Eighth Announcement in respect of the settlement of the Omnibus Claim 03/07/2013

Introduction

Following our communication dated 19 June 2013 this Eighth Announcement provides customers with an update on:

• The LBI Portfolio (cash and remaining assets)
• The timeline for the first distribution now scheduled for September
• US Withholding tax
• The expected interim distribution and estimated outcome

The LBI Portfolio

The LBI Portfolio was received in two key tranches. Firstly, our cash recovery was made on 10 June and our securities substantively followed on 13 June. The transfers from LBI went very smoothly and we are grateful for the Trustee’s efforts in facilitating these. There are only a small number of queries to resolve and we are liaising with the Trustee in this regard.

In light of the smooth transition of our securities portfolio we were able to commence the liquidation process immediately on 13 June. The strategy followed was consistent with that outlined in the Seventh Announcement. The majority of the liquidation was achieved with the execution of four significant equity portfolio trades within a week of receipt of the securities. We traded on an agency basis through four dealers. The results achieved outperformed in aggregate the trading day’s VWAP across the portfolio. In several cases a number of our illiquid equity positions were sold through bilateral risk trades with street counterparties. The portfolio that remains under LBIE’s control falls into the following categories:

a. Fixed income securities which have a final maturity within the next two months – taking factors such as liquidity and pricing into account we currently plan to hold these securities to their maturity.

b. Less liquid securities – these will be realised subject to market conditions in an orderly fashion over the next three to four months. These include a portfolio of nil/unpriced positions.

c. Securities reserved for Non Consenting Beneficiaries pending determination of their rights.

Composition of Omnibus Trust

The table below sets out the updated value of the LBI Portfolio and reflects the status of the liquidation exercise as at 28 June 2013. Importantly:

• The valuation roll forward has been prepared in a shorter timeframe than previously and a series of final diligence checks have not been completed. Therefore these adjustments are preliminary and remain subject to further change.
• The interests remaining at LBI principally comprise a specific cash retention to cover any final adjustments by issuers to our corporate actions entitlements. The Trustee is expected to remit this balance (less minor adjustments, if any) in the near future.
• Cash proceeds from liquidation are shown on a perfect settlement basis.

Estimated final outcome and interim distribution 

LBIE expects that the first gross distribution of the proceeds from the Omnibus Trust to Consenting Beneficiaries will be in excess of 90% of the Best Claim amount. We are pleased to report this is higher than the previously quoted range of 60 to 70% recognizing the expedited realisation of securities, the high rate of counterparty acceptance (requiring proportionately a smaller level of reserve for Non Consenting Beneficiaries) and an updated review of the general provisions previously included in our reserve estimates.

The precise level of the first gross distribution will be determined in accordance with the stated timetable below and will be updated for actual funds available for distribution at the relevant time, reflecting the ongoing sale and redemption of securities and the finalisation of US Withholding tax. In the interim, both modeled outcomes below remain indicative.

Notes

• The level of overall acceptance by customers has not changed since the Seventh Announcement and reflects the actual overall acceptances of 95%.
• Reserves for Non Consenting Beneficiaries are based on customers (approximately 5% of Best Claims) who have not committed to the Consensual Proposal. Specific provisions have been made for the claims of each of these customers reflecting their particular circumstances together with a modest general provision. In most cases, LBIE will maintain reserves for Non Consenting Beneficiaries in cash rather than securities. The High case Final Outcome assumes the rights of Non Consenting Beneficiaries are determined at an aggregate level not exceeding the sum of their Best Claims.
• The Aggregate of Consenting Beneficiaries’ Best Claims are shown before deductions for indebtedness, taxes and fees. A small number of counterparties have been contacted to agree amendments to their Best Claims which need to be amended for various issues indentified in the Consensual Proposal and also some may be affected by a necessary adjustment to claims because of a small isolated error on a corporate action involving PIK Notes. A limited number of client disputes have not yet been processed but most are expected to be resolved prior to the first distribution.

19/9 shortfall claims

The level of 19/9 shortfall claims will be assessed after the first distribution but it looks increasingly likely that no shortfall claims will arise in light of the indicative recovery estimates above.

Tax

US Withholding taxes: As set out in the Fourth and Seventh Announcements, LBIE has requested guidance from the US Internal Revenue Service (“IRS”) with regard to the character and source of the settlement payments. Although considerable progress has been made, this issue is expected to take a number of months to resolve conclusively. Consequently, in order to balance LBIE’s objective of making a significant distribution to customers as soon as possible with the requirement to pay the appropriate US Withholding tax in respect of distributions, we are endeavoring to agree an interim solution with the IRS and our withholding agent that will facilitate a distribution to be made.

Under these proposals, LBIE expects to deposit 30% of the Gross Distribution to customers with the IRS as a reserve. Exceptions may be made where the distribution is paid or attributable to a validly documented US person on a Form W-9 at a both counterparty and beneficiary level. Once the appropriate US Withholding tax treatment of customer distributions is finally determined by the IRS, we should be in a position to promptly receive back funds (net of amounts appropriately credited as tax withheld from customers) and release any excess reserves back to the appropriate customers. We are hopeful that we may be able to conclude this by the end of 2013 so that amounts may be appropriately reported to the IRS in Q1 2014 and further distributions made to counterparties.

Further guidance will be provided once the interim solution has been agreed with the IRS.

UK Trust Issues: LBIE continues to engage with HMRC with a view to agreeing that the Consensual Proposal does not constitute a “settlement” which would be subject to UK income, capital gains and inheritance tax. LBIE has included provisions if the Consensual Proposal is subject to such taxes in the UK.

Timetable for first interim distribution

Subject to formal agreement of the interim solution with the IRS and our withholding agent for the treatment of US Withholding taxes, we intend to remit a first interim distribution under the Common Terms on or around 26 September 2013.

We expect the first distribution to be in excess of 90% of Best Claims (on a Gross Distribution basis). LBIE will only make distributions to Qualifying Consenting Beneficiaries as defined in clause 9.5 of the Common Terms. We expect that the Cut-Off Date will be 24 July 2013 and the Distribution Date will be on or around 26 September 2013.

Customers who have not met all of the relevant criteria as set out in the Common Terms will not participate in the first interim distribution.

Customers are reminded that in order to be considered for participation in any proposed distribution, they must have formally agreed any indebtedness owing to LBIE, and any Common Terms disputes between them and LBIE must have been formally resolved. In addition, customers are required to submit correct tax forms, SSIs and all anti-money laundering criteria.

As a result of the above we encourage all customers to engage with their LBIE contact to resolve any outstanding issues and provide the relevant documentation for tax (including clarifications where requested), payment and anti-money laundering purposes as soon as possible and, in any event, by 24 July 2013. Any change in circumstances must also have been notified to LBIE by this date, and all relevant supporting documentation submitted. Customers will be able to check their Eligibility Status on the Portal once the Notice of Intended Distribution has been communicated.

The timescale between cut off and payment of the distribution is necessarily longer than that compared to the time for unsecured distributions because of the tax complexity and the involvement of a withholding agent to ensure all legal responsibilities are appropriately discharged. As a result of these complexities, any changes in circumstances following the Cut-Off Date are likely to result in the customer being ineligible for the first distribution.

Counterparties with indebtedness

Significant effort has been directed on engaging with counterparties with indebtedness. This has been prioritized by reference to size of debt owed. We have begun to issue a proposal to counterparties who have not yet heard from us in respect of their indebtedness in time to consider acceptance thereof prior to the Cut-Off Date of 24 July 2013.

As noted above, debts will need to be agreed in order to be included in the first interim distribution.

Future Announcements in support of September distribution

LBIE is intending to provide the following planned updates ahead of the first distribution (the following dates are based on a targeted 26 September distribution):

1. Further update on finalization of the withholding tax mechanics governing an interim distribution.
2. Notice of Intended Distribution–will be communicated by 17 July, being a minimum of 7 days before the anticipated Cut-Off Date of 24 July 2013.
3. Notice of Distribution to Qualifying Consenting Beneficiaries – will be communicated on or around 12 September 2013.  This notice will include counterparty specific information on Gross Distribution, deductions and reserves.

Important Notice – US tax

To ensure compliance with Treasury Department Circular 230, customers are notified that: (a) any discussion of US federal tax issues in this announcement is not intended or written to be relied upon, and cannot be relied upon, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code; (b) such discussion is included herein by LBIE in connection with the promotion or marketing (within the meaning of Circular 230) by LBIE of the transactions or matters addressed herein; and (c) you should seek advice based on your particular circumstances from an independent tax adviser.

Important Disclaimer

The information and contents of this update communication are being provided to you by LBIE for discussion purposes only. This update does not constitute a commitment or offer on the part of LBIE or its Joint Administrators, and should not be construed as such, nor does it constitute any form of advice to the recipients. The contents of this communication are based on provisional analysis by LBIE and/or information provided by LBI, which has not been audited and LBIE reserves the right without specifying any reasons to amend all or part of this communication.

Any party (including any recipients) who obtains access to and chooses to rely on this update communication (or any part thereof) will do so entirely at its own risk. No person has, nor is held out as having, any authority to give any statement, warranty, proposal or undertaking on behalf of LBIE or its Joint Administrators in connection with this communication.

LBIE and its Joint Administrators will be under no obligation to provide the recipients with access to any additional information, to update this document or to correct any inaccuracies in it which may become apparent.

LBIE and its Joint Administrators, and their respective officers, employees and agents disclaim any liability which may arise from this communication, or any other written or oral information provided in connection herewith, and any errors and/or omissions herein or therein.

Nothing contained in this update communication is an acknowledgement of any claim that a recipient or any other claimant may have against LBIE or any other entity. Neither LBIE nor its Joint Administrators shall have any liability to any recipient or to any other person in respect of the information contained herein or for any defect or incompleteness in it. No representation is made by LBIE or its Joint Administrators about any claim that may be asserted against LBIE in respect of the LBI positions or any shortfall in recovery of the LBI positions.