EX-4 8 ex4-1.txt EXHIBIT 4.1 Exhibit 4.1 DRAFT: (1) 06.10.03 LOAN CONFIRMATION Third ISSUER INTERCOMPANY LOAN AGREEMENT DATED [o], 2003 PERMANENT FUNDING (NO. 1) LIMITED as Funding 1 PERMANENT FINANCING (NO. 3) PLC as Third Issuer and THE BANK OF NEW YORK as Security Trustee [CITIBANK, N.A., LONDON BRANCH] as Agent Bank ALLEN & OVERY London CONTENTS Clause Page 1. Interpretation.............................................................1 2. Intercompany Loan Terms and Conditions.....................................2 3. The Third Issuer Term Advances.............................................2 4. Interest...................................................................4 5. Repayment..................................................................6 6. Prepayment................................................................10 7. Certain fees, etc.........................................................10 8. Application of certain Provisions.........................................12 9. Addresses.................................................................12 Schedule 1. Conditions Precedent in Respect of Drawdown...............................14 Signatories..................................................................17 THIS LOAN CONFIRMATION TO THE THIRD ISSUER INTERCOMPANY LOAN AGREEMENT is dated [ ], 2003 BETWEEN: (1) PERMANENT FUNDING (NO. 1) LIMITED (registered in England and Wales No. 4267660) whose registered office is at Blackwell House, Guildhall Yard, London EC2V 5AE (Funding 1); (2) PERMANENT FINANCING (NO. 3) PLC (registered in England and Wales No. 04907355) whose registered office is at Blackwell House, Guildhall Yard, London EC2V 5AE (the Third Issuer); (3) THE BANK OF NEW YORK, acting through its offices at 48th Floor, One Canada Square, London E14 5AL in its capacity as Security Trustee; and (4) [CITIBANK, N.A., LONDON BRANCH, whose offices are at 5 Carmelite Street, London EC4Y 0PA], acting in its capacity as Agent Bank. IT IS AGREED as follows: 1. INTERPRETATION 1.1 The Amended and Restated Master Definitions and Construction Schedule signed for the purposes of identification by Allen & Overy and Sidley Austin Brown & Wood on [o], 2003 (as the same may be amended, varied or supplemented from time to time with the consent of the parties hereto) and the Third Issuer Master Definitions and Construction Schedule signed for the purposes of identification by Allen & Overy and Sidley Austin Brown & Wood on [o], 2003 are expressly and specifically incorporated into this Agreement and, accordingly, the expressions defined in the Amended and Restated Master Definitions and Construction Schedule and/or the Third Issuer Master Definitions and Construction Schedule (as so amended, varied or supplemented) shall, except where the context otherwise requires and save where otherwise defined herein, have the same meanings in this Agreement, including the Recitals hereto and this Agreement shall be construed in accordance with the interpretation provisions set out in Clause 2 (Interpretation and Construction) of the Amended and Restated Master Definitions and Construction Schedule and the Third Issuer Master Definitions and Construction Schedule. In the event of a conflict between the Amended and Restated Master Definitions and Construction Schedule and the Third Issuer Master Definitions and Construction Schedule, the Third Issuer Master Definitions and Construction Schedule shall prevail. 1.2 Unless the context otherwise requires, references in the Intercompany Loan Terms and Conditions to: Closing Date means [o], 2003; Intercompany Loan means the Third Issuer Intercompany Loan; Intercompany Loan Agreement means the Third Issuer Intercompany Loan Agreement; 1 Intercompany Loan Confirmation means the Third Issuer Intercompany Loan Confirmation; Issuer means the Third Issuer; Issuer Transaction Account means the Third Issuer Sterling Account; New Basel Capital Accord means [the new or revised capital accord as described in the consultative document "The New Basel Capital Accord" published by the Basel Committee on Banking Supervision in January 2001]; Notes means the Third Issuer Notes; and Third Issuer Term Advances has the meaning given in the Third Issuer Master Definitions and Construction Schedule. 2. INTERCOMPANY LOAN TERMS AND CONDITIONS Each of the parties to this Agreement agrees that the Intercompany Loan Terms and Conditions signed by Funding 1, the Security Trustee and the Agent Bank for the purposes of identification on 14th June, 2002, and the provisions set out therein shall form part of this Agreement and shall be binding on the parties to this Agreement as if they had expressly been set out herein. References in this Agreement to "this Agreement" shall be construed accordingly. 3. THE THIRD ISSUER TERM ADVANCES 3.1 Third Issuer Term AAA Advances On and subject to the terms of this Agreement, the Third Issuer grants to Funding 1 a term loan which consists of the following sub-loans: (a) the series 1 term AAA advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 1 Term AAA Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 1 Class A Third Issuer Notes; (b) the series 2 term AAA advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 2 Term AAA Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 2 Class A Third Issuer Notes; (c) the series 3 term AAA advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 3 Term AAA Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 3 Class A Third Issuer Notes; (d) the series 4 term AAA advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 4 Term AAA Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 4 Class A Third Issuer Notes, and 2 (e) the series 5 term AAA advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 5 Term AAA Advance) and which corresponds to the principal amount upon issue of the Series 5 Class A Third Issuer Notes, and together the Third Issuer Series 1 Term AAA Advance, the Third Issuer Series 2 Term AAA Advance, the Third Issuer Series 3 Term AAA Advance, the Third Issuer Series 4 Term AAA Advance and the Third Issuer Series 5 Term AAA Advance are referred to herein as the Third Issuer Term AAA Advances. 3.2 Third Issuer Term AA Advances On and subject to the terms of this Agreement, the Third Issuer grants to Funding 1 a term loan which consists of the following sub-loans: (a) the series 1 term AA advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 1 Term AA Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 1 Class B Third Issuer Notes; (b) the series 2 term AA advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 2 Term AA Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 2 Class B Third Issuer Notes; (c) the series 3 term AA advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 3 Term AA Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 3 Class B Third Issuer Notes; (d) the series 4 term AA advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 4 Term AA Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 4 Class B Third Issuer Notes; and (e) the series 5 term AA advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 5 Term AA Advance) and which corresponds to the principal amount upon issue of the Series 5 Class B Third Issuer Notes, and together the Third Issuer Series 1 Term AA Advance, the Third Issuer Series 2 Term AA Advance, the Third Issuer Series 3 Term AA Advance, the Third Issuer Series 4 Term AA Advance and the Third Issuer Series 5 Term AA Advance are referred to herein as the Third Issuer Term AA Advances. 3.3 Third Issuer Term BBB Advances On and subject to the terms of this Agreement, the Third Issuer grants to Funding 1 a term loan which consists of the following sub-loans: (a) the series 1 term BBB advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 1 Term BBB Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 1 Class C Third Issuer Notes; 3 (b) the series 2 term BBB advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 2 Term BBB Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 2 Class C Third Issuer Notes; (c) the series 3 term BBB advance in the maximum aggregate principal amount of (pound)[o] (the Third Issuer Series 3 Term BBB Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 3 Class C Third Issuer Notes; (d) the series 4 term BBB advance in the maximum aggregate principal amount of [o] (the Third Issuer Series 4 Term BBB Advance) and which corresponds to the sterling equivalent of the principal amount upon issue of the Series 4 Class C Third Issuer Notes; and (e) the series 5 term BBB advance in the maximum aggregate principal amount of [o] (the Third Issuer Series 5 Term BBB Advance) and which corresponds to the principal amount upon issue of the Series 5 Class C Third Issuer Notes, and together the Third Issuer Series 1 Term BBB Advance, the Third Issuer Series 2 Term BBB Advance, the Third Issuer Series 3 Term BBB Advance and the Third Issuer Series 4 Term BBB Advance and the Third Issuer Series 5 Term BBB Advance are referred to herein as the Third Issuer Term BBB Advances. 3.4 Term Advance Rating The Term Advance Rating in respect of the Third Issuer Term AAA Advances shall be AAA/Aaa/AAA, the Term Advance Rating in respect of the Third Issuer Term AA Advances shall be AA/Aa3/AA and the Term Advance Rating in respect of the Third Issuer Term BBB Advances shall be BBB/Baa2/BBB. 3.5 Conditions Precedent Save as the Third Issuer and the Security Trustee may otherwise agree, the Third Issuer Term Advances will not be available for utilisation unless the Security Trustee has confirmed to Funding 1 that it or its advisers have received all the information and documents listed in Schedule 1 hereof in form and substance satisfactory to the Security Trustee. 4. INTEREST 4.1 Rate of Interest to first Funding 1 Interest Payment Date On the Closing Date the Agent Bank will determine the Initial Relevant Screen Rate (as defined below) in respect of each Third Issuer Term Advance as at or about 11.00 a.m. (London time) on that date. If the Initial Relevant Screen Rate is unavailable, the Agent Bank will request the principal London office of each of the Reference Banks to provide the Agent Bank with its offered quotations to leading banks for two-month and three-month sterling deposits of (pound)10,000,000, in the London inter-bank market as at or about 11.00 a.m. (London time) on such Closing Date. The Term Advance Rates of Interest for the first Interest Period shall be the aggregate of (a) the Relevant Margin and (b) the Initial Relevant Screen Rate or, if the Initial Relevant Screen Rate is unavailable, the linear interpolation of the arithmetic mean of such offered quotations for two-month sterling deposits and the arithmetic mean of such offered quotations for three-month sterling deposits (rounded upwards, if necessary, to five decimal places). 4 Initial Relevant Screen Rate means the linear interpolation of the arithmetic mean of the offered quotations to leading banks for two-month sterling deposits and the arithmetic mean of the offered quotations to leading banks for three-month sterling deposits (rounded upwards if necessary to five decimal places) displayed on the Moneyline Telerate monitor at Moneyline Telerate page number 3750 (or such replacement page on that service which displays the information) or, if that service ceases to display the information, such other service as may be determined by the Third Issuer with the approval of the Security Trustee. 4.2 Term Advance Rates of Interest The Term Advance Rate of Interest payable on each Term Advance shall be LIBOR for three-month sterling deposits as determined in accordance with Clause 6 of the Intercompany Loan Terms and Conditions plus a Relevant Margin which shall be: (a) in respect of the Third Issuer Series 1 Term AAA Advance, a margin of -[o] per cent. per annum; (b) in respect of the Third Issuer Series 2 Term AAA Advance, a margin of [o] per cent. per annum; (c) in respect of the Third Issuer Series 3 Term AAA Advance, a margin of [o] per cent. per annum [up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum]; (d) in respect of the Third Issuer Series 4 Term AAA Advance, a margin of [o] per cent. per annum [up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum]; (e) in respect of the Third Issuer Series 5 Term AAA Advance, a margin of [o] per cent. per annum [up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum]; (f) in respect of the Third Issuer Series 1 Term AA Advance, a margin of [o] per cent. per annum [up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum]; (g) in respect of the Third Issuer Series 2 Term AA Advance, a margin of [o] per cent. per annum [up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum]; (h) in respect of the Third Issuer Series 3 Term AA Advance, a margin of [o] per cent. per annum [up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum]; (i) in respect of the Third Issuer Series 4 Term AA Advance, a margin of [o] per cent. per annum [up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum]; (j) in respect of the Third Issuer Series 5 Term AA Advance, a margin of [o] per cent. per annum [up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum]; 5 (k) in respect of the Third Issuer Series 1 Term BBB Advance, a margin of [o] per cent. per annum [up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum]; (l) in respect of the Third Issuer Series 2 Term BBB Advance, a margin of [o] per cent. per annum [up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum]; (m) in respect of the Third Issuer Series 3 Term BBB Advance, a margin of [o] per cent. per annum up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum; (n) in respect of the Third Issuer Series 4 Term BBB Advance, a margin of [o] per cent. per annum [up to and including the Interest Period ending in [o] and thereafter [o] per cent. per annum]; and (o) in respect of the Third Issuer Series 5 Term BBB Advance, a margin of [1.45000] per cent. per annum [up to (and including) the Interest Period ending in [o] and thereafter [o] per cent. per annum]; 4.3 Interest Periods The first Interest Period shall commence on (and include) the Closing Date and end on (but exclude) the Funding 1 Interest Payment Date falling in [o]. Each subsequent Interest Period shall commence on (and include) a Funding 1 Interest Payment Date and end on (but exclude) the following Funding 1 Interest Payment Date. 5. REPAYMENT 5.1 Repayment subject to terms of the Funding 1 Deed of Charge The terms and provisions of this Clause 5 are to be read subject to the provisions of Part II of Schedule 3 to the Funding 1 Deed of Charge and as the same may be further amended or varied from time to time in accordance with the terms of the Funding 1 Deed of Charge. Without limiting the generality of the foregoing, the Third Issuer Term Advances shall become due and payable as described in paragraph 1 of Part II of Schedule 3 of the Funding 1 Deed of Charge. 5.2 Repayment of Third Issuer Term AAA Advances prior to the occurrence of a Trigger Event and prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice or the service on each Issuer of a Note Acceleration Notice Subject to the provisions of Clauses 1 and 2 of Part II of Schedule 3 of the Funding 1 Deed of Charge, prior to the occurrence of a Trigger Event and prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice or the service on each Issuer of a Note Acceleration Notice, Funding 1 shall repay to the Third Issuer: (a) the Third Issuer Series 1 Term AAA Advance on the Funding 1 Interest Payment Date falling in [September 2004]; (b) the Third Issuer Series 2 Term AAA Advance on the Funding 1 Interest Payment Date falling in [December 2008] but if there are insufficient funds available to repay the Third Issuer Series 2 Term AAA Advance on such Funding 1 Interest Payment Date, then the shortfall shall be repaid on subsequent Funding 1 Interest Payment 6 Dates from Funding 1 Available Principal Receipts until the Third Issuer Series 2 Term AAA Advance is fully repaid; (c) the Third Issuer Series 3 Term AAA Advance in two equal instalments (each a Scheduled Amortisation Instalment) on the Funding 1 Interest Payment Date falling in [o] and [o] but if there are insufficient funds available to repay the Scheduled Amortisation Instalments on such Funding 1 Interest Payment Dates, then the shortfall shall be repaid on on subsequent Funding 1 Interest Payment Dates from Funding 1 Available Principal Receipts until the Third Issuer Series 3 Term AAA Advance is fully repaid; (d) the Third Issuer Series 4 Term AAA Advance in two equal instalments (each a Scheduled Amortisation Instalment) on the Funding 1 Interest Payment Date falling in [o] and o but if there are insufficient funds available to repay the Scheduled Amortisation Instalments on such Funding 1 Interest Payment Dates, then the shortfall shall be repaid on subsequent Funding 1 Interest Payment Dates from Funding 1 Available Principal Receipts until the Third Issuer Series 4 Term AAA Advance is fully repaid; and (e) on each Funding 1 Interest Payment Date falling on or after the Funding 1 Interest Payment Date on which the Third Issuer Series 4 Term AAA Advance is fully repaid, the Third Issuer Series 5 Term AAA Advance to the extent of Funding 1 Available Principal Receipts until the Third Issuer Series 5 Term AAA Advance is fully repaid. 5.3 Repayment of Third Issuer Term AA Advances prior to the occurrence of a Trigger Event and prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice or the service on each Issuer of a Note Acceleration Notice Subject to the provisions of Clauses 1 and 2 of Part II of Schedule 3 of the Funding 1 Deed of Charge, prior to the occurrence of a Trigger Event and prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice or the service on each Issuer of a Note Acceleration Notice, Funding 1 shall repay to the Third Issuer: (a) on each Funding 1 Interest Payment Date falling on or after the Funding 1 Interest Payment Date on which the Third Issuer Series 1 Term AAA Advance is fully repaid, the Third Issuer Series 1 Term AA Advance to the extent of Funding 1 Available Principal Receipts until the Third Issuer Series 1 Term AA Advance is fully repaid; (b) on each Funding 1 Interest Payment Date falling on or after the Funding 1 Interest Payment Date on which the Third Issuer Series 2 Term AAA Advance is fully repaid, the Third Issuer Series 2 Term AA Advance to the extent of Funding 1 Available Principal Receipts until the Third Issuer Series 2 Term AA Advance is fully repaid; (c) on each Funding 1 Interest Payment Date falling on or after the Funding 1 Interest Payment Date on which the Third Issuer Series 3 Term AAA Advance is fully repaid, the Third Issuer Series 3 Term AA Advance to the extent of Funding 1 Available Principal Receipts until the Third Issuer Series 3 Term AA Advance is fully repaid; (d) on each Funding 1 Interest Payment Date falling on or after the Funding 1 Interest Payment Date on which the Third Issuer Series 4 Term AAA Advance is fully repaid, the Third Issuer Series 4 Term AA Advance to the extent of Funding 1 Available Principal Receipts until the Third Issuer Series 4 Term AA Advance is fully repaid; and 7 (e) on each Funding 1 Interest Payment Date falling on or after the Funding 1 Interest Payment Date on which the Third Issuer Series 5 Term AAA Advance is fully repaid, the Third Issuer Series 5 Term AA Advance to the extent of Funding 1 Available Principal Receipts therefor until the Third Issuer Series 5 Term AA Advance is fully repaid. 5.4 Repayment of Third Issuer Term BBB Advances prior to the occurrence of a Trigger Event and prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice or the service on each Issuer of a Note Acceleration Notice Subject to the provisions of Clauses 1 and 2 of Part II of Schedule 3 of the Funding 1 Deed of Charge, prior to the occurrence of a Trigger Event and prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice or the service on each Issuer of a Note Acceleration Notice, Funding 1 shall repay to the Third Issuer: (a) on each Funding 1 Interest Payment Date falling on or after the Funding 1 Interest Payment Date on which the Third Issuer Series 1 Term AA Advance is fully repaid, the Third Issuer Series 1 Term BBB Advance to the extent of Funding 1 Available Principal Receipts until the Third Issuer Series 1 Term BBB Advance is fully repaid; (b) on each Funding 1 Interest Payment Date falling on or after the Funding 1 Interest Payment Date on which the Third Issuer Series 2 Term AA Advance is fully repaid, the Third Issuer Series 2 Term BBB Advance to the extent of Funding 1 Available Principal Receipts until the Third Issuer Series 2 Term BBB Advance is fully repaid; (c) on each Funding 1 Interest Payment Date falling on or after the Funding 1 Interest Payment Date on which the Third Issuer Series 3 Term AA Advance is fully repaid, the Third Issuer Series 3 Term BBB Advance to the extent of Funding 1 Available Principal Receipts until the Third Issuer Series 3 Term BBB Advance is fully repaid; (d) on each Funding 1 Interest Payment Date falling on or after the Funding 1 Interest Payment Date on which the Third Issuer Series 4 Term AA Advance is fully repaid, the Third Issuer Series 4 Term BBB Advance to the extent of Funding 1 Available Principal Receipts until the Third Issuer Series 4 Term BBB Advance is fully repaid; and (e) on each Funding 1 Interest Payment Date falling on or after the Funding 1 Interest Payment Date on which the Third Issuer Series 5 Term AA Advance is fully repaid, the Third Issuer Series 5 Term BBB Advance to the extent of Funding 1 Available Principal Receipts therefor until the Third Issuer Series 5 Term BBB Advance is fully repaid. 5.5 Repayment of Third Issuer Term Advances following the occurrence of a Non-Asset Trigger Event but prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice or the service on each Issuer of a Note Acceleration Notice On and from the Funding 1 Interest Payment Date following the occurrence of a Non-Asset Trigger Event but prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice or the service on each Issuer of a Note Acceleration Notice, Funding 1 shall repay the Third Issuer Term Advances on each Funding 1 Interest Payment Date from Funding 1 Available Principal Receipts in the manner set out in Clause 3 of Part II of Schedule 3 to the Funding 1 Deed of Charge. 8 5.6 Repayment of Third Issuer Term Advances following the occurrence of an Asset Trigger Event but prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice or the service on each Issuer of a Note Acceleration Notice Following the occurrence of an Asset Trigger Event but prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice or the service on each Issuer of a Note Acceleration Notice, Funding 1 shall repay the Third Issuer Term Advances on each Funding 1 Interest Payment Date from Funding 1 Available Principal Receipts in the manner set out in Clause 4 of Part II of Schedule 3 to the Funding 1 Deed of Charge. 5.7 Repayment of Third Issuer Term Advances following the service on each Issuer of a Note Acceleration Notice but prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice Following the service on each Issuer (including the Third Issuer) of a Note Acceleration Notice pursuant to the terms of the Third Issuer Deed of Charge but prior to the service on Funding 1 of an Intercompany Loan Acceleration Notice, Funding 1 shall apply Funding 1 Available Principal Receipts in the manner set out in Clause 5 of Part II of Schedule 3 to the Funding 1 Deed of Charge. 5.8 Repayment following the service on Funding 1 of an Intercompany Loan Acceleration Notice Following the service on Funding 1 of an Intercompany Loan Acceleration Notice pursuant to the terms of the Funding 1 Deed of Charge, the Third Issuer Intercompany Loan shall be repaid in the manner set out in Part III of Schedule 3 to the Funding 1 Deed of Charge (as the same shall be amended from time to time). 5.9 Acknowledgement of previous Intercompany Loans The Third Issuer hereby acknowledges and agrees that Funding 1 has entered into an intercompany loan agreement with Permanent Financing (No. 1) PLC (the First Issuer) dated 14th June, 2002 (the First Issuer Intercompany Loan Agreement) and an intercompany loan agreement with Permanent Financing (No. 2) PLC (the Second Issuer) dated 6th March, 2003 (the Second Issuer Intercompany Loan Agreement) and accordingly, the obligation of Funding 1 to repay this Third Issuer Intercompany Loan, the Second Issuer Intercompany Loan and the First Issuer Intercompany Loan will depend on the Term Advance Ratings of the various Term Advances made to Funding 1 under this Third Issuer Intercompany Loan Agreement and the First Issuer Intercompany Loan Agreement and the provisions of Schedule 3 to the Funding 1 Deed of Charge. 5.10 Acknowledgement of New Intercompany Loans The Third Issuer hereby acknowledges and agrees that from time to time Funding 1 may enter into New Intercompany Loans with New Issuers and that the obligation of Funding 1 to repay this Third Issuer Intercompany Loan and any New Intercompany Loan will depend on the Term Advance Rating of the individual Term Advances made to Funding 1 under any of the First Issuer Intercompany Loan, this Third Issuer Intercompany Loan any New Intercompany Loans and the provisions of Schedule 3 to the Funding 1 Deed of Charge. Subject to Clause 25 of the Funding 1 Deed of Charge (Supplemental Provisions Regarding the Security Trustee), any amendments to this Agreement will be made only with the prior written consent of each party to this Agreement. 9 6. PREPAYMENT 6.1 Prepayment of Third Issuer Term Advances If the New Basel Capital Accord has been implemented in the United Kingdom, whether by rule of law, recommendation of best practices or by any other regulation and PROVIDED THAT a Third Issuer Note Acceleration Notice has not been served, then Funding 1 may, on any Funding 1 Interest Payment Date on or after the Funding 1 Interest Payment Date falling in [December 2007], having given not more than 60 days and not less than 30 days' (or such shorter period as may be agreed with the Third Issuer and the Security Trustee) prior written notice to the Third Issuer and the Security Trustee, prepay all but not some only of all of the Third Issuer Term Advances without penalty or premium but subject to Clause 15 (Default interest and indemnity) of the Intercompany Loan Terms and Conditions. 6.2 Application of monies The Third Issuer hereby agrees to apply any amounts received by way of prepayment pursuant to Clause 6.1 (Prepayment of Third Issuer Term Advances) in making prepayments under the Third Issuer Notes. 7. CERTAIN FEES, ETC. 7.1 Fee for provision of Third Issuer Term Advances Funding 1 shall (except in the case of payments due under paragraphs (c),(e),(f) and (i) below, which shall be paid when due) on each Funding 1 Interest Payment Date pay to the Third Issuer for same day value to the Third Issuer Transaction Account a fee for the provision of the Third Issuer Term Advances. Such fee shall be an amount or amounts in the aggregate equal to the following: (a) the fees, costs, charges, liabilities and expenses and any other amounts due and payable to the Security Trustee pursuant to the Third Issuer Deed of Charge together with interest thereon as provided therein; (b) the fees, costs, charges, liabilities and expenses and any other amounts due and payable to the Note Trustee pursuant to the Third Issuer Trust Deed together with interest thereon as provided therein; (c) the reasonable fees and expenses of any legal advisers, accountants and auditors appointed by the Third Issuer and properly incurred in their performance of their functions under the Transaction Documents which have fallen due; (d) the fees, costs and expenses due and payable to the Paying Agents, the Registrar, the Transfer Agent and the Agent Bank pursuant to the Third Issuer Paying Agent and Agent Bank Agreement; (e) any amounts due and payable by the Third Issuer to the Inland Revenue in respect of the Third Issuer's liability to United Kingdom corporation tax (insofar as payment is not satisfied by the surrender of group relief or out of the profits, income or gains of the Third Issuer and subject to the terms of the Third Issuer Deed of Charge) or any other Taxes payable by the Third Issuer; (f) the fees, costs, charges, liabilities and expenses due and payable to the Third Issuer Account Bank, pursuant to the Third Issuer Bank Account Agreement (if any); 10 (g) the fees, costs, charges, liabilities and expenses due and payable to the Third Issuer Cash Manager, pursuant to the Third Issuer Cash Management Agreement; (h) any termination payment due and payable by the Third Issuer to any Third Issuer Swap Provider, pursuant to any Third Issuer Swap Agreement; (i) the fees, costs, charges and liabilities and expenses due and payable to the Corporate Services Provider pursuant to the Third Issuer Corporate Services Agreement; (j) an amount equal to "G" where G is calculated as follows: G = (A - D - H) or, if such calculation is less than zero, then G shall be zero where, A = 0.01 per cent of the interest amounts paid by Funding 1 to the Third Issuer on the Third Issuer Term Advances on the immediately preceding Funding 1 Interest Payment Date; D = E - F where, E= the interest amounts (which excludes those fee amounts in this Clause 7.1) paid by Funding 1 to the Third Issueron the Third Issuer Term Advances on the immediately preceding Funding 1 Interest Payment Date; and F= amounts paid by the Third Issuer under paragraphs (d) to (g) of the Third Issuer Pre-Enforcement Revenue Priority of Payments on the immediately preceding Funding 1 Interest Payment Date; and H= the cumulative aggregate of (D - A) as calculated on each previous Funding 1 Interest Payment Date. If such cumulative aggregate of (D - A) is less than zero, then H shall be zero; (k) any other amounts due or overdue by the Third Issuer to third parties including the Rating Agencies and the amounts paid by the Third Issuer under the Subscription Agreement and the Underwriting Agreement (excluding, for these purposes, the Noteholders) other than amounts specified in paragraphs (a) to (j) above; and (l) if on any Funding 1 Interest Payment Date there are Third Issuer Principal Receipts remaining in the Third Issuer Bank Accounts, an amount equal to the difference between (i) the interest that would be earned by the Third Issuer on such Third Issuer Principal Receipts remaining in the Third Issuer Bank Accounts during the next succeeding Interest Period and (ii) the interest that would be payable by the Third Issuer applying the weighted average rate of interest payable on the Series 5 Third Issuer Notes or the relevant Third Issuer Currency Swap Agreements due for repayment at the end of that Interest Period to such Third Issuer Principal Receipts remaining in the Third Issuer Bank Accounts, 11 together with, (i) in respect of taxable supplies made to the Third Issuer, an amount in respect of any value added tax or similar tax payable in respect thereof against production of a valid tax invoice; and (ii) in respect of taxable supplies made to a person other than the Third Issuer, any amount in respect of any Irrecoverable VAT or similar tax payable in respect thereof (against production of a copy of the relevant tax invoice), and to be applied subject to and in accordance with the provisions of the Third Issuer Pre-Enforcement Revenue Priority of Payments in the Third Issuer Cash Management Agreement. 7.2 Set-off Funding 1 and each of the other parties to the Third Issuer Intercompany Loan Agreement agree that the Third Issuer shall be entitled to set-off those amounts due and payable by Funding 1 pursuant to this Clause 7 on the Closing Date against the amount to be advanced by the Third Issuer to Funding 1 by way of the Third Issuer Term Advances on the Closing Date. 8. APPLICATION OF CERTAIN PROVISIONS The provisions set out in Clause 4.2 (Limited Recourse) of the Intercompany Loan Terms and Conditions shall apply to: (a) the Third Issuer Term AA Advances; and (b) the Third Issuer Term BBB Advances. 9. ADDRESSES The addresses referred to in Clause 18.4 (Notices) of the Intercompany Loan Terms and Conditions are as follows: The Security Trustee: The Bank of New York For the attention of: Global Structured Finance - Corporate Trust Services Address: The Bank of New York One Canada Square London E14 5AL Facsimile: + 44 20 7964 60 1/6399 The Third Issuer: For the attention of: The Secretary Address: Permanent Financing (No. 3) PLC Facsimile: +44 (0) 20 7556 0975 Copy to: HBOS Treasury Services plc 33 Old Broad Street London EC2N 1HZ 12 Facsimile: +44 (0) 20 7574 8784 For the attention of: Head of Capital Markets and Securitisation Funding 1: For the attention of: The Secretary Address: Permanent Funding (No. 1) Limited Facsimile: +44 (0) 20 7556 0975 Copy to: HBOS Treasury Services plc 33 Old Broad Street London EC2N 1HZ Facsimile number: +44 (0) 20 7574 8784 For the attention of: Head of Capital Markets and Securitisation Rating Agencies: Moody's: Address: 2 Minster Court, Mincing Lane, London EC3R 7XB For the attention of: [Nicholas Lindstrom] Telephone: +44 (0) 20 7772 5332 Facsimile: +44 (0) 20 7772 5400 S&P: Address: Garden House, 18 Finsbury Circus, London EC2M 7NJ For the attention of: [Andre Vollmann] Telephone: +44 (0) 20 7826 3855 Facsimile: +44 (0) 20 7826 3598 Fitch: Address: Eldon House, 2 Eldon Street, London EC2M 7UA For the attention of: [European Structured Finance] Telephone: +44 (0) 20 7417 4355 Facsimile: +44 (0) 20 7417 6262 13 SCHEDULE 1 CONDITIONS PRECEDENT IN RESPECT OF DRAWDOWN 1. Authorisations (a) A copy of the memorandum and articles of association, certificate of incorporation and certificate of incorporation on change of name of Funding 1. (b) A copy of a resolution of the board of directors of Funding 1 authorising the entry into, execution and performance of each of the Transaction Documents to which Funding 1 is a party and authorising specified persons to execute those on its behalf. (c) A certificate of a director of Funding 1 certifying: (i) that each document delivered under this paragraph 1 of Schedule 1 is correct, complete and in full force and effect as at a date no later than the date of execution of the Third Issuer Intercompany Loan Agreement and undertaking to notify the Security Trustee if that position should change prior to the first Drawdown Date; and (ii) as to the identity and specimen signatures of the directors and signatories of Funding 1. 2. Security (a) The Funding 1 Deed of Charge duly executed by the parties thereto. (b) Duly completed bank account mandates in respect of the Funding 1 GIC Account and the Funding 1 Transaction Account. (c) Security Power of Attorney for Funding 1. 3. Legal opinion Legal opinions of: (a) Allen & Overy, English and U.S. legal advisers to the Seller, the Third Issuer and the Servicer, addressed to, inter alios, the Security Trustee; and (b) Sidley Austin Brown & Wood, English and U.S. legal advisers to the Co-Arrangers, addressed to, inter alios, the Security Trustee. 4. Transaction Documents Duly executed copies of: (a) the Servicing Agreement; (b) the Mortgages Trust Deed; (c) the Halifax Deed and Power of Attorney; (d) the Funding 1 Deed of Charge; 14 (e) the Funding 1 Swap Agreement; (f) the Corporate Services Agreements; (g) [the Funding 1 Liquidity Facility Agreement;] (h) the First Issuer Intercompany Loan Agreement, the Second Issuer Intercompany Loan Agreement and the Third Issuer Intercompany Loan Agreement; (i) the Cash Management Agreement; (j) the Bank Account Agreement; (k) the Funding 1 Guaranteed Investment Contract; (l) the First Start-up Loan Agreement, the Second Issuer Start-up Loan Agreement and the Third Start-up Loan Agreement; (m) the Mortgage Sale Agreement; (n) the Seller Power of Attorney; (o) the Third Issuer Deed of Charge; (p) the Third Issuer Cash Management Agreement; (q) the Third Issuer Swap Agreements; (r) the Third Issuer Bank Account Agreement; (s) the Third Issuer Post-Enforcement Call Option Agreement; (t) the Third Issuer Trust Deed; (u) the Third Issuer Global Notes; (v) the Third Issuer Paying Agent and Agent Bank Agreement; (w) the Underwriting Agreement; (x) the Subscription Agreement; (y) the Mortgages Trustee Guaranteed Investment Contract; and (z) the Amended and Restated Master Definitions and Construction Schedule, the First Issuer Master Definitions and Construction Schedule and the Third Issuer Master Definitions and Construction Schedule. 5. Bond Documentation (a) Confirmation that the Third Issuer Notes have been issued and the subscription proceeds received by the Third Issuer; and (b) Copies of the Prospectus and the Offering Circular. 15 6. Miscellaneous Solvency certificates from Funding 1 signed by two directors of Funding 1 in or substantially in the form set out in Schedule 2 to the Intercompany Loan Terms and Conditions. 16 SIGNATORIES IN WITNESS WHEREOF the parties have caused this Agreement to be duly executed on the day and year appearing on page 1. Funding 1 SIGNED by ) for and on behalf of ) PERMANENT FUNDING (NO. 1) LIMITED) Third Issuer SIGNED by ) for and on behalf of ) PERMANENT FINANCING (NO. 3) PLC ) Security Trustee SIGNED by ) for and on behalf of ) THE BANK OF NEW YORK ) Agent Bank SIGNED by ) for and on behalf of ) [CITIBANK, N.A., ) LONDON BRANCH] ) 17