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GLOBAL MACRO & CURRENCY MANAGEMENT

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MULTI-CURRENCY LIABILITY MANAGEMENT PROGRAMME

Calculation Methodology

Debt Reduction Graph

Since 1988 ECU has managed hundreds of multi-currency loan facilities at over 20 banks.

This graph has been created using actual foreign exchange transaction data which, subject to the notes below, is consistent with all foreign exchange transactions executed by ECU on all GBP benchmark loans during the period.

The graph shows the net performance of a £1m multi-currency loan managed by ECU with interest being charged at 1.75% above the weekly closing 7-day inter-bank cost of funds applicable to the currencies borrowed, and the loan assumed to be outstanding for the full period (October 1988-present). The benchmark used for calculating interest savings is the 7-day GBP LIBOR rate plus 1.75%.

Debt Reduction

Debt reduction is defined as any gross reduction in the size of a GBP loan, rebased at the beginning of each year, resulting from foreign exchange movements. Debt reduction is positive performance and, conversely, any increase constitutes negative performance.

Interest Differrential

Interest differential is calculated as the difference between the interest which would have been paid on a GBP loan at a rate of 1.75% above the weekly closing 7-day inter-bank GBP LIBOR rate, and the interest payable in the currency(ies) in which the loan has been denominated at a rate of 1.75% above the weekly closing 7-day inter-bank LIBOR rate applicable to those currencies. An interest saving is shown as positive performance. An interest loss is shown as negative performance.

Daily interest is calculated at a rate of 1.75% above the weekly closing 7-day inter-bank interest rates for borrowed money in the relevant currencies divided by 360 for all currencies except GBP, which is divided by 365.

Gross Performance

Gross performance is the sum of any debt reduction (or debt increase) and the interest saving (or interest loss).

Net Performance

Net performance reflects the benefit to a client compared to a GBP interest-only loan paying a rate of 1.75% above the weekly closing 7-day inter-bank GBP LIBOR rate, net of the following costs:

  • A switch fee of £75 per switch.
  • A annual management fee of 1.0% of the original £1m loan charged monthly in advance.
  • A annual performance fee equal to 20% of the combined benefit of any interest savings and debt reduction, net of management fees and performance fees already paid and/or due.

Underlying Transaction Data

Some of the historical ECU-managed, multi-currency loan facilities were provided by banks that no longer exist or have been sold or merged. As a result, independent verification of historical data is not always possible. ECU's trading instructions to all banks are identical save only three main respects: (a) the amounts vary from bank to bank; (b) although they are given at broadly the same time, it may not have been possible to instruct or execute with all banks simultaneously; and (c) two of the lending banks that historically provided multi-currency loan facilities to ECU's clients were unable to place debt in more than one currency at a time.

From November 1988 to December 2009, the performance data is based on actual foreign exchange transactions executed for clients at Royal Trust Bank of Canada, who were then taken over by Kleinwort Benson Private Bank and subsequently by Kleinwort Benson (Channel Islands) Ltd. From January 2010, the performance is based on actual foreign exchange transactions executed for clients at HSBC. ECU believes this to be representative of the capital and interest rate savings of a £1m multi-currency loan managed by ECU over these periods. The trading and performance data of ECU's multi-currency debt management programme is periodically reviewed by independent accountants/performance management specialists.

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