Frequently Asked Questions 
Minibond Notes
Version 7 - 12 November 2008

These FAQs have been compiled by HSBC Institutional Trust Services (Singapore) Limited (“HTSG”) for the information of holders of notes issued in Singapore under the secured note programme established by Minibond Limited. HTSG’s sole role with regard to the note programme is that of note trustee. In this role, HTSG is responsible for enforcing the rights of the noteholders under the programme in relation to any series of notes in respect of which an event of default occurs subject to and in accordance with the terms of the programme documentation. Whilst every endeavour has been made to ensure that the responses to these FAQs are reliable as at the date they are issued, no representations or warranties can be given regarding their accuracy or completeness. HTSG cannot and does not offer any form of financial or legal advice to noteholders and nothing herein should be construed as such. Noteholders may wish to seek independent professional advice with respect to their own positions.

Questions and Answers
Part 1 – Termination of Swap Arrangement
1. Can you please confirm the reports that notices have been served to Lehman Brothers Special Financing Inc to terminate the credit default swaps entered with the synthetic portfolio notes issuers, Zircon Finance Limited / Beryl Finance Limited for series 1-3 and 5-8?
Yes, termination notices have been served. Formal notification of this is being issued to noteholders of the relevant series through the post and in the newspapers as appropriate.
2. Why were the credit default swaps terminated for the underlying synthetic portfolio notes for series 1-3 and 5-8?
The credit default swaps involved Minibond Limited (as noteholder at the underlying level) taking the credit risk of between 135 to 150 reference entities under the relevant synthetic portfolio notes.

Pursuant to the terms of each series of underlying notes, depending on the number of credit events which might occur under the related swaps, the principal amount of the underlying synthetic portfolio notes due to Minibond Limited could be eroded, , which could in turn affect the distribution to Minibond noteholders. Some of the reference entities had already been placed into receivership or had filed for bankruptcy. Given the current market conditions, and based on professional advice obtained by the trustee, it was felt that there was significant risk that the principal amount of the underlying synthetic portfolio notes could be eroded.

Appropriate action was therefore taken by the trustee, in conjunction where necessary with other relevant parties, to arrange for termination notices to be served on the swap counterparty.
3. Why were noteholders not consulted beforehand?
The terms and conditions of the Minibond notes provide that at least 21 days' notice have to be given to noteholders in order to convene a noteholders' meeting. This would have subjected noteholders to a longer period of risk with possible principal erosion at the underlying level (as referred to in the answer to question 2 above). The professional advice taken by the trustee recommended that steps be taken where practicable to eliminate this risk as soon as possible.
4. Is there any payment required to be made to the swap counterparty – Lehman Brothers Special Financing Inc pursuant to the termination of the Credit Default Swaps?
The close out values will take sometime to be determined. Payment of any resulting liabilities amounts would be subject to the terms of the underlying notes.
5. What will happen to the underlying collateral following the termination of the swap?
We have appointed three partners from PricewaterhouseCoopers (PwC) as Receivers of Minibond Limited in respect of series 5, 6, 7 and 8 which are in default and they will determine the next course of action for those series of notes (that have defaulted) in relation to the underlying securities. This will depend on their overall assessment of the current position of the notes and could be influenced by factors beyond their control including considerations relating to gaining possession of the underlying collateral in question.

For series 1, 2 and 3 the Minibond notes have not defaulted as yet. Until an event of default occurs under those series, the trustee is not in a position to appoint Receivers or take any other unilateral action.
6. Why have you taken actions only for Series 1 to 3 and 5 to 8? What about series 9-10?
Series 9 and 10 are not similarly exposed to the risk of erosion of principal at the underlying level due to credit events because they have no underlying swaps. The professional advice we obtained did not therefore recommend any action at this time in relation to these series.
Part 2 – Potential Restructuring of the Notes
7. Can you confirm the reports stating that proposals have been made by interested third parties to replace Lehman as swap counterparty under the notes?
Yes, draft proposals have been made by interested parties. The proposals are more complex than a straight substitution of the existing swap counterparty and would entail some restructuring of the notes. The Receivers will consider these proposals. In addition, MAS has appointed an independent financial advisor to work with the trustee and Receivers and to advise noteholders on the merits and risks of a proposal, if it is put to noteholders for approval.
8. Does the appointment of Receivers rule out a restructuring in relation to series 5, 6, 7 and 8?
The trustee has been advised that the possibility of a restructuring is not something which would be precluded by the appointment of Receivers. This said, while restructuring proposals are still being considered, we would like to emphasise that the structure of the Minibond notes as well as that of the underlying securities for most series of the Minibond notes is complex and there are a variety of issues which would need to be resolved in connection with a restructuring. It is too early to speculate on anything at this stage, so we should allow the Receivers to first assess the full situation.
9. What would the process be for approving a restructuring and how long would it take?
The commercial terms of the arrangement and the detail of the restructuring would have to be finalised between the relevant parties including the incoming financial institution and, for those series which are invested in synthetic portfolio notes, any conditions at the underlying level to enforcement action being taken would have to be resolved before any proposal could be put to the vote of the relevant noteholders. If approved by the noteholders, it is possible that the sanction of the court would also be necessary to enable the proposal to be implemented.

The Receivers will involve the independent financial adviser appointed by MAS in considering the proposals and to the extent that any proposal which is to be put to the noteholders would receive the advice of the independent financial adviser.

As noted in the answer to question 8, the structure of the Minibond notes and that of the underlying securities for most series of the Minibond notes is complex and there are a variety of issues which would need to be resolved in connection with a restructuring. It is too early to speculate on anything at this stage, so we should allow the Receivers to first assess the full situation.
10. Can you confirm which third parties have put the restructuring proposals forward and whose proposal remain on the table?
No, at this stage we are not at liberty to disclose that information.
11. What will happen if it becomes apparent that restructuring is not a viable option?
If no restructuring proposals are to be put to the noteholders, it is likely that the only available option would be for the value of the underlying securities to be realised and the proceeds to be distributed after deducting liabilities. This process will be subject to the terms of the Minibond notes and, for those series which have synthetic portfolio notes underlying them, the terms of those underlying synthetic notes as well, and could take some considerable time.
Part 3 – Default Status of the Notes and Enforcement Action
12. Have any of the notes defaulted and, if so, which?
Under the terms of each series of notes, there is a prescribed 15 day period for Minibond Limited to remedy any payment default which occurs. Payment default under a series of notes will therefore only become an event of default, entitling the trustee to take enforcement action on the relevant series if it continues for a period of 15 days or more.

There was an interest payment due on series 5 and 6 on Monday 22 September as well as on series 7 and 8 on Friday 10 October 2008. These were not paid. The grace period has expired for these payments and they remain outstanding so an event of default has occurred in relation to series 5, 6, 7 and 8 which allows the note trustee to take enforcement action on those series and in this regard it has appointed Receivers.

Minibond Limited has not presently defaulted on payment under any of the other series of notes although it has indicated to us that, in light of the bankruptcy proceedings in the United States in relation to Lehman Brothers Special Financing Inc. (the swap counterparty) and Lehman Brothers Holdings Inc. (as swap guarantor), it is unlikely to receive any more funds under the swap transactions entered into by it in respect of each series of notes and accordingly, an event of default is very likely to occur in respect of each series of notes as interest payments fall due.

It is emphasised that an event of default and any resulting enforcement action under one series of notes does not automatically trigger a default or the right to take enforcement action under any other series. Accordingly any enforcement action by the notes trustee will be possible in respect of those series which have yet to experience a payment default only if a payment default occurs under them which continue for 15 days or more or some other event of default occurs in relation to them.
13. Has there been any payment default on the synthetic notes which underlie series 1, 2, 3, 5, 6, 7 and 8 of the Minibond notes?
We understand payment events of default have occurred on the synthetic notes for series 5, 6, 7 and 8.
14. How quickly will the note trustee take enforcement action?
As noted in the answer to question 12 above, action can only be taken by us to enforce following a payment default which continues for 15 days or more or the occurrence of some other event of default. 15 days have passed since the payment default in respect of series 5, 6, 7 and 8 and we have now appointed Receivers for these series to manage the enforcement process. For other series it will depend on when and if payment defaults or any other events of default occur.

It should be noted that for series 7 and 8, Minibond Limited is not the sole holder and in fact holds a minority of the underlying synthetic notes issued by the underlying note issuer. As Minibond Limited is a minority noteholder, the Receivers will not have any standing on their own to instruct the trustee of the underlying notes to commence enforcement actions at the underlying level. In any event, for all those series with underlying synthetic portfolio notes, enforcement action may be dependent on conditions being met at the underlying level.
Part 4 – Structure of the Notes and Impact of Lehman Bankruptcy
15. Who is liable for payments on the notes?
The notes are issued by a company called Minibond Limited and it is this company that is liable for making payments on the notes. Minibond Limited is a special purpose company incorporated in the Cayman Islands with limited liability. The shares of Minibond Limited are held under a charitable trust.
16. What is Lehman’s involvement in the notes?
Lehman companies are involved in a number of capacities in relation to the notes including as arranger, swap counterparty, swap guarantor and market agent.

As arranger the relevant Lehman entity (which varied from series to series) would have structured the note programme for Minibond Limited.

As swap counterparty Lehman Brothers Special Financing Inc entered into interest rate, currency and credit default swaps with Minibond Limited. Under the interest rate and currency leg of the swaps Minibond Limited would have agreed to pay to Lehman amounts received from the underlying securities acquired with the proceeds of the notes in return for payments from Lehman of amounts necessary to generate the returns on the notes. Under the credit default swap Minibond Limited would have provided Lehman Brothers Special Financing Inc with credit default protection in respect of the reference entities for the relevant notes. Lehman Brothers Holdings Inc guaranteed the obligations of the Lehman swap counterparty to Minibond Limited under the swap.

Similarly, Lehman Brothers Special Financing Inc entered into credit default swaps with the issuer of the underlying securities in respect of the underlying securities for Series 1-3 and 5-8.

As market agent, Lehman Brothers International (Europe) was able to make a secondary market in the notes to allow investors to buy and sell the notes although they would not have been under any obligation to do this.
17. How does the bankruptcy of Lehman Brothers Holdings Inc and Lehman Brothers Special Financing Inc affect the notes?
Under the terms of each swap, the fact that Lehman Brothers Holdings Inc (as guarantor of the swap) and Lehman Brothers Special Financing Inc (as swap counterparty) have filed for bankruptcy in the United States gives Minibond Limited the right to elect to terminate the swap transaction. If Minibond Limited exercised this right, it would in turn trigger an early redemption of the relevant series of notes. In the case of an early redemption, the terms of the notes provide that the underlying securities (i.e. the securities acquired by Minibond Limited with the proceeds of the notes) will be sold and the noteholders will be paid out of the proceeds from the sale after deducting any other liabilities which are payable from the proceeds in priority to the noteholders’ claims in accordance with the terms of the notes. If the swaps at the Minibond level are not terminated by Minibond Limited there will be no early redemption of the notes by Minibond Limited.

If Minibond Limited defaults on interest payments on any series of notes and the default continues for more than 15 days or more, action can be taken by us, as note trustee, to sell the underlying securities and use the proceeds to pay the noteholders after deducting any other liabilities which are payable from the proceeds in priority to the noteholders’ claims in accordance with the terms of the notes. This process could take some considerable time.
18. Are the notes principal protected and, if not, what is the recourse of the noteholders?
The notes are not principal protected. The claims of the noteholders against Minibond Limited are restricted in all circumstances to the value of the underlying securities. In the event enforcement action is taken by us (and no restructuring proposal is to be put to the noteholders) or the notes are early redeemed by Minibond Limited the underlying securities would be sold and the proceeds distributed in accordance with the terms of the notes. Under the terms of each series of notes any costs incurred by Minibond Limited in unwinding the swaps, including amounts owed to the swap counterparty (Lehman Brothers Special Financing Inc.) under the swaps, will take priority to noteholders’ claims as will the costs of enforcement.

For those notes which are invested in underlying synthetic portfolio notes (i.e. series 1-3 and 5-8 but not 9 and 10), those synthetic notes themselves have gone or are likely to go into default. The enforcement process is therefore likely to involve enforcement action having to be taken at the underlying level as well. Where appointed, instructions will be given to the relevant parties to the synthetic notes by the Receivers at the Minibond level but implementation may be dependent on conditions being met at the underlying level first and this could have an impact on timing.
19. What are the underlying securities for each series of notes?
For series 1, 2, 3, 7 and 8 the underlying securities are synthetic portfolio notes issued by Beryl Finance Limited.

For series 5 and 6 the underlying securities are synthetic portfolio notes issued by Zircon Finance Limited.

For series 9 and 10 the underlying securities are floating rate notes issued by Wachovia Corporation.
20. For those notes in relation to which the underlying securities comprise synthetic notes, do you have any information on the assets underlying those notes?
As referred to in part 1, the swaps associated with these synthetic notes have been terminated. Further information on the synthetic notes will be disclosed at an appropriate time in the enforcement (or any restructuring) process.
21. Why have Receivers only been appointed in respect of Series 5, 6, 7 and 8? What about the other series?
The trustee is not legally entitled to take any enforcement actions for non-defaulted series.
22. What is the trustee’s role in the receivership process?
Where the trustee has appointed Receivers, the enforcement process will be managed by the Receivers.
23. What is the role of the Receivers?
The Receivers have full power to manage the realisation process (including considering any restructuring proposals, together with the independent financial advisor appointed by the MAS, and, on a disposal, determining the method and timing of any disposal of assets). They will consult closely with the trustee and both parties will have due regard to the interests of the noteholders.
24. How can noteholders be assured that the sale of the underlying securities will be at a reasonable price favourable to noteholders?
The Receivers will be managing the enforcement process and will take into consideration a variety of factors, including the prevailing market conditions in relation to the underlying securities and collateral.
Part 5 - Possibility of Redemptions and Sales
25. Can I redeem or sell the notes now?
The notes do not include terms which provide the noteholders with an option to redeem early. You may also have difficulties selling the notes as there may not currently be a liquid trading market. You will need to contact the distributor from whom you purchased the notes for advice on this.
26. If I am offered a price for my notes should I sell at a discount?
As trustee of the notes we cannot provide financial or investment advice to noteholders. Valuing the securities underlying the notes and any costs associated with unwinding the swap transactions is going to be a complex task and is likely to take some time. Without accurate information, it may not be possible to take a properly informed decision one way or the other. If you are considering this as an option we strongly suggest you seek advice from a financial adviser.
27. What should I do now with regard to my notes?
As trustee of the notes we are not in a position to provide financial or investment advice to noteholders. Noteholders would need to obtain independent professional advice in this regard.
Part 6 – Communications from the Note Trustee and Information
28. When will the note trustee communicate with noteholders again?
We will inform relevant noteholders as and when any further defaults occur under the notes and/ or when there is any material information to communicate in relation to any enforcement action or any offer with regard to restructuring. We will also update these FAQs to the extent practicable following any further material developments.
29. Where can I obtain copies of the base prospectus and pricing statements for the notes?
Please refer to the distributor from whom you acquired the notes.
30. Who can I contact if I need to find out more about these notes?
We have provided a helpline no. +65 6216 7449, from 9.00am to 5.00pm on weekdays.

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