Fitch: Welcome Break Proposals May Have Negative Rating Implications.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 27, 2004

Fitch Ratings, the international rating agency, has maintained the Rating Watch Negative status for all of Welcome Break Finance PLC's notes following yesterday's announcement from the company.

As explained by Fitch on Nov. 19, 2003, Welcome Break Group Limited (WBGL) faced a Jan. 28 deadline to file accounts with the security trustee. Welcome Break Finance PLC, the issuer, announced late yesterday that the accounts have been filed and have been prepared on a going concern basis, as a result of Investcorp S.A. providing a non-legally binding letter of support to WBGL, the borrower and main operating company in the transaction, regarding contingent funding.

The contingent support, in the form of 'funds available to WBGL to meet, inter alia, the scheduled principal, interest and fees due to the Issuer under the Facility Agreement for a period of at least twelve months,' will only be required if an (as yet) undeclared restructuring proposal is rejected by noteholders. However, the provision of support from Investcorp is conditional on the issuer having been put into administration or administrative receivership. Investcorp has also reserved the right to withdraw support should WBGL or any of its subsidiaries be placed into administration or administrative receivership. Fitch considers this to be a highly unusual step.

It is Fitch's current understanding, based on very limited information, that if the restructuring proposal is rejected, this means that WBGL would be unable to make the full payment on the interest payment date on March 1 this year unless the issuer enters administration or administrative receivership (in which case, Investcorp will provide the necessary funds). Fitch understands that the directors of the issuer will be unable to make the solvency declarations necessary to seek a drawing under the liquidity facility. For this reason, it is thought likely that the directors of the issuer will petition to place the company into administration as they will be unable to make March's note payments. In practice, an administrative receiver would likely be appointed by the trustee prior to an administrator being appointed to ensure noteholders retain some control over the process. The appointment of either an administrator or an administrative receiver would then mean that Investcorp's support would be forthcoming, and the loan payments would be made.

Assuming the borrower is then able to comply with its obligations under the issuer-borrower facility agreement, then the issuer would be unable to call an event of default. Investcorp could then continue to support Welcome Break Group Limited, and remedy any breach of financial covenant that may arise, and then commence negotiations with the administrator or administrative receiver of the issuer.

An administration or administrative receivership of the issuer is not normally expected in a securitisation of this type. Such a move is likely to have a negative impact on the likelihood of timely payments being made on the notes. It would also enable the class A noteholders to accelerate, thereby preventing payments to the class B noteholders until the Class A notes were repaid in full.

Welcome Break Finance is a whole business securitisation of 23 of the company's motorway service areas. Its notes are rated as follows:

-- GBP72 million class A1 secured floating-rate notes due 2007

'BB';

-- GBP110 million class A2 secured floating-rate notes due 2011

'BB';

-- GBP127 million class A3 secured notes due 2015 'BB';

-- GBP5.5 million revolving facility 'BB';

-- GBP67 million class B secured floating-rate notes due 2017

'CC'.

All notes remain on Rating Watch Negative pending clarification of the refinancing proposal, and the implications of it being accepted or rejected.

Fitch will issue further updates when more information is available. The announcement of the proposal for a refinancing is expected to be published later this week. Should such a proposal involve a principal loss for noteholders, it is possible that the ratings will be downgraded.