Under the terms of the head lease granted by Coventry City Council (“CCC”) to Arena Coventry (2006) Limited (“ACL2006”) in respect of the Arena (the “Head Lease”), CCC have reserved the right to forfeit the Head Lease if ACL2006 becomes insolvent. Insolvency in this scenario means a situation where ACL2006 becomes unable to pay its debts, has a receiver/administrator/provisional liquidator appointed over its assets, has assets seized in order to pay debts of ACL2006 or has a winding-up order made against it. The effect of forfeiture would be that the 250 year Head Lease would fall away and that ACL would then become the tenant of CCC at the Arena for the remaining 38 years of its existing lease. However, the right of CCC to claim forfeiture of the Head Lease is not an automatic right. If CCC made a claim for such forfeiture, this could be contested by ACL2006, any third party that held security over ACL2006 and any subtenants of ACL2006 by making application to a court in England. Further, if an administrator was to be appointed over the assets of ACL2006, then CCC would not be able to forfeit the Head Lease without the consent of the appointed administrator or with the leave of the courts. If forfeiture was to take place prior to maturity of the Bonds, then U.S. Bank Trustees Limited, the entity that will hold the security on behalf of Bondholders, may not be in a position to assign the Head Lease for value in the event CCC forfeited the lease as described in the preceding paragraph. This may have an impact on the Bondholders’ ability to receive full repayment of their investment in the Bonds on the occurrence of such an insolvency event.
