleases.

• Press reports provide that the Insolvency Administrator has indicated that the Highstreet Consortium is ready to agree rent reductions under the Permitted Subleases. As with respect to the Properties securing the Highstreet B Loan, such rent reductions would require the relevant consent of the Servicer and such other relevant parties as may be required. No such consent has been formally requested or given to date. 

Karstadt

• At the creditors' meeting held on 10 November 2009, Dr. Görg was asked to draft an insolvency plan for Karstadt in order to keep its business operational on an ongoing basis.

• Any insolvency plan for Karstadt will need to be approved by the creditors, the debtor and/or the German Insolvency Court (as applicable).

Quelle

• In respect of Quelle, the Insolvency Administrator and the creditors committee have agreed on 19 October 2009 to the liquidation of the remaining assets. There was no objection to such resolution during the creditors' meeting held on 11 November 2009.

• The Insolvency Administrator has terminated the Quelle Permitted Sublease Agreement as of the end of October 2009.

Valuation

• The Senior Facility Agreement has very specific provisions on the Valuation process and provides for an annual Valuation to be delivered by the Borrower by the 31st of January in each year by Cushman & Wakefield who are the defined Valuer for all relevant parties.

• The Valuer can be changed in circumstances where the Agent reasonably determines that such firm is no longer independent or is otherwise not an appropriate firm.

• The Servicer has been having an ongoing dialogue with the Borrower relating to the delivery of an updated Valuation. If the Borrower is unable to provide the updated Valuation meeting the requirements of the Senior Facility Agreement, the Servicer intends to obtain, prior to the next Loan Payment Date, a new Valuation from a different Valuer. Unless there is a Loan Event of Default outstanding, the Senior Facility Agreement requires that any new Valuer be appointed by the Borrower with such appointment being subject to approval by the Agent.

• The Servicer has requested the Borrower to pay for the cost of the Valuation; however, there is a possibility that the cost of the Valuation becomes a cost of the Issuer.

• For the purposes of assessing any potential modifications to the Master Lease and/or the Loan and testing the LTV covenant, a full and satisfactory Valuation meeting the requirements of the Senior Facility Agreement should be completed as soon as possible.

• The LTV covenant is set at 70% of market value and can only be tested on every Loan Payment Date. The next Loan Payment is 20th January 2010.  

• In the event that the Borrower fails the LTV test on the next Loan Payment Date of 20th January 2010, it will have a cure period of 30 days from that Loan Payment Date to pay down sufficient debt in order to meet the required 70% LTV test. If the Borrower does not cure in that 30-day period, only then can an LTV related Loan Event of Default be declared. A breach of the LTV test at the next Loan Payment Date on 20th January 2010 would only result in excess cash being retained from the 20th April Loan Payment Date.

Current situation on the Loan and Loan cash flow

• The Borrower has not met the sales targets set forth in the original business plan it provided on origination of the Loan and the Servicer has requested, and is currently awaiting for, the Borrower's updated business plan for the portfolio. Failure of the Borrower to meet sales targets does not constitute a Loan Event of Default.  

• The Loan matures in July 2011 and the Notes have a Final Maturity Date of July 2014.

• The excess cash after senior debt service and ground rent payments (but before asset management fees) as at last quarter was €25.43 million in respect of the Highstreet B portfolio.

• As at October 2009, the ICR level was at 580% against a covenant level of 150%.  

• Prior to the commencement of the insolvency proceedings of Karstadt and Quelle, there was a default in the payment of a portion of the June rent. This shortfall did not amount to any payment default under the Loan and the Borrower has met its payment obligations on each Loan Payment Date.

• In July 2008, certain modifications were implemented with respect to the Permitted Subleases which resulted in an adjustment to rents and the Subtenants assuming full repairing and insuring obligations. In exchange, modifications were made to the Senior Facility Agreement whereby the ICR covenant for the purpose of a Loan Event of Default was changed from 135%. to 150% and, for the purpose of retaining and restricting amounts due to the Mezzanine Lenders from the Highstreet B portfolio as part of the cash trap process, the ICR covenant was changed from 150% to 165%.

• The Borrower continues to use one of its subsidiaries, Archon Group Deutschland GmbH, to manage the assets.

Discussions with the Borrower

• The Servicer has had several meetings with the Borrowers and the Sponsors prior to and since the opening of the insolvency proceedings.  

• The Servicer issued a notice on 29 October 2009 summarising certain of these discussions. The Servicer continues to be in discussions with the Borrower, its Sponsors and its advisers. Certain proposals, which could potentially involve modifications to the Senior Finance Documents, have been presented by the Borrower and its Sponsor, however these proposals are at a preliminary stage and the Servicer has been asked to keep the content of these discussions confidential.

• Since our RIS notice issued on 29 October 2009, the Servicer received further information from the Borrower and its advisers and is now waiting for: (i) details and evidence of the requirements of the Insolvency Administrator; (ii) the Borrower's revised business plan; and (iii) detailed information relating to the potential modifications to the terms of the Senior Finance Documents.

Loan Events of Default

• To date, no Loan Event of Default has been declared under the terms of the Senior Facility Agreement.

• Neither the insolvency of both Major Subtenants (Quelle and Karstadt) nor the payment default of the Subtenants in June 2009 directly constitutes a Loan Event of Default.

• The Servicer is assessing whether a Loan Event of Default has or may occur and for this purpose is assessing the legal and economic impacts that the insolvency proceedings may have on the performance of the Loan and any other possible legal implications.

• The Borrower is also a debtor under a Mezzanine Loan. If certain changes are required to the Senior Loan and underlying collateral, the Borrower may need to seek approval of such Mezzanine Lenders.  

• Depending on the type of Loan Event of Default, certain cure periods are available to the Borrower and/or the Mezzanine Lender (as applicable).

The following is a summary of the questions presented to the Servicer and its advisers, below each question is a response to each such question:

• Has the Insolvency Administrator given a timeline to implement the insolvency plan?

No, the Insolvency Administrator has not publicly provided a timeline during the creditors' meeting. Based on German law insolvency practice and possibly subject to a pre-alignment of the Insolvency Administrator with certain important creditors of Karstadt, the Insolvency Administrator is likely to come out with a draft insolvency plan within one to two months.

• Should we expect asset liquidation of the underlying portfolio in the coming months? 

In respect of Quelle, the Insolvency Administrator and the creditors committee have agreed on 19 October 2009 to the liquidation of the remaining assets. There was no objection to such resolution during the creditors' meeting held on 11 November 2009.

With respect to Karstadt, it mainly depends if the respective parties approve the insolvency plan to be presented by the Insolvency Administrator. Any further statement would be speculative.

• If the Valuation is provided after 20th of January 2010 and shows a breach of the LTV covenant, can the payments to the Mezzanine Lenders be trapped?

If a Valuation is provided after the Loan Payment Date of 20th January 2010, it will only be applied for the LTV covenant test on 20th April 2010. If on that date there is a breach of the LTV covenant, which remains uncured after 30 days, then excess cash can be retained on the 20th July 2010 Loan Payment Date. 

• Will the Servicer consult with the Noteholders prior to declaring a Loan Event of Default?

The Servicer is not required to consult with the Noteholders prior to declaring a Loan Event of Default following its occurrence. Once the Loan Event of Default has occurred and has been declared, any further determination by the Servicer in respect of the Loan will be made in accordance with the Servicing Standard taking into consideration the Noteholders as a collective whole.

• It has been mentioned that past interest payments have been made using cash flow from the Properties? Is there enough cash flow and what is the total amount paid to the Mezzanine Lenders and the equity?

There is significant cash flow, occasioned by the current interest rate environment. To date, only one month's rent was not paid in June 2009. Since the opening of the insolvency proceedings, the Insolvency Administrator has maintained the rent payments on the Properties.

The excess cash after senior debt service and ground rent payments (but before asset management fees) as at last quarter was €25.43 million in respect of the Highstreet B portfolio. The Mezzanine debt is secured on both A and B portfolios of Highstreet and as such benefits from cashflow from both. Using a pro-rata allocation of Mezzanine debt service payments and asset management fees, we roughly estimate that the excess cash after mezzanine debt service payments and asset management fees is approximately €14 million. 

• Is the Insolvency Administrator definitely going to close 19 properties? 

In respect of Karstadt, at the creditors' meeting held on 10 November 2009, Mr. Ralf Weidmann as representative of Dr. Görg explained that potentially up to 19 leased premises could be closed; of the six actually identified at the meeting, none of the six relates to the secured Properties for the Highstreet B Loan.

• How much is the Quelle lease termination reducing the income on the Loan by? 

Quelle represented 2.8 per cent. of the total gross rent on the Highstreet B portfolio at closing.

• Are the terms of the Loan likely to be altered?

We cannot answer this question any answer would be too speculative.

• What are the main risks relating to the Loan prior to the next Loan Payment Date?

The Servicer is not in a position to speculate as to such potential risks. We note that such risks may include the discontinuation of stores trading by Karstadt.

• Has there been an assessment of the impact of a Loan Event of Default on the insolvency proceedings?

The Servicer is assessing whether a Loan Event of Default has or may occur and at the same time is assessing the legal and economic impacts that the insolvency proceedings may have on the performance of the Loan and any other possible legal implications.

• What are the consequences of the Loan being put into default? 

If a Loan Event of Default was to occur and be continuing, we note some consequences, which include but are not limited to the following:

• • no payments would be made out of the Highstreet B portfolio to the Mezzanine Lenders subject to applicable notice and cure periods;

  • there could be a cross-default trigger on the Mezzanine Facility;

  • the Servicer would gain control over all of the accounts, including the Borrower's General Account; and 

  • the Borrower would be restricted from making any disposals or performing any material alterations to the Properties without the consent of the Servicer.

• Will the Noteholders be paying for two Valuations?

For the purposes of assessing any potential modifications to the Master Lease and/or the Loan and testing the LTV covenant, it is important that a full and satisfactory Valuation meeting the requirements of the Senior Facility Agreement is completed as soon as possible. The LTV covenant is set at 70% of market value and can only be tested on a Loan Payment Date. The next Loan Payment Date is 20th January 2010. It should be within the powers of the Borrower to provide a Valuation, which takes on board the Servicer's input, a few weeks earlier than the required delivery date of 31st January 2010 and therefore in time for testing the LTV covenant at the 20th January Loan Payment Date. The Servicer has requested the Borrower to pay for the cost of the Valuation; however, there is a possibility that the cost of the Valuation becomes a cost of the Issuer. The Servicer has not required any other valuation other than the Valuation, to be delivered early, under the terms of the Senior Facility Agreement.

• If there are two Valuations prepared and delivered, which Valuation will be used for the January 2010 Loan Payment Date?

The most recent Valuation meeting the requirements of the Senior Facility Agreement will be used to test the LTV covenant on such Loan Payment Date.

• Does the Borrower have to approve the Valuer? 

Unless there is a Loan Event of Default outstanding, the Senior Facility Agreement requires that any new Valuer be appointed by the Borrower with such appointment being subject to approval by the Agent.

                                        

This notice is prepared by and issued on behalf of Capita Asset Services (Ireland) Limited and Capita Asset Services (UK) Limited, together in their capacity as servicer (the "Servicer"), solely to provide the existing Noteholders (as defined in the Offering Circular issued by Fleet Street Finance Two P.L.C. (the "Issuer") dated 19 October 2006 relating to the offering of the Notes (the "Offering Circular")) as "Addressees" certain information regarding the Loan (as defined in the Offering Circular). This Notice is solely directed at the Addressees and should not be relied upon or used by any other person. NOTHING IN THIS NOTICE CONSTITUTES ANY PROMOTION IN RESPECT OF OR ANY INVITATION, ENDORSEMENT OR OFFER TO INVEST OR DEAL IN THE LOAN (AS DEFINED IN THE OFFERING CIRCULAR) OR THE NOTES OR IN ANY OTHER ASSETS, SECURITIES OR FINANCIAL INSTRUMENTS IN ANY JURISDICTION.

This Notice is not being distributed by, nor has it been approved for the purposes of section 21 of the Financial Services and Markets Act 2000 (FSMA) by, a person authorised under FSMA. This Notice does not constitute any form of commitment or recommendation on the part of the Servicer or its officers, affiliates, advisers, agents or representatives in relation to any transaction. Accordingly, Addressees should not rely on or use this Notice for any purpose, in particular trading any debt under the Loan (as defined in the Offering Circular) or the Notes issued by the Issuer or any other entity.

The information contained herein has not been independently verified. Without prejudice to the foregoing (and without purporting to limit any person's liability for fraudulent misrepresentation), no responsibility or liability is or will be accepted by the Servicer or the Servicer's officers, affiliates, advisers, agents and representatives in relation to the accuracy or completeness of this Notice or any other written or oral information made available to any Addressee or its advisers and any such liability is expressly disclaimed.

By:

Fleet Street Finance Two P.L.C.

5 Harbourmaster Place

International Financial Services Centre

Dublin 1

Ireland

Date:  24 November 2009

 

 

ENDISEUSUBRKWRAUAA

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