FCC Proudreed Properties 2005 HSBC SG CORPORATE ...

within the Property Portfolio relating to a particular Borrower will be available for repayment of its
Commercial Mortgage Loan. Amounts received in respect of the Secured Properties comprised within the
relevant Property Portfolio by way of proceeds following a sale could be insufficient to pay amounts due
under the related Commercial Mortgage Loan, and therefore, ultimately, the Issuer’s ability to make
payments under the Notes may be adversely affected.
The liquidation value of any Secured Property may be adversely affected by risks generally incidental to
interests in real property, including changes in political and economic conditions or in specific market
sectors, declines in property rental or capital values, changes in rental terms (including tenants’
responsibility for service charges), variations in supply of and demand for retail, industrial or (as
appropriate) office space, competition, the ability of the owner to provide maintenance and control costs,
prevailing yields and interest rates in France, declines in occupancy rates, changes in governmental rules,
regulations and fiscal policies, terrorism and other factors which are beyond the control of the Borrowers
and any other party to the transaction.
Reliance on Valuation Reports
There can be no assurance that the valuations set out in the Valuation Report for each of the Secured
Properties will continue at a level equal to or in excess of such valuations. To the extent that the value of
each of the Secured Properties fluctuates, there is no assurance that the aggregate of the value of the
Secured Properties will remain at least equal to or greater than the unpaid principal and accrued interest
and any other amounts due under the related Commercial Mortgage Loan Agreement. If any Secured
Property is sold following a Loan Event of Default, there is no assurance that the net proceeds of such
sale will be sufficient to pay in full all or any amounts due under the relevant Commercial Mortgage Loan
Agreement. In particular, it should be noted that the Secured Properties, being predominantly light
industrial properties, are specialised property assets for which, in such circumstances, no ready market
may exist. Furthermore, the value of the Secured Properties and, consequently, the Borrowers’ ability to
pay amounts due under the Commercial Mortgage Loan Agreements and (ultimately) the Issuer’s ability
to make payments under the Notes, are dependent on economic and real estate conditions in France and
in particular the strength of the industrial sector.
Environmental risks
The environmental liability for clean-up costs in respect of any Secured Property under current French
law is placed primarily on the operator of the activities carried out on such Secured Property. The
operator is defined as the person who holds an operating permit or declaration receipt and controls the
activity on a daily basis. However, in the case of warehouses, the authorities generally deliver operating
permits to the property owner (ie. the owner of the Secured Properties). When no solvent or known
operator can be found, the owner of the Secured Property may be found liable for the decontamination
costs.
A mortgagee who benefits from a mortgage over a contaminated Secured Property is not liable for any
costs attached to the clean-up of such Secured Property prior to the enforcement of a mortgage. Under
French law a mortgagee does not take possession of the Secured Property after enforcement of a
mortgage except in certain limited circumstances (see ‘‘Enforcement of Obligor Security; Insolvency
Considerations − Secured Properties’’ below); the mortgaged property is sold at court-supervised public
auction and the mortgagee is repaid out of the proceeds of sale. Consequently, a mortgagee would not
typically become either an owner or an operator of a property and therefore should not be liable for
clean-up costs after enforcement of a mortgage. Case law has not yet imposed any liability on a mortgagee
for any decontamination cost. However, it is possible that the law could change so as to impose liability
on a mortgagee such as the Issuer. The holders of the Notes may ultimately suffer a loss if such a liability
arises.
A Secured Property might be subject to a soil and/or groundwater contamination risk assessment survey,
if public authorities decide that the site presents hazards to soil and/or groundwater. The French
contaminated land regime provides for the establishment and constant up-dating by public authorities of
a list of sites to be subject to risk assessment surveys and imposes on the operator of real estate property
on this list, or of real estate property otherwise identified as hazardous, an obligation to conduct, at its own
cost, a soil and/or groundwater risk assessment survey. Depending upon the findings of such survey,
further surveys, monitoring, or decontamination works may be imposed on the operator at its own cost.
Such environmental surveys, monitoring, or decontamination costs, if imposed on a Borrower, could
adversely affect its ability to service its debts. Similarly, if such costs are imposed on an Occupational
Tenant they might affect its abilities to pay rent to the relevant Borrower, and so adversely affect that
Borrower’s ability to service its debt. This could also affect the value of the Secured Properties.
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