TIDM31PE TIDMTTM

RNS Number : 2762N

Canary Wharf Finance II PLC

31 August 2011

CANARY WHARF FINANCE II PLC

31 August 2011

Pursuant to sections 4.1 and 6.3.5 of the Disclosure and Transparency Rules, the board of Canary Wharf Finance II plc is pleased to announce the publication of its half yearly financial report for the period ended 30 June 2011, which will shortly be available from www.canarywharf.com/Investor Relations.

The information contained within this announcement, which was approved by the board of directors on 30 August 2011, does not comprise statutory accounts within the meaning of the Companies Act 2006 and is provided in accordance with section 6.3.5(2)(b) of the Disclosure and Transparency Rules.

Two copies of the 30 June 2011 Half Yearly Financial Report will be submitted to the UK Listing Authority ("UKLA") in accordance with Paragraph 9.6.1 of the Listing Rules. The document will shortly be available for inspection at the UKLA's Document Viewing Facility, which is situated at 25 North Colonnade, Canary Wharf, London E14 5HS.

Dated: 30 August 2011

CONTACT FOR QUERIES:

J R Garwood

Company Secretary

Canary Wharf Finance II plc

Telephone: 020 7418 2000

INTERIM MANAGEMENT STATEMENT

This interim management statement relates to the six months ended 30 June 2011 and contains information that covers the period from 1 January 2011 to 30 August 2011, the date of publication of this interim management statement.

BUSINESS REVIEW

The company is a wholly owned subsidiary of Canary Wharf Group plc and its ultimate parent undertaking is Songbird Estates plc.

Canary Wharf Finance II plc is a finance vehicle that issues securities which are backed by commercial mortgages over high profile properties within the Canary Wharf estate. The company is engaged in the provision of finance to the Canary Wharf group, comprising Canary Wharf Group plc and its subsidiaries ('the group'). All activities take place within the United Kingdom.

At 30 June 2011, the company had GBP2,433,291,200 (31 December 2010: GBP2,462,057,521) of notes listed on the London Stock Exchange and had lent the proceeds to a fellow subsidiary undertaking, CW Lending II Limited. The notes are secured on seven properties at Canary Wharf, owned by fellow subsidiary undertakings, and the rental income therefrom.

The securitisation has the benefit of an arrangement with AIG which covers the rent in the event of a default by the tenant of 33 Canada Square over the entire term of the lease. At 30 June 2010 AIG had posted GBP259.4 million as cash collateral in respect of this obligation.

The company also has the benefit of a GBP300.0 million liquidity facility provided by Lloyds Bank plc, under which drawings may be made in the event of a cash flow shortage under the securitisation.

Following publication of its latest criteria for assessing counterparty risk in all new and existing structured finance securities and covered bonds, Standard and Poor's Financial Services LLC ("S&P") duly downgraded the notes on 15 July 2011. Following this downgrade, the ratings of the notes were as follows:

 
 Class   Moody's   Fitch   S&P 
------  --------  ------  ---- 
 A1      Aaa       AAA     A+ 
 A3      Aaa       AAA     A+ 
 A7      Aaa       AAA     A+ 
 B       A1        AA      A+ 
 B3      A1        AA      A+ 
 C2      Baa1      A       A 
 D2      Ba1       BB      BBB 
 

Other than the downgrade in the rating of the notes, no significant non-routine events or transactions occurred during the period from 1 January 2011 to 30 August 2011.

As shown in the company's profit and loss account, the company's profit after tax for the six month period was GBP4,154,338 (period ended 30 June 2010: loss of GBP29,162,260).

The balance sheet shows the company's financial position at the period end and indicates that net liabilities were GBP110,938,565 (31 December 2010: GBP122,749,050).

The financial position of the company as indicated by its balance sheet is impacted by the application of Financial Reporting Standard 26 (Financial Instruments: Recognition and Measurement) ('FRS 26') and its impact on other financial reporting standards. FRS 26 requires recognition of the mark to market of derivative financial instruments, which hedge the company's exposure to interest rate fluctuations, but the mark to market of the company's debtor loan and securitised debt has not been recognised. Adjusting for the effects of FRS 26 the net asset value of the company at 30 June 2011 was as follows:

 
                                              Audited                                                           Unaudited                                           Unaudited 
                                          31 December                                                             30 June                                             30 June 
                                                 2010                                                                2011                                                2010 
                                                  GBP                                                                 GBP                                                 GBP 
                                                       Net 
                                                       liabilities 
                                                       per balance 
                                        (122,749,050)  sheet                                                (110,938,565)                                       (142,758,625) 
                                                       Add back: 
                                                       Effects of 
                                          126,478,135  FRS 26                                                 114,792,615                                         146,361,000 
                  -----------------------------------                                  ----------------------------------                  ---------------------------------- 
                                                       Adjusted 
                                            3,729,085  net assets                                               3,854,050                                           3,602,375 
=====================================================               =====================================================  ================================================== 
 

KEY PERFORMANCE INDICATORS

 
      Audited                                         Unaudited      Unaudited 
  31 December                                           30 June        30 June 
         2010                                              2011           2010 
          GBP                                               GBP            GBP 
2,462,057,521  Securitised debt                   2,433,291,200  2,490,823,841 
               Financing cost (before 
  150,011,694  adjustments for FRS26)                73,428,874     75,205,877 
               Adjusted profit before tax 
      251,619   and FRS26                               124,965        124,909 
 
 
            Weighted average maturity 
16.5 years   of debt                   16.2 years  16.8 years 
            Weighted average interest 
      6.2%   rate                            6.2%        6.2% 
 

The adjusted profit before tax comprises the profit on ordinary activities before tax of GBP4,154,338 (period ended 30 June 2010: loss of GBP29,162,260) adjusted for the FRS 26 items listed in Note 3, totalling GBP4,029,373 (period ended 30 June 2010: GBP29,287,169).

GOING CONCERN

The directors are required to prepare the financial statements for each financial period on a going concern basis, unless to do so would not be appropriate. Having made requisite enquiries, the directors have a reasonable expectation that the company has adequate resources to continue its operations for the foreseeable future and hence the financial statements have been prepared on that basis.

At 30 June 2011 the company had a deficit of GBP110,938,565 attributable solely to the adoption of FRS26. Under the requirements of the standard the company recognises the fair value of its derivative financial instruments in the balance sheet. In the event that the company were to realise the fair value of the derivative financial instruments, it would have the right to recoup its losses as a repayment premium on its loans to CW Lending II Limited. The standard does not permit this potential asset to be accounted for in conjunction with the hedges.

Notwithstanding the deficit in net assets resulting from the treatment of derivative financial instruments required by FRS26, the directors have prepared the financial statements on a going concern basis on the grounds that the company will be able to meet its obligations as they fall due for a period of not less than 12 months from the date of the financial statements.

The directors have also reached the view that the value of the company's assets at the balance sheet date was not less than the amount of its liabilities for the purposes of Section 123(2) of the Insolvency Act 1986.

PRINCIPAL RISKS AND UNCERTAINTIES

The risks and uncertainties facing the business are monitored through continuous assessment, regular formal quarterly reviews and discussion at Canary Wharf Group plc audit committee and board level. Such discussion focuses on the risks identified as part of the system of internal control which highlights key risks faced by the company and allocates specific day to day monitoring and control responsibilities to management. As a member of Canary Wharf Group, the current key risks of the company include the cyclical nature of the property market, concentration risk and financing risk.

These risks, which are summarised below are unchanged from the risks and uncertainties disclosed in the directors' report to the financial statements for the year ended 31 December 2010.

Cyclical nature of the property market

The valuation of Canary Wharf Group's assets is subject to many external economic and market factors. The turmoil in the financial markets during 2008 and 2009 was reflected in the property market by such factors as the oversupply of available space in the office market, a significant decline in tenant demand for space in London and a change in the market perception of property as an investment resulting in a negative impact on property valuations in general. In the latter half of 2009, throughout 2010 and the first half of 2011 there have been signs of a tightening of supply which has resulted in an increase in valuation and compression of yields. Changes in financial and property markets are kept under constant review so that the company can react appropriately. The impact of the ongoing uncertainty in the financial and property markets continues to be closely monitored.

Concentration risk

The majority of the group's real estate assets are currently located on or adjacent to the Canary Wharf Estate with tenants that are mainly linked to the financial services industry. Wherever possible steps are taken to mitigate or avoid material consequences arising from this concentration.

Financing risk

The broader economic cycle inevitably leads to movement in inflation, interest rates and bond yields.

The company holds debenture finance in sterling at both fixed and floating rates and uses interest rate swaps to modify its exposure to interest rate fluctuations. All of the company's borrowings are fixed after taking account of interest rate hedges. All borrowings are denominated in sterling and the company has no intention to borrow amounts in currencies other than sterling.

The company enters into derivative financial instruments solely for the purposes of hedging its financial liabilities. No derivatives are entered into for speculative purposes.

The company is not subject to externally imposed capital requirements.

The company's securitisation is subject to a maximum loan minus cash to value ('LMCTV') ratio covenant.

The maximum LMCTV ratio is 100.0%. Based on the 31 December 2010 valuations of the properties upon which the company's notes are secured, the LMCTV ratio at the interest payment date in July 2011 would have been 73.1%. The securitisation is not subject to a minimum interest coverage ratio. The 30 June 2011 valuations were not available at the date of signing this interim management statement.

A breach of covenant can be remedied by depositing eligible investments (including cash).

DIRECTORS' RESPONSIBILITY STATEMENT

The board of directors, comprising A P Anderson II, R J J Lyons (as alternate to A P Anderson II), G Iacobescu, J R Garwood (as alternate to G Iacobescu) and P Harned, confirms to the best of its knowledge that:

-- the condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards give a true and fair view of the assets, liabilities, financial position and profit or loss of the company as required by Rule 4.1.12 (3a) of the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority (the 'DTRs'); and

-- the interim management statement includes a fair review of the information required by Rule 4.2.7 of the DTRs (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year).

PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 JUNE 2011

 
    Audited           Unaudited     Unaudited 
 Year ended          Six months    Six months 
31 December               ended         ended 
       2010  Note  30 June 2011  30 June 2010 
        GBP                 GBP           GBP 
 
 
                                     Administrative 
                           (14,100)  expenses                                   (7,350)                             (7,050) 
-----------------------------------                  ----------------------------------  ---------------------------------- 
                           (14,100)  OPERATING LOSS                             (7,350)                             (7,050) 
 
 
                                     Interest 
                                     receivable 
                                     and similar 
                        150,277,413  income        2                          73,561,189                          75,337,836 
                                     Interest 
                                     payable and 
                                     similar 
                      (167,124,503)  charges       3                        (69,399,501)                       (104,493,046) 
-----------------------------------                   ----------------------------------  ---------------------------------- 
                                     PROFIT/(LOSS) 
                                     ON ORDINARY 
                                     ACTIVITIES 
                                     BEFORE 
                       (16,861,190)  TAXATION                                  4,154,338                        (29,162,260) 
 
 
    Tax on profit/(loss) on 
 -   ordinary activities      4-- 
 
 
                 -----------------------------------                                   ----------------------------------                 ---------------------------------- 
                                                      PROFIT/(LOSS) 
                                                      ON ORDINARY 
                                                      ACTIVITIES 
                                                      AFTER 
                                                      TAXATION FOR 
                                                      THE 
                                        (16,861,190)  PERIOD/YEAR    8                                          4,154,338                                       (29,162,260) 
====================================================                    =================================================  ================================================= 
 

Movements in reserves are shown in Note 8 of this Half Yearly Financial Report.

All amounts relate to continuing activities in the United Kingdom.

The Notes numbered 1 to 9 form an integral part of this Half Yearly Financial Report.

The Half Yearly Financial Report for the six months ended 30 June 2011 was approved by the Board of Directors on 30 August 2011.

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE SIX MONTHS ENDED 30 JUNE 2011

 
    Audited     Unaudited     Unaudited 
 Year ended    Six months    Six months 
31 December         ended         ended 
       2010  30 June 2011  30 June 2010 
        GBP           GBP           GBP 
 
 
                                                      Profit/(loss) 
                                                      for the 
                                                      financial 
                                        (16,861,190)  period/year                                             4,154,338                                       (29,162,260) 
                                                      Fair value 
                                                      movement on 
                                                      effective 
                                                      hedging 
                                        (38,123,761)  instruments                                               207,571                                       (38,282,920) 
                                                      Interest paid 
                                                      on effective 
                                                      hedging 
                                          16,144,271  instruments                                             7,936,734                                          8,096,920 
                                                      Hedge reserve 
                                         (1,005,836)  recycling                                               (488,158)                                          (507,831) 
                 -----------------------------------                                 ----------------------------------                 ---------------------------------- 
                                                      Total 
                                                      recognised 
                                                      gains/(losses) 
                                                      relating to 
                                                      the 
                                        (39,846,516)  period/year                                            11,810,485                                       (59,856,091) 
====================================================                  =================================================  ================================================= 
 

The Notes numbered 1 to 9 form an integral part of this Half Yearly Financial Report.

BALANCE SHEET AT 30 JUNE 2011

 
    Audited  Unaudited  Unaudited 
31 December    30 June    30 June 
       2010       2011       2010 
        GBP        GBP        GBP 
 
 
                                     CURRENT 
                                     ASSETS 
                                     Debtors  5 
                                     Amounts 
                                     falling 
                                     due 
                                     after 
                                     one 
                      2,476,097,668  year                             2,446,747,119                       2,505,469,849 
                                     Amounts 
                                     falling 
                                     due 
                                     within 
                                     one 
                         88,243,855  year                                87,166,992                          88,405,287 
                                     Cash at 
                          1,554,889  bank                                 1,689,129                           1,441,134 
-----------------------------------              ----------------------------------  ---------------------------------- 
                      2,565,896,412                                   2,535,603,240                       2,595,316,270 
 
 
                                     CREDITORS: 
                                     Amounts 
                                     falling 
                                     due within 
                       (86,069,657)  one year    6                        (85,002,071)                        (86,244,045) 
-----------------------------------                  ---------------------------------  ---------------------------------- 
                                     NET CURRENT 
                      2,479,826,755  ASSETS                              2,450,601,169                       2,509,072,225 
-----------------------------------                 ----------------------------------  ---------------------------------- 
                                     TOTAL ASSETS 
                                     LESS CURRENT 
                      2,479,826,755  LIABILITIES                         2,450,601,169                       2,509,072,225 
 
 
                                                      CREDITORS: 
                                                      Amounts 
                                                      falling 
                                                      due after 
                                                      more than 
                                     (2,602,575,805)  one year    7                                     (2,561,539,734)                                     (2,651,830,850) 
                 -----------------------------------                                 ----------------------------------                  ---------------------------------- 
                                                      NET 
                                       (122,749,050)  LIABILITIES                                         (110,938,565)                                       (142,758,625) 
====================================================                 ==================================================  ================================================== 
 
 
                                                       CAPITAL AND 
                                                       RESERVES 
                                                       Called-up share 
                                               50,000  capital                                                       50,000                                              50,000 
                                                       Hedging 
                                         (55,702,781)  reserve      8                                          (48,046,634)                                        (63,411,286) 
                                                       Profit and 
                                                       loss 
                                         (67,096,269)  account      8                                          (62,941,931)                                        (79,397,339) 
                  -----------------------------------                                    ----------------------------------                  ---------------------------------- 
                                                       SHAREHOLDER'S 
                                        (122,749,050)  DEFICIT                                                (110,938,565)                                       (142,758,625) 
=====================================================                   ===================================================  ================================================== 
 

The Notes numbered 1 to 9 form an integral part of this Half Yearly Financial Report.

NOTES TO THE INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2011

1. PRINCIPAL ACCOUNTING POLICIES

The Half Yearly Financial Report has been prepared on a going concern basis and in accordance with pronouncements on interim reporting issued by the Accounting Standards Board and on the basis of the accounting policies set out in the company's financial statements for the year ended 31 December 2010, which are prepared in accordance with UK GAAP.

The financial information relating to the six months ended 30 June 2011 and 30 June 2010 is unaudited.

The results for the year ended 31 December 2010 are not statutory accounts. A copy of the statutory accounts for the year has been delivered to the Register of Companies. The auditor's report on those accounts was not qualified, did not contain any reference to any matters which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

In accordance with the provisions of FRS 1 (Revised) the company is exempt from the requirements to prepare a cash flow statement, as it is a wholly-owned subsidiary of Canary Wharf Group plc, which has prepared a consolidated cash flow statement.

2. INTEREST RECEIVABLE AND SIMILAR INCOME

 
                                             Audited                                                            Unaudited                                               Unaudited 
                                          Year ended                                                           Six months                                              Six months 
                                         31 December                                                                ended                                                   ended 
                                                2010                                                         30 June 2011                                            30 June 2010 
                                                 GBP                                                                  GBP                                                     GBP 
                                                      Bank 
                                                      interest 
                                              16,892  receivable                                                   11,176                                                   7,870 
                                                      Interest 
                                                      receivable 
                                                      from group 
                                         150,260,521  undertakings                                             73,550,013                                              75,329,966 
                 -----------------------------------                                   ----------------------------------                      ---------------------------------- 
                                         150,277,413                                                           73,561,189                                              75,337,836 
====================================================                =====================================================  ====================================================== 
 

3. INTEREST PAYABLE AND SIMILAR CHARGES

 
                                               Audited                                                          Unaudited                                            Unaudited 
                                            Year ended                                                         Six months                                           Six months 
                                           31 December                                                              ended                                                ended 
                                                  2010                                                       30 June 2011                                         30 June 2010 
                                                   GBP                                                                GBP                                                  GBP 
                                                        Interest 
                                                        payable on 
                                                        securitised 
                                                        debt (Note 
                                           150,011,694  7)                                                     73,428,874                                           75,205,877 
                                                        Fair value 
                                                        adjustments 
                                                        on 
                                                        derivative 
                                                        financial 
                                            18,118,645  instruments                                           (3,541,215)                                           29,795,000 
                                                        Hedge 
                                                        reserve 
                                                        recycling 
                                           (1,005,836)  (Note 8)                                                (488,158)                                            (507,831) 
                   -----------------------------------                                 ----------------------------------                   ---------------------------------- 
                                           167,124,503                                                         69,399,501                                          104,493,046 
======================================================               ====================================================  =================================================== 
 

Included in the interest payable on securitised debt is GBP843,381 (30 June 2010: GBP749,746) payable in respect of notes acquired by a fellow subsidiary undertaking.

4. TAXATION

No provision for corporation tax has been made since the taxable profit for the period will be covered by the group relief expected to be made available to the company by other companies in the group. No charge will be made by other group companies for the surrender of group relief. There is no unprovided deferred taxation.

5. DEBTORS

 
    Audited  Unaudited  Unaudited 
31 December    30 June    30 June 
       2010       2011       2010 
        GBP        GBP        GBP 
 
 
                                                      Due within 
                                                      one year: 
                                                      Loan to 
                                                      fellow 
                                                      subsidiary 
                                          86,109,563  undertaking                                           85,040,671                                          86,284,622 
                                                      Amounts owed 
                                                      by fellow 
                                                      subsidiary 
                                           2,132,406  undertakings                                           2,124,006                                           2,119,331 
                                                      Accrued 
                                                      interest 
                                               1,886  receivable                                                 2,315                                               1,334 
                 -----------------------------------                                ----------------------------------                  ---------------------------------- 
                                          88,243,855                                                        87,166,992                                          88,405,287 
====================================================                ==================================================  ================================================== 
 
 
                                                      Due after 
                                                      more than 
                                                      one year: 
                                                      Loan to 
                                                      fellow 
                                                      subsidiary 
                                       2,476,097,668  undertaking                                        2,446,747,119                                   2,505,469,849 
====================================================               ===================================================  ============================================== 
 

The loans to a fellow subsidiary undertaking bear fixed rates of interest between 5.12% and 6.81% and are repayable in instalments between 2005 and 2035. At 30 June 2011 the fair value of the loan was GBP2,497,546,981 (31 December 2010: GBP2,564,980,000, calculated by reference to the fair values of the company's financial liabilities.

Other amounts owed by group companies are non-interest bearing.

6. CREDITORS: Amounts falling due within one year

 
    Audited  Unaudited  Unaudited 
31 December    30 June    30 June 
       2010       2011       2010 
        GBP        GBP        GBP 
 
 
                                                      Securitised 
                                                      debt (Note 
                                          86,062,607  7)                                                  84,996,071                                         86,236,995 
                                                      Accruals 
                                                      and 
                                                      deferred 
                                               7,050  income                                                   6,000                                              7,050 
                 -----------------------------------                              ----------------------------------                 ---------------------------------- 
                                          86,069,657                                                      85,002,071                                         86,244,045 
====================================================               =================================================  ================================================= 
 

The amount of the securitised debt due within one year comprises GBP27,463,431 (31 December 2010: GBP28,529,967) of interest and GBP57,532,640 (31 December 2010: GBP57,532,640) of capital.

7. CREDITORS: Amounts falling due after more than one year

 
                                             Audited                                                          Unaudited                                              Unaudited 
                                         31 December                                                            30 June                                                30 June 
                                                2010                                                               2011                                                   2010 
                                                 GBP                                                                GBP                                                    GBP 
                                                      Securitised 
                                       2,476,097,670  debt                                                2,446,747,119                                          2,505,469,850 
                                                      Derivative 
                                                      financial 
                                         126,478,135  instruments                                           114,792,615                                            146,361,000 
                 -----------------------------------                                 ----------------------------------                     ---------------------------------- 
                                       2,602,575,805                                                      2,561,539,734                                          2,651,830,850 
====================================================               ====================================================  ===================================================== 
 

The amounts at which borrowings are stated comprise:

 
    Audited  Unaudited  Unaudited 
31 December    30 June    30 June 
       2010       2011       2010 
        GBP        GBP        GBP 
 
 
                                                      Brought 
                                       2,592,442,295  forward                                             2,533,630,310                                        2,592,442,295 
                                                      Repaid in 
                                        (57,532,640)  period                                               (28,766,321)                                         (28,766,320) 
                                                      Amortisation 
                                                      of issue 
                                         (4,847,330)  premium                                               (2,353,564)                                          (2,442,816) 
                                                      Accrued 
                                                      financing 
                                           3,567,985  expenses                                                1,769,334                                            1,769,331 
                 -----------------------------------                                 ----------------------------------                   ---------------------------------- 
                                                      Carried 
                                       2,533,630,310  forward                                             2,504,279,759                                        2,563,002,490 
====================================================                ===================================================  =================================================== 
 
 
                                                      Payable 
                                                      within 
                                                      one 
                                                      year or 
                                                      on 
                                          57,532,640  demand                                            57,532,640                                           57,532,640 
                                                      Payable 
                                                      after 
                                                      more 
                                                      than 
                                                      one 
                                       2,476,097,670  year                                           2,446,747,119                                        2,505,469,850 
                 -----------------------------------                            ----------------------------------                   ---------------------------------- 
                                       2,533,630,310                                                 2,504,279,759                                        2,563,002,490 
====================================================           ===================================================  =================================================== 
 

The company's securitised debt was issued in tranches, comprising classes A1, A3, A7, B, B3, C2 and D2. The A1, A3 and B notes were issued at a premium which is being amortised to the profit and loss account on a straight-line basis over the life of the relevant notes. At 30 June 2011 GBP56,051,914 (31 December 2010: GBP58,405,478) remained unamortised.

At 30 June 2011 there were accrued financing costs of GBP14,936,645 (31 December 2010: GBP13,167,311) relating to future increases in margins as described below.

The securitised debt has a face value of GBP2,433,291,200 (31 December 2010: GBP2,462,057,521), of which GBP1,707,291,200 (31 December 2010: GBP1,736,057,521) carries fixed rates of interest between 5.95% and 6.80%. The other GBP726,000,000 (31 December 2010: GBP726,000,000) of the securitised debt carries floating rates of interest at LIBOR plus a margin. The company uses interest rate swaps to hedge exposure to the variability in cash flows on floating rate debt caused by movements in market rates of interest. The hedged rates of the floating notes, including the margins, are between 5.11% and 5.80%.

The market value of the securitised debt at 30 June 2011 was GBP2,382,754,366 (31 December 2010: GBP2,441,522,000). At 30 June 2011 the fair value of the interest rate derivatives resulted in the recognition of a liability of GBP114,792,615 (31 December 2010: GBP126,478,135). Of this liability, GBP58,336,185 was in respect of interest rate swaps which qualify for hedge accounting (31 December 2010: GBP66,480,490) and GBP56,456,430 was in respect of interest rate swaps which do not qualify for hedge accounting (31 December 2010: GBP59,997,645).

GBP26,101,000 of B3 notes, GBP35,338,000 of C2 notes and GBP58,339,000 of D2 notes are held by a fellow subsidiary undertaking.

The notes are secured on seven properties at Canary Wharf, owned by fellow subsidiary undertakings, and the rental income stream therefrom.

8. RESERVES

 
                                                     Profit and 
                                 Hedging reserve   loss account          Total 
                                             GBP            GBP            GBP 
 At 1 January 2011                  (55,702,781)   (67,096,269)  (122,799,050) 
 Profit for the period                         -      4,154,338      4,154,338 
 Fair value movement on 
  effective hedging 
  instruments                            207,571              -        207,571 
 Interest paid on effective 
  hedging instruments                  7,936,734              -      7,936,734 
 
 

Transferred to the profit and loss account:

 
 Movements on 
  discontinued 
  hedge 
  accounting                                     (488,158)                                   -                                     (488,158) 
                           -------------------------------        ----------------------------            ---------------------------------- 
At 30 June 
 2011                                         (48,046,634)                        (62,941,931)                                 (110,988,565) 
                ==========================================  =============------==----=========  ============================================ 
 

9. CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS

As at 30 June 2011 and 31 December 2010 the company had given a fixed charge over all its assets, including first fixed charges over its bank accounts, to secure the notes referred to in Note 7.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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