FCC Proudreed Properties 2005 HSBC SG CORPORATE ...

Interest Rate Risks
Interest on the aggregate principal amount of each of the Commercial Mortgage Loans advanced on the
Closing Date will accrue at a rate equal to the Issuer Cost of Funds, which is based on the interest rate
on the Notes that have funded those Commercial Mortgage Loans, after taking account of any interest
rate swaps or interest rate caps entered into by the Issuer in respect of those Notes.
In order to address the risk borne by the Borrowers and, ultimately, the Issuer in respect of a mismatch
between the rental income stream (the amount of which is not based on or correlated to EURIBOR)
available to the Borrowers for the payment of interest on the Commercial Mortgage Loans and the
EURIBOR – based component of interest payable on the Notes, the Issuer will enter into certain
fixed/floating interest rate swap transactions and interest rate caps on or about the Closing Date with the
Hedging Providers pursuant to the Hedging Agreements.
All payments under the Hedging Agreements (including any payments due by the Issuer to the Hedging
Providers on termination of the Hedging Agreements and related costs) other than Hedging Subordinated
Amounts, will rank in priority to payments due to the Noteholders.
If a Hedging Provider fails to pay the Issuer any amounts due from it under a Hedging Agreement, or if
a Hedging Agreement is terminated, then the Issuer may have insufficient funds to make payments due
under the Notes.
Nonetheless, if there is a default by a Hedging Provider under a Hedging Agreement or upon the
insolvency of a Hedging Provider or the occurrence of a Hedging Downgrade Event, it may be necessary
to terminate the relevant Hedging Agreement. In such circumstances it is not certain that the affected
Hedging Provider would make or be obliged to make payment of a termination sum sufficient to enable
the Issuer to induce a suitable replacement Hedging Provider to enter into a replacement hedging
arrangement such as would enable the Issuer to retain the same risk profile as under the affected Hedging
Agreement, nor is it certain whether such a replacement hedging arrangement would be available at the
time of termination of the affected Hedging Agreement.
For further details on the Hedging Providers and the Hedging Agreements, please see the sections
entitled ‘‘The Key Transaction Parties’’ above and ‘‘Summary of Principal Documents’’ and ‘‘Resources
Available to the Borrowers and the Issuer’’, below.
Absence of Market and Limited Liquidity/Yield and Prepayment Considerations
Application has been made to the Irish Stock Exchange to list the Notes. There can be no assurance that
a secondary market in the Notes will develop or, if developed, will be maintained or will provide
Noteholders with liquidity of investment, or that it will continue for the life of the Notes. The market
value of the Notes may fluctuate with changes in market perceptions of the risks associated with the
Notes, supply and demand and other market conditions.
The yield to maturity of the Notes of each Class will depend on, among other things, the amount and
timing of payment of principal on the Commercial Mortgage Loans. Such yield may be adversely affected
by a higher or lower than anticipated rate of prepayments on the Commercial Mortgage Loans.
The rate of prepayment of Commercial Mortgage Loans cannot be predicted and is influenced by a wide
variety of economic and other factors, including prevailing interest rates, the buoyancy of the commercial
property market, the availability of alternative financing and local and regional economic conditions.
Therefore, no assurances can be given as to the level of prepayment that the Commercial Mortgage Loans
will experience.
A prepayment by a Borrower in respect of its Commercial Mortgage Loan will result in an adjustment
being made to the interest rate applicable to both that Borrower’s and any other Borrower’s Commercial
Mortgage Loan, to the extent that there remain principal amounts outstanding under such Commercial
Mortgage Loan following that prepayment. Any increase in the interest rate applicable under a
Commercial Mortgage Loan may cause an affected Borrower to fail to meet its obligations under the
relevant Commercial Mortgage Loan Agreement and therefore may result in a shortfall in the monies
available to be applied by the Issuer in making payments of interest on the Notes as a result of the Issuer
still being required to pay certain payments prior to any payment of interest on the Notes. The risk of
default due to interest rate adjustments following prepayment of any of the Commercial Mortgage Loans
will, in particular, be borne by the holders of the most junior classes of Notes then outstanding. There can
be no assurance that any Borrower will have funds available to meet any increased interest payments due
under its Commercial Mortgage Loan, such increased payments not corresponding to any change or
improvement to its Property Portfolio.
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