FCC Proudreed Properties 2005 HSBC SG CORPORATE ...

existing insurances), nuclear radiation, radioactive contamination and heave or settling of structures)
which may be or become either uninsurable or not insurable at commercially viable rates or which for
other reasons are not covered, or not required to be covered, by the required insurance policies. In
addition many of the Occupational Leases require the Obligors to make up any shortfall between
insurance proceeds and the actual cost of reinstatement. Each Borrower’s ability to meet its obligations
under the relevant Commercial Mortgage Loan Agreement and therefore, ultimately, the Issuer’s ability
to make payments under the Notes may be adversely affected if such an uninsured or uninsurable loss
were to occur, to the extent that such loss is not the responsibility of the Occupational Tenants pursuant
to the terms of their Occupational Leases.
Disposals and Same-Day Substitutions of Mortgaged Properties
Under the terms of the Commercial Mortgage Loan Agreements, each Borrower will be entitled to
dispose of and/or substitute Secured Properties in certain circumstances. However, there can be no
assurance that a Borrower will exercise its rights under these provisions in such a way that the pattern or
number of disposals and/or substitutions will increase the quality and value of its Property Portfolio or its
income-generating capacity. For example, a Secured Property’s value may decline significantly if it
requires refurbishment as may the ability of the owner to attract tenants at market rental rates. The risks
associated with the effect of the disposal and/or same-day substitution of Secured Properties on the value
and rental income-generating capacity of each Borrower’s Property Portfolio is mitigated by the
conditions related to disposal and same-day substitutions under the Commercial Mortgage Loan
Agreements (as to which, see ‘‘Summary of Principal Documents – Commercial Mortgage Loan
Agreements’’ below).
Security over the rent and insurance proceeds arising in respect of Secured Properties substituted for
existing Secured Properties will be in the form of ‘‘Civil Code’’ security assignments (rather than ‘‘Dailly
law’’ security assignments, which may be transferred, but not granted directly, to a fonds commun de
créances). In contrast to a ‘‘Dailly law’’ assignment, transfer of title to receivables pursuant to a ‘‘Civil
Code’’ assignment is not enforceable as against third parties (including a liquidator or other insolvency
official appointed in respect of a Borrower) until the relevant debtors (in this case, the Occupational
Tenants and insurance company) are notified by a bailiff (huissier) of the assignment. In order to be
effective, the notification must take place prior to the commencement of insolvency proceedings. In
addition, there has been some uncertainty as to whether a ‘‘Civil Code’’ assignment may validly be used
for security purposes, although a recent decision of the Cour de cassation seems to suggest that it may be
so used.
Property Management
The Property Manager, is experienced in managing retail, industrial and office property and has managed
the Secured Properties since they were contributed to or acquired by the relevant Borrower. However,
despite payment of the fees being at competitive market rates, there can be no assurance that the Property
Manager will continue to act in the future as such. The Property Manager receives a fixed management
fee for the performance of its services. A management fee (of not more than 3.5% of the aggregate of the
Gross Rental Income of the relevant Secured Properties and of the gross rental income from the
properties subject to the Finance Leases) is payable to the Property Manager prior to payments in respect
of the relevant Commercial Mortgage Loan under the Obligor Pre-Enforcement Priority of Payments.
The Property Manager has been appointed initially for a term of one year. The appointment of the
Property Manager will be renewed automatically each year unless three months’ prior notice of
termination is given by either party. The Property Management Agreements will also contain certain
termination events which entitle the appointment of the relevant Property Manager to be terminated
upon notice (including but not limited to):
(a) any breach by the Property Manager of its obligations under the Transaction Documents which
would have a material adverse effect on the Market Value of the Secured Properties and which is
not corrected in accordance with the underlying agreements (including the Property Manager Duty
of Care Agreement);
(b) subject to applicable law, the insolvency of the Property Manager; and
(c) a material adverse change in the Property Manager’s abilities to act as a property manager.
However, the termination of the appointment of the Property Manager will not be effective until a
replacement Property Manager (approved by the Management Company and the Rating Agencies) has
been appointed in accordance with the Property Management Agreement.
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