Glassbox Ltd.

Annual / Quarterly Financial Statement • May 3, 2022

Class_limited_31_December_2021-ESEF CLASS Limited Directors’ report and Financial Statements For the year ended 31 December 2021 Registered number 72096 CLASS LIMITED Contents Page Directors and other information 1 – 2 Directors’ Report 3 – 8 Statement of Directors’ responsibilities in respect of Directors’ report and the financial statements 9 Independent auditor’s report 10 – 15 Financial Statements Statement of Financial Position 16 Statement of Comprehensive Income 17 Statement of Cash Flows 18 Statement of Changes in Equity 19 Notes to the Financial Statements 20 – 75 CLASS LIMITED Directors and other information 1 Directors Marc Harris Darren Hocquard Resigned 30 March 2022 Bernard Michael Le Claire Resigned 30 March 2022 Viscom Services Limited Appointed 30 March 2022 Visdirect Services Limited Appointed 30 March 2022 Registered office 4 th Floor, St Paul’s Gate, 22-24 New Street, St. Helier, Jersey, JE1 4TR Channel Islands Trustee The Law Debenture Corporation PLC Fifth Floor 100 Wood Street London EC2V 7EX United Kingdom Deutsche Trustee Company Limited Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom Administrator Vistra Fund Services Limited 4 th Floor, St Paul’s Gate, 22-24 New Street, St. Helier, Jersey, JE1 4TR Channel Islands Company Secretary Vistra Secretaries Limited 4 th Floor, St Paul’s Gate, 22-24 New Street, St. Helier, Jersey, JE1 4TR Channel Islands Independent auditor Ernst & Young LLP 25 Churchill Place London E14 5EY CLASS LIMITED Directors and other information (continued) 2 Banker Royal Bank of Scotland International Limited Royal Bank House 71 Bath Street St Helier Jersey JE4 8PJ Listing Agent Luxembourg Listing Agent Banque International à Luxembourg S.A. 69 Route d'Esch L-2953 Luxembourg Paying Agent, Custodian, Deutsche Bank AG, London Branch Swap counterparty and Winchester House Arranger 1 Great Winchester Street London EC2N 2DB United Kingdom Solicitor Mourant du Feu & Jeune 22 Grenville Street St Helier Jersey JE4 8PX Channel Islands CLASS LIMITED Directors’ Report 3 The Directors present the annual report and audited financial statements of CLASS Limited (the “Company”) for the year ended 31 December 2021. Principal activities, business review and future developments The CLASS Limited program was set up in 10 July 1998 to issue multiple series of debt securities, with the rating on each series independent of the other (if applicable). This means that the Company can issue various series of debt securities ranging from AAA to not rated. The Company has established a USD 5,000,000,000 Multi-Issuance Note Programme (the “Programme”) to issue debt securities and/or other secured limited recourse indebtedness (the “Alternative Investments”). Debt securities are issued in series (each a “series”) and the terms and conditions of the debt securities of each series will be set out in a Supplemental Programme Memorandum (“SPM”) for such series. Debt securities issued by the Company are listed on the primary market of Bourse de Luxembourg. Details of series listed on the exchange are disclosed in note 8. The Company was set up as a segregated multi issuance Special Purpose Entity (“SPE”). Each series is governed by a separate SPM. Each series consists of investment in collateral and/or total return swaps from the proceeds of the issuance of debt securities. The Programme offers investors the opportunity to invest in a portfolio of investments, the “investment securities and total return swaps”. Each series of debt securities issued is secured by a first fixed charge over certain collateral, primarily in the form of investment securities, total return swaps, cash and cash equivalents or cash collateral (the “collateral”) as set out in the relevant SPM and a first fixed charge over funds held by the agents under the Agency Agreement (each defined in the terms and conditions of the debt securities issued). Refer to note 22(b) for the profile of debt securities issued. Each series may also be secured by an assignment of the Company’s rights under a Swap Agreement and/or Option Agreement and/or Repurchase Agreement and/or Credit Support Document (each as defined in the terms and conditions of the debt securities issued) and any additional security as may be described in the relevant SPM (together the “Mortgaged Property”). For details about the assets held by the Company, refer to note 6. The Company’s obligation to the holders of debt securities of a particular series is limited to the net proceeds upon realisation of the collateral of that series. Refer to note 21(b)(ii) for further details on liquidity risk. As at 31 December 2021, the Company holds cash at bank, investments in total return swaps and investment securities. Refer to notes 4 and 6 of the financial statements for more information. The credit risk of the investment securities and total return swaps is borne by either the Company’s swap counterparty (in cases where a default swap transaction has been entered into for that particular series) or the Company’s holders of debt securities. Refer to note 21(b)(i) for further details about how the Company manages credit risk. For every new issuance of debt securities, Deutsche Bank AG, London Branch (“DB London”), as Arranger, transfers to the Company an amount of USD 500 as corporate benefit (income). As Arranger, DB London also agreed to reimburse the Company against any costs, fees, expenses or out goings incurred. DB London is also the swap counterparty (the “swap counterparty”) for all series where derivatives are held. Refer to note 5 for the details of each series for which derivatives are held. CLASS LIMITED Directors’ Report (continued) 4 Principal activities, business review and future developments (continued) The Company made a net gain on investment securities and total return swaps of EUR 20,945k (2020: EUR 10,455k) for the year and a net loss on derivative financial instruments of EUR 11,235k (2020: Net gain of EUR 8,444k). Due to the limited recourse nature of the debt securities issued and as the return on those issued securities is directly linked to the performance of the investment securities, total return swaps and derivative financial instruments, the Company made a corresponding net finance loss on debt securities of EUR 9,710k (2020: EUR 18,899k) resulting to a nil profit for the year ended 31 December 2021 (2020: Nil). Refer to notes 12, 13 and 14 of the financial statements for further information. As at 31 December 2021, the fair value of the Company’s total debt securities issued was EUR 196,915k (2020: EUR 209,175k). There were no new series issued during the year (2020: No issuance). Refer to note 8 for further details. During the year, no series matured (2020: Series 173) and no series was redeemed (2020: No series). The following series are currently in issue as at year end date: Series 29, 31, 32, 47, 49, 53, 58, 60, 61, 64, 66, 67, 73, 75, 76, 79, 80, 82, 83, 84, 90, 94, 95, 100, 104 and 141 (2020: Series 29, 31, 32, 47, 49, 53, 58, 60, 61, 64, 66, 67, 73, 75, 76, 79, 80, 82, 83, 84, 90, 94, 95, 100, 104 and 141). Regulators and central banks have set the goal of improving the robustness of financial benchmarks, especially interest rate benchmarks. As a result of this initiative, the ongoing availability of the London Interbank Offered Rate (“LIBOR”), and other benchmarks is uncertain. Some reforms are already effective while others are still to be implemented or are under consideration. The IBOR transition including the already reformed ones had no material impact on the financial statements of the Company as at 31 December 2021. The Directors expect that the present level of activity will be sustained for the foreseeable future. The Board will continue to seek new opportunities for the Company and will continue to ensure proper management of the current portfolio of series of the Company. It is anticipated that while some series will redeem or mature, it is also expected that new issuances will be made. Political donations The Company made no political donations during the year (2020: Nil). Results and dividends for the year The results for the year are set out on page 17. The Directors do not recommend the payment of a dividend for the year under review (2020: Nil). Changes in Directors during the year The names of the persons who were Directors during the year are set out below. Except where indicated, they served as Directors for the entire year: Mr. Marc Harris Mr. Darren Hocquard Resigned 30 March 2022 Mr. Bernard Michael Le Claire Resigned 30 March 2022 Viscom Services Limited Appointed 30 March 2022 Visdirect Services Limited Appointed 30 March 2022 Risks and uncertainties The principal risks and uncertainties facing the Company relate to the debt securities issued, investment securities and total return swaps, and derivative financial instruments held by the Company. CLASS LIMITED Directors’ Report (continued) 5 Risks and uncertainties (continued) The principal financial risks and uncertainties facing the Company (other than operational risk) and the risk management framework in place to deal with these risks are explained in note 21 of the financial statements. Novel Coronavirus (''COVID-19'') Global Pandemic As the COVID-19 coronavirus pandemic continues, the impacts and risks for the financial sector kept changing. COVID-19 recovery is uneven globally and is presenting a variety of challenges and risks from economic uncertainty to changes in consumer demand, disrupted supply chains and staff shortages, new hybrid working patterns, the ending of government support packages and increased merger and acquisitions activity. Businesses are experiencing conditions often associated with a general economic downturn. This includes dealing with lost revenue, increasing inflation rates, disrupted supply chains, financial market volatility, deteriorating credit, liquidity concerns and further government intervention. Numerous governments have continued to provide both financial and non-financial assistance to the affected entities. As the economy recovers, spending to support households and businesses is falling and tax receipts are growing. With emerging new variants of COVID-19, governments have been imposing mandatory self- isolations, mandatory use of face coverings in most indoor venues, work from home guidance, mandatory use of COVID-19 passes of a negative test to access certain venues and booster dose programmes were also made. Social distancing has been encouraged to reduce social contact and limitations set to household meetings and large events being limited in capacity. As at 24 February 2022, all COVID-19 restrictions in the United Kingdom have been lifted. The Directors, as part of their going concern assessment for a period of 12 months from the date of authorisation of these financial statements, have considered the impact of the COVID-19 on the liquidity and going concern of the Company. During the financial year, the Company received interest income from its investments and was able to meet its yearly interest payment to the holders of debt securities. The Company received its interest income from its investment securities and was able to meet the interest expenditure and amortisation of its issued debt securities to the holders of debt securities from the statement of financial position date up to the date of signing of the financial statements. This indicates the Company continues to generate cash flows to meet its obligations as they fall due. The limited recourse nature of the debt securities issued by the Company limit the investor’s recourse only up to the underlying net assets of that particular debt securities issued. The investors have no right to petition for insolvency proceedings against the Company in the event that the underlying assets are insufficient to repay the principal amount of the debt securities issued. Further, to manage the principal risks impacting the Company such as market risks, liquidity risks and credit risks it has entered into derivative swap agreements with the swap counterparty depending on the requirement of each particular debt securities issued. The Company expects fluctuation in the valuation on its financial instruments. As per agreement, DB London, as the Arranger, swap counterparty, custodian and paying agent agreed to reimburse the Company against any costs, fees, expense or out-goings incurred. In light of this, the Directors have concluded that the impact of COVID-19 does not represent a material uncertainty in relation to the Company’s ability to continue as going concern through the date of the issuance of these financial statements. CLASS LIMITED Directors’ Report (continued) 6 Risks and uncertainties (continued) Novel Coronavirus (''COVID-19'') Global Pandemic (continued) The Directors have considered the impact of the war in Ukraine and at present deem there to be no material impact to the entity. Based on the above assessment, the directors have a reasonable expectation that COVID-19 has no major impact on the Company’s liquidity or going concern and believe that the going concern basis is the appropriate basis of accounts preparation. Directors, secretary and their interests The Directors and secretary who held office on 31 December 2021 did not hold any shares in the Company, or during the year. There were no contracts of any significance in relation to the business of the Company in which the Directors had any interest, as defined in the Companies (Jersey) Law 1991, at any time during the year. Credit events There have been no credit events during the year which required payment under the swap agreements which the Company has written to DB London (2020: No credit events). Subsequent events On February 24, 2022, Russia commenced a large-scale invasion against Ukraine. In response, the West has moved to impose broad-based sanctions targeting Russia, including but not limited to certain Russian banks and the Russian Central Bank, companies, parliamentary members and members of the Russian elite and their families. It is possible that additional sanctions and other measures may be imposed in the future. The Board and DB London considers the impact of the ongoing situation concerning Ukraine to the Company’s performance and its ability to continue as a going concern. As of 31 December 2021, the Company had no investment securities that were directly or indirectly impacted by sanctions relating to Russia or the conflict in Ukraine. The Company’s performance and its operation have not been significantly impacted by this conflict nor its ability to continue as a going concern. The Board and DB London will continue to monitor the evolving situation and its impact on the Company. Since the end of the reporting period, the Company has not issued any new series of debt securities, no maturities and no repurchases have been made. Other than the abovementioned, there were no other significant events after the reporting period up to the date of the approval of the financial statements which require adjustment to or disclosure in the financial statements. Annual Corporate governance statement Financial Reporting Process The Board of Directors (the ‘‘Board’’) is responsible for establishing and maintaining adequate internal control and risk management systems for the Company in relation to the financial reporting process. Such systems are designed to manage rather than eliminate the risk of failure to achieve the Company’s financial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss and reports to the Board any control issues as they arise. Details on the impact of COVID-19 have been disclosed on the risk and uncertainties section of the directors' report. The Board has established processes regarding internal control and risk management systems to ensure its effective oversight of the financial reporting process. These include appointing Vistra Fund Services Limited (the “Administrator” or “Vistra”), to maintain the accounting records of the Company independently of CLASS Limited and the Trustee. CLASS LIMITED Directors’ Report (continued) 7 Annual Corporate governance statement (continued) Financial Reporting Process (continued) The Administrator is contractually obliged to maintain adequate accounting as required by the corporate administration agreement. To that end, the Administrator performs reconciliations of its accounting records to those of the Servicer and the Trustee. The Administrator is also contractually obliged to prepare for review and approval by the Board the annual report including financial statements intended to give a true and fair view. The Board evaluates and discusses significant accounting and reporting issues as the need arises. From time to time, the Board also examines and evaluates the Administrator’s financial accounting and reporting routines and monitors and evaluates the external auditors’ performance, qualifications and independence. The Administrator has operating responsibility for internal control in relation to the financial reporting process and reports to the Board. Risk Assessment The Board is responsible for assessing the risk of irregularities, whether caused by fraud or error, in financial reporting and ensuring that there are processes in place for the timely identification of internal and external matters which may have a potential impact on financial reporting. The Board has also put in place processes to identify changes in accounting rules and recommendations and to ensure that these changes are accurately reflected in the Company’s financial statements. More specifically: • The Administrator has a review procedure in place to ensure errors and omissions in the financial statements are identified and corrected. • Regular training on accounting rules and recommendations is provided to the accountants employed by the Administrator Control Activities The Administrator is contractually obliged to design and maintain control structures to manage the risks which the Board judges to be significant for internal control over financial reporting. These control structures include segregation of responsibilities and specific control activities aimed at detecting or preventing the risk of significant deficiencies in financial reporting for every significant account in the financial statements and the related notes. Monitoring The Board has an annual process to ensure that appropriate measures are taken to consider and address the shortcomings identified and measures recommended by the independent auditors. Given the contractual obligations of the Administrator, the Board has concluded that there is currently no need for the Company to have a separate internal audit function in order for the Board to perform effective monitoring and oversight of the internal control and risk management systems of the Company in relation to the financial reporting process. Capital Structure No person has a significant direct or indirect holding of securities in the Company. No person has any special rights of control over the Company’s share capital. There are no restrictions on voting rights. With regard to the appointment and replacement of Directors, the company is governed by its Articles of Association and Jersey Law comprising the Companies (Jersey) Law 1991. The Articles of Association themselves may be amended by special resolution of the shareholders. CLASS LIMITED Directors’ Report (continued) 8 Annual Corporate governance statement (continued) Powers of Directors The Board is responsible for managing the business affairs of the Company in accordance with the Articles of Association. The Board may delegate certain functions to the Administrator and other parties subject to the supervision and direction by the Board. The Board have delegated the day to day administration of the Company to the Administrator. Accounting records The Directors believe that they have maintained adequate accounting records by engaging a service provider who employs accounting personnel with appropriate expertise and by providing adequate resources to the finance function. The accounting records of the Company are maintained at 4 th Floor, St Paul’s Gate, 22-24 New Street, St. Helier, Jersey, JE1 4TR, Channel Islands. Independent auditor The Company has appointed Ernst & Young LLP to audit the financial statements. Relevant Information to Auditors The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditor is unaware, and each Director has taken all steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information. Approved and authorised for issue on behalf of the Board on 29 April 2022. Marc Harris Director Date: 29 April 2022 CLASS LIMITED Statement of Directors’ responsibilities in respect of Directors’ report and the financial statements 9 The Directors are responsible for preparing the Director’s Report and the financial statements in accordance with applicable laws and regulations. Jersey Company law requires the Directors to prepare financial statements for each financial year in accordance with generally accepted accounting principles. The financial statements of the Company are required by law to give a true and fair view of the state of affairs of the Company at the year end and of the profit or loss of the company for the year then ended. In preparing these financial statements, the Directors should: • select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • prepare the financial statements on the Going Concern basis unless it is inappropriate to presume that the company will continue in business; and • state whether they have been prepared in accordance with applicable accounting standards, identify those standards and note the effect and the reasons for any material departure from those standards. The Directors are also required by the Transparency (Directive 2004/109/EC) Regulation 2007 and the Transparency Rules of the Luxembourg Financial Services Regulatory Authority to include a Directors’ report containing a review of the business and a description of the principal risks and uncertainties facing the Company. The Directors are responsible for keeping adequate accounting records which are sufficient to show and explain its transactions and are such as to disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements prepared by the Company comply with the requirements of the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities These financial statements comply with the above mentioned requirements. Responsibility Statement, in accordance with the Transparency Regulations Each of the Directors, whose names and functions are listed on page 1 of these financial statements confirm that, to the best of each person’s knowledge and belief: • the financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities and financial position of the Company at 31 December 2021 and its result for the year then ended; and • the Directors’ Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces. Approved and authorised for issue on behalf of the Board on 29 April 2022. Marc Harris Director Date: 29 April 2022 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CLASS LIMITED 10 Opinion We have audited the financial statements of CLASS Limited (the “company”) for the year ended 31 December 2021 which comprise the Statement of Comprehensive Income, the Statement of Changes in Equity, the Statement of Financial Position, the Statement of Cash Flows and the related notes 1 to 27, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the European Union. In our opinion, the financial statements: ► give a true and fair view of the state of the company’s affairs as at 31 December 2021 and of its results for the year then ended; ► have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; and ► have been properly prepared in accordance with the requirements of the Companies (Jersey) Law 1991. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements, including the UK FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Report on Other Legal and Regulatory Requirements The Board of Directors is responsible for presenting the financial statements in compliance with the requirements set out in the Delegated Regulation 2019/815 on European Single Electronic Format (“ESEF Regulation”). Our responsibility is to assess whether the financial statements have been prepared, in all material respects, in compliance with the requirements laid down in the ESEF Regulation. We have checked the compliance of the financial statements of the Company as at 31 December 2021 with relevant statutory requirements set out in the ESEF Regulation that are applicable to financial statements. For the Company, it relates to financial statements prepared in a valid XHTML format. In our opinion, the financial statements of CLASS Ltd as at 31 December 2021, identified as 5299007Q99X0945RXA76-2021-12-31.xhtml, have been prepared, in all material respects, in compliance with the requirements laid down in the ESEF Regulation. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CLASS LIMITED (continued) 11 Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of accounting included: • Obtained an understanding of the structure of the Company and the potential circumstances under which the entity would not be able to continue as a Going concern; • Assessed the directors’ Going Concern assessment, giving consideration to plausible downside scenarios; • Assessed the ability of third parties who provide support services to the entity to continue to do so or be replaced should they no longer be able to; • Assessed the ability of the arranger to continue to support the operating costs of the Company; and • Evaluated the adequacy of the directors’ disclosure on the impact of COVID-19 in the directors’ report and subsequent events note. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for a period of twelve months from when the financial statements were authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the company’s ability to continue as a going concern. Overview of our audit approach Key audit matters ► Management override of controls over the valuation of financial instruments (derivative financial instruments and level 3 investment securities) and recognition of related realised and unrealised gains and losses Materiality ► Overall materiality of €4,796k which represents 1% of Total Assets. An overview of the scope of our audit Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for the company. This enables us to form an opinion on the financial statements. We take into account size, risk profile, the organisation of the company and effectiveness of controls, including controls and changes in the business environment when assessing the level of work to be performed. All audit work was performed directly by the audit engagement team. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CLASS LIMITED (continued) 12 Key audit matters (continued) Risk Our response to the risk Key observations communicated to those charged with governance Management override of controls over the valuation of financial instruments (derivative financial instruments and level 3 investment securities) and recognition of related realised and unrealised gains and losses Derivative financial assets Current year: €4m, PY comparative: €3m Derivative financial liabilities Current year: €282.5m, PY comparative: €281.8m Level 3 Investment Securities Current year: €66.6m, PY comparative: €235.2m Refer to Accounting policies (pages 24 to 31); and Note 5 and 6 of the Financial Statements (pages 31 to 34). This is a key audit matter due to the inherent complexity in the valuation model and inputs, which may be subject to management override; there is a risk that the valuations of derivative financial instruments and level 3 investment securities could be misstated. The derivative is a financial instrument on which the valuation and measurement of the Company’s issued debt securities valuation and measurement are determined. The risk of misstatement is considered to have neither increased nor decreased in the current year due to the absence of significant change in the operations or business of the Company, or the environment in which it operates. We have performed the following procedures in response to the identified risk: ► Assessed the appropriateness of policies governing the accounting treatment and valuation of financial instruments; ► Performed a walkthrough to understand the valuation process and assessed the design effectiveness of controls; ► Performed a fully substantive audit due to us taking a non-reliance approach on controls; ► Independently confirmed both the valuation and existence of the derivatives and related valuation adjustments with the Swap counterparty as at 31 December 2021; ► Engaged EY Valuation specialists to test the valuation of a sample of derivative financial instruments and investment securities, including valuation adjustments, using independent models and market data; ► Performed an assessment of the methodologies applied by management in light of industry best practice with regards to valuation adjustments; ► Performed analytical procedures over the reasonableness of valuation adjustments applied to derivative financial instruments. ► Performed a review and challenge of management’s disclosure in relation to estimates within the financial statements. ► Performed testing over manual top-side journal entries impacting the valuation and measurement of the derivative financial instrument. No material issues were noted during the performance of our audit procedures. We have concluded that the valuation of the derivative financial instruments and level 3 investment securities are not materially misstated as of 31 December 2021 and accounted for in accordance with IFRS as adopted by the European Union as of 31 December 2021. Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CLASS LIMITED (continued) 13 Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the company to be €4,796k (2020: €4,911k), which is 1% (2020: 1%) of total assets. We assessed that the key users of the financial statements would be most interested in the total assets within the entity. Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the company’s overall control environment, our judgement was that performance materiality was 50% (2020: 50%) of our planning materiality, namely €2,396k (2020: €2,456k). We have set performance materiality at this percentage due to the fact this company has listed debt on a regulated exchange. Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with those charged with governance that we would report to them all uncorrected audit differences in excess of €240k (2020: €246k), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. Other information The other information comprises the information included in the annual report set out on pages 3 to 8, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to which the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion: ► proper accounting records have not been kept by the company, or proper returns adequate for our audit have not been received from branches not visited by us; or ► the financial statements are not in agreement with the company’s accounting records and returns; or ► we have not received all the information and explanations we require for our audit. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CLASS LIMITED (continued) 14 Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 9, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management. ► We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and determined that the most significant are as follows: Companies (Jersey) Law 1991; EU Transparency Directive; the rules and regulations of the Luxembourg Stock Exchange; Money Laundering (Jersey) Order 2008. Finally, we obtained an understanding of the accounting standards under which the financial statements are prepared, which in this instance are International Financial Reporting Standards (‘IFRS’) as adopted by the EU. ► We understood how CLASS Limited is complying with those frameworks by making inquiries of management and the directors for their awareness of any non-compliance with laws and regulations and to understand how the Company maintains and communicates its policies as well as through the evaluation of corroborating documentation. We reviewed correspondence between the Company and regulators. We also reviewed minutes of Board Committee meetings, Board Risk Committee meetings and Audit Committee meetings. We gained an understanding of the Company’s approach to governance demonstrated by the Board’s approval of the Company’s risk management framework, governance framework and internal control processes. ► We assessed the susceptibility of the company’s financial statements to material misstatement, including how fraud might occur by considering the potential for management override of controls over the valuation of financial instruments (derivative financial instruments and level 3 investment securities) and recognition of related realised and unrealised gains and losses, performing the procedures as outlined in our KAM section above. We considered the controls that the Company has established to address fraud risks identified, or that otherwise seek to prevent, deter or detect INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CLASS LIMITED (continued) 15 fraud. Where the risk was higher, including areas impacting the valuation of financial instruments, we performed audit procedures to address each identified fraud risk or other risk of material misstatement. These procedures included those on revenue recognition and the assessment of items involving accounting judgements and estimates. These procedures were designed to provide reasonable assurance that the financial statements were free from fraud or error. ► Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved the re-valuation of the investment securities, debt securities and derivatives by performing an independent revaluation using EY internal specialists; inquiries of management and the directors. We also reviewed correspondence between the Company and regulators and reviewed minutes of the Board Committee, Board Risk Committee and Audit Committee meetings. In addition, we performed procedures to identify management override of controls by testing journal entries on a sample basis with a focus on manual journals. ► The company is authorised to and has listed debt on the regulated Bourse de Luxembourg (Luxembourg Stock Exchange). We have obtained an understanding of the Company’s current activities which is to list debt securities of which the proceeds of the issuances are invested in collateral and/or total return swaps, offering investors the opportunity to invest in a portfolio of investments. The control environment is monitored by the Board of Directors (the ‘Board’) through establishing and maintaining adequate internal control and risk management systems, of which no material or significant issues have been noted. We have tested entity-level controls which we deem to be appropriate. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matters we are required to address Following the recommendation from those charged with governance, we were appointed by the company on 01 May 2017 to audit the financial statements for the year ending 31 December 2017 and subsequent financial periods. ► The period of total uninterrupted engagements including previous renewals and reappointments is 5 years, covering the years ending 31 st December 2017 to 31 st December 2021. ► The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the company and we remain independent of the company in conducting the audit. ► The audit opinion is consistent with the additional report to those charged with governance. Use of our report This report is made solely to the company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Thomas Slater for and on behalf of Ernst & Young LLP London 29 April 2022 CLASS LIMITED Statement of Financial Position As at 31 December 2021 16 2021 2020 Note €'000 €'000 Assets Cash at bank 4 21 20 Derivative assets 5 4,020 3,042 Investment securities and total return swaps at fair value through profit or loss 6 469,217 481,201 Other assets 7 6,338 6,848 Total assets 479,596 491,111 Liabilities Derivative liabilities 5 282,519 281,766 Debt securities issued designated at fair value through profit or loss 8 196,915 209,175 Other liabilities 9 120 128 Total liabilities 479,554 491,069 Equity Share capital 10 - - Retained earnings 42 42 Total equity 42 42 Total liabilities and equity 479,596 491,111 The financial statements were approved, authorised for issue and signed on behalf of the Board by: Marc Harris Director Date: 29 April 2022 The notes on pages 20 to 75 form an integral part of these financial statements. CLASS LIMITED Statement of Comprehensive Income For the year ended 31 December 2021 17 2021 2020 Note €'000 €'000 Net gain on investment securities and total return swaps 12 20,945 10,455 Net (loss) / gain on derivative financial instruments 13 (11,235) 8,444 Net finance loss on debt securities issued 14 (9,710) (18,899) Operating income - - Other income 15 86 67 Other expenses 16 (86) (67) Result before taxation - - Income tax expense 17 - - Result for the year - - Other comprehensive income - - Total comprehensive income for the year - - All items dealt with in arriving at the above result for the year ended 31 December 2021 and 31 December 2020 are related to continuing operations. The notes on pages 20 to 75 form an integral part of these financial statements. CLASS LIMITED Statement of Cash Flows For the year ended 31 December 2021 18 2021 2020 Note €'000 €'000 Cash flows used in operating activities Result for the year before taxation - - Adjustments for: Interest income on investment securities and total return swaps 12 (17,846) (21,038) Interest expense on debt securities issued 14 10,764 11,891 Net swap (receipts) / payments 13 (3,447) 136 Net (gain) / loss on investment securities and total return swaps 12 (3,099) 10,583 Net (gain) / loss on debt securities issued 14 (1,054) 7,008 Net loss / (gain) on derivative financial instruments 13 14,682 (8,580) Movement in Working Capital Changes in other assets - (8) Changes in other liabilities 1 5 Cash flows used in operating activities 1 (3) Net swap payments and settlement of derivative exposure (11,459) (4,362) Net cash used in operating activities (11,458) (4,365) Cash flows from investing activities Acquisition of investment securities and total return swaps (3,720) (503) Proceeds from redemptions / maturities of investment securities and total return swaps 18,802 31,774 Interest receipts from investment securities 18,356 23,488 Net cash generated from investing activities 33,438 54,759 Cash flows used in financing activities Payments on amortisations, maturities / redemptions of debt securities issued (11,206) (38,484) Interest payments on debt securities issued (10,773) (11,911) Net cash used in financing activities (21,979) (50,395) Net change in cash at bank 1 (1) Cash at bank at 1 January 4 20 21 Cash at bank at 31 December 4 21 20 The notes on pages 20 to 75 form an integral part of these financial statements. CLASS LIMITED Statement of Changes in Equity For the year ended 31 December 2021 19 Share capital Retained earnings Total €'000 €'000 €'000 Balance as at 1 January 2020 - 42 42 Profit for the year - 2020 - - - Other comprehensive income - - - Total comprehensive income for the year - - - Balance as at 31 December 2020 - 42 42 Profit for the year - 2021 - - - Other comprehensive income - - - Total comprehensive income for the year - - - Balance as at 31 December 2021 - 42 42 The notes on pages 20 to 75 form an integral part of these financial statements. CLASS LIMITED Notes to the Financial Statements For the year ended 31 December 2021 20 1 General information CLASS Limited (the “Company”) was incorporated on 10 July 1998 in Jersey with registered number 72096. The registered office of the Company is 4th Floor, St Paul’s Gate, 22-24 New Street, St. Helier, Jersey, JE1 4TR, Channel Islands. The Company is a special purpose entity that has been established to issue debt securities under a USD 5,000,000,000 Multi-issuance note programme. The programme offers investors the opportunity to invest in a portfolio of investments securities and total return swaps that include derivative instruments that mitigate the interest rate risk and credit risk associated with the portfolio. 2 Basis of preparation (a) Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and its interpretations as adopted by the EU. The accounting policies set out below have been applied in preparing the financial statements for the year ended 31 December 2021. The comparative information for the year ended 31 December 2020 presented in these financial statements has been prepared on a consistent basis. The Company’s debt funding has been provided by the holders of debt securities, whose recourse to the assets of the Company are limited to the aggregate net assets designated as underlying assets (assets acquired and other agreements) for the particular series of debt securities held and who have no right to take any step for the winding up or liquidation of the Company in the event that the aggregate proceeds from the realisation of the underlying assets are insufficient to repay the principal/interest amounts of the debt securities. From the point of view of a holder of debt securities, defaults on any one particular series does not impact any other series. The Directors are closely monitoring the evolution of COVID-19, including how it may affect the economy and general population. The Directors have a reasonable expectation that the impact of COVID-19 would not have an impact on the Company’s Going Concern because of the limited recourse nature of the debt securities issued by the Company, any such losses would ultimately be borne by either the Company’s swap counterparty and/or the Company’s holders of debt securities for that particular series. DB London as Arranger has agreed to pay the Company for any costs, fees, expenses or out-goings incurred as defined in the Agreement. The Company received its interest income from its investment securities and was able to meet the interest expenditure and amortisation of its issued debt securities to the holders of debt securities from the statement of financial position date up to the date of signing of the financial statements. This indicates the Company continues to generate cash flows to meet its obligations as they fall due. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 21 2 Basis of preparation (continued) (a) Statement of compliance (continued) The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period of twelve months from the date when the financial statements are authorised for issue. Accordingly, the Directors continue to adopt the Going Concern basis in preparing these financial statements. (b) Changes in accounting policies There were no changes in accounting policies which would have a financial impact on the Company’s financial statements during the year. (c) New standards, amendments or interpretations (i) New standard adopted during the year • Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (issued on 27 August 2020) In August 2020, the IASB issued amendments to IFRS 9, “Financial Instruments”, IAS 39, “Financial Instruments: Recognition and Measurement“, IFRS 7, “Financial Instruments: Disclosures”, IFRS 4, “Insurance Contracts” and IFRS 16, “Leases” as Phase 2 of their project addressing the potential effects from the reform of the Interbank Offered Rate (“IBOR”) on financial reporting. The amendments in Phase 2 deal with replacement issues, therefore, they address issues that might affect financial reporting when an existing interest rate benchmark is actually replaced. This includes modification of financial assets, financial liabilities and lease liabilities as well as specific hedge accounting requirements. The amendments introduce a practical expedient for modifications required by the reform (modifications required as a direct consequence of the IBOR reform and made on an economically equivalent basis). These modifications are accounted for by updating the effective interest rate. All other modifications are accounted for using the current IFRS requirements. A similar practical expedient is introduced for lessee accounting applying IFRS 16. Under the amendments, hedge accounting is not discontinued solely because of the IBOR reform. Hedging relationships (and related documentation) must be amended to reflect modifications to the hedged item, hedging instrument and hedged risk. Amended hedging relationships should meet all qualifying criteria to apply hedge accounting, including effectiveness requirements. The amendments also amended IFRS 4 to require insurers that apply the temporary exemption from IFRS 9 to apply the amendments in accounting for modifications directly required by IBOR reform. The amendments also require additional disclosures that allow users to understand the nature and extent of risks arising from the IBOR reform to which the entity is exposed to and how the entity manages those risks as well as the entity’s progress in transitioning from IBORs to alternative benchmark rates, and how the entity is managing this transition. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 22 2 Basis of preparation (continued) (c) New standards, amendments or interpretations (continued) (i) New standard adopted during the year (continued) Some IBOR reforms are already effective while others are still to be implemented or are under consideration. The Financial Conduct Authority ("FCA") in the UK confirmed on 5 March 2021 the dates that panel bank submissions for all LIBOR settings will cease, after which representative LIBOR rates will no longer be available: • immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and • immediately after 30 June 2023, in the case of the remaining US dollar settings. As at 31 December 2021, the Company has no exposure to the LIBOR cessation as none of the debt securities issued and underlying investment securities have interest rates that are linked to LIBOR rates that will cease immediately after that date. Furthermore, investment securities that have interest rate linked to LIBOR 3- month US dollar setting will have until 30 June 2023 to amend the legal document or secure holders of debt securities’ consent to this changes. Therefore, the IBOR transition including the already reformed ones had no material impact on the financial statements of the Company as at 31 December 2021. (ii) Effective for annual periods beginning on or after 1 January 2022 The Directors have set out the upcoming EU endorsed and un-endorsed accounting standards, amendments or interpretations up until the issuance of the financial statements as set out below. Description Effective date (period beginning) Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and Annual Improvements 2018-2020 (All issued 14 May 2020) 1 January 2022 Amendments to IFRS 16 Leases: Covid-19 – Related Rent Concessions beyond 30 June 2021 (issued on 31 March 2021) 1 April 2021 IFRS 17: Insurance Contracts (Issued on 18 May 2017); including Amendments to IFRS 17 (issued on 25 June 2020) 1 January 2023 Amendments to IFRS 17 Insurance contracts: Initial Application of IFRS 17 and IFRS 9 – Comparative Information (issued on 9 December 2021) 1 January 2023 Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (issued on 7 May 2021) 1 January 2023 CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 23 2 Basis of preparation (continued) (c) New standards, amendments or interpretations (continued) (ii) Effective for annual periods beginning on or after 1 January 2022 (continued) Description Effective date (period beginning) Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (issued on 12 February 2021) 1 January 2023 Amendment to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies (issued on 12 February 2021) 1 January 2023 Amendments to IAS 1 2 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current and Classification of Liabilities as Current or Non-current - Deferral of Effective Date (issued on 23 January 2020 and 15 July 2020 respectively) 1 January 2023 Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and Annual Improvements 2018-2020 (All issued 14 May 2020) 1 January 2022 Where new requirements are endorsed the EU effective date is disclosed. For un- endorsed standards and interpretations, the IASB’s effective date is noted. Where any of the upcoming requirements are applicable to the Company, it will apply them from their EU effective date. ** EU endorsed The Directors have considered the new standards, amendments and interpretations as set out in the table above and in the preceding page and have concluded that they are not expected to have a material impact on the Company and does not intend to adopt any of the new standards before their effective date. d) Basis of measurement The financial statements are prepared on the historical cost basis except for the following: • Derivative financial instruments are measured at fair value; • Investment securities and total return swaps classified at fair value through profit or loss are measured at fair value; and • Debt securities issued designated at fair value through profit or loss are measured at fair value. The methods used to measure fair values are discussed further in note 3(b). CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 24 2 Basis of preparation (continued) (e) Significant accounting judgements, estimates and assumptions The preparation of the Company’s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of income, expenses, assets and liabilities and the accompanying disclosures. (i) Judgements In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements. Going Concern In order to assess whether it is appropriate for the Company to be reported as a Going Concern, the Directors apply judgement, having undertaken appropriate enquiries and having considered the effects of the Global Pandemic on the Company's activities. In light of this, the Directors have concluded that the impact of the Global Pandemic does not represent a material uncertainty in relation to the Company’s ability to continue as Going Concern through the date of the issuance of these financial statements as the company expects to be able to meet its obligations as and when they fall due for the next 12 months from the date of approval of these financial statements. We have considered the following: The limited recourse nature of the securities issued by the Company limit the investor’s recourse only up to the underlying net assets of that particular debt securities issued. The investors have no right to take any step for the winding up or liquidation of the Company in the event that the underlying assets are insufficient to repay the principal amount of the debt securities issued. Further, to manage the principal risks impacting the Company such as market risks, liquidity risks, credit risks and operational risks, it has entered derivative swap agreements with DB London depending on the requirement of each particular debt securities issued. Moreover, the timing of gross contractual cash flows payments and receipts with respect to the reference derivatives and collateral are offset to nil. Also, as per agreement, DB London as Arranger and swap counterparty agreed to reimburse the Company against any costs, fees, expense or out-goings incurred. In the event that any service provider including Vistra goes into administration or liquidation, the Board will be able to appoint alternative reputable service providers to take over necessary roles, or the Trustees would potentially enforce security over Notes in an Event of Default scenario. We also consider DB London have business continuity plans and crisis management policies currently in place which would see it continue to provide support to service the Company and also meet its ongoing costs, fees, expenses or out-goings incurred. Deutsche Bank AG has sufficient buffers in place to withstand severe capital and liquidity stress scenarios as per the Banking Recovery and Resolution Directive requirements. In their most recent published Annual Report of 2021, their board of Directors have assessed the potential impact of COVID-19 and note that they maintain a recovery and resolution planning framework designed to anticipate, identify, mitigate and manage in a timely and coordinated manage the impact of adverse events on their group and its ability to continue as a going concern. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 25 2 Basis of preparation (continued) (e) Significant accounting judgements, estimates and assumptions (continued) (i) Judgements (continued) Going Concern (continued) Climate change risks like changing temperatures and weather patterns around the globe may pose significant risks for many businesses. The downsides may well have a financial statement impact, for example, through impairments to goodwill, or reductions in the useful economic lives of assets. Costs may increase, due for instance, to effects on supply chains, and revenues may fall, as consumer demand for goods and services changes over time in response to climate change. The principal activity of the Company is to issue secured notes, invest in subordinated notes and also enter into asset swap. In terms of valuation of the asset swap, DB as swap counterparty use the assumptions that market participants would use when pricing the asset or liability. Where relevant, these assumptions may include assumptions about climate change. DB has not made material adjustment to fair value for climate change beyond that already priced into market inputs. The Company is not involved in any other activities and has no employees. Therefore, the Directors have concluded that the Company is not directly impacted by climate change and is not expected to affect the Company's going concern. Level 3 fair value measurement Level 3 instruments are regarded as a source of critical accounting judgement as at year end date. The measurement of fair value of the complex Level 3 instruments is both quantitatively and qualitatively material to the financial statements. The critical judgement is over the use of the unobservable inputs and the material nature of these inputs in the valuation of the financial instrument. The swap counterparty has produced valuations as of a particular time and date on the basis of, inter alia, its proprietary valuation models that takes into account interest rates, duration and relevant credit spreads. There exists judgement related to the selection and calibration of the models and associated market data inputs. The determination of fair values of financial assets and financial liabilities that are not quoted in an active market are based on valuation techniques. The chosen valuation technique incorporates all the factors that market participants would take into account in pricing a transaction. Valuation techniques include the discounted cash flow method, option pricing model, comparison to similar instruments for which market observable prices exist, and valuation models. For more complex instruments, the Company uses proprietary models, which usually are developed from recognised valuation models. Some or all of the inputs into these models may not be directly observable from the market and are derived from market prices or rates or are estimates based on assumptions. Involvement with unconsolidated structured entities The Company also disclosed the significant judgements made in determining the nature of its interest in another entity. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 26 2 Basis of preparation (continued) (e) Significant accounting judgements, estimates and assumptions (continued) (i) Judgements (continued) Involvement with unconsolidated structured entities (continued) The Company has concluded that investments in unconsolidated entities meet the definition of structured entities due to the following: • the voting rights are not dominant rights in deciding who controls them because they relate to administrative tasks only; • each of the investments’ activities are restricted by its prospectus; and • the investments have narrow and well-defined objectives to provide investment opportunities to investors. Refer to the table on note 24 for the disclosure of the nature, purpose, size and activities of the structured entities and how they are financed. (ii) Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the year end date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Fair value measurement of financial instruments When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flow model and correlation pricing model. The inputs to these models are taken from observable markets where possible. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. The estimates and associated assumptions are reviewed on an ongoing basis and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Information about significant areas of estimation uncertainty in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 23. (f) Functional and presentation currency The financial statements are presented in Euro, which is the Company’s functional currency. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 27 2 Basis of preparation (continued) (f) Functional and presentation currency (continued) Functional currency is the currency of the primary economic environment in which the entity operates. The issued share capital of the Company is denominated in Great British Pound while the debt securities issued are primarily denominated in Euro. The Directors of the Company believe that Euro most faithfully represents the economic effects of the underlying transactions, events and conditions. Except as otherwise indicated, all financial information presented in Euro have been rounded to the nearest thousand. 3 Significant accounting policies The accounting policies set out below have been applied consistently to all years presented in these financial statements. (a) Structured entities A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes; (a) restricted activities, (b) a narrow and well-defined objective, such as to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured entity to investors, (c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support and (d) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches). The Company considers some of its investments to be investments in structured entities which are unconsolidated due to the fact that the Company has no control of the structured entities. See note 24 for details of these investments. The Company accounts for its investments in structured entities as investment securities at fair value through profit or loss and recognises any gains and losses arising from changes in the fair value through profit or loss in the Statement of Comprehensive Income in the period in which they arise. (b) Financial instruments The Company classifies its financial instruments in accordance to IFRS 9. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 28 3 Significant accounting policies (continued) (b) Financial instruments (continued) The financial instruments held by the Company at fair value through profit or loss include the following: • Investment securities and total return swaps; • Derivative financial instruments; and • Debt securities issued. Designation at fair value through profit or loss upon initial recognition The Company has designated financial liabilities at fair value through profit or loss since the liabilities consist of debt securities issued that are backed by the investment securities and derivative financial instruments. The returns from the investment securities are used to pay off the debt securities and as a result, measuring the debt securities on other basis other than fair value will create an accounting mismatch. The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the financial assets or liabilities or recognising gains or losses on them on a different basis. The Company has classified the investment securities at fair value through profit or loss and designated the debt securities issued at fair value through profit or loss. Derivative financial instruments are carried at fair value through profit or loss. Other financial instruments are carried at amortised cost. Classification A financial asset or financial liability at fair value through profit or loss is a financial asset or liability that is classified as held-for-trading or designated or classified at fair value through profit or loss. Other financial instruments are carried at amortised cost. Derivative financial instruments are carried at fair value through profit or loss. The Company has classified the investment securities and total return swaps at fair value through profit or loss. Investment securities and total return swaps All investment securities held by the Company are classified and initially measured at fair value through profit or loss. The investment securities held by the Company have been designated at fair value through profit or loss to eliminate or significantly reduce an accounting mismatch. Total return swaps consist of credit linked collateral which enable the Company to gain exposure and benefit from a reference amount and are classified at fair value through profit or loss. Subsequent changes in the fair value of investment securities and total return swaps are recognised directly in the statement of comprehensive income. Derivative financial instruments Derivative financial instruments held for risk management purposes include derivative assets and liabilities comprised of interest rate swaps and cross currency swaps which are classified as assets swaps that are used to economically hedge at each series from interest rate or market fluctuations affecting the relevant collateral assets. Such derivatives are not formally designated into a qualifying hedging relationship and therefore all changes in their fair value are recognised through profit or loss in the statement of comprehensive income. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 29 3 Significant accounting policies (continued) (b) Financial instruments (continued) Derivative financial instruments (continued) Such derivatives are not formally designated into a qualifying hedging relationship and therefore all changes in their fair value are recognised through profit or loss in the statement of comprehensive income. The Company also writes asset swaps derivatives for certain series as noted in note 6 that may create economic returns for the Company; such derivatives are carried at fair value through profit or loss. Debt securities issued The debt securities issued are initially measured at fair value and are designated as liabilities at fair value through profit or loss when they either eliminate or significantly reduce the inconsistent treatment that would otherwise arise from measuring the debt securities issued on a different basis to that of the underlying securities such as the investment securities and derivative financial instruments. Financial assets and liabilities that are not at fair value through profit or loss Financial assets that are not at fair value through profit or loss and are not quoted in an active market include cash at bank and deposits with credit institutions and other receivables, which are classified and measured at amortised cost. Financial liabilities that are not at fair value through profit or loss include accrued expenses and other payables. These are classified and measured at amortised cost. Impairment of financial assets The impairment rules under IFRS 9 will apply to financial assets that are measured at amortized cost. Under IFRS 9 expected credit loss approach, the Company will recognize expected credit losses resulting from default events that are possible within the next 12 months for both the homogeneous and non-homogeneous performing loan pools (stage 1). IFRS 9 also requires the recognition of credit losses expected over the remaining life of the assets (‘lifetime expected losses’) which have significantly deteriorated in credit quality since origination or purchase but have yet to default (stage 2) and for assets that are credit impaired (stage 3). Under IFRS 9 expected credit losses are measured by taking into account forward-looking information, including macroeconomic factors. Recognition and measurement The Company initially recognises all financial assets and liabilities at fair value on the trade date, which is the date on which the Company becomes a party to the contractual provisions of the instruments. For financial assets and financial liabilities which will subsequently be carried at fair value, initial direct costs are expensed. For financial assets and financial liabilities not at fair value through profit or loss, costs directly attributable to the acquisition or issue of financial assets or financial liabilities are included in the initial cost. From trade date, any gains or losses arising from changes in the fair value of the financial assets or financial liabilities being measured at fair value through profit or loss are recorded through profit or loss in the statement of comprehensive income. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 30 3 Significant accounting policies (continued) (b) Financial instruments (continued) Recognition and measurement (continued) Financial assets and financial liabilities not categorised as at fair value through profit or loss are subsequently measured at amortised cost using the effective interest rate method. Derecognition The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. The Company derecognises a financial liability when its contractual obligations are discharged, cancelled or has expired. Offsetting Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards. There is no offsetting agreement in place, therefore, no offsetting of assets and liabilities occurred as at 31 December 2021 (2020: No offsetting). Fair value measurement principles Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal, or in its absence, the most advantageous market to which the Company has access. The fair value of a liability reflects its non-performance risk. The determination of fair values of financial assets and financial liabilities are based on quoted bid market prices or dealer price quotations for financial instruments traded in active markets, where these are available. A market is regarded as active if transaction for the asset or liability takes place with sufficient frequency and volume to provide pricing information on an ongoing basis. The Company measures instruments quoted in an active market at bid price. For all other financial instruments fair value is determined by using valuation techniques. If there is no quoted price in an active market, then the Company uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 31 3 Significant accounting policies (continued) (b) Financial instruments (continued) Fair value measurement principles (continued) Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models. The Company uses widely recognised valuation models for determining the fair value of common and simpler financial instruments like call options, interest rate and currency swaps. For more complex instruments, the Company uses proprietary models, which are usually developed from recognised valuation models. Some or all of the inputs into these models may not be directly observable from the market and are derived from market prices or rates or are estimated based on assumptions. The Company recognises transfers between levels of the fair value hierarchy as at the beginning of the reporting period during which the change has occurred. (c) Financial liability and equity The financial instruments issued by the Company are treated as equity (i.e. forming part of shareholder’s funds) only to the extent that they meet the following two conditions: • they include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company; and • where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that these conditions are not met, the proceeds of issue are classified as a financial liability. Finance payments associated with financial liabilities are dealt with as part of the ongoing remeasurement of debt securities to fair value. Any payments associated with financial instruments that are classified in equity are distributions from the net income attributable to equity holders and are recorded directly in equity. (d) Operating segments The Company has applied IFRS 8 Operating Segments which puts emphasis on the “management approach” to reporting on operating segments. The Company is engaged as one segment. It involves the repackaging of bonds and other debt instruments, on behalf of investors, which are bought from the market and subsequently securitised to avail of potential market opportunities and risk-return asymmetries. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 32 3 Significant accounting policies (continued) (d) Operating segments (continued) Each transaction is entered into on its own merit, as such, no cross-sectional review is performed per geography for the entity by the Board who are regarded as the Company’s Chief Operating Decision Maker. No revenue per geographical location has been disclosed because this information is not prepared and is not regularly provided to nor used by the Board. The financial results for this segment are equivalent to the financial statements of the Company as a whole. The Board is responsible for managing the business of the Company including the outcome of day to day operating decisions. It achieves this by appointing on an arm’s length basis established service providers with competence and expertise in their respective areas. It reviews the terms of their engagement and monitors the output from these services to ensure they fully satisfy what is required of them in operational, legal and regulatory terms. Refer to note 21(b) concentration risk for the geographical segmental information of the assets. (e) Cash at bank Cash at bank consists of current cash held on deposit which is on demand. Cash at bank is carried at amortised cost in the statement of financial position. (f) Foreign currency transaction Transactions in foreign currencies are translated to the functional currency of the Company using exchange rates at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency using the exchange rate at that date. Foreign currency differences arising on retranslation or settlement are recognised through profit or loss in the statement of comprehensive income and are included under net gain / (loss) from investment securities, derivative financial instruments or debt securities issued, as appropriate. (g) Net gain on investment securities and total return swaps Net gain on investment securities and total return swaps relates to realised income (including interest receipts and accrued interest income) arising on investment securities, realised and unrealised fair value changes including foreign exchange differences arising on investment securities and total return swaps. (h) Net (loss) / gain on derivative financial instruments Net (loss) / gain on derivative financial instruments relates to the fair value movements on derivatives held by the Company and includes realised and unrealised fair value changes, settlements and foreign exchange differences. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 33 3 Significant accounting policies (continued) (i) Net finance loss on debt securities issued Net finance loss on debt securities issued includes financing costs (including interest payments and accrued interest expense) realised and unrealised fair value changes and foreign exchange differences. (j) Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognised through profit or loss, in other comprehensive income or directly in equity consistent with the accounting for the item to which it is related. Current tax is the expected tax payable on the taxable income for the year, using tax rates applicable to the Company’s activities enacted or substantively enacted at the reporting date, and adjustment to tax payable in respect of previous years. Deferred tax is provided for temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences arising on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (k) Other income and expenses All other income and expenses are accounted for on an accrual basis. (l) Share capital and dividends Share capital is issued in Great British Pound. Dividends are recognised as a payable in the period in which they are approved. 4 Cash at bank 2021 2020 €'000 €'000 Cash at bank 21 20 The Company’s cash is held with Royal Bank of Scotland International. Refer to note 21(b)(i) for credit ratings for cash and cash equivalents. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 34 5 Derivative financial instruments 2021 2020 €'000 €'000 Derivative assets- Asset swaps Less than one year 266 30 One year to five years 753 275 Greater than five years 3,001 2,737 4,020 3,042 Derivative liabilities- Asset swaps Less than one year 31,484 20,675 One year to five years 96,166 71,355 Greater than five years 154,869 189,736 282,519 281,766 The Company entered into asset swap agreements other than those mentioned below to eliminate the mismatch between the amount payable in respect of those issued debt securities and the return from the investment securities held by the Company as collateral. The following series are currently outstanding with asset swap agreements as at 31 December 2021: Series 29, 31, 32, 47, 49, 53, 58, 60, 64, 66, 67, 73, 75, 76, 79, 80, 82, 83, 84, 90, 94, 95, 100, 104 and 141 (2020: Series 29, 31, 32, 47, 49, 53, 58, 60, 64, 66, 67, 73, 75, 76, 79, 80, 82, 83, 84, 90, 94, 95, 100, 104 and 141). During the year, no asset swap agreement had matured (2020: Series 173) and no asset swap agreement was partially redeemed (2020: Series 60 and 84). In cases where no asset swaps nor credit default swaps are in place for a series, the credit risk is borne by the holders of debt securities issued by the Company. During the period, no swap agreements were in place for series 61 (2020: Series 61). Fair value adjustment for credit risk The adjustments comprised Counterparty Credit Valuation Adjustments (CVA), Debt Valuation Adjustments (DVA) and Funding Valuation Adjustments (FVA). The impact of adjustments are incorporated into the fair value of the note issuances. CVA covers expected credit losses relating to non-performance risk of the derivative counterparty, DB London. For DVA, that relates to derivative liabilities, the Company considers own credit-worthiness by assessing counterparty potential future exposure with reference to the associated collateral, the expected loss given default and the probability of default. FVA incorporates the market implied funding costs into the fair value of the derivative positions and reflects a discounting spread applied to uncollateralised and partly collateralised derivatives. Shortfall exists when the value of the derivative liability is greater than the value of the investment securities for a certain series. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 35 5 Derivative financial instruments (continued) Fair value adjustment for credit risk (continued) Such occurrence will lead the value of the debt securities to be illogical, thus shortfall adjustment to the derivative value is necessary to bring the value of the debt securities to zero balance since the shortfall is only up to the extent of the fair value of the investment securities and derivative liability of the relevant series. During the year, no shortfall existed (2020: Shortfall existed and relative adjustment was made for series 31 and 47). As at 31 December 2021, the combined value of adjustments amounting to EUR 17,482k (2020: EUR 23,187k) is comprised of adjustments for shortfall, CVA, DVA and FVA amounting to nil (2020: EUR 1,549k), EUR (690k) (2020: EUR (1,320k), EUR 6,078k (2020: EUR 7,708k) and EUR 12,178k (2020: EUR 15,250k), respectively. These adjustments have increased the derivative assets by EUR 914k (2020: EUR 63k) and reduced the derivative liabilities by EUR 16,568k (2020: EUR 23,125k). This was consistent with the valuation policies adopted by derivative counterparty, DB London. 6 Investment securities and total return swaps at fair value through profit or loss 2021 2020 €'000 €'000 Classified at fair value through profit or loss Corporate bonds 302,045 306,375 Government bonds 165,543 172,983 Total return swaps 1,629 1,843 469,217 481,201 2021 2020 €'000 €'000 Less than one year - 18,380 One year to five years 48,493 43,041 Greater than five years 420,724 419,780 469,217 481,201 swaps classified at fair value through profit or loss Maturity analysis of investment securities and total return Investment securities for series 31, 32, 66, one of the investment securities for series 64 and two investment securities for series 47 matured during the year (2020: Two of the investment securities for series 47 and investment securities for 173). Maturities of investment securities are cash settled transactions. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 36 6 Investment securities and total return swaps at fair value through profit or loss (continued) During the year, one of the investment securities for series 75 was fully redeemed (2020: Two of the investment securities for series 60 and one of the investment securities for series 67) while none was partially redeemed (2020: One of the investment securities for series 60 and two investment securities for series 84). Redemptions of investment securities in full are cash settled transactions which are reflected in the statement of cash flows (2020: Redemptions of investment securities in full or partial are non cash settled transactions which are not reflected in the statement of cash flows except for the full redemption of one of the investment securities for series 67). Under the terms of the SPM, the swap counterparty can replace a maturing collateral with DB London issued bond. Following the exercise of the collateral replacement option, the acquisition of three investment securities held by series 47 with total nominal amount of USD 1,468k and EUR 2,500k are cash settled transaction which is reflected in the statement of cash flows (2020: Series 47 with nominal amount of EUR 4,900k is a non cash settled transaction which is not reflected in the statement of cash flows while the acquisition of investment securities for series 67 with nominal amount of EUR 500k is a cash settled transaction which is reflected in the statement of cash flows). Furthermore, no foreign exchange gain or loss was recognized for the replacement since the related collaterals are denominated in Euro (2020: No foreign exchange gain or loss). The carrying value of all of the above assets of the Company represents their maximum exposure to credit risk. The credit risk is eventually transferred to the swap counterparty through credit default swap or the holders of debt securities. The swap counterparty is then exposed to credit risk in respect of the credit default swap. In cases where no swaps are in place for a series, the credit risk is borne by the holders of debt securities issued by the Company. The investment securities and total return swaps are held as collateral for debt securities issued by the Company. The Company holds investments in unconsolidated structured entities with fair value amounting to EUR 4,766k (2020: EUR 4,762k). Refer to note 24 for disclosure on interest in other entities. Total return swaps Under these arrangements the proceeds from the issuance of debt securities are held on deposit with the swap counterparty under the swap agreement. The deposit is synthetically linked to the credit performance of a portfolio of reference entities through a credit default swap. The swap counterparty provides a return that replicates the return due to the holders of the debt securities and also reimburses all the expenses related to the series. In the event of this reference entities default, a notice is served to the Company. The receivable under the total return swaps is reduced by an amount equal to the amount of the default as determined by the calculation agent with reference to the default reference entity and the Company’s obligation under the debt securities is also reduced by the same amount as per the terms of the SPM. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 37 6 Investment securities and total return swaps at fair value through profit or loss (continued) Total return swaps (continued) The total return swaps held by the Company as at year end are for series 61 (2020: Series 61). During the year, no series with total return swaps matured nor redeemed (2020: No series). Refer to note 21(b)(i) for credit risk disclosures relating to the investment securities and total return swaps. 7 Other assets 2021 2020 €'000 €'000 Interest income receivable from investment securities and 6,275 6,785 Other receivables 63 63 6,338 6,848 total return swaps All of the above other assets are current. Refer to note 21(b)(i) for credit risk disclosure. 8 Debt securities issued designated at fair value through profit or loss 2021 2020 €'000 €'000 Designated at fair value through profit or loss 196,915 209,175 Maturity analysis of the debt securities issued at fair value through profit or loss Less than one year 15,944 16,329 One year to five years 55,125 57,092 Greater than five years 125,846 135,754 196,915 209,175 The Company’s obligations under the debt securities issued and related derivative financial instruments are secured by collateral held as noted in note 6. The investors’ recourse per series is limited to the assets of that particular series. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 38 8 Debt securities issued designated at fair value through profit or loss (continued) The debt securities for the following series are listed on the Luxembourg Stock Exchange: Series 29, 31, 32, 47, 49, 53, 58, 60, 64, 66, 67, 73, 75, 76, 79, 80, 82, 83, 84, 90, 94, 95, 100, 104, and 141 (2020: Series 29, 31, 32, 47, 49, 53, 58, 60, 64, 66, 67, 73, 75, 76, 79, 80, 82, 83, 84, 90, 94, 95, 100, 104, and 141). Liabilities arising from financing activities relate to debt securities issued. The below table shows the changes in liabilities arising from financing activities: 2021 2020 €'000 €'000 Opening balance 209,175 240,651 Net loss on debt securities issued designated at fair value through profit or loss 9,710 18,899 Changes in accrual 9 20 Cash flows from financing activities (21,979) (50,395) Closing balance 196,915 209,175 Maturities of debt securities are cash settled transactions which are shown in the statement of cash flows. During the year, no series fully matured (2020: Series 173). The following series are immunizing series, thus part of its balances have matured: Series 29, 31, 32, 47, 49, 53, 58, 60, 61, 64, 66, 67, 73, 75, 76, 79, 80, 82, 83, 84, 90, 94, 95, 100, 104 and 141 (2020: Series 29, 31, 32, 47, 49, 53, 58, 60, 61, 64, 66, 67, 73, 75, 76, 79, 80, 82, 83, 84, 90, 94, 95, 100, 104 and 141). During the year, no series have been redeemed (2020: No series). In the event that accumulated losses prove not to be recoverable during the life of the debt securities issued, then the obligation to the holders of the debt securities issued by the Company will be reduced to the extent of the accumulated losses. The fair value of financial liabilities designated at fair value through profit or loss as at 31 December 2021 was EUR 55,210k (2020: EUR 56,263k) greater than the contractual amount at maturity. The contractual amount at maturity is disclosed on the basis that there will be no payment calls made due to an occurrence of credit event until maturity. As at 31 December 2020, series 29, 31, 32, 47,49, 53, 58, 60, 61, 64, 66, 67, 73, 75, 76, 79, 80, 82, 83, 84, 90, 94, 95, 100, 104 and 141 are immunizing securities wherein their interest rates are stated in the SPM (2020: Series 29, 31, 32, 47,49, 53, 58, 60, 61, 64, 66, 67, 73, 75, 76, 79, 80, 82, 83, 84, 90, 94, 95, 100, 104 and 141). CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 39 9 Other liabilities 2021 2020 €'000 €'000 Interest payable on debt securities issued 79 88 Accrued expenses 32 32 Other payables 9 8 120 128 All of the above other liabilities are current. 10 Share capital 2021 2020 €'000 €'000 Authorised: 10,000 ordinary shares of £1 each 14 14 Issued and fully paid 10 ordinary shares of £1 each - - CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 40 11 Accounting categorisation of financial assets and financial liabilities 2021 2020 Carrying Carrying value value €'000 €'000 Financial asset at amortised cost Cash at bank 21 20 Other assets 6,338 6,848 Total financial asset at amortised cost 6,359 6,868 Financial assets at fair value through profit or loss Investment securities and total return swaps 469,217 481,201 Derivative assets 4,020 3,042 Total assets 479,596 491,111 Financial liabilities at amortised cost Other liabilities 120 128 Debt securities issued 196,915 209,175 Financial liabilities at fair value through profit or loss Derivative liabilities 282,519 281,766 Total liabilities 479,554 491,069 Financial liabilities designated at fair value through profit or loss The financial instruments not accounted for at fair value through profit or loss are short term financial assets and financial liabilities whose carrying amounts approximate their fair values. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 41 12 Net gain on investment securities and total return swaps 2021 2020 €'000 €'000 - Corporate bonds 20,897 9,706 - Government bonds 185 739 - Total return swaps (137) 10 20,945 10,455 Analysed as follows: Interest income including accruals 17,846 21,038 3,485 648 (386) (11,231) 20,945 10,455 Realised loss on redemptions / maturities of investment securities and total return swaps Net gain on investment securities and total return swaps at fair value through profit or loss (including interest receipts): Net unrealised gain on investment securities and total return swaps 13 Net (loss) / gain on derivative financial instruments 2021 2020 €'000 €'000 - Assets swaps (11,235) 8,444 Analysed as follows: Net swap receipts / (payments) 3,447 (136) Net unrealised loss on derivative financial instruments (14,682) (1,219) Net realised gain on settlement of derivative financial instruments - 9,799 (11,235) 8,444 Net (loss) / gain on derivative financial instruments carried at fair value (including interest receipts): CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 42 14 Net finance loss on debt securities issued 2021 2020 €'000 €'000 Net gain / (loss) on debt securities issued designated at fair value through profit or loss 1,054 (7,008) Interest expense including accruals (10,764) (11,891) (9,710) (18,899) Analysed as follows: Interest expense including accruals (10,764) (11,891) Net unrealised loss on debt securities issued (4,069) (12,574) Net realised gain on debt securities issued 5,123 5,566 (9,710) (18,899) 15 Other income 2021 2020 €'000 €'000 Arranger income 86 67 For every new issuance of debt securities, DB London, as Arranger, transfers to the Company an amount of USD 500 as corporate benefit (income) and also agreed, as per Service Agreement, to reimburse the Company against any costs, fees, expenses or out-goings incurred. Arranger income is the total expenses incurred by the Company during the period that is borne by DB. During the year, no new series have been issued which resulted to corporate benefit amount of nil (2020: Nil). CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 43 16 Other expenses 2021 2020 €'000 €'000 Auditor's remuneration (56) (32) Administration fee (21) (29) Advisor fee (5) (2) Directors fee (4) (4) (86) (67) The Company is administered by Vistra and has no employees. Auditor's remuneration relates to the audit of the financial statements and includes EUR 20k in respect of overruns charged by the auditors. 17 Corporate income tax rate The Company is taxed at 0% corporate tax rate during the year (2020: 0%). 18 Ownership of the Company The issued shares are held in trust by Fiduchi Nominees Limited (Formerly OMS Nominees Limited) and Fiduchi Trustees Limited (Formerly Osiris Trustees Limited) (the “Share Trustees”), each of whom own five shares under the terms of a declaration of trust dated July 1998, under which the relevant Share Trustee holds an issued share of the Company in trust for charity. The Share Trustees have appointed the Board to oversee the day-to-day activities of the Company. The Board have considered the issue as to who is the controlling party of the Company. It has determined that the control of the day-to-day activities of the Company rests with the Board. The Board is composed of three Directors, all are considered to be independent of the Deutsche Bank Group. 19 Charges The debt securities issued by the Company are secured by way of charge over the collateral purchased in respect of each of the debt securities, and by the assignment of a fixed first charge of the Company’s rights, title and interest under the respective Swap Agreement for each series. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 44 20 Transactions with related parties, Administrator and Arranger Transactions with Key Management Personnel During the year, the Company incurred a fee of EUR 7k (2020: EUR 8k) relating to administration services provided by Vistra. As at 31 December 2021, outstanding administration services fees payable amounted to EUR 6k (2020: Nil). Professional services in advising matters of Jersey law is incurred during the year amounting to 5k (2020: EUR 2k). Directors’ fees during the year amounted to EUR 4k (2020: EUR 4k). As at 31 December 2021, there were no outstanding Advisor fees and Directors’ fees payable (2020: Nil). Other Transactions Under a series proposal agreement entered into for each series by the Company and DB London, as Arranger for each series, will pay the Company a Series Fee of USD 500 per Series on commencement of the series and agree to reimburse the Company against any costs, fees, expenses or out-goings incurred, refer to note 15 for details. DB London is also the swap counterparty for all series containing asset swap agreements and total return swap agreements. The fair values relating to these swaps are disclosed in note 5 for details and associated income and expenses in notes 15 and 16, respectively. At the reporting date, DB London holds no interest in the debt securities issued by the Company while the following investment securities held by the Company were issued by DB London: Series ISIN CCY 2021 2020 '000 '000 S0047 XS0461370511 USD 3,432 3,432 S0047 XS0461388646 EUR 1,345 1,345 S0047 XS0461330721 EUR 555 555 S0047 XS0461374182 EUR 1,300 1,300 S0047 XS0461329988 EUR 1,000 421 S0047 XS0461367053 EUR 468 1,531 8,100 8,584 Nominal 21 Financial instruments (a) Introduction and overview The Company was set up as segregated multi issuance SPE. This ensures that if one series defaults, the holders of that series are unable to reach other assets of the issuer, which might otherwise have resulted in the issuer’s bankruptcy and the default of the other series of debt securities issued. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 45 21 Financial instruments (continued) (a) Introduction and overview (continued) The segregation criteria include the following: ▪ The Company is a bankruptcy remote SPE; organised in Jersey Channel Island. ▪ Debt securities are issued in separate series. ▪ Assets relating to any particular series of debt securities are held separately and apart from the assets relating to any other series. ▪ Any swap transaction entered into by the Company for a series is separate from any other swap transaction for any other series. ▪ For each series of debt securities, only the trustees are entitled to exercise remedies on behalf of the holders of debt securities. ▪ Each series of issued debt securities are reviewed by a recognised rating agency prior to issuance regardless of whether it is to be rated or not. The net proceeds from the issue of the debt securities are paid to DB London as the swap counterparty or as agent in the case of pass-through notes to purchase a portfolio of investments securities plus any interest accrued thereon on behalf of the Company or to enter into total return swap arrangements with the swap counterparty. The Company has entered into asset swap agreements with DB London, wherein the swap counterparty delivers the investment securities to the account of the Company and the Company pays the holders of debt securities the amount equal to the interest payable on the debt securities issued. The Company pays to the swap counterparty amounts equal to the interest received in respect of the investment securities, and on the maturity date of the investment securities will deliver the portfolio or the proceeds of its redemption to the swap counterparty. In return, the swap counterparty will pay to the Company amounts equal to the coupon payments payable on the debt securities issued as well as the notional outstanding upon maturity. Refer to note 5 for the details of the swap agreements entered by the Company. The swap counterparty delivers collateral to the account of the Company and pays the Company amounts equal to the interest payable under the debt securities, and if the swap agreement has not terminated prior to the maturity date of the respective notes, a sum equal to the redemption amount payable on the debt securities. The credit quality details of the investment securities held by the Company are disclosed in note 21(b). For series where no swap agreements were entered into, the ultimate amount repaid to the holders of the related debt securities will depend on the proceeds from the investment securities. The debt securities issued are initially recorded at fair value which equates to the proceeds received in Euro and are subsequently carried at fair value through profit or loss. The ultimate amount repaid to the holders of these debt securities will depend on the proceeds from the investment securities and any payment the swap counterparty is obliged to make under the terms of the swap agreement. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 46 21 Financial instruments (continued) (b) Risk management framework The Board has overall responsibility for the establishment and oversight of the Company’s risk management framework. The risk profile of the Company is such that market, credit, liquidity and other risks relating to the investment securities and derivative financial instruments are borne by the swap counterparty and/or the holders of the debt securities issued. The Company has exposure to the following risks from its use of financial instruments: (i) Credit risk; (ii) Liquidity risk; and (iii) Market risk This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk and the Company’s management of capital. (i) Credit risk Credit risk is the risk of the financial loss to the Company if the counterparty to a financial asset fails to meet its contractual obligations. Credit risk arises principally from the Company’s investment securities and also from the derivative contracts which the Company has entered into. The Company limits its exposure to credit risk by investing in bonds and other securities detailed in note 3(b) with counterparties that have a credit rating defined in the documentation of the relevant series. No credit enhancements were obtained by the Company to mitigate its exposure to credit risk. The risk of default on these assets and on the underlying reference entities is borne by the swap counterparty and/or the holders of the debt securities as designated in the priority of payments described in the SPM of the relevant series. The credit quality of the Company’s investment securities has been disclosed in note 21(b). The credit risk relating to underlying reference entities as shown in note 22 arises principally from the investment assets which the Company holds which are credit- linked to a portfolio of underlying reference entities. Any default or “credit events” in the underlying portfolio of reference entities may trigger a reduction in the nominal amounts of the debt instrument which the Company holds depending on the loss amounts, as well as, other terms and conditions on the debt. Because of the limited recourse nature of the debt securities issued by the Company, any such losses would ultimately be borne by either the Company’s swap counterparty and/or the Company’s holders of debt securities for that particular series. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 47 21 Financial instruments (continued) (b) Risk management framework (continued) (i) Credit risk (continued) Secondly, for some series the Company has also sold credit protection to the swap counterparty in return for a premium. Refer to note 5 for further details. The corresponding debt securities issued by the Company on which the credit protection has been sold are credit-linked to the credit quality of the underlying portfolio of reference entities. Therefore any default or “credit events” in the underlying portfolio of reference entities might require a specific amount of the collateral, i.e. certain investment securities held by the Company to be delivered to the swap counterparty that has purchased the credit protection from the Company. However, due to the limited recourse nature of the debt securities issued by the Company any such payments in respect of the credit default swap, i.e. the underlying portfolio of reference entities would ultimately be borne by the holders of debt securities by way of corresponding reduction in the nominal amounts of those debt securities issued depending on the terms and conditions attached to debt securities issued. The aggregate reference portfolio notional amounts are usually substantially higher than the notional amounts of the credit default swaps and the nominal amounts of the debt securities issued. This leverage increases the risk of loss to the Company and, therefore, to the holders of debt securities. Refer to note 23 “Fair Values” for further details. 2021 2020 €'000 €'000 Cash at bank 21 20 Derivative assets 4,020 3,042 Investment securities and total return swaps 469,217 481,201 Other assets 6,338 6,848 479,596 491,111 The credit risk is the risk of financial loss to the Company if the counterparty fails to meet its contractual obligation and arises principally from investment securities. The Company limits its exposure to credit risk by issuing notes that are linked to its investment securities and total return swaps. If a credit event were to occur with respect to any of the investment securities and the value of the security is not sufficient to settle the Company's liabilities, any such losses would ultimately be borne by the Company's holders of debt securities issued. At the reporting date the credit quality of the Company's financial assets was as shown in the next page: CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 48 21 Financial instruments (continued) (b) Risk management framework (continued) (i) Credit risk (continued) Cash at bank Company’s cash is held with Royal Bank of Scotland International which has a rating of A- by S&P during the year (2020: A- by S&P). Derivative assets The Company has entered into asset swap transactions with swap counterparty to eliminate the mismatch between the amount payable in respect of the debt securities issued and the return from the investments securities and total return swaps held as collateral. The table below shows a breakdown of derivative financial instruments for each class of debt securities issued. Type of transaction Derivative 2021 2020 type €'000 €'000 Immunisation notes Asset swaps 4,020 3,042 On a series by series basis where there are various components of an asset swap such as interest rate swap and currency swap with different values, the values of the various components are disclosed on net basis. The Company is exposed to the credit risk of the derivative counterparty with respect to payments due under the derivatives. This risk is borne by the debt securities who are subject to the risk of defaults by the swap counterparty as well as to the risk of defaults of the investment securities and reference obligations under total return swaps. The Company’s exposure and the credit rating of its counterparty are continually monitored. DB London is the derivative counterparty. DB London is currently long term rated by S&P as A- (2020: BBB+ by S&P). Investment securities and total return swaps At the reporting date, the credit quality and the asset concentration of the Company's investment securities and total return swaps was as shown in the table on the next page based on carrying amount in the statement of financial position. None of the investments held were past due or defaulted during the year (2020: None). CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 49 21 Financial instruments (continued) (b) Risk management framework (continued) (i) Credit risk (continued) Investment securities and total return swaps (continued) Type of transaction Collateral type Country of issuance Rating Agency Rating 2021 Rating 2020 2021 €'000 2020 €'000 Installment Corporate Germany S&P BBB- BBB- 8,138 7,628 notes bonds S&P NA NA 3,777 - S&P NA NA 5,881 5,694 Moody's Aa1 Aa1 92,436 88,245 Moody's Aaa Aaa 51,079 47,293 Moody's NA NA - 3,849 Ireland S&P BBB+ BBB+ 61,051 61,400 Netherlands S&P NA AA - 12,202 S&P BB+ BB+ 3,388 3,331 S&P BBB+ BBB+ 507 512 Spain S&P BBB+ BBB+ 1,355 1,418 United S&P NA Aaa - 2,329 Kingdom S&P BBB- BBB- 26,428 25,517 United States S&P A- A- 2,837 2,931 of America S&P BBB+ BBB+ 30,260 29,467 *S&P NA BBB+ - 809 S&P NR NR 14,908 13,750 302,045 306,375 Government Canada S&P AA AA 20,822 20,606 bonds S&P AA- AA- 831 829 France S&P AA- AA- 15,767 16,913 Spain Fitch BBB- BBB- 35,632 36,370 Moody's Ba1 Ba1 2,523 2,649 Moody's Ba3 Ba3 1,865 1,719 Moody's Baa1 Baa1 57,973 62,049 Moody's Baa2 Baa2 30,130 31,848 165,543 172,983 Total return swaps Germany NR NR NR 1,629 1,843 Grand Total 469,217 481,201 Not Rated Rating agency for 2020 Not applicable CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 50 21 Financial instruments (continued) (b) Risk management framework (continued) (i) Credit risk (continued) Investment securities and total return swaps (continued) As per the terms and conditions of the SPM, some debt securities can only hold collateral of a certain rating. If the rating of the collateral for these specific debt securities goes below the required level, DB London as swap counterparty will replace the collateral for those notes with eligible collateral. For those investment securities in which ratings were not available on any market sources, management assessed the associated credit risk based on the coupon received on the investments and historical performance of the investment in terms of default. During the year, no defaults occurred in respect of the investment securities held and interests were received when paid, accordingly. Other assets The other assets mainly include income receivable from bonds held by the Company as at the year end. The credit rating and concentration of the investments securities and total return swaps at the year end are disclosed under investment securities and total return swaps on the table in the previous page. (ii) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations arising from its financial liabilities that are settled by delivering cash or another financial asset, or that such obligation will have to be settled in a manner disadvantageous to the Company. The Company’s obligation to the holders of debt securities of a particular series is limited to the net proceeds upon realisation of the collateral of that series, i.e. investment securities and derivatives. Should the net proceeds be insufficient to make all payment obligations in respect of a particular series of debt securities, the other assets held as collateral for remaining series of the Company are not contractually required to be made available to meet payment and the deficit is instead borne by the holders of debt securities and/or the swap counterparty according to established priority of payment on any particular payment date. The timing and amount of proceeds from realising the collateral of each series is subject to market conditions. There were no liquidity issues experienced by the Company or the swap counterparty in respect to meeting its obligations to holders of debt securities issued or to swap counterparty. The Company or the swap counterparty did not default on any of its contractual commitments during the year. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 51 21 Financial instruments (continued) (b) Risk management framework (continued) (ii) Liquidity risk (continued) The following are the contractual maturities of financial assets and liabilities including undiscounted interest payments: Carrying amounts Gross contractual cash flows Less than one year One to five years More than five years €'000 €'000 €'000 €'000 €'000 Cash at bank 21 21 21 - - Investment securities 469,217 521,231 17,968 107,517 395,746 and total return swaps Derivative assets 4,020 (9,755) 28,148 60,395 (98,298) Other assets 6,338 6,338 6,338 - - Derivative liabilities (282,519) (282,802) (31,484) (96,166) (155,152) Debt securities issued (196,915) (234,871) (20,871) (71,746) (142,254) Other liabilities (120) (120) (120) - - 42 42 - - 42 2021 Carrying amounts Gross contractual cash flows Less than one year One to five years More than five years €'000 €'000 €'000 €'000 €'000 Cash at bank 20 20 20 - - Investment securities 481,201 541,899 35,823 100,081 405,995 and total return swaps Derivative assets 3,042 14,674 2,624 57,044 (44,994) Other assets 6,848 6,848 6,848 - - Derivative liabilities (281,766) (282,048) (20,675) (71,355) (190,018) Debt securities issued (209,175) (281,223) (24,512) (85,770) (170,941) Other liabilities (128) (128) (128) - - 42 42 - - 42 2020 CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 52 21 Financial instruments (continued) (b) Risk management framework (continued) (ii) Liquidity risk (continued) The gross contractual cash flow (GCF) of investment securities includes the notional amount of existing investment securities and the undiscounted interest receipt. As of statement of financial position date, GCF of investment securities is higher by EUR 52,014k (2020: EUR 60,698k) compared to its carrying value. In the event of maturity, difference will be accounted as net asset swap receivable from swap counterparty. **To the extent that there is a shortfall on the gross contractual cash flow after paying the holders of debt securities, this shortfall will be borne by the derivative counterparties. GCF of the debt securities issued includes the notional amount of the existing debt securities issued and the undiscounted floating interest payable on debt securities issued. As of statement of financial position date, GCF of debt securities is higher by EUR 37,956k (2020: EUR 72,048k) compared to its carrying value. In the event of maturity, difference will be accounted as net asset swap payable to swap counterparty. Derivative liabilities represent asset swaps and credit default swaps. Refer to notes 5, 6 and 8 for maturity profile of derivatives, investments securities and total return swap and debt securities issued, respectively. The asset swaps have been entered into to hedge liquidity exposure on a series by series basis. (iii) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and other price risk will affect the Company’s income or the value of its holdings of financial instruments. The objective of the market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return on risk. Foreign exchange risk and interest rate risk are economically hedged with the use of currency swaps and interest rate swaps, respectively. Cross currency swaps are incorporated in the asset swap, where applicable. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 53 21 Financial instruments (continued) (b) Risk management framework (continued) (iii) Market risk (continued) Market risk embodies the potential for both losses and gains and includes currency risk, interest risk and price risk. Currency risk The Company is exposed to movements in exchange rates between its functional currency - Euro and foreign currency denominated financial instruments. At the reporting date, the Company had the following exposure to foreign currency risk based on the currency denomination of debt securities: USD GBP USD GBP €'000 €'000 €'000 €'000 Monetary assets 20 - 19 - Investment securities 150,052 9,396 142,355 10,254 3,510 1,533 3,374 1,605 Net exposure 153,582 10,929 145,748 11,859 Other assets Cash at bank 2021 2020 All debt securities issued are denominated in EUR as at 31 December 2021 and 2020. Investment securities for series 49, 58, 61, 67, 73, 84, 90 and 141, some of the investment securities for series 29, 53, 64, 76, 79, 80, 83, 100 and total return swaps for series 61 are denominated in EUR as at the reporting date (2020: Series 29, 31, 32, 47, 49, 53, 58, 61, 64, 66, 73, 76, 84, 90, 100 and 141). Therefore, neither the Company nor the holders of debt securities are exposed to currency risk for these particular series. At the reporting date, the investment securities for series 60, 82, 94, 104, some investment securities for series 47, 53, 75, 79, 80, 83, 95 and 100 are denominated in USD (2020: Series 53, 60, 67, 75, 79, 80, 82, 83, 94, 95, 100 and 104) whereas some of the investment securities for series 29, 64, 75, 76, and 95 are denominated in GBP (2020: Series 29, 64, 75, 76, and 95). During the year, one of the investment securities for series 31, 32, 64, 66 and two of the investment securities for series 47 have matured (2020: One of the investment securities for series 47 and 173) and none of the investment securities was partially redeemed (2020: One of the investment securities for series 60 and two of the investment securities for series 84) while one of the investment securities for series 75 was fully redeemed (2020: Two of the investment securities for series 60 and one of the investment securities for series 67). Out of all the series that matured and redeemed, collateral replacements were made for series 47 (2020: Series 47 and 67). CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 54 21 Financial instruments (continued) (b) Risk management framework (continued) (iii) Market risk (continued) Currency risk (continued) The currency risk exposure of the Company and the holders of debt securities is eliminated on a series by series basis in cases where the debt security and its associated financial assets are denominated in different currencies due to the existence of a cross currency swap forming part of an asset swap agreement. The following exchange rates were applied during the year: 2021 2020 2021 2020 USD 1.183 1.142 1.137 1.223 GBP 0.860 0.889 0.840 0.895 Average rate Closing rate Sensitivity analysis A 10% increase / decrease in the USD and GBP foreign exchange rate would result in an increase / decrease of EUR 15,052k (2020: EUR 14,236k) and EUR 940k (2020: EUR 1,025k) in the market value of the USD and GBP denominated investment securities, respectively. Whereas there is no impact on all debt securities issued as these are denominated in EUR as at 31 December 2021 and 2020. The net impact of the foreign exchange rate changes is nil due to the existence of the cross currency swaps. Interest rate risk The Company classified the instruments as fixed interest rate when the assigned rate remains fixed for the entire term of the instrument. Floating interest rate were assigned for the instruments with rates that were based from the market benchmark. The instruments were classified as structured variable interest rate when the rate changes over the period. At the reporting date, the interest rate risk profile of the Company's non derivative interest bearing financial instruments by class of debt security issued was shown in in the succeeding pages. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 55 21 Financial instruments (continued) (b) Risk management framework (continued) (iii) Market risk (continued) Interest rate risk (continued) Investment securities and total return swaps Class of investment security based on Currency 2021 2020 debt securities issued €'000 €'000 Fixed rate instruments: Installment notes EUR 203,483 226,343 Installment notes GBP 9,396 10,254 Installment notes USD 93,488 90,330 306,367 326,927 Variable rate instruments: Installment notes USD 53,882 48,366 Installment notes EUR 96,905 93,389 150,787 141,755 Installment notes EUR 9,381 8,861 Installment notes USD 2,682 3,658 12,063 12,519 Grand total 469,217 481,201 Zero rated instruments: Debt securities issued Class of debt securities issued Currency 2021 2020 €'000 €'000 Variable rate instruments: Installment notes EUR 196,915 209,175 Refer to note 6 and 8 for the maturity profile of investment securities, total return swaps and debt securities, respectively. The Company manages its interest rate risk by entering into swap agreements. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 56 21 Financial instruments (continued) (b) Risk management framework (continued) (iii) Market risk (continued) Interest rate risk (continued) Sensitivity analysis A 100 basis point increase or decrease represents management's assessment of a reasonably possible change in interest rates. A 100 basis point increase in interest rates (using the average nominal for the year) would have resulted in an increase of interest expenditure payable on the debt securities issued of EUR 1,969k for the year (2020: EUR 2,092k). Under the same conditions, the coupon income receivable from variable / floating rated investment securities would have increased by EUR 1,493k (2020: EUR 1,615k) for the same period. A similar 100 basis point decrease in interest rates would have resulted in an equal, but opposite effect on interest expenditure and interest income, respectively. The net impact of the interest rate changes is nil due to the existence of the derivatives. If interest rates increased, the fair value of the fixed rate and zero coupon debt instruments that are assets would fall. Given that the debt securities return is linked to the return generated by the financial assets due to the limited recourse nature of the debt securities issued by the Company, there would be a similar offsetting adjustment to the fair value of the debt securities, and therefore the net impact on the company would be negligible. The Company does not bear any interest rate risk as the interest rate risk associated with the debt securities issued by the Company is neutralised by entering into swap agreements whereby the swap counterparty pays the Company amounts equal to the interest payable to the holders of the debt securities issued by the Company in return for the interest earned by the Company on its investment securities and total return swaps. Therefore any change in the interest rates would not affect the equity or the statement of comprehensive income of the Company. Other price risk Other price risk is the risk that value of the instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. Other price risk may include risks such as equity price risk, commodity price risk, repayment risk (i.e. the risk that one party to a financial asset will incur a financial loss because the other party repays earlier or later than expected), and residual value risk. Refer to page 55 for the breakdown of the Company’s investment securities and total return swaps by class of debt securities issued at the reporting date. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 57 21 Financial instruments (continued) (b) Risk management framework (continued) (iii) Market risk (continued) Other price risk (continued) Sensitivity analysis The market price of the investment securities will generally fluctuate with, among other things, the liquidity and volatility of the financial markets, general economic conditions, political events, developments or trends in a particular industry and the financial conditions of the securities issuer. Inflation Linked / Fixed / Variable Rated debt securities If the market value of the collateral increases, the swap counterparty and the holders of debt securities are entitled to the resulting gains and if the market value of the collateral decreases, the swap counterparty and the holders of debt securities bear the losses. This split is dependent on who has priority of payment in these circumstances as disclosed in the relevant terms and conditions of a particular series. Any changes in the quoted prices or unquoted prices of the investment securities held by the Company would not have any effect on the equity or profit or loss of the Company as any fair value fluctuations are ultimately borne by either the swap counterparty and/or the holders of the debt securities issued by the Company. If the market prices of the investment securities and total return swaps at 31 December 2021 and 31 December 2020 held by the Company had increased or decreased by 10% with all other variables held constant, this would have increased or reduced the carrying value of the debt securities issued by the Company EUR 46,922k (2020: EUR 48,120k), thus, the net impact on the valuation changes as a result of market price movements is nil. (c) Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company's processes, personnel and infrastructure, and from factors other than credit, market and liquidity risk such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. The Company has no employees and all corporate administration services are provided by Vistra under the terms of a Corporate Services Agreement. Vistra manages the operational risk on behalf of the Company by requiring all of its employees to comply with Group policies and procedures to ensure compliance with all applicable laws and regulations. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 58 22 Specific instruments (a) Asset backed investment securities and total return swaps In the event of an issuance of a credit event notice with respect to the underlying asset backed investment securities and total return swaps, the principal amount of each of the debt securities is to be reduced in proportion to the nominal reduction of the carrying value of the investment securities and total return swaps, as defined in the SPM for each series. In the event that the principal amount of each debt security has been reduced to zero, the debt securities shall be deemed to be redeemed at a redemption amount of zero. The aggregate liability of the Company under the SPM for individual series shall not exceed the aggregate value of the Eligible Securities for those Series. In the Directors’ opinion, based on advice from the swap counterparty and the fact that no payment calls have been made since year end, no provision for default is deemed necessary. (b) Profile of the debt securities issued by the Company The following are the categories as at 31 December 2021: Type of transaction Number of series Cash at bank % €'000 €'000 % €'000 Installment notes 26 100.00% 196,915 100.00% 21 100.00% 469,217 Debt securities Investment securities and total return swaps Type of transaction % €'000 €'000 % €'000 % €'000 Installment notes 100.00% 4,020 100.00% 282,519 100.00% 6,339 100.00% 120 Derivative assets Derivative liabilities Other assets Other liabilities CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 59 22 Specific instruments (continued) (b) Profile of the debt securities issued by the Company (continued) The following are the categories as at 31 December 2020: Type of transaction Number of series Cash at bank % €'000 €'000 % €'000 Installment notes 26 100.00% 209,175 100.00% 20 100.00% 481,201 Debt securities Investment securities and total return swaps Type of transaction % €'000 €'000 % €'000 % €'000 Installment notes 100.00% 3,042 100.00% 281,766 100.00% 6,848 100.00% 128 Other liabilities Derivative assets Derivative liabilities Other assets 23 Fair values The Company’s investment securities and total return swaps, derivative financial instruments and debt securities issued are carried at fair value on the statement of financial position. Usually, the fair value of the financial instruments can be reliably determined within a reasonable range of estimates. The carrying amounts of all the Company’s financial assets and financial liabilities carried at amortised cost at the reporting date approximated their fair values. These disclosures supplement the commentary on financial risk management (see note 21). Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy 3(b) under the sub heading “Fair value measurement principles”. For financial instruments that trade infrequently and have little price transparency, fair value is less objective and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. The Company’s accounting policy on fair value measurements is discussed under note 3(b) under the sub heading “Fair value measurement principles”. Critical accounting judgments made in applying the Company’s accounting policies in relation to valuation of financial instruments are as follows: CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 60 23 Fair values (continued) Valuation of financial instruments The financial instruments carried at fair value have been categorized under the three levels of the IFRS fair value hierarchy as follows: ▪ Level 1 – Instruments valued using quoted prices in active markets are instruments where the fair value can be determined directly from prices which are quoted in active, liquid markets and where the instrument observed in the market is identical to that being priced in DB London’s inventory. ▪ Level 2 – Instruments valued with valuation techniques using observable market data are instruments where the fair value can be determined by reference to similar instruments trading in active markets, or where a technique is used to derive the valuation but where all inputs to that technique are observable. ▪ Level 3 – Instruments valued using valuation techniques using market data which is not directly observable are instruments where the fair value cannot be determined directly by reference to market-observable information, and some other pricing technique must be employed. Instruments classified in this category have an element which is unobservable and which has a significant impact on the fair value. Valuation Techniques The following is an explanation of the valuation techniques used in establishing the fair value of the different types of financial instruments of the Company. Investment securities and total return swaps: Where there are no recent transactions then fair value may be determined from the last market price adjusted for all changes in risks and information since that date. Where a close proxy instrument is quoted in an active market then fair value is determined by adjusting the proxy value for differences in the risk profile of the instruments. These securities are categorized as Level 1 or 2 in the fair value hierarchy. Fair value is estimated using more complex modelling techniques where close proxies are not available. These techniques include option pricing model and correlation pricing model using current market rates for credit, interest, liquidity and other risks. These securities are categorized as Level 3. Refer to Quantitative Information about the Sensitivity of Significant Unobservable Inputs on page 69 to 72 for additional details on Level 3 valuation techniques. Derivative Financial Instruments: Market standard transactions in liquid trading markets, such as interest rate swaps, foreign exchange forward and option contracts in G7 currencies, and equity swap and option contracts on listed securities or indices are valued using market standard models and quoted parameter inputs. Parameter inputs are obtained from pricing services, consensus pricing services and recently occurring transactions in active markets wherever possible. More complex instruments are modelled using more sophisticated modelling techniques specific for the instrument and are calibrated to available market prices. These instruments are categorised as Level 2 in the fair value hierarchy. For Level 3 instruments, the model output value does not calibrate to a relevant market reference, valuation adjustments are made to the model output value to adjust for any difference. In less active markets, data is obtained from less frequent market transactions, broker quotes and through extrapolation and interpolation techniques. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 61 23 Fair values (continued) Valuation Techniques (continued) Where observable prices or inputs are not available, management judgement is required to determine fair values by assessing other relevant sources of information such as historical data, fundamental analysis of the economics of the transaction and proxy information from similar transactions. Refer to Quantitative Information about the Sensitivity of Significant Unobservable Inputs on page 69 to 72 for additional details on Level 3 valuation techniques Debt securities issued at fair value through profit and loss: The fair value of debt securities issued at fair value through profit and loss is dependent upon the fair value of investment securities and derivative financial instruments. Any changes in the valuation have direct impact to the fair value of debt securities issued. For more complex Level 3 instruments, more sophisticated modelling techniques are required which usually are developed from recognised valuation models. Some or all of the significant inputs into these models may not be observable from the market and are derived from market prices or rates or are estimated based on assumptions or more complex parameters. Where no observable information is available to support the valuation models then they are based on other relevant sources of information such as prices for similar transactions, historic data, economic fundamentals, and research information, with appropriate adjustment to reflect the terms of the actual instrument being valued and current market conditions. Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in the determination of fair value. When determining the appropriate valuation model to be used, management selects which valuation technique makes the least adjustment to the inputs used, analyse the range of values indicated by the techniques used and whether they overlap and check the reasons for the differences in value under different techniques. Depending on the circumstances, one valuation model might be more appropriate than another. Management decides the valuation model to be used based on the provisions indicated in the swap agreements. Some factors that are considered includes information that is reasonably available, the market conditions, the type of investment, expected future cash flows on the financial instrument being valued, determination of probability of counterparty default and discount rates. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 62 23 Fair values (continued) Valuation Techniques (continued) At the reporting date, the carrying amounts of investment securities and total return swaps derivative financial instruments and debt securities issued by the Company which fair values were determined directly, in full or in part, by reference to published price quotations and determined using valuation techniques are as follows: Level 1 Level 2 Level 3 Total €'000 €'000 €'000 €'000 Investment securities and total return swaps Corporate bonds - 257,252 44,793 302,045 Government bonds - 145,388 20,155 165,543 Total return swaps - - 1,629 1,629 - 402,640 66,577 469,217 Derivative financial assets Asset swaps - - 4,020 4,020 Derivative financial liabilities Asset swaps - (156,333) (126,186) (282,519) Debt securities issued Installment notes - (95,407) (101,508) (196,915) - 150,900 (157,097) (6,197) 2021 CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 63 23 Fair values (continued) Valuation Techniques (continued) Level 1 Level 2 Level 3 Total €'000 €'000 €'000 €'000 Investment securities and total return swaps Corporate bonds - 165,323 141,052 306,375 Government bonds - 80,681 92,302 172,983 Total return swaps - - 1,843 1,843 - 246,004 235,197 481,201 Derivative financial assets Asset swaps - - 3,042 3,042 Derivative financial liabilities Asset swaps - (118,546) (163,220) (281,766) Debt securities issued Installment notes - (58,156) (151,019) (209,175) - 69,302 (76,000) (6,698) 2020 As at 31 December 2021, the Company’s Level 3 investment securities comprised of corporate and government bonds. These were priced using unobservable market data. Refer to pages 64 and 70 to 72 for valuation techniques and inputs used to determine the fair value of Level 2 and Level 3 positions. Total return swaps which consists of underlying asset backed financial instruments was classified as Level 3 for series 61. The instruments are valued using a valuation technique that involves significant unobservable inputs and no active market information is available. Derivative financial instruments classified as Level 3 involves asset swap and other over the counter derivative instruments where the fair value measurements were based on unobservable inputs and no active market data available for similar instruments. Debt securities issued are traded in the institutional market and the prices for these at year end can be obtained from market sources. Notwithstanding that a quoted market price exists for these, the Directors have concluded that the debt securities are not actively traded due to the limited liquidity that exists in the market. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 64 23 Fair values (continued) Valuation Techniques (continued) As a result, the levelling of debt securities is dependent on the levelling of the investment securities, total return swaps and derivative financial instruments. Debt securities are classified in the lowest level observed of the assets and derivatives on a series by series basis. No transfers occurred between Level 1 to Level 2 during the year (2020: No transfers). The table below sets out information about significant observable inputs used in measuring financial instruments categorised as Level 2 in the fair value hierarchy: Fair value 2021 €'000 Fair value 2020 €'000 Valuation technique Significant observable input Corporate bonds 257,252 165,323 Market Approach Market Price Government bonds 145,388 80,681 Market Approach Market Price 402,640 246,004 Derivative financial instruments Asset swaps (158,936) (124,234) Discounted Cash Flow Model Interest Rate Curve 4,715 7,874 Discounted Cash Flow Model FX Forward Curve (2,112) (2,186) Option Pricing Model Volatility (156,333) (118,546) Type of financial instrument Investment securities and total return swaps Market Approach – Market based prices exist for each individual instrument at product level for an identical or similar asset. The valuation inputs are directly supported by current market transactions or quoted prices but direct observations are not sufficient to conclude an active market. Discounted Cash Flow Model – This model projects future cash flows and discounts the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, foreign exchange rates, forward and spot prices for currencies and inflation curves. Option Pricing Model – Uses variables (stock price, exercise price, volatility, interest rate, time to expiration) to theoretically value an option. Transfers in and out of Level 3 are recorded at the beginning of the year. For instruments transferred out of Level 3, the below table shows no gains and losses and cash flows on the instruments as they have been transferred at the beginning of the year. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 65 23 Fair values (continued) Valuation Techniques (continued) The below table shows the roll-forward movements for investments securities and total return swaps classified under valuation techniques unobservable parameter (Level 3): 2021 2020 €'000 €'000 Opening balance 235,197 284,049 Maturities - (27,000) Redemptions - (44,656) Transfers in 18,632 21,102 Transfers out (186,268) - Fair value movements (984) 1,702 Closing balance 66,577 235,197 During the year, one investment securities for series 73 and 84 (2020: Some investment securities for series 79, 80 and 83) were transferred from Level 2 to Level 3 due to lack of observable inputs and unavailability of data for similar instruments while some investment securities for series 47, 49, 53, 58, 64, 76, 79, 80, 83, 90 and 100 were transferred out of Level 3 as all significant inputs relevant to the derivative series model are now observable (2020: None). No series matured (2020: Series 173) nor was fully redeemed (2020: One of the investment securities for series 60) and no series was partially redeemed (2020: One of the investment securities for series 84). Fair value movements are recognised under net gain on investment securities and total return swaps in the statement of comprehensive income. The below table shows the roll-forward movements for derivative financial assets classified under valuation techniques unobservable parameter (Level 3): 2021 2020 €'000 €'000 Opening balance 3,042 2,826 Additions 12,045 - Fair value movements (11,067) 216 Closing balance 4,020 3,042 CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 66 23 Fair values (continued) Valuation Techniques (continued) During the year, no series matured (2020: No series) nor redeemed (2020: No series). As at 31 December 2021, there were no instruments that were transferred out of Level 3 due to having observable market data (2020: No series) and no instruments were transferred from Level 2 to Level 3 due to lack of unobservable inputs and unavailability of market data for similar instruments (2020: No series) while there were additional asset swaps for series 31, 32 and 66 as at 31 December 2021 (2020: None). The below table shows the roll-forward movements for derivative financial liabilities classified under valuation techniques unobservable parameter (Level 3): 2021 2020 €'000 €'000 Opening balance (163,220) (160,217) Redemtion 562 - Transfers in (2,247) - Transfers out 33,114 - Fair value movements 5,605 (3,003) Closing balance (126,186) (163,220) During the year, derivative liabilities for series 29 was transferred from Level 2 to Level 3 due to lack of observable inputs and unavailability of data for similar instruments (2020: No series) whereas series 58, 75 and 76 with derivative liabilities were transferred out of Level 3 (2020: No series) as all significant inputs relevant to the derivative series model are now observable. As at year end, one of the derivative liabilities for series 75 was fully redeemed (2020: None). Fair value movements are recognised under net (loss) / gain on derivative financial instruments in the statement of comprehensive income. The below table shows the roll-forward movements for debt securities issued classified under valuation techniques unobservable parameter (Level 3): 2021 2020 €'000 €'000 Opening balance (151,019) (202,443) Maturities 8,842 36,909 Transfers in (571) - Transfers out 45,071 20,212 Fair value movements (3,831) (5,697) Closing balance (101,508) (151,019) CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 67 23 Fair values (continued) Valuation Techniques (continued) During the year, no series fully matured (2021: Series 173). The following series classified as Level 3 are amortising series, thus part of its balances have matured: 31, 32, 53, 61, 64, 66, 67, 76, 79, 80, 83, 84, 95, 100 and 141 (2020: Series 31, 32, 53, 61, 64, 66, 67, 76, 79, 80, 83, 84, 95, 100 and 141) while no series was fully or partially redeemed (2020: No series). As at 31 December 2021, series 29 was transferred from Level 2 to Level 3 (2020: No series) whereas series 49, 58, 64, 75 and 76 were transferred to Level 2 (2020: Series 60). If any of the investment securities, total return swaps, derivative assets and derivative liabilities are classified as using significant unobservable parameters (Level 3), the related debt security will be classified as Level 3. Fair value movements are recognized under net finance loss on debt securities issued in the statement of comprehensive income. Level 3 Realised and Unrealised Gains and Losses The total amount of realised and unrealised gain / loss estimated using a valuation technique based on significant unobservable data (Level 3) that was recognised in statement of comprehensive income for the year is as follows: 2021 2020 €'000 €'000 Investment securities and total return swaps (984) 1,702 Derivative financial instruments (5,462) (2,787) Debt securities issued (3,831) (5,697) (10,277) (6,782) The total amount of change in fair value (unrealised gain/loss) estimated using valuation techniques based on significant unobservable data (Level 3) for assets and liabilities held at the end of the reporting period is set out below: 2021 2020 €'000 €'000 Investment securities and total return swaps (214) (71) Derivative financial instruments (5,462) (2,787) Debt securities issued (4,233) (9,975) (9,909) (12,833) CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 68 23 Fair values (continued) Valuation Techniques (continued) Although the Directors believe that their estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurement of fair value as fair value estimates are made at a specific point in time, based on market conditions and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement. Details in relation to the unobservable inputs used have been noted above and therefore their associated fair value cannot be determined with precision. For recognised fair values measured using significant unobservable inputs, changing one or more assumptions used to reasonably possible alternative assumptions would not have any effect on the profit or loss or on equity as any change in fair value will be borne by the holders of debts securities issued due to the limited recourse nature of debt securities issued by the Company. Sensitivity Analysis of Unobservable Parameters Where the value of financial instruments is dependent on unobservable parameter inputs, the precise level for these parameters at the statement of financial position date might be drawn from a range of reasonably possible alternatives. In preparing the financial statements, appropriate levels for these unobservable input parameters are chosen so that they are consistent with prevailing market evidence and in line with the Company’s approach to valuation control. Were the Company to have marked the financial instruments concerned using parameter values drawn from the extremes of the ranges of reasonably possible alternatives then as of 31 December 2021 it could have increased fair value by as much as EUR 1,175k (2020: EUR 5,650k) or decreased fair value by as much as EUR (1,175k) (2020: EUR (5,650k)). This disclosure is intended to illustrate the potential impact of the relative uncertainty in the fair value of financial instruments for which valuation is dependent on unobservable input parameters. However, it is unlikely in practice that all unobservable parameters would be simultaneously at the extremes of their ranges of reasonably possible alternatives. Hence, the estimates disclosed above are likely to be greater than the true uncertainty in fair value at the balance sheet date. Furthermore, the disclosure is neither predictive nor indicative of future movements in fair value. For many of the financial instruments considered here, in particular derivatives, unobservable input parameters represent only a subset of the parameters required to price the financial instrument, the remainder being observable. Hence for these instruments the overall impact of moving the unobservable input parameters to the extremes of their ranges might be relatively small compared with the total fair value of the financial instrument. For investment securities, fair value is determined based on the price of the entire instrument, for example, by adjusting the fair value of a reasonable proxy instrument. In addition, all financial instruments are already carried at fair values which are inclusive of valuation adjustments for the cost to close out that instrument and hence already factor in uncertainty as it reflects itself in market pricing. Any negative impact of uncertainty calculated within this disclosure, then, will be over and above that already included in the fair value contained in the financial statements. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 69 23 Fair values (continued) Valuation Techniques (continued) Quantitative Information about the Sensitivity of Significant Unobservable Inputs The behaviour of the unobservable parameters on Level 3 fair value measurement is not necessarily independent, and dynamic relationships often exist between the other unobservable parameters and the observable parameters. Such relationships, where material to the fair value of a given instrument, are explicitly captured via correlation parameters, or are otherwise controlled via pricing models or valuation techniques. Certain inputs used in valuation techniques often impact the range of possible values for other inputs. The range of values shown on the following table represents the highest and lowest inputs used to value the significant exposures within Level 3. The diversity of financial instruments that make up the disclosure is significant and therefore the ranges of certain parameters can be large. The range of credit spreads represents performing, more liquid positions with lower spreads then the less liquid, nonperforming positions which will have higher credit spreads. As Level 3 contains the less liquid fair value instruments, the wide ranges of parameters seen is to be expected, as there is a high degree of pricing differentiation within each exposure type to capture the relevant market dynamics. There follows a brief description of each of the principle parameter types. Interest rates, credit spreads, inflation rates, foreign exchange rates and equity prices are referenced in some option instruments, or other complex derivatives, where the payoff a holder of the derivative will receive is dependent upon the behaviour of these underlying references through time. Sensitivity calculation of unobservable parameters for Level 3 aligns to the approach used to assess valuation uncertainty for Prudent Valuation purposes which is used by DB London as swap counterparty. Prudent Valuation is a capital requirement for assets held at fair value. It provides a mechanism for quantifying and capitalizing valuation uncertainty in accordance with the European Commission Delegated Regulation (EU) 2016/101, which supplements Article 34 of Regulation (EU) No. 2019/876 (CRR), requiring institutions to apply as a deduction from CET 1 for the amount of any additional valuation adjustments on all assets measured at fair value calculated in accordance with Article 105 (14). This utilizes exit price analysis performed for the relevant assets and liabilities in the Prudent Valuation assessment. The downside sensitivity may be limited in some cases where the fair value is already demonstrably prudent. * Common Equity Tier-1 (CET 1) - Ratio of the Bank in relation to risk-weighted assets. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 70 23 Fair values (continued) Valuation Techniques (continued) Quantitative Information about the Sensitivity of Significant Unobservable Inputs (continued) The table below sets out information about significant unobservable inputs used or observability in the market test at year end in measuring financial instruments categorised as Level 3 in the fair value hierarchy: Fair value 2021 €'000 Valuation technique Significant unobservable input Range of estimates for unobservable input Corporate bonds 44,793 *Z Spread bond Z spreads 61.8 bps to valuation 92 bps Government bonds 15,767 Market Approach Market Price 114.92% yo 122.14% 1,865 Market Approach Market Price 121.33% to 125.20% 2,523 Market Approach Market Price 167.94% to 178.40% Total return swaps 1,629 Risk Based Credit Spread 101.07 bps to Delta (bps) 198.93 bps 66,577 Derivative financial instruments Asset swaps (117,558) Option Credit Spread 111.65 bps to Pricing Model (bps) 123.15 bps (2,376) Risk Based Credit Spread Delta (bps) 101.07 bps to 198.93 bps (2,232) Risk Based Interest Rate *- (122,166) Type of financial instrument Investment securities and total return swaps CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 71 23 Fair values (continued) Valuation Techniques (continued) Quantitative Information about the Sensitivity of Significant Unobservable Inputs (continued) Fair value 2020 €'000 Valuation technique Significant unobservable input Range of estimates for unobservable input Corporate bonds 96,614 Market Approach Market Price 69.86% to 137.74% 44,438 Z Spread bond Z spreads 61.8 bps to valuation 92 bps Government bonds 92,302 Market Approach Market Price 145.48% to 176.58% Total return swaps 1,843 Risk Based Credit Spread 96.72 bps to Delta (bps) 106.90 bps 235,197 Derivative financial instruments Asset swaps (110,851) Option Credit Spread 1.54% to Pricing Model (bps) 1.62% (21,589) Risk Based Credit Spread Delta (bps) 31.69 bps to 38.32 bps (1,741) Risk Based Credit Spread Delta (bps) 47.18 bps to 51.67 bps (15,651) Risk Based Credit Spread Delta (bps) 96.72 bps to 106.90 bps (10,346) Risk Based Credit Spread Delta (bps) 126.14 bps to 126.14 bps (160,178) Investment securities and total return swaps Type of financial instrument * Z-Spread Bond Valuation – the Z-spread is the basis point spread that would need to be added to the implied spot yield curve such that the discounted cash flows of the bond are equal to its present value (its current market price). Each bond cash flow is discounted by the relevant spot rate for its maturity term. These are highly illiquid and unobservable. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 72 23 Fair values (continued) Valuation Techniques (continued) Quantitative Information about the Sensitivity of Significant Unobservable Inputs (continued) Market Approach – Inputs from broker quotes that are indicative or not corroborated by observable market data. Prices obtained from a single broker or pricing service are indicative values or proxy quotes which represent Level 3 inputs. These instruments have limited trading information and have no additional supporting information (such as multiple broker quotes) to determine observability. Risk Based – Using SAP BO / Credit Sigma tool to test the standalone risk of a particular trade. This includes parameters like credit spread delta which is unobservable. Option Pricing Model – Uses Monte Carlo methods to calculate the value of an option with multiple sources of uncertainty or with complicated features. Monte Carlo valuation relies on a risk neutral valuation where the price of the option is its discounted value. The steps taken in the process are the following (1) to generate a large number of possible, but random, price paths for the underlying (or underlyings) via simulation and (2) to then calculate the associated exercise value (i.e. "payoff") of the option for each path. (3) These payoffs are then averaged and (4) discounted to today. The result is the value of the option. ***Unobservable due to unapproved Product Model combination. 24 Interest in other entities (a) Disclosure of the nature, purpose, size and activities of the structured entity and how it is financed The Company invested in debt securities issued by structured entities. These structured entities have the following business activities: AyT Cédulas Cajas Global, Fondo de Titulización de Activos is an assets securitization fund that was incorporated in Spain. This entity issued several classes of notes with total aggregate principal amount of EUR 5,400,000k. The Fund was established in order to attract funding from Issuers, through securitization of certain receivables through the issuance of mortgage bonds before the establishment of the Fund in the balance sheet of the Originator as Mortgage Bonds or Assets. As at year end, the Company owns EUR 1,200,000 (0.02%) of the note issued by AyT Cédulas Cajas Global, Fondo de Titulización de Activos, which is due on 30 June 2025. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 73 24 Interest in other entities (continued) (a) Disclosure of the nature, purpose, size and activities of the structured entity and how it is financed (continued) GE Capital UK Funding is a special purpose entity which operates as a financial services company in Ireland. It is formed for the purpose of financing and funding the operations of its affiliated companies. This entity issued several classes of notes with total aggregate principal amount of GBP 425,000k. As at year end, the Company owns GBP 2,725k (0.64%) of the note issued by GE Capital UK Funding, which is due on 24 May 2023. The Company has no contractual arrangements nor commitments or intentions to provide financial or other assistance to the unconsolidated structured entities. (b) Risk associated with unconsolidated structured entities The below table summarises the Company’s interest in unconsolidated structured entities included in the investment securities classified at fair value through profit and loss as at 31 December: Outstanding nominal of investment securities % of Notional issued by the issuer Fair value of investment securities Fair value of debt securities Maximum exposure to loss €'000 €'000 €'000 €'000 S0029 EUR 1,200 0.02% 1,355 571 1,355 S0064 GBP 1,835 0.43% 2,297 26,761 2,297 S0076 GBP 890 0.21% 1,114 4,323 1,114 3,925 4,766 31,655 4,766 Series number Issuer CCY 2021 AyT Cédulas Cajas Global, Fondo de Titulización de Activos GE Capital UK Funding GE Capital UK Funding The Company has maximum exposure to the risk associated with the carrying value of the above investments. If these investments are deemed worthless, the Company will not receive anything. The Company bears no risk and it is the swap counterparty and holders of debt securities that bear all the risk. Refer to note 21(b)(i) for the details on credit risk. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 74 24 Interest in other entities (continued) (b) Risk associated with unconsolidated structured entities (continued) Outstanding nominal of investment securities % of Notional issued by the issuer Fair value of investment securities Fair value of debt securities Maximum exposure to loss €'000 €'000 €'000 €'000 S0029 EUR 1,200 0.02% 1,418 608 1,418 S0064 GBP 1,835 0.43% 2,252 29,751 2,252 S0076 GBP 890 0.21% 1,092 4,534 1,092 3,925 4,762 34,893 4,762 AyT Cédulas Cajas Global, Fondo de Titulización de Activos GE Capital UK Funding GE Capital UK Funding Series number Issuer CCY 2020 25 Subsequent events On February 24, 2022, Russia commenced a large-scale invasion against Ukraine. In response, the West has moved to impose broad-based sanctions targeting Russia, including but not limited to certain Russian banks and the Russian Central Bank, companies, parliamentary members and members of the Russian elite and their families. It is possible that additional sanctions and other measures may be imposed in the future. The Board and DB London considers the impact of the ongoing situation concerning Ukraine to the Company’s performance and its ability to continue as a going concern. As of 31 December 2021, the Company had no investment securities that were directly or indirectly impacted by sanctions relating to Russia or the conflict in Ukraine. The Company’s performance and its operation have not been significantly impacted by this conflict nor its ability to continue as a going concern. The Board and DB London will continue to monitor the evolving situation and its impact on the Company. Since the end of the reporting period, the Company has not issued any new series of debt securities, no maturities and no repurchases have been made. Other than the abovementioned, there were no other significant events after the reporting period up to the date of the approval of the financial statements which require adjustment to or disclosure in the financial statements. CLASS LIMITED Notes to the Financial Statements (continued) For the year ended 31 December 2021 75 26 Capital management The Company views the current debt securities issued as its capital. The Company is a special purpose vehicle set up to issue debt instrument for the purpose of making investments that maximizes the returns of the holder of debt securities, as defined under the base prospectus. The debt securities issued amounting to EUR 196,915k (2020: EUR 209,175k) uses the fair value of the investments securities and total return swaps amounting to EUR 469,217k (2020: 481,201k), derivative financial assets amounting to EUR 4,020k (2020: EUR 3,042k) and derivative financial liabilities amounting to EUR 282,519k (2020: EUR 281,766k) to hedge the economic risk to capital. Share capital of EUR 3 was issued and is not used for financing the investment activities of the Company. The Company is not subject to any other externally imposed capital requirements. 27 Approval of financial statements The financial statements were approved and authorised for issue by the Board on 29 April 2022.