EXECUTION VERSION
COMMITTED FACILITY AGREEMENT
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BNP PARIBAS PRIME BROKERAGE, INC. ("BNPP PB, INC.") and the counterparty
specified on the signature page ("CUSTOMER"), hereby enter into this Committed
Facility Agreement (this "AGREEMENT"), dated as of the date specified on the
signature page.
Whereas BNPP PB, Inc. and Customer have entered into the U.S. PB Agreement,
dated as of the date hereof (the "U.S. PB AGREEMENT") (the U.S. PB Agreement and
this Agreement, collectively, the "40 ACT FINANCING AGREEMENTS").
Whereas this Agreement supplements and forms part of the other 40 Act Financing
Agreements and sets out the terms of the commitment of BNPP PB, Inc. to provide
financing to Customer under the 40 Act Financing Agreements.
Now, therefore, in consideration of the foregoing promises and for other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS -
(a) Capitalized terms not defined in this Agreement have the respective
meaning assigned to them in the U.S. PB Agreement. The 40 Act
Financing Agreements are included in the term "Contract," as defined
in the U.S. PB Agreement.
(b) "ACCOUNT AGREEMENT" means the Account Agreement attached as Exhibit
A to the U.S. PB Agreement.
(c) "BORROWING" means a draw of cash financing by Customer from BNPP PB,
Inc. pursuant to Section 2 of this Agreement.
(d) "CLOSING DATE" means March 21, 2011.
(e) "COLLATERAL REQUIREMENTS" means the collateral requirements set
forth in Section 1 of Appendix A attached hereto.
(f) "COURT ISSUED FILINGS" means each court order, court decision,
summons, transcript of proceedings, minute entry, stipulation and
all other documents issued, approved and signed by the court in
connection with the Disclosed Legal Proceedings.
(g) "CUSTODIAN" means PFPC Trust Company.
(h) "DISCLOSED LEGAL PROCEEDINGS" means the legal proceedings disclosed
in the Customer's Annual Report dated October 31,
2010.
(i) "MAXIMUM COMMITMENT FINANCING" means U.S. $16,000,000 with the
ability to increase to U.S. $23,000,000 with BNPP's consent.
(j) "NAV TRIGGER EVENT" means (A) as of the close of business on the
last Business Day of any calendar month within the one month period
after the Closing Date (the "FIRST MONTHLY PERIOD"), the Net Asset
Value of Customer as of such last Business Day of such calendar
month has declined by thirty percent (30%) or more from the Net
Asset Value on the Closing Date, provided that following the First
Monthly Period, it shall be a Facility Termination Event if the Net
Asset Value of Customer as of the close of business on the last
Business Day of any calendar month has declined by thirty percent
(30%) or more from the Net Asset Value of Customer as of the close
of business on the last Business Day of the immediately preceding
calendar month; (B) as of the close of business on the last Business
Day of any calendar month within the three month period after the
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Closing Date (the "FIRST THREE MONTH PERIOD"), the Net Asset Value
of Customer as of such last Business Day of any of the three
calendar months has declined by forty percent (40%) or more from the
Net Asset Value on the Closing Date, provided that following the
First Three Month Period, it shall be a Facility Termination Event
if the Net Asset Value of Customer as of the close of business on
the last Business Day of any calendar month has declined by forty
percent (40%) or more from the Net Asset Value of Customer as of the
close of business on the last Business Day of the calendar month
three months prior, or (C) as of the close of business on the last
Business Day of each calendar month within the twelve month period
after the Closing Date (the "FIRST TWELVE MONTH PERIOD"), the Net
Asset Value of Customer as of such last Business Day of any of the
twelve calendar months has declined by fifty percent (50%) or more
from the Net Asset Value on the Closing Date, provided that
following the First Twelve Month Period, it shall be a Facility
Termination Event if the Net Asset Value of Customer as of the close
of business on the last Business Day of any calendar month has
declined by fifty percent (50%) or more from the Net Asset Value of
Customer as of the close of business on the last Business Day of the
calendar month twelve months prior (for purposes of (A), (B) and (C)
above, any decline in Net Asset Value shall not take into account
any positive or negative change caused by capital transfers, such as
redemptions, withdrawals, subscriptions, contributions, dividends or
investments, howsoever characterized, and all amounts set forth in
redemption notices received by or on behalf of Customer
(notwithstanding the date the actual redemption shall occur)).
(k) "NET ASSET VALUE" means, with respect to Customer, the aggregate net
asset value of the common stock issued by Customer calculated in
accordance with U.S. generally accepted accounting principles.
(l) "NET ASSET VALUE FLOOR" means, with respect to Customer, an amount
equal to the greater of (i) 50% of the Net Asset Value of Customer,
calculated as of the date of execution and (ii) 50% of the Net Asset
Value of Customer, calculated as of Customer's
most recent fiscal year-end subsequent to the date hereof.
(m) "OUTSTANDING DEBIT FINANCING" means the aggregate net cash balance
(excluding current short sale proceeds) held under the 40 Act
Financing Agreements if such net cash balance is a debit, or zero if
such aggregate net cash balance is a credit. For the purposes of
calculating such aggregate net cash balance, if Customer holds
credit or debit cash balances in non-USD currencies, BNPP PB, Inc.
will convert each of these balances into USD at prevailing market
rates to determine Customer's aggregate net cash
balance.
(n) "SPREAD INCREASE CAP" means (a) if a Borrowing is effected after the
occurrence of a Facility Termination Event, then the cap shall be
determined by BNPP PB, Inc. in its sole discretion and (b)
otherwise, 200 basis points.
(o) "1940 ACT" means the Investment Company Act of 1940, as amended.
2. BORROWINGS -
Subject to Section 7, BNPP PB, Inc. shall make available cash financing
under the 40 Act Financing Agreements in an amount up to the relevant
Maximum Commitment Financing. Such cash financing shall be made available
in immediately available funds. Customer may borrow under this Section 2,
prepay pursuant to Section 4 and reborrow under this Section 2 without
penalty.
On the Closing Date, BNPP PB, Inc. shall make funds available to Customer
in an amount up to the Maximum Commitment Financing. Each subsequent
Borrowing (together with the Outstanding Debit Financing not to exceed the
Maximum Commitment Financing) shall be made on written notice, given by
Customer to BNPP PB, Inc. not later than 11:00 A.M. (New York City time)
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on the Business Day immediately preceding the date of the proposed
Borrowing (which must be a Business Day) by Customer. Subject to Section
7, BNPP PB, Inc. shall, before 11:00 A.M. (New York City time) on the date
of such Borrowing, make available to Customer the amount of such Borrowing
(provided that, the Outstanding Debit Financing would not exceed the
Maximum Commitment Financing following such Borrowing) payable to the
account designated by the Customer in such notice of borrowing.
3. REPAYMENT -
(a) Upon the occurrence of a Facility Termination Event, an event
described in Section 16(a) hereof, or the date specified in the
Facility Modification Notice as described in Section 6, all
Borrowings (including all accrued and unpaid interest thereon and
all other amounts owing or payable hereunder) may be recalled by
BNPP PB, Inc. in accordance with Section 1 of the U.S. PB Agreement.
(b) Upon the occurrence of a Default, the BNPP Entities shall have the
right to take any action described in section 13(b) hereof.
4. PREPAYMENTS -
Customer may, upon at least one Business Day's notice to BNPP PB, Inc.
stating the proposed date and aggregate principal amount of the
prepayment, prepay all or any portion of the outstanding principal amount
of the Outstanding Debit Financing, together with accrued interest to the
date of such prepayment on the principal amount prepaid; provided that
Customer shall continue to be obligated to pay the commitment fee as set
forth in Appendix B in respect of any undrawn Maximum Commitment
Financing.
5. INTEREST -
Customer shall pay interest on the outstanding principal amount of each
Borrowing from the date of such Borrowing until such principal amount
shall be paid in full, at the rates specified on Appendix B attached
hereto. Such interest shall be payable monthly, and if not paid when due,
any unpaid interest shall be capitalized on the principal balance;
provided that, notwithstanding such capitalization, the failure by
Customer to pay such interest when due, shall be a failure of Customer to
comply with an obligation under this Agreement.
6. SCOPE OF COMMITTED FACILITY -
Subject to Section 7, BNPP PB, Inc. shall make available cash financing
under the 40 Act Financing Agreements up to the relevant Maximum
Commitment Financing, and may not take any of the following actions except
upon at least 180 (or 30 if a NAV Trigger Event occurs) calendar
days' prior notice (the "FACILITY MODIFICATION NOTICE"):
(a) modify the Collateral Requirements other than in accordance with the
terms of Appendix A;
(b) recall or cause repayment of any cash loan under the 40 Act
Financing Agreements;
(c) modify the interest rate spread on cash loans under the 40 Act
Financing Agreements, as set forth in Appendix B attached hereto;
(d) modify the fees, charges or expenses other than those described in
clause (c) above, as set forth in Appendix B attached hereto (the
"FEES"); or
(e) terminate any of the 40 Act Financing Agreements.
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7. CONDITIONS FOR COMMITTED FACILITY -
The commitment as set forth in Sections 2 and 6 only applies so long as -
(a) Customer satisfies the Collateral Requirements;
(b) no Default or Facility Termination Event has occurred; and
(c) no termination of this Agreement has occurred as provided under
Section 6(e).
Notwithstanding anything to the contrary in the foregoing or elsewhere in
the 40 Act Financing Agreements, upon the occurrence of an initial or
final adjudication of fines, damages, judgments or other form of penalties
against Customer or its property in excess of $1,000,000, in the
aggregate, to the extent not covered by Customer's third party insurance,
so long as they are undischarged, unvacated, unbonded or unstayed, (i)
BNPP PB, Inc. shall not be obligated to make available any additional cash
financing (irrespective of whether Customer may seek to repay and
reborrow), and (ii) the Customer shall not be entitled to effect a
Borrowing of any remaining undrawn capacity under the Maximum Commitment
Financing; provided, that, Customer shall not be obligated to continue to
pay the commitment fee, as set forth in Appendix B in respect of such
unused amount.
8. FEES -
Customer shall pay when due a commitment fee as set forth in Appendix B.
9. SUBSTITUTION -
(a) If BNPP PB, Inc. sends a Facility Modification Notice, Customer may
not substitute any collateral, provided that Customer may purchase
and sell portfolio securities in the ordinary course of business
consistent with its investment restrictions, provided further that
BNPP PB, Inc. may permit substitutions upon request, which
permission shall not be unreasonably withheld.
(b) Prior to BNPP PB, Inc. sending a Facility Modification Notice,
Customer may substitute collateral if such substitution does not
result in a breach of any representation contained in Section 5 of
the U.S. PB Agreement.
10. COLLATERAL DELIVERY -
If notice of a Collateral Requirement is sent to Customer: (i) on or
before 11:00 a.m. on any Business Day, then Customer shall deliver all
required Collateral no later than the close of business on such Business
Day, and (ii) after 11:00 a.m. on any Business Day, then Customer shall
deliver all required Collateral no later than the close of business on the
immediately succeeding Business Day.
11. REPRESENTATIONS AND WARRANTIES -
Customer hereby makes all the representations and warranties set forth in
Section 5 of the Account Agreement, which are deemed to refer to this
Agreement, and such representations and warranties shall survive each
transaction and the termination of the 40 Act Financing Agreements.
12. FINANCIAL INFORMATION -
(a) Customer shall provide BNPP PB, Inc. with copies of -
i. the most recent annual report of Customer containing financial
statements certified by independent certified public
accountants and prepared in accordance with generally accepted
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accounting principles in the United States, as soon as
available and in any event within 120 calendar days after the
end of each fiscal year of Customer, provided that to the
extent any such report has been filed with the U.S. Securities
and Exchange Commission and are available on the XXXXX
database it shall be deemed delivered to BNPP PB, Inc. on the
date so available;
ii. the most recent quarterly portfolio report of Customer,
including performance returns and net asset value of Customer,
as soon as available and in any event within 90 calendar days
after the end of each calendar quarter, provided that to the
extent any such financial statements have been filed with the
U.S. Securities and Exchange Commission and are available on
the XXXXX database they shall be deemed delivered to BNPP PB,
Inc. on the date so available; and
iii. the estimated net asset value statement of Customer as of any
Business Day, within 1 Business Day of request by BNPP PB,
Inc. to the extent not available from a publicly available
source such as Bloomberg Professional Service.
(b) Customer will promptly forward, or cause to be forwarded, to BNPP
PB, Inc. notifications received via the Electronic Case Filing
System of any Court Issued Filings. Additionally, no less than one
time per week, Customer shall forward or cause to be forwarded, to
BNPP PB, Inc. notifications received via the Electronic Case Filing
System for all other filings made in connection with the Disclosed
Legal Proceedings.
13. TERMINATION -
(a) At any time following the occurrence of a Facility Termination
Event, BNPP shall have the right to terminate this Agreement, recall
any Outstanding Debit Financing, modify any interest rate spread,
fees, charges, or expenses (in each case, by not more than the
Spread Increase Cap), and modify Collateral Requirements, in each
case, in accordance with the timeframe specified in the U.S. PB
Agreement.
(b) At any time following the occurrence of a Default, the BNPP Entities
may terminate any of the 40 Act Financing Agreements and take
Default Action.
(c) Each of the following events constitutes a "DEFAULT":
i. Customer fails to meet the Collateral Requirements within the
time periods set forth in Section 10 and such failure is not
cured within 1 Business Day after BNPP PB, Inc. delivers
notice to Customer of such failure;
ii. Customer fails to deliver the financial information within the
time periods set forth in Section 12 and such failure, in
respect of Sections 12(a)(i), 12(a)(ii) and 12(b) has not been
remedied within five Business Days and, in respect of Section
12(a)(iii), has not been remedied within one Business Day;
iii. the Net Asset Value of Customer declines below the Net Asset
Value Floor (unless such decline is also an NAV Trigger
Event);
iv. any representation or warranty made or deemed made by Customer
to BNPP PB, Inc. under any 40 Act Financing Agreement
(including under Section 11 herein) proves false or misleading
when made or deemed made;
v. Customer fails to comply with or perform any other agreement
or obligation under this Agreement or the other 40 Act
Financing Agreements and such failure continues for five (5)
Business Days;
vi. Customer becomes bankrupt, insolvent, or subject to any
bankruptcy, reorganization, insolvency or similar proceeding
or all or substantially all its assets become subject to a
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suit, levy, enforcement, or other legal process where a
secured party maintains possession of such assets, has a
resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation,
amalgamation or merger), seeks or becomes subject to the
appointment of an administrator, provisional liquidator,
conservator, receiver, trustee, custodian or other similar
official for it or for all or substantially all its assets,
has a secured party take possession of all or substantially
all its assets, or takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in,
any of the foregoing acts; or
vii. the occurrence of a repudiation, misrepresentation, material
breach or the occurrence of a default, termination event or
similar condition (howsoever characterized, which, for the
avoidance of doubt, includes the occurrence of an Additional
Termination Event under an ISDA Master Agreement between
Customer and a BNPP Entity, if applicable) by or in respect of
Customer under any contract with a BNPP Entity or affiliate of
a BNPP Entity.
(d) Each of the following events constitutes a "FACILITY TERMINATION
EVENT":
i. the occurrence of a repudiation, misrepresentation, material
breach or the occurrence of a default, termination event or
similar condition (howsoever characterized, which, for the
avoidance of doubt, includes the occurrence of an Additional
Termination Event under an ISDA Master Agreement) by or in
respect of Customer under any contract with a third party
entity, where the sum of (A) the aggregate principal amount of
any such contract (which, for the avoidance of doubt, includes
any obligations with respect to borrowed money or other assets
in connection with such contract) and (B) without duplication,
any other due and unpaid obligations, is not less than
$10,000,000;
ii. there occurs any change in a BNPP Entity's or its affiliate's
interpretation of any Applicable Law or any change in
Applicable Law (including, for the avoidance of doubt, any new
or amended rules, requests, guidelines, and directives
promulgated in connection with current Applicable Law,
including the Xxxx-Xxxxx Xxxx Street Reform and Consumer
Protection Act) which, in the reasonable opinion of counsel to
such BNPP Entity, would have the effect with regard to such
BNPP Entity of impeding or prohibiting the arrangements under
the 40 Act Financing Agreements (including, but not limited
to, imposing or adversely modifying or affecting the amount of
regulatory capital to be maintained by a BNPP Entity);
provided, however, that it shall not be a Facility Termination
Event if there occurs a change in, or change in a BNPP
Entity's interpretation of, any Applicable Law that impedes
the arrangements under the 40 Act Financing Agreements if the
following two conditions are met: 1) such impediment results
solely in a cost increase to a BNPP Entity (as determined in
its sole discretion) and 2) such cost increase is borne by
Customer and reflected in an amendment to the Agreement, which
may be accounted for by reflecting such cost increase via an
adjustment to the fees and rates specified in Appendix B,
effective as of the time such cost increase was incurred by
such BNPP Entity or, for the avoidance of doubt, in any other
manner, as determined by such BNPP Entity in its sole
discretion;
iii. the investment management agreement between Customer and its
investment advisor ("ADVISOR") is terminated or the Advisor
otherwise ceases to act as investment advisor of Customer;
provided, however, such termination or cessation shall not
constitute a Facility Termination Event if there is a
replacement investment advisor appointed immediately who is
acceptable to BNPP PB, Inc. in its sole discretion;
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iv. A violation of Section 18 of the 1940 ACT, except that proper
reliance by Customer on any exemptive relief granted to it by
the Securities and Exchange Commission will not be considered
a violation of Section 18 of the 1940 Act; or
v. Customer fails to make any filing necessary to comply with the
rules of any exchange in which its shares are listed;
vi. Customer's classification under the 1940 Act becomes something
other than a "closed-end company" as defined under Section 5
of the 1940 Act;
vii. Customer enters into any additional indebtedness with a party
other than a BNPP Entity or its affiliates beyond the
financing provided hereunder through the 40 Act Financing
Agreements, including without limitation any further
borrowings constituting 'senior securities' (as defined for
purposes of Section 18 of the 0000 Xxx) or any promissory note
or other evidence of indebtedness, whether with a bank or any
other person provided, however, that the term "indebtedness"
in this Section 13(d)(vii) shall exclude (A) any collateral
pledged by Customer pursuant to a Credit Support Annex to an
ISDA Master Agreement or in connection with listed call
options transactions or (B) repurchase agreements pursuant to
Customer's investment portfolio activities;
viii. Customer changes its fundamental or material investment
policies;
ix. Customer pledges to any other party, other than a BNPP Entity
or its affiliates, any securities owned or held by Customer
over which Custodian has a lien; or
x. As a result of the Disclosed Legal Proceedings, either of the
following occurs: (i) initial adjudications of fines, damages,
or other form of penalties against Customer or its property in
excess of $1,000,000 in the aggregate (to the extent not
covered by Customer's third party insurance) which remains
undischarged, unvacated, unbonded or unstayed for a period of
60 days or (ii) BNPP PB, Inc. determines in a commercially
reasonable manner that Customer has suffered a material
adverse change that affects its ability to meet its
Obligations under the Contracts as a result of any final
adjudication of fines, damages, judgments or other form of
penalties against the Customer or its property (including
those arising from settlement) in excess of $1,000,000 in the
aggregate (to the extent not covered by Customer's third party
insurance).
(e) Upon 90 calendar days' prior written notice, Customer may terminate
this Agreement.
14. RESERVED -
15. NOTICES -
Notices under this Agreement shall be provided pursuant to Section 12(a)
of the Account Agreement.
16. COMPLIANCE WITH APPLICABLE LAW -
(a) Notwithstanding any of the foregoing, if required by Applicable
Law -
i. the BNPP Entities may terminate any 40 Act Financing Agreement
and any Contract;
ii. BNPP PB, Inc. may recall any outstanding loan under the 40 Act
Financing Agreements;
iii. BNPP PB, Inc. may modify the Collateral Requirements; and
iv. the BNPP Entities may take Default Action.
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(b) This Agreement will not limit the ability of BNPP PB, Inc. to change
the product provided under this Agreement and the 40 Act Financing
Agreements as necessary to comply with Applicable Law.
(c) The BNPP Entities may exercise any remedies permitted under the
Contracts (as if a Default had occurred) if Customer fails to comply
with Applicable Law.
17. MISCELLANEOUS -
(a) In the event of a conflict between any provision of this Agreement
and the other 40 Act Financing Agreements, this Agreement prevails.
(b) This Agreement is governed by and construed in accordance with the
laws of the State of New York, without giving effect to the conflict
of laws doctrine.
(c) Sections 14 and 16(c) of the Account Agreement and the address for
notices set forth after the Customer's signature in the U.S. PB
Agreement are hereby incorporated by reference in their entirety and
shall be deemed to be a part of this Agreement to the same extent as
if such provisions had been set forth in full herein.
(d) This Agreement may be executed in counterparts, each of which will
be deemed an original instrument and all of which together will
constitute one and the same agreement.
(e) This Agreement and the other 40 Act Financing Agreements shall not
be publicly distributed via syndication.
(f) The Customer's Declaration of Trust is on file with the Secretary to
the Commonwealth of Massachusetts. This Agreement is executed on
behalf of the Customer by the Customer's officers as officers and
not individually, and the obligations imposed upon the Customer by
this Agreement are not binding upon any of the Customer's trustees,
officers or shareholders individually, but are binding only upon the
assets and property of the Customer.
(g) Notwithstanding anything in the U.S. PB Agreement to the contrary,
all Collateral will be held by the Customer's custodian pursuant to
a Special Custody and Pledge Agreement among the Customer, BNPP PB,
Inc. and Custodian.
(The remainder of this page is blank.)
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered as of March 21, 2011.
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FIRST TRUST STRATEGIC HIGH INCOME FUND II
By: /s/ Xxxx X. Xxxxxxx
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Name: Xxxx X. Xxxxxxx
Title: CFO
BNP PARIBAS PRIME BROKERAGE, INC.
By: /s/ Xxxxxxx Xxxx
------------------------------------
Name: Xxxxxxx Xxxx
Title: Managing Director
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Execution Version
APPENDIX A - COLLATERAL REQUIREMENTS
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THIS APPENDIX forms a part of the Committed Facility Agreement entered into
between BNP Paribas Prime Brokerage, Inc. ("BNPP PB, INC.") and First Trust
Strategic High Income Fund II ("CUSTOMER") (the "COMMITTED FACILITY AGREEMENT").
1. COLLATERAL REQUIREMENTS -
The Collateral Requirements in relation to all positions held in the
accounts established pursuant to the 40 Act Financing Agreements (the
"POSITIONS") shall be the greatest of:
(a) the aggregate product of (x) the Collateral Percentage applicable to
such Positions and (y) the Current Market Value of such respective
Positions;
(b) the sum of the collateral requirements of such Positions as per
Regulation T of the Board of Governors of the Federal Reserve
System, as amended from time to time;
(c) the sum of the collateral requirements of such Positions as per New
York Stock Exchange Rule 431, as amended from time to time; or
(d) 40% of the Portfolio Gross Market Value.
2. ELIGIBLE SECURITIES -
(a) Positions in the following eligible equity and debt security types
("ELIGIBLE SECURITIES", which term shall exclude any securities
described in Section 2(b)) are covered under the Committed Facility
Agreement to the extent that BNPP PB, Inc. has a security interest
acceptable to it in such positions:
i. USD denominated common stock traded on the New York Stock
Exchange, NASDAQ, NYSE Arca or NYSE AMEX Equities; or
ii. USD denominated convertible and non-convertible corporate debt
securities or preferred securities, provided that such
securities be issued by an issuer incorporated in one of the
following countries: USA, Canada, United Kingdom, France,
Germany, Switzerland, Austria, Spain, Italy, The Netherlands,
Finland, Belgium, Japan, Australia or Portugal.
(b) Notwithstanding the foregoing, the following will not be part of the
collateral commitment and shall have no collateral value (and, for
the avoidance of doubt, shall be excluded from the Portfolio Gross
Market Value for purposes of calculating the Collateral Requirements
hereunder):
iii. any security type not covered above, as determined by BNPP PB,
Inc. in its sole discretion;
iv. any short security position;
v. any security offered through a private placement or any
restricted securities;
vi. any security that is not maintained as a book-entry security
on a major depository, such as The Depository Trust Company;
vii. any securities that are municipal securities, asset-backed
securities, mortgage securities, or Structured Securities
(notwithstanding the fact that such securities would otherwise
be covered);
viii. any security that is not denominated in USD;
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Execution Version
ix. any security where Customer or Customer's Advisor (A) is an
Affiliate of the Issuer of the relevant equity securities or
(B) beneficially owns more than 9% of either (I) the voting
interests of the Issuer or (II) any voting class of equity
securities of the Issuer (in each case, whether such positions
are held in accounts established pursuant to the 40 Act
Financing Agreements or otherwise). For the avoidance of
doubt, for purposes of determining beneficial ownership, any
convertible debt of preferred debt shall be treated as
converted;
x. any equity security with a market capitalization of less than
USD $300,000,000;
xi. any Debt Security which (i) trades below 40% of its nominal
value or (ii) is greater than 10% of the Issue Size;
xii. to the extent that the Gross Market Value of Positions in any
industry sector (as defined by Bloomberg) exceeds 35% of the
Portfolio Gross Market Value, any Positions in excess of such
35% (and BNPP PB, Inc. shall determine in its sole discretion
which specific securities shall be considered to be in excess
of such 35%);
xiii. to the extent that the Gross Market Value of all positions
with a long-term debt rating of CCC+ or below by S&P or Caa1
or below by Moody's (excluding, for the avoidance of doubt,
unrated securities), exceeds 25% of the Portfolio Gross Market
Value, any Positions in excess of such 25% (and BNPP PB, Inc.
shall determine in its sole discretion which specific
securities shall be considered to be in excess of such 25%);
xiv. any Positions with an Issuer Position Concentration equal to
or greater than 10%;
xv. any Positions with Days of Trading Volume equal to or greater
than 10;
xvi. any Positions with Equity Volatility equal to or greater than
100%; and
xvii. any Debt Securities with a long-term debt rating that is below
CCC- by S&P or Caa3 by Moody's or any defaulted Debt
Securities.
3. EQUITY SECURITIES COLLATERAL PERCENTAGE -
The Collateral Percentage for a Position consisting of applicable Eligible
Securities shall be:
i. subject to paragraph ii below, the sum of (A) the Equity Core
Collateral Rate and (B) the product of (1) the Equity Core
Collateral Rate and (2) the sum of the Equity Concentration
Factor, the Equity Liquidity Factor, and the Equity Volatility
Factor, or
ii. 100% if the product determined under paragraph (i) above is
greater than 100%.
(a) EQUITY CONCENTRATION FACTOR.
The "EQUITY CONCENTRATION FACTOR" shall be determined pursuant to
the following table.
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ISSUER POSITION CONCENTRATION EQUITY CONCENTRATION FACTOR
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Less than 5% 0
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Equal to or greater than 5% and less than 10% 0.5
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(b) EQUITY LIQUIDITY FACTOR.
The "EQUITY LIQUIDITY FACTOR" shall be determined pursuant to the
following table.
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Execution Version
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DAYS OF TRADING VOLUME EQUITY LIQUIDITY FACTOR
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Less than 2 days 0
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Equal to or greater than 2 and less than 5 days 1
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Equal to or greater than 5 and less than 7 days 2
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Equal to or greater than 7 and less than 10 days 3
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(c) EQUITY VOLATILITY FACTOR.
The "EQUITY VOLATILITY FACTOR" shall be determined pursuant to the
following table.
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EQUITY VOLATILITY EQUITY VOLATILITY FACTOR
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Less than 20% -0.15
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Equal to or greater than 20% and less than 35% 0
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Equal to or greater than 35% and less than 50% 0.5
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Equal to or greater than 50% and less than 75% 1
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Equal to or greater than 75% and less than 100% 2
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4. DEBT SECURITIES COLLATERAL PERCENTAGE -
The Collateral Percentage for a Position consisting of applicable Debt
Securities shall be the sum of (A) the Debt Core Collateral Rate and (B)
the product of (1) the Debt Core Collateral Rate and (2) the Debt
Concentration Factor.
(a) DEBT CORE COLLATERAL RATE.
The "DEBT CORE COLLATERAL RATE" shall be determined pursuant to the
following table, based on the credit rating of the Issuer, using the
lower of the S&P or Moody's long-term debt rating as shown below;
provided, that (i) if there is only one such rating, then the Debt
Core Collateral Rate corresponding to such rating shall be used and
(ii) if there is no such rating, then the Debt Core Collateral Rate
shall be 60%.
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S&P RATING XXXXX'X RATING DEBT CORE COLLATERAL RATE
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BB- or higher Ba3 or higher 30%
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B+ to B- B1 to B3 40%
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CCC+ to CCC- Caa1 to Caa3 60%
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(b) DEBT CONCENTRATION FACTOR.
The "DEBT CONCENTRATION FACTOR" shall be determined pursuant to the
following table.
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ISSUER POSITION CONCENTRATION DEBT CONCENTRATION FACTOR
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Less than 5% 0
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Equal to or greater than 5% and less than 10% 0.5
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5. POSITIONS OUTSIDE THE SCOPE OF THIS APPENDIX -
For the avoidance of doubt, the Collateral Requirements set forth herein
are limited to the types and sizes of securities specified herein. The
Collateral Requirement for any Position or part of a Position other than
an Eligible Security shall be determined by BNPP PB, Inc. in its sole
discretion.
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6. ONE-OFF COLLATERAL REQUIREMENTS -
From time to time BNPP PB, Inc., in its sole discretion, may agree to a
different Collateral Requirement than the Collateral Requirement
determined by this Appendix for a particular Position; provided that, for
the avoidance of doubt, the commitment in Section 6(a) of the Committed
Facility Agreement shall apply only with respect to the Collateral
Requirements based upon the Collateral Percentage determined pursuant to
Sections 3 and 4 hereof and BNPP PB, Inc. shall have the right at any time
to increase the Collateral Requirement for such Position up to the
Collateral Requirement that would be required as determined in accordance
to Sections 3 and 4 hereof.
7. CERTAIN DEFINITIONS -
(a) "AFFILIATE" means an affiliate as defined in Rule 144(a)(1) under
the Securities Act of 1933.
(b) "BLOOMBERG" means the Bloomberg Professional service.
(c) "COLLATERAL PERCENTAGE" means the percentage as determined by BNPP
PB, Inc. according to this Appendix A.
(d) "CURRENT MARKET VALUE" means with respect to a Position, an amount
equal to the product of (i) the number of units of the relevant
security and (ii) the price per unit of the relevant security
(determined by BNPP PB, Inc.).
(e) "DAYS OF TRADING VOLUME" means with respect to an equity security,
an amount equal to the quotient of (i) the number of shares of such
security constituting the Position, as numerator and (ii) the 90-day
average daily trading volume of such security as shown on Bloomberg
(or, if the 90-day average daily trading volume of such security is
unavailable, the 30-day average daily trading volume of such
security, as determined by BNPP PB, Inc. in its sole discretion), as
denominator.
(f) "DEBT SECURITY" means convertible and non-convertible preferred
securities and corporate debt securities.
(g) "EQUITY CORE COLLATERAL RATE" means 15%.
(h) "EQUITY VOLATILITY" means with respect to an equity security, the
90-day historical volatility of such security as determined by BNPP
PB, Inc. in its sole discretion or, if the 90-day historical price
volatility of such security is unavailable, the 30-day historical
price volatility of such security as determined by BNPP PB, Inc. in
its sole discretion.
(i) "GROSS MARKET VALUE" of one or more Positions means an amount equal
to the sum of all Current Market Values of all such Positions,
where, for the avoidance of doubt, the Current Market Value of each
Position is expressed as a positive number whether or not such
Position is held long.
(j) "ISSUER" means, with respect to a security, the issuer of such
security.
(k) "ISSUER POSITION CONCENTRATION" means with respect to a Position
issued by an Issuer, an amount equal to the quotient of (i) the
Gross Market Value of all Positions (whether debt or equity) issued
by the same Issuer, as numerator and (ii) the Portfolio Gross Market
Value, expressed as a percentage.
(l) "ISSUE SIZE" means with respect to a Position in a Debt Security of
an Issuer, the Current Market Value of all such Debt Securities
issued by the Issuer and still outstanding.
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(m) "MOODY'S" means Xxxxx'x Investor Service, Inc.
(n) "PORTFOLIO GROSS MARKET VALUE" means the Gross Market Value of all
of the Positions that are Eligible Securities.
(o) "STRUCTURED SECURITIES" means any security (i) the payment to a
holder of which is linked to a different security, provided that
such different security is issued by a different issuer or (ii)
structured in such a manner that the credit risk of acquiring the
security is primarily related to an entity other than the issuer of
the security itself.
(p) "S&P" means Standard & Poor's Ratings Services, a division of The
XxXxxx-Xxxx Companies, Inc.
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APPENDIX B
PRICING
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FIRST TRUST STRATEGIC HIGH INCOME FUND II
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FINANCING RATE
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CUSTOMER DEBIT RATE
3M LIBOR + 80 bps
ISO CODE
USD
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COMMITMENT FEE
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Customer shall pay a commitment fee to BNPP PB, Inc. equal to 80 bps on the
amount of undrawn Maximum Commitment Financing, to be paid when the amount
calculated under the Financing Rate above is due.
