FCC Proudreed Properties 2005 HSBC SG CORPORATE ...

described under ‘‘Obligor Security (real estate security)’’, as security for all obligations of the Borrowers
in the same Borrower Group.A cash pledge (gage-espèces) is created by the pledgor by actual delivery of
cash to the pledgee.
A cash pledge (gage-espèces) does not fall within the scope of any specific legal regime and no specific
formalities in respect of perfection are required. Although the characterisation of a cash pledge
(gage-espèces) as a pledge instead of a transfer of ownership is debated among French legal scholars, the
validity of a cash pledge (at least when cash is held directly by the pledgee) has been confirmed by French
case-law.
Enforcement of a cash pledge (gage-espèces) usually takes place by simple set-off. Such set-off can be
exercised even if insolvency proceedings have been commenced against the pledgor, provided the security
interest has not been constituted during the suspect period (période suspecte) (see ‘‘Insolvency
considerations’’ below).
Subrogation
In keeping with common French real estate loan refinancing practice, subrogation has been chosen as the
method for transferring to the Lenders the benefit of existing real estate security interests (mortgages and
lender’s liens (privilèges du prêteur de deniers)) securing the Borrowers’ existing loans. Subrogation is a
mechanism provided for by Article 1250 of the French Civil Code, whereby a new creditor that pays a
debtor’s existing creditor (or provides the debtor with the funds to repay the existing creditor) is
substituted in lieu of the existing creditor in respect of its rights and security interests against the
borrower. The advantage of subrogation is that the existing security interests are maintained and
transferred with their existing ranking being preserved, up to the amount of the repaid debt, without the
need to take and register new mortgages on the refinanced assets, thus allowing a significant saving on
otherwise considerable mortgage registration duties.
Certain recent decisions of the Cour de Cassation (the French Supreme Court) have introduced some
uncertainty into the law of subrogation, by holding that a new creditor could not claim interest from the
debtor at the rate applicable to the subrogated debt (or such other rate as may have been agreed between
the debtor and the creditor), but instead only at the taux légal (the legal interest rate used for late payment
interest when not contractually agreed (amounting to 2.05% p.a. in 2005)), as from the date of the
subrogation. Whilst not limiting the right of the debtor and the new creditor to agree on the rate of
interest in respect of the subrogated debt going forward (as is the case in connection with the Commercial
Mortgage Loan Agreements), such case law suggests that the new creditor may not be secured as to
interest by the existing mortgage, which secured the pre-subrogation interest payment obligation.
In order to mitigate this risk, additional mortgages will be granted, covering an amount calculated as
interest on the portion of the Commercial Mortgage Loans refinancing the Borrowers’ existing mortgage
loans at an estimated rate over a period of 3 years, such additional mortgages to be registered on or
shortly after the Closing Date only as to the portion thereof representing the difference between
estimated interest on the Commercial Mortgage Loans and interest thereon at the taux légal.
No initial registration of Additional Mortgages
Additional mortgages will be granted by each Borrower over the Secured Property it owns as at the
Closing Date. However, the additional mortgages will not be registered on the Closing Date (except as to
a limited amount), with the remainder to be registered if either the Historical ICR or the Projected ICR
in respect of the relevant Borrower Group is less than 1.75:1 on any Loan Calculation Date or upon the
occurrence of a Loan Event of Default (each an ‘‘Additional Mortgage’’).
Prior to registration of the relevant Additional Mortgages in favour of the Issuer, although the Additional
Mortgages will create a valid security interest, they will not provide the Issuer with priority against claims
made by other third-party creditors against the Properties owned by the Borrowers if such third-party
claims are secured by prior-ranking security. For example, even if the Borrowers comply with their
undertaking not to create any security interest over the Properties, a third party may register a hypothèque
légale or a hypothèque judiciaire prior to the registration of an Additional Mortgage, in which case, any
such hypothèque légale or hypothèque judiciaire will rank ahead of the Additional Mortgage.
To expedite the registration of unregistered (formalisées et non inscrites) Additional Mortgages should
any of the aforementioned events occur, the Borrowers will be obliged on the Closing Date to fund a
mortgage reserve in the form of cash pledged to the Issuer in the amount necessary to effect the full
registration of the Additional Mortgages which will be held in an account of the Issuer.
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