Client Newsletter Winter 2009 - Banking And Capital Markets

In this issue:-

New Government Bank Guarantee Scheme – The ELG Scheme Recent Irish Developments In Relation To The FVC Regulation Recent Developments In Relation The National Asset Management Agency New Amendments To Rating Requirements For Asset-Backed Securities In Eurosystem Credit Operations Case Law Update: Conditional Priority Provisions Upheld By The UK Court Of Appeal NEW GOVERNMENT BANK GUARANTEE SCHEME – THE ELG SCHEME

The current Credit Institutions (Financial Support) Scheme 2008 provides that the Minster for Finance of Ireland (the "Minister") will guarantee certain types of liabilities ("covered liabilities") of participating named institutions ("covered institutions") for the period 30th September, 2008 – 29th September, 2010 inclusive (the "CIFS Scheme"). Please see our other Banking & Capital Markets publications for further information.

Under the CIFS Scheme, if a covered institution defaults on a covered liability, the Minister would pay to the creditor, on demand, an amount equal to the unpaid covered liabilities. Once the guarantee expires after the 29th September, 2010, it will no longer be effective and no call can be made on the guarantee after that date. Accordingly, the Department of Finance has issued draft text of the proposed Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 (the "ELG Scheme") which is intended to be implemented under the Credit Institutions (Financial Support) Act, 2008 (the "Act") and to supersede the CIFS Scheme. In addition, a draft set of rules which will be applicable to participating institutions participating in the ELG Scheme are also in circulation. The ELG Scheme was given EU State Aid approval on 20th November, 2009. It is intended that the Scheme will be brought into law in the near future and that the Minister will issue a delegation order to appoint the National Treasury Management Agency as the scheme operator during the course of December.

The Guarantee

The ELG Scheme is intended to facilitate and permit credit institutions in Ireland to issue debt securities and take deposits with a maturity of post-September 2010 on a guaranteed basis.

The guarantee will be given by the Minister on an unconditional and irrevocable basis and will provide for timely payment of the "eligible liabilities" (see below). The Minister may, at his or her discretion and at the request of the relevant participating institution, limit the application of the guarantee given to that participating institution to certain types or categories of deposits.

Credit institutions will be eligible to join the ELG Scheme if they are "systemically important", solvent and have been specified or are already specified by the Minister under section 6(1) of the Credit Institutions (Financial Support) Act, 2008. The participating institutions can apply for a programme to be guaranteed or can apply on an issuance by issuance basis.

The guarantee will terminate at midnight on the date falling 5 years after the end of the "issuance period" (see below) unless extended at the discretion of the Minister in compliance with EU State Aid requirements.

Eligible Liabilities

The eligible liabilities under the new guarantee will include:-

all deposits (to the extent not covered by deposit guarantee schemes in the State (other than the CIFS Scheme) or any other jurisdiction); senior unsecured certificates of deposit; senior unsecured commercial paper; other senior unsecured bonds and notes In addition, a blanket guarantee will apply to all relevant deposits incurred or rolled-over by a participating institution from the time such participating institution avails of a guarantee under the ELG Scheme for the first time, regardless of type, nature or the identity of the depositor.

In respect of other eligible liabilities other than deposits, the participating institutions may apply to the Minister for such eligible institutions to be guaranteed by the Minister and an eligible liability guarantee certificate will be given in respect of same at the Minister's discretion. This may be done on a stand-alone basis for particular eligible liabilities or for all of the eligible liabilities issued under a programme. As such, the ELG Scheme will permit participating institutions to issue eligible liabilities on a non-guaranteed basis.

In addition, eligible liabilities under the ELG Scheme will have to satisfy certain eligibility criteria such as:-

an eligible liability (including deposits) must not have a maturity in excess of 5 years; an eligible liability must be incurred during an "issuance window" from the commencement date of the ELG Scheme to 29th September, 2010 (i.e. the final date of the CIFS Scheme) subject to the approval of the...