<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-66805
Prospectus Supplement
(To Prospectus dated March 5, 1999)
$422,311,630 (APPROXIMATE)
NATIONSLINK FUNDING CORPORATION
DEPOSITOR
CAPITAL LEASE FUNDING, L.P. NATIONSBANK, N.A.
LOAN SELLERS
MIDLAND LOAN SERVICES, INC.
MASTER SERVICER AND SPECIAL SERVICER
COMMERCIAL LOAN PASS-THROUGH CERTIFICATES, SERIES 1999-LTL-1
<TABLE>
<CAPTION>
<S> <C>
The Series 1999-LTL-1 Commercial Loan Pass-Through
CONSIDER CAREFULLY THE RISK Certificates will consist of the following classes:
FACTORS BEGINNING ON PAGE S-22
IN THIS PROSPECTUS SUPPLEMENT - the senior certificates consisting of the Class A-1, Class
AND PAGE 10 IN THE ACCOMPANYING A-2, Class A-3 and Class X Certificates;
PROSPECTUS.
- the subordinate certificates consisting of the Class B,
Neither the certificates nor the Class C, Class D, Class E, Class F and Class G Certificates;
underlying loans are insured or and
guaranteed by any governmental
agency. - the residual certificates consisting of the Class R-I and
Class R-II Certificates.
The certificates will represent
interests only in the trust and Only the senior certificates and the Class B Certificates
will not represent interests in are offered hereby.
or obligations of NationsLink
Funding Corporation or any of The trust's assets will consist primarily of two types of
its affiliates, including loans, (a) 110 credit lease loans backed by leases which,
BankAmerica Corporation, nor with the support of certain enhancements described in this
interests in or obligations of prospectus supplement, require payments sufficient to make
Capital Lease Funding, L.P. all payments due on the loan through maturity, and (b) 18
commercial mortgage loans, which are generally supported by
shorter-term leases or other sources of income, and other
property described in this prospectus supplement and the
accompanying prospectus. The loans are secured by first
liens on commercial properties, as well as an assignment of
leases and rents in the case of all of the credit lease
loans and certain other loans. This prospectus supplement
more fully describes the offered certificates, as well as
the characteristics of the loans and the related mortgaged
properties.
</TABLE>
Certain characteristics of the offered certificates include:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
INITIAL CERTIFICATE ASSUMED FINAL
BALANCE OR PASS-THROUGH DISTRIBUTION RATINGS
CLASS NOTIONAL AMOUNT(1) RATE DATE(2) (S&P/DCR/MOODY'S)(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1............... $75,245,000 6.3330% October 22, 2004 AAA/AAA/Aaa
Class A-2............... $193,863,000 6.8670 % October 22, 2012 AAA/AAA/Aaa
Class A-3............... $127,347,816 7.1040 % June 22, 2016 AAA/AAA/Aaa
Class X................. $492,442,448(5) 0.4506 %(6) January 22, 2024 AAAr/AAA/Aaa
Class B................. $25,885,814 7.2050 % May 22, 2017 AA/AA/Aa2
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------ --------------------
- ------------------------ --------------------
RATED FINAL
DISTRIBUTION
CLASS DATE(4)
- ------------------------ --------------------
<S> <C>
Class A-1............... January 22, 2026
Class A-2............... January 22, 2026
Class A-3............... January 22, 2026
Class X................. January 22, 2026
Class B................. January 22, 2026
- -------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
(Footnotes to table on page S-4)
- --------------------------------------------------------------------------------
The underwriter, NationsBanc Montgomery Securities LLC, will purchase the
offered certificates from NationsLink Funding Corporation and will offer them to
the public at negotiated prices determined at the time of sale. NationsBanc
Montgomery Securities LLC expects to deliver the offered certificates to
purchasers on or about March 11, 1999. NationsLink Funding Corporation expects
to receive from this offering approximately 105.57% of the initial principal
amount of the offered certificates, plus accrued interest from February 15,
1999, before deducting expenses payable by NationsLink Funding Corporation.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE OFFERED SECURITIES OR DETERMINED
IF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC
March 5, 1999
<PAGE> 2
NationsLink Funding Corporation
- -------------------------------------------------------------------------------
Commercial Loan Pass-Through Certificates, Series 1999-LTL-1
Geographic Overview of Loan Pool
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]
[MAP]
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
MORTGAGED CUT-OFF DATE % OF
PROPERTY LOCATION PROPERTIES BALANCE TOTAL
----------------- ---------- -------------- -------
<S> <C> <C> <C>
CA................... 4 $ 18,420,292 3.74%
NC................... 9 17,555,911 3.56%
MD................... 3 17,475,114 3.55%
FL................... 8 44,362,805 9.01%
NJ................... 4 10,678,551 2.17%
TX................... 9 56,601,662 11.49%
WA................... 1 908,714 0.18%
VA................... 9 17,566,025 3.57%
NV................... 2 3,820,122 0.78%
NY................... 19 55,351,584 11.24%
IL................... 2 5,600,230 1.14%
GA................... 5 40,503,751 8.22%
SC................... 3 50,538,115 10.26%
DC................... 2 2,484,992 0.50%
NM................... 1 5,521,822 1.12%
MO................... 1 1,243,073 0.25%
PA................... 10 25,061,268 5.09%
MA................... 11 56,403,995 11.45%
OH................... 2 8,996,736 1.83%
AL................... 1 1,366,206 0.28%
CT................... 3 6,267,575 1.27%
KS................... 1 3,476,168 0.71%
MI................... 7 14,154,769 2.87%
AR................... 1 3,930,121 .80%
NE................... 1 5,491,421 1.12%
</TABLE>
MORTGAGE POOL BY PROPERTY TYPE
- ------------------------------
[PIE CHART]
Retail................ 71.76%
Hotel................. 1.01%
Industrial............ 3.00%
Office................ 21.06%
Restaurant............ 1.12%
Post Office........... 0.18%
Mobile Home........... 1.87%
* Note: The portion of the Mortgage Pool represented by an Office property type
includes one property which is a parking lot. See "Certain Characteristics of
the Loans -- Property Type -- Combined" in Annex A of this prospectus
supplement.
<PAGE> 3
FOR MORE INFORMATION TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
NationsLink Funding IMPORTANT NOTICE ABOUT THIS PROSPECTUS
Corporation has filed with the SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS... S-6
SEC additional registration EXECUTIVE SUMMARY.............................. S-7
materials relating to the SUMMARY OF PROSPECTUS SUPPLEMENT............... S-9
certificates. You may read RISK FACTORS................................... S-22
and copy any of these Risks Related to the Certificates............ S-22
materials at the SEC's Public Lack of Control Over Trust Fund........... S-22
Reference Room at the Yield Considerations...................... S-22
following locations: Prepayments and Repurchases............... S-23
Borrower Default.......................... S-24
- SEC Public Reference Bankruptcy Proceedings.................... S-24
Section Advance Interest and Other Payments....... S-25
450 Fifth Street, N.W. Different Timing of Loan Amortization..... S-25
Room 1204 Subordination of Subordinate Offered
Washington, D.C. 20549 Certificates............................ S-25
Year 2000 Disruptions..................... S-25
- SEC Midwest Regional Risks Related to the Credit Lease Loans...... S-26
Offices Credit Quality of Credit Lease Tenants and
Citicorp Center Guarantors.............................. S-26
500 West Madison Street Factors Affecting Lease Enhancement Policy
Suite 1400 Proceeds................................ S-26
Chicago, Illinois Factors Affecting Extended Amortization
60661-2511 Policy Proceeds......................... S-28
Factors Affecting Servicer Protective
- SEC Northeast Regional Actions................................. S-29
Office Factors Affecting Possible Foreclosure and
7 World Trade Center Liquidation Proceeds; Limitations on
Suite 1300 Foreclosure............................. S-30
New York, New York 10048 Risks Related to the Loans................... S-31
Nature of the Mortgaged Properties........ S-31
You may obtain information on Management................................ S-32
the operation of the Public Balloon Payments.......................... S-32
Reference Room by calling the Risks Particular to Retail Properties..... S-33
SEC at 1-800-SEC-0330. The Risks Particular to Office Properties..... S-33
SEC also maintains an Risks Particular to Hotels................ S-34
Internet site that contains Risks Particular to Mobile Home Park
reports, proxy and Properties.............................. S-34
information statements, and Limited Assets and Obligations of the
other information that has Borrowers............................... S-34
been filed electronically Environmental Considerations.............. S-35
with the SEC. The Internet Limitations on Enforceability of Cross-
address is Collateralization....................... S-35
http://www.sec.gov. Geographic Concentration.................. S-36
Other Concentrations...................... S-36
You may also contact Prepayment Premiums....................... S-37
NationsLink Funding Limited Information....................... S-38
Corporation in writing at Litigation................................ S-38
Bank of America Corporate Other Risks.................................. S-38
Center, 100 North Tryon
Street, Charlotte, North
Carolina 28255, or by
telephone at (704) 386-2400.
See also the sections
captioned "Available
Information" and
"Incorporation of Certain
Information by Reference"
appearing at the end of the
accompanying prospectus.
</TABLE>
S-1
<PAGE> 4
<TABLE>
<S> <C>
DESCRIPTION OF THE LOAN POOL.................. S-39
General..................................... S-39
Credit Lease Assignments................. S-39
Cross-collateralization.................. S-40
Nonrecourse.............................. S-40
Certain Terms and Conditions of the Loans... S-40
Due Dates................................ S-40
Loan Rates; Calculations of Interest..... S-40
Amortization of Principal................ S-40
Prepayment Provisions.................... S-41
Defeasance............................... S-42
"Due-on-Sale" and "Due-on-Encumbrance"
Provisions............................. S-42
Significant Loans........................... S-43
General.................................. S-43
Credit Lease Tenants Table-Footnotes..... S-45
Credit Lease Loans....................... S-45
The Rite Aid Loans and Credit Leases..... S-46
The CVS Loans and Credit Leases.......... S-47
The Royal Ahold Loans and Credit
Leases................................. S-48
The Home Depot Loans and Credit Leases... S-49
The Eckerd Loans and Credit Leases....... S-50
The Blue Cross Loan, Credit Lease and
Participation.......................... S-51
NationsBank Mortgage Loans............... S-53
The Broadway at the Beach Loan........... S-53
The Decatur Town Center Loan............. S-53
The Shoppes at Pelican Landing Loan...... S-54
Other Loans and Credit Leases............ S-54
Additional Loan Information................. S-54
General.................................. S-54
Delinquencies............................ S-54
Tenant Matters........................... S-54
Ground Leases............................ S-55
Lender/Borrower Relationships............ S-55
Certain Underwriting Matters................ S-55
Environmental Assessments................ S-55
Property Condition Assessments........... S-56
Appraisals and Market Studies............ S-56
Zoning and Building Code Compliance...... S-57
Hazard, Liability and Other Insurance.... S-57
The Loan Sellers............................ S-58
Assignment of the Loans; Repurchases........ S-59
Representations and Warranties;
Repurchases.............................. S-60
Changes in Loan Pool Characteristics........ S-62
THE CREDIT LEASES............................. S-63
General..................................... S-63
Credit Lease Term........................... S-63
Amounts Payable Under the Credit Leases..... S-63
Assignment and Subleasing................... S-64
Estoppel Letters............................ S-64
Insurance................................... S-64
Credit Lease Defaults by Credit Lease
Tenant................................... S-64
</TABLE>
S-2
<PAGE> 5
<TABLE>
<S> <C>
Credit Lease Tenant's Self-Help; Right of
Offset................................... S-65
Operating Covenants; Credit Lease Tenant
Alternations............................. S-65
Other Borrower Obligations; Credit Lease
Tenant Rent Abatement and Lease
Termination Rights....................... S-65
SERVICING OF THE LOANS........................ S-69
General..................................... S-69
The Master Servicer and the Special
Servicer................................. S-72
Sub-Servicers............................... S-72
Servicing Compensation and Payment of
Expenses................................. S-73
Evidence as to Compliance................... S-75
Modifications, Waivers, Amendments and
Consents................................. S-75
Sale of Defaulted Loans..................... S-77
Limitations on Foreclosure.................. S-77
REO Properties.............................. S-78
Inspections; Collection of Operating
Information.............................. S-79
Termination of the Special Servicer......... S-79
DESCRIPTION OF THE CERTIFICATES............... S-80
General..................................... S-80
Registration and Denominations.............. S-80
Distributions on the Certificates........... S-81
Application of the Available Distribution
Amount................................. S-81
Distributable Certificate Interest....... S-83
Principal Distribution Amount............ S-85
Distributions of Prepayment Premiums..... S-86
Assumed Final Distribution Date; Rated Final
Distribution Date........................ S-87
Treatment of REO Properties.............. S-87
Subordination; Allocation of Losses and
Certain Expenses......................... S-88
Appraisal Reduction Amounts................. S-89
Advances.................................... S-90
Servicer Protective Actions and Credit Lease
Loans.................................... S-91
Accounts.................................... S-92
General.................................. S-92
Credit Lease Loan Accounts............... S-92
Reports to Certificateholders; Certain
Available Information.................... S-94
Trustee Reports.......................... S-94
Servicer Reports......................... S-95
Other Information........................ S-97
Voting Rights............................... S-98
Termination................................. S-98
THE TRUSTEE AND THE FISCAL AGENT.............. S-98
The Trustee................................. S-98
Certain Matters Regarding the Trustee....... S-99
The Fiscal Agent............................ S-99
THE ENHANCEMENT INSURER....................... S-100
THE EXTENSION INSURER......................... S-100
</TABLE>
S-3
<PAGE> 6
<TABLE>
<S> <C>
YIELD AND MATURITY CONSIDERATIONS............. S-100
Yield Considerations........................ S-100
General.................................. S-100
Class X Certificate Pass-Through Rate.... S-100
Rate and Timing of Principal Payments.... S-101
Losses and Shortfalls.................... S-101
Certain Relevant Factors................. S-102
Weighted Average Lives...................... S-103
Yield Sensitivity of the Class X
Certificates............................. S-106
USE OF PROCEEDS............................... S-109
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....... S-109
General..................................... S-109
Status of Offered Certificates.............. S-109
Discount and Premium; Prepayment Premiums... S-109
Possible Taxes on Income From Foreclosure
Property and Other Taxes................. S-110
Reporting Requirements...................... S-110
CERTAIN ERISA CONSIDERATIONS.................. S-111
LEGAL INVESTMENT.............................. S-114
METHOD OF DISTRIBUTION........................ S-114
LEGAL MATTERS................................. S-115
RATINGS....................................... S-115
INDEX OF PRINCIPAL DEFINITIONS................ S-117
ANNEX A....................................... A-1
ANNEX B....................................... B-1
ANNEX C....................................... C-1
ANNEX D....................................... D-1
</TABLE>
S-4
<PAGE> 7
FOOTNOTES TO TABLE ON COVER OF PROSPECTUS SUPPLEMENT
(1) Subject to a variance of plus or minus 5%.
(2) The "Assumed Final Distribution Date" with respect to any class of offered
certificates is the distribution date on which the final distribution would
occur for such class of certificates based upon the assumptions, among
others, that all payments are made when due and that no loan is prepaid, in
whole or in part, prior to its stated maturity. The actual performance and
experience of the loans will likely differ from such assumptions. See "Yield
and Maturity Considerations" in this prospectus supplement.
(3) It is a condition to their issuance that the classes of offered certificates
be assigned ratings by Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc. ("S&P"), Duff & Phelps Credit Rating Co. ("DCR")
and Moody's Investors Service, Inc. ("Moody's"; and, together with S&P and
DCR, the "Rating Agencies") no lower than those set forth above. The ratings
on the offered certificates do not represent any assessments of (i) the
likelihood or frequency of voluntary or involuntary principal prepayments on
the loans, (ii) the degree to which such prepayments might differ from those
originally anticipated or (iii) whether and to what extent prepayment
premiums will be received. Also a security rating does not represent any
assessment of the yield to maturity that you may experience or the
possibility that the holders of the Class X Certificates might not fully
recover their investment in the event of rapid prepayments of the loans
(including both voluntary and involuntary prepayments).
(4) The "Rated Final Distribution Date" for each class of offered certificates
has been set at the first distribution date that follows two years after the
end of the amortization term for the loan that, as of February 15, 1999, has
the longest remaining amortization term, irrespective of its scheduled
maturity. See "Ratings" in this prospectus supplement.
(5) The Class X Certificates will not have a certificate balance. The Class X
Certificates will accrue interest on a notional amount that is equal to
approximately 99.99% of the aggregate of the certificate balances of all of
the other classes of certificates outstanding from time to time.
(6) Initial pass-through rate as of the delivery date. The pass-through rate for
the Class X Certificates for any distribution date is variable and will
generally equal the excess, if any, of (a) the weighted average of the
interest rates (net of the fee rates payable to the master servicer, the
special servicer and the trustee) borne by the loans, over (b) the weighted
average of the pass-through rates for all the other classes of certificates
for such distribution date.
S-5
<PAGE> 8
IMPORTANT NOTICE ABOUT THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the offered certificates; and (b) this prospectus supplement, which describes
the specific terms of the offered certificates. If the terms of the offered
certificates vary between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this prospectus supplement.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus. The information in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement begins with several introductory sections
describing the Series 1999-LTL-1 and the trust in abbreviated form:
Executive Summary, which begins on page S-7 of this prospectus
supplement and shows certain characteristics of the offered certificates in
tabular form;
Summary of Prospectus Supplement, which begins on page S-9 of this
prospectus supplement and gives a brief introduction of the key features of
Series 1999-LTL-1 and the loans; and
Risk Factors, which begins on page S-22 of this prospectus supplement
and describes risks that apply to Series 1999-LTL-1 which are in addition
to those described in the prospectus with respect to the securities issued
by the trust generally.
This prospectus supplement and the accompanying prospectus include cross
references to sections in these materials where you can find further related
discussions. The tables of contents in this prospectus supplement and the
prospectus identify the pages where these sections are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the prospectus to assist you in understanding the terms of the
offered certificates and this offering. The capitalized terms used in this
prospectus supplement are defined on the pages indicated under the caption
"Index of Principal Definitions" beginning on page S-117 in this prospectus
supplement. The capitalized terms used in the prospectus are defined on the
pages indicated under the caption "Index of Principal Definitions" beginning on
page 100 in the prospectus. Terms that are used but not defined in this
prospectus supplement will have the meanings specified in the prospectus.
In this prospectus supplement, "we" refers to the Depositor, NationsLink
Funding Corporation, and "you" refers to a prospective investor in the offered
certificates.
---------------------
Until June 10, 1999 all dealers that buy, sell or trade the offered
certificates, whether or not participating in this offering, may be required to
deliver a prospectus supplement and the accompanying prospectus. This is in
addition to the dealers' obligation to deliver a prospectus supplement and the
accompanying prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
If and to the extent required by applicable law or regulation, this
prospectus supplement and the accompanying prospectus will be used by the
underwriter in connection with offers and sales related to market-making
transactions in the offered certificates with respect to which the underwriter
is a principal. The underwriter may also act as agent in such transactions. Such
sales will be made at negotiated prices at the time of sale.
S-6
<PAGE> 9
EXECUTIVE SUMMARY
The following executive summary does not include all relevant information
relating to the offered certificates and the loans. In particular, this
executive summary does not address the risks and special considerations involved
with an investment in the offered certificates, and prospective investors should
carefully review the detailed information appearing elsewhere in this prospectus
supplement and in the accompanying prospectus before making any investment
decision. Certain capitalized terms used in this executive summary may be
defined elsewhere in this prospectus supplement, including in Annex A hereto, or
in the accompanying prospectus.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
APPROXI-
MATE
INITIAL PERCENTAGE APPROXI-
CERTIFICATE OF MATE WEIGHTED
BALANCE OR AGGREGATE INITIAL PASS- AVERAGE
NOTIONAL CUT-OFF DATE CREDIT THROUGH LIFE
CLASS RATINGS(1) AMOUNT(2) BALANCE SUPPORT DESCRIPTION RATE (YEARS)(3) PRINCIPAL WINDOW(3)
- --------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <S> <C> <C>
Offered Certificates
- --------------------------------------------------------------------------------------------------------------------------------
A-1 AAA/AAA/Aaa $75,245,000 15.278% 19.50% Fixed Rate 6.3330% 3.0889 3/22/99-10/22/04
- --------------------------------------------------------------------------------------------------------------------------------
A-2 AAA/AAA/Aaa $193,863,000 39.364% 19.50% Fixed Rate 6.8670% 10.0889 10/22/04-10/22/12
- --------------------------------------------------------------------------------------------------------------------------------
A-3 AAA/AAA/Aaa $127,347,816 25.858% 19.50% Fixed Rate 7.1040% 15.2473 10/22/12- 6/22/16
- --------------------------------------------------------------------------------------------------------------------------------
X AAAr/AAA/Aaa $492,442,448(4) N/A N/A Variable Rate 0.4506%(5) 12.2562 N/A
(Interest
Only)
- --------------------------------------------------------------------------------------------------------------------------------
B AA/AA/Aa2 $25,855,814 5.250% 14.25% Fixed Rate 7.2050% 17.7214 6/22/16-5/22/17
- --------------------------------------------------------------------------------------------------------------------------------
Private Certificates -- Not Offered Hereby
- --------------------------------------------------------------------------------------------------------------------------------
C A/A/A2 $20,930,897 4.250% 10.00% Fixed Rate 7.3990% 18.5828 5/22/17-4/22/18
- --------------------------------------------------------------------------------------------------------------------------------
D BBB/NR/NR $30,780,731 6.250% 3.75% Fixed Rate 6.4500% 20.5805 4/22/18-4/22/21
- --------------------------------------------------------------------------------------------------------------------------------
E BB/NR/NR $11,081,063 2.250% 1.50% Fixed Rate 5.0000% 22.5992 4/22/21-4/22/22
- --------------------------------------------------------------------------------------------------------------------------------
F B/NR/NR $3,693,687 0.750% 0.75% Fixed Rate 5.0000% 23.3658 4/22/22-10/22/22
- --------------------------------------------------------------------------------------------------------------------------------
G NR/NR/NR $3,693,689 0.750% 0.00% Fixed Rate 5.0000% 24.0251 10/22/22-1/22/24
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Ratings shown are those of S&P, DCR and Moody's, respectively.
(2) Subject to a variance of plus or minus 5%.
(3) Based on the Maturity Assumptions (as defined under "Yield and Maturity
Considerations" in this prospectus supplement).
(4) Notional Amount.
(5) Initial pass-through rate as of the delivery date. The pass-through rate for
the Class X Certificates for any distribution date is variable and will, in
general, equal the excess, if any, of (a) the weighted average of the
interest rates (net of the fee rates payable to the master servicer, the
special servicer and the trustee) borne by the loans, over (b) the weighted
average of the pass-through rates for all the other classes of certificates
for such distribution date. See "Description of the
Certificates -- Distributions on the Certificates" in this prospectus
supplement.
S-7
<PAGE> 10
Below is certain information regarding the loans and the mortgaged
properties as of February 15, 1999. One of the assets underlying the
certificates is a participation interest in a credit lease loan, representing a
50% interest in such loan. References in this prospectus supplement to "loans"
and any calculation based on the principal balance of the loans will, with
respect to the participation, include only the percentage interest represented
by the participation, unless otherwise stated. All weighted averages set forth
below are based on the respective principal balances as of February 15, 1999 of
the loans. Such information is described, and additional information regarding
the loans and the mortgaged properties is contained, under "Description of the
Loan Pool" in this prospectus supplement and in Annex A to this prospectus
supplement.
LOAN POOL CHARACTERISTICS
<TABLE>
<CAPTION>
ENTIRE LOAN POOL
CHARACTERISTICS (APPROXIMATE)
- --------------- --------------------
<S> <C>
Initial Loan Pool Balance.................. $492,491,697
Number of Loans............................ 128
Number of Mortgaged Properties............. 128
Number of Credit Lease Tenants............. 35
Weighted Average Credit Lease Tenant
Rating................................... A-/Baa1*
Average Cut-off Date Balance............... $3,847,591
Weighted Average Mortgage Rate............. 7.48%
Weighted Average Remaining Lock-Out
Period................................... 85 months
Weighted Average Remaining Term to
Maturity................................. 225 months
Weighted Average Underwriting Debt Service
Coverage Ratio........................... 1.12x
Weighted Average Cut-off Date Loan-to-Value
Ratio.................................... 79.71%
</TABLE>
"Cut-off Date Loan-to-Value Ratio" and "Underwriting Debt Service Coverage
Ratio" are calculated as described in Annex A hereto.
- ---------------
* Ratings shown that of S&P and Moody's, respectively.
S-8
<PAGE> 11
SUMMARY OF PROSPECTUS SUPPLEMENT
This summary highlights selected information from this prospectus
supplement. It does not contain all of the information you need to consider in
making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING
OF THE OFFERED CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING
PROSPECTUS CAREFULLY.
RELEVANT PARTIES AND DATES
DEPOSITOR
NationsLink Funding Corporation. The Depositor, a Delaware corporation, is
a subsidiary of NationsBank, N.A. The Depositor maintains its principal office
at NationsBank Corporate Center, 100 North Tryon Street, Charlotte, North
Carolina 28255. See "The Depositor" in the accompanying prospectus and "Method
of Distribution" in this prospectus supplement. Neither the Depositor nor any of
its affiliates has insured or guaranteed the Offered Certificates.
MASTER SERVICER AND SPECIAL SERVICER
Midland Loan Services, Inc., a Delaware corporation. See "Servicing of the
Loans -- The Master Servicer and the Special Servicer" in this prospectus
supplement.
LOAN SELLERS
Capital Lease Funding, L.P., and NationsBank, N.A. Capital Lease Funding,
L.P., a Delaware limited partnership maintains its principal office at 110
Maiden Lane, 36th Floor, New York, New York 10005. NationsBank, N.A., a national
banking association, is the parent of the Depositor and a wholly-owned
subsidiary of NB Holdings Corporation, which in turn is a wholly-owned
subsidiary of BankAmerica Corporation. NationsBank, N.A. maintains its principal
office at Bank of America Corporate Center, 100 North Tryon Street, Charlotte,
North Carolina 28255. See "Description of the Loan Pool -- The Loan Sellers" in
this prospectus supplement.
TRUSTEE
LaSalle National Bank. See "The Trustee and the Fiscal Agent" in this
prospectus supplement. The Trustee will also have certain duties with respect to
REMIC administration.
FISCAL AGENT
ABN AMRO Bank N.V. See "The Trustee and the Fiscal Agent" in this
prospectus supplement.
CUT-OFF DATE
February 15, 1999.
DELIVERY DATE
On or about March 11, 1999.
BUSINESS DAY
A day other than Saturday, Sunday or a day on which banks in New York,
Illinois or Missouri are permitted or required by law to be closed.
DETERMINATION DATE
With respect to any Credit Lease Loan (as defined herein), the 15th day of
the month or, if such day is not a Business Day, the immediately succeeding
Business Day, and with respect to any NationsBank
S-9
<PAGE> 12
Mortgage Loan (as defined herein), the 10th day of the month or, if such day is
not a Business Day, the immediately succeeding Business Day.
MASTER SERVICER REMITTANCE DATE
The Business Day immediately preceding the Distribution Date.
DISTRIBUTION DATE
The 22nd day of any month, or if such day is not a Business Day, the
immediately succeeding Business Day.
RECORD DATE
With respect to any Distribution Date, the 15th day of the calendar month
in which such Distribution Date occurs.
INTEREST ACCRUAL PERIOD
For any Distribution Date, the period from and including the 15th day of
the calendar month immediately preceding the month in which such Distribution
Date occurs, up to and including the 14th day of the calendar month in which
such Distribution Date occurs. Although the principal balance of the
certificates will change during the Interest Accrual Period, interest will
accrue during the entire Interest Accrual Period only on the principal balance
of the certificates at the end of such Interest Accrual Period.
COLLECTION PERIOD
With respect to any Distribution Date and each loan, the period that begins
on the day immediately following the related Determination Date in the calendar
month preceding the month in which such Distribution Date occurs (or, in the
case of the initial Distribution Date, on the day that begins immediately
following the Cut-off Date) and ends on and includes the related Determination
Date in the calendar month in which such Distribution Date occurs.
OFFERED SECURITIES
THE OFFERED CERTIFICATES; CERTIFICATE BALANCES AND PASS-THROUGH RATES
We are offering five classes of Commercial Loan Pass-Through Certificates
(collectively, the "Offered Certificates") to you as part of Series 1999-LTL-1
indicated on the chart on the cover of this prospectus supplement. Your
certificates will have the approximate aggregate initial principal amount or
notional amount indicated on the chart on the cover of this prospectus
supplement, subject to a variance of plus or minus 5%, and will accrue interest
at an annual pass-through rate as indicated on the chart on the cover of this
prospectus supplement. Interest on your certificates will be calculated based on
a 360-day year consisting of twelve 30-day months, or a 30/360 basis.
Series 1999-LTL-1 will consist of a total of 12 classes, the following
seven of which we will not offer through this prospectus supplement and the
accompanying prospectus: Class C, Class D, Class E, Class F, Class G, Class R-I
and Class R-II (collectively, the "Private Certificates").
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<PAGE> 13
The Private Certificates will have the approximate aggregate initial
principal amount set forth below, subject to a variance of plus or minus 5% and
will accrue interest at an annual pass-through rate as set forth below.
<TABLE>
<CAPTION>
APPROXIMATE INITIAL PASS-THROUGH
CLASS CERTIFICATE BALANCE RATE
- ----- ------------------- ------------
<S> <C> <C>
Class C..................................................... $20,930,897 7.3990%
Class D..................................................... $30,780,731 6.4500%
Class E..................................................... $11,081,063 5.0000%
Class F..................................................... $ 3,693,687 5.0000%
Class G..................................................... $ 3,693,689 5.0000%
Class R-I................................................... (1) (1)
Class R-II.................................................. (1) (1)
</TABLE>
- ---------------
(1) The Class R-I and the Class R-II Certificates will not have a principal
amount or a pass-through rate.
The Offered Certificates and the Private Certificates will represent
beneficial ownership interests in a trust created by the Depositor. The trust's
assets will primarily be 128 loans secured by (a) first liens on 128 commercial
properties, (b) assignments of leases and rents and (c) a security interest in
funds on deposit in certain rent escrow and reserve accounts.
CLASS X CERTIFICATES
The notional amount of the Class X Certificates will generally be equal to
approximately 99.99% of the aggregate stated principal balance of the loans as
of the preceding distribution date (after giving effect to the distribution of
principal on such distribution date) or, in the case of the first distribution
date, the Cut-off Date. The notional amount of the Class X Certificates is used
solely for purposes of calculating the amounts of interest payable on the Class
X Certificates.
If you invest in the Class X Certificates, your pass-through rate will be
equal to the excess, if any, of the weighted average of the loan rates of the
loans (after the payment of all servicing and trustee fees) over the weighted
average of the pass-through rates of the other certificates as described in this
prospectus supplement. The weighting will be based upon the respective
certificate balances of those classes. See "Description of the
Certificates -- Distributions on the Certificates".
DISTRIBUTIONS
A. Amount and Order of Distributions
On each distribution date, funds available for distribution from the loans,
net of specified trust expenses, will be distributed in the following amounts
and order of priority:
First, Class A and Class X: To interest on Class A-1, Class A-2, Class A-3
and Class X, pro rata, in accordance with their interest entitlements.
Second, Class A: To the extent of amounts then required to be distributed
as principal on all the Certificates, to principal on Class A-1, Class A-2 and
Class A-3, in that order, until each class is reduced to zero.
Third, Class A: To reimburse Class A-1, Class A-2 and Class A-3, pro rata,
for any previously unreimbursed losses on the loans allocable to principal that
were previously borne by those classes.
Fourth, Class B: To Class B as follows: (a) to interest on Class B in the
amount of its interest entitlement; (b) to the extent of funds available for
principal, to principal on Class B until reduced to zero; and (c) to reimburse
Class B for any previously unreimbursed losses on the loans allocable to
principal that were previously borne by that class, together with interest.
Finally, Private Certificates: In the amounts and order of priority
provided for in the pooling and servicing agreement.
S-11
<PAGE> 14
B. Interest and Principal Entitlements
A description of each class's interest entitlement can be found in
"Description of the Certificates -- Distributions on the Certificates" in this
prospectus supplement. As described in such section, there are circumstances in
which your interest entitlement for a distribution date could be less than one
full month's interest at the pass-through rate on your certificate's principal
amount or notional amount.
The amount of principal required to be distributed to the classes entitled
to principal on a particular distribution date also can be found in "Description
of the Certificates -- Distributions on the Certificates " in this prospectus
supplement. If you invest in the Class X Certificates, you will not be entitled
to distributions of principal on the Class X Certificates.
C. Prepayment Premiums
The manner in which any prepayment consideration and yield maintenance
premiums ("Prepayment Premiums") received during a particular collection period
will be allocated to the classes of Offered Certificates entitled to principal,
on the one hand, and the Class X Certificates, on the other hand, is described
in "Description of the Certificates -- Distributions on the
Certificates -- Distributions of Prepayment Premiums" in this prospectus
supplement.
With respect to substantially all of the credit tenant lease-backed loans
in the trust, a borrower may not voluntarily prepay a loan during the first
eight years following the origination of the loan and with respect to the
commercial mortgage loans in the trust, a borrower may not voluntarily prepay a
loan during the first eight and a half years following the origination of the
loan (in each case, the "Lock-Out Period"). After the Lock-Out Period, a
borrower may prepay the loan provided the borrower also pays the required
prepayment premium. If a casualty or condemnation event occurs with respect to
the mortgaged property, the borrower will not be subject to the Lock-Out Period
nor will the borrower have to pay the prepayment premium in connection with any
resulting prepayment.
SUBORDINATION
A. General
The chart below describes the manner in which the rights of various classes
will be senior to the rights of other classes. Entitlement to receive principal
and interest on any Distribution Date is depicted in descending order. The
manner in which loan losses are allocated is depicted in ascending order. No
principal payments or loan losses will be allocated to the Class X Certificates.
However, the notional amount of the Class X Certificates (which is used to
calculate interest due on the Class X Certificates) will effectively be reduced
by the allocation of principal payments and loan losses to the other classes of
certificates, the aggregate principal balance of which correspond to the
notional amount of the Class X Certificates.
Class A-1, Class A-2, Class A-3, Class X*
|
Class B
|
Private Certificates
*The Class X Certificates will only be senior with respect to payments of
interest and will not be entitled to receive any payments in respect of
principal.
S-12
<PAGE> 15
Such subordination and, with respect to the Credit Lease Loans, the Expense
Reserve Fund (as described below) represent the only forms of credit enhancement
available for the benefit of the holders of the Offered Certificates. See
"Description of the Certificates -- Subordination; Allocation of Losses and
Certain Expenses" in this prospectus supplement.
B. Shortfalls in Available Distribution Amount
The following types of shortfalls in available funds will be allocated in
the same manner as loan losses:
- shortfalls resulting from additional compensation (other than the master
servicing fee) which the Master Servicer or Special Servicer is entitled to
receive;
- shortfalls resulting from interest on advances of principal and interest
made by the Master Servicer, the Trustee or the Fiscal Agent (to the extent not
covered by default interest paid by the borrower);
- shortfalls resulting from extraordinary expenses of the trust; and
- shortfalls resulting from a reduction of a loan's interest rate by a
bankruptcy court or resulting from a modification of the loan's interest rate by
the Special Servicer or from other unanticipated or default-related expenses of
the trust.
See "Description of the Certificates--Distributions on the Certificates" in
this prospectus supplement.
THE LOANS
THE LOAN POOL
A. General
The trust's primary assets will be 128 fixed rate loans, one of which is
represented by a participation interest in a fixed rate loan, with an aggregate
Cut-off Date Balance of approximately $492,491,697, subject to a variance of
plus or minus 5%. Each loan is evidenced by one or more promissory notes secured
by first mortgages, deeds of trust or similar security instruments on fee
interests in 117 mortgaged properties (or in the case of 9 mortgaged properties,
the leasehold interest in such mortgaged property, and in the case of 2
mortgaged properties, both fee and leasehold interests in such mortgaged
properties). The pool of loans (the "Loan Pool") consists of 110 fixed rate
credit lease loans which are backed by the net lease obligations of 35 credit
lease tenants, with a weighted average credit rating of "A-" by S&P and "Baa1"
by Moody's, and 18 commercial mortgage loans. In addition, the trust's assets
will also include:
- the related assignments of leases and rents, the mortgages and the
pledges of the borrower reserve funds,
- certain accounts,
- the right to draw upon amounts in an expense reserve fund,
- the trust's interest in the lease enhancement policies and the extended
amortization policies, and
- the trust's interest in certain other insurance policies, reserves and
agreements as set forth in the pooling and servicing agreement.
See "Description of the Certificates -- General" in this prospectus
supplement.
The "Cut-off Date Balance" of each loan is its unpaid principal balance as
of the Cut-off Date, after application of all payments of principal due on or
before such date.
110 of the loans, which represent 78.07% of the aggregate Cut-off Date
Balance, were originated by Capital Lease Funding, L.P., pursuant to its
Enhanced Lease Program (the "Credit Lease Loans"). 18 of the loans, which
represent 21.93% of the aggregate Cut-off Date Balance, were originated by or on
behalf of NationsBank, N.A., pursuant to its conduit program (the "NationsBank
Mortgage Loans").
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<PAGE> 16
Payments on the Credit Lease Loans are backed by credit tenant lease
obligations ("Credit Leases"). Pursuant to an assignment of leases and rents
delivered by each borrower, together with a letter of acknowledgment from the
related tenant, the tenants under the Credit Leases will be required to make
monthly rental payments directly to the Master Servicer who will apply such
payments to the related loan.
The Credit Lease Loans include a 50% participation interest in a Credit
Lease Loan (the "Blue Cross Loan") secured by a Credit Lease under which Blue
Cross and Blue Shield of Texas, Inc. is the tenant ("the Blue Cross
Participation"). References in this prospectus supplement to, and any
calculation based on, the principal balance of the Blue Cross Participation or
the Blue Cross Loan will include only the percentage interest in the Blue Cross
Loan represented by the Blue Cross Participation, unless otherwise expressly
stated. See "The Loan Pool -- The Blue Cross Participation, Credit Lease and
Participation" in this prospectus supplement. Unless otherwise noted in the
related table, for purposes of the tables set forth in this prospectus
supplement, the interest of the trust in the Blue Cross Participation is
presented as one loan.
B. Loan Pool Information
Set forth below is certain information regarding the Credit Lease Loans as
of the Cut-off Date. Additional information regarding the Credit Lease Loans and
the related mortgaged properties is set forth under "Description of the Loan
Pool" and Annex A in this prospectus supplement.
<TABLE>
<S> <C>
Initial Aggregate Credit Lease Loan Balance................ $384,471,281
Number of Credit Lease Loans............................... 110
Number of Credit Lease Tenants............................. 35
Weighted Average Credit Lease Tenant Rating................ A-/Baa1*
Average Cut-off Date Balance............................... $3,495,193
Weighted Average Loan Rate................................. 7.46%
Weighted Average Original Term to Maturity................. 247 months
Weighted Average Remaining Term to Maturity................ 232 months
Weighted Average Debt Service Coverage Ratio............... 1.05x
Weighted Average Loan-to-Leased Fee Value Ratio............ 85.0%
Weighted Average Loan-to-Dark Value Ratio.................. 113.3%
</TABLE>
- ---------------
* Ratings show that of S&P and Moody's, respectively.
Set forth below is certain information regarding the NationsBank Mortgage
Loans as of the Cut-off Date. Additional information regarding the NationsBank
Mortgage Loans and the related mortgaged properties is set forth under
"Description of the Loan Pool" and Annex A in this prospectus supplement.
<TABLE>
<S> <C>
Initial Aggregate NationsBank Mortgage Loan Balance........ $108,020,416
Number of NationsBank Mortgage Loans....................... 18
Average Cut-off Date Balance............................... $6,001,134
Weighted Average Loan Rate................................. 7.58%
Weighted Average Original Term to Maturity................. 214 months
Weighted Average Remaining Term to Maturity................ 201 months
Weighted Average Debt Service Coverage Ratio............... 1.38x
Weighted Average Loan-to-Value Ratio....................... 60.8%
</TABLE>
The following tables set forth certain anticipated characteristics of the
loans as of the Cut-off Date. The sum in any column may not equal 100% due to
rounding. Unless otherwise indicated, all figures presented in this summary
section are calculated as described under "Description of the Loan Pool" in this
prospectus supplement and all percentages represent the indicated percentages of
the aggregate Cut-off Date Balance.
Set forth below are the number of mortgaged properties, and the approximate
percentage of the aggregate Cut-off Date Balance secured by such mortgaged
properties, located in the five states with the highest concentrations:
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<PAGE> 17
GEOGRAPHIC CONCENTRATION
<TABLE>
<CAPTION>
% OF
NUMBER OF AGGREGATE
STATE LOANS BALANCE
- ----- --------- ------------
<S> <C> <C>
Texas....................................................... 9 11.49%
Massachusetts............................................... 11 11.45%
New York.................................................... 19 11.24%
South Carolina.............................................. 3 10.26%
Florida..................................................... 8 9.01%
</TABLE>
The remaining mortgaged properties are located throughout 22 other states
and the District of Columbia, with no more than 8.22% of the aggregate Cut-off
Date Balance secured by mortgaged properties located in any such other
jurisdiction.
Set forth below are the number of mortgaged properties, and the approximate
percentage of the aggregate Cut-off Date Balance secured by such mortgaged
properties by property type:
PROPERTY TYPE
<TABLE>
<CAPTION>
% OF
NUMBER OF AGGREGATE
PROPERTY TYPE LOANS BALANCE
- ------------- --------- ---------
<S> <C> <C>
Retail...................................................... 102 71.76%
Office...................................................... 12 20.14%
Industrial.................................................. 2 3.00%
Mobile Home................................................. 4 1.87%
Restaurant.................................................. 5 1.12%
Hotel....................................................... 1 1.01%
Parking Lot................................................. 1 0.92%
Other (Post Office)......................................... 1 0.18%
</TABLE>
- ---------------
Set forth below are the numbers of mortgaged properties, and the
approximate percentage of the aggregate Cut-off Date Balance secured by such
mortgaged properties by loan term to maturity:
LOAN TERM TO MATURITY
<TABLE>
<CAPTION>
% OF
NUMBER OF AGGREGATE
ORIGINAL TERM LOANS BALANCE
- ------------- --------- ---------
<S> <C> <C>
120-179..................................................... 11 8.53%
180-239..................................................... 77 44.74%
240-299..................................................... 28 35.34%
300-360..................................................... 12 11.39%
</TABLE>
ADVANCES; SERVICING OF LOANS
A. P&I Advances
The Master Servicer is required to advance (each, a "P&I Advance")
delinquent monthly loan payments, if it determines that the advance will be
recoverable. The Master Servicer will not be required to advance balloon
payments due at maturity (in excess of an assumed monthly scheduled payment) or
interest in excess of a loan's regular interest rate (without considering any
default rate). The Master Servicer also is not required to advance prepayment or
yield maintenance premiums. If an advance is made, the Master Servicer will not
advance its Master Servicing Fee, but will advance the Trustee's fee. If the
Master Servicer fails to make a P&I Advance, then either the Trustee or the
Fiscal Agent will be required to make the P&I
S-15
<PAGE> 18
Advance, if it determines that the P&I Advance will be recoverable. The Trustee
and the Fiscal Agent may rely on the Master Servicer's determination that the
P&I Advance will be nonrecoverable.
B. Servicing Advances
The Master Servicer may also be required to make advances necessary to
protect and maintain the related credit lease and the mortgaged property, as
necessary in the performance of servicer protective actions with respect to the
Credit Lease Loans, to maintain the lien on the mortgaged property, to enforce
the related loan documents or to pay delinquent real estate taxes, assessments
and hazard insurance premiums and similar expenses ("Servicing Advances"). If
the Master Servicer fails to make a Servicing Advance, then either the Trustee
or the Fiscal Agent will be required to make the Servicing Advance, if it
determines that the Servicing Advance will be recoverable. The Trustee and the
Fiscal Agent may rely on the Master Servicer's determination that a Servicing
Advance will be nonrecoverable.
C. Interest on Advances
The Master Servicer, the Trustee and the Fiscal Agent, as applicable, will
be entitled to interest as described in this prospectus supplement on any
advances made. Interest accrued on outstanding advances may result in reductions
in amounts otherwise payable on the Offered Certificates.
D. Servicer Protective Actions
With respect to Credit Lease Loans, the Master Servicer and the Special
Servicer will be obligated to perform servicer protective actions, and to make
Servicing Advances in support of such actions, designed to prevent the credit
lease tenants from exercising any Maintenance Termination or Abatement Rights or
any Additional Termination or Abatement Rights (each, as defined in this
prospectus supplement). In addition, the Master Servicer and the Special
Servicer (with respect to specially serviced loans and REO loans) will be
required to perform customary servicing of the loans for the benefit of
certificateholders including, without limitation, collection of payments,
reporting to the Trustee (which in turn reports to the certificateholders), and
taking action with respect to loans in default, all subject to the standards set
forth in the pooling and servicing agreement. See "The Enhanced Lease
Program -- Servicer Protective Actions" in Annex C of this prospectus
supplement.
E. Expense Reserve Fund
With respect to the Credit Lease Loans, the Expense Reserve Fund will
provide an additional source of funds for Advances for the Master Servicer, the
Trustee and/or the Fiscal Agent, as applicable. Advances made with respect to a
Credit Lease Loan will be made first to the extent of amounts on deposit in the
Expense Reserve Fund. See "The Enhanced Lease Program -- The Expense Reserve
Fund" in Annex C of this prospectus supplement.
ENHANCED LEASE PROGRAM
Through the Enhanced Lease Program, Capital Lease Funding, L.P. provides
Credit Lease Loans to fee and/or leasehold owners of commercial real properties
long-term net leased to credit tenants whose public long term debt rating (or
that of its parent, in the case of five (or four, in the case of Moody's) Credit
Lease Loans) are generally investment grade or whose obligations are guaranteed
by investment grade entities, or if the credit lease tenant or guarantor does
not carry a public rating, such tenant or guarantor has received a confidential
private rating from at least one Rating Agency indicating that its credit meets
parameters generally consistent with an investment grade rating. Monthly rental
payments due under the terms of the related Credit Leases are the source of
repayment for the Credit Lease Loans. The Enhanced Lease Program is specifically
designed to mitigate and/or eliminate real estate-related or borrower-related
event risks present in certain of the Credit Leases that could cause an
interruption or reduction of a credit tenant's obligation to pay rent under the
Credit Lease. Though certain of the Credit Leases have certain lease termination
or rent abatement rights, protection against, and from the effects of, the
exercise of any such rights is provided
S-16
<PAGE> 19
through a combination of the program's features described below. You should read
"The Enhanced Lease Program" which is attached as Annex C to this prospectus
supplement for additional information about the Enhanced Lease Program.
TERMINATION AND ABATEMENT RIGHTS
Lease termination rights and rent abatement rights, if any, in the Credit
Leases may be divided into four categories:
- termination and abatement rights directly arising from certain defined
casualties or condemnation ("Casualty or Condemnation Termination or
Abatement Rights");
- termination and abatement rights arising from a borrower default in the
performance of its obligations under the Credit Lease to maintain, repair
or replace the related mortgaged property ("Maintenance Termination or
Abatement Rights");
- termination and abatement rights arising from a borrower default in the
performance of various other mortgagor obligations under the Credit Lease
("Additional Termination or Abatement Rights"); and
- termination rights of a tenant which has declined to exercise its right
to renew the Credit Lease and has vacated the property (a "Tenant
Non-Renewal Action"), in connection with the expiration of the initial
term of the related Credit Lease, in the case of eight Credit Lease Loans
which have been underwritten with amortization periods and/or terms to
maturity that extend beyond the initial term of the related Credit Lease.
The features of the Enhanced Lease Program are applied to mitigate or
eliminate the above termination and abatement rights in accordance with the type
of the related Credit Lease.
- "Bond-Type Leases" have neither Casualty or Condemnation Termination or
Abatement Rights nor Maintenance Termination or Abatement Rights, and
generally do not have Additional Termination or Abatement Rights.
- "Triple Net Leases" have Casualty or Condemnation Termination or
Abatement Rights and may have Additional Termination or Abatement Rights,
but do not have Maintenance Termination or Abatement Rights.
- "Double Net Leases" have Casualty or Condemnation Termination or
Abatement Rights and Maintenance Termination or Abatement Rights, and may
have Additional Termination or Abatement Rights.
LEASE ENHANCEMENT POLICIES
Credit Lease Loans with any Casualty or Condemnation Termination or
Abatement Rights have the benefit of lease enhancement insurance policies, which
provide for payment of substantially all amounts due under the Credit Lease Loan
over the term of the loan or in a lump sum payment to the Trustee when a
mortgaged property has been subjected to a casualty or condemnation and the
related tenant has exercised a Casualty or Condemnation Termination or Abatement
Right. The non-cancelable lease enhancement insurance policies have been issued
by a wholly-owned subsidiary of American International Group, Inc., with a
financial strength rating of "AAA" from S&P.
EXTENDED AMORTIZATION POLICIES
Seven Credit Lease Loans with terms to maturity that extend beyond the
initial term of the related Credit Lease and one Credit Lease Loan which is a
balloon loan have the benefit of extended amortization insurance policies. The
insurer will make payment of substantially all amounts due under the Credit
Lease Loan over the term of the loan or in a lump sum payment under such
policies to the Trustee in the event that a mortgagor defaults in the payment of
principal and interest on a Credit Lease Loan following a Tenant Non-Renewal
S-17
<PAGE> 20
Action. The extended amortization insurance policies have been issued by a
wholly-owned insurance company subsidiary of Berkshire Hathaway, Inc., with a
financial strength rating of "AAA" from S&P.
BORROWER RESERVE FUNDS/EXCESS CASH FLOW
For each Credit Lease Loan relating to a Double Net Lease (as defined
herein), the mortgagor has established a reserve fund (each, a "Borrower Reserve
Fund") which will be administered by the Master Servicer and has been pledged as
collateral for the Credit Lease Loan. Amounts on deposit in a Borrower Reserve
Fund will be applied in accordance with the borrower reserve agreement for,
among other things, maintenance, repairs and replacements to the related
mortgaged property. Reserves are generally structured to provide at least 125%
of the expected mortgagor's maintenance, repair and replacement obligations
under the Credit Lease. Each Borrower Reserve Fund will be funded from a
predetermined portion of monthly rental payments not otherwise required for debt
service, and may be funded in part by an initial deposit. In addition to
reserves, Double Net Leases generally have debt service coverage in excess of
the amount required to make payments of principal and interest and fund such
reserves. Such excess amounts are available as necessary in the performance of
Borrower Protective Actions and Servicer Protective Actions.
BORROWER PROTECTIVE ACTIONS
Each mortgagor has financial and other incentives to perform its
obligations under the related Credit Lease in accordance with the Credit Lease
and the loan documents. The mortgagor could possibly advance its own funds to
pay the costs of these obligations if amounts on deposit in the Borrower Reserve
Fund are insufficient or unavailable to the mortgagor to cover such expenses. In
the event the mortgagor defaults under the Credit Lease, the loan documents
provide for the acceleration of the Credit Lease Loan, foreclosure (unless the
Credit Lease Loan is not delinquent, subject to certain conditions) with the
resulting loss of the mortgagor's equity in the mortgaged property, loss of any
excess cash flow, possible tax liability of the mortgagor and, in some
instances, personal liability of the principals of the mortgagor.
SERVICER PROTECTIVE ACTIONS
The pooling and servicing agreement, which is the agreement which among
other things sets out terms for servicing of the loans, requires that the Master
Servicer and the Special Servicer perform comprehensive servicing, advancing and
monitoring actions. These obligations are designed to prevent a termination of a
Credit Lease or an abatement of rent due to a credit lease tenant's exercise of
its Maintenance Termination or Abatement Rights or its Additional Termination or
Abatement Rights. In the exercise of these servicer protective actions, and
subject to the related loan documents and applicable law, the Master Servicer
and the Special Servicer will have access to the mortgaged property and any
excess cash flow therefrom, and may use funds on deposit in the Borrower Reserve
Fund or the Expense Reserve Fund (as defined herein) to accomplish necessary
repairs and maintenance, and, in the event such funds are insufficient, the
Master Servicer must advance funds (as long as such advance is not determined to
be nonrecoverable), as necessary, in connection with actions by the Master
Servicer or the Special Servicer to prevent the exercise of Maintenance
Termination or Abatement Rights and Additional Termination or Abatement Rights.
The performance of servicer protective actions which consist of notices and
claims related to the Lease Enhancement Policies, the Extended Amortization
Polices and "force placed" insurance polices, as well as Servicing Advances by
the Master Servicer will not, in the absence of the occurrence of an event which
requires the loan to be serviced as a specially serviced loan, cause a Credit
Lease Loan to be a specially serviced loan. In addition, so long as the Credit
Lease Loan is not delinquent in payments of principal and interest, the Special
Servicer will not proceed with any foreclosure action on the related mortgaged
property in connection with the exercise of such termination or abatement rights
subject to certain conditions as further described herein.
DOCUMENTATION AND UNDERWRITING CRITERIA
The loan documents and underwriting criteria are designed to mitigate
against mortgagors taking any actions which might give rise to Maintenance
Termination or Abatement Rights or Additional Termination or
S-18
<PAGE> 21
Abatement Rights. In addition, the loan documents permit the Master Servicer and
the Special Servicer to gain access to the mortgaged property, to extend the
cure period under the related Credit Lease and cure any mortgagor defaults.
EXPENSE RESERVE FUND
The pooling and servicing agreement provides for a trust-level Expense
Reserve Fund to be created and funded from payments under the Credit Lease
Loans: (i) to provide additional funds for use by the Master Servicer when
performing servicer protection actions on the Credit Lease Loans, (ii) to pay
trust expenses, if any, related to the Credit Lease Loans, (iii) as an
additional source of funds to make advances and to reimburse the Master
Servicer, the Trustee or the Fiscal Agent, as applicable, for advances later
deemed nonrecoverable with respect to the Credit Lease Loans, (iv) to cover
prepayment interest shortfalls which might arise upon certain payments under the
lease enhancement insurance policies, and (v) as credit support, to the extent
funds are insufficient as a result of losses incurred with respect to the Credit
Lease Loans to make all distributions required to be made on a distribution
date. Such Expense Reserve Fund will be funded over time from a portion equal to
0.3% of each monthly rental payment and, assuming no prepayments or defaults,
total deposits (not including reinvestment income) to the Expense Reserve Fund
over the life of the certificates will be approximately $2,400,000.
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ADDITIONAL ASPECTS OF THE CERTIFICATES
DENOMINATIONS
We will offer the Class A-1, Class A-2 and Class A-3 Certificates in
minimum denominations of $10,000 initial principal amount and the Class B
Certificates in minimum denominations of $100,000 initial principal amount. We
will offer the Class X Certificates in minimum denominations of $1,000,000
initial notional amount. Investments in excess of the minimum denominations may
be made in any whole dollar denomination.
REGISTRATION, CLEARANCE AND SETTLEMENT
We will register each class of Offered Certificates in the name of Cede &
Co., as nominee of The Depository Trust Company ("DTC").
We may elect to terminate the book-entry system through DTC with respect to
all or any portion of any class of the Offered Certificates. See "Description of
the Certificates -- Registration and Denominations" in this prospectus
supplement and "Description of the Certificates--Book-Entry Registration and
Definitive Certificates" in the accompanying prospectus.
OPTIONAL TERMINATION
At its option, the Master Servicer or any holder or holders (other than the
Depositor or the Loan Sellers) of certificates representing a majority interest
in the Controlling Class (as defined herein) may purchase all of the loans and
REO mortgaged properties, and thereby effect a termination of the trust and
early retirement of the then-outstanding certificates, on any distribution date
on which the remaining aggregate principal balance of the loan pool is less than
1.0% of the aggregate Cut-off Date Balance. See "Description of the
Certificates--Optional Termination" in this prospectus supplement.
TAX STATUS
An election will be made to treat a portion of the trust as two separate
REMICs -- REMIC I and REMIC II -- for federal income tax purposes. In the
opinion of counsel, such portion of the trust will qualify for this treatment.
Pertinent federal income tax consequences of an investment in the Offered
Certificates include:
- Each class of Offered Certificates will constitute "regular
interests" in the REMIC II.
- The regular interests will be treated as newly originated debt
instruments for federal income tax purposes.
- You will be required to report income on the Offered Certificates in
accordance with the accrual method of accounting.
- The Class X Certificates will be, and the other classes of the
Offered Certificates may be, issued with original issue discount.
See "Certain Federal Income Tax Considerations" in this prospectus
supplement and in the accompanying prospectus.
CERTAIN ERISA CONSIDERATIONS
Subject to important considerations described under "Certain ERISA
Considerations" in this prospectus supplement and in the accompanying
prospectus, the Class A-1, Class A-2, Class A-3 and Class X Certificates are
eligible for purchase by persons investing assets of employee benefit plans or
individual retirement accounts.
THE CLASS B CERTIFICATES MAY NOT BE PURCHASED BY, OR TRANSFERRED TO, ANY
EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
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("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE, AS AMENDED (EACH, A
"PLAN") OR ANY PERSON INVESTING THE ASSETS OF A PLAN. (THIS PROHIBITION DOES NOT
APPLY TO AN INSURANCE COMPANY INVESTING ASSETS OF ITS GENERAL ACCOUNT UNDER
CIRCUMSTANCES WHICH WOULD QUALIFY FOR AN EXEMPTION UNDER SECTIONS I AND III OF
PROHIBITED TRANSACTION CLASS EXEMPTION 95-60.)
LEGAL INVESTMENT
None of the classes of Offered Certificates will constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984, as amended. As a result, the appropriate characterization of the
Offered Certificates under various legal investment restrictions, and thus your
ability to purchase the Offered Certificates, may be subject to significant
interpretative uncertainties.
See "Legal Investment" in this prospectus supplement and in the
accompanying prospectus.
CERTIFICATE RATINGS
It is a requirement for issuance of the Offered Certificates that they
receive credit ratings no lower than the ratings indicated on the cover of this
prospectus supplement from Duff & Phelps Credit Rating Co. ("DCR"), Standard &
Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. ("S&P")
and Moody's Investors Service, Inc. ("Moody's," and together with DCR and S&P,
the "Rating Agencies").
S&P assigns the additional symbol of "r" to highlight classes of securities
that S&P believes may experience high volatility or high variability in expected
returns due to non-credit risks; however, the absence of an "r" symbol should
not be taken as an indication that a Class will exhibit no volatility or
variability in total return.
The Rating Agencies' ratings of the Offered Certificates address the
likelihood of the timely payment of interest and the ultimate repayment of
principal by the Rated Final Distribution Date. A security rating does not
address the frequency of prepayments (either voluntary or involuntary), the
effect of any prepayment interest shortfalls or the possibility that
certificateholders might suffer a lower than anticipated yield, nor does a
security rating address the likelihood of receipt of prepayment premiums or
default interest.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Any such revision, if negative, or withdrawal of a rating could
have a material adverse effect on the affected class of Offered Certificates.
A change in the credit rating of a Credit Lease tenant and/or the related
guarantor may have a related positive or adverse effect on the rating of the
Offered Certificates.
See "Ratings" in this prospectus supplement and "Rating" in the
accompanying prospectus for a description of the limitations of the ratings of
the Offered Certificates.
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RISK FACTORS
You should carefully consider the following risks before making an
investment decision. In particular, distributions on your certificates will
depend on payments received on and other recoveries with respect to the loans.
Therefore, you should carefully consider the risk factors relating to the credit
leases, the loans and the mortgaged properties.
The risks and uncertainties described below are not the only ones relating
to your certificates. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair your investment. If any
of the following risks actually occur, your investment could be materially and
adversely affected.
This prospectus supplement also contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this prospectus
supplement.
RISKS RELATED TO THE CERTIFICATES
LACK OF CONTROL OVER TRUST FUND
You and other certificateholders generally do not have the right to make
decisions with respect to the administration of the trust. See "Servicing of the
Loans -- General" in this prospectus supplement. Such decisions are generally
made, subject to the express terms of the pooling and servicing agreement, by
the Master Servicer, the Trustee or the Special Servicer, as applicable. Any
decision made by one of those parties in respect of the trust, even if such
decision is determined to be in your best interests by such party, may be
contrary to the decision that you or other certificateholders would have made
and may negatively affect your interests.
YIELD CONSIDERATIONS
The yield on any offered certificate will depend on (a) the price at which
such certificate is purchased by an investor and (b) the rate, timing and amount
of distributions on such certificate. The rate, timing and amount of
distributions on any offered certificate will, in turn, depend on, among other
things:
- the pass-through rate for such certificate;
- the rate and timing of principal payments (including
principal prepayments) and other principal collections on
or in respect of the loans and the extent to which such
amounts are to be applied or otherwise result in a
reduction of the certificate balance or notional amount of
the class of certificates to which such certificate
belongs;
- the rate, timing and severity of realized losses and
additional trust expenses and the extent to which such
losses and expenses result in the failure to pay interest
on, or a reduction of the certificate balance or notional
amount of, the class of certificates to which such
certificate belongs;
- the timing and severity of any prepayment interest
shortfalls and the extent to which such shortfalls are
allocated in reduction of the interest payable on the class
of certificates to which such certificate belongs; and
- the extent to which prepayment premiums are collected and,
in turn, distributed on the class of certificates to which
such certificate belongs.
It is impossible to predict with certainty any of the factors described in
the preceding paragraph. Accordingly, investors may find it difficult to analyze
the effect that such factors might have on the yield to maturity of any class of
offered certificates. See "Description of the Loan Pool", "Description of the
Certificates -- Distributions on the Certificates" and "-- Subordination;
Allocation of Losses and Certain
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Expenses" and "Yield and Maturity Considerations" in this prospectus supplement.
See also "Yield and Maturity Considerations" in the accompanying prospectus.
The yield to maturity of the Class X Certificates will be highly sensitive
to the rate and timing of principal payments (including by reason of
prepayments, loan extensions, defaults and liquidations) and losses on the
loans. Investors in the Class X Certificates should fully consider the
associated risks, including the risk that an extremely rapid rate of
amortization, prepayment or other liquidation of the loans could result in the
failure of such investors to recoup fully their initial investments. Because the
notional amount of the Class X Certificates is equal to the aggregate of the
certificate balances of the certificates with principal amounts (the "Sequential
Pay Certificates") outstanding from time to time, any payment of principal or
loss in respect of any loan that is applied in reduction of the certificate
balance of any class of Sequential Pay Certificates will reduce such notional
amount.
In general, in the case of the Class X Certificates and any other class of
offered certificates purchased at a premium, if principal payments on the loans
occur at a rate faster than anticipated at the time of purchase, then (to the
extent that the required prepayment premiums are not received or are
distributable to a different class of certificates) the investors' actual yield
to maturity will be lower than that assumed at the time of purchase. Conversely,
in the case of any class of offered certificates purchased at a discount, if
principal payments on the loans occur at a rate slower than anticipated at the
time of purchase, then (to the extent that the required prepayment premiums are
not received or are distributable to a different class of certificates) the
investors' actual yield to maturity will be lower than that assumed at the time
of purchase. Prepayment premiums, even if available and distributable on the
Class X Certificates or other class of offered certificates, may not be
sufficient to offset fully any loss in yield on such class or classes of
certificates attributable to the related prepayments of the loans.
PREPAYMENTS AND REPURCHASES
The yield to maturity on your certificates will depend, in significant
part, upon the rate and timing of principal payments on the loans. For this
purpose, principal payments include both voluntary prepayments, if permitted,
and involuntary prepayments, such as prepayments resulting from casualty or
condemnation, defaults and liquidations or repurchases upon breaches of
representations and warranties. Because the notional amount of the Class X
Certificates is based upon the principal amounts of the certificates with
principal amounts, the yield to maturity on the Class X Certificates will be
extremely sensitive to the rate and timing of prepayments of principal.
The investment performance of your certificates may vary materially and
adversely from your expectations if the actual rate of prepayment on the loans
is higher or lower than you anticipate.
Voluntary prepayments, if permitted, generally require payment of a
prepayment premium. Nevertheless, we cannot assure you that the related
borrowers will refrain from prepaying their loans due to the existence of a
prepayment premium. Also, we cannot assure you that involuntary prepayments will
not occur.
The rate at which voluntary prepayments occur on the loans will be affected
by a variety of factors, including:
- the terms of the loans;
- the length of any prepayment lock-out period;
- the level of prevailing interest rates;
- the availability of credit;
- the applicable yield maintenance charges or prepayment premiums;
- the Master Servicer's or Special Servicer's ability to enforce those
charges or premiums;
- the occurrence of casualties or natural disasters; and
- economic, demographic, tax, legal or other factors.
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No prepayment premiums will be required for prepayments in connection with
a casualty or condemnation. In addition, if either loan seller repurchases any
loan from the trust due to breaches of representations or warranties, the
repurchase price paid will be passed through to the holders of the certificates
with the same effect as if the loan had been prepaid in part or in full, except
that no prepayment consideration or yield maintenance charge would be payable.
Such a repurchase may therefore adversely affect the yield to maturity on your
certificates.
With respect to the Credit Lease Loans, no prepayment premium will be
required to be paid under a Lease Enhancement Policy if the insurer makes a lump
sum payment in full, and if the insurer makes a lump sum payment in full under
an Extended Amortization Policy any prepayment premium owing with such
prepayment will be subject to a cap equal to 5% of the outstanding balance of
the Credit Lease Loan.
BORROWER DEFAULT
The rate and timing of delinquencies or defaults on the loans will affect:
- the aggregate amount of distributions on the certificates;
- their yield to maturity;
- the rate of principal payments; and
- their weighted average life.
If losses on the loans exceed the aggregate principal amount of the classes
of certificates subordinated to a particular class, such class will suffer a
loss equal to the full amount of such excess (up to the outstanding principal
amount of such certificate).
If you calculate your anticipated yield based on assumed rates of defaults
and losses that are lower than the default rate and losses actually experienced
and such losses are allocable to your certificates, your actual yield to
maturity will be lower than the assumed yield. Under certain extreme scenarios,
such yield could be negative. In general, the earlier a loss borne by you on
your certificates occurs, the greater the effect on your yield to maturity.
Even if losses on the loans are not borne by your certificates, those
losses may affect the weighted average life and yield to maturity of your
certificates. This may be so because any recoveries of principal in connection
with those losses will act as prepayments which will accelerate the return of
principal on more senior classes, while such losses will reduce future principal
payments and therefore tend to delay return of principal on more senior classes
thereafter. The effect on the weighted average life and yield to maturity of
your certificates will depend upon the characteristics of the remaining loans.
Additionally, delinquencies and defaults on the loans may significantly
delay the receipt of distributions by you on your certificates, unless advances
are made to cover delinquent payments or the subordination of another class of
certificates fully offsets the effects of any such delinquency or default.
BANKRUPTCY PROCEEDINGS
Under the federal Bankruptcy Code, Title 11 of the United States Code (the
"Bankruptcy Code"), the filing of a petition in bankruptcy by or against a
borrower will stay the sale of the real property owned by that borrower, as well
as the commencement or continuation of a foreclosure action. In addition, if a
court determines that the value of the mortgaged property is less than the
principal balance of the loan it secures, the court may prevent a lender from
foreclosing on the mortgaged property (subject to certain protections available
to the lender). As part of a restructuring plan, a court also may reduce the
amount of secured indebtedness to the then-value of the mortgaged property. Such
an action would make the lender a general unsecured creditor for the difference
between the then-value and the amount of its outstanding mortgage indebtedness.
A bankruptcy court also may: (1) grant a debtor a reasonable time to cure a
payment default on a loan; (2) reduce monthly payments due under a loan; (3)
change the rate of interest due on a loan; or (4) otherwise alter the loan's
repayment schedule.
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Moreover, the filing of a petition in bankruptcy by, or on behalf of, a
junior lienholder may stay the senior lienholder from taking action to foreclose
on the junior lien. Additionally, the borrower's trustee or the borrower, as
debtor-in-possession, has certain special powers to avoid, subordinate or
disallow debts. In certain circumstances, the claims of the Trustee may be
subordinated to financing obtained by a debtor-in-possession subsequent to its
bankruptcy.
Under the Bankruptcy Code, a lender will be stayed from enforcing a
borrower's assignment of rents and leases. The Bankruptcy Code also may
interfere with the Trustee's ability to enforce lockbox requirements. The legal
proceedings necessary to resolve these issues can be time consuming and may
significantly delay the receipt of rents. Rents also may escape an assignment to
the extent they are used by the borrower to maintain the mortgaged property or
for other court authorized expenses.
As a result of the foregoing, the Trustee's recovery with respect to
borrowers in bankruptcy proceedings may be significantly delayed, and the
aggregate amount ultimately collected may be substantially less than the amount
owed.
ADVANCE INTEREST AND OTHER PAYMENTS
To the extent described in this prospectus supplement, the Master Servicer,
the Special Servicer or the Trustee, as applicable, will be entitled to receive
interest on unreimbursed advances. This interest will generally accrue from the
date on which the related advance is made or the related expense is incurred
through the date of reimbursement. In addition, under certain circumstances,
including delinquencies in the payment of principal and interest, a loan will be
specially serviced and the Special Servicer will be entitled to compensation for
special servicing activities. The right to receive interest on advances or
special servicing compensation is senior to the rights of certificateholders to
receive distributions on the certificates. The payment of interest on advances
and the payment of compensation to the Special Servicer may lead to shortfalls
in amounts otherwise distributable on your certificates.
DIFFERENT TIMING OF LOAN AMORTIZATION
As principal payments or prepayments are made on a loan that is part of a
pool of loans, the pool will be subject to more concentrated risks with respect
to the diversity of mortgaged properties, types of mortgaged properties and
number of borrowers, as described above. Classes that have a later sequential
designation or a lower payment priority are more likely to be exposed to this
concentration risk than are classes with an earlier sequential designation or a
higher priority. This is so because principal on the offered certificates is
generally payable in sequential order, and no class entitled to distribution of
principal generally receives principal until the principal amount of the
preceding class or classes entitled to receive principal have been reduced to
zero.
SUBORDINATION OF SUBORDINATE OFFERED CERTIFICATES
As described in this prospectus supplement, unless your certificates are
Class A-1, Class A-2, Class A-3 or Class X Certificates, your rights to receive
distributions of amounts collected or advanced on or in respect of the loans
will be subordinated to those of the holders of the offered certificates with an
earlier alphabetical designation.
YEAR 2000 DISRUPTIONS
The transition from the year 1999 to the year 2000 may disrupt the ability
of computerized systems to process information. The issue presented by the "year
2000 problem" is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. If the Master Servicer, the Special Servicer or the Trustee do not have by
the year 2000 computerized systems which are year 2000 compliant, the resulting
disruptions in the collection or distribution of receipts on the loans could
materially and adversely affect your investment.
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RISKS RELATED TO THE CREDIT LEASE LOANS
CREDIT QUALITY OF CREDIT LEASE TENANTS AND GUARANTORS
Payments on the Credit Lease Loans are dependent principally, and payments
on the certificates are dependent to a great extent, on the payment by each
Credit Lease tenant or the related guarantor, if any, of monthly rental payments
and other payments due under the terms of its Credit Lease. Each Credit Lease
tenant (or its parent, in the case of five (or four, in the case of Moody's)
Credit Lease Loans) or, if applicable, the related guarantor, has an investment
grade public long-term debt rating, with the exception of MedPartners, Inc., or
if the Credit Lease tenant does not carry a public rating it has received either
(1) a confidential private rating from S&P that (with one exception) its credit
meets parameters consistent with an investment grade rating and/or (2) an
internal private classification from DCR based solely on an analysis of
financial ratios indicating that the credit currently meets parameters
consistent with "BBB-" or better (with one exception), and/or (3) Moody's has
developed internal credit evaluations of these entities for the sole purpose of
rating this transaction. DCR's internal analysis of the company's credit is
based solely on publicly available information and does not include, among other
things, a review of projections or interaction with senior management of the
company. A change in the credit rating of the Credit Lease tenants and/or the
guarantors may have a related positive or adverse effect on the rating of the
certificates. See "Description of the Loan Pool -- Significant Loans" in this
prospectus supplement.
If a Credit Lease tenant defaults on its obligations to make monthly rental
payments under a Credit Lease or the related guarantor defaults on its
obligations under the associated guarantee, if any, the borrower will have the
obligation but may not have the ability to make required payments on the related
Credit Lease Loan. In the event of a payment default on the Credit Lease Loan,
the Special Servicer may be entitled to foreclose upon or otherwise realize upon
the related mortgaged property to recover amounts due under the Credit Lease
Loan, and will also be entitled to pursue any available remedies against the
defaulting Credit Lease tenant and any guarantor, which may include rights to
all future monthly rental payments, subject to reduction if the mortgaged
property is leased to a new tenant. If the default occurs before significant
amortization of the Credit Lease Loan has occurred and no recovery is available
from the borrower, the Credit Lease tenant or any guarantor, it is unlikely that
the Special Servicer will be able to recover in full the amounts then due under
the Credit Lease Loan.
The ratio of the principal balance of each Credit Lease Loan as of the
Cut-off Date to the appraised value at origination of the related mortgage
property assuming that the Credit Lease were to stay in place (the "Leased Fee
Value") ranges from 45.19% to 101.80%, with a weighted average of 85.02%. The
value of any mortgaged property may be lower following a Credit Lease tenant or
guarantor default and is likely to be substantially lower if such default occurs
early in the term of the Credit Lease rather than later when the remaining term
of the Credit Lease contributes less to the Leased Fee Value of the mortgaged
property.
FACTORS AFFECTING LEASE ENHANCEMENT POLICY PROCEEDS
Capital Lease Funding, L.P. ("CLF") has obtained a non-cancelable credit
lease enhancement insurance policy (each, a "Lease Enhancement Policy") from
Lexington Insurance Co., a subsidiary of American International Group, Inc.,
with a financial strength rating of "AAA" from S&P (the "Enhancement Insurer")
for each Triple Net Lease and Double Net Lease. Each Lease Enhancement Policy
provides generally that in the event of the exercise by a Credit Lease tenant of
a Casualty or Condemnation Termination or Abatement Right, the Enhancement
Insurer will have the option either to (1) pay to the Trustee, as an insured
under the Lease Enhancement Policy, a lump sum payment equal to the outstanding
principal balance of the Credit Lease Loan, plus accrued and unpaid interest
thereon through the date of payment, and take an assignment of the Credit Lease
Loan and all related rights (including any rights under any related hazard or
other insurance policies and rights to any condemnation proceeds) or (2) pay,
for the remaining term of the Credit Lease Loan or the period of any rent
abatement, whichever is shorter, the difference between the monthly rental
payment due and the amount actually received from the Credit Lease tenant by the
Master Servicer or the Special Servicer, as applicable.
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The Enhancement Insurer's obligation under each Lease Enhancement Policy is
subject only to submission of a claim by the Master Servicer on behalf of the
Trustee. The Master Servicer will be obligated under the pooling and servicing
agreement to submit notice of claims under the Lease Enhancement Policies after
receipt of notice of a casualty or condemnation as soon as reasonably
practicable, but in any event within three Business Days. The Lease Enhancement
Policies provide that payments are to be made on the due date for the related
monthly rental payment. The Enhancement Insurer is not required to pay interest
for the period from the due date for the monthly rental payment through the due
date of the Credit Lease Loan or the date of a lump sum payment in full, nor is
the Enhancement Insurer required to pay any prepayment premium due thereunder or
any amounts the borrower is obligated to pay thereunder to reimburse the Master
Servicer, the Trustee or the Fiscal Agent for outstanding Servicing Advances.
Any such interest shortfall or other amounts (other than prepayment premiums)
required to be paid to certificateholders or paid to the Master Servicer, the
Trustee or the Fiscal Agent, to the extent not recoverable from the borrower,
will be recoverable from the Expense Reserve Fund to the extent of funds
therein. In the event of a lump sum payment, however, no prepayment premiums
will be payable to certificateholders.
Casualty or Condemnation Termination or Abatement Rights arising from
losses arising from earthquakes for mortgaged properties located in specified
areas ("Earthquake Zones") are excluded from coverage by the Lease Enhancement
Policies, absent special endorsements thereto. None of the mortgaged properties
with Casualty or Condemnation Termination or Abatement Rights are located in
affected areas except (1) the American Drug Stores Loan in Woodland, Hills,
California, (2) the CVS Loans in Little Rock, Arkansas, and Clarksville,
Tennessee, (3) the Eckerd Loans in Goodlettsville, Tennessee, Clarksville,
Tennessee and Murrell's Inlet, South Carolina, (4) the TJX Loan in Encino,
California, (5) the U.S. Post Office Loan in LaCenter, Washington, and (6) the
Exxon Loan in Murfreesboro, Tennessee. For each such Credit Lease Loan, a Lease
Enhancement Policy covering both casualty and condemnation is in place
notwithstanding its location.
- With respect to the two CVS Loans (representing 0.99% of
the aggregate Cut-off Date Balance), the mortgaged
properties are located in an Earthquake Zone, but, in the
case of the CVS Loan in Little Rock, Arkansas, the
Enhancement Insurer has issued an endorsement to the Lease
Enhancement Policy removing the exclusion. In addition, CLF
has obtained reports with respect to the two CVS Loans that
indicate that the related mortgaged properties are located
in areas identified by the Federal Emergency Management
Agency ("FEMA") as Seismic Zones 1 and are accordingly
designated by FEMA as unlikely to have damaging levels of
ground motion.
- With respect to the three Eckerd Loans, the U.S. Post
Office Loan and the Exxon Loan (representing 1.64% of the
aggregate Cut-off Date Balance), the Mortgaged properties
are located in an Earthquake Zone, but, in the case of the
Eckerd Loan in Murrell's Inlet, South Carolina and the
Exxon Loan, the Enhancement Insurer has issued an
endorsement to the Lease Enhancement Policy removing the
exclusion. In addition, CLF has obtained reports with
respect to each of such Credit Lease Loans that indicate
that the related mortgaged properties are located in areas
identified as Seismic Zones 1 and are accordingly
designated by FEMA as unlikely to have damaging levels of
ground motion, except in the case of the Eckerd Loan in
Murrell's Inlet, South Carolina and the U.S. Post Office
Loan, where the related mortgaged properties are located in
areas identified as Seismic Zones 2 and nonetheless are
designated by FEMA as having a low likelihood of having
damaging levels of ground motion. In the case of the U.S.
Post Office Loan, the related mortgaged property has been
subject to a seismic assessment by an engineer that
anticipates that the mortgaged property would not suffer
damage in excess of a maximum probable loss of 10%
(expressed as the approximate repair cost divided by the
replacement cost of the building) in the event of an
earthquake with the magnitude expected once every 475
years. Finally, in the case of each such Credit Lease Loan,
with the exception of the
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Exxon Loan (where the tenant is self insuring), the related tenant
maintains or pays for earthquake insurance.
- With respect to the TJX Loan (representing 1.12% of the
aggregate Cut-off Date Balance), and the American Drug
Stores Loan (representing 0.62% of the aggregate Cut-off
Date Balance), the related mortgaged property is not
covered by the Lease Enhancement Policy for a Casualty or
Condemnation Termination or Abatement Right arising from
earthquake-related damage. Nevertheless, in each case, the
related tenant maintains or pays for earthquake insurance.
In addition, the related mortgaged property has been
subject to a seismic assessment by an engineer that
anticipates that, in the case of the TJX Loan, the
mortgaged property would not suffer damage in excess of a
maximum probable loss of 14% (expressed as the approximate
repair cost divided by the replacement cost of the
building) in the event of an earthquake with the magnitude
expected once every 500 years, and in the case of the
American Drug Stores Loan, the mortgaged property would not
suffer damage in excess of a maximum probable loss of 13.4%
in the event of an earthquake with a magnitude expected
once every 100 years.
There are certain additional exclusions under the Lease Enhancement
Policies relating to war, insurrection, rebellion, revolution or civil riot and
radioactive matter, and takings (other than by condemnation) by reason of danger
to public health, public safety or the environment. See "The Enhanced Lease
Program -- The Lease Enhancement Policies" in Annex C of this prospectus
supplement.
Protection against Casualty or Condemnation Termination or Abatement Rights
is provided first by the Enhancement Insurer through the Lease Enhancement
Policies and second, to the extent the Enhancement Insurer defaults, by the
application of any condemnation award or casualty insurance coverage.
Certificateholders may be adversely affected by any failure by the Enhancement
Insurer to pay under the terms of the Lease Enhancement Policies, and any
downgrade of the credit rating, including a Rating Agency's rating or internal
private classification, of the Enhancement Insurer may adversely affect the
ratings of the offered certificates.
FACTORS AFFECTING EXTENDED AMORTIZATION POLICY PROCEEDS
CLF has obtained Extended Amortization Policies from the Extension Insurer
with respect to 8 Credit Lease Loans (representing 11.55% of the aggregate
Cut-off Date Balance) for which seven of the Credit Lease Loans the term of the
Credit Lease Loan extends beyond the primary term of the related Credit Lease
and one of which is a Balloon Loan. Under each Extended Amortization Policy, in
the event that a borrower defaults in its obligations to pay monthly principal
and interest on the Credit Lease Loan during the period after a Tenant
Non-Renewal Action, the Extension Insurer will either (1) pay amounts equal to
monthly debt service payments on the Credit Lease Loan, or (2) pay an amount
equal to the unpaid principal balance of the Credit Lease Loan with accrued
interest and yield maintenance up to a cap of five percent (5%) of the
outstanding balance of the Credit Lease Loan. In the case of the Balloon Loan,
the Extension Insurer's obligation to make such payments is based solely upon
the event that a borrower defaults in its obligations to pay monthly principal
and interest on the Credit Lease Loan. The Extension Insurer's obligation under
each Extended Amortization Policy is subject only to submission of a claim by
the Master Servicer or the Special Servicer, as applicable, on behalf of the
Trustee. Any other amounts required to be paid to certificateholders or paid to
the Master Servicer, the Trustee or the Fiscal Agent, to the extent not
recoverable from the borrower, will be recoverable from the Expense Reserve Fund
to the extent of funds therein.
Certificateholders may be adversely affected by any failure by the
Extension Insurer to pay under the terms of the Extended Amortization Policies,
and any downgrade of the credit rating of the Extension Insurer may adversely
affect the ratings of the offered certificates.
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FACTORS AFFECTING SERVICER PROTECTIVE ACTIONS
Double Net Leases contain Maintenance Termination or Abatement Rights. In
particular, such Credit Leases may include rights to terminate the Credit Lease
or abate rent in the event of a failure by the borrower to maintain and repair
the related mortgaged property or the related common areas, if any, as required
under the Credit Leases. In each such case, the Credit Lease Loan is
additionally secured by a pledge of a Borrower Reserve Fund, funded over time
from a portion of the monthly rental payment on the Credit Lease not required
for debt service. The amount funded is generally at least 125% of the amount
determined by an engineering firm approved by CLF to be sufficient to cover the
costs of any such maintenance and repair during the term of the Credit Lease
Loan. Any excess amounts are available as necessary in the performance of
Servicer Protective Actions. In addition, all Double Net Leases, with the
exception of 2 Credit Lease Loans representing 0.93% of the aggregate Cut-off
Date Balance, are underwritten with debt service coverage in excess of that
required for debt service and reserves. The borrower is generally entitled to be
reimbursed from the Borrower Reserve Fund for expenses incurred in connection
with such maintenance and repair. To the extent the borrower fails to fulfill
any such obligations under any such Credit Lease, the Credit Lease tenant may be
entitled to exercise a Maintenance Termination or Abatement Right, but in each
case only after notice to the Master Servicer or the Special Servicer, as
applicable, with an opportunity for the Master Servicer or the Special Servicer,
as applicable, to cure. Under the terms of most of the loan documents, the
Credit Lease tenants have granted the Master Servicer or the Special Servicer,
as applicable, extended periods in which to cure a borrower's default and in
many cases such cure period is unlimited, provided the Master Servicer or the
Special Servicer, as applicable, is diligently pursuing the cure. Once the
Master Servicer or the Special Servicer, as applicable, receives notice from a
Credit Lease tenant of a default that may give rise to a Maintenance Termination
or Abatement Right, the Master Servicer or the Special Servicer, as applicable,
is required pursuant to the pooling and servicing agreement to use its best
efforts to perform the obligations which the borrower failed to perform,
utilizing funds in the Borrower Reserve Fund. To the extent such funds are
insufficient, the Master Servicer is required to withdraw funds from the Expense
Reserve Fund, use excess cash flow from the related Mortgaged Property, if any,
and finally to advance its own funds for such purpose (subject only to its
determination that such advance would not be nonrecoverable). In the event the
Master Servicer fails to make any required advance, the Trustee is required to
make such advance and, if the Trustee fails to do so, the Fiscal Agent is
required to make such advance, subject in each case to its determination that
such advance would not be nonrecoverable. See "Description of the
Certificates -- Servicer Protective Actions" and "The Enhanced Lease
Program -- Servicer Protective Actions" in this prospectus supplement.
A Credit Lease tenant may be entitled to exercise a Maintenance Termination
or Abatement Right, which may result in a loss to certificateholders, unless
- the borrower performs the maintenance or repair as required
under the Credit Lease at its own expense or from amount on
deposit in the Borrower Reserve Fund specifically reserved
for such required maintenance or repair; or
- in the event of a default by the borrower of its obligations under
the Credit Lease, the Master Servicer or Special Servicer perform
appropriate Servicer Protective Actions and shall make Servicing
Advances in support of such actions from all amounts available in
the Borrower Reserve Fund and the Expense Reserve Fund as well as
excess cash flow, if any, on the Credit Lease Loan, and finally from
its own funds (subject to a determination of recoverability) to pay
the costs of the required maintenance or repair.
Certain mortgaged properties with Double Net Leases and Triple Net Leases
include Additional Termination or Abatement Rights. Borrower Protective Actions
(which, in connection with certain negative covenants, may include recourse to
principals of the borrower) provide incentives to the borrower to prevent such
rights from being exercised. In the event facts arise which could give rise to
Additional Termination or Abatement Rights and the borrower does not take steps
sufficient to prevent the exercise of such rights, the Credit Lease tenant is
required to provide the Master Servicer or the Special Servicer, as applicable,
with notice thereof and an opportunity to cure, and the Master Servicer or the
Special Servicer, as applicable, is obligated under the pooling and servicing
agreement to take certain Servicer Protective Actions which are
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designed to prevent the exercise of Additional Termination or Abatement Rights.
These actions include any cure rights provided for in a Credit Lease which the
Master Servicer or the Special Servicer, as applicable, may exercise following
default by the related borrower in respect of the removal or other remediation
of hazardous materials, repair or replacement of the mortgaged property
following a condemnation or casualty, or other matters. In addition, the Special
Servicer may commence legal proceedings against the borrower as may be required,
and the Master Servicer may make Servicing Advances for the costs and expenses
of such proceedings subject to a determination that such advance will not be
nonrecoverable. See "The Enhanced Lease Program -- Borrower Protective Actions"
and "-- Servicer Protective Actions" and "The Credit Leases -- Other Borrower
Obligations; Tenant Rent Abatement and Lease Termination Rights" in this
prospectus supplement.
A Credit Lease tenant may be entitled to exercise an Additional Termination
or Abatement Right, which may result in a loss to certificateholders, unless:
- the borrower performs the obligations required under the
Credit Lease at its own expense or from amount on deposit
in the Borrower Reserve Fund specifically reserved for such
obligations; or
- in the event of a default by the borrower of its obligations under
the Credit Lease, the Master Servicer or Special Servicer perform
appropriate Servicer Protective Actions and shall make Servicing
Advances in support of such actions from all amounts available in
the Borrower Reserve Fund and the Expense Reserve Fund as well as
excess cash flow, if any, on the Credit Lease Loan, and finally from
its own funds (subject to a determination of recoverability) to pay
the costs of the obligations.
FACTORS AFFECTING POSSIBLE FORECLOSURE AND LIQUIDATION PROCEEDS; LIMITATIONS ON
FORECLOSURE
Pursuant to the terms of the pooling and servicing agreement, the Special
Servicer is prohibited from foreclosing on a mortgaged property relating to a
Credit Lease Loan if such Credit Lease Loan is not delinquent on payments of
principal and interest and the mortgage default relates solely to the covenants,
conditions and agreements in the related Credit Lease required to be paid,
performed or observed by the borrower, as landlord under such Credit Lease, the
breach of which would permit the Credit Lease tenant to terminate the Credit
Lease or abate rent thereunder ("Borrower Credit Lease Obligations") unless:
- all outstanding Servicing Advances, with interest thereon,
relating to such mortgage loan exceed 60% of the appraised
value of the mortgaged property unencumbered by the Credit
Lease and the related Credit Lease Loan (the "Anticipated
Liquidation Value") with respect to such mortgage loan; or
- the Special Servicer has received the prior written consent
of the certificateholder selected by the certificateholders
in the Controlling Class or otherwise which holds the
largest aggregate certificate balance of the Controlling
Class (the "Directing Certificateholder"); or
- any Servicing Advance with respect to such mortgage loan is
deemed to be nonrecoverable; or
- the original scheduled maturity date of such mortgage loan
has occurred.
The "Controlling Class" will be the most subordinate class of certificates
(other than the Class X Certificates) with an aggregate certificate balance at
least equal to 25% of the initial aggregate certificate balance of such class.
If no such class of certificates has an aggregate principal balance at least
equal to 25% of its initial aggregate certificate balance, then the Controlling
Class will be the class of certificates (other than the Class X Certificates)
with the largest aggregate principal balance. Any such foreclosure will be
subject to the Servicing Standard and any other applicable provision of the
pooling and servicing agreement. However, neither the Master Servicer, the
Special Servicer nor the Trustee will be prohibited from accelerating the
indebtedness evidenced by the mortgage note or other evidence of indebtedness of
the borrower under such
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mortgage loan to the extent permitted by the mortgage loan documents, or from
requiring payment of default interest in connection with any overdue amounts
(including, without limitation, the full amount of the mortgage loan after such
an acceleration). It is anticipated that the prohibition on foreclosure will
protect certificateholders from receiving principal distributions prematurely in
the event that the related Credit Lease tenant is otherwise making monthly
rental payments and, accordingly, principal and interest payments are being made
on the related loan. The foregoing prohibition in no event prevents foreclosure
in the event of a default in payment of principal and interest due on the loan.
However, the prohibition on foreclosure could restrict the ability of the Master
Servicer or the Special Servicer, as applicable, to maximize the recovery with
respect to the mortgaged property at any particular time.
If the trust acquires a mortgaged property pursuant to a foreclosure or
deed in lieu of foreclosure, the Special Servicer must retain an independent
contractor to operate the property. Any net income from such operation (other
than qualifying "rents from real property"), or any rental income based on the
net profits of a tenant or sub-tenant or allocable to a non-customary service,
will subject REMIC I to federal tax (and possibly state or local tax) on such
income at the highest marginal corporate tax rate. In such event, the net
proceeds available for distribution to certificateholders will be reduced. The
Special Servicer may permit REMIC I to earn "net income from foreclosure
property" that is subject to tax if it determines that the net after-tax benefit
to holders of certificates is greater than under another method of operating or
net leasing the mortgaged property.
The foreclosure of a loan or deed of trust requires the adherence to
specific state-mandated legal procedures and is historically equitable in
nature. Any action to recover amounts due with respect to a defaulted loan is
generally subject to possible delays, and subject to a court's equitable powers.
See "Certain Legal Aspects of Mortgage Loans -- Foreclosure" in the accompanying
prospectus. To the extent required under the pooling and servicing agreement,
advances by the Master Servicer may mitigate the adverse impact of such a delay.
RISKS RELATED TO THE LOANS
NATURE OF THE MORTGAGED PROPERTIES
The mortgaged properties consist solely of commercial properties.
Commercial lending is generally viewed as exposing a lender to a greater risk of
loss than lending on the security of one- to four-family residences. This is
because commercial real estate lending usually involves larger loans, and
repayment is typically dependent upon the successful operation of the related
real estate project.
A large number of factors may adversely affect the net operating income and
property value of the mortgaged properties. Some of these factors relate to the
property itself, such as:
- the age, design and construction quality of the property;
- perceptions regarding the safety, convenience and
attractiveness of the property;
- the proximity and attractiveness of competing properties;
- the adequacy of the property's management and maintenance;
- increases in operating expenses;
- an increase in the capital expenditures needed to maintain
the property or make improvements;
- a decline in the financial condition of a major tenant;
- an increase in vacancy rates; and
- a decline in rental rates as leases are renewed or entered
into with new tenants.
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Operation of a commercial property may also be affected by circumstances
outside the control of the borrower or lender, such as the quality or stability
of the surrounding neighborhood, the development of competing projects or
businesses, maintenance expenses (such as energy costs), and changes in laws
(such as changes in the tax laws and retroactive changes in building codes). If
the cash flow from a particular property is reduced (for example, if leases are
not obtained or renewed, if tenant defaults increase or rental rates decline or,
in the case of a property occupied by its owner, if the owner's business
declines), the borrower's ability to repay the loan may be impaired and the
resale value of the particular property may decline.
The borrowers' income would be adversely affected if tenants were unable to
pay rent, if space were unable to be rented on favorable terms or at all, or if
a significant tenant were to become a debtor in a bankruptcy case under the
Bankruptcy Code. For example, if any borrower were to relet or renew the
existing leases at rental rates significantly lower than expected rates, then
such lower rates would adversely affect borrower's funds from operations.
Changes in payment patterns by tenants may result from a variety of social,
legal and economic factors, such as the rate of inflation and unemployment
levels and may be reflected in the rental rates offered for comparable space. In
addition, upon reletting or renewing existing leases at commercial properties,
borrowers will likely be required to pay leasing commissions and tenant
improvement costs which may adversely affect cash flow from the mortgaged
property. See "Description of the Loan Pool -- Additional Loan
Information -- Tenant Matters" herein.
Certain types of commercial properties are exposed to particular kinds of
risks. See "-- Risks Particular to Retail Properties", "-- Risks Particular to
Hotels", "-- Risks Particular to Office Properties", and "--Risks Particular to
Mobile Home Park Properties" below.
MANAGEMENT
The successful operation of a real estate project is dependent on the
performance and viability of the property manager of such project. The property
manager is responsible for responding to changes in the local market, planning
and implementing the rental structure or the business plan, as the case may be,
and ensuring that maintenance and capital improvements can be carried out in a
timely fashion. Accordingly, by controlling costs, providing appropriate service
to tenants and seeing to the maintenance of improvements, sound property
management can improve occupancy rates and cash flow, reduce operating and
repair costs and preserve building value. On the other hand, management errors
can reduce the cash flow from and, in some cases, impair the long term viability
of a real estate project.
BALLOON PAYMENTS
11 of the loans, which represent 9.82% of the aggregate Cut-off Date
Balance, will have substantial payments (that is, balloon payments) due at their
respective stated maturities, in each case unless the loan is previously
prepaid.
Loans with balloon payments involve a greater risk to the lender than fully
amortizing loans, because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related mortgaged property at a price sufficient to permit the borrower to
make the balloon payment. In the case of the one Credit Lease Loan with a
balloon payment, an Extended Amortization Policy is in effect under which the
insurer is obligated to pay an amount equal to the full balloon payment if the
borrower fails to make such payment under the loan. Circumstances that will
affect the ability of the borrower to accomplish this goal at the time of
attempted sale or refinancing include:
- the level of available interest rates;
- the fair market value of the property;
- the borrower's equity in the related property;
- the financial condition of the borrower and operating
history of the property;
- tax laws;
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- prevailing economic conditions, and
- the availability of credit for commercial properties.
See "Description of the Loan Pool -- Certain Terms and Conditions of the
Loans" and "-- Additional Loan Information" herein and "Risk Factors -- Certain
Factors Affecting Delinquency, Foreclosure and Loss of the Loans -- Increased
Risk of Default Associated with Balloon Payments" in the accompanying
prospectus.
RISKS PARTICULAR TO RETAIL PROPERTIES
Retail properties secure 102 of the loans, representing 71.76% of the
aggregate Cut-off Date Balance.
Several factors may adversely affect the value and successful operation of
a retail property, including:
- changes in consumer spending patterns, local competitive
conditions (such as the supply of retail space or the
existence or construction of new competitive shopping
centers or shopping malls);
- alternative forms of retailing (such as direct mail, video
shopping networks and internet web sites which reduce the
need for retail space by retail companies);
- the quality and philosophy of management;
- the attractiveness of the properties to tenants and their
customers or clients;
- the public perception of the safety of customers at
shopping malls and shopping centers; and
- the need to make major repairs or improvements to satisfy
the needs of major tenants.
The general strength of retail sales also directly affects retail
properties. The retailing industry is currently undergoing consolidation due to
many factors, including growth in discount and alternative forms of retailing.
If the sales by tenants in the mortgaged properties that contain retail space
were to decline, the rents that are based on a percentage of revenues may also
decline, and tenants may be unable to pay the fixed portion of their rents or
other occupancy costs. The cessation of business by a significant tenant can
adversely affect a retail property, not only because of rent and other factors
specific to such tenant, but also because significant tenants at a retail
property play an important part in generating customer traffic and making a
retail property a desirable location for other tenants at such property. In
addition, certain tenants at retail properties may be entitled to terminate
their leases if an anchor tenant fails to renew or terminates its lease, becomes
the subject of a bankruptcy proceeding or ceases operations at such property.
RISKS PARTICULAR TO OFFICE PROPERTIES
Office properties secure 12 of the loans, representing approximately 20.14%
of the aggregate Cut-off Date Balance.
A large number of factors may adversely affect the value of office
properties, including:
- the quality of an office building's tenants;
- the physical attributes of the building in relation to
competing buildings (e.g., age, condition, design, access to
transportation and ability to offer certain amenities, such
as sophisticated building systems);
- the desirability of the area as a business location; and
- the strength and nature of the local economy (including
labor costs and quality, tax environment and quality of life
for employees).
In addition, there may be significant costs associated with tenant
improvements and concessions in connection with reletting office space.
Moreover, the cost of refitting office space for a new tenant is often higher
than the cost of refitting other types of property.
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RISKS PARTICULAR TO HOTELS
Properties operated as hotels secure 1 of the loans, representing
approximately 1.01% of the aggregate Cut-off Date Balance.
Various factors may adversely affect the economic performance of a hotel,
including:
- adverse economic and social conditions, either local,
regional or national (which may limit the amount that can be
charged for a room and reduce occupancy levels);
- the construction of competing hotels or resorts;
- continuing expenditures for modernizing, refurbishing, and
maintaining existing facilities prior to the expiration of
their anticipated useful lives;
- a deterioration in the financial strength or managerial
capabilities of the owner and operator of a hotel; and
- changes in travel patterns caused by changes in access,
energy prices, strikes, relocation of highways, the
construction of additional highways or other factors.
Because hotel rooms generally are rented for short periods of time, hotel
properties tend to respond more quickly to adverse economic conditions and
competition than do other commercial properties. In addition, the franchise
license may be owned by an entity operating the hotel and not the borrower or,
if the franchise license is owned by the borrower, the transferability of the
related franchise license agreement may be restricted and, in the event of a
foreclosure on a hotel property, the mortgagee may not have the right to use the
franchise license without the franchisor's consent. Furthermore, the ability of
a hotel to attract customers, and some of such hotel's revenues, may depend in
large part on its having a liquor license. Such a license may not be
transferable.
RISKS PARTICULAR TO MOBILE HOME PARK PROPERTIES
Mobile home park properties ("Mobile Home Properties") secure 4 of the
loans representing 1.87% of the aggregate Cut-off Date Balance. Significant
factors determining the value of Mobile Home Properties are generally similar to
the factors affecting the value of multifamily residential properties. In
addition, the Mobile Home Properties are special purpose properties that could
not be readily converted to general residential, retail or office use. In fact,
certain states also regulate changes in mobile home park use and require that
the landlord give written notice to its tenants a substantial period of time
prior to the projected change. Consequently, if the operation of any of the
Mobile Home Properties becomes unprofitable such that the borrower becomes
unable to meet its obligation on the related loan, the liquidation value of that
Mobile Home Property may be substantially less, relative to the amount owing on
the loan, than would be the case if the Mobile Home Property were readily
adaptable to other uses.
LIMITED ASSETS AND OBLIGATIONS OF THE BORROWERS
The terms of the loans generally require that the borrowers be
single-purpose entities. In most cases, such borrowers' organizational documents
or the terms of the loans limit their activities to the ownership of only the
related mortgaged property and limit the borrowers' ability to incur additional
indebtedness. Such provisions are designed to mitigate the possibility that the
borrower's financial condition would be adversely impacted by factors unrelated
to the mortgaged property and the loan. However, we cannot assure you that such
borrowers will comply with such requirements. Further, in many cases such
borrowers are not required to observe all covenants and conditions which
typically are required in order for such borrowers to be viewed under standard
rating agency criteria as "special purpose entities." Since the loans are
largely nonrecourse obligations of the borrowers, you will have to rely upon
payments made on the loans, the Credit Leases and the other trust assets for
distributions on your certificates. Payment of amounts due on the Credit Lease
Loans will depend significantly on the payments by the tenants under the Credit
Leases. See "Certain Legal Aspects of Loans -- Bankruptcy Laws" in the
accompanying prospectus.
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ENVIRONMENTAL CONSIDERATIONS
An environmental site assessment (or an update of a previously conducted
assessment) was performed (generally in a manner consistent with industry-wide
standards) at each of the mortgaged properties in connection with the
origination of related loan. No such assessment or update revealed any material
adverse environmental condition or circumstance at any mortgaged property,
except as described under "Description of the Loan Pool -- Certain Underwriting
Matters -- Environmental Assessments" in this prospectus supplement. We cannot
assure you, however, that such environmental assessments identified all
environmental conditions and risks. Nor can we assure you that all recommended
operations and maintenance plans recommended in environmental assessments will
continue to be implemented.
LIMITATIONS ON ENFORCEABILITY OF CROSS-COLLATERALIZATION
As described under "Description of the Loan Pool -- General" herein, the
loan pool includes 3 sets of cross-collateralized loans, each of which sets
represents between 1.87% and 0.66% of the aggregate Cut-off Date Balance.
Cross-collateralization arrangements seek to reduce the risk that the inability
of one or more of the mortgaged properties securing any such set of
cross-collateralized loans (or any such loan with multiple mortgaged properties)
to generate net operating income sufficient to pay debt service will result in
defaults and ultimate losses. In addition, one or more of the related mortgaged
properties for certain sets of related cross-collateralized loans may be
released from the lien of the applicable mortgage under the circumstances
described under "Description of the Loan Pool -- Certain Terms and Conditions of
the Loans."
Certain related cross-collateralized loans have different borrowers.
Cross-collateralization arrangements involving more than one borrower could be
challenged as fraudulent conveyances by creditors of the related borrower in an
action brought outside a bankruptcy case or, if such borrower were to become a
debtor in a bankruptcy case, by the borrower's representative.
A lien granted by such a borrower entity could be avoided if a court were
to determine that:
- such borrower was insolvent when granted the lien, was rendered
insolvent by the granting of the lien or was left with inadequate capital,
or was not able to pay its debts as they matured; and
- such borrower did not receive fair consideration or reasonably
equivalent value when it allowed its mortgaged property or properties to be
encumbered by a lien securing the entire indebtedness.
Among other things, a legal challenge to the granting of the liens may
focus on the benefits realized by such borrower from the respective loan
proceeds, as well as the overall cross-collateralization. If a court were to
conclude that the granting of the liens was an avoidable fraudulent conveyance,
that court could
- subordinate all or part of the pertinent loan to existing or future
indebtedness of that borrower;
- recover payments made under that loan; or
- take other actions detrimental to the holders of the certificates,
including, under certain circumstances, invalidating the loan or the
mortgages securing such cross-collateralization.
In addition, a number of the borrowers under the loans are limited or
general partnerships. Under certain circumstances, the bankruptcy of the general
partner in a partnership may result in the dissolution of such partnership. The
dissolution of a borrower partnership, the winding-up of its affairs and the
distribution of its assets could result in an acceleration of its payment
obligations under the related loan.
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GEOGRAPHIC CONCENTRATION
A concentration of mortgaged properties in a particular state or region
increases the exposure of the loan pool to any adverse economic developments
that may occur in such state or region, conditions in the real estate market
where the mortgaged properties securing the related loans are located, changes
in governmental rules and fiscal polices, acts of nature, including floods,
tornadoes and earthquakes (which may result in uninsured losses), and other
factors which are beyond the control of the borrowers. In this regard:
- 9 of the mortgaged properties, which constitute security
for 11.49% of the aggregate Cut-off Date Balance, are
located in Texas.
- 11 of the mortgaged properties, which constitute security
for 11.45% of the aggregate Cut-off Date Balance, are
located in Massachusetts.
- 19 of the mortgaged properties, which constitute security
for 11.24% of the aggregate Cut-off Date Balance, are
located in New York.
- 3 of the mortgaged properties, which constitute security
for 10.26% of the aggregate Cut-off Date Balance, are
located in South Carolina.
- 8 of the mortgaged properties, which constitute security
for 9.01% of the aggregate Cut-off Date Balance, are
located in Florida.
No more than 2.82% of aggregate Cut-off Date Balance is secured by
mortgaged properties located in any particular county in California.
OTHER CONCENTRATIONS
The effect of loan pool losses will be more severe if the losses relate to
loans that account for a disproportionately large percentage of the loan pool's
aggregate principal balance. In this regard:
- The largest loan represents approximately 8.84% of the
aggregate Cut-off Date Balance.
- The three largest loans represent, in the aggregate,
approximately 16.86% of the aggregate Cut-off Date Balance.
- The ten largest loans represent, in the aggregate,
approximately 34.54% of the aggregate Cut-off Date Balance.
Each of the other loans represents less than 5% of the aggregate Cut-off
Date Balance. Overall, 35 loans have a Cut-Off Date Balance that are higher than
the average Cut-Off Date Balance.
A concentration of mortgaged property types or of loans with the same
borrower or related borrowers also can pose increased risks. In the former
regard:
- Retail properties represent approximately 71.76% of the
aggregate Cut-off Date Balance (based on the primary
property type for combined office/retail properties);
- office properties represent 20.14% of the aggregate Cut-off Date
Balance;
- industrial properties represent 3.00% of the aggregate Cut-off Date
Balance;
- mobile home community properties represent 1.87% of the aggregate
Cut-off Date Balance; and
- hotel properties represent 1.01% of the aggregate Cut-off Date
Balance.
A concentration of mortgaged property types can increase the risk that a
decline in a particular industry or business would have a disproportionately
large impact on the loan pool. For example, if there is a decline in tourism,
the hotel industry might be adversely effected, leading to increased losses on
loans secured by hotel properties as compared to the loans secured by other
property types.
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With respect to concentration of borrowers:
- 21 groups of loans have affiliated borrowers, each such
group of loans representing less than 5% of the aggregate
principal balance of the loan pool as of the Cut-off Date.
- 3 groups of 9 loans, representing approximately 4.10% of
the aggregate principal balance of the loan pool as of the
Cut-off Date, are cross-collateralized and cross-defaulted
with each other.
Mortgaged property owned by related borrowers are likely to:
- have common management, increasing the risk that financial
or other difficulties experienced by the property manager
could have a greater impact on the pool of loans; and
- have common general partners which would increase the risk
that a financial failure or bankruptcy filing would have a
greater impact on the pool of loans.
A concentration of Credit Lease Loans with the same tenant and or guarantor
can pose increased risks. In this regard:
- 21 mortgaged properties representing 7.50% of the aggregate
Cut-off Date Balance are leased to or guaranteed by Rite
Aid.
- 16 mortgaged properties representing 7.18% of the aggregate
Cut-off Date Balance are leased to or guaranteed by CVS.
- 4 mortgaged properties representing 6.48% of the aggregate
Cut-off Date Balance are guaranteed by Royal Ahold.
A concentration of tenants or guarantors can increase the risk that the
bankruptcy of a tenant or guarantor, or a decline in a particular industry or
business, would have a disproportionately large impact on the mortgage pool. See
"Description of the Loan Pool" in this prospectus supplement.
PREPAYMENT PREMIUMS
With limited exception, all of the loans require, for a specified period
following the end of the related lock-out period, that any voluntary principal
prepayment be accompanied by a prepayment premium. See "Description of the Loan
Pool -- Certain Terms and Conditions of the Loans -- Prepayment Provisions" in
this prospectus supplement. Any prepayment premiums actually collected on the
loans will be distributed among the respective classes of certificates in the
amounts and in accordance with the priorities described in this prospectus
supplement under "Description of the
Certificates -- Distributions -- Distributions of Prepayment Premiums". The
Depositor, however, makes no representation as to the collectibility of any
prepayment premium.
Provisions requiring prepayment premiums may not be enforceable in some
states and under federal bankruptcy law. Those provisions also may constitute
interest for usury purposes. Accordingly, we cannot assure you that the
obligation to pay a prepayment premium will be enforceable. Also, we cannot
assure you that foreclosure proceeds will be sufficient to pay an enforceable
prepayment premium. Additionally, although the collateral substitution
provisions related to defeasance do not have the same effect on the
certificateholders as prepayment, we cannot assure you that a court would not
interpret those provisions as requiring a prepayment premium. In certain
jurisdictions those collateral substitution provisions might therefore be deemed
unenforceable under applicable law, or usurious.
We also note the following with respect to prepayment premiums:
- Liquidation proceeds recovered in respect of any defaulted
loan will, in general, be applied to cover outstanding
servicing expenses and unpaid principal and interest prior
to being applied to cover any prepayment premium due in
connection with the liquidation of such loan.
- The Special Servicer may waive a prepayment premium in
connection with obtaining a pay-off of a defaulted loan.
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<PAGE> 40
- No prepayment premium will be payable in connection with any
repurchase of a loan by either loan seller for a material
breach of representation or warranty on the part of either
loan seller, or any failure to deliver documentation
relating thereto.
- No prepayment premium will be payable in connection with the
purchase of all of the loans and any REO properties by the
Master Servicer or any holder or holders of certificates
evidencing a majority interest in the controlling class in
connection with the termination of the trust.
- No prepayment premium will be payable in connection with the
purchase of defaulted loans by the Master Servicer, Special
Servicer or any holder or holders of certificates evidencing
a majority interest in the controlling class.
- With respect to the Credit Lease Loans, no prepayment
premium is paid in the event of a payment under a Lease
Enhancement Policy, and any prepayment premium paid under an
Extended Amortization Policy is subject to a cap of 5% of
the balance of the Credit Lease Loan.
See "Servicing of the Loans -- Modifications, Waivers, Amendments and
Consents" in this prospectus supplement and "Certain Legal Aspects of
Loans -- Default Interest and Limitations on Prepayments" in the accompanying
prospectus. See "Description of the Loan Pool -- Assignment of the Loans;
Repurchases" and "-- Representations and Warranties; Repurchases", "Servicing of
the Loans -- Sale of Defaulted Loans" and "Description of the
Certificates -- Termination" in this prospectus supplement.
LIMITED INFORMATION
The information set forth in this prospectus supplement with respect to the
loans is derived principally from one or more of the following sources:
- A review of the available credit and legal files relating to
the loans.
- Inspections of the mortgaged properties undertaken by or on
behalf of NationsBank, N.A., with respect to the NationsBank
Mortgage Loans, and by or on behalf of Capital Lease
Funding, L.P., with respect to the Credit Lease Loans.
- Unaudited operating statements for the mortgaged properties
supplied by the borrowers.
- Appraisals for the mortgaged properties that generally were
performed at origination (which appraisals were used in
presenting information regarding the values of the mortgaged
properties as of the Cut-off Date under "Description of the
Loan Pool" and under Annex A for illustrative purposes
only).
- Information supplied by entities from which the loan sellers
acquired, or which currently service, certain of the loans.
Also, several loans constitute acquisition financing. Accordingly, limited
or no operating information is available with respect to the related mortgaged
property. Moreover, all of the loans were originated during the preceding 21
months and, consequently, there are limited payment histories with respect to
the loans.
LITIGATION
Certain borrowers and the principals of certain borrowers may have been
involved in bankruptcy or similar proceedings or have otherwise been parties to
real estate-related litigation.
There may also be other legal proceedings pending and, from time to time,
threatened against the borrowers and their affiliates relating to the business
of or arising out of the ordinary course of business of the borrowers and their
affiliates. We cannot assure you that such litigation will not have a material
adverse effect on the distributions to certificateholders.
OTHER RISKS
SEE "RISK FACTORS" IN THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF
CERTAIN OTHER RISKS AND SPECIAL CONSIDERATIONS THAT MAY BE APPLICABLE TO YOUR
CERTIFICATES AND THE LOANS.
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<PAGE> 41
DESCRIPTION OF THE LOAN POOL
GENERAL
The Loan Pool will consist of 128 conventional, commercial loans, one of
which is owned in the form of a participation interest in a commercial loan (the
"Loans") with an aggregate Cut-off Date Balance of $492,491,697, subject to a
variance of plus or minus 5%. See "Description of the Trust Funds" and "Certain
Legal Aspects of Mortgage Loans" in the accompanying prospectus. The "Cut-off
Date Balance" of each Loan is the unpaid principal balance thereof as of
February 15, 1999 (the "Cut-off Date"), after application of all payments of
principal due on or before such date, whether or not received. All numerical
information provided herein with respect to the Loans is provided on an
approximate basis. All weighted average information provided herein with respect
to the Loans reflects weighting by related Cut-off Date Balance. All percentages
of the Loan Pool, or of any specified sub-group thereof, referred to herein
without further description are approximate percentages by aggregate Cut-off
Date Balance.
One hundred and ten (110) of the loans (the "Credit Lease Loans"), which
represent 78.07% of the aggregate Cut-off Date Balance, were originated by
Capital Lease Funding, L.P. ("CLF"), pursuant to its Enhanced Lease Program.
These 110 Credit Lease Loans are backed by 35 different Credit Lease Tenants
with a weighted average credit rating from S&P of "A-" and from Moody's of
"Baa1". For a description of the Enhanced Lease Program, see Annex C of this
prospectus supplement. Eighteen (18) of the Loans (the "NationsBank Mortgage
Loans"), which represent 21.93% of the aggregate Cut-off Date Balance, were
originated by or on behalf of NationsBank, N.A., pursuant to its conduit
program. On or before the Delivery Date, the Loan Sellers will sell their
respective Loans to the Depositor and the Depositor will transfer all of the
Loans, without recourse, to the Trustee for the benefit of the
certificateholders. See "Description of the Loan Pool -- The Loan Sellers" and
"-- Assignment of the Loans; Repurchases" and "-- Representations and
Warranties; Repurchase" in this prospectus supplement.
Credit Lease Assignments. Each of the Credit Lease Loans is secured by an
assignment of leases and rents from the Credit Lease tenant ("Credit Lease
Assignment") and a first lien on a fee simple and/or leasehold interest in real
property. Pursuant to the terms of such assignment of leases and rents, the
borrowers have assigned to CLF, as security for their obligations, their
respective rights under the Credit Leases on the related mortgaged property, and
to all income and profits to be derived from the operation and leasing of such
mortgaged property, including, but not limited to, an assignment of any
guarantee of the Credit Lease tenant's obligations under the Credit Lease and an
assignment of the right to receive all monthly rental payments due under the
Credit Leases. Pursuant to the terms of the assignment of leases and rents, the
estoppel letters and applicable notices, each Credit Lease tenant is obligated
under the Credit Leases to make all monthly rental payments directly to the
Master Servicer. Repayment of the loans and other obligations of the borrowers
will be funded from such monthly rental payments. Notwithstanding the foregoing,
the borrowers remain liable for all obligations under the loans (subject to the
non-recourse provisions thereof).
In addition to the Credit Lease Assignments, pursuant to the terms of each
Credit Lease Loan, the borrower has undertaken certain contractual and
indemnification obligations with respect to the mortgaged property. The borrower
has certain obligations for the remediation of any hazardous materials on or
about the mortgaged property, and will be obligated to maintain the mortgaged
property in good repair. The borrower is also obligated to pay all real estate
taxes, assessments and other charges, not to transfer any interest in the
mortgaged property (except in certain circumstances in accordance with the terms
of the mortgage loans), to keep the mortgaged property free and clear of liens
and encumbrances not otherwise permitted by the mortgage, to maintain specified
levels of insurance on the mortgaged property (subject to the terms of the
Credit Lease, including the Credit Lease tenant's right in certain circumstances
to self-insure), and to comply with all laws and regulations affecting the
mortgaged property. To the extent that the Credit Lease tenant is obligated to
perform these obligations under the related Credit Lease, performance of these
obligations by the Credit Lease tenant will be accepted as performance of the
borrower's obligations under the Credit Lease Loan.
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Each Loan is evidenced by a promissory note (a "Note") and secured by a
mortgage, deed of trust or other similar security instrument (a "Mortgage") that
creates a first mortgage lien on a fee simple and/or leasehold interest in real
property (a "Mortgaged Property"). Each Mortgaged Property is improved by a
retail shopping mall or center, a franchise restaurant, an office building or
complex, a hotel, an industrial building, or a mobile home park.
Cross-collateralization. Each of 3 sets of Loans contains Loans (the
"Cross-Collateralized Loans") that are, solely as among such Loans in such
particular set, cross-defaulted and cross-collateralized with each other. The
largest set of related Cross-Collateralized Loans represents 1.87% of the
aggregate Cut-off Date Balance. Each of the Cross-Collateralized Loans is
evidenced by a separate Note and secured by a separate Mortgage, which Mortgage
contains provisions creating the relevant cross-collateralization and
cross-default arrangements. See Annex A hereto for information regarding the
Cross-Collateralized Loans and see "Risk Factors -- The Loans -- Limitations on
Enforceability of Cross-Collateralization" in this prospectus supplement.
Nonrecourse. In general, with limited exception, the Loans constitute
nonrecourse obligations of the related borrower. Upon any such borrower's
default in the payment of any amount due under the related Loan, the holder
thereof may look only to the related Mortgaged Property or Properties for
satisfaction of the borrower's obligation. In addition, in those cases where the
loan documents permit recourse to a borrower or guarantor, the Depositor has not
undertaken an evaluation of the financial condition of any such person, and
prospective investors should thus consider all of the Loans to be nonrecourse.
None of the Loans is insured or guaranteed by the United States, any
governmental entity or instrumentality, or any private mortgage insurer.
CERTAIN TERMS AND CONDITIONS OF THE LOANS
Due Dates. Each of the Loans provides for scheduled payments of principal
and interest ("Monthly Payments") to be due on the 15th day of the month, in the
case of the Credit Lease Loans, and on the first day of each month in the case
of the NationsBank Mortgage Loans (as to each such Loan, the "Due Date").
Loan Rates; Calculations of Interest. All of the Loans bear interest at a
rate per annum (a "Loan Rate") that is fixed for the remaining term of the Loan.
As of the Cut-off Date, the Loan Rates of the Loans ranged from 6.73% per annum
to 8.32% per annum, and the weighted average Loan Rate of the Loans was 7.48%.
No Loan permits negative amortization or the deferral of accrued interest.
14 Loans (the "Actual/360 Loans"), which represent 20.07% of the aggregate
Cut-off Date Balance, accrue interest on the basis of the actual number of days
elapsed in the relevant month of accrual and a 360-day year (an "Actual/360
Basis"). 114 Loans, to include all of the Credit Lease Loans (the "30/360
Loans"), which represent 79.93% of the aggregate Cut-off Date Balance, accrue
interest on the basis of a 360-day year consisting of twelve 30-day months (a
"30/360 Basis"). The total amount of the Monthly Payment for each Actual/360
Loan is determined as though the Loan accrued interest on a 30/360 Basis, and
the portion of such Monthly Payment allocated to interest is determined based on
interest accrued in the preceding month on an Actual/360 Basis with the balance
allocated to amortized principal. As a result, the full amortization term is
longer than would be the case if calculated on a 30/360 Basis, and the balloon
payment on any such Loan will be larger than would be the case if interest
accrued on a 30/360 Basis.
Amortization of Principal. Eleven of the Loans, which represent 9.82% of
the aggregate Cut-off Date Balance, provide for monthly payments of principal
based on amortization schedules significantly longer than the respective
remaining terms thereof, thereby leaving substantial principal amounts due and
payable (each such loan, a "Balloon Loan," and each such payment, together with
the corresponding interest payment, a "Balloon Payment") on their respective
maturity dates, unless prepaid prior thereto. 117 Loans, which represents 90.18%
of the aggregate Cut-off Date Balance, are fully amortizing loans. Of the 11
Balloon Loans in the trust, only one is a Credit Lease Loan, and it has the
benefit of an Extended Amortization Policy.
With respect to seven Credit Lease Loans, the term of the Credit Lease Loan
extends beyond the primary term of the related Credit Lease. Each such Credit
Lease Loan has the benefit of an Extended Amortization Policy which pays an
amount equal to the remaining monthly debt service payments on the
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Credit Lease Loan or pays an amount equal to the unpaid balance of the Credit
Lease Loan with accrued interest and other amounts described in the policy, in
each case if the mortgagor defaults in the payment of such amounts. See "The
Enhanced Lease Program -- The Extended Amortization Policies" in Annex C of this
prospectus supplement.
The original term to stated maturity of each Loan was between 133 and 306
months. The original amortization schedules of the Loans (calculated, in the
case of Actual/360 Loans on a 30/360 Basis for the purposes of the accrual of
interest) ranged from 133 to 360 months. As of the Cut-off Date, the remaining
terms to stated maturity of the Loans will range from 109 to 299 months, and the
weighted average remaining term to stated maturity of the Loans will be 225
months. As of the Cut-off Date, the remaining amortization terms of the Loans
(calculated on a 30/360 Basis for the accrual of interest) will range from 109
to 350 months, and the weighted average remaining amortization term (calculated
on a 30/360 Basis for purposes of the accrual of interest) of the Loans will be
237 months. See "Risk Factors -- Risks Related to the Loans -- Balloon Payments"
in this prospectus supplement.
Prepayment Provisions. The Loans provided as of origination for, a
sequence of three periods:
(1) a period (a "Lock-out Period") during which voluntary principal
prepayments are prohibited, followed by
(2) a period (a "Prepayment Premium Period") during which any
voluntary principal prepayment may be made in full or in part, subject to
certain limitations, if accompanied by a premium, penalty, or fee (a
"Prepayment Premium"), followed by
(3) in the case of the NationsBank Mortgage Loans, a period (an "Open
Period") during which voluntary principal prepayments may be made without
an accompanying Prepayment Premium.
Unless subject to defeasance, each Credit Lease Loan prohibits prepayment
of principal for a Lock-out Period of 8 years following the date of origination
of the Credit Lease Loan. Following such Lock-out Period, each Credit Lease Loan
requires payment of Prepayment Premium in an amount equal to (a) the present
value as of the date of prepayment of the remaining scheduled payments of
principal and interest from the date of prepayment through the maturity date of
the Credit Lease Loan determined by discounting such payments at a rate (which
when compounded monthly, is equivalent to the Treasury Rate, when compounded
semi-annually) less (b) the amount of principal being prepaid. The "Treasury
Rate" is the yield calculated by the linear interpolation of the yields, as
reported in Federal Reserve Statistical Release H.15 -- Selected Interest Rates
under the heading "U.S. Government Securities/Treasury Constant Maturities" for
the week ending prior to the prepayment date, of U.S. Treasury securities with
constant maturities (one longer and one shorter) most nearly approximating the
maturity date. Such Prepayment Premium is required in connection with any
voluntary prepayment following the Lock-Out Period, and any involuntary
prepayment due to default and acceleration or otherwise. However, in the event
of a prepayment due to a condemnation or a casualty no Prepayment Premium is
required to be paid by the borrower or the Enhancement Insurer. In addition, any
Prepayment Premium paid in connection with prepayments resulting from payment
under the Extended Amortization Policies is subject to a cap of 5% of the
outstanding balance of the related Credit Lease Loan. The requirement to pay
Prepayment Premiums applies through the maturity date of the Credit Lease Loans.
As of the Cut-off Date, the remaining Lock-out Periods ranged from 22
months to 228 months, with a weighted average remaining Lock-out Period of 85
months. As of the Cut-off Date, the Open Period for each NationsBank Mortgage
Loan ranged from 4 months to 6 months with a weighted average Open Period of
5.73 months. Prepayment Premiums on the NationsBank Mortgage Loans are generally
calculated either on the basis of a yield maintenance formula (subject, in
certain instances, to a minimum equal to a specified percentage of the principal
amount prepaid) or as a percentage (which may decline over time) of the
principal amount prepaid. The prepayment terms of each of the NationsBank
Mortgage Loans are more particularly described in Annex A to this prospectus
supplement.
As more fully described herein, Prepayment Premiums actually collected on
the Loans will be distributed to the respective Classes of Certificateholders in
the amounts and priorities described under "Description of the
Certificates -- Distributions on the Certificates -- Distributions of Prepayment
Premiums" herein. The
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Depositor makes no representation as to the enforceability of the provision of
any Loan requiring the payment of a Prepayment Premium or as to the
collectibility of any Prepayment Premium. See "Risk Factors -- Risks Related to
the Loans -- Prepayment Premiums" in this prospectus supplement and "Certain
Legal Aspects of Mortgage Loans -- Default Interest and Limitations on
Prepayments" in the accompanying prospectus.
Defeasance. Fifteen Loans, representing 13.44% of the aggregate Cut-off
Date Balance, permit the applicable borrower at any time after a specified
period (the "Defeasance Lock-Out Period"), which is at least two years from the
Delivery Date, provided no event of default exists, to obtain a release of a
Mortgaged Property from the lien of the related Mortgage (a "Defeasance
Option").The borrower must meet certain conditions in order to exercise its
Defeasance Option. Among other conditions the borrower must pay on any Due Date
(the "Release Date"):
(1) all interest accrued and unpaid on the principal balance of the
Note to and including the Release Date;
(2) all other sums, excluding scheduled interest or principal
payments, due under the Loan and all other loan documents executed in
connection therewith; and
(3) an amount (the "Collateral Substitution Deposit") that will be
sufficient to purchase direct non-callable obligations of the United States
of America providing payments (a) on or prior to, but as close as possible
to, all successive scheduled payment dates from the Release Date to the
related maturity date, (b) in amounts equal to the scheduled payments due
on such dates under the Loan or the defeased amount thereof in the case of
a partial defeasance and (c) any costs and expenses incurred in connection
with the purchase of such U.S. government obligations.
In addition, the borrower must deliver a security agreement granting the
trust a first priority lien on the Collateral Substitution Deposit and
generally, an opinion of counsel to such effect. Simultaneously with such
actions, the related Mortgaged Property will be released from the lien of the
Loan and the pledged U.S. government obligations (together with any Mortgaged
Property not released, in the case of a partial defeasance) will be substituted
as the collateral securing the Loan. In general, a successor borrower
established or designated pursuant to the related loan documents will assume all
of the defeased obligations of a borrower exercising a Defeasance Option under a
Loan and the borrower will be relieved of all of the defeased obligations
thereunder. If a Loan is partially defeased, the related Note will be split and
only the defeased portion of the borrower's obligations will be transferred to
the successor borrower.
The Depositor makes no representation as to the enforceability of the
defeasance provisions of any Loan. See "Risk Factors -- Risks Related to the
Certificates -- Yield Considerations" in this prospectus supplement.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. Substantially all of
the Loans contain both "due-on-sale" and "due-on-encumbrance" clauses that in
each case, subject to certain limited exceptions, permit the holder of the
Mortgage to accelerate the maturity of the related Loan if the borrower sells or
otherwise transfers or encumbers the related Mortgaged Property or prohibit the
borrower from doing so without consent of the holder of the Mortgage. Certain of
the Loans permit transfer of the related Mortgaged Property if certain specified
conditions are satisfied or if the transfer is to a borrower reasonably
acceptable to the lender. The Master Servicer or the Special Servicer, as
applicable, will determine, in a manner consistent with the servicing standard
described under "Servicing of the Loans -- General" and with the REMIC
Provisions, whether to exercise any right the holder of any Mortgage may have
under any such clause to accelerate payment of the related Loan upon, or to
withhold its consent to, any transfer or further encumbrance of the related
Mortgaged Property; provided, however, that neither the Master Servicer nor the
Special Servicer shall waive any right it has, or grant any consent that it may
otherwise withhold, under any related "due-on-sale" or "due-on-encumbrance"
clause unless it:
(1) shall have received written confirmation from each Rating Agency
that such action would not result in the qualification, downgrade or
withdrawal, as applicable, of the rating then assigned by such Rating
Agency to any class of certificates, such confirmation to be required in
the case of any waiver of rights under a related "due-on-sale" clause only
if the then-outstanding principal balance of the subject
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Loan (together with the then-outstanding aggregate principal balance of all
other Loans to the same borrower or borrowers that are, to the actual
knowledge of the Master Servicer, affiliated) or any group of
cross-collateralized loans exceeds 2% of the then-outstanding principal
balance of all of the Loans; and
(2) shall have provided, at least five days prior to the granting of
such waiver or consent, to any Directing Certificateholder and, in the case
of the Master Servicer, to the Special Servicer, written notice of the
matter and a written explanation of the surrounding circumstances and, upon
request made within such five-day period, shall have discussed the matter
with such Directing Certificateholder and, in the case of the Master
Servicer, with the Special Servicer.
See "The Pooling and Servicing Agreements -- Due-on-Sale and
Due-on-Encumbrance Provisions" and "Certain Legal Aspects of Mortgage
Loans -- Due-on-Sale and Due-on-Encumbrance Provisions" in the accompanying
prospectus.
SIGNIFICANT LOANS
General. 110 Credit Lease Loans represent approximately 78.07% of the
aggregate Cut-off Date Balance. Since the Credit Lease Loans are largely
nonrecourse obligations of the borrowers, the principal source of payment on the
Credit Lease Loans and, therefore, of a substantial portion of the distributions
on the offered certificates will be the monthly rental payments due from the
Credit Lease tenants under the Credit Leases. The monthly rental payments
required to be made by the Credit Lease tenants under the Credit Leases during a
Collection Period will be sufficient to pay in full the scheduled amounts to be
paid by the borrowers under the related Credit Lease Loans and to fund required
reserves.
CREDIT LEASE TENANT/GUARANTOR S&P CREDIT RATING
<TABLE>
<CAPTION>
CUMULATIVE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE % OF % OF AVERAGE WEIGHTED AVERAGE
TENANT/GUARANTOR CREDIT CREDIT LEASE CUT-OFF DATE CREDIT LEASE CREDIT LEASE ORIGINAL AVERAGE LOAN
RATING(1) LOANS BALANCE POOL POOL DSCR LTV RATIO RATE
- ----------------------- ------------ ------------ ------------ ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
AAA.................... 2 $2,172,069 0.56% 0.56% 1.00x 74.86% 7.410%
AA+................... 4 7,299,026 1.90% 2.46% 1.37x 80.77% 7.347%
AA.................... 8 25,580,378 6.65% 9.12% 1.01x 88.12% 7.076%
AA-................... 5 28,657,199 7.45% 16.57% 1.01x 90.91% 7.410%
A+.................... 8 23,556,073 6.13% 22.70% 1.06x 82.44% 7.114%
A(2).................. 36 129,354,943 33.64% 56.34% 1.06x 83.78% 7.522%
A-.................... 7 36,202,989 9.42% 65.76% 1.01x 88.40% 7.141%
BBB+.................. 24 64,407,035 16.75% 82.51% 1.05x 81.72% 7.403%
BBB................... 1 5,412,269 1.41% 83.92% 1.01x 84.57% 7.280%
BBB-.................. 5 9,587,874 2.49% 86.41% 1.01x 89.80% 7.517%
BB-................... 1 5,468,645 1.42% 87.83% 1.00x 77.02% 7.480%
Private(3)............ 9 46,772,781 12.17% 100.00% 1.04x 87.48% 8.027%
--- ------------ ------ ------ ----- ----- -----
110 $384,471,281 100.00% 100.00% 1.05x 85.02% 7.456%
=== ============ ====== ====== ===== ===== =====
</TABLE>
- ---------------
(1) Based on the long-term debt rating from S&P. In the case of Home Depot
U.S.A., Inc. ("AA-"), Hanson North America, Inc. ("A") and American Drug
Stores, Inc. ("BBB+"), the rating shown is the rating of the respective
parent company.
(2) "A" is the financial strength rating for Blue Cross.
(3) These credits do not carry public ratings from S&P. However, each has
received a "Ratings Estimate" from S&P (or has a confidential private
rating) indicating that (with a single exception) the credit meets
parameters consistent with an investment grade rating, or it has received an
internal private classification from DCR based solely on their analysis of
financial ratios, indicating that the corporation meets parameters
consistent with "BBB-" or better (with one exception). DCR's internal
analysis of the company's credit is based solely on publicly available
information and does not include, among other things, a review of
projections or interaction with senior management of the company. See
"Additional Credit Ratings Information" at Annex D of this prospectus
supplement.
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<PAGE> 46
CREDIT LEASE TENANTS
<TABLE>
<CAPTION>
AGGREGATE WEIGHTED
NUMBER OF CUT-OFF % OF AVERAGE
S&P CREDIT MOODY'S CREDIT CREDIT LEASE DATE CREDIT LEASE % OF ORIGINAL
TENANT/GUARANTOR RATING(1) RATING(4) LOANS BALANCE POOL LOAN POOL DSCR
- ---------------- ---------- -------------- ------------ ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Rite Aid Corporation.............. BBB+ Baa1 21 $36,920,079 9.60% 7.50 % 1.07
CVS Corporation................... A A3 16 35,380,819 9.20% 7.18% 1.07
Koninklijke Ahold, N.V............ A A3 4 31,894,014 8.30% 6.48% 1.10
Home Depot U.S.A., Inc............ AA- Not Rated(5) 3 25,442,099 6.62% 5.17% 1.00
Eckerd Corporation................ A Baa1 12 25,103,857 6.53% 5.10% 1.04
Walgreen Co....................... A+ Aa3 8 23,556,073 6.13% 4.78% 1.06
Circuit City Stores, Inc.......... Private(3) Not Rated 3 20,416,637 5.31% 4.15% 1.05
CareGroup, Inc.................... BBB+ Baa1 1 19,888,048 5.17% 4.04% 1.03
Blue Cross and Blue Shield of
Texas........................... A(2) Not Rated 1 19,614,898 5.10% 3.98% 1.00
Wal-Mart Stores, Inc.............. AA Aa2 2 18,727,630 4.87% 3.80% 1.01
Food Lion, Inc.................... A- A3 3 17,377,460 4.52% 3.53% 1.00
Georgia Baptist Health Care
System.......................... Private(3) Not Rated 1 12,063,666 3.14% 2.45% 1.00
KeyBank National Association...... A Aa3 1 10,630,221 2.76% 2.16% 1.01
The Pep Boys - Manny, Moe &
Jack............................ BBB- Baa3 5 9,587,874 2.49% 1.95% 1.01
John H. Harland Company........... Private(3) Not Rated 1 9,438,111 2.45% 1.92% 1.03
Wegmans Food Markets, Inc......... A- Not Rated 1 8,234,242 2.14% 1.67% 1.00
McDonald's Corporation............ AA Aa2 5 5,518,013 1.44% 1.12% 1.01
The TJX Companies, Inc............ A- A3 1 5,494,357 1.43% 1.12% 1.05
MedPartners, Inc.................. BB- B3 1 5,468,645 1.42% 1.11% 1.00
Riggs Bank, N.A................... BBB Baa2 1 5,412,269 1.41% 1.10% 1.01
Hanson North America, Inc......... A Not Rated(5) 1 5,327,027 1.39% 1.08% 1.04
WellPoint Health Networks, Inc.... BBB+ Baa3 1 4,524,753 1.18% 0.92% 1.00
State of New Jersey............... AA+ Aa1 1 3,859,390 1.00% 0.78% 1.69
Tandy Corporation................. A- Baa1 1 3,758,750 0.98% 0.76% 1.03
Amoco Oil Company................. AA+ Not Rated(5) 3 3,439,636 0.89% 0.70% 1.01
American Drug Stores, Inc......... BBB+ Not Rated(5) 1 3,074,155 0.80% 0.62% 1.04
Bridgestone/Firestone, Inc........ Private(3) Not Rated 2 2,219,915 0.58% 0.45% 1.08
Exxon Corporation................. AAA Aaa 2 2,172,069 0.56% 0.44% 1.00
The Chase Manhattan Bank.......... AA- Aa2 1 2,009,949 0.52% 0.41% 1.10
Hannaford Bros. Co................ Private(3) Not Rated 1 1,725,738 0.45% 0.35% 1.00
Boston Gas Company................ A A2 1 1,404,108 0.37% 0.29% 1.13
Sears, Roebuck & Co............... A- A2 1 1,338,180 0.35% 0.27% 1.00
Mobil Oil Corporation............. AA Not Rated(5) 1 1,334,735 0.35% 0.27% 1.00
NationsBank, N.A.................. AA- Aa1 1 1,205,151 0.31% 0.24% 1.00
United States Postal Service...... Private(3) Not Rated 1 908,714 0.24% 0.18% 1.08
--- ------------ ------ ----- ----
110 $384,471,281 100.00% 78.07% 1.05
=== ============ ====== ===== ====
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED AVERAGE
TENANT/GUARANTOR LTV RATIO LOAN RATE
- ---------------- --------- ----------------
<S> <C> <C>
Rite Aid Corporation.............. 80.50% 7.58%
CVS Corporation................... 84.07% 7.62%
Koninklijke Ahold, N.V............ 86.03% 7.35%
Home Depot U.S.A., Inc............ 92.85% 7.44%
Eckerd Corporation................ 89.30% 7.37%
Walgreen Co....................... 82.44% 7.11%
Circuit City Stores, Inc.......... 86.33% 8.04%
CareGroup, Inc.................... 84.27% 7.25%
Blue Cross and Blue Shield of
Texas........................... 75.40% 7.98%
Wal-Mart Stores, Inc.............. 92.96% 7.04%
Food Lion, Inc.................... 101.50% 6.76%
Georgia Baptist Health Care
System.......................... 89.63% 8.16%
KeyBank National Association...... 75.42% 7.25%
The Pep Boys - Manny, Moe &
Jack............................ 89.80% 7.52%
John H. Harland Company........... 90.10% 8.03%
Wegmans Food Markets, Inc......... 80.97% 7.50%
McDonald's Corporation............ 75.06% 7.24%
The TJX Companies, Inc............ 73.26% 7.58%
MedPartners, Inc.................. 77.02% 7.48%
Riggs Bank, N.A................... 84.57% 7.28%
Hanson North America, Inc......... 94.53% 7.47%
WellPoint Health Networks, Inc.... 76.69% 6.73%
State of New Jersey............... 72.68% 7.54%
Tandy Corporation................. 66.70% 7.50%
Amoco Oil Company................. 89.84% 7.13%
American Drug Stores, Inc......... 87.21% 7.31%
Bridgestone/Firestone, Inc........ 84.31% 7.93%
Exxon Corporation................. 74.86% 7.41%
The Chase Manhattan Bank.......... 69.31% 7.40%
Hannaford Bros. Co................ 77.91% 7.48%
Boston Gas Company................ 66.55% 7.29%
Sears, Roebuck & Co............... 87.18% 7.06%
Mobil Oil Corporation............. 74.15% 6.95%
NationsBank, N.A.................. 86.08% 6.86%
United States Postal Service...... 83.37% 7.17%
------ ----
85.02% 7.46%
====== ====
</TABLE>
S-44
<PAGE> 47
Credit Lease Tenants Table -- Footnotes. With respect to (1), (2) and (3),
see page S-43 for explanatory footnotes. With respect to (4), the rating shown
is for senior unsecured debt except for Eckerd Corporation (senior subordinate),
CareGroup, Inc. (senior secured), Riggs Bank, N.A. (long-term issuer), State of
New Jersey (general obligations), and Exxon Corporation (long-term issuer);
credits shown as "Not Rated" do not carry public ratings from Moody's; however,
Moody's has developed internal credit evaluations of these entities for the sole
purpose of rating this transaction. With respect to (5), the rating of the
respective parent company is "A1" (subordinate debt), in the case of Home Depot,
Inc.; "A3" (senior unsecured), in the case of Hanson PLC; "Aa1" (senior
unsecured), in the case of Amoco Corporation; "Baa2" (long-term issuer
unsecured -- on watch for possible upgrade), in the case of American Stores,
Inc.; and "Aa2" (senior unsecured -- on watch for possible upgrade), in the case
of Mobil Corporation.
CREDIT LEASE TYPE
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AGGREGATE % OF AVERAGE WEIGHTED WEIGHTED
CREDIT LEASE CUT-OFF DATE CREDIT LEASE ORIGINAL AVERAGE AVERAGE
LOANS BALANCE POOL DSCR LTV RATIO LOAN RATE
LEASE TYPE ------------ ------------ ------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bond-Type Lease............... 9 $85,705,054 22.29% 1.01x 92.24% 7.477%
Triple Net Lease.............. 42 $158,105,930 41.12% 1.04x 84.93% 7.406%
Double Net Lease.............. 59 $140,660,298 36.59% 1.08x 80.72% 7.500%
--- ------------ ------ ---- ----- -----
110 $384,471,281 100.00% 1.05x 85.02% 7.456%
</TABLE>
PRIMARY INDUSTRY OF THE CREDIT LEASE TENANTS
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AGGREGATE % OF AVERAGE WEIGHTED WEIGHTED
CREDIT LEASE CUT-OFF CREDIT LEASE ORIGINAL AVERAGE AVERAGE
LOANS DATE BALANCE POOL DSCR LTV RATIO LOAN RATE
TENANT/GUARANTOR INDUSTRY ------------ ------------ ------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Retail Drug................... 58 $124,034,983 32.26% 1.06x 83.83% 7.454%
Healthcare Services........... 5 61,560,009 16.01% 1.01x 81.29% 7.643%
Retail Grocery................ 9 59,231,454 15.41% 1.05x 89.63% 7.204%
Retail Building Materials..... 4 30,769,126 8.00% 1.01x 93.14% 7.443%
Retail Electronics............ 4 24,175,387 6.29% 1.05x 83.28% 7.957%
Banking....................... 4 19,257,590 5.01% 1.02x 78.02% 7.250%
Retail Discount & General
Merchandise................. 2 18,727,630 4.87% 1.01x 92.96% 7.037%
Automotive.................... 7 11,807,789 3.07% 1.02x 88.77% 7.594%
Printing...................... 1 9,438,111 2.45% 1.03x 90.10% 8.030%
Energy........................ 7 8,350,548 2.17% 1.03x 79.52% 7.201%
Food Service.................. 5 5,518,013 1.44% 1.01x 75.06% 7.238%
Retail Apparel................ 1 5,494,357 1.43% 1.05x 73.26% 7.580%
Government.................... 1 3,859,390 1.00% 1.69x 72.68% 7.540%
Department Stores............. 1 1,338,180 0.35% 1.00x 87.18% 7.060%
Post Office................... 1 908,714 0.24% 1.08x 83.37% 7.170%
--- ------------ ------ ---- ----- -----
110 $384,471,281 100.00% 1.05x 85.02% 7.456%
=== ============ ====== ==== ===== =====
</TABLE>
- ---------------
* Several of the Credit Lease tenants may be involved in more than one primary
business. The above table reflects the primary revenue source for the
respective Credit Lease tenants. In certain instances the Credit Lease tenant
may not be operating its primary business at the mortgaged property indicated
in the foregoing table.
Credit Lease Loans. Each of the following six Credit Lease Loans, or group
of related Credit Lease Loans (other than the Blue Cross Participation),
represents at least 5.10% of the aggregate Cut-off Date Balance. The following
information with respect to the five largest Credit Lease tenants by aggregate
Cut-off Date Balance has been prepared on the basis of publicly available
information as described below. The Depositor makes no representations with
respect to the accuracy of such information nor does it purport to be a complete
description of the operations or condition of each respective Credit Lease
tenant.
S-45
<PAGE> 48
The Rite Aid Loans and Credit Leases. Twenty-one Credit Lease Loans (the
"Rite Aid Loans"), having an aggregate Cut-off Date Balance of $36,920,079, and
constituting 9.60% of the aggregate Cut-off Date Balance of the Credit Lease
Loans and 7.50% of the aggregate Cut-off Date Balance, are secured by Credit
Leases (the "Rite Aid Credit Leases") having Rite Aid Corporation ("Rite Aid")
as the Credit Lease tenant or, if not the Credit Lease tenant, as the guarantor.
The long-term debt ratings of Rite Aid's obligations are "BBB+" by S&P and
"Baal" by Moody's. Rite Aid's rating is currently on "negative outlook" by S&P.
The Rite Aid Loans bear interest at fixed rates ranging from 6.90% to 8.01% per
annum. Except in connection with the tenant's exercise of a Casualty or
Condemnation Termination or Abatement Right (in which event no Prepayment
Premium is required unless there is a default under the Rite Aid Loans), the
Rite Aid Loans have remaining Lock-out Periods ranging from October 31, 2004
through July 12, 2006, and thereafter require payment of a Prepayment Premium
based on remaining scheduled principal and interest payments through the
maturity of each Rite Aid Loan.
Rite Aid is a Delaware corporation operating a chain of retail drugstores
in the United States. As of June 30, 1998, Rite Aid operated 4,010 drugstores in
21 states and the District of Columbia. Rite Aid is in the process of replacing
300 smaller stores with larger, more modern facilities and plans to open an
additional 200 stores over the next year.
Rite Aid's common stock trades on the New York Stock Exchange ("NYSE")
under the symbol "RAD," and its World Wide Web site is located at
http://www.riteaid.com.
The following information with respect to Rite Aid was obtained from Rite
Aid's 1997 annual report on Form 10-K for the fiscal year ended March 1, 1998
and Form 10-Q for the 39 weeks ended November 28, 1998:
<TABLE>
<CAPTION>
39 WEEKS ENDED YEAR ENDED YEAR ENDED
RITE AID (IN MILLIONS) NOVEMBER 28, 1998 FEBRUARY 28, 1998 MARCH 1, 1997
- ---------------------- ----------------- ----------------- -------------
<S> <C> <C> <C>
Net Sales................................. $9,166.6 $11,375.1 $6,970.2
Operating (Loss) Profit................... $269.9 $689.8 $355.4
Net (Loss) Profit......................... $85.0 $316.4 $115.4
Total Assets.............................. $8,259.2 $7,655.3 $6,417.0
Total Shareholders' Equity................ $2,925.2 $2,916.5 $2,488.7
</TABLE>
Eighteen of the Rite Aid Credit Leases contain Casualty or Condemnation
Termination or Abatement Rights. The risk associated with such Casualty or
Condemnation Termination or Abatement Rights has been mitigated by a Lease
Enhancement Policy. See "The Enhanced Lease Program -- The Lease Enhancement
Policies" in Annex C of this prospectus supplement. Seventeen of the Rite Aid
Credit Leases contain Maintenance Termination or Abatement Rights limited to
roof and structural building maintenance and maintenance for areas such as
parking areas and driveways. The risk associated with such Maintenance
Termination and Abatement Rights is mitigated by Borrower Protective Actions,
the Borrower Reserve Fund, the Expense Reserve Fund and Servicer Protective
Actions. See "The Enhanced Lease Program -- Borrower Protective
Actions -- Servicer Protective Actions" in Annex C of this prospectus
supplement. The Rite Aid Credit Leases include Additional Termination or
Abatement Rights. The Borrower's obligations generally include restoration of
the Mortgaged Property after casualty or condemnation; the obligation to remove
hazardous waste (other than hazardous waste introduced by the tenant); keeping
the Mortgaged Property free from mechanics' liens; regulations relating to the
borrower's maintenance obligations; certain miscellaneous obligations such as
the obligations to comply with or to cause compliance with restrictive use
covenants affecting property owned directly or indirectly by the borrower in the
area of the Mortgaged Property; and the obligation to comply or cause compliance
with the laws regulating the Mortgaged Property or common areas related to the
Mortgaged Property. The risk associated with these Additional Termination and
Abatement Rights is mitigated by Borrower Protective Actions, the Borrower
Reserve Fund, the Expense Reserve Fund and Servicer Protective Actions. See "The
Enhanced Lease Program -- Borrower Protective Actions -- Servicer Protective
Actions" in Annex C of this prospectus supplement. In addition, the Rite Aid
Tenants are obligated under the Rite Aid Credit Lease to pay the cost of hazard
insurance.
S-46
<PAGE> 49
The Rite Aid Loans are each secured by a fee mortgage on (except in the
case of the Rite Aid Loan in Old Forge, Pennsylvania, a leasehold mortgage)
retail stores in Pittstown, Pennsylvania; Wytheville, Virginia; Reidsville,
North Carolina; Ridgewood, New York; Saginaw Township, Michigan; Tonawanda, New
York; Union Springs, Alabama; Moscow, Pennsylvania; Washington, D.C.;
Pearisburg, Virginia; Utica, Michigan; Kalkaska, Michigan; Howell, Michigan;
Pulaski, Virginia; Flint, Michigan; Elmira, New York; Castle Shannon,
Pennsylvania; Buffalo, New York; Bridgeport, Michigan; and Manchester, Georgia.
The CVS Loans and Credit Leases. Sixteen Credit Lease Loans (the "CVS
Loans"), having an aggregate Cut-off Date Balance of $35,380,819 and
constituting 9.20% of the aggregate Cut-off Date Balance of the Credit Lease
Loans and 7.18% of the aggregate Cut-off Date Balance are secured by Credit
Leases (the "CVS Credit Leases") which are guaranteed by CVS Corporation
("CVS"). The long-term debt obligations of CVS are rated "A" by S&P and "A3" by
Moody's. The CVS Loans bear interest at fixed rates ranging from 7.30% to 8.20%
per annum. Except in connection with the tenant's exercise of a Casualty or
Condemnation Termination or Abatement Right (in which event no Prepayment
Premium is required unless there is a default under the CVS Loans), the CVS
Loans have remaining Lock-out Periods ranging from February 2, 2005 to March 14,
2006, and thereafter requires payment of a Prepayment Premium based on remaining
scheduled principal and interest payments through the maturity of each CVS Loan.
CVS is the leading drug store chain in the Northeast, Mid-Atlantic,
Southeast and Midwest regions. They are in the final stages of converting the
remaining CVS Revco stores to the CVS brand, and as of the end of August 1998,
CVS operated 4,071 stores in 24 states and the District of Columbia.
CVS's stock trades on the NYSE under the symbol "CVS," and its World Wide
Web site is located at http://www.cvs.com.
The following information with respect to CVS was obtained from CVS's 1997
annual report on Form 10-K for the fiscal year ended December 31, 1997 and Form
10-Q for the nine months ended September 26, 1998:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
CVS (IN MILLIONS) SEPTEMBER 26, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Net Sales............................ $11,082.5 $12,738.2 $10,944.8
Operating (Loss) Profit.............. $505.1 $199.8 $540.8
Net (Loss) Profit.................... $250.6 $37.7 $176.6
Total Assets......................... $6,510.0 $5,636.9 $5,693.7
Total Shareholders' Equity........... $2,972.3 $2,361.4 $2,196.4
</TABLE>
The CVS Loans are each secured by a fee mortgage on (except in the case of
the CVS Loans in Rochester (Monroe St.), New York and North Babylon, New York,
each a leasehold mortgage) on retail stores in Rochester (Elmwood Ave.), New
York; Easthampton, Massachusetts; Dedham, Massachusetts; Medford, Massachusetts;
East Rockaway, New York; Braintree, Massachusetts (Linens 'N Things); Little
Rock, Arkansas (Linens 'N Things); Clarksville, Tennessee; Randolph,
Massachusetts; Binghamton, New York; Philadelphia, Pennsylvania; Dublin,
Virginia; Richmond, Virginia; and Richmond (Church Road), Virginia. The
obligations of the CVS Tenants under the CVS Credit Leases are guaranteed by
CVS.
With the exception of the CVS Credit Lease in Braintree, Massachusetts,
which is a Bond-Type Lease, the CVS Credit Leases contain Casualty or
Condemnation Termination or Abatement Rights. The risk associated with such
Casualty or Condemnation Termination or Abatement Rights has been mitigated by a
Lease Enhancement Policy. See "The Enhanced Lease Program -- The Lease
Enhancement Policies" in Annex C of this prospectus supplement. The CVS Credit
Leases generally contain Maintenance Termination or Abatement Rights limited to
roof and structural building maintenance and maintenance for areas such as
parking areas and driveways. The risk associated with such Maintenance
Termination and Abatement Rights is mitigated by Borrower Protective Actions,
the Borrower Reserve Fund, the Expense Reserve Fund and Servicer Protective
Actions. See "The Enhanced Lease Program -- Borrower Protective
Actions -- Servicer Protective Actions" in Annex C of this prospectus
supplement. The CVS Credit Leases include Additional Termination or Abatement
Rights. The borrower's obligations generally include restoration of the
commercial
S-47
<PAGE> 50
property after casualty or condemnation; the obligation to remove hazardous
waste (other than hazardous waste introduced by the Tenant); keeping the
commercial property free from mechanics' liens; regulations relating to the
borrower's maintenance obligations; certain miscellaneous obligations such as
the obligations to maintain a certain number of parking spaces and to comply
with or to cause compliance with restrictive use covenants affecting property
owned directly or indirectly by the borrower in the area of the commercial
property; and the obligation to comply or cause compliance with laws regulating
the commercial property or common areas related to the commercial property. The
risk associated with these Additional Termination and Abatement Rights is
mitigated by Borrower Protective Actions, the Borrower Reserve Fund, the Expense
Reserve Fund and Servicer Protective Actions. See "The Enhanced Lease
Program -- Borrower Protective Actions "and" -- Servicer Protective Actions" in
Annex C of this prospectus supplement. In addition, the CVS Tenants are
obligated under the CVS Credit Lease to pay the cost of hazard insurance.
The risk associated with such Additional Termination or Abatement Rights
has been mitigated by Borrower Protective Actions and Servicer Protective
Actions. In the performance of the Borrower Protective Actions and Servicer
Protective Actions, the borrower and the Master Servicer will have as a source
of funds the excess monthly cash flow on the related Loan, the Borrower Reserve
Fund and (in the case of the Master Servicer) the Expense Reserve Fund. See "The
Enhanced Lease Program -- Borrower Protective Actions and Servicer Protective
Actions" in Annex C of this prospectus supplement. Furthermore, there is a
strong incentive for the borrowers and their respective principal not to breach
such use and exclusivity restrictions or parking layout restrictions since such
a breach would result in full recourse to the borrowers and, pursuant to a
guarantee, to the principal of the borrower, for damages in connection with such
breach. Pursuant to the subordination and non-disturbance agreement between the
CVS Tenants and CLF, the CVS Tenants have agreed to provide the Master Servicer
or the Special Servicer, as applicable, with all notices, to include notice
prior to the exercise of any such Additional Termination or Abatement Rights,
and to give the Master Servicer or the Special Servicer, as applicable, a
reasonable opportunity to cure the borrower's breach.
The Royal Ahold Loans and Credit Leases. Four Loans (the "Royal Ahold
Loans"), having an aggregate Cut-off Date Balance of $31,894,014 and
constituting 8.30% of the aggregate Cut-off Date Balance of the Credit Lease
Loans and 6.48% of the aggregate Cut-off Date Balance, are secured by Credit
Leases (the "Royal Ahold Credit Leases") having Stop & Shop and in the case of
the Royal Ahold Credit Lease in Howland, Ohio, Finast and Revco D.S., Inc. as
tenants. The obligations of each tenant under the Royal Ahold Credit Leases are
guaranteed by Koninklijke Ahold NV ("Royal Ahold"). The long-term debt
obligations of Royal Ahold are rated "A" by S&P and "A3" by Moody's. The Royal
Ahold Loans bear interest at fixed rates ranging from 7.02% to 7.80% per annum.
Except in connection with the tenant's exercise of a Casualty or Condemnation
Termination or Abatement Right (in which event no Prepayment Premium is required
unless there is a default under the relevant Royal Ahold Loan), the Royal Ahold
Loans have remaining Lock-out Periods ranging from October 15, 2005 through June
24, 2006, and thereafter requires payment of a Prepayment Premium based on
remaining scheduled principal and interest payments through the maturity of each
Royal Ahold Loan.
Royal Ahold (Koninklijke Ahold NV) is a Netherlands corporation, and a
leading international food retailer with major operations in the United States,
The Netherlands and elsewhere in Europe, and the Asia Pacific region. Royal
Ahold is one of the top supermarket operators in the United States with
annualized sales of $14 billion. In the United States, Royal Ahold owns the
supermarket chains BI-LO, Giant Food Stores, Edwards, Finast, Tops, and Stop &
Shop. The company employs over 195,000 people worldwide. As of December 31,
1997, Royal Ahold operated approximately 830 retail food stores in 14 states
throughout the United States. In addition to its listing on the New York Stock
Exchange, it is also listed on the Zurich Stock Exchange, and on the Brussels
Stock Exchange.
Royal Ahold's stock trades on the NYSE under the symbol "AHO." The World
Wide Web site for Royal Ahold can be found at http://www.ahold.nl.
S-48
<PAGE> 51
The following information with respect to Royal Ahold was obtained from
Royal Ahold's 1996 and 1997 annual reports, and its third quarter 1998 earnings
release:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
ROYAL AHOLD (IN MILLIONS) OCTOBER 4, 1998 DECEMBER 28, 1997 DECEMBER 29, 1996
------------------------- --------------- ----------------- -----------------
<S> <C> <C> <C>
Net Sales....................................... $22,611.7 $25,271.6 $21,512.0
Operating (Loss) Profit......................... $836.3 $918.0 $731.7
Net (Loss) Profit............................... $446.1 $466.7 $372.3
Total Assets.................................... $12,675.5 $9,414.9 $8,502.0
Total Shareholders' Equity...................... $4,252.7 $1,543.8 $1,381.9
</TABLE>
* 1.8400, 2.0010, and 1.7490 NLG/US$ exchange rates were used to derive 1998,
1997 and 1996 balance sheet items, respectively. 1.8400, 2.0010, and 1.6985
NLG/US$ average exchange rates were used to derive 1998, 1997 and 1996
year-to-date income statement items, respectively. Total Shareholders' Equity
calculation includes minority interest.
The Royal Ahold Loans are each secured by a fee mortgage on grocery stores
in Chelmsford, Massachusetts, Mansfield, Massachusetts, White Plains, New York
and Howland, Ohio. Each is guaranteed by Royal Ahold under the Royal Ahold
Credit Leases, which Royal Ahold Credit Leases are Triple Net Leases, or in the
case of the Royal Ahold Loan in White Plains, New York, a Bond-Type Lease.
Construction on the related Mortgaged Properties in the case of the Chelmsford
and White Plains Royal Ahold Loans has not begun yet, but in both cases the
Credit Lease tenant is fully obligated to make monthly rental payments.
Three of the Royal Ahold Loans contain varying Additional Termination or
Abatement rights. The risks associated with these Additional Termination or
Abatement Rights are mitigated by Borrower Protective Actions, the Borrower
Reserve Fund, the Expense Reserve Fund and Servicer Protective Actions. See "The
Enhanced Lease Program -- Borrower Protective Actions -- Servicer Protective
Actions" in Annex C of this prospectus supplement. Three of the Royal Ahold
Loans also contain varying Casualty or Condemnation Termination or Abatement
Rights. The risks associated with such Casualty or Condemnation Termination or
Abatement Rights are mitigated by Lease Enhancement Policies. See "The Enhanced
Lease Program -- The Lease Enhancement Policies" in Annex C of this prospectus
supplement. Sixteen percent of the Mortgaged Property subject to the Royal Ahold
Loan in Howland, Ohio, is subject to a Credit Lease with Revco D.S., Inc. as the
tenant. The Revco Credit Lease contain certain Maintenance Termination or
Abatement Rights. The risks associated with such Maintenance Termination or
Abatement Rights are mitigated by Borrower Protective Actions, the Borrower
Reserve Fund, the Expense Reserve Fund and Servicer Protective Actions. See "The
Enhanced Lease Program" in Annex C of this prospectus supplement.
The Home Depot Loans and Credit Leases. Three Loans (the "Home Depot
Loans"), having an aggregate Cut-off Date Balance of $25,442,099 and
constituting 6.62% of the aggregate Cut-off Date Balance of the Credit Lease
Loans and 5.17% of the aggregate Cut-off Date Balance, are secured by Credit
Leases (the "Home Depot Credit Leases") having Home Depot USA, Inc. ("Home
Depot") as the Credit Lease tenant. Home Depot is the primary domestic operating
subsidiary of Home Depot, Inc. While Home Depot does not have any long-term debt
obligations which are rated, the long-term debt obligations of Home Depot, Inc.
are rated "AA-" by S&P and "A1" (subordinate) by Moody's. The Home Depot Loans
bear interest at fixed rates ranging from 6.98% to 7.80% per annum. Except in
connection with any tenant's exercise of a Casualty or Condemnation Termination
or Abatement Right (in which event no Prepayment Premium is required unless
there is a default under the relevant Home Depot Loan), the Home Depot Loans
have remaining Lock-out Periods ranging from March 14, 2005 through August 6,
2006, and thereafter require payment of a Prepayment Premium. The Home Depot
Loans are each secured by a fee mortgage on retail stores in Bel Air, Maryland
and Charleston, South Carolina; and a regional retail, distribution and office
center in Dallas, Texas. Each is leased to or guaranteed by Home Depot USA, Inc.
under the Home Depot Credit Leases, which Home Depot Credit Leases are Triple
Net Leases.
Home Depot is a Delaware corporation, and the nation's leading retailer in
the home improvement industry. As of June 30, 1998, Home Depot operated 679
stores in the United States and Canada. Home
S-49
<PAGE> 52
Depot ranks among the 10 largest retailers in the United States based on net
sales volume. It has been named America's most admired specialty retailer by
Fortune Magazine for five consecutive years.
Home Depot, Inc.'s stock trades on the NYSE under the symbol "HD," and its
World Wide Web site is located at http://www.homedepot.com.
The following information with respect to Home Depot, Inc. was obtained
from Home Depot, Inc.'s 1997 annual report on Form 10-K for the fiscal year
ended February 1, 1998 and Form 10-Q for the six months ended August 2, 1998:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
HOME DEPOT (IN MILLIONS) NOVEMBER 1, 1998 FEBRUARY 1, 1998 FEBRUARY 2, 1997
------------------------ ----------------- ---------------- ----------------
<S> <C> <C> <C>
Net Sales............................... $22,961 $24,156 $19,535
Operating (Loss) Profit................. $1,975 $1,912 $1,534
Net (Loss) Profit....................... $1,196 $1,160 $938
Total Assets............................ $13,324 $11,229 $9,342
Total Shareholders' Equity.............. $8,316 $7,098 $5,955
</TABLE>
The Home Depot Loans contain varying Additional Termination or Abatement
Rights. The risks associated with these Additional Termination or Abatement
Rights have been mitigated by Borrower Protective Actions, the Borrower Reserve
Fund, the Expense Reserve Fund and Servicer Protective Actions. See "The
Enhanced Lease Program -- Borrower Protective Actions -- Servicer Protective
Actions" in Annex C of this prospectus supplement. The Home Depot Loans also
contain varying Casualty or Condemnation Termination or Abatement Rights. The
risks associated with such Casualty or Condemnation Termination or Abatement
Rights have been mitigated by Lease Enhancement Policies. See "The Enhanced
Lease Program -- The Lease Enhancement Policies" in Annex C of this prospectus
supplement.
The Eckerd Loans and Credit Leases. Twelve Loans (the "Eckerd Loans"),
having an aggregate Cut-off Date Balance of $25,103,857 and constituting 6.53%
of the aggregate Cut-off Date Balance of the Credit Lease Loans and 5.10% of the
aggregate Cut-off Date Balance, are secured by Credit Leases (the "Eckerd Credit
Leases") having Eckerd Corporation ("Eckerd") as the Credit Lease tenant, or if
not the Credit Lease tenant, as the guarantor. The long-term debt obligations of
Eckerd are rated "A" by S&P and "Baa1" (senior subordinate) by Moody's. Eckerd's
rating is currently on "negative watch" by S&P and on watch for possible
downgrade by Moody's. The Eckerd Loans bear interest at fixed rates ranging from
7.02% to 7.79% per annum. Except in connection with the tenant's exercise of a
Casualty or Condemnation Termination or Abatement Right (in which event no
Prepayment Premium is required unless there is a default under the relevant
Eckerd Loan), the Eckerd Loans have remaining Lock-out-Periods ranging from
December 15, 2005 through October 12, 2006, and thereafter requires payment of a
Prepayment Premium based on remaining scheduled principal and interest payments
through the maturity of each Eckerd Loan.
Eckerd was founded in 1898 in Erie, Pennsylvania and has grown to become
one of the nation's leading drug store chains. Eckerd currently operates
approximately 2,750 drug stores in 19 states. In 1997, Eckerd merged with J.C.
Penney Company, Inc. ("J.C. Penney") and is now a wholly owned subsidiary of
J.C. Penney. The long-term debt obligations of J.C. Penney are rated "A" by S&P
and "A2" by Moody's. J.C. Penney's rating is currently on negative watch by S&P
and watch for possible downgrade by Moody's.
J.C. Penney's common stock trades on the NYSE under the symbol "JCP," and
Eckerd's World Wide Web site is located at http://www.eckerd.com.
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The following information with respect to Eckerd was obtained from J.C.
Penney's 1997 annual report on Form 10-K for the fiscal year ended January 31,
1998 and Form 10-Q for the six months ended August 1, 1998:
<TABLE>
<CAPTION>
39 WEEKS ENDED YEAR ENDED YEAR ENDED
ECKERD (IN MILLIONS) OCTOBER 31, 1998 JANUARY 31, 1998 FEBRUARY 1, 1997
- -------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Sales.................................. $5,038.2 $6,111.2 $5,376.2
Operating (Loss) Profit.................... $195.2 $239.4 $198.0
Net (Loss) Profit.......................... $78.7 $107.5 $102.4
Total Assets............................... $3,215.2 $2,620.1 $1,892.0
Total Shareholders' Equity................. $346.3 $267.6 $160.1
</TABLE>
The Eckerd Loans are each secured by a fee mortgage on retail drug stores
in Palm Beach, Florida, Burlington, North Carolina, Fayetteville, North
Carolina, Greenville, North Carolina, Lincolnton, North Carolina, Sanford, North
Carolina, Egg Harbor, New Jersey, Murrell's Inlet, South Carolina, Clarksville,
Tennessee, Goodlettsville, Tennessee, and Carrolton, Texas. The Eckerd Credit
Lease are Triple Net Leases and Double Net Leases.
The Eckerd Credit Leases contain Casualty or Condemnation Termination or
Abatement Rights. The risk associated with such Casualty or Condemnation
Termination or Abatement Rights has been mitigated by a Lease Enhancement
Policy. See "The Enhanced Lease Program -- The Lease Enhancement Policies" in
Annex C of this prospectus supplement. Nine of the Eckerd Credit Leases contain
Maintenance Termination or Abatement Rights limited to roof and structural
building maintenance and maintenance for areas such as parking areas and
driveways. The risk associated with such Maintenance Termination and Abatement
Rights is mitigated by Borrower Protective Actions, the Borrower Reserve Fund,
the Expense Reserve Fund and Servicer Protective Actions. See "The Enhanced
Lease Program -- Borrower Protective Actions -- Servicer Protective Actions" in
Annex C of this prospectus supplement. The Eckerd Credit Leases include
Additional Termination or Abatement Rights. The Borrower's obligations generally
include restoration of the Mortgaged Property after casualty or condemnation;
the obligation to remove hazardous waste (other than hazardous waste introduced
by the tenant); keeping the Mortgaged Property free from mechanics' liens;
regulations relating to the borrower's maintenance obligations; certain
miscellaneous obligations such as the obligations to comply with or to cause
compliance with restrictive use covenants affecting property owned directly or
indirectly by the borrower in the area of the Mortgage Property; and the
obligation to comply or cause compliance with laws regulating the Mortgaged
Property or common areas related to the Mortgaged Property. The risk associated
with these Additional Termination and Abatement Rights is mitigated by Borrower
Protective Actions, the Borrower Reserve Fund, the Expense Reserve Fund and
Servicer Protective Actions. See "The Enhanced Lease Program -- Borrower
Protective Actions -- Servicer Protective Actions" in Annex C of this prospectus
supplement. In addition, the Eckerd Tenants are obligated under the Eckerd
Credit Leases to pay the cost of hazard insurance.
The Blue Cross Loan, Credit Lease and Participation. The trust includes a
50% participation interest (the "Blue Cross Participation") in the Blue Cross
Loan. The Blue Cross Participation has a Cut-off Date Balance of $19,614,898 and
constitutes 5.10% of the aggregate Cut-off Date Balance of the Credit Lease
Loans and 3.98% of the aggregate Cut-off Date Balance. The Blue Cross Loan has a
Cut-off Date Balance of $39,229,795. While Blue Cross has a financial strength
rating of "A" by S&P and has been placed on "CreditWatch -- Developing" by S&P,
it does not have any long-term, senior unsecured debt obligations which are
rated by S&P. The Blue Cross Loan bears interest at a fixed rate of 7.98% per
annum. Except in connection with the Tenant's exercise of a Casualty or
Condemnation Termination or Abatement Right (in which event no Prepayment
Premium is required unless there is a default under the Blue Cross Loan), the
Blue Cross Loan prohibits prepayment prior to November 7, 2004, and thereafter
requires payment of a Prepayment Premium.
Blue Cross is a nonprofit corporation formed in 1939 to provide and
administer health care benefits and related activities for the citizens of
Texas. Its formation and operations are authorized by the Texas legislature as
set forth in Chapter 20 of the Texas Insurance code and as such is regulated by
the Texas Department of
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Insurance. Hospitalization and health benefits are provided under contract to
subscribers through hospitals, physicians, skilled nursing facilities, nursing
homes, convalescent homes and other organizations. Blue Cross also processes
claims for other Blue Cross plans' subscribers and for the Medicare programs.
Blue Cross has announced plans to merge with Blue Cross and Health Care Services
Corp. (Blue Shield of Illinois, Inc.), and is currently undertaking steps to
complete the merger. While Blue Cross and Blue Shield of Illinois, Inc., does
not have any rated long-term, senior unsecured debt obligations, it does have a
financial strength rating of "A+" by S&P and has been placed on
"CreditWatch -- Developing" by S&P. Blue Cross presents its financial statements
in conformity with accounting practices prescribed or permitted by the Texas
Department of Insurance.
Blue Cross does not have publicly-traded stock, nor does it have a World
Wide Web site.
The following information with respect to Blue Cross was obtained from Blue
Cross's audited statutory financial statements for the year ended December 31,
1996, and unaudited statutory financial statements for the six months ended June
30, 1997, as filed with the Texas Department of Insurance:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
BLUE CROSS (IN MILLIONS) DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Premium Income......................... $1,998.1 $1,877.1 $1,668.6
Operating (Loss) Income................ $(26.5) $(24.9) $(18.4)
Net (Loss) Income...................... $(21.1) $(17.8) $(10.6)
Total Assets........................... $666.7 $690.4 $679.3
Surplus................................ $274.9 $305.7 $324.2
</TABLE>
The Blue Cross Loan is secured by a fee mortgage on its headquarters
building in Richardson, Texas, leased under a Triple Net Lease to Blue Cross.
The Blue Cross Credit Lease has a primary term of 19 years and monthly rental
payments began in June, 1995. As of the Delivery Date, the Blue Cross Credit
Lease requires monthly rental payments on the first day of each month in the
amount of $370,086.67 through August 7, 2014.
The interest of the trust in the Blue Cross Loan, represented by the Blue
Cross Participation, is governed by a participation agreement (the "Blue Cross
Participation Agreement") between the Capital Lease Funding Securitization, L.P.
and CLF (together with its successors and assigns, the "Other Participant"). The
other 50% participation interest has been included in a previous securitization
pursuant to the terms of a pooling and servicing agreement (the "Other
Agreement").
Pursuant to the Blue Cross Participation Agreement and the Other Agreement,
the servicer or the special servicer thereunder, as applicable, on behalf of the
trustee thereunder, has the right, subject to applicable REMIC and legal
requirements, and the provisions of the Other Agreement, to exercise or refrain
from exercising any powers or rights under the loan documents with respect to
the Blue Cross Loan. Under the terms of the Blue Cross Participation Agreement,
the servicer or the special servicer under the Other Agreement, as applicable,
on behalf of the trustee thereunder, is required to provide the Trustee, as the
assignee of the Other Participant's right, title and interest in the Blue Cross
Participation, with written notice of any such matters. Pursuant to the Blue
Cross Participation Agreement, the Trustee, as the assignee of the Other
Participant, will receive a pro rata share of all collections allocable to the
Blue Cross Loan reduced by a pro rata share of any master servicing fees,
special servicing fees, additional servicing compensation, unreimbursed trust
expenses or servicing advances (that have been deemed to be nonrecoverable or
otherwise as permitted under the Other Agreement) with interest thereon at the
reimbursement rate. In addition, the Trustee, as the assignee of the Other
Participant, will be obligated to remit to the trustee under the Other
Agreement, to the extent not previously recovered, a pro rata share of any trust
expenses and servicing advances that have been deemed to be nonrecoverable,
subject to the option of such trustee to offset any such amounts against other
remittances payable to the Trustee under the Blue Cross Participation. Such
amounts will be withdrawn from the Certificate Account as an expense of the
trust pursuant to the pooling and servicing agreement. The Blue Cross
Participation will continue to be serviced in accordance with the provisions of
the Other Agreement. With respect to the Blue Cross Loan, the servicing
provisions contained in
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the Other Agreement are substantially similar to the servicing provisions in the
pooling and servicing agreement. The current servicer and special servicer under
the Other Agreement is Midland Loan Services, Inc., and the current trustee
under the Other Agreement is LaSalle National Bank. In the event of the removal
of the servicer or special servicer under the Other Agreement, a successor
servicer will act as servicer or special servicer of the Blue Cross Loan in
accordance with the provisions of the Other Agreement unless the Trustee objects
to the selection of the successor servicer, in which case the successor servicer
will be obligated under the Other Agreement to use its best efforts to find a
sub-servicer of the Blue Cross Loan acceptable to the Trustee and to the Rating
Agencies.
The Blue Cross Credit Lease does not contain any Maintenance Termination or
Abatement Rights or Additional Termination or Abatement Rights. The Blue Cross
Credit Lease does contain Casualty or Condemnation Termination or Abatement
Rights. The risk associated with such Casualty or Condemnation Termination or
Abatement Rights has been mitigated by a Lease Enhancement Policy. See "The
Enhanced Lease Program -- The Lease Enhancement Policies" in Annex C of this
prospectus supplement.
NationsBank Mortgage Loans. Each of the following three NationsBank
Mortgage Loans represents at least 1.29% of the aggregate Cut-off Date Balance.
The Broadway at the Beach Loan. The NationsBank Mortgage Loan (the
"Broadway at the Beach Loan"), which represents approximately 8.84% of the
aggregate Cut-off Date Balance, is secured by a first mortgage encumbering an
entertainment and retail complex ("Broadway at the Beach") in Myrtle Beach,
South Carolina. The Broadway at the Beach Loan was originated on July 31, 1997
and has a Cut-off Date balance of $43,549,666. The Loan has a remaining term of
222 months and matures on August 1, 2017. The Broadway at the Beach Loan was
made to Broadway at the Beach, Inc. (the "Broadway at the Beach Borrower"), the
principal of which is Douglas P. Wendel. Additional terms and escrows for the
Broadway at the Beach Loan are set forth in Annex A.
Built in three phases during 1995, 1996 and 1997, Broadway at the Beach is
a retail entertainment complex which is located within Myrtle Beach, South
Carolina, a city which has emerged as one of the major tourist attractions on
the east coast. Myrtle Beach has over 90 golf courses which will rise to over
100 courses by the end of 1999 creating additional demand for tourist traffic.
Broadway at the Beach is the cornerstone for the $250 million entertainment
district in Myrtle Beach and includes such tenants as Hard Rock Cafe, IMAX
Theater, Ripley's Sea Aquarium, The Gap and Celebrity Square, an entertainment
complex. The property also includes a retail center that consists of 41 one- and
two-story buildings, including more than 120 retail stores and containing
approximately 342,705 net rentable square feet. Retail spaces range from
approximately 1,000 to 18,901 square feet. The Broadway at the Beach loan was
underwritten to a 1.54x DSCR, and as of September 30, 1998 had a trailing 12
month net operating income DSCR of 1.86x. As of the Cut-off Date, the LTV for
the Loan was 51%.
Broadway at the Beach is managed by Burroughs & Chapin Company, Inc.
Burroughs & Chapin Company, Inc. has over 50 years management experience and
currently manages approximately 1,300 retail tenants totaling nearly 2 million
square feet. Burroughs & Chapin Company, Inc. is also the owner of the Broadway
at the Beach Borrower.
The Decatur Town Center Loan. The NationsBank Mortgage Loan (the "Decatur
Town Center Loan"), which represents approximately 2.92% of the aggregate
Cut-off Date Balance, is secured by a first mortgage encumbering two office
buildings and a parking deck in the central business district of Decatur,
Georgia. The Decatur Town Center Loan was originated on March 31, 1998 and has a
Cut-off Date Balance of $14,400,618. The Loan has a remaining term of 170 months
and matures on April 1, 2013. The Decatur Town Center Loan was made to Decatur
Towncenter Associates, LLC (the "Decatur Town Center Borrower"). Additional
terms and escrows for the Decatur Town Center Loan are set forth in Annex A.
The Mortgage Property consists of two office buildings ("Decatur Town
Center I" and "Decatur Town Center II") and a parking deck situated on an
L-shaped 3.56 acre site. The four-story Decatur Town Center I was built in 1984
and has 80,554 square feet. The five-story Decatur Town Center II was built in
1989 and has 97,733 square feet. The parking deck has three levels and provides
465 parking spaces. There are forty tenant
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spaces in total with most spaces ranging in size from 870 square feet to 7,580
square feet. The largest occupant, Egleston Children's Healthcare ("Egleston"),
occupies 72,453 square feet, which accounts for 40.6% of net rentable square
footage and occupies an entire floor in each building. Egleston uses the space
as administrative offices for the Egleston Hospital, HMO Support Services and
Rainbow Clinic. Recently, Egleston invested over $300,000 in a fiber optic
network which connects their office space in each building. Emory University
occupies 12,550 square feet (accounting for 7.0% of net rentable square footage)
and operates a nursing school and other grant programs at the space. Overall,
the aggregate occupancy rate for Decatur Town Center I and Decatur Town Center
II over the past three years has exceeded 94%.
The Mortgaged Property is managed by Pope & Land Enterprises, Inc. Pope &
Land Enterprises, Inc. has over 30 years management experience and currently
manages tenants occupying approximately 1,500,000 square feet. Pope & Land
Enterprises, Inc. is the key principal behind the Decatur Town Center Borrower.
The Shoppes at Pelican Landing Loan. The NationsBank Mortgage Loan (the
"Shoppes at Pelican Landing Loan"), which represents approximately 1.29% of the
aggregate Cut-off Date Balance, is secured by a first mortgage encumbering a
81,312 square foot retail center (the "Shoppes at Pelican Landing Property")
located near the Gulf Coast in western Florida. The Shoppes at Pelican Landing
Loan was originated on June 5, 1998 and has a Cut-off Date Balance of
$6,368,143. The Loan has a remaining term of 173 months and matures on July 1,
2013. The Shoppes at Pelican Landing Loan was made to Pelican Landing of
Georgia, LLC (the "Shoppes at Pelican Landing Borrower"). Additional terms and
escrows for the Shoppes at Pelican Landing Loan are set forth in Annex A.
The Shoppes at Pelican Landing Property is located on a 14.46 acre site in
Bonita Springs, Florida. The site is anchored by a Publix supermarket (37,887
square feet) and a Factory Outlet Stores (14,000 square feet). The remainder of
the site is occupied by local tenants with spaces ranging in size from 1,300
square feet to 4,000 square feet. The first phase of the construction of the
property, which consists of 69,137 square feet, was completed in 1997 with the
Publix supermarket opening in August 1997. The second phase of construction of
the property, which consists of 12,175 square feet, was completed in mid-1998.
Three pad sites, a NationsBank branch, a Mobil gas station and an undeveloped
site, each of which is not part of the Shoppes at Pelican Landing Property, is
located at the front of the property.
The Shoppes at Pelican Landing Property is managed by Wallace Enterprises.
Wallace Enterprises has over 20 years management experience and currently
manages tenants totaling approximately 400,000 square feet. Wallace Enterprises
is the key principal behind the Shoppes at Pelican Landing Borrower.
Other Loans and Credit Leases. No other Loans or Credit Leases involve
Credit Lease tenants or guarantors underlying more than 4.78% of the aggregate
Cut-off Date Balance. Additional information as to the Credit Lease tenants with
private ratings and additional credit rating information see "Additional Credit
Rating Information" at Annex D of this prospectus supplement.
ADDITIONAL LOAN INFORMATION
General. For a detailed presentation of certain characteristics of the
Loans and Mortgaged Properties, on an individual basis and in tabular format,
see Annex A hereto. Certain capitalized terms that appear herein are defined in
Annex A. See Annex B hereto for certain information with respect to capital
improvement, replacement and tenant improvement reserve accounts.
Delinquencies. No Loan will be as of the Cut-off Date, or has been since
origination, 30 days or more delinquent in respect of any Monthly Payment. All
of the Loans were originated during the 27 months prior to the Cut-off Date.
Tenant Matters. See "-- Significant Loans -- Credit Lease Loans" above for
a description of the Credit Lease Tenants underlying the Credit Lease Loans.
With respect to the Nations Bank Mortgage Loans, 10 of the related retail,
office and industrial Mortgaged Properties, which represent security for 8.39%
of the aggregate Cut-off Date Balance, are leased in large part to one or more
Major Tenants. Two companies are Major Tenants with respect to more than one
Mortgaged Property, with the related groups of Loans representing 1.36% and
1.76%, of the aggregate Cut-off Date Balance. In addition, there are several
cases in
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which a particular entity is a tenant at multiple Mortgaged Properties, and
although it may not be a Major Tenant at any such property, it may be
significant to the success of such properties. "Major Tenants" means any tenant
at a Commercial Mortgaged Property that rents at least 20% of the Leasable
Square Footage (as defined in Annex A) at such property.
Ground Leases. Eleven of the Loans, which represent 9.23% of the aggregate
Cut-off Date Balance, are, in each such case, secured by a Mortgage on the
applicable borrower's leasehold interest in the related Mortgaged Property. Each
ground lease has term that extends or can be extended not less than 10 years
beyond the stated maturity of the related Loan. In each case, either (i) the
ground lessor has subordinated its interest in the related Mortgaged Property to
the interest of the holder of the related Loan or (ii) the ground lessor has
agreed to give the holder of the Loan notice of, and has granted such holder the
right to cure, any default or breach by the lessee. See "Certain Legal Aspects
of Mortgage Loans -- Foreclosure -- Leasehold Considerations" in the
accompanying prospectus.
Lender/Borrower Relationships. The Loan Sellers, or the Depositor or any
of their affiliates may maintain certain banking or other relationships with
borrowers under the Loans or their affiliates, and proceeds of the Loans may, in
certain limited cases, be used by such borrowers or their affiliates in whole or
in part to pay indebtedness owed to the Loan Sellers, the Depositor or such
other entities.
CERTAIN UNDERWRITING MATTERS
Environmental Assessments. Each of the Mortgaged Properties was subject to
an environmental site assessment consisting of a "Phase I" or "Phase II" or an
update of a previously conducted assessment, which assessment or update was
conducted generally in accordance with industry-wide standards in connection
with the origination of the Loan. No such assessment or update otherwise
revealed any material adverse environmental condition or circumstance at any
Mortgaged Property, except as set forth below or in certain other cases in which
environmental site assessments recommend corrective action to address
environmental conditions, and which environmental conditions have been
mitigated, or are expected to be addressed in the manner and within the time
frames specified in the assessments in third-party clean-up agreements or the
related loan documents except as set forth below.
Certain federal, state and local laws, regulations and ordinances govern
the management, removal, encapsulation or disturbance of asbestos-containing
materials ("ACMs"). Such laws, as well as common law standards, may impose
liability for releases of or exposure to ACMs and may provide for third parties
to seek recovery from owners or operators of real properties for personal
injuries associated with such releases.
When recommended by environmental site assessments, operations and
maintenance plans (addressing in some cases ACMs, lead-based paint, and/or
radon) were required, except in the case of certain Mortgaged Properties where
the environmental consultant conducting the assessment also identified the
condition of the ACM as good and "non-friable"(i.e. not easily crumbled). There
can be no assurance that recommended operations and maintenance plans will
continue to be implemented. In many cases, certain adverse environmental
conditions were not tested for.
Certain of the Mortgaged Properties have off-site leaking underground
storage tank sites located nearby which the environmental consultant either has
advised are not likely to contaminate the related Mortgaged Properties but may
require future monitoring or has identified a party not related to the mortgagor
(borrower) as responsible for such condition. Certain other Mortgaged Properties
may contain contaminants in the soil or groundwater at levels which the
environmental consultant has advised are below typical regulatory levels or
otherwise are indicative of conditions typically not of regulatory concern and
are not likely to require any further action. The environmental assessments
revealed other adverse environmental conditions such as the existence of storage
tanks needing replacement or removal, the existence of ACMs needing removal PCBs
in equipment on-site and elevated radon levels, in connection with which
environmental reserves have been established and/or removal or monitoring
programs have been or are expected to be implemented. In the case of the Credit
Lease Loans, in each case either one or all of the following are mitigants to
the above referenced environmental assessments: (1) a responsible party has been
identified and has accepted responsibility and indemnified the borrower; (2) the
Credit Lease tenant is responsible for all environmental problems; (3) a
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state agency (for off-site environmental problems) is rectifying the situation;
(4) a state agency has been notified and has approved the operations and
maintenance remediation plan in place; or (5) appropriate reserves have been
established. With respect to certain NationsBank Mortgage Loans, an
environmental site assessment conducted in connection with the Oates Park
Shopping Center Loan revealed that the soil and groundwater on or under the
Mortgaged Property have been impacted by dry cleaning operations at the
Mortgaged Property. The borrower has placed $500,000 in an escrow account to
remediate the impacted soils and groundwater. In the case of the Loan secured by
the Ridgeway Inn, the Mortgaged Property has been impacted by petroleum
contaminants resulting from the prior use of a portion of the Mortgaged Property
as a gasoline station. Chevron U.S.A., Inc., which is rated "AA" by S&P, has
been identified as the responsible party and has indemnified the related
borrower with respect to any losses resulting from this contamination.
The information contained herein regarding environmental conditions at the
Mortgaged Properties is based on the environmental assessments and has not been
independently verified by the Depositor, the Loan Sellers, the Underwriter, the
Master Servicer, the Special Servicer, the Trustee, the REMIC Administrator, or
any of their respective affiliates. There can be no assurance that such
environmental assessments or studies, as applicable, identified all
environmental conditions and risks, or that any such environmental conditions
will not have material adverse effect on the value or cash flow of the related
Mortgaged Property.
Under the pooling and servicing agreement, the Master Servicer or the
Special Servicer, as applicable, is obligated to perform Servicer Protective
Actions, to the extent consistent with the servicing standard, to remediate any
adverse environmental conditions on a Mortgaged Property which may lead to a
termination of, or abatement of rent under the related Credit Lease by the
tenant. The pooling and servicing agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto or assuming its operation. Such requirement precludes
enforcement of the security for the related Loan until a satisfactory
environmental site assessment is obtained (or until any required remedial action
is taken), but will decrease the likelihood that the trust will become liable
for a material adverse environmental condition at the Mortgaged Property.
However, there can be no assurance that the requirements of the pooling and
servicing agreement will effectively insulate the trust from potential liability
for a materially adverse environmental condition at any Mortgaged Property. See
"Servicing of the Loans" herein and "The Pooling and Servicing
Agreements -- Realization Upon Defaulted Mortgage Loans", "Risk
Factors -- Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans -- Risk of Liability Arising from Environmental Conditions" and
"Certain Legal Aspects of Mortgage Loans -- Environmental Considerations" in the
accompanying prospectus.
Property Condition Assessments. Inspections of all of the Mortgaged
Properties were conducted by independent licensed engineers in connection with
or subsequent to the origination of the related Loan, other than in the case of
these 51 Credit Lease Loans, which represent 49.51% of the aggregate Cut-off
Date Balance, that are backed by Bond-Type or Triple Net Leases. Such
inspections were generally commissioned to inspect the exterior walls, roofing,
interior construction, mechanical and electrical systems and general condition
of the site, buildings and other improvements located at a Mortgaged Property.
With respect to certain of the Loans, the resulting reports indicated a variety
of deferred maintenance items and recommended capital improvements. The
estimated cost of the necessary repairs or replacements at a Mortgaged Property
was included in the related property condition assessment; and, in the case of
certain Mortgaged Properties, such cost exceeded $100,000. In general, with
limited exception, cash reserves were established to fund such estimated
deferred maintenance or replacement items. In addition, various Loans, to
include all of the Credit Lease Loans that are backed by Double Net Leases,
require monthly deposits into cash reserve accounts to fund property maintenance
expenses.
Appraisals and Market Studies. An independent appraiser that is either a
member of the Appraisal Institute ("MAI") or state certified performed an
appraisal (or updated an existing appraisal) of each of the related Mortgaged
Properties in connection with or subsequent to the origination of each Loan in
order to establish that the appraised value of the related Mortgaged Property or
Properties exceeded the original principal balance of the Loan (or, in the case
of certain sets of related Cross-Collateralized Loans, the aggregate original
principal balance of such sets), except in the case of the Food Lion Loans in
Auburndale, Florida, Gainesville, Florida, Ocala, Florida, which represents
3.53% of the aggregate Cut-off Date Balance,
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which had a weighted average loan to value ratio of 101.50%. Such appraisal or
property valuation was prepared in connection with the origination of such
Credit Lease Loan, and except in the case of the Loans relating to Mortgaged
Properties operated as restaurants and certain other Loans, conforms to the
appraisal guidelines set forth in Title XI of the Federal Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). In general, such
appraisals represent the analysis and opinions of the respective appraisers at
or before the time made, and are not guarantees of, and may not be indicative
of, present or future value. There can be no assurance that another appraiser
would not have arrived at a different valuation, even if such appraiser used the
same general approach to and same method of appraising the property. In
addition, appraisals seek to establish the amount a typically motivated buyer
would pay a typically motivated seller. Such amount could be significantly
higher than the amount obtained from the sale of a Mortgaged Property under a
distress or liquidation sale.
None of the Depositor, the Loan Sellers, the Underwriter, the Master
Servicer, the Special Servicer, the Trustee, the REMIC Administrator, or any of
their respective affiliates has prepared or conducted its own separate appraisal
or reappraisal of any Mortgaged Property.
Zoning and Building Code Compliance. NationsBank, N.A., with respect to
the NationsBank Mortgage Loans, and CLF, with respect to the Credit Lease Loans,
have examined whether the use and operation of the related Mortgaged Properties
were in compliance in all material respects with all applicable zoning,
land-use, environmental, building, fire and health ordinances, rules,
regulations and orders applicable to such Mortgaged Properties at the time such
Loans were originated. Establishment of such compliance may have been supported
by title insurance, legal opinions, certifications from government officials,
licensed architects or engineers and/or representations by the related borrower
contained in the related loan documents. Certain violations may exist, but
neither NationsBank, N.A., with respect to the NationsBank Mortgage Loans, nor
CLF, with respect to the Credit Lease Loans, considers them to be material.
In some cases, the use, operation and/or structure of the related Mortgaged
Property constitutes a permitted nonconforming use and/or structure that may not
be rebuilt to its current state in the event of a material casualty event. With
respect to such Mortgaged Properties, NationsBank, N.A., with respect to the
NationsBank Mortgage Loans, and CLF, with respect to the Credit Lease Loans,
have determined that in the event of a material casualty affecting the Mortgaged
Property that either:
(1) insurance proceeds would be available and sufficient to pay off
the related Mortgage Loan in full;
(2) the Mortgaged Property, if permitted to be repaired or restored in
conformity with current law, would constitute adequate security for the
related Mortgage Loan; or
(3) the risk that the entire Mortgaged Property would suffer a
material casualty to such a magnitude that it could not be rebuilt to its
current state is remote.
Although the lender expects insurance proceeds to be available for
application to the related Loan in the event of a material casualty, no
assurance can be given that such proceeds would be sufficient to pay off such
Loan in full (other than in the case of the Credit Lease Loans that are covered
by Lease Enhancement Policies). In addition, if the Mortgaged Property were to
be repaired or restored in conformity with current law, no assurance can be
given as to what its value would be relative to the remaining balance of the
related Loan or what would be the revenue-producing potential of the property.
Hazard, Liability and Other Insurance. Substantially all of the
Mortgages require that each Mortgaged Property be insured by a hazard insurance
policy in an amount (subject to a customary deductible) at least equal to the
lesser of the outstanding principal balance of the related Loan or 100% of the
full insurable replacement cost of the improvements located on the related
Mortgaged Property, and if applicable, that the related hazard insurance policy
contain appropriate endorsements to avoid the application of co-insurance and
not permit reduction in insurance proceeds for depreciation; provided that, in
the case of certain of the Loans, the hazard insurance may be in such other
amounts as was required by the related originators.
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In addition, if any material portion of a Mortgaged Property securing any
Loan was, at the time of the origination of such Loan, in an area identified in
the Federal Register by FEMA as having special flood hazards, and flood
insurance was available, a flood insurance policy meeting any requirements of
the then-current guidelines of the Federal Insurance Administration is required
to be in effect with a generally acceptable insurance carrier, in an amount
representing coverage not less than the least of
(1) the outstanding principal balance of such Loan,
(2) the full insurable value of such Mortgaged Property,
(3) the maximum amount of insurance available under the National Flood
Insurance Act of 1968, as amended, and
(4) 100% of the replacement cost of the improvements located on the
related Mortgaged Property.
In general, the standard form of hazard insurance policy covers physical
damage to, or destruction of, the improvements on the Mortgaged Property by
fire, lightning, explosion, smoke, windstorm and hail, riot or strike and civil
commotion, subject to the conditions and exclusions set forth in each policy.
Each Mortgage generally also requires the related borrower to maintain, or
in the case of the Credit Lease Loans, permit or require the Credit Lease tenant
to maintain or self-insure (as described under "The Credit Leases -- Insurance"
in this prospectus supplement), comprehensive general liability insurance
against claims for personal and bodily injury, death or property damage
occurring on, in or about the related Mortgaged Property in an amount
customarily required by institutional lenders.
Each Mortgage generally further requires the related borrower to maintain,
or in the case of the Credit Lease Loans, permit or require the Credit Lease
tenant to maintain or self-insure (as described under "The Credit
Leases -- Insurance" in this prospectus supplement), business interruption
insurance in an amount not less than 100% of the projected rental income from
the related Mortgaged Property for not less than twelve months (or, in the case
of a Mortgaged Property related to a NationsBank Mortgage Loan not having an
elevator, for at least a six month period).
THE LOAN SELLERS
Capital Lease Funding, L.P. ("CLF") filed a certificate of limited
partnership in the State of Delaware on September 21, 1995. The principal
executive office of CLF is located at 110 Maiden Lane, 36th Floor, New York, New
York 10005. CLF was formed to act as a commercial lender specializing in
providing mortgage loans to owners of properties long-term net-leased to
investment grade or near-investment grade tenants. CLF will not ensure or
guarantee distributions on the offered certificates. CLF's only obligations with
respect to the offered certificates will be in respect of certain
representations and warranties made to the Depositor by CLF with respect to the
Credit Lease Loans. CLF will have no other obligations with respect to the
trust.
NationsBank, N.A. is a national banking association. The principal office
of NationsBank, N.A. is in Charlotte, North Carolina. NationsBank, N.A. is a
wholly-owned subsidiary of NB Holdings Corporation, which is in turn a
wholly-owned subsidiary of BankAmerica Corporation ("BankAmerica").
The information set forth in this prospectus supplement concerning (a)
NationsBank, N.A. has been provided by NationsBank, N.A., and (b) CLF has been
provided by CLF. Neither the Depositor nor the underwriter makes any
representation or warranty as to the accuracy or completeness of such
information.
On September 25, 1998, NationsBank Corporation, a North Carolina
corporation ("NationsBank"), reincorporated in Delaware by forming a new, wholly
owned Delaware subsidiary and merging into it (the "Reincorporation Merger"),
with the surviving Delaware corporation being renamed "NationsBank Corporation."
On September 30, 1998, BankAmerica Corporation, a Delaware corporation ("Old
BankAmerica"), merged with and into NationsBank Corporation (the "Merger").
NationsBank Corporation was the surviving corporation in the Merger and changed
its name to "BankAmerica Corporation." As a result of the Reincorporation Merger
and the Merger, BankAmerica succeeded to the assets and liabilities of both
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NationsBank and Old BankAmerica. Additional information regarding these mergers
is set forth in NationsBank's Current Report on Form 8-K, as amended, filed
April 17, 1998.
ASSIGNMENT OF THE LOANS; REPURCHASES
On or prior to the Delivery Date, at the direction of the Depositor, the
Loan Sellers will assign, sell and transfer the Loans, without recourse, to the
Trustee for the benefit of the Certificateholders. In connection with such
assignment, NationsBank, N.A. will be required to deliver the following
documents, among others, to the Trustee with respect to each NationsBank
Mortgage Loan and CLF will be required to deliver the following documents, among
others, to the Trustee with respect to each Credit Lease Loan:
(1) the original Note, endorsed (without recourse) to the order of the
Trustee;
(2) the original or a copy of the related Mortgage(s), together with
originals or copies of any intervening assignments of such document(s), in
each case (unless the particular document has not been returned from the
applicable recording office) with evidence of recording thereon;
(3) the original or a copy of any related assignment(s) of leases and
rents (if any such item is a document separate from the Mortgage), together
with originals or copies of any intervening assignments of such
document(s), in each case (unless the particular document has not been
returned from the applicable recording office) with evidence of recording
thereon;
(4) an assignment of each related Mortgage in favor of the Trustee, in
recordable form (or a certified copy of such assignment as sent for
recording);
(5) an assignment of any related assignment(s) of leases and rents (if
any such item is a document separate from the Mortgage) in favor of the
Trustee, in recordable form (or a certified copy of such assignment as sent
for recording);
(6) an original or copy of the related lender's title insurance policy
(or, if a title insurance policy has not yet been issued, a commitment for
title insurance "marked-up" at the closing of such Mortgage Loan or other
binding commitment to issue title insurance);
(7) an original of each Lease Enhancement Policy, Extended
Amortization Policy or any other similar insurance policy, with respect to
each Credit Lease Loan, as applicable;
(8) an assignment in favor of the Trustee of each effective UCC
financing statement in the possession of the transferor (or a certified
copy of such assignment as sent for filing);
(9) in those cases where applicable, the original or a copy of the
related ground lease; and
(10) with respect to each Credit Lease Loan, the related Credit Lease
and, if applicable, the guaranty.
The Trustee is required to review the documents delivered thereto by the
Loan Sellers with respect to each Loan within a specified period following such
delivery, and the Trustee will hold the related documents in trust. If it is
found during the course of such review or at any time thereafter that any of the
above-described documents was not delivered with respect to any Loan or that any
such document is defective, and in either case such omission or defect
materially and adversely affects the value of the related mortgage loan or the
interests of certificateholders therein, then either NationsBank (if, but only
if the affected mortgage loan is a NationsBank Mortgage Loan) or CLF (if, but
only if, the affected mortgage loan is a Credit Lease Loan) will be obligated,
except as otherwise described below, within a period of 90 days following its
receipt of notice of such omission or defect to deliver the missing documents or
cure the defect in all material respects, as the case may be, or to repurchase
(or cause the repurchase of) the affected Loan at a price (the "Purchase Price")
generally equal to the unpaid principal balance of such Loan, plus any accrued
but unpaid interest thereon at the related Loan Rate to but not including the
Due Date in the Collection Period of repurchase, plus any related unreimbursed
Servicing Advances (as defined herein). However, if such defect or breach is
capable of being cured but not within the 90-day period and the applicable Loan
Seller has commenced and is diligently proceeding with cure of such defect or
breach within such 90-day period, such Loan Seller shall have an additional 90
days to complete such cure or, failing such cure, to repurchase the related Loan
(such possible additional cure period shall not apply in the event of a defect
that causes the Loan not to constitute a
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"qualified mortgage" within the meaning of Section 860G(a)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") or not to meet certain
Code-specified criteria with respect to required loan-to-value ratio, customary
prepayment penalties or permissible defeasance).
The respective cure/repurchase obligations of the Loan Sellers will
constitute the sole remedies available to the certificateholders for any failure
on the part of the Loan Sellers to deliver any of the above-described documents
with respect to any Loan or for any effect in any such document, and neither the
Depositor nor any other person will be obligated to repurchase the affected Loan
if either the Loan Sellers defaults on its obligation to do so. Notwithstanding
the foregoing, if any of the above-described documents is not delivered with
respect to any Loan because such document has been submitted for recording, and
neither such document nor a copy thereof, in either case with evidence of
recording thereon, can be obtained because of delays on the part of the
applicable recording office, then neither of the Loan Sellers will be required
to repurchase (or cause the repurchase of) the affected Loan on the basis of
such missing document so long as it continues in good faith attempt to obtain
such document or such copy.
The pooling and servicing agreement requires that the assignments in favor
of the Trustee with respect to each Loan described in clauses (4) and (5) of the
first paragraph under this heading be submitted for recording in the real
property records of the appropriate jurisdictions within a specified number of
days following the Delivery Date at the expense of the applicable Loan Sellers.
See "The Pooling and Servicing Agreements -- Assignment of Mortgage Loans;
Repurchases" in the accompanying prospectus.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
In the pooling and servicing agreement, NationsBank, N.A. will be required
to represent and warrant solely with respect to the NationsBank Mortgage Loans,
and CLF will be required to represent and warrant solely with respect to the
Credit Lease Loans, in each case as of the Delivery Date or as of such other
date specifically provided in the related representation or warranty, among
other things, substantially as follows:
(1) the information set forth in the schedule of Loans attached to the
pooling and servicing agreement is true and correct in all material
respects as of the Cut-off Date;
(2) each mortgage securing a Loan is a valid first lien on the related
mortgaged property subject only to (A) the lien of current real estate
taxes and assessments not yet due and payable, (B) covenants, conditions
and restrictions, rights of way, easements and other matters of public
record, (C) rights of tenants (whether under ground leases, space leases or
operating leases) at the mortgaged property to remain following a
foreclosure or similar proceeding (provided that such tenants are
performing under such leases), (D) exceptions and exclusions specifically
referred to in the related lender's title insurance policy issued or, as
evidenced by a "marked-up" commitment, to be issued in respect of such
mortgage loan and (E) if such mortgage loan is cross-collateralized with
any other mortgage loan, the lien of the Mortgage for such other mortgage
loan (the exceptions set forth in the foregoing clauses (A), (B), (C), (D),
and (E) collectively, "Permitted Encumbrances");
(3) the Mortgage(s) and Note for each Loan and all other documents to
which the related borrower is a party and which evidence or secure such
Loan, are the legal, valid and binding obligations of the related borrower
(subject to any non-recourse provisions contained in any of the foregoing
agreements and any applicable state anti-deficiency legislation),
enforceable in accordance with their respective terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other laws relating to or affecting the rights
of creditors generally and by general principles of equity regardless of
whether such enforcement is considered in a proceeding in equity or at law;
(4) no Loan was as of the Cut-off Date, or during the twelve-month
period prior thereto, 30 days or more delinquent in respect of any loan
payment, without giving effect to any applicable grace period;
(5) there is no valid offset, defense or counterclaim to any Loan;
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(6) it has not waived any material default, breach, violation or event
of acceleration existing under any Mortgage or Note;
(7) it has no knowledge of (A) any proceeding pending or threatened
for the total or partial condemnation of any Mortgaged Property, or (B) any
material damage at any Mortgaged Property that materially and adversely
affects the value of such Mortgaged Property;
(8) all insurance coverage required under each Mortgage securing a
Loan is in full force and effect with respect to the related Mortgaged
Property;
(9) at origination, each Loan complied in all material respects with
all requirements of federal and state law, including those requirements
pertaining to usury, relating to the origination of such Loan;
(10) in connection with or subsequent to the origination of the
related Loan, one or more environmental site assessments (or an update of a
previously conducted assessment) has been performed with respect to each
Mortgaged Property, and it, having made no independent inquiry other than
reviewing the resulting report(s) and/or employing an environmental
consultant to perform the assessments or updates referenced herein, has no
knowledge of any material and adverse environmental condition or
circumstance affecting such Mortgaged Property that was not disclosed in
the related report(s);
(11) the lien of each Mortgage is insured by a title insurance policy
issued by a nationally recognized title insurance company that insures the
originator, its successors and assigns, as to the first priority lien of
such Mortgage in the original principal amount of the related Loan after
all advances of principal, subject only to Permitted Encumbrances (or, if a
title insurance policy has not yet been issued in respect of any Loan, a
policy meeting the foregoing description is evidenced by a commitment for
title insurance "marked-up" at the closing of such Loan);
(12) the proceeds of each Loan have been fully disbursed, and there is
no requirement for future advances thereunder;
(13) the terms of the Note and Mortgage(s) for each Loan have not been
impaired, waived, altered or modified in any material respect, except as
specifically set forth in the related mortgage file or indicated on the
schedule of Loans;
(14) there are no delinquent taxes, ground rents, insurance premiums,
assessments, including, without limitation, assessments payable in future
installments, or other similar outstanding charges (and, to its actual
knowledge, at the origination of such Loan, there were no delinquent water
charges or sewer rents) affecting the related Mortgaged Property;
(15) the related borrower's interest in each Mortgaged Property
securing a Loan consists of a fee simple and/or leasehold estate or
interest in real property;
(16) no Loan contains any equity participation by the lender, provides
for any contingent or additional interest in the form of participation in
the cash flow of the related Mortgaged Property or provides for the
negative amortization of interest; and
(17) all escrow deposits (including capital improvements and
environmental remediation reserves) relating to each Loan that were
required to be delivered to the mortgagee under the terms of the related
loan documents have been received and, to the extent of any remaining
balances of such escrow deposits, are in the possession or under the
control of the representing party or its agents (which shall include the
Master Servicer).
In the pooling and servicing agreement, each Loan Seller will also be
required to represent and warrant, as of the Delivery Date, that, immediately
prior to the transfer of the NationsBank Mortgage Loans, in the case of
NationsBank, N.A., and the Credit Lease Loans, in the case of CLF, to the
Trustee, such Loan Seller had good and marketable title to, and was the sole
owner of, the related mortgage loan and had full right and authority to sell,
assign and transfer such Loan.
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If NationsBank, N.A. discovers or is notified of a breach of any of the
foregoing representations and warranties with respect to any NationsBank
Mortgage Loan, or CLF discovers or is notified of a breach of any of the
foregoing representations and warranties with respect to any Credit Lease Loan
and in any case such breach materially and adversely affects the value of such
mortgage loan or the interests of certificateholders therein, then NationsBank,
N.A. (if, but only if, the affected mortgage loan is a NationsBank Mortgage
Loan) or CLF (if, but only if, the affected Loan is a Credit Lease Loan) will be
obligated, within a period of 90 days following the earlier of its discovery or
receipt of notice of such breach, to cure such breach in all material respects
or to repurchase (or cause the repurchase of) the affected Loan at the
applicable Purchase Price. However, if such defect or breach is capable of being
cured but not within the 90 day period and NationsBank, N.A. or CLF, as the case
may be, has commenced and is diligently proceeding with cure of such defect or
breach within such 90 day period, NationsBank, N.A. or CLF, as the case may be,
shall have an additional 90 days to complete such cure or, failing such cure, to
repurchase the related Loan (such possible additional cure period shall not
apply on the event of a defect that causes the Loan not to constitute a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code or not
to meet certain Code-specified criteria with respect to required loan-to-value
ratio, customary prepayment penalties or permissible defeasance).
The foregoing cure/repurchase obligation of NationsBank, N.A. or CLF, as
applicable, will constitute the sole remedy available to the certificateholders
for any breach of any of the foregoing representations and warranties, and
neither the Depositor nor any other person will be obligated to repurchase any
affected Loan in connection with a breach of such representations and warranties
if either NationsBank, N.A. or CLF, as applicable, defaults on its obligation to
do so. NationsBank, N.A. and CLF will be the sole Warranting Parties (as defined
in the accompanying prospectus) in respect of the Loans, with NationsBank, N.A.
being the sole Warranting Party with respect to the NationsBank Mortgage Loans
and CLF being the sole Warranting Party with respect to the Credit Lease Loans.
See "The Pooling and Servicing Agreements -- Representations and Warranties;
Repurchases" in the accompanying prospectus.
CHANGES IN LOAN POOL CHARACTERISTICS
The description in this prospectus supplement of the Loan Pool and the
Mortgaged Properties is based upon the Loan Pool as expected to be constituted
at the time the Offered Certificates are issued, as adjusted for the scheduled
principal payments due on the Loans on or before the Cut-off Date. Prior to the
issuance of the offered certificates, a Loan may be removed from the Loan Pool
if the Depositor deems such removal necessary or appropriate or if it is
prepaid. A limited number of other mortgage loans may be included in the Loan
Pool prior to the issuance of the Offered Certificates, unless including such
Loans would materially alter the characteristics of the Loan Pool as described
herein. The Depositor believes that the information set forth herein will be
representative of the characteristics of the Loan Pool as it will be constituted
at the time the Offered Certificates are issued, although the range of Loan
Rates and maturities, as well as the other characteristics of the Loans
described herein, may vary. Any such material changes in the characteristics of
the Loan Pool will be submitted to the Rating Agencies for their review prior to
the issuance of the Offered Certificates.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the offered certificates on or shortly after the Delivery Date and
will be filed, together with the pooling and servicing agreement, with the
Securities and Exchange Commission within fifteen days after the initial
issuance of the offered certificates. In the event Loans are removed from or
added to the Loan Pool as set forth in the preceding paragraph, such removal or
addition will be noted in the Form 8-K.
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THE CREDIT LEASES
GENERAL
The Credit Lease for each mortgaged property contains its own unique terms
based upon the negotiations of the Credit Lease Tenant and the borrower. The
following discussion sets forth certain general information concerning
provisions commonly found in the Credit Leases and additional provisions in
Credit Leases with respect to a particular Credit Lease Tenant or affiliated
Credit Lease Tenants.
CREDIT LEASE TERM
With the exception of seven Credit Lease Loans, each Credit Lease has a
primary term that expires simultaneously with the scheduled final maturity date
of the related Credit Lease Loan. The Credit Lease Loans are scheduled to be
fully repaid from monthly rental payments made over the primary term of the
related Credit Lease, with the exception of the Wal-Mart Loan in Dahlonega,
Georgia, the CVS Loan in Braintree, Massachusetts, the Home Depot Loan in
Dallas, Texas, the Harland Loan, and the Eckerd Loans located in Carrollton,
Texas, Clarksville, Tennessee and Albany, Georgia, which are scheduled to be
fully repaid from monthly rental payments made over the primary term and all or
a portion of the first renewal term of the related Credit Lease. An Extended
Amortization Policy has been put in place for each of the foregoing Credit Lease
Loans. See "The Enhanced Lease Program -- The Extended Amortization Policies" in
Annex C of this prospectus supplement. Most Credit Leases give the Credit Lease
Tenant the right to extend the term of the Credit Lease by one or more renewal
periods after the end of the primary term.
AMOUNTS PAYABLE UNDER THE CREDIT LEASES
Each Credit Lease tenant has signed a subordination and non-disturbance
agreement and/or an estoppel letter, pursuant to which it has agreed, during the
primary term of each Credit Lease, to make all monthly rental payments pursuant
to the provisions of the assignment of leases and rents directly to the Master
Servicer. Each monthly rental payment is generally due on or about the first day
of each month during the primary term, subject to any applicable grace period
ranging from 0 to 30 days. Under 30 Credit Lease Loans, the Master Servicer is
obligated to provide notice to the borrower if the monthly rental payment is not
received when due, after which the borrower has a three to six day (or eleven
day, in the case of two Credit Lease Loans), grace period after receipt of such
notice to remit such payment. If the Master Servicer does not provide such
notice in a timely manner, it would be possible for a Monthly Loan Payment to be
received after the related Due Date. As with other delinquent payments of
principal and interest, this would give rise to an obligation of the Master
Servicer to make a P&I Advance. In addition, under certain Credit Leases, the
Credit Lease tenant is obligated to pay additional rent which may be tied to (1)
a specified percentage of an amount calculated from the gross sales of the
related store, less certain expenses or (2) changes to certain economic indexes
such as the Consumer Price Index. These amounts, if any, represent additional
cash flow available to the borrower and exceed the monthly rental payments
needed to pay the related Monthly Loan Payment.
The amount of the monthly rental payments payable by each Credit Lease
tenant is equal to or greater than the scheduled payment of all principal,
interest, fees and other amounts due each month on the related Loan (the
"Monthly Loan Payment") and all reserve deposits required thereunder.
The Credit Leases provide that the Credit Lease tenants must pay (either
directly to the taxing authority or to the borrower) all real property taxes and
assessments levied or assessed against the respective Mortgaged Property and all
charges for utility services furnished to the Mortgaged Property. This excludes,
however, in some Credit Leases any general or special assessment incurred or
levied as a result of the borrower's activity in developing the respective
mortgaged property for Credit Lease tenant's occupancy or otherwise. The Credit
Lease tenant may contest any such taxes or assessments relating to the Credit
Lease, however, the Credit Lease tenant may not take any action which would
cause or allow the institution of any foreclosure proceedings or similar actions
against the related Mortgaged Property.
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ASSIGNMENT AND SUBLEASING
Many of the Credit Leases provide that the Credit Lease tenant may sublet
all or any part of a mortgaged property or assign its interest under any Credit
Lease without the consent or approval of the borrower. No such subletting or
assignment will relieve the Credit Lease tenant from any of its obligations
under the Credit Lease, except in the case of a CVS Loan located in
Philadelphia, Pennsylvania, where the Credit Lease tenant is relieved of its
respective obligations, however CVS Corporation, as the related guarantor,
remains liable for such obligations.
ESTOPPEL LETTERS
The borrower has obtained from each Credit Lease tenant an estoppel letter
with respect to each Credit Lease stating, among other things, that all required
improvements and space required to be furnished according to the Credit Lease
have been duly delivered by the borrower and accepted by the Credit Lease
tenant, all work required to be performed by the borrower under the Credit Lease
has been completed and, to the Credit Lease tenant's knowledge, there are no
defaults by the borrower under the Credit Lease. In addition, under each
estoppel letter, the related tenant states that it has commenced or will
commence on a date certain to make a specified monthly rental payment for a
lease period with a specified beginning and end date.
INSURANCE
Substantially all of the Credit Leases require the Credit Lease tenant to
either maintain or pay for all risk or extended risk casualty insurance on the
mortgaged property in a total amount specified therein (but generally in no
event less than the "replacement cost" of the buildings). Each borrower is
required under its mortgage to provide and maintain casualty insurance,
comprehensive general public liability insurance and rent interruption
insurance, or permit the Credit Lease tenant to self-insure (as described
below), for 100% of the replacement cost of the buildings. In addition, most of
the Credit Leases require the Credit Lease tenant to maintain comprehensive
general public liability insurance with minimum limits per person and per
accident and minimum limits with respect to property damage, and certain Credit
Leases require the Credit Lease tenant to maintain rent interruption insurance
for not less than twelve months. To the extent that the Credit Lease tenant is
obligated to maintain insurance (or is permitted to self-insure) and is in
compliance with such obligation, such borrower may not be required to separately
provide such insurance. Under the terms of the Pooling Agreement, the Master
Servicer is obligated to monitor the maintenance of insurance. To the extent the
borrower fails to maintain the required insurance coverage, the Master Servicer
will "force place" insurance to provide coverage against "all risks" of physical
loss and damage and rental loss coverage to the extent it determines such
insurance to be reasonably commercially available and provided the Trustee, as
mortgagee, has an insurable interest. The costs for such insurance will be
advanced as described in "Description of the Certificates -- Advances" in this
prospectus supplement, subject to the Master Servicer's determination that such
advance is recoverable.
Under certain of the Credit Leases which require the Credit Lease tenant to
maintain either casualty or liability insurance, the Credit Lease tenant may
self-insure if its net worth exceeds a specified threshold amount (generally
$100 million) as specified in the Credit Lease or if it maintains a required
credit rating level.
Unless there is significant debt-service coverage on the Credit Lease Loan,
any borrower that is required under the terms of its related Credit Lease to
maintain insurance which is not reimbursed in full by the Credit Lease Tenant is
required under the terms of its Credit Lease Loan to maintain with the Master
Servicer escalating reserve funds, the required contribution to which are
deducted from monthly rental payments within the Borrower Reserve Fund for the
payment of insurance premiums for the required coverage.
CREDIT LEASE DEFAULTS BY CREDIT LEASE TENANT
A "Credit Lease Default" shall occur if a Credit Lease tenant defaults in
the performance of any covenant or agreement of the Credit Lease, and such
default continues after written notice thereof for a
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specified period (typically 10 days for failure to pay rent, otherwise 30 days)
or, if such nonpayment default cannot reasonably be remedied within 30 days,
after passage of such additional time as is reasonably necessary to remedy the
default. Upon the occurrence of a Credit Lease Default, the Master Servicer on
behalf of the trust may, so long as such Credit Lease Default continues,
exercise the rights under the related Credit Lease Assignment and require the
borrower either (1) to terminate the related Credit Lease by written notice to
the Credit Lease tenant, or (2) not to terminate the Credit Lease and exercise
any of its rights under the Credit Lease.
The borrower has sufficient remedies under each Credit Lease to enforce the
Credit Lease tenant's obligations in the event of a Credit Lease Default.
Generally, the borrower may, by notice to the Credit Lease tenant (1) terminate
the Credit Lease, (2) re-enter the mortgaged property, expel the Credit Lease
tenant and remove all property therefrom, and (3) re-let the mortgaged property
and receive the rent therefrom. The Credit Lease tenant will remain liable for
the amount of monthly rental payments otherwise due under the Credit Lease less
the amounts received from re-letting, if any, after deducting therefrom the
reasonable cost of obtaining possession of the mortgaged property and making any
repairs and alterations necessary to prepare it for re-letting. Pursuant to
certain of such Credit Leases, the borrower is generally obligated to mitigate
its damages. A Credit Lease Default will generally constitute a default under
the related Credit Lease Loan.
CREDIT LEASE TENANT'S SELF-HELP; RIGHT OF OFFSET
A few Credit Leases provide that the Credit Lease tenant may cure, at the
borrower's expense, any default in payment by borrower under any mortgage or
other encumbrance to which the Credit Lease is subordinate, and many Credit
Leases provide that the Credit Lease tenant may cure by performing any Credit
Lease obligation that the borrower fails to perform if a borrower default is not
cured within a specified period after written notice. The borrower is then
required to pay to the Credit Lease tenant on demand any amounts paid by the
Credit Lease tenant under any mortgage or other encumbrance or in the
performance of any such obligations of borrower. In many cases, the Credit Lease
tenant may deduct the amounts so due from rents. In addition, the loan documents
executed by the Credit Lease tenant provide that if the holder of a first
mortgage gives the Credit Lease tenant notice of its interest, then such
mortgagee is entitled to notice from the Credit Lease tenant of any borrower
defaults and a reasonable cure period to remedy such defaults. Further, such
loan documents provide that in the event of a foreclosure, the Credit Lease will
be subordinate to the related mortgage. In accordance with the loan documents,
the mortgagee will not disturb the Credit Lease tenant's possessions under the
Credit Lease, if the Credit Lease tenant is not in default in its obligations
under the Credit Lease and each Credit Lease tenant has agreed to attorn to the
mortgagee in such event.
OPERATING COVENANTS; CREDIT LEASE TENANT ALTERATIONS
While each Credit Lease requires the Credit Lease tenant to fulfill its
payment and maintenance obligations during the term of the Credit Lease, in some
cases, the Credit Lease tenant has not covenanted to operate the related
mortgaged property for the term of the Credit Lease, and the Credit Lease tenant
may at any time cease actual operations at the mortgaged property, but it
remains obligated to continue to meet all of its obligations under the Credit
Lease.
In addition, several of the Credit Leases permit the Credit Lease tenant,
at its own expense and generally with the consent of the borrower, to make such
alterations and construct additional buildings or improvements on the mortgaged
property as it may deem necessary or desirable. In a few circumstances,
generally in Credit Leases where the related tenant has paid for the
construction of improvements, the Credit Lease tenant may be permitted under the
Credit Lease to demolish any part of a building, provided that the Credit Lease
tenant either rebuilds on the location or clears the property of any debris.
Such remedies, if undertaken by the Credit Lease tenant, will not affect the
Credit Lease tenant's obligations under the Credit Lease.
OTHER BORROWER OBLIGATIONS; CREDIT LEASE TENANT RENT ABATEMENT AND LEASE
TERMINATION RIGHTS
Fifty-one of the Credit Leases, which represent 49.51% of the aggregate
Cut-off Date Balance, are Bond-Type Leases or Triple Net Leases obligating each
Credit Lease tenant, at its expense, to maintain its
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mortgaged property, including the roof and structure, in good order and repair.
At the end of the term of the Credit Lease, the Credit Lease tenants are
obligated to surrender the mortgaged property in good order and in its original
condition as when received by the Credit Lease tenant, except for ordinary wear
and tear and repairs required to be performed by the borrower, if any.
Fifty-nine of the Credit Leases, which represent 28.56% of the aggregate
Cut-off Date Balance, are Double Net Leases and provide that the borrower will
have sole responsibility for the maintenance, replacement and repair to one or
more of the (1) roof, outer walls and structural portion of the mortgaged
property, (2) utility services to the mortgaged property, including underground
storm sewers, water lines or electrical lines, and/or (3) the driveways,
sidewalks, streets and parking areas. Each borrower under a Double Net Lease is
required to remit to the Master Servicer for deposit into the Borrower Reserve
Fund, out of the monthly rental payment and in accordance with a Borrower
Reserve Agreement, certain monies to provide a source of payment for the
performance of these obligations. Breach of such obligations could give rise to
Maintenance Termination or Abatement Rights.
In addition, in certain Double Net Leases or Triple Net Leases, the
borrower is required to comply with additional Affirmative Lease Covenants or
Negative Lease Covenants as described below, the breach of which could give rise
to Additional Termination or Abatement Rights.
There are several factors that will encourage a borrower to perform
necessary maintenance, repair and replacement under the Credit Lease. First, as
the monthly rental payments amortize the Credit Lease Loan, the borrower's
equity in the mortgaged property will increase. A borrower's default under the
Credit Lease will cause a default under the Credit Lease Loan which may lead to
foreclosure and the loss of the borrower's equity. Second, such a default and
foreclosure may force the borrower and/or the principals of the borrower to
"recapture" certain losses for federal and state income tax purposes, thereby
creating tax liability. In addition, in the event the borrower fails to perform
such actions, the Master Servicer or the Special Servicer, as applicable, is
obligated to use best efforts to do so, to the extent set forth in the pooling
and servicing agreement. See "The Enhanced Lease Program -- Borrower Protective
Actions" and "-- Servicer Protective Actions" in Annex C of this prospectus
supplement.
Affirmative Lease Covenants in the Credit Leases include the following:
1. Repair After Casualty or Condemnation. In some Credit Leases the
borrower is required to restore the mortgaged property in the event of a
casualty and/or in the event of a partial condemnation if the Credit Lease
tenant does not have the right, or elects not, to terminate its Credit Lease. In
those cases, the borrower must often commence the restoration within a specified
period of time, diligently prosecute such restoration and complete it within a
specified period of time. Typically, a failure by borrower to do so will permit
the Credit Lease tenant to perform such work at the borrower's expense and/or
exercise an Additional Termination or Abatement Right. Any such termination or
abatement would not be covered by any Lease Enhancement Policy, which covers a
Credit Lease termination or rent abatement directly related to a casualty or
condemnation rather than as a result of a borrower's failure to restore.
However, the Lease Enhancement Policy will cover rent abatement during the
restoration period, provided either the borrower or the Master Servicer is
restoring the mortgaged property. The pooling and servicing agreement will
obligate the Master Servicer or the Special Servicer, as applicable, to
supervise such restoration and upon a borrower's failure to perform its
restoration obligations, to use best efforts to complete restoration. In
addition, the Master Servicer will be required to advance funds therefor (so
long as such advances are not deemed to be nonrecoverable). The cost of any
restoration would generally be paid by the Credit Lease tenant or pursuant to
insurance obtained by the Credit Lease tenant or the borrower as described above
under "-- Insurance" or from excess condemnation proceeds, as applicable. In
addition to the protection provided under the Lease Enhancement Policy due to
rent abatement during restoration, all such Credit Lease Loans require the
borrower or the Credit Lease tenant to maintain at least one year of rental
interruption insurance in connection with a casualty. Any such insurance
payments are required to be made to the Master Servicer, and the use of such
funds for repair will be monitored by the Master Servicer or the Special
Servicer, as applicable.
2. Hazardous Wastes. In some Credit Leases, the borrower represents that
it has made a thorough investigation of the physical condition of the mortgaged
property and that the borrower has no knowledge that
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any "toxic or hazardous wastes or substances" were used, generated, stored,
treated or disposed of on the mortgaged property. In addition, the borrower
agrees to indemnify the Credit Lease tenant with respect to any liability that
Credit Lease tenant may incur by reason of these representations being false or
by reason of any investigation of any governmental agency regarding toxic or
hazardous wastes or substances relating to the issues covered by the
representations. The borrower in some Credit Leases is generally required to
remove hazardous materials on the mortgaged property other than those introduced
by the Credit Lease tenant or its agents. CLF obtained Phase I (and, if
necessary, Phase II) environmental reports from approved third party providers
with respect to each mortgaged property in connection with origination of the
Credit Lease Loans. The environmental assessments revealed certain adverse
environmental conditions in connection with which environmental reserves have
been established and/or removal or monitoring programs have been or are expected
to be implemented. In the case of the Credit Lease Loans, in each case either
one or all of the following are mitigants to the above referenced environmental
assessments: (1) a responsible party has been identified and has accepted
responsibility and indemnified the borrower; (2) the Credit Lease tenant is
responsible for all environmental problems; (3) a state agency (for off-site
environmental problems) is rectifying the situation; (4) a state agency has been
notified and has approved the operations and maintenance remediation plan in
place; or (5) appropriate reserves have been established. Under such Credit
Leases, if the borrower fails to pursue the appropriate remedy, the Master
Servicer or the Special Servicer, as applicable, will use best efforts to
perform Servicer Protective Actions to remediate the presence of hazardous
materials. Credit Lease Loans made with respect to Credit Leases with these
provisions have generally been structured with cash flows to enable borrowers
and the Master Servicer to have cash available to pay for such Servicer
Protective Actions in the unlikely event they are necessary.
3. Discharge Mechanics' and Other Liens. In many Credit Leases, the
borrower is required to keep the mortgaged property free from mechanics' liens,
and in a few Credit Leases the borrower is required to pay certain taxes (other
than real estate taxes) or other charges on the related mortgaged property. To
the extent such expenses are anticipated, they are provided for in the Borrower
Reserve Fund. In addition, Borrower Protective Actions and Servicer Protective
Actions are designed to mitigate this risk.
4. Unanticipated Repairs. In some Credit Leases, the borrower has agreed
to certain ongoing unanticipated repair obligations beyond those that may give
rise to Maintenance Termination or Abatement Rights. It is anticipated that this
obligation does not materially increase such obligation of the borrower beyond
that already required in Double Net Leases. In the case of Triple Net Leases,
the related borrowers generally were obligated to establish specified reserves
or obtain letters of credit. Borrower Protective Actions, Servicer Protective
Actions, and the availability of the Borrower Reserve Fund are designed to
mitigate this risk.
5. Comply with Laws. Each Credit Lease tenant is typically required to
comply with all requirements, rules, orders and regulations of federal, state
and municipal governments or other duly constituted public authorities arising
from the Credit Lease tenant's use of the mortgaged property, including the
making of non-structural alterations. In some Credit Leases, compliance with
such requirements not relating to a Credit Lease tenant's specific use are the
responsibility of the borrower, and could involve making modifications to the
mortgaged property or otherwise incurring expenses. Such responsibilities may
include an obligation to contest any change in zoning which has a material
impact on the Credit Lease tenant's ability to conduct business. Borrower
Protective Actions and Servicer Protective Actions are designed to mitigate this
risk.
6. Access, Parking and Compliance with Documents of Record. In a few
Credit Leases, the borrower warrants that it will maintain ingress and egress
facilities to adjoining public ways as shown on the related survey, subject to
unavoidable temporary closing, temporary relocations necessitated by public
authority or other circumstances beyond borrower's control, and covenants that
the aggregate area provided for the parking upon the mortgaged property during
the term will be sufficient to accommodate a minimum number of automobiles
specified in each Credit Lease. In addition, certain borrowers have also agreed
to comply with title matters to which the Credit Lease is subject, including
easement agreements. Borrower Protective Actions and Servicer Protective Actions
are designed to mitigate this risk.
7. Other Affirmative Covenants. Certain Credit Leases may have additional
affirmative covenants, including the obligation to comply with zoning
requirements (with certain Credit Leases providing Additional
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Termination or Abatement Rights for certain zoning changes which impair the
ability of the Credit Lease tenant to conduct its business).
Negative Lease Covenants which occur in the Credit Leases include the
following:
1. Use Restriction Covenants. In some Credit Leases, the borrower or an
affiliate is prohibited from using properties within a specified proximity of
the mortgaged property for certain prohibited uses, generally either for
businesses which would compete with the business conducted by the Credit Lease
tenant, or for uses which could adversely affect the appearance or character of
the neighborhood. In the event of certain types of Mortgage Defaults in some
Credit Lease Loans, the loan documents will provide for recourse to the
principals of the borrower for a violation of these covenants. In addition,
Borrower Protective Actions and Servicer Protective Actions are designed to
mitigate this risk.
2. Other Negative Covenants. Particular Credit Leases may include other
negative covenants, such as the agreement not to modify the parking lot or other
portions of the surrounding premises without the Credit Lease Tenant's consent
or an agreement not to seek a zoning change. In the event of certain types of
defaults in some loans, the loan documents will provide for recourse to the
principals of the borrower for a violation of these covenants. Borrower
Protective Actions and Servicer Protective Actions are designed to mitigate this
risk.
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SERVICING OF THE LOANS
GENERAL
The Master Servicer and the Special Servicer, either directly or through
sub-servicers, will each be required to service and administer the respective
Loans for which it is responsible, in the best interests and for the benefit of
the certificateholders, in accordance with any and all applicable laws, the
terms of the pooling and servicing agreement, related insurance policies and the
respective Loans and, to the extent consistent with the foregoing, the following
standard (the "Servicing Standard"): (a) in the same manner in which, and with
the same care, skill, prudence and diligence with which, the Master Servicer or
Special Servicer, as the case may be, generally services and administers similar
mortgage loans or assets, as applicable, for third parties, giving due
consideration to customary and usual standards of practices of prudent
institutional commercial mortgage lenders servicing their own loans, or
generally services and administers similar mortgage loans or assets, as
applicable, held in its own portfolio, whichever servicing procedure is of a
higher standard; (b) with a view to the timely collection of all scheduled
payments of principal and interest under the Loans or, if a Loan comes into and
continues in default and if, in the good faith and reasonable judgment of the
Special Servicer, no satisfactory arrangements can be made for the collection of
the delinquent payments, the maximization of the recovery on such Loan to the
certificateholders (collectively) on a present value basis; and (c) without
regard to (i) any relationship that the Master Servicer or the Special Servicer,
as the case may be, or any affiliate thereof may have with any related borrower;
(ii) the ownership of any certificate by the Master Servicer or the Special
Servicer, as the case may be, or any affiliate thereof; (iii) the Master
Servicer's obligation to make Advances (as defined herein); (iv) the Special
Servicer's obligation to make (or to direct the Master Servicer to make)
Servicing Advances (as defined herein); (v) the right of the Master Servicer or
the Special Servicer, as the case may be, or any affiliate thereof to receive
compensation for its services or reimbursement of costs under the pooling and
servicing agreement or with respect to any particular transaction; and (vi) the
servicing of other mortgage loans by the Master Servicer or the Special
Servicer, as the case may be.
In addition, the pooling and servicing agreement requires the Master
Servicer and the Special Servicer to perform Servicer Protection Actions
designed to prevent a termination of a Credit Lease or an abatement of rent
thereunder due to a Credit Lease tenant's exercise of its Maintenance
Termination or Abatement Rights and Additional Termination or Abatement Rights.
In general, the Master Servicer will be responsible for the servicing and
administration of all the Loans as to which no Servicing Transfer Event (as
defined herein) has occurred and all Corrected Loans (as defined herein), and
the Special Servicer will be obligated to service and administer each Loan
(other than a Corrected Loan) as to which a Servicing Transfer Event has
occurred (each, a "Specially Serviced Loan") and each Mortgaged Property
acquired on behalf of the Certificateholders in respect of a defaulted Loan
through foreclosure, deed-in-lieu of foreclosure or otherwise (upon acquisition,
an "REO Property").
A "Servicing Transfer Event" with respect to any Loan consists of any of
the following events:
(1) the related borrower has failed to make when due any Balloon
Payment, which failure has continued, or the Master Servicer determines in
its good faith and reasonable judgment will continue, unremedied for 30
days;
(2) the Master Servicer has received notice that the borrower, and the
Master Servicer through the use of Servicer Protective Actions (which
consist of filing notices and pursuing claims under the Lease Enhancement
Policies, the Extended Amortization Policies and "force place" insurance
policies, as well as making Servicing Advances) has failed to correct a
condition which may permit the tenant to offset or abate monthly rental
payments or terminate the related Credit Lease (a "Credit Lease Termination
Condition");
(3) the related borrower has failed to make when due any Monthly
Payment (other than a Balloon Payment) or any other payment required under
the related Mortgage Note or the related Mortgage(s),
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which failure has continued, or the Master Servicer determines in its good
faith and reasonable judgment will continue, unremedied for 60 days;
(4) the Master Servicer has determined in its good faith and
reasonable judgment that a default in the making of a Monthly Payment
(including a Balloon Payment) or any other payment required under the
related Mortgage Note or the related Mortgage(s) is likely to occur within
30 days and is likely to remain unremedied for at least 60 days or, in the
case of a Balloon Payment, for at least 30 days;
(5) there shall have occurred a default under the related loan
documents, other than as described in clause (1) or (3) above, that may, in
the Master Servicer's good faith and reasonable judgment, materially impair
the value of the related mortgaged property as security for the mortgage
loan or otherwise materially and adversely affect the interests of
Certificateholders, which default has continued unremedied for the
applicable cure period under the terms of the Loan (or, if no cure period
is specified, 60 days);
(6) a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises in an involuntary case under any
present or future federal or state bankruptcy, insolvency or similar law or
the appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its affairs,
shall have been entered against the related borrower and such decree or
order shall have remained in force undischarged or unstayed for a period of
60 days;
(7) the related borrower shall have consented to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to such borrower or of or relating to all or substantially all of
its property;
(8) the related borrower shall have admitted in writing its inability
to pay its debts generally as they become due, filed a petition to take
advantage of any applicable insolvency or reorganization statute, made an
assignment for the benefit of its creditors, or voluntarily suspended
payment of its obligations; or
(9) the Master Servicer shall have received notice of the commencement
of foreclosure or similar proceedings with respect to the related mortgaged
property.
The Master Servicer shall continue to collect information and prepare all
reports to the Trustee required under the pooling and servicing agreement with
respect to any Specially Serviced Loans and REO Properties, and further to
render incidental services with respect to any Specially Serviced Loans and REO
Properties as are specifically provided for in the pooling and servicing
agreement. The Master Servicer and the Special Servicer shall not have any
responsibility for the performance by each other of their respective duties
under the pooling and servicing agreement.
A Loan will cease to be a Specially Serviced Loan (and will become a
"Corrected Loan" as to which the Master Servicer will re-assume servicing
responsibilities) at such time as such of the following as are applicable occur
with respect to the circumstances identified above that caused the mortgage loan
to be characterized as a Specially Serviced Loan (and provided that no other
Servicing Transfer Event then exists):
(v) with respect to the circumstances described in clauses (1) and (3)
of the preceding paragraph, the related borrower has made three consecutive
full and timely Monthly Payments under the terms of such mortgage loan (as
such terms may be changed or modified in connection with a bankruptcy or
similar proceeding involving the related borrower or by reason of a
modification, waiver or amendment granted or agreed to by the Special
Servicer);
(w) with respect to the circumstances described in clause (2) of the
preceding paragraph, such default is cured notwithstanding that Servicing
Advances relating thereto may still be outstanding;
(x) with respect to the circumstances described in clauses (4), (6),
(7) and (8) of the preceding paragraph, such circumstances cease to exist
in the good faith and reasonable judgment of the Special Servicer;
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(y) with respect to the circumstances described in clause (5) of the
preceding paragraph, such default is cured; and
(z) with respect to the circumstances described in clause (9) of the
preceding paragraph, such proceedings are terminated.
The Special Servicer will prepare a report (an "Asset Status Report") for
each Loan which becomes a Specially Serviced Loan not later than 30 days after
the servicing of such Loan is transferred to the Special Servicer. Each Asset
Status Report will be delivered to the Directing Certificateholder (as defined
below), the Master Servicer and the Rating Agencies. The Directing
Certificateholder may object to any Asset Status Report within 10 business days
of receipt; provided, however, that the Special Servicer shall implement the
recommended action as outlined in such Asset Status Report if it makes an
affirmative determination that such objection is not in the best interest of all
the certificateholders. In connection with making such affirmative
determination, the Special Servicer may request a vote by all
certificateholders. If the Directing Certificateholder does not disapprove an
Asset Status Report within 10 business days, the Special Servicer shall
implement the recommended action as outlined in such Asset Status Report. If the
Directing Certificateholder disapproves such Asset Status Report and the Special
Servicer has not made the affirmative determination described above, the Special
Servicer will revise such Asset Status Report as soon as practicable thereafter,
but in no event later than 30 days after such disapproval. The Special Servicer
will revise such Asset Status Report until the Directing Certificateholder fails
to disapprove such revised Asset Status Report as described above or until the
Special Servicer makes a determination that such objection is not in the best
interests of the certificateholders.
The "Directing Certificateholder" is the Controlling Class
Certificateholder selected by the Majority Certificateholder of the Controlling
Class, as certified by the Trustee from time to time; provided, however, that
(i) absent such selection, or (ii) until a Directing Certificateholder is so
selected, or (iii) upon receipt of a notice from a majority of the Controlling
Class, by Certificate Principal Balance, that a Directing Certificateholder is
no longer designated, the Controlling Class Certificateholder that owns the
largest aggregate Certificate Balance of the Controlling Class will be the
Directing Certificateholder.
A "Controlling Class Certificateholder" is each Holder (or Certificate
Owner, if applicable) of a Certificate of the Controlling Class as certified to
the Trustee from time to time by such Holder (or Certificate Owner).
The "Controlling Class" will be, as of any date of determination, the
outstanding Class of Sequential Pay Certificates with the lowest payment
priority (the Class A Certificates being treated as a single class for this
purpose) that has a then outstanding Certificate Balance at least equal to 25%
of its initial Certificate Balance (or, if no Class of Sequential Pay
Certificates has a Certificate Balance at least equal to 25% of its initial
Certificate Balance, then the Controlling Class shall be the outstanding Class
of Sequential Pay Certificates with the largest outstanding Certificate
Balance). The Controlling Class as of the Delivery Date will be the Class G
Certificates.
The Special Servicer will not be required to take or refrain from taking
any action pursuant to instructions from the Directing Certificateholder that
would cause it to violate applicable law, the pooling and servicing agreement,
including the Servicing Standards, or the REMIC Provisions.
The Master Servicer and Special Servicer will each be required to service
and administer any group of related cross-collateralized Loans as a single Loan
as and when it deems necessary and appropriate, consistent with the Servicing
Standard. If any cross-collateralized Loan becomes a Specially Serviced Loan,
then each other loan that is cross-collateralized with it shall also become a
Specially Serviced Loan. Similarly, no cross-collateralized loan shall
subsequently become a Corrected Loan, unless and until all Servicing Transfer
Events in respect of each other Loan with which it is cross-collateralized, are
remediated or otherwise addressed as contemplated above.
Set forth below is a description of certain pertinent provisions of the
pooling and servicing agreement relating to the servicing of the Loans.
Reference is also made to the accompanying prospectus, in particular to the
section captioned "The Pooling and Servicing Agreements," for additional
important information
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regarding the terms and conditions of the pooling and servicing agreement as
such terms and conditions relate to the rights and obligations of the Master
Servicer and the Special Servicer thereunder.
THE MASTER SERVICER AND THE SPECIAL SERVICER
Midland Loan Services, L.P. was organized under the laws of Missouri in
1992 as a limited partnership. In April 1998, substantially all of the assets of
Midland Loan Services, L.P., were acquired by Midland Loan Services, Inc.
("Midland"), a newly formed, wholly-owned subsidiary of PNC Bank, National
Association. Midland is a real estate financial services company which provides
loan servicing and asset management for large pools of commercial and
multifamily real estate assets and originates commercial real estate loans.
Midland's address is 210 West 10th Street, 6th Floor, Kansas City, Missouri
64105.
As of December 31, 1998, Midland was responsible for the servicing of
approximately 13,100 commercial and multifamily loans with an aggregate
principal balance of approximately $39.2 billion, the collateral for which is
located in all 50 states and Puerto Rico. With respect to such loans,
approximately 10,900 loans with an aggregate principal balance of approximately
$31.3 billion pertain to commercial and multifamily mortgage-backed securities.
Property type concentrations within the portfolio include multifamily, office,
retail, hotel/motel and other types of income producing properties. In addition,
Midland (or its predecessor in interest) has serviced credit tenant lease-backed
loans originated by CLF since 1995. Midland and its affiliates also provide
commercial loan servicing for newly-originated loans and loans acquired in the
secondary market on behalf of issuers of commercial and multifamily
mortgage-backed securities, financial institutions and private investors.
Midland has been approved as a master and special servicer for investment
grade-rated commercial and multifamily mortgage-backed securities by S&P.
Midland is ranked "Strong" as a commercial loan servicer and asset manager and
"Above Average" as a master servicer by S&P. S&P rates commercial loan
servicers, master servicers and asset managers in one of five rating categories:
Strong, Above Average, Average, Below Average and Weak. Midland is also a
HUD/FHA-approved mortgagee and a Fannie Mae-approved multifamily loan servicer.
The information set forth in this prospectus supplement concerning the
Master Servicer and the Special Servicer has been provided by Midland.
Accordingly, none of the Depositor, the Loan Sellers or the Underwriter makes
any representation or warranty as to the accuracy or completeness of such
information.
SUB-SERVICERS
The Master Servicer and Special Servicer may each delegate its servicing
obligations in respect of the Loans serviced thereby to one or more third-party
servicers (each, a "Sub-Servicer"); provided that the Master Servicer or Special
Servicer, as the case may be, will remain obligated under the pooling and
servicing agreement for such delegated duties. All of the NationsBank Mortgage
Loans are currently being primary serviced by third-party servicers that are
entitled to and will become Sub-Servicers of such loans on behalf of the Master
Servicer. Each sub-servicing agreement between the Master Servicer or Special
Servicer, as the case may be, and a Sub-Servicer (each, a "Sub-Servicing
Agreement") must provide that, if for any reason the Master Servicer or Special
Servicer, as the case may be, is no longer acting in such capacity, the Trustee
or any successor to such Master Servicer or Special Servicer may (i) assume such
party's rights and obligations under such Sub-Servicing Agreement, (ii) enter
into a new Sub-Servicing Agreement with such Sub-Servicer on such terms as the
Trustee or such other successor Master Servicer or Special Servicer and such
Sub-Servicer shall mutually agree or (iii) terminate such Sub-Servicer without
cause (but only upon payment to the Sub-Servicer of specified compensation). The
Master Servicer and Special Servicer will each be required to monitor the
performance of Sub-Servicers retained by it.
The Master Servicer and Special Servicer will each be solely liable for all
fees owed by it to any Sub-Servicer retained thereby, irrespective of whether
its compensation pursuant to the pooling and servicing agreement is sufficient
to pay such fees. Each Sub-Servicer retained thereby will be reimbursed by the
Master Servicer or Special Servicer, as the case may be, for certain
expenditures which it makes, generally to the
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same extent the Master Servicer or Special Servicer would be reimbursed under
the pooling and servicing agreement. See "-- Servicing Compensation and Payment
of Expenses" in this prospectus supplement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Pursuant to the pooling and servicing agreement, the Master Servicer will
be entitled to receive a monthly servicing fee (the "Master Servicing Fee")
equal to a per annum rate (net of any sub-servicer fee rate) of 0.06% for each
NationsBank Mortgage Loan and a per annum rate of 0.12% for each Credit Lease
Loan (the "Master Servicing Fee Rate") on the then outstanding principal balance
of such Loan calculated on the basis of a 360-day year consisting of twelve
30-day months as more particularly described in the schedule of Loans. The
Master Servicing Fee relating to each Loan will be retained by the Master
Servicer from payments and collections (including insurance proceeds and
liquidation proceeds) in respect of such Loan. In the event that Midland shall
resign or be terminated as the Master Servicer and a successor Master Servicer
shall agree for any reason to perform services of the Master Servicer for an
amount (the "Successor Servicer Retained Fee") less than the Master Servicing
Fee, no part of any excess of the Master Servicing Fee over the Successor
Servicer Retained Fee will be available for payment to certificateholders. The
Master Servicer will also be entitled to retain as additional servicing
compensation (1) Prepayment Interest Excess, (2) all investment income earned on
amounts on deposit in the Rent Escrow Account, the Certificate Account and the
Servicing Accounts, and (3) all amounts collected with respect to the Loans
(that are not Specially Serviced Loans) in the nature of loan service
transaction fees, late fees and late payment charges, demand fees, modification
fees, beneficiary statement charges and similar fees and charges, and assumption
fees.
If a borrower prepays a Loan, in whole or in part, after the Due Date but
on or before the Determination Date in any calendar month, the amount of
interest (net of related Master Servicing Fees and Special Servicing Fees)
accrued on such prepayment from such Due Date to, but not including, the date of
prepayment (or any later date through which interest accrues) will, to the
extent actually collected, constitute a "Prepayment Interest Excess".
Conversely, if a borrower prepays a Loan, or a payment is made under a Lease
Enhancement Policy with respect to a Credit Lease Loan, in whole or in part,
after the Determination Date in any calendar month and does not pay interest on
such prepayment through the end of such calendar month, then the shortfall in a
full month's interest (net of related Master Servicing Fees and any Prepayment
Interest Excess, and with respect to the Credit Lease Loans, net of amounts on
deposit in the Expense Reserve Fund) on such prepayment will constitute a
"Prepayment Interest Shortfall". Prepayment Interest Excesses collected on the
Loans will be retained by the Master Servicer as additional servicing
compensation. The Master Servicer will cover, out of its own funds, any
Prepayment Interest Shortfalls incurred with respect to the Loans during any
Collection Period, but only to the extent of Prepayment Interest Excesses and a
portion of its aggregate Master Servicing Fee for the related Collection Period,
which portion is, in the case of each and every Loan, calculated at 0.01% per
annum.
Pursuant to the pooling and servicing agreement, the Special Servicer will
be entitled to receive a monthly special servicing fee (the "Special Servicing
Fee") for each Specially Serviced Loan equal to a per annum rate of 0.30%. A
"Workout Fee" will in general be payable with respect to each Corrected Loan. As
to each Corrected Loan, the Workout Fee will be payable out of, and will be
calculated by application of a "Workout Fee Rate" of 1.0% to, each collection of
interest (other than Default Interest (as defined below)) and principal
(including scheduled payments, prepayments, Balloon Payments and payments at
maturity) received on such Loan for so long as it remains a Corrected Loan. The
Special Servicer will not be entitled to receive any Workout Fee to the extent
the Servicing Transfer Event related solely to the event described in clause (2)
of the definition of the Servicing Transfer Event. The Workout Fee with respect
to any Corrected Loan will cease to be payable if such loan again becomes a
Specially Serviced Loan or if the related mortgaged property becomes an REO
Property; provided that a new Workout Fee will become payable if and when such
mortgage loan again becomes a Corrected Loan. If the Special Servicer is
terminated (other than for cause) or resigns, it shall retain the right to
receive any and all Workout Fees payable with respect to Loans that became
Corrected Loans during the period that it acted as Special Servicer and were
still such at the time of such termination or resignation (and the successor
Special Servicer shall not be entitled to any portion of such Workout Fees), in
each case until the Workout Fee for any such loan ceases to be payable in
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accordance with the preceding sentence. A "Liquidation Fee" will be payable with
respect to each Specially Serviced Loan as to which the Special Servicer obtains
a full or discounted payoff with respect thereto from the related borrower and,
except as otherwise described below, with respect to any Specially Serviced Loan
or REO Property as to which the Special Servicer receives any Liquidation
Proceeds. As to each such Specially Serviced Loan and REO Property, the
Liquidation Fee will be payable from, and will be calculated by application of a
"Liquidation Fee Rate" of 1.0% to, the related payment or proceeds (other than
any portion thereof that represents accrued but unpaid Default Interest).
Notwithstanding anything to the contrary described above, no Liquidation Fee
will be payable based on, or out of, Liquidation Proceeds received in connection
with (i) the repurchase of any Loan by the Loan Sellers for a breach of
representation or warranty or for defective or deficient Loan documentation so
long as such repurchase occurs within the time required under the pooling and
servicing agreement, (ii) the purchase of any Specially Serviced Loan or REO
Property by the Master Servicer, the Special Servicer or any holder or holders
of certificates evidencing a majority interest in the Controlling Class or (iii)
the purchase of all of the Loans and REO Properties by the Master Servicer or
any holder or holders of Certificates evidencing a majority interest in the
Controlling Class in connection with the termination of the Trust. If, however,
Liquidation Proceeds are received with respect to any Corrected Loan and the
Special Servicer is properly entitled to a Workout Fee, such Workout Fee will be
payable based on and out of the portion of such liquidation proceeds that
constitute principal and/or interest. The Special Servicer will be authorized to
invest or direct the investment of funds held in any accounts maintained by it
that constitute part of the Certificate Account, in Permitted Investments, and
the Special Servicer will be entitled to retain any interest or other income
earned on such funds, but will be required to cover any losses from its own
funds without any right to reimbursement.
Midland will pay all expenses incurred in connection with its
responsibilities under the pooling and servicing agreement (subject to
reimbursement as described in this prospectus supplement), including all fees of
any sub-servicers retained by it and the various other expenses described in
this prospectus supplement as expenses of the Master Servicer.
As additional servicing compensation, the Sub-Servicers (or, to the extent
such Sub-Servicers are not entitled thereto, the Master Servicer) with respect
to Loans that are not Specially Serviced Loans, and the Special Servicer with
respect to Specially Serviced Loans, generally will be entitled to retain all
assumption and modification fees, "Default Interest" (that is, interest in
excess of interest at the related Mortgage Rate accrued as a result of a
default) (to the extent such Default Interest is not otherwise applied to cover
interest on Advances if received on a Specially Serviced Loan or a Credit Lease
Loan), late payment charges (to the extent such late payment charges are not
otherwise applied to cover interest on Advances if received on a Specially
Serviced Mortgage Loan), charges for beneficiary statements or demands and any
similar fees, in each case to the extent actually paid by the borrowers with
respect to such Loans (and, accordingly, such amounts will not be available for
distribution to certificateholders). The respective Sub-Servicers (or, to the
extent such Sub-Servicers are not entitled thereto, the Master Servicer) shall
be entitled to receive all amounts collected for checks returned for
insufficient funds with respect to all Loans (including Specially Serviced
Loans) as additional servicing compensation. Default Interest and late payment
charges accrued in respect of any Loan after it has become a Specially Serviced
Loan are to be applied to cover interest on Advances in respect of such Loan. In
addition, collections on a Loan are to be applied to interest (at the related
Loan Rate) and principal then due and owing prior to being applied to Default
Interest and late payment charges.
The Master Servicer and the Special Servicer will, in general, each be
required to pay its overhead and any general and administrative expenses
incurred by it in connection with its servicing activities under the pooling and
servicing agreement, and neither will be entitled to reimbursement therefor
except as expressly provided in the pooling and servicing agreement. In general,
customary, reasonable and necessary "out of pocket" costs and expenses incurred
by the Master Servicer or Special Servicer in connection with the servicing of a
Loan after a default, delinquency or other unanticipated event, or in connection
with the administration of any REO Property, will constitute "Servicing
Advances" (Servicing Advances and P&I Advances, collectively, "Advances") and,
in all cases, will be reimbursable from future payments and other collections,
including in the form of Insurance Proceeds, Condemnation Proceeds and
Liquidation Proceeds,
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on or in respect of the related Loan or REO Property ("Related Proceeds").
Notwithstanding the foregoing, the Master Servicer and the Special Servicer will
each be permitted to pay, or to direct the payment of, certain servicing
expenses directly out of the Certificate Account and at times without regard to
the relationship between the expense and the funds from which it is being paid
(including in connection with the remediation of any adverse environmental
circumstance or condition at a Mortgaged Property or an REO Property, although
in such specific circumstances the Master Servicer may advance the costs
thereof).
The Master Servicer, the Special Servicer and the Trustee will be obligated
to make Servicing Advances only to the extent that such Servicing Advances are,
in the reasonable and good faith judgment of the Master Servicer, the Special
Servicer or the Trustee, as the case may be, ultimately recoverable from Related
Proceeds (any Servicing Advance not so recoverable, a "Nonrecoverable Servicing
Advance").
The foregoing paragraph notwithstanding, the Master Servicer is required
(at the direction of the Special Servicer if a Specially Serviced Loan or an REO
Property is involved) to pay directly out of the Certificate Account any
servicing expense that, if paid by the Master Servicer or the Special Servicer,
would constitute a Nonrecoverable Servicing Advance; provided that the Master
Servicer (or the Special Servicer, if a Specially Serviced Loan or an REO
Property is involved) has determined in accordance with the Servicing Standard
that making such payment is in the best interests of the Certificateholders (as
a collective whole), as evidenced by an officer's certificate delivered promptly
to the Trustee, the Depositor and the Rating Agencies, setting forth the basis
for such determination and accompanied by any supporting information the Master
Servicer or the Special Servicer may have obtained.
As and to the extent described herein, the Master Servicer, the Special
Servicer and the Trustee are each entitled to receive interest at the
Reimbursement Rate on Servicing Advances made thereby. See "The Pooling and
Servicing Agreements -- Certificate Account" and "-- Servicing Compensation and
Payment of Expenses" in the accompanying prospectus and "Description of the
Certificates -- Advances" in this prospectus supplement.
EVIDENCE AS TO COMPLIANCE
The Pooling Agreement requires each of the Master Servicer and the Special
Servicer to cause a firm of independent public accountants, which is a member of
the American Institute of Certified Public Accountants, to furnish to the
Depositor, the Trustee and each Rating Agency on or before April 30 of each
year, beginning April 30, 2000, a statement to the effect that such firm has
examined certain documents and records relating to the servicing of the Loans or
the servicing of loans similar to the Loans for the preceding twelve months and
that the assertion of the management of the Master Servicer or the Special
Servicer, as applicable, that it has maintained an effective internal control
system over its servicing of Loans is fairly stated in all material respects
based upon established criteria that meets the standards applicable to
accountants' reports intended for general distribution.
The Agreement also requires each of the Master Servicer and the Special
Servicer to deliver to the Trustee and each Rating Agency, on or before a
specified date in each year, an officer's certificate of the Master Servicer or
the Special Servicer, as applicable, stating that, to the best of such officer's
knowledge, the Master Servicer or the Special Servicer, as applicable, has
fulfilled its obligations under the Pooling Agreement throughout the preceding
year in all material respects or, if there has been a default, specifying each
default known to such officer.
MODIFICATIONS, WAIVERS, AMENDMENTS AND CONSENTS
The Master Servicer and the Special Servicer each may, consistent with the
Servicing Standard, agree to any modification, waiver or amendment of any term
of, forgive or defer the payment of interest on and principal of, permit the
release, addition or substitution of collateral securing, and/or permit the
release of the borrower on or any guarantor of any Loan it is required to
service and administer, without the consent of the
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Trustee or any Certificateholder, subject, however, to each of the following
limitations, conditions and restrictions:
(1) with limited exception, neither the Master Servicer nor the
Special Servicer may agree to any modification, waiver or amendment of any
term of, or take any of the other above referenced actions with respect to,
any Loan it is required to service and administer that would affect the
amount or timing of any related payment of principal, interest or other
amount payable thereunder or, in the Master Servicer's or the Special
Servicer's good faith and reasonable judgment, would materially alter the
security for such Loan or reduce the likelihood of timely payment of
amounts due thereon; provided, however, the Special Servicer may agree to
any modification, waiver or amendment of any term of, or take any of the
other above referenced actions with respect to, a Specially Serviced Loan
that would have any such effect, but only if a material default on such
Loan has occurred or, in the Special Servicer's reasonable and good faith
judgment, a default in respect of payment on such Loan is reasonably
foreseeable, and such modification, waiver, amendment or other action is
reasonably likely to produce a greater recovery to Certificateholders
(collectively) on a present value basis than would liquidation as certified
to the Trustee in an officer's certificate;
(2) the Special Servicer may not, in connection with any particular
extension, extend the maturity date of a Loan beyond a date that is two
years prior to the Rated Final Distribution Date, or beyond a date which is
10 years prior to the expiration date of any related Ground Lease;
(3) unless the proviso to clause (1) above applies, neither the Master
Servicer nor the Special Servicer may make or permit any modification,
waiver or amendment of any term of, or take any of the other above
referenced actions with respect to, any Loan that would constitute a
"significant modification" of such Loan within the meaning of Treasury
Regulations Section 1.860G-2(b) (neither the Master Servicer nor the
Special Servicer shall be liable for judgments as regards decisions made
under this subsection which were made in good faith and, unless it would
constitute bad faith or gross negligence to do so, each of the Master
Servicer and the Special Servicer may rely on opinions of counsel in making
such decisions);
(4) neither the Master Servicer nor the Special Servicer may permit
any borrower to add or substitute any collateral for an outstanding Loan,
which collateral constitutes real property, unless (A) the Special Servicer
shall have first determined in accordance with the Servicing Standard,
based upon a Phase I environmental assessment (and such additional
environmental testing as the Special Servicer deems necessary and
appropriate), that such additional or substitute collateral is in
compliance with applicable environmental laws and regulations and that
there are no circumstances or conditions present with respect to such new
collateral relating to the use, management or disposal of any hazardous
materials for which investigation, testing, monitoring, containment,
clean-up or remediation would be required under any then applicable
environmental laws and/or regulations and (B) the Master Servicer or the
Special Servicer, as the case may be, shall have obtained written
confirmation from each Rating Agency that such substitution will not result
in the withdrawal, downgrade or qualification of any rating then assigned
to any class of certificates; and
(5) with limited exceptions, including a permitted defeasance as
described above under "Description of the Loan Pool -- Certain Terms and
Conditions of the Loans -- Defeasance," neither the Master Servicer nor the
Special Servicer shall release any collateral securing an outstanding Loan;
provided that (x) the limitations, conditions and restrictions set forth in
clauses (1) (2), (4) and (5) above will not apply to any of the above referenced
actions in respect of any term of any Loan that is required under the terms of
such Loan in effect on the Closing Date, and (y) notwithstanding clauses (1)
through (4) above, neither the Master Servicer nor the Special Servicer will be
required to oppose the confirmation of a plan in any bankruptcy or similar
proceeding involving a borrower if in their reasonable and good faith judgment
such opposition would not ultimately prevent the confirmation of such plan or
one substantially similar.
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SALE OF DEFAULTED LOANS
The pooling and servicing agreement grants to the Master Servicer, the
Special Servicer and any holder or holders of certificates evidencing a majority
interest in the Controlling Class a right to purchase from the Trust certain
defaulted Loans in the priority described below. If the Special Servicer has
determined, in its good faith and reasonable judgment, that any defaulted Loan
will become the subject of a foreclosure sale or similar proceeding and that the
sale of such Loan under the circumstances described in this paragraph is in
accordance with the Servicing Standard, the Special Servicer will be required to
promptly so notify in writing the Trustee and the Master Servicer, and the
Trustee will be required, within 10 days after receipt of such notice, to notify
the holder (or holders) of the Controlling Class. A single holder or particular
group of holders of certificates evidencing a majority interest in the
Controlling Class may, at its or their option, purchase any such defaulted Loan
from the Trust, at a price equal to the applicable Purchase Price. If such
certificateholder(s) has (have) not purchased such defaulted Loan within 15 days
of its having received notice in respect thereof, either the Special Servicer or
the Master Servicer, in that order, may, at its option, purchase such defaulted
Loan from the Trust, at a price equal to the applicable Purchase Price.
The Special Servicer may offer to sell any defaulted Loan that has not
otherwise been purchased as described in the prior paragraph, if and when the
Special Servicer determines, consistent with the Servicing Standard, that such a
sale would be in the best economic interests of the Trust. Such offer is to be
made in a commercially reasonable manner for a period of not less than 30 days.
Unless the Special Servicer determines that acceptance of any offer would not be
in the best economic interests of the Trust, the Special Servicer shall accept
the highest cash offer received from any person that constitutes a fair price
(which may be less than the Purchase Price) for such Loan; provided that none of
the Special Servicer, the Master Servicer, the Depositor, the Loan Sellers, the
holder of any certificate or any affiliate of any such party (each, an
"Interested Person") may purchase such Loan (or any REO Property acquired in
respect thereof) for less than the Purchase Price unless at least two other
offers are received from independent third parties at a price that is less than
the Purchase Price and the price proposed by any Interested Persons; and
provided, further, that neither the Trustee nor an affiliate thereof may make an
offer for any such Loan. See also "The Pooling and Servicing
Agreements -- Realization Upon Defaulted Mortgage Loans" in the accompanying
prospectus.
LIMITATIONS ON FORECLOSURE
Pursuant to the pooling and servicing agreement, the Special Servicer will
not foreclose on the related mortgaged property unless the Special Servicer has
previously determined, based on an environmental site assessment report prepared
by an independent person who regularly conducts environmental assessments, that
(1) such mortgaged property is in compliance with applicable environmental laws
or, if not, after consultation with an environmental consultant that it would be
in the best economic interest of the trust to take such actions as are necessary
to bring such mortgaged property in compliance therewith and (2) there are no
circumstances present at such mortgaged property relating to the use, management
or disposal of any hazardous materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under any
currently effective federal, state or local law or regulation, or that, if any
such hazardous materials are present for which such action could be required,
after consultation with an environmental consultant it would be in the best
economic interest of the trust to take such actions with respect to the affected
mortgaged property. In some cases the Trustee's interest in the mortgaged
property under the mortgage may be subordinate to liens for taxes, assessments
and governmental charges. In such cases it may become necessary to make payments
in order to discharge the prior liens. If a Mortgage Default and a Credit Lease
Default resulting from the failure of the Credit Lease Tenant to make the
monthly rental payments when due should occur and be concurrently continuing, it
is possible that the total amount which may be recovered by the Special Servicer
on behalf of the Trustee in such cases will be less than the then unpaid
principal balance of the related Credit Lease Loan, with resultant losses to the
certificateholders. To the extent that any fees or expenses of the Special
Servicer or the Trustee in exercising remedies on behalf of the trust in the
event of a Mortgage Default exceed the amounts held by the trust for the payment
of such expenses, the Special Servicer and the Trustee are entitled to recover
such excess fees and expenses from the proceeds
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recovered through the exercise of such remedies prior to such proceeds being
applied to pay certificateholders. The Master Servicer is not required to make
any Servicing Advances that would be nonrecoverable.
Furthermore, if a Credit Lease Loan is not delinquent on payments of
principal and interest, and a Mortgage Default relating solely to Borrower
Credit Lease Obligations occurs, then the Special Servicer will not be permitted
to foreclose on the related Mortgaged Property unless, in addition, either (1)
all outstanding Servicing Advances, with interest thereon, relating to such
Credit Lease Loan exceed 60% of the Anticipated Liquidation Value with respect
to such Credit Lease Loan, (2) the Special Servicer has received the prior
written consent of the Directing Certificateholder, (3) any Servicing Advance
with respect to such Credit Lease Loan is deemed to be nonrecoverable or (4) the
original scheduled maturity date of such Credit Lease Loan has occurred. Any
such foreclosure will be subject to the Servicing Standard and any other
applicable provision of the pooling and servicing agreement. However, none of
the Master Servicer, the Special Servicer or the Trustee is prohibited from
accelerating the indebtedness evidenced by the note to the extent permitted by
the loan documents, or from requiring payment of default interest in connection
with any overdue amounts (including, without limitation, the full amount of the
Loan after such an acceleration). It is anticipated that the prohibition on
foreclosure will mitigate the risk of certificateholders receiving principal
distributions prematurely in the event that the Credit Lease Tenant relating to
such mortgaged property is otherwise performing under the Credit Lease and
making monthly rental payments and, accordingly, Monthly Loan Payments are being
made on the related Credit Lease Loan. The foregoing prohibition in no event
prevents foreclosure in the event of a default in the payment of principal and
interest due on the Credit Lease Loan. However, the prohibition on foreclosure
could restrict the ability of the Master Servicer or the Special Servicer, as
applicable, to maximize the recovery with respect to the mortgaged property at
any particular time.
REO PROPERTIES
If title to any Mortgaged Property is acquired by the Special Servicer on
behalf of the Certificateholders, the Special Servicer, on behalf of such
holders, will be required to sell the Mortgaged Property not later than the end
of third calendar year following the year of acquisition, unless (i) the
Internal Revenue Service grants an extension of time to sell such property (an
"REO Extension") or (ii) the Special Servicer obtains an opinion of independent
counsel generally to the effect that the holding of the property subsequent to
the end of the third calendar year following the year in which such acquisition
occurred will not result in the imposition of a tax on the Trust or cause REMIC
I or REMIC II to fail to qualify as a REMIC under the Code. Subject to the
foregoing, the Special Servicer will generally be required to solicit cash
offers for any Mortgaged Property so acquired in such a manner as will be
reasonably likely to realize a fair price for such property. The Special
Servicer may retain an independent contractor to operate and manage any REO
Property; however, the retention of an independent contractor will not relieve
the Special Servicer of its obligations with respect to such REO Property.
In general, the Special Servicer will be obligated to operate and manage
any Mortgaged Property acquired as REO Property in a manner that would, to the
extent commercially feasible, maximize the Trust's net after-tax proceeds from
such property. The Special Servicer could determine that it would not be
commercially feasible to manage and operate such property in a manner that would
avoid the imposition of a tax on "net income from foreclosure property".
Generally, net income from foreclosure property means income which does not
qualify as "rents from real property" within the meaning of Code Section
856(c)(3)(A) and Treasury regulations thereunder or as income from the sale of
such REO Property. "Rents from real property" do not include the portion of any
rental based on the net income or gain of any tenant or sub-tenant. No
determination has been made whether rent on any of the Mortgaged Properties
meets this requirement. "Rents from real property" include charges for services
customarily furnished or rendered in connection with the rental of real
property, whether or not the charges are separately stated. Services furnished
to the tenants of a particular building will be considered as customary if, in
the geographic market in which the building is located, tenants in buildings
which are of similar Class are customarily provided with the service. No
determination has been made whether the services furnished to the tenants of the
Mortgaged Properties are "customary" within the meaning of applicable
regulations. It is therefore
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possible that a portion of the rental income with respect to a Mortgaged
Property owned by the Trust Fund, presumably allocated based on the value of any
non-qualifying services, would not constitute "rents from real property." In
addition to the foregoing, any net income from a trade or business operated or
managed by an independent contractor on a Mortgaged Property owned by REMIC I,
such as a hotel or skilled nursing care business, will not constitute "rents
from real property." Any of the foregoing types of income instead constitute
"net income from foreclosure property," which would be taxable to REMIC I at the
highest marginal federal corporate rate (currently 35%) and may also be subject
to state or local taxes. Any such taxes would be chargeable against the related
income for purposes of determining the Net REO Proceeds available for
distribution to holders of Certificates. See "Certain Federal Income Tax
Consequences -- REMICs -- Prohibited Transactions Tax and Other Taxes" in the
accompanying prospectus.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
Commencing in 2000, the Master Servicer is required to perform (or cause to
be performed) physical inspections of each Mortgaged Property (other than REO
Properties and Mortgaged Properties securing Specially Serviced Loans) at least
once every two years (or, if the related Loan has a then-current balance greater
than $2,000,000, at least once every year). With respect to the Credit Lease
Loans, the Master Servicer is also required to perform (or cause to be
performed) a physical inspection of the Mortgaged Property at any time that the
related Credit Lease tenant is downgraded two rating letter grades or below
"BB-" or its equivalent, and thereafter at least once a year. In addition, the
Special Servicer, subject to statutory limitations or limitations set forth in
the related loan documents, is required to perform a physical inspection of each
Mortgaged Property as soon as practicable after servicing of the related Loan is
transferred thereto. The Special Servicer and the Master Servicer will each be
required to prepare (or cause to be prepared) as soon as reasonably possible a
written report of each such inspection performed thereby describing the
condition of the Mortgaged Property.
With respect to each Loan that requires the borrower to deliver quarterly
or annual operating statements with respect to the related Mortgaged Property,
the Master Servicer or the Special Servicer, depending on which is obligated to
service such Loan, is also required to make reasonable efforts to collect and
review such statements. However, there can be no assurance that any operating
statements required to be delivered will in fact be so delivered, nor is the
Master Servicer or the Special Servicer likely to have any practical means of
compelling such delivery in the case of an otherwise performing Loan.
TERMINATION OF THE SPECIAL SERVICER
The holder or holders of Certificates evidencing a majority interest in the
Controlling Class may at any time replace any Special Servicer. Such holder(s)
shall designate a replacement to so serve by the delivery to the Trustee of a
written notice stating such designation. The Trustee shall, promptly after
receiving any such notice, so notify the Rating Agencies. If the designated
replacement is acceptable to the Trustee, which approval may not be unreasonably
withheld, the designated replacement shall become the Special Servicer as of the
date the Trustee shall have received: (i) written confirmation from each Rating
Agency stating that if the designated replacement were to serve as Special
Servicer under the Pooling Agreement, the then-current rating or ratings of one
or more classes of the certificates would not be qualified, downgraded or
withdrawn, as applicable, as a result thereof; (ii) a written acceptance of all
obligations of the Special Servicer, executed by the designated replacement; and
(iii) an opinion of counsel to the effect that the designation of such
replacement to serve as Special Servicer is in compliance with the pooling and
servicing agreement, that the designated replacement will be bound by the terms
of the pooling and servicing agreement and that the pooling and servicing
agreement will be enforceable against such designated replacement in accordance
with its terms. The existing Special Servicer shall be deemed to have resigned
simultaneously with such designated replacement's becoming the Special Servicer
under the pooling and servicing agreement.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement, to be dated as of the Cut-off Date (the "Pooling Agreement"), among
the Depositor, the Master Servicer, the Special Servicer, the Trustee, the
Fiscal Agent and the Loan Sellers. The Certificates will consist of 12 classes
(each, a "Class") to be designated as: (i) the Class A-1, Class A-2 and Class
A-3 Certificates (collectively, the "Class A Certificates"); (ii) the Class B
Certificates, the Class C Certificates, the Class D Certificates, the Class E
Certificates, the Class F Certificates and the Class G Certificates
(collectively with the Class A Certificates, the "Sequential Pay Certificates");
(iii) the Class X Certificates (the "Class X Certificates", and collectively
with the Sequential Pay Certificates, the "REMIC Regular Certificates" or the
"Certificates"); and (iv) the Class R-I Certificates and the Class R-II
Certificates (collectively, the "Residual Certificates"). Only the Class X,
Class A-1, Class A-2, Class A-3 and Class B Certificates (collectively, the
"Offered Certificates") are offered hereby.
The Class C, Class D, Class E, Class F and Class G Certificates and the
Residual Certificates (collectively, the "Private Certificates") have not been
registered under the Securities Act and are not offered hereby. Accordingly, to
the extent this Prospectus Supplement contains information regarding the terms
of the Private Certificates, such information is provided because of its
potential relevance to a prospective purchaser of an Offered Certificate.
The Certificates will evidence undivided beneficial ownership interests in
the trust. The "Trust Assets" will consist primarily of (1) the Loans (including
the related assignment of leases and rents, mortgages and pledges of the
Borrower Reserve Funds), (2) certain accounts including the Certificate Account
and the Distribution Account, (3) the right to draw upon amounts in the Expense
Reserve Fund, (4) the Lease Enhancement Policies and the Extended Amortization
Policies, and (5) the trust's interest in certain other insurance policies,
reserves and agreements as set forth in the Pooling Agreement.
REGISTRATION AND DENOMINATIONS
We will issue the Class A Certificates in denominations of $10,000 initial
principal amount and the Class B Certificates in denominations of $100,000
initial principal amount. We will issue the Class X Certificates in minimum
denominations of $1,000,000 notional principal amount. Investments in excess of
the minimum denominations may be made in any whole dollar denomination.
Each class of Offered Certificates will initially be represented by one or
more Certificates registered in the name of the nominee of The Depository Trust
Company ("DTC"). DTC has informed the Depositor that DTC's nominee will be Cede
& Co. No beneficial owner of an Offered Certificate (each, a "Certificate
Owner") will be entitled to receive a fully registered physical certificate (a
"Definitive Certificate") representing its interest in such class, except under
the limited circumstances described under "Description of the
Certificates -- Book-Entry Registration and Definitive Certificates" in
accompany prospectus. Unless and until Definitive Certificates are issued in
respect of the Offered Certificates, beneficial ownership interests in each such
class of Certificates will be maintained and transferred on the book-entry
records of DTC and is participating organizations (its "Participants"). All
references to actions by holders of each such class of Certificates will refer
to actions taken by DTC upon instructions received from the related Certificate
Owners through its Participants in accordance with DTC procedures. All
references herein to payments, notices reports and statements to holder of each
such class of Certificates will refer to payments, notices, reports and
statements to DTC or Cede & Co., as the registered holder thereof, for
distribution of the related Certificate Owners through its Participants in
accordance with DTC procedures. The form of such payments and transfers may
result in certain delays in your receipt of the payments and may restrict your
ability to pledge your securities. The Trustee will initially serve as registrar
(in such capacity, the "Certificate Registrar") for purposes of recording
otherwise providing for the registration of the Offered Certificates and, if and
to the extent Definitive Certificates are issued in respect thereof, of
transfers and exchanges of the Offered Certificates.
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DISTRIBUTIONS ON THE CERTIFICATES
Except for distributions to be made on the final Distribution Date,
distributions will be made on each Distribution Date to each certificateholder
of record on the Record Date by check mailed by first class mail to the address
set forth therefor in the certificate register. If you provide the Trustee with
wire instructions in writing at least five Business Days prior to the related
Record Date, distributions will be made by wire transfer of immediately
available funds to your bank account or other entity located in the United
States which has appropriate facilities therefor. The final distribution on each
certificate will be made in like manner on the final Distribution Date, but only
upon presentment and surrender of such certificate at the office of the Trustee
or its agent (which may be the certificate registrar acting as such agent)
specified in the notice to certificateholders of such final distribution. All
distributions made with respect to a class of certificates will be allocated pro
rata among the outstanding certificates of such class based on their respective
percentage interests.
On each Distribution Date, the Trustee will make distributions of
principal, interest and other amounts owed on the Offered Certificates to the
extent of the Available Distribution Amount in the Distribution Account. The
"Available Distribution Amount" for any Distribution Date will, in general,
equal (a) all amounts on deposit in the Certificate Account as of the close of
business on the related Determination Date, exclusive of any portion thereof
that represents one or more of the following:
(i) Monthly Payments collected due on a Due Date subsequent to the
related Collection Period;
(ii) Prepayment Premiums (which are separately distributable on the
Certificates as hereinafter described);
(iii) amounts that are payable or reimbursable to any person other
than the Certificateholders (including amounts payable to the Master
Servicer, the Special Servicer, any Sub-Servicers or the Trustee as
compensation (including Trustee Fees, Master Servicing Fees, Special
Servicing Fees, Workout Fees, Liquidation Fees, Default Interest and late
payment charges (to the extent not otherwise applied to cover interest on
Advances), assumption fees and modification fees), amounts payable in
reimbursement of outstanding Advances, together with interest thereon, and
amounts payable in respect of other Additional Trust Fund Expenses); and
(iv) amounts deposited in the Certificate Account in error; plus
(b) to the extent not already included in clause (a), any P&I Advances made
with respect to such Distribution Date and any payments made by the Master
Servicer to cover Prepayment Interest Shortfalls incurred during the related
Collection Period.
See "The Pooling and Servicing Agreements -- Certificate Account" in the
accompanying prospectus.
With respect to a Credit Lease Loan, if there is a deficiency with respect
to the Monthly Payment or unreimbursed amounts of Realized Losses on any
Distribution Date after giving effect to payments of all amounts owed to the
Master Servicer, Special Servicer, Trustee and Fiscal Agent on such Distribution
Date, the Master Servicer will withdraw amounts, to the extent available, from
the Expense Reserve Fund in the amount of such deficiency and notify the
Trustee. Subject to a recoverability determination, the Master Servicer will be
obligated to make a P&I Advance in the amount of such Monthly Payment
deficiency. See "-- Advances" below in this prospectus supplement. Any remaining
deficiencies in the Available Distribution Amount will be allocated as described
under "-- Subordination; Allocation of Losses" below.
Application of the Available Distribution Amount. On each Distribution
Date, the Trustee will apply the Available Distribution Amount (plus any amounts
withdrawn from the Expense Reserve Fund) for such date for the following
purposes and in the following order of priority:
(1) to pay interest to the holders of the Class A-1, Class A-2, Class
A-3 and Class X Certificates (collectively, the "Senior Certificates"), up
to an amount equal to, and pro rata as among such Classes in accordance
with, all Distributable Certificate Interest in respect of each such Class
of Certificates for such Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates;
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(2) to pay principal first to the holders of the Class A-1
Certificates, second to the Class A-2 Certificates and third to the Class
A-3 Certificates, up to an amount equal to the lesser of (a) the then-
outstanding Certificate Balance of such Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount (as defined below)
for such Distribution Date;
(3) to reimburse the holders of the Class A-1, Class A-2 and Class A-3
Certificates, up to an amount equal to, and pro rata as among such Classes
in accordance with, the respective amounts of Realized Losses and
Additional Trust Fund Expenses, if any, previously allocated to such
Classes of Certificates and for which no reimbursement has previously been
paid; and
(4) to make payments on the other Classes of Certificates
(collectively, the "Subordinate Certificates") as contemplated below;
provided that, on each Distribution Date as of which the aggregate Certificate
Balance of the Subordinate Certificates is to be or has been reduced to zero,
and in any event on the final Distribution Date in connection with a termination
of the Trust (see "-- Termination" below), the payments of principal to be made
as contemplated by clause (2) above with respect to the Class A Certificates,
will be so made (subject to available funds) to the holders of the respective
Classes of such Certificates, up to an amount equal to, and pro rata as among
such Classes in accordance with, the respective then outstanding Certificate
Balances of such Classes of Certificates.
On each Distribution Date, following the above-described distributions on
the Senior Certificates, the Trustee will apply the remaining portion, if any,
of the Available Distribution Amount (plus any amounts withdrawn from the
Expense Reserve Fund) for such date for the following purposes and in the
following order of priority:
(1) to pay interest to the holders of the Class B Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(2) if the Certificate Balances of the Class A Certificates have been
reduced to zero, to pay principal to the holders of the Class B
Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of such Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for such
Distribution Date;
(3) to reimburse the holders of the Class B Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been paid;
(4) to pay interest to the holders of the Class C Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(5) if the Certificate Balances of the Class A and Class B
Certificates have been reduced to zero, to pay principal to the holders of
the Class C Certificates, up to an amount equal to the lesser of (a) the
then outstanding Certificate Balance of such Class of Certificates and (b)
the remaining portion of the Principal Distribution Amount for such
Distribution Date;
(6) to reimburse the holders of the Class C Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(7) to pay interest to the holders of the Class D Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(8) if the Certificate Balances of the Class A, Class B and Class C
Certificates have been reduced to zero, to pay principal to the holders of
the Class D Certificates, up to an amount equal to the lesser of
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(a) the then outstanding Certificate Balance of such Class of Certificates
and (b) the remaining portion of the Principal Distribution Amount for such
Distribution Date;
(9) to reimburse the holders of the Class D Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(10) to pay interest to the holders of the Class E Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(11) if the Certificate Balances of the Class A, Class B, Class C and
Class D Certificates have been reduced to zero, to pay principal to the
holders of the Class E Certificates, up to an amount equal to the lesser of
(a) the then outstanding Certificate Balance of such Class of Certificates
and (b) the remaining portion of the Principal Distribution Amount for such
Distribution Date;
(12) to reimburse the holders of the Class E Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(13) to pay interest to the holders of the Class F Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(14) if the Certificate Balances of the Class A, Class B, Class C,
Class D and Class E Certificates have been reduced to zero, to pay
principal to the holders of the Class F Certificates, up to an amount equal
to the lesser of (a) the then outstanding Certificate Balance of such Class
of Certificates and (b) the remaining portion of the Principal Distribution
Amount for such Distribution Date;
(15) to reimburse the holders of the Class F Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(16) to pay interest to the holders of the Class G Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(17) if the Certificate Balances of the Class A, Class B, Class C,
Class D, Class E and Class F Certificates have been reduced to zero, to pay
principal to the holders of the Class G Certificates, up to an amount equal
to the lesser of (a) the then outstanding Certificate Balance of such Class
of Certificates and (b) the remaining portion of the Principal Distribution
Amount for such Distribution Date;
(18) to reimburse the holders of the Class G Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
and
(19) to pay to the holders of the Residual Certificates, the balance,
if any, of the Available Distribution Amount for such Distribution Date;
provided that, on the final Distribution Date in connection with a termination
of the Trust, the payments of principal to be made as contemplated by any of
clauses (2), (5), (8), (11), (14) and (17) above with respect to any Class of
Sequential Pay Certificates, will be so made (subject to available funds) up to
an amount equal to the entire then outstanding Certificate Balance of such Class
of Certificates.
Distributable Certificate Interest. The "Distributable Certificate
Interest" in respect of each Class of REMIC Regular Certificates for each
Distribution Date is equal to the Accrued Certificate Interest in respect of
such Class of Certificates for such Distribution Date, reduced by such Class of
Certificates' allocable share (calculated as described below) of any Net
Aggregate Prepayment Interest Shortfall for such Distribution Date.
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The "Accrued Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date is equal to one month's interest
at the Pass-Through Rate applicable to such Class of Certificates for such
Distribution Date accrued on the related Certificate Balance or Notional Amount,
as the case may be, outstanding immediately prior to such Distribution Date.
Accrued Certificate Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
To the extent of Prepayment Interest Excesses and a portion of its
aggregate Master Servicing Fee for the related Collection Period, which portion
is, in the case of each Loan, calculated at 0.01% per annum, and with respect to
the Credit Lease Loans, to the extent of amounts on deposit in the Expense
Reserve Fund, the Master Servicer is required to make a non-reimbursable payment
with respect to each Distribution Date to cover the aggregate of any Prepayment
Interest Shortfalls incurred with respect to the Loan Pool during such
Collection Period.
The "Net Aggregate Prepayment Interest Shortfall" for any Distribution Date
will be the amount, if any, by which (a) the aggregate of all Prepayment
Interest Shortfalls incurred with respect to the Loan Pool during the related
Collection Period, exceeds (b) any such payment made by the Master Servicer with
respect to such Distribution Date to cover such Prepayment Interest Shortfalls.
The Net Aggregate Prepayment Interest Shortfall, if any, for each Distribution
Date will be allocated on such Distribution Date: pro rata among the Classes of
REMIC Regular Certificates, in each case up to an amount equal to the lesser of
any remaining unallocated portion of such Net Aggregate Prepayment Interest
Shortfall and any Accrued Certificate Interest in respect of the particular
Class of Certificates for such Distribution Date.
The "Pass-Through Rate" applicable to each class of Offered Certificates,
except the Class X Certificates, for any Distribution Date will equal the rate
per annum as set forth on the front cover of this prospectus supplement.
The Pass-Through Rate for the Class X Certificates (the "Class X
Pass-Through Rate") for any Distribution Date will equal the excess, if any, of
(a) the weighted average of the applicable Net Loan Rates for the Loans,
weighted on the basis of their respective Stated Principal Balances as of the
preceding Distribution Date (after giving effect to the distribution of
principal on such Distribution Date) or, in the case of the first Distribution
Date, the Cut-off Date, over (b) the weighted average of the Pass-Through Rates
on all of the other classes of the Sequential Pay Certificates, weighted on the
basis of their respective Certificate Balances immediately prior to such
Distribution Date. The Class X Pass-Through Rate for the first Distribution Date
is expected to be approximately 0.4506% per annum.
The "Net Loan Rate" with respect to any Loan is, in general, a per annum
rate equal to the related Mortgage Rate in effect from time to time, minus the
sum of the applicable Master Servicing Fee Rate and the per annum rate at which
the monthly Trustee Fee are calculated (such sum, the "Administrative Fee
Rate"); provided, however, that for purposes of calculating the Pass-Through
Rate for each Class of REMIC Regular Certificates from time to time, the Net
Loan Rate for any Loan will be calculated without regard to any modification,
waiver or amendment of the terms of such Loan subsequent to the Closing Date;
and provided further, however, that if any Loan does not accrue interest on the
basis of a 360-day year consisting of twelve 30-day months (which is the basis
on which interest accrues in respect of the REMIC Regular Certificates), then,
solely for purposes of calculating the Pass-Through Rates on the Class X
Certificates, the Net Loan Rate of such Loan for any one-month period preceding
a related Due Date will be the annualized rate at which interest would have to
accrue in respect of such loan on the basis of a 360-day year consisting of
twelve 30-day months in order to produce the aggregate amount of interest
actually accrued in respect of such loan during such one-month period at the
related Mortgage Rate (net of the related Administrative Fee Rate). As of the
Cut-off Date (without regard to the adjustment described in the proviso to the
second preceding sentence), the Net Loan Rates for the Loans ranged from 6.595%
per annum to 8.120% per annum, with a weighted average Net Loan Rate of 7.341%
per annum.
The "Loan Rate" with respect to any Loan, is the per annum rate at which
interest accrues on such Loan, without regard to any modification of such rate
(in the absence of a default).
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The "Certificate Balance" with respect to any class of Offered Certificates
(other than the Class X Certificates) is (1) on or prior to the first
Distribution Date, an amount equal to the aggregate initial Certificate Balance
of such class, as set forth on the front cover of this prospectus supplement,
and (2) as of any date of determination after the first Distribution Date, the
Certificate Balance of such class of Certificates on the Distribution Date
immediately prior to such date of determination, after application of the
distributions of principal made thereon and Realized Losses and Additional Trust
Fund Expenses on such prior Distribution Date.
The "Stated Principal Balance" of each Loan will initially equal the
Cut-off Date Balance thereof and will be permanently reduced (to not less than
zero) on each Distribution Date by (1) any payments or other collections (or
advances in lieu thereof) of principal on such mortgage loan that have been (or,
if they had not been applied to cover Additional Trust Fund Expenses, would have
been) distributed on the Certificates on such date, and (2) the principal
portion of any Realized Loss incurred in respect of such mortgage loan during
the related Collection Period.
The "Notional Amount" of the Class X Certificates is equal to approximately
99.99% of the aggregate of the Certificate Balances of all the classes of
Sequential Pay Certificates outstanding from time to time.
Principal Distribution Amount. The "Principal Distribution Amount" for any
Distribution Date will, in general, equal the aggregate of the following:
(a) the principal portions of all Monthly Payments (other than Balloon
Payments) and any Assumed Monthly Payments due or deemed due, as the case
may be, in respect of the Loans for their respective Due Dates occurring
during the related Collection Period;
(b) all voluntary principal prepayments received on the Loans during
the related Collection Period;
(c) with respect to any Balloon Loan as to which the related stated
maturity date occurred during or prior to the related Collection Period,
any payment of principal (exclusive of any voluntary principal prepayment
and any amount described in clause (d) below) made by or on behalf of the
related borrower during the related Collection Period, net of any portion
of such payment that represents a recovery of the principal portion of any
Monthly Payment (other than a Balloon Payment) due, or the principal
portion of any Assumed Monthly Payment deemed due, in respect of such Loan
on a Due Date during or prior to the related Collection Period and not
previously recovered;
(d) all Liquidation Proceeds and Insurance and Condemnation Proceeds
received on the mortgage loans during the related Collection Period that
were identified and applied by the Master Servicer as recoveries of
principal thereof, in each case net of any portion of such amounts that
represents a recovery of the principal portion of any Monthly Payment
(other than a Balloon Payment) due, or the principal portion of any Assumed
Monthly Payment deemed due, in respect of the related Loan on a Due Date
during or prior to the related Collection Period and not previously
recovered; and
(e) if such Distribution Date is subsequent to the initial
Distribution Date, the excess, if any, of (i) the Principal Distribution
Amount for the immediately preceding Distribution Date, over (ii) the
aggregate distributions of principal made on the Sequential Pay
Certificates in respect of such Principal Distribution Amount on such
immediately preceding Distribution Date.
For purposes of the foregoing, the Monthly Payment due on any Loan on any
related Due Date will reflect any waiver, modification or amendment of the terms
of such Loan, whether agreed to by the Master Servicer or Special Servicer or
resulting from a bankruptcy, insolvency or similar proceeding involving the
related borrower.
An "Assumed Monthly Payment" is an amount deemed due in respect of: (i) any
Loan that is delinquent in respect of its Balloon Payment beyond the first
Determination Date that follows its stated maturity date and as to which no
arrangements have been agreed to for collection of the delinquent amounts; or
(ii) any Loan as to which the related mortgaged property has become an REO
Property. The Assumed Monthly Payment deemed due on any such Loan delinquent as
to its Balloon Payment, for its stated maturity date and for each successive Due
Date that it remains outstanding, will equal the Monthly Payment that would have
been due
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thereon on such date if the related Balloon Payment had not come due, but rather
such Loan had continued to amortize in accordance with its amortization
schedule, if any, in effect immediately prior to maturity and had continued to
accrue interest in accordance with such Loan's terms in effect immediately prior
to maturity. The Assumed Monthly Payment deemed due on any such Loan as to which
the related mortgaged property has become an REO Property, for each Due Date
that such REO Property remains part of the Trust Fund, will equal the Monthly
Payment (or, in the case of a mortgage loan delinquent in respect of its Balloon
Payment as described in the prior sentence, the Assumed Monthly Payment) due on
the last Due Date prior to the acquisition of such REO Property.
Distributions of Prepayment Premiums. Any Prepayment Premiums (whether
described in the related loan documents as yield maintenance amounts or fixed
prepayment premiums) actually collected during any particular Collection Period
as the result of prepayments of principal on the Loans will be distributed on
the related Distribution Date in the following amount and order of priority: The
holders of each Class of Sequential Pay Certificates (other than an Excluded
Class thereof) then entitled to distributions of principal on such Distribution
Date will be entitled to an amount equal to the product of (a) the amount of
such Prepayment Premium, multiplied by (b) a fraction (which in no event may be
greater than one), the numerator of which is equal to the excess, if any, of the
Pass-Through Rate of such Class of Sequential Pay Certificates, over the
relevant Reinvestment Yield (as defined below), and the denominator of which is
equal to the excess, if any, of the Loan Rate of the prepaid Loan, over the
relevant Reinvestment Yield, multiplied by (c) a fraction, the numerator of
which is equal to the amount of principal distributable on such Class of
Sequential Pay Certificates on such Distribution Date, and the denominator of
which is the Principal Distribution Amount for such Distribution Date. If there
is more than one Class of Sequential Pay Certificates (other than an Excluded
Class thereof) entitled to distributions of principal on any particular
Distribution Date on which a Prepayment Premium is distributable, the aggregate
amount of such Prepayment Premium will be allocated among all such Classes up
to, and on a pro rata basis in accordance with, their respective entitlements
thereto in accordance with the foregoing sentence. The portion, if any, of the
Prepayment Premium remaining after any such payments to the holders of the
Sequential Pay Certificates will be distributed to the holders of the Class X
Certificates. For purposes of the foregoing, an "Excluded Class" of Sequential
Pay Certificates is any Class thereof other than the Class A-1, Class A-2, Class
A-3, Class B, Class C, Class D, and Class E Certificates.
The "Reinvestment Yield" for any Loan and any Distribution Date will be a
rate determined by the Trustee, in its good faith, equal to the average yield
for "This Week" as most recently reported by the Federal Reserve Board in
Federal Reserve Statistical Release H.15 (519) for U.S. Treasury securities with
a maturity coterminous with the stated maturity date for such Loan. If there is
no U.S. Treasury security listed with a maturity coterminous with the stated
maturity date for such Loan, then the Reinvestment Yield will be a rate
determined by the Trustee, in its good faith, equal to the interpolated yield to
maturity of U.S. Treasury securities with maturities next longer and shorter
than such remaining term to maturity (such interpolated yield to be rounded to
the nearest whole multiple of 1/100 of 1% per annum, if the interpolated yield
is not such a multiple). In the event the yields of U.S. Treasury securities are
no longer published in Federal Reserve Statistical Release H.15(519), the
Trustee will be permitted to select a comparable publication to determine the
Reinvestment Yield.
The Depositor makes no representation as to the enforceability of the
provision of any Mortgage Note requiring the payment of a Prepayment Premium or
of the collectability of any Prepayment Premium. See "Risk Factors -- Risks
Related to the Loans -- Prepayment Premiums" in this prospectus supplement.
The following chart sets forth an example of the application of the
foregoing provisions to a monthly distribution (using the April 1999
Distribution Date as an example):
March 11 or 16-April 12 or
15......................... Collection Period. The Master Servicer receives
monthly rental payments, prepayments and other
proceeds in respect of the Loans and deposits them
in the Certificate Account.
March 31................... Record Date. Distributions on the Distribution
Date are made to certificateholders of record at
the close of business on this date.
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April 12 or 15............. Determination Date. The Master Servicer notifies
the Trustee three Business Days prior to the
Distribution Date of the amounts available on the
Determination Date to be distributed on the
Distribution Date and of certain other matters.
April 21................... Remittance Date. The Master Servicer deposits in
the Distribution Account an amount equal to the
Available Distribution Amount for the related
Distribution Date.
April 22................... Distribution Date. The Trustee withdraws funds
from the Distribution Account to be applied as
described in this prospectus supplement.
ASSUMED FINAL DISTRIBUTION DATE; RATED FINAL DISTRIBUTION DATE
The Assumed Final Distribution Date of each class of Offered Certificates
is set forth in this prospectus supplement under "Summary of Prospectus
Supplement -- Assumed Final Distribution Date; Rated Final Distribution Date."
The Assumed Final Distribution Date for each class of Certificates is the date
on which the Certificate Balance thereof will be fully paid or the Notional
Amount, in the case of the Class X Certificates, is reduced to zero, assuming
timely receipt of scheduled payments (with no prepayments) on the Loans.
The Assumed Final Distribution Date of each class of Offered Certificates
has been calculated based upon the assumptions that only the monthly rental
payments are used to make required payments on the Loans, that no investment
income is applied to payments on the Loans, and that each Credit Lease tenant
and borrower make timely payments as required in the related Credit Lease and
Loan.
The actual final Distribution Date of the Offered Certificates will depend
primarily upon the level of principal prepayments with respect to the Loans. The
actual final Distribution Date of the Offered Certificates may occur earlier
than the Assumed Final Distribution Date as a result of the application of
principal prepayments or Realized Losses to the reduction of the Certificate
Balances of the Offered Certificates or later than the Assumed Final
Distribution Date as a result of defaults under the mortgage loans. Each of the
Loans is subject to the Lock-Out Period and the Prepayment Premium requirement
which are intended to limit the number of voluntary principal prepayments. We
cannot give any assurance, however, as to the actual prepayment experience with
respect to the Offered Certificates. The Rated Final Distribution Date for each
class of Offered Certificates will be the Distribution Date in January 2026, the
first Distribution Date after the 24th month following the end of the
amortization term for the Loan that, as of the Cut-off Date, has the longest
remaining amortization term. See "Risk Factors," and "Yield, Prepayment and
Maturity Considerations" in this prospectus supplement.
Treatment of REO Properties. Notwithstanding that any Mortgaged Property
may be acquired as part of the Trust Fund through foreclosure, deed in lieu of
foreclosure or otherwise, the related Loan will be treated, for purposes of,
among other things, determining distributions on the Certificates, allocations
of Realized Losses and Additional Trust Fund Expenses to the Certificates, and
the amount of Master Servicing Fees, Special Servicing Fees and Trustee Fees
payable under the Pooling Agreement, as having remained outstanding until such
REO Property is liquidated. Among other things, such Mortgage Loan will be taken
into account when determining the Pass-Through Rate for the Class X Certificates
and the Principal Distribution Amount for each Distribution Date. In connection
therewith, operating revenues and other proceeds derived from such REO Property
(after application thereof to pay certain costs and taxes, including certain
reimbursements payable to the Master Servicer, the Special Servicer and/or the
Trustee, incurred in connection with the operation and disposition of such REO
Property) will be "applied" by the Master Servicer as principal, interest and
other amounts "due" on such Loan; and, subject to the recoverability
determination described below (see "-- P&I Advances"), the Master Servicer and
the Trustee will be required to make P&I Advances in respect of such Loan, in
all cases as if such Loan had remained outstanding.
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SUBORDINATION; ALLOCATION OF LOSSES AND CERTAIN EXPENSES
The rights of the holders of the Subordinate Certificates to receive
distributions of interest and principal the Loans will be subordinated (except
as set forth below) to rights of the Senior Certificateholders. Each class of
Subordinate Certificates will likewise be subordinate to each other class of
Subordinate Certificates having an earlier alphabetical designation. This
subordination is intended to enhance the likelihood of timely receipt by holders
of the Senior Certificates of the full amount of interest payable in respect of
their certificates on each Distribution Date, and the ultimate receipt by
holders of the Class A Certificates of principal equal to, in each such case,
the entire related Certificate Balance. Similarly, but to decreasing degrees,
this subordination is also intended to enhance the likelihood of timely receipt
by holders of the other Offered Certificates of the full amount of interest
payable in respect of their certificates on each Distribution Date, and the
ultimate receipt by holders of the other Offered Certificates of principal equal
to, in each such case, the entire related Certificate Balance. This
subordination will be effected in two ways: (1) by the preferential right of a
class of certificateholders to receive on any Distribution Date the amounts of
interest and principal distributable in respect of such certificates on such
date prior to any distribution being made on such Distribution Date in respect
of any classes of certificates subordinate thereto and (2) by the allocation of
Realized Losses and Additional Trust Fund Expenses, to the Class G, Class F,
Class E, Class D, Class C and Class B Certificates, in that order and, in each
case, until the Certificate Balance of such class is reduced to zero. Any
Realized Losses incurred after the Certificate Balance of the Class B
Certificates has been reduced to zero will be allocated among the classes of
Class A Certificates, pro rata, until the Certificate Balances of such classes
are reduced to zero.
"Realized Losses" are losses on or in respect of the Loans arising from the
inability of the Master Servicer and/or the Special Servicer to collect all
amounts due and owing under any such Loan, including by reason of the fraud or
bankruptcy of a borrower or a casualty of any nature at a mortgaged property, to
the extent not covered by insurance. The Realized Loss in respect of a
liquidated Loan (or related REO Property) is an amount generally equal to the
excess, if any, of (a) the outstanding principal balance of such Loan as of the
date of liquidation, together with (i) all accrued and unpaid interest thereon
at the related Loan Rate to but not including the Due Date in the Collection
Period in which the liquidation occurred and (ii) all related unreimbursed
Servicing Advances and outstanding liquidation expenses, over (b) the aggregate
amount of Liquidation Proceeds, if any, recovered in connection with such
liquidation. If any portion of the debt due under a Loan is forgiven, whether in
connection with a modification, waiver or amendment granted or agreed to by the
Master Servicer or the Special Servicer or in connection with the bankruptcy or
similar proceeding involving the related borrower, the amount so forgiven also
will be treated as a Realized Loss.
"Additional Trust Fund Expenses" include, among other things, (i) all
Special Servicing Fees, Workout Fees and Liquidation Fees paid to the Special
Servicer, (ii) any interest paid to the Master Servicer, the Special Servicer,
the Trustee and/or the Fiscal Agent in respect of unreimbursed advances, (iii)
the cost of various opinions of counsel required or permitted to be obtained in
connection with the servicing of the Loans and the administration of the Trust
Fund, (iv) certain unanticipated, non-loan specific expenses of the Trust,
including certain reimbursements and indemnifications to the Trustee as
described under "The Pooling and Servicing Agreements -- Certain Matters
Regarding the Trustee" in the accompanying prospectus, certain reimbursements to
the Master Servicer, the Special Servicer, the REMIC Administrator and the
Depositor as described under "The Pooling and Servicing Agreements -- Certain
Matters Regarding the Master Servicer, the Special Servicer, the REMIC
Administrator and the Depositor" in the accompanying prospectus and certain
federal, state and local taxes, and certain tax-related expenses, payable out of
the Trust Fund as described under "Certain Federal Income Tax
Consequences -- Possible Taxes on Income From Foreclosure Property and Other
Taxes" in this prospectus supplement and "Certain Federal Income Tax
Consequences -- Taxation of Owners of REMIC Regular Certificates -- Prohibited
Transactions Tax and Other Taxes" in the accompanying prospectus, (v) if not
advanced by the Master Servicer, any amounts expended on behalf of the Trust to
remediate an adverse environmental condition at any mortgaged property securing
a defaulted Loan (see "The Pooling and Servicing Agreements -- Realization Upon
Defaulted Mortgage Loans" in the accompanying prospectus), and (vi) any other
expense of the Trust Fund not specifically included in the calculation of
"Realized Loss" for which there is no corresponding collection from a borrower.
Additional
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Trust Fund Expenses will reduce amounts payable to Certificateholders and,
consequently, may result in a loss on the Offered Certificates.
APPRAISAL REDUCTION AMOUNTS
Within 60 days (or within such longer period as the Master Servicer or the
Special Servicer, as applicable, is diligently and in good faith proceeding to
obtain such) after the earliest of (i) the date on which any Loan becomes a
Modified Loan (as defined below), (ii) the 60th day following the occurrence of
any uncured delinquency in Monthly Payments with respect to any Loan, (iii) the
date on which a receiver is appointed and continues in such capacity in respect
of the mortgaged property securing any Loan, (iv) the date on which the borrower
under any Loan becomes the subject of bankruptcy or insolvency proceedings, and
(v) the date on which a mortgaged property securing any Loan becomes an REO
Property (each such Loan, a "Required Appraisal Loan"; and each such date, a
"Required Appraisal Date"), the Master Servicer or the Special Servicer, as
applicable, will be required to obtain an appraisal of the related mortgaged
property from an independent MAI-designated appraiser, unless such an appraisal
had previously been obtained within the prior twelve months. The cost of such
appraisal will be advanced by the Master Servicer, subject to its right to be
reimbursed therefor as a Servicing Advance. As a result of any such appraisal,
it may be determined that an Appraisal Reduction Amount exists with respect to
the related Required Appraisal Loan. The "Appraisal Reduction Amount" for any
Required Appraisal Loan will, in general, be an amount (determined as of the
Determination Date immediately succeeding the later of the date on which the
relevant appraisal is obtained and the earliest relevant Required Appraisal
Date) equal to the excess, if any, of (a) the sum of (i) the Stated Principal
Balance of such Required Appraisal Loan, (ii) to the extent not previously
advanced by or on behalf of the Master Servicer, the Trustee or the Fiscal
Agent, all unpaid interest on the Required Appraisal Loan through the most
recent Due Date prior to such Determination Date at a per annum rate equal to
the sum of the related Net Loan Rate and the per annum rate at which the Trustee
Fee is calculated, (iii) all accrued but unpaid Master Servicing Fees and
Special Servicing Fees in respect of such Required Appraisal Loan, (iv) all
related unreimbursed Advances made by or on behalf of the Master Servicer, the
Special Servicer, the Trustee or the Fiscal Agent with respect to such Required
Appraisal Loan plus interest accrued thereon at the Reimbursement Rate and (v)
all currently due and unpaid real estate taxes and assessments, insurance
premiums and, if applicable, ground rents in respect of the related mortgaged
property (net of any escrow reserves held by the Master Servicer or Special
Servicer to cover any such item), over (b) 90% of an amount equal to (i) the
appraised value of the related mortgaged property or REO Property as determined
by such appraisal, net of (ii) the amount of any liens on such property (not
otherwise arising out of the items described in clause (a)(v) above) that are
prior to the lien of the Required Appraisal Loan; provided that, if an appraisal
is required to be obtained as contemplated by the first sentence of this
paragraph but has not been obtained within the 60-day period contemplated by
such sentence, then until (but just until) such appraisal is obtained the
Appraisal Reduction Amount for the subject Required Appraisal Loan will be
deemed to equal 30% of the Stated Principal Balance of such Required Appraisal
Loan (after receipt of such appraisal, the Appraisal Reduction Amount, if any,
will be calculated without regard to this proviso).
With respect to each Required Appraisal Loan (unless such mortgage loan has
become a Corrected Loan and has remained current for twelve consecutive Monthly
Payments, and no other Servicing Transfer Event has occurred with respect
thereto during the preceding twelve months, in which case it will cease to be a
Required Appraisal Loan), the Special Servicer is required, within 30 days of
each anniversary of such mortgage loan having become a Required Appraisal Loan,
to order an update of the prior appraisal (the cost of which will be advanced by
the Master Servicer at the direction of the Special Servicer and will be
reimbursable as a Servicing Advance). Based upon such appraisal, the Special
Servicer is to redetermine and report to the Trustee and the Master Servicer the
Appraisal Reduction Amount, if any, with respect to such Loan.
A "Modified Loan" is any Loan as to which any Servicing Transfer Event has
occurred and which has been modified by the Special Servicer in a manner that:
(A) affects the amount or timing of any payment of principal or interest due
thereon (other than, or in addition to, bringing current Monthly Payments with
respect to such Loan); (B) except as expressly contemplated by the related
mortgage, results in a release of
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the lien of the mortgage on any material portion of the related mortgaged
property without a corresponding principal prepayment in an amount not less than
the fair market value (as is) of the property to be released; or (C) in the good
faith and reasonable judgment of the Special Servicer, otherwise materially
impairs the security for such Loan or reduces the likelihood of timely payment
of amounts due thereon.
ADVANCES
With respect to each Distribution Date, the Master Servicer will be
obligated to make P&I Advances, subject to the recoverability determination
described below, in an amount generally equal to the aggregate of all Monthly
Payments (other than Balloon Payments) and any Assumed Monthly Payments, in each
case net of related Master Servicing Fees and Workout Fees, that were due or
deemed due, as the case may be, in respect of the Loans during the related
Collection Period and that were not paid by or on behalf of the related
borrowers or otherwise collected as of the close of business on the last day of
the related Collection Period.
Notwithstanding the foregoing, if it is determined that an Appraisal
Reduction Amount exists with respect to any Loan, then, with respect to the
Distribution Date immediately following the date of such determination and with
respect to each subsequent Distribution Date for so long as such Appraisal
Reduction Amount exists, in the event of subsequent delinquencies on such Loan,
the interest portion of the P&I Advance required to be made in respect of such
Loan will be reduced to an amount equal to the product of (1) the amount of the
interest portion of such P&I Advance that would otherwise be required to be made
for such Distribution Date without regard to this sentence, multiplied by (2) a
fraction (expressed as a percentage), the numerator of which is equal to the
principal balance of such Loan, net of such Appraisal Reduction Amount, and the
denominator of which is equal to the principal balance of such Loan. See
"Description of the Certificates -- Appraisal Reductions" in this prospectus
supplement. Subject to the recoverability determination described below, if the
Master Servicer fails to make a required P&I Advance, the Trustee will be
required to make such P&I Advance. In addition, subject to the recoverability
determination described below, if the Trustee fails to make a required P&I
Advance, the Fiscal Agent will be required to make such P&I Advance.
In addition to P&I Advances, the Master Servicer will also be obligated
(subject to the limitations described in this prospectus supplement) to make
Servicing Advances to pay delinquent real estate taxes, assessments and hazard
insurance premiums, to the extent necessary in the performance of Servicer
Protective Actions with respect to the Credit Lease Loans and to cover other
similar costs and expenses necessary to preserve the priority of the related
mortgage or to maintain such mortgaged property to the extent such costs and
expenses are not paid by the borrower. With respect to Credit Lease Loans, the
Expense Reserve Fund will provide an additional source of funds for Advances.
Advances made with respect to a Credit Lease Loan will be made first to the
extent of amounts on deposit in the Expense Reserve Fund and then by the Master
Servicer, the Trustee and/or the Fiscal Agent, as applicable. See "The Enhanced
Lease Program" and "Servicing of the Loans -- Limitations on Foreclosure" in
this prospectus supplement.
The obligation of the Master Servicer, the Trustee or the Fiscal Agent, as
applicable, to make advances with respect to any Loan pursuant to the Pooling
Agreement continues through the foreclosure of such mortgage loan and until the
liquidation of the Loan or related mortgaged property. P&I Advances are intended
to provide a limited amount of liquidity, not to guarantee or insure against
losses. None of the Master Servicer, the Trustee or the Fiscal Agent will be
required to make any advance that it determines in its good faith business
judgment will not be recoverable by the Master Servicer, the Trustee or the
Fiscal Agent, as applicable, out of related late payments, excess cash flow,
reserve funds and payments, net liquidation proceeds, the proceeds received
under the related Lease Enhancement Policy, the related Extended Amortization
Policy, other insurance policies related to the Loan, or as the result of the
condemnation or sale of the mortgaged property or the sale of the defaulted Loan
and certain other collections with respect to the Loan as to which such advances
were made. In addition, if the Master Servicer, the Trustee or the Fiscal Agent,
as applicable, determines in its good faith business judgment that any advance
previously made will not be recoverable from the foregoing sources, then the
Master Servicer, the Trustee or Fiscal Agent, as applicable, will be entitled to
reimburse itself for such advance, plus interest thereon, out of amounts on
deposit in the Certificate Account payable on or in respect of all of the Loans
prior to distributions on the
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certificates. Any such judgment or determination must be evidenced by an
officers' certificate delivered to the Trustee (or, in the case of the Trustee
or Fiscal Agent, the Depositor) and the Rating Agencies setting forth such
judgment or determination of nonrecoverability and the procedure and
considerations of the Master Servicer, the Trustee or the Fiscal Agent, as
applicable, forming the basis of such determination. Both the Trustee and the
Fiscal Agent will be entitled to rely conclusively on any non-recoverability
determination of the Master Servicer.
The Master Servicer, the Trustee or the Fiscal Agent, as applicable, will
be entitled to reimbursement for any advance equal to the amount of such advance
from (1) late payments on the mortgage loan by the borrower, (2) the proceeds
received under the related Lease Enhancement Policy, the related Extended
Amortization Policies, other insurance policies related to the Loans, or as the
result of the condemnation or sale of the mortgaged property or the sale of the
defaulted Loan or (3) upon determining in good faith that such advance is a
nonrecoverable, from any other amounts from time to time on deposit in the
Certificate Account. The reimbursement for any such advance will be paid from
amounts in the Certificate Account prior to the allocation of amounts to be
distributed to the certificateholders.
The Master Servicer, the Trustee or the Fiscal Agent, as applicable, will
each be entitled to receive interest accrued on the amount of such Advance for
so long as it is outstanding at a rate per annum (the "Reimbursement Rate")
equal to the "prime rate" (or in the case of Servicing Advances made with
respect to Credit Lease Loans, "prime rate" plus 1%) as published in the "Money
Rates" section of The Wall Street Journal, as such "prime rate" may change from
time to time. Any delay between a Sub-Servicer's receipt of a late collection of
a Monthly Payment as to which a P&I Advance was made and the forwarding of such
late collection to the Master Servicer will increase the amount of interest
accrued and payable to the Master Servicer or the Trustee, as the case may be,
on such P&I Advance. To the extent not offset by Default Interest and/or late
payment charges accrued and actually collected on the related Loan while it is a
Specially Serviced Loan, or to the extent not offset by Default Interest accrued
and actually collected on the related Credit Lease Loan, interest accrued on
outstanding Advances will result in a reduction in amounts payable on the
Certificates.
SERVICER PROTECTIVE ACTIONS AND CREDIT LEASE LOANS
With respect to Credit Lease Loans, in addition to making P&I Advances and
servicing the mortgaged property in accordance with the Servicing Standard, the
Pooling Agreement will require that the Master Servicer also make Servicing
Advances (unless such Servicing Advances would be nonrecoverable) and that the
Master Servicer and the Special Servicer, as applicable, use best efforts to
perform the Servicer Protective Actions necessary to prevent a Tenant from
exercising its Maintenance Termination or Abatement Rights and/or its Additional
Termination or Abatement Rights (e.g. an abatement or termination for a reason
other than a casualty or condemnation). Servicer Protective Actions are not
limited to the expenditure of funds by the Master Servicer, but may also include
additional actions by the Special Servicer such as contracting for work required
to be performed, and filing legal actions to prevent the exercise by a Tenant of
a Maintenance Termination or Abatement Right or an Additional Termination or
Abatement Right. In performing Servicer Protective Actions, the Master Servicer
will use funds on deposit in the Borrower Reserve Fund and the Expense Reserve
Fund as well as excess monthly cash flow prior to making a Servicing Advance.
The performance of Servicer Protective Actions by the Master Servicer which
consist of filing notices and claims under the Lease Enhancement Policies, the
Extended Amortization Policies, and "force placed" insurance policies, as well
as making Servicing Advances, will not, in the absence of the occurrence of a
Servicing Transfer Event, cause a Credit Lease Loan to be a Specially Serviced
Mortgage Loan. In addition, the ability of the Special Servicer to foreclose on
a Credit Lease Loan is limited as described under "Servicing of the
Loans -- Limitations on Foreclosure" in this prospectus supplement. See "The
Enhanced Lease Program -- Servicer Protective Actions" in Annex C of this
prospectus supplement.
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ACCOUNTS
General
Certificate Account. The Master Servicer will, pursuant to the Pooling
Agreement establish and maintain the Certificate Account, a segregated account
into which it will be required to deposit, within two Business Days of receipt,
all payments received by it on or in respect of the mortgage loans, or in the
case of the Credit Lease Loans, on the related Due Dates. Pursuant to the terms
of the Pooling Agreement, funds on deposit in the Certificate Account, to the
extent of funds available therefor, will be applied: (1) to pay servicing
compensation and other fees and expenses due to the Master Servicer, the Trustee
or the Fiscal Agent, as applicable, (2) to reimburse (to the extent funds are
not available therefor in the Expense Reserve Fund) the Fiscal Agent, the
Trustee, the Master Servicer or the Expense Reserve Fund, as applicable, (in
that order of priority) for any advances made that are deemed to be
nonrecoverable subsequent to the date such advance was made in accordance with
the Pooling Agreement, (3) to deposit Available Distribution Amount required to
be paid to the certificateholders into the Distribution Account, (4) to
reimburse the Fiscal Agent, the Trustee, the Special Servicer or the Master
Servicer (in that order of priority), as applicable, for any advances made by
such party which are outstanding (other than nonrecoverable advances) as and
when reimbursable under the Pooling Agreement, and (5) to fund and to reimburse
the Expense Reserve Fund from time to time. The Certificate Account will be a
Trust Asset, and investment income thereon will be payable to the Master
Servicer as additional servicing compensation. See "The Pooling and Servicing
Agreements -- Certificate Account" in the accompanying prospectus.
Distribution Account. The Trustee will establish and maintain the
Distribution Account and the REMIC I Distribution Account, as a segregated
account or subaccount, as applicable, in the name of the Trustee for the benefit
of the certificateholders. With respect to each Distribution Date, the Master
Servicer will deposit in the REMIC I Distribution Account, to the extent of
funds on deposit in the Certificate Account, on or before the Remittance Date an
aggregate amount of immediately available funds equal to the Available
Distribution Amount. To the extent not included in Available Distribution
Amount, the Master Servicer will remit to the Trustee all P&I Advances for
deposit into the REMIC I Distribution Account on or before the related
Remittance Date. See "Description of the Certificates -- Distributions on the
Certificates" in this prospectus supplement.
Credit Lease Loan Accounts
Rent Escrow Account. The Master Servicer will, pursuant to the Pooling
Agreement, establish and maintain the Rent Escrow Account, a segregated account
into which it will be required to deposit, within one Business Day of receipt,
all monthly rental payments received from the Credit Lease Tenants. Amounts
remaining in the Rent Escrow Account with respect to a Credit Lease Loan that
are not required to be deposited in the Certificate Account, the Borrower
Reserve Fund or another account will be remitted to the related borrower;
provided, however, that in no event will any such amounts be remitted to any
borrower that is in default beyond any applicable grace period under the terms
of the related mortgage loan documents. The Rent Escrow Account will be
beneficially owned by the borrowers. Investment income thereon will be paid to
the Master Servicer as additional servicing compensation.
Borrower Reserve Fund. The Master Servicer will, pursuant to the Pooling
Agreement, administer the Borrower Reserve Fund into which it will deposit, on
each Due Date, amounts, if any, required to be reserved by the borrowers for the
payment of expenses related to the operation, maintenance or repair of the
mortgaged property. All deposits and withdrawals from the Borrower Reserve Fund
will be made in accordance with a borrower reserve agreement entered into by the
related borrower (which borrower reserve agreement will be assigned to the trust
on the Closing Date). The Borrower Reserve Fund will be beneficially owned by
the related borrowers and pledged as collateral to secure the obligations of the
borrower under the loan documents. Unless otherwise provided in the related
Borrower Reserve Agreement, investment income earned in funds in deposit in the
Borrower Reserve Fund will be added to the balance thereof and will be available
to make payments in the manner specified in the Borrower Reserve Agreement.
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Expense Reserve Fund. The Master Servicer will, pursuant to the Pooling
Agreement, establish and maintain the Expense Reserve Fund into which it will
deposit monthly, with respect to each Credit Lease Loan, an amount equal to 0.3%
of each monthly rental payment (the "Servicer Reserve Amount") to fund the
Expense Reserve Fund. The Expense Reserve Fund will be beneficially owned by
CLF, as Loan Seller of the Credit Lease Loans and pledged to the trust and will
be an outside reserve fund excluded from REMIC I and REMIC II. The Master
Servicer is permitted to make withdrawals from funds on deposit in the Expense
Reserve Fund (up to the full amount on deposit therein) at any time to (1) to
provide additional funds for use by the Master Servicer when performing Servicer
Protective Actions on Credit Lease Loans, (2) to pay trust expenses, if any, (3)
as an additional source of funds for advances with respect to Credit Lease Loans
and, in certain circumstances, to reimburse the Master Servicer, the Trustee or
the Fiscal Agent, as applicable, in the event such advances are later deemed to
be nonrecoverable, (4) to cover Prepayment Interest Shortfalls which might arise
upon certain payments under the Lease Enhancement Policies, and (5) as credit
support to the extent the Available Distribution Amount is insufficient as a
result of losses incurred on the Credit Lease Loans to make all distributions
required to be made on a Distribution Date. Any amounts remaining in the Expense
Reserve Fund after all withdrawals required or permitted therefrom pursuant to
the Pooling Agreement will be paid to CLF following the termination of the
Trust. See "The Enhanced Lease Program -- The Expense Reserve Fund" in Annex C
of this prospectus supplement.
The Certificate Account and the Distribution Account will be Eligible
Accounts held in the name of the Trustee (or, in the case of the Certificate
Account, the Master Servicer on behalf of the Trustee) on behalf of the
certificateholders, and the Trustee (and, in the case of the Certificate
Account, the Master Servicer) will be authorized to make withdrawals therefrom.
In addition, the Expense Reserve Fund will be an Eligible Account and, to the
extent consistent with the loan documents, the Rent Escrow Account and the
Borrower Reserve Funds will be Eligible Accounts. An "Eligible Account" is
either (1) an account maintained with a depository institution or trust company,
the long-term, senior unsecured debt obligations of which are rated at least
"Aa3" by Moody's and "AA-" by each of S&P and DCR if the deposits are to be held
in such account for more than 30 days or the short-term debt obligations of
which have a short-term rating of not less than "P-1" by Moody's and "A-1" from
S&P and "D-1" from DCR if the deposits are to be held in such account for 30 or
less days, or such other account or accounts with respect to which each of the
Rating Agencies will have confirmed in writing that the then current rating
assigned to any of the certificates that are currently being rated by such
Rating Agency will not be qualified, downgraded or withdrawn, as applicable, by
reason thereof, or (2) a segregated trust account or accounts maintained with a
federally or state-chartered depository institution or trust company acting in
its fiduciary capacity, having, in either case, a combined capital and surplus
of at least $100,000,000, and subject to supervision or examination by state or
federal authority and subject to regulations regarding fiduciary funds on
deposit substantially similar to 12 C.F.R. sec.9.10(b), or otherwise confirmed
in writing by each of the Rating Agencies that the maintenance of such account
will not, in and of itself, result in a downgrade, withdrawal or qualification,
as applicable, of the then-current rating then assigned by such Rating Agency to
any class of certificates. Amounts on deposit in Eligible Accounts may be
invested in certain United States government securities and other high-quality
investments specified in the Pooling Agreement.
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Investment of Funds. Each of the Rent Escrow Account, the Borrower Reserve
Fund and the Expense Reserve Fund will be Eligible Accounts to the extent
consistent with the related loan documents. Amounts paid by each borrower
pursuant to the loan documents will be pledged as collateral for the related
Loan and will be held in an Eligible Account.
Tenant
| 30th - 15th
|
|
Rent Escrow
Account
(As Applicable)
Determination Date
|
________________________________________________________________
| | | |
| | | |
Expense Certificate Account Borrower Reserve Fund Borrower
Reserve Fund (As Applicable) (As Applicable)
(when |
applicable) |
|
| Remittance
| Date
(Advances) |
| Trustee, Master Servicer &
Master Servicer, Special Servicer Fees Expenses
Trustee Fiscal Agent Distribution Account and Advances (with interest)
Distribution
| Date
|
Priority of
Payment
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
Trustee Reports. Based solely on information provided in monthly reports
prepared by the Master Servicer and the Special Servicer and delivered to the
Trustee, on each Distribution Date the Trustee will be required to provide or
make available, either in electronic format or by first-class mail, to the
holders of each Class of REMIC Regular Certificates, the following statements
and reports (collectively, the "Distribution Date Statement") substantially in
the forms set forth in Annex B (although such forms may be subject to change
over time) and substantially containing the information set forth below:
(1) A statement setting forth, among other things: (i) the amount of
distributions, if any, made on such Distribution Date to the holders of
each Class of REMIC Regular Certificates and applied to reduce the
respective Certificate Balances thereof; (ii) the amount of distributions,
if any, made on such Distribution Date to the holders of each Class of
REMIC Regular Certificates allocable to Distributable Certificate Interest
and Prepayment Premiums; (iii) the Available Distribution Amount for such
Distribution Date; (iv) the aggregate amount of P&I Advances made in
respect of the immediately preceding Distribution Date; (v) the aggregate
Stated Principal Balance of the Loan Pool outstanding immediately before
and immediately after such Distribution Date; (vi) the number, aggregate
principal balance, weighted average remaining term to maturity and weighted
average Loan Rate of the Loan Pool as of the end of the Collection Period
for the prior Distribution Date; (vii) as of the close of business on the
last day of the most recently ended calendar month, the number and
aggregate unpaid principal balance of Loans (A) delinquent 30-59 days, (B)
delinquent 60-89 days, (C) delinquent 90 days or more, and (D) as to which
foreclosure proceedings have been commenced; (viii) with respect to any REO
Property included in the Trust Fund as of the end of the Collection Period
for such Distribution
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Date, the principal balance of the Loan as of the date such Loan became
delinquent; (ix) the Accrued Certificate Interest and Distributable
Certificate Interest in respect of each Class of REMIC Regular Certificates
for such Distribution Date; (x) the aggregate amount of Distributable
Certificate Interest payable in respect of each Class of REMIC Regular
Certificates on such Distribution Date, including, without limitation, any
Distributable Certificate Interest remaining unpaid from prior Distribution
Dates; (xi) any unpaid Distributable Certificate Interest in respect of
such Class of REMIC Regular Certificates after giving effect to the
distributions made on such Distribution Date; (xii) the Pass-Through Rate
for each Class of REMIC Regular Certificates for such Distribution Date;
(xiii) the Principal Distribution Amount for such Distribution Date,
separately identifying the respective components of such amount; (xiv) the
aggregate of all Realized Losses incurred during the related Collection
Period and, aggregated by type, all Additional Trust Fund Expenses incurred
during the related Collection Period; (xv) the Certificate Balance or
Notional Amount, as the case may be, of each Class of REMIC Regular
Certificates outstanding immediately before and immediately after such
Distribution Date, separately identifying any reduction therein due to the
allocation of Realized Losses and Additional Trust Fund Expenses on such
Distribution Date; (xvi) the aggregate amount of servicing fees paid to the
Master Servicer and the Special Servicer, collectively and separately,
during the Collection Period for the prior Distribution Date; and (xvii) a
brief description of any material waiver, modification or amendment of any
Loan entered into by the Master Servicer or Special Servicer pursuant to
the Pooling Agreement during the related Collection Period. In the case of
information furnished pursuant to clauses (i) and (ii) above, the amounts
shall be expressed as a dollar amount in the aggregate for all Certificates
of each applicable Class and per a specified denomination.
(2) A report containing information regarding the Loans as of the
close of business on the immediately preceding Determination Date, which
report shall contain certain of the categories of information regarding the
Loans set forth in this prospectus supplement in the tables under the
caption "Annex A: Certain Characteristics of the Loans" (calculated, where
applicable, on the basis of the most recent relevant information provided
by the borrowers to the Master Servicer or the Special Servicer and by the
Master Servicer or the Special Servicer, as the case may be, to the
Trustee) and such information shall be presented in a loan-by-loan and
tabular format substantially similar to the formats utilized in this
prospectus supplement on Annex A (provided that no information will be
provided as to any repair and replacement or other cash reserve and the
only financial information to be reported on an ongoing basis will be
actual expenses, actual revenues and actual net operating income for the
respective Mortgaged Properties and a debt service coverage ratio
calculated on the basis thereof).
Servicer Reports. The Master Servicer is required to deliver to the
Trustee on the Business Day prior to each Distribution Date, and the Trustee is
to provide or make available, either in electronic format or by first-class mail
to each Certificateholder, and, if requested in writing, any potential investor
in the Certificates, on each Distribution Date, the following five reports (the
"Servicer Reports"), all of which will be made available electronically or by
first-class mail to any Certificate Owner or any Person identified to the
Trustee by any Certificate Owner as a prospective transferee of a Certificate,
the Rating Agencies, the underwriters of the Certificate and any party to the
Pooling Agreement via the Trustee's Website with the use of a personal password
provided by the Trustee to such Person of a certification in the form attached
to the Pooling Agreement; provided that the Rating Agencies and Parties to the
Pooling Agreement will not be required to provide such information:
(1) A "Delinquent Loan Status Report" setting forth, among other
things, those Loans which, as of the close of business on the last day of
the most recently ended calendar month, were delinquent 30-59 days,
delinquent 60-89 days, delinquent 90 days or more, current but specially
serviced, or in foreclosure but not REO Property.
(2) An "Historical Loan Modification Report" setting forth, among
other things, those Loans which, as of the close of business on the
immediately preceding Determination Date, have been modified pursuant to
the Pooling Agreement (i) during the Collection Period ending on such
Determination Date and (ii) since the Cut-off Date, showing the original
and the revised terms thereof.
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(3) An "Historical Loss Report" setting forth, among other things, as
of the close of business on the immediately preceding Determination Date,
(i) the aggregate amount of Liquidation Proceeds received, and liquidation
expenses incurred, both during the Collection Period ending on such
Determination Date and historically, and (ii) the amount of Realized Losses
occurring during such Collection Period and historically, set forth on a
Loan-by-Loan basis.
(4) A "REO Status Report" setting forth, among other things, with
respect to each REO Property that was included in the Trust Fund as of the
close of business on the immediately preceding Determination Date, (i) the
acquisition date of such REO Property, (ii) the amount of income collected
with respect to any REO Property (net of related expenses) and other
amounts, if any, received on such REO Property during the Collection Period
ending on such Determination Date and (iii) the value of the REO Property
based on the most recent appraisal or other valuation thereof available to
the Master Servicer as of such Determination Date (including any prepared
internally by the Special Servicer).
(5) A "Special Servicer Loan Status Report" setting forth, among other
things, as of the close of business on the immediately preceding
Determination Date, (i) the aggregate principal balance of all Specially
Serviced Loans and (ii) a loan-by-loan listing of all Specially Serviced
Loans indicating their status, date and reason for transfer to the Special
Servicer.
None of the Distribution Date Statement or the Servicer Reports will
include any information that the Master Servicer deems to be confidential. The
information that pertains to Specially Serviced Loans and REO Properties
reflected in such reports shall be based solely upon the reports delivered by
the Special Servicer to the Master Servicer prior to the related Distribution
Date. None of the Master Servicer, the Special Servicer or the Trustee shall be
responsible for the accuracy or completeness of any information supplied to it
by a borrower or other third party that is included in any reports, statements,
materials or information prepared or provided by the Master Servicer, the
Special Servicer or the Trustee, as applicable.
The Master Servicer is also required to deliver to the Trustee, within 105
days (or 180 days, in the case of annual operating information) following the
end of each calendar quarter, commencing with the calendar quarter ending June
30, 1999, with respect to each Mortgaged Property and REO Property, an
"Operating Statement Analysis" in electronic form containing revenue, expense
and net operating income information normalized using the methodology described
in Annex A as of the end of such calendar quarter (but only to the extent, in
the case of a Mortgaged Property, that the related borrower is required by the
Mortgage to deliver, or otherwise agrees to provide, such information) for such
Mortgaged Property or REO Property as of the end of such calendar quarter.
Certificate Owners who have certified to the Master Servicer as to their
beneficial ownership of any Offered Certificate may, to the extent such owners
request them, obtain copies of any of the Operating Statement Analyses described
above. Conveyance of notices and other communications by DTC to Participants,
and by Participants to Certificate Owners, will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time. The Master Servicer, the Special Servicer, the
Trustee, the Depositor, the REMIC Administrator, the Loan Sellers and the
Certificate Registrar are required to recognize as Certificateholders only those
persons in whose names the Certificates are registered on the books and records
of the Certificate Registrar.
The Trustee will make available each month, to any interested party, the
Distribution Date Statement via the Trustee's Website. The Trustee's Website
will be located at "www.lnbabs.com". In addition, the Trustee will also make
Loan information as presented in the CSSA loan setup file and CSSA loan periodic
update file format available each month to any Certificateholder, any
Certificate Owner, the Rating Agencies, the parties hereto or any other
interested party via the Trustee's Website. For Certificateholders that have
obtained an account number on the Trustee's Automatic Statements Accessed by
Phone ("ASAP") System, the foregoing report or a summary report of bond factors
may be obtained from the Trustee via automated facsimile by placing a telephone
call to (714) 282-5518 and following the voice prompts to request "statement
number 291." Account numbers on the ASAP System may be obtained by calling the
same telephone number and following the voice prompts for obtaining account
numbers. Separately, bond factor information may be obtained from the Trustee by
calling (800) 246-5761. In addition, if the Depositor so directs the Trustee,
and on terms acceptable to the Trustee, the Trustee will make available through
its electronic bulletin board system, on a confidential basis, certain
information related to the Loans. The bulletin board is located at (714)
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282-3990. Certificateholders that have an account on the bulletin board may
retrieve the loan level data file for each transaction in the directory. An
account number may be obtained by typing "new" upon logging into the bulletin
board. A directory has been set up on the bulletin board in which an electronic
file is stored containing monthly servicer data. All files are compressed before
being put into the directory and are password protected. Passwords to each file
will be released by the Trustee. The Trustee will make no representations or
warranties as to the accuracy or completeness of such documents and will assume
no responsibility therefor.
In connection with providing access to the Trustee's Website or electronic
bulletin board, the Trustee may require registration and the acceptance of a
disclaimer. The Trustee shall not be liable for the dissemination of information
in accordance with the pooling and servicing agreement.
For a discussion of certain annual information reports to be furnished by
the Trustee to persons who at any time during the prior calendar year were
holders of the Offered Certificates, see "Description of the
Certificates -- Reports to Certificateholders" in the accompanying prospectus.
Other Information. The pooling and servicing agreement requires that the
Trustee make available at its offices, during normal business hours, upon
reasonable advance written notice, for review by the Certificate Insurer or any
holder or Certificate Owner of an Offered Certificate or any person identified
to the Trustee by any such holder or Certificate Owner as a prospective
transferee of an Offered Certificate or any interest therein, originals or
copies of, among other things, the following items: (a) all officer's
certificates delivered to the Trustee since the Delivery Date as described under
"Servicing of the Loans -- Evidence as to Compliance" in this prospectus
supplement, (b) all accountant's reports delivered to the Trustee since the
Delivery Date as described under "Servicing of the Loans -- Evidence as to
Compliance" in this prospectus supplement, and (c) the Mortgage Note, Mortgage
and other legal documents relating to each Loan, including any and all
modifications, waivers and amendments of the terms of a Loan entered into by the
Master Servicer or the Special Servicer and delivered to the Trustee. In
addition, the Master Servicer is required to make available, during normal
business hours, upon reasonable advance written notice, for review by any holder
or Certificate Owner of an Offered Certificate or any person identified to the
Master Servicer as a prospective transferee of an Offered Certificate or any
interest therein, originals or copies of any and all documents (in the case of
documents generated by the Special Servicer, to the extent received therefrom)
that constitute the servicing file for each Loan, in each case except to the
extent the Master Servicer in its reasonable, good faith determination believes
that any item of information contained in such servicing file is of a nature
that it should be conveyed to all Certificateholders at the same time, in which
case the Master Servicer is required, as soon as reasonably possible following
its receipt of any such item of information, to disclose such item of
information to the Trustee for inclusion by the Trustee along with the
Distribution Date Statement referred to under "-- Reports to Certificateholders;
Certain Available Information -- Trustee Reports" above; provided that, until
the Trustee has either disclosed such information to all Certificateholders
along with the Distribution Date Statement or such information has been properly
filed with the Securities and Exchange Commission on behalf of the Trust under
the Securities Exchange Act of 1934, the Master Servicer is entitled to withhold
such item of information from any Certificateholder or Certificate Owner or
prospective transferee of a Certificate or an interest therein; and, provided,
further, that the Master Servicer is not required to make information contained
in any servicing file available to any person to the extent that doing so is
prohibited by applicable law or by any documents related to a Loan.
The Trustee and, subject to the last sentence of the prior paragraph, the
Master Servicer will each make available, upon reasonable advance written notice
and at the expense of the requesting party, originals or copies of the items
referred to in the prior paragraph that are maintained thereby, to
Certificateholders, Certificate Owners and prospective purchasers of
Certificates and interests therein; provided that the Trustee and Master
Servicer may each require (a) in the case of a Certificate Owner, a written
confirmation executed by the requesting person or entity, in a form reasonably
acceptable to the Trustee or Master Servicer, as applicable, generally to the
effect that such person or entity is a beneficial owner of Offered Certificates
and will keep such information confidential, and (b) in the case of a
prospective purchaser, confirmation executed by the requesting person or entity,
in a form reasonably acceptable to the Trustee or Master Servicer, as
applicable, generally to the effect that such person or entity is a prospective
purchaser of Offered Certificates or an interest therein, is requesting the
information solely for use in evaluating a possible investment in such
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Certificates and will otherwise keep such information confidential.
Certificateholders, by the acceptance of their Certificates, will be deemed to
have agreed to keep such information confidential.
VOTING RIGHTS
At all times during the term of the Pooling Agreement, 95% of the voting
rights for the Certificates (the "Voting Rights") shall be allocated among the
holders of the respective Classes of Sequential Pay Certificates in proportion
to the Certificate Balances of their Certificates and 5% of the Voting Rights
shall be allocated to the holders of the Class X Certificates in proportion to
their Notional Amounts. Voting Rights allocated to a Class of Certificateholders
shall be allocated among such Certificateholders in proportion to the percentage
interests in such Class evidenced by their respective Certificates. See
"Description of the Certificates -- Voting Rights" in the accompanying
prospectus.
TERMINATION
The obligations created by the Pooling Agreement will terminate following
the earliest of (i) the final payment (or advance in respect thereof) or other
liquidation of the last Loan or related REO Property remaining in the Trust
Fund, and (ii) the purchase of all of the Loans and REO Properties remaining in
the Trust Fund by the Master Servicer or by any holder or holders (other than
the Depositor or Loan Sellers) of Certificates representing a majority interest
in the Controlling Class. Written notice of termination of the Pooling Agreement
will be given to each Certificateholder, and the final distribution with respect
to each Certificate will be made only upon surrender and cancellation of such
Certificate at the office of the Certificate Registrar or other location
specified in such notice of termination.
Any such purchase by the Master Servicer or the majority holder(s) of the
Controlling Class of all the Loans and REO Properties remaining in the Trust
Fund is required to be made at a price equal to (a) the sum of (i) the aggregate
Purchase Price of all the Loans then included in the Trust Fund (other than any
Loans as to which the related Mortgaged Properties have become REO Properties)
and (ii) the fair market value of all REO Properties then included in the Trust
Fund, as determined by an appraiser mutually agreed upon by the Master Servicer
and the Trustee, minus (b) (solely in the case of a purchase by the Master
Servicer) the aggregate of all amounts payable or reimbursable to the Master
Servicer under the Pooling Agreement. Such purchase will effect early retirement
of the then outstanding Certificates, but the right of the Master Servicer or
the majority holder(s) of the Controlling Class to effect such termination is
subject to the requirement that the then aggregate Stated Principal Balance of
the Loan Pool be less than 1.0% of the Initial Pool Balance. The purchase price
paid by the Master Servicer or the majority holder(s) of the Controlling Class,
exclusive of any portion thereof payable or reimbursable to any person other
than the Certificateholders, will constitute part of the Available Distribution
Amount for the final Distribution Date.
THE TRUSTEE AND THE FISCAL AGENT
THE TRUSTEE
LaSalle National Bank, a national banking association with its principal
offices located in Chicago, Illinois, will act as Trustee on behalf of the
certificateholders. As compensation for its services, the Trustee will be
entitled to receive a fee payable from funds on deposit in the Distribution
Account. In addition, the Trustee will be obligated to make any advance required
to be made to the extent no funds are available from the Expense Reserve Fund to
make such advance, but not made, by the Master Servicer under the Pooling
Agreement (including a Servicing Advance, to the extent the Trustee has actual
knowledge of the failure of the Master Servicer to make such Servicing Advance),
provided that the Trustee will not be obligated to make any advance that it
deems to be nonrecoverable. The Trustee will be entitled to rely conclusively on
any determination by the Master Servicer that an advance, if made, would be a
nonrecoverable. The Trustee will be entitled to reimbursement (with interest
thereon at the Reimbursement Rate or the Reimbursement Rate, as applicable) for
each advance made by it in the same manner and to the same extent as, but prior
to, the
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Master Servicer. The corporate trust office of the Trustee is located at 135
South LaSalle Street, Chicago, Illinois 60674, Attention: Asset Backed
Securities Trust Services Group -- NationsLink 1999-LTL-1.
The Trustee will make no representation as to the validity or sufficiency
of the Pooling Agreement, the certificates, the Loans or related documents or
the sufficiency of this prospectus supplement and will not be accountable for
the use or application by or on behalf of the Master Servicer or the Special
Servicer of any funds paid to the Master Servicer or the Special Servicer in
respect of the certificates or the mortgage loans, or any funds deposited into
or withdrawn from the Certificate Account or any other account maintained by or
on behalf of the Master Servicer or the Special Servicer. If no Event of Default
has occurred and is continuing, the Trustee will be required to perform only
those duties specifically required under the Pooling Agreement. However, upon
receipt of any of the various resolutions, statements, opinions, reports,
documents, orders or other instruments required to be furnished to it pursuant
to the Pooling Agreement, the Trustee will be required to examine such documents
and to determine whether they conform to the requirements of the Pooling
Agreement (to the extent set forth therein) without responsibility for
investigating the contents thereof.
LaSalle National Bank is rated "AA-" by S&P and "Aa3" by Moody's. The
Rating Agencies have indicated that the Trustee is acceptable for the purposes
of its obligations hereunder based on the credit rating of its indirect
corporate parent, ABN AMRO Bank N.V.
Pursuant to the Pooling Agreement, the Trustee will be entitled to a
monthly fee (the "Trustee Fee"; and, together with the Master Servicing Fee
(including the Standby Fee), the "Administrative Fees") payable out of general
collections on the Loans and any REO Properties.
The Trustee will also have certain duties with respect to REMIC
administration (in such capacity the "REMIC Administrator"). See "Certain
Federal Income Tax Consequences -- REMICs -- Reporting and Other Administrative
Matters" and "The Pooling and Servicing Agreements -- Certain Matters Regarding
the Master Servicer, the Special Servicer, the REMIC Administrator and the
Depositor", "-- Events of Default" and "-- Rights Upon Event of Default" in the
accompanying prospectus.
CERTAIN MATTERS REGARDING THE TRUSTEE
The Trustee will be entitled to indemnification, from amounts held in the
Certificate Account, for any loss, liability, damages, claim or expense arising
in respect of the Pooling Agreement or the certificates other than those
resulting from the negligence, fraud, bad faith or willful misconduct of the
Trustee.
THE FISCAL AGENT
ABN AMRO Bank N.V., a banking corporation organized under the laws of The
Netherlands, will act as Fiscal Agent pursuant to the Pooling Agreement. The
Fiscal Agent's office is located at 135 South LaSalle Street, Chicago, Illinois
60674.
In the event that the Master Servicer and the Trustee fail to make a
required advance and no funds are available from the Expense Reserve Fund to
make such advance, the Fiscal Agent will be required to make such advance;
provided, that the Fiscal Agent will not be obligated to make any advance that
it deems to be nonrecoverable. The Fiscal Agent will be entitled to rely
conclusively on any determination by the Master Servicer or the Trustee, as
applicable, that an advance, if made, would be nonrecoverable. The Fiscal Agent
will be entitled to reimbursement for each advance made by it in the same manner
and to the same extent as, but prior to, the Trustee and the Master Servicer.
The Fiscal Agent will make no representation as to the validity or
sufficiency of the Pooling Agreement, the certificates, the Loans or related
documents or the sufficiency of this prospectus supplement. The duties and
obligations of the Fiscal Agent will consist only of making advances as
described in "Servicing of the Loans -- Advances" in this prospectus supplement.
The Fiscal Agent will not be liable except for the performance of such duties
and obligations.
ABN AMRO Bank N.V. is rated "AA" by S&P and "Aa2" by Moody's.
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THE ENHANCEMENT INSURER
Lexington Insurance Co. is a capital stock insurance company and a
wholly-owned subsidiary of the American International Group, Inc. The
Enhancement Insurer's financial strength has been rated "AAA" by S&P or
otherwise approved by DCR. The executive office of Lexington Insurance Co. is
located at 200 State Street, Boston, Massachusetts 02109.
THE EXTENSION INSURER
Columbia Insurance Company (the "Extension Insurer") is a capital stock
insurance company and a wholly-owned subsidiary of Berkshire Hathaway, Inc. The
Extension Insurer's financial strength paying ability has been rated "AAA" by
S&P or is otherwise approved by DCR. The executive office of Columbia Insurance
Company is located at 3024 Harney Street, Omaha, Nebraska 68131.
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Offered Certificate will depend on:
- the price at which such Certificate is purchased by an
investor; and
- the rate, timing and amount of distributions on such
Certificate.
The rate, timing and amount of distributions on any Offered Certificate
will in turn depend on, among other things,
- the Pass-Through Rate for such Certificate (which is fixed
in the case of each Class of Offered Certificates other than
the Class X Certificates);
- the rate and timing of principal payments (including
principal prepayments) and other principal collections on or
in respect of the Loans and the extent to which such amounts
are to be applied or otherwise result in reduction of the
Certificate Balance or Notional Amount of the Class of
Certificates to which such Certificate belongs;
- the rate, timing and severity of Realized Losses on or in
respect of the Loans and of Additional Trust Fund Expenses
and Appraisal Reductions and the extent to which such
losses, expenses and reductions are allocable to or
otherwise result in the nonpayment or deferred payment of
interest on, or reduction of the Certificate Balance or
Notional Amount of, the Class of Certificates to which such
Certificate belongs;
- the timing and severity of any Net Aggregate Prepayment
Interest Shortfalls and the extent to which such shortfalls
are allocable in reduction of the Distributable Certificate
Interest payable on the Class of Certificates to which such
Certificate belongs; and
- the extent to which Prepayment Premiums are collected and,
in turn, distributed on the Class of Certificates to which
such Certificate belongs.
Class X Certificate Pass-Through Rate. The Pass-Through Rate applicable to
the Class X Certificates will be variable and will be calculated based in part
on the weighted average of the Net Loan Rates on the Loans from time to time.
Accordingly, the yield on such Certificates will be sensitive to changes in the
relative composition of the Loan Pool as a result of scheduled amortization,
voluntary prepayments and liquidations of Loans following default. The
Pass-Through Rate and yield to maturity of the Class X Certificates will be
adversely affected if Loans with relatively higher Rates amortize and/or prepay
faster than Loans with relatively lower Loan Rates. See "Description of the
Certificates -- Distributions on the Certificates" and "Description of the Loan
Pool" in this prospectus supplement and "-- Rate and Timing of Principal
Payments" below.
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Rate and Timing of Principal Payments. The yield to holders of the Class X
Certificates will be extremely sensitive to, and the yield to holders of any
other Class of Offered Certificates purchased at a discount or premium will be
affected by, the rate and timing of reductions of the Certificate Balances or
Notional Amount, as the case may be, of such Class of Certificates. As described
herein, the Principal Distribution Amount for each Distribution Date will be
distributable entirely in respect of the Class A Certificates until the related
Certificate Balances thereof are reduced to zero. Following retirement of the
Class A Certificates, the Principal Distribution Amount for each Distribution
Date will be distributable entirely in respect of the other Classes of
Sequential Pay Certificates, sequentially in alphabetical order of Class
designation, in each such case until the related Certificate Balance is reduced
to zero. The Notional Amount of the Class X Certificates will equal
approximately 99.99% of the aggregate Certificate Balances of the Classes of
Sequential Pay Certificates outstanding from time to time. Consequently, the
rate and timing of reductions of the Certificate Balance or Notional Amount, as
the case may be, of each Class of Offered Certificates will depend on the rate
and timing of principal payments on or in respect of the Loans, which will in
turn be affected by the amortization schedules thereof, the dates on which any
Balloon Payments are due and the rate and timing of principal prepayments and
other unscheduled collections thereon (including for this purpose, collections
made in connection with liquidations of Loans due to defaults, casualties or
condemnations affecting the Mortgaged Properties, or purchases of Loans out of
the trust). Prepayments and, assuming the respective stated maturity dates
therefor have not occurred, liquidations of the Loans will result in
distributions on the Sequential Pay Certificates of amounts that would otherwise
be distributed over the remaining terms of the Loans and will tend to shorten
the weighted average lives of those Certificates. Defaults on the Loans,
particularly in the case of Balloon Loans at or near their stated maturity
dates, may result in significant delays in payments of principal on the Loans
(and, accordingly, on the Sequential Pay Certificates) while workouts are
negotiated or foreclosures are completed, and such delays will tend to lengthen
the weighted average lives of those Certificates. See "Servicing of the
Loans -- Modifications, Waivers, Amendments and Consents" herein and "The
Pooling and Servicing Agreements -- Realization Upon Defaulted Mortgage Loans"
and "Certain Legal Aspects of Mortgage Loans -- Foreclosure" in the accompanying
prospectus.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on or in respect of the Loans are distributed
or otherwise result in a reduction of the Certificate Balance or Notional Amount
of such Certificates. An investor should consider, in the case of any Offered
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on the Loans could result in an actual yield to such
investor that is lower than the anticipated yield and, in the case of a Class X
Certificate or any other Offered Certificate purchased at a premium, the risk
that a faster than anticipated rate of principal payments on the Loans could
result in an actual yield to such investor that is lower than the anticipated
yield. In general, the earlier a payment of principal on or in respect of the
Loans is distributed or otherwise results in reduction of the notional amount of
a Class X Certificate or the principal balance of any other Offered Certificate
purchased at a discount or premium, the greater will be the effect on an
investor's yield to maturity. As a result, the effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during any particular period may not be fully offset
by a subsequent like reduction (or increase) in the rate of principal payments.
Investors in the Class X Certificates should fully consider the risk that an
extremely rapid rate of principal payments on the Loans could result in the
failure of such investors to fully recoup their initial investments. Because the
rate of principal payments on or in respect of the Loans will depend on future
events and a variety of factors (as described more fully below), no assurance
can be given as to such rate or the rate of principal prepayments in particular.
The Depositor is not aware of any relevant publicly available or authoritative
statistics with respect to the historical prepayment experience of a large group
of loans comparable to the Loans.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Loans. As and to the extent described
herein, Realized Losses and Additional Trust Fund Expenses will be allocated to
the respective Classes of Sequential Pay Certificates (which allocation will, in
general, reduce the amount of
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interest distributable thereto in the case of Additional Trust Fund Expenses and
reduce the Certificate Balance thereof in the case of Realized Losses) in the
following order: first, to each Class of Sequential Pay Certificates (other than
the Class A Certificates), in reverse alphabetical order of Class designation,
until the Certificate Balance thereof has been reduced to zero; then, to the
Class A-1, Class A-2 and Class A-3 Certificates pro rata in accordance with
their respective remaining Certificate Balances, until the remaining Certificate
Balance of each such Class of Certificates has been reduced to zero. Any such
reduction in the Certificate Balance of a Class of Sequential Pay Certificates
will cause a corresponding reduction of the Notional Amount of the Class X
Certificates.
The Net Aggregate Prepayment Interest Shortfall, if any, for each
Distribution Date will be allocated to the respective Classes of REMIC Regular
Certificates (in each case, to reduce the amount of interest otherwise payable
thereon on such Distribution Date) as follows: first, to the respective Classes
of REMIC Regular Certificates (other than the Senior Certificates) sequentially
in reverse alphabetical order of Class designation, in each case up to an amount
equal to the lesser of any remaining unallocated portion of such Net Aggregate
Prepayment Interest Shortfall and any Accrued Certificate Interest in respect of
such Class of Certificates for such Distribution Date; and, thereafter, if and
to the extent that any portion of such Net Aggregate Prepayment Interest
Shortfall remains unallocated, among the respective Classes of Senior
Certificates, up to, and pro rata in accordance with, the respective amounts of
Accrued Certificate Interest for each such Class of Senior Certificates for such
Distribution Date.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on or in respect of the Loans may be
affected by a number of factors, including, without limitation, prevailing
interest rates, the terms of the Loans (for example, Prepayment Premiums,
Lock-out Periods and amortization terms that require Balloon Payments), the
demographics and relative economic vitality of the areas in which the Mortgaged
Properties are located and the general supply and demand for retail shopping
space, hotel rooms, industrial space, or office space, as the case may be, in
such areas, the quality of management of the Mortgaged Properties, the servicing
of the Mortgage Loans, possible changes in tax laws and other opportunities for
investment. See "Risk Factors -- Risks Related to the Loans", "Description of
the Loan Pool" and "Servicing of the Loans" in this prospectus supplement and
"The Pooling and Servicing Agreements" and "Yield and Maturity
Considerations -- Yield and Prepayment Considerations" in the accompanying
prospectus.
The rate of prepayment on the Loans is likely to be affected by prevailing
market interest rates for mortgage loans of a comparable type, term and risk
level. When the prevailing market interest rate is below the Loan Rate at which
a Loan accrues interest, a borrower may have an increased incentive to refinance
such Loan. Conversely, to the extent prevailing market interest rates exceed the
applicable Loan Rate for any Loan, such Loan may be less likely to prepay.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits.
If a Loan is not in a Lock-out Period, any Prepayment Premium in respect of
such Loan may not be sufficient economic disincentive to prevent the related
borrower from voluntarily prepaying the loan as part of a refinancing thereof or
a sale of the related Mortgaged Property. See "Description of the Loan Pool --
Certain Terms and Conditions of the Loans" in this prospectus supplement.
The Depositor makes no representation or warranty as to the particular
factors that will affect the rate and timing of prepayments and defaults on the
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Loans that will be prepaid or as to which a default
will have occurred as of any date or as to the overall rate of prepayment or
default on the Loans.
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<PAGE> 105
WEIGHTED AVERAGE LIVES
The weighted average life of any Offered Certificate (other than a Class X
Certificate) refers to the average amount of time that will elapse from the date
of its issuance until each dollar to be applied in reduction of the principal
balance of such Certificate is distributed to the investor. For purposes of this
Prospectus Supplement, the weighted average life of any such Offered Certificate
is determined by (i) multiplying the amount of each principal distribution
thereon by the number of years from the assumed Settlement Date (as defined
below) to the related Distribution Date, (ii) summing the results and (iii)
dividing the sum by the aggregate amount of the reductions in the principal
balance of such Certificate. Accordingly, the weighted average life of any such
Offered Certificate will be influenced by, among other things, the rate at which
principal of the Loans is paid or otherwise collected or advanced and the extent
to which such payments, collections and/or advances of principal are in turn
applied in reduction of the Certificate Balance of the Class of Certificates to
which such Offered Certificate belongs. As described herein, the Principal
Distribution Amount for each Distribution Date will be distributable entirely in
respect of the Class A Certificates until the Certificate Balances thereof are
reduced to zero, and will thereafter be distributable entirely in respect of the
other Classes of Sequential Pay Certificates, sequentially in alphabetical order
of Class designation, in each such case until the related Certificate Balance is
reduced to zero. As a consequence of the foregoing, the weighted average lives
of the Class A Certificates may be shorter, and the weighted average lives of
the other Classes of Sequential Pay Certificates may be longer, than would
otherwise be the case if the Principal Distribution Amount for each Distribution
Date was being distributed on a pro rata basis among the respective Classes of
Sequential Pay Certificates.
Prepayments on loans may be measured by a prepayment standard or model. The
model used in this prospectus supplement is the CPR model (as described in the
accompanying prospectus). As used in each of the following tables, the column
headed "0%" assumes that none of the Loans is prepaid before maturity. The
columns headed "4%", "8%", "12%" and "16%" assume that no prepayments are made
on any Loan during such Loan's Lock-out Period, if any, or during such Loan's
yield maintenance period, if any, and are otherwise made on each of the Loans at
the indicated CPRs. There is no assurance, however, that prepayments of the
Loans (whether or not in a Lock-out Period or a yield maintenance period) will
conform to any particular CPR, and no representation is made that the Loans will
prepay in accordance with the assumptions at any of the CPRs shown or at any
other particular prepayment rate, that all the Loans will prepay in accordance
with the assumptions at the same rate or that Loans that are in a Lock-out
Period or a yield maintenance period will not prepay as a result of involuntary
liquidations upon default or otherwise. A "yield maintenance period" is any
period during which a Loan provides that voluntary prepayments be accompanied by
a Prepayment Premium calculated on the basis of a yield maintenance formula.
The following tables indicate the percentages of the initial Certificate
Balances of the Class A and Class B Certificates that would be outstanding after
each of the dates shown at various CPRs, and the corresponding weighted average
lives of such Classes of Certificates, under the following assumptions (the
"Maturity Assumptions"): (i) the Loans have the characteristics set forth on
Annex A and the Pool Balance as of the Commencement Date is approximately
$492,491,697, (ii) the Pass-Through Rate and the initial Certificate Balance or
Notional Amount, as the case may be, of each Class of Offered Certificates are
as described herein, (iii) the scheduled Monthly Payments for each Loan that
accrues interest on the basis of a 360-day year consisting of twelve 30-day
months (a "30/360 Basis"), are based on such Loan's Cut-off Date Balance,
calculated remaining amortization term as of the Cut-off Date and Loan Rate as
of the Cut-off Date, and the scheduled Monthly Payments for each Loan that
accrues interest on the basis of actual number of days elapsed during the month
of accrual in a 360-day year are the actual contractual Monthly Payments, (iv)
there are no delinquencies or losses in respect of the Loans, there are no
modifications, extensions, waivers or amendments affecting the payment by
borrowers of principal or interest on the Loans, there are no Appraisal
Reduction Amounts with respect to the Loans and there are no casualties or
condemnations affecting the Mortgaged Properties, (v) scheduled Monthly Payments
on the Loans are timely received on the first day of each month, (vi) no
voluntary or involuntary prepayments are received as to any Loan during such
Loan's Lock-out Period ("LOP"), if any, or yield maintenance period ("YMP"), if
any, and, otherwise, prepayments are made on each of the Loans at the indicated
CPRs set forth in the tables (without regard to
S-103
<PAGE> 106
any limitations in such Loans on partial voluntary principal prepayments), (vii)
neither the Master Servicer nor any majority holder(s) of the Controlling Class
exercises its or exercise their right of optional termination described herein,
(viii) no Loan is required to be repurchased by NationsBank, N.A. or CLF, (ix)
no Prepayment Interest Shortfalls are incurred and no Prepayment Premiums are
collected, (x) there are no Additional Trust Fund Expenses, (xi) distributions
on the Offered Certificates are made on the 22nd day of each month, commencing
in March 1999, and (xii) the Offered Certificates are settled on March 12, 1999
(the "Settlement Date"). To the extent that the Loans have characteristics that
differ from those assumed in preparing the tables set forth below, the Class
A-1, Class A-2, Class A-3, and/or Class B Certificates may mature earlier or
later than indicated by the tables. It is highly unlikely that the Loans will
prepay in accordance with the above assumptions at any of the specified CPRs
until maturity or that all the Loans will so prepay at the same rate. In
addition, variations in the actual prepayment experience and the balance of the
Loans that prepay may increase or decrease the percentages of initial
Certificate Balances (and weighted average lives) shown in the following tables.
Such variations may occur even if the average prepayment experience of the Loans
were to conform to the assumptions and be equal to any of the specified CPRs.
Investors are urged to conduct their own analyses of the rates at which the
Loans may be expected to prepay.
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-1 CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
----------------------------------------------
DATE 0% 4% 8% 12% 16%
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Initial..................................... 100.00 100.00 100.00 100.00 100.00
February 22, 2000........................... 86.05 86.05 86.05 86.05 86.05
February 22, 2001........................... 70.91 70.91 70.91 70.91 70.91
February 22, 2002........................... 54.40 54.40 54.40 54.40 54.40
February 22, 2003........................... 35.88 35.88 35.88 35.88 35.88
February 22, 2004........................... 15.02 15.02 15.02 15.02 15.02
February 22, 2005........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2006........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2007........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2008........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2009........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2010........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2011........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2012........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2013........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2014........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2015........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2016........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2017........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2018........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2019........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2020........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2021........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2022........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2023........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2024........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2025........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2026........................... 0.00 0.00 0.00 0.00 0.00
</TABLE>
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<PAGE> 107
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
----------------------------------------------
DATE 0% 4% 8% 12% 16%
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
February 22, 2027........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2028........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2029........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2030........................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Lives (yrs)................ 3.09 3.09 3.09 3.09 3.09
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-2 CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
----------------------------------------------
DATE 0% 4% 8% 12% 16%
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Initial..................................... 100.00 100.00 100.00 100.00 100.00
February 22, 2000........................... 100.00 100.00 100.00 100.00 100.00
February 22, 2001........................... 100.00 100.00 100.00 100.00 100.00
February 22, 2002........................... 100.00 100.00 100.00 100.00 100.00
February 22, 2003........................... 100.00 100.00 100.00 100.00 100.00
February 22, 2004........................... 100.00 100.00 100.00 100.00 100.00
February 22, 2005........................... 96.96 96.96 96.96 96.96 96.96
February 22, 2006........................... 87.36 87.36 87.36 87.36 87.36
February 22, 2007........................... 76.91 76.91 76.91 76.91 76.91
February 22, 2008........................... 65.29 65.29 65.29 65.29 65.29
February 22, 2009........................... 53.36 53.36 53.36 53.36 53.36
February 22, 2010........................... 40.77 40.77 40.77 40.77 40.77
February 22, 2011........................... 27.17 27.17 27.17 27.17 27.17
February 22, 2012........................... 12.63 12.63 12.63 12.63 12.63
February 22, 2013........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2014........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2015........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2016........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2017........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2018........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2019........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2020........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2021........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2022........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2023........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2024........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2025........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2026........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2027........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2028........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2029........................... 0.00 0.00 0.00 0.00 0.00
February 22, 2030........................... 0.00 0.00 0.00 0.00 0.00
Weighted Average Lives (yrs)................ 10.09 10.09 10.09 10.09 10.09
</TABLE>
S-105
<PAGE> 108
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-3 CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
--------------------------------------------------
DATE 0% 4% 8% 12% 16%
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Initial........................... 100.00 100.00 100.00 100.00 100.00
February 22, 2000................. 100.00 100.00 100.00 100.00 100.00
February 22, 2001................. 100.00 100.00 100.00 100.00 100.00
February 22, 2002................. 100.00 100.00 100.00 100.00 100.00
February 22, 2003................. 100.00 100.00 100.00 100.00 100.00
February 22, 2004................. 100.00 100.00 100.00 100.00 100.00
February 22, 2005................. 100.00 100.00 100.00 100.00 100.00
February 22, 2006................. 100.00 100.00 100.00 100.00 100.00
February 22, 2007................. 100.00 100.00 100.00 100.00 100.00
February 22, 2008................. 100.00 100.00 100.00 100.00 100.00
February 22, 2009................. 100.00 100.00 100.00 100.00 100.00
February 22, 2010................. 100.00 100.00 100.00 100.00 100.00
February 22, 2011................. 100.00 100.00 100.00 100.00 100.00
February 22, 2012................. 100.00 100.00 100.00 100.00 100.00
February 22, 2013................. 89.30 89.15 88.99 88.83 88.66
February 22, 2014................. 52.04 52.04 52.04 52.04 52.04
February 22, 2015................. 30.48 30.48 30.48 30.48 30.48
February 22, 2016................. 8.24 8.24 8.24 8.24 8.24
February 22, 2017................. 0.00 0.00 0.00 0.00 0.00
February 22, 2018................. 0.00 0.00 0.00 0.00 0.00
February 22, 2019................. 0.00 0.00 0.00 0.00 0.00
February 22, 2020................. 0.00 0.00 0.00 0.00 0.00
February 22, 2021................. 0.00 0.00 0.00 0.00 0.00
February 22, 2022................. 0.00 0.00 0.00 0.00 0.00
February 22, 2023................. 0.00 0.00 0.00 0.00 0.00
February 22, 2024................. 0.00 0.00 0.00 0.00 0.00
February 22, 2025................. 0.00 0.00 0.00 0.00 0.00
February 22, 2026................. 0.00 0.00 0.00 0.00 0.00
February 22, 2027................. 0.00 0.00 0.00 0.00 0.00
February 22, 2028................. 0.00 0.00 0.00 0.00 0.00
February 22, 2029................. 0.00 0.00 0.00 0.00 0.00
February 22, 2030................. 0.00 0.00 0.00 0.00 0.00
Weighted Average Lives (yrs)...... 15.25 15.25 15.25 15.25 15.24
</TABLE>
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF THE
CLASS B CERTIFICATES AT THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
--------------------------------------------------
DATE 0% 4% 8% 12% 16%
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Initial........................... 100.00 100.00 100.00 100.00 100.00
February 22, 2000................. 100.00 100.00 100.00 100.00 100.00
February 22, 2001................. 100.00 100.00 100.00 100.00 100.00
February 22, 2002................. 100.00 100.00 100.00 100.00 100.00
February 22, 2003................. 100.00 100.00 100.00 100.00 100.00
February 22, 2004................. 100.00 100.00 100.00 100.00 100.00
</TABLE>
S-106
<PAGE> 109
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
--------------------------------------------------
DATE 0% 4% 8% 12% 16%
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
February 22, 2005................. 100.00 100.00 100.00 100.00 100.00
February 22, 2006................. 100.00 100.00 100.00 100.00 100.00
February 22, 2007................. 100.00 100.00 100.00 100.00 100.00
February 22, 2008................. 100.00 100.00 100.00 100.00 100.00
February 22, 2009................. 100.00 100.00 100.00 100.00 100.00
February 22, 2010................. 100.00 100.00 100.00 100.00 100.00
February 22, 2011................. 100.00 100.00 100.00 100.00 100.00
February 22, 2012................. 100.00 100.00 100.00 100.00 100.00
February 22, 2013................. 100.00 100.00 100.00 100.00 100.00
February 22, 2014................. 100.00 100.00 100.00 100.00 100.00
February 22, 2015................. 100.00 100.00 100.00 100.00 100.00
February 22, 2016................. 100.00 100.00 100.00 100.00 100.00
February 22, 2017................. 20.00 20.00 20.00 20.00 20.00
February 22, 2018................. 0.00 0.00 0.00 0.00 0.00
February 22, 2019................. 0.00 0.00 0.00 0.00 0.00
February 22, 2020................. 0.00 0.00 0.00 0.00 0.00
February 22, 2021................. 0.00 0.00 0.00 0.00 0.00
February 22, 2022................. 0.00 0.00 0.00 0.00 0.00
February 22, 2023................. 0.00 0.00 0.00 0.00 0.00
February 22, 2024................. 0.00 0.00 0.00 0.00 0.00
February 22, 2025................. 0.00 0.00 0.00 0.00 0.00
February 22, 2026................. 0.00 0.00 0.00 0.00 0.00
February 22, 2027................. 0.00 0.00 0.00 0.00 0.00
February 22, 2028................. 0.00 0.00 0.00 0.00 0.00
February 22, 2029................. 0.00 0.00 0.00 0.00 0.00
February 22, 2030................. 0.00 0.00 0.00 0.00 0.00
Weighted Average Lives (yrs)...... 17.72 17.72 17.72 17.72 17.72
</TABLE>
S-107
<PAGE> 110
YIELD SENSITIVITY OF THE CLASS X CERTIFICATES
The yield to maturity of the Class X Certificates will be highly sensitive
to the rate and timing of principal payments (including by reason of
prepayments, loan extensions, defaults and liquidations) and losses on or in
respect of the Loans. Investors in the Class X Certificates should fully
consider the associated risks, including the risk that an extremely rapid rate
of amortization, prepayment or other liquidation of the Loans could result in
the failure of such investors to recoup fully their initial investments.
The following tables indicate the approximate pre-tax yield to maturity on
a corporate bond equivalent ("CBE") basis on the Class X Certificates for the
specified CPRs based on the Maturity Assumptions. In addition, it was assumed,
when specifically indicated in a particular table, that 50% (or, if so
specified, 100%) of any Prepayment Premium calculated as a declining percentage
of the amount prepaid (a "Decl. % Premium") is collected in connection with each
prepayment as to which such a Prepayment Premium is applicable. It was further
assumed that the purchase price of the Class X Certificates is as specified
below, expressed as a percentage of the initial Notional Amount of such
Certificates, without accrued interest.
The yields set forth in the following tables were calculated by determining
the monthly discount rates that, when applied to the assumed streams of cash
flows to be paid on the Class X Certificates, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed purchase price
thereof, and by converting such monthly rates to semi-annual corporate bond
equivalent rates. Such calculation does not take into account shortfalls in
collection of interest due to prepayments (or other liquidations) of the Loans
or the interest rates at which investors may be able to reinvest funds received
by them as distributions on the Class X Certificates (and, accordingly, does not
purport to reflect the return on any investment in the Class X Certificates when
such reinvestment rates are considered).
The characteristics of the Loans may differ from those assumed in preparing
the tables below. In addition, there can be no assurance that the Loans will
prepay in accordance with the above assumptions at any of the rates shown in the
tables or at any other particular rate, that the cash flows on the Class X
Certificates will correspond to the cash flows shown herein or that the
aggregate purchase price of the Class X Certificates will be as assumed. In
addition, it is unlikely that the Loans will prepay in accordance with the above
assumptions at any of the specified CPRs until maturity or that all the Loans
will so prepay at the same rate. Timing of changes in the rate of prepayments
may significantly affect the actual yield to maturity to investors, even if the
average rate of principal prepayments is consistent with the expectations of
investors. Investors must make their own decisions as to the appropriate
prepayment assumption to be used in deciding whether to purchase Class X
Certificates.
PRE-TAX YIELD TO MATURITY (CBE)
OF THE CLASS X CERTIFICATES
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
<TABLE>
<CAPTION>
ASSUMED PREPAYMENT ASSUMPTION (CPR)
PURCHASE ----------------------------------------------------------------------
PRICE 0% 4% 8% 12% 16%
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
3.72144%............. 8.831% 8.830% 8.830% 8.830% 8.830%
</TABLE>
S-108
<PAGE> 111
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Offered Certificates
will be used by the Depositor to purchase the Loans from the Loan Sellers
described under "Description of the Certificates -- General," and to pay certain
expenses in connection with the issuance of the Certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Elections will be made to treat two segregated pools of assets comprising
the trust as two separate REMICs (respectively, REMIC I and REMIC II) for
federal income tax purposes. Upon the issuance of the Certificates, Cadwalader,
Wickersham & Taft, counsel to the Depositor, will deliver its opinion that,
assuming compliance with the provisions of the Pooling Agreement, the trust will
qualify for federal income tax purposes as two separate REMICs, within the
meaning of Sections 860A through 860G (the "REMIC Provisions") of the Code, and
(i) the Class A-1, Class A-2, Class A-3, Class X, Class B, Class C, Class D,
Class E, Class F and Class G Certificates (the "REMIC Regular Certificates")
evidence the "regular interests" in REMIC II and (ii) the Class R-I and Class
R-II Certificates will be the sole classes of "residual interest" in the REMIC I
and REMIC II, respectively, each within the meaning of the REMIC Provisions in
effect on the Closing Date. References in this prospectus supplement to "the
REMIC" are to either or both of REMIC I and REMIC II, as appropriate.
STATUS OF OFFERED CERTIFICATES
Offered Certificates held by a real estate investment trust will constitute
"real estate assets" within the meaning of Code Section 856(c)(4)(A), and
interest on the Offered Certificates will be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Code Section 856(c)(3)(B) in the same proportion that, for both
purposes, the Trust Assets would be so treated. If at all times 95% or more of
the Trust Asset qualify for each of the foregoing treatments, the Offered
Certificates will qualify for the corresponding status in their entirety. For
purposes of Code Section 856(c)(4)(A), payments of principal and interest on the
mortgage loans that are reinvested pending distribution to certificateholders
qualify for such treatment. Offered Certificates held by a domestic building and
loan association will constitute "loans... secured by an interest in real
property which is ... residential real property" within the meaning of Code
Section 7701(a)(19)(C)(v) only to the extent of Loans secured by mobile home
community properties (1.86% of the aggregate Cut-off Date Balance). Offered
Certificates held by a regulated investment company will not constitute
"government securities" within the meaning of Code Section 851(b)(3)(A)(i).
Offered Certificates held by certain financial institutions will constitute an
"evidence of indebtedness" within the meaning of Code Section 582(c)(1). The
Small Business Job Protection Act of 1996 repealed the reserve method for bad
debts of domestic building and loan associations and mutual savings banks, and
thus has eliminated the asset category of "qualifying real property loans" in
former Code Section 593(d) for taxable years beginning after December 31, 1995.
DISCOUNT AND PREMIUM; PREPAYMENT PREMIUMS
The Offered Certificates generally will be treated as newly originated debt
instruments for federal income tax purposes. Beneficial owners of the Offered
Certificates will be required to report income on such regular interests in
accordance with the accrual method of accounting. It is anticipated that the
Class A-1, Class A-2, Class A-3 and Class B Certificates will be issued at a
premium for federal income tax purposes. See "Certain Federal Income Tax
Consequences -- REMICs -- Taxation of Owners of REMIC Regular Certificates --
Original Issue Discount" in the accompanying prospectus.
Although unclear for federal income tax purposes, unless otherwise required
by applicable regulations, the Trustee will be directed in the Pooling Agreement
to treat the Class X Certificates as issued with original issue discount in an
amount equal to the excess of all distributions of interest expected to be
received thereon over their issue price (including accrued interest). However,
any "negative" amounts of original issue discount
S-109
<PAGE> 112
on the Class X Certificates attributable to rapid prepayments with respect to
the Loans will not be deductible currently, but may be offset against future
positive accruals of original issue discount, if any. Finally, a Class X
Certificateholder may be entitled to a loss deduction to the extent if becomes
certain that such certificateholder will not recover a portion of its basis in
such Certificate, assuming no further prepayments. See "Certain Federal Income
Tax Considerations -- Taxation of Offered Certificates -- Treatment of Losses"
in the accompanying prospectus. In the alternative, it is possible that rules
similar to the "noncontingent bond method" of the contingent interest rules in
the OID Regulations, as amended on June 12, 1996, may be promulgated with
respect to the Class X Certificates. Under the noncontingent bond method, if the
interest payable for any period is greater or less than the amount projected,
the amount of income included for that period would be either increased or
decreased accordingly. Any net reduction in the income accrual for the taxable
year below zero (a "Negative Adjustment") would be treated by a
certificateholder as ordinary loss to the extent of prior income accruals and
would be carried forward to offset future interest accruals. At maturity, any
remaining Negative Adjustment would be treated as a loss on retirement of the
Certificate. The legislative history of relevant Code provisions indicates,
however, that negative amounts of original issue discount on an instrument such
as a REMIC regular interest may not give rise to taxable losses in any accrual
period prior to the instrument's disposition or retirement. Thus, it is not
clear whether any losses resulting from a Negative Adjustment would be
recognized currently or be carried forward until disposition on retirement of
the debt obligation.
For purposes of accruing original issue discount, determining whether such
original issue discount is de minimis and amortizing any premium, the Prepayment
Assumption will be 0% CPR. See "Yield, Prepayment and Maturity
Considerations -- Prepayments and Weighted Average Lives" in this prospectus
supplement. No representation is made as to the rate, if any, at which the
mortgage loans will prepay.
Although not free from doubt, it is anticipated that any prepayment
premiums will be treated as ordinary income to the extent allocable to
beneficial owners of the Offered Certificates as such amounts become
distributable to such beneficial owners.
POSSIBLE TAXES ON INCOME FROM FORECLOSURE PROPERTY AND OTHER TAXES
In general, the Special Servicer will be obligated to operate and manage
any mortgaged property acquired as REO Property in a manner that would, to the
extent commercially feasible, maximize the trust's net after-tax proceeds from
such property. After the Special Servicer reviews the operation of such property
and consults with the REMIC Administrator to determine the trust's federal
income tax reporting position with respect to income it is anticipated that the
trust would derive from such property, the Special Servicer could determine that
it would not be commercially feasible to manage and operate such property in a
manner that would avoid the imposition of a tax on "net income from foreclosure
property" (generally, income not derived from renting or selling real property)
within the meaning of the REMIC Provisions (an "REO Tax"). To the extent that
income the trust receives from an REO Property is subject to a tax on "net
income from foreclosure property," such income would be subject to federal tax
at the highest marginal corporate tax rate (currently 35%). The determination as
to whether income from an REO Property would be subject to an REO Tax will
depend on the specific facts and circumstances relating to the management and
operation of each REO Property. Any REO Tax imposed on the trust's income from
an REO Property would reduce the amount available for distribution to
certificateholders. Certificateholders are advised to consult their own tax
advisors regarding the possible imposition of REO Taxes in connection with the
operation of commercial REO Properties by REMICs.
REPORTING REQUIREMENTS
Reporting of interest income, including any original issue discount, if
any, with respect to the Offered Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual holders of Offered Certificates
and the IRS; holders of Offered Certificates that are corporations, trusts,
securities dealers and certain other non-individuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The
S-110
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information must be provided by the later of 30 days after the end of the
quarter for which the information was requested, or two weeks after the receipt
of the request. The REMIC must also comply with rules requiring an Offered
Certificate issued with original issue discount to disclose on its face the
amount of original issue discount and the issue date, and requiring such
information to be reported to the IRS.
As applicable, the Offered Certificate information reports will include a
statement of the adjusted issue price of the Offered Certificate at the
beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC Administrator may not have, such regulations only
require that information pertaining to the appropriate proportionate method of
accruing market discount be provided.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences -- REMICs" in the accompanying prospectus.
CERTAIN ERISA CONSIDERATIONS
A fiduciary of a retirement plan or other employee benefit plan or
arrangement, including individual retirement accounts, annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
annuities, accounts or arrangements are invested, that is subject to Title I of
ERISA or Section 4975 of the Code or a governmental plan, as defined in Section
3(32) of ERISA, that is subject to any Similar Law (each, a "Plan") should
review with its legal advisors whether the purchase or holding of Offered
Certificates could give rise to a transaction that is prohibited or is not
otherwise permitted either under ERISA, the Code or Similar Law or whether there
exists any statutory or administrative exemption applicable thereto. Moreover,
each Plan fiduciary should determine whether an investment in the Offered
Certificates is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
Certain transactions involving the trust might be deemed to constitute
prohibited transactions under ERISA and the Code or Similar Law with respect to
a Plan that purchases an Offered Certificate if the Trust Assets are deemed to
be assets of the Plan. The United States Department of Labor (the "DOL") has
promulgated regulations at 29 C.F.R. Section 2510.3-101 (the "DOL Regulations")
defining the term "plan assets". Under the DOL Regulations, generally, when a
Plan makes an equity investment in another entity (such as the Trust), the
underlying assets of that entity may be considered plan assets unless certain
exceptions apply. There can be no assurance that any of the exceptions set forth
in the DOL Regulations will apply to the purchase and holding of Offered
Certificates. If the Loans or other Trust Assets constitute plan assets, then
any party exercising management or discretionary control regarding those assets
might be a Plan fiduciary, and thus subject to the fiduciary requirements and
prohibited transaction provisions of ERISA and the Code or Similar Law.
Certain affiliates of the Depositor might be considered or might become
fiduciaries or other Parties in Interest with respect to investing Plans.
Moreover, the Trustee, the Master Servicer or any other servicer, and the
Enhancement Insurer, the Extension Insurer or any other issuer of a credit
support instrument relating to the Trust Assets or any of their respective
affiliates might be considered fiduciaries or other Parties in Interest with
respect to investing Plans. Prohibited transactions within the meaning of ERISA
and the Code or Similar Law could arise if Offered Certificates are acquired by
a Plan with respect to which any such person is a Party in Interest.
Under current law, the purchase and holding of any Subordinate Certificates
by or on behalf of a Plan may result in prohibited transactions under ERISA,
Section 4975 of the Code, or Similar Law. Accordingly, each transferee of any
Subordinate Certificate, or beneficial interest therein, will be deemed to
represent either (a) that it is not a Plan or a person acting on behalf of a
Plan or using the assets of a Plan to acquire any Subordinate Certificate, or
(b) that it is an insurance company using the assets of its general account
under circumstances whereby the purchase and the subsequent holding of any
Subordinate Certificate by such
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insurance company would be exempt from the prohibited transaction provisions of
ERISA and the Code under Sections I and III of Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60"). Accordingly, the following discussion does not
purport to discuss the considerations under ERISA, Section 4975 of the Code or
Similar Law with respect to the purchase, holding or disposition of any
Subordinate Certificates, and for purposes of the following discussion all
references to the Offered Certificates will be deemed to exclude any Subordinate
Certificates.
The DOL has granted to BankAmerica Corporation an individual prohibited
transaction exemption, PTE 93-31, 58 Fed. Reg. 28,620 (May 14, 1993) (the
"Exemption"), from certain of the prohibited transaction rules with respect to
the initial purchase, the holding and the subsequent resale by a Plan of
certificates, such as the Offered Certificates, underwritten by the Underwriter
and representing interests in pass-through trusts that consist of certain
receivables, loans and other obligations, provided that certain conditions set
forth in the Exemption are satisfied. The loans described in the Exemption
include credit lease backed mortgage loans and mortgage loans such as the Loans.
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale and holding of the Offered
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of the Offered Certificates by a Plan must be on terms that are at
least as favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party. Second, the rights and interests evidenced by the
Offered Certificates must not be subordinated to the rights and interests
evidenced by the other certificates of the same trust. Third, the Offered
Certificates at the time of acquisition by the Plan must be rated in one of the
three highest generic rating categories by DCR, S&P, Moody's or Fitch IBCA, Inc.
Fourth, the Trustee cannot be an affiliate of any other member of the
"Restricted Group", which consists of (1) the Depositor, (2) the Underwriter,
(3) the Trustee, (4) the Master Servicer or the Special Servicer, (5) the
Enhancement Insurer, (6) the Extension Insurer, (7) any obligor with respect to
more than 5% of the unamortized principal balance of the Loans or (8) any
affiliate or successor of a person described in (1) to (7) above. Fifth, the sum
of all payments made to and retained by Underwriter in connection with the
underwriting of the Offered Certificates must represent not more than reasonable
compensation for its services; the sum of all payments made to and retained by
the Depositor pursuant to the assignment of the Loans to the Trust must
represent not more than the fair market value of such Loans; and the sum of all
payments made to and retained by the Master Servicer or the Special Servicer
must represent not more than reasonable compensation for such person's services
under the Pooling Agreement and reimbursement of such person's reasonable
expenses in connection therewith. Sixth, the investing Plan must be an
accredited investor as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act.
Because the Senior Certificates are not subordinated to any other class of
Certificates, the second general condition set forth above is satisfied with
respect to such Certificates. It is a condition of the issuance of the Class A
Certificates that they be rated not lower than "AAA" by the Rating Agencies. As
of the Closing Date, the fourth general condition set forth above will be
satisfied with respect to the Senior Certificates. A fiduciary of a Plan
contemplating purchasing a Senior Certificate in the secondary market must make
its own determination that, at the time of such purchase, the Senior
Certificates continue to satisfy the third and fourth general conditions set
forth above. A fiduciary of a Plan contemplating purchasing a Senior
Certificate, whether in the initial issuance of such Certificates or in the
secondary market, must make its own determination that the first, fifth and
sixth general conditions set forth above will be satisfied with respect to such
Senior Certificate.
The Exemption provides that, if the sixth condition that the investing Plan
be an accredited investor is not satisfied with respect to the acquisition or
holding by a Plan of the Offered Certificates, the underwriter, sponsor,
trustee, servicer, insurer and obligor will not be denied the relief provided in
the Exemption if the condition is disclosed in this prospectus supplement and
the Trustee obtains a representation from each initial purchaser of Offered
Certificates which is a Plan that it is in compliance with such condition and
obtains a covenant from each initial purchaser to the effect that, as long as
such initial purchaser (or any transferee of the initial purchaser's
Certificates) is required to obtain from its transferee a representation
regarding compliance with the Securities Act, any such transferees will be
required to make a representation regarding compliance with the sixth condition.
This provision does not apply to an underwriter, sponsor, trustee, servicer,
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insurer or obligor if it or any of its affiliates has discretionary authority or
renders investment advice with respect to the Plan assets used by a Plan to
acquire Offered Certificates.
The Exemption also requires that the trust meet the following requirements:
(i) the Trust Assets must consist solely of assets of the type that have been
included in other investment pools; (ii) certificates in such other investment
pools must have been rated in one of the three highest categories of DCR, S&P,
Moody's or Fitch IBCA, Inc. for at least one year prior to the Plan's
acquisition of Offered Certificates; and (iii) certificates in such other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of Offered Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1) (A) through (D) of the Code) in connection
with (i) the direct or indirect sale, exchange or transfer of Offered
Certificates to Plans in the initial issuance of such Offered Certificates, (ii)
the direct or indirect acquisition or disposition in the secondary market of the
Offered Certificates by a Plan and (iii) the holding of Offered Certificates by
a Plan. However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of an
Offered Certificate on behalf of an "Excluded Plan" by any person who has
discretionary authority or renders investment advice with respect to the assets
of such Excluded Plan. For purposes hereof, an "Excluded Plan" is a Plan
sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Offered Certificates to Plans in the initial issuance of such
Offered Certificates when the person who has discretionary authority or renders
investment advice with respect to the investment of Plan assets in such Offered
Certificates is (a) an obligor with respect to 5% or less of the fair market
value of a Loan or (b) an affiliate of such a person, (2) the direct or indirect
acquisition or disposition in the secondary market of Offered Certificates by a
Plan and (3) the holding of Offered Certificates by a Plan. Among the specific
conditions that must be satisfied is the condition that immediately after the
acquisition of the Offered Certificates no more than 25% of the assets of the
Plan with respect to which the person is a fiduciary are invested in
certificates representing an interest in a trust containing assets sold or
serviced by the same entity.
Further, if certain specific conditions of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Trust.
Before purchasing a Senior Certificate, a fiduciary of a Plan should itself
confirm that (i) the Senior Certificates constitute "certificates" for purposes
of the Exemption and (ii) the specific and general conditions and the other
requirements set forth in the Exemption would be satisfied. In addition to
making its own determination as to the availability of the exemptive relief
provided in the Exemption, the Plan fiduciary should consider the availability
of any other prohibited transaction exemptions, including, with respect to
governmental plans, any exemptive relief afforded under Similar Law. A purchaser
of a Senior Certificate should be aware, however, that even if the conditions
specified in one or more exemptions are satisfied, the scope of relief provided
by an exemption may not cover all acts which might be construed as prohibited
transactions.
The sale of Offered Certificates to a Plan is in no respect a
representation by the Depositor or the Underwriter that this investment meets
all relevant legal requirements with respect to investments by Plans generally
or any particular Plan, or that this investment is appropriate for Plans
generally or any particular Plan.
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<PAGE> 116
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as
amended. As a result, the appropriate characterization of the Offered
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase the Offered Certificates,
is subject to significant interpretive uncertainties. No representations are
made as to the proper characterization of any class of Offered Certificates for
legal investment, financial institution, or other purposes, or as to the ability
of particular investors to purchase the Offered Certificates under applicable
legal investment or other restrictions. All institutions whose investment
activities are subject to legal investment laws and regulations, regulatory
capital requirements or review by regulatory authorities should consult with
their own legal advisors in determining whether and to what extent the Offered
Certificates constitute legal investments for them or are subject to investment,
capital or other restrictions. See "Legal Investment" in the accompanying
prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and the Underwriter (the "Underwriting Agreement"), the
Offered Certificates will be purchased from the Depositor by the Underwriter
upon issuance. The Underwriter is an affiliate of the Depositor. Proceeds to the
Depositor from the sale of the Offered Certificates, before deducting expenses
payable by the Depositor, will be an amount equal to approximately 105.57% of
the initial aggregate Certificate Balance of the Offered Certificates, plus
accrued interest on all the Offered Certificates, before deducting expenses
payable by the Depositor.
The Underwriter has agreed in the Underwriting Agreement to purchase the
aggregate principal balance or notional amount, as the case may be, of each
Class of Offered Certificates.
Distribution of the Offered Certificates will be made by the Underwriter
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The Underwriter may effect such transactions
by selling the Offered Certificates to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter. In connection with the purchase and sale of
the Offered Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Offered Certificates may be deemed to be underwriters and
any profit on the resale of the Offered Certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
Purchasers of the Offered Certificates, including dealers, may, depending
on the facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the Securities Act in connection with reoffers and sales
by them of Offered Certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
The Depositor also has been advised by the Underwriter that the Underwriter
presently intends to make a market in the Offered Certificates; however, neither
Underwriter has any obligation to do so, any market making may be discontinued
at any time and there can be no assurance that an active public market for the
Offered Certificates will develop. See "Risk Factors -- Risks Related to the
Certificates in this prospectus supplement and "Risk Factors -- Limited
Liquidity of Offered Certificates" in the accompanying prospectus.
The Depositor has agreed to indemnify the Underwriter and each person, if
any, who controls each Underwriter within the meaning of Section 15 of the
Securities Act against, or make contributions to each Underwriter and the such
controlling person with respect to, certain liabilities, including certain
liabilities under the Securities Act. Each of the Mortgage Loan Sellers has
agreed to indemnify the Depositor, its officers and directors, the Underwriter,
and each person, if any, who controls the Depositor or the Underwriter within
the meaning of Section 15 of the Securities Act, with respect to certain
liabilities, including certain liabilities under the Securities Act, relating to
certain of the Loans.
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LEGAL MATTERS
Certain legal matters relating to the Offered Certificates will be passed
upon for the Depositor by Cadwalader, Wickersham & Taft, New York, New York, and
for the Underwriter by Thacher, Proffitt & Wood, New York, New York.
RATINGS
It is a condition to the issuance of the Offered Certificates that they
receive credit ratings no lower than the following credit ratings from the
Rating Agencies:
<TABLE>
<CAPTION>
DCR S&P MOODY'S
--- --- -------
<S> <C> <C> <C>
Class A-1................................................... AAA AAA Aaa
Class A-2................................................... AAA AAA Aaa
Class A-3................................................... AAA AAA Aaa
Class X..................................................... AAA AAAr Aaa
Class B..................................................... AA AA Aa2
</TABLE>
The ratings of the Rating Agencies on the certificates address the
likelihood of the receipt of full and timely payment thereon of interest and, to
the extent applicable, the ultimate payment thereon of principal on the
certificates by the Rated Final Distribution Date. The ratings take into
consideration the credit quality of the Credit Leases, structural aspects
associated with the certificates, and the characteristics of the Loans,
including the extent to which the payment stream from the Loans is adequate to
make payments of principal and interest required under the certificates. The
ratings on the certificates do not represent any assessment of (1) the
likelihood or frequency of principal prepayments or any prepayment interest
shortfalls on the Loans, (2) the degree to which such principal prepayments
might differ from those originally anticipated, (3) whether and to what extent
Prepayment Premiums and default interest will be received or (4) the tax
attributes of the certificates or the trust. Also, a rating does not represent
an assessment of the yield to maturity that certificateholders may experience or
the possibility that the Class X Certificateholders might suffer a lower than
anticipated yield due to prepayments on and/or other liquidations of the Loans
or that, as a consequence of a rapid rate of principal prepayments (including
both voluntary and involuntary prepayments) and/or liquidations of Loans, the
Class X Certificateholders may not fully recover their initial investments. In
general, the ratings thus address credit risk and not prepayment risk. A CHANGE
IN THE CREDIT RATING OF THE CREDIT LEASE TENANTS AND/OR THE GUARANTORS MAY HAVE
A RELATED POSITIVE OR ADVERSE EFFECT ON THE RATING OF THE CERTIFICATES. As
described in this prospectus supplement, the amounts payable with respect to the
Class X Certificates consist only of interest. If each Loan were to prepay in
the initial month with the result that the Class X Certificateholders received
only a single month's interest and thus suffered a nearly complete loss of their
investment, all amounts "due" to such certificateholders would nevertheless have
been paid, and such result would be consistent with "AAA" rating received on the
Class X Certificates. The Class X Certificate Notional Amount upon which
interest is calculated is reduced by the allocation of Realized Losses and
principal prepayments, whether voluntary or involuntary. The ratings do not
address the timing or magnitude of reductions of such Notional Amount, but only
the obligation to pay interest timely on the Notional Amount as so reduced from
time to time. In addition, although the allocation of Appraisal Reduction
Amounts will not have the effect of reducing the Notional Amount on which
interest on the Class X Certificates is calculated, the increase in the
Certificate Balance of the most subordinated class or classes of Certificates
outstanding will have the effect of reducing the Distributable Certificate
Interest of the Class X Certificates because such class or classes of
certificates may have a higher Pass-Through Rate than a more senior class of
certificates. Accordingly, the ratings of the Class X Certificates should be
evaluated independently from similar ratings on other types of securities. Each
rating assigned to the Offered Certificates should be evaluated independently of
any other rating. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency.
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There can be no assurance that any rating agency not requested to rate the
Certificates will not issue a rating to any or all classes thereof and, if so,
what such rating or ratings would be. A rating assigned to any class of
certificates by a rating agency that has not been requested by the Depositor to
do so may be lower or higher than the rating assigned thereto by any of the
Rating Agencies.
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<PAGE> 119
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
30/360 Basis..................... S-40, S-103
30/360 Loans..................... S-40
Accrued Certificate Interest..... S-84
ACMs............................. S-55
Actual/360 Basis................. S-40
Actual/360 Loans................. S-40
Additional Termination or
Abatement Rights............... S-17
Additional Trust Fund Expenses... S-88
Administrative Fee Rate.......... S-84, A-1
Administrative Fees.............. S-99
Advances......................... S-74
Annual Debt Service.............. A-1
Anticipated Liquidation Value.... S-30
Appraisal Reduction Amount....... S-89
Appraisal Value.................. A-1
ASAP............................. S-96
Asset Status Report.............. S-71
Assumed Monthly Payment.......... S-85
Available Distribution Amount.... S-81
Bankruptcy Code.................. S-24
Balloon.......................... A-1
Balloon Loan..................... S-40
Balloon Payment.................. S-40
BankAmerica...................... S-58
Blue Cross Loan.................. S-14
Blue Cross Participation......... S-14, S-51
Blue Cross Participation
Agreement...................... S-52
Bond Type Leases................. S-17
Borrower Credit Lease
Obligations.................... S-30
Borrower Reserve Fund............ S-18
Broadway at the Beach............ S-53
Broadway at the Beach Borrower... S-53
Broadway at the Beach Loan....... S-53
Business Day..................... S-9
Casualty or Condemnation
Termination or Abatement
Rights......................... S-17
CBE.............................. S-108
Certificate Balance.............. S-85
Certificate Owner................ S-80
Certificate Registrar............ S-80
Certificates..................... S-80
Class............................ S-80
Class A Certificates............. S-80
Class X Certificates............. S-80
Class X Pass-through Rate........ S-84
CLF.............................. S-26, S-58
Code............................. S-59
Collateral Substitution
Deposit........................ S-42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Collection Period................ S-10
Controlling Class................ S-30, S-71
Controlling Class
Certificateholder.............. S-71
Corrected Loan................... S-70
Credit Leases.................... S-14
Credit Lease Assignment.......... S-39
Credit Lease Default............. S-64
Credit Lease Loans............... S-13, S-39
Credit Lease Termination
Condition...................... S-69
Cross-Collateralized Loans....... S-40
Cut-off Date..................... S-9, S-39
Cut-off Date Balance............. S-13, S-39
Cut-off Date Loan-to-Value
Ratio.......................... A-1
Cut-off Date LTV................. A-1
Cut-off Date LTV Ratio........... A-1
CVS.............................. S-47
CVS Credit Leases................ S-47
CVS Loans........................ S-47
DCR.............................. S-21
Decatur Town Center Borrower..... S-53
Decatur Town Center I............ S-53
Decatur Town Center II........... S-53
Decatur Town Center Loan......... S-53
Decl. % Premium.................. S-108
Defeasance....................... A-1
Default Interest................. S-74
Defeasance Lock-Out Period....... S-42
Defeasance Option................ S-42
Definitive Certificate........... S-80
Delinquent Loan Status Report.... S-95
Depositor........................ S-9
Delivery Date.................... S-9
Determination Date............... S-9
Directing Certificateholder...... S-30, S-71
Distributable Certificate
Interest....................... S-83
Distribution Date................ S-10
Distribution Date Statement...... S-94
DOL.............................. S-111
DOL Regulations.................. S-111
Double Net Leases................ S-17
DTC.............................. S-20, S-80
Due Date......................... S-40
Earthquake Zones................. S-27
Eckerd........................... S-50
Eckerd Credit Leases............. S-50
Eckerd Loans..................... S-50
Egleston......................... S-54
Eligible Account................. S-93
Enhancement Insurer.............. S-26, S-100
</TABLE>
S-117
<PAGE> 120
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ERISA............................ S-21
Excluded Plan.................... S-113
Exemption........................ S-112
Expenses......................... A-2
Extension Insurer................ S-100
FEMA............................. S-27
FIRREA........................... S-57
Fiscal Agent..................... S-9
Form 8-K......................... S-62
Free............................. A-1
Fully Amortizing................. A-1
GAAP............................. A-2
Grtr............................. A-1
Historical Loan Modification
Report......................... S-95
Historical Loss Report........... S-96
Home Depot....................... S-49
Home Depot Loans................. S-49
Home Depot Credit Leases......... S-49
Interest Accrual Period.......... S-10
Interested Person................ S-77
J.C. Penney...................... S-50
Leasable Square Footage.......... A-1
Lease Enhancement Policy......... S-26
Leased Fee Value................. S-26
Liquidation Fee.................. S-74
Liquidation Fee Rate............. S-74
Loans............................ S-39
Loan............................. S-39
Loan Pool........................ S-13
Loan Rate........................ S-40, S-84
Loan Sellers..................... S-9
Lock-out Period.................. S-12, S-41
LOP.............................. S-103
MAI.............................. S-56
Maintenance Termination or
Abatement Rights............... S-17
Major Tenants.................... S-54
Master Servicer.................. S-9
Master Servicer Remittance
Date........................... S-10
Master Servicing Fee............. S-73
Master Servicing Fee Rate........ S-73
Maturity......................... A-1
Maturity Assumptions............. S-103
Maturity Date.................... A-1
Maturity Date Balance............ A-1
Maturity Date Loan-to-Value
Ratio.......................... A-1
Maturity Date LTV................ A-1
Merger........................... S-58
Midland.......................... S-72
Mobile Home Properties........... S-34
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Modified Loan.................... S-89
Monthly Loan Payment............. S-63
Monthly Payments................. S-40
Moody's.......................... S-21
Mortgage......................... S-40
Mortgaged Property............... S-40
Most Recent DSCR................. A-1
Most Recent End Date............. A-1
Most Recent Expenses............. A-2
Most Recent NOI.................. A-2
Most Recent Revenues............. A-2
NationsBank...................... S-58
NationsBank Mortgage Loans....... S-13, S-39
Negative Adjustment.............. S-110
Net Aggregate Prepayment Interest
Shortfall...................... S-84
Net Loan Rate.................... S-84
Net Rentable Area(SF)............ A-1
NOI.............................. A-2
Nonrecoverable Servicing
Advance........................ S-75
Note............................. S-40
Notional Amount.................. S-85
NYSE............................. S-46
Occupancy Percent................ A-2
Occupancy %...................... A-2
Offered Certificates............. S-10, S-80
Old BankAmerica.................. S-58
Open Period...................... S-41
Operating Statement Analysis..... S-96
Other Agreement.................. S-52
Other Participant................ S-52
Participants..................... S-80
Pass-Through Rate................ S-84
Permitted Encumbrances........... S-60
P&I Advance...................... S-15
Plan............................. S-21, S-111
Pooling Agreement................ S-80
Prepayment Interest Excess....... S-73
Prepayment Interest Shortfall.... S-73
Prepayment Premium............... S-41
Prepayment Premiums.............. S-12
Prepayment Premium Period........ S-41
Principal Distribution Amount.... S-85
Private Certificates............. S-10, S-80
PTCE-95-60....................... S-112
Purchase Price................... S-59
Rated Final Distribution Date.... S-87
Rating Agencies.................. S-21
Realized Losses.................. S-88
Record Date...................... S-10
</TABLE>
S-118
<PAGE> 121
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reimbursement Rate............... S-91
Reincorporation Merger........... S-58
Reinvestment Yield............... S-86
Related Loans.................... A-3
Related Proceeds................. S-75
Release Date..................... S-42
REMIC............................ S-109
REMIC Administrator.............. S-99
REMIC I.......................... S-109
REMIC II......................... S-109
REMIC Provisions................. S-109
REMIC Regular Certificates....... S-80
REO Extension.................... S-78
REO Property..................... S-69
REO Status Report................ S-96
REO Tax.......................... S-110
Required Appraisal Date.......... S-89
Required Appraisal Loan.......... S-89
Residual Certificates............ S-80
Restricted Group................. S-112
Revenues......................... A-2
Rite Aid......................... S-46
Rite Aid Loans................... S-46
Rite Aid Credit Leases........... S-46
Rooms............................ A-3
Royal Ahold...................... S-48
Royal Ahold Credit Leases........ S-48
Royal Ahold Loans................ S-48
Senior Certificates.............. S-81
Sequential Pay Certificates...... S-23, S-80
Servicer Reserve Amount.......... S-93
Servicer Reports................. S-95
Servicing Advances............... S-16, S-74
Servicing Standard............... S-69
Servicing Transfer Event......... S-69
Settlement Date.................. S-104
Shoppes at Pelican Landing
Borrower....................... S-54
Shoppes at Pelican Landing
Loan........................... S-54
Shoppes at Pelican Landing
Property....................... S-54
SF............................... A-1
S&P.............................. S-21
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Servicer................. S-9
Special Servicer Loan Status
Report......................... S-96
Special Servicing Fee............ S-73
Specially Serviced Loan.......... S-69
Stated Principal Balance......... S-85
Subordinate Certificates......... S-82
Sub-Servicer..................... S-72
Sub-Servicing Agreement.......... S-72
Sub-Servicing Fee Rate........... A-1
Successor Servicer Retained
Fee............................ S-73
Tenant Non-Renewal Action........ S-17
Trailing Date.................... A-3
Trailing DSCR.................... A-3
Trailing Expenses................ A-3
Trailing NOI..................... A-3
Trailing Revenues................ A-3
Triple Net Leases................ S-17
Trust Assets..................... S-80
Trustee.......................... S-9
Treasury Rate.................... S-41
Trustee Fee...................... S-99
Uncovered Prepayment Interest
Shortfall...................... S-82
Underwriting Agreement........... S-114
Underwriting Debt Service
Coverage Ratio................. A-3
Underwriting DSCR................ A-3
Underwriting NOI................. A-3
UPB.............................. A-3
U/W DSCR......................... A-3
U/W Expenses..................... A-3
U/W NOI.......................... A-3
U/W Reserves..................... A-4
U/W Reserves Per Unit............ A-4
U/W Revenues..................... A-3
Voting Rights.................... S-98
Workout Fee...................... S-73
Workout Fee Rate................. S-73
YM............................... A-4
YMP.............................. S-103
</TABLE>
S-119
<PAGE> 122
ANNEX A
CERTAIN CHARACTERISTICS OF THE LOANS
The schedule and tables appearing in this Annex A set forth certain
information with respect to the Loans and Mortgaged Properties. Annex A-1
contains certain information with respect to the Credit Lease Loans and Annex
A-2 contains certain information with respect to the NationsBank Mortgage Loans.
Unless otherwise indicated, such information is presented as of the Cut-off
Date. The statistics in such schedule and tables were derived, in many cases,
from information and operating statements furnished by or on behalf of the
respective borrowers. Such information and operating statements were generally
unaudited and have not been independently verified by the Depositor or the
Underwriter, or any of their respective affiliates or any other person.
For purposes of this prospectus supplement, including the schedule and
tables in this Annex A, the indicated terms shall have the following meanings:
1. "Administrative Fee Rate" means the sum of the Master Servicing Fee
Rate (including the per annum rates at which the monthly sub-servicing fee
is payable to the related Sub-Servicer (the "Sub-Servicing Fee Rate")),
plus the per annum rate applicable to the calculation of the Trustee Fee.
2. "Annual Debt Service" means, for any Loan, twelve times the amount
of the Monthly Payment under such Loan as of the Cut-off Date.
3. "Appraisal Value" means, for any Mortgaged Property, the
appraiser's value as stated in the appraisal available to the Depositor as
of the date specified on the schedule.
4. "Balloon" means Balloon Loan.
5. "Cut-off Date Loan-to-Value Ratio", "Cut-off Date LTV Ratio" or
"Cut-off Date LTV" means, with respect to any Loan, the Cut-off Date
Balance of such Loan divided by the Appraisal Value of the related
Mortgaged Property. "Maturity Date Loan-to-Value Ratio" or "Maturity Date
LTV" means, with respect to any Loan, the Maturity Date Balance, divided by
the Appraisal Value of the related Mortgaged Property.
6. "Defeasance" means, with respect to any Loan, that such Loan is
subject to a Defeasance Option.
7. "Free" means, with respect to any Loan, that such Loan may be
voluntarily prepaid without a Prepayment Premium.
8. "Fully Amortizing" means fully amortizing Loan.
9. "Grtr" means "the greater of".
10. "Leasable Square Footage" or "Net Rentable Area (SF)" means, in
the case of a Mortgaged Property operated as a retail center, franchise
restaurant, office complex or industrial facility, the square footage of
the net leasable area.
11. "Maturity" or "Maturity Date" means, with respect to any Loan, the
date specified in the related Note as its stated maturity date.
12. "Maturity Date Balance" means, with respect to any Loan, the
balance due at maturity assuming no prepayments, defaults or extensions.
13. "Most Recent DSCR" means, with respect to any Loan, (a) the Most
Recent NOI for the related Mortgaged Property, divided by (b) the Annual
Debt Service for such Loan.
14. "Most Recent End Date" means, with respect to each Loan, the date
indicated on Annex A as the "Most Recent End Date" with respect to such
Loan, which date is generally the end date with respect to the period
covered by the latest available annual operating statement provided by the
related borrower.
A-1
<PAGE> 123
15. "Most Recent NOI" means, with respect to any Mortgaged Property,
the NOI derived therefrom that was available for debt service, calculated
as Most Recent Revenues less Most Recent Expenses. See also "NOI" below.
(i) "Most Recent Revenues" are the Revenues received (or annualized
or estimated in certain cases) in respect of a Mortgaged Property for
the 12-month period ended as of the Most Recent End Date, based upon the
latest available annual operating statement and other information
furnished by the borrower for its most recently ended fiscal year.
(ii) "Most Recent Expenses" are the Expenses incurred (or
annualized or estimated in certain cases) for a Mortgaged Property for
the 12-month period ended as of the Most Recent End Date, based upon the
latest available annual operating statement and other information
furnished by the borrower for its most recently ended fiscal year.
16. "NOI" means with respect to any Mortgaged Property, the total cash
flow available for annual debt service on the related Loan, generally
calculated as the excess of Revenues over Expenses.
(i) "Revenues" generally consist of certain revenues received in
respect of a Mortgaged Property, including, for example, (A) for the
Commercial Mortgaged Properties (other than the health care related and
hotel Mortgaged Properties), base rent (less mark-to-market adjustments
in some cases), percentage rent, expense reimbursements and other
revenues; and (B) for the hotel and franchise restaurant Mortgaged
Properties, guest room rates (hotels only), food and beverage charges,
telephone charges and other revenues.
(ii) "Expenses" generally consist of all expenses incurred for a
Mortgaged Property, including for example, salaries and wages, the costs
or fees of utilities, repairs and maintenance, marketing, insurance,
management, landscaping, security (if provided at the Mortgaged
Property) and the amount of real estate taxes, general and
administrative expenses, ground lease payments, and other costs but
without any deductions for debt service, depreciation and amortization
or capital expenditures therefor. In the case of hotel and franchise
restaurant Mortgaged Properties, Expenses include, for example, expenses
relating to guest rooms (hotels only), food and beverage costs,
telephone bills, and rental and other expenses, and such operating
expenses as general and administrative, marketing and franchise fees.
Examples of expenses in the case of health care Mortgaged Properties
include routine and ancillary contractual expenses, nursing expenses,
dietary expenses, laundry/housekeeping expenses, activities/social
service expenses, equipment rental expenses and other expenses.
In certain cases, Trailing NOI, Most Recent NOI and/or U/W NOI have been
adjusted by removing certain non-recurring expenses and revenue or by certain
other normalizations. Such NOI does not necessarily reflect accrual of certain
costs such as capital expenditures and leasing commissions and does not reflect
non-cash items such as depreciation or amortization. In some cases, capital
expenditures and non-recurring items may have been treated by a borrower as an
expense but were deducted from Trailing Expenses, Most Recent Expenses or U/W
Expenses to reflect normalized Trailing NOI, Most Recent NOI or U/W NOI, as the
case may be. The Depositor has not made any attempt to verify the accuracy of
any information provided by each borrower or to reflect changes in that may have
occurred since the date of the information provided by each borrower for the
related Mortgaged Property. Such NOI was not necessarily determined in
accordance with generally accepted accounting principles ("GAAP"). Such NOI is
not a substitute for net income determined in accordance with GAAP as a measure
of the results of a Mortgaged Property's operations or a substitute for cash
flows from operating activities determined in accordance with GAAP as a measure
of liquidity. Moreover, in certain cases such NOI may reflect partial-year
annualizations.
17. "Occupancy %" or "Occupancy Percent" means the percentage of
Leasable Square Footage or Total Units/Rooms/Pads, as the case may be, of
the Mortgaged Property that was occupied as of a specified date, as
specified by the borrower or as derived from the Mortgaged Property's rent
rolls, which generally are calculated by physical presence or,
alternatively, collected rents as a percentage of potential rental
revenues.
A-2
<PAGE> 124
18. "Related Loans" means two or more Loans with respect to which the
related Mortgaged Properties are either owned by the same entity or owned
by two or more entities controlled by the same key principals.
19. "Rooms" means in the case of a Mortgaged Property operated as a
hotel, the number of rooms.
20. "Trailing Date" means, with respect to any Loan, the date
indicated on Annex A as the "Trailing Date" with respect to such Loan.
21. "Trailing DSCR" means, with respect to any Loan, (a) the Trailing
NOI for the related Mortgaged Property (plus, in the case of restaurant
franchise loans only, ground rents), divided by (b) the Annual Debt Service
for such Loan (plus, in the case of restaurant franchise loans only, ground
rents).
22. "Trailing NOI" means, with respect to any Mortgaged Property, the
NOI derived therefrom that was available for debt service, calculated as
Trailing Revenues less Trailing Expenses. See also "NOI" above.
(i) "Trailing Revenues" are the Revenues received (or annualized or
estimated in certain cases) in respect of a Mortgaged Property for the
12-month period ended on the Trailing Date, based upon operating
statements and other information furnished by the related borrower.
(ii) "Trailing Expenses" are the Expenses incurred (or annualized
or estimated in certain cases) for a Mortgaged Property for the 12-month
period ended on the Trailing Date, based upon operating statements and
other information furnished by the related borrower.
23. "UPB" means, with respect to any Mortgage Loan, its unpaid
principal balance.
24. "U/W DSCR", "Underwriting DSCR" or "Underwriting Debt Service
Coverage Ratio" means, with respect to any Loan, (a) the U/W NOI for the
related Mortgaged Property (plus, in the case of restaurant franchise loans
only, ground rents) divided by (b) the Annual Debt Service for such Loan
(plus, in the case of restaurant franchise loans only, ground rents).
25. "U/W NOI" or "Underwriting NOI" means, with respect of any
Mortgaged Property, the NOI derived therefrom that was available for debt
service, calculated as U/W Revenues less U/W Expenses. See also "NOI"
above.
(i) "U/W Revenues" are the anticipated Revenues in respect of a
Mortgaged Property, generally determined by means of an estimate made at
the origination of such Loan. U/W Revenues have generally been
calculated (a) assuming that the occupancy rate for the Mortgaged
Property was consistent with the Mortgaged Property's current or
historical rate, or the relevant market rate, if such rate was less than
the occupancy rate reflected in the most recent rent roll or operating
statements, as the case may be, furnished by the related borrower, and
(b) in the case of retail, office and industrial Mortgaged Properties,
assuming a level of reimbursements from tenants consistent with the
terms of the related leases or historical trends at the Mortgaged
Property, and in certain cases, assuming that a specified percentage of
rent will become defaulted or otherwise uncollectible. In addition, in
the case of retail, office and industrial Mortgaged Properties, upward
adjustments may have been made with respect to such revenues to account
for all or a portion of the rents provided for under any new leases
scheduled to take effect later in the year. Also, in the case of certain
Mortgaged Properties that are operated as franchise restaurant, nursing
home or hotel properties and are subject to an operating lease with a
single operator, U/W Revenues were calculated based on revenues received
by the operator rather than rental payments received by the related
borrower under the operating lease.
(ii) "U/W Expenses" are the anticipated Expenses in respect of a
Mortgaged Property, generally determined by means of an estimate made at
the origination of such Loan. U/W Expenses were generally assumed to be
equal to historical annual expenses reflected in the operating
statements and other information furnished by the borrower, except that
such expenses were
A-3
<PAGE> 125
generally modified by (a) if there was no management fee or a below
market management fee, assuming that a management fee was payable with
respect to the Mortgaged Property in an amount approximately equal to a
percentage of assumed gross revenues for the year, (b) adjusting certain
historical expense items upwards or downwards to amounts that reflect
industry norms for the particular type of property and/or taking into
consideration material changes in the operating position of the related
Mortgaged Property (such as newly signed leases and market data) and (c)
adjusting for non-recurring items (such as capital expenditures) and
tenant improvement and leasing commissions, if applicable (in the case
of certain retail, office and industrial Mortgaged Properties,
adjustments may have been made to account for tenant improvements and
leasing commissions at costs consistent with historical trends or
prevailing market conditions and, in other cases, operating expenses did
not include such costs).
Actual conditions at the Mortgaged Properties will differ, and may differ
substantially, from the assumed conditions used in calculating U/W NOI. In
particular, the assumptions regarding tenant vacancies, tenant improvements and
leasing commissions, future rental rates, future expenses and other conditions
if and to the extent used in calculating U/W NOI for a Mortgaged Property, may
differ substantially from actual conditions with respect to such Mortgaged
Property. There can be no assurance that the actual costs of reletting and
capital improvements will not exceed those estimated or assumed in connection
with the origination or purchase of the Loans.
In some cases, U/W NOI describes the cash flow available before
deductions for capital expenditures such as tenant improvements, leasing
commissions and structural reserves. U/W NOI has been calculated without
including U/W Reserves or any other reserves among Underwriting Expenses.
Had such reserves been so included, U/W NOI would have been lower. Even in
those cases where such "reserves" were so included, no cash may have been
actually escrowed. No representation is made as to the future net cash flow
of the properties, nor is U/W NOI set forth herein intended to represent
such future net cash flow.
26. "U/W Reserves" means, with respect to any Mortgaged Property, the
aggregate amount of on-going reserves (generally for capital improvements
and replacements) assumed to be maintained with respect to such Mortgaged
Property. In each case, actual reserves, if any, may be less than the
amount of U/W Reserves.
27. "U/W Reserves Per Unit" means, with respect to any Mortgaged
Property, (a) the related U/W Reserves, divided by (b) the number of Units,
Leasable Square Feet, Rooms, Beds or Holes, as applicable.
28. "YM" means, with respect to any Loan, a yield maintenance premium.
A-4
<PAGE> 126
ANNEX A-II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
Loan
Sequence Number Property Name Property Address County
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
N001 50072 Broadway at the Beach U.S. Highway 17 @ 29th Avenue North Horry
N002 50860 Shoppes at Pelican Landing 24600 South Tamiami Trail Lee
N003 50848 Plaza Galeria 66-70 East San Francisco St. Sante Fe
N004 50141 Lakeridge Village Centre 104-132 Beltline Road Dallas
- --------------------------------------------------------------------------------------------------------------------------------
N005 50697 Oates Park Shopping Center 4414 Gus Thomasson Rd Dallas
N006 50692 Irving Plaza (Tri-State No.52) Shopping Center 902-934 East Grauwyler Road Dallas
SUB-TOTAL CROSSED LOANS
N007 50458 Northwest Centre 8404-8606 West 13th Street North Sedgwick
- --------------------------------------------------------------------------------------------------------------------------------
N008 50229 Montibello Shopping Center 8175 Cliffdale Road Cumberland
N009 50228 Strickland Bridge Shopping Center 6575 Fischer Drive Cumberland
SUB-TOTAL CROSSED LOANS
- --------------------------------------------------------------------------------------------------------------------------------
N010 50849 Richfield Plaza Shopping Center 410 West Church Street Stanley
N011 50837 Staples Building Two Work Parkway Fayette
N012 50786 Decatur Town Center I & II 150 E. Ponce de Leon Ave. & 125 Clairmont Ave. DeKalb
N013 50663 4401 East West Highway Office 4401 East-West Highway Montgomery
- --------------------------------------------------------------------------------------------------------------------------------
N014 50762 Beechwood Manufactured Housing Community Rt. 81 Middlesex
N015 50755 Crestwood Manufactured Housing Community 59 Manchester Street Merrimack
N016 50761 Forest Hill Manufactured Housing Community 246 Redstone St. Hartford
N017 50754 Farmwood Manufactured Housing Community 6 1/2 Deerfield Drive Strafford
- --------------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL CROSSED LOANS
N018 50746 The Ridgeway Inn 5679 Poplar Avenue Shelby
- --------------------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES 18 LOANS
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Cut-off Maturity
Zip Original Date Date Loan Mortgage
City State Code Property Type Balance Balance Balance Type Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Myrtle Beach SC 29577 Retail $45,000,000 $43,549,666 Fully Amortizing 7.855%
Bonita Springs FL 34134 Retail 6,450,000 6,368,143 $2,702,708 Balloon 7.000%
Santa Fe NM 87501 Retail 5,600,000 5,521,822 Fully Amortizing 7.670%
Cedar Hill TX 75104 Retail 5,500,000 5,411,864 3,739,578 Balloon 8.320%
- --------------------------------------------------------------------------------------------------------------------------------
Mesquite TX 75150 Retail 2,080,000 2,060,331 1,585,103 Balloon 6.870%
Irving TX 75061 Retail 1,200,000 1,182,960 764,118 Balloon 7.050%
----------------------
3,243,291 2,349,221
Wichita KS 67212 Retail 3,620,000 3,476,168 105,026 Fully Amortizing 7.440%
- --------------------------------------------------------------------------------------------------------------------------------
Fayetteville NC 28314 Retail 2,593,200 2,567,042 2,080,418 Balloon 8.040%
Fayetteville NC 28304 Retail 1,710,900 1,693,642 1,372,583 Balloon 8.040%
----------------------
4,260,684 3,453,001
- --------------------------------------------------------------------------------------------------------------------------------
Richfield NC 28137 Retail 2,450,000 2,426,537 1,585,347 Balloon 7.320%
South Union Township PA 15401 Retail 1,996,748 1,969,366 863,015 Balloon 7.500%
Decatur GA 30330 Office 14,500,000 14,400,618 11,231,644 Balloon 7.210%
Bethesda MD 20814 Office 3,300,000 3,246,078 Fully Amortizing 7.350%
- --------------------------------------------------------------------------------------------------------------------------------
Killingworth CT 06419 Mobile Home 3,315,000 3,250,660 Fully Amortizing 7.130%
Concord NH 03301 Mobile Home 3,000,000 2,941,774 Fully Amortizing 7.130%
Southington CT 06489 Mobile Home 2,100,000 2,059,242 Fully Amortizing 7.130%
Dover NH 03820 Mobile Home 960,000 941,368 Fully Amortizing 7.130%
- --------------------------------------------------------------------------------------------------------------------------------
9,193,043
Memphis TN 38119 Hotel 5,000,000 4,953,135 3,254,073 Balloon 7.430%
- --------------------------------------------------------------------------------------------------------------------------------
$110,375,848 $108,020,416 $29,283,612 7.584%
================================================================================================================================
</TABLE>
<PAGE> 127
ANNEX A-II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
Original Original
Sub- Net First Interest Term to Amortization
Administrative Servicing Mortgage Payment Accrual Monthly Maturity Term
Fee Rate Fee Rate Rate Note Date Date Method Payment (months) (months)
- -----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
0.075% 0.100% 7.680% 7/31/97 09/1/97 ACT/360 $375,546 240 240
0.075% 0.100% 6.825% 6/5/98 08/1/98 ACT/360 50,007 180 240
0.075% 0.100% 7.495% 5/20/98 07/1/98 ACT/360 46,087 240 240
0.075% 0.125% 8.120% 8/27/97 10/1/97 ACT/360 43,622 180 300
- -----------------------------------------------------------------------------------------------------
0.075% 0.100% 6.695% 1/21/98 03/1/98 ACT/360 13,657 180 360
0.075% 0.100% 6.875% 1/21/98 03/1/98 ACT/360 8,520 180 300
0.075% 0.100% 7.265% 12/3/97 02/1/98 ACT/360 33,435 180 180
- -----------------------------------------------------------------------------------------------------
0.075% 0.100% 7.865% 8/28/97 10/1/97 ACT/360 19,100 180 360
0.075% 0.100% 7.865% 8/28/97 10/1/97 ACT/360 12,602 180 360
- -----------------------------------------------------------------------------------------------------
0.075% 0.100% 7.145% 4/29/98 06/1/98 ACT/360 17,819 180 300
0.075% 0.060% 7.365% 5/11/98 07/1/98 ACT/360 16,086 180 240
0.075% 0.100% 7.035% 3/31/98 05/1/98 ACT/360 98,522 180 360
0.075% 0.100% 7.175% 4/3/98 06/1/98 ACT/360 26,504 240 240
- -----------------------------------------------------------------------------------------------------
0.075% 0.060% 6.995% 3/24/98 05/1/98 30/360 25,960 240 240
0.075% 0.060% 6.995% 3/24/98 05/1/98 30/360 23,494 240 240
0.075% 0.060% 6.995% 3/24/98 05/1/98 30/360 16,446 240 240
0.075% 0.060% 6.995% 3/24/98 05/1/98 30/360 7,518 240 240
- -----------------------------------------------------------------------------------------------------
0.075% 0.100% 7.255% 4/17/98 06/1/98 ACT/360 36,722 180 300
- -----------------------------------------------------------------------------------------------------
$871,647 214 269
=====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Remaining
Term to Cross- Lockout
Seasoning Maturity Maturity Collateralized Related Expiration
(months) (months) Date Loans Loans Date Prepayment Penalty Description (months)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
18 222 08/1/17 No No 7/31/06 LO(108)/GRTR1%PPMTorYM(126)/OPEN(6)
7 173 07/1/13 No No 3/1/13 LO(176)/OPEN(4)/DEFEASANCE
8 232 06/1/18 No No 2/1/18 LO(236)/OPEN(4)/DEFEASANCE
17 163 09/1/12 No Yes(A) 8/31/05 LO(96)/GRTR1%PPMTorYM(78)/OPEN(6)
- ------------------------------------------------------------------------------------------------------------------------------
12 168 02/1/13 Yes(1) Yes(A) 1/31/06 LO(96)/GRTR1%PPMTorYM(78)/OPEN(6)
12 168 02/1/13 Yes(1) Yes(A) 1/31/06 LO(96)/GRTR1%PPMTorYM(78)/OPEN(6)
13 167 01/1/13 No No 12/31/00 LO(36)/GRTR1%PPMTorYM(138)/OPEN(6)
- ------------------------------------------------------------------------------------------------------------------------------
17 163 09/1/12 No Yes(B) 8/31/05 LO(96)/GRTR1%PPMTorYM(78)/OPEN(6)
17 163 09/1/12 No Yes(B) 8/31/05 LO(96)/GRTR1%PPMTorYM(78)/OPEN(6)
- ------------------------------------------------------------------------------------------------------------------------------
9 171 05/1/13 No No 12/31/12 LO(176)/OPEN(4)/DEFEASANCE
8 172 06/1/13 No No 5/31/06 LO(96)/GRTR1%PPMTorYM(78)/OPEN(6)/DEFEASANCE
10 170 04/1/13 No No 3/31/06 LO(96)/GRTR1%PPMTorYM(78)/OPEN(6)/DEFEASANCE
9 231 05/1/18 No No 4/30/10 LO(144)/GRTR1%PPMTorYM(90)/OPEN(6)/DEFEASANCE
- ------------------------------------------------------------------------------------------------------------------------------
10 230 04/1/18 Yes(2) Yes(C) 3/31/08 LO(120)/GRTR1%PPMTorYM(114)/OPEN(6)/DEFEASANCE
10 230 04/1/18 Yes(2) Yes(C) 3/31/08 LO(120)/GRTR1%PPMTorYM(114)/OPEN(6)/DEFEASANCE
10 230 04/1/18 Yes(2) Yes(C) 3/31/08 LO(120)/GRTR1%PPMTorYM(114)/OPEN(6)/DEFEASANCE
10 230 04/1/18 Yes(2) Yes(C) 3/31/08 LO(120)/GRTR1%PPMTorYM(114)/OPEN(6)/DEFEASANCE
- ------------------------------------------------------------------------------------------------------------------------------
9 171 05/1/13 No No 4/30/06 LO(96)/GRTR1%PPMTorYM(78)/OPEN(6)/DEFEASANCE
- ------------------------------------------------------------------------------------------------------------------------------
14 201
==============================================================================================================================
</TABLE>
<PAGE> 128
ANNEX A-II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
Cut-off
Loan Appraisal Appraisal Date LTV Year Built/
Sequence Number Property Name Value Date Ratio Renovated
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
N001 50072 Broadway at the Beach $85,000,000 6/13/97 51.23% 1995/1997
N002 50860 Shoppes at Pelican Landing 10,200,000 3/24/98 62.43% 1997/1998
N003 50848 Plaza Galeria 7,500,000 3/2/98 73.62% 1950/1995
N004 50141 Lakeridge Village Centre 6,600,000 2/4/98 82.00% 1985
- -------------------------------------------------------------------------------------------------------------------------
N005 50697 Oates Park Shopping Center 2,600,000 12/1/97 79.24% 1979/1996
N006 50692 Irving Plaza (Tri-State No. 52) Shopping Center 1,500,000 12/1/97 78.86% 1964/1991
-----------
SUB-TOTAL CROSSED LOANS 4,100,000
N007 50458 Northwest Centre 5,000,000 10/15/97 69.52% 1986
- -------------------------------------------------------------------------------------------------------------------------
N008 50229 Montibello Shopping Center 3,400,000 6/26/97 75.50% 1987
N009 50228 Strickland Bridge Shopping Center 2,200,000 6/26/97 76.98% 1988/1998
-----------
SUB-TOTAL CROSSED LOANS 5,600,000
- -------------------------------------------------------------------------------------------------------------------------
N010 50849 Richfield Plaza Shopping Center 3,475,000 3/16/98 69.83% 1996/1998
N011 50837 Staples Building 2,764,000 3/7/98 71.25% 1997
N012 50786 Decatur Town Center I & II 19,400,000 2/2/98 74.23% 1984/1989
N013 50663 4401 East West Highway Office 5,200,000 12/11/97 62.42% 1958
- -------------------------------------------------------------------------------------------------------------------------
N014 50762 Beechwood Manufactured Housing Community 6,300,000 1/15/98 51.60% 1957
N015 50755 Crestwood Manufactured Housing Community 6,650,000 1/6/98 44.24% 1961
N016 50761 Forest Hill Manufactured Housing Community 4,500,000 1/15/98 45.76% 1957/1997
N017 50754 Farmwood Manufactured Housing Community 3,650,000 1/6/98 25.79% 1974
- -------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL CROSSED LOANS 21,100,000
N018 50746 The Ridgeway Inn 9,000,000 1/11/98 55.03% 1966/1986
- -------------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGES 60.84%
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SF/ Loan
Total Units/ Unit/ Balance Per Occupancy U/W
Room/ Room/ Net Rentable SF/Unit/ Occupancy As of U/W U/W U/W NOI U/W
Bed Bed Area (SF) Room/Bed Percent Date Revenues Expenses NOI DSCR Reserves
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
435,762 SF 435,762 $ 99.94 94% 8/12/98 $11,596,466 $4,404,968 $7,191,498 1.60 $ 51,406
81,312 SF 81,312 78.32 91% 11/3/98 1,006,445 314,064 692,381 1.15 7,246
15,376 SF 15,376 359.12 100% 5/12/98 910,051 186,318 723,733 1.31 7,688
130,763 SF 130,763 41.39 82% 7/29/98 973,602 269,292 704,310 1.35 15,881
- ----------------------------------------------------------------------------------------------------------------------------------
63,680 SF 63,680 32.35 98% 5/1/98 383,108 120,235 262,873 1.60 9,552
38,300 SF 38,300 30.89 100% 1/15/98 217,361 72,556 144,805 1.42 5,745
79,550 SF 79,550 43.70 91% 6/30/98 897,182 293,019 604,163 1.51 26,811
- ----------------------------------------------------------------------------------------------------------------------------------
52,796 SF 52,796 48.62 92% 5/29/98 377,803 72,288 305,515 1.33 10,559
53,280 SF 53,280 31.79 90% 6/16/98 263,382 54,055 209,327 1.38 10,029
- -----------------------------------------------------------------------------------------------------------------------------------
46,200 SF 46,200 52.52 100% 8/3/98 369,353 63,653 305,700 1.43 6,930
23,269 SF 23,269 84.63 100% 3/19/98 259,740 6,358 253,382 1.31 2,094
178,287 SF 178,287 80.77 98% 8/27/98 2,926,746 1,259,602 1,667,144 1.41 26,743
53,110 SF 53,110 61.12 97% 4/7/98 754,763 225,915 528,848 1.66 9,635
- -----------------------------------------------------------------------------------------------------------------------------------
299 Pads 10,871.77 94% 7/8/98 868,152 466,550 401,602 1.29 25,116
324 Pads 9,079.55 100% 7/8/98 956,642 583,669 372,973 1.32 31,752
187 Pads 11,011.99 100% 7/8/98 616,090 367,343 248,747 1.26 9,350
159 Pads 5,920.55 100% 7/8/98 487,589 368,926 118,663 1.32 10,176
- -----------------------------------------------------------------------------------------------------------------------------------
155 Rooms 91,612 31,955.71 69% 12/31/97 5,604,679 4,703,334 901,345 2.05 224,187
- -----------------------------------------------------------------------------------------------------------------------------------
94% 1.49
===================================================================================================================================
</TABLE>
<PAGE> 129
ANNEX A-II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
<TABLE>
<CAPTION>
2nd
Most 2nd 2nd 2nd 2nd Most
U/W Most Most Most Most Recent Most Most Most Most Recent
Reserves Recent Recent Recent Recent NOI Recent Recent Recent Recent NOI
Per Unit End Date Revenues Expenses NOI DSCR End Date Revenues Expenses NOI DSCR
- ------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C>
$ 0.12 12/31/97 $11,479,518 $3,805,920 $7,673,598 1.70 12/31/96 $9,541,228 $4,086,461 $5,454,767 1.21
0.09
0.50 12/31/97 1,001,024 177,215 823,809 1.49 12/31/96 965,971 177,250 788,721 1.43
0.12 12/31/97 724,363 191,383 532,980 1.11 12/31/96 760,549 237,919 522,630 1.00
- ------------------------------------------------------------------------------------------------------------------
0.15 12/31/97 390,065 156,399 233,665 1.43 12/31/96 335,295 107,706 227,589 1.39
0.15 12/31/97 224,849 64,201 160,648 1.57 12/31/96 224,027 65,300 158,727 1.55
0.34 12/31/97 847,255 204,272 642,983 1.75 12/31/96 843,072 273,011 570,061 1.42
- ------------------------------------------------------------------------------------------------------------------
0.20 12/31/97 395,603 86,526 309,077 1.35 12/31/96 381,319 75,128 306,191 1.34
0.19 12/31/97 255,346 63,036 192,310 1.27 12/31/96 247,206 51,799 195,407 1.29
- ------------------------------------------------------------------------------------------------------------------
0.15 12/31/97 268,270 49,119 219,151 1.02
0.09
0.15 12/31/97 3,188,269 1,200,455 1,987,814 1.68 12/31/96 2,960,793 1,337,459 1,623,334 1.37
0.18 12/31/97 860,267 200,187 660,080 2.08 12/31/96 882,746 167,016 715,730 2.25
- ------------------------------------------------------------------------------------------------------------------
84.00 12/31/97 859,053 420,047 439,006 1.41 12/31/96 852,091 413,148 438,943 1.41
98.00 12/31/97 948,700 563,540 385,160 1.37 12/31/96 937,554 559,119 378,435 1.34
50.00 12/31/97 611,958 331,697 280,261 1.42 12/31/96 581,707 330,731 250,976 1.27
64.00 12/31/97 507,292 334,700 172,592 1.91 12/31/96 489,059 332,328 156,731 1.74
- ------------------------------------------------------------------------------------------------------------------
$1446.37 12/31/97 5,777,311 4,757,757 1,019,554 2.31 12/31/96 5,402,767 4,350,339 1,052,428 2.39
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Second
Largest Largest Second Second Largest
Largest Tenant Tenant Largest Largest Tenant
Tenant % of Lease Tenant Tenant % Lease
Leased Total Expira- Second Largest Leased of Total Expira-
Largest Tenant SF SF tion Tenant SF SF tion
- --------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
Celebrations 18,000 4% 8/31/05 Hard Rock Cafe 15,000 3% 8/31/15
Publix 37,887 47% 9/ 1/17 Factory Outlet Stores 14,000 17% 11/30/07
Santa Fe Shirt 2,316 15% 7/31/98 Wind River Trading 950 6% 7/31/98
Minyard Food Store 51,721 40% 8/31/17 ASI Gymnastics 8,640 7% 10/31/99
- --------------------------------------------------------------------------------------------------------------
Minyard Food Store 34,517 54% 12/15/12 Pool Town 8,450 13% 3/31/01
Minyard's (Carnival) 23,100 60% 10/31/01 Family Dollar 7,500 20% 12/31/02
J.P. Weigand & Sons 9,300 12% 9/14/99 Ruthie's Hallmark 6,000 8% 1/31/02
- --------------------------------------------------------------------------------------------------------------
Food Lion 33,616 64% 8/15/16 Video Club 3,980 8% 3/14/01
Food Lion 33,800 63% 6/ 7/10 Misfits 5,360 10% 5/31/01
- --------------------------------------------------------------------------------------------------------------
Food Lion 29,000 63% 8/27/16 CVS Drugstore (REVCO) 8,450 18% 4/5/13
Staples 23,269 100% 4/30/12
Egelston 72,453 41% 4/15/05 RMC Industries 8,335 5% 5/31/02
Red Coats 16,275 31% 12/31/04 Datawatch Security Systems 6,272 12% 12/31/04
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
==============================================================================================================
</TABLE>
<PAGE> 130
THE MORTGAGE LOANS
RANGE OF CUT-OFF DATE BALANCES -- COMBINED
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF % OF WEIGHTED WEIGHTED AVERAGE
MORTGAGE AGGREGATE AGGREGATE AVERAGE AVERAGE MORTGAGE
CUT-OFF BALANCE LOANS BALANCE BALANCE DSCR LTV RATIO RATE
--------------- --------- ------------ --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
$0 - $999,999..................... 8 $ 7,261,148 1.47% 1.06x 73.01% 7.391%
$1,000,000 - $1,499,999........... 27 35,285,603 7.16% 1.07x 79.61% 7.358%
$1,500,000 - $1,999,999........... 21 36,427,608 7.40% 1.09x 81.45% 7.579%
$2,000,000 - $2,499,999........... 19 41,469,488 8.42% 1.12x 81.13% 7.444%
$2,500,000 - $2,999,999........... 9 24,079,039 4.89% 1.08x 77.69% 7.661%
$3,000,000 - $3,499,999........... 7 22,731,786 4.62% 1.15x 76.64% 7.176%
$3,500,000 - $3,999,999........... 4 15,081,296 3.06% 1.23x 74.00% 7.508%
$4,000,000 - $4,999,999........... 6 28,042,683 5.69% 1.10x 82.31% 7.148%
$5,000,000 - $5,999,999........... 10 54,840,163 11.14% 1.08x 84.66% 7.505%
$6,000,000 - $6,999,999........... 2 12,832,386 2.61% 1.06x 82.18% 6.879%
$8,000,000 - $8,999,999........... 3 24,686,830 5.01% 1.01x 88.14% 7.246%
$9,000,000 - $9,999,999........... 1 9,438,111 1.92% 1.03x 90.10% 8.030%
$10,000,000 - $14,999,999......... 7 81,531,608 16.55% 1.07x 85.44% 7.504%
$15,000,000 - $19,999,999......... 3 55,234,283 11.22% 1.01x 83.81% 7.572%
$40,000,000 - $44,999,999......... 1 43,549,666 8.84% 1.54x 51.23% 7.855%
---- ------------ ------ ---- ----- -----
128 $492,491,697 100.00% 1.12x 79.71% 7.484%
==== ============ ====== ==== ===== =====
</TABLE>
GROSS COUPON RANGE -- COMBINED
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF % OF WEIGHTED WEIGHTED AVERAGE
MORTGAGE AGGREGATE AGGREGATE AVERAGE AVERAGE MORTGAGE
RATE LOANS BALANCE BALANCE DSCR LTV RATIO RATE
---- --------- ------------ --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
6.501% to 6.749%.................. 1 $ 4,524,753 0.92% 1.00x 76.69% 6.730%
6.750% to 6.999%.................. 15 50,942,575 10.34% 1.04x 91.62% 6.853%
7.000% to 7.249%.................. 22 79,835,108 16.21% 1.11x 78.72% 7.114%
7.250% to 7.499%.................. 33 132,276,892 26.86% 1.07x 83.93% 7.367%
7.500% to 7.749%.................. 25 64,088,658 13.01% 1.12x 77.08% 7.585%
7.750% to 7.999%.................. 22 108,534,709 22.04% 1.24x 68.59% 7.863%
8.000% to 8.249%.................. 9 46,877,139 9.52% 1.06x 85.95% 8.094%
8.250% to 8.499%.................. 1 5,411,864 1.10% 1.25x 82.00% 8.320%
--- ------------ ------ ----- ----- -----
128 $492,491,697 100.00% 1.12x 79.71% 7.484%
=== ============ ====== ===== ===== =====
</TABLE>
A-5
<PAGE> 131
PREPAYMENT PROVISION ANALYSIS
OUTSTANDING PRINCIPAL BALANCE(1)
<TABLE>
<CAPTION>
FEB-1999 FEB-2000 FEB-2001 FEB-2002 FEB-2003 FEB-2004 FEB-2005 FEB-2006 FEB-2007
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out................. 100.00% 100.00% 99.32% 99.34% 99.36% 99.39% 90.77% 48.60% 5.42%
Yield Maintenance.......... 0.00% 0.00% 0.68% 0.66% 0.64% 0.61% 9.23% 51.40% 94.58%
No Penalty................. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
------- ------- ------- ------- ------- ------- ------- ------- -------
Total...................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= ======= ======= ======= ======= =======
Aggregate Outstanding
Principal Balance of
NationsBank Mortgage
Loans ($Millions)........ $492.49 $482.00 $470.60 $458.18 $444.24 $428.55 $411.35 $392.73 $372.49
% of Initial Pool
Balance.................. 100.00% 97.87% 95.55% 93.03% 90.20% 87.02% 83.52% 79.74% 75.63%
<CAPTION>
FEB-2008 FEB-2009 FEB-2010 FEB-2011
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Locked Out................. 5.45% 3.65% 3.67% 3.06%
Yield Maintenance.......... 94.55% 96.35% 96.33% 96.94%
No Penalty................. 0.00% 0.00% 0.00% 0.00%
------- ------- ------- -------
Total...................... 100.00% 100.00% 100.00% 100.00%
======= ======= ======= =======
Aggregate Outstanding
Principal Balance of
NationsBank Mortgage
Loans ($Millions)........ $349.96 $326.83 $302.43 $276.06
% of Initial Pool
Balance.................. 71.06% 66.36% 61.41% 56.05%
</TABLE>
- ---------------
(1) Prepayment provisions in effect as a percentage of the outstanding loan
balances assuming no prepayments.
A-6
<PAGE> 132
PREPAYMENT PROVISION ANALYSIS
OUTSTANDING PRINCIPAL BALANCE(1)
<TABLE>
<CAPTION>
FEB-2012 FEB-2013 FEB-2014 FEB-2015 FEB-2016 FEB-2017 FEB-2018 FEB-2019 FEB-2020
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out................. 3.10% 2.50% 1.25% 1.20% 1.10% 0.93% 0.35% 0.00% 0.00%
Yield Maintenance.......... 96.90% 89.37% 98.75% 98.80% 98.90% 99.07% 99.21% 100.00% 100.00%
No Penalty................. 0.00% 8.13% 0.00% 0.00% 0.00% 0.00% 0.44% 0.00% 0.00%
------- ------- ------- ------- ------- ------- ------- ------- -------
Total...................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= ======= ======= ======= ======= =======
Aggregate Outstanding
Principal Balance of
NationsBank Mortgage
Loans ($Millions)........ $247.87 $209.76 $162.30 $134.85 $106.52 $ 75.35 $ 51.28 $ 39.93 $ 29.61
% of Initial Pool
Balance.................. 50.33% 42.59% 32.96% 27.38% 21.63% 15.30% 10.41% 8.11% 6.01%
<CAPTION>
FEB-2021 FEB-2022 FEB-2023 FEB-2024
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Locked Out................. 0.00% 0.00% 0.00% 0.00%
Yield Maintenance.......... 100.00% 100.00% 100.00% 0.00%
No Penalty................. 0.00% 0.00% 0.00% 0.00%
------- ------- ------- -------
Total...................... 100.00% 100.00% 100.00% 0.00%
======= ======= ======= =======
Aggregate Outstanding
Principal Balance of
NationsBank Mortgage
Loans ($Millions)........ $ 19.51 $ 8.76 $ 1.80 $ 0.00
% of Initial Pool
Balance.................. 3.96% 1.78% 0.37% 0.00%
</TABLE>
- ---------------
(1) Prepayment provisions in effect as a percentage of the outstanding loan
balances assuming no prepayments.
A-7
<PAGE> 133
PREPAYMENT PROVISION ANALYSIS
CUT-OFF DATE BALANCE(1)
<TABLE>
<CAPTION>
FEB-1999 FEB-2000 FEB-2001 FEB-2002 FEB-2003 FEB-2004 FEB-2005 FEB-2006 FEB-2007
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out................. 100.00% 97.87% 94.91% 92.42% 89.63% 86.48% 75.82% 38.76% 4.10%
Yield Maintenance.......... 0.00% 0.00% 0.65% 0.61% 0.57% 0.54% 7.71% 40.98% 71.54%
No Penalty................. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Paid Down.................. 0.00% 2.13% 4.45% 6.97% 9.80% 12.98% 16.48% 20.26% 24.37%
------- ------- ------- ------- ------- ------- ------- ------- -------
Total...................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= ======= ======= ======= ======= =======
Aggregate Outstanding
Principal Balance of
NationsBank Mortgage
Loans ($Millions)........ $492.49 $482.00 $470.60 $458.18 $444.24 $428.55 $411.35 $392.73 $372.49
% of Initial Pool
Balance.................. 100.00% 97.87% 95.55% 93.03% 90.20% 87.02% 83.52% 79.74% 75.63%
<CAPTION>
FEB-2008 FEB-2009 FEB-2010 FEB-2011
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Locked Out................. 3.87% 2.42% 2.26% 1.71%
Yield Maintenance.......... 67.19% 63.94% 59.15% 54.34%
No Penalty................. 0.00% 0.00% 0.00% 0.00%
Paid Down.................. 28.94% 33.64% 38.59% 43.95%
------- ------- ------- -------
Total...................... 100.00% 100.00% 100.00% 100.00%
======= ======= ======= =======
Aggregate Outstanding
Principal Balance of
NationsBank Mortgage
Loans ($Millions)........ $349.96 $326.83 $302.43 $276.06
% of Initial Pool
Balance.................. 71.06% 66.36% 61.41% 56.05%
</TABLE>
- ---------------
(1) Prepayment provisions in effect as a percentage of aggregate Cut-off Date
Balance as of the indicated date assuming no prepayments.
A-8
<PAGE> 134
PREPAYMENT PROVISION ANALYSIS
CUT-OFF DATE BALANCE(1)
<TABLE>
<CAPTION>
FEB-2012 FEB-2013 FEB-2014 FEB-2015 FEB-2016 FEB-2017 FEB-2018 FEB-2019 FEB-2020
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out................. 1.56% 1.07% 0.41% 0.33% 0.24% 0.14% 0.04% 0.00% 0.00%
Yield Maintenance.......... 48.77% 38.06% 32.54% 27.05% 21.39% 15.16% 10.33% 8.11% 6.01%
No Penalty................. 0.00% 3.46% 0.00% 0.00% 0.00% 0.00% 0.05% 0.00% 0.00%
Paid Down.................. 49.67% 57.41% 67.04% 72.62% 78.37% 84.70% 89.59% 91.89% 93.99%
------- ------- ------- ------- ------- ------- ------- ------- -------
Total...................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= ======= ======= ======= ======= =======
Aggregate Outstanding
Principal Balance of
NationsBank Mortgage
Loans ($Millions)........ $247.87 $209.76 $162.30 $134.85 $106.52 $ 75.35 $ 51.28 $ 39.93 $ 29.61
% of Initial Pool
Balance.................. 50.33% 42.59% 32.96% 27.38% 21.63% 15.30% 10.41% 8.11% 6.01%
<CAPTION>
FEB-2021 FEB-2022 FEB-2023 FEB-2024
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Locked Out................. 0.00% 0.00% 0.00% 0.00%
Yield Maintenance.......... 3.96% 1.78% 0.37% 0.00%
No Penalty................. 0.00% 0.00% 0.00% 0.00%
Paid Down.................. 96.04% 98.22% 99.63% 100.00%
------- ------- ------- -------
Total...................... 100.00% 100.00% 100.00% 100.00%
======= ======= ======= =======
Aggregate Outstanding
Principal Balance of
NationsBank Mortgage
Loans ($Millions)........ $ 19.51 $ 8.76 $ 1.80 $ 0.00
% of Initial Pool
Balance.................. 3.96% 1.78% 0.37% 0.00%
</TABLE>
- ---------------
(1) Prepayment provisions in effect as a percentage of aggregate Cut-off Date
Balance as of the indicated date assuming no prepayments.
A-9
<PAGE> 135
PROPERTY TYPE -- COMBINED
<TABLE>
<CAPTION>
NUMBER OF % OF WEIGHTED WEIGHTED WEIGHTED
MORTGAGE AGGREGATE AGGREGATE AVERAGE AVERAGE AVERAGE
PROPERTY TYPE LOANS BALANCE BALANCE DSCR LTV RATIO MORTGAGE RATE
- ------------- --------- --------------- --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Retail..................... 102 $353,425,862.32 71.76% 1.13x 80.85% 7.482%
Office..................... 12 99,203,039.58 20.14% 1.09x 78.68% 7.527%
Industrial................. 2 14,765,138.22 3.00% 1.03x 91.70% 7.828%
Mobile Home................ 4 9,193,042.71 1.87% 1.21x 45.29% 7.130%
Restaurant................. 5 5,518,012.88 1.12% 1.01x 75.06% 7.238%
Hotel...................... 1 4,953,135.25 1.01% 1.54x 55.03% 7.430%
Parking Lot................ 1 4,524,752.62 0.92% 1.00% 76.69% 6.730%
Other (Post Office)........ 1 908,713.89 0.18% 1.08x 83.37% 7.170%
--- --------------- ------ ---- ----- -----
128 $492,491,697.47 100.00% 1.12x 79.71% 7.484%
=== =============== ====== ==== ===== =====
</TABLE>
GEOGRAPHIC DISTRIBUTION -- COMBINED
<TABLE>
<CAPTION>
NUMBER OF % OF WEIGHTED WEIGHTED WEIGHTED
MORTGAGE AGGREGATE AGGREGATE AVERAGE AVERAGE AVERAGE
LOCATION LOANS BALANCE BALANCE DSCR LTV RATIO MORTGAGE RATE
- -------- --------- ------------ --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Texas......................... 9 $>56,601,662 11.49% 1.06x 82.99% 7.651%
Massachusetts................. 11 56,403,995 11.45% 1.06x 85.07% 7.315%
New York...................... 19 55,351,584 11.24% 1.03x 83.35% 7.391%
South Carolina................ 3 50,538,115 10.26% 1.47x 56.73% 7.762%
Florida....................... 8 44,362,805 9.01% 1.03x 89.17% 7.249%
Georgia....................... 5 40,503,751 8.22% 1.09x 86.20% 7.466%
Pennsylvania.................. 10 25,061,268 5.09% 1.05x 77.70% 7.493%
California.................... 4 18,420,292 3.74% 1.03x 82.58% 7.294%
Virginia...................... 9 17,566,025 3.57% 1.05x 81.39% 7.548%
North Carolina................ 9 17,555,911 3.56% 1.15x 81.77% 7.521%
Maryland...................... 3 17,475,114 3.55% 1.09x 84.43% 7.841%
Michigan...................... 7 14,154,769 2.87% 1.03x 87.61% 7.697%
Tennessee..................... 5 11,020,777 2.24% 1.26x 72.59% 7.399%
New Jersey.................... 4 10,678,551 2.17% 1.30x 75.91% 7.491%
Ohio.......................... 2 8,996,736 1.83% 1.14x 75.94% 7.548%
Connecticut................... 3 6,267,575 1.27% 1.19x 55.10% 7.286%
Illinois...................... 2 5,600,230 1.14% 1.03x 85.38% 6.908%
New Mexico.................... 1 5,521,822 1.12% 1.25x 73.62% 7.670%
Nebraska...................... 1 5,491,421 1.12% 1.00x 89.36% 7.910%
Arkansas...................... 1 3,930,121 0.80% 1.12x 76.61% 7.600%
New Hampshire................. 2 3,883,141 0.79% 1.21x 39.77% 7.130%
Nevada........................ 2 3,820,122 0.78% 1.02x 75.90% 7.188%
Maine......................... 2 3,806,759 0.77% 1.29x 75.36% 7.738%
Kansas........................ 1 3,476,168 0.71% 1.28x 69.52% 7.440%
District of Columbia.......... 2 2,484,992 0.50% 1.19x 74.71% 7.081%
Alabama....................... 1 1,366,206 0.28% 1.07x 88.14% 6.900%
Missouri...................... 1 1,243,073 0.25% 1.00x 92.42% 7.060%
Washington.................... 1 908,714 0.18% 1.08x 83.37% 7.170%
--- ------------ ------ ---- ----- -----
128 $492,491,697 100.00% 1.12x 79.71% 7.484%
=== ============ ====== ==== ===== =====
</TABLE>
A-10
<PAGE> 136
ANNEX A-1
SUMMARY MORTGAGE LOAN INFORMATION -- CREDIT LEASE LOANS
<TABLE>
<S> <C>
Gross Weighted Average Coupon............................... 7.456%
Maximum Gross Coupon........................................ 8.20%
Minimum Gross Coupon........................................ 6.73%
Weighted Average Original Term (Months)..................... 247
Weighted Average Remaining Term (Months).................... 232
Average Loan Size (as of Cut-off Date)...................... $3,495,193
----------
</TABLE>
ORIGINAL LOAN TERM -- CREDIT LEASE LOANS
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE WEIGHTED AVERAGE
MORTGAGE AGGREGATE AGGREGATE ORIGINAL AVERAGE MORTGAGE
ORIGINAL TERM TO MATURITY LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ------------------------- --------- ------------ --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
120 to 179 months....................... 11 $42,006,925 10.93% 1.08x 73.25% 7.324%
180 to 239 months....................... 66 173,832,755 45.21% 1.05x 82.14% 7.516%
240 to 299 months....................... 21 112,514,415 29.26% 1.05x 88.06% 7.519%
300 to 360 months....................... 12 56,117,186 14.60% 1.01x 96.64% 7.246%
--- ------------ ------ ---- ----- -----
110 $384,471,281 100.00% 1.05x 85.02% 7.456%
=== ============ ====== ==== ===== =====
</TABLE>
GROSS COUPON RANGE -- CREDIT LEASE LOANS
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE WEIGHTED AVERAGE
MORTGAGE AGGREGATE AGGREGATE ORIGINAL AVERAGE MORTGAGE
GROSS COUPON RATE LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ----------------- --------- ------------ --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
6.500% to 6.749%........................ 1 $4,524,753 1.18% 1.00x 76.69% 6.730%
6.750% to 6.999%........................ 14 48,882,244 12.71% 1.02x 92.14% 6.853%
7.000% to 7.249%........................ 15 48,690,343 12.66% 1.05x 88.48% 7.099%
7.250% to 7.499%........................ 29 118,174,974 30.74% 1.03x 86.45% 7.364%
7.500% to 7.749%........................ 23 56,597,470 14.72% 1.11x 77.62% 7.579%
7.750% to 7.999%........................ 21 64,985,042 16.90% 1.04x 80.22% 7.868%
8.000% to 8.249%........................ 7 42,616,455 11.08% 1.04x 86.93% 8.100%
--- ------------ ------ ---- ----- -----
110 $384,471,281 100.00% 1.05x 85.02% 7.456%
=== ============ ====== ==== ===== =====
</TABLE>
A-11
<PAGE> 137
CUT-OFF DATE BALANCES -- CREDIT LEASE LOANS
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF % OF AVERAGE WEIGHTED WEIGHTED
MORTGAGE AGGREGATE AGGREGATE ORIGINAL AVERAGE AVERAGE
BALANCE AT CUT-OFF DATE LOANS BALANCE BALANCE DSCR LTV RATIO MORTGAGE RATE
- ----------------------- --------- ------------ ---------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
$0 to $999,999............... 7 $6,319,781 1.64% 1.03x 80.04% 7.430%
$1,000,000 to $1,499,999..... 26 34,102,643 8.87% 1.06x 79.64% 7.368%
$1,500,000 to $1,999,999..... 19 32,764,600 8.52% 1.07x 82.29% 7.560%
$2,000,000 to $2,499,999..... 16 34,923,379 9.08% 1.08x 84.11% 7.505%
$2,500,000 to $2,999,999..... 7 18,570,223 4.83% 1.03x 83.30% 7.693%
$3,000,000 to $3,499,999..... 4 12,758,880 3.32% 1.04x 88.58% 7.071%
$3,500,000 to $3,999,999..... 4 15,081,296 3.92% 1.23x 74.00% 7.508%
$4,000,000 to $4,999,999..... 5 23,089,548 6.01% 1.01x 88.16% 7.087%
$5,000,000 to $5,999,999..... 8 43,906,477 11.42% 1.04x 86.38% 7.384%
$6,000,000 to $6,999,999..... 1 6,464,242 1.68% 1.00x 101.64% 6.760%
$8,000,000 to $8,999,999..... 3 24,686,830 6.42% 1.01x 88.14% 7.246%
$9,000,000 to $9,999,999..... 1 9,438,111 2.45% 1.03x 90.10% 8.030%
$10,000,000 to $14,999,999... 6 67,130,989 17.46% 1.03x 87.85% 7.567%
$15,000,000 to $19,999,999... 3 55,234,283 14.37% 1.01x 83.81% 7.572%
--- ------------ ------ ---- ------ -----
110 $384,471,281 100.00% 1.05x 85.02% 7.456%
=== ============ ====== ==== ====== =====
</TABLE>
CUT-OFF DATE LOAN-TO-LEASED FEE VALUE RATIO -- CREDIT LEASE LOANS
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF % OF AVERAGE WEIGHTED WEIGHTED
MORTGAGE AGGREGATE AGGREGATE ORIGINAL AVERAGE AVERAGE
LOAN-TO-LEASED FEE VALUE RATIO LOANS BALANCE BALANCE DSCR LTV RATIO MORTGAGE RATE
- ------------------------------ --------- ------------ --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
45.00% to 49.99%.............. 1 $1,129,824 0.29% 1.06x 45.19% 7.570%
50.00% to 54.99%.............. 1 938,694 0.24% 1.00x 52.15% 7.120%
60.00% to 64.99%.............. 1 1,279,841 0.33% 1.37x 63.99% 7.290%
65.00% to 69.99%.............. 7 15,192,582 3.95% 1.13x 67.78% 7.581%
70.00% to 74.99%.............. 8 22,942,184 5.97% 1.20x 72.57% 7.578%
75.00% to 79.99%.............. 19 79,448,412 20.66% 1.06x 77.03% 7.527%
80.00% to 84.99%.............. 29 81,614,626 21.23% 1.04x 83.10% 7.399%
85.00% to 89.99%.............. 20 69,818,121 18.16% 1.02x 88.15% 7.663%
90.00% to 94.99%.............. 10 44,381,770 11.54% 1.01x 92.72% 7.530%
95.00% to 99.99%.............. 11 50,347,767 13.10% 1.01x 96.82% 7.243%
100.00% to 109.99%............ 3 17,377,460 4.52% 1.00x 101.50% 6.760%
--- ------------ ------ ---- ------ -----
110 $384,471,281 100.00% 1.05x 85.02% 7.456%
=== ============ ====== ==== ====== =====
</TABLE>
PROPERTY TYPE PROPERTY -- CREDIT LEASE LOANS
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF % OF AVERAGE WEIGHTED WEIGHTED
MORTGAGE AGGREGATE AGGREGATE ORIGINAL AVERAGE AVERAGE
PROPERTY TYPE LOANS BALANCE BALANCE DSCR LTV RATIO MORTGAGE RATE
------------- --------- --------------- --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Retail..................... 91 $277,198,320.13 72.10% 1.05x 86.44% 7.414%
Office..................... 10 81,556,343.34 21.21% 1.05x 80.11% 7.590%
Industrial................. 2 14,765,138.22 3.84% 1.03x 91.70% 7.828%
Restaurant................. 5 5,518,012.88 1.44% 1.01x 75.06% 7.238%
Parking Lot................ 1 4,524,752.62 1.18% 1.00x 76.69% 6.730%
Other (Post Office)........ 1 908,713.89 0.24% 1.08x 83.37% 7.170%
--- --------------- ------ ---- ------ -----
110 $384,471,281.08 100.00% 1.05x 85.02% 7.456%
=== =============== ====== ==== ====== =====
</TABLE>
A-12
<PAGE> 138
GEOGRAPHIC DISTRIBUTION -- CREDIT LEASE LOANS
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE WEIGHTED AVERAGE
MORTGAGE AGGREGATE AGGREGATE ORIGINAL AVERAGE MORTGAGE
STATE LOANS BALANCE BALANCE DSCR LTV RATIO RATE
----- --------- ------------ --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Massachusetts................... 11 $56,403,995 14.67% 1.06x 85.07% 7.315%
New York........................ 19 55,351,584 14.40% 1.03x 83.35% 7.391%
Texas........................... 6 47,946,507 12.47% 1.01x 83.36% 7.623%
Florida......................... 7 37,994,662 9.88% 1.01x 93.65% 7.291%
Georgia......................... 4 26,103,133 6.79% 1.01x 92.80% 7.607%
Pennsylvania.................... 9 23,091,902 6.01% 1.04x 78.25% 7.493%
California...................... 4 18,420,292 4.79% 1.03x 82.58% 7.294%
Virginia........................ 9 17,566,025 4.57% 1.05x 81.39% 7.548%
Maryland........................ 2 14,229,036 3.70% 1.02x 89.44% 7.953%
Michigan........................ 7 14,154,769 3.68% 1.03x 87.61% 7.697%
North Carolina.................. 6 10,868,690 2.83% 1.06x 86.67% 7.362%
New Jersey...................... 4 10,678,551 2.78% 1.30x 75.91% 7.491%
Ohio............................ 2 8,996,736 2.34% 1.14x 75.94% 7.548%
South Carolina.................. 2 6,988,449 1.82% 1.02x 91.00% 7.181%
Tennessee....................... 4 6,067,642 1.58% 1.04x 86.92% 7.374%
Illinois........................ 2 5,600,230 1.46% 1.03x 85.38% 6.908%
Nebraska........................ 1 5,491,421 1.43% 1.00x 89.36% 7.910%
Arkansas........................ 1 3,930,121 1.02% 1.12x 76.61% 7.600%
Nevada.......................... 2 3,820,122 0.99% 1.02x 75.90% 7.188%
Maine........................... 2 3,806,759 0.99% 1.29x 75.36% 7.738%
District of Columbia............ 2 2,484,992 0.65% 1.19x 74.71% 7.081%
Alabama......................... 1 1,366,206 0.36% 1.07x 88.14% 6.900%
Missouri........................ 1 1,243,073 0.32% 1.00x 92.42% 7.060%
Connecticut..................... 1 957,674 0.25% 1.09x 87.06% 8.150%
Washington...................... 1 908,714 0.24% 1.08x 83.37% 7.170%
--- ------------ ------ ---- ----- -----
110 $384,471,281 100.00% 1.05x 85.02% 7.456%
=== ============ ====== ==== ===== =====
</TABLE>
A-13
<PAGE> 139
ANNEX A-2
SUMMARY MORTGAGE LOAN INFORMATION -- NATIONSBANK MORTGAGE LOANS
<TABLE>
<S> <C>
Gross Weighted Average Coupon............................... 7.584%
Maximum Gross Coupon........................................ 8.32%
Minimum Gross Coupon........................................ 6.87%
Weighted Average Original Term (Months)..................... 214
Weighted Average Remaining Term (Months).................... 201
Average Loan Size (as of Cut-off Date)...................... $6,001,134
----------
</TABLE>
A-14
<PAGE> 140
PROPERTY TYPE
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING CUT-OFF DATE MORTGAGE
PROPERTY TYPE LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ------------- --------- ------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Retail....................... 11 $76,227,542 70.57% 1.41x 60.49% 7.729%
Office....................... 2 17,646,696 16.34% 1.28x 72.06% 7.236%
Mobile Home.................. 4 9,193,043 8.51% 1.21x 45.29% 7.130%
Hotel........................ 1 4,953,135 4.59% 1.54x 55.03% 7.430%
-- ------------ ------ ---- ----- -----
18 $108,020,416 100.00% 1.38x 60.84% 7.584%
== ============ ====== ==== ===== =====
</TABLE>
CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING CUT-OFF DATE MORTGAGE
CUT-OFF BALANCE LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- --------------- --------- ------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
$0 - $999,999............... 1 $941,368 0.87% 1.20x 25.79% 7.130%
$1,000,000 - $1,999,999..... 3 4,845,968 4.49% 1.23x 75.11% 7.579%
$2,000,000 - $2,999,999..... 5 12,054,925 11.16% 1.29x 62.29% 7.318%
$3,000,000 - $3,999,999..... 3 9,972,906 9.23% 1.30x 61.37% 7.310%
$4,000,000 - $4,999,999..... 1 4,953,135 4.59% 1.54x 55.03% 7.430%
$5,000,000 - $7,499,999..... 3 17,301,830 16.02% 1.20x 72.12% 7.627%
$10,000,000 - $14,999,999... 1 14,400,618 13.33% 1.25x 74.23% 7.210%
$35,000,000 - $44,999,999... 1 43,549,666 40.32% 1.54x 51.23% 7.855%
-- ------------ ------ ---- ----- -----
18 $108,020,416 100.00% 1.38x 60.84% 7.584%
== ============ ====== ==== ===== =====
</TABLE>
A-15
<PAGE> 141
GEOGRAPHIC DISTRIBUTION(1)
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING CUT-OFF DATE MORTGAGE
STATES LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ------ --------- ------------ --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
South Carolina................ 1 $43,549,666 40.32% 1.54x 51.23% 7.855%
Georgia....................... 1 14,400,618 13.33% 1.25x 74.23% 7.210%
Texas......................... 3 8,655,155 8.01% 1.29x 80.91% 7.801%
North Carolina................ 3 6,687,221 6.19% 1.28x 73.82% 7.779%
Florida....................... 1 6,368,143 5.90% 1.12x 62.43% 7.000%
New Mexico.................... 1 5,521,822 5.11% 1.25x 73.62% 7.670%
Connecticut................... 2 5,309,902 4.92% 1.21x 49.33% 7.130%
Tennessee..................... 1 4,953,135 4.59% 1.54x 55.03% 7.430%
New Hampshire................. 2 3,883,141 3.59% 1.21x 39.77% 7.130%
Kansas........................ 1 3,476,168 3.22% 1.28x 69.52% 7.440%
Maryland...................... 1 3,246,078 3.01% 1.40x 62.42% 7.350%
Pennsylvania.................. 1 1,969,366 1.82% 1.25x 71.25% 7.500%
-- ------------ ------ ---- ----- -----
18 $108,020,416 100.00% 1.38x 60.84% 7.584%
== ============ ====== ==== ===== =====
</TABLE>
- ---------------
(1) States or district in which the respective Mortgaged Properties are located.
A-16
<PAGE> 142
UNDERWRITING DEBT SERVICE COVERAGE RATIO
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING CUT-OFF DATE MORTGAGE
LOANS BALANCE BALANCE DSCR LTV RATIO RATE
DSCR(NOI) --------- ------------ --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1.10x - 1.19x.............. 1 $6,368,143 5.90% 1.12x 62.43% 7.000%
1.20x - 1.29x.............. 12 45,416,526 42.04% 1.24x 69.03% 7.486%
1.35x - 1.39x.............. 1 2,426,537 2.25% 1.38x 69.83% 7.320%
1.40x - 1.49x.............. 2 5,306,409 4.91% 1.41x 68.95% 7.164%
1.50x - 1.59x.............. 2 48,502,802 44.90% 1.54x 51.62% 7.812%
-- ------------ ------ ----- ----- -----
18 $108,020,416 100.00% 1.38x 60.84% 7.584%
== ============ ====== ===== ===== =====
</TABLE>
CUT-OFF DATE LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING CUT-OFF DATE MORTGAGE
LOANS BALANCE BALANCE DSCR LTV RATIO RATE
CUT-OFF LTV --------- ------------ --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
20.0% - 29.9%.............. 1 $941,368 0.87% 1.20x 25.79% 7.130%
30.0% - 49.9%.............. 2 5,001,015 4.63% 1.21x 44.86% 7.130%
50.0% - 59.9%.............. 3 51,753,462 47.91% 1.52x 51.62% 7.769%
60.0% - 64.9%.............. 2 9,614,221 8.90% 1.22x 62.43% 7.118%
65.0% - 69.9%.............. 2 5,902,705 5.46% 1.32x 69.65% 7.391%
70.0% - 74.9%.............. 3 21,891,806 20.27% 1.25x 73.81% 7.352%
75.0% - 79.9%.............. 4 7,503,976 6.95% 1.28x 77.39% 7.563%
80.0% - 84.9%.............. 1 5,411,864 5.01% 1.25x 82.00% 8.320%
-- ------------ ------ ----- ----- -----
18 $108,020,416 100.00% 1.38x 60.84% 7.584%
== ============ ====== ===== ===== =====
</TABLE>
MATURITY DATE LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING MATURITY DATE MORTGAGE
LOANS BALANCE BALANCE DSCR LTV RATIO RATE
MATURITY DATE LTV --------- ------------ --------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
0.0% - 29.9%.............. 9 $71,354,921 66.06% 1.42x 2.47% 7.628%
30.0% - 49.9%............. 3 9,349,038 8.65% 1.43x 37.57% 7.416%
50.0% - 59.9%............. 3 20,995,443 19.44% 1.25x 57.18% 7.487%
60.0% - 64.9%............. 3 6,321,016 5.85% 1.29x 61.44% 7.659%
-- ------------ ------ ----- ----- -----
18 $108,020,416 100.00% 1.38x 19.59% 7.584%
== ============ ====== ===== ===== =====
</TABLE>
A-17
<PAGE> 143
MORTGAGE RATES
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING CUT-OFF DATE MORTGAGE
MORTGAGE RATE LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ------------- --------- ------------ --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
6.750% - 6.999%............... 1 $2,060,331 1.91% 1.41x 79.24% 6.870%
7.000% - 7.249%............... 7 31,144,765 28.83% 1.21x 63.45% 7.137%
7.250% - 7.499%............... 4 14,101,918 13.05% 1.42x 62.85% 7.395%
7.500% - 7.749%............... 2 7,491,188 6.93% 1.25x 73.00% 7.625%
7.750% - 7.999%............... 1 43,549,666 40.32% 1.54x 51.23% 7.855%
8.000% - 8.499%............... 3 9,672,549 8.95% 1.24x 79.40% 8.197%
-- ------------ ------ ---- ----- -----
18 $108,020,416 100.00% 1.38x 60.84% 7.584%
== ============ ====== ==== ===== =====
</TABLE>
ORIGINAL TERM TO MATURITY
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING CUT-OFF DATE MORTGAGE
ORIGINAL TERM TO MATURITY LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ------------------------- --------- ------------ --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
180........................... 11 $46,509,807 43.06% 1.28x 71.28% 7.426%
240........................... 7 61,510,609 56.94% 1.46x 52.95% 7.703%
-- ------------ ------ ---- ----- -----
18 $108,020,416 100.00% 1.38x 60.84% 7.584%
== ============ ====== ==== ===== =====
</TABLE>
ORIGINAL AMORTIZATION TERM (1)
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING CUT-OFF DATE MORTGAGE
ORIGINAL AMORTIZATION TERM LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- -------------------------- --------- ------------ --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
180................................ 1 $3,476,168 3.22% 1.28x 69.52% 7.440%
240................................ 9 69,848,118 64.66% 1.42x 54.33% 7.634%
300................................ 4 13,974,496 12.94% 1.37x 70.06% 7.723%
360................................ 4 20,721,634 19.18% 1.26x 75.11% 7.347%
-- ------------ ------ ---- ----- -----
18 $108,020,416 100.00% 1.38x 60.84% 7.584%
== ============ ====== ==== ===== =====
</TABLE>
- ---------------
(1) For Loans which accrue interest on the basis of actual days elapsed during
each calendar month and a 360-day year, the amortization term is the term in
which the loan would amortize if interest paid on the basis of a 30-day
month and a 360-day year. The actual amortization term would be longer.
REMAINING TERM TO MATURITY
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING CUT-OFF DATE MORTGAGE
REMAINING TERM TO MATURITY LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- -------------------------- --------- ------------ --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
121 - 180.......................... 11 $46,509,807 43.06% 1.28x 71.28% 7.426%
181 - 240.......................... 7 61,510,609 56.94% 1.46x 52.95% 7.703%
-- ------------ ------ ---- ----- -----
18 $108,020,416 100.00% 1.38x 60.84% 7.584%
== ============ ====== ==== ===== =====
</TABLE>
YEAR OF LOAN ORIGINATION
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING CUT-OFF DATE MORTGAGE
YEAR OF LOAN ORIGINATION LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ------------------------ --------- ------------ --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
1997............................... 5 $56,698,383 52.49% 1.47x 57.16% 7.888%
1998............................... 13 51,322,033 47.51% 1.28x 64.90% 7.248%
-- ------------ ------ ---- ----- -----
18 $108,020,416 100.00% 1.38x 60.84% 7.584%
== ============ ====== ==== ===== =====
</TABLE>
A-18
<PAGE> 144
YEAR OF LOAN MATURITY
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF % OF AVERAGE AVERAGE AVERAGE
MORTGAGE AGGREGATE AGGREGATE UNDERWRITING CUT-OFF DATE MORTGAGE
YEAR OF LOAN MATURITY LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- --------------------- --------- ------------ --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
2012................................ 3 $9,672,549 8.95% 1.24x 79.40% 8.197%
2013................................ 8 36,837,259 34.10% 1.29x 69.15% 7.224%
2017................................ 1 43,549,666 40.32% 1.54x 51.23% 7.855%
2018................................ 6 17,960,943 16.63% 1.26x 57.10% 7.336%
--- ------------ ------ ----- ----- -----
18 $108,020,416 100.00% 1.38x 60.84% 7.584%
=== ============ ====== ===== ===== =====
</TABLE>
A-19
<PAGE> 145
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION
MIDLAND LOAN SERVICES, INC. AS MASTER AND SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LTL-1
ABN AMRO ACCT: 99-9999-99-9
STATEMENT DATE: 03/22/99
PAYMENT DATE: 03/22/99
PRIOR PAYMENT: NA
RECORD DATE: 02/26/99
WAC:
WAMM:
<TABLE>
<CAPTION>
NUMBER OF PAGES
<S> <C>
Table Of Contents
REMIC Certificate Report
Other Related Information
Asset Backed Facts Sheets
Delinquency Loan Detail
Mortgage Loan Characteristics
Loan Level Listing
TOTAL PAGES INCLUDED IN THIS PACKAGE
Specially Serviced Loan Detail Appendix A
Modified Loan Detail Appendix B
Realized Loss Detail Appendix C
</TABLE>
<TABLE>
<CAPTION>
INFORMATION IS AVAILABLE FOR THIS ISSUE FROM THE FOLLOWING SOURCES
<S> <C>
LaSalle Web Site www.Inbabs.com
LaSalle Bulletin Board (714) 282-3990
LaSalle ASAP Fax System (312) 904-2200
ASAP #:
Monthly Data File Name:
</TABLE>
B-1
<PAGE> 146
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION
MIDLAND LOAN SERVICES, INC. AS MASTER AND SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LTL-1
ABN AMRO ACCT: 99-9999-99-9
STATEMENT DATE: 03/22/99
PAYMENT DATE: 03/22/99
PRIOR PAYMENT: NA
RECORD DATE: 02/26/99
WAC:
WAMM:
<TABLE>
<CAPTION>
ORIGINAL OPENING PRINCIPAL PRINCIPAL NEGATIVE CLOSING INTEREST INTEREST PASS-THROUGH
CLASS FACE VALUE(1) BALANCE PAYMENT ADJ. OR LOSS AMORTIZATION BALANCE PAYMENT ADJUSTMENT RATE(2)
CUSIP Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Next Rate(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total P&I Payment 0.00
</TABLE>
Notes: (1) N denotes notional balance not included in total
(2) Interest Paid minus Interest Adjustment minus Deferred Interest
equals Accrual
(3) Estimated
B-2
<PAGE> 147
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION
MIDLAND LOAN SERVICES, INC. AS MASTER AND SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LTL-1
ABN AMRO ACCT: 99-9999-99-9
OTHER RELATED INFORMATION
STATEMENT DATE: 03/22/99
PAYMENT DATE: 03/22/99
PRIOR PAYMENT: NA
RECORD DATE: 02/26/99
B-3
<PAGE> 148
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION
MIDLAND LOAN SERVICES, INC. AS MASTER AND SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LTL-1
ABN AMRO ACCT: 99-9999-99-9
STATEMENT DATE: 03/22/99
PAYMENT DATE: 03/22/99
PRIOR PAYMENT: NA
RECORD DATE: 02/26/99
<TABLE>
<CAPTION>
Distribution Delinq 1 Month Delinq 2 Months Delinq 3+ Months Foreclosure/Bankruptcy REO
Date # Balance # Balance # Balance # Balance # Balance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
03/22/99 0 0 0 0 0 0 0 0 0 0
0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000%
<CAPTION>
Modifications Prepayments Curr Weighted Avg.
# Balance # Balance Coupon Remit
<S> <C> <C> <C> <C> <C>
0 0 0 0
0.00% 0.000% 0.00% 0.000%
</TABLE>
Note: Foreclosure and REO Totals are Included in the Appropriate Delinquency
Aging Category
B-4
<PAGE> 149
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION
MIDLAND LOAN SERVICES, INC. AS MASTER AND SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LTL-1
ABN AMRO ACCT: 99-9999-99-9
STATEMENT DATE: 03/22/99
PAYMENT DATE: 03/22/99
PRIOR PAYMENT: NA
RECORD DATE: 02/26/99
DELINQUENT DETAIL
<TABLE>
<CAPTION>
Paid Outstanding Out. Property Special
Disclosure Doc Thru Current P&I P&I Protection Advance Servicer Foreclosure Bankruptcy REO
Control# Date Advance Advances** Advances Description(1) Transfer Date Date Date Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A. P&I Advance-Loan in Grace Period 1. P&I Advance-Loan delinquent 1 month 3. P&I Advance-Loan delinquent 3 months or More
B. P&I Advance-Late Payment but < 2. P&I Advance-Loan delinquent 2 months 4. Matured Balloon/Assumed Scheduled Payment
one month delinq
</TABLE>
** Outstanding P&I Advances include the current period P&I Advance
B-5
<PAGE> 150
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION
MIDLAND LOAN SERVICES, INC. AS MASTER AND SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LTL-1
ABN AMRO ACCT: 99-9999-99-9
POOL TOTAL
STATEMENT DATE: 03/22/99
PAYMENT DATE: 03/22/99
PRIOR PAYMENT: N/A
RECORD DATE: 02/26/99
DISTRIBUTION OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
(2) Current Scheduled Number (2)Scheduled Based on
Balances of Loans Balance Balance
<S> <C> <C> <C> <C>
$0 to $500,000
$500,000 to $1,000,000
$1,000,000 to $1,500,000
$1,500,000 to $2,000,000
$2,000,000 to $2,500,000
$2,500,000 to $3,000,000
$3,000,000 to $3,500,000
$3,500,000 to $4,000,000
$4,000,000 to $5,000,000
$5,000,000 to $6,000,000
$6,000,000 to $7,000,000
$7,000,000 to $8,000,000
$8,000,000 to $9,000,000
$9,000,000 to $10,000,000
$10,000,000 to $11,000,000
$11,000,000 to $12,000,000
$12,000,000 to $13,000,000
$13,000,000 to $14,000,000
$14,000,000 to $15,000,000
$15,000,000 & Above
Total 0 0 0.00%
Average Scheduled Balance is 0
Maximum Scheduled Balance is 0
Minimum Scheduled Balance is 0
</TABLE>
DISTRIBUTION OF PROPERTY TYPES
<TABLE>
<CAPTION>
Number (2)Scheduled Based on
Property Types of Loans Balance Balance
<S> <C> <C> <C>
Total 0 0 0.00%
</TABLE>
DISTRIBUTION OF MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
Current Mortgage Number (2)Scheduled Based on
Interest Rate of Loans Balance Balance
<S> <C> <C> <C>
7.000% or less
7.000% to 7.125%
7.125% to 7.375%
7.375% to 7.625%
7.625% to 7.875%
7.875% to 8.125%
8.125% to 8.375%
8.375% to 8.625%
8.625% to 8.875%
8.875% to 9.125%
9.125% to 9.375%
9.375% to 9.625%
9.625% to 9.875%
9.875% to 10.125%
10.125% & Above
Total 0 0 0.00%
W/Avg Mortgage Interest Rate is 0.0000%
Minimum Mortgage Interest Rate is 0.0000%
Maximum Mortgage Interest Rate is 0.0000%
</TABLE>
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
Number (2)Scheduled Based on
Geographic Location of Loans Balance Balance
<S> <C> <C> <C>
Total 0 0 0.00%
</TABLE>
B-6
<PAGE> 151
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION
MIDLAND LOAN SERVICES, INC. AS MASTER AND SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LTL-1
ABN AMRO ACCT: 99-9999-99-9
POOL TOTAL
STATEMENT DATE: 03/22/99
PAYMENT DATE: 03/22/99
PRIOR PAYMENT: NA
RECORD DATE: 02/26/99
LOAN SEASONING
<TABLE>
<CAPTION>
Number (2) Scheduled Based on
Number of Years of Loans Balance Balance
<S> <C> <C> <C>
Weighted Average Seasoning is 0.0
</TABLE>
DISTRIBUTION OF REMAINING TERM
FULLY AMORTIZING
<TABLE>
<CAPTION>
Fully Amortizing Number (2) Scheduled Based on
Mortgage Loans of Loans Balance Balance
<S> <C> <C> <C>
60 months or less
61 to 120 months
121 to 180 months
181 to 240 months
241 to 360 months
Total 0 0 0.00%
Weighted Average Months to Maturity is 0
</TABLE>
DISTRIBUTION OF DSCR
<TABLE>
<CAPTION>
Debt Service Number (2) Scheduled Based on
Coverage Ratio (1) of Loans Balance Balance
<S> <C> <C> <C>
0.500 or less
0.500 to 0.625
0.625 to 0.750
0.750 to 0.875
0.875 to 1.000
1.000 to 1.125
1.125 to 1.250
1.250 to 1.375
1.375 to 1.500
1.500 to 1.625
1.625 to 1.750
1.750 to 1.875
1.875 to 2.000
2.000 to 2.125
2.125 & above
Unknown
Total 0 0 0.00%
Weighted Average Debt Service Coverage Ratio is 0.000
</TABLE>
DISTRIBUTION OF AMORTIZATION TYPE
<TABLE>
<CAPTION>
Number (2) Scheduled Based on
Amortization Type of Loans Balance Balance
<S> <C> <C> <C>
Total 0 0 0.00%
</TABLE>
DISTRIBUTION OF REMAINING TERM
BALLOON LOANS
<TABLE>
<CAPTION>
Balloon Number (2) Scheduled Based on
Mortgage Loans of Loans Balance Balance
<S> <C> <C> <C>
12 months or less
13 to 24 months
25 to 36 months
37 to 48 months
49 to 60 months
61 to 120 months
121 to 180 months
181 to 240 months
Total 0 0 0.00%
Weighted Average Months to Maturity is 0
</TABLE>
NOI AGING
<TABLE>
<CAPTION>
Number (2) Scheduled Based on
NOI Date of loans Balance Balance
<S> <C> <C> <C>
1 year or less
1 to 2 years
2 Years or More
Unknown
Total 0 0 0.00%
</TABLE>
(1) Debt Service Coverage Ratios are calculated as described in the prospectus,
values are updated periodically as new NOI figures became available from
borrowers on an asset level. Neither the Trustee, Servicer, Special Servicer
or Underwriter makes any representation as to the accuracy of the data
provided by the borrower for this calculation.
B-7
<PAGE> 152
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION
MIDLAND LOAN SERVICES, INC. AS MASTER AND SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LTL-1
ABN AMRO ACCT: 99-9999-99-9
STATEMENT DATE: 03/22/99
PAYMENT DATE: 03/22/99
PRIOR PAYMENT: NA
RECORD DATE: 02/26/99
SPECIALLY SERVICED DETAIL
<TABLE>
<CAPTION>
Beginning Specially
Disclosure Scheduled Interest Maturity Property Serviced
Control # Balance Rate Date Type Status Code (1) Comments
<S> <C> <C> <C> <C> <C> <C>
(1) Legend:
1) Request for waiver of Prepayment Penalty 4) Loan with Borrower Bankruptcy 7) Loans Paid Off
2) Payment default 5) Loan in Process of Foreclosure 8) Loans Returned to Master Servicer
3) Request for Loan Modification or Workout 6) Loan now REO Property
</TABLE>
APPENDIX A
B-8
<PAGE> 153
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION
MIDLAND LOAN SERVICES, INC. AS MASTER AND SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LTL-1
ABN AMRO ACCT: 99-9999-99-9
STATEMENT DATE: 03/22/99
PAYMENT DATE: 03/22/99
PRIOR PAYMENT: NA
RECORD DATE: 02/26/99
MODIFIED DETAIL
<TABLE>
<CAPTION>
Disclosure Modification Modification
Control # Date Description
<S> <C> <C>
</TABLE>
APPENDIX B
B-9
<PAGE> 154
[ABN AMRO LOGO]
NATIONSLINK FUNDING CORPORATION
MIDLAND LOAN SERVICES, INC. AS MASTER AND SPECIAL SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LTL-1
ABN AMRO ACCT: 99-9999-99-9
STATEMENT DATE: 03/22/99
PAYMENT DATE: 03/22/99
PRIOR PAYMENT: NA
RECORD DATE: 02/26/99
REALIZED LOSS DETAIL
<TABLE>
<CAPTION>
Beginning Gross Proceeds Aggregate Net Net Proceeds
Dist. Disclosure Appraisal Appraisal Scheduled Gross as a % of Liquidation Liquidation as a % of Realized
Date Control # Date Value Balance Proceeds Sched. Principal Expenses* Proceeds Sched. Balance Loss
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Total 0.00 0.00 0.00 0.00 0.00
Cumulative 0.00 0.00 0.00 0.00 0.00
</TABLE>
APPENDIX C
*Aggregate liquidation expenses also include outstanding P&I advances and unpaid
servicing fees, unpaid trustee fees, etc.
B-10
<PAGE> 155
ANNEX C
THE ENHANCED LEASE PROGRAM
The Enhanced Lease Program is a proprietary program of Capital Lease
Funding, L.P. ("CLF"), designed to enhance the certainty of cash flows from net
leases. 110 Credit Lease Loans, one of which consists of a participation
interest in a Credit Lease Loan, representing 78.1% of the aggregate Cut-off
Date Balance of the Loan Pool, were originated in accordance with the
underwriting guidelines of the Enhanced Lease Program.
The Enhanced Lease Program includes (1) the Lease Enhancement Policies, (2)
the Extended Amortization Policies, (3) Borrower Reserve Funds, (4) the Borrower
Protective Actions, (5) the Master Servicer Protective Actions, (6) the use of
underwriting guidelines and (7) the establishment of an Expense Reserve Fund.
THE LEASE ENHANCEMENT POLICIES
Each Credit Lease Loan backed by a Credit Lease that has a Casualty or
Condemnation Termination or Abatement Right has the benefit of a Lease
Enhancement Policy issued by the Enhancement Insurer. Under the policy, the
Enhancement Insurer, as described below, will make payments to the Master
Servicer on behalf of the Trustee in certain cases where the mortgaged property
has been subjected to a condemnation event or property damage on account of a
casualty. The Trustee and the related borrower are named insureds under the
Lease Enhancement Policy, and payments under the Lease Enhancement Policy are
treated as payments on the Credit Lease Loan by the borrower. The related
borrowers or CLF prepaid in full the premium relating to each Lease Enhancement
Policy at the time of issuance of such Lease Enhancement Policy, and each such
Lease Enhancement Policy is non-cancelable.
With respect to both casualty and condemnation, each Lease Enhancement
Policy provides that in the event of a permitted termination by a Credit Lease
tenant of its Credit Lease occurring as a result of such casualty or
condemnation, the Enhancement Insurer will pay to the Master Servicer on behalf
of the Trustee, either in one lump sum payment or periodically on the applicable
monthly rental payment date, at the Enhancement Insurer's option, the
Ascertained Net Loss (as such term is defined in the Lease Enhancement Policy).
The Ascertained Net Loss payable in one lump sum payment will generally be in an
amount equal to the lesser of (a) the outstanding principal balance of the
Credit Lease Loan plus accrued interest or (b) the sum of all periodic payments
of monthly rental payments that would have been payable under the Credit Lease
if the Credit Lease had not been so terminated for the period from the date of
the Credit Lease termination through the expiration date of the initial term of
such Credit Lease or first renewal term of the Credit Lease, if such Credit
Lease has the benefit of an Extended Amortization Policy. In the event that the
Credit Lease permits the Credit Lease tenant to abate rent, the Ascertained Net
Loss will be in an amount equal to the portion of any monthly rental payments
not made by such Credit Lease tenant for the period from the date the abatement
commences until the earlier of the date the abatement ceases or the expiration
date of the initial term or first renewal term of such Credit Lease, if such
Credit Lease has the benefit of an Extended Amortization Policy. The Lease
Enhancement Policies provide that payments are to be made on the due date for
the related monthly rental payment. The Enhancement Insurer is not required to
pay:
- interest accrued following the date of a lump sum payment
described above,
- interest for the period from the due date for the monthly
rental payment through the Due Date of the Credit Lease
Loan,
- any Prepayment Premium due thereunder, or
- any amounts the borrower is obligated to pay thereunder to
reimburse the Master Servicer, the Trustee or the Fiscal
Agent for outstanding Servicing Advances.
Any such interest shortfall or other amounts (other than Prepayment
Premiums) required to be paid to certificateholders, the Master Servicer, the
Trustee or the Fiscal Agent will be recoverable from the Expense
C-1
<PAGE> 156
Reserve Fund to the extent of funds therein. In the event of a lump sum payment,
however, no Prepayment Premiums will be payable to certificateholders.
In the event a Credit Lease tenant elects to exercise a Casualty or
Condemnation Termination or Abatement Right, the Master Servicer or the Special
Servicer, as applicable, on behalf of the Trustee will submit to the Enhancement
Insurer a proof of loss containing the information required by the Lease
Enhancement Policy. The proof of loss must be submitted within two years after
the date of Credit Lease termination or rent abatement, as the case may be, or
the Enhancement Insurer will be discharged from all liability. Under the terms
of the Pooling Agreement, the Master Servicer or the Special Servicer, as
applicable, on behalf of the Trustee is obligated to submit notice of a claim
under the Lease Enhancement Policies after obtaining actual knowledge or receipt
of notice of a casualty or condemnation as soon as reasonably practicable, but
in any event within three Business Days. The Lease Enhancement Policies further
provide that the Enhancement Insurer is obligated, upon 15 days' prior written
notice, to pay to the Master Servicer on behalf of the Trustee the Ascertained
Net Loss on the date the monthly rental payment is due under the related Credit
Lease. In the event the Enhancement Insurer determines that the claim is either
excluded from coverage or not covered by the Lease Enhancement Policy, the
Enhancement Insurer will notify the Master Servicer and the Trustee. In the
event the Master Servicer or the Special Servicer, as applicable, on behalf of
the Trustee contests such notice, the Master Servicer or the Special Servicer,
as applicable, on behalf of the Trustee will deliver to the Enhancement Insurer
a notice to such effect within 60 days after receipt of the Enhancement
Insurer's declination notice. In the event of a dispute, such dispute will be
submitted to arbitration as provided in the Lease Enhancement Policy.
Notwithstanding the delivery by the Enhancement Insurer of a notice contesting
such claim, the Enhancement Insurer is obligated to pay or begin to pay (if
periodic payments are elected) to the Master Servicer on behalf of the Trustee
the Ascertained Net Loss within 15 business days after the receipt of a proof of
loss and will continue to pay until such time as the arbitration decision has
been rendered in the Enhancement Insurer's favor. To the extent of any payments
under the Lease Enhancement Policy, the Enhancement Insurer will succeed in
right to the Trustee as the insured under the Lease Enhancement Policy to the
payment of any insurance and condemnation proceeds received with respect to the
related mortgaged property.
Each Lease Enhancement Policy contains certain exclusions to coverage,
including loss arising from (1) the borrower's or Credit Lease tenant's
bankruptcy, insolvency, financial impairment or inability to perform its
contractual obligations, or (2) arising from any condemnation or property
damage, as the case may be, of which the insured had knowledge on or prior to
the date of the Lease Enhancement Policy (provided such knowledge by one insured
will not affect the coverage to which any other insured may be entitled). In
addition, absent special endorsements thereto, each Lease Enhancement Policy
with respect to property damage also excludes loss resulting from flood (if the
mortgaged property is located in an area identified by FEMA as a Zone A Special
Flood Hazard Zone), and earthquake (if the property is located in an Earthquake
Zone), and damage or destruction directly or indirectly caused by war,
insurrection, rebellion, revolution or civil riot and radioactive matter, or
from a taking (other than by condemnation) by reason of danger to public health,
public safety or the environment. None of the mortgaged properties with Casualty
or Condemnation Termination or Abatement Rights are located in affected areas
except (1) the American Drug Stores Loan in Woodland Hills, California, (2) the
CVS Loans in Little Rock, Arkansas, and Clarksville, Tennessee, (3) the Eckerd
Loans in Goodlettsville, Tennessee, Clarksville, Tennessee and Murrell's Inlet,
South Carolina, (4) the TJX Loan in Encino, California, (5) the U.S. Post Office
Loan in LaCenter, Washington, and (6) the Exxon Loan in Murfreesboro, Tennessee.
For each such Credit Lease Loan, a Lease Enhancement Policy covering both
casualty and condemnation is in place notwithstanding its location.
- With respect to the two CVS Loans, the Mortgaged Properties are located
in an Earthquake Zone, but, in the case of the CVS Loan in Little Rock,
Arkansas, the Enhancement Insurer has issued an endorsement to the Lease
Enhancement Policy removing the exclusion. In addition, CLF has obtained
reports with respect to the two CVS Loans that indicates that the related
Commercial Properties are located in areas identified by the Federal
Emergency Management Agency ("FEMA") as Seismic Zones 1 and are
accordingly designated by FEMA as unlikely to have damaging levels of
ground motion.
C-2
<PAGE> 157
- With respect to the three Eckerd Loans, the U.S. Post Office Loan and the
Exxon Loan, the Mortgaged Properties are located in an Earthquake Zone,
but, in the case of the Eckerd Loan in Murrell's Inlet, South Carolina
and the Exxon Loan, the Enhancement Insurer has issued an endorsement to
the Lease Enhancement Policy removing the exclusion. In addition, CLF has
obtained reports with respect to each of such Credit Lease Loans that
indicate that the related mortgaged properties are located in areas
identified as Seismic Zones 1 and are accordingly designated by FEMA as
unlikely to have damaging levels of ground motion, except in the case of
the Eckerd Loan in Murrell's Inlet, South Carolina and the U.S. Post
Office Loan, where the related mortgaged properties are located in areas
identified as Seismic Zones 2 and nonetheless is designated by FEMA as
having a low likelihood to have damaging levels of ground motion. In the
case of U.S. Post Office Loan, the related mortgaged property has been
subject to a seismic assessment by an engineer that anticipates that the
mortgaged property would not suffer damage in excess of a maximum
probable loss of 10% (expressed as the approximate repair cost divided by
the replacement cost of the building) in the event of an earthquake with
the magnitude expected once every 475 years. Finally, in the case of each
such Credit Lease Loan, with the exception of the Exxon Loan (where the
tenant is self insuring), the related tenant maintains or pays for
earthquake insurance.
- With respect to the TJX Loan and the American Drug Stores Loan, the
related Mortgaged Property is not covered by the Lease Enhancement Policy
for a Casualty or Condemnation Termination or Abatement Right arising
from earthquake-related damage. Nevertheless, in each case, the related
tenant maintains or pays for earthquake insurance. In addition, the
related Commercial Property has been subject to a seismic assessment by
an engineer that anticipates that, in the case of the TJX Loan, the
Mortgaged Property would not suffer damage in excess of a maximum
probable loss of 14% (expressed as the approximate repair cost divided by
the replacement cost of the building) in the event of an earthquake with
the magnitude expected once every 500 years, and in the case of the
American Drug Stores Loan, the Mortgaged Property would not suffer damage
in excess of a maximum probable loss of 13.4% (expressed as the
approximate repair cost divided by the replacement cost of the building)
in the event of an earthquake with the magnitude expected once every 100
years.
The Enhancement Insurer, or its agent, has commissioned an inspection and
evaluation of the site of each mortgaged property for which it has issued a
Lease Enhancement Policy. The Enhancement Insurer's financial strength has been
rated "AAA" by S&P.
THE EXTENDED AMORTIZATION POLICIES
Each Credit Lease Loan underwritten with an amortization period or to a
term to maturity that extends beyond the initial term of the accompanying Credit
Lease has the benefit of an Extended Amortization Policy issued by the Extension
Insurer. Under the policy, the Extension Insurer, as described below, will make
payments to the Master Servicer on behalf of the Trustee in certain cases where
there has been a default by the borrower in making scheduled payments of
principal and interest on the Credit Lease Loan at any time after a Tenant
Non-Renewal Action. The Trustee is the named insured under the Extended
Amortization Policy. The full premium relating to each Extended Amortization
Policy was fully paid by the borrower or CLF at the time of issuance of such
Extended Amortization Policy, and each such Extended Amortization Policy is
non-cancelable during the term of the Credit Lease Loan. In addition, if the
Credit Lease tenant exercises its right to extend the initial term of the Credit
Lease, the risk of a Tenant Non-Renewal Action is avoided and the Extended
Amortization Policy will terminate. Eight Credit Lease Loans with an aggregate
Cut-off Balance of $56,887,162.11 have the benefit of the Extended Amortization
Policies; one such Credit Lease Loan is a Balloon Loan.
Each Extended Amortization Policy provides that in the event of a Tenant
Non-Renewal Action followed by a borrower default in the payment of scheduled
principal and interest on the Credit Lease Loan, the Extension Insurer will pay
to the Master Servicer on behalf of the Trustee, either in one lump sum payment
or periodically on the applicable Due Date, at the Extension Insurer's option,
the Ascertained Net Loss (as such
C-3
<PAGE> 158
term is defined in the Extended Amortization Policy). The Ascertained Net Loss
payable in one lump sum will generally be an amount equal to sum of:
(1) principal outstanding under the Credit Lease Loan;
(2) two Monthly Loan Payments if advanced by the Master Servicer, the
Trustee or the Fiscal Agent, as applicable, on or after the Claim Date (as
defined in the Extended Amortization Policy);
(3) the amount of any Protective Advances (as defined in the Extended
Amortization Policy) unless otherwise excluded in the case of Bond-Type
Leases or Triple Net Leases;
(4) any related Prepayment Premium (not to exceed 5% of the principal
balance outstanding under the mortgage loan);
(5) 30 days accrued interest at the related Loan Rate; less
(6) any amounts the Credit Lease tenant claims as set off; and less
(7) all amounts in any funds held by or on behalf of the Trustee as
security for borrower's performance under the Credit Lease Loan, if any.
In the event that the Extension Insurer chooses to pay the Ascertained Net
Loss on a monthly basis it will do so in an amount equal to the monthly
installment of principal and interest and the Master Servicing Fee on the
Monthly Payment Dates.
In the event that a Tenant Non-Renewal Action occurs and is followed by a
subsequent borrower default in the payment of scheduled principal and interest
on the Credit Lease Loan, the Master Servicer or the Special Servicer, as
applicable, on behalf of the Trustee, will submit to the Extension Insurer a
proof of loss containing the information required by the Extended Amortization
Policy. Under the terms of the Pooling Agreement, the Master Servicer or Special
Servicer, as applicable, on behalf of the Trustee, is obligated to submit such a
proof of loss as soon as reasonably practicable but in any event within five
days after the Master Servicer or Special Servicer, as applicable, receives
notice of a borrower default. The Extended Amortization Policies further provide
that the Extension Insurer is obligated, upon 25 days' prior written notice, to
pay to the Master Servicer on behalf of the Trustee the Ascertained Net Loss. In
the event the Extension Insurer determines that the claim is either excluded
from coverage or not covered by the Extended Amortization Policy, the Extension
Insurer will notify the Trustee as the named insured. In the event the Master
Servicer or the Special Servicer, as applicable, on behalf of the Trustee
contests such notice, the Master Servicer or the Special Servicer, as
applicable, on behalf of the Trustee will deliver to the Extension Insurer a
notice to such effect within 5 days after receipt of the Extension Insurer's
declination notice. In the event of a dispute, such dispute will be submitted to
arbitration as provided in the Extended Amortization Policy. Notwithstanding the
delivery by the Extension Insurer of a notice contesting such claim, the
Extension Insurer is obligated to pay or begin to pay (if periodic payments are
elected) to the Master Servicer on behalf of the Trustee the Ascertained Net
Loss and will continue to pay until such time as the arbitration decision has
been rendered in the Extension Insurer's favor. To the extent of any payments
under the Extended Amortization Policy, the Extension Insurer will succeed in
right to the Trustee as the insured under the Extended Amortization Policy to
the payment of any insurance and condemnation proceeds received with respect to
the related mortgaged property.
Each Extended Amortization Policy contains certain exclusions to coverage,
including loss arising from (1) the borrower's or Credit Lease tenant's
bankruptcy, reorganization or insolvency which occurs prior to the claim date,
or (2) arising from any condemnation or property damage, as the case may be, to
the extent such condemnation or property damage results in a termination or
cancellation of the related Credit Lease in accordance with its terms prior to
the claim date.
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<PAGE> 159
BORROWER PROTECTIVE ACTIONS
A Credit Lease tenant under a Double Net Lease may have Maintenance
Termination or Abatement Rights if the borrower defaults in the performance of
its obligation to maintain, repair or replace the mortgaged property. In
addition, in certain Double Net Leases or Triple Net Leases, the Credit Lease
tenant may have Additional Termination or Abatement Rights if the borrower
defaults in performing other obligations under the Credit Lease. If the borrower
were to default in the performance of any such obligations and the Credit Lease
tenant were to exercise its right to abate rent or terminate the Credit Lease,
there would likely be a disruption in the stream of monthly rental payments
available to pay principal and interest to the certificateholders. The Enhanced
Lease Program includes several elements that will encourage a borrower to
perform necessary maintenance, repair and replacement and to perform its other
obligations under the Credit Lease. In addition, the borrower could possibly
advance its own funds to pay the costs of these obligations if the Borrower
Reserve Fund has insufficient funds to cover such expenses when incurred or the
Borrower Reserve Fund is unavailable to the borrower for such expenses.
Additional Termination or Abatement Rights may arise from breach of
affirmative covenants ("Affirmative Lease Covenants") under the Credit Lease
which require the borrower to take certain actions (such as obligations to
repair and restore property following a casualty or partial condemnation, to
correct unanticipated repair obligations or to remove hazardous materials
present on the mortgaged property other than by a Credit Lease tenant's
actions), or from a breach of negative covenants ("Negative Lease Covenants")
under the Credit Lease which prohibit the taking of certain actions (generally
relating to prohibited uses of other properties owned by the borrower or its
affiliates within a particular distance of the mortgaged property). See "Credit
Leases -- Additional Termination or Abatement Rights" in this prospectus
supplement.
In each case, the borrower is obligated under the terms of the related
Credit Lease Loan to perform its obligations under the Credit Lease, and failure
to perform such obligations after appropriate notice and passage of time will
constitute a default under the Credit Lease Loan. Certain factors will encourage
a borrower to perform its obligations under the Credit Lease including
Affirmative Lease Covenants and to avoid a violation of the Negative Lease
Covenants:
- First, as the monthly rental payments amortize the Credit
Lease Loan, the borrower's equity in the mortgaged property
will increase. Such equity may also grow due to increases,
if any, in the value of the mortgaged property over time. A
borrower's default under the Credit Lease will cause a
default under the Credit Lease Loan which may lead to
foreclosure and the loss of the borrower's equity.
- Second, such a default and foreclosure may force the
borrower and/or the principals of the borrower to
"recapture" certain losses for federal and state income tax
purposes, thereby creating tax liability.
- Third, Credit Lease Loans that are backed by Credit Leases
that contain Additional Termination or Abatement Rights or
contain Negative Lease Covenants are generally underwritten
to provide for some excess debt service coverage on the
Credit Lease Loan. Such coverage provides for cash flow to
the borrower and acts as a source of funds for either the
borrower or the Master Servicer, as applicable, to pay for
obligations under the Credit Lease as well as providing an
incentive to the borrower to pay those obligations.
With respect to maintenance, repair and replacement obligations and other
Affirmative Lease Covenants, compliance with such covenants is dependent
principally on the cost and, to the extent the cost significantly exceeds funds
available therefor from the Borrower Reserve Fund, the financial ability of the
borrower to perform such obligations. To the extent the borrower fails to
perform such obligations, the Master Servicer or the Special Servicer, as
applicable, will be obligated under the Pooling Agreement to use its best
efforts to cause such obligations of the borrower to be performed and advance
funds as necessary to perform such obligations, as described under "Servicer
Protective Actions" below.
C-5
<PAGE> 160
With respect to Negative Lease Covenants, the foregoing incentives are
expected to generally discourage violation of such covenants. The Master
Servicer's or the Special Servicer's ability to correct the borrower's breach of
Negative Lease Covenants, however, is generally limited in the Pooling Agreement
to bringing legal action to enforce the obligation of the borrower under the
mortgage loan documents not to breach such Negative Lease Covenants.
Accordingly, with respect to each Negative Lease Covenant relating to use
restrictions as described above, and with respect to any other Negative Lease
Covenants as to which CLF believed such a step was desirable, the loan documents
provide that the Credit Lease Loan becomes a recourse loan to the borrower with
respect to breach of that covenant (either to the extent of damages for breach
or, in some cases, for the full amount due under the Credit Lease Loan). In
addition, the principals of the borrower are given a strong incentive to cause
the borrower to comply with such Negative Lease Covenants by providing direct
recourse to the principals of the borrower for breach of such covenants (again,
either for the amount of damages for such breach or, in some cases, for the full
amount due under the Credit Lease Loan).
Except as further described in this prospectus supplement, both the
borrower and the Credit Lease tenant have agreed pursuant to the loan documents
not to amend the Credit Lease or related guaranty, if any, without the consent
of the Master Servicer on behalf of the Trustee. With respect to 64 Credit Lease
Loans, only the borrower has so agreed, but the borrower and its principals are
induced not to amend the Credit Lease by provisions which make the Credit Lease
Loan recourse to the borrower and its principals for the breach of the covenant
not to amend the Credit Lease without the Master Servicer's consent. In
addition, in generally all the Credit Lease Loans, under the loan documents, the
Credit Lease tenant has agreed that in the event the Trustee succeeds to the
interest of the borrower under the Lease, the Trustee will not be bound by any
amendment or modification to the Credit Lease made without the Master Servicer's
consent. In the Credit Lease Loan identified on the Mortgage Loan Schedule as
loan number 1199NB (the "Wal Mart Loan"), the related Credit Lease prohibits the
borrower from agreeing to require Master Servicer's consent to amend the related
Credit Lease, other than certain specified material amendments. However, the
Wal-Mart Loan contains provisions which make such Credit Lease Loan recourse to
the principals of the borrower for any losses resulting from such material
amendments to the related Credit Lease that affect the Trustee's interest.
Finally, each Credit Lease tenant has been sent a tenant notice informing them
of the prohibition of the borrower from amending, terminating or accepting a
surrender of the Credit Lease without CLF's written consent.
SERVICER PROTECTIVE ACTIONS
In the event the borrower fails to take actions required under the terms of
the Credit Lease which could give rise to Maintenance Termination or Abatement
Rights or Additional Termination or Abatement Rights, the Pooling Agreement
requires the Master Servicer or the Special Servicer, as applicable, to use best
efforts to perform the borrower's obligations thereunder and advance funds as
necessary therefor. The Servicer Protective Actions to be performed by the
Master Servicer, which consist of filing notices and pursuing claims under the
Lease Enhancement Policies, the Extended Amortization Policies and "force
placed" insurance policies, as well as the making of Servicing Advances, shall
not constitute a Servicing Transfer Event. The Master Servicer's or the Special
Servicer's ability to do so is facilitated by the terms of the loan documents.
Under the loan documents or the Pooling Agreement:
- the Credit Lease tenant is obligated to give the Master
Servicer or the Special Servicer, as applicable, notice of
any Credit Lease Default and to give the Master Servicer or
the Special Servicer, as applicable, adequate opportunity to
cure such default before it may exercise any abatement or
termination right;
- the Special Servicer is given access to the mortgaged
property to cure the default and access to excess cash flow,
if any, the Borrower Reserve Fund and the Expense Reserve
Fund to pay the cost of curing such default; and
- the Special Servicer is contractually obligated to use best
efforts to perform such obligations of the borrower to take
actions to cure such defaults. Such actions, for example,
may include but are not limited to repairing or replacing
the roof, the initiation and maintenance of appropriate
legal actions, maintenance of common
C-6
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areas, and the imposition of force placed insurance
policies. If the excess cash flow, if any, as well as funds
on deposit in both the Borrower Reserve Fund and the Expense
Reserve Fund are not sufficient to pay the cost of curing
such defaults, the Master Servicer is obligated to advance
its own funds, subject to the Master Servicer's good faith
business judgment that such advance would be recoverable, to
pay the costs of such actions. To the extent the Master
Servicer fails to make any such required advance deemed to
be recoverable, the Trustee is required to do so and, if the
Trustee fails to do so, the Fiscal Agent is required to do
so.
The borrower will reimburse amounts advanced by the Master Servicer under
the terms of the loan documents. Failure to reimburse the Master Servicer will
constitute a default under the Credit Lease Loan entitling the Master Servicer
to accelerate the Credit Lease Loan. So long as the Credit Lease Loan is not
delinquent in payments of principal and interest, the Special Servicer will not
proceed with any foreclosure action on the related mortgaged property in
connection with such default based solely upon the borrower's failure to fulfill
any of its Borrower Credit Lease Obligations unless:
- all outstanding Servicing Advances, with interest thereon,
with respect to such Credit Lease Loan exceed 60% of the
Anticipated Liquidation Value with respect to such Credit
Lease Loan; or
- the Special Servicer has received the prior written consent
of the Directing Certificateholder; or
- any Servicing Advance with respect to such Credit Lease Loan
is deemed to be nonrecoverable; or
- the original scheduled maturity date of such Credit Lease
Loan has occurred.
The Master Servicer may also be reimbursed for such Servicing Advances
from:
- late collections, the proceeds of liquidations of the related Credit
Lease Loan, or from other recoveries relating to such Credit Lease
Loan (including any insurance proceeds to which the borrower is
entitled); or
- to the extent such Servicing Advance is reimbursable from collections
in excess of amounts necessary to pay principal and interest with
respect to such Credit Lease Loan and to fund the Expense Reserve
Fund or is deemed to be nonrecoverable: first, from the Expense
Reserve Fund and thereafter from amounts on deposit in the
Certificate Account received in respect of any Credit Lease Loan.
However, neither the Master Servicer, the Special Servicer nor the Trustee
will be prohibited from accelerating the indebtedness evidenced by the Note to
the extent permitted by the Credit Lease Loan documents, or requiring payment of
default interest in connection with any overdue amounts (including, without
limitation, the full amount of the Credit Lease Loan after such an
acceleration). This prohibition is designed to prevent liquidation of the Credit
Lease Loan at an amount that may be less then the principal balance thereof,
plus accrued interest thereon and any Prepayment Premium which might be due
thereunder, so long as the Credit Lease tenant is otherwise continuing to make
monthly rental payments which will be applied to the payment of principal and
interest on the Credit Lease loan. The foregoing prohibition in no event
prevents foreclosure in the event of a default in payment of principal and
interest due on the Credit Lease Loan.
THE BORROWER RESERVE FUND
The Master Servicer will, pursuant to the Pooling Agreement, administer the
Borrower Reserve Fund into which it will deposit, on each Due Date, any amounts
required to be reserved by a borrower for the payment of expenses related to the
borrower's anticipated obligations under the Credit Leases including the
operation, maintenance or repair of the mortgaged property. A Borrower Reserve
Fund exists with respect to each Credit Lease Loan secured by a Double Net
Lease. Amounts to be reserved are established by CLF. Such amounts are based on
a property condition survey prepared by an engineer approved by CLF. CLF
C-7
<PAGE> 162
generally requires that the amounts to be reserved will be equal to at least
125% of the repair, maintenance and replacement costs anticipated to be incurred
by the borrower to perform its repair, maintenance and replacement obligations
pursuant to the related Credit Lease. The Borrower Reserve Fund is funded by
amounts taken from the monthly rental payments not required for debt service.
All deposits and withdrawals from the Borrower Reserve Fund will be administered
by the Master Servicer and made in accordance with borrower reserve agreement
entered into by the borrower (which borrower reserve agreement will be assigned
to the trust on the Closing Date). The Borrower Reserve Fund will be
beneficially owned by the related borrowers and pledged as collateral to secure
the obligations of the borrower under the loan documents. Unless otherwise
provided in the related borrower reserve agreement, investment income earned in
funds on deposit on the Borrower Reserve Fund will be added thereto and will be
available to make payments in the manner specified in the borrower reserve
agreement.
THE LOAN DOCUMENTS
Each Credit Lease loan was originated using a standardized set of loan
documents executed by the borrower, the Credit Lease tenant and CLF. The loan
documents incorporate the provisions constituting Borrower Protective Actions,
and include the Credit Lease itself, the Note, the Mortgage, the Credit Lease
Assignment, the estoppel letter, the subordination, non-disturbance and
attornment agreement, the Borrower Reserve Agreement, any environmental
indemnity agreement, guaranty and any other document as may be required of the
borrower or the Credit Lease tenant. The loan documents have been structured and
individually negotiated to enhance the ability of the Master Servicer and the
Special Servicer to perform its Servicer Protective Actions and to enforce the
rights of the trust under the Lease Enhancement Policies. The loan documents
include provisions designed to reduce incentives for borrowers to take any
actions which might give rise to Additional Termination or Abatement Rights and
which provide for a comprehensive set of rights for the benefit of the Master
Servicer or the Special Servicer, as applicable, to enforce the obligations of
the borrower under the loan documents through Servicer Protective Actions and to
fulfill the obligations of the borrower under the related Credit Lease, if
necessary.
THE EXPENSE RESERVE FUND
The Master Servicer will, pursuant to the Pooling Agreement, establish and
maintain the Expense Reserve Fund into which it will deposit monthly, with
respect to each Credit Lease Loan, the Servicer Reserve Amount. The Expense
Reserve Fund will be an Eligible Account. The Master Servicer will be instructed
to invest funds in the Expense Reserve Fund in accordance with the Pooling
Agreement, and investment income, net of amounts distributed to the Depositor in
an amount estimated as the amount required for payment of state and federal
income taxes on such earnings, will be retained in the Expense Reserve Fund.
Assuming that there are no principal prepayments or defaults under the Credit
Leases, the Expense Reserve Fund is expected to accumulate to a maximum of
approximately $2,400,000 (without regard to reinvestment income) available to
the Master Servicer over the life of the certificates.
The Expense Reserve Fund will be beneficially owned by CLF and will not be
an asset of the trust except to the extent of the right of the trust to draw
thereon as described in this prospectus supplement. The Expense Reserve Fund is
an "outside reserve fund" under the REMIC provisions of the Code, and is not an
asset of the REMIC I or the REMIC II.
The Master Servicer is permitted to make withdrawals relating to the Credit
Lease Loans from the Expense Reserve Fund at any time:
- to provide additional funds for use by the Master Servicer
to cover the costs of Servicer Protective Actions, subject
to reimbursement (subject to the priority of the Master
Servicer, the Trustee and the Fiscal Agent of reimbursement
of any outstanding advances with respect to such Credit
Lease Loan), together with interest thereon at the
Reimbursement Rate, when such amounts are recovered from the
borrower under the terms of the mortgage loan documents;
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<PAGE> 163
- to pay trust expenses, if any, including without limitation,
as payment to any third party for performing services in
connection with any Credit Lease Loans or the trust which
are expressly identified in the Pooling Agreement as
expenses of the trust (generally including the costs of
certain legal opinions, environmental surveys,
indemnification payments or other expenses);
- as an additional source of funds to make advances and to
reimburse the Master Servicer, the Trustee or the Fiscal
Agent, as applicable, for advances, with interest thereon at
the Reimbursement Rate or the Reimbursement Rate, as
applicable, including, in certain circumstances, any
advances later deemed to be nonrecoverable;
- to cover Prepayment Interest Shortfalls which might arise
upon certain payments under the Lease Enhancement Policies;
and
- as credit support to the extent Available Distribution
Amount are insufficient as a result of losses incurred on
the Credit Lease Loans to make all distributions required to
be made on a Distribution Date.
In the event that Available Distribution Amount is insufficient on any
Distribution Date prior to the termination of the trust as a result of losses
incurred on the Credit Lease Loans (after payment of all amounts owed the Master
Servicer, Special Servicer, Trustee and Fiscal Agent) to pay Distributable
Certificate Interests, unreimbursed Class Interest Shortfalls, Principal
Distribution Amounts and unreimbursed amounts of Realized Losses to the
certificateholders, a draw will be made on the Expense Reserve Fund to the
extent of the balance thereof to cover such deficiency. Any amounts paid from
the Expense Reserve Fund will be deemed to be applied, first, to cover any trust
expenses, second, to cover credit losses and Prepayment Interest Shortfalls,
third, to reimburse the Master Servicer, the Trustee or the Fiscal Agent for
outstanding advances, together with interest thereon, deemed to be
nonrecoverable, and fourth, to make advances. To the extent that at any time
there are unreimbursed advances outstanding from the Expense Reserve Fund and
funds from the Expense Reserve Fund are required for the other purposes set
forth above, the Master Servicer, the Trustee or the Fiscal Agent will be
required to make such advance by reimbursing the Expense Reserve Fund therefor,
to the extent any such advance is not deemed nonrecoverable, in the amount
required to cover such other expense, Prepayment Interest Shortfall, credit loss
or advance reimbursement. Any amounts remaining in the Expense Reserve Fund
after all withdrawals required or permitted therefrom pursuant to the Pooling
Agreement will be paid to CLF following the termination of the Trust.
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<PAGE> 164
ANNEX D
ADDITIONAL CREDIT RATING INFORMATION
PRIVATE RATINGS
The following six Credit Lease Loans represent 11.35% of the aggregate
Cut-off Date Balance of the Credit Lease Loans and 8.86% of the aggregate
Cut-off Date Balance.
CIRCUIT CITY
Three Credit Lease Loans (the "Circuit City Loans"), consisting of 5.31% of
the aggregate Cut-off Date Balance of the Credit Lease Loans and 4.15% of the
aggregate Cut-off Date Balance, are secured by Credit Leases (the "Circuit City
Credit Leases") having Circuit City Stores, Inc. ('Circuit City") as the Credit
Lease tenant or, if not the Credit Lease tenant, as the guarantor.
Circuit City is a specialty retailer of brand name consumer electronics and
major appliances. The company operates over 500 retail Circuit City Superstores,
consumer electronics-only stores, and mall based Circuit City Express stores,
collectively throughout the United States. Circuit City also operates 26 CarMax
used-car dealerships located in the Southeast, Texas, Wisconsin, Illinois, and
Florida.
Circuit City's common stock trades on the New York Stock Exchange ("NYSE")
under the symbol "CC", and its World Wide Web site is located at
http://www.circuitcity.com.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
CIRCUIT CITY (IN MILLIONS) NOVEMBER 30, 1998 FEBRUARY 28, 1998 FEBRUARY 28, 1997
-------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Sales.............................. $7,401.1 $8,870.8 $7,663.8
Operating (Loss) Profit................ $115.3 $195.1 $249.8
Net (Loss) Profit...................... $58.2 $104.3 $136.4
Total Assets........................... $4,142.5 $3,231.7 $3,081.2
Total Shareholders' Equity............. $1,812.1 $1,730.0 $1,614.9
</TABLE>
GEORGIA BAPTIST HEALTH CARE SYSTEMS, INC.
Georgia Baptist Health Care Systems, Inc. ("Georgia Baptist") is a
nonprofit corporation organized under the laws of the State of Georgia, and is
an exempt organization pursuant to Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended. Originally founded as the Baptist Tabernacle Infirmary
in 1901, the company's primary purpose is to provide a broad range of health
care services to the residents of Georgia. The Executive Committee of the
Baptist Convention of the State of Georgia, a nonprofit corporation, is the sole
member of Georgia Baptist.
Georgia Baptist encompasses several operating divisions, including regional
hospitals, long-term care, home care services and a Medicare managed care
operation. Georgia Baptist also directs the operations of other entities,
including a college of nursing, and is an equity participant in physician
practice management. Other businesses within Georgia Baptist include assisted
living, wellness center, an ambulatory surgery center, and property management.
Georgia Baptist does not have any taxable long-term obligations
outstanding.
The following information with respect to Georgia Baptist was obtained from
Georgia Baptist's audited financial statements for the year ended December 31,
1997:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
GEORGIA BAPTIST (IN THOUSANDS) DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------------------ ----------------- -----------------
<S> <C> <C>
Total Revenue........................................ $216,110 $262,765
Operating (Loss) Income.............................. $(34,574) $ (100)
Increase in Unrestricted Net Assets.................. $ 96,532 $ 2,613
Total Assets......................................... $298,411 $355,152
Total Net Assets..................................... $210,524 $114,097
</TABLE>
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<PAGE> 165
HANNAFORD BROS. CO.
One Credit Lease Loan (the "Hannaford Loan"), consisting of 0.45% of the
aggregate Cut-off Date Balance of the Credit Lease Loans and 0.35% of the
aggregate Cut-off Date Balance, is secured by a Credit Lease (the "Hannaford
Credit Lease") having Hannaford Bros. Co. ("Hannaford") as the Credit Lease
tenant or, if not the Credit Lease tenant, as the guarantor.
Hannaford was founded in 1883 as a family owned company to a market farm
produce. Today the company is multi-regional retail food distributor with sales
of $3.3 billion and over 24,000 employees in eight states. Corporate
headquarters are located near Portland, Maine.
Hannaford sells brand name and private label food products, as well as
certain non-food items, throughout Maine, New Hampshire and Vermont and parts of
Massachusetts, upstate New York, Virginia, North Carolina and South Carolina.
Retail sales are made through 150 supermarkets and combination stores operating
under the names Hannaford and Shop n' Save, all of which are wholly-owned by the
Company. In addition, wholesale sales are made to 19 other customers in which
Hannaford has no ownership interest. Hannaford also operates 108 pharmacies
inside its combination stores or supermarkets and owns a service merchandise
distributor servicing its stores with health care items, pharmaceuticals and
general merchandise. Another wholly-owned subsidiary, Hannaford Trucking
Company, is an irregular route common carrier with 48-state authority, and in
addition to servicing Hannaford's retail stores, it hauls commodities for
third-party customers.
Hannaford's common stock trades on the NYSE under the symbol "HRD", and its
World Wide Web site is located at http://www.hannaford.com.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
HANNAFORD BROS. CO. (IN MILLIONS) OCTOBER 3, 1998 JANUARY 3, 1998 DECEMBER 28, 1996
--------------------------------- ----------------- --------------- -----------------
<S> <C> <C> <C>
Net Sales............................... $2,473.3 $3,226.4 $2,957.6
Operating (Loss) Profit................. $127.4 $123.8 $146.7
Net (Loss) Profit....................... $66.7 $59.6 $75.2
Total Assets............................ $1,257.5 $1,227.2 $1,183.7
Total Shareholders' Equity.............. $643.7 $601.0 $569.2
</TABLE>
JOHN H. HARLAND COMPANY
One Credit Lease Loan (the "Harland Loan"), consisting of 2.45% of the
aggregate Cut-off Date Balance of the Credit Lease Loans and 1.92% of the
aggregate Cut-off Date Balance, is secured by a Credit Lease (the "Harland
Credit Lease") having John H. Harland Company ("Harland") as the Credit Lease
tenant or, if not the Credit Lease tenant, as the guarantor.
Harland is a market-driven financial marketing services company. Founded in
1923, Harland gained prominence in the financial industry through check and
financial forms printing. Harland now offers a full line of marketing services,
including database management, direct marketing, payment products and platform
automation. In addition to their home office in Atlanta, they have offices in
Denver, Tampa, Orlando and Seattle, as well as printing plants throughout the
country.
Harland's common stock trades on the NYSE under the symbol "JH", and its
World Wide Web site is located at http://www.harland.net.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
JOHN H. HARLAND (IN MILLIONS) OCTOBER 2, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Sales............................ $426.2 $562.7 $609.4
Operating (Loss) Profit.............. $26.3 $34.8 $(8.1)
Net (Loss) Profit.................... $14.2 $17.3 $(13.9)
Total Assets......................... $416.3 $426.2 $454.7
Total Shareholders' Equity........... $198.7 $192.8 $182.4
</TABLE>
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<PAGE> 166
S&P'S RATINGS OUTLOOK/CREDITWATCH
S&P may assess the potential direction of a credit rating on the basis of
(1) the time period being assessed and (2) whether general economic condition or
specific events may affect the potential direction of the credit rating.
A "Rating Outlook" assesses the potential direction of a long-term credit
rating over an intermediate to long-term period by considering changes in
economic conditions and/or fundamental business conditions. A Rating Outlook
does not necessarily precede a change in the credit rating or a CreditWatch
action. The Rating Outlook categories are:
- Positive: a rating may be raised
- Negative: a rating may be lowered
- Stable: a rating is unlikely to change
- Developing: a rating may be raised or lowered
- N.M: not meaningful
A "CreditWatch" assesses the potential direction of short- or long-term
credit rating by focusing on identifiable events and short-term trends such as
mergers, voter referendums, or regulatory actions which cause S&P to monitor a
rating closely. The CreditWatch categories are:
- Positive: a rating may be raised
- Negative: a rating may be lowered
- Developing: a rating may be raised, lowered or affirmed
It should be noted that if S&P assigns a Rating Outlook or CreditWatch to a
particular credit rating, it does not necessarily mean that the particular
credit rating will change. Furthermore, CreditWatch is not intended to include
all credit ratings under review, and a credit rating may be changed without
first appearing on CreditWatch.
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Prospectus
NATIONSLINK FUNDING CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
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CONSIDER CAREFULLY THE RISK FACTORS THE TRUST --
BEGINNING ON PAGE 10 IN THIS - may periodically issue mortgage pass-through
PROSPECTUS. certificates in one or more series with one or more
Neither the certificates nor the classes; and
underlying mortgage loans are insured - will own --
by any governmental agency. - multifamily and commercial mortgage loans;
The certificates will represent - mortgage-backed securities; and
interests only in the related trust - other property described and in the accompanying
only and will not represent interests prospectus supplement.
in or obligations of NationsLink THE CERTIFICATES --
Funding Corporation or any of its - will represent interests in the trust and will be
affiliates, including BankAmerica paid only from the trust assets;
Corporation. - provide for the accrual of interest based on a fixed,
This prospectus may be used to offer variable or adjustable interest rate;
and sell any series of certificates - may be offered through underwriters, which may
only if accompanied by the prospectus include NationsBanc Montgomery Securities LLC, an
supplement for that series. affiliate of NationsLink Funding Corporation; and
- will not be listed on any securities exchange.
THE CERTIFICATEHOLDERS --
- will receive interest and principal payments based on
the rate of payment of principal and the timing of
receipt of payments on mortgage loans.
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NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
March 5, 1999
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FOR MORE INFORMATION SUMMARY OF PROSPECTUS.......................... 5
RISK FACTORS................................... 10
NationsLink Funding Limited Liquidity of Certificates............ 10
Corporation has filed with the Limited Assets............................... 10
SEC additional registration Credit Support Limitations................... 11
materials relating to the Effect of Prepayments on Average Life of
certificates. You may read Certificates.............................. 11
and copy any of these Effect of Prepayments on Yield of
materials at the SEC's Public Certificates.............................. 12
Reference Room at the Limited Nature of Ratings.................... 12
following locations: Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage
- SEC Public Reference Loans..................................... 13
Section Inclusion of Delinquent Mortgage Loans in a
450 Fifth Street, N.W. Mortgage Asset Pool....................... 16
Room 1204 PROSPECTUS SUPPLEMENT.......................... 16
Washington, D.C. 20549 DESCRIPTION OF THE TRUST FUNDS................. 18
General...................................... 18
- SEC Midwest Regional Mortgage Loans............................... 18
Offices Citicorp Center MBS.......................................... 22
500 West Madison Street Certificate Accounts......................... 23
Suite 1400 Credit Support............................... 23
Chicago, Illinois Cash Flow Agreements......................... 23
60661-2511 YIELD AND MATURITY CONSIDERATIONS.............. 23
General...................................... 23
- SEC Northeast Regional Pass-Through Rate............................ 24
Office Payment Delays............................... 24
7 World Trade Center Certain Shortfalls in Collections of
Suite 1300 Interest.................................. 24
New York, New York 10048 Yield and Prepayment Considerations.......... 24
Weighted Average Life and Maturity........... 26
You may obtain information on Other Factors Affecting Yield, Weighted
the operation of the Public Average Life and Maturity................. 27
Reference Room by calling the THE DEPOSITOR.................................. 28
SEC at 1-800-SEC-0330. The DESCRIPTION OF THE CERTIFICATES................ 29
SEC also maintains an General...................................... 29
Internet site that contains Distributions................................ 30
reports, proxy and Distributions of Interest on the
information statements, and Certificates.............................. 30
other information that has Distributions of Principal of the
been filed electronically Certificates.............................. 31
with the SEC. The Internet Distributions on the Certificates Concerning
address is Prepayment Premiums or Concerning Equity
http://www.sec.gov. Participations............................ 32
Allocation of Losses and Shortfalls.......... 32
You may also contact Advances in Respect of Delinquencies......... 32
NationsLink Funding Reports to Certificateholders................ 33
Corporation in writing at Voting Rights................................ 34
Bank of America Corporate Center, Termination.................................. 35
100 North Tryon Street, Book-Entry Registration and Definitive
Charlotte, North Carolina 28255, Certificates.............................. 35
or by telephone at (704) 386-2400. THE POOLING AND SERVICING AGREEMENTS........... 36
General...................................... 36
See also the sections Assignment of Mortgage Loans; Repurchases.... 37
captioned "Available Representations and Warranties;
Information" and Repurchases............................... 39
Incorporation of Certain Collection and Other Servicing Procedures.... 39
Information by Reference" Sub-Servicers................................ 41
appearing at the end of this Certificate Account.......................... 42
prospectus. Modifications, Waivers and Amendments of
Mortgage Loans............................ 44
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Realization upon Defaulted Mortgage Loans...... 44
Hazard Insurance Policies.................... 46
Due-on-Sale and Due-on-Encumbrance
Provisions................................ 47
Servicing Compensation and Payment of
Expenses.................................. 47
Evidence as to Compliance.................... 47
Certain Matters Regarding the Master
Servicer, the Special Servicer, the REMIC
Administrator and the Depositor........... 48
Events of Default............................ 49
Rights Upon Event of Default................. 50
Amendment.................................... 51
List of Certificateholders................... 52
The Trustee.................................. 52
Duties of the Trustee........................ 52
Certain Matters Regarding the Trustee........ 52
Resignation and Removal of the Trustee....... 52
DESCRIPTION OF CREDIT SUPPORT.................. 53
General...................................... 53
Subordinate Certificates..................... 53
Insurance or Guarantees Concerning Mortgage
Loans..................................... 54
Letter of Credit............................. 54
Certificate Insurance and Surety Bonds....... 54
Reserve Funds................................ 54
Cash Collateral Account...................... 55
Credit Support with respect to MBS........... 55
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS........ 55
General...................................... 55
Types of Mortgage Instruments................ 55
Leases and Rents............................. 56
Personalty................................... 57
Foreclosure.................................. 57
Bankruptcy Laws.............................. 60
Environmental Considerations................. 61
Due-on-Sale and Due-on-Encumbrance
Provisions................................ 63
Junior Liens; Rights of Holders of Senior
Liens..................................... 63
Subordinate Financing........................ 64
Default Interest and Limitations on
Prepayments............................... 64
Applicability of Usury Laws.................. 65
Certain Laws and Regulations................. 65
Americans with Disabilities Act.............. 65
Soldiers' and Sailors' Civil Relief Act of
1940...................................... 66
Forfeitures in Drug and RICO Proceedings..... 66
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ 66
General...................................... 66
REMICs....................................... 67
Grantor Trust Funds.......................... 82
STATE AND OTHER TAX CONSEQUENCES............... 91
CERTAIN ERISA CONSIDERATIONS................... 91
General...................................... 91
Plan Asset Regulations....................... 92
Insurance Company General Accounts........... 93
Consultation With Counsel.................... 93
Tax Exempt Investors......................... 94
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LEGAL INVESTMENT............................. 94
USE OF PROCEEDS.............................. 96
METHOD OF DISTRIBUTION....................... 96
LEGAL MATTERS................................ 97
FINANCIAL INFORMATION........................ 97
RATING....................................... 97
AVAILABLE INFORMATION........................ 98
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE................................. 99
INDEX OF PRINCIPAL DEFINITIONS............... 100
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SUMMARY OF PROSPECTUS
This summary highlights selected information from this prospectus. It does not
contain all the information you need to consider in making your investment
decision. You should carefully review this prospectus and the related prospectus
supplement in their entirety before making any investment in the certificates of
any series. As used in this prospectus, "you" refers to a prospective investor
in certificates, and "we" refers to the Depositor, NationsLink Funding
Corporation. An Index of Principal Definitions appears at the end of this
Prospectus.
SECURITIES OFFERED
Mortgage pass-through certificates.
DEPOSITOR
NationsLink Funding Corporation, a Delaware corporation and a subsidiary of
NationsBank, N.A. NationsLink Funding Corporation has its principal executive
offices at Bank of America Corporate Center, 100 North Tryon Street, Charlotte,
North Carolina 28255, and its telephone number is (704) 386-2400.
TRUSTEE
The trustee for each series of certificates will be named in the related
prospectus supplement.
MASTER SERVICER
If the trust includes mortgage loans, the master servicer for the corresponding
series of certificates will be named in the prospectus supplement.
SPECIAL SERVICER
If the trust includes mortgage loans, the special servicer for the corresponding
series of certificates will be named, or the circumstances under which a special
servicer may be appointed, will be described in the prospectus supplement.
MBS ADMINISTRATOR
If the trust includes mortgage-backed securities, the entity responsible for
administering the mortgage-backed securities will be named in the prospectus
supplement.
REMIC ADMINISTRATOR
The person responsible for the various tax-related administration duties for a
series of certificates concerning real estate mortgage investment conduits will
be named in the prospectus supplement.
THE MORTGAGE LOANS
Each series of certificates will, in general, consist of a pool of mortgage
loans (a "Mortgage Asset Pool") secured by first or junior liens on --
- - residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden apartment
buildings or other residential structures; or
- - office buildings, retail stores, hotels or motels, nursing homes, hospitals or
other health care-related facilities, recreational vehicle and mobile home
parks, warehouse facilities, mini-warehouse facilities, self-storage
facilities, industrial plants, parking lots, entertainment or sports arenas,
restaurants, marinas, mixed use or various other types of income-producing
properties or unimproved land.
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However, no one of the following types of properties will be overly-represented
in the trust at the time the trust is formed: (1) restaurants; (2) entertainment
or sports arenas; (3) marinas; or (4) nursing homes, hospitals or other health
care-related facilities.
The mortgage loans will not be guaranteed or insured by NationsLink Funding
Corporation or any of its affiliates or, unless otherwise provided in the
prospectus supplement, by any governmental agency or by any other person.
If specified in the prospectus supplement, some mortgage loans may be delinquent
as of the date the trust is formed.
As described in the prospectus supplement, a mortgage loan may --
- - provide for no accrual of interest or for accrual of interest at an interest
rate that is fixed over its term or that adjusts from time to time, or that
may be converted at the borrower's election from an adjustable to a fixed
mortgage rate, or from a fixed to an adjustable mortgage rate;
- - provide for level payments to maturity or for payments that adjust from time
to time to accommodate changes in the mortgage rate or to reflect the
occurrence of certain events, and may permit negative amortization;
- - be fully amortizing or may be partially amortizing or nonamortizing, with a
balloon payment due on its stated maturity date;
- - may prohibit over its term or for a certain period prepayments and/or require
payment of a premium or a yield maintenance payment in connection with certain
prepayments; and
- - provide for payments of principal, interest or both, on due dates that occur
monthly, quarterly, semi-annually or at such other interval as specified in
the prospectus supplement.
Each mortgage loan will have had an original term to maturity of not more than
40 years. No mortgage loan will have been originated by NationsLink Funding
Corporation, although one of its affiliates may have originated some of the
mortgage loans.
If any mortgage loan, or group of related mortgage loans, involves unusual
credit risk, financial statements or other financial information concerning the
related mortgaged property will be included in the related prospectus
supplement.
As described in the prospectus supplement, the trust may also consist of
mortgage participations, mortgage pass-through certificates and/or other
mortgage-backed securities that evidence an interest in, or are secured by a
pledge of, one or more mortgage loans similar to the other mortgage loans in the
trust and which may or may not be issued, insured or guaranteed by the United
States or any governmental agency.
THE CERTIFICATES
Each series of certificates will be issued in one or more classes pursuant to a
pooling and servicing agreement or other agreement specified in the prospectus
supplement and will represent in total the entire beneficial ownership interest
in the trust.
As described in the prospectus supplement, the certificates of each series may
consist of one or more classes that --
- - are senior (collectively, "Senior Certificates") or subordinate (collectively,
"Subordinate Certificates")to one or more other classes of certificates in
entitlement to certain distributions on the certificates;
- - are "stripped principal certificates" entitled to distributions of principal,
with disproportionate, nominal or no distributions of interest;
- - are "stripped interest certificates" entitled to distributions of interest,
with disproportionate, nominal or no distributions of principal;
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- - provide for distributions of interest or principal that commence only after
the occurrence of certain events, such as the retirement of one or more other
classes of certificates of such series;
- - provide for distributions of principal to be made, from time to time or for
designated periods, at a rate that is faster (and, in some cases,
substantially faster) or slower (and, in some cases, substantially slower)
than the rate at which payments or other collections of principal are received
on the mortgage assets in the trust;
- - provide for distributions of principal to be made, subject to available funds,
based on a specified principal payment schedule or other methodology; or
- - provide for distribution based on collections on the mortgage assets in the
trust attributable to prepayment premiums, yield maintenance payments or
equity participations.
If specified in the prospectus supplement, a series of certificates may include
one or more "controlled amortization classes," which will entitle the holders to
receive principal distributions according to a specified principal payment
schedule. Although prepayment risk cannot be eliminated entirely for any class
of certificates, a controlled amortization class will generally provide a
relatively stable cash flow so long as the actual rate of prepayment on the
mortgage loans in the trust remains relatively constant at the rate of
prepayment used to establish the specific principal payment schedule for such
certificates. Prepayment risk with respect to a given mortgage asset pool does
not disappear, however, and the stability afforded to a controlled amortization
class comes at the expense of one or more other classes of the same series.
Each class of certificates, other than certain classes of stripped interest
certificates and certain classes of real estate mortgage investment conduit
residual certificates (also known as "REMIC residual certificates"), will have
an initial stated principal amount (a "Certificate Balance"). Each class of
certificates, other than certain classes of stripped principal certificates and
certain classes of REMIC residual certificates, will accrue interest on its
certificate balance or, in the case of certain classes of stripped interest
certificates, on a notional amount, based on a pass-through rate (a
"Pass-Through Rate") which may be fixed, variable or adjustable. The prospectus
supplement will specify the certificate balance, notional amount and/or pass-
through rate for each class of certificates.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Interest on each class of certificates (other than certain classes of stripped
principal certificates and certain classes of REMIC residual certificates) of
each series will accrue at the applicable pass-through rate on the certificate
balance and will paid on a distribution date. However, in the case of certain
classes of stripped interest certificates, the notional amount outstanding from
time to time will be paid to certificateholders as provided in the prospectus
supplement on a specified distribution date (each of the specified dates on
which distributions are to be made, a "Distribution Date").
Distributions of interest concerning one or more classes of certificates
(collectively, "Accrual Certificates") may not commence until the occurrence of
certain events, such as the retirement of one or more other classes of
certificates. Interest accrued concerning a class of accrual certificates prior
to the occurrence of such an event will either be added to the certificate
balance or otherwise deferred as described in the prospectus supplement.
Distributions of interest concerning one or more classes of certificates may be
reduced to the extent of certain delinquencies, losses and other contingencies
described in this prospectus and in the prospectus supplement.
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of certificates of each series (other than certain classes of
stripped interest certificates and certain classes of REMIC residual
certificates) will have a certificate balance. The certificate balance of a
class of certificates outstanding from time to time will represent the maximum
amount that the holders are then entitled to receive in respect of principal
from future cash flow on the assets in the trust. The initial total certificate
balance of all classes of a series of certificates will not be greater than the
outstanding principal balance of the related mortgage assets as of a specified
cut-off date, after application of scheduled payments
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due on or before such date, whether or not received. As described in the
prospectus supplement, distributions of principal with respect to the related
series of certificates will be made on each distribution date to the holders of
the class certificates of such series then entitled until the certificate
balances of such certificates have been reduced to zero. Distributions of
principal with respect to one or more classes of certificates --
- - may be made at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate at
which payments or other collections of principal are received on the assets in
the trust;
- - may not commence until the occurrence of certain events, such as the
retirement of one or more other classes of certificates of the same series;
- - may be made, subject to certain limitations, based on a specified principal
payment schedule; or
- - may be contingent on the specified principal payment schedule for another
class of the same series and the rate at which payments and other collections
of principal on the mortgage assets in the trust are received. Unless
otherwise specified in the prospectus supplement, distributions of principal
of any class of certificates will be made on a pro rata basis among all of the
certificates of such class.
CREDIT SUPPORT AND CASH FLOW AGREEMENTS
If specified in the prospectus supplement, partial or full protection against
certain defaults and losses on the assets in the trust may be provided to one or
more classes of certificates by (1) subordination of one or more other classes
of certificates to classes in the same series, or by (2) of such series, one or
more other types of credit support, such as a letter of credit, insurance
policy, guarantee, reserve fund, cash collateral account or
overcollateralization (any such coverage with respect to the Certificates of any
series, "Credit Support"). If so provided in the prospectus supplement, the
trust may include --
- - guaranteed investment contracts pursuant to which moneys held in the funds and
accounts established for the related series will be invested at a specified
rate; or
- - certain other agreements, such as interest rate exchange agreements, interest
rate cap or floor agreements, or other agreements designed to reduce the
effects of interest rate fluctuations on the mortgage assets or on one or more
classes of certificates.
Certain relevant information regarding any applicable credit support or cash
flow agreement will be set forth in the prospectus supplement for a series of
certificates.
ADVANCES
As specified in the prospectus supplement, if the trust includes mortgage loans,
the master servicer, the special servicer, the trustee, any provider of credit
support, and/or another specified person may be obligated to make, or have the
option of making, certain advances concerning delinquent scheduled payments of
principal and/or interest on mortgage loans. Any advances made concerning a
particular mortgage loan will be reimbursable from subsequent recoveries
relating to the particular mortgage loan and as described in the prospectus
supplement. If specified in the prospectus supplement, any entity making such
advances may be entitled to receive interest for a specified period during which
certain or all of such advances are outstanding, payable from amounts in the
trust. If the trust includes mortgaged-backed securities, any comparable
advancing obligation of a party to the related pooling and servicing agreement,
or of a party to the related mortgage-backed securities agreement, will be
described in the prospectus supplement.
OPTIONAL TERMINATION
If specified in the prospectus supplement, a series of certificates may be
subject to optional early termination through the repurchase of the mortgage
assets in the trust. If provided in the related prospectus supplement, upon the
reduction of the certificate balance of a specified class or classes of
certificates by a specified percentage or amount, a specified party may be
authorized or required to solicit bids for the purchase of all of the assets of
the trust, or of a sufficient portion of such assets to retire such class or
classes.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The certificates of each series will constitute or evidence ownership of
either --
- - "regular interests" ("REMIC Regular Certificates") and "residual interests"
("REMIC Residual Certificates") in the trust, or a designated portion thereof,
treated as a REMIC under Sections 860A through 860G of the Internal Revenue
Code of 1986; or
- - certificates ("Grantor Trust Certificates") in a trust treated as a grantor
trust (or a partnership) under applicable provisions of the Internal Revenue
Code of 1986.
Investors are advised to consult their tax advisors and to review "Certain
Federal Income Tax Consequences" in this prospectus and in the prospectus
supplement.
CERTAIN ERISA CONSIDERATIONS
Fiduciaries of retirement plans and certain other employee benefit plans and
arrangements, including individual retirement accounts, annuities, Keogh plans,
and collective investment funds and separate accounts in which such plans,
accounts, annuities or arrangements are invested, that are subject to the
Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of
the Internal Revenue Code of 1986, should review with their legal advisors
whether the purchase or holding of certificates could give rise to a transaction
that is prohibited.
LEGAL INVESTMENT
The certificates will constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as amended ("SMMEA"),
only if specified in the prospectus supplement. Investors whose investment
authority is subject to legal restrictions should consult their legal advisors
to determine whether and to what extent the certificates constitute legal
investments for them.
RATING
At their respective dates of issuance, each class of certificates will be rated
as of investment grade by one or more nationally recognized statistical rating
agencies (each, a "Rating Agency").
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RISK FACTORS
In considering an investment in the certificates of any series, you should
consider carefully the following risk factors and the risk factors in the
prospectus supplement.
LIMITED LIQUIDITY OF CERTIFICATES
General. The certificates of any series may have limited or no liquidity.
You may be forced to bear the risk of investing in the certificates for an
indefinite period of time. In addition, you may have no redemption rights, and
the certificates are subject to early retirement only under certain
circumstances.
Lack of a Secondary Market. We cannot assure you that a secondary market
for the certificates will develop or, if it does develop, that it will provide
certificateholders with liquidity of investment or that it will continue for as
long as the certificates remain outstanding.
The prospectus supplement may indicate that an underwriter intends to
establish a secondary market in the certificates, although no underwriter will
be obligated to do so. Any secondary market may provide less liquidity to
investors than any comparable market for securities relating to single-family
mortgage loans. Unless specified in the prospectus supplement, the certificates
will not be listed on any securities exchange.
Limited Ongoing Information. The primary source of ongoing information
regarding the certificates, including information regarding the status of the
related mortgage assets and any credit support for the certificates, will be the
periodic reports to certificateholders to be delivered pursuant to the related
pooling and servicing agreement.
We cannot assure you that any additional ongoing information regarding the
certificates will be available through any other source. The limited nature of
such information concerning a series of certificates may adversely affect
liquidity, even if a secondary market for the certificates does develop.
Sensitivity to Interest Rates. If a secondary market does develop for the
certificates, the market value of the certificates will be affected by several
factors, including (1) perceived liquidity, (2) the anticipated cash flow (which
may vary widely depending upon the prepayment and default assumptions concerning
the underlying mortgage loans) and (3) prevailing interest rates.
The price payable at any given time for certain classes of certificates may
be extremely sensitive to small fluctuations in prevailing interest rates. The
relative change in price for a certificate in response to an upward or downward
movement in prevailing interest rates may not necessarily equal the relative
change in price for the certificate in response to an equal but opposite
movement in such rates. Therefore, the sale of certificates by a holder in any
secondary market that may develop may be at a discount from the price paid by
such holder. We are not aware of any source through which price information
about the certificates will be generally available on an ongoing basis.
LIMITED ASSETS
Unless specified in the prospectus supplement, neither the certificates nor
the mortgage assets in the trust will be guaranteed or insured by NationsLink
Funding Corporation or any of its affiliates, by any governmental agency or by
any other person or entity. No certificate will represent a claim against or
security interest in the trust funds for any other series. Therefore, if the
related trust fund has insufficient assets to make payments, no other assets
will be available for payment of the deficiency, and the holders of one or more
classes of the certificates will be required to bear the consequent loss.
Certain amounts on deposit from time to time in certain funds or accounts
constituting part of the trust, including the certificate account and any
accounts maintained as credit support, may be withdrawn under certain
conditions, for purposes other than the payment of principal of or interest on
the related series of certificates. On any distribution occurring after losses
or shortfalls in collections on the mortgage assets have been incurred, all or a
portion of the amount of losses or shortfalls in collections on the mortgage
assets will be borne on a disproportionate basis among classes of certificates.
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CREDIT SUPPORT LIMITATIONS
Limitations Regarding Types of Losses Covered. The prospectus supplement
for a series of certificates will describe any credit support. Such credit
support may not cover all potential losses. For example, credit support may or
may not cover loss by reason of fraud or negligence by a mortgage loan
originator or other parties. Any such losses not covered by credit support may,
at least in part, be allocated to one or more classes of certificates.
Disproportionate Benefits to Certain Classes and Series. A series of
certificates may include one or more classes of subordinate certificates, if
provided in the prospectus supplement. Although subordination is intended to
reduce the likelihood of temporary shortfalls and ultimate losses to holders of
senior certificates, the amount of subordination will be limited and may decline
under certain circumstances. In addition, if principal payments on one or more
classes of certificates of a series are made in a specified order of priority,
any related credit support may be exhausted before the principal of the
later-paid classes of certificates of such series has been repaid in full.
The impact of losses and shortfalls experienced with respect to the
mortgage assets may fall primarily upon those classes of certificates having a
later right of payment.
If a form of credit support covers the certificates of more than one series
and losses on the related mortgage assets exceed the amount of such credit
support, it is possible that the holders of certificates of one (or more) such
series such credit support will disproportionately benefit, to the detriment of
the holders of certificates of one (or more) other such series.
Limitations Regarding the Amount of Credit Support. The amount of any
applicable credit support supporting one or more classes of certificates will be
determined on the basis of criteria established by each rating agency rating
such classes of certificates based on an assumed level of defaults,
delinquencies and losses on the underlying mortgage assets and certain other
factors. However, we cannot assure you that the loss experience on the related
mortgage assets will not exceed such assumed levels. If the losses on the
related mortgage assets do exceed such assumed levels, the holders of one or
more classes of certificates will be required to bear such additional losses.
EFFECT OF PREPAYMENTS ON AVERAGE LIFE OF CERTIFICATES
As a result of prepayments on the mortgage loans in the trust, the amount
and timing of distributions of principal and/or interest on the certificates of
the related series may be highly unpredictable. Prepayments on the mortgage
loans in the trust will result in a faster rate of principal payments on one or
more classes of the related series of certificates than if payments on such
mortgage loans were made as scheduled. Therefore, the prepayment experience on
the mortgage loans in the trust may affect the average life of one or more
classes of certificates of the related series.
The rate of principal payments on pools of mortgage loans varies among
pools and from time to time is influenced by a variety of economic, demographic,
geographic, social, tax and legal factors. For example, if prevailing interest
rates fall significantly below the mortgage rates borne by the mortgage loans
included in the trust, principal prepayments on such mortgage loans are likely
to be higher than if prevailing interest rates remain at or above the rates
borne by those mortgage loans. Conversely, if prevailing interest rates rise
significantly above the mortgage rates borne by the mortgage loans included in
the trust, then principal prepayments on such mortgage loans are likely to be
lower than if prevailing interest rates remain at or below the mortgage rates
borne by those mortgage loans.
We cannot assure you what as to the actual rate of prepayment on the
mortgage loans in the trust will be, or that such rate of prepayment will
conform to any model in any prospectus supplement. As a result, depending on the
anticipated rate of prepayment for the mortgage loans in the trust, the
retirement of any class of certificates of the related series could occur
significantly earlier or later, and its average life could be significantly
shorter or longer, than expected.
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The extent to which prepayments on the mortgage loans in trust ultimately
affect the average life of any class of certificates of the related series will
depend on the terms and provisions of the certificates. A class of certificates
may provide that on any distribution date the holders of the certificates are
entitled to a pro rata share of the prepayments on the mortgage loans in the
trust fund that are distributable on such date.
A class of certificates that entitles the holders to a disproportionately
large share of the prepayments on the mortgage loans in the trust increases the
likelihood of early retirement of such class if the rate of prepayment is
relatively fast. This type of early retirement risk is sometimes referred to as
"call risk."
A class of certificates that entitles the holders thereof to a
disproportionately small share of the prepayments on the mortgage loans in the
trust increases the likelihood of an extended average life of such class if the
rate of prepayment is relatively slow. This type of prolonged retirement risk is
sometimes referred to as "extension risk."
As described in the prospectus supplement, the respective entitlements of
the various classes of certificateholders of any series to receive payments
(and, in particular, prepayments) of principal of the mortgage loans in the
trust may vary based on the occurrence of certain events (e.g., the retirement
of one or more classes of certificates of such series) or subject to certain
contingencies (e.g., prepayment and default rates with respect to such mortgage
loans).
A series of certificates may include one or more controlled amortization
classes, which will entitle the holders to receive principal distributions
according to a specified principal payment schedule. Although prepayment risk
cannot be eliminated entirely for any class of certificates, a controlled
amortization class will generally provide a relatively stable cash flow so long
as the actual rate of prepayment on the mortgage loans in the trust remains
relatively constant at the rate of prepayment used to establish the specific
principal payment schedule for the certificates. Prepayment risk concerning a
given mortgage asset pool does not disappear, however, and the stability
afforded to a controlled amortization class comes at the expense of one or more
companion classes of the same series.
As described in the prospectus supplement, a companion class may entitle
the holders to a disproportionately large share of prepayments on the mortgage
loans in the trust when the rate of prepayment is relatively fast, and/or may
entitle the holders to a disproportionately small share of prepayments on the
mortgage loans in the trust when the rate of prepayment is relatively slow. A
companion class absorbs some (but not all) of the call risk and/or extension
risk that would otherwise belong to the related controlled amortization class if
all payments of principal of the mortgage loans in the trust were allocated on a
pro rata basis.
EFFECT OF PREPAYMENTS ON YIELD OF CERTIFICATES
A series of certificates may include one or more classes offered at a
premium or discount. Yields on such classes of certificates will be sensitive,
and in some cases extremely sensitive, to prepayments on the mortgage loans in
the trust fund. If the amount of interest payable with respect to a class is
disproportionately large as compared to the amount of principal, as with certain
classes of stripped interest certificates, a holder might fail to recover its
original investment under some prepayment scenarios. The yield to maturity of
any class of certificates may vary from the anticipated yield due to the degree
to which the certificates are purchased at a discount or premium and the amount
and timing of distributions.
You should consider, in the case of any certificate purchased at a
discount, the risk that a slower than anticipated rate of principal payments on
the mortgage loans could result in an actual yield to such investor that is
lower than the anticipated yield. In the case of any certificate purchased at a
premium, you should consider the risk that a faster than anticipated rate of
principal payments could result in an actual yield to such investor that is
lower than the anticipated yield.
LIMITED NATURE OF RATINGS
Any rating assigned by a rating agency to a class of certificates will
reflect only its assessment of the likelihood that holders of the certificates
will receive payments to which the certificateholders are entitled under the
related pooling and servicing agreement. Such rating will not constitute an
assessment of the
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likelihood that principal prepayments on the related mortgage loans will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated, or the likelihood of early optional termination of the
trust. Any rating will not address the possibility that prepayment of the
mortgage loans at a higher or lower rate than anticipated by an investor may
cause such investor to experience a lower than anticipated yield or that an
investor purchasing a certificate at a significant premium might fail to recover
its initial investment under certain prepayment scenarios. Therefore, a rating
assigned by a rating agency does not guarantee or ensure the realization of any
anticipated yield on a class of certificates.
The amount, type and nature of credit support given a series of
certificates will be determined on the basis of criteria established by each
rating agency rating classes of the certificates of such series. Those criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. There can be no assurance that the historical data supporting
any such actuarial analysis will accurately reflect future experience, or that
the data derived from a large pool of mortgage loans will accurately predict the
delinquency, foreclosure or loss experience of any particular pool of mortgage
loans. In other cases, such criteria may be based upon determinations of the
values of the properties that provide security for the mortgage loans. However,
we cannot assure you that those values will not decline in the future. As a
result, the credit support required in respect of the certificates of any series
may be insufficient to fully protect the holders thereof from losses on the
related mortgage asset pool.
CERTAIN FACTORS AFFECTING DELINQUENCY, FORECLOSURE AND LOSS OF THE MORTGAGE
LOANS
Mortgage loans made on the security of multifamily or commercial property
may have a greater likelihood of delinquency and foreclosure, and a greater
likelihood of loss than loans made on the security of an owner-occupied
single-family property. The ability of a borrower to repay a loan secured by an
income-producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent income
or assets of the borrower. Therefore, the value of an income-producing property
is directly related to the net operating income derived from such property.
If the net operating income of the property is reduced (for example, if
rental or occupancy rates decline or real estate tax rates or other operating
expenses increase), the borrower's ability to repay the loan may be impaired. A
number of the mortgage loans may be secured by liens on owner-occupied
properties or on properties leased to a single tenant or in which only a few
tenants produce a material amount of the rental income. As the primary component
of the net operating income of a property, rental income (and maintenance
payments from tenant stockholders of a Cooperative) and the value of any
property are subject to the vagaries of the applicable real estate market and/or
business climate. Properties typically leased, occupied or used on a short-term
basis, such as health care-related facilities, hotels and motels, and mini-
warehouse and self-storage facilities, tend to be affected more rapidly by
changes in market or business conditions than do properties leased, occupied or
used for longer periods, such as (typically) warehouses, retail stores, office
buildings and industrial plants. Commercial Properties may be secured by
owner-occupied properties or properties leased to a single tenant. Therefore, a
decline in the financial condition of the borrower or a single tenant may have a
disproportionately greater effect on the net operating income from such
properties than would be the case with respect to properties with multiple
tenants.
Changes in the expense components of the net operating income of a property
due to the general economic climate or economic conditions in a locality or
industry segment, such as (1) increases in interest rates, real estate and
personal property tax rates and other operating expenses including energy costs,
(2) changes in governmental rules, regulations and fiscal policies, including
environmental legislation, and (3) acts of God may also affect the net operating
income and the value of the property and the risk of default on the related
mortgage loan. In some cases leases of properties may provide that the lessee,
rather than the mortgagor, is responsible for payment of certain of these
expenses ("Net Leases"). However, because leases are subject to default risks as
well as when a tenant's income is insufficient to cover its rent and operating
expenses, the existence of such "net of expense" provisions will only temper,
not eliminate, the impact of expense increases on the performance of the related
mortgage loan.
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Additional considerations may be presented by the type and use of a
particular property. For instance, properties that operate as hospitals and
nursing homes are subject to significant governmental regulation of the
ownership, operation, maintenance and financing of health care institutions.
Hotel, motel and restaurant properties are often operated pursuant to franchise,
management or operating agreements that may be terminable by the franchisor or
operator. The transferability of a hotel's or restaurant's operating, liquor and
other licenses upon a transfer of the hotel or the restaurant, whether through
purchase or foreclosure, is subject to local law requirements.
In addition, the concentration of default, foreclosure and loss risks in
mortgage loans in the trust will generally be greater than for pools of
single-family loans because mortgage loans in the trust generally will consist
of a smaller number of higher balance loans than would a pool of single-family
loans of comparable aggregate unpaid principal balance.
Limited Recourse Nature of the Mortgage Loans. We anticipate that some or
all of the mortgage loans included in any trust fund will be nonrecourse loans
or loans for which recourse may be restricted or unenforceable. In this type of
mortgage loan, recourse in the event of borrower default will be limited to the
specific real property and other assets that were pledged to secure the mortgage
loan. However, even with respect to those mortgage loans that provide for
recourse against the borrower and its assets, we cannot assure you that
enforcement of such recourse provisions will be practicable, or that the assets
of the borrower will be sufficient to permit a recovery concerning a defaulted
mortgage loan in excess of the liquidation value of the related property.
Limitations on Enforceability of Cross-Collateralization. A mortgage pool
may include groups of mortgage loans which are cross-collateralized and
cross-defaulted. These arrangements are designed primarily to ensure that all of
the collateral pledged to secure the respective mortgage loans in a
cross-collateralized group. Cash flows generated on these type of mortgage loans
are available to support debt service on, and ultimate repayment of, the total
indebtedness. These arrangements seek to reduce the risk that the inability of
one or more of the mortgaged properties securing any such group of mortgage
loans to generate net operating income sufficient to pay debt service will
result in defaults and ultimate losses.
If the properties securing a group of mortgage loans which are
cross-collateralized are not all owned by the same entity, creditors of one or
more of the related borrowers could challenge the cross-collateralization
arrangement as a fraudulent conveyance. Under federal and state fraudulent
conveyance statutes, the incurring of an obligation or the transfer of property
by a person will be subject to avoidance under certain circumstances if the
person did not receive fair consideration or reasonably equivalent value in
exchange for such obligation or transfer and was then insolvent, was rendered
insolvent by such obligation or transfer or had unreasonably small capital for
its business. A creditor seeking to enforce remedies against a property subject
to such cross-collateralization to repay such creditor's claim against the
related borrower could assert that (1) such borrower was insolvent at the time
the cross-collateralized mortgage loans were made and (2) such borrower did not,
when it allowed its property to be encumbered by a lien securing the
indebtedness represented by the other mortgage loans in the group of
cross-collateralized mortgage loans, receive fair consideration or reasonably
equivalent value for, in effect, "guaranteeing" the performance of the other
borrowers. Although the borrower making such "guarantee" will be receiving
"guarantees" from each of the other borrowers in return, we cannot assure you
that such exchanged "guarantees" would be found to constitute fair consideration
or be of reasonably equivalent value.
The cross-collateralized mortgage loans may be secured by mortgage liens on
properties located in different states. Because of various state laws governing
foreclosure or the exercise of a power of sale and because foreclosure actions
are usually brought in state court, and the courts of one state cannot exercise
jurisdiction over property in another state, it may be necessary upon a default
under any such mortgage loan to foreclose on the related mortgaged properties in
a particular order rather than simultaneously in order to ensure that the lien
of the related mortgages is not impaired or released.
Increased Risk of Default Associated With Balloon Payments. Some of the
mortgage loans included in the trust may be nonamortizing or only partially
amortizing over their terms to maturity. These types of mortgage loans will
require substantial payments of principal and interest (that is, balloon
payments) at their
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stated maturity. These loans involve a greater likelihood of default than
self-amortizing loans because the ability of a borrower to make a balloon
payment typically will depend upon its ability either to refinance the loan or
to sell the related property. The ability of a borrower to accomplish either of
these goals will be affected by --
- - the value of the related property;
- - the level of available mortgage rates at the time of sale or refinancing;
- - the borrower's equity in the related property;
- - the financial condition and operating history of the borrower and the related
property;
- - tax laws;
- - rent control laws (pertaining to certain residential properties);
- - Medicaid and Medicare reimbursement rates (pertaining to hospitals and nursing
homes);
- - prevailing general economic conditions; and
- - the availability of credit for loans secured by multifamily or commercial
property.
Neither NationsLink Funding Corporation nor any of its affiliates will be
required to refinance any mortgage loan.
As specified in the prospectus supplement, the master servicer or the
special servicer will be permitted (within prescribed limits) to extend and
modify mortgage loans that are in default or as to which a payment default is
imminent. Although the master servicer or the special servicer generally will be
required to determine that any such extension or modification is reasonably
likely to produce a greater recovery than liquidation, taking into account the
time value of money, we cannot assure you that any such extension or
modification will in fact increase the present value of receipts from or
proceeds of the affected mortgage loans.
Lender Difficulty in Collecting Rents Upon the Default and/or Bankruptcy of
Borrower. Each mortgage loan included in the trust secured by property that is
subject to leases typically will be secured by an assignment of leases and
rents. Under such an assignment, the mortgagor assigns to the mortgagee its
right, title and interest as lessor under the leases of the related property,
and the income derived, as further security for the related mortgage loan, while
retaining a license to collect rents for so long as there is no default. If the
borrower defaults, the license terminates and the lender is entitled to collect
rents. Some state laws may require that the lender take possession of the
property and obtain a judicial appointment of a receiver before becoming
entitled to collect the rents. In addition, if bankruptcy or similar proceedings
are commenced by or in respect of the borrower, the lender's ability to collect
the rents may be adversely affected.
Limitations on Enforceability of Due-on-Sale and Debt-Acceleration
Clauses. Mortgages may contain a due-on-sale clause, which permits the lender
to accelerate the maturity of the mortgage loan if the borrower sells, transfers
or conveys the related property or its interest in the property. Mortgages also
may include a debt-acceleration clause, which permits the lender to accelerate
the debt upon a monetary or nonmonetary default of the mortgagor. Such clauses
are generally enforceable subject to certain exceptions. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default. The equity courts of any state, however, may refuse
the foreclosure of a mortgage or deed of trust when an acceleration of the
indebtedness would be inequitable or unjust or the circumstances would render
the acceleration unconscionable.
Risk of Liability Arising From Environmental Conditions. Under the laws of
certain states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, such a lien has
priority over an existing mortgage lien on such property. In addition, under the
laws of some states and under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, a lender may be liable, as
an "owner" or "operator", for costs of addressing releases or threatened
releases of hazardous substances at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the borrower,
regardless of whether the environmental damage or
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threat was caused by the borrower or a prior owner. A lender also risks such
liability on foreclosure of the mortgage.
Lack of Insurance Coverage for Certain Special Hazard Losses. Unless
otherwise specified in a prospectus supplement, the master servicer and special
servicer for the trust will be required to cause the borrower on each mortgage
loan in the trust to maintain such insurance coverage in respect of the property
as is required under the related mortgage, including hazard insurance. As
described in the prospectus supplement, the master servicer and the special
servicer may satisfy its obligation to cause hazard insurance to be maintained
with respect to any property through acquisition of a blanket policy.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the properties will be underwritten by different
insurers under different state laws in accordance with different applicable
state forms, and therefore will not contain identical terms and conditions, most
such policies typically do not cover any physical damage resulting from war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of risks. Unless the mortgage
specifically requires the mortgagor to insure against physical damage arising
from such causes, then, to the extent any consequent losses are not covered by
credit support, such losses may be borne, at least in part, by the holders of
one or more classes of certificates of the related series.
INCLUSION OF DELINQUENT MORTGAGE LOANS IN A MORTGAGE ASSET POOL
If provided in the prospectus supplement, the trust fund for a particular
series of certificates may include mortgage loans that are past due. As
specified in the related prospectus supplement, the servicing of such mortgage
loans will be performed by the special servicer. The same entity may act as both
master servicer and special servicer. Credit support provided with respect to a
particular series of certificates may not cover all losses related to such
delinquent mortgage loans, and investors should consider the risk that the
inclusion of such mortgage loans in the trust fund may adversely affect the rate
of defaults and prepayments concerning the subject mortgage asset pool and the
yield on the certificates of such series.
PROSPECTUS SUPPLEMENT
To the extent appropriate, the prospectus supplement relating to each
series of offered certificates will contain:
- - a description of the class or classes of such offered certificates, including
the payment provisions with respect to each such class, the aggregate
principal amount (if any) of each such class, the rate at which interest
accrues from time to time (if at all), with respect to each such class or the
method of determining such rate, and whether interest with respect to each
such class will accrue from time to time on its aggregate principal amount (if
any) or on a specified notional amount (if at all);
- - information with respect to any other classes of Certificates of the same
series;
- - the respective dates on which distributions are to be made;
- - information as to the assets, including the Mortgage Assets, constituting the
related Trust Fund (all such assets, with respect to the Certificates of any
series, the "Trust Assets");
- - the circumstances, if any, under which the related Trust Fund may be subject
to early termination;
- - additional information with respect to the method of distribution of such
offered certificates;
- - whether one or more REMIC elections will be made and the designation of the
"regular interests" and "residual interests" in each REMIC to be created and
the identity of the person (the "REMIC Administrator") responsible for the
various tax-related duties in respect of each REMIC to be created;
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- - the initial percentage ownership interest in the related Trust Fund to be
evidenced by each class of Certificates of such series;
- - information concerning the Trustee (as defined herein) of the related Trust
Fund;
- - if the related Trust Fund includes Mortgage Loans, information concerning the
Master Servicer and any Special Servicer (each as defined herein) of such
Mortgage Loans and the circumstances under which all or a portion, as
specified, of the servicing of a Mortgage Loan would transfer from the Master
Servicer to the Special Servicer;
- - information as to the nature and extent of subordination of any class of
Certificates of such series, including a class of offered certificates; and
- - whether such offered certificates will be initially issued in definitive or
book-entry form.
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DESCRIPTION OF THE TRUST FUNDS
GENERAL
The primary assets of each trust (the "Trust Fund") will consist of (i)
various types of multifamily or commercial mortgage loans ("Mortgage Loans"),
(ii) mortgage participations, pass-through certificates or other mortgage-backed
securities ("MBS") that evidence interests in, or that are secured by pledges
of, one or more of various types of multifamily or commercial mortgage loans or
(iii) a combination of Mortgage Loans and MBS (collectively, "Mortgage Assets").
Each Trust Fund will be established by the Depositor. Each Mortgage Asset will
be selected by NationsLink Funding Corporation (the "Depositor") for inclusion
in a Trust Fund from among those purchased, either directly or indirectly, from
a prior holder thereof (a "Mortgage Asset Seller"), which prior holder may or
may not be the originator of such Mortgage Loan or the issuer of such MBS and
may be an affiliate of the Depositor. The Mortgage Assets will not be guaranteed
or insured by the Depositor or any of its affiliates or, unless otherwise
provided in the related Prospectus Supplement, by any governmental agency or
instrumentality or by any other person. The discussion below under the heading
"-- Mortgage Loans", unless otherwise noted, applies equally to mortgage loans
underlying any MBS included in a particular Trust Fund.
MORTGAGE LOANS
General. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create first or junior liens on fee or
leasehold estates in properties (the "Mortgaged Properties") consisting of (i)
residential properties consisting of five or more rental or cooperatively-owned
dwelling units in high-rise, mid-rise or garden apartment buildings or other
residential structures ("Multifamily Properties") or (ii) office buildings,
retail stores and establishments, hotels or motels, nursing homes, hospitals or
other health care-related facilities, recreational vehicle and mobile home
parks, warehouse facilities, mini-warehouse facilities, self-storage facilities,
industrial plants, parking lots, entertainment or sports arenas, restaurants,
marinas, mixed use or various other types of income-producing properties or
unimproved land ("Commercial Properties"). The Multifamily Properties may
include mixed commercial and residential structures and apartment buildings
owned by private cooperative housing corporations ("Cooperatives"). However, no
one of the following types of Commercial Properties will represent security for
a material concentration of the Mortgage Loans in any Trust Fund, based on
principal balance at the time such Trust Fund is formed: (1) restaurants; (2)
entertainment or sports arenas; (3) marinas; or (4) nursing homes, hospitals or
other health care-related facilities. Unless otherwise specified in the related
Prospectus Supplement, each Mortgage will create a first priority mortgage lien
on a borrower's fee estate in a Mortgaged Property. If a Mortgage creates a lien
on a borrower's leasehold estate in a property, then, unless otherwise specified
in the related Prospectus Supplement, the term of any such leasehold will exceed
the term of the Mortgage Note by at least ten years. Unless otherwise specified
in the related Prospectus Supplement, each Mortgage Loan will have been
originated by a person (the "Originator") other than the Depositor; however, the
Originator may be or may have been an affiliate of the Depositor.
If so provided in the related Prospectus Supplement, Mortgage Assets for a
series of Certificates may include Mortgage Loans secured by junior liens, and
the loans secured by the related senior liens ("Senior Liens") may not be
included in the Mortgage Pool. The primary risk to holders of Mortgage Loans
secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related Senior Liens to satisfy
fully both the Senior Liens and the Mortgage Loan. In the event that a holder of
a Senior Lien forecloses on a Mortgaged Property, the proceeds of the
foreclosure or similar sale will be applied first to the payment of court costs
and fees in connection with the foreclosure, second to real estate taxes, third
in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the holder of the Senior
Liens. The claims of the holders of the Senior Liens will be satisfied in full
out of proceeds of the liquidation of the related Mortgage Property, if such
proceeds are sufficient, before the Trust Fund as holder of the junior lien
receives any payments in respect of the Mortgage Loan. If the Master Servicer
were to foreclose on any Mortgage Loan, it would do so subject to any related
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Senior Liens. In order for the debt related to such Mortgage Loan to be paid in
full at such sale, a bidder at the foreclosure sale of such Mortgage Loan would
have to bid an amount sufficient to pay off all sums due under the Mortgage Loan
and any Senior Liens or purchase the Mortgaged Property subject to such Senior
Liens. In the event that such proceeds from a foreclosure or similar sale of the
related Mortgaged Property are insufficient to satisfy all Senior Liens and the
Mortgage Loan in the aggregate, the Trust Fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the Certificates of
the related series bear (1) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (2) the risk of loss if
the deficiency judgment is not obtained and satisfied. Moreover, deficiency
judgments may not be available in certain jurisdictions, or the particular
Mortgage Loan may be a nonrecourse loan, which means that, absent special facts,
recourse in the case of default will be limited to the Mortgaged Property and
such other assets, if any, that were pledged to secure repayment of the Mortgage
Loan.
If so specified in the related Prospectus Supplement, the Mortgage Assets
for a particular series of Certificates may include Mortgage Loans that are
delinquent as of the date such Certificates are issued. In that case, the
related Prospectus Supplement will set forth, as to each such Mortgage Loan,
available information as to the period of such delinquency, any forbearance
arrangement then in effect, the condition of the related Mortgaged Property and
the ability of the Mortgaged Property to generate income to service the mortgage
debt.
Default and Loss Considerations with Respect to the Mortgage
Loans. Mortgage loans secured by liens on income-producing properties are
substantially different from loans made on the security of owner-occupied
single-family homes. The repayment of a loan secured by a lien on an
income-producing property is typically dependent upon the successful operation
of such property (that is, its ability to generate income). Moreover, as noted
above, some or all of the Mortgage Loans included in a particular Trust Fund may
be nonrecourse loans.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured
by income-producing property as an important factor in evaluating the likelihood
of default on such a loan. Unless otherwise defined in the related Prospectus
Supplement, the "Debt Service Coverage Ratio" of a Mortgage Loan at any given
time is the ratio of (1) the Net Operating Income derived from the related
Mortgaged Property for a twelve-month period to (2) the annualized scheduled
payments of principal and/or interest on the Mortgage Loan and any other loans
senior thereto that are secured by the related Mortgaged Property. Unless
otherwise defined in the related Prospectus Supplement, "Net Operating Income"
means, for any given period, the total operating revenues derived from a
Mortgaged Property during such period, minus the total operating expenses
incurred in respect of such Mortgaged Property during such period other than (1)
noncash items such as depreciation and amortization, (2) capital expenditures
and (3) debt service on the related Mortgage Loan or on any other loans that are
secured by such Mortgaged Property. The Net Operating Income of a Mortgaged
Property will generally fluctuate over time and may or may not be sufficient to
cover debt service on the related Mortgage Loan at any given time. As the
primary source of the operating revenues of a nonowner occupied,
income-producing property, rental income (and, with respect to a Mortgage Loan
secured by a Cooperative apartment building, maintenance payments from
tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis, such as certain health
care-related facilities, hotels and motels, and mini-warehouse and self-storage
facilities, tend to be affected more rapidly by changes in market or business
conditions than do properties typically leased for longer periods, such as
warehouses, retail stores, office buildings and industrial plants. Commercial
Properties may be owner-occupied or leased to a small number of tenants. Thus,
the Net Operating Income of such a Mortgaged Property may depend substantially
on the financial condition of the borrower or a tenant, and Mortgage Loans
secured by liens on such properties may pose a greater likelihood of default and
loss than loans secured by liens on Multifamily Properties or on multi-tenant
Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the likelihood of default on a Mortgage Loan.
As may be further described in the related Prospectus
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Supplement, in some cases leases of Mortgaged Properties may provide that the
lessee, rather than the borrower/landlord, is responsible for payment of
operating expenses ("Net Leases"). However, the existence of such "net of
expense" provisions will result in stable Net Operating Income to the
borrower/landlord only to the extent that the lessee is able to absorb operating
expense increases while continuing to make rent payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a factor
in evaluating the likelihood of loss if a property must be liquidated following
a default. Unless otherwise defined in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of (1) the then outstanding principal balance of the
Mortgage Loan and any other loans senior thereto that are secured by the related
Mortgaged Property to (2) the Value of the related Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, the "Value" of a
Mortgaged Property will be its fair market value as determined by an appraisal
of such property conducted by or on behalf of the Originator in connection with
the origination of such loan. The lower the Loan-to-Value Ratio, the greater the
percentage of the borrower's equity in a Mortgaged Property, and thus (a) the
greater the incentive of the borrower to perform under the terms of the related
Mortgage Loan (in order to protect such equity) and (b) the greater the cushion
provided to the lender against loss on liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure of
the likelihood of liquidation loss in a pool of Mortgage Loans. For example, the
value of a Mortgaged Property as of the date of initial issuance of the related
series of Certificates may be less than the Value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
certain factors including changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value. Appraised values of income-producing properties are generally
based on the market comparison method (recent resale value of comparable
properties at the date of the appraisal), the cost replacement method (the cost
of replacing the property at such date), the income capitalization method (a
projection of value based upon the property's projected net cash flow), or upon
a selection from or interpolation of the values derived from such methods. Each
of these appraisal methods can present analytical difficulties. It is often
difficult to find truly comparable properties that have recently been sold; the
replacement cost of a property may have little to do with its current market
value; and income capitalization is inherently based on inexact projections of
income and expense and the selection of an appropriate capitalization rate and
discount rate. Where more than one of these appraisal methods are used and
provide significantly different results, an accurate determination of value and,
correspondingly, a reliable analysis of the likelihood of default and loss, is
even more difficult.
Although there may be multiple methods for determining the value of a
Mortgaged Property, value will in all cases be affected by property performance.
As a result, if a Mortgage Loan defaults because the income generated by the
related Mortgaged Property is insufficient to cover operating costs and expenses
and pay debt service, then the value of the Mortgaged Property will reflect such
and a liquidation loss may occur.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish loans secured by liens on
income-producing real estate from single-family mortgage loans, there can be no
assurance that all of such factors will in fact have been prudently considered
by the Originators of the Mortgage Loans, or that, for a particular Mortgage
Loan, they are complete or relevant. See "Risk Factors -- Certain Factors
Affecting Delinquency, Foreclosure and Loss of the Mortgage Loans -- General"
and "-- Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans -- Increased Risk of Default Associated With Balloon Payments".
Payment Provisions of the Mortgage Loans. All of the Mortgage Loans will
(1) have had original terms to maturity of not more than 40 years and (2)
provide for scheduled payments of principal, interest or both, to be made on
specified dates ("Due Dates") that occur monthly, quarterly, semi-annually or
annually. A Mortgage Loan (1) may provide for no accrual of interest or for
accrual of interest thereon at an interest rate (a "Mortgage Rate") that is
fixed over its term or that adjusts from time to time, or that may be converted
at the borrower's election from an adjustable to a fixed Mortgage Rate, or from
a fixed to an adjustable Mortgage Rate, (2) may provide for level payments to
maturity or for payments that adjust from time to time to accommodate changes in
the Mortgage Rate or to reflect the occurrence of certain events, and may permit
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negative amortization, (3) may be fully amortizing or may be partially
amortizing or nonamortizing, with a balloon payment due on its stated maturity
date, and (4) may prohibit over its term or for a certain period prepayments
(the period of such prohibition, a "Lock-out Period" and its date of expiration,
a "Lock-out Date") and/or require payment of a premium or a yield maintenance
payment (a "Prepayment Premium") in connection with certain prepayments, in each
case as described in the related Prospectus Supplement. A Mortgage Loan may also
contain a provision that entitles the lender to a share of appreciation of the
related Mortgaged Property, or profits realized from the operation or
disposition of such Mortgaged Property or the benefit, if any, resulting from
the refinancing of the Mortgage Loan (any such provision, an "Equity
Participation"), as described in the related Prospectus Supplement. See "Certain
Legal Aspects of the Mortgage Loans -- Default Interest and Limitations on
Prepayments" in the Prospectus regarding the enforceability of Prepayment
Premiums.
Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans in
the related Trust Fund, which, to the extent then applicable, will generally
include the following:
- the aggregate outstanding principal balance and the largest, smallest
and average outstanding principal balance of the Mortgage Loans,
- the type or types of property that provide security for repayment of
the Mortgage Loans,
- the earliest and latest origination date and maturity date of the
Mortgage Loans,
- the original and remaining terms to maturity of the Mortgage Loans, or
the respective ranges thereof, and the weighted average original and
remaining terms to maturity of the Mortgage Loans,
- the Loan-to-Value Ratios of the Mortgage Loans (either at origination
or as of a more recent date), or the range thereof, and the weighted
average of such Loan-to-Value Ratios,
- the Mortgage Rates borne by the Mortgage Loans, or the range thereof,
and the weighted average Mortgage Rate borne by the Mortgage Loans,
- with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM
Loans"), the index or indices upon which such adjustments are based,
the adjustment dates, the range of gross margins and the weighted
average gross margin, and any limits on Mortgage Rate adjustments at
the time of any adjustment and over the life of the ARM Loan,
- information regarding the payment characteristics of the Mortgage
Loans, including, without limitation, balloon payment and other
amortization provisions, Lock-out Periods and Prepayment Premiums,
- the Debt Service Coverage Ratios of the Mortgage Loans (either at
origination or as of a more recent date), or the range thereof, and
the weighted average of such Debt Service Coverage Ratios, and
- the geographic distribution of the Mortgaged Properties on a
state-by-state basis. In appropriate cases, the related Prospectus
Supplement will also contain certain information available to the
Depositor that pertains to the provisions of leases and the nature of
tenants of the Mortgaged Properties. If the Depositor is unable to
provide the specific information described above at the time Offered
Certificates of a series are initially offered, more general
information of the nature described above will be provided in the
related Prospectus Supplement, and specific information will be set
forth in a report which will be available to purchasers of those
Certificates at or before the initial issuance thereof and will be
filed as part of a Current Report on Form 8-K with the Commission
within fifteen days following such issuance.
If any Mortgage Loan, or group of related Mortgage Loans, constitutes a
concentration of credit risk, financial statements or other financial
information with respect to the related Mortgaged Property or Mortgaged
Properties will be included in the related Prospectus Supplement.
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If and to the extent available and relevant to an investment decision in
the Offered Certificates of the related series, information regarding the
prepayment experience of a Master Servicer's multifamily and/or commercial
mortgage loan servicing portfolio will be included in the related Prospectus
Supplement. However, many servicers do not maintain records regarding such
matters or, at least, not in a format that can be readily aggregated. In
addition, the relevant characteristics of a Master Servicer's servicing
portfolio may be so materially different from those of the related Mortgage
Asset Pool that such prepayment experience would not be meaningful to an
investor. For example, differences in geographic dispersion, property type
and/or loan terms (e.g., mortgage rates, terms to maturity and/or prepayment
restrictions) between the two pools of loans could render the Master Servicer's
prepayment experience irrelevant. Because of the nature of the assets to be
serviced and administered by a Special Servicer, no comparable prepayment
information will be presented with respect to the Special Servicer's multifamily
and/or commercial mortgage loan servicing portfolio.
MBS
MBS may include (1) private-label (that is, not issued, insured or
guaranteed by the United States or any agency or instrumentality thereof)
mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities or (2) certificates issued and/or insured or
guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal
National Mortgage Association ("FNMA"), the Governmental National Mortgage
Association ("GNMA") or the Federal Agricultural Mortgage Corporation ("FAMC"),
provided that, unless otherwise specified in the related Prospectus Supplement,
each MBS will evidence an interest in, or will be secured by a pledge of,
mortgage loans that conform to the descriptions of the Mortgage Loans contained
herein.
Except in the case of a pro rata mortgage participation in a single
mortgage loan or a pool of mortgage loans, each MBS included in a Mortgage Asset
Pool: (a) either will (1) have been previously registered under the Securities
Act of 1933, as amended, (2) be exempt from such registration requirements or
(3) have been held for at least the holding period specified in Rule 144(k)
under the Securities Act of 1933, as amended; and (b) will have been acquired
(other than from the Depositor or an affiliate thereof) in bona fide secondary
market transactions.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar agreement
(an "MBS Agreement"). The issuer of the MBS (the "MBS Issuer") and/or the
servicer of the underlying mortgage loans (the "MBS Servicer") will be parties
to the MBS Agreement, generally together with a trustee (the "MBS Trustee") or,
in the alternative, with the original purchaser or purchasers of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of Certificates described herein. Distributions in
respect of the MBS will be made by the MBS Issuer, the MBS Servicer or the MBS
Trustee on the dates specified in the related Prospectus Supplement. The MBS
Issuer or the MBS Servicer or another person specified in the related Prospectus
Supplement may have the right or obligation to repurchase or substitute assets
underlying the MBS after a certain date or under other circumstances specified
in the related Prospectus Supplement.
Reserve funds, subordination or other credit support similar to that
described for the Certificates under "Description of Credit Support" may have
been provided with respect to the MBS. The type, characteristics and amount of
such credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates that evidence
interests in MBS will specify, to the extent available,
- the aggregate approximate initial and outstanding principal amount(s)
and type of the MBS to be included in the Trust Fund,
- the original and remaining term(s) to stated maturity of the MBS, if
applicable,
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- the pass-through or bond rate(s) of the MBS or the formula for
determining such rate(s),
- the payment characteristics of the MBS,
- the MBS Issuer, MBS Servicer and MBS Trustee, as applicable, of each
of the MBS,
- a description of the related credit support, if any,
- the circumstances under which the related underlying mortgage loans,
or the MBS themselves, may be purchased prior to their maturity,
- the terms on which mortgage loans may be substituted for those
originally underlying the MBS,
- the type of mortgage loans underlying the MBS and, to the extent
available to the Depositor and appropriate under the circumstances,
such other information in respect of the underlying mortgage loans
described under "-- Mortgage Loans -- Mortgage Loan Information in
Prospectus Supplements", and
- the characteristics of any cash flow agreements that relate to the
MBS.
CERTIFICATE ACCOUNTS
Each Trust Fund will include one or more accounts (collectively, the
"Certificate Account") established and maintained on behalf of the
Certificateholders into which all payments and collections received or advanced
with respect to the Mortgage Assets and other assets in the Trust Fund will be
deposited to the extent described herein and in the related Prospectus
Supplement. See "The Pooling and Servicing Agreements -- Certificate Account".
CREDIT SUPPORT
If so provided in the Prospectus Supplement for a series of Certificates,
partial or full protection against certain defaults and losses on the Mortgage
Assets in the related Trust Fund may be provided to one or more classes of
Certificates of such series in the form of subordination of one or more other
classes of Certificates of such series or by one or more other types of Credit
Support, such as a letter of credit, insurance policy, guarantee or reserve
fund, among others, or a combination thereof. The amount and types of Credit
Support, the identity of the entity providing it (if applicable) and related
information with respect to each type of Credit Support, if any, will be set
forth in the Prospectus Supplement for a series of Certificates. See "Risk
Factors -- Credit Support Limitations" and "Description of Credit Support".
CASH FLOW AGREEMENTS
If so provided in the Prospectus Supplement for a series of Certificates,
the related Trust Fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for such series will be
invested at a specified rate. The Trust Fund may also include certain other
agreements, such as interest rate exchange agreements, interest rate cap or
floor agreements, or other agreements designed to reduce the effects of interest
rate fluctuations on the Mortgage Assets on one or more classes of Certificates.
The principal terms of any such cash flow agreement (any such agreement, a "Cash
Flow Agreement"), including, without limitation, provisions relating to the
timing, manner and amount of payments thereunder and provisions relating to the
termination thereof, will be described in the related Prospectus Supplement. The
related Prospectus Supplement will also identify the obligor under the Cash Flow
Agreement.
YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate and the amount and
timing of distributions on the Certificate. See "Risk Factors -- Effect of
Prepayments on Average Life of Certificates". The following discussion
contemplates a
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Trust Fund that consists solely of Mortgage Loans. While the characteristics and
behavior of mortgage loans underlying an MBS can generally be expected to have
the same effect on the yield to maturity and/or weighted average life of a class
of Certificates as will the characteristics and behavior of comparable Mortgage
Loans, the effect may differ due to the payment characteristics of the MBS. If a
Trust Fund includes MBS, the related Prospectus Supplement will discuss the
effect, if any, that the payment characteristics of the MBS may have on the
yield to maturity and weighted average lives of the Offered Certificates of the
related series.
PASS-THROUGH RATE
The Certificates of any class within a series may have a fixed, variable or
adjustable Pass-Through Rate, which may or may not be based upon the interest
rates borne by the Mortgage Loans in the related Trust Fund. The Prospectus
Supplement with respect to any series of Certificates will specify the
Pass-Through Rate for each class of Offered Certificates of such series or, in
the case of a class of Offered Certificates with a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if any, of the prepayment of any Mortgage Loan on the Pass-Through Rate of one
or more classes of Offered Certificates; and whether the distributions of
interest on the Offered Certificates of any class will be dependent, in whole or
in part, on the performance of any obligor under a Cash Flow Agreement.
PAYMENT DELAYS
With respect to any series of Certificates, a period of time will elapse
between the date upon which payments on the Mortgage Loans in the related Trust
Fund are due and the Distribution Date on which such payments are passed through
to Certificateholders. That delay will effectively reduce the yield that would
otherwise be produced if payments on such Mortgage Loans were distributed to
Certificateholders on the date they were due.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full or in part is made on a Mortgage Loan,
the borrower is generally charged interest on the amount of such prepayment only
through the date of such prepayment, instead of through the Due Date for the
next succeeding scheduled payment. However, interest accrued on any series of
Certificates and distributable thereon on any Distribution Date will generally
correspond to interest accrued on the Mortgage Loans to their respective Due
Dates during the related Due Period. A "Due Period" will be a specified time
period (generally corresponding in length to the period between Distribution
Dates) and all scheduled payments on the Mortgage Loans in the related Trust
Fund that are due during a given Due Period will, to the extent received by a
specified date (the "Determination Date") or otherwise advanced by the related
Master Servicer, Special Servicer or other specified person, be distributed to
the holders of the Certificates of such series on the next succeeding
Distribution Date. Consequently, if a prepayment on any Mortgage Loan is
distributable to Certificateholders on a particular Distribution Date, but such
prepayment is not accompanied by interest thereon to the Due Date for such
Mortgage Loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (such shortfall,
a "Prepayment Interest Shortfall") than the corresponding amount of interest
accrued and otherwise payable on the Certificates of the related series. If and
to the extent that any such shortfall is allocated to a class of Offered
Certificates, the yield thereon will be adversely affected. The Prospectus
Supplement for each series of Certificates will describe the manner in which any
such shortfalls will be allocated among the classes of such Certificates. The
related Prospectus Supplement will also describe any amounts available to offset
such shortfalls.
YIELD AND PREPAYMENT CONSIDERATIONS
A Certificate's yield to maturity will be affected by the rate of principal
payments on the Mortgage Loans in the related Trust Fund and the allocation
thereof to reduce the principal balance (or notional amount, if applicable) of
such Certificate. The rate of principal payments on the Mortgage Loans in any
Trust Fund will in turn be affected by the amortization schedules thereof
(which, in the case of ARM Loans, may change periodically to accommodate
adjustments to the Mortgage Rates thereon), the dates on which any balloon
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payments are due, and the rate of principal prepayments thereon (including for
this purpose, voluntary prepayments by borrowers and also prepayments resulting
from liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the related Mortgaged Properties, or purchases of Mortgage Loans out
of the related Trust Fund). Because the rate of principal prepayments on the
Mortgage Loans in any Trust Fund will depend on future events and a variety of
factors (as described below), no assurance can be given as to such rate.
The extent to which the yield to maturity of a class of Offered
Certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the Mortgage Loans in the related Trust
Fund are in turn distributed on such Certificates (or, in the case of a class of
Stripped Interest Certificates, result in the reduction of the Notional Amount
thereof). An investor should consider, in the case of any Offered Certificate
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the Mortgage Loans in the related Trust Fund could result
in an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Offered Certificate purchased at a premium, the risk
that a faster than anticipated rate of principal payments on such Mortgage Loans
could result in an actual yield to such investor that is lower than the
anticipated yield. In addition, if an investor purchases an Offered Certificate
at a discount (or premium), and principal payments are made in reduction of the
principal balance or notional amount of such investor's Offered Certificates at
a rate slower (or faster) than the rate anticipated by the investor during any
particular period, any consequent adverse effects on such investor's yield would
not be fully offset by a subsequent like increase (or decrease) in the rate of
principal payments.
In general, the Notional Amount of a class of Stripped Interest
Certificates will either (1) be based on the principal balances of some or all
of the Mortgage Assets in the related Trust Fund or (2) equal the Certificate
Balances of one or more of the other classes of Certificates of the same series.
Accordingly, the yield on such Stripped Interest Certificates will be inversely
related to the rate at which payments and other collections of principal are
received on such Mortgage Assets or distributions are made in reduction of the
Certificate Balances of such classes of Certificates, as the case may be.
Consistent with the foregoing, if a class of Certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates, a
lower than anticipated rate of principal prepayments on the Mortgage Loans in
the related Trust Fund will negatively affect the yield to investors in Stripped
Principal Certificates, and a higher than anticipated rate of principal
prepayments on such Mortgage Loans will negatively affect the yield to investors
in Stripped Interest Certificates. If the Offered Certificates of a series
include any such Certificates, the related Prospectus Supplement will include a
table showing the effect of various constant assumed levels of prepayment on
yields on such Certificates. Such tables will be intended to illustrate the
sensitivity of yields to various constant assumed prepayment rates and will not
be intended to predict, or to provide information that will enable investors to
predict, yields or prepayment rates.
The extent of prepayments of principal of the Mortgage Loans in any Trust
Fund may be affected by a number of factors, including, without limitation, the
availability of mortgage credit, the relative economic vitality of the area in
which the Mortgaged Properties are located, the quality of management of the
Mortgaged Properties, the servicing of the Mortgage Loans, possible changes in
tax laws and other opportunities for investment. In general, those factors which
increase the attractiveness of selling a Mortgaged Property or refinancing a
Mortgage Loan or which enhance a borrower's ability to do so, as well as those
factors which increase the likelihood of default under a Mortgage Loan, would be
expected to cause the rate of prepayment in respect of any Mortgage Asset Pool
to accelerate. In contrast, those factors having an opposite effect would be
expected to cause the rate of prepayment of any Mortgage Asset Pool to slow.
The rate of principal payments on the Mortgage Loans in any Trust Fund may
also be affected by the existence of Lock-out Periods and requirements that
principal prepayments be accompanied by Prepayment Premiums, and by the extent
to which such provisions may be practicably enforced. To the extent enforceable,
such provisions could constitute either an absolute prohibition (in the case of
a Lock-out Period) or a disincentive (in the case of a Prepayment Premium) to a
borrower's voluntarily prepaying its Mortgage Loan, thereby slowing the rate of
prepayments.
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The rate of prepayment on a pool of mortgage loans is likely to be affected
by prevailing market interest rates for mortgage loans of a comparable type,
term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of ARM Loans, as prevailing market interest
rates decline, and without regard to whether the Mortgage Rates on such ARM
Loans decline in a manner consistent therewith, the related borrowers may have
an increased incentive to refinance for purposes of either (1) converting to a
fixed rate loan and thereby "locking in" such rate or (2) taking advantage of a
different index, margin or rate cap or floor on another adjustable rate mortgage
loan. Therefore, as prevailing market interest rates decline, prepayment speeds
would be expected to accelerate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity therein, to meet cash flow
needs or to make other investments. In addition, some borrowers may be motivated
by federal and state tax laws (which are subject to change) to sell Mortgaged
Properties prior to the exhaustion of tax depreciation benefits. The Depositor
makes no representation as to the particular factors that will affect the
prepayment of the Mortgage Loans in any Trust Fund, as to the relative
importance of such factors, as to the percentage of the principal balance of
such Mortgage Loans that will be paid as of any date or as to the overall rate
of prepayment on such Mortgage Loans.
WEIGHTED AVERAGE LIFE AND MATURITY
The rate at which principal payments are received on the Mortgage Loans in
any Trust Fund will affect the ultimate maturity and the weighted average life
of one or more classes of the Certificates of such series. Unless otherwise
specified in the related Prospectus Supplement, weighted average life refers to
the average amount of time that will elapse from the date of issuance of an
instrument until each dollar allocable as principal of such instrument is repaid
to the investor.
The weighted average life and maturity of a class of Certificates of any
series will be influenced by the rate at which principal on the related Mortgage
Loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments by borrowers and
also prepayments resulting from liquidations of Mortgage Loans due to default,
casualties or condemnations affecting the related Mortgaged Properties and
purchases of Mortgage Loans out of the related Trust Fund), is paid to such
class. Prepayment rates on loans are commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment model
or the Standard Prepayment Assumption ("SPA") prepayment model. CPR represents
an assumed constant rate of prepayment each month (expressed as an annual
percentage) relative to the then outstanding principal balance of a pool of
mortgage loans for the life of such loans. SPA represents an assumed variable
rate of prepayment each month (expressed as an annual percentage) relative to
the then outstanding principal balance of a pool of mortgage loans, with
different prepayment assumptions often expressed as percentages of SPA. For
example, a prepayment assumption of 100% of SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month, and in
each month thereafter during the life of the loans, 100% of SPA assumes a
constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. Thus, it is unlikely that the
prepayment experience of the Mortgage Loans included in any Trust Fund will
conform to any particular level of CPR or SPA.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of Offered Certificates of such series with a Certificate Balance,
and the percentage of the initial Certificate Balance of each such class that
would be outstanding on specified Distribution Dates, based on the assumptions
stated in such Prospectus Supplement, including assumptions that prepayments on
the related Mortgage Loans are made at rates corresponding to
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various percentages of CPR or SPA, or at such other rates specified in such
Prospectus Supplement. Such tables and assumptions will illustrate the
sensitivity of the weighted average lives of the Certificates to various assumed
prepayment rates and will not be intended to predict, or to provide information
that will enable investors to predict, the actual weighted average lives of the
Certificates.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Some or all of the Mortgage
Loans included in a particular Trust Fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related Mortgaged Property, there is a possibility that Mortgage Loans that
require balloon payments may default at maturity, or that the maturity of such a
Mortgage Loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the borrower or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the Master
Servicer or the Special Servicer, to the extent and under the circumstances set
forth herein and in the related Prospectus Supplement, may be authorized to
modify Mortgage Loans that are in default or as to which a payment default is
imminent. Any defaulted balloon payment or modification that extends the
maturity of a Mortgage Loan may delay distributions of principal on a class of
Offered Certificates and thereby extend the weighted average life of such
Certificates and, if such Certificates were purchased at a discount, reduce the
yield thereon.
Negative Amortization. The weighted average life of a class of
Certificates can be affected by Mortgage Loans that permit negative amortization
to occur (that is, Mortgage Loans that provide for the current payment of
interest calculated at a rate lower than the rate at which interest accrues
thereon, with the unpaid portion of such interest being added to the related
principal balance). Negative amortization on one or more Mortgage Loans in any
Trust Fund may result in negative amortization on the Offered Certificates of
the related series. The related Prospectus Supplement will describe, if
applicable, the manner in which negative amortization in respect of the Mortgage
Loans in any Trust Fund is allocated among the respective classes of
Certificates of the related series. The portion of any Mortgage Loan negative
amortization allocated to a class of Certificates may result in a deferral of
some or all of the interest payable thereon, which deferred interest may be
added to the Certificate Balance thereof. In addition, an ARM Loan that permits
negative amortization would be expected during a period of increasing interest
rates to amortize at a slower rate (and perhaps not at all) than if interest
rates were declining or were remaining constant. Such slower rate of Mortgage
Loan amortization would correspondingly be reflected in a slower rate of
amortization for one or more classes of Certificates of the related series.
Accordingly, the weighted average lives of Mortgage Loans that permit negative
amortization (and that of the classes of Certificates to which any such negative
amortization would be allocated or that would bear the effects of a slower rate
of amortization on such Mortgage Loans) may increase as a result of such
feature.
Negative amortization may occur in respect of an ARM Loan that (1) limits
the amount by which its scheduled payment may adjust in response to a change in
its Mortgage Rate, (2) provides that its scheduled payment will adjust less
frequently than its Mortgage Rate or (3) provides for constant scheduled
payments notwithstanding adjustments to its Mortgage Rate. Accordingly, during a
period of declining interest rates, the scheduled payment on such a Mortgage
Loan may exceed the amount necessary to amortize the loan fully over its
remaining amortization schedule and pay interest at the then applicable Mortgage
Rate, thereby resulting in the accelerated amortization of such Mortgage Loan.
Any such acceleration in amortization of its principal balance will shorten the
weighted average life of such Mortgage Loan and, correspondingly, the weighted
average lives of those classes of Certificates entitled to a portion of the
principal payments on such Mortgage Loan.
The extent to which the yield on any Offered Certificate will be affected
by the inclusion in the related Trust Fund of Mortgage Loans that permit
negative amortization, will depend upon (1) whether such Offered Certificate was
purchased at a premium or a discount and (2) the extent to which the payment
characteristics of such Mortgage Loans delay or accelerate the distributions of
principal on such Certificate (or, in the case of
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a Stripped Interest Certificate, delay or accelerate the reduction of the
notional amount thereof). See "-- Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the Mortgage Loans that are foreclosed in relation to the
number and principal amount of Mortgage Loans that are repaid in accordance with
their terms will affect the weighted average lives of those Mortgage Loans and,
accordingly, the weighted average lives of and yields on the Certificates of the
related series. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings or otherwise, may also
have an effect upon the payment patterns of particular Mortgage Loans and thus
the weighted average lives of and yields on the Certificates of the related
series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
Offered Certificates of any series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the Mortgage Loans in the related Trust
Fund and the timing of such losses and shortfalls. In general, the earlier that
any such loss or shortfall occurs, the greater will be the negative effect on
yield for any class of Certificates that is required to bear the effects
thereof.
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates and/or (2)
establishing a priority of payments among such classes of Certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the Mortgage
Loans in the related Trust Fund.
Additional Certificate Amortization. In addition to entitling the holders
thereof to a specified portion (which may during specified periods range from
none to all) of the principal payments received on the Mortgage Assets in the
related Trust Fund, one or more classes of Certificates of any series, including
one or more classes of Offered Certificates of such series, may provide for
distributions of principal thereof from (1) amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual
Certificates, (2) Excess Funds or (3) any other amounts described in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, "Excess Funds" will, in general, represent that portion of the
amounts distributable in respect of the Certificates of any series on any
Distribution Date that represent (A) interest received or advanced on the
Mortgage Assets in the related Trust Fund that is in excess of the interest
currently accrued on the Certificates of such series, or (B) Prepayment
Premiums, payments from Equity Participations or any other amounts received on
the Mortgage Assets in the related Trust Fund that do not constitute interest
thereon or principal thereof.
The amortization of any class of Certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of such
Certificates and, if such Certificates were purchased at a premium, reduce the
yield thereon. The related Prospectus Supplement will discuss the relevant
factors to be considered in determining whether distributions of principal of
any class of Certificates out of such sources is likely to have any material
effect on the rate at which such Certificates are amortized and the consequent
yield with respect thereto.
THE DEPOSITOR
NationsLink Funding Corporation, a Delaware corporation (the "Depositor"),
was organized on December 13, 1995 for the limited purpose of acquiring, owning
and transferring Mortgage Assets and selling interests therein or bonds secured
thereby. The Depositor is a subsidiary of NationsBank, N.A. The Depositor
maintains its principal office at Bank of America Corporate Center, Charlotte,
North Carolina 28255. Its telephone number is (704) 386-2400.
Unless otherwise noted in the related Prospectus Supplement, neither the
Depositor nor any of the Depositor's affiliates will insure or guarantee
distributions on the Certificates of any series.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of Certificates will represent the entire beneficial ownership
interest in the Trust Fund created pursuant to the related Pooling and Servicing
Agreement. As described in the related Prospectus Supplement, the Certificates
of each series, including the Certificates of such series being offered for sale
(the "Offered Certificates"), may consist of one or more classes of Certificates
that, among other things:
- provide for the accrual of interest on the Certificate Balance or
Notional Amount thereof at a fixed, variable or adjustable rate;
- constitute Senior Certificates or Subordinate Certificates;
- constitute Stripped Interest Certificates or Stripped Principal
Certificates;
- provide for distributions of interest thereon or principal thereof
that commence only after the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such
series;
- provide for distributions of principal thereof to be made, from time
to time or for designated periods, at a rate that is faster (and, in
some cases, substantially faster) or slower (and, in some cases,
substantially slower) than the rate at which payments or other
collections of principal are received on the Mortgage Assets in the
related Trust Fund;
- provide for distributions of principal thereof to be made, subject to
available funds, based on a specified principal payment schedule or
other methodology; or
- provide for distributions based on collections on the Mortgage Assets
in the related Trust Fund attributable to Prepayment Premiums and
Equity Participations.
If so specified in the related Prospectus Supplement, a class of
Certificates may have two or more component parts, each having characteristics
that are otherwise described herein as being attributable to separate and
distinct classes. For example, a class of Certificates may have a Certificate
Balance on which it accrues interest at a fixed, variable or adjustable rate.
Such class of Certificates may also have certain characteristics attributable to
Stripped Interest Certificates insofar as it may also entitle the holders
thereof to distributions of interest accrued on a Notional Amount at a different
fixed, variable or adjustable rate. In addition, a class of Certificates may
accrue interest on one portion of its Certificate Balance at one fixed, variable
or adjustable rate and on another portion of its Certificate Balance at a
different fixed, variable or adjustable rate.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of Stripped Interest Certificates or REMIC Residual Certificates,
notional amounts or percentage interests, specified in the related Prospectus
Supplement. As provided in the related Prospectus Supplement, one or more
classes of Offered Certificates of any series may be issued in fully registered,
definitive form (such Certificates, "Definitive Certificates") or may be offered
in book-entry format (such Certificates, "Book-Entry Certificates") through the
facilities of DTC. The Offered Certificates of each series (if issued as
Definitive Certificates) may be transferred or exchanged, subject to any
restrictions on transfer described in the related Prospectus Supplement, at the
location specified in the related Prospectus Supplement, without the payment of
any service charges, other than any tax or other governmental charge payable in
connection therewith. Interests in a class of Book-Entry Certificates will be
transferred on the book-entry records of DTC and its participating
organizations. If so specified in the related Prospectus Supplement,
arrangements may be made for clearance and settlement through CEDEL Bank,
Societe Anonyme, or the Euroclear System (in Europe) if they are participants in
DTC.
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DISTRIBUTIONS
Distributions on the Certificates of each series will be made on each
Distribution Date from the Available Distribution Amount for such series and
such Distribution Date. Unless otherwise provided in the related Prospectus
Supplement, the "Available Distribution Amount" for any series of Certificates
and any Distribution Date will refer to the total of all payments or other
collections (or advances in lieu thereof) on, under or in respect of the
Mortgage Assets and any other assets included in the related Trust Fund that are
available for distribution to the holders of Certificates of such series on such
date. The particular components of the Available Distribution Amount for any
series and Distribution Date will be more specifically described in the related
Prospectus Supplement. In general, the Distribution Date for a series of
Certificates will be the 20th day of each month (or, if any such 20th day is not
a business day, the next succeeding business day), commencing in the month
immediately following the month in which such series of Certificates is issued.
Except as otherwise specified in the related Prospectus Supplement,
distributions on the Certificates of each series (other than the final
distribution in retirement of any such Certificate) will be made to the persons
in whose names such Certificates are registered at the close of business on the
last business day of the month preceding the month in which the applicable
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date (the
"Determination Date") specified in the related Prospectus Supplement. All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such class
in proportion to the respective Percentage Interests evidenced thereby unless
otherwise specified in the related Prospectus Supplement. Payments will be made
either by wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has provided the person required to make
such payments with wiring instructions no later than the related Record Date or
such other date specified in the related Prospectus Supplement (and, if so
provided in the related Prospectus Supplement, such Certificateholder holds
Certificates in the requisite amount or denomination specified therein), or by
check mailed to the address of such Certificateholder as it appears on the
Certificate Register; provided, however, that the final distribution in
retirement of any class of Certificates (whether Definitive Certificates or
Book-Entry Certificates) will be made only upon presentation and surrender of
such Certificates at the location specified in the notice to Certificateholders
of such final distribution. The undivided percentage interest (the "Percentage
Interest") represented by an Offered Certificate of a particular class will be
equal to the percentage obtained by dividing the initial principal balance or
notional amount of such Certificate by the initial Certificate Balance or
Notional Amount of such class.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates of each series (other than certain classes of
Stripped Principal Certificates and certain classes of REMIC Residual
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which in each case may be fixed, variable or adjustable. The related
Prospectus Supplement will specify the Pass-Through Rate or, in the case of a
variable or adjustable Pass-Through Rate, the method for determining the
Pass-Through Rate, for each class of Offered Certificates. Unless otherwise
specified in the related Prospectus Supplement, interest on the Certificates of
each series will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of any class of Certificates (other
than a class of Accrual Certificates, which will be entitled to distributions of
accrued interest commencing only on the Distribution Date or under the
circumstances specified in the related Prospectus Supplement, and other than any
class of Stripped Principal Certificates or REMIC Residual Certificates that is
not entitled to any distributions of interest) will be made on each Distribution
Date based on the Accrued Certificate Interest for such class and such
Distribution Date, subject to the sufficiency of that portion, if any, of the
Available Distribution Amount allocable to such class on such Distribution Date.
Prior to the time interest is distributable on any class of Accrual
Certificates, the amount of Accrued Certificate Interest otherwise distributable
on such class will be added to the Certificate Balance thereof on each
Distribution Date or otherwise deferred as described in the related Prospectus
Supplement. With respect to each class of Certificates (other than certain
classes of Stripped Interest Certificates and certain classes of REMIC Residual
Certificates), the "Accrued Certificate
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Interest" for each Distribution Date will be equal to interest at the applicable
Pass-Through Rate accrued for a specified period (generally the most recently
ended calendar month) on the outstanding Certificate Balance of such class of
Certificates immediately prior to such Distribution Date. Unless otherwise
provided in the related Prospectus Supplement, the Accrued Certificate Interest
for each Distribution Date on a class of Stripped Interest Certificates will be
similarly calculated except that it will accrue on a notional amount (a
"Notional Amount") that is either (1) based on the principal balances of some or
all of the Mortgage Assets in the related Trust Fund or (2) equal to the
Certificate Balances of one or more other classes of Certificates of the same
series. Reference to a Notional Amount with respect to a class of Stripped
Interest Certificates is solely for convenience in making certain calculations
and does not represent the right to receive any distributions of principal. If
so specified in the related Prospectus Supplement, the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance of)
one or more classes of the Certificates of a series may be reduced to the extent
that any Prepayment Interest Shortfalls, as described under "Yield and Maturity
Considerations -- Certain Shortfalls in Collections of Interest", exceed the
amount of any sums that are applied to offset the amount of such shortfalls. The
particular manner in which such shortfalls will be allocated among some or all
of the classes of Certificates of that series will be specified in the related
Prospectus Supplement. The related Prospectus Supplement will also describe the
extent to which the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise be
added to the Certificate Balance of) a class of Offered Certificates may be
reduced as a result of any other contingencies, including delinquencies, losses
and deferred interest on or in respect of the Mortgage Assets in the related
Trust Fund. Unless otherwise provided in the related Prospectus Supplement, any
reduction in the amount of Accrued Certificate Interest otherwise distributable
on a class of Certificates by reason of the allocation to such class of a
portion of any deferred interest on or in respect of the Mortgage Assets in the
related Trust Fund will result in a corresponding increase in the Certificate
Balance of such class. See "Risk Factors -- Effect of Prepayments on Average
Life of Certificates" and "-- Effect of Prepayments on Yield of Certificates"
and "Yield and Maturity Considerations -- Certain Shortfalls in Collections of
Interest".
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of Certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance, which, at any time, will equal
the then maximum amount that the holders of Certificates of such class will be
entitled to receive as principal out of the future cash flow on the Mortgage
Assets and other assets included in the related Trust Fund. The outstanding
Certificate Balance of a class of Certificates will be reduced by distributions
of principal made thereon from time to time and, if and to the extent so
provided in the related Prospectus Supplement, further by any losses incurred in
respect of the related Mortgage Assets allocated thereto from time to time. In
turn, the outstanding Certificate Balance of a class of Certificates may be
increased as a result of any deferred interest on or in respect of the related
Mortgage Assets being allocated thereto from time to time, and will be
increased, in the case of a class of Accrual Certificates prior to the
Distribution Date on which distributions of interest thereon are required to
commence, by the amount of any Accrued Certificate Interest in respect thereof
(reduced as described above). The initial aggregate Certificate Balance of all
classes of a series of Certificates will not be greater than the aggregate
outstanding principal balance of the related Mortgage Assets as of a specified
date (the "Cut-off Date"), after application of scheduled payments due on or
before such date, whether or not received. The initial Certificate Balance of
each class of a series of Certificates will be specified in the related
Prospectus Supplement. As and to the extent described in the related Prospectus
Supplement, distributions of principal with respect to a series of Certificates
will be made on each Distribution Date to the holders of the class or classes of
Certificates of such series entitled thereto until the Certificate Balances of
such Certificates have been reduced to zero. Distributions of principal with
respect to one or more classes of Certificates may be made at a rate that is
faster (and, in some cases, substantially faster) than the rate at which
payments or other collections of principal are received on the Mortgage Assets
in the related Trust Fund. Distributions of principal with respect to one or
more classes of Certificates may not commence until the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
the same series, or may be made at a rate that is slower (and, in some cases,
substantially slower) than the rate at
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which payments or other collections of principal are received on the Mortgage
Assets in the related Trust Fund. Distributions of principal with respect to one
or more classes of Certificates (each such class, a "Controlled Amortization
Class") may be made, subject to available funds, based on a specified principal
payment schedule. Distributions of principal with respect to one or more other
classes of Certificates (each such class, a "Companion Class") may be contingent
on the specified principal payment schedule for a Controlled Amortization Class
of the same series and the rate at which payments and other collections of
principal on the Mortgage Assets in the related Trust Fund are received. Unless
otherwise specified in the related Prospectus Supplement, distributions of
principal of any class of Offered Certificates will be made on a pro rata basis
among all of the Certificates of such class.
DISTRIBUTIONS ON THE CERTIFICATES CONCERNING PREPAYMENT PREMIUMS OR CONCERNING
EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment Premiums or
payments in respect of Equity Participations received on or in connection with
the Mortgage Assets in any Trust Fund will be distributed on each Distribution
Date to the holders of the class of Certificates of the related series entitled
thereto in accordance with the provisions described in such Prospectus
Supplement. Alternatively, such items may be retained by the Depositor or any of
its affiliates or by any other specified person and/or may be excluded as Trust
Assets.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the Mortgage
Assets in any Trust Fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of Credit Support) will be allocated among
the respective classes of Certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related Prospectus
Supplement. As described in the related Prospectus Supplement, such allocations
may be effected by (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of Certificates and/or (2)
establishing a priority of payments among such classes of Certificates. See
"Description of Credit Support".
ADVANCES IN RESPECT OF DELINQUENCIES
If and to the extent provided in the related Prospectus Supplement, if a
Trust Fund includes Mortgage Loans, the Master Servicer, the Special Servicer,
the Trustee, any provider of Credit Support and/or any other specified person
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of Certificates for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than the
principal portion of any balloon payments) and interest that were due on or in
respect of such Mortgage Loans during the related Due Period and were delinquent
on the related Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the Mortgage Loans (including amounts drawn under any fund
or instrument constituting Credit Support) respecting which such advances were
made (as to any Mortgage Loan, "Related Proceeds") and such other specific
sources as may be identified in the related Prospectus Supplement, including, in
the case of a series that includes one or more classes of Subordinate
Certificates, if so identified, collections on other Mortgage Assets in the
related Trust Fund that would otherwise be distributable to the holders of one
or more classes of such Subordinate Certificates. No advance will be required to
be made by a Master Servicer, Special Servicer or Trustee if, in the judgment of
the Master Servicer, Special Servicer or Trustee, as the case may be, such
advance would not be recoverable from Related Proceeds or another specifically
identified source (any such advance, a "Nonrecoverable Advance"); and, if
previously made by a Master Servicer, Special Servicer or Trustee, a
Nonrecoverable Advance will be reimbursable thereto from any amounts in the
related Certificate Account prior to any distributions being made to the related
series of Certificateholders.
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If advances have been made by a Master Servicer, Special Servicer, Trustee
or other entity from excess funds in a Certificate Account, such Master
Servicer, Special Servicer, Trustee or other entity, as the case may be, will be
required to replace such funds in such Certificate Account on or prior to any
future Distribution Date to the extent that funds in such Certificate Account on
such Distribution Date are less than payments required to be made to the related
series of Certificateholders on such date. If so specified in the related
Prospectus Supplement, the obligation of a Master Servicer, Special Servicer,
Trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, any
entity making advances will be entitled to receive interest on certain or all of
such advances for a specified period during which such advances are outstanding
at the rate specified in such Prospectus Supplement, and such entity will be
entitled to payment of such interest periodically from general collections on
the Mortgage Loans in the related Trust Fund prior to any payment to the related
series of Certificateholders or as otherwise provided in the related Pooling and
Servicing Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any comparable
advancing obligation of a party to the related Pooling and Servicing Agreement
or of a party to the related MBS Agreement.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, together with the distribution to the holders of
each class of the Offered Certificates of a series, a Master Servicer, Manager
or Trustee, as provided in the related Prospectus Supplement, will forward to
each such holder, a statement (a "Distribution Date Statement") that, unless
otherwise provided in the related Prospectus Supplement, will set forth, among
other things, in each case to the extent applicable:
- the amount of such distribution to holders of such class of Offered
Certificates that was applied to reduce the Certificate Balance thereof;
- the amount of such distribution to holders of such class of Offered
Certificates that was applied to pay Accrued Certificate Interest;
- the amount, if any, of such distribution to holders of such class of
Offered Certificates that was allocable to (A) Prepayment Premiums and
(B) payments on account of Equity Participations;
- the amount, if any, by which such distribution is less than the amounts
to which holders of such class of Offered Certificates are entitled;
- if the related Trust Fund includes Mortgage Loans, the aggregate amount
of advances included in such distribution;
- if the related Trust Fund includes Mortgage Loans, the amount of
servicing compensation received by the related Master Servicer (and, if
payable directly out of the related Trust Fund, by any Special Servicer
and any Sub-Servicer) and, if the related Trust Fund includes MBS, the
amount of administrative compensation received by the MBS Administrator;
- information regarding the aggregate principal balance of the related
Mortgage Assets on or about such Distribution Date;
- if the related Trust Fund includes Mortgage Loans, information regarding
the number and aggregate principal balance of such Mortgage Loans that
are delinquent;
- if the related Trust Fund includes Mortgage Loans, information regarding
the aggregate amount of losses incurred and principal prepayments made
with respect to such Mortgage Loans during the related "Prepayment
Period" (that is, the specified period, generally corresponding in length
to the period between Distribution Dates, during which prepayments and
other unscheduled collections on
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the Mortgage Loans in the related Trust Fund must be received in order to
be distributed on a particular Distribution Date);
- the Certificate Balance or Notional Amount, as the case may be, of such
class of Certificates at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance or
Notional Amount due to the allocation of any losses in respect of the
related Mortgage Assets, any increase in such Certificate Balance or
Notional Amount due to the allocation of any negative amortization in
respect of the related Mortgage Assets and any increase in the
Certificate Balance of a class of Accrual Certificates, if any, in the
event that Accrued Certificate Interest has been added to such balance;
- if such class of Offered Certificates has a variable Pass-Through Rate or
an adjustable Pass-Through Rate, the Pass-Through Rate applicable thereto
for such Distribution Date and, if determinable, for the next succeeding
Distribution Date;
- the amount deposited in or withdrawn from any reserve fund on such
Distribution Date, and the amount remaining on deposit in such reserve
fund as of the close of business on such Distribution Date;
- if the related Trust Fund includes one or more instruments of Credit
Support, such as a letter of credit, an insurance policy and/or a surety
bond, the amount of coverage under each such instrument as of the close
of business on such Distribution Date; and
- the amount of Credit Support being afforded by any classes of Subordinate
Certificates.
In the case of information furnished pursuant to the first 3 bulleted items
above, the amounts will be expressed as a dollar amount per specified
denomination of the relevant class of Offered Certificates or as a percentage.
The Prospectus Supplement for each series of Certificates may describe
additional information to be included in reports to the holders of the Offered
Certificates of such series.
Within a reasonable period of time after the end of each calendar year, the
Master Servicer, Manager or Trustee for a series of Certificates, as the case
may be, will be required to furnish to each person who at any time during the
calendar year was a holder of an Offered Certificate of such series a statement
containing the information set forth in the first 3 bulleted items above,
aggregated for such calendar year or the applicable portion thereof during which
such person was a Certificateholder. Such obligation will be deemed to have been
satisfied to the extent that substantially comparable information is provided
pursuant to any requirements of the Code as are from time to time in force. See,
however, "-- Book-Entry Registration and Definitive Certificates" below.
If the Trust Fund for a series of Certificates includes MBS, the ability of
the related Master Servicer, Manager or Trustee, as the case may be, to include
in any Distribution Date Statement information regarding the mortgage loans
underlying such MBS will depend on the reports received with respect to such
MBS. In such cases, the related Prospectus Supplement will describe the
loan-specific information to be included in the Distribution Date Statements
that will be forwarded to the holders of the Offered Certificates of that series
in connection with distributions made to them.
VOTING RIGHTS
The voting rights evidenced by each series of Certificates (as to such
series, the "Voting Rights") will be allocated among the respective classes of
such series in the manner described in the related Prospectus Supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the related Pooling and
Servicing Agreement and as otherwise specified in the related Prospectus
Supplement. See "The Pooling and Servicing Agreements -- Amendment". The holders
of specified amounts of Certificates of a particular series will have the right
to act as a group to remove the related Trustee and also upon the occurrence of
certain events which if continuing would constitute an Event of Default on the
part of the related Master Servicer, Special Servicer or REMIC Administrator.
See "The
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Pooling and Servicing Agreements -- Events of Default", "-- Rights Upon Event of
Default" and "-- Resignation and Removal of the Trustee".
TERMINATION
The obligations created by the Pooling and Servicing Agreement for each
series of Certificates will terminate following (1) the final payment or other
liquidation of the last Mortgage Asset subject thereto or the disposition of all
property acquired upon foreclosure of any Mortgage Loan subject thereto and (2)
the payment (or provision for payment) to the Certificateholders of that series
of all amounts required to be paid to them pursuant to such Pooling and
Servicing Agreement. Written notice of termination of a Pooling and Servicing
Agreement will be given to each Certificateholder of the related series, and the
final distribution will be made only upon presentation and surrender of the
Certificates of such series at the location to be specified in the notice of
termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the Mortgage Assets in the related Trust Fund by the party or parties
specified therein, under the circumstances and in the manner set forth therein.
If so provided in the related Prospectus Supplement upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount or upon a specified date, a party designated
therein may be authorized or required to solicit bids for the purchase of all
the Mortgage Assets of the related Trust Fund, or of a sufficient portion of
such Mortgage Assets to retire such class or classes, under the circumstances
and in the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the Prospectus Supplement for a series of Certificates,
one or more classes of the Offered Certificates of such series will be offered
in book-entry format through the facilities of DTC, and each such class will be
represented by one or more global Certificates registered in the name of DTC or
its nominee.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking corporation" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic computerized book-entry
changes in their accounts, thereby eliminating the need for physical movement of
securities certificates. "Direct Participants", which maintain accounts with
DTC, include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system also is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants are
on file with the Commission.
Purchases of Book-Entry Certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the Book-Entry
Certificates on DTC's records. The ownership interest of each actual purchaser
of a Book-Entry Certificate (a "Certificate Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Certificate Owners will not
receive written confirmation from DTC of their purchases, but Certificate Owners
are expected to receive written confirmations providing details of such
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which each Certificate Owner entered into the
transaction. Transfers of ownership interests in the Book-Entry Certificates are
to be accomplished by entries made on the books of Participants acting on behalf
of Certificate Owners. Certificate Owners will not receive certificates
representing their ownership interests in the Book-Entry Certificates, except in
the event that use of the book-entry system for the Book-Entry Certificates of
any series is discontinued as described below.
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DTC has no knowledge of the actual Certificate Owners of the Book-Entry
Certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Certificates are credited, which may or may not be the
Certificate Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Certificate Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related Distribution
Date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on such date.
Disbursement of such distributions by Participants to Certificate Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of each such Participant (and not
of DTC, the Depositor or any Trustee, Master Servicer, Special Servicer or
Manager), subject to any statutory or regulatory requirements as may be in
effect from time to time. Accordingly, under a book-entry system, Certificate
Owners may receive payments after the related Distribution Date.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the related Pooling and Servicing
Agreement) of Book-Entry Certificates will be the nominee of DTC, and the
Certificate Owners will not be recognized as Certificateholders under the
Pooling and Servicing Agreement. Certificate Owners will be permitted to
exercise the rights of Certificateholders under the related Pooling and
Servicing Agreement only indirectly through the Participants who in turn will
exercise their rights through DTC. The Depositor has been informed that DTC will
take action permitted to be taken by a Certificateholder under a Pooling and
Servicing Agreement only at the direction of one or more Direct Participants to
whose account with DTC interests in the Book-Entry Certificates are credited.
Because DTC can act only on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants and certain Certificate Owners, the ability
of a Certificate Owner to pledge its interest in Book-Entry Certificates to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of its interest in Book-Entry Certificates, may be limited
due to the lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued as Definitive
Certificates to Certificate Owners or their nominees, rather than to DTC or its
nominee, only if (1) the Depositor advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Certificates and the Depositor is unable to locate a
qualified successor or (2) the Depositor, at its option, elects to terminate the
book-entry system through DTC with respect to such Certificates. Upon the
occurrence of either of the events described in the preceding sentence, DTC will
be required to notify all Direct Participants of the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the certificate or
certificates representing a class of Book-Entry Certificates, together with
instructions for registration, the Trustee for the related series or other
designated party will be required to issue to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the holders of such Definitive Certificates will be recognized as
"Certificateholders" under and within the meaning of the related Pooling and
Servicing Agreement.
THE POOLING AND SERVICING AGREEMENTS
GENERAL
The Certificates of each series will be issued pursuant to a pooling and
servicing agreement or other agreement specified in the related Prospectus
Supplement (in any case, a "Pooling and Servicing Agreement"). In general, the
parties to a Pooling and Servicing Agreement will include the Depositor, the
Trustee,
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the Master Servicer, the Special Servicer and, if one or more REMIC elections
have been made with respect to the Trust Fund, the REMIC Administrator. However,
a Pooling and Servicing Agreement that relates to a Trust Fund that includes MBS
may include a Manager as a party, but may not include a Master Servicer, Special
Servicer or other servicer as a party. All parties to each Pooling and Servicing
Agreement under which Certificates of a series are issued will be identified in
the related Prospectus Supplement. If so specified in the related Prospectus
Supplement, an affiliate of the Depositor, or the Mortgage Asset Seller or an
affiliate thereof, may perform the functions of Master Servicer, Special
Servicer, Manager or REMIC Administrator. If so specified in the related
Prospectus Supplement, the Master Servicer may also perform the duties of
Special Servicer, and the Master Servicer, the Special Servicer or the Trustee
may also perform the duties of REMIC Administrator. Any party to a Pooling and
Servicing Agreement or any affiliate thereof may own Certificates issued
thereunder; however, unless other specified in the related Prospectus
Supplement, except with respect to required consents to certain amendments to a
Pooling and Servicing Agreement, Certificates issued thereunder that are held by
the Master Servicer or Special Servicer for the related Series will not be
allocated Voting Rights.
A form of a pooling and servicing agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. However, the
provisions of each Pooling and Servicing Agreement will vary depending upon the
nature of the Certificates to be issued thereunder and the nature of the related
Trust Fund. The following summaries describe certain provisions that may appear
in a Pooling and Servicing Agreement under which Certificates that evidence
interests in Mortgage Loans will be issued. The Prospectus Supplement for a
series of Certificates will describe any provision of the related Pooling and
Servicing Agreement that materially differs from the description thereof
contained in this Prospectus and, if the related Trust Fund includes MBS, will
summarize all of the material provisions of the related Pooling and Servicing
Agreement. The summaries herein do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the provisions
of the Pooling and Servicing Agreement for each series of Certificates and the
description of such provisions in the related Prospectus Supplement. The
Depositor will provide a copy of the Pooling and Servicing Agreement (without
exhibits) that relates to any series of Certificates without charge upon written
request of a holder of a Certificate of such series addressed to it at its
principal executive offices specified herein under "The Depositor".
ASSIGNMENT OF MORTGAGE LOANS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Mortgage Loans to
be included in the related Trust Fund, together with, unless otherwise specified
in the related Prospectus Supplement, all principal and interest to be received
on or with respect to such Mortgage Loans after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date. The Trustee will,
concurrently with such assignment, deliver the Certificates to or at the
direction of the Depositor in exchange for the Mortgage Loans and the other
assets to be included in the Trust Fund for such series. Each Mortgage Loan will
be identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule generally will include detailed information
that pertains to each Mortgage Loan included in the related Trust Fund, which
information will typically include the address of the related Mortgaged Property
and type of such property; the Mortgage Rate and, if applicable, the applicable
index, gross margin, adjustment date and any rate cap information; the original
and remaining term to maturity; the amortization term; and the original and
outstanding principal balance.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Depositor will, as to each Mortgage Loan to be included in a
Trust Fund, deliver, or cause to be delivered, to the related Trustee (or to a
custodian appointed by the Trustee as described below) the Mortgage Note
endorsed, without recourse, either in blank or to the order of such Trustee (or
its nominee), the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office), an assignment
of the Mortgage in blank or to the Trustee (or its nominee) in recordable form,
together with any intervening assignments of the Mortgage with evidence of
recording thereon (except for any such assignment not returned from the public
recording office), and, if applicable, any riders or modifications to such
Mortgage Note and Mortgage, together with certain other documents at such times
as set forth in the related Pooling
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and Servicing Agreement. Such assignments may be blanket assignments covering
Mortgages on Mortgaged Properties located in the same county, if permitted by
law. Notwithstanding the foregoing, a Trust Fund may include Mortgage Loans
where the original Mortgage Note is not delivered to the Trustee if the
Depositor delivers, or causes to be delivered, to the related Trustee (or such
custodian) a copy or a duplicate original of the Mortgage Note, together with an
affidavit certifying that the original thereof has been lost or destroyed. In
addition, if the Depositor cannot deliver, with respect to any Mortgage Loan,
the Mortgage or any intervening assignment with evidence of recording thereon
concurrently with the execution and delivery of the related Pooling and
Servicing Agreement because of a delay caused by the public recording office,
the Depositor will deliver, or cause to be delivered, to the related Trustee (or
such custodian) a true and correct photocopy of such Mortgage or assignment as
submitted for recording. The Depositor will deliver, or cause to be delivered,
to the related Trustee (or such custodian) such Mortgage or assignment with
evidence of recording indicated thereon after receipt thereof from the public
recording office. If the Depositor cannot deliver, with respect to any Mortgage
Loan, the Mortgage or any intervening assignment with evidence of recording
thereon concurrently with the execution and delivery of the related Pooling and
Servicing Agreement because such Mortgage or assignment has been lost, the
Depositor will deliver, or cause to be delivered, to the related Trustee (or
such custodian) a true and correct photocopy of such Mortgage or assignment with
evidence of recording thereon. Unless otherwise specified in the related
Prospectus Supplement, assignments of Mortgage to the Trustee (or its nominee)
will be recorded in the appropriate public recording office, except in states
where, in the opinion of counsel acceptable to the Trustee, such recording is
not required to protect the Trustee's interests in the Mortgage Loan against the
claim of any subsequent transferee or any successor to or creditor of the
Depositor or the originator of such Mortgage Loan.
The Trustee (or a custodian appointed by the Trustee) for a series of
Certificates will be required to review the Mortgage Loan documents delivered to
it within a specified period of days after receipt thereof, and the Trustee (or
such custodian) will hold such documents in trust for the benefit of the
Certificateholders of such series. Unless otherwise specified in the related
Prospectus Supplement, if any such document is found to be missing or defective,
and such omission or defect, as the case may be, materially and adversely
affects the interests of the Certificateholders of the related series, the
Trustee (or such custodian) will be required to notify the Master Servicer, the
Special Servicer and the Depositor, and one of such persons will be required to
notify the relevant Mortgage Asset Seller. In that case, and if the Mortgage
Asset Seller cannot deliver the document or cure the defect within a specified
number of days after receipt of such notice, then, except as otherwise specified
below or in the related Prospectus Supplement, the Mortgage Asset Seller will be
obligated to repurchase the related Mortgage Loan from the Trustee at a price
generally equal to the unpaid principal balance thereof, together with accrued
but unpaid interest through a date on or about the date of purchase, or at such
other price as will be specified in the related Prospectus Supplement (in any
event, the "Purchase Price"). If so provided in the Prospectus Supplement for a
series of Certificates, a Mortgage Asset Seller, in lieu of repurchasing a
Mortgage Loan as to which there is missing or defective loan documentation, will
have the option, exercisable upon certain conditions and/or within a specified
period after initial issuance of such series of Certificates, to replace such
Mortgage Loan with one or more other mortgage loans, in accordance with
standards that will be described in the Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, this repurchase or substitution
obligation will constitute the sole remedy to holders of the Certificates of any
series or to the related Trustee on their behalf for missing or defective
Mortgage Loan documentation, and neither the Depositor nor, unless it is the
Mortgage Asset Seller, the Master Servicer or the Special Servicer will be
obligated to purchase or replace a Mortgage Loan if a Mortgage Asset Seller
defaults on its obligation to do so.
The Trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the Mortgage Loans
in any Trust Fund and to maintain possession of and, if applicable, to review
the documents relating to such Mortgage Loans, in any case as the agent of the
Trustee. The identity of any such custodian to be appointed on the date of
initial issuance of the Certificates will be set forth in the related Prospectus
Supplement. Any such custodian may be an affiliate of the Depositor.
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REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, the Depositor will, with respect to each Mortgage Loan in the
related Trust Fund, make or assign, or cause to be made or assigned, certain
representations and warranties (the person making such representations and
warranties, the "Warranting Party") covering, by way of example: (1) the
accuracy of the information set forth for such Mortgage Loan on the schedule of
Mortgage Loans appearing as an exhibit to the related Pooling and Servicing
Agreement; (2) the enforceability of the related Mortgage Note and Mortgage and
the existence of title insurance insuring the lien priority of the related
Mortgage; (3) the Warranting Party's title to the Mortgage Loan and the
authority of the Warranting Party to sell the Mortgage Loan; and (4) the payment
status of the Mortgage Loan. It is expected that in most cases the Warranting
Party will be the Mortgage Asset Seller; however, the Warranting Party may also
be an affiliate of the Mortgage Asset Seller, the Depositor or an affiliate of
the Depositor, the Master Servicer, the Special Servicer or another person
acceptable to the Depositor. The Warranting Party, if other than the Mortgage
Asset Seller, will be identified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, each
Pooling and Servicing Agreement will provide that the Master Servicer and/or
Trustee will be required to notify promptly any Warranting Party of any breach
of any representation or warranty made by it in respect of a Mortgage Loan that
materially and adversely affects the interests of the Certificateholders of the
related series. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the related Prospectus Supplement, it will be
obligated to repurchase such Mortgage Loan from the Trustee at the applicable
Purchase Price. If so provided in the Prospectus Supplement for a series of
Certificates, a Warranting Party, in lieu of repurchasing a Mortgage Loan as to
which a breach has occurred, will have the option, exercisable upon certain
conditions and/or within a specified period after initial issuance of such
series of Certificates, to replace such Mortgage Loan with one or more other
mortgage loans, in accordance with standards that will be described in the
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, this repurchase or substitution obligation will constitute the sole
remedy available to holders of the Certificates of any series or to the related
Trustee on their behalf for a breach of representation and warranty by a
Warranting Party, and neither the Depositor nor the Master Servicer, in either
case unless it is the Warranting Party, will be obligated to purchase or replace
a Mortgage Loan if a Warranting Party defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a Mortgage Loan as of a date prior to the date upon which the related
series of Certificates is issued, and thus may not address events that may occur
following the date as of which they were made. However, the Depositor will not
include any Mortgage Loan in the Trust Fund for any series of Certificates if
anything has come to the Depositor's attention that would cause it to believe
that the representations and warranties made in respect of such Mortgage Loan
will not be accurate in all material respects as of the date of issuance. The
date as of which the representations and warranties regarding the Mortgage Loans
in any Trust Fund were made will be specified in the related Prospectus
Supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer and the Special Servicer for any Mortgage Pool, directly or through
Sub-Servicers, will each be obligated under the related Pooling and Servicing
Agreement to service and administer the Mortgage Loans in such Mortgage Pool for
the benefit of the related Certificateholders, in accordance with applicable law
and further in accordance with the terms of such Pooling and Servicing
Agreement, such Mortgage Loans and any instrument of Credit Support included in
the related Trust Fund. Subject to the foregoing, the Master Servicer and the
Special Servicer will each have full power and authority to do any and all
things in connection with such servicing and administration that it may deem
necessary and desirable.
As part of its servicing duties, each of the Master Servicer and the
Special Servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage
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Loans that it services and will be obligated to follow such collection
procedures as it would follow with respect to mortgage loans that are comparable
to such Mortgage Loans and held for its own account, provided (1) such
procedures are consistent with the terms of the related Pooling and Servicing
Agreement and (2) do not impair recovery under any instrument of Credit Support
included in the related Trust Fund. Consistent with the foregoing, the Master
Servicer and the Special Servicer will each be permitted, in its discretion,
unless otherwise specified in the related Prospectus Supplement, to waive any
Prepayment Premium, late payment charge or other charge in connection with any
Mortgage Loan.
The Master Servicer and the Special Servicer for any Trust Fund, either
separately or jointly, directly or through Sub-Servicers, will also be required
to perform as to the Mortgage Loans in such Trust Fund various other customary
functions of a servicer of comparable loans, including maintaining escrow or
impound accounts, if required under the related Pooling and Servicing Agreement,
for payment of taxes, insurance premiums, ground rents and similar items, or
otherwise monitoring the timely payment of those items; attempting to collect
delinquent payments; supervising foreclosures; negotiating modifications;
conducting property inspections on a periodic or other basis; managing (or
overseeing the management of) Mortgaged Properties acquired on behalf of such
Trust Fund through foreclosure, deed-in-lieu of foreclosure or otherwise (each,
an "REO Property"); and maintaining servicing records relating to such Mortgage
Loans. The related Prospectus Supplement will specify when and the extent to
which servicing of a Mortgage Loan is to be transferred from the Master Servicer
to the Special Servicer. In general, and subject to the discussion in the
related Prospectus Supplement, a Special Servicer will be responsible for the
servicing and administration of: (1) Mortgage Loans that are delinquent in
respect of a specified number of scheduled payments; (2) Mortgage Loans as to
which the related borrower has entered into or consented to bankruptcy,
appointment of a receiver or conservator or similar insolvency proceeding, or
the related borrower has become the subject of a decree or order for such a
proceeding which shall have remained in force undischarged or unstayed for a
specified number of days; and (3) REO Properties. If so specified in the related
Prospectus Supplement, a Pooling and Servicing Agreement also may provide that
if a default on a Mortgage Loan has occurred or, in the judgment of the related
Master Servicer, a payment default is reasonably foreseeable, the related Master
Servicer may elect to transfer the servicing thereof, in whole or in part, to
the related Special Servicer. Unless otherwise provided in the related
Prospectus Supplement, when the circumstances no longer warrant a Special
Servicer's continuing to service a particular Mortgage Loan (e.g., the related
borrower is paying in accordance with the forbearance arrangement entered into
between the Special Servicer and such borrower), the Master Servicer will resume
the servicing duties with respect thereto. If and to the extent provided in the
related Pooling and Servicing Agreement and described in the related Prospectus
Supplement, a Special Servicer may perform certain limited duties in respect of
Mortgage Loans for which the Master Servicer is primarily responsible
(including, if so specified, performing property inspections and evaluating
financial statements); and a Master Servicer may perform certain limited duties
in respect of any Mortgage Loan for which the Special Servicer is primarily
responsible (including, if so specified, continuing to receive payments on such
Mortgage Loan (including amounts collected by the Special Servicer)), making
certain calculations with respect to such Mortgage Loan and making remittances
and preparing certain reports to the Trustee and/or Certificateholders with
respect to such Mortgage Loan. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be responsible for filing and
settling claims in respect of particular Mortgage Loans under any applicable
instrument of Credit Support. See "Description of Credit Support".
A mortgagor's failure to make required Mortgage Loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a mortgagor that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and otherwise to maintain and insure the
related Mortgaged Property. In general, the related Special Servicer will be
required to monitor any Mortgage Loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related Mortgaged Property, initiate
corrective action in cooperation with the Mortgagor if cure is likely, inspect
the related Mortgaged Property and take such other actions as it deems necessary
and appropriate. A significant period of time may elapse before the Special
Servicer is able to assess the success of any such corrective action or the need
for additional initiatives. The time within which the Special Servicer can make
the initial determination of appropriate action, evaluate the success of
corrective action, develop
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additional initiatives, institute foreclosure proceedings and actually foreclose
(or accept a deed to a Mortgaged Property in lieu of foreclosure) on behalf of
the Certificateholders of the related series may vary considerably depending on
the particular Mortgage Loan, the Mortgaged Property, the mortgagor, the
presence of an acceptable party to assume the Mortgage Loan and the laws of the
jurisdiction in which the Mortgaged Property is located. If a mortgagor files a
bankruptcy petition, the Special Servicer may not be permitted to accelerate the
maturity of the Mortgage Loan or to foreclose on the related Mortgaged Property
for a considerable period of time. See "Certain Legal Aspects of Mortgage
Loans -- Bankruptcy Laws."
Mortgagors may, from time to time, request partial releases of the
Mortgaged Properties, easements, consents to alteration or demolition and other
similar matters. In general, the Master Servicer may approve such a request if
it has determined, exercising its business judgment in accordance with the
applicable servicing standard, that such approval will not adversely affect the
security for, or the timely and full collectibility of, the related Mortgage
Loan. Any fee collected by the Master Servicer for processing such request will
be retained by the Master Servicer as additional servicing compensation.
In the case of Mortgage Loans secured by junior liens on the related
Mortgaged Properties, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be required to file (or cause to be filed)
of record a request for notice of any action by a superior lienholder under the
Senior Lien for the protection of the related Trustee's interest, where
permitted by local law and whenever applicable state law does not require that a
junior lienholder be named as a party defendant in foreclosure proceedings in
order to foreclose such junior lienholder's equity of redemption. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
also will be required to notify any superior lienholder in writing of the
existence of the Mortgage Loan and request notification of any action (as
described below) to be taken against the mortgagor or the Mortgaged Property by
the superior lienholder. If the Master Servicer is notified that any superior
lienholder has accelerated or intends to accelerate the obligations secured by
the related Senior Lien, or has declared or intends to declare a default under
the mortgage or the promissory note secured thereby, or has filed or intends to
file an election to have the related Mortgaged Property sold or foreclosed,
then, unless otherwise specified in the related Prospectus Supplement, the
Master Servicer and the Special Servicer will each be required to take, on
behalf of the related Trust Fund, whatever actions are necessary to protect the
interests of the related Certificateholders and/or to preserve the security of
the related Mortgage Loan, subject to the application of the REMIC Provisions.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer or Special Servicer, as applicable, will be required to advance the
necessary funds to cure the default or reinstate the Senior Lien, if such
advance is in the best interests of the related Certificateholders and the
Master Servicer or Special Servicer, as applicable, determines such advances are
recoverable out of payments on or proceeds of the related Mortgage Loan.
SUB-SERVICERS
A Master Servicer or Special Servicer may delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that, unless otherwise
specified in the related Prospectus Supplement, such Master Servicer or Special
Servicer will remain obligated under the related Pooling and Servicing
Agreement. A Sub-Servicer for any series of Certificates may be an affiliate of
the Depositor. Unless otherwise provided in the related Prospectus Supplement,
each sub-servicing agreement between a Master Servicer and a Sub-Servicer (a
"Sub-Servicing Agreement") must provide for servicing of the applicable Mortgage
Loans consistent with the related Pooling and Servicing Agreement. Unless
otherwise provided in the related Prospectus Supplement, the Master Servicer and
Special Servicer in respect of any Mortgage Asset Pool will each be required to
monitor the performance of Sub-Servicers retained by it and will have the right
to remove a Sub-Servicer retained by it at any time it considers such removal to
be in the best interests of Certificateholders.
Unless otherwise provided in the related Prospectus Supplement, a Master
Servicer or Special Servicer will be solely liable for all fees owed by it to
any Sub-Servicer, irrespective of whether the Master Servicer's or Special
Servicer's compensation pursuant to the related Pooling and Servicing Agreement
is sufficient to pay such fees. Each Sub-Servicer will be reimbursed by the
Master Servicer or Special Servicer, as the case may be, that retained it for
certain expenditures which it makes, generally to the same extent such Master
Servicer
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or Special Servicer would be reimbursed under a Pooling and Servicing Agreement.
See "-- Certificate Account" and "-- Servicing Compensation and Payment of
Expenses".
CERTIFICATE ACCOUNT
General. The Master Servicer, the Trustee and/or the Special Servicer
will, as to each Trust Fund that includes Mortgage Loans, establish and maintain
or cause to be established and maintained the corresponding Certificate Account,
which will be established so as to comply with the standards of each Rating
Agency that has rated any one or more classes of Certificates of the related
series. A Certificate Account may be maintained as an interest-bearing or a
noninterest-bearing account and the funds held therein may be invested pending
each succeeding Distribution Date in United States government securities and
other obligations that are acceptable to each Rating Agency that has rated any
one or more classes of Certificates of the related series ("Permitted
Investments"). Unless otherwise provided in the related Prospectus Supplement,
any interest or other income earned on funds in a Certificate Account will be
paid to the related Master Servicer, Trustee or Special Servicer as additional
compensation. A Certificate Account may be maintained with the related Master
Servicer, Special Servicer, Trustee or Mortgage Asset Seller or with a
depository institution that is an affiliate of any of the foregoing or of the
Depositor, provided that it complies with applicable Rating Agency standards. If
permitted by the applicable Rating Agency or Agencies, a Certificate Account may
contain funds relating to more than one series of mortgage pass-through
certificates and may contain other funds representing payments on mortgage loans
owned by the related Master Servicer or Special Servicer or serviced by either
on behalf of others.
Deposits. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related Prospectus Supplement, the following
payments and collections received or made by the Master Servicer, the Trustee or
the Special Servicer subsequent to the Cut-off Date (other than payments due on
or before the Cut-off Date) are to be deposited in the Certificate Account for
each Trust Fund that includes Mortgage Loans, within a certain period following
receipt (in the case of collections on or in respect of the Mortgage Loans) or
otherwise as provided in the related Pooling and Servicing Agreement:
- all payments on account of principal, including principal prepayments, on
the Mortgage Loans;
- all payments on account of interest on the Mortgage Loans, including any
default interest collected, in each case net of any portion thereof
retained by the Master Servicer or the Special Servicer as its servicing
compensation or as compensation to the Trustee;
- all proceeds received under any hazard, title or other insurance policy
that provides coverage with respect to a Mortgaged Property or the
related Mortgage Loan or in connection with the full or partial
condemnation of a Mortgaged Property (other than proceeds applied to the
restoration of the property or released to the related borrower)
(collectively, "Insurance and Condemnation Proceeds") and all other
amounts received and retained in connection with the liquidation of
defaulted Mortgage Loans or property acquired in respect thereof, by
foreclosure or otherwise (such amounts, together with those amounts
listed in the seventh bulleted item listed below, "Liquidation
Proceeds"), together with the net operating income (less reasonable
reserves for future expenses) derived from the operation of any Mortgaged
Properties acquired by the Trust Fund through foreclosure or otherwise;
- any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates;
- any advances made with respect to delinquent scheduled payments of
principal and interest on the Mortgage Loans;
- any amounts paid under any Cash Flow Agreement;
- all proceeds of the purchase of any Mortgage Loan, or property acquired
in respect thereof, by the Depositor, any Mortgage Asset Seller or any
other specified person as described under "-- Assignment of Mortgage
Loans; Repurchases" and "-- Representations and Warranties; Repurchases",
all proceeds of the purchase of any defaulted Mortgage Loan as described
under "-- Realization Upon
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Defaulted Mortgage Loans", and all proceeds of any Mortgage Asset
purchased as described under "Description of the
Certificates -- Termination";
- to the extent that any such item does not constitute additional servicing
compensation to the Master Servicer or the Special Servicer and is not
otherwise retained by the Depositor or another specified person, any
payments on account of modification or assumption fees, late payment
charges, Prepayment Premiums or Equity Participations with respect to the
Mortgage Loans;
- all payments required to be deposited in the Certificate Account with
respect to any deductible clause in any blanket insurance policy as
described under "-- Hazard Insurance Policies";
- any amount required to be deposited by the Master Servicer, the Special
Servicer or the Trustee in connection with losses realized on investments
for the benefit of the Master Servicer, the Special Servicer or the
Trustee, as the case may be, of funds held in the Certificate Account;
and
- any other amounts required to be deposited in the Certificate Account as
provided in the related Pooling and Servicing Agreement and described in
the related Prospectus Supplement.
Withdrawals. Unless otherwise provided in the related Pooling and
Servicing Agreement and described in the related Prospectus Supplement, a Master
Servicer, Trustee or Special Servicer may make withdrawals from the Certificate
Account for each Trust Fund that includes Mortgage Loans for any of the
following purposes:
- to make distributions to the Certificateholders on each Distribution
Date;
- to pay the Master Servicer or the Special Servicer any servicing fees not
previously retained thereby, such payment to be made out of payments and
other collections of interest on the particular Mortgage Loans as to
which such fees were earned;
- to reimburse the Master Servicer, the Special Servicer or any other
specified person for unreimbursed advances of delinquent scheduled
payments of principal and interest made by it, and certain unreimbursed
servicing expenses incurred by it, with respect to Mortgage Loans in the
Trust Fund and properties acquired in respect thereof, such reimbursement
to be made out of amounts that represent late payments collected on the
particular Mortgage Loans, Liquidation Proceeds and Insurance and
Condemnation Proceeds collected on the particular Mortgage Loans and
properties, and net income collected on the particular properties, with
respect to which such advances were made or such expenses were incurred
or out of amounts drawn under any form of Credit Support with respect to
such Mortgage Loans and properties, or if in the judgment of the Master
Servicer, the Special Servicer or such other person, as applicable, such
advances and/or expenses will not be recoverable from such amounts, such
reimbursement to be made from amounts collected on other Mortgage Loans
in the same Trust Fund or, if and to the extent so provided by the
related Pooling and Servicing Agreement and described in the related
Prospectus Supplement, only from that portion of amounts collected on
such other Mortgage Loans that is otherwise distributable on one or more
classes of Subordinate Certificates of the related series;
- if and to the extent described in the related Prospectus Supplement, to
pay the Master Servicer, the Special Servicer or any other specified
person interest accrued on the advances and servicing expenses described
in the bulleted clause immediately listed above incurred by it while such
remain outstanding and unreimbursed;
- to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments performed with respect to Mortgaged
Properties that constitute security for defaulted Mortgage Loans, and for
any containment, clean-up or remediation of hazardous wastes and
materials present on such Mortgaged Properties, as described under
"-- Realization Upon Defaulted Mortgage Loans";
- to reimburse the Master Servicer, the Special Servicer, the REMIC
Administrator, the Depositor, the Trustee, or any of their respective
directors, officers, employees and agents, as the case may be, for
certain expenses, costs and liabilities incurred thereby, as and to the
extent described under
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"-- Certain Matters Regarding the Master Servicer, the Special Servicer,
the REMIC Administrator and the Depositor" and "-- Certain Matters
Regarding the Trustee";
- if and to the extent described in the related Prospectus Supplement, to
pay the fees of the Trustee, the REMIC Administrator and any provider of
Credit Support;
- if and to the extent described in the related Prospectus Supplement, to
reimburse prior draws on any form of Credit Support;
- to pay the Master Servicer, the Special Servicer or the Trustee, as
appropriate, interest and investment income earned in respect of amounts
held in the Certificate Account as additional compensation;
- to pay any servicing expenses not otherwise required to be advanced by
the Master Servicer, the Special Servicer or any other specified person;
- if one or more elections have been made to treat the Trust Fund or
designated portions thereof as a REMIC, to pay any federal, state or
local taxes imposed on the Trust Fund or its assets or transactions, as
and to the extent described under "Certain Federal Income Tax
Consequences -- REMICs -- Prohibited Transactions Tax and Other Taxes";
- to pay for the cost of various opinions of counsel obtained pursuant to
the related Pooling and Servicing Agreement for the benefit of
Certificateholders;
- to make any other withdrawals permitted by the related Pooling and
Servicing Agreement and described in the related Prospectus Supplement;
and
- to clear and terminate the Certificate Account upon the termination of
the Trust Fund.
MODIFICATIONS, WAIVERS AND AMENDMENTS OF MORTGAGE LOANS
The Master Servicer and the Special Servicer may each agree to modify,
waive or amend any term of any Mortgage Loan serviced by it in a manner
consistent with the applicable Servicing Standard; provided that, unless
otherwise set forth in the related Prospectus Supplement, the modification,
waiver or amendment (1) will not affect the amount or timing of any scheduled
payments of principal or interest on the Mortgage Loan, (2) will not, in the
judgment of the Master Servicer or the Special Servicer, as the case may be,
materially impair the security for the Mortgage Loan or reduce the likelihood of
timely payment of amounts due thereon and (3) will not adversely affect the
coverage under any applicable instrument of Credit Support. Unless otherwise
provided in the related Prospectus Supplement, the Special Servicer also may
agree to any other modification, waiver or amendment if, in its judgment, (1) a
material default on the Mortgage Loan has occurred or a payment default is
imminent, (2) such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Mortgage Loan, taking into
account the time value of money, than would liquidation and (3) such
modification, waiver or amendment will not adversely affect the coverage under
any applicable instrument of Credit Support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
If a default on a Mortgage Loan has occurred, the Special Servicer, on
behalf of the Trustee, may at any time institute foreclosure proceedings,
exercise any power of sale contained in the related Mortgage, obtain a deed in
lieu of foreclosure, or otherwise acquire title to the related Mortgaged
Property, by operation of law or otherwise. Unless otherwise specified in the
related Prospectus Supplement, the Special Servicer may not, however, acquire
title to any Mortgaged Property, have a receiver of rents appointed with respect
to any Mortgaged Property or take any other action with respect to any Mortgaged
Property that would cause the Trustee, for the benefit of the related series of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Special Servicer has
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previously received a report prepared by a person who regularly conducts
environmental audits (which report will be an expense of the Trust Fund) and
either:
(1) such report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and (b) there
are no circumstances or conditions present at the Mortgaged Property that
have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(2) the Special Servicer, based solely (as to environmental matters
and related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the Mortgaged Property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (1)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value of
money, than not taking such actions. See "Certain Legal Aspects of Mortgage
Loans -- Environmental Considerations".
A Pooling and Servicing Agreement may grant to the Master Servicer, the
Special Servicer, a provider of Credit Support and/or the holder or holders of
certain classes of the related series of Certificates a right of first refusal
to purchase from the Trust Fund, at a predetermined price (which, if less than
the Purchase Price, will be specified in the related Prospectus Supplement), any
Mortgage Loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related Prospectus
Supplement, the Special Servicer may offer to sell any defaulted Mortgage Loan
if and when the Special Servicer determines, consistent with its normal
servicing procedures, that such a sale would produce a greater recovery, taking
into account the time value of money, than would liquidation of the related
Mortgaged Property. In the absence of any such sale, the Special Servicer will
generally be required to proceed against the related Mortgaged Property, subject
to the discussion above.
Unless otherwise provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Special Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property before the close of the third calendar
year following the year of acquisition, unless (1) the Internal Revenue Service
(the "IRS") grants an extension of time to sell such property or (2) the Trustee
receives an opinion of independent counsel to the effect that the holding of the
property by the Trust Fund for longer than such period will not result in the
imposition of a tax on the Trust Fund or cause the Trust Fund (or any designated
portion thereof) to fail to qualify as a REMIC under the Code at any time that
any Certificate is outstanding. Subject to the foregoing and any other tax-
related limitations, the Special Servicer will generally be required to attempt
to sell any Mortgaged Property so acquired on the same terms and conditions it
would if it were the owner. Unless otherwise provided in the related Prospectus
Supplement, if title to any Mortgaged Property is acquired by a Trust Fund as to
which a REMIC election has been made, the Special Servicer will also be required
to ensure that the Mortgaged Property is administered so that it constitutes
"foreclosure property" within the meaning of Code Section 860G(a)(8) at all
times, that the sale of such property does not result in the receipt by the
Trust Fund of any income from nonpermitted assets as described in Code Section
860F(a)(2)(B), and that the Trust Fund does not derive any "net income from
foreclosure property" within the meaning of Code Section 860G(c)(2), with
respect to such property unless the method of operation that produces such
income would produce a greater after-tax return than a different method of
operation of such property. If the Trust Fund acquires title to any Mortgaged
Property, the Special Servicer, on behalf of the Trust Fund, may retain an
independent contractor to manage and operate such property. The retention of an
independent contractor, however, will not relieve the Special Servicer of its
obligation to manage such Mortgaged Property as required under the related
Pooling and Servicing Agreement.
If Liquidation Proceeds collected with respect to a defaulted Mortgage Loan
are less than the outstanding principal balance of the defaulted Mortgage Loan
plus interest accrued thereon plus the aggregate amount of reimbursable expenses
incurred by the Special Servicer and/or the Master Servicer in connection with
such Mortgage Loan, then, to the extent that such shortfall is not covered by
any instrument or fund constituting Credit Support, the Trust Fund will realize
a loss in the amount of such shortfall. The Special Servicer and/or
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the Master Servicer will be entitled to reimbursement out of the Liquidation
Proceeds recovered on any defaulted Mortgage Loan, prior to the distribution of
such Liquidation Proceeds to Certificateholders, any and all amounts that
represent unpaid servicing compensation in respect of the Mortgage Loan,
unreimbursed servicing expenses incurred with respect to the Mortgage Loan and
any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan. In addition, if and to the extent set forth in the related
Prospectus Supplement, amounts otherwise distributable on the Certificates may
be further reduced by interest payable to the Master Servicer and/or Special
Servicer on such servicing expenses and advances.
Except as otherwise provided in the Prospectus Supplement, if any Mortgaged
Property suffers damage such that the proceeds, if any, of the related hazard
insurance policy are insufficient to restore fully the damaged property, neither
the Special Servicer nor the Master Servicer will be required to expend its own
funds to effect such restoration.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will require the Master Servicer (or the Special
Servicer with respect to Mortgage Loans serviced thereby) to use reasonable
efforts to cause each Mortgage Loan borrower to maintain a hazard insurance
policy that provides for such coverage as is required under the related Mortgage
or, if the Mortgage permits the holder thereof to dictate to the borrower the
insurance coverage to be maintained on the related Mortgaged Property, such
coverage as is consistent with the Master Servicer's (or Special Servicer's)
normal servicing procedures. Unless otherwise specified in the related
Prospectus Supplement, such coverage generally will be in an amount equal to the
lesser of the principal balance owing on such Mortgage Loan and the replacement
cost of the related Mortgaged Property. The ability of a Master Servicer (or
Special Servicer) to assure that hazard insurance proceeds are appropriately
applied may be dependent upon its being named as an additional insured under any
hazard insurance policy and under any other insurance policy referred to below,
or upon the extent to which information concerning covered losses is furnished
by borrowers. All amounts collected by a Master Servicer (or Special Servicer)
under any such policy (except for amounts to be applied to the restoration or
repair of the Mortgaged Property or released to the borrower in accordance with
the Master Servicer's (or Special Servicer's) normal servicing procedures and/or
to the terms and conditions of the related Mortgage and Mortgage Note) will be
deposited in the related Certificate Account. The Pooling and Servicing
Agreement may provide that the Master Servicer (or Special Servicer) may satisfy
its obligation to cause each borrower to maintain such a hazard insurance policy
by maintaining a blanket policy insuring against hazard losses on the Mortgage
Loans in a Trust Fund. If such blanket policy contains a deductible clause, the
Master Servicer (or Special Servicer) will be required, in the event of a
casualty covered by such blanket policy, to deposit in the related Certificate
Account all additional sums that would have been deposited therein under an
individual policy but were not because of such deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the Mortgaged Properties will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a Mortgaged
Property may not be insured for losses arising from any such cause unless the
related Mortgage specifically requires, or permits the holder thereof to
require, such coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, such clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (1) the
replacement
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cost of the improvements less physical depreciation and (2) such proportion of
the loss as the amount of insurance carried bears to the specified percentage of
the full replacement cost of such improvements.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the Mortgage Loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the Mortgage Loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the Mortgage Loan
upon the creation of any other lien or encumbrance upon the Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer (or Special Servicer) will determine whether to exercise any right the
Trustee may have under any such provision in a manner consistent with the Master
Servicer's (or Special Servicer's) normal servicing procedures. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or Special
Servicer, as applicable, will be entitled to retain as additional servicing
compensation any fee collected in connection with the permitted transfer of a
Mortgaged Property. See "Certain Legal Aspects of Mortgage Loans -- Due-on-Sale
and Due-on-Encumbrance Provisions".
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, a Master
Servicer's primary servicing compensation with respect to a series of
Certificates will come from the periodic payment to it of a specified portion of
the interest payments on each Mortgage Loan in the related Trust Fund, including
Mortgage Loans serviced by the related Special Servicer. If and to the extent
described in the related Prospectus Supplement, a Special Servicer's primary
compensation with respect to a series of Certificates may consist of any or all
of the following components: (1) a specified portion of the interest payments on
each Mortgage Loan in the related Trust Fund, whether or not serviced by it; (2)
an additional specified portion of the interest payments on each Mortgage Loan
then currently serviced by it; and (3) subject to any specified limitations, a
fixed percentage of some or all of the collections and proceeds received with
respect to each Mortgage Loan which was at any time serviced by it, including
Mortgage Loans for which servicing was returned to the Master Servicer. Insofar
as any portion of the Master Servicer's or Special Servicer's compensation
consists of a specified portion of the interest payments on a Mortgage Loan,
such compensation will generally be based on a percentage of the principal
balance of such Mortgage Loan outstanding from time to time and, accordingly,
will decrease with the amortization of the Mortgage Loan. As additional
compensation, a Master Servicer or Special Servicer may be entitled to retain
all or a portion of late payment charges, Prepayment Premiums, modification fees
and other fees collected from borrowers and any interest or other income that
may be earned on funds held in the related Certificate Account. A more detailed
description of each Master Servicer's and Special Servicer's compensation will
be provided in the related Prospectus Supplement. Any Sub-Servicer will receive
as its sub-servicing compensation a portion of the servicing compensation to be
paid to the Master Servicer or Special Servicer that retained such Sub-Servicer.
In addition to amounts payable to any Sub-Servicer, a Master Servicer or
Special Servicer may be required, to the extent provided in the related
Prospectus Supplement, to pay from amounts that represent its servicing
compensation certain expenses incurred in connection with the administration of
the related Trust Fund, including, without limitation, payment of the fees and
disbursements of independent accountants, payment of fees and disbursements of
the Trustee and any custodians appointed thereby and payment of expenses
incurred in connection with distributions and reports to Certificateholders.
Certain other expenses, including certain expenses related to Mortgage Loan
defaults and liquidations and, to the extent so provided in the related
Prospectus Supplement, interest on such expenses at the rate specified therein,
may be required to be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will provide that on or before a specified date
in each year, beginning the first such date that is at least a specified number
of months after the Cut-off Date, there will be furnished to the related Trustee
a report of a
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firm of independent certified public accountants stating that (1) it has
obtained a letter of representation regarding certain matters from the
management of the Master Servicer which includes an assertion that the Master
Servicer has complied with certain minimum mortgage loan servicing standards (to
the extent applicable to commercial and multifamily mortgage loans), identified
in the Uniform Single Attestation Program for Mortgage Bankers established by
the Mortgage Bankers Association of America, with respect to the Master
Servicer's servicing of commercial and multifamily mortgage loans during the
most recently completed calendar year and (2) on the basis of an examination
conducted by such firm in accordance with standards established by the American
Institute of Certified Public Accountants, such representation is fairly stated
in all material respects, subject to such exceptions and other qualifications
that, in the opinion of such firm, such standards require it to report. In
rendering its report such firm may rely, as to the matters relating to the
direct servicing of commercial and multifamily mortgage loans by Sub-Servicers,
upon comparable reports of firms of independent public accountants rendered on
the basis of examinations conducted in accordance with the same standards
(rendered within one year of such report) with respect to those Sub-Servicers.
The Prospectus Supplement may provide that additional reports of independent
certified public accountants relating to the servicing of mortgage loans may be
required to be delivered to the Trustee.
Each Pooling and Servicing Agreement will also provide that, on or before a
specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, the Master Servicer and
Special Servicer shall each deliver to the related Trustee an annual statement
signed by one or more officers of the Master Servicer or the Special Servicer,
as the case may be, to the effect that, to the best knowledge of each such
officer, the Master Servicer or the Special Servicer, as the case may be, has
fulfilled in all material respects its obligations under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
material default in the fulfillment of any such obligation, such statement shall
specify each such known default and the nature and status thereof. Such
statement may be provided as a single form making the required statements as to
more than one Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, copies of
the annual accountants' statement and the annual statement of officers of a
Master Servicer or Special Servicer may be obtained by Certificateholders upon
written request to the Trustee.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE SPECIAL SERVICER, THE REMIC
ADMINISTRATOR AND THE DEPOSITOR
Any entity serving as Master Servicer, Special Servicer or REMIC
Administrator under a Pooling and Servicing Agreement may be an affiliate of the
Depositor and may have other normal business relationships with the Depositor or
the Depositor's affiliates. Unless otherwise specified in the Prospectus
Supplement for a series of Certificates, the related Pooling and Servicing
Agreement will permit the Master Servicer, the Special Servicer and any REMIC
Administrator to resign from its obligations thereunder only upon a
determination that such obligations are no longer permissible under applicable
law or are in material conflict by reason of applicable law with any other
activities carried on by it. No such resignation will become effective until the
Trustee or other successor has assumed the obligations and duties of the
resigning Master Servicer, Special Servicer or REMIC Administrator, as the case
may be, under the Pooling and Servicing Agreement. The Master Servicer and
Special Servicer for each Trust Fund will be required to maintain a fidelity
bond and errors and omissions policy or their equivalent that provides coverage
against losses that may be sustained as a result of an officer's or employee's
misappropriation of funds or errors and omissions, subject to certain
limitations as to amount of coverage, deductible amounts, conditions, exclusions
and exceptions permitted by the related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will further provide that none of the Master
Servicer, the Special Servicer, the REMIC Administrator, the Depositor, any
extension adviser or any director, officer, employee or agent of any of them
will be under any liability to the related Trust Fund or Certificateholders for
any action taken, or not taken, in good faith pursuant to the Pooling and
Servicing Agreement or for errors in judgment; provided, however, that none of
the Master Servicer, the Special Servicer, the REMIC Administrator, the
Depositor, any extension adviser or any such person will be protected against
any liability that would otherwise be imposed by reason of willful
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misfeasance, bad faith or gross negligence in the performance of obligations or
duties thereunder or by reason of reckless disregard of such obligations and
duties. Unless otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement will further provide that the Master Servicer,
the Special Servicer, the REMIC Administrator, the Depositor, any extension
adviser and any director, officer, employee or agent of any of them will be
entitled to indemnification by the related Trust Fund against any loss,
liability or expense incurred in connection with any legal action that relates
to such Pooling and Servicing Agreement or the related series of Certificates;
provided, however, that such indemnification will not extend to any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of obligations or duties under such Pooling and
Servicing Agreement, or by reason of reckless disregard of such obligations or
duties. In addition, each Pooling and Servicing Agreement will provide that none
of the Master Servicer, the Special Servicer, the REMIC Administrator, any
extension adviser or the Depositor will be under any obligation to appear in,
prosecute or defend any legal action that is not incidental to its respective
responsibilities under the Pooling and Servicing Agreement and that in its
opinion may involve it in any expense or liability. However, each of the Master
Servicer, the Special Servicer, the REMIC Administrator, any extension adviser
and the Depositor will be permitted, in the exercise of its discretion, to
undertake any such action that it may deem necessary or desirable with respect
to the enforcement and/or protection of the rights and duties of the parties to
the Pooling and Servicing Agreement and the interests of the related series of
Certificateholders thereunder. In such event, the legal expenses and costs of
such action, and any liability resulting therefrom, will be expenses, costs and
liabilities of the related series of Certificateholders, and the Master
Servicer, the Special Servicer, the REMIC Administrator, any extension adviser
or the Depositor, as the case may be, will be entitled to charge the related
Certificate Account therefor.
Any person into which the Master Servicer, the Special Servicer, the REMIC
Administrator or the Depositor may be merged or consolidated, or any person
resulting from any merger or consolidation to which the Master Servicer, the
Special Servicer, the REMIC Administrator or the Depositor is a party, or any
person succeeding to the business of the Master Servicer, the Special Servicer,
the REMIC Administrator or the Depositor, will be the successor of the Master
Servicer, the Special Servicer, the REMIC Administrator or the Depositor, as the
case may be, under the related Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement, a REMIC
Administrator will be entitled to perform any of its duties under the related
Pooling and Servicing Agreement either directly or by or through agents or
attorneys, and the REMIC Administrator will not be responsible for any willful
misconduct or gross negligence on the part of any such agent or attorney
appointed by it with due care.
EVENTS OF DEFAULT
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, "Events of Default" under the related Pooling and Servicing
Agreement will include, without limitation,
- any failure by the Master Servicer to distribute or cause to be
distributed to the Certificateholders of such series, or to remit to
the Trustee for distribution to such Certificateholders, any amount
required to be so distributed or remitted, pursuant to, and at the
time specified by, the terms of the Pooling and Servicing Agreement,
- any failure by the Special Servicer to remit to the Master Servicer
or the Trustee, as applicable, any amount required to be so
remitted, pursuant to, and at the time specified by, the terms of
the Pooling and Servicing Agreement;
- any failure by the Master Servicer or the Special Servicer duly to
observe or perform in any material respect any of its other
covenants or obligations under the related Pooling and Servicing
Agreement, which failure continues unremedied for thirty days
(fifteen days in the case of a failure to pay the premium for any
insurance policy required to be maintained under the Pooling and
Servicing Agreement) after written notice thereof has been given to
the Master Servicer or the Special Servicer, as the case may be, by
any other party to the related Pooling and Servicing Agreement, or
to the Master Servicer or the Special Servicer, as the case may be,
with a copy to each other party to the related Pooling and Servicing
Agreement, by Certificateholders entitled to
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not less than 25% (or such other percentage specified in the related
Prospectus Supplement) of the Voting Rights for such series;
- any failure by a REMIC Administrator (if other than the Trustee)
duly to observe or perform in any material respect any of its
covenants or obligations under the related Pooling and Servicing
Agreement, which failure continues unremedied for thirty days after
written notice thereof has been given to the REMIC Administrator by
any other party to the related Pooling and Servicing Agreement, or
to the REMIC Administrator, with a copy to each other party to the
related Pooling and Servicing Agreement, by Certificateholders
entitled to not less than 25% (or such other percentage specified in
the related Prospectus Supplement) of the Voting Rights for such
series; and
- certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities, or similar proceedings in respect of or
relating to the Master Servicer, the Special Servicer or the REMIC
Administrator (if other than the Trustee), and certain actions by or
on behalf of the Master Servicer, the Special Servicer or the REMIC
Administrator (if other than the Trustee) indicating its insolvency
or inability to pay its obligations. Material variations to the
foregoing Events of Default (other than to add thereto or shorten
cure periods or eliminate notice requirements) will be specified in
the related Prospectus Supplement. Unless otherwise specified in the
related Prospectus Supplement, when a single entity acts as Master
Servicer, Special Servicer and REMIC Administrator, or in any two of
the foregoing capacities, for any Trust Fund, an Event of Default in
one capacity will constitute an Event of Default in each capacity.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the Master Servicer, the
Special Servicer or a REMIC Administrator under a Pooling and Servicing
Agreement, then, in each and every such case, so long as the Event of Default
remains unremedied, the Depositor or the Trustee will be authorized, and at the
direction of Certificateholders of the related series entitled to not less than
51% (or such other percentage specified in the related Prospectus Supplement) of
the Voting Rights for such series, the Trustee will be required, to terminate
all of the rights and obligations of the defaulting party as Master Servicer,
Special Servicer or REMIC Administrator, as applicable, under the Pooling and
Servicing Agreement, whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the defaulting party as Master
Servicer, Special Servicer or REMIC Administrator, as applicable, under the
Pooling and Servicing Agreement (except that if the defaulting party is required
to make advances thereunder regarding delinquent Mortgage Loans, but the Trustee
is prohibited by law from obligating itself to make such advances, or if the
related Prospectus Supplement so specifies, the Trustee will not be obligated to
make such advances) and will be entitled to similar compensation arrangements.
Unless otherwise specified in the related Prospectus Supplement, if the Trustee
is unwilling or unable so to act, it may (or, at the written request of
Certificateholders of the related series entitled to not less than 51% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series, it will be required to) appoint, or petition a court of
competent jurisdiction to appoint, a loan servicing institution or other entity
that (unless otherwise provided in the related Prospectus Supplement) is
acceptable to each applicable Rating Agency to act as successor to the Master
Servicer, Special Servicer or REMIC Administrator, as the case may be, under the
Pooling and Servicing Agreement. Pending such appointment, the Trustee will be
obligated to act in such capacity.
If the same entity is acting as both Trustee and REMIC Administrator, it
may be removed in both such capacities as described under "-- Resignation and
Removal of the Trustee" below.
No Certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and Servicing
Agreement unless such holder previously has given to the Trustee written notice
of default and the continuance thereof and unless the holders of Certificates of
any class evidencing not less than 25% of the aggregate Percentage Interests
constituting such class have made written request upon the Trustee to institute
such proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity and the Trustee for sixty days after receipt of
such request and
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indemnity has neglected or refused to institute any such proceeding. However,
the Trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Pooling and Servicing Agreement or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the holders of Certificates covered by such Pooling and
Servicing Agreement, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
AMENDMENT
Except as otherwise specified in the related Prospectus Supplement, each
Pooling and Servicing Agreement may be amended by the parties thereto, without
the consent of any of the holders of Certificates covered by such Pooling and
Servicing Agreement, (1) to cure any ambiguity, (2) to correct or supplement any
provision therein which may be inconsistent with any other provision therein or
to correct any error, (3) to change the timing and/or nature of deposits in the
Certificate Account, provided that (A) such change would not adversely affect in
any material respect the interests of any Certificateholder, as evidenced by an
opinion of counsel, and (B) such change would not result in the withdrawal,
downgrade or qualification of any of the then-current ratings on the
Certificates, as evidenced by a letter from each applicable Rating Agency, (4)
if a REMIC election has been made with respect to the related Trust Fund, to
modify, eliminate or add to any of its provisions (A) to such extent as shall be
necessary to maintain the qualification of the Trust Fund (or any designated
portion thereof) as a REMIC or to avoid or minimize the risk of imposition of
any tax on the related Trust Fund, provided that the Trustee has received an
opinion of counsel to the effect that (1) such action is necessary or desirable
to maintain such qualification or to avoid or minimize such risk, and (2) such
action will not adversely affect in any material respect the interests of any
holder of Certificates covered by the Pooling and Servicing Agreement, or (B) to
restrict the transfer of the REMIC Residual Certificates, provided that the
Depositor has determined that the then-current ratings of the classes of the
Certificates that have been rated will not be withdrawn, downgraded or
qualified, as evidenced by a letter from each applicable Rating Agency, and that
any such amendment will not give rise to any tax with respect to the transfer of
the REMIC Residual Certificates to a non-permitted transferee (See "Certain
Federal Income Tax Consequences -- REMICs -- Tax and Restrictions on Transfers
of REMIC Residual Certificates to Certain Organizations" herein), (5) to make
any other provisions with respect to matters or questions arising under such
Pooling and Servicing Agreement or any other change, provided that such action
will not adversely affect in any material respect the interests of any
Certificateholder, or (6) to amend specified provisions that are not material to
holders of any class of Certificates offered hereunder.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of Certificates of each class affected
thereby evidencing, in each case, not less than 66 2/3% (or such other
percentage specified in the related Prospectus Supplement) of the aggregate
Percentage Interests constituting such class for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Pooling and Servicing Agreement or of modifying in any manner the rights of
the holders of Certificates covered by such Pooling and Servicing Agreement,
except that no such amendment may (1) reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on a Certificate of any class without the consent of the holder
of such Certificate or (2) reduce the aforesaid percentage of Certificates of
any class the holders of which are required to consent to any such amendment
without the consent of the holders of all Certificates of such class covered by
such Pooling and Servicing Agreement then outstanding.
Notwithstanding the foregoing, if one or more REMIC elections have been
made with respect to the related Trust Fund, the Trustee will not be required to
consent to any amendment to a Pooling and Servicing Agreement without having
first received an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the Master Servicer, the Special Servicer, the
Depositor, the Trustee or any other specified person in accordance with such
amendment will not result in the imposition of a tax on the related Trust Fund
or cause such Trust Fund (or any designated portion thereof) to fail to qualify
as a REMIC.
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LIST OF CERTIFICATEHOLDERS
Unless otherwise specified in the related Prospectus Supplement, upon
written request of three or more Certificateholders of record made for purposes
of communicating with other holders of Certificates of the same series with
respect to their rights under the related Pooling and Servicing Agreement, the
Trustee or other specified person will afford such Certificateholders access
during normal business hours to the most recent list of Certificateholders of
that series held by such person. If such list is as of a date more than 90 days
prior to the date of receipt of such Certificateholders' request, then such
person, if not the registrar for such series of Certificates, will be required
to request from such registrar a current list and to afford such requesting
Certificateholders access thereto promptly upon receipt.
THE TRUSTEE
The Trustee under each Pooling and Servicing Agreement will be named in the
related Prospectus Supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as Trustee may
have typical banking relationships with the Depositor and its affiliates and
with any Master Servicer, Special Servicer or REMIC Administrator and its
affiliates.
DUTIES OF THE TRUSTEE
The Trustee for each series of Certificates will make no representation as
to the validity or sufficiency of the related Pooling and Servicing Agreement,
such Certificates or any underlying Mortgage Asset or related document and will
not be accountable for the use or application by or on behalf of any Master
Servicer or Special Servicer of any funds paid to the Master Servicer or Special
Servicer in respect of the Certificates or the underlying Mortgage Assets. If no
Event of Default has occurred and is continuing, the Trustee for each series of
Certificates will be required to perform only those duties specifically required
under the related Pooling and Servicing Agreement. However, upon receipt of any
of the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Pooling and Servicing Agreement, a
Trustee will be required to examine such documents and to determine whether they
conform to the requirements of such agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related Prospectus Supplement, the
fees and normal disbursements of any Trustee may be the expense of the related
Master Servicer or other specified person or may be required to be borne by the
related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the Trustee in connection with the Trustee's
acceptance or administration of its trusts under the related Pooling and
Servicing Agreement; provided, however, that such indemnification will not
extend to any loss liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee for each series of Certificates will be entitled to execute any of its
trusts or powers under the related Pooling and Servicing Agreement or perform
any of its duties thereunder either directly or by or through agents or
attorneys, and the Trustee will not be responsible for any willful misconduct or
negligence on the part of any such agent or attorney appointed by it with due
care.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. Upon
becoming aware of
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such circumstances, the Depositor will be obligated to appoint a successor
Trustee. The Trustee may also be removed at any time by the holders of
Certificates of the applicable series evidencing not less than 33 1/3% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee. Notwithstanding anything herein to the
contrary, if any entity is acting as both Trustee and REMIC Administrator, then
any resignation or removal of such entity as the Trustee will also constitute
the resignation or removal of such entity as REMIC Administrator, and the
successor trustee will serve as successor to the REMIC Administrator as well.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
Credit Support may be provided with respect to one or more classes of the
Certificates of any series or with respect to the related Mortgage Assets.
Credit Support may be in the form of a letter of credit, the subordination of
one or more classes of Certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds and/or cash
collateral accounts, overcollateralization, or another method of Credit Support
described in the related Prospectus Supplement, or any combination of the
foregoing. If and to the extent so provided in the related Prospectus
Supplement, any of the foregoing forms of Credit Support may provide credit
enhancement for more than one series of Certificates.
Unless otherwise provided in the related Prospectus Supplement for a series
of Certificates, the Credit Support will not provide protection against all
risks of loss and will not guarantee payment to Certificateholders of all
amounts to which they are entitled under the related Pooling and Servicing
Agreement. If losses or shortfalls occur that exceed the amount covered by the
related Credit Support or that are of a type not covered by such Credit Support,
Certificateholders will bear their allocable share of deficiencies. Moreover, if
a form of Credit Support covers the Offered Certificates of more than one series
and losses on the related Mortgage Assets exceed the amount of such Credit
Support, it is possible that the holders of Offered Certificates of one (or
more) such series will be disproportionately benefited by such Credit Support to
the detriment of the holders of Offered Certificates of one (or more) other such
series.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or with respect to the related Mortgage Assets, the
related Prospectus Supplement will include a description of (1) the nature and
amount of coverage under such Credit Support, (2) any conditions to payment
thereunder not otherwise described herein, (3) the conditions (if any) under
which the amount of coverage under such Credit Support may be reduced and under
which such Credit Support may be terminated or replaced and (4) the material
provisions relating to such Credit Support. Additionally, the related Prospectus
Supplement will set forth certain information with respect to the obligor, if
any, under any instrument of Credit Support. See "Risk Factors -- Credit Support
Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of the
holders of Senior Certificates. If so provided in the related Prospectus
Supplement, the subordination of a class may apply only in the event of certain
types of losses or shortfalls. The related Prospectus Supplement will set forth
information concerning the method and amount of subordination provided by a
class or classes of Subordinate Certificates in a series and the circumstances
under which such subordination will be available.
If the Mortgage Assets in any Trust Fund are divided into separate groups,
each supporting a separate class or classes of Certificates of the related
series, Credit Support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of
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Mortgage Assets within the Trust Fund. The Prospectus Supplement for a series
that includes a cross-support provision will describe the manner and conditions
for applying such provisions.
INSURANCE OR GUARANTEES CONCERNING TO MORTGAGE LOANS
If so provided in the Prospectus Supplement for a series of Certificates,
Mortgage Loans included in the related Trust Fund will be covered for certain
default risks by insurance policies or guarantees. The related Prospectus
Supplement will describe the nature of such default risks and the extent of such
coverage.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or other financial institution (which may be an affiliate of the Depositor)
specified in such Prospectus Supplement (the "Letter of Credit Bank"). Under a
letter of credit, the Letter of Credit Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of some or all of the related
Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of Certificates. If so specified in
the related Prospectus Supplement, the letter of credit may permit draws only in
the event of certain types of losses and shortfalls. The amount available under
the letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The obligations of the Letter of Credit Bank
under the letter of credit for each series of Certificates will expire at the
earlier of the date specified in the related Prospectus Supplement or the
termination of the Trust Fund.
CERTIFICATE INSURANCE AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies or surety bonds provided
by one or more insurance companies or sureties. Such instruments may cover, with
respect to one or more classes of Certificates of the related series, timely
distributions of interest or distributions of principal on the basis of a
schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. The related Prospectus
Supplement will describe any limitations on the draws that may be made under any
such instrument.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered (to the extent of available funds) by one or
more reserve funds in which cash, a letter of credit, Permitted Investments, a
demand note or a combination thereof will be deposited, in the amounts specified
in such Prospectus Supplement. If so specified in the related Prospectus
Supplement, the reserve fund for a series may also be funded over time by a
specified amount of certain collections received on the related Mortgage Assets.
Amounts on deposit in any reserve fund for a series will be applied for the
purposes, in the manner, and to the extent specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, reserve funds
may be established to provide protection only against certain types of losses
and shortfalls. Following each Distribution Date, amounts in a reserve fund in
excess of any amount required to be maintained therein may be released from the
reserve fund under the conditions and to the extent specified in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, any reinvestment income or other
gain from such investments will be credited to the related reserve fund for such
series, and any loss resulting from such investments will be charged to such
reserve fund. However, such income may be payable to any related Master Servicer
or another service provider as additional compensation
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for its services. The reserve fund, if any, for a series will not be a part of
the Trust Fund unless otherwise specified in the related Prospectus Supplement.
CASH COLLATERAL ACCOUNT
If so specified in the related Prospectus Supplement, all or any portion of
credit enhancement for a series of Certificates may be provided by the
establishment of a cash collateral account. A cash collateral account will be
similar to a reserve fund except that generally a cash collateral account is
funded initially by a loan from a cash collateral lender, the proceeds of which
are invested with the cash collateral lender or other eligible institution. The
loan from the cash collateral lender will be repaid from such amounts as are
specified in the related Prospectus Supplement. Amounts on deposit in the cash
collateral account will be available in generally the same manner described
above with respect to a reserve fund. As specified in the related Prospectus
Supplement, a cash collateral account may be deemed to be part of the assets of
the related Trust, may be deemed to be part of the assets of a separate cash
collateral trust or may be deemed to be property of the party specified in the
related Prospectus Supplement and pledged for the benefit of the holders of one
or more classes of Certificates of a series.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of Certificates,
any MBS included in the related Trust Fund and/or the related underlying
mortgage loans may be covered by one or more of the types of Credit Support
described herein. The related Prospectus Supplement will specify, as to each
such form of Credit Support, the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of mortgage loans secured by commercial and multifamily residential
properties. Because such legal aspects are governed by applicable state law
(which laws may differ substantially), the summaries do not purport to be
complete, to reflect the laws of any particular state, or to encompass the laws
of all states in which the security for the Mortgage Loans (or mortgage loans
underlying any MBS) is situated. Accordingly, the summaries are qualified in
their entirety by reference to the applicable laws of those states. See
"Description of the Trust Funds -- Mortgage Loans". For purposes of the
following discussion, "Mortgage Loan" includes a mortgage loan underlying an
MBS.
GENERAL
Each Mortgage Loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages". A mortgage creates a lien upon, or
grants a title interest in, the real property covered thereby, and represents
the security for the repayment of the indebtedness customarily evidenced by a
promissory note. The priority of the lien created or interest granted will
depend on the terms of the mortgage and, in some cases, on the terms of separate
subordination agreements or intercreditor agreements with others that hold
interests in the real property, the knowledge of the parties to the mortgage
and, generally, the order of recordation of the mortgage in the appropriate
public recording office. However, the lien of a recorded mortgage will generally
be subordinate to later-arising liens for real estate taxes and assessments and
other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
There are two parties to a mortgage: a mortgagor (the borrower and usually
the owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a
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trustor (the equivalent of a borrower), a trustee to whom the real property is
conveyed, and a beneficiary (the lender) for whose benefit the conveyance is
made. Under a deed of trust, the trustor grants the property, irrevocably until
the debt is paid, in trust and generally with a power of sale, to the trustee to
secure repayment of the indebtedness evidenced by the related note. A deed to
secure debt typically has two parties, pursuant to which the borrower, or
grantor, conveys title to the real property to the grantee, or lender, generally
with a power of sale, until such time as the debt is repaid. In a case where the
borrower is a land trust, there would be an additional party because legal title
to the property is held by a land trustee under a land trust agreement for the
benefit of the borrower. At origination of a mortgage loan involving a land
trust, the borrower may execute a separate undertaking to make payments on the
mortgage note. In no event is the land trustee personally liable for the
mortgage note obligation. The mortgagee's authority under a mortgage, the
trustee's authority under a deed of trust and the grantee's authority under a
deed to secure debt are governed by the express provisions of the related
instrument, the law of the state in which the real property is located, certain
federal laws and, in some deed of trust transactions, the directions of the
beneficiary.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while (unless rents are to be paid directly to the
lender) retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the rates are generally pledged by the borrower
as additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the room rates and must
file continuation statements, generally every five years, to maintain perfection
of such security interest. In certain cases, Mortgage Loans secured by hotels or
motels may be included in a Trust Fund even if the security interest in the room
rates was not perfected or the requisite UCC filings were allowed to lapse. Even
if the lender's security interest in room rates is perfected under applicable
nonbankruptcy law, it will generally be required to commence a foreclosure
action or otherwise take possession of the property in order to enforce its
rights to collect the room rates following a default. In the bankruptcy setting,
however, the lender will be stayed from enforcing its rights to collect room
rates, but those room rates (in light of certain revisions to the Bankruptcy
Code which are effective for all bankruptcy cases commenced on or after October
22, 1994) constitute "cash collateral" and therefore cannot be used by the
bankruptcy debtor without lender's consent or a hearing at which the lender's
interest in the room rates is given adequate protection (e.g., the lender
receives cash payments from otherwise unencumbered funds or a replacement lien
on unencumbered property, in either case equal in value to the amount of room
rates that the debtor proposes to use, or other similar relief). See
"-- Bankruptcy Laws".
In the case of office and retail properties, the bankruptcy or insolvency
of a major tenant or a number of smaller tenants may have an adverse impact on
the Mortgaged Properties affected and the income produced by such Mortgaged
Properties. Under bankruptcy law, a tenant has the option of assuming
(continuing), or rejecting (terminating) or, subject to certain conditions,
assigning to a third party any unexpired lease. If the tenant assumes its lease,
the tenant must cure all defaults under the lease and provide the landlord with
adequate assurance of its future performance under the lease. If the tenant
rejects the lease, the landlord's claim for breach of the lease would (absent
collateral securing the claim) be treated as a general unsecured claim. The
amount of the claim would be limited to the amount owed for unpaid pre-petition
lease payments unrelated to the rejection, plus the greater of one year's lease
payments or 15% of the remaining lease payments payable under the lease (but not
to exceed three years' lease payments). If the tenant assigns its lease, the
tenant must cure all defaults under the lease and the proposed assignee must
demonstrate adequate assurance of future performance under the lease.
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PERSONALTY
In the case of certain types of mortgaged properties, such as hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest therein, and must
file continuation statements, generally every five years, to maintain that
perfection. In certain cases, Mortgage Loans secured in part by personal
property may be included in a Trust Fund even if the security interest in such
personal property was not perfected or the requisite UCC filings were allowed to
lapse.
FORECLOSURE
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and nonjudicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and sometimes
requires several years to complete.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action is
initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
Equitable and Other Limitations on Enforceability of Certain
Provisions. United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure actions.
These principles are generally designed to relieve borrowers from the effects of
mortgage defaults perceived as harsh or unfair. Relying on such principles, a
court may alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression or overreaching,
or may require the lender to undertake affirmative actions to determine the
cause of the borrower's default and the likelihood that the borrower will be
able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's and have required that lenders reinstate loans or
recast payment schedules in order to accommodate borrowers who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose in the case of a nonmonetary default, such as a
failure to adequately maintain the mortgaged property or an impermissible
further encumbrance of the mortgaged property. Finally, some courts have
addressed the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that a borrower
receive notice in addition to statutorily-prescribed minimum notice. For the
most part, these cases have upheld the reasonableness of the notice provisions
or have found that a public sale under a mortgage providing for a power of sale
does not involve sufficient state action to trigger constitutional protections.
In addition, some states may have statutory protection such as the right of
the borrower to reinstate mortgage loans after commencement of foreclosure
proceedings but prior to a foreclosure sale.
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Nonjudicial Foreclosure/Power of Sale. In states permitting nonjudicial
foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a nonjudicial trustee's sale pursuant to a power of sale
typically granted in the deed of trust. A power of sale may also be contained in
any other type of mortgage instrument if applicable law so permits. A power of
sale under a deed of trust allows a nonjudicial public sale to be conducted
generally following a request from the beneficiary/lender to the trustee to sell
the property upon default by the borrower and after notice of sale is given in
accordance with the terms of the mortgage and applicable state law. In some
states, prior to such sale, the trustee under the deed of trust must record a
notice of default and notice of sale and send a copy to the borrower and to any
other party who has recorded a request for a copy of a notice of default and
notice of sale. In addition, in some states the trustee must provide notice to
any other party having an interest of record in the real property, including
junior lienholders. A notice of sale must be posted in a public place and, in
most states, published for a specified period of time in one or more newspapers.
The borrower or junior lienholder may then have the right, during a
reinstatement period required in some states, to cure the default by paying the
entire actual amount in arrears (without regard to the acceleration of the
indebtedness), plus the lender's expenses incurred in enforcing the obligation.
In other states, the borrower or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, state law governs the procedure for
public sale, the parties entitled to notice, the method of giving notice and the
applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other things, redemption rights
that may exist) and because of the possibility that physical deterioration of
the property may have occurred during the foreclosure proceedings. Therefore, it
is common for the lender to purchase the mortgaged property for an amount equal
to the secured indebtedness and accrued and unpaid interest plus the expenses of
foreclosure, in which event the borrower's debt will be extinguished, or for a
lesser amount in order to preserve its right to seek a deficiency judgment if
such is available under state law and under the terms of the Mortgage Loan
documents. (The Mortgage Loans, however, may be nonrecourse. See "Risk
Factors -- Certain Factors Affecting Delinquency, Foreclosure and Loss of the
Mortgage Loans -- Limited Recourse Nature of the Mortgage Loans".) Thereafter,
subject to the borrower's right in some states to remain in possession during a
redemption period, the lender will become the owner of the property and have
both the benefits and burdens of ownership, including the obligation to pay debt
service on any senior mortgages, to pay taxes, to obtain casualty insurance and
to make such repairs as are necessary to render the property suitable for sale.
The costs of operating and maintaining a commercial or multifamily residential
property may be significant and may be greater than the income derived from that
property. The lender also will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale or lease of
the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Moreover, because of the expenses associated with acquiring, owning and selling
a mortgaged property, a lender could realize an overall loss on a mortgage loan
even if the mortgaged property is sold at foreclosure, or resold after it is
acquired through foreclosure, for an amount equal to the full outstanding
principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all persons
who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
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The equity of redemption is a common-law (nonstatutory) right which should
be distinguished from post-sale statutory rights of redemption. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
Anti-Deficiency Legislation. Some or all of the Mortgage Loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and such other assets, if any, that were pledged to
secure the Mortgage Loan. However, even if a mortgage loan by its terms provides
for recourse to the borrower's other assets, a lender's ability to realize upon
those assets may be limited by state law. For example, in some states a lender
cannot obtain a deficiency judgment against the borrower following foreclosure
or sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes may require the lender to exhaust the security afforded
under a mortgage before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of those states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders in those
states where such an election of remedy provision exists will usually proceed
first against the security. Finally, other statutory provisions, designed to
protect borrowers from exposure to large deficiency judgments that might result
from bidding at below-market values at the foreclosure sale, limit any
deficiency judgment to the excess of the outstanding debt over the fair market
value of the property at the time of the sale.
Leasehold Considerations. Mortgage Loans may be secured by a mortgage on
the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks is
that if the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee could lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, requires the lessor to grant
the mortgagee a new lease if the existing lease is rejected in a bankruptcy
proceeding, permits the leasehold estate to be assigned to and by the leasehold
mortgagee or the purchaser at a foreclosure sale, and contains certain other
protective provisions typically included in a "mortgageable" ground lease.
Certain Mortgage Loans, however, may be secured by ground leases which do not
contain these provisions.
Cooperative Shares. Mortgage Loans may be secured by a security interest
on the borrower's ownership interest in shares, and the proprietary leases
appurtenant thereto, allocable to cooperative dwelling units that may be vacant
or occupied by nonowner tenants. Such loans are subject to certain risks not
associated with mortgage loans secured by a lien on the fee estate of a borrower
in real property. Such a loan typically is subordinate to the mortgage, if any,
on the Cooperative's building which, if foreclosed, could extinguish the equity
in the building and the proprietary leases of the dwelling units derived from
ownership of the shares of the Cooperative. Further, transfer of shares in a
Cooperative are subject to various regulations as well as to restrictions under
the governing documents of the Cooperative, and the shares may be canceled in
the event that associated maintenance charges due under the related proprietary
leases are not paid. Typically, a recognition agreement between the lender and
the Cooperative provides, among other things, the lender with an opportunity to
cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on Cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner,
which may be
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dependent upon, among other things, the notice given the debtor and the method,
manner, time, place and terms of the sale. Article 9 of the UCC provides that
the proceeds of the sale will be applied first to pay the costs and expenses of
the sale and then to satisfy the indebtedness secured by the lender's security
interest. A recognition agreement, however, generally provides that the lender's
right to reimbursement is subject to the right of the Cooperative to receive
sums due under the proprietary leases.
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may stay
the senior lender from taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced to
the then-current value of the property (with a corresponding partial reduction
of the amount of lender's security interest) pursuant to a confirmed plan or
lien avoidance proceeding, thus leaving the lender a general unsecured creditor
for the difference between such value and the outstanding balance of the loan.
Other modifications may include the reduction in the amount of each scheduled
payment, by means of a reduction in the rate of interest and/or an alteration of
the repayment schedule (with or without affecting the unpaid principal balance
of the loan), and/or by an extension (or shortening) of the term to maturity.
Some bankruptcy courts have approved plans, based on the particular facts of the
reorganization case, that effected the cure of a mortgage loan default by paying
arrearages over a number of years. Also, a bankruptcy court may permit a debtor,
through its rehabilitative plan, to reinstate a loan mortgage payment schedule
even if the lender has obtained a final judgment of foreclosure prior to the
filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy code, however, may minimize the impairment of the lender's ability to
enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the section entitled "-- Leases and Rents", the amendments provide
that a pre-petition security interest in rents or hotel revenues extends (unless
the bankruptcy court orders otherwise based on the equities of the case) to such
post-petition rents or revenues and is intended to overrule those cases that
held that a security interest in rents is unperfected under the laws of certain
states until the lender has taken some further action, such as commencing
foreclosure or obtaining a receiver prior to activation of the assignment of
rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that ability
may be impaired by the commencement of a bankruptcy case relating to a lessee
under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (1)
assume the lease and retain it or assign it to a third party or (2) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
assignee, if applicable) must cure any defaults under the lease, compensate the
lessor for its losses and provide the lessor with "adequate assurance" of future
performance. Such remedies may be insufficient, and any assurances provided to
the lessor may, in fact, be
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inadequate. If the lease is rejected, the lessor will be treated as an unsecured
creditor with respect to its claim for damages for termination of the lease. The
Bankruptcy Code also limits a lessor's damages for lease rejection to the rent
reserved by the lease (without regard to acceleration) for the greater of one
year, or 15%, not to exceed three years, of the remaining term of the lease.
Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity
extended to the first and the rights of creditors of the first entity impaired
in the fashion set forth above in the discussion of ordinary bankruptcy
principles. Depending on facts and circumstances not wholly in existence at the
time a loan is originated or transferred to the Trust Fund, the application of
any of these doctrines to one or more of the mortgagors in the context of the
bankruptcy of one or more of their affiliates could result in material
impairment of the rights of the Certificateholders.
For each mortgagor that is described as a "special purpose entity", "single
purpose entity" or bankruptcy remote entity" in the Prospectus Supplement, the
activities that may be conducted by such mortgagor and its ability to incur debt
are restricted by the applicable Mortgage or the organizational documents of
such mortgagor in such manner as is intended to make the likelihood of a
bankruptcy proceeding being commenced by or against such mortgagor remote, and
such mortgagor has been organized and is designed to operate in a manner such
that its separate existence should be respected notwithstanding a bankruptcy
proceeding in respect of one or more affiliated entities of such mortgagor.
However, the Depositor makes no representation as to the likelihood of the
institution of a bankruptcy proceeding by or in respect of any mortgagor or the
likelihood that the separate existence of any mortgagor would be respected if
there were to be a bankruptcy proceeding in respect of any affiliated entity of
a mortgagor.
ENVIRONMENTAL CONSIDERATIONS
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In certain circumstances, a lender
may decide to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
such a lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to such
a "superlien".
CERCLA. The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict liability on
present and past "owners" and "operators" of contaminated real property for the
costs of clean-up. A secured lender may be liable as an "owner" or "operator" of
a contaminated mortgaged property if agents or employees of the lender have
become sufficiently involved in the management of such mortgaged property or the
operations of the borrower. Such liability may exist even if the lender did not
cause or contribute to the contamination and regardless of whether or not the
lender has actually taken possession of a mortgaged property through
foreclosure, deed in lieu of foreclosure or otherwise. Moreover, such liability
is not limited to the original or unamortized principal balance of a loan or to
the value of the property securing a loan. Excluded from CERCLA's definition of
"owner" or "operator", however, is a person "who without participating in the
management of the facility, holds indicia of ownership primarily to protect his
security interest". This is the so-called "secured creditor exemption."
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Act") amended, among other things, the provisions of CERCLA with respect
to lender liability and the secured creditor
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exemption. The Act offers substantial protection of lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for a lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the property of the borrower. The Act
provides that "merely having the capacity to influence, or unexercised right to
control" operations does not constitute participation in management. A lender
will lose the protection of the secured creditor exemption only if it exercises
decision making control over the borrower's environmental compliance and
hazardous substance handling and disposal practices, or assumes day-to-day
management of operational functions of the mortgaged property. The Act also
provides that a lender will continue to have the benefit of the secured-creditor
exemption even if it forecloses on a mortgaged property, purchases it at a
foreclosure sale or accepts a deed-in-lieu of foreclosure provided that the
lender seeks to sell the mortgaged property at the earliest practicable
commercially reasonable time on commercially reasonable terms.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all those statutes provide for a secured creditor exemption. In
addition, under federal law, there is potential liability relating to hazardous
wastes and underground storage tanks under the federal Resource Conservation and
Recovery Act ("RCRA").
In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of RCRA governs underground
petroleum storage tanks. Under the Act, the protections accorded to lenders
under CERCLA are also accorded to the holders of security interests in
underground storage tanks. It should be noted, however, that liability for
cleanup of petroleum contamination may be governed by state law, which may not
provide for any specific protection of secured creditors.
In a few states, transfers of some types of properties are conditioned upon
cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting in
death, personal injury or damage to property) related to hazardous environmental
conditions on a property. While it may be more difficult to hold a lender liable
in such cases, unanticipated or uninsured liabilities of the borrower may
jeopardize the borrower's ability to meet its loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability of the Trust Fund and occasion a loss to the Certificateholders of the
related series.
To reduce the likelihood of such a loss, unless otherwise specified in the
related Prospectus Supplement, the Pooling and Servicing Agreement will provide
that neither the Master Servicer nor the Special Servicer, acting on behalf of
the Trustee, may acquire title to a Mortgaged Property or take over its
operation unless the Special Servicer, based solely (as to environmental
matters) on a report prepared by a person who regularly conducts environmental
audits, has made the determination that it is appropriate to do so, as described
under "The Pooling and Servicing Agreements -- Realization Upon Defaulted
Mortgage Loans".
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Such compliance may entail substantial expense, especially in the case of
industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental conditions
on a property to government entities and/or to prospective buyers (including
prospective buyers at a foreclosure sale or following foreclosure). Such
disclosure may decrease the amount that prospective buyers are willing to pay
for the
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affected property, sometimes substantially, and thereby decrease the ability of
the lender to recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each Mortgaged Property will have been performed in connection
with the origination of the related Mortgage Loan or at some time prior to the
issuance of the related Certificates. Environmental site assessments, however,
vary considerably in their content, quality and cost. Even when adhering to good
professional practices, environmental consultants will sometimes not detect
significant environmental problems because to do an exhaustive environmental
assessment would be far too costly and time-consuming to be practical.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Mortgage Loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn-St Germain Depository Institutions Act of 1982
(the "Garn Act") generally preempts state laws that prohibit the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limitations as set forth in the Garn Act
and the regulations promulgated thereunder. Accordingly, a Master Servicer may
nevertheless have the right to accelerate the maturity of a Mortgage Loan that
contains a "due-on-sale" provision upon transfer of an interest in the property,
without regard to the Master Servicer's ability to demonstrate that a sale
threatens its legitimate security interest.
JUNIOR LIENS; RIGHTS OF HOLDERS OF SENIOR LIENS
If so provided in the related Prospectus Supplement, Mortgage Assets for a
series of Certificates may include Mortgage Loans secured by junior liens, and
the loans secured by the related Senior Liens may not be included in the
Mortgage Pool. In addition to the risks faced by the holder of a first lien,
holders of Mortgage Loans secured by junior liens also face the risk that
adequate funds will not be received in connection with a foreclosure on the
related Mortgaged Property to satisfy fully both the Senior Liens and the
Mortgage Loan. In the event that a holder of a Senior Lien forecloses on a
Mortgaged Property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the Senior Liens. The claims of the holders
of the Senior Liens will be satisfied in full out of proceeds of the liquidation
of the related Mortgaged Property, if such proceeds are sufficient, before the
Trust Fund as holder of the junior lien receives any payments in respect of the
Mortgage Loan. In the event that such proceeds from a foreclosure or similar
sale of the related Mortgaged Property are insufficient to satisfy all Senior
Liens and the Mortgage Loan in the aggregate, the Trust Fund, as the holder of
the junior lien, and, accordingly, holders of one or more classes of the
Certificates of the related series bear (1) the risk of delay in distributions
while a deficiency judgment against the borrower is obtained and (2) the risk of
loss if the deficiency judgment is not realized upon. Moreover, deficiency
judgments may not be available in certain jurisdictions or the Mortgage Loan may
be nonrecourse.
The rights of the Trust Fund (and therefore the Certificateholders), as
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive rents, hazard insurance and condemnation
proceeds and to cause the property securing the Mortgage Loan to be sold upon
default of the mortgagor or trustor, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the Master Servicer asserts its
subordinate interest in a property in foreclosure litigation or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee or beneficiary may satisfy a defaulted senior loan in full, adding the
amounts expended to the balance due on the junior loan. Absent a provision in
the senior mortgage, no notice of default is required to be given to the junior
mortgagee.
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The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgage or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under a hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed to the extent the
junior mortgage or deed of trust so provides. The laws of certain states may
limit the ability of mortgagees or beneficiaries to apply the proceeds of hazard
insurance and partial condemnation awards to the secured indebtedness. In such
states, the mortgagor or trustor must be allowed to use the proceeds of hazard
insurance to repair the damage unless the security of the mortgagee or
beneficiary has been impaired. Similarly, in certain states, the mortgagee or
beneficiary is entitled to the award for a partial condemnation of the real
property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinate to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
SUBORDINATE FINANCING
The terms of certain of the Mortgage Loans may not restrict the ability of
the borrower to use the Mortgaged Property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a mortgaged property with one or more junior liens, the senior lender
is subjected to additional risk. First, the borrower may have difficulty
servicing and repaying multiple loans. Moreover, if the subordinate financing
permits recourse to the borrower (as is frequently the case) and the senior loan
does not, a borrower may have more incentive to repay sums due on the
subordinate loan. Second, acts of the senior lender that prejudice the junior
lender or impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the senior lender
agree to an increase in the principal amount of or the interest rate payable on
the senior loan, the senior lender may lose its priority to the extent any
existing junior lender is harmed or the borrower is additionally burdened.
Third, if the borrower defaults on the senior loan and/or any junior loan or
loans, the existence of junior loans and actions taken by junior lenders can
impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if payments
are not timely made, and in some circumstances may provide for
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prepayment fees or yield maintenance penalties if the obligation is paid prior
to maturity or prohibit such prepayment for a specified period. In certain
states, there are or may be specific limitations upon the late charges which a
lender may collect from a mortgagor for delinquent payments. Certain states also
limit the amounts that a lender may collect from a mortgagor as an additional
charge if the loan is prepaid. The enforceability under the laws of a number of
states and the Bankruptcy Code of provisions providing for prepayment fees of
penalties upon, or prohibition of, an involuntary prepayment is unclear, and no
assurance can be given that, at the time a prepayment premium is required to be
made on a Mortgage Loan in connection with an involuntary prepayment, the
obligation to make such payment, or the provisions of any such prohibition, will
be enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher Mortgage
Rates, may increase the likelihood of refinancing or other early retirements of
the Mortgage Loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply to
certain types of residential (including multifamily) first mortgage loans
originated by certain lenders after March 31, 1980. Title V authorized any state
to reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision that expressly rejects application of the federal law.
In addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
No Mortgage Loan originated in any state in which application of Title V
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof are to be
construed in accordance with the laws of another state under which such interest
rate, discount points and charges would not be usurious and the borrower's
counsel has rendered an opinion that such choice of law provision would be given
effect.
CERTAIN LAWS AND REGULATIONS
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgaged Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the borrower in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the borrower as owner or landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
borrower of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the borrower is subject.
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SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination of such borrower's mortgage loan (including a borrower who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to
individuals who enter military service (including reservists who are called to
active duty) after origination of the related mortgage loan, no information can
be provided as to the number of loans with individuals as borrowers that may be
affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of a Master Servicer or
Special Servicer to collect full amounts of interest on certain of the Mortgage
Loans. Any shortfalls in interest collections resulting from the application of
the Relief Act would result in a reduction of the amounts distributable to the
holders of the related series of Certificates, and would not be covered by
advances or, unless otherwise specified in the related Prospectus Supplement,
any form of Credit Support provided in connection with such Certificates. In
addition, the Relief Act imposes limitations that would impair the ability of
the Master Servicer or Special Servicer to foreclose on an affected Mortgage
Loan during the borrower's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property", including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (1) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (2) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of Offered
Certificates of any series thereof, to the extent it relates to matters of law
or legal conclusions with respect thereto, represents the opinion of counsel to
the Depositor with respect to that series on the material matters associated
with such consequences, subject to any qualifications set forth herein. Counsel
to the Depositor for each series will be Cadwalader, Wickersham & Taft, and a
copy of the legal opinion of such counsel rendered in connection with any series
of Certificates will be filed by the Depositor with the Commission on a Current
Report on Form 8-K within 15 days after the Closing Date for such series of
Certificates. This discussion is directed primarily to Certificateholders that
hold the Certificates as "capital assets" within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code") (although portions
thereof may also apply to Certificateholders who do not hold Certificates as
"capital assets") and it does not purport to discuss all federal income tax
consequences that may be applicable to the individual circumstances of
particular investors, some of which (such as banks, insurance companies and
foreign investors) may be subject to special treatment under the Code. Further,
the authorities on which this discussion, and the opinion referred to below, are
based are subject to change or differing interpretations, which could apply
retroactively. Prospective investors should note that no rulings have been or
will be sought
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from the Internal Revenue Service (the "IRS") with respect to any of the federal
income tax consequences discussed below, and no assurance can be given the IRS
will not take contrary positions. In addition to the federal income tax
consequences described herein, potential investors are advised to consider the
state and local tax consequences, if any, of the purchase, ownership and
disposition of Offered Certificates. See "State and Other Tax Consequences".
Certificateholders are advised to consult their tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of Offered Certificates.
The following discussion addresses securities of two general types: (1)
certificates ("REMIC Certificates") representing interests in a Trust Fund, or a
portion thereof, that the REMIC Administrator will elect to have treated as a
real estate mortgage investment conduit ("REMIC") under Sections 860A through
860G (the "REMIC Provisions") of the Code, and (2) Grantor Trust Certificates
representing interests in a Trust Fund ("Grantor Trust Fund") as to which no
such election will be made. The Prospectus Supplement for each series of
Certificates will indicate whether a REMIC election (or elections) will be made
for the related Trust Fund and, if such an election is to be made, will identify
all "regular interests" and "residual interests" in the REMIC. For purposes of
this tax discussion, references to a "Certificateholder" or a "holder" are to
the beneficial owner of a Certificate.
The following discussion is limited in applicability to Offered
Certificates. Moreover, this discussion applies only to the extent that Mortgage
Assets held by a Trust Fund consist solely of Mortgage Loans. To the extent that
other Mortgage Assets, including REMIC certificates and mortgage pass-through
certificates, are to be held by a Trust Fund, the tax consequences associated
with the inclusion of such assets will be disclosed in the related Prospectus
Supplement. In addition, if Cash Flow Agreements other than guaranteed
investment contracts are included in a Trust Fund, the anticipated material tax
consequences associated with such Cash Flow Agreements also will be discussed in
the related Prospectus Supplement. See "Description of the Trust Funds -- Cash
Flow Agreements".
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273 and
1275 of the Code and in the Treasury regulations issued thereunder (the "OID
Regulations"), and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the "REMIC Regulations"). The OID Regulations do
not adequately address certain issues relevant to, and in some instances provide
that they are not applicable to, securities such as the Certificates.
REMICS
Classification of REMICs. Upon the issuance of each series of REMIC
Certificates, counsel to the Depositor will give its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Trust Fund (or each applicable portion thereof)
will qualify as a REMIC and the REMIC Certificates offered with respect thereto
will be considered to evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in that REMIC within the meaning of the REMIC Provisions.
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of REMIC Certificates,
to the extent it relates to matters of law or legal conclusions with respect
thereto, represents the opinion of counsel to the Depositor for the applicable
series as specified in the related Prospectus Supplement, subject to any
qualifications set forth herein. In addition, counsel to the Depositor have
prepared or reviewed the statements in this Prospectus under the heading
"Certain Federal Income Tax Consequences -- REMICs," and are of the opinion that
such statements are correct in all material respects. Such statements are
intended as an explanatory discussion of the possible effects of the
classification of any Trust Fund (or applicable portion thereof) as a REMIC for
federal income tax purposes on investors generally and of related tax matters
affecting investors generally, but do not purport to furnish information in the
level of detail or with the attention to an investor's specific tax
circumstances that would be provided by an investor's own tax advisor.
Accordingly, each investor is advised to consult its own tax advisors with
regard to the tax consequences to it of investing in REMIC Certificates.
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If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. Although the
Code authorizes the Treasury Department to issue regulations providing relief in
the event of an inadvertent termination of REMIC status, no such regulations
have been issued. Any such relief, moreover, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the Trust
Fund's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the Trust Fund's status as a REMIC under
the REMIC Provisions. It is not anticipated that the status of any Trust Fund as
a REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Certificates. In general, unless
otherwise provided in the related Prospectus Supplement, the REMIC Certificates
will be "real estate assets" within the meaning of Section 856(c)(4)(A) of the
Code and assets described in Section 7701(a)(19)(C) of the Code in the same
proportion that the assets of the REMIC underlying such Certificates would be so
treated. However, to the extent that the REMIC assets constitute mortgages on
property not used for residential or certain other prescribed purposes, the
REMIC Certificates will not be treated as assets qualifying under Section
7701(a)(19)(C). Moreover, if 95% or more of the assets of the REMIC qualify for
any of the foregoing characterizations at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such Certificates are treated as "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code. In addition, the REMIC Regular
Certificates will be "qualified mortgages" for a REMIC within the meaning of
Section 860G(a)(3) of the Code and "permitted assets" for a financial asset
securitization investment trust within the meaning of Section 860L(c) of the
Code. The determination as to the percentage of the REMIC's assets that
constitute assets described in the foregoing sections of the Code will be made
with respect to each calendar quarter based on the average adjusted basis of
each category of the assets held by the REMIC during such calendar quarter. The
REMIC Administrator will report those determinations to Certificateholders in
the manner and at the times required by applicable Treasury regulations.
Tiered REMIC Structures. For certain series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the related
Trust Fund as REMICs ("Tiered REMICs") for federal income tax purposes. As to
each such series of REMIC Certificates, in the opinion of counsel to the
Depositor, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the Tiered REMICs will each qualify as a REMIC and the
REMIC Certificates issued by the Tiered REMICs, will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in the
related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Certificates.
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC Regular Certificates
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issued with original issue discount generally will be required to include
original issue discount in income as it accrues, in accordance with the
"constant yield" method described below, in advance of the receipt of the cash
attributable to such income. In addition, Section 1272(a)(6) of the Code
provides special rules applicable to REMIC Regular Certificates and certain
other debt instruments issued with original issue discount. Regulations have not
been issued under that section.
The Code requires that a reasonable prepayment assumption be used with
respect to Mortgage Loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Conference Committee Report accompanying the Tax Reform Act of 1986 (the
"Committee Report") indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "Prepayment Assumption") used in
reporting original issue discount for each series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Depositor nor any other person will
make any representation that the Mortgage Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the date of their initial issuance
(the "Closing Date"), the issue price for such class will be the fair market
value of such class on the Closing Date. Under the OID Regulations, the stated
redemption price of a REMIC Regular Certificate is equal to the total of all
payments to be made on such Certificate other than "qualified stated interest".
"Qualified stated interest" is interest that is unconditionally payable at least
annually (during the entire term of the instrument) at a single fixed rate, or
at a "qualified floating rate", an "objective rate", a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified inverse
floating rate", or a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest payments on such REMIC
Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the IRS.
Certain classes of the REMIC Regular Certificates may provide for the first
interest payment with respect to such Certificates to be made more than one
month after the date of issuance, a period which is longer than the subsequent
monthly intervals between interest payments. Assuming the "accrual period" (as
defined below) for original issue discount is each monthly period that ends on
the day prior to a Distribution Date, in some cases, as a consequence of this
"long first accrual period", some or all interest payments may be required to be
included in the stated redemption price of the REMIC Regular Certificate and
accounted for as original issue discount. Because interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method,
applying this analysis would result in only a slight difference in the timing of
the inclusion in income of the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first Distribution
Date is computed with respect to a period that begins prior to the Closing Date,
a portion of the purchase price paid for a REMIC Regular Certificate will
reflect such accrued interest. In such cases, information returns provided to
the Certificateholders and the IRS will be based on the position that the
portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC
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Regular Certificate (and not as a separate asset the cost of which is recovered
entirely out of interest received on the next Distribution Date) and that
portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first Distribution Date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average maturity. For this
purpose, the weighted average maturity of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular Certificate, by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which is
the amount of the payment, and the denominator of which is the stated redemption
price at maturity of such REMIC Regular Certificate. Under the OID Regulations,
original issue discount of only a de minimis amount (other than de minimis
original issue discount attributable to a so-called "teaser" interest rate or an
initial interest holiday) will be included in income as each payment of stated
principal is made, based on the product of the total amount of such de minimis
original issue discount and a fraction, the numerator of which is the amount of
such principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue de minimis original issue
discount into income currently based on a constant yield method. See
"-- Taxation of Owners of REMIC Regular Certificates -- Market Discount" below
for a description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of such Certificate must include in ordinary gross
income the sum of the "daily portions" of original issue discount for each day
during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that begins on a date that
corresponds to a Distribution Date (or in the case of the first such period,
begins on the Closing Date) and ends on the day preceding the immediately
following Distribution Date, a calculation will be made of the portion of the
original issue discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of (1) the sum of (a) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (b) the distributions made on
such REMIC Regular Certificate during the accrual period of amounts included in
the stated redemption price, over (2) the adjusted issue price of such REMIC
Regular Certificate at the beginning of the accrual period. The present value of
the remaining distributions referred to in the preceding sentence will be
calculated (1) assuming that distributions on the REMIC Regular Certificate will
be received in future periods based on the Mortgage Loans being prepaid at a
rate equal to the Prepayment Assumption, (2) using a discount rate equal to the
original yield to maturity of the Certificate and (3) taking into account events
(including actual prepayments) that have occurred before the close of the
accrual period. For these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the Mortgage Loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with respect to such
Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods of
amounts included in the stated redemption price. The original issue discount
accruing during any accrual period,
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computed as described above, will be allocated ratably to each day during the
accrual period to determine the daily portion of original issue discount for
such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price", in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (1) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (2) the daily portions of original issue
discount for all days during such accrual period prior to such day.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the portion
of each such distribution representing stated redemption price first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies. In addition, the
OID Regulations permit a Certificateholder to elect to accrue all interest and
discount (including de minimis market or original issue discount) in income as
interest, and to amortize premium, based on a constant yield method. If such an
election were made with respect to a REMIC Regular Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the taxable year of the election or thereafter, and possibly previously acquired
instruments. Similarly, a Certificateholder that made this election for a
Certificate that is acquired at a premium would be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"-- Taxation of Owners of REMIC Regular Certificates -- Premium" below. Each of
these elections to accrue interest, discount and premium with respect to a
Certificate on a constant yield method or as interest would be irrevocable
except with the approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "-- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates should
accrue, at the Certificateholder's option: (1) on the basis of a constant yield
method, (2) in the case of a REMIC Regular Certificate issued without original
issue discount, in an
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amount that bears the same ratio to the total remaining market discount as the
stated interest paid in the accrual period bears to the total amount of stated
interest remaining to be paid on the REMIC Regular Certificate as of the
beginning of the accrual period, or (3) in the case of a REMIC Regular
Certificate issued with original issue discount, in an amount that bears the
same ratio to the total remaining market discount as the original issue discount
accrued in the accrual period bears to the total original issue discount
remaining on the REMIC Regular Certificate at the beginning of the accrual
period. Moreover, the Prepayment Assumption used in calculating the accrual of
original issue discount is also used in calculating the accrual of market
discount. Because the regulations referred to in this paragraph have not been
issued, it is not possible to predict what effect such regulations might have on
the tax treatment of a REMIC Regular Certificate purchased at a discount in the
secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield method
over the life of the Certificate. If made, such an election will apply to all
debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the election
to amortize premium generally. See "-- Taxation of Owners of REMIC Regular
Certificates -- Market Discount" above. Although final Treasury regulations
issued under Section 171 of the Code do not by their terms apply to prepayable
obligations such as REMIC Regular Certificates, the Committee Report states that
the same rules that apply to accrual of market discount (which rules will
require use of a Prepayment Assumption in accruing market discount with respect
to REMIC Regular Certificates without regard to whether such Certificates have
original issue discount) will also apply in amortizing bond premium.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such Certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their Certificates become wholly or partially
worthless as the result of one or more realized losses on the Mortgage Loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its Certificate Balance has been reduced
to zero) and that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to
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defaults or delinquencies on the Mortgage Loans or the Underlying Certificates
until it can be established that any such reduction ultimately will not be
recoverable. As a result, the amount of taxable income reported in any period by
the holder of a REMIC Regular Certificate could exceed the amount of economic
income actually realized by the holder in such period. Although the holder of a
REMIC Regular Certificate eventually will recognize a loss or reduction in
income attributable to previously accrued and included income that, as the
result of a realized loss, ultimately will not be realized, the law is unclear
with respect to the timing and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except with
regard to prohibited transactions and certain other transactions. See
"-- Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable
income or net loss of a REMIC is generally taken into account by the holder of
the REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates
will be subject to tax rules that differ significantly from those that would
apply if the REMIC Residual Certificates were treated for federal income tax
purposes as direct ownership interests in the Mortgage Loans or as debt
instruments issued by the REMIC.
A holder of a REMIC Residual Certificate (a "REMIC Residual
Certificateholder") generally will be required to report its daily portion of
the taxable income or, subject to the limitations noted in this discussion, the
net loss of the REMIC for each day during a calendar quarter that such holder
owned such REMIC Residual Certificate. For this purpose, the taxable income or
net loss of the REMIC will be allocated to each day in the calendar quarter
ratably using a "30 days per month/90 days per quarter/360 days per year"
convention unless otherwise disclosed in the related Prospectus Supplement. The
daily amounts so allocated will then be allocated among the REMIC Residual
Certificateholders in proportion to their respective ownership interests on such
day. Any amount included in the gross income or allowed as a loss of any REMIC
Residual Certificateholder by virtue of this paragraph will be treated as
ordinary income or loss. The taxable income of the REMIC will be determined
under the rules described below in "-- Taxable Income of the REMIC" and will be
taxable to the REMIC Residual Certificateholders without regard to the timing or
amount of cash distributions by the REMIC until the REMIC's termination.
Ordinary income derived from REMIC Residual Certificates will be "portfolio
income" for purposes of the taxation of taxpayers subject to limitations under
Section 469 of the Code on the deductibility of "passive losses".
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss determined as described above. The Committee Report indicates
that certain modifications of the general rules may be made, by regulations,
legislation or otherwise to reduce (or increase) the income of a REMIC Residual
Certificateholder that purchased such REMIC Residual Certificate from a prior
holder of such Certificate at a price greater than (or less than) the adjusted
basis (as defined below) such REMIC Residual Certificate would have had in the
hands of an original holder of such Certificate. The REMIC Regulations, however,
do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate from the
seller of such Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it appears likely that any
such payment would be includible in income immediately upon its receipt, the IRS
might assert that such payment should be included in income over time according
to an amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of REMIC Residual
Certificates should consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the
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corresponding period. Consequently, REMIC Residual Certificateholders should
have other sources of funds sufficient to pay any federal income taxes due as a
result of their ownership of REMIC Residual Certificates or unrelated deductions
against which income may be offset, subject to the rules relating to "excess
inclusions" and "noneconomic" residual interests discussed below. The fact that
the tax liability associated with the income allocated to REMIC Residual
Certificateholders may exceed the cash distributions received by such REMIC
Residual Certificateholders for the corresponding period may significantly
adversely affect such REMIC Residual Certificateholders' after-tax rate of
return. Such disparity between income and distributions may not be offset by
corresponding losses or reductions of income attributable to the REMIC Residual
Certificateholder until subsequent tax years and, then, may not be completely
offset due to changes in the Code, tax rates or character of the income or loss.
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the Mortgage Loans (including interest, market discount and, if
applicable, original issue discount and less premium) and other assets of the
REMIC plus any cancellation of indebtedness income due to the allocation of
realized losses to REMIC Regular Certificates, less the deductions allowed to
the REMIC for interest (including original issue discount and reduced by any
premium on issuance) on the REMIC Regular Certificates (and any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby), amortization of any premium on the Mortgage Loans, bad debt losses with
respect to the Mortgage Loans and, except as described below, for servicing,
administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, such Class's fair market value). Such aggregate basis will be
allocated among the Mortgage Loans and the other assets of the REMIC in
proportion to their respective fair market values. The issue price of any REMIC
Certificates offered hereby will be determined in the manner described above
under "-- Taxation of Owners of REMIC Regular Certificates -- Original Issue
Discount". The issue price of a REMIC Certificate received in exchange for an
interest in the Mortgage Loans or other property will equal the fair market
value of such interests in the Mortgage Loans or other property. Accordingly, if
one or more classes of REMIC Certificates are retained initially rather than
sold, the REMIC Administrator may be required to estimate the fair market value
of such interests in order to determine the basis of the REMIC in the Mortgage
Loans and other property held by the REMIC.
The method of accrual by the REMIC of original issue discount income and
market discount income with respect to Mortgage Loans that it holds will be
equivalent to the method for accruing original issue discount income for holders
of REMIC Regular Certificates (that is, under the constant yield method taking
into account the Prepayment Assumption), but without regard to the de minimis
rule applicable to REMIC Regular Certificates. However, a REMIC that acquires
loans at a market discount must include such market discount in income
currently, as it accrues, on a constant yield basis. See "-- Taxation of Owners
of REMIC Regular Certificates" above, which describes a method for accruing such
discount income that is analogous to that required to be used by a REMIC as to
Mortgage Loans with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis therein, determined as described
in the preceding paragraph, is less than (or greater than) its stated redemption
price. Any such discount will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated that each REMIC
will elect under Section 171 of the Code to amortize any premium on the Mortgage
Loans. Premium on any Mortgage Loan to which such election applies may be
amortized under a constant yield method, presumably taking into account a
Prepayment Assumption. Further, such an election would not apply to any Mortgage
Loan originated on or before September 27, 1985. Instead, premium on such a
Mortgage Loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such Mortgage Loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the
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REMIC not offered hereby) equal to the deductions that would be allowed if the
REMIC Regular Certificates (including any other class of REMIC Certificates
constituting "regular interests" in the REMIC not offered hereby) were
indebtedness of the REMIC. Original issue discount will be considered to accrue
for this purpose as described above under "-- Taxation of Owners of REMIC
Regular Certificates -- Original Issue Discount", except that the de minimis
rule and the adjustments for subsequent holders of REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess of
the stated redemption price of such class (such excess "Issue Premium"), the
REMIC will have additional income in each taxable year in an amount equal to the
portion of the Issue Premium that is considered to be amortized or repaid in
that year. Although the matter is not entirely certain, it is likely that Issue
Premium would be amortized under a constant yield method in a manner analogous
to the method of accruing original issue discount described above under
"-- Taxation of Owners of REMIC Regular Certificates -- Original Issue
Discount".
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "-- Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted gross
income) will not be applied at the REMIC level so that the REMIC will be allowed
deductions for servicing, administrative and other noninterest expenses in
determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation of
Section 67 of the Code. See "-- Possible Pass-Through of Miscellaneous Itemized
Deductions" below. If the deductions allowed to the REMIC exceed its gross
income for a calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such REMIC
Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as
of the close of such calendar quarter (determined without regard to such net
loss). Any loss that is not currently deductible by reason of this limitation
may be carried forward indefinitely to future calendar quarters and, subject to
the same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
nontaxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of taxable
income of the REMIC. However, such bases increases may not occur until the end
of the calendar quarter, or perhaps the end of the calendar year, with respect
to which such REMIC taxable income is allocated to the REMIC Residual
Certificateholders. To the extent such REMIC Residual Certificateholders'
initial bases are less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either occur after such
distributions or (together with their initial bases) are less than the amount of
such distributions,
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gain will be recognized to such REMIC Residual Certificateholders on such
distributions and will be treated as gain from the sale of their REMIC Residual
Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "-- Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder see "-- Taxation of Owners of REMIC
Residual Certificates -- General" above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to federal income tax in all events. In
general, the "excess inclusions" with respect to a REMIC Residual Certificate
for any calendar quarter will be the excess, if any, of (1) the daily portions
of REMIC taxable income allocable to such REMIC Residual Certificate over (2)
the sum of the "daily accruals" (as defined below) for each day during such
quarter that such REMIC Residual Certificate was held by such REMIC Residual
Certificateholder. The daily accruals of a REMIC Residual Certificateholder will
be determined by allocating to each day during a calendar quarter its ratable
portion of the product of the "adjusted issue price" of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120% of the "long-term
Federal rate" in effect on the Closing Date. For this purpose, the adjusted
issue price of a REMIC Residual Certificate as of the beginning of any calendar
quarter will be equal to the issue price of the REMIC Residual Certificate,
increased by the sum of the daily accruals for all prior quarters and decreased
(but not below zero) by any distributions made with respect to such REMIC
Residual Certificate before the beginning of such quarter. The issue price of a
REMIC Residual Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal rate" is an average of
current yields on Treasury securities with a remaining term of greater than nine
years, computed and published monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion (1) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (2) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (3) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "-- Foreign
Investors in REMIC Certificates" below.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on any
required or permitted clean up calls, or required liquidation provided for in
the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published
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monthly by the IRS) on the REMIC Residual Certificate equals at least the
present value of the expected tax on the anticipated excess inclusions, and (2)
the transferor reasonably expects that the transferee will receive distributions
with respect to the REMIC Residual Certificate at or after the time the taxes
accrue on the anticipated excess inclusions in an amount sufficient to satisfy
the accrued taxes. Accordingly, all transfers of REMIC Residual Certificates
that may constitute noneconomic residual interests will be subject to certain
restrictions under the terms of the related Pooling and Servicing Agreement that
are intended to reduce the possibility of any such transfer being disregarded.
Such restrictions will require each party to a transfer to provide an affidavit
that no purpose of such transfer is to impede the assessment or collection of
tax, including certain representations as to the financial condition of the
prospective transferee, as to which the transferor is also required to make a
reasonable investigation to determine such transferee's historic payment of its
debts and ability to continue to pay its debts as they come due in the future.
Prior to purchasing a REMIC Residual Certificate, prospective purchasers should
consider the possibility that a purported transfer of such REMIC Residual
Certificate by such a purchaser to another purchaser at some future date may be
disregarded in accordance with the above-described rules which would result in
the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "-- Foreign Investors in REMIC Certificates" below
for additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules. On January 4, 1995, the IRS issued final regulations
(the "Mark-to-Market Regulations") relating to the requirement that a securities
dealer mark to market securities held for sale to customers. This mark-to-market
requirement applies to all securities owned by a dealer, except to the extent
that the dealer has specifically identified a security as held for investment.
The Mark-to-Market Regulations provide that for purposes of this mark-to-market
requirement, any REMIC Residual Certificate acquired on or after January 4, 1995
will not be treated as a security and thus generally may not be marked to
market.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to certain types of holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
such types of holders of the related REMIC Regular Certificates. Unless
otherwise stated in the related Prospectus Supplement, such fees and expenses
will be allocated to the related REMIC Residual Certificates in their entirety
and not to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, (1) an amount equal to such individual's, estate's or trust's
share of such fees and expenses will be added to the gross income of such holder
and (2) such individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable subject to the
limitation of Section 67 of the Code, which permits such deductions only to the
extent they exceed in the aggregate 2% of a taxpayer's adjusted gross income. In
addition, Section 68 of the Code provides that the amount of itemized deductions
otherwise allowable for an individual whose adjusted gross income exceeds a
specified amount will be reduced by the lesser of (1) 3% of the excess of the
individual's adjusted gross income over such amount or (2) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. The amount of
additional taxable income reportable by REMIC Certificateholders that are
subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Furthermore, in determining the alternative minimum taxable income
of such a holder of a REMIC Certificate that is an individual, estate or trust,
or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for such holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
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REMIC, even though an amount equal to the amount of such fees and other
deductions will be included in such holder's gross income. Accordingly, such
REMIC Certificates may not be appropriate investments for individuals, estates,
or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors should consult with
their tax advisors prior to making an investment in such Certificates.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will equal the cost
of such REMIC Regular Certificate to such Certificateholder, increased by income
reported by such Certificateholder with respect to such REMIC Regular
Certificate (including original issue discount and market discount income) and
reduced (but not below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium. The adjusted
basis of a REMIC Residual Certificate will be determined as described above
under "-- Taxation of Owners of REMIC Residual Certificates -- Basis Rules, Net
Losses and Distributions". Except as provided in the following four paragraphs,
any such gain or loss will be capital gain or loss, provided such REMIC
Certificate is held as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code. The Code as of the date of this
Prospectus provides for a top marginal tax rate of 39.6% for individuals and a
maximum marginal rate for long-term capital gains of individuals of 20% for
property held for more than one year. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise be a
capital gain will be treated as ordinary income to the extent such gain does not
exceed the excess, if any, of (1) the amount that would have been includible in
the seller's income with respect to such REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the "applicable Federal
rate" (generally, a rate based on an average of current yields on Treasury
securities having a maturity comparable to that of the Certificate based on the
application of the Prepayment Assumption to such Certificate), determined as of
the date of purchase of such REMIC Regular Certificate, over (2) the amount of
ordinary income actually includible in the seller's income prior to such sale.
In addition, gain recognized on the sale of a REMIC Regular Certificate by a
seller who purchased such REMIC Regular Certificate at a market discount will be
taxable as ordinary income in an amount not exceeding the portion of such
discount that accrued during the period such REMIC Certificate was held by such
holder, reduced by any market discount included in income under the rules
described above under "-- Taxation of Owners of REMIC Regular
Certificates -- Market Discount" and "-- Premium".
REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
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Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions" (a
"Prohibited Transactions Tax"). In general, subject to certain specified
exceptions a prohibited transaction means the disposition of a Mortgage Loan,
the receipt of income from a source other than a Mortgage Loan or certain other
permitted investments, the receipt of compensation for services, or gain from
the disposition of an asset purchased with the payments on the Mortgage Loans
for temporary investment pending distribution on the REMIC Certificates. It is
not anticipated that any REMIC will engage in any prohibited transactions in
which it would recognize a material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are subject to federal income tax at the highest corporate rate
on "net income from foreclosure property", determined by reference to the rules
applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
As provided in each Pooling and Servicing Agreement, a REMIC may recognize "net
income from foreclosure property" subject to federal income tax to the extent
that the REMIC Administrator determines that such method of operation will
result in a greater after-tax return to the Trust Fund than any other method of
operation.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to the
extent permitted by then applicable laws, any Prohibited Transactions Tax or
Contributions Tax will be borne by the related REMIC Administrator, Master
Servicer, Special Servicer, Manager or Trustee, in any case out of its own
funds, provided that such person has sufficient assets to do so, and provided
further that such tax arises out of a breach of such person's obligations under
the related Pooling and Servicing Agreement and in respect of compliance with
applicable laws and regulations. Any such tax not borne by a REMIC
Administrator, a Master Servicer, Special Servicer, Manager or Trustee will be
charged against the related Trust Fund resulting in a reduction in amounts
payable to holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (1) the
present value (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate) of the total
anticipated excess inclusions with respect to such REMIC Residual Certificate
for periods after the transfer and (2) the highest marginal federal income tax
rate applicable to corporations. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred and
must be based on events that have occurred up to the time of such transfer, the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents. Such a tax
generally would be imposed on the transferor of the REMIC Residual Certificate,
except that where such transfer is through an agent for a disqualified
organization, the tax would instead be imposed on such agent. However, a
transferor of a REMIC Residual Certificate would in no event be liable for
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such tax with respect to a transfer if the transferee furnishes to the
transferor an affidavit that the transferee is not a disqualified organization
and, as of the time of the transfer, the transferor does not have actual
knowledge that such affidavit is false. Moreover, an entity will not qualify as
a REMIC unless there are reasonable arrangements designed to ensure that (1)
residual interests in such entity are not held by disqualified organizations and
(2) information necessary for the application of the tax described herein will
be made available. Restrictions on the transfer of REMIC Residual Certificates
and certain other provisions that are intended to meet this requirement will be
included in each Pooling and Servicing Agreement, and will be discussed in any
Prospectus Supplement relating to the offering of any REMIC Residual
Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (1) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(2) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (1) such holder's social security number and a statement
under penalties of perjury that such social security number is that of the
record holder or (2) a statement under penalties of perjury that such record
holder is not a disqualified organization.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a REMIC Residual Certificate, all interests in the
electing large partnership are treated as held by disqualified organizations for
purposes of the tax imposed upon a pass-through entity by Section 860E(c) of the
Code. An exception to this tax, otherwise available to a pass-through entity
that is furnished certain affidavits by record holders of interests in the
entity and that does not know such affidavits are false, is not available to an
electing large partnership.
For these purposes, a "disqualified organization" means (1) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (2) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (3) any organization described in Section 1381(a)(2)(C) of the
Code. In addition, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity. For
these purposes, an "electing large partnership" means a partnership (other than
a service partnership or certain commodity pools) having more than 100 members
that has elected to apply certain simplified reporting provisions under the
Code.
Termination. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
Mortgage Loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in such Certificate, such REMIC Residual
Certificateholder should (but may not) be treated as realizing a loss equal to
the amount of such difference, and such loss may be treated as a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related Prospectus Supplement, the holder of the
largest percentage interest in a class of REMIC Residual Certificates will be
the "tax matters person" with respect to the related REMIC, and the REMIC
Administrator will file REMIC federal income tax returns on behalf of the
related
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REMIC, and will be designated as and will act as agent of, and attorney-in-fact
for, the tax matters person with respect to the REMIC in all respects.
As the tax matters person, the REMIC Administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders generally will be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the REMIC Administrator, as tax matters person, and the IRS concerning
any such REMIC item. Adjustments made to the REMIC tax return may require a
REMIC Residual Certificateholder to make corresponding adjustments on its
return, and an audit of the REMIC's tax return, or the adjustments resulting
from such an audit, could result in an audit of a REMIC Residual
Certificateholder's return. No REMIC will be registered as a tax shelter
pursuant to Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a REMIC Residual Certificate as a nominee for
another person may be required to furnish to the related REMIC, in a manner to
be provided in Treasury regulations, the name and address of such person and
other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and certain other nonindividuals will be provided interest
and original issue discount income information and the information set forth in
the following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and the issue date,
and requiring such information to be reported to the IRS. Reporting with respect
to REMIC Residual Certificates, including income, excess inclusions, investment
expenses and relevant information regarding qualification of the REMIC's assets
will be made as required under the Treasury regulations, generally on a
quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, such regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "-- Taxation of Owners of REMIC Regular
Certificates -- Market Discount".
Unless otherwise specified in the related Prospectus Supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the REMIC Administrator.
Backup Withholding with Respect to REMIC Certificates. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 31% if recipients of such payments fail to furnish to
the payor certain information, including their taxpayer identification numbers,
or otherwise fail to establish an exemption from such tax. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore, certain penalties may
be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner. The New Regulations,
as described below, change certain of the rules relating to certain presumptions
currently available relating to information reporting and backup withholding.
Non-U.S. Persons are urged to contact their own tax advisors regarding the
application to them of backup withholding and information reporting.
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Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a U.S. Person (as defined below) and is not subject to federal
income tax as a result of any direct or indirect connection to the United States
in addition to its ownership of a REMIC Regular Certificate will not, unless
otherwise disclosed in the related Prospectus Supplement, be subject to United
States federal income or withholding tax in respect of a distribution on a REMIC
Regular Certificate, provided that the holder complies to the extent necessary
with certain identification requirements (including delivery of a statement,
signed by the Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a U.S. Person and providing the name and address of
such Certificateholder). For these purposes, "U.S. Person" means a citizen or
resident of the United States, a corporation, partnership (except to the extent
provided in applicable Treasury regulations) or other entity created or
organized in, or under the laws of, the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income tax regardless of its source, or a trust if a court within the
United States is able to exercise primary supervision over the administration of
such trust, and one or more such U.S. Persons have the authority to control all
substantial decisions of such trust (or, to the extent provided in applicable
Treasury regulations, certain trusts in existence on August 20, 1996 which are
eligible to elect to be treated as U.S. Persons). It is possible that the IRS
may assert that the foregoing tax exemption should not apply with respect to a
REMIC Regular Certificate held by a REMIC Residual Certificateholder that owns
directly or indirectly a 10% or greater interest in the REMIC Residual
Certificates. If the holder does not qualify for exemption, distributions of
interest, including distributions in respect of accrued original issue discount,
to such holder may be subject to a tax rate of 30%, subject to reduction under
any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a nonresident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are nonresident
alien individuals should consult their tax advisors concerning this question.
The IRS recently issued final regulations (the "New Regulations") which
would provide alternative methods of satisfying the beneficial ownership
certification requirement described above. The New Regulations are effective
January 1, 2000, although valid withholding certificates that are held on
December 31, 1999, remain valid until the earlier of December 31, 2000 or the
due date of expiration of the certificate under the rules as currently in
effect. The New Regulations would require, in the case of Regular Certificates
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships. Non-U.S. Persons should consult their own tax advisors concerning
the application of the certification requirements in the New Regulations.
Unless otherwise stated in the related Prospectus Supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons will
be prohibited under the related Pooling and Servicing Agreement.
GRANTOR TRUST FUNDS
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, in the opinion of counsel to the Depositor for such
series, assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as a
partnership or an association taxable as a corporation. The following general
discussion of the anticipated federal income tax consequences of the purchase,
ownership and disposition of Grantor Trust Certificates, to the extent it
relates to matters of law or legal conclusions with respect thereto, represents
the opinion of counsel to the Depositor for the applicable series as specified
in the related Prospectus Supplement, subject to any qualifications set forth
herein. In addition, counsel to the Depositor have prepared or reviewed the
statements in this Prospectus under the
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heading "Certain Federal Income Tax Consequences -- Grantor Trust Funds," and
are of the opinion that such statements are correct in all material respects.
Such statements are intended as an explanatory discussion of the possible
effects of the classification of any Grantor Trust Fund as a grantor trust for
federal income tax purposes on investors generally and of related tax matters
affecting investors generally, but do not purport to furnish information in the
level of detail or with the attention to an investor's specific tax
circumstances that would be provided by an investor's own tax advisor.
Accordingly, each investor is advised to consult its own tax advisors with
regard to the tax consequences to it of investing in Grantor Trust Certificates.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate". A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Mortgage Loans constituting the related Grantor Trust Fund (net of normal
administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust Fund
will be referred to as a "Grantor Trust Strip Certificate". A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Mortgage Loans constituting the related Grantor Trust Fund.
Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related Prospectus Supplement, counsel to the Depositor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (1) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code; (2) "obligation[s]
(including any participation or Certificate of beneficial ownership therein)
which . . . [are] principally secured by an interest in real property" within
the meaning of Section 860G(a)(3) of the Code; and (3) "real estate assets"
within the meaning of Section 856(c)(4)(A) of the Code. In addition, counsel to
the Depositor will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of Mortgage Loans that
are "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code and "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and the income therefrom, will be so characterized.
However, the policies underlying such sections (namely, to encourage or require
investments in mortgage loans by thrift institutions and real estate investment
trusts) may suggest that such characterization is appropriate. Counsel to the
Depositor will not deliver any opinion on these questions. Prospective
purchasers to which such characterization of an investment in Grantor Trust
Strip Certificates is material should consult their tax advisors regarding
whether the Grantor Trust Strip Certificates, and the income therefrom, will be
so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the Mortgage Loans
(including amounts used to pay reasonable servicing fees and other expenses) and
will be entitled to deduct their shares of any such reasonable servicing fees
and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor
Trust Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing
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interest on the Mortgage Loans. Under Section 67 of the Code, an individual,
estate or trust holding a Grantor Trust Fractional Interest Certificate directly
or through certain pass-through entities will be allowed a deduction for such
reasonable servicing fees and expenses only to the extent that the aggregate of
such holder's miscellaneous itemized deductions exceeds two percent of such
holder's adjusted gross income. In addition, Section 68 of the Code provides
that the amount of itemized deductions otherwise allowable for an individual
whose adjusted gross income exceeds a specified amount will be reduced by the
lesser of (1) 3% of the excess of the individual's adjusted gross income over
such amount or (2) 80% of the amount of itemized deductions otherwise allowable
for the taxable year. The amount of additional taxable income reportable by
holders of Grantor Trust Fractional Interest Certificates who are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Further, Certificateholders (other than corporations) subject to the alternative
minimum tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple classes of Grantor Trust
Certificates (including Grantor Trust Strip Certificates) are issued, such fees
and expenses should be allocated among the classes of Grantor Trust Certificates
using a method that recognizes that each such class benefits from the related
services. In the absence of statutory or administrative clarification as to the
method to be used, it currently is intended to base information returns or
reports to the IRS and Certificateholders on a method that allocates such
expenses among classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (1) a class of Grantor
Trust Strip Certificates is issued as part of the same series of Certificates or
(2) the Depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on a Mortgage Asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. The
related Prospectus Supplement will include information regarding servicing fees
paid to a Master Servicer, a Special Servicer, any Sub-Servicer or their
respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "-- Taxation of Owners of Grantor Trust Fractional
Interest Certificates -- Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or
accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "-- Taxation of Owners of Grantor Trust Fractional
Interest Certificates -- If Stripped Bond Rules Do Not Apply" for a definition
of "qualified stated interest". In general, the amount of such income that
accrues in any month would equal the product of such holder's adjusted basis in
such Grantor Trust Fractional Interest Certificate at the beginning of such
month (see "-- Sales of Grantor Trust Certificates" below) and the yield of such
Grantor Trust Fractional Interest Certificate to such holder. Such yield would
be computed as the rate (compounded based on the regular interval between
payment dates) that, if used to discount the holder's share of future payments
on the Mortgage Loans, would cause the present value of those future payments to
equal the price at which the holder purchased such Certificate. In computing
yield under the stripped bond rules, a Certificateholder's
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share of future payments on the Mortgage Loans will not include any payments
made in respect of any ownership interest in the Mortgage Loans retained by the
Depositor, the Master Servicer, the Special Servicer, any Sub-Servicer or their
respective affiliates, but will include such Certificateholder's share of any
reasonable servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (1) the use of a reasonable
prepayment assumption in accruing original issue discount and (2) adjustments in
the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the Mortgage Loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage Loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the Mortgage Loan that is allocable to such Certificate and the portion of the
adjusted basis of such Certificate that is allocable to such Certificateholder's
interest in the Mortgage Loan. If a prepayment assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See
"-- REMICs -- Taxation of Owners of REMIC Regular Certificates -- Original Issue
Discount" above. It is unclear whether any other adjustments would be required
to reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
Prepayment Assumption that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a representative initial
offering price for each class of Certificates. However, neither the Depositor
nor any other person will make any representation that the Mortgage Loans will
in fact prepay at a rate conforming to such Prepayment Assumption or any other
rate and Certificateholders should bear in mind that the use of a representative
initial offering price will mean that such information returns or reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to the initial Certificateholders of each series who bought at that price.
Under Treasury regulations Section 1.1286-1, certain stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (1) there is no
original issue discount (or only a de minimis amount of original issue discount)
or (2) the annual stated rate of interest payable on the original bond is no
more than one percentage
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point lower than the gross interest rate payable on the original mortgage loan
(before subtracting any servicing fee or any stripped coupon). If interest
payable on a Grantor Trust Fractional Interest Certificate is more than one
percentage point lower than the gross interest rate payable on the Mortgage
Loans, the related Prospectus Supplement will disclose that fact. If the
original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than 0.25%
of the stated redemption price multiplied by the weighted average maturity of
the Mortgage Loans, then such original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only
a de minimis amount will be included in income in the same manner as de minimis
original issue and market discount described in "-- Taxation of Owners of
Grantor Trust Fractional Interest Certificates -- If Stripped Bond Rules Do Not
Apply" and "-- Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required to
report its share of the interest income on the Mortgage Loans in accordance with
such Certificateholder's normal method of accounting. The original issue
discount rules will apply, even if the stripped bond rules do not apply, to a
Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in Mortgage Loans issued with original issue discount.
The original issue discount, if any, on the Mortgage Loans will equal the
difference between the stated redemption price of such Mortgage Loans and their
issue price. For a definition of "stated redemption price," see "-- Taxation of
Owners of REMIC Regular Certificates -- Original Issue Discount" above. In
general, the issue price of a Mortgage Loan will be the amount received by the
borrower from the lender under the terms of the Mortgage Loan, less any "points"
paid by the borrower, and the stated redemption price of a Mortgage Loan will
equal its principal amount, unless the Mortgage Loan provides for an initial
"teaser," or below-market interest rate. The determination as to whether
original issue discount will be considered to be de minimis will be calculated
using the same test as in the REMIC discussion. See "-- Taxation of Owners of
REMIC Regular Certificates -- Original Issue Discount" above.
In the case of Mortgage Loans bearing adjustable or variable interest
rates, the related Prospectus Supplement will describe the manner in which such
rules will be applied with respect to those Mortgage Loans by the Trustee or
Master Servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a Mortgage Loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related Prospectus
Supplement with respect to each series to determine whether and in what manner
the original issue discount rules will apply to Mortgage Loans in such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Mortgage Loans held in the related Trust Fund will also
be required to include in gross income such Certificate's daily portions of any
original issue discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust Fractional
Interest Certificate to such purchaser is in excess of such Certificate's
allocable portion of the aggregate "adjusted issue prices" of the Mortgage Loans
held in the related Trust Fund, approximately in proportion to the ratio such
excess bears to such Certificate's allocable portion of the aggregate original
issue discount remaining to be accrued on such Mortgage Loans. The adjusted
issue price of a Mortgage Loan on
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any given day equals the sum of (1) the adjusted issue price (or, in the case of
the first accrual period, the issue price) of such Mortgage Loan at the
beginning of the accrual period that includes such day and (2) the daily
portions of original issue discount for all days during such accrual period
prior to such day. The adjusted issue price of a Mortgage Loan at the beginning
of any accrual period will equal the issue price of such Mortgage Loan,
increased by the aggregate amount of original issue discount with respect to
such Mortgage Loan that accrued in prior accrual periods, and reduced by the
amount of any payments made on such Mortgage Loan in prior accrual periods of
amounts included in its stated redemption price.
Unless otherwise provided in the related Prospectus Supplement, the Trustee
or Master Servicer, as applicable, will provide to any holder of a Grantor Trust
Fractional Interest Certificate such information as such holder may reasonably
request from time to time with respect to original issue discount accruing on
Grantor Trust Fractional Interest Certificates. See "-- Grantor Trust Reporting"
below.
Market Discount. If the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a Mortgage Loan is considered to have been purchased at a "market
discount", that is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a Mortgage Loan issued with original issue
discount, at a purchase price less than its adjusted issue price (as defined
above). If market discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in income in each month
the amount of such discount that has accrued (under the rules described in the
next paragraph) through such month that has not previously been included in
income, but limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated redemption price on
such Mortgage Loan that is received by (or, in the case of accrual basis
Certificateholders, due to) the Trust Fund in that month. A Certificateholder
may elect to include market discount in income currently as it accrues (under a
constant yield method based on the yield of the Certificate to such holder)
rather than including it on a deferred basis in accordance with the foregoing
under rules similar to those described in "-- Taxation of Owners of REMIC
Regular Interests -- Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the Mortgage Loans should accrue, at the
holder's option: (1) on the basis of a constant yield method, (2) in the case of
a Mortgage Loan issued without original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the stated interest
paid in the accrual period bears to the total stated interest remaining to be
paid on the Mortgage Loan as of the beginning of the accrual period, or (3) in
the case of a Mortgage Loan issued with original issue discount, in an amount
that bears the same ratio to the total remaining market discount as the original
issue discount accrued in the accrual period bears to the total original issue
discount remaining at the beginning of the accrual period. The prepayment
assumption, if any, used in calculating the accrual of original issue discount
is to be used in calculating the accrual of market discount. The effect of using
a prepayment assumption could be to accelerate the reporting of such discount
income. Because the regulations referred to in this paragraph have not been
issued, it is not possible to predict what effect such regulations might have on
the tax treatment of a Mortgage Loan purchased at a discount in the secondary
market.
Because the Mortgage Loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "-- REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" above within the exception that it is
less likely that a prepayment assumption will be used for purposes of such rules
with respect to the Mortgage Loans.
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Further, under the rules described above in "-- REMICs -- Taxation of
Owners of REMIC Regular Certificates -- Market Discount", any discount that is
not original issue discount and exceeds a de minimis amount may require the
deferral of interest expense deductions attributable to accrued market discount
not yet includible in income, unless an election has been made to report market
discount currently as it accrues. This rule applies without regard to the
origination dates of the Mortgage Loans.
Premium. If a Certificateholder is treated as acquiring the underlying
Mortgage Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Mortgage Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Mortgage Loans originated before September 28, 1985 or to Mortgage
Loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the Mortgage Loan and be allowed as a
deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a prepayment assumption and a Mortgage Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss equal to the difference between
the portion of the prepaid principal amount of the Mortgage Loan that is
allocable to the Certificate and the portion of the adjusted basis of the
Certificate that is allocable to the Mortgage Loan. If a prepayment assumption
is used to amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a prepayment should be
treated as a partial payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC Regular
Certificates. See "-- REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Original Issue Discount" above. It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "-- Taxation of Owners of Grantor
Trust Fractional Interest Certificates -- If Stripped Bond Rules Apply", no
regulations or published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to securities such as
the Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust
Strip Certificates should consult their tax advisors concerning the method to be
used in reporting income or loss with respect to such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "-- Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Mortgage Loans. See "-- Taxation of Owners of Grantor Trust Fractional
Interest Certificates -- If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and
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that adjustments be made in the amount and rate of accrual of such discount when
prepayments do not conform to such prepayment assumption. Regulations could be
adopted applying those provisions to the Grantor Trust Strip Certificates. It is
unclear whether those provisions would be applicable to the Grantor Trust Strip
Certificates or whether use of a prepayment assumption may be required or
permitted in the absence of such regulations. It is also uncertain, if a
prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Grantor
Trust Strip Certificate or, with respect to any subsequent holder, at the time
of purchase of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Depositor nor any other person will make any
representation that the Mortgage Loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as accurate
by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Mortgage Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is
treated as an interest in discrete Mortgage Loans, or if the Prepayment
Assumption is not used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such Mortgage Loan.
Possible Application of Contingent Payment Rules. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Grantor Trust Strip Certificates would cease if the Mortgage Loans were
prepaid in full, the Grantor Trust Strip Certificates could be considered to be
debt instruments providing for contingent payments. Under the OID Regulations,
debt instruments providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments. Regulations have
been promulgated regarding contingent payment debt instruments (the "Contingent
Payment Regulations"), but it appears that Grantor Trust Strip Certificates, due
to their similarity to other mortgage-backed securities (such as REMIC regular
interests and debt instruments subject to Section 1272(a)(6) of the Code) that
are expressly excepted from the application of the Contingent Payment
Regulations, may be excepted from such regulations. Like the OID Regulations,
the Contingent Payment Regulations do not specifically address securities, such
as the Grantor Trust Strip Certificates, that are subject to the stripped bond
rules of Section 1286 of the Code.
If the contingent payment rules similar to those under the OID Regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be required
to apply a "noncontingent bond method." Under the "noncontingent bond method,"
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule. Holders of Grantor Trust Strip Certificates are bound by the issuer's
projected payment schedule. The projected payment schedule consists of all
noncontingent payments and a projected amount for each contingent payment based
on the comparable yield (as described below) of the Grantor Trust Strip
Certificate. The projected amount of each payment is determined so that the
projected payment schedule reflects the projected yield. The projected amount of
each payment must reasonably reflect the relative expected values of the
payments to be received by the holders of a Grantor Trust Strip Certificate. The
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comparable yield referred to above is a rate that, as of the issue date,
reflects the yield at which the issuer would issue a fixed rate debt instrument
with terms and conditions similar to the contingent payment debt instrument,
including general market conditions, the credit quality of the issuer, and the
terms and conditions of the Mortgage Loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the comparable yield.
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange of
a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this Prospectus generally provides for
maximum tax rates of noncorporate taxpayers of 39.6% on ordinary income and 20%
on long-term capital gains (generally, property held for more than one year). No
such rate differential exists for corporations. In addition, the distinction
between a capital gain or loss and ordinary income or loss remains relevant for
other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion transaction"
within the meaning of Section 1258 of the Code. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in the
same or similar property that reduce or eliminate market risk, if substantially
all of the taxpayer's return is attributable to the time value of the taxpayer's
net investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting. Unless otherwise provided in the related
Prospectus Supplement, the Trustee or Master Servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying Mortgage Loans and to interest thereon at the related
Pass-Through Rate. In addition, the Trustee or Master Servicer, as applicable,
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Grantor Trust Certificate who was such a holder at any time
during such year, information regarding the amount of servicing compensation
received by the Master Servicer, the Special Servicer or any Sub-Servicer, and
such other customary factual information as the Depositor or the reporting party
deems necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the Trustee's
or Master Servicer's, as the case
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may be, information reports of such items of income and expense. Moreover, such
information reports, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial Certificateholders that bought
their Certificates at the representative initial offering price used in
preparing such reports.
Backup Withholding. In general, the rules described above in
"-- REMICs -- Backup Withholding with Respect to REMIC Certificates" will also
apply to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC
Regular Certificates in "-- REMICs -- Foreign Investors in REMIC Certificates"
above applies to Grantor Trust Certificates except that Grantor Trust
Certificates will, unless otherwise disclosed in the related Prospectus
Supplement, be eligible for exemption from U.S. withholding tax, subject to the
conditions described in such discussion, only to the extent the related Mortgage
Loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
nonresident alien individual.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State tax law may differ substantially from the
corresponding federal law, and the discussion above does not purport to describe
any aspect of the tax laws of any state or other jurisdiction. Therefore,
prospective investors should consult their tax advisors with respect to the
various tax consequences of investments in the Offered Certificates.
CERTAIN ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on retirement plans, and on certain
other employee benefit plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts (and as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code ("Plans"), and
on persons who are fiduciaries with respect to such Plans, in connection with
the investment of Plan assets. Certain employee benefit plans, such as
governmental plans (as defined in ERISA Section 3(32)), and, if no election has
been made under Section 410(d) of the Code, church plans (as defined in Section
3(33) of ERISA) are not subject to ERISA requirements. Accordingly, assets of
such plans may be invested in Offered Certificates without regard to the ERISA
considerations described below, subject to the provisions of other applicable
federal and state law. Any such plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Code, however, is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, Section 406 of ERISA and Section 4975 of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons ("parties in interest" within the meaning of ERISA and "disqualified
persons" within the meaning of the Code; collectively, "Parties in Interest")
who have certain specified relationships to the Plan, unless a statutory or
administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code or a penalty imposed pursuant to Section
502(i) of ERISA, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
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PLAN ASSET REGULATIONS
A Plan's investment in Offered Certificates may cause the underlying
Mortgage Assets and other assets included in a related Trust Fund to be deemed
assets of such Plan. Section 2510.3-101 of the regulations (the "Plan Asset
Regulations") of the United States Department of Labor (the "DOL") provides that
when a Plan acquires an equity interest in an entity, the Plan's assets include
both such equity interest and an undivided interest in each of the underlying
assets of the entity, unless certain exceptions not applicable here apply, or
unless the equity participation in the entity by "benefit plan investors" (i.e.,
Plans and certain employee benefit plans not subject to ERISA) is not
"significant", both as defined therein. For this purpose, in general, equity
participation by benefit plan investors will be "significant" on any date if 25%
or more of the value of any class of equity interests in the entity is held by
benefit plan investors. Equity participation in a Trust Fund will be significant
on any date if immediately after the most recent acquisition of any Certificate,
25% or more of any class of Certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Mortgage Assets and other assets included in a Trust Fund
constitute Plan assets, then any party exercising management or discretionary
control regarding those assets, such as the Master Servicer, any Special
Servicer, any Sub-Servicer, the Trustee, the obligor under any credit
enhancement mechanism, or certain affiliates thereof may be deemed to be a Plan
"fiduciary" and thus subject to the fiduciary responsibility provisions and
prohibited transaction provisions of ERISA and the Code with respect to the
investing Plan. In addition, if the Mortgage Assets and other assets included in
a Trust Fund constitute Plan assets, the purchase of Certificates by a Plan, as
well as the operation of the Trust Fund, may constitute or involve a prohibited
transaction under ERISA or the Code.
The Plan Asset Regulations provide that where a Plan acquires a "guaranteed
governmental mortgage pool certificate", the Plan's assets include such
certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" FHLMC Certificates, GNMA Certificates and FNMA
Certificates, but, on their face, do not include FAMC Certificates. Accordingly,
even if such MBS (other than, perhaps, FAMC Certificates) included in a Trust
Fund were deemed to be assets of Plan investors, the mortgages underlying such
MBS (other than, perhaps, FAMC Certificates) would not be treated as assets of
such Plans. Private label mortgage participations, mortgage pass-through
certificates or other mortgage-backed securities are not "guaranteed
governmental mortgage pool certificates" within the meaning of the Plan Asset
Regulations; potential Plan investors should consult their counsel and review
the ERISA discussion in the related Prospectus Supplement before purchasing
Certificates if such MBS are included in the Trust Fund.
In considering an investment in the Offered Certificates, a Plan fiduciary
should consider the availability of prohibited transaction exemptions
promulgated by the DOL including, among others, Prohibited Transaction Class
Exemption ("PTCE") 75-1, which exempts certain transactions involving Plans and
certain broker-dealers, reporting dealers and banks; PTCE 90-1, which exempts
certain transactions between insurance company separate accounts and Parties in
Interest; PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest; PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified professional asset
manager"; PTCE 95-60, which exempts certain transactions between insurance
company general accounts and Parties in Interest; and PTCE 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager." There can be no assurance that any of these class exemptions will
apply with respect to any particular Plan investment in the Certificates or,
even if it were deemed to apply, that any such exemption would apply to all
prohibited transactions that may occur in connection with such investment. The
Prospectus Supplement with respect to a series of Certificates may contain
additional information regarding the availability of other exemptions with
respect to the Certificates offered thereby.
The DOL has granted to certain underwriters administrative exemptions,
referred to herein as the "Exemptions", for certain mortgage-backed and
asset-backed certificates underwritten in whole or in part by
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the underwriters. An Exemption might be applicable to the initial purchase, the
holding, and the subsequent resale by a Plan of certain certificates, such as
the Offered Certificates, underwritten by the underwriters, representing
interests in pass-through trusts that consist of certain receivables, loans and
other obligations, provided that the conditions and requirements of the
Exemption are satisfied. The loans described in the Exemptions include mortgage
loans such as the Mortgage Assets. However, it should be noted that in issuing
the Exemptions, the DOL may not have considered interests in pools of the exact
nature as some of the Offered Certificates. If all of the conditions of an
Exemption are met, whether or not a Plan's assets would be deemed to include an
ownership interest in the Mortgage Assets, the acquisition, holding and resale
of the Offered Certificates by Plans would be exempt from certain of the
prohibited transaction provisions of ERISA and the Code.
INSURANCE COMPANY GENERAL ACCOUNTS
Section III of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")
exempts from the application of the prohibited transaction provisions of
Sections 406(a), 406(b) and 407(a) of ERISA and Section 4975 of the Code
transactions in connection with the servicing, management and operation of a
trust (such as the Trust) in which an insurance company general account has an
interest as a result of its acquisition of certificates issued by the trust,
provided that certain conditions are satisfied. If these conditions are met,
insurance company general accounts would be allowed to purchase certain Classes
of Certificates which do not meet the requirements of any of the Exemptions
solely because they (1) are subordinated to other Classes of Certificates in the
Trust and/or (2) have not received a rating at the time of the acquisition in
one of the three highest rating categories from S&P, Moody's, DCR or Fitch. All
other conditions of one of the Exemptions would have to be satisfied in order
for PTCE 95-60 to be available. Before purchasing such Class of Certificates, an
insurance company general account seeking to rely on Section III of PTCE 95-60
should itself confirm that all applicable conditions and other requirements have
been satisfied.
The Small Business Job Protection Act of 1996 added a new Section 401(c) to
ERISA, which provides certain exemptive relief from the provisions of Part 4 of
Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL is required to issue final
regulations ("401(c) Regulations") no later than December 31, 1997 which are to
provide guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan Assets. On December 22, 1997, the DOL proposed such regulations.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the 401(c) Regulations become final, no person shall be subject to
liability under Part 4 of Title I of ERISA and Section 4975 of the Code on the
basis of a claim that the assets of an insurance company general account
constitute Plan Assets, unless (1) as otherwise provided by the Secretary of
Labor in the 401(c) Regulations to prevent avoidance of the regulations or (2)
an action is brought by the Secretary of Labor for certain breaches of fiduciary
duty which would also constitute a violation of federal or state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as Plan Assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as Plan Assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Offered Certificates should consult with their legal
counsel with respect to the applicability of Section 401(c) of ERISA, including
the general account's ability to continue to hold the Offered Certificates after
the date which is 18 months after the date the 401(c) Regulations become final.
CONSULTATION WITH COUNSEL
Any Plan fiduciary which proposes to purchase Offered Certificates on
behalf of or with assets of a Plan should consider its general fiduciary
obligations under ERISA and should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investment and the
availability of any prohibited transaction exemption in connection therewith.
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TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code (a "Tax Exempt Investor") nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable
income" ("UBTI") within the meaning of Section 512 of the Code. All "excess
inclusions" of a REMIC allocated to a REMIC Residual Certificate held by a
Tax-Exempt Investor will be considered UBTI and thus will be subject to federal
income tax. See "Certain Federal Income Tax Consequences -- REMICs -- Taxation
of Owners of REMIC Residual Certificates -- Excess Inclusions".
LEGAL INVESTMENT
If so specified in the related Prospectus Supplement, the Offered
Certificates will constitute "mortgage related securities" for purposes of
SMMEA. The appropriate characterization of those Offered Certificates not
qualifying as "mortgage related securities" ("Non-SMMEA Certificates") under
various legal investment restrictions, and thus the ability of investors subject
to these restrictions to purchase such Offered Certificates, may be subject to
significant interpretive uncertainties. Accordingly, investors whose investment
authority is subject to legal restrictions should consult their own legal
advisors to determine whether and to what extent the Non-SMMEA Certificates
constitute legal investments for them.
Generally, only classes of Offered Certificates that (1) are rated in one
of the two highest rating categories by one or more Rating Agencies and (2) are
part of a series evidencing interests in a Trust Fund consisting of loans
originated by certain types of Originators specified in SMMEA and secured by
first liens on real estate, will be "mortgage related securities" for purposes
of SMMEA. Classes of Offered Certificates qualifying as "mortgage related
securities" will constitute legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including
depository institutions, insurance companies and pension funds) created pursuant
to or existing under the laws of the United States or of any state (including
the District of Columbia and Puerto Rico) whose authorized investments are
subject to state regulation, to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments for
such entities. Under SMMEA, a number of states enacted legislation, on or before
the October 3, 1991 cutoff for such enactments, limiting to varying extents the
ability of certain entities (in particular, insurance companies) to invest in
"mortgage related securities" secured by liens on residential, or mixed
residential and commercial properties, in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Pursuant to
Section 347 of the Riegle Community Development and Regulatory Improvement Act
of 1994, which amended the definition of "mortgage related security" (effective
December 31, 1996) to include, in relevant part, Offered Certificates satisfying
the rating and qualified Originator requirements for "mortgage related
securities," but evidencing interests in a Trust Fund consisting, in whole or in
part, of first liens on one or more parcels of real estate upon which are
located one or more commercial structures, states were authorized to enact
legislation, on or before September 23, 2001, specifically referring to Section
347 and prohibiting or restricting the purchase, holding or investment by
state-regulated entities in such types of Offered Certificates. Section 347 also
provides that the enactment by a state of any such legislative restrictions
shall not affect the validity of any contractual commitment to purchase, hold or
invest in securities qualifying as "mortgage related securities" solely by
reason of Section 347 that was made, and shall not require the sale or
disposition of any securities acquired, prior to the enactment of such state
legislation. Accordingly, the investors affected by any such state legislation,
when and if enacted, will be authorized to invest in Offered Certificates
qualifying as "mortgage related securities" only to the extent provided in such
legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
sec. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the "OCC") has amended
94
<PAGE> 261
12 C.F.R. Part 1 to authorize national banks to purchase and sell for their own
account, without limitation as to a percentage of the bank's capital and surplus
(but subject to compliance with certain general standards in 12 C.F.R. sec. 1.5
concerning "safety and soundness" and retention of credit information), certain
"Type IV securities," defined in 12 C.F.R. sec. 1.2(1) to include certain
"commercial mortgage-related securities" and "residential mortgage-related
securities." As so defined, "commercial mortgage-related security" and
"residential mortgage-related security" mean, in relevant part, "mortgage
related security" within the meaning of SMMEA, provided that, in the case of a
"commercial mortgage-related security," it "represents ownership of a promissory
note or certificate of interest or participation that is directly secured by a
first lien on one or more parcels of real estate upon which one or more
commercial structures are located and that is fully secured by interests in a
pool of loans to numerous obligors." In the absence of any rule or
administrative interpretation by the OCC defining the term "numerous obligors,"
no representation is made as to whether any class of Offered Certificates will
qualify as "commercial mortgage-related securities," and thus as "Type IV
securities," for investment by national banks. The National Credit Union
Administration ("NCUA") has adopted rules, codified at 12 C.F.R. Part 703, which
permit federal credit unions to invest in "mortgage related securities" under
certain limited circumstances, other than stripped mortgage related securities,
residual interests in mortgage related securities, and commercial mortgage
related securities, unless the credit union has obtained written approval from
the NCUA to participate in the "investment pilot program" described in 12 C.F.R.
sec. 703.140. The Office of Thrift Supervision (the "OTS") has issued Thrift
Bulletin 43a (December 1, 1998), "Management of Interest Rate Risk, Investment
Securities, and Derivative Activities," which thrift institutions subject to the
jurisdiction of the OTS should consider before investing in any of the Offered
Certificates.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" (the "1998 Policy Statement") of
the Federal Financial Institutions Examination Council, which has been adopted
by the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the OCC and the OTS effective May 26, 1998, and by the
NCUA effective October 1, 1998. The 1998 Policy Statement sets forth general
guidelines which depository institutions must follow in managing risks
(including market, credit, liquidity, operational (transaction), and legal
risks) applicable to all securities (including mortgage pass-through securities
and mortgage-derivative products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any Offered
Certificates, as certain series or classes may be deemed unsuitable investments,
or may otherwise be restricted, under such rules, policies or guidelines (in
certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Offered Certificates issued
in book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain classes of Offered Certificates as
"mortgage related securities," no representations are made as to the proper
characterization of the Offered Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase Offered Certificates under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Offered Certificates) may
adversely affect the liquidity of the Offered Certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent the Offered Certificates of any class constitute
legal investments or are subject to investment, capital or other restrictions
and, if applicable, whether SMMEA has been overridden in any jurisdiction
relevant to such investor.
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<PAGE> 262
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates of any
series will be applied by the Depositor to the purchase of Trust Assets or will
be used by the Depositor to cover expenses related thereto. The Depositor
expects to sell the Certificates from time to time, but the timing and amount of
offerings of Certificates will depend on a number of factors, including the
volume of Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus Supplements
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
Depositor from such sale.
The Depositor intends that Offered Certificates will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of the Offered
Certificates of a particular series may be made through a combination of two or
more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters, which may include NationsBanc
Montgomery Securities LLC ("NationsBanc Montgomery"), an affiliate of the
Depositor;
2. By placements by the Depositor with institutional investors through
dealers; and
3. By direct placements by the Depositor with institutional investors.
In addition, if specified in the related Prospectus Supplement, the Offered
Certificates of a series may be offered in whole or in part to the seller of the
related Mortgage Assets that would comprise the Trust Fund for such
Certificates.
If underwriters are used in a sale of any Offered Certificates (other than
in connection with an underwriting on a best efforts basis), such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the Depositor whose
identities and relationships to the Depositor will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of Offered Certificates of a particular series
will be set forth on the cover of the Prospectus Supplement relating to such
series and the members of the underwriting syndicate, if any, will be named in
such Prospectus Supplement.
In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may be
deemed to be underwriters in connection with such Certificates, and any
discounts or commissions received by them from the Depositor and any profit on
the resale of Offered Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale of
the Offered Certificates of any series will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
thereof.
96
<PAGE> 263
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Depositor and purchasers of
Offered Certificates of such series.
The Depositor anticipates that the Offered Certificates will be sold
primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with reoffers and sales by them of
Offered Certificates. Holders of Offered Certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by NationsBanc Montgomery in connection with offers and
sales related to market-making transactions in Offered Certificates previously
offered hereunder in transactions with respect to which NationsBanc Montgomery
acts as principal. NationsBanc Montgomery may also act as agent in such
transactions. Sales may be made at negotiated prices determined at the time of
sale.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor by Robert W. Long, Jr., Assistant General Counsel of BankAmerica
Corporation. Certain legal matters relating to the Certificates will be passed
upon for the underwriter or underwriters by Cadwalader, Wickersham & Taft.
Certain federal income tax matters and other matters will be passed upon for the
Depositor by Cadwalader, Wickersham & Taft.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates, and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement. The Depositor has determined that its financial statements will not
be material to the offering of any Offered Certificates.
RATING
It is a condition to the issuance of any class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders thereof of all collections on the underlying mortgage
assets to which such holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with such certificates, the nature
of the underlying mortgage assets and the credit quality of the guarantor, if
any. Ratings on mortgage pass-through certificates do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the
degree by which such prepayments might differ from those originally anticipated.
As a result, Certificateholders might suffer a lower than anticipated yield,
and, in addition, holders of Stripped Interest Certificates might, in extreme
cases fail to recoup their initial investments. Furthermore, ratings on mortgage
pass-through certificates do not address the price of such certificates or the
suitability of such certificates to the investor.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
97
<PAGE> 264
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Offered Certificates contain summaries of the material terms of the
documents referred to in this Prospectus or in such Prospectus Supplement, but
do not contain all of the information set forth in the Registration Statement
pursuant to the rules and regulations of the Commission. For further
information, reference is made to such Registration Statement and the exhibits
thereto. Such Registration Statement and exhibits can be inspected and copied at
prescribed rates at the public reference facilities maintained by the Commission
at its Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at its Midwest Regional Offices located as follows: Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Northeast
Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048.
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that
contains reports, proxy and information statements, and other information that
has been filed electronically with the SEC. The Internet address is
http://www.sec.gov.
No dealer, salesman, or other person has been authorized to give any
information, or to make any representations, other than those contained in this
Prospectus or any related Prospectus Supplement, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Depositor or any other person. Neither the delivery of this Prospectus or
any related Prospectus Supplement nor any sale made hereunder or thereunder
shall under any circumstances create an implication that there has been no
change in the information in this Prospectus since the date hereof or in such
Prospectus Supplement since the date thereof. This Prospectus and any related
Prospectus Supplement are not an offer to sell or a solicitation of an offer to
buy any security in any jurisdiction in which it is unlawful to make such offer
or solicitation.
The Master Servicer, the Trustee or another specified person will cause to
be provided to registered holders of the Offered Certificates of each series
periodic unaudited reports concerning the related Trust Fund. If beneficial
interests in a class or series of Offered Certificates are being held and
transferred in book-entry format through the facilities of The Depository Trust
Company ("DTC") as described in this Prospectus, then unless otherwise provided
in the related Prospectus Supplement, such reports will be sent on behalf of the
related Trust Fund to a nominee of DTC as the registered holder of the Offered
Certificates. Conveyance of notices and other communications by DTC to its
participating organizations, and directly or indirectly through such
participating organizations to the beneficial owners of the applicable Offered
Certificates, will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time. See
"Description of the Certificates -- Reports to Certificateholders" and
"-- Book-Entry Registration and Definitive Certificates".
The Depositor will file or cause to be filed with the Commission such
periodic reports with respect to each Trust Fund as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder. The Depositor intends to make a
written request to the staff of the Commission that the staff either (1) issue
an order pursuant to Section 12(h) of the Exchange Act exempting the Depositor
from certain reporting requirements under the Exchange Act with respect to each
Trust Fund or (2) state that the staff will not recommend that the Commission
take enforcement action if the Depositor fulfills its reporting obligations as
described in its written request. If such request is granted, the Depositor will
file or cause to be filed with the Commission as to each Trust Fund the periodic
unaudited reports to holders of the Offered Certificates referenced in the
preceding paragraph; however, because of the nature of the Trust Funds, it is
unlikely that any significant additional information will be filed. In addition,
because of the limited number of Certificateholders expected for each series,
the Depositor anticipates that a significant portion of such reporting
requirements will be permanently suspended following the first fiscal year for
the related Trust Fund.
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<PAGE> 265
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Depositor hereby incorporates by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as
amended, prior to the termination of an offering of offered certificates
evidencing interests therein. The Depositor will provide or cause to be provided
without charge to each person to whom this prospectus is delivered in connection
with the offering of one or more classes of offered certificates, upon written
or oral request of such person, a copy of any or all documents or reports
incorporated in this Prospectus by reference, in each case to the extent such
documents or reports relate to one or more of such classes of such offered
certificates, other than the exhibits to such documents (unless such exhibits
are specifically incorporated by reference in such documents). Such requests to
the Depositor should be directed in writing to its principal executive offices
at the Bank of America Corporate Center, Charlotte, North Carolina 28255, or by
telephone at (704) 386-2400.
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<PAGE> 266
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<S> <C>
1998 Policy Statement......... 95
401(c) Regulations............ 93
Accrual Certificates.......... 7
Accrued Certificate
Interest.................... 30
Act........................... 62
ADA........................... 65
ARM Loans..................... 21
Available Distribution
Amount...................... 30
Book-Entry Certificates....... 29
Call Risk..................... 17
Cash Flow Agreement........... 23
CERCLA........................ 61
Certificate Account........... 23
Certificate Balance........... 7
Certificate Owner............. 35
Certificateholder............. 36
Closing Date.................. 69
Code.......................... 66
Commercial Properties......... 18, 22
Commission.................... 98
Committee Report.............. 69
Companion Class............... 32
Contingent Payment
Regulations................. 89
Contributions Tax............. 79
Controlled Amortization
Class....................... 32
Cooperatives.................. 18
CPR........................... 26
Credit Support................ 8
Crime Control Act............. 66
Cut-off Date.................. 11, 31
Debt Service Coverage Ratio... 19
Definitive Certificates....... 29
Depositor..................... 18-28
Determination Date............ 24, 30
Direct Participants........... 35
Distribution Date............. 7
Distribution Date Statement... 33
DOL........................... 92
DTC........................... 98
Due Dates..................... 20
Due Period.................... 24
Equity Participation.......... 21
ERISA......................... 91
Events of Default............. 49
Excess Funds.................. 28
Exchange Act.................. 98
Exemptions.................... 93
Extension Risk................ 18
FAMC.......................... 22
FHLMC......................... 22
FNMA.......................... 22
GNMA.......................... 22
Garn Act...................... 63
Grantor Trust Certificates.... 9
Grantor Trust Fractional
Interest Certificate........ 83
Grantor Trust Fund............ 67
Grantor Trust Strip
Certificate................. 83
Indirect Participants......... 35
Insurance and Condemnation
Proceeds.................... 42
IRS........................... 45, 67
Issue Premium................. 75
Letter of Credit Bank......... 54
Liquidation Proceeds.......... 42
Loan-to-Value Ratio........... 20
Lock-out Date................. 21
Lock-out Period............... 21
Mark-to-Market Regulations.... 77
Master Servicer............... 5
MBS........................... 18
MBS Administrator............. 5
MBS Agreement................. 22
MBS Issuer.................... 22
MBS Servicer.................. 22
MBS Trustee................... 22
Mortgages..................... 18
Mortgage Asset Seller......... 18
Mortgage Asset Pool........... 5
Mortgage Assets............... 18
Mortgage Loans................ 18
Mortgage Notes................ 18
Mortgage Rate................. 20
Mortgaged Properties.......... 18
Multifamily Properties........ 18
NationsBanc Montgomery........ 96
NCUA.......................... 95
Net Leases.................... 20
Net Operating Income.......... 19
New Regulations............... 82
Non-SMMEA Certificates........ 94
Nonrecoverable Advance........ 32
Notional Amount............... 31
OCC........................... 95
OID Regulations............... 67
Offered Certificates.......... cover
Originator.................... 18
OTS........................... 95
</TABLE>
100
<PAGE> 267
<TABLE>
<S> <C>
Participants.................. 35
Parties in Interest........... 92
Pass-Through Rate............. 7
Percentage Interest........... 30
Permitted Investments......... 42
Plan Asset Regulations........ 92
Plans......................... 91
Pooling and Servicing
Agreement................... 36
Prepayment Assumption......... 69
Prepayment Interest
Shortfall................... 24
Prepayment Period............. 33
Prepayment Premium............ 21
Prohibited Transactions Tax... 77
Prospectus Supplement......... cover
PTCE.......................... 92
PTCE 95-60.................... 93
Purchase Price................ 38
Rating Agency................. 9
RCRA.......................... 62
Record Date................... 30
Related Proceeds.............. 32
Relief Act.................... 66
REMIC......................... 67
REMIC Administrator........... 16
REMIC Certificates............ 67
REMIC Provisions.............. 67
REMIC Regular Certificates.... 9
REMIC Regulations............. 67
REMIC Residual
Certificateholder........... 73
REMIC Residual Certificates... 9
REO Property.................. 40
RICO.......................... 66
Senior Certificates........... 6
Senior Liens.................. 18
SMMEA......................... 9
SPA........................... 26
Special Servicer.............. 5
Stripped Interest
Certificates................ 10
Stripped Principal
Certificates................ 10
Subordinate Certificates...... 53
Sub-Servicer.................. 41
Sub-Servicing Agreement....... 41
Tax Exempt Investor........... 94
Tiered REMICs................. 68
Title V....................... 65
Trust Assets.................. 16
Trust Fund.................... 18
Trustee....................... 5
UBTI.......................... 94
UCC........................... 56
U.S. Person................... 82
Value......................... 20
Voting Rights................. 34
Warranting Party.............. 39
</TABLE>
101
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[DISKETTE]
This diskette contains two spreadsheet files that can be put on a
user-specified hard drive or network drive. The files, "NB991.xls" and
"CL991.xls", are Microsoft Excel(1) Version 5.0 spreadsheets. The "NB991.xls"
file provides, in electronic format, certain loan level information on the
NationsBank Mortgage Loans shown in Annex A of the Prospectus Supplement. The
"CL991.xls" file provides, in electronic format, certain loan level information
on the Credit Lease Loans.
Open the file as you would normally open any spreadsheet in Microsoft
Excel. After the file(s) is opened, a securities law legend will be displayed.
READ THE LEGEND CAREFULLY. To view the loan level information on either file,
"click" on the worksheet labeled "Loan Level."
- ---------------
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
<PAGE> 269
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YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE CERTIFICATES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
WE DO NOT CLAIM THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AS OF ANY DATE OTHER THAN THE DATES STATED ON
THEIR RESPECTIVE COVERS.
DEALERS WILL DELIVER A PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
WHEN ACTING AS UNDERWRITERS OF THE CERTIFICATES AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS. IN ADDITION, ALL DEALERS SELLING THE CERTIFICATES
WILL DELIVER A PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS UNTIL JUNE
10, 1999.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Table of Contents...................... S-1
Summary of Prospectus Supplement....... S-9
Risk Factors........................... S-22
Description of the Loan Pool........... S-39
The Credit Leases...................... S-63
Servicing of the Loans................. S-69
Description of the Certificates........ S-80
The Trustee and the Fiscal Agent....... S-98
The Enhancement Insurer................ S-100
The Extension Insurer.................. S-100
Yield and Maturity Considerations...... S-100
Use of Proceeds........................ S-109
Certain Federal Income Tax
Consequences......................... S-109
Certain ERISA Considerations........... S-111
Legal Investment....................... S-114
Method of Distribution................. S-114
Legal Matters.......................... S-115
Ratings................................ S-115
Annex A................................ A-1
Annex B................................ B-1
Annex C................................ C-1
Annex D................................ D-1
PROSPECTUS
Summary of Prospectus.................. 5
Risk Factors........................... 10
Prospectus Supplement.................. 16
Description of the Trust Funds......... 18
Yield and Maturity Considerations...... 23
The Depositor.......................... 28
Description of the Certificates........ 29
The Pooling and Servicing Agreements... 36
Description of Credit Support.......... 53
Certain Legal Aspects of Mortgage
Loans................................ 55
Certain Federal Income Tax
Consequences......................... 66
State and Other Tax Consequences....... 91
Certain ERISA Considerations........... 91
Legal Investment....................... 94
Use of Proceeds........................ 96
Method of Distribution................. 96
Legal Matters.......................... 97
Financial Information.................. 97
Rating................................. 97
Available Information.................. 98
Incorporation of Certain Information by
Reference............................ 99
Index of Principal Definitions......... 100
</TABLE>
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$422,311,630
(APPROXIMATE)
NATIONSLINK
FUNDING
CORPORATION
DEPOSITOR
CLASS A-1, CLASS A-2, CLASS A-3
CLASS X, CLASS B
NATIONSLINK FUNDING CORPORATION
COMMERCIAL LOAN
PASS-THROUGH CERTIFICATES
SERIES 1999-LTL-1
------------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------------
NATIONSBANC MONTGOMERY
SECURITIES LLC
March 5, 1999
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