The Building Societies (Undated Subordinated Debt) Order 1994

Capital resources which may be aggregated with reserves

3.—(1) Subject to articles 4 and 5 below where a society has obtained fully paid up undated loan capital derived from qualifying subordinated debt in respect of which the society is the borrower that undated loan capital may, for the purposes of the first criterion be aggregated with reserves save that in so far as the amount of such undated loan capital exceeds the extent, or contravenes any conditions specified by any order made under section 45(5) of the Act in relation to such capital or to the total of such capital with other items which, apart from such extent or such contraventions would be aggregable with reserves, that excess shall be excluded from such aggregation.

(2) For the purposes of this article “qualifying subordinated debt” means a sum borrowed on issue terms which—

(a) have the effect that no repayment will be made to the lender except—

(i) with the relevant consent of the supervisory authority, or

(ii) subject to sub-paragraph (b) of this paragraph in the winding up of the borrower;

(b) have the effect that in the winding up of the borrower claims in respect of such debt shall be limited to such amount as would have been payable in respect thereof if immediately prior to the commencement of the winding up and thereafter the lender—

(i) in the case where the borrower is a society, were the holder of a share having a value calculated in accordance with section 119(3) of the Act equal to the principal amount of such debt, being a deferred share which the borrower, being a society having power to issue such shares, would be able to aggregate with reserves pursuant to an order made under section 45(5) of the Act, but ranking for the purposes of a dividend in the winding up prior to any such shares which had been issued by the society, or

(ii) in the case where the borrower is a commercial company, were the holder of a share in the capital of the company of nominal value equal to the amount of such debt, being a share having a right, preferred over equity share capital and any preference shares which had been issued by the company, in the winding up of the company to a return of capital and accrued interest;

(c) provide for payment, subject to a term which has the effect of the prescribed term, in respect of such periods as may be specified, of interest at a specified rate which shall be—

(i) a fixed rate;

(ii) a stepped rate; or

(iii) a floating rate

but which shall not be ascertained by reference to the profits of the society or any other factor other than a market rate;

(d) issued upon issue terms which have the effect of the prescribed terms without other terms or with only such other terms as are not inconsistent with the prescribed terms, and

(e) are not issued upon issue terms which have the effect of any of the disqualifying terms.

(3) In this article—

“a fixed rate” means a rate of interest which remains the same for so long as the debt remains outstanding;

“a stepped rate” means a rate of interest which increases or reduces from time to time by steps specified in time and amount;

“a floating rate” means a rate of interest which is ascertained from time to time by reference to a specified market rate or by reference to a specified market rate varied by a specified margin;

“a market rate” means—

(a)

a rate being one of, or an average of, any published rates of interest applicable from time to time for the purpose of calculating interest on debt or other financial obligation arising from transactions between institutions which are authorised for the purposes of the Banking Act 1987;

(b)

a rate being one of, or an average of, any rates of interest applicable from time to time for the purpose of calculating interest payable on any class of securities issued in the United Kingdom by Her Majesty’s Government;

(c)

a rate being one of, or an average of, any published figures specifying the rate of yield obtainable on any class of securities issued in the United Kingdom by Her Majesty’s Government;

(d)

the rate of interest payable on such interest bearing shares other than deferred shares in the society as have from time to time the lowest rate of interest; or

(e)

the rate of interest payable on such interest bearing shares other than deferred shares in the society as have from time to time the highest rate of interest.

(4) For the purposes of this article—

(a) a market rate shall be taken to be specified notwithstanding that the issue terms contain a provision to the effect that, if a specified rate of interest or of yield applying to the issue as a market rate ceases to be published, another published market rate may be substituted therefore, being a rate which is calclated on principles as near as possible to the principles of calculation of the previously applicable rate, and subject thereto, such that immediately after substitution, the market rate shall be as nearly as practicable the same, as that applying immediately before the substitution, and

(b) for the purposes of this article a rate of interest or of yield shall be taken to be published if it is ascertainable at regular intervals by reference to any national newspaper or other periodical publication or by reference to any electronic retrieval system accessible by the borrower and the lender or is notified to the borrower by an institution which is authorised for the purposes of the Banking Act 1987 being a rate of interest or of yield applicable as between institutions so authorised.