<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-61783
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement and the accompanying prospectus +
+is not complete and may be changed. These securities may not be sold nor may +
+offers to buy be accepted prior to the time this prospectus supplement and +
+the accompanying prospectus is delivered in final form. This prospectus +
+supplement and the accompanying prospectus is not an offer to sell these +
+securities and it is not soliciting an offer to buy these securities in any +
+jurisdiction where the offer of sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, August 3, 1999
PROSPECTUS SUPPLEMENT (To Prospectus dated August 3, 1999)
Approximately $320,591,000
Corporate Lease-Backed Certificates, Series 1999-CLF1
Bear Stearns Commercial Mortgage Securities Inc.
Depositor
Capital Lease Funding, L.P. Bedford Capital Funding Corp.
Loan Sellers
The Trust:
. The trust's assets will consist primarily of 170 corporate and United
States post office lease-backed loans which, with the support of
enhancements described in this prospectus supplement, generally require
payments sufficient to make all payments due on the loans through
maturity.
. The loans are secured by an assignment of leases and rents, as well as
first liens on commercial properties.
. Office properties, retail properties and United States post offices will
represent additional security for a material concentration of these loans.
The Certificates:
. The Series 1999-CLF1 Corporate Lease-Backed Certificates will consist of
twelve classes of certificates, some of which are not offered by this
prospectus supplement and the accompanying prospectus.
. Only the Class A certificates are offered pursuant to this prospectus
supplement and the accompanying prospectus. The Class A certificates are
divided into Class A-1, Class A-2, Class A-3 and Class A-4 certificates.
This prospectus supplement and the accompanying prospectus relate only to
the offered certificates.
.The non-offered certificates consist of Class X, Class B, Class C, Class D,
Class E, Class F certificates and the residual certificates, which will
consist of the Class R-I and Class R-II certificates.
. MBIA Insurance Corporation will unconditionally and irrevocably guarantee
to the Trustee, for the benefit of holders of the Class A certificates,
the timely payment of any interest accrued on the Class A certificates,
the timely distribution (subject to the limitations described herein) of
scheduled principal to which they are entitled and the final payment of
principal no later than August 2018.
MBIA
Certain characteristics of the offered certificates include:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Initial Assumed Final Rated Final
Certificate Pass-Through Distribution Distribution Ratings
Class Balance (1) Rate Date (2) Date (3) (S&P/Moody's) (4)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A-1...... $29,155,000 % May 20, 2003 May 20, 2030 AAA/Aaa
- ---------------------------------------------------------------------------------------------------
Class A-2...... $25,072,000 % September 20, 2005 May 20, 2030 AAA/Aaa
- ---------------------------------------------------------------------------------------------------
Class A-3...... $110,365,000 (5) September 20, 2012 May 20, 2030 AAA/Aaa
- ---------------------------------------------------------------------------------------------------
Class A-4...... $155,999,000 (5) August 20, 2018 May 20, 2030 AAA/Aaa
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(footnotes to table on following page)
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.
You should carefully consider the risk factors beginning on page S-24 in this
prospectus supplement and page 18 in the accompanying prospectus.
Payments on the loans backed by corporate and United States post office
leases, with the support of certain enhancements, represent the sole source of
payment on these securities. The certificates will represent interests only in
the trust and will not represent interests in or obligations of the depositor,
nor interests in or obligations of either of the loan sellers. Neither the
certificates nor the underlying loans are insured or guaranteed by any
governmental agency.
The underwriters, Bear, Stearns & Co. Inc., Banc of America Securities LLC,
and Prudential Securities Incorporated will purchase the offered certificates
from Bear Stearns Commercial Mortgage Securities Inc. and will offer them to
the public at negotiated prices determined at the time of sale. The
underwriters expect to deliver the offered certificates to purchasers on or
about August , 1999.
Bear, Stearns & Co. Inc. Banc of America Securities LLC Prudential Securities
August , 1999
<PAGE>
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 for a complete list of modelling assumptions.
(3) 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 July 15, 1999,
has the longest remaining amortization term, irrespective of its scheduled
maturity. See "Ratings" in this prospectus supplement.
(4) 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") and Moody's Investors
Service, Inc. ("Moody's"; and, together with S&P, the "Rating Agencies")
no lower than those set forth above, and that such rating be assigned
without regard to the MBIA policy. 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.
(5) The pass-through rate for the Class A-3 and Class A-4 certificates is the
weighted average loan interest rate, net of MBIA, servicer and trustee
fees, which rate will initially equal % per annum.
S-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXECUTIVE SUMMARY......................................................... S-7
SUMMARY OF PROSPECTUS SUPPLEMENT.......................................... S-10
RISK FACTORS.............................................................. S-24
RISKS RELATED TO THE CERTIFICATES......................................... S-24
Lack of Control Over Trust Fund.......................................... S-24
Yield Considerations..................................................... S-24
Prepayments and Repurchases.............................................. S-25
Borrower Default......................................................... S-26
Bankruptcy Proceedings................................................... S-27
Advance Interest and Other Payments...................................... S-28
Use of Net Proceeds Account.............................................. S-28
Different Timing of Loan Amortization.................................... S-28
Year 2000 Disruptions.................................................... S-29
RISKS RELATED TO THE LOANS................................................ S-29
Credit Quality of Credit Lease Tenants and Guarantors.................... S-29
Factors Affecting Lease Enhancement Policy Proceeds...................... S-30
Factors Affecting Extended Amortization Policy Proceeds.................. S-32
Balloon Payments......................................................... S-32
Certain USPS Lease Loan Final Payments................................... S-33
Factors Affecting Servicer Protective Actions............................ S-33
Factors Affecting Credit Tenant Leases with U.S. Postal Service.......... S-35
Factors Affecting Possible Foreclosure and Liquidation Proceeds;
Limitations on Foreclosure.............................................. S-36
Nature of the Mortgaged Properties....................................... S-37
Risks Particular to Tenant Industry Segments............................. S-38
Limited Assets and Obligations of the Borrowers.......................... S-40
Environmental Considerations............................................. S-41
Multi-Borrower Note; Limited Cross-Collateralization..................... S-41
Geographic Concentration................................................. S-41
Other Concentrations..................................................... S-42
Prepayment Premiums...................................................... S-43
Limited Information...................................................... S-44
Litigation............................................................... S-44
Other Risks.............................................................. S-44
DESCRIPTION OF THE LOAN POOL.............................................. S-45
General.................................................................. S-45
</TABLE>
<TABLE>
<S> <C>
Certain Terms and Conditions of the Loans................................ S-46
Significant Loans and Tenants............................................ S-50
Additional Loan Information.............................................. S-60
Certain Underwriting Matters............................................. S-61
The Loan Sellers......................................................... S-64
Assignment of the Loans;
Repurchases............................................................. S-64
Representations and Warranties; Repurchases.............................. S-65
Changes in Loan Pool Characteristics..................................... S-71
THE CREDIT LEASES......................................................... S-73
General.................................................................. S-73
Credit Lease Term........................................................ S-73
Amounts Payable Under the Credit Leases.................................. S-73
Assignment and Subleasing................................................ S-74
Estoppel Letters......................................................... S-74
Insurance................................................................ S-74
Credit Lease Defaults by Credit Lease Tenant............................. S-75
Credit Lease Tenant's Self-Help; Right of Offset......................... S-75
Operating Covenants; Credit Lease Tenant Alterations..................... S-76
Other Borrower Obligations; Credit Lease Tenant Rent Abatement and Lease
Termination Rights...................................................... S-76
Borrower Obligations; USPS Credit Lease Tenant Rent Abatement and Lease
Termination Rights...................................................... S-79
SERVICING OF THE LOANS.................................................... S-80
General.................................................................. S-80
The Master Servicer and the Special Servicer............................. S-83
Sub-Servicers............................................................ S-83
Servicing Compensation and Payment of Expenses........................... S-84
Events of Default........................................................ S-86
Rights Upon Event of Default............................................. S-87
Evidence as to Compliance................................................ S-88
Modifications, Waivers, Amendments and Consents.......................... S-88
Sale of Defaulted Loans.................................................. S-89
Limitations on Foreclosure............................................... S-90
REO Properties........................................................... S-91
Inspections; Collection of Operating Information......................... S-91
Termination of the Special Servicer...................................... S-92
</TABLE>
S-3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
DESCRIPTION OF THE CERTIFICATES.......................................... S-92
General................................................................. S-92
Registration and Denominations.......................................... S-93
Distributions on the Certificates....................................... S-93
Assumed Final Distribution Date; Rated Final Distribution Date.......... S-100
Subordination; Allocation of Losses and Certain Expenses................ S-101
Appraisal Reduction Amounts............................................. S-102
Advances................................................................ S-103
Servicer Protective Actions............................................. S-105
Accounts................................................................ S-105
Reports to Certificateholders; Certain Available Information............ S-108
Voting Rights........................................................... S-112
Termination............................................................. S-112
THE TRUSTEE AND THE FISCAL AGENT......................................... S-113
The Trustee............................................................. S-113
Certain Matters Regarding the Trustee................................... S-113
The Fiscal Agent........................................................ S-114
THE ENHANCEMENT INSURER.................................................. S-114
THE EXTENSION INSURER.................................................... S-114
DESCRIPTION OF THE MBIA POLICY........................................... S-115
</TABLE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
THE CERTIFICATE INSURER.................................................. S-116
MBIA.................................................................... S-116
MBIA Financial Information.............................................. S-117
Where You Can Obtain Additional Information About MBIA.................. S-117
Year 2000 Readiness Disclosure.......................................... S-118
Financial Strength Ratings of MBIA...................................... S-118
YIELD AND MATURITY CONSIDERATIONS........................................ S-119
Yield Considerations.................................................... S-119
Weighted Average Lives.................................................. S-121
USE OF PROCEEDS.......................................................... S-127
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................. S-127
General................................................................. S-127
Status of Offered Certificates.......................................... S-127
Discount and Premium; Prepayment Premiums............................... S-127
Possible Taxes on Income From Foreclosure Property and Other Taxes...... S-128
Reporting Requirements.................................................. S-128
CERTAIN ERISA CONSIDERATIONS............................................. S-128
LEGAL INVESTMENT......................................................... S-130
METHOD OF DISTRIBUTION................................................... S-132
LEGAL MATTERS............................................................ S-132
RATINGS.................................................................. S-133
INDEX OF PRINCIPAL DEFINITIONS........................................... S-134
</TABLE>
S-4
<PAGE>
IMPORTANT NOTICE ABOUT THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
In this prospectus supplement, "we" refers to the depositor, Bear Stearns
Commercial Mortgage Securities Inc., and "you" refers to a prospective
investor in the offered certificates.
We tell you about the offered certificates in two separate documents that
progressively provide more details. These documents are:
. the accompanying prospectus, which provides general information, some of
which may not apply to the offered certificates; and
. this prospectus supplement, which describes the specific terms of the
offered certificates.
The accompanying prospectus contains general information about mortgage
pass-through certificates we might offer publicly although some of the
information may not apply to the Series 1999-CLF1 Corporate Lease-Backed
Certificates or the particular classes of Series 1999-CLF1 Corporate Lease-
Backed Certificates being offered. This prospectus supplement describes the
specific terms of the series of pass-through certificates being offered to
you.
If we describe terms of the series of pass-through certificates offered
hereby differently in this prospectus supplement than we do in the prospectus,
you should rely on the information in this prospectus supplement rather than
one on the more general information in the prospectus. However, you should
carefully review this prospectus supplement and the accompanying prospectus
together, because neither one by itself provides complete information about
the series of pass-through certificates offered hereby.
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-CLF1 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-10 of this
prospectus supplement and gives a brief introduction of the key features
of Series 1999-CLF1 and the loans; and
. Risk Factors, which begins on page S-24 of this prospectus supplement and
describes certain risks that apply to Series 1999-CLF1 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-134 in this prospectus supplement.
The capitalized terms used in the prospectus are defined on the pages
indicated under the caption "Index of Significant Definitions" beginning on
page 110 in the prospectus. Terms that are used but not defined in this
prospectus supplement will have the meanings specified in the prospectus.
----------------
S-5
<PAGE>
Whenever we use words like "intends," "anticipates" or "expects" or similar
words in this prospectus supplement, we are making a forward-looking
statement, or a projection of what we think will happen in the future.
Forward-looking statements are inherently subject to a variety of
circumstances, many of which are beyond our control, that could cause actual
results to differ materially from what we think they will be. Any forward-
looking statements in this prospectus supplement speak only as of the date of
this prospectus supplement. We do not assume any responsibility to update or
review any forward-looking statement contained in this prospectus supplement
to reflect any change in our expectation with respect to the subject of such
forward-looking statement or to reflect any change in events, conditions or
circumstances on which any such forward-looking statement is based.
S-6
<PAGE>
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 attached to this prospectus supplement, or in the accompanying
prospectus.
<TABLE>
<CAPTION>
Approximate
Initial Percentage
Certificate of Approximate Weighted
Balance or Aggregate Initial Pass- Average
Notional Cut-off Date Credit Through Life Principal
Class Ratings (1) Amount (2) Balance Support Description Rate (years) (3) Window (3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Offered Certificates
- -------------------------------------------------------------------------------------------------------------------
A-1 AAA/Aaa $29,155,000 7.59% 16.5% Fixed Rate % 2.00 8/99 - 5/03
- -------------------------------------------------------------------------------------------------------------------
A-2 AAA/Aaa $25,072,000 6.53% 16.5% Fixed Rate % 5.00 5/03 - 9/05
- -------------------------------------------------------------------------------------------------------------------
A-3 AAA/Aaa $110,365,000 28.75% 16.5% WAC (5) 10.00 9/05 - 9/12
- -------------------------------------------------------------------------------------------------------------------
A-4 AAA/Aaa $155,999,000 40.63% 16.5% WAC (5) 16.23 9/12 - 8/18
- -------------------------------------------------------------------------------------------------------------------
Private Certificates--Not Offered Hereby
- -------------------------------------------------------------------------------------------------------------------
X AAAr/Aaa $383,941,244(4) N/A N/A Variable Rate %(6) 13.55 N/A
(Interest Only)
- -------------------------------------------------------------------------------------------------------------------
B AA/Aaa $16,318,000 4.25% 12.25% WAC (5) 19.26 8/18 - 2/19
- -------------------------------------------------------------------------------------------------------------------
C A/A2 $15,358,000 4.00% 8.25% WAC (5) 20.42 2/19 - 12/20
- -------------------------------------------------------------------------------------------------------------------
D BBB/NR $24,956,000 6.50% 1.75% WAC (5) 22.45 12/20 - 5/23
- -------------------------------------------------------------------------------------------------------------------
BB/NR $3,839,000 1.00% .75% [Fixed Rate]/ %[(5)] 24.07 5/23 - 12/23
E [WAC]
- -------------------------------------------------------------------------------------------------------------------
F B/NR $2,879,244 0.75% 0% [Fixed Rate]/ %[(5)] 24.94 12/23 - 5/28
[WAC]
</TABLE>
(1) Ratings shown are those of S&P 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) The pass-through rate for the Class A-3, A-4, B, C, D, [E and F]
certificates is the weighted average loan interest rate, net of MBIA
premiums and fee rates payable to the master servicer and trustee, which
rate will initially equal % per annum.
(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, in general, equal the excess, if any, of (a) the weighted average of
the interest rates (net of the MBIA premium and fee rates payable to the
master 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, adjusted to reflect certificate
balances that would have been outstanding had all net liquidation proceeds
been distributed when received. Interest on the Class X Certificates will
accrue on a notional amount equal to the aggregate loan balance. See
"Description of the Certificates--Distributions on the Certificates" in
this prospectus supplement.
Simultaneously with the issuance of the certificates, MBIA Insurance
Corporation will issue a financial guaranty insurance policy which will (among
other things) unconditionally and irrevocably guarantee to the Trustee, for
the benefit of the holders of the Class A certificates, the timely payment of
accrued interest, the
S-7
<PAGE>
timely distribution (subject to the limitations described herein) of scheduled
principal and the full payment of principal no later than August 2018 on each
class of Class A certificates to which each such class is entitled from time
to time.
The loans include 96 loans (the "USPS Lease Loans"), representing
approximately 13.25% of the aggregate principal balance of the loans, which
are secured by assignment of leases to the United States Postal Service, and
74 loans (the "Corporate Lease Loans"), representing approximately 86.75% of
the aggregate principal balance of the loans, which are secured by assignments
of leases to various other corporate tenants. Below is certain information
regarding the loans and the mortgaged properties as of July 15, 1999. All
weighted averages set forth below are based on the respective principal
balances as of July 15, 1999 of the loans. We have described the loans and
provided additional information regarding the loans and the mortgaged
properties 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.................................... $383,941,244
Number of Loans.............................................. 170
Number of Mortgaged Properties............................... 171
Number of Credit Lease Tenants/Guarantors/Parents............ 23
Average Cut-off Date Balance................................. $ 2,258,478
Weighted Average Loan Rate................................... 7.31%
Weighted Average Remaining Lock-Out/Defeasance Period for the
Corporate Lease Loans*...................................... 146 months
Weighted Average Remaining Lockout Period for USPS Lease
Loans**..................................................... 0
Weighted Average Remaining Term to Maturity.................. 235 months
</TABLE>
- --------
* Weighted average of period prepayment is prohibited on loans, whether or
not defeasance is permitted.
** All USPS Lease Loans require payment of yield maintenance premiums to
maturity.
<TABLE>
<CAPTION>
% of
Aggregate S&P
Cut-off Credit
Tenant/Guarantor/Parent Date Balance Rating(1)
----------------------- ------------ ---------
<S> <C> <C>
U.S. Postal Service(2)................................. 13.25% Not Rated
Royal Ahold............................................ 10.37% A
CVS Corporation........................................ 9.65% A
Rite Aid Corporation................................... 8.31% BBB
Walgreen Co. .......................................... 7.14% A+
Eckerd Corporation (4)................................. 6.60% BBB+
Home Depot U.S.A., Inc. (4)............................ 6.07% AA-
Chase Manhattan Mortgage Corp. (4)..................... 5.93% A+
Middlesex Mutual Assurance Company (5)................. 5.22% AA
American Stores Company................................ 4.52% A
Lowe's Companies, Inc.................................. 4.22% A
Wal-Mart Stores, Inc................................... 3.12% AA
Winn-Dixie Stores, Inc. (6)............................ 2.30% CP A-2
Hoyts Cinemas Limited (3).............................. 2.24% Not Rated
J. Sainsbury PLC....................................... 2.00% A
Accor S.A. ............................................ 1.97% BBB
Bed Bath & Beyond, Inc. ............................... 1.97% BBB-
Circuit City Stores, Inc. (3) ......................... 1.96% Not Rated
Nash Finch Company..................................... 0.85% BBB-
International Business Machines Corp. ................. 0.83% A+
LaSalle Bank National Association...................... 0.69% AA-
Sterling Jewelers, Inc. ............................... 0.53% BB+
McDonald's Corporation................................. 0.26% AA
</TABLE>
S-8
<PAGE>
<TABLE>
<CAPTION>
Cumulative
% of % of
Aggregate Aggregate
Cut-off Date Cut-off Date
Tenant/Guarantor/Parent Credit Rating(1) Balance Balance
- ---------------------------------------- ------------ ------------
<S> <C> <C>
U.S. Postal Service (2)............................... 13.25% 13.25%
AA.................................................... 8.60% 21.85%
AA-................................................... 6.76% 28.61%
A+.................................................... 13.90% 42.51%
A..................................................... 30.75% 73.26%
CP A-2 (6)............................................ 2.30% 75.57%
BBB+.................................................. 6.60% 82.16%
BBB................................................... 10.28% 92.45%
BBB-.................................................. 2.82% 95.26%
Below Investment Grade (3)............................ 4.74% 100.00%
Total............................................... 100.00% 100.00%
</TABLE>
Footnotes to tables on pages S-8 and S-9:
(1) Ratings based on publicly available long-term senior unsecured debt
ratings as of July 1999 except as described below.
(2) The United States Postal Service has no public rating.
(3) Hoyts Cinemas and Circuit City have no public rating, however, the loan
seller estimates that these credits are below investment grade.
(4) The rating shown is of the respective parent company; however, such parent
companies have not guaranteed the lease obligations of their
subsidiaries/affiliates.
(5) The financial strength rating of Middlesex Mutual Assurance Company is
based on publicly available information.
(6) The rating shown is the commercial paper rating.
S-9
<PAGE>
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................... Bear Stearns Commercial Mortgage Securities Inc.
The Depositor is a Delaware corporation and
maintains its principal office at 245 Park
Avenue, New York, New York 10167. 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. The Master Servicer will engage ORIX
Real Estate Capital Markets, LLC as subservicer
with respect to loans acquired from Bedford
Capital Funding Corp.
Loan Sellers................ Capital Lease Funding, L.P. and Bedford Capital
Funding Corp. Capital Lease Funding, L.P., a
Delaware limited partnership, maintains its
principal office at 110 Maiden Lane, 36th Floor,
New York, New York 10005. Bedford Capital Funding
Corp., a New Hampshire corporation, maintains its
principal office at 116 South River Road,
Bedford, New Hampshire 03110.
Trustee..................... LaSalle Bank National Association, a national
banking association, is the trustee for the
certificateholders. See "The Trustee and the
Fiscal Agent" in this prospectus supplement. The
Trustee will also have duties with respect to
REMIC administration.
Fiscal Agent................ ABN AMRO Bank N.V., a Netherlands banking
corporation, is the fiscal agent for the
certificateholders and the indirect corporate
parent of the Trustee. See "The Trustee and the
Fiscal Agent" in this prospectus supplement.
Class A Certificate MBIA Insurance Corporation, a New York
Insurer..................... corporation, is the Class A certificate insurer.
See "The Certificate Insurer" in this prospectus
supplement.
Cut-off Date................ July 15, 1999. The full amount of payments due on
the loans after this date (including with respect
to interest accrued prior to this date) will be
assets of the trust.
Delivery Date............... On or about August 16, 1999.
Due Date.................... With respect to any Corporate Lease Loan, the
15th day of the month (except in the case of 9
Corporate Lease Loans, which are due on the 1st
or the 5th day of the month), and with respect to
any USPS Lease Loan, the 1st day of the month.
S-10
<PAGE>
Business Day................ A day other than Saturday, Sunday or a day on
which banks in New York, Illinois, Texas or
Missouri are permitted or required by law to be
closed.
Determination Date..........
The 15th day of the month or, if such 15th day is
not a Business Day, the immediately succeeding
Business Day.
Master Servicer Remittance The Business Day immediately preceding the
Date........................ Distribution Date.
Distribution Date........... For any month, the 20th day of the month, but not
less than four Business Days after the
Determination Date.
Record Date.................
With respect to any Distribution Date, the 14th
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, the period
that begins on the day immediately following the
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 Determination Date in the
calendar month in which such Distribution Date
occurs.
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Offered Securities
The Offered Certificates; Certificate Balances and Pass-Through Rates
We are offering four classes of Corporate Lease-Backed Certificates
(collectively, the "Offered Certificates") to you as part of Series 1999-CLF1.
The Offered Certificates are listed in the chart on the cover of this
prospectus supplement. The certificates will have the approximate aggregate
initial principal 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. Your
certificates will have the benefit of an unconditional and irrevocable
financial guaranty insurance policy issued by MBIA Insurance Corporation
guaranteeing (among other things) timely payment of interest, timely payment of
scheduled principal (subject to the limitations described herein) and full
payment of principal on your certificates by August 2018.
The Private Certificates
Series 1999-CLF1 will consist of a total of 12 classes. We will not offer the
Class X, Class B, Class C, Class D, Class E, Class F, Class R-I and Class R-II
through this prospectus supplement and the accompanying prospectus. We refer to
the non-offered certificates as the "Private Certificates."
The Private Certificates will have the approximate aggregate initial
principal amount or notional 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 X..................................... (1) (2)
Class B.....................................
Class C.....................................
Class D.....................................
Class E.....................................
Class F.....................................
Class R-I................................... (3) (3)
Class R-II.................................. (3) (3)
</TABLE>
- --------
(1) 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 the
aggregate balance of the loans outstanding from time to time.
(2) Initial pass-through rate as of the delivery date. The pass-through rate
for the Class X Certificates for any distribution date is described in
footnote 2 to the Executive Summary.
(3) The Class R-I and the Class R-II Certificates will not have a principal
amount or a pass-through rate.
The Trust
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 consist of 170 loans secured by (a) assignments of leases
and rents, (b) first liens on 171 commercial properties, and (c) a security
interest in funds on deposit in certain rent escrow and reserve accounts. The
trust's assets will also include the Trustee's rights under the MBIA financial
guaranty insurance policy and certain other insurance policies.
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Distributions
A. Amount and Order of Distributions
On each distribution date, funds available for distribution from the loans,
net of specified trust expenses (including payment of the premium for the MBIA
Policy), 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,
Class A-4 and Class X, pro rata, in accordance with their interest
entitlements.
Second, MBIA: To reimburse MBIA for any draws on its policy in respect of
interest that remain unreimbursed, plus any accrued but unpaid interest
thereon.
Third, 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, Class
A-3 and Class A-4, in that order, until each class is reduced to zero; provided
that all payments of voluntary prepayments of principal will be made to the
Class A Certificates pro rata.
Fourth, Class A: To reimburse Class A-1, Class A-2, Class A-3 and Class A-4,
pro rata, for any previously unreimbursed losses on the loans allocable to
principal that were previously borne by those classes.
Fifth, MBIA: To reimburse MBIA for any draws on its policy which remain
unreimbursed, plus any accrued but unpaid interest thereon, except that MBIA's
right to reimbursement for any draws to pay the remaining principal balance of
the Class A certificates in August 2018 will be limited to those amounts
required to be distributed as principal on the certificates.
Finally, Private Certificates other than Class X: In the amounts and order of
priority provided for in the pooling and servicing agreement.
To the extent available funds from receipts on the loans and related
insurance policies, together with principal and interest advances made by the
Master Servicer, the Trustee or the Fiscal Agent, net of any draws on the MBIA
policy in respect of post-liquidation assumed principal payments, are not
sufficient to make distributions in item First, the Trustee will make a draw
under the MBIA policy in the amount of such shortfall. In addition, the Trustee
will make a draw on the MBIA policy on the distribution date in August 2018 to
the extent of any remaining Certificate Balance of the Class A certificates on
such distribution date after taking into account other distributions of
principal on such date.
B. Interest and Principal Entitlements
We describe each class's interest entitlement in "Description of the
Certificates--Distributions on the Certificates" in this prospectus supplement.
As described in such section, there are circumstances in which the interest
entitlement for any class for a distribution date could be less than one full
month's interest at the pass-through rate on such certificate's principal
balance or notional amount as a result of prepayment interest shortfalls.
We also describe the amount of principal required to be distributed to the
classes entitled to principal on a particular distribution date in "Description
of the Certificates--Distributions on the Certificates" in this prospectus
supplement.
C. Limitations on Prepayment
Prepayment is prohibited with respect to loans, representing % of the
aggregate Cut-off Date Balance, which are subject to defeasance . With respect
to substantially all other loans in the trust, (other than the USPS Lease
Loans, which represent approximately 13.25% of the aggregate Cut-off Date
Balance, and one Corporate Lease Loan), a borrower may not voluntarily prepay a
loan during a period of years following the origination of the loan (the "Lock-
Out Period").
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After the Lock-Out Period or, in the case of the USPS Lease Loans or Corporate
Lease Loans not subject to a Lock-Out Period, at any time during the term of
the loan, a borrower may prepay the loan provided the borrower also pays the
required prepayment consideration or yield maintenance premiums. We refer to
any prepayment consideration and yield maintenance premiums as "Prepayment
Premiums." 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. You will see a description of the terms of the loans
relating to Prepayment Premiums in "Description of the Loan Pool--Certain Terms
and Conditions of the Loans--Prepayment Provisions" in this prospectus
supplement.
We describe the manner in which any prepayment consideration and yield
maintenance premiums received during a particular collection period will be
allocated to the classes of certificates entitled to principal, on the one
hand, and the Class X Certificates, on the other hand, in "Description of the
Certificates--Distributions on the Certificates--Distributions of Prepayment
Premiums" in this prospectus supplement.
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. We show entitlement to receive
principal and interest on any distribution date in descending order. We show
the manner in which loan losses are allocated is depicted in ascending order.
Class A-1, Class A-2, Class A-3, Class A-4, Class X*
Private Certificates (other
than the Class X 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.
The credit enhancement available for the benefit of the holders of the
Offered Certificates includes such subordination, the MBIA Policy, certain
other insurance policies and an expense reserve fund (as described below). We
provide a more detailed description of the credit enhancement available for the
benefit of the holders of the Offered Certificates in "Description of the
Certificates--Subordination; Allocation of Losses and Certain Expenses" and the
"The MBIA Policy" in this prospectus supplement.
B. Shortfalls in Available Distribution Amount
The following types of shortfalls in available funds, to the extent not
covered by the expense reserve fund, will be allocated in the same manner as
loan losses or shortfalls due to unadvanced delinquencies:
. 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 or by MBIA);
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. shortfalls resulting from indemnities or expense reimbursements payable
to MBIA;
. 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.
The Class A certificateholders will be protected from such shortfalls by the
MBIA policy. You should read "Description of the Certificates--Distributions on
the Certificates" in this prospectus supplement for additional information on
the allocation of shortfalls.
The MBIA Policy
Simultaneously with the issuance of the Certificates, MBIA will issue the
MBIA policy to the Trustee for the benefit of the Class A certificateholders.
Under the MBIA policy, MBIA will unconditionally and irrevocably guarantee
. the timely payment to the holders of the Class A certificates on each
Distribution Date of their monthly entitlement of interest;
. within the limitations described below, timely payment of scheduled
principal; and
. final payment of principal on or before the distribution date in August
2018.
To the extent a Loan is liquidated following a default and net liquidation
proceeds are received, such net liquidation proceeds will be deposited with the
Trustee for the account of MBIA in a segregated account (the "Net Proceeds
Account") and reinvested in specified permitted investments at the direction of
MBIA. Pursuant to the MBIA policy MBIA will also unconditionally and
irrevocably guarantee timely distributions of assumed scheduled principal
payments equal to principal payments which would have been due on such Loan had
it remained outstanding from the date that such net liquidation proceeds are
deposited with the Trustee for the account of MBIA until such net liquidation
proceeds and reinvestment income are fully depleted. Such amounts will be
depleted by monthly reimbursement to MBIA of such assumed scheduled principal
payments, together with interest at a rate based on the pass-through rates of
the Class A certificates accrued on a balance equal to the initial net
liquidation proceeds less cumulative assumed scheduled principal payments to
date. Such feature of the MBIA policy is designed to provide limited protection
to Class A certificateholders from acceleration of principal payments as a
result of receipt of net liquidation proceeds on defaulted loans. On any
distribution date on which all remaining Class A certificates are paid in full,
or either rating agency shall have indicated that the ratings on the Class A
certificates would be reduced due to the existence of the Net Proceeds Account
or if MBIA's rating is reduced, the Trustee will transfer all funds remaining
in the Net Proceeds Account to the Certificate Account, and MBIA will have no
further obligation to make post-liquidation scheduled principal payments except
for the final payment in August 2018.
In addition, the MBIA policy will cover any amount distributed to holders of
the Class A certificates that is sought to be recovered as a voidable
preference by a trustee in bankruptcy of the Depositor pursuant to the federal
Bankruptcy Code in accordance with a final nonappealable order of a court
having competent jurisdiction. The MBIA policy will not guarantee the
reimbursement of any Servicing Advances or any Additional Trust Fund Expenses
incurred, or any P&I Advances other than to the extent that such P&I Advances
are made with respect to the Class A certificates.
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<PAGE>
The Loans
The Loan Pool
A. General
The trust's primary assets will be 170 fixed rate corporate and United States
post office lease-backed loans with an aggregate Cut-off Date Balance of
approximately $383,941,244, subject to a variance of plus or minus 5%. 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. 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 161 mortgaged properties, leasehold interests in 9 mortgaged
properties and, in the case of 1 mortgaged property, both a fee and leasehold
interest in such mortgaged property. The pool of loans (the "Loan Pool")
consists of 170 fixed rate credit lease-backed loans which are backed by the
net lease obligations of the United States Postal Service ("USPS"), in the case
of the USPS Lease Loans, and 22 other credit lease tenants (taking into account
guarantors or parent companies, as applicable). 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, the extended
amortization policies and the residual value insurance policies,
. the trust's interest in certain other insurance policies, reserves and
agreements as set forth in the pooling and servicing agreement, and
. the Trustee's rights under the MBIA financial guaranty insurance policy.
You should read "Description of the Certificates--General" in this prospectus
supplement for additional information.
Pursuant to its Enhanced Lease Program, Capital Lease Funding, L.P.
originated or acquired the 74 Corporate Lease Loans, which represent
approximately 86.75% of the aggregate Cut-off Date Balance. Pursuant to its
USPS Lease Program, Bedford Capital Funding Corp. originated the 96 USPS Lease
Loans, which represent approximately 13.25% of the aggregate Cut-off Date
Balance.
Payments on the loans are backed by credit tenant lease obligations ("Credit
Leases"). In the case of each Corporate Lease Loan, pursuant to an assignment
of leases and rents delivered by each borrower, together with a letter of
acknowledgment from the related tenant, the tenant will be required to make
monthly rental payments directly to the Master Servicer, except in the case of
the Middlesex Loan where payments are made by the borrower and the tenant
directly guarantees payments under the related note. The Master Servicer will
apply such payments to the related loan. In the case of the USPS Lease Loans,
an assignment of leases and rents was delivered by each borrower pursuant to
specific authority under the terms of the lease permitting such assignment,
together with a power of attorney signed by the borrower and delivered to the
USPS giving notice of such assignment and directing that payment be made to the
Subservicer. The USPS's payment history reflects the USPS's acceptance of
notice to it that payments should be made directly to the Subservicer.
Advances; Servicing of Loans
A. Servicing
Subject to the standards set forth in the pooling and servicing agreement,
the Master Servicer and the Special Servicer (with respect to specially
serviced loans and REO loans) will be required to perform customary
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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.
B. 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). However, in the case of 18 loans with a balloon payment, a residual
value insurance policy, as described below, is in effect under which the
insurer is obligated, subject to the terms of the policy, to pay an amount
equal to the full balloon payment if the borrower fails to make such payment
when due under the loan. 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 the
Trustee or, if the Trustee fails to do so, the Fiscal Agent will be required to
make the P&I 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.
C. Servicing Advances
Subject to the limits described below, the Master Servicer or Special
Servicer, as applicable, 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
Loans. The Master Servicer or the Special Servicer may make advances necessary
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 or the Special Servicer, as applicable, fails to make a Servicing
Advance, then the Trustee or, if the Trustee fails to do so, 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.
D. Interest on Advances
The Master Servicer, the Special 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.
E. Servicer Protective Actions
In addition to their general servicing and advancing obligations, the Master
Servicer and the Special Servicer will be specifically obligated to perform
servicer protective actions and, subject to the limits described below, to make
Servicing Advances in support of such actions, 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). For a more detailed description of the servicer protective actions
of the Master Servicer and the Special Servicer, you should read "The Enhanced
Lease Program--Servicer Protective Actions" in Annex C of this prospectus
supplement and "The USPS Lease Program--Servicer Protective Actions" in Annex D
of this prospectus supplement.
F. Expense Reserve Fund
The Expense Reserve Fund, funded from fees payable by borrowers under 65 of
the Corporate Lease Loans to Capital Lease Funding, L.P., will provide an
additional source of funds for Advances for the Master Servicer,
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the Special Servicer, the Trustee and/or the Fiscal Agent, as applicable, with
respect to all loans as well as payment of additional trust expenses. The
Expense Reserve Fund will be used for Servicing Advances only to the extent the
required expenses cannot be covered from amounts on deposit in reserve funds
established by the related borrower or any excess cash flow from the mortgaged
property. We describe the Expense Reserve Fund in more detail in "The Enhanced
Lease Program--The Expense Reserve Fund" in Annex C of this prospectus
supplement.
Capital Lease Funding Enhanced Lease Program
Through its Enhanced Lease Program, Capital Lease Funding, L.P. provides
Corporate Lease Loans to fee and/or leasehold owners of commercial real
properties long-term net leased to credit tenants whose public long term senior
unsecured debt ratings, are generally investment grade, whose obligations are
guaranteed by investment grade entities or whose parent companies not acting as
guarantors are investment grade companies. If the credit lease tenant,
guarantor or parent does not carry a public rating, Capital Lease Funding, L.P.
may nevertheless make the loan if 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.
In some cases, Capital Lease Funding, L.P. may make loans where neither the
tenant, its parent or a guarantor has an investment grade rating if the credit
quality of any such entity is satisfactory and other factors are present that
support the quality of the loan. Of the 74 Corporate Lease Loans backing the
certificates, 12 loans, representing 18.60% of the Cut-Off Date Balance of all
the Loans, were made in reliance on the investment grade rating of a parent
company that is not a guarantor, and 5 loans, representing 4.74% of the Cut-Off
Date Balance, do not have a tenant, guarantor or parent with an investment
grade rating or its equivalent.
Monthly rental payments due under the terms of the related Credit Leases are
the principal source of repayment for the Corporate Lease Loans. The Enhanced
Lease Program is specifically intended to mitigate 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 through a
combination of the program's features described below. In addition, to the
extent rental payments in an extension term are required to pay interest and
principal of the Corporate Lease Loan in full, or a balloon payment is
otherwise due at maturity, the risk of tenant nonrenewal or of the borrower's
inability otherwise to pay a balloon payment is covered by extended
amortization term or residual value insurance policies described below.
In addition, except in the case of the Middlesex Loan, where the investment-
grade tenant is an affiliate of the borrower guarantees payments under the
related note, the terms of the Corporate Lease Loans all require that the
borrowers be single-purpose entities. Single-purpose entities are those where
such borrowers' organizational documents or the terms of the Corporate Lease
Loans limit their activities to the ownership of only the related mortgaged
property and limit the borrowers' ability to incur additional indebtedness.
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.
Bedford USPS Lease Program
Through its USPS Lease Program, Bedford Capital Funding Corp. makes loans to
owners of fee and/or leasehold properties leased to the United States Postal
Service. Generally, borrowers which individually, or together with other
affiliated borrowers, have loan balances in excess of $500,000 are required to
be single-purpose entities. Like the Enhanced Lease Program, and with the
benefit of additional features used in the Enhanced Lease Program, the USPS
Lease Program is intended to mitigate or eliminate real estate-related or
borrower-related event risks present in the USPS Leases, each of which are
"Double Net Leases" as defined
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below. The USPS Lease Program does not involve extended amortization loans or
loans with significant balloon payments due at maturity but, as enhanced by the
features described below, except as specifically described in this prospectus
supplement, is otherwise generally comparable to the Enhanced Lease Program.
You should read "The USPS Lease Program" which is attached as Annex D to this
prospectus supplement for additional information about the USPS Lease Program.
Termination and Abatement Rights
We divided lease termination rights and rent abatement rights in the Credit
Leases 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 three Corporate Lease Loans
which have been underwritten with terms to maturity that extend beyond
the initial term of the related Credit Lease.
The features of the Enhanced Lease Program and the USPS 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 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
Corporate Lease Loans with any Casualty or Condemnation Termination or
Abatement Rights and all USPS Lease Loans have the benefit of lease enhancement
insurance policies, which provide for payment of substantially all amounts due
under the 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 either a wholly-owned subsidiary of American
International Group, Inc. or Chubb Custom Insurance Co., each with a financial
strength rating of "AAA" from S&P.
Extended Amortization Policies
Three Corporate Lease Loans with an aggregate Cut-off Date Balance of
$17,101,042 have terms to maturity that extend beyond the initial term of the
related Credit Lease and have the benefit of extended amortization insurance
policies. The insurer will make payment of substantially all amounts due under
the
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Corporate 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 Corporate Lease Loan following a Tenant
Non-Renewal 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.
Residual Value Insurance Policies
In addition, 19 of the Corporate Lease Loans, which represent 31.99% 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 balloon payments due and payable on
their respective maturity dates, unless prepaid prior thereto but are subject
to, a residual value insurance policy under which the insurer is obligated to
pay an amount equal to the full balloon payment to the Trustee if the borrower
fails to make such payment under the loan. The residual value insurance
policies have been issued by Financial Structures Limited and reinsured by
Royal Indemnity Co., with a financial strength rating of "AA-" from S&P with
respect to 16 loans, and RVI America Insurance Co., with a financial strength
rating of "A" from S&P with respect to 2 loans. In the case of the one
additional Corporate Lease Loan with such a balloon payment, the tenant is
obligated to either pay the balloon payment in full at maturity or enter into
an extension of the Credit Lease for a term which will fully amortize the loan.
Borrower Reserve Funds/Excess Cash Flow
For each loan relating to a Double Net Lease, the borrower 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 Loan. The Master
Servicer will apply amounts on deposit in a Borrower Reserve Fund in accordance
with the borrower reserve agreement for, among other things, maintenance,
repairs and replacements to the related mortgaged property. In the case of the
Corporate Lease Loans, reserves are generally structured to provide at least
125% of the amount determined by an engineering firm approved by Capital Lease
Funding, L.P. to be sufficient to cover the mortgagor's expected maintenance,
repair and replacement obligations under the Credit Lease. In the case of the
USPS Lease Loans, such reserves are generally structured to provide at least
125% (and, on average, approximately 150%) of the amount determined by an
engineering firm approved by Bedford Capital Funding Corp. to be sufficient to
cover 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 also be funded in part by an initial deposit. In addition
to reserves, all of the Double Net Leases (other than the USPS Lease Loans and
one Corporate Lease Loan) 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.
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 intended 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 is entitled to 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. If such funds are
insufficient, the Master Servicer or the Special Servicer, as applicable,
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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.
In the case of each USPS Lease Loan, such advances are required only to cover
costs in excess of amounts in the related Borrower Reserve Funds, and only for
routine maintenance and other expenses which are of the type taken into account
in establishing the amount of such Borrower Reserve Fund. The performance of
servicer protective actions which consist of notices and claims related to the
lease enhancement policies, the residual value insurance 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 loan to be a specially serviced loan. In addition, so long as the 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 in this prospectus supplement.
Borrower Protective Actions
Each mortgagor and its principals have an incentive to perform its
obligations under the related Credit Lease in accordance with the Credit Lease
and the loan documents, including advancing 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, to prevent
its loss of 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. The amortization of the original
loan balance suggests that such equity will be particularly significant later
in the life of the loan, when the costs of performance under the loans are less
predictable. However, the borrowers are generally special purpose entities with
limited assets, and their principals may not have the ability to provide
additional funds for such purpose.
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 Abatement Rights. In addition,
the loan documents permit the Master Servicer and the Special Servicer to gain
access to the mortgaged property, to cure any mortgagor defaults and, in the
case of Corporate Lease Loans, pursuant to documents signed by tenants, to
extend the cure period under the related Credit Lease.
Expense Reserve Fund
The pooling and servicing agreement provides for a trust-level Expense
Reserve Fund to be created and funded from payments under all but nine (which
represent 21.49% of the aggregate Cut-off Date Balance) of the Corporate Lease
Loans. Even though funded only from Corporate Lease Loans, the Expense Reserve
Fund will be available to cover the following matters with respect to USPS
Lease Loans as well as all Corporate Lease Loans: (i) to provide additional
funds for use by the Master Servicer or the Special Servicer, as applicable,
when performing servicer protective actions on the loans, (ii) to pay trust
expenses, if any, related to the loans, (iii) as an additional source of funds
to make advances and to reimburse the Master Servicer, the Special Servicer,
the Trustee or the Fiscal Agent, as applicable, for advances later deemed
nonrecoverable with respect to the loans, (iv) to cover prepayment interest
shortfalls which might arise upon certain payments under the lease enhancement
insurance policies, (v) to pay any shortfall between interest due on the Class
A Certificates and reinvestment income earned in funds in the Net Proceeds
Account, and (vi) as credit support, to the extent funds are insufficient as a
result of losses incurred with respect to the 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 on
leases backing all but 9 of the Corporate Lease Loans 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 in excess of
$1,500,000.
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Additional Aspects of the Certificates
Denominations
We will offer the Class A-1, Class A-2, Class A-3 and Class A-4 Certificates
in minimum denominations of $10,000 initial principal amount. You may make
investments in excess of the minimum denominations 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. You should read
"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 for
additional information on registration, clearance and settlement of the Offered
Certificates.
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. You should read "Description
of the Certificates--Termination" in this prospectus supplement for additional
information on the optional termination of the trust.
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.
You should read "Certain Federal Income Tax Considerations" in this
prospectus supplement and in the accompanying prospectus for additional
information on the federal tax consequences of an investment in the Offered
Certificates.
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 A-4 Certificates are
eligible for purchase by persons investing assets of employee benefit plans or
individual retirement accounts.
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You should read "Certain ERISA Considerations" in this prospectus supplement
and "ERISA Considerations" in the accompanying prospectus for additional
information on the ERISA considerations of an investment in the Offered
Certificates.
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.
You should read "Legal Investment" in this prospectus supplement and in the
accompanying prospectus for additional information on the legal investment
restrictions on the Offered Certificates.
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 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 S&P, the "Rating Agencies"), and that such
ratings be assigned without regard to the MBIA policy.
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. Although MBIA has guaranteed
the payment of interest and principal on the Offered Certificates, the initial
ratings assigned to such certificates are not dependent on the benefit of the
MBIA policy. 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.
You should read "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 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 (including those in connection with defaulted loans and insurance
proceeds, whether paid in a lump sum or over time) 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, to the extent
not covered by the MBIA policy or other insurance policies, 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.
Loan delinquencies and defaults may affect the yield of a certificate in
three ways. First, delinquent interest payments, to the extent not advanced by
the Master Servicer, Trustee or Fiscal Agent, including in cases when the
Master Servicer deems such an advance to be nonrecoverable or the amount of
advances is limited by the appraisal reduction feature described in this
prospectus supplement, may result in delays in receipt of interest on
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a certificate. Second, the yield may be affected by the allocation of realized
losses resulting from such default to the principal balance or notional amount
of such certificate. More senior classes of certificates, including the Class
A certificates, have the benefit of subordination of more junior classes to
protect against such risks. Third, loan defaults, to the extent of receipt of
net liquidation proceeds, may result in an initial acceleration of principal
paid to certificateholders, and a write-off of later payments due on the
defaulted loan may result in a delay of distributions of principal to more
senior classes even though they do not bear a realized loss. In the case of
the Class A certificates, the MBIA policy provides protection against any
unadvanced delinquencies and losses not covered by subordination of junior
classes of certificates, and also to a limited extent against the accelerated
distribution of principal due to receipt of net liquidation proceeds.
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 Expenses" and "Yield and
Maturity Considerations" in this prospectus supplement. See also "Yield and
Maturity Considerations" in the accompanying prospectus.
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. In addition, under 67 USPS Credit Leases,
which represent 9.02% of the aggregate Cut-off Date Balance, the tenant has
the option to purchase the fee interest of the mortgagor on specific dates
preceding the maturity date of the loan and at fixed prices set forth in the
related Credit Lease, the exercise of which would require prepayment of the
loan accompanied by payment of a prepayment premium of at least 5%.
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 and results in a faster or slower rate
of payment of principal of your certificates.
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. In addition, voluntary payments (unlike other principal
payments) will be distributed pro rata among the Class A certificates so long
as they remain outstanding.
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; and
. economic, demographic, tax, legal or other factors.
Involuntary prepayments may occur due, among other things, to casualty or
condemnation with respect to the Mortgaged Property, exercise by the tenant
for a USPS Lease Loan of the purchase option under the credit lease, or
default on the loan. We cannot assure you that involuntary prepayments will
not occur.
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No prepayment premiums will be required for prepayments in connection with a
casualty or condemnation. 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 loan. 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 USPS Lease Loans, a yield maintenance prepayment premium
will be due upon mandatory prepayment of the loan when the USPS exercises a
purchase option. However, only the purchase price, the Borrower Reserve Fund
and additional collateral, if any, for the loan will be available to pay the
principal of, accrued interest on and any prepayment premium due upon
prepayment of such loan. Of 67 USPS Lease Loans with purchase options
occurring during the loan term, all but 20 provide for a purchase price
sufficient to pay principal and accrued interest plus the applicable
Prepayment Premium at any level of interest rates because the purchase price
exceeds all remaining principal and interest payments due after the purchase
option date. Of the remaining USPS Lease Loans, at current interest rates only
3 loans, with an aggregate Cut-off Date Balance of $ , would receive
insufficient proceeds on exercise of the purchase option to pay the full
Prepayment Premium due under such loan. However, the fixed purchase price and
other collateral for other loans may also not be sufficient to pay the
principal plus accrued interest on the loan together with the applicable
Prepayment Premium if applicable interest rates are significantly lower at
time of prepayment.
Borrower Default
Liquidations of mortgaged properties following defaults on loans may result
in losses to the most subordinate class of certificates, and may result in an
acceleration of payments to senior certificateholders, and generally will do
so without collection of a prepayment premium.
The rate and timing of delinquencies or defaults on the Loans may affect:
. the aggregate amount of distributions on the certificates;
. their yield to maturity;
. the rate of principal payments; and
. their weighted average life.
Such factors will be mitigated for Class A certificateholders, however, by
the terms of the MBIA policy, which provides that, so long as the Class A
certificates remain outstanding and MBIA's retention in the Net Proceeds
Account of net recoveries does not cause a downgrade of the Class A
certificates, any recoveries of principal on liquidation will be remitted to
and deposited by the Trustee for the account of MBIA in the Net Proceeds
Account rather than being remitted to Class A certificateholders as a
principal prepayment. Instead, Class A certificateholders will be entitled to
receive interest and principal scheduled to have been paid had the loan not
been liquidated from the date that such recoveries of principal are deposited
into the Net Proceeds Account until post-liquidation principal with respect to
that loan has been distributed in an amount equal to net liquidation proceeds
received together with reinvestment income thereon, net of the portion thereof
applied to interest on the Certificates. Prior to the liquidation of the
related loan, the Master Servicer, the Special Servicer, the Trustee or the
Fiscal Agent, as the case may be, is required to advance for any shortfall in
principal or interest payments subject to its respective determination of
recoverability.
If losses on the loans exceed the aggregate principal amount of the classes
of certificates subordinated to a particular class (other than Class A), such
class will suffer a loss equal to the full amount of such excess (up to the
outstanding principal amount of such class). Class A certificates will suffer
losses under such circumstances if and only if MBIA fails to fulfill its
obligations under the MBIA policy.
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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 and are not
covered by MBIA, 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 may accelerate the return of
principal on the Class A certificates and which will accelerate the return of
principal on other 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.
Delinquencies and defaults on the loans may significantly delay the receipt
of distributions by you on your certificates, except to the extent of
protection provided by the MBIA policy or other insurance policies, or 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
Loans are at risk both for tenant and borrower bankruptcy. By the terms of
the Corporate Lease Loans other than the Middlesex Loan (which is guaranteed
by the investment grade tenant), however, the borrowers thereunder are
required to be organized as single-purpose entities (that is, entities
prohibited under the loan documents or organizational documents from owning
property other than the mortgaged property and related assets and from
incurring additional debt for borrowed money) and further are subject to
certain separateness covenants (such as requirements to maintain separate
books and records) that are designed to mitigate the possibility that the
borrower's financial condition would be adversely impacted by factors
unrelated to the Mortgaged Property. USPS Lease Loans to a borrower, or
affiliated borrowers, with an aggregate loan balance in excess of $500,000
generally require that such borrower or borrowers be single-purpose entities,
but none of the USPS Lease Loans imposes separateness covenants on the
borrowers. We cannot assure you, however, that such borrowers will comply with
such requirements.
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. 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.
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.
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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.
Income from, and the market value of, the mortgaged properties could be
adversely affected by the bankruptcy or insolvency of a significant tenant or
a group of smaller tenants or the guarantor or parent or guarantors or parents
of such tenants.
Under the Bankruptcy Code, a tenant has the option of assuming or rejecting
or, subject to certain conditions, assuming and 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 its lease, the
landlord's claim for breach of the lease would (absent collateral securing the
claim) be treated as a general unsecured claim against the tenant. The amount
of the claim would be limited to the amount owed for the unpaid rent reserved
under the lease for the periods prior to the bankruptcy petition (or earlier
surrender of the leased premises) which are unrelated to the rejection, plus
the greater of one year's rent or 15% of the remaining rent reserved under the
lease (but not to exceed three years' rent). Depending on the terms of a
guarantee and applicable law, a guarantor of a bankrupt tenant may similarly
have a reduced obligation if the tenant rejects the lease.
No assurance can be given that tenants will not file for bankruptcy
protection in the future or, if any tenants so file, they will continue to
make rental payments in a timely manner.
Advance Interest and Other Payments
To the extent described in this prospectus supplement, the Master Servicer,
the Special Servicer, the Trustee or the Fiscal Agent, 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 the certificates, but the Class A certificates are
protected from such shortfalls by the MBIA policy.
Use of Net Proceeds Account
So long as the Class A certificates remain outstanding, retention of net
liquidation proceeds in the Net Proceeds Account does not adversely affect the
rating of the Class A certificates and MBIA's rating is not reduced, net
liquidation proceeds will be deposited in a Net Proceeds Account, and such
deposited net proceeds, together with reinvestment income thereon, will be
used to reimburse MBIA for draws equal to scheduled principal payments and a
portion of interest paid on the Class A certificates at a rate based on the
pass-through rates of the Class A certificates. To the extent such blended
pass-through rate exceeds the rate of reinvestment income, the related part of
the net proceeds account may be depleted before payment of principal of the
Class A certificates in an amount equal to the net proceeds initially
deposited, and therefore may result in a greater loss to subordinate
certificateholders than would have been the case had net proceeds been
distributed to pay principal of the Class A certificates when received.
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
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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.
Potential Conflicts of Interest
LaSalle Bank National Association, the Trustee, is the credit tenant with
respect to one of the loans, representing 0.69% of the aggregate Cut-off Date
Balance. This could cause a conflict between the Trustee's duties to the trust
under the pooling and servicing agreement and its interest as the tenant under
the related Credit Lease. In addition, the pooling and servicing agreement
does not restrict the Master Servicer, the Special Servicer or the Trustee
from owning certificates. Such ownership similarly could cause a conflict
between any such person's duties to the Trust under the pooling and servicing
agreement and its interests as a certificateholder. However, the pooling and
servicing agreement provides that the loans shall be administered by the
Master Servicer and the Special Servicer in accordance with the servicing
standards without regard to the Trustee's or any other party to the pooling
and servicing agreement's status as a tenant or otherwise under a Credit Lease
and without regard to ownership of any certificate by the Master Servicer, the
Special Servicer, the Trustee or any affiliate of any such persons.
The Special Servicer will have considerable latitude in determining whether
to liquidate or modify defaulted Loans. See "Servicing of the Loans--
Modifications, Waivers, Amendments and Consents" in this prospectus
supplement.
As discussed in this prospectus supplement under "Servicing of the Loans--
Termination of the Special Servicer" the holder or holders of a majority
interest in the Controlling Class (as defined in this prospectus supplement)
may at any time replace and designate a replacement subject to the
satisfaction of certain conditions. This could cause a conflict between the
replacement Special Servicer's duties to the trust under the pooling and
servicing agreement and its appointment by the majority holders of the
Controlling Class. However, the pooling and servicing agreement provides that
the loans shall be administered in accordance with the servicing standards and
the pooling and servicing agreement will be enforceable against the Special
Servicer. See "Servicing of the Loans--General" in this prospectus supplement.
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.
Risks Related to the Loans
Credit Quality of Credit Lease Tenants and Guarantors
Payments on the 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. For almost all
Corporate Lease Loans, either the tenant itself (in the case of 14 Corporate
Lease Loans), the related guarantor (in the case of 43 Corporate Lease Loans)
or a parent of the tenant which does not guarantee the tenant's obligations
under the lease (in the case of 12 Corporate Lease Loans) has an investment
grade public long-term senior unsecured debt rating from S&P or,
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if such tenant, guarantor or parent does not carry a public rating, either (1)
it has received a confidential private rating from S&P that its credit meets
parameters consistent with an investment grade rating and/or (2) an internal
credit evaluation of such entity was conducted by Moody's for the sole purpose
of rating this transaction. Though they do not have public unsecured loan-term
debt ratings, the credit quality of Winn-Dixie (with an unsecured commercial
paper rating of "A-2") and Middlesex Mutual Assurance Company (which has an
investment grade financial strength rating from S&P based solely on S&P's
analysis of publicly available information) are consistent with that standard.
However, Capital Lease Funding, L.P. will occasionally make loans secured by
leases to below investment grade tenants, and the loans backing the
certificates include loans to Sterling Jewelers, Inc. (rated "BB+"), and
Circuit City and Hoyt's Cinema (which do not have public ratings but which
Capital Lease Funding, L.P. believes would be below investment grade). In
cases where the parent of the tenant has such a rating but does not guarantee
the lease obligations of its subsidiary, there is no contractual obligation of
a rated entity to make lease payments, and no assurances can be given that
such parent will fulfill its subsidiary's obligations. The debt ratings from
Moody's may be lower or higher than the related debt rating from S&P, or
Moody's may not rate such credit. See the table entitled "Tenants" under
"Description of the Loan Pool-- Significant Loans and Tenants" in this
prospectus supplement for more information on the ratings provided by Moody's.
The United States Postal Service does not carry a public long-term debt
rating. A change in the credit rating of the Credit Lease tenants and/or such
guarantors or parents 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 loan. In the event of a payment default on the loan, the Special
Servicer may be entitled to foreclose upon or otherwise realize upon the
related mortgaged property to recover amounts due under the 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 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 loan.
The ratio of the principal balance of each Corporate 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 71.39% to 102.92%, with a weighted average of 88.68%. 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
With respect to each Triple Net and Double Net Lease, Capital Lease Funding,
L.P. ("CLF") has obtained (in the case of USPS Lease Loans, on behalf of
Bedford Capital Funding Corp. ("Bedford") a non-cancelable credit lease
enhancement insurance policy (each, a "Lease Enhancement Policy") from either
Lexington Insurance Co., a subsidiary of American International Group, Inc.,
or, in the case of 8 Corporate Lease Loans (representing 16.27% of the
aggregate Cut-off Date Balance), Chubb Custom Insurance Co. ("Chubb"), each
with a financial strength rating of "AAA" from S&P (the "Enhancement
Insurer"). 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
Loan, plus accrued and unpaid interest thereon through the date of payment,
and take an assignment of the 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 Loan or the
period of
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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;
provided, however, each Lease Enhancement Policy issued by Chubb will not pay
amounts described under clause (2) above in the event a tenant exercises a
Casualty Abatement Right; however, the borrower under each such Loan will be
required to maintain business interruption insurance to offset such abatement
risk for not less than 12 months.
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 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 Special 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 Special 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 is located in affected areas except (1) the Circuit City Loan in
Fayetteville, Arkansas, (2) the Accor Loan in Issaquah, Washington, (3) the
Bed, Bath & Beyond Loan in Mission Viejo, California and (4) 14 USPS Lease
Loans.
. With respect to the Circuit City Loan, the Accor Loan and the Bed, Bath
& Beyond Loan, each such Loan is backed by a Bond-Type Lease, and in
each case the tenant has no right to terminate the Credit Lease or abate
payments under the related Credit Lease as a result of earthquake-
related damage. However, in the case of the Accor Loan and the Bed, Bath
& Beyond Loan, upon the occurrence of a substantial casualty as a result
of earthquake-related damage, the tenant is required to purchase the
loan for an amount equal to the outstanding principal balance of such
loan plus accrued interest, but without the payment of any prepayment
premium.
. With respect to 9 USPS Lease Loans (representing % of the aggregate
Cut-off Date Balance) the related mortgaged properties are located in
Earthquake Zones and are not covered by the Lease Enhancement Policy for
a Casualty or Condemnation Termination or Abatement Rights arising from
earthquake-related damage. However, the related borrower maintains or
pays for earthquake insurance naming the mortgagee as an additional
insured in the case of 5 such loans (representing % of the aggregate
Cut-off Date Balance).
. With respect to 5 USPS Lease Loans (representing % of the aggregate
Cut-off Date Balance), the related mortgaged properties are located in
Earthquake Zones and are not covered by the Lease Enhancement Policy for
a Casualty or Condemnation Termination or Abatement Rights arising from
earthquake-related damage, however CLF has obtained reports with respect
to each such USPS Lease Loans that indicate that 4 of the related
mortgaged properties are located in areas identified as Seismic Zones 1
and are accordingly designated by the Federal Emergency Management
Agency ("FEMA") as unlikely to have damaging levels of ground motion,
and one related mortgaged property is located in an area identified as a
Seismic Zone 2 and is accordingly designated by FEMA as having a low
likelihood to have damaging levels of ground motion.
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Casualty or Condemnation Termination or Abatement Rights arising from losses
arising from floods for mortgaged properties located in areas specified by
FEMA as a Flood Hazard Zone, however no material portion of any mortgaged
property related to a Corporate Lease Loan or a USPS Lease Loan is located in
a Flood Hazard Zone. 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 and "The USPS Lease Program--The Lease Enhancement
Policies" in Annex D of the 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 certificates, however, the Class A certificates are protected
from such downgrade risks by the MBIA policy.
Factors Affecting Extended Amortization Policy Proceeds
CLF has obtained Extended Amortization Policies from the Extension Insurer
with respect to 3 Corporate Lease Loans (representing 4.45% of the aggregate
Cut-off Date Balance) for which the term of the Corporate Lease Loan extends
beyond the primary term of the related Credit Lease. Under each Extended
Amortization Policy, in the event that a borrower defaults in its obligations
to pay monthly principal and interest on the Corporate 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 Corporate Lease
Loan, or (2) pay an amount equal to the unpaid principal balance of the
Corporate Lease Loan with accrued interest and yield maintenance up to a cap
of five percent (5%) of the outstanding balance of the Corporate 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 certificates, but Class A certificateholders are protected
from such downgrade risks by the MBIA policy.
Balloon Payments
19 of the loans, which represent 31.99% 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. 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;
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. the financial condition of the borrower and operating history of the
property;
. tax laws;
. 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--Factors
Affecting Delinquency, Foreclosure and Loss of the Loans--Balloon Payments;
Borrower Default" in the accompanying prospectus.
In the case of 18 loans with a balloon payment, however, a residual value
insurance 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. In the case of the Middlesex Loan, the tenant is
obligated to either pay off the loan in full upon the related maturity date or
enter into an extension of the Credit Lease for a time period sufficient to
fully amortize the loan.
Certain USPS Lease Loan Final Payments
With respect to 18 USPS Lease Loans, which represent 1.91% of the aggregate
Cut-off Date Balance, the payments due under the related note will not be
sufficient to fully amortize the respective USPS Lease Loan at maturity,
resulting in a final payment which exceeds the related lease payment then due.
In the case of of such USPS Lease Loans, the lease extends beyond the
maturity date, and the additional lease payments are sufficient to pay the
excess of principal and interest due on the maturity date over the lease
payments available therefor, together with one month of interest at the
regular note rate (though not necessarily at any default rate).
In the case of 60 USPS Lease Loans, representing 8.36% of the aggregate Cut-
off Date Balance, the related Credit Lease expires prior to the maturity date
of the Loan in a manner such that rental payments due under the Credit Lease
with respect to its existing term would not be sufficient to pay all amounts
due under the Loan. In no event does such shortfall exceed 71 days for any
Loan or % of its Cut-off Date Balance.
Significant factors mitigate the risk of such amortization shortfalls.
First, the shortfall arises only upon the failure of USPS to renew its lease,
and lease renewals are common for USPS-leased properties. Second, though not
necessarily obligated in all cases, the borrower under the USPS Lease Loan is
motivated to protect its substantial equity interest in the mortgaged property
rather than default on the USPS Lease Loan at its maturity.
See "Description of the Loan Pool--Certain Terms and Conditions of the
Loans" and "--Additional Loan Information" herein and "Risk Factors--Factors
Affecting Delinquency, Foreclosure and Loss of the Loans--Balloon Payments;
Borrower Default" in the accompanying prospectus.
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 related loan is
additionally secured by a pledge of a Borrower Reserve Fund, funded at
origination of the loan or 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% (and up to an average of 150%, in the case of the
USPS Lease Loans) of the amount determined by an engineering firm approved by
CLF (or by Bedford, in the case of the USPS Lease Loans) to be sufficient to
cover the costs of any such maintenance and repair during the term of the
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 1 Corporate Lease Loan and 71 USPS Lease Loans representing % of
the aggregate Cut-off Date Balance, are underwritten with debt service
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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 Corporate Lease 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 or the Special Servicer, as
applicable, is required to, first, withdraw funds from the Borrower Reserve
Fund, second, use excess cash flow from the related Mortgaged Property, if
any, third, withdraw funds from the Expense Reserve Fund, and finally to
advance its own funds for such purpose (subject only to its determination that
such advance would not be nonrecoverable); provided that with respect to USPS
Lease Loans, the obligations of the Master Servicer and Special Servicer to
make advances of their own funds are limited as described below. In the event
the Master Servicer or the Special Servicer, as applicable, 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. Both the Trustee and the Fiscal Agent will be entitled to rely
conclusively on any nonrecoverability determination by the Master Servicer or
the Special Servicer, as applicable. 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 amounts 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 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 Loan, and finally from its own funds (subject only to its
determination that such advance would not be nonrecoverable and, for
USPS Lease Loans, to a determination that the advance relates to a
matter for which any such advance is required as described below) 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 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 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
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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. With
respect to USPS Lease Loans, the obligations of the Master Servicer and
Special Servicer to make advances of their own funds are limited as described
below. 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 Corporate Lease Loan, and finally from its own
funds (subject only to its determination that such advance would not be
nonrecoverable and, for USPS Lease Loans, to a determination that the
advance relates to a matter for which any such advance is required as
described below) to pay the costs of the obligations.
With respect to the USPS Lease Loans, the Master Servicer and Special
Servicer are required to advance their own funds only to prevent the exercise
of Maintenance Termination or Abatement Rights, and to some extent Additional
Termination or Abatement Rights, related to obligations for which reserves
(though inadequate for the actual expense) were established, generally
including routine maintenance, payment of insurance premiums; maintenance of
heating and air conditioning systems, roof coverings, flashing and
insulations, and building structure; and repairs resulting from defects in
building construction or installation of equipment, fixtures or appurtenances
furnished by the landlord. No advances will be specifically required for
certain covenants, such as obligations to comply with identified laws, to
avoid specified discrimination or bribery, to cover costs of environmental
clean-up not due to tenant activity, and to pay taxes other than ad valorem
real property taxes. To the extent the borrower with respect to any USPS Lease
Loan has breached its obligation to take actions to prevent the exercise of
Maintenance Termination or Abatement Rights or Additional Termination or
Abatement Rights, and the Master Servicer and Special Servicer are not
required to make advances of their own funds to perform such obligations for
the borrower, such servicers are nevertheless required to act in the best
interests of Certificateholders subject to accepted servicing standards, which
may require use of funds in the Certificate Account to make such advance if,
in such servicer's best judgment, losses to Certificateholders would be
greater if such termination or abatement rights were exercised.
Factors Affecting Credit Tenant Leases with U.S. Postal Service
Properties leased to the United States Postal Service secure 96 of the
loans, representing approximately 13.25% of the aggregate Cut-off Date
Balance. The USPS Lease Loans were originated by Bedford and are backed by
leases entered into with the United States Postal Service as tenant (each, a
"USPS Credit Lease"). With respect to such loans, the various borrowers, as
landlords under the related leases, are responsible for the maintenance and
repair of the improvements (in varying degrees) and for other obligations and
liabilities associated with ownership of mortgaged property, such as the
payment of real estate taxes and the maintenance of insurance. Such borrowers
are limited purpose entities that rely on cash flows from the USPS Credit
Leases to pay such obligations. While the loans are underwritten at a level
intended to enable the borrower to pay such obligations, there can be no
assurance that cash flows from the USPS Credit Leases will be sufficient for
this purpose. The failure of a borrower as landlord to perform its obligations
under a USPS Credit Lease could entitle the lessee to an abatement of rent or,
in some circumstances, result in a termination of the credit lease. While
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MBIA has guaranteed the timely payment of interest, the timely payment of
principal (with limitations described herein) and full payment of principal by
August 2018 on the Class A certificates, an unscheduled reduction or cessation
of payments due under a USPS Credit Lease may result in one or more payments
under the MBIA Policy, the reimbursement of which is an entitlement which is
prior to the right of the holders of the Private Certificates to distributions
of principal and interest. In that case, the Master Servicer, the Trustee or
the Fiscal Agent may also be required to make one or more advances which, if
not reimbursed from other mortgaged property revenues or deposits into the
Collection Account, will result in entitlement senior to those of the holders
of the offered certificates.
The USPS Credit Lease provides that disputes arising under the USPS Credit
Leases must be submitted in writing to the USPS for attempted resolution under
the Contract Disputes Act of 1978. Claims of under $50,000 must be decided
within 60 days of submission if so requested by the claimant, and larger
claims must also be decided within 60 days, or, if to be decided at a later
time, by a date specified by the responsible USPS officer. Each USPS Credit
Lease provides that USPS decision with regard to a claim so submitted is final
unless appealed or suit is commenced as provided in the Contract Disputes Act.
The USPS Credit Leases provide for a one-year period following completion of
construction and acceptance by the USPS for the USPS to bring claims of
substandard equipment, workmanship and/or materials within the related
mortgaged premises. In the event that a borrower fails to proceed promptly to
the satisfaction of such warranty, the USPS may have the work performed and
deduct the cost thereof from future rental payments. As of the date of this
prospectus supplement Bedford has not received any notice of any claims by the
USPS under such one-year warranty.
USPS Lease Loans Differ From Corporate Lease Loans. In addition to the
nature of their Credit Leases as described above, USPS Lease Loans differ from
Corporate Lease Loans on the following principal respects:
. the origination and underwriting procedures do not require that
appraisals, full environmental surveys or seismic studies be obtained;
and
. only USPS Lease Loans of borrowers which individually or together with
affiliated borrowers had loan balances of $500,000 or more were required
to be single-purpose entities, and none of the borrowers is subject, in
their organizational documents or local documents, to restrictive
covenants intended to assure that they would be treated as distinct
entities, separate from their parent companies and other affiliates, or
otherwise be "bankruptcy remote".
Federal Assignment of Claims Act
Under the Assignment of Claims Act, as amended (31 U.S.C. 3727, 41 U.S.C.
15), the borrower may assign its rights to be paid amounts due or to become
due as a result of the performance of a Credit Lease to a bank, trust company,
or other financing institution. The USPS Credit Leases provide that the
assignee under any such assignment may thereafter further assign or reassign
its rights under the original assignment to any such financing institution.
The assignee must file a written notice of assignment and a copy of the
assignment with the contracting official or head of the USPS and any
disbursing official for such Credit Lease.
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
Loan if such 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 loan exceed 60% of the appraised value of the mortgaged property
unencumbered by the Credit Lease and the related Corporate Lease Loan
(the "Anticipated Liquidation Value") with respect to such loan; or
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. 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 loan is deemed to be
nonrecoverable or is of a type in the case of a USPS Lease Loan, for
which no advance is specifically required; or
. the original scheduled maturity date of such 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;
provided, that for the purpose of determining the Controlling Class, all of
the Class A Certificates will collectively be treated as a single class. So
long as MBIA is not in default under its policy, it will act as the
Controlling Class in any case in which the Class A, Class B or Class C
certificateholders would otherwise act as the Controlling 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 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
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. The independent contractor generally will
be permitted to perform construction (including renovation) on a foreclosed
property if such construction is at least 10% complete at the time default on
the related loan becomes imminent. In addition, 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.
Nature of the Mortgaged Properties
With the exception of the mortgaged properties secured by United States
Postal Service facilities, the mortgaged properties consist 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
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successful operation of the related real estate project. However, the
commercial mortgaged properties which secure the loans are backed by the
obligations of generally investment grade tenants, guarantors or parents whose
successful operation and overall creditworthiness are not necessarily
dependent on any one commercial property.
With respect to the mortgaged properties serving as United States Postal
Service facilities, the mortgaged properties consist of single-user, special-
use facilities constructed pursuant to the operational requirements of the
United States Postal Service.
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; and
. a decline in the financial condition of a major tenant.
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, 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 the related Credit
Lease tenants were unable to pay rent or were to become a debtor in a
bankruptcy case under the Bankruptcy Code. Changes in payment patterns by
credit lease tenants may result from a variety of social, legal and economic
factors, such as the rate of inflation and unemployment levels to the extent
they already affect the overall creditworthiness of the credit lease tenant.
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", and "--Risks Particular
to Hotels" below.
Risks Particular to Tenant Industry Segments
Unlike traditional commercial mortgage loans, for which performance of the
loans is dependent primarily on the performance of the specific property
securing the loans, a Corporate Lease Loan is dependent primarily on the
continued credit quality of the tenant, and therefore its performance in its
industry taken as a whole. If the tenant defaults does the value of the
individual property, which may similarly be affected by industry trends as
well as location and other factors, becomes relatively more important.
Retailing Businesses
Retailing companies are tenants with respect to 67 of the Loans,
representing 69.60% of the aggregate Cut-off Date Balance. To the extent the
adverse economic factors described below rise to the level of affecting the
overall business condition of the tenant or the guarantors, as opposed to
localized effects on one property, the creditworthiness of such tenant or
guarantor may be adversely affected.
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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.
Movie Business
One property, representing approximately 2.24% of the aggregate Cut-off Date
Balance, is secured by a property secured by a movie theater. In addition to
the risks generally associated with commercial real estate, movie theater
properties face the following risks:
. adverse changes in movie theater patronage, including the seasonal
nature of movie theater attendance, which may cause a movie theater's
income to fluctuate during the year;
. movie theater properties are "special purpose" properties that cannot be
readily converted to a new use;
. local competitive conditions, including increased number of competing
theaters and competition from other sources of entertainment; and
. the condition of the local area, including other businesses which
attract customers to the area.
All these conditions and events may increase the possibility that the
related Credit Lease tenant will be unable to meet its obligations under the
Credit Lease.
Hotel Business
One property, representing approximately 1.97% of the aggregate Cut-off Date
Balance, is leased to a hotel company. To the extent the adverse economic
factors described below rise to the level of affecting the overall business
condition of the guarantor, as opposed to localized effects on one property,
the creditworthiness of such guarantor may be adversely affected.
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;
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. 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.
Office Properties
Office properties secure 3 of the loans, representing approximately 11.89%
of the aggregate Cut-off Date Balance.
Significant factors determining the value of office properties are the
quality of the tenants in the building, the physical attributes of the
building in relation to competing buildings and the strength and stability of
the market area as a desirable business location. Negative changes in the
physical plant or surroundings with respect to such features may have a
significant impact on occupancy levels, tenant turnover and lease or rental
income with respect to such properties. The risk of such an adverse effect is
increased if revenue is dependent on a single tenant or if there is a
significant concentration of tenants in a particular business or industry.
Limited Assets and Obligations of the Borrowers
The terms of all Corporate Lease Loans (other than the Middlesex Loan which
is guaranteed by the investment grade tenant) require that the borrowers be
single-purpose entities (that is, that their assets are substantially limited
to the mortgaged property and related assets) and the terms of the USPS Lease
Loans generally require that the borrowers be single-purpose entities if the
borrower is directly or through common control obligated under Loans in excess
of $500,000 in the aggregate. 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."
The MBIA Policy guarantees timely payment of interest, timely distribution
(subject to the limitations described herein) of scheduled principal and full
payment of principal by August 2018 on the Class A certificates. Since the
Loans are largely nonrecourse obligations of the borrowers, you will have to
rely upon payments made on the Loans, the Credit Leases, the guarantees, the
MBIA policy and the other trust assets, including the related insurance
policies described in this prospectus supplement for distributions on your
certificates. The certificates and the Loans are not otherwise insured or
guaranteed by any governmental entity, by any private mortgage insurer, or by
the Depositor, the Underwriters, the Master Servicer, the Special Servicer,
the Trustee, the Fiscal Agent or any of their respective affiliates. Payment
of amounts due on the 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) or, in the case of the USPS Lease Loans, an environmental
screening was performed (generally in a manner consistent with industry-wide
standards) at each of the mortgaged properties in connection with the
origination of the related loan. No such assessment, update or screening
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 or other activities
recommended in environmental assessments will continue to be implemented.
Multi-Borrower Note; Limited Cross-Collateralization
As described under "Description of the Loan Pool--General" herein, the loan
pool includes 1 loan, which represents approximately 1% of the aggregate Cut-
off Date Balance as to which two separate entities have signed a single note
as joint and several obligors, and have each pledged their respective
mortgaged properties. Such arrangement effectively cross-collateralizes the
obligations of such borrowers and seeks to reduce the risk that the inability
of one property securing such note to generate net operating income sufficient
to pay debt service will result in defaults and ultimate losses. Although
there are no sets of cross-collateralized loans in the loan pool, in the case
of certain USPS Lease Loans to affiliated borrowers, such loans are cross-
collateralized to the extent of their borrower reserve funds.
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, to the extent such crossed borrower reserve funds are depleted
for a loan or a group of USPS Lease Loans, such funds would not be available
for other related USPS Lease Loans.
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 policies, 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:
. 3 of the mortgaged properties, which constitute security for 11.66% of
the aggregate Cut-off Date Balance, are located in New Jersey.
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. 21 of the mortgaged properties, which constitute security for 8.83% of
the aggregate Cut-off Date Balance, are located in New York.
. 3 of the mortgaged properties, which constitute security for 7.88% of
the aggregate Cut-off Date Balance, are located in Connecticut.
. 4 of the mortgaged properties, which constitute security for 6.92% of
the aggregate Cut-off Date Balance, are located in Ohio.
. 4 of the mortgaged properties, which constitute security for 6.57% of
the aggregate Cut-off Date Balance, are located in Nevada.
. 6 of the mortgaged properties, which constitute security for 5.61% of
the aggregate Cut-off Date Balance, are located in Georgia.
No more than 2.35% 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 6.07% of the aggregate Cut-off
Date Balance.
. The three largest loans represent, in the aggregate, approximately
17.22% of the aggregate Cut-off Date Balance.
. The ten largest loans represent, in the aggregate, approximately 39.39%
of the aggregate Cut-off Date Balance.
Each of the other loans represents less than 2% of the aggregate Cut-off
Date Balance. Overall, 51 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 69.60% of the aggregate Cut-
off Date Balance (based on the primary property type for combined
office/retail properties);
. office properties represent 11.85% of the aggregate Cut-off Date
Balance;
. United States Postal Service properties represent 13.25% of the
aggregate Cut-off Date Balance;
. industrial properties represent 0.83% of the aggregate Cut-off Date
Balance; and
. hotel properties represent approximately 1.97% 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.
A concentration of loans with the same tenant and or guarantor can pose
increased risks. In this regard:
. 96 mortgaged properties representing 13.25% of the aggregate Cut-off
Date Balance are leased to the United States Postal Service.
. 4 mortgaged properties representing 10.37% of the aggregate Cut-off Date
Balance are leased to or guaranteed by Royal Ahold.
. 16 mortgaged properties representing 9.65% of the aggregate Cut-off Date
Balance are guaranteed by CVS.
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With respect to concentration of borrowers:
. 14 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.
. 1 group of 2 loans, representing approximately 1% of the aggregate Cut-
off Date Balance, 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 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 (including all Corporate Lease Loans subject to
defeasance for which prepayment is prohibited for the full term of the loan),
all of the loans require, for a specified period following the end of the
related lock-out period or, in the case of the USPS Lease Loans, at any time
during the term of the Loan, 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.
. 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.
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. 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.
. No prepayment premium is paid in the event of a payment under a Lease
Enhancement Policy or for other prepayment due to casualty or
condemnation, and, with respect to Corporate Lease Loans, any prepayment
premium paid under an Extended Amortization Policy is subject to a cap
of 5% of the balance of the Corporate Lease Loan.
. The borrower may not have sufficient funds to pay prepayment premiums in
the event of exercise of a purchase option by USPS with respect to a
USPS Lease Loan, as described under "-- Prepayments and Repurchases"
above.
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
Bedford Capital Funding Corp., with respect to the USPS Lease Loans, and
by or on behalf of Capital Lease Funding, L.P., with respect to the
Corporate Lease Loans.
. Unaudited operating statements for the mortgaged properties supplied by
the borrowers.
. Appraisals for the mortgaged properties that generally were performed at
origination of each Corporate Lease Loan (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
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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DESCRIPTION OF THE LOAN POOL
General
The Loan Pool will consist of 170 corporate and United States post office
lease-backed loans (the "Loans") with an aggregate Cut-off Date Balance of
$383,941,244, 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 July 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.
Seventy-four (74) of the loans (the "Corporate Lease Loans"), which
represent 86.75% of the aggregate Cut-off Date Balance, were originated or
acquired by Capital Lease Funding, L.P. ("CLF"), pursuant to its Enhanced
Lease Program. These 74 Corporate Lease Loans are backed by 22 different
Credit Lease tenants'. With respect to 9 of the Corporate Lease Loans, which
represent 21.49% of the aggregate Cut-off Date Balance, eight of the Loans
were originated by Banc One Capital Funding Corporation (an affiliate of Bank
One) and one was acquired from Corporate Real Estate Capital, LLC, under
origination and underwriting standards which may have varied in some respects
from those of CLF. However, in connection with their acquisition by CLF, the
Loans were reunderwritten by CLF in compliance with CLF's own origination and
underwriting standards and the Enhanced Lease Program. With respect to one
Corporate Lease Loan (the "Middlesex Loan"), representing 5.22% of the Cut-off
Date Balance, the note executed by the borrower is guaranteed by the
investment grade tenant, so that the Trust has recourse directly against the
tenant for defaults under the note rather than having recourse limited to
rights under the Credit Lease. For a description of the Enhanced Lease
Program, see Annex C of this prospectus supplement.
Ninety-six (96) of the Loans (the "USPS Lease Loans"), which represent
approximately 13.25% of the aggregate Cut-off Date Balance, were originated by
Bedford Capital Funding Corp. ("Bedford"), pursuant to its USPS Lease program.
All the properties which secure the USPS Lease Loans are leased to the United
States Postal Service. For a description of the USPS Lease Program, see Annex
D of this prospectus supplement.
On or before the Delivery Date, CLF and Bedford (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 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 the related Loan Seller, 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 Lease. With respect to the Corporate Lease
Loans, pursuant to the terms of the assignment of leases and rents, estoppel
letters and applicable notices, each Credit Lease tenant and any guarantor is
obligated under the Credit Leases to make all monthly rental payments directly
to the Master Servicer, except in the case of the Middlesex Loan where
payments are made by the borrower and the tenant is an affiliate of the
borrower and directly guarantees payments under the related note. With respect
to USPS Lease Loans, an assignment of leases and rents was delivered by each
borrower pursuant to specific authority under the terms of the lease
permitting such assignment, together with a power of attorney signed by the
borrower and delivered to the USPS giving notice of such assignment and
directing that payment be made to the Subservicer. In each case, the USPS's
payment
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history reflects the USPS's acceptance of notice to it that payments should be
made directly to the Subservicer. Repayment of the Loans and other obligations
of the borrowers will be funded from such monthly rental payments and from
amounts realized from the liquidation of the Loans and from any policies of
insurance. 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
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
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 Loan. With respect to
the Corporate Lease Loans, the extent to which the tenant undertakes to
perform such obligations varies based on the type of lease. With respect to
USPS Lease Loans, the USPS generally does not have the obligation to perform
obligations of the borrower, but is required to reimburse the borrower for ad
valorem property taxes paid by it.
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 or, in
two cases, will be improved by a retail, drug or grocery store, a United
States Postal Service facility and related improvements, a restaurant, an
office building or complex, a theater, a hotel or an industrial building.
Multi-Borrower Loan; Limited Cross-collateralization. One Corporate Lease
Loan, representing approximately 1% of the aggregate Cut-off Date Balance is
evidenced by a single promissory note executed by two borrowers who act as
joint and several obligors on the note. Each borrower is the owner of a
separate Mortgaged Property securing the note.
With respect to a minority of USPS Loans to sets of affiliated borrowers,
such loans to each set of affiliated borrowers are cross-collateralized with
loans to their affiliated borrowers but only to the extent of their respective
Borrower Reserve Funds.
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 and any available remedies against
the defaulting credit lease tenant and any guarantor. In addition, in those
cases where the loan documents permit recourse to a borrower or guarantor, if
any, 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 Grace Periods. Each of the Corporate Lease Loans provides for
scheduled payments of principal and interest ("Monthly Payments") to be due
(as to each such Loan, the "Due Date") on the 15th day of the month, or, in
the case of nine Corporate Lease Loans, on the 1st or 5th day of the month.
Other than the Corporate Lease Loan with an 11-day grace period, no Corporate
Lease Loans due on the 15th of the month
S-46
<PAGE>
provide for any given period for monthly payments of principal and interest of
the remaining 8 Corporate Lease Loans, 8 provide for between 5-day and 10-day
grace periods and one has no grace period. The USPS Lease Loans provide for
Monthly Payments to be due on a Due Date on the first day of each month,
subject to a 10 business day grace period. To the extent any grace period
extends beyond the Distribution Date, a servicer advance, which will accrue
interest, may result even though the Loan is not delinquent.
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. The Middlesex Loan provides for an extension of the term at the option
of borrower, upon exercise of the tenant of its option to extend its lease,
any such extension term to be at a higher loan rate. Pursuant to the terms of
the Chase Loan, the borrower may give notice an extension of the maturity
date, which will result in an increase in the loan rate. As of the Cut-off
Date, the Loan Rates of the Loans ranged from 6.18% per annum to 8.50% per
annum, and the weighted average Loan Rate of the Loans was 7.31%. No Loan
permits negative amortization or the deferral of accrued interest. All of the
Loans accrue interest on the basis of a 360-day year consisting of twelve 30-
day months (a "30/360 Basis").
Amortization of Principal. Nineteen of the Loans, which represent 31.99% 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. The 19 Balloon Loans
in the trust are Corporate Lease Loans, 18 of which have the benefit of a
"residual value insurance" policy. Under the terms of the remaining Balloon
Loan, the tenant is obligated to either pay the related Balloon Payment in
full upon maturity or enter into a new lease for a term which fully amortizes
the loan.
In addition, with respect to three Corporate Lease Loans, which represent
4.45% of the aggregate Cut-off Date Balance, the term of the Corporate Lease
Loan extends beyond the primary term of the related Credit Lease. Each such
Corporate Lease Loan has the benefit of an Extended Amortization Policy which
pays an amount equal to the remaining monthly debt service payments on the
Corporate Lease Loan or pays an amount equal to the unpaid balance of the
Corporate 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 66 and 359
months. The original amortization schedules of the Loans (calculated on a
30/360 Basis) ranged from 66 to 359 months. As of the Cut-off Date, the
remaining terms to stated maturity of the Loans will range from 52 to 346
months, and the weighted average remaining term to stated maturity of the
Loans will be 235 months. See "Risk Factors--Risks Related to the Loans--
Balloon Payments" in this prospectus supplement.
Prepayment Provisions. As of origination, when subject to defeasance as
described below the Corporate Lease Loans provided for a sequence of two
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").
The Corporate Lease Loans not subject to defeasance generally prohibit
voluntary prepayment of principal for a Lock-out Period following the date of
origination of such Corporate Lease Loan except the Middlesex Loan under which
the borrower may prepay the loan at any time during the term of the loan if
accompanied by payment of prepayment premium, except that no prepayment
premium is required during the last year of the
S-47
<PAGE>
term. Corporate Lease Loans which are subject to defeasance have a Lock-out
Period for prepayment of the full term of the loan, except for, the CVS Loan
in Brooklyn, New York, which has a Lock-out Period of 8 years after
origination and may be prepaid thereafter subject to a yield maintenance
premium. The USPS Lease Loans may be prepaid in full during the term of the
loan without regard to any Lock-out Period, subject to certain limitations (in
the absence of a default), if accompanied by a Prepayment Premium.
Following such Lock-out Period (or at any time during the term in the case
of the Middlesex Loan), each Corporate Lease Loan requires payment of
Prepayment Premium in an amount equal to (1) 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 Corporate 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 (2) 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 of each such Corporate Lease Loan. 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 Corporate
Lease Loan. The requirement to pay Prepayment Premiums applies through the
maturity date of the Corporate Lease Loans. As of the Cut-off Date, the
remaining Lock-out Periods under the Corporate Lease Loans not subject to
defeasance ranged from 24 months to 96 months, with a weighted average
remaining Lock-out Period of 50 months.
During the term of each USPS Lease Loan voluntary prepayment is permitted
upon among other things, payment of a Prepayment Premium in an amount equal to
the greater of (1) 5% (or 2% and 2.5%, respectively, in the case of two USPS
Lease Loans) of the outstanding principal balance of the USPS Lease Loan at
the time of prepayment or (2) a yield maintenance formula calculated in the
same manner described above with respect to the Corporate Lease Loans.
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. Neither the Depositor nor any Underwriter makes any
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 or whether any Prepayment Premium will mitigate the effect
of early prepayment on yield. 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. Corporate Lease Loans, representing 52.53% 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
S-48
<PAGE>
(3) an amount (the "Collateral Substitution Deposit") that will be
sufficient for the borrower 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.
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. In addition, the borrower must (1) designate a
single purpose entity to assume the Loan and own the collateral; and (2)
deliver written confirmation from the Rating Agencies that such defeasance
will not result in the downgrade, qualification or withdrawal of the rating of
any class of Certificates.
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.
No USPS Lease Loan permits the borrower to obtain release of the lien of the
mortgage by defeasing its loan. Neither the Depositor nor any Underwriter
makes any 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. In the case of the USPS Lease Loans,
transfers of the mortgaged property are permitted under the due on sale
provisions (i) with the prior written consent of the lender; (ii) by devise or
descent or by operation of law upon the death of a partner, member or
stockholder of the mortgagor or any general partner thereof; or (iii) upon the
sale, transfer or hypothecation of a partnership, shareholder or membership
interest in the mortgagor, by the current partner(s), shareholder(s) or
member(s) to an immediate family member (i.e. parents, spouses, siblings,
children or grandchildren) of such partner, shareholder or member, or to a
principal (or a trust for the benefit of any such person). 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 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
S-49
<PAGE>
(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 "Description of the Pooling 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.
Changing Terms
Two Loans, by their terms, provide for extensions at the option of the
borrower or tenant which also result in changes to other terms of the Loans.
Pursuant to the terms of the Chase Loan, the borrower may exercise an option
to extend the maturity date of the Loan, currently March 5, 2013, to a date
corresponding to end of the term of a lease on property currently under
construction, which could result in an extension of the Loan to no later than
October 5, 2017. In the event of any such extension, the Loan rate will
increase from 6.7% per annum to 6.83% per annum. The Loan currently amortizes
to a balloon balance of approximately $11 million on its current maturity
date. In the event of any such extension, the Loan will reamortize based on
the new Loan rate to the same balloon balance on its original maturity, and
will thereafter pay interest only until its extended maturity, when the
balloon payment will come due. The Loan is covered by a Residual Value
Insurance Policy, which will continue to cover the Loan as extended. The
borrower has given notice of such extension, but the extension will not come
into effect until satisfaction or certain additional conditions.
With respect to the Middlesex Loan, the tenant is an affiliate of the
borrower and has guaranteed the borrower's obligation under the Loan. The
tenant has the option, at the maturity of the Credit Lease and the Loan to
either pay the principal balance of the Loan without any prepayment premium or
to extend the term of the Credit Lease and correspondingly to extend the Loan
to December 31, 2018. In connection with any such extension, the Loan rate
will increase from 8.375% per annum to 9.75% per annum.
Significant Loans and Tenants
General. All of the Loans are backed by the obligations of Credit Lease
tenants under the Credit Leases. Since the Loans are largely nonrecourse
obligations of the borrowers, the principal source of payment on the Loans
and, therefore, of a substantial portion of the distributions on the
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 Loans and to fund required reserves, except
for the following exceptions:
. 3 Corporate Lease Loans provide for payments on the loan which, during
an initial term under the loan, when taken together with mandatory
deposits to Borrower Reserve Funds and fees payable under the terms of
the loan, exceed rental payments due under the Credit Lease. In each
case, a reserve was created at origination in an amount sufficient to
cover any such shortfall.
. Certain USPS Loans have payments due under the loan near the maturity of
the loan which exceeds amounts available for debt service from rental
payments due under the related Credit Lease. See "Risk Factors--Certain
USPS Lease Loan Final Payments" in this prospectus supplement.
S-50
<PAGE>
Credit Lease Tenant/Guarantor/Parent S&P Credit Rating for Corporate Lease
Loans
<TABLE>
<CAPTION>
Cumulative Weighted
Number of Aggregate % of % of Average Weighted Weighted
Tenant/Guarantor Credit Mortgaged Cut-off Date Credit Lease Credit Lease Original Average Average
Rating(1) Properties Balance Pool Pool DSCR LTV Ratio Loan Rate
- ----------------------- ---------- --------------- ------------ ------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Postal Service
(N/R).................. 96 $ 50,869,538.54 13.25% 13.25% 1.10x 0.00 7.41%
AA...................... 3 33,024,711.03 8.60% 21.85% 1.00x 84.72 7.90%
AA-..................... 2 25,936,266.02 6.76% 28.61% 1.00x 80.45 6.84%
A+...................... 11 53,386,498.71 13.90% 42.51% 1.20x 83.28 6.99%
A....................... 24 118,076,809.98 30.75% 73.26% 1.04x 90.70 7.20%
CP A-2.................. 2 8,842,270.92 2.30% 75.57% 1.00x 95.87 7.34%
BBB+.................... 10 25,326,943.47 6.60% 82.16% 1.04x 91.56 7.14%
BBB..................... 15 39,475,315.41 10.28% 92.45% 1.04x 90.32 7.50%
BBB-.................... 2 10,821,449.32 2.82% 95.26% 1.00x 101.36 7.67%
Below Investment
Grade(2)............... 5 18,181,440.53 4.74% 100.00% 1.06x 91.71 7.83%
--- --------------- ------ ------ ---- ------ ----
170 $383,941,243.93 100.00% 1.06x 88.68 7.31%
=== =============== ====== ==== ====== ====
</TABLE>
- --------
(1) Based on the long-term senior unsecured debt rating from S&P. In the case
of Home Depot U.S.A., Inc. ("AA-"), Chase Manhattan Corp. ("A+") and J.C.
Penney Company, Inc. ("BBB+"), the rating shown is the rating of the
respective parent company although such parent company is not a guarantor
of the tenant's obligation. In the case of Winn-Dixie Stores, the rating
is a commercial paper rating of A-2. The United States Postal Service,
which is the tenant under all of the USPS Credit Leases related to the
USPS Lease Loans, does not have a public S&P rating and is not included
above.
(2) Except for Sterling Jewelers, Inc. (rated "BB+"), these credits do not
carry public ratings from S&P. However, each has received a "Ratings
Estimate" from S&P (or has a confidential rating). CLF believes these
ratings are below investment grade.
Tenants
<TABLE>
<CAPTION>
Aggregate Weighted
Cut-Off Average Weighted Weighted
S&P Credit Moody's Credit Number of Date % of Original Average Average
Tenant/Guarantor Rating(1) Rating(2) Loans Balance Loan Pool DSCR LTV Ratio Loan Rate
- ---------------- ---------- -------------- --------- --------------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Postal Service..... Not Rated Not Rated 96 $ 50,869,538.54 13.25% 1.10x N/A 7.41%
Koninklijke Ahold,
N.V. .................. A A3 4 $ 39,827,029.28 10.37% 1.00x 88.45 7.28%
CVS Corporation......... A A3 16 $ 37,039,129.62 9.65% 1.06x 88.41 7.29%
Rite Aid Corporation.... BBB Baa1 14 $ 31,898,453.63 8.31% 1.05x 89.55 7.26%
Walgreen Co. ........... A+ Aa3 9 $ 27,421,846.33 7.14% 1.06x 87.10 7.16%
Eckerd Corporation...... BBB+ Baa2 10 $ 25,326,943.47 6.60% 1.04x 91.56 7.14%
Home Depot U.S.A.,
Inc. .................. AA- Not Rated 1 $ 23,288,563.43 6.07% 1.00x 79.21 6.75%
Chase Manhattan Mortgage
Corp. ................. A+ Not Rated 1 $ 22,784,510.45 5.93% 1.38x 75.95 6.79%
Middlesex Mutual
Assurance Company...... AA Not Rated 1 $ 20,060,746.87 5.22% 1.00x 78.67 8.38%
American Stores
Company................ A A3 1 $ 17,342,020.96 4.52% 1.03x 98.42 7.20%
Lowe's Companies,
Inc. .................. A A2 2 $ 16,183,812.52 4.22% 1.07x 90.11 6.73%
Wal-Mart Stores, Inc. .. AA Aa2 1 $ 11,979,937.94 3.12% 1.00x 95.08 7.17%
Winn-Dixie Stores....... CP A-2(3) P2(3) 2 $ 8,842,270.92 2.30% 1.00x 95.87 7.34%
Hoyts Cinemas Limited... Not Rated Not Rated 1 $ 8,605,959.15 2.24% 1.03x 94.57 7.67%
J. Sainsbury PLC........ A A1 1 $ 7,684,817.60 2.00% 1.05x 97.28 7.25%
Accor................... BBB Not Rated 1 $ 7,576,861.78 1.97% 1.00x 93.54 8.50%
Bed, Bath & Beyond,
Inc. .................. BBB- Not Rated 1 $ 7,558,551.64 1.97% 1.00x 102.56 8.00%
Circuit City Stores,
Inc. .................. Not Rated Not Rated 3 $ 7,533,266.37 1.96% 1.10x 89.24 8.00%
Nash Finch Company...... BBB- B2 1 $ 3,262,897.68 0.85% 1.00x 98.58 6.90%
International Business
Machines Corp. ........ A+ A1 1 $ 3,180,141.93 0.83% 1.10x 102.92 6.98%
LaSalle Bank National
Association............ AA- Aa3 1 $ 2,647,702.59 0.69% 1.00x 91.30 7.60%
Sterling Jewelers,
Inc. .................. BB+ Not Rated 1 $ 2,042,215.01 0.53% 1.10x 88.79 7.89%
The McDonald's
Corporation............ AA Aa2 1 $ 984,026.22 0.26% 1.05x 82.00 7.15%
--- --------------- ------ ---- ------ ----
170 $383,941,243.93 100.00% 1.06x 88.68 7.31%
=== =============== ====== ==== ====== ====
</TABLE>
S-51
<PAGE>
Credit Lease Tenants Table--Footnotes. With respect to (1), see pages S-9
and S-48 for explanatory footnotes. With respect to (1) and (2), the rating
shown is for long-term senior unsecured debt except for Eckerd Corporation and
Nash Finch Company for which the ratings reflect Moody's senior subordinated
debt ratings. 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 (3),
the rating shown is the commercial paper rating of Winn-Dixie Stores, Inc.
Credit Lease Type
<TABLE>
<CAPTION>
Weighted
Aggregate % of Average Weighted
Number of Cut-off Date Credit Lease Original Average
Loans Balance Pool DSCR Loan Rate
--------- --------------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Bond-Type Lease...... 11 $ 70,232,799.01 18.29% 1.02x 7.89%
Triple Net Lease..... 23 $153,079,763.28 39.87% 1.07x 7.10%
Double Net Lease..... 136 $160,628,681.64 41.84% 1.08x 7.25%
--- --------------- ------ ---- ----
170 $383,941,243.93 100.00% 1.06x 7.31%
=== =============== ====== ==== ====
</TABLE>
Primary Industry of the Tenants
<TABLE>
<CAPTION>
Weighted
Aggregate Average Weighted Weighted
Tenants/Guarantors Number of Cut-off Date % of Original Average Average
Industry(1) Loans Balance Loan Pool DSCR LTV Ratio(2) Loan Rate
- ------------------ --------- --------------- --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Retail Drug............. 49 $121,686,373.05 31.69% 1.05x 89.07 7.22%
Grocery................. 9 $ 76,959,036.44 20.04% 1.01x 92.86 7.25%
U.S. Postal Service..... 96 $ 50,869,538.54 13.25% 1.10x N/A 7.41%
Building materials...... 2 $ 28,329,862.13 7.38% 1.00x 79.13 6.75%
Banking................. 2 $ 25,432,213.04 6.62% 1.34x 77.55 6.87%
Insurance............... 1 $ 20,060,746.87 5.22% 1.00x 78.67 8.38%
Retail Discount......... 1 $ 11,979,937.94 3.12% 1.00x 95.08 7.17%
Building Material
Retailer............... 1 $ 11,142,513.82 2.90% 1.09x 95.24 6.71%
Theater................. 1 $ 8,605,959.15 2.24% 1.03x 94.57 7.67%
Hotel................... 1 $ 7,576,861.78 1.97% 1.00x 93.54 8.50%
Retail.................. 1 $ 7,558,551.64 1.97% 1.00x 102.56 8.00%
Retail Electronics...... 3 $ 7,533,266.37 1.96% 1.10x 89.24 8.00%
Computers............... 1 $ 3,180,141.93 0.83% 1.10x 102.92 6.98%
Retail Jewelry.......... 1 $ 2,042,215.01 0.53% 1.10x 88.79 7.89%
Restaurant.............. 1 $ 984,026.22 0.26% 1.05x 82.00 7.15%
--- --------------- ----- ---- ------ ----
Total................... 170 $383,941,243.93 100.0% 1.06x 88.68 7.31%
=== =============== ===== ==== ====== ====
</TABLE>
- --------
(1) 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.
(2) Calculated solely with respect to the Corporate Lease Loans.
Significant Loans. Each of the following seven Loans, or group of related
Loans represents at least 6.07% of the aggregate Cut-off Date Balance. The
following information with respect to the seven largest Credit Lease tenants
by aggregate Cut-off Date Balance has been prepared on the basis of publicly
available information as described below. Neither the Depositor nor any
Underwriter makes any 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-52
<PAGE>
The United States Postal Service Lease Loans and Credit Leases. 96 Loans
(the "USPS Lease Loans"), having an aggregate Cut-off Date Balance of
$50,869,539 and constituting 13.25% of the aggregate Cut-off Date Balance, are
secured by Credit Leases (the "USPS Credit Leases") having the United States
Postal Service ("USPS") as the Credit Lease tenant. The USPS Lease Loans bear
interest at fixed rates ranging from 6.18% to 8.42% 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 USPS Lease Loans), the USPS Lease
Loans require payment of a Prepayment Premium at any time during the term of
the Loan equal to the greater of (1) 5% (or 2% and 2.5%, respectively, in the
case of two USPS Lease Loans) of the outstanding principal balance of the
related note at the time of prepayment or (2) a yield maintenance amount based
on remaining scheduled principal and interest payments through the maturity of
each USPS Lease Loan. The USPS Lease Loans are secured by fee or, in the case
of six USPS Lease Loans, leasehold interests in Mortgaged Properties that are
each improved by a USPS facility. Overall, the USPS leases approximately
27,000 facilities out of the 36,000 facilities that it occupies nationwide.
The USPS is an independent establishment of the Executive Branch of the
federal government which provides mail service to the public. The former Post
Office Department commenced operations as the USPS on July 1, 1971, in
accordance with the provisions of the Postal Reorganization Act (the "Act").
Pursuant to the terms of the Act, the USPS is required to establish prices
that cover the costs of operating the postal system and since 1982, the USPS
has been self-supporting. Consequently, though the USPS is a governmental
entity, its operations are not funded by government appropriations. Further,
under the Balanced Budget Act of 1997, the USPS was charged with certain
liabilities attributable to the operations of its predecessor, the former Post
Office Department. To the extent the USPS suffers operating losses, the Act
provides for the recovery of such losses through future rate increases,
subject to the approval of the Board of Governors of the USPS. By law, the
USPS can borrow money only after notifying and offering the debt to the
Secretary of the Treasury, which has exercised its right of first refusal for
USPS debt in recent years.
The USPS' World Wide Web site is located at http://www.usps.gov.
The following information with respect to the USPS was obtained from the
USPS's 1998 annual report:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
USPS (in millions) September 30, 1998 September 30, 1997 September 30, 1996
- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C>
Operating Revenue..... $60,072 $58,216 $56,402
Operating Expenses.... $57,778 $54,873 $53,113
Operating Income...... $2,294 $3,343 $3,289
Operating Margin...... 3.8% 5.7% 5.8%
</TABLE>
The USPS Credit Leases are Double Net Leases. The USPS Lease Loans are each
secured by a fee mortgage on properties in 90 locations, or in the case of 6
USPS Lease Loans, by a mortgage on the leasehold interest in such property,
more particularly described in Annex A to this prospectus supplement.
The USPS 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 USPS Lease Program--The Lease Enhancement Policies" in Annex
D of this prospectus supplement. The USPS Credit Leases contain Maintenance
Termination or Abatement Rights which are generally limited to one of two
types: (1) the borrower has general maintenance responsibility, including but
not limited to roof and structural building maintenance and maintenance for
pest control; or (2) the borrower has responsibility only for maintenance for
major mechanical elements of the related Mortgaged Property, including roof,
HVAC, boilers, structural building maintenance, periodic painting and
maintenance for areas such as parking areas, and all other maintenance
obligations are accepted by the USPS. 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 USPS Lease Program --Borrower Protective
Actions--Servicer Protective Actions" in Annex D of this prospectus
supplement. The
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<PAGE>
USPS Credit Leases include Additional Termination or Abatement Rights. The
USPS may terminate or abate rent under various circumstances, including, (1)
in the event that related borrower fails to proceed promptly to the
satisfaction of the one-year construction warranty for substandard workmanship
and/or material and (2) in the event of the violation by the related borrower
of various federal statutes and acts (et. al, the Clean Air Act, the Davis-
Bacon Act, OSHA, the Clean Water Act, the Rehabilitation Act). 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 USPS Lease Program --Borrower
Protective Actions" and "--Servicer Protective Actions" in Annex D of this
prospectus supplement.
The Royal Ahold Loans and Credit Leases. Four Loans (the "Royal Ahold
Loans"), having an aggregate Cut-off Date Balance of $39,827,029.28 and
constituting 11.96% of the aggregate Cut-off Date Balance of the Corporate
Lease Loans and 10.37% of the aggregate Cut-off Date Balance, are secured by
Credit Leases (the "Royal Ahold Credit Leases") having Mayfair Supermarkets,
or Bi-Lo (in the case of the Royal Ahold Credit Lease in Boiling Springs,
South Carolina), or Stop & Shop (in the case of the Royal Ahold Credit Lease
in Marstons Mills, Massachusetts), as tenants. The obligations of each tenant
under the Royal Ahold Credit Leases are unconditionally guaranteed as to
payment and not of collection by Koninklijke Ahold NV ("Royal Ahold"). In
addition, Royal Ahold provides indemnification covering the performance of
non-monetary obligations under the Royal Ahold Credit Leases. The long-term
debt obligations of Royal Ahold are rated "A" by S&P and "A3" by Moody's.
Royal Ahold's rating is currently on "negative outlook" by S&P. The Royal
Ahold Loans bear interest at fixed rates ranging from 7.07% to 7.35% 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
August 14, 2001 through February 14, 2007, and thereafter require payment of
either a Prepayment Premium or defeasance 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, Mayfair, Finast, Tops,
and Stop & Shop and is expected to acquire Pathmark this fall. The company
employs over 280,000 people worldwide. As of December 31, 1998, Royal Ahold
operated approximately 1,031 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.
The following information with respect to Royal Ahold was obtained from
Royal Ahold's 1997 and 1998 annual reports, and its first quarter 1999
earnings release:
<TABLE>
<CAPTION>
Sixteen
Weeks Ended Year Ended Year Ended
Royal Ahold (in millions) April 25, 1999 January 3, 1999 December 28, 1997
- ------------------------- -------------- --------------- -----------------
<S> <C> <C> <C>
Total Sales.................... $ 8,723.2 $30,945.7 $25,271.6
Net (Loss) Profit.............. $164.6 $639.4 $466.7
Total Assets................... $11,337.8 $13,351.2 $9,414.9
Total Shareholders' Equity..... $1,908.2 $1,814.3 $1,543.8
</TABLE>
- --------
* 2.0010 and 1.8860 NLG/US$ exchange rates were used to derive year end Jan.
3, 1999, and Dec. 28, 1997, balance sheet items, respectively. A 0.94
US$/Euro exchange rate was used to derive three months ended April 25,
1999, balance sheet items, respectively.
S-54
<PAGE>
The Royal Ahold Loans are each secured by a fee mortgage on grocery stores
in Boiling Springs, South Carolina; Hicksville, New York; Marstons Mills,
Massachusetts; and Morris Plains, New Jersey. Construction on the related
Mortgaged Property in the case of the Royal Ahold Loan located in Hicksville,
New York and construction on a portion of the related Mortgaged Property
located in Martons Mills, Massachusetts has not begun yet, but in both cases
the Credit Lease tenant is responsible for completion of the construction and
each is currently fully obligated to make monthly rental payments on a date
certain. 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 Morris Plains, New Jersey, a Bond-Type Lease, or in
the case of the Royal Ahold Loan in Boiling Springs, South Carolina, a Double
Net Lease.
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. 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 CVS Loans and Credit Leases. Sixteen Loans (the "CVS Loans"), having an
aggregate Cut-off Date Balance of $37,039,129.63 and constituting 11.12% of
the aggregate Cut-off Date Balance of the Corporate Lease Loans and 9.65% 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 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 CVS Loans), the CVS Loans have
remaining Lock-out Periods ranging from August 14, 2001 to August 14, 2006,
and thereafter require payment of either a Prepayment Premium or defeasance
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 1998, CVS
operated 4,122 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 1998
annual report on Form 10-K for the fiscal year ended December 31, 1998 and
Form 10-Q for the three months ended March 27, 1999:
<TABLE>
<CAPTION>
Three Months Ended Year Ended Year Ended
CVS (in millions) March 27, 1999 December 31, 1998 December 31, 1997
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C>
Net Sales............... $4,240.5 $15,273.6 $13,749.6
Net (Loss) Profit....... $164.6 $396.4 $76.9
Total Assets............ $6,842.0 $6,736.2 $5,978.9
Total Shareholders'
Equity................. $3,264.2 $3,110.6 $2,614.6
</TABLE>
The CVS Loans are each secured by a fee mortgage (except in the case of the
CVS Loans in Binghamton, New York, North Bellmore, New York, and Upper Darby
Township, Pennsylvania, each a leasehold mortgage) on retail stores in
Anderson, Indiana; Binghamton, New York; Brooklyn, New York; Columbus, Ohio;
Kokomo,
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<PAGE>
Indiana; Medford, New York; New Bedford, Massachusetts; North Bellmore, New
York; Owego, New York; Portsmouth, Ohio; Queensbury, New York; Roanoke,
Virginia; Rochester, New York; Upper Darby Township, Pennsylvania; Vernon,
Connecticut, Washington, North Carolina; and Whitpain Township, Pennsylvania.
The obligations of the CVS Tenants under the CVS Credit Leases are guaranteed
by CVS.
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 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.
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 Rite Aid Loans and Credit Leases. Fourteen Loans (the "Rite Aid Loans"),
having an aggregate Cut-off Date Balance of $31,898,453.63 and constituting
9.58% of the aggregate Cut-off Date Balance of the Corporate Lease Loans and
8.31% 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 Moody's.
The Rite Aid Loans bear interest at fixed rates ranging from 6.80% to 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 Rite Aid Loans), the
Rite Aid Loans have remaining Lock-out Periods ranging from August 14, 2001
through November 14, 2006, and thereafter require payment of either a
Prepayment Premium or defeasance based on remaining scheduled principal and
interest payments through the maturity of each Rite Aid Loan.
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<PAGE>
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 operates in two business
segments: (1) a retail drug segment, and (2) a pharmacy benefit management
("PBM") segment, that includes other managed health care services and mail-
order pharmacy service. In addition, through its acquisitions of PCS Health
Systems, Inc. from Eli Lilly and Company in the fourth quarter of fiscal year
1999, Rite Aid operates a PBM segment which offers pharmacy benefit
management, mail order pharmacy services, marketing prescription plans and
sells other managed health care services to employers, health plans and their
members and government-sponsored employee benefit programs. In June 1999, the
company signed a ten-year agreement with General Nutrition Centers, Inc. and
drugstore.com that will result in a 25.3% ownership in drugstore.com, for a
cash investment of $7,600,000 as well as other marketing commitments and
obligations.
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 1998 annual report on Form 10-K for the fiscal year ended February 27,
1999 and Form 10-Q for the three months ended May 29, 1999:
<TABLE>
<CAPTION>
Three
Rite Aid (in Months Ended Year Ended Year Ended
millions) May 29, 1999 February 27, 1999 February 28, 1998
------------ ------------ ----------------- -----------------
<S> <C> <C> <C>
Net Sales..................... $3,624.5 $12,731.9 $11,375.1
Net (Loss) Profit............. $81.0 $143.7 $305.9
Total Assets.................. $10,677.8 $10,421.7 $7,612.3
Total Shareholders' Equity.... $3,005.3 $2,953.7 $12,907.3
</TABLE>
With the exception of the Rite Aid Credit Leases in Cadillac, Michigan, and
Portland, Michigan, which are Bond-Type Leases, 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. The remainder 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.
The Rite Aid Loans are each secured by a fee mortgage on retail stores in
Alma, Michigan; Alpena, Michigan; Andalusia, Alabama; Cadillac, Michigan; East
Greenbush, New York; Hazelton, Pennsylvania; Henderson, Nevada; Las Vegas,
Nevada; Muskegon, Michigan; Nanticoke, Pennsylvania; Niles, Michigan;
Portland, Michigan; Sault Ste. Marie, Michigan; and Warrenton, North Carolina.
S-57
<PAGE>
The Walgreen Loans and Credit Leases. Nine Loans (the "Walgreen Loans"),
having an aggregate Cut-off Date Balance of $27,421,846.33 and constituting
8.23% of the aggregate Cut-off Date Balance of the Corporate Lease Loans and
7.14% of the aggregate Cut-off Date Balance, are secured by Credit Leases (the
"Walgreen Credit Leases") having Walgreen Co. ("Walgreen") as the Credit Lease
tenant, or if not the Credit Lease tenant, as the guarantor. The long-term,
senior unsecured debt obligations of Walgreen are rated "A+" by S&P and "Aa3"
by Moody's. The Walgreen Loans bear interest at fixed rates ranging from 6.75%
to 7.43% per annum. Except in connection with any tenant's exercise of a
Casualty or Condemnation Termination or Abatement Right, the Walgreen Loans
have remaining Lock-out Periods ranging from August 14, 2001 through July 14,
2007, and thereafter require payment of a Prepayment Premium. The Walgreen
Loans are each secured by a fee mortgage on retail stores in Austin, Texas;
Cape Coral, Florida; Chesterfield, Virginia; Colonial Heights, Virginia;
Dallas, Texas; Orlando, Florida; Perth Amboy, New Jersey; Portsmouth,
Virginia; and Topeka, Kansas.
Walgreen is an Illinois corporation, and is America's largest drugstore
retailer in terms of sales. Walgreen is engaged in the retail sale of
prescription and nonprescription drugs and also carries additional product
lines such as general merchandise, liquor and beverages, cosmetics, toiletries
and tobacco. Walgreen currently operates 2,547 retail drugstores in 35 states
and Puerto Rico and two mail order facilities. Walgreen filled 226 million
prescriptions in fiscal year 1998--approximately 9 percent of the U.S. retail
market. Walgreen announced in June 1999 that it intends to launch a "full
service" internet pharmacy in September 1999, expanding beyond its online
prescription refill service by allowing new prescription orders over the
internet.
Walgreen's stock trades on the NYSE under the symbol "WAG," and its World
Wide Web site is located at: http://www.walgreens.com.
The following information with respect to Walgreen was obtained from
Walgreen's 1998 annual report on Form 10-K for the year ended August 31, 1998
and Form 10-Q for the nine months ended May 31, 1999:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
Walgreen (in millions) May 31, 1999 August 31, 1998 August 31, 1997
---------------------- ----------------- --------------- ---------------
<S> <C> <C> <C>
Net Sales.................... $13,278.8 $15,307.0 $13,363.0
Net Earnings................. $ 463.5 $511.0 $436.0
Total Assets................. $ 5,592.4 $4,902.0 $4,207.0
Total Shareholders' Equity... $ 3,338.3 $2,849.0 $2,373.0
</TABLE>
The Walgreen 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 Walgreen 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. Ten Loans (the "Eckerd Loans"), having
an aggregate Cut-off Date Balance of $25,326,943.47 and constituting 7.60% of
the aggregate Cut-off Date Balance of the Corporate Lease Loans and 6.60% 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 Eckerd Loans
bear interest at fixed rates ranging from 6.75% to 7.28% 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 August 14, 2001 through
April 14, 2007, and thereafter requires payment of a Prepayment Premium based
on remaining scheduled principal and interest payments through the maturity of
each Eckerd Loan.
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<PAGE>
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 2,900 drugstores in 24 states throughout the northeast,
southeast and sunbelt regions of the United States, including drugstores
acquired as a result of Eckerd's March 1999 acquisition of the New York-based
Genovese drugstore chain. The primary focus of Eckerd stores is the sale of
prescription drugs, which, during fiscal year 1997, generated approximately
57% of Eckerd's sales. In 1997, Eckerd merged with J.C. Penney Company, Inc.
("J.C. Penney") and is now a wholly owned subsidiary of J.C. Penney; however,
J.C. Penney announced plans in May 1999 to separate Eckerd into a publicly-
traded company. The long-term debt obligations of J.C. Penney are rated "BBB+"
by S&P and "A3" by Moody's. Eckerd carries a senior subordinated rating of
"Baa2." J.C. Penney does not guarantee the Eckerd Credit Leases.
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.
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>
13 Weeks Ended Year Ended Year Ended
Eckerd (in millions) May 1, 1999 January 31, 1998 February 1, 1997
-------------------- -------------- ---------------- ----------------
<S> <C> <C> <C>
Net Sales...................... $3,047 -- --
Operating Profit............... $129 -- --
Revenue........................ -- $10,325 $9,663
Operating Earnings............. -- $254 $347
Total Assets................... -- $6,361 $6,064
</TABLE>
The Eckerd Loans are each secured by a fee mortgage on retail drug stores in
Amsterdam, New York; Atlanta, Georgia; Decatur, Georgia; Fayetteville, North
Carolina; Greenville, South Carolina; Lenoir, North Carolina; Marietta,
Georgia; New Kensington, Pennsylvania; Newnan, Georgia; and Belle Vernon
Township, Pennsylvania. 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. Some 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 Home Depot Loan and Credit Lease. One Loan (the "Home Depot Loan"),
having a Cut-off Date Balance of $23,288,563.43 and constituting 6.99% of the
aggregate Cut-off Date Balance of the Corporate Lease Loans and 6.07% of the
aggregate Cut-off Date Balance, is secured by a Credit Leases (the "Home Depot
Credit
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Lease") 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" (senior subordinate) by Moody's. Home Depot, Inc. does not guarantee the
Home Depot Credit Lease. The Home Depot Loan bears interest at a fixed rate of
6.75% 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 Home Depot Loan), the
Home Depot Loan has a remaining Lock-out Period through August 14, 2001, and
thereafter requires payment of a Prepayment Premium. The Home Depot Loan is
secured by a fee mortgage on a retail store in Lodi, New Jersey. The Home
Depot Credit Lease is a Triple Net Lease.
Home Depot is a Delaware corporation, and the nation's leading retailer in
the home improvement industry. Home Depot currently operates 800 stores in 44
states, five Canadian provinces, Puerto Rico and Chile. Home Depot ranks among
the 10 largest retailers in the United States based on net sales volume.
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 1998 annual report on Form 10-K for the fiscal year ended
January 31, 1999 and Form 10-Q for the three months ended May 2, 1999:
<TABLE>
<CAPTION>
Home Depot, Inc. Three Months Ended Year Ended Year Ended
(in millions) May 2, 1999 January 31, 1999 February 1, 1998
- ---------------- ------------------ ---------------- ----------------
<S> <C> <C> <C>
Net Sales................ $8,952 $30,219 $24,156
Net (Loss) Profit........ $489 $1,614 $1,160
Total Assets............. $15,199 $13,465 $11,229
Total Shareholders'
Equity.................. $9,329 $8,740 $7,098
</TABLE>
The Home Depot Loan contains 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.
Other Loans and Credit Leases. No other Loans or Credit Leases involve
Credit Lease tenants or guarantors underlying more than 5.93% 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.
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 48 months prior to the Cut-off Date.
Tenant Matters. See "--Significant Loans--Corporate Lease Loans" above for a
description of the Credit Lease Tenants underlying the Corporate Lease Loans.
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Ground Leases. Ten of the Loans, which represent % of the aggregate Cut-off
Date Balance, are, in each such case, secured by a Mortgage on the applicable
borrower's leasehold interest, or both a fee and leasehold interest in the
case of one such Loan in the related Mortgaged Property. Each ground lease has
a 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. For all Corporate
Lease Loans, but
not USPS Lease Loans, the ground lessor is obligated to enter into a new
ground lease on the same terms as the existing ground lease with the mortgagee
if the ground lease is terminated. See "Certain Legal Aspects of Mortgage
Loans--Foreclosure--Leasehold Considerations" in the accompanying prospectus.
Two other Corporate Lease Loans are secured by fee interests in the
underlying real estate, but the Credit Leases assigned to secure such Loans
are the lessor's interest in a ground lease rather than a space lease.
Certain Underwriting Matters
Environmental Assessments. Each of the Mortgaged Properties relating to a
Corporate Lease Loan was subject, in the case of each Corporate Lease Loan, to
a Phase I, and if necessary a Phase II, environmental site assessment, or an
update of a previously conducted assessment, or in the case of the USPS Lease
Loans, an environmental screening, which assessment, update or screening was
conducted generally in accordance with industry-wide standards in connection
with the origination of the Loan. No such assessment, update or screening
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.
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 or prior existence of underground storage tanks needing
replacement, removal or monitoring, and the existence of ACMs needing removal,
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 Loans, in each case either one or all of the following are
mitigants to the above referenced environmental conditions: (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 or other response plan; or (5)
appropriate reserves have been established.
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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, any
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 with respect to the Loans, 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. With respect to all of the Loans, 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 "Description of the Pooling Agreements--Realization Upon
Defaulted Mortgage Loans", "Risk Factors--Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage Loans--Environmental Risks" and "Certain
Legal Aspects of Mortgage Loans--Environmental Risks" 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 those 34 Corporate Lease Loans, which represent 58.16% of the aggregate
Cut-off Date Balance, that are backed by Bond-Type or Triple Net Leases
pursuant to which the tenant is responsible for all maintenance. Such
inspections were generally commissioned to determine the required monthly
deposits into cash reserve accounts that will be necessary to fund property
maintenance expenses over the term of the related Loan. 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. In general, with limited exception,
cash reserves were established to fund such estimated deferred maintenance or
replacement items.
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
Corporate Lease Loan (but not each USPS Lease Loan) in order to establish that
the appraised value of the related Mortgaged Property or Properties exceeded
the original principal balance of the Corporate Lease Loan, except in the case
of the 2 Corporate Lease Loans located in California and Minnesota, which
represent 2.80% of the aggregate Cut-off Date Balance, which had a weighted
average loan to value ratio of 103%. Such appraisal or property valuation was
prepared in connection with the origination of such Corporate Lease Loan,
appraised with the value of the lease and except in the case of the Corporate
Lease Loans relating to Mortgaged Properties operated as restaurants and
certain other Corporate Lease 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.
No appraisals were obtained in connection with the origination or sale of
the USPS Lease Loans.
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None of the Depositor, the Loan Sellers, any 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. Bedford, with respect to the USPS Lease
Loans, and CLF, with respect to the Corporate 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 Bedford, with respect to the USPS Lease Loans, nor CLF, with respect
to the Corporate 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, Bedford, with respect to the USPS
Lease Loans, and CLF, with respect to the Corporate 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 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 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 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 (or alternatively, in the case
of Corporate Lease Loans, that the related Credit Lease tenant self-insure) 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.
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 Corporate 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 Corporate 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
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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 insure 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 Corporate Lease Loans. CLF will have no other obligations with respect to
the trust.
Bedford Capital Funding Corp. is a New Hampshire corporation. The principal
office of Bedford is located at 116 South River Road, Bedford, New Hampshire
03110. Bedford was founded in 1996 for the purpose of providing mortgage loans
to owners of properties long-term net leased to the United States Postal
Service. Bedford will not insure or guarantee distributions on the offered
certificates. Bedford's only obligations with respect to the offered
certificates will be in respect of certain representations and warranties made
to the Depositor with respect to the USPS Lease Loans. Bedford will have no
other obligations with respect to the trust.
The information set forth in this prospectus supplement concerning (a)
Bedford has been provided by Bedford, and (b) CLF has been provided by CLF.
Neither the Depositor nor any Underwriter makes any representation or warranty
as to the accuracy or completeness of such information.
Assignment of the Loans; Repurchases
On or prior to the Delivery Date, the Loan Sellers will assign, sell and
transfer the Loans, without recourse, to the Depositor, and the Depositor will
assign, sell and transfer the Loans, without recourse, to the Trustee for the
benefit of the Certificateholders. In connection with such assignment and
transfer, Bedford will be required to deliver the following documents, among
others, to the Trustee with respect to each USPS Lease Loan and CLF will be
required to deliver the following documents, among others, to the Trustee with
respect to each Corporate Lease Loan:
(1) the original Note with intervening endorsements, endorsed (without
recourse) to the order of the Trustee;
(2) the original or a certified 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 certified 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 certified 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 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 Loan, as
applicable;
(8) an original or certified copy of the related lender's UCC Financing
Statement (unless the particular document has not been returned from the
recording office) with evidence of recording thereon;
(9) 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);
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(10) in those cases where applicable, the original or a copy of the
related ground lease; and
(11) with respect to each 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 such Loan or the
interests of certificateholders or MBIA therein, then either Bedford (if, but
only if, the affected mortgage loan is a USPS Lease Loan) or CLF (if, but only
if, the affected mortgage loan is a Corporate Lease Loan) will be obligated,
except as otherwise described below, within a period of 90 days following the
earlier of its discovery or 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) plus unpaid interest on Advances or draws on the MBIA Policy made with
respect thereto. 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 "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 defect in any such document, and
neither the Depositor nor any Underwriter 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 "Description of the Pooling Agreements--Assignment of Mortgage
Loans; Repurchases" in the accompanying prospectus.
Representations and Warranties; Repurchases
In the pooling and servicing agreement, the Depositor will assign the
representations and warranties made by the Loan Sellers to the Depositor in
the mortgage loan purchase and sale agreement to the Trustee for the benefit
of the Certificateholders. In the mortgage loan purchase and sale agreement,
Bedford will be required to represent and warrant solely with respect to the
USPS Lease Loans, and CLF will be required to represent and warrant solely
with respect to the Corporate 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
(subject to certain exceptions indicated):
(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;
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(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, and, to the extent they do
not materially affect the value of the mortgaged property or materially
interfere with the use of the mortgaged properties, (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 Loan
and (E) if such Loan is cross-collateralized with any other Loan, the lien
of the Mortgage for such other 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;
(6) it has not waived any material default, breach, violation or event of
acceleration existing under any Mortgage or Note and, to its knowledge, no
event has occurred which, with the passing of time or giving of notice
would constitute a material default or breach, except for the occurrence of
such event under the Mortgages related to three USPS Lease Loans indicated
on the Mortgage Loan Schedule as loan numbers 32, 58 and 82 under which the
borrower has received notice of the imposition of a mechanic's and/or
materialman's lien in the amount of $7,318.35, $11,308.06 and $8,116.22,
respectively, but in each case, the final title insurance policy was issued
without exception for the related mechanic's and/or materialman's lien;
(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, and in the event that the
related Credit Lease may be terminated or rent may be abated upon the
occurrence of a casualty or condemnation, and other than pursuant to
exercise of a purchase option for a price at least equal to all principal
plus accrued interest on the Loan, such Loan has the benefit of a
noncancelable Lease Enhancement Policy for which the entire premium has
been paid in full;
(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 environmental
screenings (or an update of a previously conducted assessment or screening)
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,
screenings 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);
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(11) the lien of each Mortgage is insured by a title insurance policy
issued by a nationally recognized title insurance company (or, in the case
of three USPS Lease Loans, the Iowa State Guaranty Agency) 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. Any and all requirements under
each Loan as to completion of any on-site or off-site improvement and as to
disbursements of any funds escrowed for such purpose, which requirements
were to have been complied with on or before the Delivery Date, have been
complied with or any such funds so escrowed have not been released; no cash
deposits, letters of credit, pledged accounts, surety bonds or other cash
equivalent items have been or are held by or for the account of the
Representing Party to assure compliance by the Mortgagor with any of its
obligations under the Credit Lease except as otherwise set forth in any
borrower reserve agreement;
(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, and the related Credit Lease tenant, mortgagor or
guarantor, if any, has not been released, in whole or in part, from its
obligations under the related Credit Lease or Loan;
(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) except for one USPS Lease Loan, 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 or subservicer);
(18) in the case of a Loan with a Lease Enhancement Policy and/or an
Extended Amortization Policy and/or residual value insurance policy, the
entire premium has been paid in full for each such policy, such policies
are each in full force and effect, and the legal, valid and binding
obligation of the insurer thereunder, 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);
(19) neither it nor any other party has any obligation to make
supplemental payments on any Loan in addition to those made by the related
borrower (other than (a) the obligations of the applicable Credit Lease
tenant under the related Credit Lease, and (b) two USPS Lease Loans, with
respect to which there are additional obligors), no Loan contains any
provisions whereby payments may be made, in whole or in part, by any source
other than the borrower (other than from the monthly rental payments, by
the applicable Credit Lease tenant under the related Credit Lease and from
the applicable borrower reserve fund);
(20) each Mortgaged Property is subject to a Credit Lease, and such
Credit Lease is in full force and effect, and is a legal, valid, binding
and enforceable agreement of the related tenant, except as such
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enforcement may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally, and general principles of
equity, and to the best of its knowledge, no default by the borrower or the
tenant has occurred under such Credit Lease and there is no existing
condition which, but for the passage of time or the giving of notice, or
both, would result in a default under the terms of such Credit Lease;
(21) each Mortgage File contains an Assignment of Leases, either as a
separate instrument or incorporated into the related Mortgage, which
creates a valid, perfected and enforceable lien, in any leases, including
the Credit Lease (except as such enforcement may be limited by bankruptcy
or other laws affecting creditor's rights generally, or by the application
of general principles of equity), and it has the full right to assign to
the Trustee such Assignment of Leases and the lien created thereby no
person other than the borrower owns any interest in any payments due under
the related Credit Leases;
(22) except with respect to the USPS Credit Leases and the Isaquah Loan,
which is not subordinate to the Mortgage but under which the borrower has
delivered a non-disturbance agreement, each Credit Lease is subordinate to
the related Mortgage subject to the terms and conditions of a
subordination, non-disturbance and attornment agreement between the lender
and the applicable tenant (except in the case of the Middlesex Loan where
such subordination and non-disturbance terms are contained in the
Mortgage); any subleases entered into by such tenant will be subject and
subordinate to the Credit Lease and will not relieve the tenant of its
obligations under the Credit Lease; in the event that the Trustee acquires
title to a Mortgaged Property by foreclosure or otherwise, the lessor's
interest under the related Credit Lease is freely assignable by the Trustee
and its successors and assigns to any person without the consent of the
tenant, and, in the event the lessor's interest is so assigned, the tenant
will be obligated to recognize the assignee as lessor under such Credit
Lease;
(23) each Credit Lease has an original term ending on or after the date
the borrower is required to deposit its final payment on the related Loan
with the Trustee or Master Servicer, except with respect to three Corporate
Lease Loans which have the benefit of Extended Amortization Policies, and
most USPS Lease Loans which have final remaning balances not greater than
% of the Cut-off Date Balance;
(24) the monthly loan payment for each loan is less than or equal to the
basic rent due under the related Credit Lease, except with respect to three
Corporate Lease Loans which have the benefit of Extended Amortization
Policies, 18 Corporate Lease Loans which have the benefit of residual value
insurance policies and most USPS Lease Loans which have final remaining
balances not greater than % of the Cut-off Date Balance;
(25) to the best of its knowledge, no sale of any Mortgaged Property is
pending or contemplated by any borrower and, to the best of its knowledge,
there is no assignment of any Credit Lease by any tenant contemplated or
pending;
(26) with respect to the Corporate Lease Loans, each tenant has delivered
an estoppel letter and to the extent required to make the Credit Lease
subordinate to the Mortgage, a subordination, non-disturbance and
attornment agreement and each guarantor, if applicable, has delivered a
guarantor estoppel certificate except for the Wal-Mart Loan;
(27) each tenant has agreed, or in the case of the USPS Credit Lease, is
required pursuant to internal postal regulations, to notify the related
mortgagee of any default under the related Credit Lease and to provide such
mortgagee with additional time and opportunity to cure, which time in the
case of USPS Credit Leases is determined by USPS to be reasonable;
(28) except as disclosed in the mortgage loan purchase and sale
agreement, each Mortgaged Property is not subject to any lease other than
the related Credit Lease, no person has any possessory interest in, or
right to occupy, the related Mortgaged Property except under and pursuant
to such Credit Lease and the tenant under the related Credit Lease is in
occupancy of the Mortgaged Property;
(29) to its knowledge, no tenant under a Credit Lease (nor Credit Lease
guarantor, if applicable) has been released, in whole or in part, from its
obligations under the Credit Lease (or guaranty, as applicable);
(30) under the terms of the Credit Lease, the tenant is not permitted to
assign or sublet its interest or obligations under the Credit Lease unless
such tenant remains fully liable thereunder;
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(31) each tenant, whether under a Credit Lease or otherwise is required
to make all rental payments directly to the mortgagee, its successors and
assigns under the related Loan;
(32) to its knowledge with respect to any Credit Lease guaranteed by the
parent or affiliate of a tenant, each existing guaranty is in full force
and effect, and no default exists thereunder;
(33) each existing lease identified by CLF or Bedford as a Bond-Type
Lease is a bondable lease with no termination or rent abatement rights by
the tenant, except in connection with the exercise of a purchase option;
and the obligations of any tenant under the Bond-Type Leases, including,
but not limited to, the obligation of the tenant to pay fixed and
additional rent, are not affected by reason of any damage to or destruction
of any portion of the Mortgaged Property, any taking of the Mortgaged
Property or any part thereof by condemnation or otherwise, or any
prohibition, limitation, interruption, restriction, or interference of the
tenant's use, occupancy or enjoyment of the Mortgaged Property;
(34) each Credit Lease (other than the Bond-Type Leases), contains no
monetary obligations or obligations associated with managing, owning,
developing and operating the Mortgaged Property, including, but not limited
to, the costs associated with utilities, taxes, insurance, capital and
structural improvements and maintenance and repairs, on the part of the
borrower unless such obligations are fully reimbursable or paid by the
tenant, except with respect to the USPS Loans and Corporate Lease Loans;
(35) each Credit Lease (other than USPS Leases) contains customary and
enforceable provisions which render the rights and remedies of the lessor
thereunder adequate for the enforcement and satisfaction of the lessor's
rights thereunder;
(36) the obligations of the tenant under any Credit Lease, including, but
not limited to, the obligations of the tenant to pay fixed and additional
rent, are not affected by reason of any damage to or destruction of any
portion of the leased property or any taking of the leased property or any
part thereof by condemnation or otherwise, except for those Credit Leases
which are covered by Lease Enhancement Policies covering casualty and
condemnation;
(37) for the Loans, any anticipated maintenance, repair, or replacement
obligations imposed by any easement or reciprocal easement agreement either
is a direct obligation of the tenant or is an obligation or liability of
the borrower, reimbursable by the tenant;
(38) each Loan provides that the related Credit Lease cannot be modified
without the consent of the mortgagee thereunder, and, except for USPS Lease
Loans, the tenants have agreed that no amendment, modification, termination
or surrender of the Credit Lease (except as expressly permitted by the
Credit Lease) will be effective without the prior written consent of the
mortgagee or its successors and assigns, except for those Credit Leases for
which the related Loans include personal recourse guarantees to principals
of the mortgagor;
(39) no tenant can terminate a Credit Lease for any reason, prior to the
payment in full of or the payment of funds sufficient to pay in full (1)
the principal balance of the Loan, (2) all accrued and unpaid interest on
the Loan and (3) any other sums due and payable under the Loan, as of the
termination date; except for a termination due to a default by the related
borrower under the Credit Lease, or a termination due to casualty or
condemnation;
(40) each Credit Lease is in full force and effect and, to its actual
knowledge, no right or claim of rescission, offset, abatement, diminution,
defense or counterclaim to a Credit Lease has been asserted with respect
thereto, nor is there any existing condition which, but for the passage of
time or giving of notice, would result in a right or claim of rescission,
offset, abatement, diminution, defense or counterclaim under the terms of
any Credit Lease;
(41) Except for the Middlesex Loan and the USPS Lease Loans, each
borrower is an entity whose organizational documents provide that it is,
and at least so long as the loan is outstanding will continue to be, a
special purpose entity. For this purpose, "special purpose entity" means a
person, other than an individual, which is formed solely for the purpose of
owning and operating a single property--does not
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engage in any business unrelated to such property and the financing
thereof--does not have any assets other than those related to its interest
in the property or the financing thereof or any indebtedness other than as
permitted by the relating Mortgage; maintains its own books, records and
accounts, in each case which are separate and apart from the books, records
and accounts of any other person; conducts business in its own name and
uses separate stationery, invoices and checks; does not guarantee or assume
the debts or obligations of any other person; does not commingle its assets
or funds with those of any other person; transacts business with affiliates
on an arm's length basis pursuant to written agreements; and holds itself
out as being a legal entity; separate and apart from any other person. Each
entity's organizational documents provide that any dissolution and winding
up or insolvency filing for such entity requires the unanimous consent of
all partners or members, as applicable. Each entity's organizational
documents provide that they may not be amended with respect to the single
purpose entity (as defined above) requirements during the term of the Loan.
In addition, except for certain exceptions, each borrower or group of
affiliated businesses under USPS Lease Loans with an original aggregate
principal of at least $500,000, are entities who are "single purpose
entities" formed solely for the purpose of owning and operating a single
property--does not engage in any business unrelated to such property and
the financing thereof--does not have any assets other than those related to
its interest in the property or the financing thereof or any indebtedness
other than as permitted by the relating Mortgage;
(42) with respect to each Loan which is secured by a leasehold interest
in, but not by the related fee interest:
(a) The ground lease has been duly recorded and permits the interest
of the borrower to be encumbered by the related mortgage and does not
restrict the use of the related Mortgaged Property by such borrower,
its successors or assigns except in the case of two ground leases
related to two USPS Lease Loans in which the USPS Credit Lease is
restricted to a postal facility.
(b) Except in the case of 2 ground leases related to two USPS Loans,
the lessor under such ground lease has agreed in writing that the
ground lease may not be amended, modified, canceled or terminated
without the prior written consent of the originator and its assigns and
that any such action without such consent is not binding on the
originator, its successors or assigns.
(c) The ground lease has an original term (or an original term plus
one or more optional renewal terms, which, under all circumstances, may
be exercised, and will be enforceable, by the originator) that extends
not less than 10 years beyond the stated maturity of the related Loan.
(d) The ground lease is not subject to any liens or encumbrances
superior to, or of equal priority with, the Mortgage other than
permitted encumbrances and such ground lease is, and provides that it
shall remain prior to any mortgage or other lien upon the related fee
interest.
(e) Except for fixed, currently determinable rent increases, such
ground lease does not permit any increase in the amount of monthly
rental payment payable by the Credit Lease tenant thereunder during the
term of the Loan, and the related Loan's debt service coverage will not
be affected by any such rent increase.
(f) The ground lease is assignable to the originator under the
leasehold estate and its assigns without the consent of the ground
lessor thereunder.
(g) The ground lease is in full force and effect and, to the
applicable Loan Seller's actual knowledge after due inquiry, no default
has occurred, nor is there any existing condition which, but for the
passage of time or giving of notice, would result in a default under
the terms of the ground lease.
(h) Such ground lease requires the lessor to give notice of any
default by the Credit Lease tenant to the mortgagee; and such ground
lease further provides that no notice given thereunder is effective
against the mortgagee unless a copy has been given to the mortgagee.
(i) The mortgagee is permitted a reasonable opportunity to cure any
default under the ground lease which is curable after the receipt of
notice of any default before the ground lessor may terminate the ground
lease.
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(j) Under the terms of such ground lease and the related mortgage,
taken together, any related insurance proceeds and condemnation awards
(other than in respect of a total or substantially total taking) will
be applied either (A) to the repair or restoration of all or part of
the related Mortgaged Property, with the mortgagee or a trustee
appointed by it having the right to hold and disburse such proceeds as
repair or restoration progresses, or (B) to the payment of the
outstanding principal balance of the Loan, together with any accrued
interest therein.
(k) Under the terms of such ground lease and the related mortgage,
taken together, (a) any related condemnation award in respect of a
total or substantially total taking of the related Mortgaged Property
will be applied first to the payment of the outstanding principal
balance of the Loan, together with any accrued interest thereon, except
in cases where a different allocation would not be viewed as
commercially unreasonable by a prudent commercial mortgage lender.
(l) Except for ground leases related to USPS Loans, the ground lease
requires the lessor thereunder to enter into a new lease with the
lender upon termination of the ground lease for any reason, including
rejection of the ground lease in a bankruptcy proceeding;
In the mortgage loan purchase and sale 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 USPS Lease Loans, in the case of
Bedford and the Corporate 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.
If Bedford discovers or is notified of a breach of any of the foregoing
representations and warranties with respect to any USPS Lease Loan, or CLF
discovers or is notified of a breach of any of the foregoing representations
and warranties with respect to any Corporate Lease Loan and in any case such
breach materially and adversely affects the value of such Loan or the
interests of certificateholders or MBIA therein, then Bedford (if, but only
if, the affected mortgage loan is a USPS Lease Loan) or CLF (if, but only if,
the affected Loan is a Corporate 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 Bedford 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, Bedford 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 Bedford 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 Underwriter nor any other person will be obligated to
repurchase any affected Loan in connection with a breach of such
representations and warranties if either Bedford or CLF, as applicable,
defaults on its obligation to do so. Bedford and CLF will be the sole
Warranting Parties (as defined in the accompanying prospectus) in respect of
the Loans, with Bedford being the sole Warranting Party with respect to the
USPS Lease Loans and CLF being the sole Warranting Party with respect to the
Corporate Lease Loans. See "Description of the Pooling 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
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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. 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
Except with respect to three Corporate Lease Loans, each Credit Lease has a
primary term that expires substantially simultaneously with the scheduled
final maturity date of the related Loan. With respect to the three Corporate
Lease Loans, which represent 4.45% of the aggregate Cut-off Date Balance, each
such Corporate Lease Loan has the benefit of an Extended Amortization Policy
which pays an amount equal to the remaining monthly debt service payments on
the Corporate Lease Loan or pays an amount equal to the unpaid balance of the
Corporate 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.
In the case of 60 USPS Lease Loans, the final monthly rental payment due under
the Credit Lease is not sufficient to fully amortize such loans. See "Risk
Factors--Certain USPS Lease Loan Final Payments"
Except for 20 Corporate Lease Loans with substantial balloon payments and 18
USPS Lease Loans which mature one or two months prior to the full amortization
term, the remaining Loans are scheduled to be fully repaid from monthly rental
payments made over the primary term of the related Credit Lease and, with
respect to Corporate Lease Loans, a reserve fund intended to cover shorfalls
in interest under the terms of the loan. With respect to 18 Loans that are
underwritten with amortization periods that extend beyond the term of the
Credit Lease, a "residual value insurance" policy is in effect under which the
insurer is obligated to pay an amount equal to the full balloon payment if the
Mortgagor fails to make such payment under the Loan.
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, except
in the case of the USPS Lease Loans where each borrower has signed and
delivered to the USPS a power of attorney, pursuant to which it has directed
the Credit Lease tenant, during the primary term of each Credit Lease (except
in the case of the Middlesex Loan where payments are made by the borrower and
the tenant directly guarantees payments under the related note), 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 29 of
the Corporate 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 one
Corporate Lease Loan) 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 related to the
Corporate Lease Loans, 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.
Except as described above under "--Credit Lease Term", the amount of the
scheduled monthly rental payments payable by each Credit Lease tenant is equal
to or greater than the scheduled payment of all principal,
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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 or, in the case of
the USPS Credit Leases, the borrower (subject to reimbursement by the USPS in
all but one case for real property taxes but not assessments), must pay
(either directly to the taxing authority or to the borrower, as the case may
be) all real property taxes and, with four exceptions under the Corporate
Lease Loans, assessments levied or assessed against the respective Mortgaged
Property and, except for USPS Lease Loans, 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 or borrower, in
the case of the USPS Credit Leases, may contest any such taxes or assessments
relating to the Credit Lease, however, the Credit Lease tenant or borrower, in
the case of the USPS Credit Leases, may not take any action which would cause
or allow the institution of any foreclosure proceedings or similar actions
against the related Mortgaged Property.
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.
Estoppel Letters
The borrower, as landlord under a Credit Lease related to the Corporate
Lease Loans, has obtained from the related Credit Lease tenant an estoppel
letter with respect to each Credit Lease establishing, among other things,
that all required improvements and space required to be furnished by the
borrower 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. With respect to each USPS Credit Lease, Bedford has
obtained from the USPS either an estoppel questionnaire or letter stating,
among other things, that the USPS Credit Lease is in full force and effect
and, to the USPS's knowledge, there are no defaults by the borrower under the
USPS Credit Lease.
Insurance
Substantially all of the Corporate 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). For
all loans, 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 corporate 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
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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 sufficient debt-service coverage on the 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
generally required under the terms of its Loan to maintain with the Master
Servicer 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 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 related to a Corporate Lease Loan,
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 or pursuant to the
Credit Lease. The USPS Credit Leases do not provide specific remedies for
breach.
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 Corporate Lease Loan. The Credit Leases however, generally do not
provide for acceleration of the tenant's obligations as a remedy.
Credit Lease Tenant's Self-Help; Right of Offset
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.
In addition, although the Credit Lease tenants have been directed to make all
monthly rental payments directly to the Servicer, with respect to the
Corporate Lease Loans, 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. The borrower under the Corporate Lease Loan 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 Corporate Lease Loan
documents executed by the Credit Lease tenant generally 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 Corporate Lease Loan documents, the mortgagee will not
disturb the Credit Lease tenant's possession 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.
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With respect to the USPS Lease Loans, the Credit Leases provide that the
USPS may pay real estate taxes and maintenance costs that are the obligation
of the borrower under the related Credit Lease. The borrower is then required
to pay to the USPS on demand any such amounts paid by the USPS or the USPS may
deduct the amounts so due from rents. In addition, the procedures followed by
the USPS provide that if the holder of a first mortgage gives the USPS notice
of its interest, then such mortgagee is entitled to notice from the USPS of
any borrower defaults and a reasonable cure period determined by USPS to
remedy such defaults; provided, however, in the event of a foreclosure, the
USPS Credit Lease will not be subordinate to the related mortgage.
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 (including in the case of all of the USPS Credit Leases), 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. However, in the case of the USPS Credit Leases, no consent of the
borrower is required for alterations or construction of additional buildings,
and the USPS, as the Credit Lease tenant, does have the right to remove any
additional buildings it placed on the Mortgaged Property during the term of
the Credit Lease. 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
Thirty-four of the Credit Leases, which represent 58.16% 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 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.
136 of the Credit Leases, which represent 41.84% 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 or sub servicer in the case of the USPS Lease
Loans for deposit into the Borrower Reserve Fund, out of the monthly rental
payment and in accordance with a Borrower Reserve Agreement or, in the case of
the USPS Lease Loans, in other loan documents, certain monies to provide a
source of payment for the performance of these obligations. Such reserve
amounts have been determined on the basis of an engineer's estimate. 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 may encourage a borrower to perform necessary
maintenance, repair and replacement under the Credit Lease. First, as the
monthly rental payments amortize the Loan, the borrower's
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equity in the mortgaged property will increase. A borrower's default under the
Credit Lease will cause a default under the 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. However, the borrowers are generally single purpose entities with
limited assets and may have the ability to provide additional funds for such
purposes. 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 and
"The USPS Lease Program--Servicer Protective Actions" in Annex D of this
prospectus supplement.
Affirmative Lease Covenants in the Credit Leases include the following:
1. Repair After Casualty or Condemnation. In some Credit Leases
(including all of the USPS 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 some of 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, other than any such policy issued by Chubb, will cover rent
abatement during the restoration period, provided either the borrower or
the Master Servicer is restoring the mortgaged property. With respect to
those mortgaged properties covered by Chubb policies, the borrower is
required to maintain business interruption insurance and the failure to
perform borrower obligations results in personal recourse to the beneficial
owners of the borrower. 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 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 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, or in the case of the
USPS Credit Leases, environmental screens, from approved third party
providers with respect to each Mortgaged Property in connection with
origination of the Corporate Lease Loans. The environmental assessments
conducted with respect to the Credit Leases (other than the USPS Credit
Leases) 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
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case of the Corporate Lease Loans, in each case either one or all of the
following are mitigants to the above referenced environmental conditions:
(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 an operations and maintenance or other
response plan; 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. Corporate 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. Compliance 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. Under certain Credit Leases, the borrower
may have additional affirmative covenants, including the obligation to
comply with zoning requirements (with certain Credit Leases providing
Additional 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
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uses which could adversely affect the appearance or character of the
neighborhood. In the event of certain types of Mortgage Defaults in some
Corporate 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.
Borrower Obligations; USPS Credit Lease Tenant Rent Abatement and Lease
Termination Rights
Maintenance Obligations. The USPS Credit Leases for each related Mortgaged
Property each follow the general format utilized by the USPS in its 27,000
leased facilities throughout the United States. As a general matter, the USPS
Credit Lease forms vary only with respect to (i) the form of maintenance rider
attached, and (ii) the purchase option rider attached (if any). The borrowers'
obligations under the maintenance riders are of two types:
(1) the borrower has general maintenance responsibility, including but
not limited to maintaining the roof and structure, and for pest control; or
(2) the borrower is responsible for maintaining major mechanical elements
of the related Mortgaged Property, including roof, structure, HVAC,
parking, periodic painting and boilers, and all other maintenance
obligations are accepted by the USPS.
Bedford has underwritten all USPS Credit Leases such that rent in excess of
debt service is sufficient with reserve requirements structured to provide at
least 125% (and, on average, 150%) of the amount determined by an engineering
firm approved by Bedford of the anticipated costs of maintenance obligations
of the borrowers under the particular maintenance riders for each related USPS
Credit Lease.
Abatement/Termination Provisions. Several provisions within the form of USPS
Credit Lease may enable the USPS to cancel the USPS Credit Lease. In addition,
the USPS is expressly authorized to abate rent under various circumstances
hereinafter described.
(1) Casualty and Maintenance: If all or any portion of the premises is
damaged or destroyed by fire or other casualty, etc., the USPS may: (i)
terminate the related USPS Credit Lease if the related Mortgaged Property
becomes unfit for use and occupancy; (ii) require the borrower to repair or
rebuild the related Mortgaged Property, with an abatement of rent for any
period that such property or any portion thereof is unfit for use and
occupancy (which does not include unsuitability due to design, size or
location); or (iii) accomplish all repair necessary and deduct all such
costs plus administrative burden from future rents. The Lease Enhancement
Policy is designed to mitigate this risk.
(2) Warranty: The USPS Credit Leases provide for a one-year period
following completion of construction and acceptance by the USPS for the
USPS to bring claims of substandard equipment, workmanship and/or materials
within the related mortgaged premises. In the event that related borrower
fails to proceed promptly to the satisfaction of such warranty, the USPS
may have the work performed and deduct the cost thereof from future rental
payments. Such warranty has expired, and no claims remain unresolved, with
respect to 58 USPS Lease Loans. Such warranty will expire within 3 months
of the delivery date for 15 USPS Lease Loans with an aggregate Cut-off Date
Balance of $9,102,177, within 6 months of the delivery date for an
additional 13 USPS Lease Loans with an aggregate Cut-off Date Balance of
$7,047,596, within 9 months of the delivery date for 8 USPS Lease Loans
with an aggregate Cut-off Date Balance of $5,137,185 and with 12 months of
the delivery date for the remaining 2 USPS Lease Loans, with an aggregate
Cut-off Date Balance of $831,149.
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(3) Government-related Contractual Provisions: The USPS Credit Leases
provide for a termination right of the USPS in the event of the violation
by the related borrower of various federal statutes and acts, including the
equal opportunity statutes, the Clean Air Act, affirmative action statutes
for handicapped workers and Vietnam veterans, the Davis-Bacon Act, OSHA,
the Contract Work Hours and Safety Standards Act, acts regarding convict
labor and acts regarding drug-free workplaces. Although such federal
statutes and acts are included in the USPS Credit Leases, they would appear
to be applicable during the period of the construction of USPS facilities,
as opposed to the period during which such USPS facility is controlled by
the USPS during the term of the related USPS Credit Leases unless the
borrower is required to restore the property.
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 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;
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(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), 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);
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(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;
(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, the Trustee, MBIA 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 and
MBIA, as subrogee of the Class A certificateholders.
The "Directing Certificateholder" is the Controlling Class Certificateholder
selected by the Certificateholder or group of Certificateholders entitled to a
majority of the Voting Rights 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; provided further that unless an Insurer Default (as defined
herein) has occurred or is continuing, MBIA will be deemed selected as
Directing Certificateholder in any event when the Class A Certificates
determine 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);
provided, however, that for the purposes of the definition of "Directing
Certificateholder," so long as no Insurer Default has occurred and is
continuing, MBIA will be deemed to be a Controlling Class Certificateholder in
the event that the Class A, Class B or Class C would otherwise be the
Controlling Class.
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 F
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.
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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 "Description of the Pooling Agreements," for additional
important information 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 June 30, 1999, Midland was responsible for the servicing of
approximately 15,305 commercial and multifamily loans with a principal balance
of approximately $40.79 billion. The collateral for these loans is located in
all 50 states, Puerto Rico and the District of Columbia. Approximately 10,091
loans with a total principal balance of approximately $31.03 billion pertain
to commercial and multifamily mortgage-backed securities. The portfolio
includes 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 also services newly-originated loans and loans acquired in the
secondary market for 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 Underwriters 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 USPS Lease Loans
are currently being primarily serviced by ORIX Real Estate Capital Markets,
LLC ("ORIX"), which will become the Sub-Servicer 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
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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 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 which shall be 0.17% (including a sub-servicer fee rate of
0.09%) for each USPS Lease Loan and a per annum rate of 0.10% for each
Corporate 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 (subject to the Sub-Servicing
Agreement with ORIX) and the Special 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, extension fees, beneficiary statement charges
and similar fees and charges, and assumption and assignment 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 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 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.
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% for
each Corporate Lease Loan and a per annum rate of 0.75% for each USPS Lease
Loan. A workout
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fee (the "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% for
each Corporate Lease Loan and a per annum rate of 1.5% for each USPS Lease
Loan to, each collection of interest 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
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% for each Corporate Lease
Loan and a per annum rate of 1.5% for each USPS Lease Loan to, the related
payment or proceeds. 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 REO accounts maintained by it 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 USPS Lease 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, extension fees 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 Corporate 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 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
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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, 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, the Trustee and the Fiscal Agent
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, the Trustee or the Fiscal Agent, 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 and MBIA (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, the Trustee and the Fiscal Agent are each entitled to receive
interest at the Reimbursement Rate on Servicing Advances made thereby. See
"Description of the Pooling Agreements--Certificate Account" and "--Servicing
Compensation and Payment of Expenses" in the accompanying prospectus and
"Description of the Certificates--Advances" in this prospectus supplement.
Events of Default
An "Event of Default" with respect to the Master Servicer or Special
Servicer under the Pooling Agreement will include, among others, the following
events:
(1) any failure by the Master Servicer to deposit into the Certificate
Account, or any failure on the part of the Special Servicer to deposit into
or remit to the Master Servicer for deposit into, the Certificate Account
any payment required to be deposited by such party under the terms of the
Pooling Agreement, which failure continues unremedied for 2 Business Days
following the date such payment is due;
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(2) any failure on the part of the Master Servicer or the Special
Servicer duly to observe or perform in any material respect any other of
the duties, covenants or agreements on the part of such Servicer contained
in the Pooling Agreement which continues unremedied for a period of 30 days
after the date on which notice shall have been given by the Depositor or
the Trustee, or to the applicable Servicer by holders of Certificates
entitled to at least 25% of the Voting Rights;
(3) any breach of the representations and warranties of such Servicer in
the Pooling Agreement that materially and adversely affects the interest of
any holder of any Class of Certificates and that continues unremedied for a
period of 30 days after notice shall have been given to the applicable
Servicer by the Depositor or the Trustee, or to the applicable Servicer by
holders of Certificates entitled to at least 25% of the Voting Rights;
(4) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain actions by or on
behalf of such Servicer indicating its insolvency or inability to pay its
obligations;
(5) the Trustee shall have received written notice from Moody's that the
continuation of the Master Servicer or the Special Servicer in such
capacity would result in the downgrade, qualification or withdrawal of any
rating then assigned by that Rating Agency to any class of Certificates;
(6) the Master Servicer, the Special Servicer is removed from S&P's list
of approved master servicers or special servicers, as applicable, and the
then-current ratings assigned to any Class of Certificates by S&P are
downgraded, qualified or withdrawn (including, without limitation,
placement on negative credit watch) in connection with such removal.
Rights Upon Event of Default
If an Event of Default described above with respect to the Master Servicer
or the Special Servicer (in either case, the "Defaulting Party") has occurred,
and be continuing, then, and in each and every such case, so long as the Event
of Default shall not have been remedied, the Depositor or the Trustee may, and
at the written direction of the holders of Certificates entitled to at least
51% of the Voting Rights shall, terminate, by notice in writing to the
Defaulting Party (with a copy of such notice to each other party hereto), all
of the rights and obligations of the Defaulting Party under this Agreement
(provided, however, that the Defaulting Party each will, if terminated as a
result of an Event of Default, continue to be obligated for or entitled to
receive all amounts accrued or owing by or to it under the Pooling Agreement
on or prior to the date of such termination, whether in respect of Advances or
otherwise). The Trustee shall act as successor servicer immediately and shall
use its best efforts to either satisfy the conditions specified in the Pooling
Agreement or transfer the duties of the Defaulting Party to a successor
servicer who has satisfied such conditions.
If the Master Servicer is terminated solely on the basis of an Event of
Default described in clause (4) of the definition thereof and the terminated
Master Servicer provides the Trustee appropriate "request for proposal"
materials, then the Trustee will solicit good faith bids for the right to
service the Loans from at least three persons (subject to approval by MBIA)
that are qualified to act as servicers under the Pooling Agreement as to whom
each Rating Agency has delivered written confirmation that the appointment of
such person as successor servicer would not result in the downgrade,
modification or withdrawal of its rating of any class of Certificates (any
such person so qualified, a "Qualified Bidder") or, if three Qualified Bidders
cannot be located, then from as many persons as the Trustee can determine are
Qualified Bidders (subject to approval by MBIA). The Trustee will select the
Qualified Bidder that makes the highest cash bid to act as successor servicer
(the "Successful Bidder"). The Trustee will direct the Successful Bidder to
enter into the Pooling Agreement as successor Servicer pursuant to the terms
thereof. Upon the assignment and acceptance of the servicing rights under the
Pooling Agreement by the Successful Bidder, the Trustee will remit to the
terminated Master Servicer the amount of such cash bid received from the
Successful Bidder (net of out-of-pocket expenses incurred in connection with
obtaining such bid and transferring servicing). If a Successful Bidder has not
entered into the Pooling Agreement as successor servicer within a specified
period of time, the Trustee may select another successor to act as Master
Servicer under the Pooling Agreement.
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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, MBIA 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. In rendering its
report such firm may rely, as to matters relating to the direct servicing of
securitized commercial mortgage loans by Sub-Servicers, upon comparable
reports of firms of independent certified public accountants rendered on the
basis of examinations conducted in accordance with the same standards or in
accordance with the Uniform Single Attestation Program for Mortgage Bankers
(in each case rendered within one year of such report) with respect to those
Sub-Servicers.
The Agreement also requires each of the Master Servicer and the Special
Servicer to deliver to the Trustee, MBIA 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 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 and MBIA as subrogee of
the Class A certificateholders on a present value basis than would
liquidation as certified to the Trustee in an officer's certificate;
provided that the interest rate on any Loan may not be reduced below the
lesser of the original rate of interest on the Loan and the highest rate of
interest borne by any 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
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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 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.
All modifications, waivers and amendments entered into in respect of a Loan
are to be in writing. The Special Servicer must deliver to the Trustee for
deposit in the Loan File (with a copy to MBIA), an original counterpart of the
agreement relating to each such modification, waiver or amendment agreed to
thereby, promptly following the execution thereof.
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
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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 "Description of the Pooling 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 Corporate 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 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. However, the Class A Certificateholders
are protected from such nonpayment by the MBIA policy.
Furthermore, if a 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
Loan exceed 60% of the Anticipated Liquidation Value with respect to such
Loan, (2) the Special Servicer has received the prior written consent of the
Directing Certificateholder, (3) any Servicing Advance with respect to such
Loan is deemed to be nonrecoverable or (4) the original scheduled maturity
date of such 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 Loan. The foregoing prohibition in no event prevents
foreclosure
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in the event of a default in the 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.
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 must 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. The independent contractor generally will not be
permitted to perform construction (including renovation) on a foreclosed
property unless such construction was at least 10% complete at the time
default on the related Loan became imminent.
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 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, 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--Taxes that May Be Imposed on the REMIC Pool--
Prohibited Transactions" 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
Corporate Lease Loans, the Master Servicer is also
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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) and deliver (or cause to be delivered) to
the Trustee and MBIA 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 (or, so long as no Insurer Default has occurred and is
continuing, MBIA if Class A is 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.
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 and the
Fiscal Agent. The Certificates will consist of 12 classes to be designated as:
(i) the Class A-1, Class A-2, Class A-3 and Class A-4 Certificates
(collectively, the "Class A Certificates"); (ii) the Class B Certificates, the
Class C Certificates, the Class D Certificates, the Class E Certificates and
the Class F 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 A-1, Class A-2, Class A-3 and Class A-4
Certificates (collectively, the "Offered Certificates") are offered hereby.
The Class X, Class B, Class C, Class D, Class E and Class F Certificates and
the Residual Certificates (collectively, the "Private Certificates") have not
been registered under the Securities Act and are not offered
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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) the trust's interest in the MBIA Policy,
(3) certain accounts including the Certificate Account and the Distribution
Account, (4) the right to draw upon amounts in the Expense Reserve Fund, (5)
the trust's interest in the Lease Enhancement Policies and the Extended
Amortization Policies, and (6) 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. 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 the
accompanying 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 holders
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.
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.
Net Proceeds Account. Distributions of principal are determined in a way
intended to provide limited protection to the Class A Certificates against
early return of principal due to defaults until the first Distribution Date
(the "Net Proceeds Release Date") on which all remaining Class A Certificates
are paid in full, either rating
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agency shall have indicated that the ratings on the Class A Certificates would
be reduced due to the existence of the Net Proceeds Account or MBIA's rating
is reduced. Prior to the Net Proceeds Release Date, net liquidation proceeds
received with respect to any Loan will be deposited in the Net Proceeds
Account held by the Trustee for the benefit of MBIA. Funds in the Net Proceeds
Account will be invested at the direction of MBIA in permitted investments
specified in the Pooling Agreement. On each subsequent Distribution Date prior
to the Net Proceeds Release Date, MBIA will be required to pay into the
Collection Account, subject to immediate reimbursement from the Net Proceeds
Account, assumed principal payments equal to the scheduled principal payment
which would have been due during the preceding Collection Period had such Loan
not defaulted, plus interest on a balance not to be less than zero (the "Net
Proceeds Accrual Balance" for such Loan) equal to such original net
liquidation proceeds deposited in the Net Proceeds Account, less cumulative
assumed principal payments made with respect thereto prior to such
Distribution Date. Interest will accrue on such amount at a weighted average
of the pass-through rates of Class A Certificates, weighted on the basis of
the difference, for each such Class, between the actual certificate balance of
each such class, and the balance that would have been outstanding had net
liquidation proceeds been immediately distributed. The obligations to make
such payments under the MBIA Policy will continue until the net liquidation
proceeds, deposited with respect to such Loan plus related reinvestment
proceeds have been depleted, which may result in payment of principal on the
Certificates which is less than or greater than the net liquidation proceeds
initially received depending on the reinvestment rate in respect of the Net
Proceeds. On the Net Proceeds Release Date, MBIA will be required to pay into
the Collection Account, subject to immediate reimbursement from the Net
Proceeds Account, an amount equal to the remaining balance in such account.
Available Distribution Amount. On each Distribution Date, the Trustee will
make distributions of principal and interest owed on the 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 that are 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, prior to the Net Proceeds Release Date,
recoveries of principal on liquidated loans to be deposited in the Net
Proceeds Account under the terms of the Pooling Agreement, premiums payable
under the MBIA Policy, including any overdue insurance premium plus accrued
interest thereon 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, plus
(c) draws to be made under the MBIA Policy in respect of net liquidation
proceeds as described under "--Net Proceeds Account" above, including without
limitation, the draw made on the Net Proceeds Release Date.
See "Description of the Pooling Agreements--Certificate Account" in the
accompanying prospectus.
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
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Servicer, Trustee and Fiscal Agent and premiums and costs payable to MBIA 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; provided, however, to the extent the
Available Distribution Amount, net of any draw on the MBIA policy from amounts
in the Net Proceeds Account, is insufficient to pay the Distributable
Certificate Interest due and payable to the Class A certificateholders, the
Trustee will draw on the MBIA Policy to pay such Distributable Certificate
Interest. In addition, to the extent any Class A Certificate would otherwise
remain outstanding after distributions on the Distribution Date in August
2018, the Trustee will draw on the MBIA Policy in an amount sufficient to pay
the remaining principal on such Certificates in full. 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, Class A-4 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;
(2) to reimburse MBIA for any claims previously paid by MBIA under the
MBIA Policy in respect of Distributable Certificate Interest and not
previously reimbursed and any accrued and unpaid interest thereon at the
rate provided in the Insurance Agreement;
(3) to pay principal first to the holders of the Class A-1 Certificates,
second to the Class A-2 Certificates, third to the Class A-3 Certificates,
and fourth to the Class A-4 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 other than any portion
thereof representing Voluntary Prepayments (as defined below);
(4) to pay principal to the holders of the Class A-1, Class A-2, Class A-
3 and Class A-4 Certificates, pro rata on the basis of their Certificate
Balances after distributions pursuant to (3) above, up to an amount equal
to the lesser of (a) the aggregate of such remaining Certificate Balances
and (b) the portion of the Principal Distribution Amount representing
Voluntary Prepayments;
(5) to reimburse the holders of the Class A-1, Class A-2, Class A-3 and
Class A-4 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;
(6) to reimburse MBIA for any claims previously paid by MBIA under the
MBIA Policy and not previously reimbursed and any accrued and unpaid
interest thereon at the rate provided in the Insurance Agreement; provided
that any reimbursement of principal pursuant to a draw on the Distribution
Date in August 2018 will be limited to the remaining Principal Distribution
Amount after taking account distributions pursuant to (3) and (4) above;
and
(7) 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 (3) 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.
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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 (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;
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(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;
and
(16) 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) and (14) 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.
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 % per annum, and 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 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 other
Classes of Sequential Pay Certificates will be as set forth in the Executive
Summary. The Pass-Through Rate for the Class X Certificates for any
Distribution Date is equal to the excess, if any, of (a) the WAC (adjusted to
reflect reductions in loan rates due to modifications) over (b) the weighted
average of the Pass-Through Rates of all Sequential Pay Certificates, adjusted
to reflect Certificate Balances that would have been outstanding had all net
liquidation proceeds been outstanding had all net liquidation proceeds been
distributed on the Distribution Date following the Collection Period of
receipt.
The "WAC" for any Distribution Date is the weighted average of the Net Loan
Rates for the loans, based on their respective Stated Principal Balances
thereof immediately prior to such Distribution Date.
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<PAGE>
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, the per annum rate at which
the monthly Trustee Fee is calculated and the per annum rate at which the
insurance premium payable to MBIA is 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 6.18% per annum to 8.00% per annum, with a weighted average
Net Loan Rate of % 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).
The "Certificate Balance" with respect to any class of Offered 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.
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
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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, except that
prior to a Net Recovery Release Event, Liquidation Proceeds included
pursuant to this paragraph (d) will be limited to the then current
principal draw under the MBIA Policy;
(e) on any Net Recovery Release Event the balance of funds in the Net
Proceeds Account not applied to current interest; and
(f) 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 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 25% to the holders of the Class X
Certificates whether or not they continue to be entitled to distribution of
interest, and 75% to the Class A-4 Certificates or, if the Class A-4
Certificates shall have been paid in full, to the next most senior class
remaining outstanding. 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 and Class A-4 Certificates.
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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 collectibility 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 October 1999
Distribution Date as an example):
<TABLE>
<C> <S>
September 16-October 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.
</TABLE>
<TABLE>
<C> <S>
October 14............................ Record Date. Distributions on the
Distribution Date are made to
certificateholders of record at the
close of business on this date.
</TABLE>
<TABLE>
<C> <S>
October 15............................ Determination Date. Subservicer with
respect to the USPS Lease Loans
delivers reports and remit payments
with respect to such Loans. 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. If
necessary, the Trustee notifies MBIA
of any draws in respect of the MBIA
Policy.
</TABLE>
<TABLE>
<C> <S>
October 19............................ Remittance Date, one Business Day
before Distribution Date. The Master
Servicer deposits in the Distribution
Account an amount equal to the
Available Distribution Amount for the
related Distribution Date.
</TABLE>
<TABLE>
<C> <S>
October 20............................ Distribution Date. The Trustee
withdraws funds from the Distribution
Account to be applied as described in
this prospectus supplement.
</TABLE>
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 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.
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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 May 2030, 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 well as premium payable to MBIA, as
having remained outstanding until such REO Property is liquidated. Among other
things, such 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, the Trustee and the Fiscal
Agent, as the case may be, will be required to make P&I Advances in respect of
such Loan, in all cases as if such Loan had remained outstanding.
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 and MBIA. 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 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
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<PAGE>
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 Trustee and the Fiscal Agent--Certain Matters Regarding
the Trustee" in this prospectus supplement and "Description of Pooling
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
"Description of the Pooling Agreements--Certain Matters Regarding the Master
Servicer 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--Taxes that May Be Imposed on the REMIC Pool--Prohibited
Transactions" 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 "Description of the Pooling Agreements--Realization Upon Defaulted
Mortgage Loans" in the accompanying prospectus), (vi) indemnification payments
and other costs and expenses payable to MBIA under the Insurance Agreement and
(vii) 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 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 a Required Appraisal Date (as defined below), 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 Loan.
In the event that an Appraisal Reduction Amount is determined with respect
to a Loan, (1) the amount advanced by the Master Servicer with respect to
delinquent payments of interest with respect to the related Loan will be
reduced as described under "--Advances" below, and (2) the Voting Rights of
certain classes will be reduced as described under "--Voting Rights" below.
A "Required Appraisal Date" will occur on 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").
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<PAGE>
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 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.
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.
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
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<PAGE>
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, along with the Special
Servicer for Specially Serviced Loans, 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 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. In the case of the USPS Lease Loans, such advances are
required only to cover costs in excess of the amounts in the related Borrower
Reserve Fund, and only for routine maintenance and other expenses which are of
the type taken into account in establishing the amount of such Borrower
Reserve Fund. The Expense Reserve Fund will provide an additional source of
funds for Advances. Advances made with respect to a Loan will be made first to
the extent of amounts on deposit in the Expense Reserve Fund and then by the
Master Servicer, the Special 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 Special 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
Special 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 Special 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 Special 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 Special 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 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, to the Depositor), MBIA and the Rating
Agencies setting forth such judgment or determination of nonrecoverability and
the procedure and considerations of the Master Servicer, the Special 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 Special 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
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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 Special 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 Corporate 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 Corporate Lease Loan, interest accrued on outstanding Advances
will result in a reduction in amounts payable on the Certificates.
Servicer Protective Actions
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 or the Special Servicer, as applicable, 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 or the Special Servicer, as
applicable, 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. In the case of the USPS Lease Loans, such advances are
required only to cover costs in excess of the amounts in the related Borrower
Reserve Fund, and only for routine maintenance and other expenses which are of
the type taken into account in establishing the amount of such Borrower
Reserve Fund. The performance of Servicer Protective Actions by the Master
Servicer or the Special Servicer, as applicable, 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 Loan to be a Specially Serviced Mortgage
Loan. In addition, the ability of the Special Servicer to foreclose on a 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.
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 Corporate 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 Special Servicer, the Trustee, the Fiscal Agent or
MBIA, as applicable, (2) to reimburse (to the extent funds are not available
therefor in the Expense Reserve
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Fund) the Fiscal Agent, the Trustee, the Master Servicer, the Special 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 "Description of the Pooling 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.
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 Corporate 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 or, in the
case of the USPS Lease Loans, in accordance with related loan documents,
entered into by the related borrower (which Borrower Reserve Agreement and
related loan documents 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 related borrower under
the loan documents. Unless otherwise provided in the related Borrower Reserve
Agreement or, in the case of the USPS Lease Loans, in accordance with related
loan documents, 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 or, in
the case of the USPS Lease Loans, in accordance with related loan documents.
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 all but 9 of the Corporate Lease Loans, 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 Corporate 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
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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, (2) to pay trust expenses, if any, (3) as an
additional source of funds for Advances with respect to 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 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 S&P 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 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. (S)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.
[CHART APPEARS HERE]
<TABLE>
<S><C>
Tenant
| 16th-15th
|
Rent Escrow
Account
(As Applicable)
| Determination Date
-------------------------------------------------------------------------------------------
| | | |
Expense --------------Certificate Account----------- Borrower Reserve Fund Borrower
Reserve Fund | | | (As Applicable) (As Applicable)
(when | | Remittance |
applicable) | | Date |
| | | MBIA, Trustee, Master Servicer
| Distribution Account ---------- & Special Servicer Fees,
(Draws and Advances) | | Expenses and Advances
| | Distribution (with interest)
MBIA, Master Servicer---- | Date
Trustee or Fiscal Agent |
|
Priority of
Payment
</TABLE>
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 and MBIA, 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
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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 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 draws made on the MBIA Policy in respect of the immediately preceding
Distribution Date; (xvii) 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 (xviii) 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
and MBIA on the third 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.
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(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.
(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 and MBIA,
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 December 31, 1999, with respect to each Mortgaged Property and
REO Property, an "Operating Statement Analysis Report" 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
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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 434." 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) 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 MBIA 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 MBIA or 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,
as amended, 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 MBIA,
Certificateholders,
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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 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. Prior to the occurrence of an Insurer Default
(as defined below), MBIA shall be entitled to vote 100% of the Voting Rights
of the Class A Certificates.
The Certificate Balance of each of the Sequential Pay Certificates will be
notionally reduced (solely for purposes of determining the Voting Rights of
the Sequential Pay Certificates) on any Distribution Date to the extent of any
Appraisal Reduction Amounts allocated to such class on such Distribution Date.
To the extent that the aggregate of the Appraisal Reduction Amounts for any
Distribution Date exceeds such Certificate Balance, such excess will be
applied to notionally reduce the Certificate Balance of the next most
subordinate class of Certificates on the next Distribution Date. Any such
reductions will be applied in the following order of priority: first, to the
Class F Certificates; second, to the Class E Certificates; third, to the Class
D Certificates; fourth, to the Class C Certificates; fifth, to the Class B
Certificates; sixth, to the Class A-4 Certificates; seventh, to the Class A-3
Certificates; eighth, to the Class A-2 Certificates; and finally, to the Class
A-1 Certificates; provided, however, in each case that no Certificate Balance
in respect of any such class may be notionally reduced below zero; and,
provided, further, the Certificate Balance in respect of any such class shall
be reduced solely for purposes of determining the Voting Rights of the
Sequential Pay Certificates.
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 and the Special Servicer under the Pooling
Agreement. Such
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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 Bank National Association, 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) for each
Advance made by it in the same manner and to the same extent as, but prior to,
the Master Servicer. The corporate trust office of the Trustee is located at
135 South LaSalle Street, 16th Floor, Chicago, Illinois 60674, Attention:
Asset Backed Securities Trust Services Group--Bear Stearns Commercial Mortgage
Securities Inc., Series 1999-CLF1.
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 Bank National Association is rated "AA-" by S&P and "Aa3" by
Moody's.
Pursuant to the Pooling Agreement, the Trustee will be entitled to a monthly
fee (the "Trustee Fee") 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 "Description of the Pooling Agreements--Certain Matters Regarding
the Master Servicer 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.
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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, Suite 1625,
Chicago, Illinois 60674, Attention: Asset Backed Securities Trust Services
Group--Bear Stearns Commercial Mortgage Securities, Inc., Series 1999-CLF1.
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.
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. The executive office
of Lexington Insurance Co. is located at 200 State Street, Boston,
Massachusetts 02109. Chubb Custom Insurance Co., a capital stock insurance
company and a wholly-owned subsidiary of the Chubb Corporation. The
Enhancement Insurer's financial strength has been rated "AAA" by S&P. The
executive office of Chubb Custom Insurance Co. is located at 15 Mountain View
Road, Warren, New Jersey 07061.
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. The executive office of Columbia Insurance Company is located at 3024
Harney Street, Omaha, Nebraska 68131.
THE RESIDUAL VALUE INSURERS
Financial Structures Limited ("FSL") and RVI America Insurance Co. ("RVI";
together with FSL, the "Residual Value Insurers") are capital stock insurance
companies. The obligations of FSL under the residual value policies are
reinsured by Royal Indemnity Co., with a financial strength rating of "AA-"
from S&P. RVI's financial strength rating is "A" from S&P.
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DESCRIPTION OF THE MBIA POLICY
MBIA, in consideration of the payment of the Premium (as defined below), and
subject to the terms of the MBIA Policy, will unconditionally and irrevocably
guarantee to the Trustee for the benefit of the Class A certificateholders,
the Insured Obligations (as defined below). Payments by MBIA under the MBIA
Policy will be made on a Scheduled Payment Date (as defined below) following
presentation of an appropriate claim therefor by the Trustee, in the amount of
a Scheduled Payment (as defined below). MBIA's obligations with respect to a
particular Insured Obligation will be discharged to the extent funds equal to
the applicable Scheduled Payment are received by the Trustee, whether or not
such funds are properly distributed to the certificateholders. Insurance
Payments (as defined below) will be made only at the time set forth in the
MBIA Policy and no accelerated Insurance Payments will be made. In addition,
the MBIA Policy will cover any amounts distributed as required to be
distributed to holders of the Class A Certificates that is sought to be
recovered as a voidable preference by a trustee in bankruptcy of the Depositor
pursuant to the federal Bankruptcy Code in accordance with a final,
nonappealable order of a court having competent jurisdiction.
MBIA will pay any amount payable under the MBIA Policy no later than 2:00
p.m. New York City time, on the second business day following receipt on a
business day by MBIA of a Notice (as defined below), which Notice may be
transmitted by delivery of the original Notice or facsimile transmission
thereof with simultaneous telephonic confirmation and delivery as soon as
reasonably practicable thereafter of original Notice to MBIA and will be
effective when received; provided that, if such Notice is received after 12:00
noon, New York City time, on such Business Day, it will be deemed to have been
received on the next Business Day. If any such Notice received by MBIA is not
in proper form, or if the information given by the Trustee in the Notice is
incomplete for the purpose of making claims under the MBIA Policy, such Notice
will be deemed not to have been received by MBIA for the purposes of this
paragraph, and MBIA will promptly so advise the Trustee, which may submit an
amended Notice to MBIA.
Insurance Payments made under the MBIA Policy unless otherwise stated in the
MBIA Policy will be disbursed by MBIA to the Trustee in immediately available
funds in the amount of the Scheduled Payment.
Subject to the terms of the Pooling Agreement and the insurance and
reimbursement agreement, MBIA will be entitled to be reimbursed for the
payments made under the MBIA Policy at the times and in the priority of
payments set forth in the Pooling Agreement. The reimbursement obligation will
include interest on the amount of any outstanding amount of Insurance Payments
from the date of payment by MBIA until reimbursed at a specified per annum
rate (the "Advance Rate").
In the event the rating of any of the Class A Certificates shall have been
reduced below "AAA/Aaa" by either Rating Agency or such Certificates shall
have been put on credit watch based on a proposed downgrade, the Trustee,
after consultation with a majority of Class A Certificateholders, will be
entitled to terminate the MBIA Policy.
As used under "Description of the MBIA Policy" only, the following terms
have the following meanings:
"Insured Obligations" means (i) the timely payment to the holders of the
Class A certificates on each Distribution Date of the unpaid Distributable
Certificate Interest and the Principal Distribution Amount for each class of
Class A certificates on such Distribution Date, (ii) the payment on the
Distribution Date in August 2018 of the remaining Certificate Balance of all
Class A Certificates and (iii) the timely payment to Class A
Certificateholders of scheduled principal payments, to the extent of funds
available therefor from the Net Proceeds Account.
"Insurance Payments" means the aggregate payments made by MBIA under the
MBIA Policy.
"Insurer Default" means the occurrence of any of the following events:
(a) the failure of MBIA to pay when, as and in the amounts required, any
amount payable under the MBIA Policy and the continuation of such failure
unremedied for two Business Days; or
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(b) (i) MBIA shall commence any case, proceeding or other action (A)
under the federal Bankruptcy Code or any other existing or future
insolvency law seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts or
(B) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets, or MBIA
shall make a general assignment for the benefit of its creditors or (ii)
there shall be commenced against MBIA any case, proceeding or other action
of a nature referred to in clause (i) above which shall not have been
dismissed, stayed or bonded pending appeal within 60 days from the entry
thereof.
"Notice" means a notice for payment executed by Trustee and in the form
attached to the MBIA Policy to be presented to MBIA at MBIA's office on or
after any Determination Date.
"Premium" means the initial premium payable to MBIA on the date the MBIA
Policy is issued and the periodic premium payable to MBIA from time to time
thereafter, pursuant to a separate letter agreement between the Depositor and
MBIA.
"Scheduled Payment" means (i) with respect to any Distribution Date, the
unpaid Distributable Certificate Interest for each class of Class A
certificates on such Distribution Date, (ii) the principal payable on such
Class A Certificates in the amount available therefor from the Net Proceeds
Account, and (iii) to the extent such Distribution Date in August 2018, a
remaining Certificate Balance of such Class A Certificate.
"Scheduled Payment Date" means any Distribution Date or the Rated Final
Distribution Date, in each case without regard to any amendment, modification,
waiver or consent made after the Closing Date without the prior written
consent of MBIA. If any Scheduled Payment Date is not a Business Day, then the
Scheduled Payment Date that would otherwise have fallen on such day will be
deemed to mean the next succeeding Business Day.
Any notice under the MBIA Policy or service of process on MBIA may be made
at 113 King Street, Armonk, New York 10504, Attention: Insured Portfolio
Management, or such other address as MBIA shall specify in writing to the
Trustee.
The MBIA Policy will be issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.
The MBIA Policy is irrevocable and not cancelable for any reason (including
nonpayment of Premium) and may not be modified, altered, amended or endorsed
by MBIA. The Premium on the MBIA Policy is not refundable for any reason,
including payment, or provision being made for payment.
THE CERTIFICATE INSURER
MBIA
MBIA Insurance Corporation ("MBIA"), the insurer, is the principal operating
subsidiary of MBIA Inc., a New York Stock Exchange listed company (the
"Company"). The Company is not obligated to pay the debts of or claims against
MBIA. MBIA is domiciled in the State of New York and licensed to do business
in and subject to regulation under the laws of all 50 states, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, the Virgin Islands of the United States and the Territory of
Guam. MBIA has two European branches, one in the Republic of France and the
other in the Kingdom of Spain. New York has laws prescribing minimum capital
requirements, limiting classes and concentrations of investments and requiring
the approval of policy rates and forms. State laws also regulate the amount of
both the aggregate and individual risks that may be insured, the payment of
dividends by MBIA, changes in control and transactions among affiliates.
Additionally, MBIA is required to maintain contingency reserves on its
liabilities in certain amounts and for certain periods of time.
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MBIA does not accept any responsibility for the accuracy or completeness of
this prospectus supplement or any information or disclosure contained in, or
omitted from, this prospectus supplement, other than with respect to the
accuracy of the information regarding the MBIA insurance policy and MBIA set
forth under the heading "The Certificate Insurer." Additionally, MBIA makes no
representation regarding the Certificates or the advisability of investing in
the Certificates.
The policy issued by MBIA as insurer is not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York Insurance Law.
MBIA Financial Information
The consolidated financial statements of MBIA, a wholly owned subsidiary of
the Company, and its subsidiaries as of December 31, 1998 and December 31,
1997 and for each of the three years in the period ended December 31, 1998,
prepared in accordance with generally accepted accounting principles ("GAAP"),
included in the Annual Report on Form 10-K of the Company for the year ended
December 31, 1998, and the consolidated financial statements of MBIA and its
subsidiaries as of March 31, 1999 and for the three month periods ended March
31, 1999 and March 31, 1998 included in the Quarterly Report on Form 10-Q of
the Company for the period ended March 31, 1999 are hereby incorporated by
reference into this prospectus supplement and shall be deemed to be a part of
this prospectus supplement. Any statement contained in a document incorporated
by reference in this prospectus supplement shall be modified or superseded for
purposes of this prospectus supplement to the extent that a statement
contained in this prospectus supplement or in any other subsequently filed
document which also is incorporated by reference in this prospectus supplement
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus supplement.
All financial statements of MBIA and its subsidiaries included in documents
filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
prospectus supplement and prior to the termination of the offering of the
notes shall be deemed to be incorporated by reference into this prospectus
supplement and to be a part of this prospectus supplement form the respective
dates of filing such documents.
The tables below present selected financial information of MBIA determined
in accordance with statutory accounting practices prescribed or permitted by
insurance regulatory authorities ("SAP") and GAAP.
<TABLE>
<CAPTION>
SAP
--------------------------------
December 31, 1998 March 31, 1999
----------------- --------------
(Audited) (Unaudited)
(in millions)
<S> <C> <C>
Admitted Assets $6,521 $6,742
Liabilities 4,231 4,412
Capital and Surplus 2,290 2,330
<CAPTION>
GAAP
--------------------------------
December 31, 1998 March 31, 1999
----------------- --------------
(Audited) (Unaudited)
(in millions)
<S> <C> <C>
Assets $7,488 $7,625
Liabilities 3,211 3,370
Shareholder's Equity 4,277 4,255
</TABLE>
Where You Can Obtain Additional Information About MBIA
Copies of the financial statements of MBIA incorporated by reference in this
prospectus supplement and copies of MBIA's 1998 year-end audited financial
statements prepared in accordance with SAP are available, without charge, from
MBIA. The address of MBIA is 113 King Street, Armonk, New York, 10504. The
telephone number of MBIA is (914) 273-4545.
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Year 2000 Readiness Disclosure
The Company is actively managing a high-priority Year 2000 ("Y2K") program.
The Company has established an independent Y2K testing lab in its Armonk
headquarters, with a committee of business unit managers overseeing the
project. The Company has a budget of $1.13 million for its 1998-2000 Y2K
efforts. Expenditures are proceeding as anticipated, and the company does not
expect the project budget to materially exceed this amount. The Company has
initiated a comprehensive Y2K plan that includes assessment, remediation,
testing and contingency planning. This plan covers "mission critical"
internally developed systems, vendor software, hardware and certain third-
party entities through which the Company conducts its business. Testing to
date indicates that functions critical to the financial guarantee business,
both domestic and international, were Y2K-ready as of December 31, 1998.
Additional testing will continue throughout 1999.
Financial Strength Ratings of MBIA
Moody's Investors Service, Inc., rates the financial strength of MBIA "Aaa."
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. rates the financial strength of MBIA "AAA."
Fitch IBCA, Inc. (formerly known as Fitch Investors Service, L.P.) rates the
financial strength of MBIA "AAA."
Each rating of MBIA should be evaluated independently. The ratings reflect
the respective rating agency's current assessment of the creditworthiness of
MBIA and its ability to pay claims on its policies of insurance. Any further
explanation as to the significance of the above ratings may be obtained only
from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Certificates, and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the
Certificates. MBIA does not guaranty the market price of the Certificates nor
does it guaranty that the ratings on the Certificates will not be revised or
withdrawn.
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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 the Class A-1 and Class A-2 Certificates, but varies with changes in
the weighted average net loan rate, in the case of the Class A-3, Class
A-4, Class X, Class B, Class C, Class D and Class E Certificates);
. the rate and timing of principal payments (including principal
prepayments) and other principal collections on or in respect of the
Loans (including defaulted loans) and the extent to which such amounts
are to be applied or otherwise result in reduction of the Certificate
Balance 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, to the extent
not covered by the MBIA policy or other insurance policies, are
allocable to or otherwise result in the nonpayment or deferred payment
of interest on, or reduction of the Certificate Balance 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.
Pass-Through Rates. The pass-through rates of the Class A-3, Class A-4,
Class B, Class C, Class D, Class E and Class F Certificates are rates based on
the weighted average net loan rate on the Loans. Accordingly, such pass-
through rates may be adversely affected by disproportionate principal payments
(including prepayments) of Loans with higher interest rates.
Rate and Timing of Principal Payments. The yield to holders of any class of
Certificates purchased at a discount or premium will be affected by the rate
and timing of reductions of the Certificate Balance 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.
Consequently, the rate and timing of reductions of the Certificate Balance of
each class of Certificates will depend on the rate and timing of principal
payments on or in respect of the Loans and the extent to which such principal
payments are applied to the Certificate Balance of such class. Principal
payments on the Loans 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
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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, except
that the Class A certificates are protected to a limited extent as described
herein from such acceleration by the MBIA Policy and use of the Net Proceeds
Account. Defaults on the Loans, particularly in the case of Balloon Loans at
or near their stated maturity dates, to the extent not covered by applicable
insurance policies, 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 "Description of the Pooling 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 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 of such
Certificates. An investor 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 Loans could result in an actual yield to such
investor that is lower than the anticipated yield and, in the case of a
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 principal balance of a 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. 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 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 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 extent not covered by the MBIA Policy,
to the Class A-1, Class A-2, Class A-3 and Class A-4 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.
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.
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<PAGE>
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 "Description of the Pooling 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.
Weighted Average Lives
The weighted average life of any Offered 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.
S-121
<PAGE>
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 "3%", "6%", "9%" and "12%" 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 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
$383,941,244, (ii) the Pass-Through Rate and the initial Certificate Balance
of each class of Offered Certificates are as described herein, (iii) the
scheduled Monthly Payments due on each Loan according to its amortization
schedule provided by its respective sellers, (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"), defeasance period (DEF), 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 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 Bedford 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 19th day of each month, commencing in August
1999, (xii) the Offered Certificates are settled on July 30, 1999 (the
"Settlement Date"), (xiii) for purposes of the Middlesex Loan, it was assumed
that the extension option was exercised, (xiv) Loans with a maturity date that
falls on other than a Due Date, the maturity date was deemed to occur on the
Due Date following such Maturity Date, and (xv) the Chase Loan performs
according to its current terms and the borrower does not exercise an extension
option. 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 and/or Class A-3, and/or Class A-4 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.
S-122
<PAGE>
Percentages of the Initial Certificate Balance of
the Class A-1 Certificates at the Specified CPRs
(Prepayments Locked Out through LOP, DEF and YMP, then the following CPR)
<TABLE>
<CAPTION>
Prepayment Assumption (CPR)
--------------------------------
Date 0% 3.00% 6.00% 9.00% 12.00%
- ---- --- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Initial........................................ 100 100 100 100 100
July 19, 2000.................................. 77 77 77 77 77
July 19, 2001.................................. 51 51 51 51 51
July 19, 2002.................................. 23 23 23 23 23
July 19, 2003.................................. 0 0 0 0 0
Average Life................................... 2.0 2.0 2.0 2.0 2.0
</TABLE>
S-123
<PAGE>
Percentages of the Initial Certificate Balance of
the Class A-2 Certificates at the Specified CPRs
(Prepayments Locked Out through LOP, DEF and YMP, then the following CPR)
<TABLE>
<CAPTION>
Prepayment Assumption
(CPR)
------------------------
Date 0% 3% 6% 9% 12%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial................................................ 100 100 100 100 100
July 19, 2000.......................................... 100 100 100 100 100
July 19, 2001.......................................... 100 100 100 100 100
July 19, 2002.......................................... 100 100 100 100 100
July 19, 2003.......................................... 91 91 91 91 91
July 19, 2004.......................................... 50 50 50 50 50
July 19, 2005.......................................... 6 6 6 6 6
July 19, 2006.......................................... 0 0 0 0 0
Average Life........................................... 5.00 5.00 5.00 5.00 5.00
</TABLE>
S-124
<PAGE>
Percentages of the Initial Certificate Balance of
the Class A-3 Certificates at the Specified CPRs
(Prepayments Locked Out through LOP, DEF and YMP, then the following CPR)
<TABLE>
<CAPTION>
Prepayment Assumption
(CPR)
------------------------
DATE 0% 3% 6% 9% 12%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial................................................ 100 100 100 100 100
July 19, 2000.......................................... 100 100 100 100 100
July 19, 2001.......................................... 100 100 100 100 100
July 19, 2002.......................................... 100 100 100 100 100
July 19, 2003.......................................... 100 100 100 100 100
July 19, 2004.......................................... 100 100 100 100 100
July 19, 2005.......................................... 100 100 100 100 100
July 19, 2006.......................................... 91 91 91 91 91
July 19, 2007.......................................... 79 79 79 79 78
July 19, 2008.......................................... 66 66 66 66 65
July 19, 2009.......................................... 52 52 52 52 51
July 19, 2010.......................................... 37 37 37 36 36
July 19, 2011.......................................... 21 20 20 20 20
July 19, 2012.......................................... 3 3 3 2 2
July 19, 2013.......................................... 0 0 0 0 0
Average Life........................................... 10.0 10.0 10.0 10.0 10.0
</TABLE>
S-125
<PAGE>
Percentages of the Initial Certificate Balance of the
Class A-4 Certificates at the Specified CPRs
(Prepayments Locked Out through LOP and YMP, then the following CPR)
<TABLE>
<CAPTION>
Prepayment Assumption
(CPR)
------------------------
DATE 0% 3% 6% 9% 12%
- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial................................................ 100 100 100 100 100
July 19, 2000.......................................... 100 100 100 100 100
July 19, 2001.......................................... 100 100 100 100 100
July 19, 2002.......................................... 100 100 100 100 100
July 19, 2003.......................................... 100 100 100 100 100
July 19, 2004.......................................... 100 100 100 100 100
July 19, 2005.......................................... 100 100 100 100 100
July 19, 2006.......................................... 100 100 100 100 100
July 19, 2007.......................................... 100 100 100 99 99
July 19, 2008.......................................... 100 100 99 99 99
July 19, 2009.......................................... 100 99 99 98 98
July 19, 2010.......................................... 100 99 99 98 97
July 19, 2011.......................................... 100 99 98 98 97
July 19, 2012.......................................... 100 99 98 97 97
July 19, 2013.......................................... 82 81 80 79 78
July 19, 2014.......................................... 68 67 67 66 65
July 19, 2015.......................................... 54 53 53 52 51
July 19, 2016.......................................... 39 38 38 37 37
July 19, 2017.......................................... 23 22 22 22 22
July 19, 2018.......................................... 2 2 2 2 2
July 19, 2019.......................................... 0 0 0 0 0
Average Life........................................... 16.2 16.1 16.1 16.0 16.0
</TABLE>
S-126
<PAGE>
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, O'Melveny
& Myers LLP, 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 A-4, Class X, Class B,
Class C, Class D, Class E, and Class F 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 not
constitute "loans . . . secured by an interest in real property which is . . .
residential real property" within the meanings of Section 7701(a)(19)(C)(v) of
the Code. Offered Certificates held by certain financial institutions will
constitute an "evidence of indebtedness" within the meaning of Code Section
582(c)(1).
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 A-4 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.
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.
S-127
<PAGE>
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
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--Federal Income Tax Consequences for REMIC Certificates" in the
accompanying prospectus.
CERTAIN ERISA CONSIDERATIONS
A fiduciary of a retirement plan or other employee benefit plan or
arrangement, including individual retirement accounts or annuities, Keogh
plans and collective investment funds, separate accounts and insurance company
general 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 (an
"ERISA Plan") or a governmental plan, as defined in Section 3(32) of ERISA,
that is subject to any federal, state or local law ("Similar Law") that is, to
a material extent, similar to Title I of ERISA or Section 4975 of the Code
(collectively with an ERISA Plan, 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 a Similar Law and
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<PAGE>
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 a 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 "Plan Asset
Regulations") defining the term "plan assets" for purposes of ERISA and the
Code. Under the Plan Asset 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 Plan
Asset 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 a Similar Law could arise if Offered Certificates are
acquired by a Plan with respect to which any such person is a Party in
Interest.
The DOL has granted to Bear, Stearns & Co. Inc. an individual prohibited
transaction exemption, PTE 90-33, 55 Fed. Reg. 21,461 (May 24, 1990) , as
amended by PTE 97-34, 62 Fed. Reg. 39,021 (July 21, 1997) (the "Exemption"),
from certain of the prohibited transaction provisions of Section 406 of ERISA
and the excise taxes imposed upon to Section 4975 of the Code, 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 that 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 S&P, Moody's, Duff & Phelps
Credit Rating Co. ("DCR") or Fitch IBCA, Inc. ("Fitch") Fourth, the Trustee
cannot be an affiliate of any other member of the "Restricted Group", which
consists of (1) the Depositor, (2) the Underwriters, (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 Offered 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
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<PAGE>
Class A Certificates that they be rated not lower than "AAA" by the Rating
Agencies, thus satisfying the third general condition as of the Closing Date.
In addition, as of the Closing Date, the fourth general condition set forth
above will be satisfied. 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 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 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 the Loans 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 an Offered Certificate, a fiduciary of a Plan should
itself confirm that (i) the Offered 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 a Similar Law. A
purchaser of an Offered 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.
S-130
<PAGE>
Because the characteristics of the Private Certificates do not meet the
requirements of the Exemption, the purchase and holding of the Private
Certificates by a Plan may result in prohibited transactions under ERISA, the
Code or a Similar Law. In no event may any Offered Private Certificate or any
interest therein be transferred to a Plan, unless the purchase and holding of
such Certificate or interest therein is exempt from the prohibited transaction
provisions of Section 406 of ERISA and the related excise tax provisions of
Section 4975 of the Code under Prohibited Transaction Class Exemption 95-60
("PTCE 95-60"), which provides an exemption for certain transactions involving
insurance company general accounts. Accordingly, each transferee of an offered
Private Certificate will be deemed to have represented to the Depositor, the
Underwriters, the Master Servicer and Special Servicer, the Trustee, any sub-
servicer and any borrower with respect to the Loans either (a) that it is
neither a Plan nor a person acting on behalf or using the assets of a Plan to
acquire the Offered Private Certificate, or (b) that it is an insurance
company using the assets of its general account under circumstances whereby
the purchase and holding of the offered Private Certificate, and the operation
of the Loan Pool, would be exempt from the prohibited transaction provisions
of ERISA and the Code under Sections I and III of PTCE 95-60.
Any Plan fiduciary considering whether to purchase and Offered Certificate
on behalf of a Plan should consult with its legal advisors regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment.
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.
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, regulatory
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.
Updating the information in the "Legal Investment" section of the
prospectus, National Credit Union Administration (the "NCUA") Letter to Credit
Unions Nos. 96 and 108 have been superseded by the NCUA's rules governing
investments by federal credit unions at 12 C.F.R. Part 703. Furthermore, the
Office of Thrift Supervision (the "OTS") has issued Thrift Bulletin 13a
(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. Finally, 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 (the
"FFIEC"), which has superseded the FFIEC's 1992 Policy Statement discussed in
the prospectus. The 1998 Policy Statement was adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of the Comptroller of the Currency 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.
S-131
<PAGE>
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and the Underwriters (the "Underwriting Agreement"), the
Offered Certificates will be purchased from the Depositor by the Underwriters
upon issuance.
Bear, Stearns & Co. Inc. 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 % of the initial aggregate Certificate Balance of the Offered
Certificates, plus accrued interest from July 15, 1999 on all the Offered
Certificates, before deducting expenses payable by the Depositor.
Each Underwriter has severally agreed in the Underwriting Agreement to
purchase one-third of the aggregate principal balance of each Class of Offered
Certificates.
Distribution of the Offered Certificates will be made by the Underwriters
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. The Underwriters 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 Underwriters. In connection with the
purchase and sale of the Offered Certificates, the Underwriters may be deemed
to have received compensation from the Depositor in the form of underwriting
discounts. The Underwriters and any dealers that participate with the
Underwriters 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 Underwriters that the
Underwriters presently intend to make a market in the Offered Certificates;
however, none of the Underwriters 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, or if it does
develop, that it will continue. See "Risk Factors--Risks Related to the
Certificates in this prospectus supplement and "Risk Factors--Secondary
Market" in the accompanying prospectus.
The Depositor has agreed to indemnify the Underwriters and each person, if
any, who controls each Underwriters within the meaning of Section 15 of the
Securities Act against, or make contributions to each Underwriters 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
Underwriters, and each person, if any, who controls the Depositor or the
Underwriters 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.
LEGAL MATTERS
Certain legal matters relating to the Offered Certificates will be passed
upon for the Depositor by O'Melveny & Myers LLP, New York, New York, and for
the Underwriters by Cadwalader, Wickersham & Taft, New York, New York.
S-132
<PAGE>
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>
S&P Moody's
--- -------
<S> <C> <C>
Class A-1...................................................... AAA Aaa
Class A-2...................................................... AAA Aaa
Class A-3...................................................... AAA Aaa
Class A-4...................................................... AAA Aaa
</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. Although MBIA has
guaranteed the timely payment of interest, the timely distribution of (subject
to the limitations described herein) scheduled principal and final payment of
principal no later than August 2018 on the Offered Certificates, the ratings
assigned to such certificates are not dependent on the benefit of the MBIA
Policy. 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. 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. 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.
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.
S-133
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
30/360 Basis....................................................... S-44
Accrued Certificate Interest....................................... S-93
ACMs............................................................... S-58
Act................................................................ S-50
Additional Termination or Abatement Rights......................... S-18
Additional Trust Fund Expenses..................................... S-98
Administrative Fee Rate............................................ S-94
Advance Rate....................................................... S-110
Advances........................................................... S-82
Affirmative Lease Covenants........................................ S-167
Anticipated Liquidation Value...................................... S-34
Appraisal Reduction Amount......................................... S-99
ASAP............................................................... S-106
Asset Status Report................................................ S-78
Assumed Final Distribution Date.................................... S-2
Assumed Monthly Payment............................................ S-95
Available Distribution Amount...................................... S-90
Balloon Loan....................................................... S-44
Balloon Payment.................................................... S-44
Bankruptcy Code.................................................... S-26
Bedford............................................................ S-28, 43
Bond-Type Leases................................................... S-18
Borrower Credit Lease Obligations.................................. S-34
Borrower Reserve Fund.............................................. S-19
Casualty or Condemnation Termination or Abatement Rights........... S-18
Certificate Balance................................................ S-94
Certificate Owner.................................................. S-89
Certificate Registrar.............................................. S-89
Certificates....................................................... S-89
Chubb.............................................................. S-29
Class A Certificates............................................... S-88
Class X Certificates............................................... S-89
CLF................................................................ S-28, 43, 60
Code............................................................... S-62
Collateral Substitution Deposit.................................... S-46
Company............................................................ S-112
Corrected Loan..................................................... S-78
Controlling Class.................................................. S-35, 79
Controlling Class Certificateholder................................ S-78
Corporate Lease Loans.............................................. S-8, 43
Credit Lease Assignment............................................ S-43
Credit Lease Default............................................... S-71
Credit Lease Termination Condition................................. S-77
Credit Leases...................................................... S-16
Cross-Collateralized Loans......................................... S-44
Cut-off Date....................................................... S-43
CVS................................................................ S-52
CVS Credit Leases.................................................. S-52
CVS Loans.......................................................... S-52
</TABLE>
S-134
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Default Interest....................................................... S-82
Defeasance Lock-Out Period............................................. S-46
Defeasance Option...................................................... S-46
Definitive Certificate................................................. S-89
Delinquent Loan Status Report.......................................... S-105
Directing Certificateholder............................................ S-34, 78
Distributable Certificate Interest..................................... S-93
Distribution Date Statement............................................ S-104
DOL.................................................................... S-124
Double Net Leases...................................................... S-19
DTC.................................................................... S-21, 89
Due Date............................................................... S-44
Earthquake Zones....................................................... S-29
Eckerd................................................................. S-55
Eckerd Credit Leases................................................... S-55
Eckerd Loans........................................................... S-55
Eligible Account....................................................... S-103
Enhancement Insurer.................................................... S-29
Excluded Class......................................................... S-95
Excluded Plan.......................................................... S-125
Exemption.............................................................. S-124
Extension Insurer...................................................... S-110
FIRREA................................................................. S-59
Flood Zone-A........................................................... S-30
Form 8-K............................................................... S-68
GAAP................................................................... S-112
Historical Loan Modification Report.................................... S-105
Historical Loss Report................................................. S-105
Home Depot............................................................. S-56
Home Depot Credit Lease................................................ S-56
Home Depot Loan........................................................ S-56
Insurance Payments..................................................... S-111
Insured Obligations.................................................... S-111
Insurer Default........................................................ S-111
Interested Person...................................................... S-86
J.C. Penney............................................................ S-55
Lease Enhancement Policy............................................... S-28
Leased Fee Value....................................................... S-28
Liquidation Fee........................................................ S-81
Liquidation Fee Rate................................................... S-81
Loan Pool.............................................................. S-15
Loan Rate.............................................................. S-44, 94
Loans.................................................................. S-43
Lock-out Period........................................................ S-45
Lock-Out Period........................................................ S-13
LOP.................................................................... S-117
MAI.................................................................... S-59
Maintenance Termination or Abatement Rights............................ S-18
Master Servicing Fee................................................... S-80
Master Servicing Fee Rate.............................................. S-80
Maturity Assumptions................................................... S-117
</TABLE>
S-135
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
MBIA................................................................... S-112
Midland................................................................ S-79
Modified Loan.......................................................... S-99
Monthly Loan Payment................................................... S-70
Monthly Payments....................................................... S-44
Moody's................................................................ S-2, 22
Mortgage............................................................... S-44
Mortgaged Property..................................................... S-44
Negative Lease Covenants............................................... S-167
Net Aggregate Prepayment Interest Shortfall............................ S-93
Net Loan Rate.......................................................... S-94
Net Proceeds Account................................................... S-15
Nonrecoverable Servicing Advance....................................... S-82
Note................................................................... S-44
Notice................................................................. S-111
NYSE................................................................... S-54
Offered Certificates................................................... S-12, 89
Operating Statement Analysis Report.................................... S-106
P&I Advance............................................................ S-16
Participants........................................................... S-89
Pass-Through Rate...................................................... S-93
PBM.................................................................... S-53
Permitted Encumbrances................................................. S-63
Plan Asset Regulation.................................................. S-124
Pooling Agreement...................................................... S-88
Premium................................................................ S-111
Prepayment Interest Excess............................................. S-80
Prepayment Interest Shortfall.......................................... S-81
Prepayment Premium..................................................... S-45
Prepayment Premium Period.............................................. S-45
Prepayment Premiums.................................................... S-13
Principal Distribution Amount.......................................... S-94
Private Certificates................................................... S-12, 89
PTCE 95-60............................................................. S-126
Purchase Price......................................................... S-62
Rated Final Distribution Date.......................................... S-2
Rating Agencies........................................................ S-2, 22
Realized Losses........................................................ S-97
Reimbursement Rate..................................................... S-100
Reinvestment Yield..................................................... S-96
Related Proceeds....................................................... S-82
Release Date........................................................... S-46
REMIC Administrator.................................................... S-109
REMIC Provisions....................................................... S-122
REMIC Regular Certificates............................................. S-89
REO Extension.......................................................... S-87
REO Property........................................................... S-77
REO Status Report...................................................... S-105
REO Tax................................................................ S-123
Required Appraisal Date................................................ S-98
Required Appraisal Loan................................................ S-98
</TABLE>
S-136
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Residual Certificates............................................... S-89
Restricted Group.................................................... S-124
Rite Aid............................................................ S-53
Rite Aid Credit Leases.............................................. S-53
Rite Aid Loans...................................................... S-53
Royal Ahold......................................................... S-51
Royal Ahold Credit Leases........................................... S-51
Royal Ahold Loans................................................... S-51
S&P................................................................. S-2, 22
SAP................................................................. S-113
Scheduled Payment................................................... S-111
Scheduled Payment Date.............................................. S-111
Senior Certificates................................................. S-91
Sequential Pay Certificates......................................... S-89
Servicer Reports.................................................... S-105
Servicer Reserve Amount............................................. S-102
Servicing Advances.................................................. S-17, 82
Servicing Standard.................................................. S-76
Servicing Transfer Event............................................ S-77
Settlement Date..................................................... S-117
Special Servicer Loan Status Report................................. S-105
Special Servicing Fee............................................... S-81
Specially Serviced Loan............................................. S-77
State Principal Balance............................................. S-94
Subordinate Certificates............................................ S-91
Sub-Servicer........................................................ S-80
Sub-Servicing Agreement............................................. S-80
Successor Servicer Retained Fee..................................... S-80
Tenant Non-Renewal Action........................................... S-18
Triple Net Leases................................................... S-19
Trust Assets........................................................ S-89
Trustee Fee......................................................... S-109
Underwriting Agreement.............................................. S-127
USPS................................................................ S-15, 50
USPS Credit Lease................................................... S-33, 37
USPS Credit Leases.................................................. S-50
USPS Lease Loans.................................................... S-8, 43, 50
Voting Rights....................................................... S-107
Wal Mart Loan....................................................... S-168
Walgreen............................................................ S-54
Walgreen Credit Leases.............................................. S-54
Walgreen Loans...................................................... S-54
Workout Fee......................................................... S-81
Workout Fee Rate.................................................... S-81
Y2K................................................................. S-113
YMP................................................................. S-117
</TABLE>
S-137
<PAGE>
ANNEX A
CERTAIN CHARACTERISTICS OF THE LOANS
The schedule and tables appearing in this Annex A set forth certain
information with respect to the Corporate Lease Loans, the USPS Lease Loans
and the related Mortgaged Properties. 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 Underwriters, or any
of their respective affiliates or any other person.
A-1
<PAGE>
SUMMARY LOAN INFORMATION--COMBINED
<TABLE>
<S> <C>
Gross Weighted Average Coupon................. 7.306%
Maximum Gross Coupon.......................... 8.50%
Minimum Gross Coupon.......................... 6.18%
Weighted Average Original Term (Months)....... 244
Weighted Average Remaining Term (Months)...... 235
Average Loan Size (as of Cut-off Date)........ $2,258,477.91
</TABLE>
PROPERTY TYPE-COMBINED
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
Property Type Properties Balance Balance DSCR Rate
- ------------- ---------- --------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Bank................ 1 $ 2,647,702.59 0.69% 1.00x 7.60%
Drug Store.......... 50 121,686,373.06 31.69 1.05x 7.22
Grocery Store....... 8 59,617,015.48 15.53 1.01x 7.27
Grocery/Drug Store.. 1 17,342,020.96 4.52 1.03x 7.20
Hotel............... 1 7,576,861.78 1.97 1.00x 8.50
Jewelry Store....... 1 2,042,215.01 0.53 1.10x 7.89
Office.............. 1 22,784,510.45 5.93 1.38x 6.79
Office/Hdqr......... 1 20,060,746.87 5.22 1.00x 8.38
Restaurant.......... 1 984,026.22 0.26 1.05x 7.15
Retail.............. 5 59,010,865.53 15.37 1.02x 6.99
Retail Electronics.. 3 7,533,266.37 1.96 1.10x 8.00
Testing Center...... 1 3,180,141.93 0.83 1.10x 6.98
Theater............. 1 8,605,959.15 2.24 1.03x 7.67
U.S. Post Office.... 96 50,869,538.54 13.25 1.10x 7.41
--- --------------- ------ ----- ----
171 $383,941,243.94 100.00% 1.06x 7.31%
=== =============== ====== ===== ====
</TABLE>
A-2
<PAGE>
CUT-OFF DATE BALANCES--COMBINED
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
Cut-Off Balance Loans Balance Balance DSCR Rate
- --------------- --------- --------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0 - $99,999............ 1 $ 98,951.07 0.03% 1.15x 7.90%
$100,000 - $199,999..... 7 1,199,052.25 0.31 1.16x 7.73
$200,000 - $299,999..... 13 3,378,827.49 0.88 1.13x 7.72
$300,000 - $399,999..... 20 6,853,022.84 1.78 1.13x 7.62
$400,000 - $499,999..... 15 6,853,779.71 1.79 1.11x 7.66
$500,000 - $599,999..... 12 6,552,676.58 1.71 1.15x 7.58
$600,000 - $699,999..... 7 4,577,601.09 1.19 1.14x 7.44
$700,000 - $799,999..... 6 4,606,766.42 1.20 1.06x 7.34
$800,000 - $899,999..... 2 1,715,802.64 0.45 1.04x 6.80
$900,000 - $999,999..... 4 3,819,522.35 0.99 1.09x 7.11
$1,000,000 -
$1,999,999............ 27 38,194,773.77 9.95 1.08x 7.33
$2,000,000 -
$2,999,999............ 24 58,603,828,09 15.26 1.05x 7.31
$3,000,000 -
$3,999,999............ 13 44,446,886.65 11.58 1.06x 7.14
$4,000,000 -
$4,999,999............ 4 18,258,495.36 4.76 1.03x 7.20
$5,000,000 -
$5,999,999............ 1 5,041,298.70 1.31 1.01x 6.76
$6,000,000 -
$6,999,999............ 2 13,361,481.10 3.48 1.03x 7.24
$7,000,000 -
$7,999,999............ 3 22,820,231.02 5.94 1.02x 7.91
$8,000,000 -
$8,999,999............ 1 8,605,959.15 2.24 1.03x 7.67
$9,000,000 -
$9,999,999............ 1 9,758,533.24 2.54 0.92x 7.35
$11,000,000 -
$11,999,999........... 2 23,122,451.76 6.02 1.05x 6.95
$17,000,000 -
$17,999,999........... 1 17,342.020.96 4.52 1.03x 7.20
$18,000,000 -
$18,999,999........... 1 18,595,460.93 4.84 1.00x 7.32
$20,000,000 -
$20,999,999........... 1 20,060,746.87 5.22 1.00x 8.38
$22,000,000 -
$22,999,999........... 1 22,784,510.45 5.93 1.38x 6.79
$23,000,000 -
$23,999,999........... 1 23,288,563.43 6.07 1.00x 6.75
--- --------------- ------ ----- ----
170 $383,941,243.93 100.00% 1.06x 7.31%
=== =============== ====== ===== ====
</TABLE>
A-3
<PAGE>
GEOGRAPHIC DISTRIBUTION--COMBINED
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
States Properties Balance Balance DSCR Rate
- ------ ---------- --------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Alabama................. 3 $ 7,306,809.84 1.90% 1.06x 7.29%
Arizona................. 1 3,270,830.26 0.85 1.13x 8.00
California.............. 3 9,035,456.26 2.35 1.02x 7.86
Colorado................ 1 1,259,329.81 0.33 1.17x 6.54
Connecticut............. 3 30,250,239.16 7.88 1.01x 8.12
District of Columbia.... 1 984,026.22 0.26 1.05x 7.15
Florida................. 3 7,787,781.57 2.03 1.07x 7.28
Georgia................. 6 21,533,317.31 5.61 1.02x 7.13
Iowa.................... 7 2,387,691.32 0.62 1.12x 7.47
Illinois................ 1 2,647,702.59 0.69 1.00x 7.60
Indiana................. 8 17,590,967.57 4.58 1.08x 6.85
Kansas.................. 2 2,749,431.15 0.72 1.05x 6.84
Kentucky................ 4 2,043,843.49 0.53 1.06x 7.66
Louisiana............... 2 2,927,734.11 0.76 1.03x 8.03
Massachusetts........... 3 10,473,810.46 2.73 1.06x 7.50
Maine................... 4 1,399,399.85 0.36 1.09x 7.87
Michigan................ 7 15,323,779.10 3.99 1.03x 7.38
Minnesota............... 4 3,892,399.70 1.01 1.10x 7.16
Mississippi............. 4 6,177,360.35 1.61 1.02x 7.49
Montana................. 2 1,584,233.66 0.41 1.06x 7.58
North Carolina.......... 4 7,142,145.65 1.86 1.06x 7.32
New Hampshire........... 8 10,906,049.55 2.84 1.06x 7.39
New Jersey.............. 3 44,754,833.83 11.66 1.01x 7.03
New Mexico.............. 6 5,282,765.00 1.38 1.07x 6.89
Nevada.................. 4 25,212,132.45 6.57 1.06x 7.20
New York................ 21 33,890,175.46 8.83 1.04x 7.34
Ohio.................... 4 26,557,980.98 6.92 1.34x 6.87
Oklahoma................ 4 1,296,309.33 0.34 1.11x 7.79
Oregon.................. 1 585,038.18 0.15 1.04x 7.70
Pennsylvania............ 6 16,195,957.09 4.22 1.03x 7.12
Rhode Island............ 1 546,254.70 0.14 1.04x 7.96
South Carolina.......... 2 8,068,406.89 2.10 1.06x 7.08
Tennessee............... 1 637,262.76 0.17 1.03x 8.21
Texas................... 16 17,132,360.36 4.46 1.09x 7.12
Utah.................... 1 165,149.01 0.04 1.43x 7.22
Virginia................ 6 13,237,113.83 3.45 1.05x 7.24
Washington.............. 11 17,215,762.97 4.48 1.05x 7.79
Wisconsin............... 1 3,262,897.68 0.85 1.00x 6.90
West Virginia........... 1 352,791.96 0.09 1.08x 8.01
Wyoming................. 1 $873,712.49 0.23 1.04x 7.40
--- --------------- ------ ---- ----
171 $383,941,243.94 100.00% 1.06x 7.31%
=== =============== ====== ==== ====
</TABLE>
A-4
<PAGE>
UNDERWRITING DEBT SERVICE COVERAGE RATIO--COMBINED
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
DSCR(NOI) Loans Balance Balance DSCR Rate
- --------- --------- --------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
.90x- .99x.......... 1 $ 9,758,533.24 2.54% 0.92x 7.35%
1.00x-1.09x.......... 127 320,777,465.34 83.55 1.03x 7.33
1.10x-1.19x.......... 25 20,671,610.92 5.38 1.12x 7.40
1.20x-1.29x.......... 8 6,620,237.38 1.72 1.24x 7.66
1.30x-1.39x.......... 4 23,905,052.15 6.23 1.38x 6.83
1.40x-1.49x.......... 2 622,114.50 0.16 1.45x 7.40
1.50x-1.59x.......... 2 1,001,005.66 0.26 1.52x 7.21
1.60x-1.69x.......... 1 585,224.73 0.15 1.69x 7.65
--- --------------- ------ ---- ----
170 $383,941,243.93 100.00% 1.06x 7.31%
=== =============== ====== ==== ====
</TABLE>
MORTGAGE RATES--COMBINED
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
Mortgage Rate Loans Balance Balance DSCR Rate
- ------------- --------- --------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
6.00%-6.24%.......... 2 $ 2,087,241.37 0.54% 1.03x 6.22%
6.25%-6.49%.......... 2 702,784.11 0.18 1.10x 6.33
6.50%-6.74%.......... 4 14,325,586.07 3.73 1.09x 6.68
6.75%-6.99%.......... 24 86,042,497.49 22.41 1.13x 6.81
7.00%-7.24%.......... 24 87,479,177.22 22.78 1.04x 7.15
7.25%-7.49%.......... 32 87,568,932.39 22.81 1.03x 7.30
7.50%-7.74%.......... 36 39,145,826.40 10.20 1.07x 7.63
7.75%-7.99% ......... 27 16,883,021.95 4.40 1.10x 7.85
8.00%-8.24%.......... 14 21,339,903.24 5.56 1.06x 8.02
8.25%-8.49%.......... 4 20,789,411.91 5.41 1.01x 8.37
8.50%-8.74%.......... 1 $ 7,576,861.78 1.97 1.00x 8.50
--- --------------- ------ ---- ----
170 $383,941,243.93 100.00% 1.06x 7.31%
=== =============== ====== ==== ====
</TABLE>
A-5
<PAGE>
ORIGINAL TERM TO MATURITY-COMBINED
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Original Term to Mortgage Aggregate Aggregate Underwriting Mortgage
Maturity Loans Balance Balance DSCR Rate
---------------- --------- --------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
60-79................... 1 $ 138,522.91 0.04% 1.07x 7.68%
100-119................. 1 376,821.32 0.10% 1.03x 7.75%
140-159................. 1 20,060,746.87 5.22% 1.00x 8.38%
160-179................. 11 26,569,442.57 6.92% 1.34x 6.91%
180-199................. 4 4,601,448.67 1.20% 1.11x 7.14%
200-219................. 4 1,348,408.68 0.35% 1.12x 7.43%
220-239................. 112 157,782,693.26 41.10% 1.06x 7.25%
240-259................. 16 60,108,389.60 15.66% 1.02x 6.98%
260-279................. 5 22,668,679.79 5.90% 1.04x 8.17%
280-299................. 8 38,121,817.45 9.93% 1.05x 7.15%
300-319................. 6 50,733,326.86 13.21% 1.00x 7.37%
340-359................. 1 1,430,945.94 0.37% 1.03x 7.76%
--- --------------- ------ ----- -----
170 $383,941,243.93 100.00% 1.06x 7.31%
=== =============== ====== ===== =====
</TABLE>
REMAINING TERM TO MATURITY--COMBINED
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Remaining Term to Mortgage Aggregate Aggregate Underwriting Mortgage
Maturity Loans Balance Balance DSCR Rate
- ----------------- --------- --------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
40-59.................. 1 $ 138,522.91 0.04% 1.07x 7.68%
80-99.................. 2 20,437,568.19 5.32 1.00x 8.36
140-159................. 1 371,942.77 0.10 1.14x 7.84
160-179................. 14 30,798,948.48 8.02 1.31x 6.93
180-199................. 2 680,368.15 0.18 1.13x 7.88
200-219................. 20 11,567,458.62 3.01 1.08x 7.61
220-239................. 109 200,430,010.38 52.20 1.05x 7.15
240-259................. 1 6,561,654.39 1.71 1.05x 7.25
260-279................. 5 22,668,679.79 5.90 1.04x 8.17
280-299................. 13 79,096,611.07 20.60 1.03x 7.27
300-319................. 1 9,758,533.24 2.54 0.92x 7.35
340-359................. 1 1,430,945.94 0.37 1.03x 7.76
--- --------------- ------ ----- ----
170 $383,941,243.93 100.00% 1.06x 7.31%
=== =============== ====== ===== ====
</TABLE>
YEAR OF LOAN ORIGINATION--COMBINED
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
Year Of Loan Origination Loans Balance Balance DSCR Rate
- ------------------------ --------- --------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
1995.................... 1 $ 20,060,746.87 5.22% 1.00x 8.38%
1997.................... 20 11,517,206.44 3.00 1.08x 7.98
1998.................... 95 190,971,862.31 49.74 1.09x 7.09
1999.................... 54 161,391,428.31 42.04 1.04x 7.38
--- --------------- ------ ----- ----
170 $383,941,243.93 100.00% 1.06x 7.31%
=== =============== ====== ===== ====
</TABLE>
A-6
<PAGE>
YEAR OF LOAN MATURITY--COMBINED
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
Year of Loan Maturity Loans Balance Balance DSCR Rate
- --------------------- --------- --------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
2003................. 1 $ 138,522.91 0.04% 1.07x 7.68%
2006................. 1 376,821.32 0.10 1.03x 7.75
2007 ................ 1 20,060,746.87 5.22 1.00x 8.38
2012 ................ 2 679,403.58 0.18 1.12x 7.77
2013 ................ 7 25,159,948.59 6.55 1.36x 6.86
2014 ................ 6 5,331,539.07 1.39 1.09x 7.24
2015 ................ 1 459,477.64 0.12 1.08x 7.86
2016 ................ 10 2,702,504.40 0.70 1.12x 7.79
2017 ................ 17 13,526,773.25 3.52 1.08x 7.61
2018 ................ 79 156,008,320.09 40.63 1.05x 7.13
2019 ................ 25 46,542,416.17 12.12 1.05x 7.17
2021 ................ 4 15,110,128.15 3.94 1.05x 8.25
2022 ................ 1 7,558,551.64 1.97 1.00x 8.00
2023 ................ 7 18,439,958.10 4.80 1.06x 7.17
2024 ................ 7 70,415,186.21 18.34 1.01x 7.31
2028 ................ 1 1,430,945.94 0.37 1.03x 7.76
--- --------------- ------ ----- ----
170 $383,941,243.93 100.00% 1.06x 7.31%
=== =============== ====== ===== ====
</TABLE>
A-7
<PAGE>
SUMMARY LOAN INFORMATION--CORPORATE LEASE LOANS
<TABLE>
<S> <C>
Gross Weighted Average Coupon............. 7.290%
Maximum Gross Coupon...................... 8.50%
Minimum Gross Coupon...................... 6.71%
Weighted Average Original Term (Months)... 245
Weighted Average Remaining Term (Months).. 236
Average Loan Size (as of Cut-off Date).... $4,500,968.99
</TABLE>
PROPERTY TYPE--CORPORATE LEASE LOANS
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Number of % of Original 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>
Bank.................... 1 $ 2,647,702.59 0.79% 1.00 91.30 7.60%
Drug Store.............. 50 $121,686,373.06 36.53 1.05 89.07 7.22
Grocery Store........... 8 $ 59,617,015.48 17.90 1.01 91.24 7.27
Grocery/Drug Store...... 1 $ 17,342,020.96 5.21 1.03 98.42 7.20
Hotel................... 1 $ 7,576,861.78 2.27 1.00 93.54 8.50
Jewelry Store........... 1 $ 2,042,215.01 0.61 1.10 88.79 7.89
Office.................. 1 $ 22,784,510.45 6.84 1.38 75.95 6.79
Office/Hdqr............. 1 $ 20,060,746.87 6.02 1.00 78.67 8.38
Restaurant.............. 1 $ 984,026.22 0.30 1.05 82.00 7.15
Retail.................. 5 $ 59,010,865.53 17.72 1.02 88.41 6.99
Retail Electronics...... 3 $ 7,533,266.37 2.26 1.10 89.24 8.00
Testing Center.......... 1 $ 3,180,141.93 0.95 1.10 102.92 6.98
Theater................. 1 $ 8,605,959.15 2.58 1.03 94.57 7.67
--- --------------- ------ ------ ------ ----
75 $333,071,705.40 100.00% 1.0563 88.68 7.29%
=== =============== ====== ====== ====== ====
</TABLE>
A-8
<PAGE>
CUT-OFF DATE BALANCES--CORPORATE LEASE LOANS
<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>
$ 900,000 -
$ 999,999........... 1 $ 984,026.22 0.30% 1.05 82.00 7.15%
$ 1,000,000 -
$ 1,999,999........... 17 25,997,211.45 7.81 1.09 84.54 7.42
$ 2,000,000 -
$ 2,999,999........... 24 58,603,828.09 17.59 1.05 89.45 7.31
$ 3,000,000 -
$ 3,999,999........... 13 44,446,886.65 13.34 1.06 91.84 7.14
$ 4,000,000 -
$ 4,999,999........... 4 18,258,495.36 5.48 1.03 94.53 7.20
$ 5,000,000 -
$ 5,999,999........... 1 5,041,298.70 1.51 1.01 78.77 6.76
$ 6,000,000 -
$ 6,999,999........... 2 13,361,481.10 4.01 1.03 84.19 7.24
$ 7,000,000 -
$ 7,999,999........... 3 22,820,231.02 6.85 1.02 97.79 7.91
$ 8,000,000 -
$ 8,999,999........... 1 8,605,959.15 2.58 1.03 94.57 7.67
$ 9,000,000 -
$ 9,999,999........... 1 9,758,533.24 2.93 0.92 86.36 7.35
$11,000,000 -
$11,999,999........... 2 23,122,451.76 6.94 1.05 95.15 6.95
$17,000,000 -
$17,999,999........... 1 17,342,020.96 5.21 1.03 98.42 7.20
$18,000,000 -
$18,999,999........... 1 18,595,460.93 5.58 1.00 93.44 7.32
$20,000,000 -
$20,999,999........... 1 20,060,746.87 6.02 1.00 78.67 8.38
$22,000,000 -
$22,999,999........... 1 22,784,510.45 6.84 1.38 75.95 6.79
$23,000,000 -
$23,999,999........... 1 23,288,563.43 6.99 1.00 79.21 6.75
--- --------------- ------ ------ ----- ----
74 $333,071,705.39 100.00% 1.0563 88.68 7.29%
=== =============== ====== ====== ===== ====
</TABLE>
A-9
<PAGE>
GEOGRAPHIC DISTRIBUTION--CORPORATE LEASE LOANS
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Number of % of Average Average Average
Mortgage Aggregate Aggregate Underwriting Cut-Off Date Mortgage
States Properties Balance Balance DSCR LTV Ratio Rate
- ------ ---------- --------------- --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Alabama................. 3 $ 7,306,809.84 2.19% 1.06 92.21 7.29%
Arkansas................ 1 3,270,830.26 0.98 1.13 86.76 8.00
California.............. 1 7,558,551.64 2.27 1.00 102.56 8.00
Connecticut............. 3 30,250,239.16 9.08 1.01 83.58 8.12
District of Columbia.... 1 984,026.22 0.30 1.05 82.00 7.15
Florida................. 3 7,787,781.57 2.34 1.07 86.81 7.28
Georgia................. 5 20,952,358.66 6.29 1.02 93.56 7.14
Illinois................ 1 2,647,702.59 0.79 1.00 91.30 7.60
Indiana................. 3 15,647,357.55 4.70 1.08 94.60 6.81
Kansas.................. 1 2,418,246.91 0.73 1.05 91.25 6.75
Louisiana............... 1 2,639,186.19 0.79 1.00 97.03 8.00
Massachusetts........... 2 9,079,327.56 2.73 1.06 75.68 7.46
Michigan................ 7 15,323,779.10 4.60 1.03 91.74 7.38
Minnesota............... 1 3,180,141.93 0.95 1.10 102.92 6.98
Mississippi............. 1 4,603,642.20 1.38 1.00 93.38 7.51
North Carolina.......... 4 7,142,145.65 2.14 1.06 88.35 7.32
New Hampshire........... 1 7,684,817.60 2.31 1.05 97.28 7.25
New Jersey.............. 3 44,754,833.83 13.44 1.01 85.63 7.03
Nevada.................. 3 24,626,907.72 7.39 1.04 95.72 7.19
New York................ 10 30,279,283.31 9.09 1.02 87.72 7.32
Ohio.................... 3 26,186,038.21 7.86 1.34 77.00 6.85
Pennsylvania............ 6 16,195,957.09 4.86 1.03 91.37 7.12
South Carolina.......... 2 8,068,406.89 2.42 1.06 90.79 7.08
Texas................... 3 11,345,246.91 3.41 1.06 81.99 6.95
Virginia................ 4 12,298,327.36 3.69 1.05 89.18 7.20
Washington.............. 1 7,576,861.78 2.27 1.00 93.54 8.50
Wisconsin............... 1 3,262,897.68 0.98 1.00 98.58 6.90
--- --------------- ------ ------ ------ ----
75 $333,071,705.40 100.00% 1.0563 88.68 7.29%
=== =============== ====== ====== ====== ====
</TABLE>
A-10
<PAGE>
UNDERWRITING DEBT SERVICE COVERAGE RATIO-CORPORATE LEASE LOANS
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Number of % of Average Average Average
Mortgage Aggregate Aggregate Underwriting Cut-Off Date Mortgage
DSCR(NOI) Loans Balance Balance DSCR LTV Ratio Rate
--------- --------- --------------- --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
0.90x-0.99x ............ 1 $ 9,758,533.24 2.93% 0.92 86.36 7.35%
1.00x-1.09x ............ 65 283,697,454.41 85.18 1.03 89.89 7.31
1.10x-1.19x ............ 4 12,409,881.07 3.73 1.11 90.55 7.42
1.20x-1.29x ............ 3 4,421,326.21 1.33 1.23 76.21 7.85
1.30x-1.39x ............ 1 22,784,510.45 6.84 1.38 75.95 6.79
--- --------------- ------ ------ ----- ----
74 $333,071,705.39 100.00% 1.0563 88.68 7.29%
=== =============== ====== ====== ===== ====
MORTGAGE RATES-CORPORATE LEASE LOANS
<CAPTION>
Weighted Weighted Weighted
Number of % of Average Average Average
Mortgage Aggregate Aggregate Underwriting Cut-Off Date Mortgage
Mortgage Rate Loans Balance Balance DSC LTV Ratio Rate
------------- --------- --------------- --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
6.50%-6.74% ............ 1 $ 11,142,513.82 3.35% 1.09 95.24 6.71%
6.75%-6.99% ............ 14 79,682,651.46 23.92 1.13 83.27 6.81
7.00%-7.24% ............ 19 84,250,124.15 25.29 1.04 93.38 7.15
7.25%-7.49% ............ 21 81,115,179.51 24.35 1.02 88.96 7.30
7.50%-7.74% ............ 8 25,313,684.87 7.60 1.04 89.48 7.62
7.75%-7.99% ............ 4 6,320,451.75 1.90 1.09 87.54 7.88
8.00%-8.24% ............ 5 17,609,491.18 5.29 1.05 93.81 8.00
8.25%-8.49% ............ 1 20,060,746.87 6.02 1.00 78.67 8.38
8.50%-8.74% ............ 1 7,576,861.78 2.27 1.00 93.54 8.50
--- --------------- ------ ------ ----- ----
74 $333,071,705.39 100.00% 1.0563 88.68 7.29%
=== =============== ====== ====== ===== ====
</TABLE>
ORIGINAL TERM TO MATURITY--CORPORATE LEASE LOANS
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Number of % of Average Average Average
Original Term to Mortgage Aggregate Aggregate Underwriting Cut-Off Date Mortgage
Maturity Loans Balance Balance DSCR LTV Ratio Rate
- ---------------- --------- --------------- --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
140-159................. 1 $ 20,060,746.87 6.02% 1.00 78.67 8.38%
160-179................. 1 22,784,510.45 6.84 1.38 75.95 6.79
180-199................. 1 3,180,141.93 0.95 1.10 102.92 6.98
220-239................. 42 120,459,358.75 36.17 1.05 90.26 7.19
240-259................. 11 56,322,453.09 16.91 1.02 82.44 6.98
260-279................. 5 22,668,679.79 6.81 1.04 95.12 8.17
280-299................. 7 36,862,487.64 11.07 1.04 95.51 7.17
300-319................. 6 50,733,326.86 15.23 1.00 92.79 7.37
--- --------------- ------ ------ ------ ----
74 $333,071,705.39 100.00% 1.0563 88.68 7.29%
=== =============== ====== ====== ====== ====
</TABLE>
A-11
<PAGE>
REMAINING TERM TO MATURITY--CORPORATE LEASE LOANS
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Number of % of Average Average Average
Remaining Term to Mortgage Aggregate Aggregate Underwriting Cut-Off Date Mortgage
Maturity Loans Balance Balance DSCR LTV Ratio Rate
- ----------------- --------- --------------- --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
80- 99................. 1 $ 20,060,746.87 6.02% 1.00 78.67 8.38%
160-179................. 2 25,964,652.39 7.80 1.35 79.25 6.81
200-219................. 3 5,294,015.38 1.59 1.07 84.58 7.47
220-239................. 49 164,926,142.07 49.52 1.04 88.44 7.11
240-259................. 1 6,561,654.39 1.97 1.05 73.56 7.25
260-279................. 5 22,668,679.79 6.81 1.04 95.12 8.17
280-299................. 12 77,837,281.26 23.37 1.03 94.88 7.28
300-319................. 1 9,758,533.24 2.93 0.92 86.36 7.35
--- --------------- ------ ------ ------ ----
74 $333,071,705.39 100.00% 1.0563 88.68 7.29%
=== =============== ====== ====== ====== ====
YEAR OF LOAN ORIGINATION--CORPORATE LEASE LOANS
<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>
1995.................... 1 $ 20,060,746.87 6.02% 1.00 78.67 8.38%
1997.................... 3 5,473,737.51 1.64 1.06 85.26 7.93
1998.................... 37 157,984,292.22 47.43 1.08 86.79 7.04
1999.................... 33 149,552,928.79 44.90 1.03 92.15 7.39
--- --------------- ------ ------ ------ ----
74 $333,071,705.39 100.00% 1.0563 88.68 7.29%
=== =============== ====== ====== ====== ====
YEAR OF LOAN MATURITY--CORPORATE LEASE LOANS
<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>
2007.................... 1 $ 20,060,746.87 6.02% 1.00 78.67 8.38%
2013.................... 1 22,784,510.45 6.84 1.38 75.95 6.79
2014.................... 1 3,180,141.93 0.95 1.10 102.92 6.98
2017.................... 4 7,336,230.39 2.20 1.08 85.76 7.59
2018.................... 36 129,963,653.71 39.02 1.04 88.07 7.09
2019.................... 13 39,481,927.75 11.85 1.04 87.17 7.16
2021.................... 4 15,110,128.15 4.54 1.05 91.40 8.25
2022.................... 1 7,558,551.64 2.27 1.00 102.56 8.00
2023.................... 6 17,180,628.29 5.16 1.05 93.66 7.21
2024.................... 7 70,415,186.21 21.14 1.01 94.00 7.31
--- --------------- ------ ------ ------ ----
74 $333,071,705.39 100.00% 1.0563 88.68 7.29%
=== =============== ====== ====== ====== ====
</TABLE>
A-12
<PAGE>
SUMMARY LOAN INFORMATION--USPS LEASE LOANS
<TABLE>
<S> <C>
Gross Weighted Average Coupon................. 7.41%
Maximum Gross Coupon.......................... 8.42%
Minimum Gross Coupon.......................... 6.18%
Weighted Average Original Term (Months)....... 234
Weighted Average Remaining Term (Months)...... 224
Average Loan Size (as of Cut-Off Date)........ $529,891.03
</TABLE>
PROPERTY TYPE
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
Property Type Loans Balance Balance DSCR Rate
- ------------- --------- -------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
U.S. Post Office...... 96 $50,869,538.54 100.00% 1.10x 7.41%
</TABLE>
CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
Cut-Off Balance Loans Balance Balance DSCR Rate
- --------------- --------- -------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0 - $99,999............ 1 $ 98,951.07 0.19% 1.15x 7.90%
$100,000 - $199,999..... 7 1,199,052.25 2.36 1.16x 7.73
$200,000 - $299,999..... 13 3,378,827.49 6.64 1.13x 7.72
$300,000 - $399,999..... 20 6,853,022.84 13.47 1.13x 7.62
$400,000 - $499,999..... 15 6,853,779.71 13.47 1.11x 7.66
$500,000 - $599,999..... 12 6,552,676.58 12.88 1.15x 7.58
$600,000 - $699,999..... 7 4,577,601.09 9.00 1.14x 7.44
$700,000 - $799,999..... 6 4,606,766.42 9.06 1.06x 7.34
$800,000 - $899,999..... 2 1,715,802.64 3.37 1.04x 6.80
$900,000 - $999,999..... 3 2,835,496.13 5.57 1.10x 7.10
$1,000,000 -
$1,099,999............ 1 1,013,031.60 1.99 1.04x 7.58
$1,100,000 -
$1,199,999............ 4 4,631,203.12 9.10 1.05x 7.12
$1,200,000 -
$1,299,999............ 3 3,727,898.76 7.33 1.08x 6.51
$1,300,000 -
$1,399,999............ 1 1,394,482.90 2.74 1.06x 7.75
$1,400,000 -
$1,499,999............ 1 1,430,945.94 2.81 1.03x 7.76
--- -------------- ------ ----- ----
96 $50,869,538.54 100.00% 1.10x 7.41%
=== ============== ====== ===== ====
</TABLE>
A-13
<PAGE>
GEOGRAPHIC DISTRIBUTION--USPS LEASE LOANS
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
States Loans Balance Balance DSCR Rate
- ------ --------- -------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
California............ 2 1,476,904.62 2.90% 1.08x 7.15%
Colorado.............. 1 1,259,329.81 2.48 1.17x 6.54
Georgia............... 1 580,958.65 1.14 1.15x 6.86
Iowa.................. 7 2,387,691.32 4.69 1.12x 7.47
Indiana............... 5 1,943,610.02 3.82 1.08x 7.13
Kansas................ 1 331,184.24 0.65 1.11x 7.50
Kentucky.............. 4 2,043,843.49 4.02 1.06x 7.66
Louisiana............. 1 288,547.92 0.57 1.23x 8.26
Massachusetts......... 1 1,394,482.90 2.74 1.06x 7.75
Maine................. 4 1,399,399.85 2.75 1.09x 7.87
Minnesota............. 3 712,257.77 1.40 1.09x 7.95
Mississippi........... 3 1,573,718.15 3.09 1.05x 7.44
Montana............... 2 1,584,233.66 3.11 1.06x 7.58
New Hampshire......... 7 3,221,231.95 6.33 1.07x 7.74
New Mexico............ 6 5,282,765.00 10.38 1.07x 6.89
Nevada................ 1 585,224.73 1.15 1.69x 7.65
New York.............. 11 3,610,892.15 7.10 1.17x 7.59
Ohio.................. 1 371,942.77 0.73 1.14x 7.84
Oklahoma.............. 4 1,296,309.33 2.55 1.11x 7.79
Oregon................ 1 585,038.18 1.15 1.04x 7.70
Rhode Island.......... 1 546,254.70 1.07 1.04x 7.96
Tennessee............. 1 637,262.76 1.25 1.03x 8.21
Texas................. 13 5,787,113.45 11.38 1.15x 7.45
Utah.................. 1 165,149.01 0.32 1.43x 7.22
Virginia.............. 2 938,786.47 1.85 1.06x 7.71
Washington............ 10 9,638,901.19 18.95 1.08x 7.24
West Virginia......... 1 352,791.96 0.69 1.08x 8.01
Wyoming............... 1 $ 873,712.49 1.72 1.04x 7.40
--- -------------- ------ ---- ----
96 $50,869,538.54 100.00% 1.10x 7.41%
=== ============== ====== ==== ====
</TABLE>
A-14
<PAGE>
UNDERWRITING DEBT SERVICE COVERAGE RATIO--USPS LEASE LOANS
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
DSCR(NOI) Loans Balance Balance DSCR Rate
- --------- --------- -------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
1.00x-1.09x........... 62 $37,080,010.93 72.89% 1.05x 7.43%
1.10x-1.19x........... 21 8,261,729.85 16.24 1.14x 7.36
1.20x-1.29x........... 5 2,198,911.17 4.32 1.25x 7.29
1.30x-1.39x........... 3 1,120,541.70 2.20 1.34x 7.57
1.40x-1.49x........... 2 622,114.50 1.22 1.45x 7.40
1.50x-1.59x........... 2 1,001,005.66 1.97 1.52x 7.21
1.60x-1.69x........... 1 585,224.73 1.15 1.69x 7.65
--- -------------- ------ ---- ----
96 $50,869,538.54 100.00% 1.10x 7.41%
=== ============== ====== ==== ====
</TABLE>
MORTGAGE RATES--USPS LEASE LOANS
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
Mortgage Rate Loans Balance Balance DSCR Rate
- ------------- --------- -------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
6.00%-6.24%........... 2 $ 2,087,241.37 4.10% 1.03x 6.22%
6.25%-6.49%........... 2 702,784.11 1.38 1.10x 6.33
6.50%-6.74%........... 3 3,183,072.25 6.26 1.08x 6.60
6.75%-6.99%........... 10 6,359,846.03 12.50 1.17x 6.83
7.00%-7.24%........... 5 3,229,053.07 6.35 1.08x 7.06
7.25%-7.49%........... 11 6,453,752.88 12.69 1.09x 7.40
7.50%-7.74%........... 28 13,832,141.53 27.19 1.11x 7.63
7.75%-7.99%........... 23 10,562,570.20 20.76 1.10x 7.84
8.00%-8.24%........... 9 3,730,412.06 7.33 1.07x 8.11
8.25%-8.49%........... 3 728,665.04 1.43 1.17x 8.29
--- -------------- ------ ---- ----
96 $50,869,538.54 100.00% 1.10x 7.41%
=== ============== ====== ==== ====
</TABLE>
ORIGINAL TERM TO MATURITY--USPS LEASE LOANS
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Original Term to Mortgage Aggregate Aggregate Underwriting Mortgage
Maturity Loans Balance Balance DSCR Rate
- ---------------- --------- -------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
60- 79................. 1 $ 138,522.91 0.27% 1.07x 7.68%
100-119................. 1 376,821.32 0.74 1.03x 7.75
160-179................. 10 3,784,932.12 7.44 1.12x 7.65
180-199................. 3 1,421,306.74 2.79 1.14x 7.49
200-219................. 4 1,348,408.68 2.65 1.12x 7.43
220-239................. 70 37,323,334.51 73.37 1.11x 7.45
240-259................. 5 3,785,936.51 7.44 1.04x 6.89
280-299................. 1 1,259,329.81 2.48 1.17x 6.54
300-359................. 1 1,430,945.94 2.81 1.03x 7.76
--- -------------- ------ ----- ----
96 $50,869,538.54 100.00% 1.10x 7.41%
=== ============== ====== ===== ====
</TABLE>
A-15
<PAGE>
REMAINING TERM TO MATURITY--USPS LEASE LOANS
<TABLE>
<CAPTION>
Weighted Weighted
Number of % of Average Average
Remaining Term to Mortgage Aggregate Aggregate Underwriting Mortgage
Maturity Loans Balance Balance DSCR Rate
- ----------------- --------- -------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
40- 59................. 1 $ 138,522.91 0.27% 1.07x 7.68%
80- 99................. 1 376,821.32 0.74 1.03x 7.75
140-159................. 1 371,942.77 0.73 1.14x 7.84
160-179................. 12 4,834,296.09 9.50 1.13x 7.59
180-199................. 2 680,368.15 1.34 1.13x 7.88
200-219................. 17 6,273,443.24 12.33 1.10x 7.72
220-239................. 60 35,503,868.31 69.79 1.10x 7.33
280-299................. 1 1,259,329.81 2.48 1.17x 6.54
340-359................. 1 1,430,945.94 2.81 1.03x 7.76
--- -------------- ------ ----- ----
96 $50,869,538.54 100.00% 1.10x 7.41%
=== ============== ====== ===== ====
YEAR OF LOAN ORIGINATION--USPS LEASE LOANS
<CAPTION>
Weighted Weighted
Number of % of Average Average
Mortgage Aggregate Aggregate Underwriting Mortgage
Year of Loan Origination Loans Balance Balance DSCR Rate
- ------------------------ --------- -------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
1997.................... 17 $ 6,043,468.93 11.88% 1.11x 8.02%
1998.................... 58 32,987,570.09 64.85 1.11x 7.34
1999.................... 21 11,838,499.52 23.27 1.07x 7.31
--- -------------- ------ ----- ----
96 $50,869,538.54 100.00% 1.10x 7.41%
=== ============== ====== ===== ====
</TABLE>
A-16
<PAGE>
ANNEX A-II
CERTAIN CHARACTERISTICS OF THE LOANS
<TABLE>
<CAPTION>
Data Source Sequence Loan Number Tenant Guarantor City State
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Agency 17 1210 Rite Aid of Michigan, Inc. Rite Aid Corporation Alma MI
Agency 3 1240 No. Dartmouth State Road CVS, Inc. CVS Corporation New Bedford MA
Agency 42 1298 Medford CVS, Inc. CVS Corporation Medford NY
Agency 4 1323 Queensbury CVS, Inc. CVS Corporation Queensbury NY
Agency 15 1356 Revco Discount Drug Centers, Inc. CVS Corporation Roanoke VA
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 31 1583 Kerr Drug, Inc. Rite Aid Corporation Warrenton NC
Agency 43 1587 Eckerd Corporation Fayetteville NC
Agency 48 1684NBC Mayfair Super Markets, Inc. Koninklijke Ahold, N.V. Morris Plains NJ
Agency 8 1690 Rite Aid of Michigan, Inc. Rite Aid Corporation Muskegon MI
Agency 6 1704 CVS of Binghamton, Inc. CVS Corporation Binghamton NY
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 7 1705 CVS Center, Inc. CVS Corporation Owego NY
Agency 16 1777 Rite Aid of Michigan, Inc. Rite Aid Corporation Alpena MI
Agency 20 1778 Rite Aid of Michigan, Inc. Rite Aid Corporation Sault Ste. Marie MI
Agency 11 1848 Rite Aid of Michigan, Inc. Rite Aid Corporation Niles MI
Agency 37 1883 Thrifty Payless, Inc. Rite Aid Corporation Henderson NV
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 23 2020 Rite Aid of Michigan, Inc. Rite Aid Corporation Cadillac MI
Agency 81 2023NB Walgreen Co. Cape Coral FL
Agency 75 2025 Thrifty Payless, Inc. Rite Aid Corporation Las Vegas NV
Agency 13 2031NB Revco Discount Drug Centers, Inc. CVS Corporation Washington NC
Agency 49 2071NB Wal-Mart Real Estate Business Trust Wal-Mart Stores, Inc. Valdosta GA
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 14 2072 Lowe's Home Centers, Inc. Lowe's Companies, Inc. Dallas TX
Agency 66 2104NBC Walgreen Eastern Co., Inc. Walgreen Co. Perth Amboy NJ
Agency 51 2200 Walgreen Co. Chesterfield VA
Agency 41 2202 Walgreen Co. Orlando FL
Agency 9 2275NB Tolland CVS, Inc. CVS Corporation Vernon CT
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 46 2396NB Eckerd Corporation Marietta GA
Agency 44 2434NB Eckerd Corporation Decatur GA
Agency 27 2437NB Bi-Lo, Inc. Koninklijke Ahold, N.V. Boiling Springs SC
Agency 28 2459 Whitpain CVS, Inc. CVS Corporation Whitpain Township PA
Agency 25 2472 Home Depot U.S.A., Inc. Lodi NJ
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 22 2490 Shaw's Supermarkets, Inc. J. Sainsbury PLC Gorham NH
Agency 38 2503 Rite Aid of Pennsylvania, Inc. Rite Aid Corporation Hazleton PA
Agency 206 2504P Walgreen Co. Dallas TX
Agency 36 2515 Thrift Drug, Inc. Eckerd Corporation Belle Vernon PA
Agency 19 2521 Hook SupeRx, Inc. CVS Corporation Kokomo IN
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 72 2522 Hook SupeRx, Inc. CVS Corporation Anderson IN
Agency 39 2524 Thrift Drug, Inc. Eckerd Corporation New Kensington PA
Agency 10 2553 Bronx CVS, Inc. CVS Corporation Brooklyn NY
Agency 80 2575 Winn-Dixie Montgomery, Inc. Winn-Dixie Stores, Inc. Columbus MS
Agency 29 2580 Mayfair Supermarkets, Inc. Koninklijke Ahold, N.V. Hicksville NY
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 12 2586 Rite Aid of Alabama, Inc. Rite Aid Corporation Andalusia AL
Agency 67 2591NBC Interstate Connecticut Corp. Hoyts Cinemas Limited Stonington CT
Agency 53 2598 Winn-Dixie Atlanta, Inc. Winn-Dixie Stores, Inc. Rainsville AL
Agency 71 2603 Rite Aid of Pennsylvania, Inc. Rite Aid Corporation Nanticoke PA
Agency 77 2673NB Walgreen Co. Topeka KS
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 64 2724 Fay's Incorporated Eckerd Corporation Amsterdam NY
Agency 18 2745 Walgreen Co. Portsmouth VA
Agency 54 2752 Lansdowne Avenue CVS, Inc. CVS Corporation Upper Darby Township PA
Agency 55 2764 Walgreen Co. Colonial Heights VA
Agency 65 2839 CVS Lyell Clinton Paine, L.L.C. CVS Corporation Rochester NY
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 50 2850 Rite Aid of New York, Inc. Rite Aid Corporation East Greenbush NY
Agency 68 2906NB Eckerd Corporation Atlanta GA
Agency 21 2910 Nash Finch Company Plover WI
Agency 76 3006 Eckerd Corporation Greenville SC
Agency 24 3068 Jerusalem North Bellmore CVS, Inc. CVS Corporation North Bellmore NY
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 32 3143NB The McDonald's Corporation Washington DC
Agency 52 3380 Eckerd Corporation Newnan GA
Agency 202 3434 LaSalle Bank National Association Chicago IL
Agency 70 3581 Sterling Jewelers, Inc. Orlando FL
Agency 63 3588 Circuit City Stores, Inc. Lake Charles LA
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 62 3589 Circuit City Stores, Inc. Fayetteville AR
Agency 61 3590 Circuit City Stores, Inc. Anniston AL
Agency 58 3631 The Stop & Shop Supermarket Co. Koninklijke Ahold, N.V. Marstons Mills MA
Agency 400 3802 Middlesex Mutual Assurance Company Middletown CT
Agency 310 3999 Lucky Stores, Inc./American Drug Stores American Stores Company Las Vegas NV
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 300 4000 Chase Manhattan Mortgage Corp. Columbus OH
Agency 301 4001 Lowe's Home Centers, Inc. Lowe's Companies, Inc. Bloomington IN
Agency 302 4002 International Business Machines Corp. Rochester MN
Agency 303 4003 Revco Discount Drug Centers, Inc. CVS Corporation Portsmouth OH
Agency 305 4005 Columbus Polaris CVS, Inc. CVS Corporation Columbus OH
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 308 4008 Eckerd Corporation Lenoir NC
Agency 309 4009 Walgreens Co. Austin TX
Agency 82 4136 Bed Bath & Beyond, Inc. Mission Viejo CA
Agency 83 4194 Universal Commercal Credit Leasing VI, Inc. Accor Issaquah WA
Agency 5 961 Rite Aid of Michigan, Inc. Rite Aid Corporation Portland MI
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 1 128000001 United States Post Office Barnesville MN
Bedford 2 128000002 United States Post Office Berkshire NY
Bedford 3 128000003 United States Post Office Knoxville TN
Bedford 4 128000004 United States Post Office Glenoma WA
Bedford 5 128000005 United States Post Office Dorton KY
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 6 128000006 United States Post Office Danville WA
Bedford 7 128000007 United States Post Office Pawtucket RI
Bedford 8 128000009 United States Post Office West Buxton ME
Bedford 9 128000010 United States Post Office Afton IA
Bedford 10 128000011 United States Post Office Greenville ME
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 11 128000012 United States Post Office Frenchville ME
Bedford 12 128000013 United States Post Office Colebrook NH
Bedford 13 128000014 United States Post Office Johnsonville NY
Bedford 14 128000015 United States Post Office Alton NH
Bedford 15 128000017 United States Post Office Daleville VA
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 16 128000018 United States Post Office Reedsville WV
Bedford 17 128000019 United States Post Office Dayton OH
Bedford 18 128000020 United States Post Office Sanbornton NH
Bedford 19 128000021 United States Post Office Polk City IA
Bedford 20 128000022 United States Post Office Placitas NM
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 21 128000023 United States Post Office Riverton WY
Bedford 22 128000024 United States Post Office Epsom NH
Bedford 23 128000025 United States Post Office Irrigon OR
Bedford 24 128000026 United States Post Office Ossipee NH
Bedford 25 128000027 United States Post Office Hominy OK
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 26 128000028 United States Post Office Warner OK
Bedford 27 128000029 United States Post Office Vian OK
Bedford 28 128000030 United States Post Office Gallup NM
Bedford 29 128000031 United States Post Office Glenwood Landing NY
Bedford 30 128000032 United States Post Office New Vienna IA
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 31 128000033 United States Post Office Truro IA
Bedford 32 128000034 United States Post Office McCarr KY
Bedford 33 128000035 United States Post Office Nantucket MA
Bedford 34 128000036 United States Post Office Elgin OK
Bedford 35 128000039 United States Post Office Perkinston MS
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 36 128000040 United States Post Office Sun City CA
Bedford 37 128000041 United States Post Office Langley WA
Bedford 38 128000042 United States Post Office Carlin NV
Bedford 39 128000043 United States Post Office Brooktondale NY
Bedford 40 128000044 United States Post Office Milford NY
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 41 128000045 United States Post Office Progreso TX
Bedford 42 128000046 United States Post Office New Boston NH
Bedford 43 128000047 United States Post Office Hector NY
Bedford 44 128000048 United States Post Office Hidalgo TX
Bedford 45 128000049 United States Post Office De Soto IA
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 46 128000050 United States Post Office Pulteney NY
Bedford 47 128000051 United States Post Office Morgantown IN
Bedford 48 128000052 United States Post Office Cambridge IA
Bedford 49 128000053 United States Post Office Mora NM
Bedford 50 128000054 United States Post Office Gardiner MT
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 51 128000055 United States Post Office Wilsall MT
Bedford 52 128000056 United States Post Office Tofte MN
Bedford 53 128000057 United States Post Office Fort Duchesne UT
Bedford 54 128000058 United States Post Office Buckley WA
Bedford 55 128000059 United States Post Office Stanton KY
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 56 128000060 United States Post Office Mt. Olive MS
Bedford 57 128000061 United States Post Office Williamson NY
Bedford 58 128000062 United States Post Office Columbus TX
Bedford 59 128000063 United States Post Office Oroville WA
Bedford 60 128000064 United States Post Office Idaho Springs CO
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 61 128000065 United States Post Office Corbettsville NY
Bedford 62 128000066 United States Post Office English IN
Bedford 63 128000067 United States Post Office Greenville IN
Bedford 64 128000068 United States Post Office Sunland Park NM
Bedford 65 128000069 United States Post Office Columbus NM
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 66 128000070 United States Post Office Burton TX
Bedford 67 128000071 United States Post Office Ocean Shores WA
Bedford 68 128000072 United States Post Office La Vernia TX
Bedford 69 128000073 United States Post Office North Liberty IA
Bedford 70 128000074 United States Post Office Port Hadlock WA
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 71 128000075 United States Post Office Holcolm KS
Bedford 72 128000079 United States Post Office Beaumont MS
Bedford 73 128000080 United States Post Office Spokane WA
Bedford 74 128000081 United States Post Office Poth TX
Bedford 75 128000082 United States Post Office Lizella GA
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 76 128000083 United States Post Office Kirtland NM
Bedford 77 128000085 United States Post Office Shaver Lake CA
Bedford 78 128000086 United States Post Office Henryville IN
Bedford 79 128000087 United States Post Office Palmyra ME
Bedford 80 128000088 United States Post Office Lyle WA
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 81 128000089 United States Post Office Quitman TX
Bedford 82 128000090 United States Post Office Lytle TX
Bedford 83 128000092 United States Post Office Cleveland VA
Bedford 84 128000093 United States Post Office Chocura NH
Bedford 85 128000094 United States Post Office DeWittville NY
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 86 128000095 United States Post Office West Bloomfield NY
Bedford 87 128000096 United States Post Office Deerwood MN
Bedford 88 128000098 United States Post Office Ramsey IN
Bedford 89 128000099 United States Post Office Taylorsville KY
Bedford 90 128000100 United States Post Office Archer City TX
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 91 128000102 United States Post Office Graford TX
Bedford 92 128000103 United States Post Office Robeline LA
Bedford 93 128000104 United States Post Office Clyde TX
Bedford 94 128000105 United States Post Office Comanche TX
Bedford 95 128000106 United States Post Office Dupont WA
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 96 128000107 United States Post Office Stockdale TX
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Data Source Sequence Loan Number Street Address Zip Industry
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Agency 17 1210 1341 Wright Avenue (SWC of Warwick Dr) 48801 Retail Drug
Agency 3 1240 1145 Kempton Street 02740 Retail Drug
Agency 42 1298 NEC of Woodside Ave CR9 11763 Retail Drug
Agency 4 1323 5 Main Street 12804 Retail Drug
Agency 15 1356 1916 Orange Avenue 24012 Retail Drug
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 31 1583 216 East Macon Street (NWC of Hall) 27589 Retail Drug
Agency 43 1587 906 Bingham Drive (SWC of Raeford) 28304 Retail Drug
Agency 48 1684NBC 1044 Littleton Road 07950 Grocery
Agency 8 1690 821 East Apple Avenue 49442 Retail Drug
Agency 6 1704 249 Main Street 13905 Retail Drug
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 7 1705 39 Park Street 13827 Retail Drug
Agency 16 1777 2140 State Ave. (NEC of Ripley Blvd) 49707 Retail Drug
Agency 20 1778 1025 Ashmun St. (SEC of Easterday Ave) 49783 Retail Drug
Agency 11 1848 12th and Main St. 49120 Retail Drug
Agency 37 1883 8500 South Eastern Avenue (SEC of Wigwam Pkwy) 89123 Retail Drug
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 23 2020 SWC Mitchell & South Street 49601 Retail Drug
Agency 81 2023NB 1534 Cape Coral Parkway (SEC Chiquita Blvd) 33914 Retail Drug
Agency 75 2025 2513 S. Nellis Boulevard (SWC of Sahara Ave) 89121 Retail Drug
Agency 13 2031NB Highland Drive & Hwy. 264 27889 Retail Drug
Agency 49 2071NB 3274 Inner Perimeter Road (SEC of N. Oak St) 31602 Retail Discount
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 14 2072 Preston Rd. (Hwy 190 & Mapleshade Lane) 75093 Building Materials
Agency 66 2104NBC 520 Convery Boulevard 08861 Retail Drug
Agency 51 2200 112 Browns Way Road (SEC Walton Park & Midlothian Tpke) 23832 Retail Drug
Agency 41 2202 4774 Semoran Blvd. 32822 Retail Drug
Agency 9 2275NB 22 Windsor Avenue 06084 Retail Drug
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 46 2396NB 2835 Canton Road 30328 Retail Drug
Agency 44 2434NB 4787 Covington Hwy (NWC of Glenwood Rd) 30035 Retail Drug
Agency 27 2437NB NEC SC Hwy 9 & Old Frunace Rd. 29316 Grocery
Agency 28 2459 1799 DeKalb Pike 19422 Retail Drug
Agency 25 2472 SEC State Rte. 17, Nys & W. Railroad, East of Essex St. 07644 Building Materials
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 22 2490 453 Main Street (Route 16) 03581 Grocery
Agency 38 2503 998-1000 North Church Street (SWC of 22nd St) 18201 Retail Drug
Agency 206 2504P 2060 Buckner Boulevard (SEC of Bruton) 75217 Retail Drug
Agency 36 2515 NWC Finley Rd. and Route 201 15012 Retail Drug
Agency 19 2521 401 E. Morgan St. (NWC of Apperson Way) 46901 Retail Drug
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 72 2522 2003 Broadway St. (NWC of Cross St.) 46012 Retail Drug
Agency 39 2524 701 Stephenson Blvd (NEC of 7th St) 15068 Retail Drug
Agency 10 2553 2925 Kings Highway 11229 Retail Drug
Agency 80 2575 NWC MS Hwy 182 & Lehmberg Rd. 39709 Grocery
Agency 29 2580 530 W. Old Country Rd. (NEC of Charlotte Ave) 11801 Grocery
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 12 2586 1011 River Falls Street 36420 Retail Drug
Agency 67 2591NBC 85 Voluntown Road (NWC Rte 49 & Rte 2) 06379 Theater
Agency 53 2598 224-240 McCurdy Road (Hwy 75 & Ranch St) 35986 Grocery
Agency 71 2603 5 East Main Street (SEC of Market) 18634 Retail Drug
Agency 77 2673NB 2121 SW 21st St. 66614 Retail Drug
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 64 2724 4894 Route 30 (NWC of Golf Course Rd) 12010 Retail Drug
Agency 18 2745 700 Frederick Boulevard (NWC of Airline Blvd) 23707 Retail Drug
Agency 54 2752 802 Lansdowne Avenue 19026 Retail Drug
Agency 55 2764 3201 Boulevard (@Ellerslie) 23834 Retail Drug
Agency 65 2839 645 Spencerport Road 14606 Retail Drug
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 50 2850 614 Columbia Turnpike 12061 Retail Drug
Agency 68 2906NB 2886 Memorial Drive (NWC of Candler Rd) 30038 Retail Drug
Agency 21 2910 1101 Post Road 54481 Grocery
Agency 76 3006 1708 US Hwy 25 Business 29609 Retail Drug
Agency 24 3068 2636-2660 Jerusalem Avenue (SWC of Bellmore Rd) 11710 Retail Drug
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 32 3143NB 3901 Minnesota Ave. 20019 Food Service
Agency 52 3380 211 Temple Ave (NEC of Hospital Rd.) 30263 Retail Drug
Agency 202 3434 7516 N. Clark Street 60626 Banking
Agency 70 3581 5285 International Drive 32819 Retail Jewelry
Agency 63 3588 2990 East Prien Lake Road 70601 Retail Electronics
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 62 3589 744 East Joyce Boulevard 72704 Retail Electronics
Agency 61 3590 704 South Quintard Avenue 36201 Retail Electronics
Agency 58 3631 3840-3872 Falmouth Road 02635 Grocery
Agency 400 3802 213 Court Street & 181-185 Court Street 06457 Insurance
Agency 310 3999 2555-2575 S. Maryland Pkway 89102 Grocery
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 300 4000 3415 Vision Drive 43227 Banking
Agency 301 4001 3000 West State Rd 48 47404 Building Material Retailer
Agency 302 4002 3222 40th Avenue NW 55901 Computers
Agency 303 4003 2812 Scioto Trail 45662 Retail Drug
Agency 305 4005 9151 South Old State Road 43035 Retail Drug
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 308 4008 102 Harper Avenue 28645 Retail Drug
Agency 309 4009 11810 Ranch Road 620 78750 Retail Drug
Agency 82 4136 25732 El Paseo Boulevard 92691 Retail
Agency 83 4194 1885 15th Place, NW 98027 Hotel
Agency 5 961 1339 East Grand River Avenue 48875 Retail Drug
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 1 128000001 211 Front Street South 56514-9998 Postal Service
Bedford 2 128000002 12324 NY Route 38 13736-9998 Postal Service
Bedford 3 128000003 5725 Clinton Highway 37912-9998 Postal Service
Bedford 4 128000004 108 Martin Road 98336-9998 Postal Service
Bedford 5 128000005 15421 US Highway 23 S 41520-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 6 128000006 2 4th of July Creek Road 99121-9998 Postal Service
Bedford 7 128000007 153 Summer Street 02863-9998 Postal Service
Bedford 8 128000009 Route 22 Longplains Road 04093-9998 Postal Service
Bedford 9 128000010 208 West Kansas Street 50830-9998 Postal Service
Bedford 10 128000011 Main Street 04441-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 11 128000012 N/S Route 1 04745-9998 Postal Service
Bedford 12 128000013 14 Parsons Street 03576-9998 Postal Service
Bedford 13 128000014 Route 67 12094-9998 Postal Service
Bedford 14 128000015 School Street 03809-9998 Postal Service
Bedford 15 128000017 790 Roanoke Road 24083-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 16 128000018 WV Route 7 26547-9998 Postal Service
Bedford 17 128000019 1411 Farr Drive 45404-9998 Postal Service
Bedford 18 128000020 Route #3 B 03369-9998 Postal Service
Bedford 19 128000021 302 North 3rd Street 50226-9998 Postal Service
Bedford 20 128000022 Highway 165 87043-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 21 128000023 US Highway 26 82501-9998 Postal Service
Bedford 22 128000024 Route 28 03234-9998 Postal Service
Bedford 23 128000025 300 East Northmain Avenue 97844-9998 Postal Service
Bedford 24 128000026 Old Route 28 03864-9998 Postal Service
Bedford 25 128000027 402 West First Street 74035-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 26 128000028 805 Second Avenue 74469-9998 Postal Service
Bedford 27 128000029 Highway 82 74962-9998 Postal Service
Bedford 28 128000030 950 West Aztec Avenue 87301-9998 Postal Service
Bedford 29 128000031 123 Glenwood Road 11547-9998 Postal Service
Bedford 30 128000032 2177 Main Street 52065-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 31 128000033 202 North Railroad Street 50257-9998 Postal Service
Bedford 32 128000034 6884 Highway 319 41544-9998 Postal Service
Bedford 33 128000035 Old South Road 02554-9998 Postal Service
Bedford 34 128000036 777 8th Street 73538-9998 Postal Service
Bedford 35 128000039 145 Main Street 39573-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 36 128000040 26822 Cherry Hills Boulevard 92381-9998 Postal Service
Bedford 37 128000041 115 Second Street 98260-9998 Postal Service
Bedford 38 128000042 1106 Chestnut Street 89822-9998 Postal Service
Bedford 39 128000043 456 Brooktondale Road 14781-9998 Postal Service
Bedford 40 128000044 Route 28 and Center Street 13807-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 41 128000045 110 East US 281 78579-9998 Postal Service
Bedford 42 128000046 71 Mt. Vernon Road 03070-9998 Postal Service
Bedford 43 128000047 5640 NY Route 414 14841-9998 Postal Service
Bedford 44 128000048 Military Highway 78557-9998 Postal Service
Bedford 45 128000049 859 Guthrie Street 50069-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 46 128000050 3082 County Road Route 74 47874-9998 Postal Service
Bedford 47 128000051 300 West Washington Street 46160-9998 Postal Service
Bedford 48 128000052 304 Water Street 50046-9998 Postal Service
Bedford 49 128000053 Highway 518 87732-9998 Postal Service
Bedford 50 128000054 707 Scott Street West 59030-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 51 128000055 310 Elliott Street North 59086-9998 Postal Service
Bedford 52 128000056 US Highway 61 55615-9998 Postal Service
Bedford 53 128000057 North Side of Hwy. 40 84026-9998 Postal Service
Bedford 54 128000058 219 South River Avenue 98321-9998 Postal Service
Bedford 55 128000059 165 South Sipple Street 40380-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 56 128000060 406 South Main Street 39475-9998 Postal Service
Bedford 57 128000061 6144 South Avenue (Route 21) 14589-9998 Postal Service
Bedford 58 128000062 1221 Walnut Street 78934-9998 Postal Service
Bedford 59 128000063 1234 Ironwood Street 98844-9998 Postal Service
Bedford 60 128000064 2420 Colorado Boulevard 30452-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 61 128000065 10 Corbettsville Road 13749-9998 Postal Service
Bedford 62 128000066 111 Indiana Avenue 47118-9998 Postal Service
Bedford 63 128000067 US Highway 150 47124-9998 Postal Service
Bedford 64 128000068 8973 McNutt Road 88063-9998 Postal Service
Bedford 65 128000069 Corner of Broadway and Main St. 88029-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 66 128000070 500 Railroad Street 77835-9998 Postal Service
Bedford 67 128000071 639 Dolphin Street 98569-9998 Postal Service
Bedford 68 128000072 Highway FM 775 78121-9998 Postal Service
Bedford 69 128000073 75 Commercial Drive 52317-9998 Postal Service
Bedford 70 128000074 963 Matheson Street 98339-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 71 128000075 304 North Jones 67851-9998 Postal Service
Bedford 72 128000079 825 Highway 198 39423-9998 Postal Service
Bedford 73 128000080 6801 West Will D Alton Lane 99204-9998 Postal Service
Bedford 74 128000081 US Highway 181 & Blessing Dr. 78147-9998 Postal Service
Bedford 75 128000082 US Highway 80 & Williamson Dr. 31052-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 76 128000083 4211 Highway 64 87417-9998 Postal Service
Bedford 77 128000085 40677 Shaver Forest Road 93664-9998 Postal Service
Bedford 78 128000086 102 South Ferguson Street 47126-9998 Postal Service
Bedford 79 128000087 Route 51 & Route 2 04965-9998 Postal Service
Bedford 80 128000088 4th and Washington Streets 98635-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 81 128000089 202 Sissy Spacek Street 75783-9998 Postal Service
Bedford 82 128000090 14841 Highway 132 78052-9998 Postal Service
Bedford 83 128000092 Lebanon Avenue/State Route 82 24225-9998 Postal Service
Bedford 84 128000093 Route 16 & Runnells Hill Road 03246-9998 Postal Service
Bedford 85 128000094 5473 Meadows Road 14728-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 86 128000095 9222 Routes 5 and 20 14585-9998 Postal Service
Bedford 87 128000096 100 East Forest Street 56444-9998 Postal Service
Bedford 88 128000098 1310 State Route 64 Northwest 47166-9998 Postal Service
Bedford 89 128000099 800 Taylorsville Road 70071-9998 Postal Service
Bedford 90 128000100 Highway 79 & Evergreen 76351-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 91 128000102 Powell Avenue & Main Street 76449-9998 Postal Service
Bedford 92 128000103 175 Chapin Loop 71469-9998 Postal Service
Bedford 93 128000104 615 Elm Street 79510-9998 Postal Service
Bedford 94 128000105 410 West Oak Street 76442-9998 Postal Service
Bedford 95 128000106 1413 Thompson Circle 98327-9998 Postal Service
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 96 128000107 102 Salmon Street 78160-9998 Postal Service
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Square feet of Leas Ground
Data Source Sequence Loan Number Property Type Structure Leased Value Dark Value Type Lease Flag
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agency 17 1210 Drug Store 11060 1480000 1155000 NN N
Agency 3 1240 Drug Store 12500 3100000 1985000 NN N
Agency 42 1298 Drug Store 10125 2450000 1800000 NN N
Agency 4 1323 Drug Store 8775 1630000 1195000 NN N
Agency 15 1356 Drug Store 10125 2375000 1745000 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Agency 31 1583 Drug Store 9600 1330000 996250 NN N
Agency 43 1587 Drug Store 10908 2775000 2097500 NN N
Agency 48 1684NBC Grocery Store 67449 19900000 14515000 Bond N
Agency 8 1690 Drug Store 11060 2990000 2090000 NN N
Agency 6 1704 Drug Store 10125 1630000 1095000 NN Y
- ------------------------------------------------------------------------------------------------------------------------------
Agency 7 1705 Drug Store 10125 2200000 1640000 NN N
Agency 16 1777 Drug Store 11060 2630000 1930000 Bond N
Agency 20 1778 Drug Store 11060 2430000 1850000 Bond N
Agency 11 1848 Drug Store 11060 2950000 2090000 NN N
Agency 37 1883 Drug Store 16708 3780000 3170000 NNN N
- ------------------------------------------------------------------------------------------------------------------------------
Agency 23 2020 Drug Store 11060 2560000 1900000 Bond N
Agency 81 2023NB Drug Store 15930 3400000 2440000 NN N
Agency 75 2025 Drug Store 16320 4380000 3175000 NNN N
Agency 13 2031NB Drug Store 10722 1620000 1170000 NN N
Agency 49 2071NB Retail 179900 12600000 8375000 NNN Y
- ------------------------------------------------------------------------------------------------------------------------------
Agency 14 2072 Retail 108620 6400000 11095000 NNN Y
Agency 66 2104NBC Drug Store 13905 3300000 2800000 NN N
Agency 51 2200 Drug Store 13905 3480000 2610000 NN N
Agency 41 2202 Drug Store 13905 3280000 2475000 NN N
Agency 9 2275NB Drug Store 8775 1840000 1390000 NNN N
- ------------------------------------------------------------------------------------------------------------------------------
Agency 46 2396NB Drug Store 10908 2310000 1740000 NN N
Agency 44 2434NB Drug Store 10908 2560000 1945000 NNN N
Agency 27 2437NB Grocery Store 47260 5250000 3875000 NN N
Agency 28 2459 Drug Store 10125 4000000 2930000 NN N
Agency 25 2472 Retail 115844 29400000 19345000 NNN Y
- ------------------------------------------------------------------------------------------------------------------------------
Agency 22 2490 Grocery Store 48089 7900000 5480000 NN N
Agency 38 2503 Drug Store 11180 2210000 1565000 NN N
Agency 206 2504P Drug Store 15120 4630000 3070000 NN N
Agency 36 2515 Drug Store 10908 3430000 2470000 NNN N
Agency 19 2521 Drug Store 10125 2475000 1895000 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Agency 72 2522 Drug Store 10125 2370000 1795000 NN N
Agency 39 2524 Drug Store 10908 3130000 2435000 NNN N
Agency 10 2553 Drug Store 26000 7200000 4840000 NNN N
Agency 80 2575 Grocery Store 47192 4930000 3385000 NNN N
Agency 29 2580 Grocery Store 58606 11300000 7200000 NNN Y
- ------------------------------------------------------------------------------------------------------------------------------
Agency 12 2586 Drug Store 10752 1690000 1275000 NN N
Agency 67 2591NBC Theater 36554 9100000 6900000 NNN N
Agency 53 2598 Grocery Store 47192 4300000 3050000 NNN N
Agency 71 2603 Drug Store 11060 2800000 2300000 NN N
Agency 77 2673NB Drug Store 13905 2650000 1830000 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Agency 64 2724 Drug Store 10908 2560000 1875000 NN N
Agency 18 2745 Drug Store 13905 4250000 3020000 NN N
Agency 54 2752 Drug Store 13500 2230000 1530000 NN N
Agency 55 2764 Drug Store 13905 3730000 2735000 NN N
Agency 65 2839 Drug Store 10125 1350000 950000 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Agency 50 2850 Drug Store 9600 2760000 2200000 NN N
Agency 68 2906NB Drug Store 10908 2540000 1855000 NNN N
Agency 21 2910 Grocery Store 48966 3310000 2925000 NNN N
Agency 76 3006 Drug Store 10908 3650000 2720000 NNN N
Agency 24 3068 Drug Store 10125 1600000 1050000 NN Y
- ------------------------------------------------------------------------------------------------------------------------------
Agency 32 3143NB Restaurant 4450 1200000 1210000 NNN Y
Agency 52 3380 Drug Store 10908 2410000 1845000 NN N
Agency 202 3434 Bank 6000 2900000 2700000 NNN N
Agency 70 3581 Jewelry Store 5800 2300000 1565000 NNN N
Agency 63 3588 Retail Electronics 20973 2720000 2000000 Bond N
- ------------------------------------------------------------------------------------------------------------------------------
Agency 62 3589 Retail Electronics 20827 3770000 2900000 Bond N
Agency 61 3590 Retail Electronics 15280 1990000 1450000 Bond N
Agency 58 3631 Grocery Store 48876 8920000 6700000 NNN Y
Agency 400 3802 Office/Hdqr 158188 25500000 19200000 Bond N
Agency 310 3999 Grocery/Drug Store 73547 17620000 15230000 NNN N
- ------------------------------------------------------------------------------------------------------------------------------
Agency 300 4000 Office 228171 30000000 22000000 NNN N
Agency 301 4001 Retail 128997 11700000 8450000 NN N
Agency 302 4002 Testing Center 11015 3090000 980000 NN Y
Agency 303 4003 Drug Store 10125 1750000 1320000 NN N
Agency 305 4005 Drug Store 10125 2300000 1500000 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Agency 308 4008 Drug Store 10908 2375000 1830000 NN N
Agency 309 4009 Drug Store 13905 2825000 2350000 NN N
Agency 82 4136 Retail 34986 7370000 5900000 Bond N
Agency 83 4194 Hotel 27393 8100000 7600000 Bond N
Agency 5 961 Drug Store 11180 1710000 1415000 Bond N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 1 128000001 U.S. Post Office 2266 NN N
Bedford 2 128000002 U.S. Post Office 3634 NN N
Bedford 3 128000003 U.S. Post Office 4000 NN N
Bedford 4 128000004 U.S. Post Office 3062 NN N
Bedford 5 128000005 U.S. Post Office 1466 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 6 128000006 U.S. Post Office 4169 NN N
Bedford 7 128000007 U.S. Post Office 2059 NN N
Bedford 8 128000009 U.S. Post Office 3179 NN N
Bedford 9 128000010 U.S. Post Office 3027 NN N
Bedford 10 128000011 U.S. Post Office 4554 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 11 128000012 U.S. Post Office 2000 NN N
Bedford 12 128000013 U.S. Post Office 2784 NN N
Bedford 13 128000014 U.S. Post Office 1147 NN N
Bedford 14 128000015 U.S. Post Office 4130 NN N
Bedford 15 128000017 U.S. Post Office 3090 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 16 128000018 U.S. Post Office 3090 NN N
Bedford 17 128000019 U.S. Post Office 7721 NN N
Bedford 18 128000020 U.S. Post Office 1818 NN N
Bedford 19 128000021 U.S. Post Office 3004 NN N
Bedford 20 128000022 U.S. Post Office 6681 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 21 128000023 U.S. Post Office 6681 NN N
Bedford 22 128000024 U.S. Post Office 5749 NN N
Bedford 23 128000025 U.S. Post Office 5173 NN N
Bedford 24 128000026 U.S. Post Office 4598 NN N
Bedford 25 128000027 U.S. Post Office 4975 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 26 128000028 U.S. Post Office 3961 NN N
Bedford 27 128000029 U.S. Post Office 3967 NN N
Bedford 28 128000030 U.S. Post Office 6681 NN N
Bedford 29 128000031 U.S. Post Office 2653 NN N
Bedford 30 128000032 U.S. Post Office 2052 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 31 128000033 U.S. Post Office 2092 NN N
Bedford 32 128000034 U.S. Post Office 2126 NN N
Bedford 33 128000035 U.S. Post Office 5196 NN N
Bedford 34 128000036 U.S. Post Office 3967 NN N
Bedford 35 128000039 U.S. Post Office 5003 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 36 128000040 U.S. Post Office 8825 NN N
Bedford 37 128000041 U.S. Post Office 6681 NN N
Bedford 38 128000042 U.S. Post Office 5071 NN N
Bedford 39 128000043 U.S. Post Office 3190 NN N
Bedford 40 128000044 U.S. Post Office 2593 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 41 128000045 U.S. Post Office 3969 NN N
Bedford 42 128000046 U.S. Post Office 4598 NN N
Bedford 43 128000047 U.S. Post Office 1270 NN N
Bedford 44 128000048 U.S. Post Office 6297 NN N
Bedford 45 128000049 U.S. Post Office 1515 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 46 128000050 U.S. Post Office 1025 NN N
Bedford 47 128000051 U.S. Post Office 3049 NN N
Bedford 48 128000052 U.S. Post Office 1521 NN N
Bedford 49 128000053 U.S. Post Office 4169 NN N
Bedford 50 128000054 U.S. Post Office 6742 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 51 128000055 U.S. Post Office 3137 NN N
Bedford 52 128000056 U.S. Post Office 1062 NN N
Bedford 53 128000057 U.S. Post Office 2603 NN N
Bedford 54 128000058 U.S. Post Office 6681 NN N
Bedford 55 128000059 U.S. Post Office 5071 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 56 128000060 U.S. Post Office 5003 NN N
Bedford 57 128000061 U.S. Post Office 6420 NN N
Bedford 58 128000062 U.S. Post Office 6337 NN N
Bedford 59 128000063 U.S. Post Office 6898 NN N
Bedford 60 128000064 U.S. Post Office 6681 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 61 128000065 U.S. Post Office 1042 NN N
Bedford 62 128000066 U.S. Post Office 3191 NN N
Bedford 63 128000067 U.S. Post Office 3090 NN N
Bedford 64 128000068 U.S. Post Office 8012 NN N
Bedford 65 128000069 U.S. Post Office 5071 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 66 128000070 U.S. Post Office 2010 NN N
Bedford 67 128000071 U.S. Post Office 7252 NN N
Bedford 68 128000072 U.S. Post Office 4987 NN N
Bedford 69 128000073 U.S. Post Office 5071 NN N
Bedford 70 128000074 U.S. Post Office 7252 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 71 128000075 U.S. Post Office 3189 NN N
Bedford 72 128000079 U.S. Post Office 3032 NN N
Bedford 73 128000080 U.S. Post Office 6876 NN N
Bedford 74 128000081 U.S. Post Office 3979 NN N
Bedford 75 128000082 U.S. Post Office 6493 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 76 128000083 U.S. Post Office 6681 NN N
Bedford 77 128000085 U.S. Post Office 2575 NN N
Bedford 78 128000086 U.S. Post Office 4104 NN N
Bedford 79 128000087 U.S. Post Office 2500 NN N
Bedford 80 128000088 U.S. Post Office 4636 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 81 128000089 U.S. Post Office 6337 NN N
Bedford 82 128000090 U.S. Post Office 4987 NN N
Bedford 83 128000092 U.S. Post Office 3294 NN N
Bedford 84 128000093 U.S. Post Office 2667 NN N
Bedford 85 128000094 U.S. Post Office 3100 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 86 128000095 U.S. Post Office 1661 NN N
Bedford 87 128000096 U.S. Post Office 3056 NN N
Bedford 88 128000098 U.S. Post Office 1829 NN N
Bedford 89 128000099 U.S. Post Office 6365 NN N
Bedford 90 128000100 U.S. Post Office 4104 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 91 128000102 U.S. Post Office 4104 NN N
Bedford 92 128000103 U.S. Post Office 2977 NN N
Bedford 93 128000104 U.S. Post Office 6337 NN N
Bedford 94 128000105 U.S. Post Office 6337 NN N
Bedford 95 128000106 U.S. Post Office 5285 NN N
- ------------------------------------------------------------------------------------------------------------------------------
Bedford 96 128000107 U.S. Post Office 4987 NN N
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Lease
Data Source Sequence Loan Number Start of Lease End of Lease Term Original Balance Cut-off Balance
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Agency 17 1210 11/14/97 13-Nov-17 241 $1,355,517.75 $1,331,411.01
Agency 3 1240 7/29/96 31-Jan-17 247 $2,576,365.22 $2,517,673.17
Agency 42 1298 9/21/98 31-Jan-19 245 $2,238,123.29 $2,221,873.00
Agency 4 1323 4/28/97 31-Jan-18 250 $1,409,658.84 $1,372,352.12
Agency 15 1356 4/19/98 30-Apr-18 241 $2,248,610.45 $2,215,052.18
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 31 1583 4/20/98 29-Apr-18 241 $1,140,205.22 $1,121,929.16
Agency 43 1587 7/14/98 31-Jul-18 241 $2,366,763.79 $2,341,368.55
Agency 48 1684NBC 1/5/99 29-Feb-24 302 $18,665,029.45 $18,595,460.93
Agency 8 1690 5/8/98 07-May-18 241 $2,615,363.40 $2,546,578.52
Agency 6 1704 7/7/97 31-Jan-18 247 $1,249,999.88 $1,227,445.04
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 7 1705 9/29/97 31-Jan-18 245 $1,599,999.43 $1,570,631.25
Agency 16 1777 6/23/98 30-Jun-23 301 $2,598,395.36 $2,560,407.51
Agency 20 1778 8/8/98 30-Jun-23 299 $2,356,028.95 $2,327,566.64
Agency 11 1848 6/29/98 28-Jun-18 241 $2,601,962.80 $2,537,878.15
Agency 37 1883 7/31/98 30-Jul-23 301 $3,391,400.52 $3,361,336.15
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 23 2020 10/1/98 30-Jun-24 309 $2,463,367.66 $2,436,225.05
Agency 81 2023NB 3/18/99 31-Mar-19 241 $3,034,503.37 $3,016,575.50
Agency 75 2025 2/19/99 18-Feb-24 301 $3,933,292.13 $3,923,550.61
Agency 13 2031NB 6/21/98 30-Jun-18 241 $1,500,000.59 $1,467,079.48
Agency 49 2071NB 9/16/98 15-Sep-18 241 $12,054,296.82 $11,979,937.94
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 14 2072 31-Oct-18 $5,134,711.30 $5,041,298.70
Agency 66 2104NBC 1/5/99 31-Jan-19 241 $2,892,423.61 $2,870,809.47
Agency 51 2200 9/27/98 30-Sep-18 241 $2,819,331.71 $2,792,013.70
Agency 41 2202 11/21/98 30-Nov-18 241 $2,760,804.33 $2,728,991.06
Agency 9 2275NB 2/2/98 31-Jan-19 252 $1,624,873.43 $1,583,533.14
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 46 2396NB 10/14/98 30-Sep-18 240 $1,995,956.87 $1,965,563.76
Agency 44 2434NB 11/25/98 24-Nov-18 241 $2,364,207.10 $2,331,928.26
Agency 27 2437NB 4/1/98 31-Mar-18 240 $4,969,372.58 $4,911,380.72
Agency 28 2459 9/14/98 31-Jan-19 245 $3,707,106.70 $3,664,569.51
Agency 25 2472 11/28/94 30-Nov-92 1177 $23,291,908.71 $23,288,563.43
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 22 2490 3/25/98 28-Feb-19 252 $7,746,579.00 $7,684,817.60
Agency 38 2503 8/15/98 14-Aug-18 241 $1,836,483.34 $1,811,122.85
Agency 206 2504P 12/12/98 31-Dec-18 241 $3,916,693.88 $3,916,693.87
Agency 36 2515 10/30/98 29-Oct-18 241 $3,373,286.17 $3,340,766.52
Agency 19 2521 7/6/98 31-Jul-18 241 $2,271,401.35 $2,243,120.20
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 72 2522 6/15/98 31-Jan-19 248 $2,290,239.24 $2,261,723.53
Agency 39 2524 11/13/98 12-Nov-18 241 $3,085,706.45 $3,061,236.97
Agency 10 2553 2/13/98 31-Jul-18 246 $6,840,487.69 $6,799,826.71
Agency 80 2575 5/6/99 05-May-19 241 $4,609,523.41 $4,603,642.20
Agency 29 2580 9/15/97 31-Jul-24 323 $9,758,533.24 $9,758,533.24
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 12 2586 3/4/97 03-Mar-17 241 $1,485,433.51 $1,444,931.20
Agency 67 2591NBC 4/1/99 31-Mar-24 300 $8,607,998.17 $8,605,959.15
Agency 53 2598 5/7/98 06-May-18 241 $4,267,315.01 $4,238,628.72
Agency 71 2603 1/26/99 25-Jan-19 241 $2,472,243.91 $2,457,903.04
Agency 77 2673NB 4/15/99 14-Apr-19 241 $2,427,955.44 $2,418,246.91
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 64 2724 9/30/98 29-Sep-18 241 $2,257,468.98 $2,242,356.08
Agency 18 2745 8/1/98 31-Jul-18 240 $3,929,901.18 $3,868,469.60
Agency 54 2752 7/1/98 28-Oct-18 244 $1,872,264.16 $1,860,358.20
Agency 55 2764 1/9/99 31-Jan-19 241 $3,443,678.65 $3,422,791.88
Agency 65 2839 9/28/98 31-Jan-19 245 $1,200,792.49 $1,194,983.17
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 50 2850 11/18/98 30-Nov-18 241 $2,478,683.86 $2,453,901.52
Agency 68 2906NB 1/30/99 29-Jan-19 241 $2,405,248.20 $2,378,968.07
Agency 21 2910 9/98 01-Sep-18 241 $3,309,875.90 $3,262,897.68
Agency 76 3006 3/16/99 15-Mar-19 241 $3,169,368.82 $3,157,026.17
Agency 24 3068 12/19/97 31-Jan-18 242 $1,456,240.27 $1,437,381.18
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 32 3143NB 12/18/87 30-Jun-18 367 $1,000,041.70 $984,026.22
Agency 52 3380 12/9/98 08-Dec-18 241 $2,309,186.70 $2,295,960.63
Agency 202 3434 9/28/98 31-Dec-18 244 $2,585,228.49 $2,647,702.59
Agency 70 3581 11/21/97 30-Nov-17 241 $2,042,476.83 $2,042,215.01
Agency 63 3588 3/5/99 31-Mar-21 265 $2,646,253.16 $2,639,186.19
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 62 3589 3/5/99 31-Mar-21 265 $3,279,035.28 $3,270,830.26
Agency 61 3590 3/5/99 31-Mar-21 265 $1,627,442.33 $1,623,249.92
Agency 58 3631 9/30/98 30-Sep-18 241 $6,588,512.12 $6,561,654.39
Agency 400 3802 7/1/95 01-Jul-07 145 $21,452,577.12 $20,060,746.87
Agency 310 3999 6/2/99 01-Jun-24 301 $17,342,020.96 $17,342,020.96
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 300 4000 4/13/98 12-Apr-13 181 $23,000,000.00 $22,784,510.45
Agency 301 4001 9/1/98 31-Aug-18 240 $11,289,269.75 $11,142,513.82
Agency 302 4002 2/1/99 31-Jan-14 180 $3,214,193.59 $3,180,141.93
Agency 303 4003 7/6/98 31-Jul-18 241 $1,454,881.31 $1,428,940.89
Agency 305 4005 8/31/98 31-Jan-19 246 $2,003,979.94 $1,972,586.86
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 308 4008 5/11/98 10-May-18 241 $2,244,890.94 $2,211,768.46
Agency 309 4009 1/2/99 31-Jan-19 241 $2,414,843.00 $2,387,254.34
Agency 82 4136 6/30/99 31-Jan-22 272 $7,558,551.64 $7,558,551.64
Agency 83 4194 7/2/99 30-Jun-23 288 $7,576,861.78 $7,576,861.78
Agency 5 961 8/1/97 30-Jun-23 311 $1,619,808.71 $1,583,712.22
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 1 128000001 05/01/96 30-Apr-16 $143,775.00 $137,383.36
Bedford 2 128000002 06/01/96 31-May-16 $316,768.03 $302,733.76
Bedford 3 128000003 08/04/97 03-Aug-17 $660,800.00 $637,262.76
Bedford 4 128000004 10/31/97 30-Oct-17 $325,000.00 $313,703.09
Bedford 5 128000005 02/11/97 10-Feb-17 $303,749.16 $292,519.84
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 6 128000006 11/07/97 06-Nov-17 $497,445.65 $481,061.25
Bedford 7 128000007 11/06/97 05-Nov-17 $564,926.43 $546,254.70
Bedford 8 128000009 10/04/97 03-Oct-17 $425,000.00 $411,486.00
Bedford 9 128000010 10/29/97 28-Oct-17 $329,970.55 $319,136.96
Bedford 10 128000011 04/15/96 14-Apr-16 $434,300.00 $376,821.32
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 11 128000012 02/27/97 26-Feb-17 $291,100.00 $280,793.80
Bedford 12 128000013 04/01/96 31-Mar-16 $230,000.00 $220,890.51
Bedford 13 128000014 10/01/96 30-Sep-16 $102,800.00 $98,951.07
Bedford 14 128000015 02/01/96 31-Jan-16 $478,870.68 $459,477.64
Bedford 15 128000017 08/30/96 29-Aug-16 $456,000.00 $440,258.14
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 16 128000018 09/11/96 10-Sep-16 $365,400.00 $352,791.96
Bedford 17 128000019 05/01/97 30-Apr-12 $394,300.00 $371,942.77
Bedford 18 128000020 11/11/96 10-Nov-16 $196,000.00 $188,935.23
Bedford 19 128000021 12/19/97 18-Dec-17 $354,000.00 $343,634.62
Bedford 20 128000022 11/04/97 03-Nov-17 $801,900.00 $778,965.29
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 21 128000023 01/06/98 05-Jan-18 $899,900.00 $873,712.49
Bedford 22 128000024 03/01/98 28-Feb-18 $794,900.00 $772,764.96
Bedford 23 128000025 12/23/97 22-Dec-17 $602,100.00 $585,038.18
Bedford 24 128000026 03/01/98 28-Feb-18 $523,100.00 $508,922.60
Bedford 25 128000027 01/01/98 31-Dec-12 $412,600.00 $393,211.85
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 26 128000028 11/18/97 17-Nov-12 $306,100.00 $291,579.05
Bedford 27 128000029 12/05/97 04-Dec-12 $319,200.00 $304,057.62
Bedford 28 128000030 11/05/97 04-Nov-17 $1,043,000.00 $1,013,031.60
Bedford 29 128000031 11/01/93 31-Oct-03 $166,800.00 $138,522.91
Bedford 30 128000032 03/07/98 06-Mar-18 $271,100.00 $264,060.95
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 31 128000033 03/26/98 25-Mar-18 $265,500.00 $258,606.25
Bedford 32 128000034 03/12/97 11-Mar-17 $275,000.00 $267,055.54
Bedford 33 128000035 03/01/98 29-Feb-28 $1,431,700.00 $1,394,482.90
Bedford 34 128000036 11/18/97 17-Nov-12 $322,100.00 $307,460.81
Bedford 35 128000039 03/24/98 23-Mar-18 $567,200.00 $556,694.15
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 36 128000040 08/01/96 31-Jul-13 $755,000.00 $737,803.06
Bedford 37 128000041 04/08/98 07-Apr-28 $1,444,800.00 $1,430,945.94
Bedford 38 128000042 02/20/98 19-Feb-18 $600,000.00 $585,224.73
Bedford 39 128000043 04/01/98 31-Mar-18 $521,800.00 $509,348.35
Bedford 40 128000044 05/08/98 07-May-18 $425,600.00 $415,383.93
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 41 128000045 04/04/98 03-Apr-18 $325,000.00 $317,398.79
Bedford 42 128000046 05/16/98 15-May-18 $668,200.00 $653,233.43
Bedford 43 128000047 04/01/98 31-Mar-18 $191,200.00 $186,912.37
Bedford 44 128000048 05/29/98 28-May-18 $595,000.00 $581,796.71
Bedford 45 128000049 05/29/98 28-May-18 $341,500.00 $333,759.50
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 46 128000050 12/01/97 30-Nov-17 $264,200.00 $258,181.73
Bedford 47 128000051 06/01/98 31-May-18 $481,600.00 $471,673.73
Bedford 48 128000052 07/17/98 16-Jul-18 $216,900.00 $212,439.23
Bedford 49 128000053 07/18/98 17-Jul-18 $465,800.00 $456,965.49
Bedford 50 128000054 04/29/98 28-Apr-18 $1,144,400.00 $1,122,850.94
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 51 128000055 08/01/98 31-Jul-18 $469,200.00 $461,382.72
Bedford 52 128000056 08/06/98 05-Aug-18 $192,600.00 $189,345.03
Bedford 53 128000057 08/07/96 06-Aug-16 $170,000.00 $165,149.01
Bedford 54 128000058 02/12/98 11-Feb-18 $1,192,300.00 $1,170,058.05
Bedford 55 128000059 08/22/98 21-Aug-18 $799,800.00 $785,645.43
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 56 128000060 08/28/98 27-Aug-18 $650,000.00 $638,962.47
Bedford 57 128000061 09/11/98 10-Sep-18 $700,000.00 $687,302.57
Bedford 58 128000062 03/31/98 30-Mar-13 $499,000.00 $483,637.55
Bedford 59 128000063 09/10/98 09-Sep-18 $950,000.00 $932,767.73
Bedford 60 128000064 09/11/98 10-Sep-23 $1,275,000.00 $1,259,329.81
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 61 128000065 08/01/98 31-Jul-18 $254,400.00 $249,739.01
Bedford 62 128000066 07/13/96 12-Jul-16 $344,800.00 $337,741.80
Bedford 63 128000067 10/29/97 28-Oct-17 $372,000.00 $365,042.31
Bedford 64 128000068 03/01/99 28-Feb-19 $1,255,800.00 $1,245,151.22
Bedford 65 128000069 01/27/99 26-Jan-19 $851,200.00 $842,090.15
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 66 128000070 08/19/98 18-Aug-18 $225,000.00 $221,346.20
Bedford 67 128000071 07/01/98 30-Jun-18 $1,244,100.00 $1,223,417.73
Bedford 68 128000072 08/08/98 07-Aug-18 $616,000.00 $606,163.37
Bedford 69 128000073 02/26/99 25-Feb-19 $660,000.00 $656,053.81
Bedford 70 128000074 09/15/98 14-Sep-18 $1,202,200.00 $1,184,640.88
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 71 128000075 11/06/98 05-Nov-18 $334,900.00 $331,184.24
Bedford 72 128000079 11/06/98 05-Nov-18 $382,600.00 $378,061.53
Bedford 73 128000080 11/09/98 08-Nov-18 $1,167,700.00 $1,153,653.25
Bedford 74 128000081 10/06/98 05-Oct-18 $426,500.00 $421,637.69
Bedford 75 128000082 10/31/98 30-Oct-18 $588,000.00 $580,958.65
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 76 128000083 09/12/97 11-Sep-17 $957,300.00 $946,561.25
Bedford 77 128000085 11/13/98 12-Nov-18 $748,200.00 $739,101.56
Bedford 78 128000086 10/02/98 01-Oct-18 $583,000.00 $576,347.84
Bedford 79 128000087 12/05/98 04-Dec-18 $335,000.00 $330,298.73
Bedford 80 128000088 11/11/98 10-Nov-18 $800,000.00 $792,486.12
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 81 128000089 12/18/98 17-Dec-13 $528,100.00 $518,354.67
Bedford 82 128000090 10/01/98 30-Sep-18 $506,000.00 $502,037.21
Bedford 83 128000092 12/15/98 14-Dec-18 $503,200.00 $498,528.33
Bedford 84 128000093 01/01/99 31-Dec-28 $420,000.00 $417,007.58
Bedford 85 128000094 05/01/99 30-Apr-19 $491,600.00 $490,748.99
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 86 128000095 01/15/99 14-Jan-19 $275,000.00 $273,067.46
Bedford 87 128000096 10/08/98 07-Oct-18 $388,300.00 $385,529.38
Bedford 88 128000098 01/14/99 13-Jan-19 $193,800.00 $192,804.34
Bedford 89 128000099 02/04/99 03-Feb-19 $702,200.00 $698,622.68
Bedford 90 128000100 03/01/99 28-Feb-14 $351,300.00 $348,111.80
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 91 128000102 05/04/99 03-May-14 $340,400.00 $340,400.00
Bedford 92 128000103 02/26/99 25-Feb-19 $290,000.00 $288,547.92
Bedford 93 128000104 02/26/99 25-Feb-14 $474,100.00 $469,774.93
Bedford 94 128000105 02/26/99 25-Feb-14 $479,100.00 $474,755.74
Bedford 95 128000106 03/18/99 17-Mar-19 $959,600.00 $956,167.15
- ----------------------------------------------------------------------------------------------------------------------------------
Bedford 96 128000107 03/31/98 30-Mar-19 $503,500.00 $501,698.79
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Debt Service Coverage Date of Loan First Payment
Data Source Sequence Loan Number Ratio Cutoff LTV Origination Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Agency 17 1210 1.050130611 89.96020338 07-Aug-98 15-Sep-98
Agency 3 1240 1.075974484 81.21526355 06-Jun-97 15-Jul-97
Agency 42 1298 1.048346315 90.68869388 23-Dec-98 15-Feb-99
Agency 4 1323 1.080938957 84.1933816 17-Jul-97 15-Aug-97
Agency 15 1356 1.070541446 93.26535495 20-Jul-98 15-Sep-98
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 31 1583 1.071586617 84.35557594 28-Oct-98 15-Dec-98
Agency 43 1587 1.045388142 84.37364144 28-Dec-98 15-Feb-99
Agency 48 1684NBC 1.003000039 93.44452729 22-Jan-99 15-Mar-99
Agency 8 1690 1.039140008 85.16985017 27-Mar-98 15-Jun-98
Agency 6 1704 1.211914206 75.30337669 02-Feb-98 15-Mar-98
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 7 1705 1.27664085 71.39232955 06-Mar-98 15-Apr-98
Agency 16 1777 1.033183009 97.35389772 22-Jul-98 15-Sep-98
Agency 20 1778 1.033182655 95.78463539 02-Sep-98 15-Oct-98
Agency 11 1848 1.039254341 86.0297678 08-May-98 15-Jul-98
Agency 37 1883 1.089539463 88.92423677 04-Dec-98 15-Jan-99
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 23 2020 1.033183108 95.16504102 30-Sep-98 15-Nov-98
Agency 81 2023NB 1.065264308 88.72280882 24-Jun-99 15-Aug-99
Agency 75 2025 1.077460961 89.57878105 06-May-99 15-Jun-99
Agency 13 2031NB 1.061365609 90.56046173 20-Jul-98 15-Sep-98
Agency 49 2071NB 1.003000016 95.07887254 02-Feb-99 15-Mar-99
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 14 2072 1.013060159 78.77029219 20-Jul-98 15-Nov-98
Agency 66 2104NBC 1.046049161 86.99422636 18-Mar-99 15-Apr-99
Agency 51 2200 1.066231526 80.23027874 04-Feb-99 15-Mar-99
Agency 41 2202 1.046301458 83.20094695 23-Dec-98 15-Feb-99
Agency 9 2275NB 1.033182598 86.0615837 27-Apr-98 15-Jun-98
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 46 2396NB 1.094379588 85.08934026 15-Jan-99 15-Feb-99
Agency 44 2434NB 1.016304438 91.09094766 08-Jan-99 15-Feb-99
Agency 27 2437NB 1.062927841 93.55010895 07-Oct-98 15-Nov-98
Agency 28 2459 1.041082263 91.61423775 09-Oct-98 15-Nov-98
Agency 25 2472 1.002181756 79.21280078 06-Oct-98 15-Nov-98
- ----------------------------------------------------------------------------------------------------------------------------------
Agency 22 2490 1.048660899 97.27617215 28-Sep-98 15-Nov-98
Agency 38 2503 1.046366632 81.95126018 04-Dec-98 15-Jan-99
Agency 206 2504P 1.113125529 84.59382009 13-Jul-99 15-Aug-99
Agency 36 2515 1.002999976 97.39844082 09-Nov-98 15-Dec-98
Agency 19 2521 1.052013507 90.63111919 27-Aug-98 15-Oct-98
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 72 2522 1.052013507 95.43137257 27-Aug-98 15-Oct-98
Agency 39 2524 1.003000145 97.80309808 03-Dec-98 15-Jan-99
Agency 10 2553 1.002999897 94.44203764 07-May-98 15-Aug-98
Agency 80 2575 1.003000074 93.38016633 17-Jun-99 15-Jul-99
Agency 29 2580 0.924620534 86.35870124 20-Oct-98 15-Dec-98
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 12 2586 1.070151435 85.49888757 30-Jun-98 15-Aug-98
Agency 67 2591NBC 1.025510999 94.57097967 25-Mar-99 15-May-99
Agency 53 2598 1.003000124 98.5727609 17-Feb-99 15-Mar-99
Agency 71 2603 1.042856054 87.78225143 12-Apr-99 15-May-99
Agency 77 2673NB 1.046127398 91.25460038 14-May-99 15-Jun-99
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 64 2724 1.062277622 87.59203438 12-Mar-99 15-Apr-99
Agency 18 2745 1.02303942 91.02281412 19-Aug-98 15-Sep-98
Agency 54 2752 1.062366202 83.42413453 19-Feb-99 15-Apr-99
Agency 55 2764 1.046147756 91.76385737 11-Feb-99 15-Mar-99
Agency 65 2839 1.067544128 88.51727185 16-Mar-99 15-Apr-99
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 50 2850 1.062060441 88.90947536 03-Feb-99 15-Mar-99
Agency 68 2906NB 1.002999938 93.66016024 29-Mar-99 15-May-99
Agency 21 2910 1.003000085 98.57696918 22-Sep-98 15-Oct-98
Agency 76 3006 1.043245151 86.49386767 11-May-99 15-Jun-99
Agency 24 3068 1.061409505 89.83632375 30-Sep-98 15-Nov-98
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 32 3143NB 1.052302396 82.002185 29-Oct-98 15-Dec-98
Agency 52 3380 1.045089038 95.26807593 12-Feb-99 15-Mar-99
Agency 202 3434 1.003000195 91.30008931 16-Jul-99 15-Aug-99
Agency 70 3581 1.103631329 88.79195696 12-Apr-99 15-May-99
Agency 63 3588 1.003000244 97.02890404 12-Mar-99 15-May-99
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 62 3589 1.129100313 86.75942334 12-Mar-99 15-May-99
Agency 61 3590 1.196768866 81.57034774 12-Mar-99 15-May-99
Agency 58 3631 1.049301456 73.56114787 04-Mar-99 15-Apr-99
Agency 400 3802 1 78.66959557 01-Jul-95 01-Aug-95
Agency 310 3999 1.025917308 98.4223664 09-Jun-99 01-Aug-99
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 300 4000 1.379472573 75.94836817 14-Oct-98 05-Dec-98
Agency 301 4001 1.091224749 95.23516082 03-Sep-98 05-Oct-98
Agency 302 4002 1.099947153 102.9172147 05-Mar-99 01-Apr-99
Agency 303 4003 1.073599694 81.65376532 09-Jul-98 01-Sep-98
Agency 305 4005 1.065957428 85.76464615 30-Oct-98 01-Dec-98
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 308 4008 1.071839602 93.12709293 30-Jun-98 01-Aug-98
Agency 309 4009 1.074638059 84.5045783 05-Feb-99 01-Mar-99
Agency 82 4136 1.002999995 102.5583669 02-Jul-99 15-Aug-99
Agency 83 4194 1.002991094 93.54150346 07-Jul-99 15-Aug-99
Agency 5 961 1.015254769 92.61474971 17-Sep-97 15-Nov-97
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 1 128000001 1.164407369 10-Jul-97 01-Sep-97
Bedford 2 128000002 1.12022982 05-Aug-97 01-Oct-97
Bedford 3 128000003 1.029964711 10-Oct-97 01-Dec-97
Bedford 4 128000004 1.526697238 19-Nov-97 01-Jan-98
Bedford 5 128000005 1.050533494 14-Nov-97 01-Jan-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 6 128000006 1.051062208 03-Dec-97 01-Feb-98
Bedford 7 128000007 1.040036102 28-Nov-97 01-Feb-98
Bedford 8 128000009 1.156497921 14-Nov-97 01-Jan-98
Bedford 9 128000010 1.100418984 26-Nov-97 01-Feb-98
Bedford 10 128000011 1.030548075 24-Dec-97 01-Feb-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 11 128000012 1.056783 24-Dec-97 01-Feb-98
Bedford 12 128000013 1.245153095 23-Dec-97 01-Feb-98
Bedford 13 128000014 1.152034407 24-Dec-97 01-Feb-98
Bedford 14 128000015 1.076750296 29-Dec-97 01-Feb-98
Bedford 15 128000017 1.065752351 22-Dec-97 01-Mar-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 16 128000018 1.082154634 22-Dec-97 01-Mar-98
Bedford 17 128000019 1.136295285 12-Dec-97 01-Mar-98
Bedford 18 128000020 1.193122959 26-Jan-98 01-Mar-98
Bedford 19 128000021 1.188691673 02-Feb-98 01-Apr-98
Bedford 20 128000022 1.042583695 19-Feb-98 01-May-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 21 128000023 1.038624363 28-Feb-98 01-May-98
Bedford 22 128000024 1.042973603 24-Feb-98 01-May-98
Bedford 23 128000025 1.043621353 20-Mar-98 01-May-98
Bedford 24 128000026 1.046188451 02-Apr-98 01-May-98
Bedford 25 128000027 1.105764247 11-Mar-98 01-May-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 26 128000028 1.113234821 11-Mar-98 01-May-98
Bedford 27 128000029 1.108607392 11-Mar-98 01-May-98
Bedford 28 128000030 1.03929883 20-Mar-98 01-May-98
Bedford 29 128000031 1.066828018 08-Apr-98 01-Jun-98
Bedford 30 128000032 1.085089 31-Mar-98 01-Jun-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 31 128000033 1.08880342 31-Mar-98 01-Jun-98
Bedford 32 128000034 1.093753183 15-May-98 01-Jun-98
Bedford 33 128000035 1.059379034 07-Apr-98 01-Jun-98
Bedford 34 128000036 1.107625892 06-Apr-98 01-Jun-98
Bedford 35 128000039 1.044539149 30-Aug-98 01-Oct-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 36 128000040 1.131545655 31-May-98 01-Sep-98
Bedford 37 128000041 1.031152555 20-May-98 01-Jul-98
Bedford 38 128000042 1.689985694 13-May-98 01-Jul-98
Bedford 39 128000043 1.068072328 31-May-98 01-Jul-98
Bedford 40 128000044 1.06825964 28-May-98 01-Jul-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 41 128000045 1.381923793 21-May-98 01-Jul-98
Bedford 42 128000046 1.036660285 08-Jun-98 01-Aug-98
Bedford 43 128000047 1.093494296 22-Jun-98 01-Aug-98
Bedford 44 128000048 1.310947357 15-Jun-98 01-Aug-98
Bedford 45 128000049 1.055176223 25-Jun-98 01-Aug-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 46 128000050 1.053794715 09-Jul-98 01-Aug-98
Bedford 47 128000051 1.071338382 29-Jul-98 01-Sep-98
Bedford 48 128000052 1.079856286 29-Jul-98 01-Sep-98
Bedford 49 128000053 1.46481514 07-Aug-98 01-Oct-98
Bedford 50 128000054 1.06258235 20-Aug-98 01-Oct-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 51 128000055 1.041237059 27-Aug-98 01-Nov-98
Bedford 52 128000056 1.081403509 25-Aug-98 01-Nov-98
Bedford 53 128000057 1.427005124 03-Sep-98 01-Nov-98
Bedford 54 128000058 1.029765281 02-Sep-98 01-Nov-98
Bedford 55 128000059 1.050857396 09-Sep-98 01-Nov-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 56 128000060 1.066761865 09-Sep-98 01-Nov-98
Bedford 57 128000061 1.519450517 12-Sep-98 01-Nov-98
Bedford 58 128000062 1.271832912 13-Sep-98 01-Nov-98
Bedford 59 128000063 1.234980873 29-Sep-98 01-Nov-98
Bedford 60 128000064 1.169057369 24-Sep-98 01-Nov-98
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 61 128000065 1.053303107 07-Oct-98 01-Nov-98
Bedford 62 128000066 1.104865594 21-Oct-98 01-Dec-98
Bedford 63 128000067 1.101566194 21-Oct-98 01-Dec-98
Bedford 64 128000068 1.025173142 24-Feb-99 01-Apr-99
Bedford 65 128000069 1.033703034 29-Jan-99 01-Mar-99
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 66 128000070 1.364374859 29-Oct-98 01-Dec-98
Bedford 67 128000071 1.035819335 30-Oct-98 01-Dec-98
Bedford 68 128000072 1.088254379 09-Nov-98 01-Dec-98
Bedford 69 128000073 1.168786661 12-Mar-99 01-May-99
Bedford 70 128000074 1.031326649 16-Nov-98 01-Jan-99
- -------------------------------------------------------------------------------------------------------------------------
Bedford 71 128000075 1.108106008 19-Nov-98 01-Feb-99
Bedford 72 128000079 1.042282881 09-Nov-98 01-Feb-99
Bedford 73 128000080 1.092619139 17-Dec-98 01-Feb-99
Bedford 74 128000081 1.083359751 15-Dec-98 01-Feb-99
Bedford 75 128000082 1.1516684 03-Dec-98 01-Feb-99
- -------------------------------------------------------------------------------------------------------------------------
Bedford 76 128000083 1.036611109 19-Jan-99 01-Mar-99
Bedford 77 128000085 1.022002633 16-Dec-98 01-Feb-99
Bedford 78 128000086 1.066805494 16-Dec-98 01-Feb-99
Bedford 79 128000087 1.121620088 21-Dec-98 01-Feb-99
Bedford 80 128000088 1.057178985 29-Jan-99 01-Mar-99
- -------------------------------------------------------------------------------------------------------------------------
Bedford 81 128000089 1.068749936 04-Jan-99 01-Feb-99
Bedford 82 128000090 1.087396166 05-Feb-99 01-Apr-99
Bedford 83 128000092 1.054689239 15-Jan-99 01-Mar-99
Bedford 84 128000093 1.077947239 01-Feb-99 01-Apr-99
Bedford 85 128000094 1.036709707 17-May-99 01-Jul-99
- -------------------------------------------------------------------------------------------------------------------------
Bedford 86 128000095 1.278146614 10-Feb-99 01-Apr-99
Bedford 87 128000096 1.068815677 17-Mar-99 01-Apr-99
Bedford 88 128000098 1.096872086 05-Mar-99 01-May-99
Bedford 89 128000099 1.066101074 05-Mar-99 01-May-99
Bedford 90 128000100 1.073487265 22-Mar-99 01-May-99
- -------------------------------------------------------------------------------------------------------------------------
Bedford 91 128000102 1.086393513 11-Jun-99 01-Aug-99
Bedford 92 128000103 1.226946804 01-Apr-99 01-May-99
Bedford 93 128000104 1.093986858 24-Mar-99 01-May-99
Bedford 94 128000105 1.094560909 26-Mar-99 01-May-99
Bedford 95 128000106 1.041050516 23-Apr-99 01-Jun-99
- -------------------------------------------------------------------------------------------------------------------------
Bedford 96 128000107 1.083187154 21-Apr-99 01-Jun-99
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loan Remaining Loan Administrative Servicing
Data Source Sequence Loan Number Maturity Date Term Term Age Gross Coupon Fee Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agency 17 1210 15-Oct-17 230 219 11 0.0707 0.00115 13.5
Agency 3 1240 15-Jan-17 235 210 25 0.0801 0.00115 13.5
Agency 42 1298 15-Jan-19 240 234 6 0.072 0.00115 13.5
Agency 4 1323 15-Jan-18 246 222 24 0.0771 0.00115 13.5
Agency 15 1356 15-Apr-18 236 225 11 0.0695 0.00115 13.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 31 1583 15-Mar-18 232 224 8 0.0735 0.00115 13.5
Agency 43 1587 15-Jun-18 233 227 6 0.0725 0.00115 13.5
Agency 48 1684NBC 15-Feb-24 300 295 5 0.0732 0.00035 3.5
Agency 8 1690 15-Mar-18 238 224 14 0.0765 0.00115 13.5
Agency 6 1704 15-Jan-18 239 222 17 0.0789 0.00115 13.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 7 1705 15-Jan-18 238 222 16 0.0766 0.00115 13.5
Agency 16 1777 15-Jun-23 298 287 11 0.068 0.00095 9.5
Agency 20 1778 15-Jun-23 297 287 10 0.0745 0.00095 9.5
Agency 11 1848 15-Apr-18 238 225 13 0.0755 0.00115 13.5
Agency 37 1883 15-Jul-23 295 288 7 0.0718 0.00095 11.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 23 2020 15-Sep-23 299 290 9 0.0725 0.00095 9.5
Agency 81 2023NB 15-Mar-19 236 236 0 0.069 0.00115 11.5
Agency 75 2025 15-Jan-24 296 294 2 0.0718 0.00055 5.5
Agency 13 2031NB 15-Jun-18 238 227 11 0.0775 0.00115 13.5
Agency 49 2071NB 15-Aug-18 234 229 5 0.0717 0.00035 3.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 14 2072 15-Oct-18 240 231 9 0.0676 0.00065 7.5
Agency 66 2104NBC 15-Jan-19 238 234 4 0.0743 0.00115 13.5
Agency 51 2200 15-Sep-18 235 230 5 0.0735 0.00115 13.5
Agency 41 2202 15-Nov-18 238 232 6 0.0725 0.00115 13.5
Agency 9 2275NB 15-Jan-19 248 234 14 0.0726 0.00115 11.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 46 2396NB 15-Sep-18 236 230 6 0.0726 0.00115 13.5
Agency 44 2434NB 15-Nov-18 238 232 6 0.0719 0.00095 11.5
Agency 27 2437NB 15-Mar-23 293 284 9 0.0707 0.00065 8.5
Agency 28 2459 15-Jan-19 243 234 9 0.069 0.00115 13.5
Agency 25 2472 15-Dec-18 242 233 9 0.0675 0.00035 5.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 22 2490 15-Feb-24 304 295 9 0.0725 0.0005 5
Agency 38 2503 15-Jul-18 235 228 7 0.0725 0.00115 13.5
Agency 206 2504P 15-Dec-18 233 233 0 0.0705 0.00135 13.5
Agency 36 2515 15-Oct-18 239 231 8 0.07 0.00095 11.5
Agency 19 2521 15-Jan-24 304 294 10 0.0707 0.00065 6.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 72 2522 15-Jan-24 304 294 10 0.0707 0.00065 6.5
Agency 39 2524 15-Oct-18 238 231 7 0.0725 0.00095 11.5
Agency 10 2553 15-Jul-18 240 228 12 0.0723 0.00055 9.5
Agency 80 2575 15-Apr-19 238 238 0 0.0751 0.00055 5.5
Agency 29 2580 15-Jul-24 308 300 8 0.0735 0.00035 7
- --------------------------------------------------------------------------------------------------------------------------------
Agency 12 2586 15-Mar-17 224 212 12 0.069 0.00115 13.5
Agency 67 2591NBC 15-Apr-24 300 297 3 0.0767 0.00035 3.5
Agency 53 2598 15-Apr-18 230 225 5 0.0715 0.00055 5.5
Agency 71 2603 15-Dec-18 236 233 3 0.0725 0.001 10
Agency 77 2673NB 15-Apr-19 239 237 2 0.0675 0.00115 11.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 64 2724 15-Aug-18 233 229 4 0.0728 0.00115 13.5
Agency 18 2745 15-Jul-18 239 228 11 0.072 0.00115 13.5
Agency 54 2752 15-Aug-18 233 229 4 0.0725 0.00115 13.5
Agency 55 2764 15-Jan-19 239 234 5 0.0725 0.00135 13.5
Agency 65 2839 15-Jan-19 238 234 4 0.0725 0.00115 13.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 50 2850 15-Nov-18 237 232 5 0.0695 0.00115 13.5
Agency 68 2906NB 15-Jan-19 237 234 3 0.0675 0.00095 9.5
Agency 21 2910 15-Aug-18 239 229 10 0.069 0.00055 9.5
Agency 76 3006 15-Feb-19 237 235 2 0.071 0.00095 9.5
Agency 24 3068 15-Jan-18 231 222 9 0.0715 0.00115 13.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 32 3143NB 15-Jun-18 235 227 8 0.0715 0.00095 9.5
Agency 52 3380 15-Nov-18 237 232 5 0.0725 0.00115 13.5
Agency 202 3434 15-Dec-18 233 233 0 0.076 0.00105 10.5
Agency 70 3581 15-Nov-17 223 220 3 0.0789 0.0008 8
Agency 63 3588 15-Apr-21 264 261 3 0.08 0.00095 9.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 62 3589 15-Apr-21 264 261 3 0.08 0.00095 9.5
Agency 61 3590 15-Apr-21 264 261 3 0.08 0.00095 9.5
Agency 58 3631 15-Sep-19 246 242 4 0.0725 0.00065 6.5
Agency 400 3802 01-Jul-07 144 96 48 0.08375 0 0
Agency 310 3999 01-May-24 298 298 0 0.072 0 3.5
- --------------------------------------------------------------------------------------------------------------------------------
Agency 300 4000 05-Mar-13 172 164 8 0.0679 0 0
Agency 301 4001 05-Jul-18 238 228 10 0.0671 0 0
Agency 302 4002 01-Mar-14 180 176 4 0.0698 0 0
Agency 303 4003 01-Aug-18 240 229 11 0.0772 0 0
Agency 305 4005 01-Dec-18 241 233 8 0.0694 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Agency 308 4008 01-May-18 238 226 12 0.0709 0 0
Agency 309 4009 01-Feb-19 240 235 5 0.0719 0 0
Agency 82 4136 15-Jan-22 270 270 0 0.08 0.00035 3.5
Agency 83 4194 15-Jul-21 264 264 0 0.085 0.00335 3.5
Agency 5 961 15-Jun-23 308 287 21 0.0798 0.00095 9.5
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 1 128000001 10-Jul-16 227 204 23 0.0842
Bedford 2 128000002 05-May-16 224 202 22 0.0825
Bedford 3 128000003 10-Sep-17 238 218 20 0.0821
Bedford 4 128000004 19-Sep-17 237 218 19 0.0799
Bedford 5 128000005 14-Nov-16 227 208 19 0.0823
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 6 128000006 03-Oct-17 237 219 18 0.0799
Bedford 7 128000007 28-Sep-17 236 218 18 0.0796
Bedford 8 128000009 14-Nov-17 239 220 19 0.0822
Bedford 9 128000010 26-Sep-17 236 218 18 0.0801
Bedford 10 128000011 24-Jun-06 101 83 18 0.0775
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 11 128000012 24-Mar-17 230 212 18 0.0787
Bedford 12 128000013 23-Feb-16 217 199 18 0.0791
Bedford 13 128000014 24-Aug-16 223 205 18 0.079
Bedford 14 128000015 29-Dec-15 215 197 18 0.0786
Bedford 15 128000017 01-Nov-16 225 208 17 0.0801
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 16 128000018 01-Nov-16 225 208 17 0.0801
Bedford 17 128000019 01-Jun-12 172 155 17 0.0784
Bedford 18 128000020 26-Sep-16 223 206 17 0.0769
Bedford 19 128000021 02-Jan-18 238 222 16 0.0786
Bedford 20 128000022 19-Nov-17 235 220 15 0.0762
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 21 128000023 28-Jan-18 237 222 15 0.074
Bedford 22 128000024 01-Apr-18 240 225 15 0.0764
Bedford 23 128000025 20-Dec-17 236 221 15 0.077
Bedford 24 128000026 01-Apr-18 240 225 15 0.0787
Bedford 25 128000027 01-Feb-13 178 163 15 0.0782
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 26 128000028 01-Jan-13 177 162 15 0.0782
Bedford 27 128000029 01-Jan-13 177 162 15 0.0782
Bedford 28 128000030 01-Jan-18 237 222 15 0.0758
Bedford 29 128000031 01-Nov-03 66 52 14 0.0768
Bedford 30 128000032 01-Apr-18 239 225 14 0.0769
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 31 128000033 01-Apr-18 239 225 14 0.0769
Bedford 32 128000034 01-Apr-17 227 213 14 0.0762
Bedford 33 128000035 01-Mar-18 238 224 14 0.0775
Bedford 34 128000036 01-Dec-12 175 161 14 0.0769
Bedford 35 128000039 01-May-18 236 226 10 0.078
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 36 128000040 01-Sep-13 181 170 11 0.0757
Bedford 37 128000041 01-May-28 359 346 13 0.0776
Bedford 38 128000042 01-Mar-18 237 224 13 0.0765
Bedford 39 128000043 01-May-18 239 226 13 0.0775
Bedford 40 128000044 01-May-18 239 226 13 0.077
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 41 128000045 01-May-18 239 226 13 0.0792
Bedford 42 128000046 01-May-18 238 226 12 0.0765
Bedford 43 128000047 01-May-18 238 226 12 0.0764
Bedford 44 128000048 01-Jun-18 239 227 12 0.0766
Bedford 45 128000049 01-Jun-18 239 227 12 0.0748
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 46 128000050 01-Dec-17 233 221 12 0.0786
Bedford 47 128000051 01-Jun-18 238 227 11 0.0759
Bedford 48 128000052 01-Jul-18 239 228 11 0.0754
Bedford 49 128000053 01-Aug-18 239 229 10 0.0746
Bedford 50 128000054 01-Jun-18 237 227 10 0.0759
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 51 128000055 01-Sep-18 239 230 9 0.0757
Bedford 52 128000056 01-Sep-18 239 230 9 0.0745
Bedford 53 128000057 01-Oct-13 180 171 9 0.0722
Bedford 54 128000058 01-Mar-18 233 224 9 0.0701
Bedford 55 128000059 01-Sep-18 239 230 9 0.0706
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 56 128000060 01-Sep-18 239 230 9 0.0741
Bedford 57 128000061 01-Sep-18 239 230 9 0.0685
Bedford 58 128000062 01-Apr-13 174 165 9 0.0696
Bedford 59 128000063 01-Sep-18 239 230 9 0.0685
Bedford 60 128000064 01-Sep-23 299 290 9 0.0654
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 61 128000065 01-Aug-18 238 229 9 0.0683
Bedford 62 128000066 01-Sep-16 214 206 8 0.0641
Bedford 63 128000067 01-Nov-17 228 220 8 0.0625
Bedford 64 128000068 01-Mar-19 240 236 4 0.0624
Bedford 65 128000069 01-Feb-19 240 235 5 0.0618
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 66 128000070 01-Sep-18 238 230 8 0.0683
Bedford 67 128000071 01-Jul-18 236 228 8 0.0676
Bedford 68 128000072 01-Aug-18 237 229 8 0.0704
Bedford 69 128000073 01-Mar-19 239 236 3 0.068
Bedford 70 128000074 01-Oct-18 238 231 7 0.0657
- -------------------------------------------------------------------------------------------------------------------------------
Bedford 71 128000075 01-Dec-18 239 233 6 0.075
Bedford 72 128000079 01-Dec-18 239 233 6 0.0694
Bedford 73 128000080 01-Nov-18 238 232 6 0.0733
Bedford 74 128000081 01-Nov-18 238 232 6 0.0734
Bedford 75 128000082 01-Dec-18 239 233 6 0.0686
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 76 128000083 01-Oct-17 224 219 5 0.0676
Bedford 77 128000085 01-Dec-18 239 233 6 0.0673
Bedford 78 128000086 01-Oct-18 237 231 6 0.074
Bedford 79 128000087 01-Jul-16 210 204 6 0.0755
Bedford 80 128000088 01-Dec-18 238 233 5 0.0741
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 81 128000089 01-Jan-14 180 174 6 0.0747
Bedford 82 128000090 01-Nov-18 236 232 4 0.0717
Bedford 83 128000092 01-Jan-19 239 234 5 0.0744
Bedford 84 128000093 01-Mar-19 240 236 4 0.0769
Bedford 85 128000094 01-May-19 239 238 1 0.0791
- -------------------------------------------------------------------------------------------------------------------------------
Bedford 86 128000095 01-Feb-19 239 235 4 0.0787
Bedford 87 128000096 01-Oct-18 235 231 4 0.0802
Bedford 88 128000098 01-Feb-19 238 235 3 0.0812
Bedford 89 128000099 01-Mar-19 239 236 3 0.0812
Bedford 90 128000100 01-Mar-14 179 176 3 0.0766
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 91 128000102 01-Jun-14 179 179 0 0.0787
Bedford 92 128000103 01-Mar-19 239 236 3 0.0826
Bedford 93 128000104 01-Mar-14 179 176 3 0.076
Bedford 94 128000105 01-Mar-14 179 176 3 0.0767
Bedford 95 128000106 01-Apr-19 239 237 2 0.0767
- --------------------------------------------------------------------------------------------------------------------------------
Bedford 96 128000107 01-Apr-19 239 237 2 0.0767
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Lock Out Start Lock Out End Remaining Lock Yield Maintenance Yield Maintenance
Data Source Sequence Loan Number Net Coupon Date Date Out Period Start Date End Date
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agency 17 1210 0.0572 8/7/98 8/14/06 85 15 Aug 06 15 Oct 17
Agency 3 1240 0.0666 6/6/97 6/14/05 71 15 Jun 05 15 Jan 17
Agency 42 1298 0.0585 12/23/98 8/14/01 25
Agency 4 1323 0.0636 7/17/97 8/14/05 73 15 Aug 05 15 Jan 18
Agency 15 1356 0.056 7/20/98 8/14/06 85 15 Aug 06 15 Apr 18
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 31 1583 0.06 10/28/98 11/14/06 88 15 Nov 06 15 Mar 18
Agency 43 1587 0.059 12/28/98 8/14/01 25
Agency 48 1684NBC 0.0697 1/22/99 2/14/07 91 15 Feb 07 15 Feb 24
Agency 8 1690 0.063 3/27/98 4/14/06 81 15 Apr 06 15 Mar 18
Agency 6 1704 0.0654 2/2/98 2/14/06 79 15 Feb 06 15 Jan 18
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 7 1705 0.0631 3/6/98 3/14/06 80 15 Mar 06 15 Jan 18
Agency 16 1777 0.0585 7/22/98 8/14/06 85 15 Aug 06 15 Jun 23
Agency 20 1778 0.065 9/2/98 8/14/01 25
Agency 11 1848 0.062 5/8/98 5/14/06 82 15 May 06 15 Apr 18
Agency 37 1883 0.0603 12/4/98 8/14/01 25
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 23 2020 0.063 9/30/98 8/14/01 25
Agency 81 2023NB 0.0575 6/24/99 7/14/07 95 15 Jul 07 15 Mar 19
Agency 75 2025 0.0663 5/6/99 8/14/01 25
Agency 13 2031NB 0.064 7/20/98 8/14/06 85 15 Aug 06 15 Jun 18
Agency 49 2071NB 0.0682 2/2/99 8/14/01 25
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 14 2072 0.0601 7/20/98 8/14/06 85 15 Aug 06 15 Oct 18
Agency 66 2104NBC 0.0608 3/18/99 8/14/01 25
Agency 51 2200 0.06 2/4/99 8/14/01 25
Agency 41 2202 0.059 12/23/98 8/14/01 25
Agency 9 2275NB 0.0611 4/27/98 5/14/06 82 15 May 06 15 Jan 19
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 46 2396NB 0.0591 1/15/99 2/14/07 91 15 Feb 07 15 Sep 18
Agency 44 2434NB 0.0604 1/8/99 1/14/07 90 15 Jan 07 15 Nov 18
Agency 27 2437NB 0.0622 10/7/98 8/14/01 25
Agency 28 2459 0.0555 10/9/98 8/14/01 25
Agency 25 2472 0.062 10/6/98 8/14/01 25
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 22 2490 0.0675 9/28/98 10/14/06 87 15 Oct 06 15 Feb 24
Agency 38 2503 0.059 12/4/98 8/14/01 25
Agency 206 2504P 0.057 2/26/99 8/14/01 24
Agency 36 2515 0.0585 11/9/98 8/14/01 25
Agency 19 2521 0.0642 8/27/98 9/14/06 86 15 Sep 06 15 Jan 24
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 72 2522 0.0642 8/27/98 9/14/06 86 15 Sep 06 15 Jan 24
Agency 39 2524 0.061 12/3/98 8/14/01 25
Agency 10 2553 0.0628 5/7/98 5/14/06 82 15 May 06 15 Jul 18
Agency 80 2575 0.0696 6/17/99 7/14/07 96 15 Jul 07 15 Apr 19
Agency 29 2580 0.0665 10/20/98 8/14/01 25
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 12 2586 0.0555 6/30/98 7/14/06 84 15 Jul 06 15 Mar 17
Agency 67 2591NBC 0.0732 3/25/99 4/14/07 93 15 Apr 07 15 Apr 24
Agency 53 2598 0.066 2/12/99 8/14/01 25
Agency 71 2603 0.0625 4/12/99 8/14/01 25
Agency 77 2673NB 0.056 5/14/99 5/14/07 94 15 May 07 15 Apr 19
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 64 2724 0.0593 3/12/99 8/14/01 25
Agency 18 2745 0.0585 8/19/98 9/14/06 86 15 Sep 06 15 Jul 18
Agency 54 2752 0.059 2/19/99 8/14/01 25
Agency 55 2764 0.059 2/11/99 8/14/01 25
Agency 65 2839 0.059 3/16/99 8/14/01 25
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 50 2850 0.056 2/3/99 8/14/01 25
Agency 68 2906NB 0.058 3/29/99 4/14/07 93 15 Apr 07 15 Jan 19
Agency 21 2910 0.0595 9/22/98 10/14/06 87 15 Oct 06 15 Aug 18
Agency 76 3006 0.0615 5/11/99 8/14/01 25
Agency 24 3068 0.058 9/30/98 8/14/01 25
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 32 3143NB 0.062 10/29/98 8/14/01 25
Agency 52 3380 0.059 2/12/99 8/14/01 25
Agency 202 3434 0.0655 7/16/99 8/14/01 24
Agency 70 3581 0.0709 4/12/99 8/14/01 25
Agency 63 3588 0.0705 3/12/99 8/14/01 25
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 62 3589 0.0705 3/12/99 8/14/01 25
Agency 61 3590 0.0705 3/12/99 8/14/01 25
Agency 58 3631 0.066 3/4/99 8/14/01 25
Agency 400 3802 .08375 01 Jul 96 30 Jun 06
Agency 310 3999 0.0685 6/9/99 6/30/06 82
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 300 4000 0.0679 10/14/98 11/4/04 64
Agency 301 4001 0.0671 9/3/98 10/4/03 51
Agency 302 4002 0.0698 3/5/99 3/31/06 80 01 Apr 06 01 Mar 14
Agency 303 4003 0.0772 7/9/98 7/31/05 72 01 Aug 05 01 Aug 18
Agency 305 4005 0.0694 10/30/98 10/31/05 75 01 Nov 05 01 Dec 18
- ---------------------------------------------------------------------------------------------------------------------------------
Agency 308 4008 0.0709 6/30/98 6/30/05 71 01 Jul 05 01 May 18
Agency 309 4009 0.0719 2/5/99 2/28/06 79 01 Mar 06 01 Feb 19
Agency 82 4136 0.0765 7/2/99 8/14/01 24
Agency 83 4194 0.0815 7/7/99 8/14/01 24
Agency 5 961 0.0703 9/17/97 10/14/05 75 15 Oct 05 15 Jun 23
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 1 128000001 0.0842 0 10 Jul 97 01 Sep 16
Bedford 2 128000002 0.0825 0 05 Aug 97 01 Jul 16
Bedford 3 128000003 0.0821 0 10 Oct 97 01 Nov 17
Bedford 4 128000004 0.0799 0 19 Nov 97 01 Nov 17
Bedford 5 128000005 0.0823 0 14 Nov 97 01 Jan 17
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 6 128000006 0.0799 0 03 Dec 97 01 Dec 17
Bedford 7 128000007 0.0796 0 28 Nov 97 01 Nov 17
Bedford 8 128000009 0.0822 0 14 Nov 97 14 Nov 17
Bedford 9 128000010 0.0801 0 26 Nov 97 01 Oct 17
Bedford 10 128000011 0.0775 0 24 Dec 97 01 Aug 06
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 11 128000012 0.0787 0 24 Dec 97 01 May 17
Bedford 12 128000013 0.0791 0 23 Dec 97 01 Apr 16
Bedford 13 128000014 0.079 0 24 Dec 97 01 Sep 16
Bedford 14 128000015 0.0786 0 29 Dec 97 01 Feb 16
Bedford 15 128000017 0.0801 0 22 Dec 97 01 Nov 16
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 16 128000018 0.0801 0 22 Dec 97 01 Nov 16
Bedford 17 128000019 0.0784 0 12 Dec 97 01 Jun 12
Bedford 18 128000020 0.0769 0 26 Jan 98 01 Nov 16
Bedford 19 128000021 0.0786 0 02 Feb 98 01 Feb 18
Bedford 20 128000021 0.0762 0 19 Feb 98 01 Jan 18
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 21 128000023 0.074 0 28 Feb 98 01 Mar 18
Bedford 22 128000024 0.0764 0 24 Feb 98 01 Apr 18
Bedford 23 128000025 0.077 0 20 Mar 98 01 Feb 18
Bedford 24 128000026 0.0787 0 02 Apr 98 01 Apr 18
Bedford 25 128000027 0.0782 0 11 Mar 98 01 Feb 13
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 26 128000028 0.0782 0 11 Mar 98 01 Jan 13
Bedford 27 128000029 0.0782 0 11 Mar 98 01 Jan 13
Bedford 28 128000030 0.0758 0 20 Mar 98 01 Jan 18
Bedford 29 128000031 0.0768 0 08 Apr 98 01 Nov 03
Bedford 30 128000032 0.0769 0 31 Mar 98 01 Apr 18
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 31 128000033 0.0769 0 31 Mar 98 01 Apr 18
Bedford 32 128000034 0.0762 0 15 May 98 01 Apr 17
Bedford 33 128000035 0.0775 0 07 Apr 98 01 Mar 18
Bedford 34 128000036 0.0769 0 06 Apr 98 01 Dec 12
Bedford 35 128000039 0.078 0 30 Aug 98 01 May 18
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 36 128000040 0.0757 0 31 May 98 01 Sep 13
Bedford 37 128000041 0.0776 0 20 May 98 01 May 28
Bedford 38 128000042 0.0765 0 13 May 98 01 Mar 18
Bedford 39 128000043 0.0775 0 31 May 98 01 May 18
Bedford 40 128000044 0.077 0 28 May 98 01 May 18
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 41 128000045 0.0792 0 21 May 98 01 May 18
Bedford 42 128000046 0.0765 0 08 Jun 98 01 May 18
Bedford 43 128000047 0.0764 0 22 Jun 98 01 May 18
Bedford 44 128000048 0.0766 0 15 Jun 98 01 Jun 18
Bedford 45 128000049 0.0748 0 25 Jun 98 01 Jun 18
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 46 128000050 0.0786 0 09 Jul 98 01 Dec 17
Bedford 47 128000051 0.0759 0 29 Jul 98 01 Jun 18
Bedford 48 128000052 0.0754 0 29 Jul 98 01 Jul 18
Bedford 49 128000053 0.0746 0 07 Aug 98 01 Aug 18
Bedford 50 128000054 0.0759 0 20 Aug 98 01 Jun 18
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 51 128000055 0.0757 0 27 Aug 98 01 Sep 18
Bedford 52 128000056 0.0745 0 25 Aug 98 01 Sep 18
Bedford 53 128000057 0.0722 0 03 Sep 98 01 Oct 13
Bedford 54 128000058 0.0701 0 02 Sep 98 01 Mar 18
Bedford 55 128000059 0.0706 0 09 Sep 98 01 Sep 18
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 56 128000060 0.0741 0 09 Sep 98 01 Sep 18
Bedford 57 128000061 0.0685 0 12 Sep 98 01 Sep 18
Bedford 58 128000062 0.0696 0 13 Sep 98 01 Apr 13
Bedford 59 128000063 0.0685 0 29 Sep 98 01 Sep 18
Bedford 60 128000064 0.0654 0 24 Sep 98 01 Sep 23
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 61 128000065 0.0683 0 07 Oct 98 01 Aug 18
Bedford 62 128000066 0.0641 0 21 Oct 98 01 Sep 16
Bedford 63 128000067 0.0625 0 21 Oct 98 01 Nov 17
Bedford 64 128000068 0.0624 0 24 Feb 99 01 Mar 19
Bedford 65 128000069 0.0618 0 29 Jan 99 01 Feb 19
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 66 128000070 0.0683 0 29 Oct 98 01 Sep 18
Bedford 67 128000071 0.0676 0 30 Oct 98 01 Jul 18
Bedford 68 128000072 0.0704 0 09 Nov 98 01 Aug 18
Bedford 69 128000073 0.068 0 12 Mar 99 01 Mar 19
Bedford 70 128000074 0.0657 0 16 Nov 98 01 Oct 18
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 71 128000075 0.075 0 19 Nov 98 01 Dec 18
Bedford 72 128000079 0.0694 0 09 Nov 98 01 Dec 18
Bedford 73 128000080 0.0733 0 17 Dec 98 01 Nov 18
Bedford 74 128000081 0.0734 0 15 Dec 98 01 Nov 18
Bedford 75 128000082 0.0686 0 03 Dec 98 01 Dec 18
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 76 128000083 0.0676 0 19 Jan 99 01 Oct 17
Bedford 77 128000085 0.0673 0 16 Dec 98 01 Dec 18
Bedford 78 128000086 0.074 0 16 Dec 98 01 Oct 18
Bedford 79 128000087 0.0755 0 21 Dec 98 01 Jul 16
Bedford 80 128000088 0.0741 0 29 Jan 99 01 Dec 18
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 81 128000089 0.0747 0 04 Jan 99 01 Jan 14
Bedford 82 128000090 0.0717 0 05 Feb 99 01 Nov 18
Bedford 83 128000092 0.0744 0 15 Jan 99 01 Jan 19
Bedford 84 128000093 0.0769 0 01 Feb 99 01 Mar 19
Bedford 85 128000094 0.0791 0 17 May 99 01 May 19
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 86 128000095 0.0787 0 10 Feb 99 01 Feb 19
Bedford 87 128000096 0.0802 0 17 Mar 99 01 Oct 18
Bedford 88 128000098 0.0812 0 05 Mar 99 01 Feb 19
Bedford 89 128000099 0.0812 0 05 Mar 99 01 Mar 19
Bedford 90 128000100 0.0766 0 22 Mar 99 01 Mar 14
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 91 128000102 0.0787 0 11 Jun 99 01 Jun 14
Bedford 92 128000103 0.0826 0 01 Apr 99 01 Mar 19
Bedford 93 128000104 0.076 0 24 Mar 99 01 Mar 14
Bedford 94 128000105 0.0767 0 26 Mar 99 01 Mar 14
Bedford 95 128000106 0.0767 0 23 Apr 99 01 Apr 19
- ---------------------------------------------------------------------------------------------------------------------------------
Bedford 96 128000107 0.0767 0 21 Apr 99 01 Apr 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Estimated Replace- Expense Year
Replace- ment Reserve Reno-
Data Source Sequence Loan Number ments Reserves Fund vated Related Loans
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Agency 17 1210 29516 38157 1998
Agency 3 1240 79420 97917.45 5000 1996
Agency 42 1298 45273 56700 50000 1998
Agency 4 1323 45587 59362.26 1875 1997
Agency 15 1356 48319 61728.16 34228.7 1998 1583, 1575
- ----------------------------------------------------------------------------------------------------------------------------
Agency 31 1583 29025 37120 19759.5 1998 1587, 2017, 1575, 1576, 3188, 1357
Agency 43 1587 40379 50831.28 38613 1998
Agency 48 1684NBC 0 0 1998 None
Agency 8 1690 34297 44346.54 1998 1848
Agency 6 1704 42615 52431.82 1997
- ----------------------------------------------------------------------------------------------------------------------------
Agency 7 1705 45943 56227.5 1997 1704
Agency 16 1777 0 0 1998 1778, 2020
Agency 20 1778 0 0 1998 1777, 2020
Agency 11 1848 33929 44346.54 650 1998 1690
Agency 37 1883 0 0 1999 2020, 2677, 3474
- ----------------------------------------------------------------------------------------------------------------------------
Agency 23 2020 0 0 1096902 1999 1777, 1778
Agency 81 2023NB 53447 62658 1998 None
Agency 75 2025 0 0 1998 3474
Agency 13 2031NB 23380 40162.5 38601.57 1998
Agency 49 2071NB 0 0 179900 1998
- ----------------------------------------------------------------------------------------------------------------------------
Agency 14 2072 0 0 188750 1999
Agency 66 2104NBC 54746 68946.22 1998 2108
Agency 51 2200 52624 65353.5 1998
Agency 41 2202 52094 66187.8 1998
Agency 9 2275NB 0 0 1998
- ----------------------------------------------------------------------------------------------------------------------------
Agency 46 2396NB 25176 42904.8 50467 1998
Agency 44 2434NB 0 0 23714.05 1998
Agency 27 2437NB 196213 248095.02 1998
Agency 28 2459 37111 48182.04 1998
Agency 25 2472 0 0 1013500 1999
- ----------------------------------------------------------------------------------------------------------------------------
Agency 22 2490 30850 243649.92 3310850 1999
Agency 38 2503 32937 43940.3 1998
Agency 206 2504P 58716 58716 1998 2745, 2764
Agency 36 2515 0 0 97500 1998 2524
Agency 19 2521 112245 143320.12 34467.66 1998
- ----------------------------------------------------------------------------------------------------------------------------
Agency 72 2522 24549 33345.76 33716.26 1998
Agency 39 2524 0 0 91500 1998 2515
Agency 10 2553 0 0 1998
Agency 80 2575 0 40000 1999 None
Agency 29 2580 0 0 2177553.13 2000
- ----------------------------------------------------------------------------------------------------------------------------
Agency 12 2586 26043 42306.88 250 1997
Agency 67 2591NBC 0 0 57000 1999
Agency 53 2598 0 0 1998
Agency 71 2603 32471 43501.88 1999 2358
Agency 77 2673NB 39634 55388.25 1999 None
- ----------------------------------------------------------------------------------------------------------------------------
Agency 64 2724 58683 74128.95 37050.82 1998
Agency 18 2745 62748 138471.82 650 1998 2764, 2504
Agency 54 2752 5788 26212.5 16482 1999
Agency 55 2764 58617 74773.54 1998 2745, 2504
Agency 65 2839 35218 48195 18500 1998
- ----------------------------------------------------------------------------------------------------------------------------
Agency 50 2850 29030 37920 1998 1991
Agency 68 2906NB 0 0 20000 1998 1984, 2164, 2434
Agency 21 2910 0 0 23680.16 1996
Agency 76 3006 0 0 78000 1999 None
Agency 24 3068 22932 38981.25 25000 1998 1323
- ----------------------------------------------------------------------------------------------------------------------------
Agency 32 3143NB 0 0 1987
Agency 52 3380 34805 45240.93 34623.34 1998
Agency 202 3434 1999 None
Agency 70 3581 0 0 1997 None
Agency 63 3588 0 0 1998 3589 3590
- ----------------------------------------------------------------------------------------------------------------------------
Agency 62 3589 0 0 1998 3588 3590
Agency 61 3590 0 0 1998 3588 3589
Agency 58 3631 0 0 250000 1982 1240
Agency 400 3802 0 0 1989
Agency 310 3999 0 0 1999
- ----------------------------------------------------------------------------------------------------------------------------
Agency 300 4000 0 0 1998
Agency 301 4001 393420 716625.14 1998
Agency 302 4002 0 32930 1998
Agency 303 4003 35333 45561.6 1998
Agency 305 4005 42796 59358.3 1998
- ----------------------------------------------------------------------------------------------------------------------------
Agency 308 4008 53590 44982 18000 1998
Agency 309 4009 45137 66465.9 1998
Agency 82 4136 0 0 1994 None
Agency 83 4194 0 0 21999.89 1997
Agency 5 961 0 0 825000 1997
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 1 128000001 N/A N/A
Bedford 2 128000002 N/A 128000047, 65
Bedford 3 128000003 N/A N/A
Bedford 4 128000004 N/A N/A
Bedford 5 128000005 N/A 128000034, 59, 101
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 6 128000006 N/A N/A
Bedford 7 128000007 N/A N/A
Bedford 8 128000009 N/A N/A
Bedford 9 128000010 N/A 128000021, 73
Bedford 10 128000011 N/A 128000012
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 11 128000012 N/A 128000011
Bedford 12 128000013 N/A N/A
Bedford 13 128000014 N/A N/A
Bedford 14 128000015 N/A N/A
Bedford 15 128000017 N/A 128000018, 92
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 16 128000018 N/A 128000017, 92
Bedford 17 128000019 N/A 128000040
Bedford 18 128000020 1985 N/A
Bedford 19 128000021 N/A 128000010, 73
Bedford 20 128000022 N/A 128000023, 30, 80
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 21 128000023 N/A 128000022, 30, 80
Bedford 22 128000024 N/A N/A
Bedford 23 128000025 N/A N/A
Bedford 24 128000026 N/A N/A
Bedford 25 128000027 N/A 128000028, 29, 36, 72, 81, 90, 104,
105, 107
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 26 128000028 N/A 128000027, 29, 36, 72, 81, 90, 104,
105, 107
Bedford 27 128000029 N/A 128000027, 28, 36, 72, 81, 90, 104,
105, 107
Bedford 28 128000030 N/A 128000022, 23, 80
Bedford 29 128000031 N/A N/A
Bedford 30 128000032 N/A 128000033, 52, 56
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 31 128000033 N/A 128000032, 52, 57
Bedford 32 128000034 N/A 128000005, 59, 101
Bedford 33 128000035 N/A N/A
Bedford 34 128000036 N/A 128000027, 28, 29, 72, 81, 90, 104,
105, 107
Bedford 35 128000039 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 36 128000040 N/A 128000019
Bedford 37 128000041 N/A N/A
Bedford 38 128000042 N/A N/A
Bedford 39 128000043 N/A 128000070
Bedford 40 128000044 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 41 128000045 N/A 128000048
Bedford 42 128000046 N/A N/A
Bedford 43 128000047 N/A 128000002, 65
Bedford 44 128000048 N/A 128000045
Bedford 45 128000049 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 46 128000050 N/A N/A
Bedford 47 128000051 N/A N/A
Bedford 48 128000052 N/A 128000032, 33, 56
Bedford 49 128000053 N/A N/A
Bedford 50 128000054 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 51 128000055 N/A N/A
Bedford 52 128000056 N/A 128000032, 33, 52
Bedford 53 128000057 N/A N/A
Bedford 54 128000058 N/A N/A
Bedford 55 128000059 N/A 128000005, 34, 101
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 56 128000060 N/A N/A
Bedford 57 128000061 N/A N/A
Bedford 58 128000062 N/A N/A
Bedford 59 128000063 N/A N/A
Bedford 60 128000064 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 61 128000065 N/A 128000002, 47
Bedford 62 128000066 N/A 128000067
Bedford 63 128000067 N/A 128000066
Bedford 64 128000068 N/A 128000069
Bedford 65 128000069 N/A 1.28e+008
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 66 128000070 N/A 128000043
Bedford 67 128000071 N/A 128000074, 106
Bedford 68 128000072 N/A 128000027, 28, 29, 36, 81, 90, 104,
105, 107
Bedford 69 128000073 N/A 128000010, 21
Bedford 70 128000074 N/A 128000071, 106
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 71 128000075 N/A N/A
Bedford 72 128000079 N/A 128000083
Bedford 73 128000080 N/A N/A
Bedford 74 128000081 N/A 128000027, 28, 29, 36, 72, 90,104,
105, 107
Bedford 75 128000082 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 76 128000083 N/A 128000079
Bedford 77 128000085 N/A N/A
Bedford 78 128000086 N/A 128000098, 99
Bedford 79 128000087 N/A N/A
Bedford 80 128000088 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 81 128000089 N/A 128000100, 102
Bedford 82 128000090 N/A 128000027, 28, 29, 36, 72, 81, 104,
105, 107
Bedford 83 128000092 N/A 128000017, 18
Bedford 84 128000093 N/A N/A
Bedford 85 128000094 N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 86 128000095 N/A N/A
Bedford 87 128000096 N/A N/A
Bedford 88 128000098 N/A 128000086, 99
Bedford 89 128000099 N/A 128000086, 98
Bedford 90 128000100 N/A 128000089, 102
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 91 128000102 N/A 128000089, 128000100
Bedford 92 128000103 N/A N/A
Bedford 93 128000104 N/A 128000027, 28, 29, 36, 72, 81, 90,
105, 107
Bedford 94 128000105 N/A 128000027, 28, 29, 36, 72, 81, 90,
104, 107
Bedford 95 128000106 N/A 128000071, 74
- ----------------------------------------------------------------------------------------------------------------------------
Bedford 96 128000107 N/A 128000027, 28, 29, 36, 72, 81, 90,
104, 105
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Borrower
Reserve
Data Source Sequence Loan Number Borrower Borrower Reserve Flag Amount Principal Interest
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Agency 17 1210 R.A. Alma, L.L.C. $10,113.98
Agency 3 1240 Kempton Place Limited Partnership $19,362.29
Agency 42 1298 Domvella Realty, LLC $16,096.78
Agency 4 1323 Berkshire-Queensbury, L.L.C. $10,504.04
Agency 15 1356 ZP No. 34, LLC $15,986.63
- -------------------------------------------------------------------------------------------------------------------------
Agency 31 1583 ZP No. 37, LLC $9,219.74
Agency 43 1587 ZP NO. 15, LLC $18,468.26
Agency 48 1684NBC JDA Morris Plains, LLC $127,601.67
Agency 8 1690 Apple & Getty, L.L.C. $21,385.79
Agency 6 1704 Main & Helen Properties, Inc. $9,477.09
- -------------------------------------------------------------------------------------------------------------------------
Agency 7 1705 Main & Park Properties, Inc. $11,962.55
Agency 16 1777 State/Ripley Associates, L.L.C. $18,080.94
Agency 20 1778 Ashmun/Easterday Associates, L.L.C. $17,394.63
Agency 11 1848 Main & Twelfth, L.L.C. $21,116.90
Agency 37 1883 Wigwam R.A., LLC $24,510.31
- -------------------------------------------------------------------------------------------------------------------------
Agency 23 2020 Mitchell/South Associates, L.L.C. $17,826.54
Agency 81 2023NB Caliendo And Associates, Inc. $23,390.12
Agency 75 2025 Sahara, R.A., LLC $28,390.43
Agency 13 2031NB Highland Partners, LLC $12,123.24
Agency 49 2071NB Jacoby Lindbergh Properties III, LLC & Valdosta WM, LLC $86,719.54
- -------------------------------------------------------------------------------------------------------------------------
Agency 14 2072 Preston/Turnpike Investors, L.P. $39,073.03
Agency 66 2104NBC School Plaza, Inc. $23,262.53
Agency 51 2200 Woolridge Investment, LLC $22,665.49
Agency 41 2202 L.J.J. Associates, Inc. $21,902.55
Agency 9 2275NB Vernon Pitkin Associates, LLC $12,668.99
- -------------------------------------------------------------------------------------------------------------------------
Agency 46 2396NB ECK Associates, L.P. $15,371.65
Agency 44 2434NB Covington Glenwood Corporation $18,116.54
Agency 27 2437NB Cypress Properties I, LLC $35,571.06
Agency 28 2459 Whitpain Realty Partners, L.P. $25,934.55
Agency 25 2472 Parker Properties, LLC $131,380.40
- -------------------------------------------------------------------------------------------------------------------------
Agency 22 2490 SS Gorham, L.L.C. $53,500.45
Agency 38 2503 EDCONCO, Inc. $14,653.21
Agency 206 2504P Nusius LLC $29,291.62
Agency 36 2515 Walnut Capital Partners -- Rostraver, LP $23,660.19
Agency 19 2521 Bodner Kokomo, LLC $16,199.38
- -------------------------------------------------------------------------------------------------------------------------
Agency 72 2522 B. Bodner Cross, LLC $16,207.01
Agency 39 2524 Walnut Capital Partners -- New Ken, LP $22,075.60
Agency 10 2553 2925 Kings Highway, L.L.C. $44,491.53
Agency 80 2575 Lehmberg Crossing, LLC $34,729.14
Agency 29 2580 Edwood, LLC $59,771.02
- -------------------------------------------------------------------------------------------------------------------------
Agency 12 2586 Rite - Andalusia, LLC $11,811.02
Agency 67 2591NBC Readco Stonington II, LLC $55,694.80
Agency 53 2598 WD Rainsville Trust $31,095.38
Agency 71 2603 SADG-5, Limited Partnership $19,688.00
Agency 77 2673NB CRBNT, L.C. $18,497.90
- -------------------------------------------------------------------------------------------------------------------------
Agency 64 2724 Blue Ribbon of Amsterdam, LLC $17,439.33
Agency 18 2745 CA Portsmouth Investment Trust $28,998.56
Agency 54 2752 Lansdowne Realty Associates, L.P. $14,261.25
Agency 55 2764 CA Colonial Heights Investment Trust $24,932.74
Agency 65 2839 Rally, LLC $8,694.02
- -------------------------------------------------------------------------------------------------------------------------
Agency 50 2850 Columbia Turnpike Group, LLC $19,255.10
Agency 68 2906NB Candler Memorial, L.P. $17,793.70
Agency 21 2910 Plover Development, LLC $23,609.33
Agency 76 3006 The Newcastle Group VII, LLC $24,905.22
Agency 24 3068 Berkshire-Bellmore, LLC $10,722.77
- -------------------------------------------------------------------------------------------------------------------------
Agency 32 3143NB MCD'S DC, LLC $7,919.14
Agency 52 3380 RAM-Temple, LLC $16,564.78
Agency 202 3434 Parkway Bank & Trust $18,192.15
Agency 70 3581 PTS-Orlando, LLC $13,515.99
Agency 63 3588 WEC 99A-3 LLC $19,981.71
- -------------------------------------------------------------------------------------------------------------------------
Agency 62 3589 WEC 99A-2 LLC $24,577.09
Agency 61 3590 WEC 99A-1 LLC $12,237.81
Agency 58 3631 Cape Cotuit Center, LLC $46,459.48
Agency 400 3802 Midfield Corporation $174,231.47
Agency 310 3999 Sahara Square LLC $125,091.31
- -------------------------------------------------------------------------------------------------------------------------
Agency 300 4000 Georgetown/Chase Phase I LLC $156,548.93
Agency 301 4001 Whitehall Pike LLC $77,435.93
Agency 302 4002 CDP Partners LLC $27,134.94
Agency 303 4003 Scioto Trail Co. $11,643.07
Agency 305 4005 Tatco Polaris, Ltd. $15,435.07
- -------------------------------------------------------------------------------------------------------------------------
Agency 308 4008 Lenoior Holdings LLC $15,935.22
Agency 309 4009 Botica Uno Inc. $18,998.65
Agency 82 4136 Triple B Mission Viejo, LLC $57,116.76
Agency 83 4194 Industrial Exchange No. 1, LLC $55,020.00
Agency 5 961 Grand River/Bridge Associates, LLC $12,379.08
- -------------------------------------------------------------------------------------------------------------------------
Bedford 1 128000001 Leland and Jane Bertsch $1,265.88
Bedford 2 128000002 Borelli, Korchak, Bracken & Bracken $2,770.86
Bedford 3 128000003 Gibson & Epps, LLC $5,623.17
Bedford 4 128000004 Joan Jacopi $2,723.69
Bedford 5 128000005 Ironwood Development Corporation $2,638.58
- -------------------------------------------------------------------------------------------------------------------------
Bedford 6 128000006 Hawley Property and Development $4,171.97
Bedford 7 128000007 Central Falls Development Corp. $4,727.40
Bedford 8 128000009 WMBE-ME $3,619.26
Bedford 9 128000010 Huff Contracting, Inc. $2,770.99
Bedford 10 128000011 W & N Holland, LLC $5,826.39
- -------------------------------------------------------------------------------------------------------------------------
Bedford 11 128000012 W & N Holland LLC $2,450.44
Bedford 12 128000013 Richard J. Dumont $1,994.40
Bedford 13 128000014 Darren & Lisa Tracy $878.88
Bedford 14 128000015 W & W Inglewood Trust $4,155.25
Bedford 15 128000017 Erps Leasing, Inc. $3,921.33
- -------------------------------------------------------------------------------------------------------------------------
Bedford 16 128000018 Erps Leasing Inc. $3,141.88
Bedford 17 128000019 Dayton Holding Company $3,823.83
Bedford 18 128000020 Jon A. Burbank, LLC $1,650.71
Bedford 19 128000021 Huff Postal Properties, LLC $2,935.30
Bedford 20 128000022 NM / WY, Inc. $6,554.23
- -------------------------------------------------------------------------------------------------------------------------
Bedford 21 128000023 NM/WY Inc. $7,221.09
Bedford 22 128000024 Epsom Associates, LLC $6,471.88
Bedford 23 128000025 Irrigon, LLC $4,950.71
Bedford 24 128000026 Post Office Partners, Inc. $4,333.19
Bedford 25 128000027 S & W Postal Properties, Inc. $3,923.38
- -------------------------------------------------------------------------------------------------------------------------
Bedford 26 128000028 S & W Postal Properties, Inc. $2,919.42
Bedford 27 128000029 S & W Postal Properties, Inc. $3,044.36
Bedford 28 128000030 NM/WY Inc. $8,499.32
Bedford 29 128000031 L A Wenger Contracting Company, Inc. $3,140.15
Bedford 30 128000032 Corporate Development LLC $2,219.48
- -------------------------------------------------------------------------------------------------------------------------
Bedford 31 128000033 Corporate Development LLC $2,173.64
Bedford 32 128000034 Ironwood Development Corporation $2,290.66
Bedford 33 128000035 PCE Nantucket, LLC $11,794.96
Bedford 34 128000036 S & W Postal Properties, Inc. $3,066.92
Bedford 35 128000039 Perkinston PO, Inc. $4,707.02
- -------------------------------------------------------------------------------------------------------------------------
Bedford 36 128000040 Nebraska Holding Co. $6,434.23
Bedford 37 128000041 CJC Investments, LLC $10,368.01
Bedford 38 128000042 Carlin Post Office LLC $4,918.73
Bedford 39 128000043 1998-172 O'Connor, Inc. $4,291.22
Bedford 40 128000044 Prospect Leasing Company, LLC $3,486.98
- -------------------------------------------------------------------------------------------------------------------------
Bedford 41 128000045 Thomas Brener $2,706.91
Bedford 42 128000046 Piscataquog Leasing, LLC $5,463.86
Bedford 43 128000047 Borelli, Korchak, Bracken & Bracken $1,562.27
Bedford 44 128000048 Thomas Brener $4,860.26
Bedford 45 128000049 H & G, L.L.C. $2,751.91
- -------------------------------------------------------------------------------------------------------------------------
Bedford 46 128000050 LEE Holdings LLC $2,214.22
Bedford 47 128000051 Kevin M. Bol and Kimberly J. Bol $3,920.33
Bedford 48 128000052 Corporate Development LLC $1,755.80
Bedford 49 128000053 Fazio Trust $3,754.74
Bedford 50 128000054 CBS Land, LLC $9,332.61
- -------------------------------------------------------------------------------------------------------------------------
Bedford 51 128000055 Ken and Christina Wood $3,806.77
Bedford 52 128000056 Corporate Development LLC $1,548.50
Bedford 53 128000057 Bill Lee Johnson $1,548.99
Bedford 54 128000058 US PO Buckley, LLC $9,379.16
Bedford 55 128000059 Ironwood Development Corporation $6,241.57
- -------------------------------------------------------------------------------------------------------------------------
Bedford 56 128000060 Southern United of Mt. Olive, Inc. $5,210.16
Bedford 57 128000061 Thomas A. Miller, Jr. $5,374.75
Bedford 58 128000062 Benace Leggett $4,561.92
Bedford 59 128000063 USPS Oroville, LLC $7,294.31
Bedford 60 128000064 Idaho Springs MPO, LLC $8,652.27
- -------------------------------------------------------------------------------------------------------------------------
Bedford 61 128000065 Corbettsville Postal Realty, LTD $1,954.17
Bedford 62 128000066 Bowersox Post Office Rentals, LLC $2,707.72
Bedford 63 128000067 Bowersox Post Office Rentals, LLC $2,791.48
Bedford 64 128000068 New Mexico-CDS, LLC $9,171.68
Bedford 65 128000069 New Mexico-CDS, LLC $6,186.98
- -------------------------------------------------------------------------------------------------------------------------
Bedford 66 128000070 1998 Burton Post Office Inc. $1,728.33
Bedford 67 128000071 Ocean Shores LLC $9,543.17
Bedford 68 128000072 Smith & Walski, Inc. $4,818.42
Bedford 69 128000073 North Liberty Post Office Property, LC $5,047.97
Bedford 70 128000074 Port Hadlock LLC $9,049.59
- -------------------------------------------------------------------------------------------------------------------------
Bedford 71 128000075 Rental Enterprise $2,702.81
Bedford 72 128000079 Judd Properties, LLC $2,958.25
Bedford 73 128000080 Spokane-Finlay, LLC $9,438.33
Bedford 74 128000081 Smith and Walski, Inc. $3,406.84
Bedford 75 128000082 1998 Lizella Corporation LLC $4,518.30
- -------------------------------------------------------------------------------------------------------------------------
Bedford 76 128000083 Judd Properties, LLC $7,516.48
Bedford 77 128000085 A.R. Willinger Co., Inc. $5,691.44
Bedford 78 128000086 Waldrip Development of Ind., LLC $4,686.89
Bedford 79 128000087 D & D Post Office, Inc. $2,879.02
Bedford 80 128000088 Bowers-Norris Special Purpose, LLC $6,424.33
- -------------------------------------------------------------------------------------------------------------------------
Bedford 81 128000089 WLS Postal Properties, LP $4,886.55
Bedford 82 128000090 Smith & Walski, Inc. $4,005.21
Bedford 83 128000092 Erps Leasing, Inc. $4,042.66
Bedford 84 128000093 Michael P. McGinley $3,432.45
Bedford 85 128000094 Baer Brothers, LLC $4,091.47
- -------------------------------------------------------------------------------------------------------------------------
Bedford 86 128000095 K.A.C. Holdings, LLC $2,281.95
Bedford 87 128000096 DeerBrooke, LLC $3,280.89
Bedford 88 128000098 Waldrip Development of Ind., LLC $1,641.03
Bedford 89 128000099 Waldrip Development of Kent., LLC $5,935.96
Bedford 90 128000100 W.L.S. Archer City Postal Properties, LP $3,298.44
- -------------------------------------------------------------------------------------------------------------------------
Bedford 91 128000102 WLS Graford Postal Properties, LP $3,237.01
Bedford 92 128000103 Richard L. Salley $2,476.88
Bedford 93 128000104 Smith and Walski, Inc. $4,435.23
Bedford 94 128000105 Smith and Walski, Inc. $4,501.12
Bedford 95 128000106 DuPont PO, LLC $7,844.40
- -------------------------------------------------------------------------------------------------------------------------
Bedford 96 128000107 Smith and Walski, Inc. $4,115.94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Defeasance Defeasance Rating of Credit
Data Source Sequence Loan Number Accrual Type Defeasance Start Date End Date Tenant (S&P)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Agency 17 1210 30/360 N BBB
Agency 3 1240 30/360 n A
Agency 42 1298 30/360 y 8/15/01 1/15/19 A
Agency 4 1323 30/360 N A
Agency 15 1356 30/360 N A
- -------------------------------------------------------------------------------------------------------------
Agency 31 1583 30/360 n BBB
Agency 43 1587 30/360 Y 8/15/01 6/15/18 BBB+
Agency 48 1684NBC 30/360 N A
Agency 8 1690 30/360 N BBB
Agency 6 1704 30/360 n A
- -------------------------------------------------------------------------------------------------------------
Agency 7 1705 30/360 n A
Agency 16 1777 30/360 N BBB
Agency 20 1778 30/360 Y 8/15/01 6/15/23 BBB
Agency 11 1848 30/360 n BBB
Agency 37 1883 30/360 Y 8/15/01 7/15/23 BBB
- -------------------------------------------------------------------------------------------------------------
Agency 23 2020 30/360 Y 8/15/01 9/15/23 BBB
Agency 81 2023NB 30/360 n A+
Agency 75 2025 30/360 Y 8/15/01 1/15/24 BBB
Agency 13 2031NB 30/360 N A
Agency 49 2071NB 30/360 Y 8/15/01 8/15/18 AA
- -------------------------------------------------------------------------------------------------------------
Agency 14 2072 30/360 N A
Agency 66 2104NBC 30/360 Y 8/15/01 1/15/19 A+
Agency 51 2200 30/360 Y 8/15/01 9/15/18 A+
Agency 41 2202 30/360 Y 8/15/01 11/15/18 A+
Agency 9 2275NB 30/360 N A
- -------------------------------------------------------------------------------------------------------------
Agency 46 2396NB 30/360 N BBB+
Agency 44 2434NB 30/360 N BBB+
Agency 27 2437NB 30/360 Y 8/15/01 3/15/23 A
Agency 28 2459 30/360 Y 8/15/01 1/15/19 A
Agency 25 2472 30/360 Y 8/15/01 1/31/19 AA-
- -------------------------------------------------------------------------------------------------------------
Agency 22 2490 30/360 N A
Agency 38 2503 30/360 Y 8/15/01 7/15/18 BBB
Agency 206 2504P 30/360 Y 8/15/01 12/15/19 A+
Agency 36 2515 30/360 Y 8/15/01 10/15/18 BBB+
Agency 19 2521 30/360 A
- -------------------------------------------------------------------------------------------------------------
Agency 72 2522 30/360 n A
Agency 39 2524 30/360 Y 8/15/01 10/15/18 BBB+
Agency 10 2553 30/360 n A
Agency 80 2575 30/360 N CP A2
Agency 29 2580 30/360 Y 8/15/01 7/15/24 A
- -------------------------------------------------------------------------------------------------------------
Agency 12 2586 30/360 N BBB
Agency 67 2591NBC 30/360 N BB
Agency 53 2598 30/360 Y 8/15/01 4/15/18 CP A2
Agency 71 2603 30/360 Y 8/15/01 12/15/18 BBB
Agency 77 2673NB 30/360 n A+
- -------------------------------------------------------------------------------------------------------------
Agency 64 2724 30/360 Y 8/15/01 8/15/18 BBB+
Agency 18 2745 30/360 N A+
Agency 54 2752 30/360 Y 8/15/01 8/15/18 A
Agency 55 2764 30/360 Y 8/15/01 1/15/19 A+
Agency 65 2839 30/360 Y 8/15/01 1/15/19 A
- -------------------------------------------------------------------------------------------------------------
Agency 50 2850 30/360 Y 8/15/01 11/15/18 BBB
Agency 68 2906NB 30/360 N BBB+
Agency 21 2910 30/360 n BBB-
Agency 76 3006 30/360 Y 8/15/01 2/15/19 BBB+
Agency 24 3068 30/360 y 8/15/01 1/15/18 A
- -------------------------------------------------------------------------------------------------------------
Agency 32 3143NB 30/360 Y 8/15/01 6/15/18 AA
Agency 52 3380 30/360 Y 8/15/01 11/15/18 BBB+
Agency 202 3434 30/360 y 8/15/01 6/14/18 AA-
Agency 70 3581 30/360 Y 8/15/01 11/15/17 BB+
Agency 63 3588 30/360 y 8/15/01 4/15/21 BB-
- -------------------------------------------------------------------------------------------------------------
Agency 62 3589 30/360 y 8/15/01 4/15/21 BB-
Agency 61 3590 30/360 y 8/15/01 4/15/21 BB-
Agency 58 3631 30/360 Y 8/15/01 9/15/19 A
Agency 400 3802 30/360 N AA
Agency 310 3999 30/360 Y 7/1/06 5/1/24 A
- -------------------------------------------------------------------------------------------------------------
Agency 300 4000 30/360 Y 11/5/04 3/5/13 A+
Agency 301 4001 30/360 Y 10/5/03 7/5/18 A
Agency 302 4002 30/360 N A+
Agency 303 4003 30/360 N A
Agency 305 4005 30/360 n A
- -------------------------------------------------------------------------------------------------------------
Agency 308 4008 30/360 N BBB+
Agency 309 4009 30/360 n A+
Agency 82 4136 30/360 y 8/15/01 1/15/22 BBB-
Agency 83 4194 30/360 y 8/15/01 7/15/21 BBB
Agency 5 961 30/360 n BBB
- -------------------------------------------------------------------------------------------------------------
Bedford 1 128000001 30/360
Bedford 2 128000002 30/360
Bedford 3 128000003 30/360
Bedford 4 128000004 30/360
Bedford 5 128000005 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 6 128000006 30/360
Bedford 7 128000007 30/360
Bedford 8 128000009 30/360
Bedford 9 128000010 30/360
Bedford 10 128000011 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 11 128000012 30/360
Bedford 12 128000013 30/360
Bedford 13 128000014 30/360
Bedford 14 128000015 30/360
Bedford 15 128000017 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 16 128000018 30/360
Bedford 17 128000019 30/360
Bedford 18 128000020 30/360
Bedford 19 128000021 30/360
Bedford 20 128000022 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 21 128000023 30/360
Bedford 22 128000024 30/360
Bedford 23 128000025 30/360
Bedford 24 128000026 30/360
Bedford 25 128000027 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 26 128000028 30/360
Bedford 27 128000029 30/360
Bedford 28 128000030 30/360
Bedford 29 128000031 30/360
Bedford 30 128000032 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 31 128000033 30/360
Bedford 32 128000034 30/360
Bedford 33 128000035 30/360
Bedford 34 128000036 30/360
Bedford 35 128000039 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 36 128000040 30/360
Bedford 37 128000041 30/360
Bedford 38 128000042 30/360
Bedford 39 128000043 30/360
Bedford 40 128000044 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 41 128000045 30/360
Bedford 42 128000046 30/360
Bedford 43 128000047 30/360
Bedford 44 128000048 30/360
Bedford 45 128000049 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 46 128000050 30/360
Bedford 47 128000051 30/360
Bedford 48 128000052 30/360
Bedford 49 128000053 30/360
Bedford 50 128000054 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 51 128000055 30/360
Bedford 52 128000056 30/360
Bedford 53 128000057 30/360
Bedford 54 128000058 30/360
Bedford 55 128000059 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 56 128000060 30/360
Bedford 57 128000061 30/360
Bedford 58 128000062 30/360
Bedford 59 128000063 30/360
Bedford 60 128000064 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 61 128000065 30/360
Bedford 62 128000066 30/360
Bedford 63 128000067 30/360
Bedford 64 128000068 30/360
Bedford 65 128000069 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 66 128000070 30/360
Bedford 67 128000071 30/360
Bedford 68 128000072 30/360
Bedford 69 128000073 30/360
Bedford 70 128000074 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 71 128000075 30/360
Bedford 72 128000079 30/360
Bedford 73 128000080 30/360
Bedford 74 128000081 30/360
Bedford 75 128000082 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 76 128000083 30/360
Bedford 77 128000085 30/360
Bedford 78 128000086 30/360
Bedford 79 128000087 30/360
Bedford 80 128000088 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 81 128000089 30/360
Bedford 82 128000090 30/360
Bedford 83 128000092 30/360
Bedford 84 128000093 30/360
Bedford 85 128000094 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 86 128000095 30/360
Bedford 87 128000096 30/360
Bedford 88 128000098 30/360
Bedford 89 128000099 30/360
Bedford 90 128000100 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 91 128000102 30/360
Bedford 92 128000103 30/360
Bedford 93 128000104 30/360
Bedford 94 128000105 30/360
Bedford 95 128000106 30/360
- -------------------------------------------------------------------------------------------------------------
Bedford 96 128000107 30/360
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Data Source Sequence Loan Number Term Structure GroundLease Defeasance Residual Insurer
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Agency 17 1210 Fully Amortizing No
Agency 3 1240 Fully Amortizing No
Agency 42 1298 Fully Amortizing No Y
Agency 4 1323 Fully Amortizing No
Agency 15 1356 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Agency 31 1583 Fully Amortizing No
Agency 43 1587 Fully Amortizing No Y
Agency 48 1684NBC Fully Amortizing No
Agency 8 1690 Fully Amortizing No
Agency 6 1704 Fully Amortizing Yes
- --------------------------------------------------------------------------------------------------------------------------
Agency 7 1705 Fully Amortizing No
Agency 16 1777 Fully Amortizing No
Agency 20 1778 Fully Amortizing No Y
Agency 11 1848 Fully Amortizing No
Agency 37 1883 Fully Amortizing No Y
- --------------------------------------------------------------------------------------------------------------------------
Agency 23 2020 Fully Amortizing No Y
Agency 81 2023NB Fully Amortizing No
Agency 75 2025 Fully Amortizing No Y
Agency 13 2031NB Fully Amortizing No
Agency 49 2071NB Balloon Yes Y FSL
- --------------------------------------------------------------------------------------------------------------------------
Agency 14 2072 Fully Amortizing Yes
Agency 66 2104NBC Fully Amortizing No Y
Agency 51 2200 Fully Amortizing No Y
Agency 41 2202 Fully Amortizing No Y
Agency 9 2275NB Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Agency 46 2396NB Fully Amortizing No
Agency 44 2434NB Fully Amortizing No
Agency 27 2437NB Extended Am. No Y Berkshire
Agency 28 2459 Fully Amortizing No Y
Agency 25 2472 Fully Amortizing Yes Y
- --------------------------------------------------------------------------------------------------------------------------
Agency 22 2490 Extended Am. No Berkshire
Agency 38 2503 Fully Amortizing No Y
Agency 206 2504P Balloon No Y FSL
Agency 36 2515 Balloon No Y FSL
Agency 19 2521 Extended Am. No Berkshire
- --------------------------------------------------------------------------------------------------------------------------
Agency 72 2522 Extended Am. No Berkshire
Agency 39 2524 Balloon No Y FSL
Agency 10 2553 Fully Amortizing No
Agency 80 2575 Balloon No FSL
Agency 29 2580 Fully Amortizing Yes Y
- --------------------------------------------------------------------------------------------------------------------------
Agency 12 2586 Fully Amortizing No
Agency 67 2591NBC Fully Amortizing No
Agency 53 2598 Balloon No Y FSL
Agency 71 2603 Fully Amortizing No Y
Agency 77 2673NB Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Agency 64 2724 Fully Amortizing No Y
Agency 18 2745 Balloon No FSL
Agency 54 2752 Fully Amortizing No Y
Agency 55 2764 Balloon No Y FSL
Agency 65 2839 Fully Amortizing No Y
- --------------------------------------------------------------------------------------------------------------------------
Agency 50 2850 Fully Amortizing No Y
Agency 68 2906NB Fully Amortizing No
Agency 21 2910 Balloon No FSL
Agency 76 3006 Fully Amortizing No Y
Agency 24 3068 Fully Amortizing Yes Y
- --------------------------------------------------------------------------------------------------------------------------
Agency 32 3143NB Fully Amortizing Yes Y
Agency 52 3380 Balloon No Y FSL
Agency 202 3434 Fully Amortizing No Y
Agency 70 3581 Fully Amortizing No Y
Agency 63 3588 Balloon No Y FSL
- --------------------------------------------------------------------------------------------------------------------------
Agency 62 3589 Balloon No Y FSL
Agency 61 3590 Balloon No Y FSL
Agency 58 3631 Fully Amortizing Yes Y
Agency 400 3802 Fully Amortizing No
Agency 310 3999 Fully Amortizing No Y
- --------------------------------------------------------------------------------------------------------------------------
Agency 300 4000 Balloon No Y FSL
Agency 301 4001 Balloon No Y FSL
Agency 302 4002 Fully Amortizing Yes
Agency 303 4003 Fully Amortizing No
Agency 305 4005 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Agency 308 4008 Balloon No RVI
Agency 309 4009 Fully Amortizing No
Agency 82 4136 Balloon No Y FSL
Agency 83 4194 Balloon No Y RVI
Agency 5 961 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 1 128000001 Fully Amortizing No
Bedford 2 128000002 Fully Amortizing No
Bedford 3 128000003 Fully Amortizing No
Bedford 4 128000004 Fully Amortizing No
Bedford 5 128000005 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 6 128000006 Fully Amortizing No
Bedford 7 128000007 Fully Amortizing No
Bedford 8 128000009 Fully Amortizing No
Bedford 9 128000010 Fully Amortizing No
Bedford 10 128000011 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 11 128000012 Fully Amortizing No
Bedford 12 128000013 Fully Amortizing No
Bedford 13 128000014 Fully Amortizing No
Bedford 14 128000015 Fully Amortizing No
Bedford 15 128000017 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 16 128000018 Fully Amortizing No
Bedford 17 128000019 Fully Amortizing No
Bedford 18 128000020 Fully Amortizing No
Bedford 19 128000021 Fully Amortizing No
Bedford 20 128000022 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 21 128000023 Fully Amortizing No
Bedford 22 128000024 Fully Amortizing No
Bedford 23 128000025 Fully Amortizing No
Bedford 24 128000026 Fully Amortizing No
Bedford 25 128000027 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 26 128000028 Fully Amortizing No
Bedford 27 128000029 Fully Amortizing No
Bedford 28 128000030 Fully Amortizing No
Bedford 29 128000031 Fully Amortizing No
Bedford 30 128000032 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 31 128000033 Fully Amortizing No
Bedford 32 128000034 Fully Amortizing No
Bedford 33 128000035 Fully Amortizing No
Bedford 34 128000036 Fully Amortizing No
Bedford 35 128000039 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 36 128000040 Fully Amortizing No
Bedford 37 128000041 Fully Amortizing No
Bedford 38 128000042 Fully Amortizing No
Bedford 39 128000043 Fully Amortizing No
Bedford 40 128000044 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 41 128000045 Fully Amortizing No
Bedford 42 128000046 Fully Amortizing No
Bedford 43 128000047 Fully Amortizing No
Bedford 44 128000048 Fully Amortizing No
Bedford 45 128000049 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 46 128000050 Fully Amortizing No
Bedford 47 128000051 Fully Amortizing No
Bedford 48 128000052 Fully Amortizing No
Bedford 49 128000053 Fully Amortizing No
Bedford 50 128000054 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 51 128000055 Fully Amortizing No
Bedford 52 128000056 Fully Amortizing No
Bedford 53 128000057 Fully Amortizing No
Bedford 54 128000058 Fully Amortizing No
Bedford 55 128000059 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 56 128000060 Fully Amortizing No
Bedford 57 128000061 Fully Amortizing No
Bedford 58 128000062 Fully Amortizing No
Bedford 59 128000063 Fully Amortizing No
Bedford 60 128000064 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 61 128000065 Fully Amortizing No
Bedford 62 128000066 Fully Amortizing No
Bedford 63 128000067 Fully Amortizing No
Bedford 64 128000068 Fully Amortizing No
Bedford 65 128000069 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 66 128000070 Fully Amortizing No
Bedford 67 128000071 Fully Amortizing No
Bedford 68 128000072 Fully Amortizing No
Bedford 69 128000073 Fully Amortizing No
Bedford 70 128000074 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 71 128000075 Fully Amortizing No
Bedford 72 128000079 Fully Amortizing No
Bedford 73 128000080 Fully Amortizing No
Bedford 74 128000081 Fully Amortizing No
Bedford 75 128000082 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 76 128000083 Fully Amortizing No
Bedford 77 128000085 Fully Amortizing No
Bedford 78 128000086 Fully Amortizing No
Bedford 79 128000087 Fully Amortizing No
Bedford 80 128000088 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 81 128000089 Fully Amortizing No
Bedford 82 128000090 Fully Amortizing No
Bedford 83 128000092 Fully Amortizing No
Bedford 84 128000093 Fully Amortizing No
Bedford 85 128000094 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 86 128000095 Fully Amortizing No
Bedford 87 128000096 Fully Amortizing No
Bedford 88 128000098 Fully Amortizing No
Bedford 89 128000099 Fully Amortizing No
Bedford 90 128000100 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 91 128000102 Fully Amortizing No
Bedford 92 128000103 Fully Amortizing No
Bedford 93 128000104 Fully Amortizing No
Bedford 94 128000105 Fully Amortizing No
Bedford 95 128000106 Fully Amortizing No
- --------------------------------------------------------------------------------------------------------------------------
Bedford 96 128000107 Fully Amortizing No
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO Bear Stearns Commercial Mortgage Securites, Inc. Statement Date:
LaSalle Bank N.A. Midland Loan Services, Inc. as Master and Special Servicer Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761 ABN AMRO Acct: 99-9999-99-9
135 S. LaSalle Street Suite 1625 WAC:
Chicago, IL 60603 WAMM:
====================================================================================================================================
Number Of Pages
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
===========================================================================================
Information is available for this issue from the following sources
-------------------------------------------------------------------------------------------
LaSalle Web Site www.lnbabs.com
Servicer Website www.midlandls.com
LaSalle Bulletin Board (714) 282-3990
LaSalle ASAP Fax System (714) 282-5518
ASAP #: 999
Monthly Data File Name: 0999MMYY.EXE
===========================================================================================
====================================================================================================================================
</TABLE>
01/00/00 - 00:00 (A99-A999) (C)1999 LaSalle National Bank
B-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO Bear Stearns Commercial Mortgage Securites, Inc. Statement Date:
LaSalle National Bank Midland Loan Services, Inc. as Master and Special Servicer Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761 ABN AMRO Acct: 99-9999-99-9
135 S. LaSalle Street Suite 1625 WAC:
Chicago, IL 60603 WAMM:
====================================================================================================================================
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)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
====================================================================================================================================
Total P&I Payment 0.00
==============================
Notes: (1) N denotes notional balance not included in total
(2) Interest Paid minus Interest Adjustment minus Deferred Interest equals Accrual
(3) Estimated
01/00/00 - 00:00 (A99-A999) (C)1999 LaSalle National Bank
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO Bear Stearns Commercial Mortgage Securities, Inc. Statement Date:
LaSalle National Bank Midland Loan Services, Inc. as Master and Special Servicer Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761 ABN AMRO Acct: 99-9999-99-9
135 S. LaSalle Street Suite 1625
Chicago, IL 60603 Other Related Information
====================================================================================================================================
====================================================================================================================================
</TABLE>
01/00/00 - 00:00 (A99-A999) (C) 1999 LaSalle National Bank
B-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
LaSalle Bank N.A. Midland Loan Services, Inc. as Master and Special Servicer Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761 ABN AMRO Acct: 99-9999-99-9
135 S. LaSalle Street Suite 1625
Chicago, IL 60603 Other Related Information
====================================================================================================================================
====================================================================================================================================
</TABLE>
01/00/00 - 00:00 (A99-A999) (C) 1999 LaSalle National Bank
B-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO Bear Stearns Commercial Mortgage Securites, Inc. Statement Date:
LaSalle Bank N.A. Midland Loan Services, Inc. as Master and Special Servicer Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO Acct: 99-9999-99-9
Chicago, IL 60603
=======================================================================================================================
Distribution Delinq 1 Month Delinq 2 Months Delinq 3+ Months Foreclosure/Bankruptcy
===========================================================================================================
Date # Balance # Balance # Balance # Balance
=======================================================================================================================
03/15/99 0 0 0 0 0 0 0 0
0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000%
- -----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
REO Modifications Prepayments Curr Weighted Avg.
- ------------------------------------------------------------------------------------------------------------------------
# Balance # Balance # Balance Coupon Remit
========================================================================================================================
0 0 0 0 0 0
0.00% 0.000% 0.00% 0.000% 0.00% 0.000%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Note: Foreclosure and REO Totals are Included in the Appropriate Delinquency Aging Category
</TABLE>
01/00/00 - 00:00 (A99-A999) (C) 1999 LaSalle National Bank
B-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO Bear Stearns Commercial Mortgage Securites, Inc. Statement Date:
LaSalle Bank N.A. Midland Loan Services, Inc. as Master and Special Servicer Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO Acct: 99-9999-99-9
Chicago, IL 60603
Delinquent Loan Detail
====================================================================================================================================
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
====================================================================================================================================
====================================================================================================================================
A. P&I Advance - Loan in Grace Period
B. P&I Advance - Late Payment but less than one month delinq
1. P&I Advance - Loan delinquent 1 month
2. P&I Advance - Loan delinquent 2 months
3. P&I Advance - Loan delinquent 3 months or More
4. Matured Balloon/Assumed Scheduled Payment
====================================================================================================================================
</TABLE>
** Outstanding P&I Advances include the current period P&I Advance
01/00/00 - 00:00 (A99-A999) (C) 1999 LaSalle National Bank
B-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO Bear Stearns Commercial Mortgage Securites, Inc. Statement Date:
LaSalle Bank N.A. Midland Loan Services, Inc. as Master and Special Service Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO Acct: 99-9999-99-9
Chicago, IL 60603 Pool Total
Distribution of Principal Balances
- ------------------------------------------------------------------------------------
(2) Current Scheduled Number (2) Scheduled Based on
Balances of Loans Balance Balance
====================================================================================
$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
Distribution of Property Types
- -------------------------------------------------
Number (2) Scheduled Based on
Property Types of Loans Balance Balance
=================================================
- -------------------------------------------------
Total 0 0 0.00%
- -------------------------------------------------
Distribution of Mortgage Interest Rates Geographic Distribution
- ---------------------------------------------------- -----------------------------------------------------
Current Mortgage Number (2) Scheduled Based on Number (2) ScheduledBased on
Interest Rate of Loans Balance Balance Geographic Location of Loans Balance Balance
==================================================== =====================================================
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% Total 0 0 0.00%
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%
01/00/00 - 00:00 (A99-A999) (C)1999 LaSalle National Bank
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO Bear Stearns Commercial Mortgage Securites, Inc. Statement Date:
LaSalle Bank N.A. Midland Loan Services, Inc. as Master and Special Service Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO Acct: 99-9999-99-9
Chicago, IL 60603 Pool Total
Distribution of Remaining Term
Loan Seasoning Fully Amortizing
- --------------------------------------------------------------- ------------------------------------------------------
Number (2) Scheduled Based on Fully Amortizing Number (2) Scheduled Based on
Number of Years of Loans Balance Balance Mortgage Loans of Loans Balance Balance
=============================================================== ======================================================
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
- -------------------------------------------------------------
Weighted Average Seasoning is 0
Distribution of Remaining Term
Distribution of Amortization Type Balloon Loans
- --------------------------------------------------------------- -------------------------------------------------
Number (2) Scheduled Based on Balloon Number (2) Scheduled Based on
Amortization Type of Loans Balance Balance Mortgage LofnLoans Balance Balance
=============================================================== =================================================
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
Total 0 0 0.00% 181 to 240 months
- --------------------------------------------------------------- -------------------------------------------------
Total 0 0 0.00%
-------------------------------------------------
Distribution of DSCR
-------------------------------------------------------------
Debt Service Number (2) Scheduled Based on
Coverage Ratio(1) of Loans Balance Balance
=============================================================
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
NOI Aging
-----------------------------------------------------
Number (2) Scheduled Based on
NOI Date of Loans Balance Balance
=====================================================
1 year or less
1 to 2 years
2 Years or More
Unknown
-----------------------------------------------------
Total 0 0 0.00%
-----------------------------------------------------
(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.
01/00/00 - 00:00 (A99-A999) (C)1999 LaSalle National Bank
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO Bear Stearns Commercial Mortgage Securites, Inc. Statement Date:
LaSalle Bank N.A. Midland Loan Services, Inc. as Master and Special Service Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO Acct: 99-9999-99-9
Chicago, IL 60603 Pool Total
Loan Level Detail
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Appraisal Property Operating Ending Loan
Disclosure Reduction Type Maturity Statement Principal Note Scheduled Prepayment Status
Control # Amounts Code Date DSCR NOI Date Balance Rate P&I Prepayment Date Code (1)
==================================================================================================================================
==================================================================================================================================
* NOI and DSCR, if available and reportable under the terms of the trust agreement, are based on information obtained from
the related borrower, and no other party to the agreement shall be held liable for the
accuracy or methodology used to determine such figures.
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Legend: A. P&I Adv - in Grace Period 1. P&I Adv - delinquent 1 month 3. P&It Adv - delinquent 3+months
B. P&I Adv - one month delinq 2. P&I Adv - delinquent 2 months 4. Mat. Balloon/Assumed P&I
5. Prepaid in Full 7. Foreclosure 9. REO 11. Modification
6. Specially Serviced 8. Bankruptcy 10. DPO
==================================================================================================================================
01/00/00 - 00:00 (A99-A999) (C)1999 LaSalle National Bank
</TABLE>
B-9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO Bear Stearns Commercial Mortgage Securites, Inc. Statement Date:
LaSalle Bank N.A. Midland Loan Services, Inc. as Master and Special Service Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO Acct: 99-9999-99-9
Chicago, IL 60603
Specially Serviced Loan Detail
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Beginning Specially
Disclosure Scheduled Interest Maturity Property Serviced
Control # Balance Rate Date Type Status Code (1) Comments
==================================================================================================================================
==================================================================================================================================
(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
3) Request for Loan Modification or Workout 6) Loan now REO Property Master Servicer
==================================================================================================================================
01/00/00 - 00:00 (A99-A999) (C)1999 LaSalle National Bank Appendix A
</TABLE>
B-10
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO Bear Stearns Commercial Mortgage Securites, Inc. Statement Date:
LaSalle Bank N.A. Midland Loan Services, Inc. as Master and Special Service Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO Acct: 99-9999-99-9
Chicago, IL 60603
Modified Loan Detail
==================================================================================================================================
<S> <C> <C>
Disclosure Modification Modification
Control # Date Description
- ----------------------------------------------------------------------------------------------------------------------------------
==================================================================================================================================
Appendix B
01/00/00 - 00:00 (A99-A999) (C)1999 LaSalle National Bank
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO Bear Stearns Commercial Mortgage Securites, Inc. Statement Date:
LaSalle Bank N.A. Midland Loan Services, Inc. as Master and Special Service Payment Date:
Commercial Lease-Backed Certificates Prior Payment:
Administrator: Series 1999-CLF1 Record Date:
Lora Peloquin (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO Acct: 99-9999-99-9
Chicago, IL 60603
Realized Loss Detail
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Current Total 0.00 0.00 0.00 0.00 0.00
Cumulative 0.00 0.00 0.00 0.00 0.00
==================================================================================================================================
Appendix C
* Aggregate liquidation expenses also include outstanding P&I advances and unpaid servicing fees, unpaid trustee fees, etc..
01/00/00 - 00:00 (A99-A999) (C)1999 LaSalle National Bank
</TABLE>
B-12
<PAGE>
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. 74 Corporate Lease Loans, 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 Corporate 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 Corporate 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 Corporate 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 Corporate 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, the Fiscal Agent or MBIA 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.
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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 are located in affected areas
except (1) the Circuit City Loan in Fayetteville, Arkansas, (2) the Accor Loan
in Issaquah, Washington and the Bed, Bath & Beyond Loan in Mission Viejo,
California. With respect to the Circuit City Loan, the Accor Loan and the Bed,
Bath & Beyond Loan, each such Loan is backed by a Bond-Type Lease, and in each
case the tenant has no right to terminate the Credit Lease or abate payments
under the related Credit Lease as a result of earthquake-related damage.
Each 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. Each Enhancement Insurer's financial strength has
been rated "AAA" by S&P.
The Extended Amortization Policies
Each Corporate Lease Loan underwritten with an amortization period and 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 Corporate Lease Loan at
any time after a Tenant
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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 Corporate 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. Three Corporate Lease Loans with
an aggregate Cut-off Balance of $17,101,042 have the benefit of the Extended
Amortization Policies.
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 Corporate 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 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 Corporate 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 Corporate 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 Corporate 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.
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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.
Residual Value Insurance Policies
In addition, 19 of the Corporate Lease Loans, which represent 31.99% 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 balloon payments (ranging
from % to % of the initial principal balance) due and payable on their
respective maturity dates, unless prepaid prior thereto. In the case of the 18
loans with a balloon payment, a residual value insurance policy is in effect
under which the insurer is obligated to pay an amount equal to the full
balloon payment to the Trustee if the borrower fails to make such payment
under the loan. The residual value insurance policies have been issued by
Financial Structures Limited and reinsured by Royal Indemnity Co., with a with
a financial strength rating of "AA-" from S&P with respect to 16 loans, and
RVI America Insurance Co., with a with a financial strength rating of "A" from
S&P with respect to 2 loans. In the case of the Middlesex Loan, the tenant is
obligated to either pay the balloon payment in full at maturity or enter into
an extension of the Credit Lease for a term which will fully amortize the
loan.
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
Corporate 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 Corporate 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 Corporate 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 Corporate Lease Loan which may lead
to foreclosure and the loss of the borrower's equity.
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. 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, Corporate 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 Corporate 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.
With respect to Negative Lease Covenants, the foregoing incentives are
expected to 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 Corporate 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
Corporate 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 Corporate 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 Corporate 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
Corporate 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 Corporate 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 Credit 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 Corporate Lease Loan
identified on the Mortgage Loan Schedule as loan number 2071NB (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 Corporate 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
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perform the borrower's obligations thereunder and advance funds as necessary
therefor. The Servicer Protective Actions to be performed by the Master
Servicer, the Special Servicer, which consist of filing notices and pursuing
claims under the Lease Enhancement Policies, the Extended Amortization
Policies in and of itself 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 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 or the Special Servicer is
obligated to advance its own funds, subject to the Master Servicer's or
the Special 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 or the Special 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 or the
Special Servicer under the terms of the loan documents. Failure to reimburse
the Master Servicer or the Special Servicer will constitute a default under
the Corporate Lease Loan entitling the Master Servicer to accelerate the
Corporate Lease Loan. So long as the Corporate 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 Corporate Lease Loan exceed 60% of the Anticipated Liquidation
Value with respect to such Corporate Lease Loan; or
. the Special Servicer has received the prior written consent of the
Directing Certificateholder; or
. any Servicing Advance with respect to such Corporate Lease Loan is
deemed to be nonrecoverable; or
. the original scheduled maturity date of such Corporate 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 Corporate
Lease Loan, or from other recoveries relating to such Corporate 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 Corporate 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 Corporate 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 Corporate Lease Loan documents, or requiring
payment of default interest in connection with any overdue amounts (including,
without
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limitation, the full amount of the Corporate Lease Loan after such an
acceleration). This prohibition is designed to prevent liquidation of the
Corporate 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 Corporate 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 Corporate 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 Corporate 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 generally requires that the amounts to be reserved will
be equal to at least 125% of the engineer's estimate 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 Corporate Lease Loan originated by CLF 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 including, but not limited to, granting the Master
Servicer a power of attorney on behalf of the borrower and an irrevocable
easement to enter the property to perform any obligations of the borrower. 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 all but nine (which represent 21.49% of the aggregate Cut-off Date
Balance) of the Corporate Lease Loans, 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,
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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 an amount in excess of $1,500,000 (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 REMIC I or REMIC II.
The Master Servicer or the Special Servicer, as applicable, is permitted to
make withdrawals from the Expense Reserve Fund at any time:
. with respect to Corporate Lease Loans, to provide additional funds for
use by the Master Servicer or the Special Servicer to cover the costs of
Servicer Protective Actions, subject to reimbursement (subject to the
priority of the Master Servicer, the Special Servicer, the Trustee and
the Fiscal Agent of reimbursement of any outstanding advances with
respect to such Corporate 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;
. to pay trust expenses, if any, including without limitation, as payment
to any third party for performing services in connection with any 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;
. [to reimburse MBIA for rate spread for interest on net recovery fund]
. as credit support to the extent Available Distribution Amount are
insufficient as a result of losses incurred on the 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 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.
C-8
<PAGE>
ANNEX D
THE USPS LEASE PROGRAM
The USPS Lease Program is a proprietary program of Bedford Capital Funding
Corp. ("Bedford"), designed to enhance the certainty of cash flows from net
leases on stand alone facilities leased to the United States Postal Service
("USPS"). 96 USPS Lease Loans were originated in accordance with the
underwriting guidelines of the USPS Lease Program.
The USPS Lease Program, with the benefit of additional features used in the
Enhanced Lease Program, includes (1) the Lease Enhancement Policies, (2) the
Borrower Protective Actions, (3) the Servicer Protective Actions, (4) the
Borrower Reserve Fund, (5) the use of standardized loan documents, and (6) the
Expense Reserve Fund.
The Lease Enhancement Policies
Each USPS Lease Loan 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
are named insureds under the Lease Enhancement Policy, and payments under the
Lease Enhancement Policy are treated as payments on the USPS Lease Loan by the
borrower. The premium relating to each Lease Enhancement Policy was paid in
full 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 USPS 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
USPS Lease Loan plus accrued interest or (b) the sum of all periodic payments
of monthly rental payments that would have been payable under the USPS Credit
Lease if the USPS Credit Lease had not been so terminated for the period from
the date of the USPS Credit Lease termination through the expiration date of
the initial term of such USPS Credit Lease or first renewal term of the USPS
Credit Lease, if such USPS Credit Lease has the benefit of an Extended
Amortization Policy. In the event that the USPS Credit Lease permits the USPS
to abate rent, the Ascertained Net Loss will be in an amount equal to the
portion of any monthly rental payments not made by USPS 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 USPS Credit Lease, if such USPS 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 USPS 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 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.
D-1
<PAGE>
In the event USPS 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
USPS 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 USPS 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 are located in affected areas
except 14 USPS Lease Loans, represent % of the aggregate Cut-off Date
Balance, which are located in an Earthquake Zone.
. With respect to 9 USPS Lease Loans (representing % of the aggregate
Cut-off Date Balance) the related mortgaged properties are located in
Earthquake Zones and are not covered by the Lease Enhancement Policy for
a Casualty or Condemnation Termination or Abatement Rights arising from
earthquake-related damage. However, the related borrower maintains or
pays for earthquake insurance naming the mortgagee as an additional
insured in the case of 5 such loans (representing % of the aggregate
Cut-off Date Balance).
. With respect to 5 USPS Lease Loans (representing % of the aggregate
Cut-off Date Balance), the related mortgaged properties are located in
Earthquake Zones and are not covered by the Lease Enhancement Policy for
a Casualty or Condemnation Termination or Abatement Rights arising from
earthquake-related damage, however CLF has obtained reports with respect
to each such USPS Lease Loans that indicate that 4 of the related
mortgaged properties are located in areas identified as Seismic Zones 1
and are accordingly designated by the Federal Emergency Management
Agency ("FEMA") as unlikely to have damaging levels of ground motion,
and one related mortgaged property is located in an area identified as a
Seismic Zone 2 and is accordingly designated by FEMA as having a low
likelihood to have damaging levels of ground motion.
D-2
<PAGE>
Borrower Protective Actions
USPS 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, USPS may
have Additional Termination or Abatement Rights if the borrower defaults in
performing other obligations under the USPS Credit Lease. If the borrower were
to default in the performance of any such obligations and USPS were to
exercise its right to abate rent or terminate the USPS 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 USPS
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 USPS Credit Lease. In addition, the borrower is required
to 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 Lease Covenants under the USPS 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. See "The
Credit Leases--Borrower Obligations; USPS Credit Lease Tenant Rent Abatement
and Lease Termination Rights" in this prospectus supplement.
In each case, the borrower is obligated under the terms of the related USPS
Lease Loan to perform its obligations under the USPS Credit Lease, and failure
to perform such obligations after appropriate notice and passage of time will
constitute a default under the USPS Lease Loan. Certain factors will encourage
a borrower to perform its obligations under the USPS Credit Lease:
. First, as the monthly rental payments amortize the USPS 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 USPS Credit Lease
will cause a default under the USPS 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.
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 use
funds, to the extent reserved for, in the Borrower Reserve Fund.
Except as further described in this prospectus supplement, the borrower has
agreed pursuant to the loan documents not to amend the USPS Credit Lease
without the consent of the Master Servicer on behalf of the Trustee.
Servicer Protective Actions
The Master Servicer and the Special Servicer perform servicing, advancing
and monitoring actions. These obligations are intended to prevent a
termination of a USPS 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 may use funds on deposit in the Borrower Reserve
Fund to accomplish those necessary repairs and maintenance items that are
reserved for.
D-3
<PAGE>
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 maintenance or repair of the mortgaged property and hazard and
liability insurance expenses. A Borrower Reserve Fund exists with respect to
each USPS Lease Loan secured by a USPS Credit Lease. Amounts to be reserved
are established by Bedford. Such amounts are based on a property condition
survey prepared by an engineer approved by Bedford. Bedford generally requires
that the amounts to be reserved will be equal to at least 125% (with an
average of 150% of anticipated cost on the pool of USPS Lease Loans) 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 USPS 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 USPS Lease
Loan documents. 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. Investment income earned in funds on
deposit on the Borrower Reserve Fund will be added thereto.
The Loan Documents
Each USPS Lease Loan was originated using a standardized set of loan
documents executed by the borrower and Bedford. The loan documents incorporate
the Credit Lease itself, the Note, the Mortgage, Loan, Pledge and Security
Agreement, the Credit Lease Assignment, the power of attorney, any
environmental indemnity agreement, guaranty and any other document as may be
required of the borrower or the Credit Lease tenant. 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 USPS Credit Lease, if necessary.
The Expense Reserve Fund
The Expense Reserve Fund will be established and maintained as described
under "The Enhanced Lease Program--The Expense Reserve Fund" in Annex C to
this prospectus supplement. Amounts on deposit in the Expense Reserve Fund may
be used by the Master Servicer for the USPS Lease Loans as well as the
Corporate Lease Loans, to provide for additional funds when performing
Servicer Protective Actions, to pay trust level expenses and as credit
support. See "Description of the Certificate--Accounts" in this prospectus
supplement.
D-4
<PAGE>
PROSPECTUS
Commercial Mortgage Pass-Through Certificates
(Issuable in Series)
Bear Stearns Commercial Mortgage Securities Inc.
(Depositor)
----------------
The commercial mortgage pass-through certificates (the "Offered
Certificates") offered hereby and by the supplements hereto (each, a
"Prospectus Supplement") will be offered from time to time in series (each a
"Series"). The Offered Certificates of any Series, together with any other
mortgage pass-through certificates of such Series, are collectively referred
to herein as the "Certificates".
Each Series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any Series, the
"Trust Fund") consisting primarily of a segregated pool (a "Mortgage Asset
Pool") of various types of multifamily or commercial mortgage loans (the
"Mortgage Loans"), mortgage-backed securities ("MBS") that evidence interests
in, or that are secured by pledges of, one or more of the following types of
real property (each, a "Mortgaged Property"): (i) residential properties
consisting of multiple rental or cooperatively-owned dwelling units and mobile
home parks; (ii) commercial properties consisting of office buildings, retail
facilities related to the sale of goods and products and facilities related to
providing entertainment, recreation or personal services, hotels and motels,
casinos, health care-related facilities, recreational vehicle parks, warehouse
facilities, mini-warehouse facilities, self-storage facilities, industrial
facilities, parking lots, auto parks, golf courses, arenas and restaurants (or
cooperatively owned units therein); and (iii) mixed use properties (that is,
any combination of the foregoing) and unimproved land. Multifamily properties
(consisting of multiple rental or cooperatively owned dwellings), office
properties and retail properties will represent security for a material
concentration of the Mortgage Loans (and the mortgage loans underlying the MBS
included in a particular Trust Fund) constituting the Trust Fund for any
Series, based on principal balance at the time such Series is issued.
----------------
If so specified in the related Prospectus Supplement, the Trust Fund for a
Series of Certificates may include letters of credit, insurance policies,
guarantees, reserve funds or other types of credit support described in this
Prospectus, or any combination thereof (with respect to any Series,
collectively, "Credit Support"), and interest rate exchange agreements,
interest rate cap or floor agreements or currency exchange agreements
described in this Prospectus, or any combination thereof (with respect to any
Series, collectively, "Cash Flow Agreements"). See "Description of the Trust
Funds", "Description of the Certificates" and "Description of Credit Support".
The Depositor does not intend to list any of the Offered Certificates on any
securities exchange and has not made any other arrangement for secondary
trading of the Offered Certificates. There will have been no public market for
the Certificates of any series prior to the offering thereof. No assurance can
be given that such a market will develop as a result of such an offering. See
"Risk Factors".
(cover continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 18 OF THIS PROSPECTUS FOR CERTAIN
FACTORS TO BE CONSIDERED IN PURCHASING THE OFFERED CERTIFICATES.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The Offered Certificates of any series may be offered through one or more
different methods, including offerings through underwriters, which may include
Bear, Stearns & Co. Inc., an affiliate of the Depositor, as more fully
described under "Method of Distribution" and in the related Prospectus
Supplement.
This Prospectus may not be used to consummate sales of the Offered
Certificates of any series unless accompanied by the Prospectus Supplement for
such series.
The date of this Prospectus is August 3, 1999
<PAGE>
(cover continued)
As described in the related Prospectus Supplement, the Certificates of each
series, including the Offered Certificates of such series, may consist of one
or more classes of Certificates that: (i) provide for the accrual of interest
thereon based on a fixed, variable or adjustable interest rate; (ii) are
senior or subordinate to one or more other classes of Certificates in
entitlement to certain distributions on the Certificates; (iii) are entitled
to distributions of principal, with disproportionately small, nominal or no
distributions of interest; (iv) are entitled to distributions of interest,
with disproportionately small, nominal or no distributions of principal; (v)
provide for distributions of interest thereon or principal thereof that
commence only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
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; or (vii) provide for
distributions of principal thereof to be made, subject to available funds,
based on a specified principal payment schedule or other methodology. See
"Description of the Certificates".
Distributions in respect of the Certificates of each series will be made on
a monthly, quarterly, semi-annual, annual or other periodic basis as specified
in the related Prospectus Supplement. Unless otherwise specified in the
related Prospectus Supplement, such distributions will be made only from the
assets of the related Trust Fund.
No series of Certificates will represent an obligation of or interest in the
Depositor or any of its affiliates, except to the limited extent described
herein and in the related Prospectus Supplement. Neither the Certificates of
any series nor the assets in any Trust Fund will be guaranteed or insured by
any governmental agency or instrumentality or by any other person, unless
otherwise provided in the related Prospectus Supplement. The assets in each
Trust Fund will be held in trust for the benefit of the holders of the related
series of Certificates (the "Certificateholders") pursuant to a Pooling
Agreement, as more fully described herein.
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including prepayments)
on the Mortgage Assets in the related Trust Fund and the timing of receipt of
such payments as described herein and in the related Prospectus Supplement.
See "Yield and Maturity Considerations". A Trust Fund may be subject to early
termination under the circumstances described herein and in the related
Prospectus Supplement. See "Description of the Certificates".
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Collateral or Trust Fund, as the case may be,
or a designated portion thereof as a "real estate mortgage investment conduit"
(each, a "REMIC") for federal income tax purposes. If applicable, the
Prospectus Supplement for a Series of Securities will specify which Class or
Classes of such Series will be considered to be regular interests in the
related REMIC and which Class or Classes will be designated as the residual
interest in the related REMIC. See "Certain Federal Income Tax Consequences".
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating to
each series of Offered Certificates will, among other things, set forth, as
and to the extent appropriate: (i) 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 of each such class (the
"Certificate Balance"), the rate at which interest accrues from time to time,
if at all, with respect to each such class (the "Pass-Through Rate") 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 or
a specified notional amount, if at all; (ii) information with respect to any
other classes of Certificates of the same series; (iii) the respective dates
on which distributions are to be made; (iv) information as to the assets
constituting the related Trust Fund, including the general characteristics of
the assets included therein, including the Mortgage Assets and any Credit
Support and Cash Flow Agreements (with respect to the
2
<PAGE>
Certificates of any series, the "Trust Assets"); (v) the circumstances, if
any, under which the related Trust Fund may be subject to early termination;
(vi) additional information with respect to the method of distribution of such
Offered Certificates; (vii) 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; (viii) the initial percentage ownership interest in
the related Trust Fund to be evidenced by each class of Certificates of such
series; (ix) information concerning the trustee (as to any series, the
"Trustee") of the related Trust Fund; (x) if the related Trust Fund includes
Mortgage Loans, information concerning the master servicer (as to any series,
the "Master Servicer") and any special servicer (as to any series, the
"Special Servicer") of such Mortgage Loans; (xi) information as to the nature
and extent of subordination of any class of Certificates of such series,
including a class of Offered Certificates; and (xii) whether such Offered
Certificates will be initially issued in definitive or book-entry form.
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 herein and therein, 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
Regional Offices located as follows: Chicago Regional Office, 500 West
Madison, 14th Floor, Chicago, Illinois 60661; and New York Regional Office,
Seven World Trade Center, New York, New York 10048. The Commission also
maintains a World Wide Web site which provides on-line access to reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission at the address
"http://www.sec.gov."
No person has been authorized to give any information or to make any
representation not contained in this Prospectus and any related Prospectus
Supplement and, if given or made, such information or representation must not
be relied upon. This Prospectus and any related Prospectus Supplement do not
constitute an offer to sell or a solicitation of an offer to buy any
securities other than the Offered Certificates, or an offer of the Offered
Certificates to any person in any state or other jurisdiction in which such
offer would be unlawful. The delivery of this Prospectus at any time does not
imply that information herein is correct as of any time subsequent to its
date; however, if any material change occurs while this Prospectus is required
by law to be delivered, this Prospectus will be amended or supplemented
accordingly.
The Master Servicer or Trustee for each series will be required to mail to
holders of the Offered Certificates of each series periodic unaudited reports
concerning the related Trust Fund. If beneficial interests in a class of
Offered Certificates are being held and transferred in book-entry format
through the facilities of The Depository Trust Company ("DTC") as described
herein, 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 such 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" and "Description of the Pooling Agreements--Evidence as to
Compliance". 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.
3
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein 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, 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
herein 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). Requests to the Depositor should
be directed in writing to its principal executive offices at 245 Park Avenue,
New York, New York 10167, Attention: James G. Reichek, or by telephone at 212-
272-2000. The Depositor has determined that its financial statements will not
be material to the offering of any Offered Certificates.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUPPLEMENT..................................................... 2
AVAILABLE INFORMATION..................................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 4
SUMMARY OF PROSPECTUS..................................................... 10
RISK FACTORS.............................................................. 18
Secondary Market........................................................ 18
Limited Assets.......................................................... 18
Prepayments; Average Life of Certificates; Yields....................... 19
Limited Nature of Ratings............................................... 20
Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans--General......................................................... 20
General............................................................... 20
Risks Particular to Multifamily Rental Properties..................... 22
Risks Particular to Cooperatively-Owned Apartment Buildings........... 22
Risks Particular to Retail Properties................................. 22
Balloon Payments; Borrower Default...................................... 23
Credit Support Limitations.............................................. 23
Leases and Rents........................................................ 24
Environmental Risks..................................................... 24
Special Hazard Losses................................................... 25
ERISA Considerations.................................................... 25
Certain Federal Tax Considerations Regarding Residual Certificates...... 25
Certain Federal Tax Considerations Regarding Original Issue Discount.... 26
Book-Entry Registration................................................. 26
Delinquent Mortgage Loans............................................... 26
DESCRIPTION OF THE TRUST FUNDS............................................ 26
General................................................................. 26
Mortgage Loans.......................................................... 27
General............................................................... 27
Mortgage Loans Secured by Multifamily Rental Properties............... 27
Mortgage Loans Secured by Cooperatively-Owned Apartment Buildings..... 28
Mortgage Loans Secured by Retail Properties........................... 29
Default and Loss Considerations with Respect to the Mortgage Loans.... 29
Payment Provisions of the Mortgage Loans.............................. 31
Mortgage Loan Information in Prospectus Supplements................... 31
MBS..................................................................... 32
Certificate Accounts.................................................... 33
Credit Support.......................................................... 33
Cash Flow Agreements.................................................... 33
YIELD AND MATURITY CONSIDERATIONS......................................... 33
General................................................................. 33
Pass-Through Rate....................................................... 33
Payment Delays.......................................................... 34
Certain Shortfalls in Collections of Interest........................... 34
Yield and Prepayment Considerations..................................... 34
Weighted Average Life and Maturity...................................... 36
Controlled Amortization Classes and Companion Classes................... 37
Other Factors Affecting Yield, Weighted Average Life and Maturity....... 37
Balloon Payments; Extensions of Maturity.............................. 37
Negative Amortization................................................. 38
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Foreclosures and Payment Plans........................................ 38
Losses and Shortfalls on the Mortgage Assets.......................... 38
Additional Certificate Amortization................................... 39
Optional Early Termination............................................ 39
THE DEPOSITOR............................................................. 39
USE OF PROCEEDS........................................................... 40
DESCRIPTION OF THE CERTIFICATES........................................... 40
General................................................................. 40
Distributions........................................................... 40
Distributions of Interest on the Certificates........................... 41
Distributions of Principal on the Certificates.......................... 42
Distributions on the Certificates in Respect of Prepayment Premiums or
in Respect of Equity Participations.................................... 43
Allocation of Losses and Shortfalls..................................... 43
Advances in Respect of Delinquencies.................................... 43
Reports to Certificateholders........................................... 44
Voting Rights........................................................... 45
Termination............................................................. 46
Book-Entry Registration and Definitive Certificates..................... 46
DESCRIPTION OF THE POOLING AGREEMENTS..................................... 48
General................................................................. 48
Assignment of Mortgage Loans; Repurchases............................... 48
Representations and Warranties; Repurchases............................. 49
Collection and Other Servicing Procedures............................... 50
Sub-Servicers........................................................... 50
Special Servicers....................................................... 51
Certificate Account..................................................... 51
General............................................................... 51
Deposits.............................................................. 51
Withdrawals........................................................... 52
Modifications, Waivers and Amendments of Mortgage Loans................. 54
Realization Upon Defaulted Mortgage Loans............................... 54
Hazard Insurance Policies............................................... 56
Due-on-Sale and Due-on-Encumbrance Provisions........................... 57
Servicing Compensation and Payment of Expenses.......................... 57
Evidence as to Compliance............................................... 57
Certain Matters Regarding the Master Servicer and the Depositor......... 58
Events of Default....................................................... 59
Rights Upon Event of Default............................................ 59
Amendment............................................................... 60
List of Certificateholders.............................................. 60
The Trustee............................................................. 60
Duties of the Trustee................................................... 61
Certain Matters Regarding the Trustee................................... 61
Resignation and Removal of the Trustee.................................. 61
DESCRIPTION OF CREDIT SUPPORT............................................. 62
General................................................................. 62
Subordinate Certificates................................................ 62
Cross-Support Provisions................................................ 62
Insurance or Guarantees with Respect to Mortgage Loans.................. 63
Letter of Credit........................................................ 63
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Certificate Insurance and Surety Bonds................................... 63
Reserve Funds............................................................ 63
Credit Support with Respect to MBS....................................... 64
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS.................................... 64
General.................................................................. 64
Types of Mortgage Instruments............................................ 64
Leases and Rents......................................................... 65
Personalty............................................................... 65
Foreclosure.............................................................. 65
General................................................................ 65
Foreclosure procedures vary from state to state........................ 65
Judicial Foreclosure................................................... 65
Equitable Limitations on Enforceability of Certain Provisions.......... 66
Non-Judicial Foreclosure/Power of Sale................................. 66
Public Sale............................................................ 66
Rights of Redemption................................................... 67
Anti-Deficiency Legislation............................................ 68
Leasehold Risks.......................................................... 68
Cooperative Shares....................................................... 69
Bankruptcy Laws.......................................................... 69
Environmental Risks...................................................... 72
Due-on-Sale and Due-on-Encumbrance Provisions............................ 73
Subordinate Financing.................................................... 74
Default Interest and Limitations on Prepayments.......................... 74
Adjustable Rate Loans.................................................... 74
Applicability of Usury Laws.............................................. 74
Soldiers' and Sailors' Civil Relief Act of 1940.......................... 75
Type of Mortgaged Property............................................... 75
Americans with Disabilities Act.......................................... 75
Forfeitures in Drug and RICO Proceedings................................. 76
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 77
Federal Income Tax Consequences for REMIC Certificates................... 77
General................................................................ 77
Status of REMIC Certificates........................................... 77
Qualification as a REMIC............................................... 78
Taxation of Regular Certificates......................................... 80
General................................................................ 80
Original Issue Discount................................................ 80
Acquisition Premium.................................................... 82
Variable Rate Regular Certificates..................................... 83
Deferred Interest...................................................... 84
Market Discount........................................................ 84
Premium................................................................ 85
Election to Treat All Interest Under the Constant Yield Method......... 85
Sale or Exchange of Regular Certificates............................... 85
Treatment of Losses.................................................... 86
Taxation of Residual Certificates........................................ 87
Taxation of REMIC Income............................................... 87
Basis and Losses....................................................... 88
Treatment of Certain Items of REMIC Income and Expense................. 88
Original Issue Discount and Premium.................................... 89
</TABLE>
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Deferred Interest..................................................... 89
Market Discount....................................................... 89
Premium............................................................... 89
Limitations on Offset or Exemption of REMIC Income.................... 89
Tax-Related Restrictions on Transfer of Residual Certificates......... 90
Disqualified Organizations............................................ 90
Noneconomic Residual Interests........................................ 91
Foreign Investors..................................................... 92
Sale or Exchange of a Residual Certificate............................ 92
Mark to Market Regulations............................................ 93
Taxes That May Be Imposed on the REMIC Pool............................. 93
Prohibited Transactions............................................... 93
Contributions to the REMIC Pool After the Startup Day................. 94
Net Income from Foreclosure Property.................................. 94
Liquidation of the REMIC Pool........................................... 94
Administrative Matters.................................................. 94
Limitations on Deduction of Certain Expenses............................ 94
Taxation of Certain Foreign Investors................................... 95
Regular Certificates.................................................. 95
Residual Certificates................................................. 96
Backup Withholding...................................................... 96
Reporting Requirements.................................................. 96
Federal Income Tax Consequences For Certificates as to Which No REMIC
Election is Made....................................................... 97
Standard Certificates.................................................. 97
General............................................................... 97
Tax Status............................................................ 97
Premium and Discount.................................................. 98
Premium............................................................... 98
Original Issue Discount............................................... 98
Market Discount....................................................... 98
Recharacterization of Servicing Fees.................................. 99
Sale or Exchange of Standard Certificates............................. 99
Stripped Certificates.................................................. 100
General............................................................... 100
Status of Stripped Certificates....................................... 101
Taxation of Stripped Certificates..................................... 101
Original Issue Discount............................................... 101
Sale or Exchange of Stripped Certificates............................. 102
Purchase of More Than One Class of Stripped Certificates.............. 102
Possible Alternative Characterizations................................ 102
Federal Income Tax Consequences for FASIT Certificates.................. 102
Reporting Requirements and Backup Withholding........................... 103
Taxation of Certain Foreign Investors................................... 103
STATE AND OTHER TAX CONSIDERATIONS........................................ 103
ERISA CONSIDERATIONS...................................................... 104
General................................................................. 104
Plan Asset Regulations.................................................. 104
Administrative Exemptions............................................... 105
Unrelated Business Taxable Income; Residual Certificates................ 105
LEGAL INVESTMENT.......................................................... 105
METHOD OF DISTRIBUTION.................................................... 107
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LEGAL MATTERS.............................................................. 109
FINANCIAL INFORMATION...................................................... 109
RATING..................................................................... 109
INDEX OF PRINCIPAL DEFINITIONS............................................. 110
</TABLE>
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SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of Offered Certificates of such
series. An Index of Principal Definitions is included at the end of this
Prospectus.
Title of Certificates....... Mortgage Pass-Through Certificates, issuable in
series (the "Certificates").
Depositor................... Bear Stearns Commercial Mortgage Securities Inc.,
a Delaware corporation. See "The Depositor".
Master Servicer............. The master servicer (the "Master Servicer"), if
any, for a series of Certificates will be named
in the related Prospectus Supplement. The Master
Servicer for any series of Certificates may be an
affiliate of the Depositor or a Special Servicer.
See "Description of the Pooling Agreements--
Collection and Other Servicing Procedures".
Special Servicer............ One or more special servicers (each, a "Special
Servicer"), if any, for a series of Certificates
will be named, or the circumstances under which a
Special Servicer will be appointed will be
described, in the related Prospectus Supplement.
A Special Servicer for any series of Certificates
may be an affiliate of the Depositor or the
Master Servicer. See "Description of the Pooling
Agreements--Special Servicers".
Trustee..................... The trustee (the "Trustee") for each series of
Certificates will be named in the related
Prospectus Supplement. See "Description of the
Pooling Agreements--The Trustee".
The Trust Assets............ Each series of Certificates will represent in the
aggregate the entire beneficial ownership
interest in a Trust Fund consisting primarily of:
A. Mortgage Assets.......... The Mortgage Assets with respect to each series
of Certificates will, in general, consist of a
pool of loans or participations therein, together
with installment sales contracts, or any
combination thereof (collectively, the "Mortgage
Loans") secured by liens on, or security
interests in, (i) residential properties
consisting of five or more rental or
cooperatively-owned dwelling units or by shares
allocable to a number of such units and
proprietary leases appurtenant thereto (the
"Multifamily Properties") or and mobile home
parks, (ii) commercial properties consisting of
office buildings, retail facilities related to
the sale of goods and products and facilities
related to providing entertainment, recreation or
personal services, hotels and motels, casinos,
health care-related facilities, recreational
vehicle parks, warehouse facilities, mini-
warehouse facilities, self-storage facilities,
industrial facilities, parking lots, auto parks,
golf courses, arenas and restaurants (or
cooperatively owned units therein) and (iii)
mixed use properties
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(that is, any combination of the foregoing) and
unimproved land (the "Commercial Properties"). If
so specified in the related Prospectus
Supplement, a Trust Fund may include Mortgage
Loans secured by liens on real estate projects
under construction. The Mortgage Loans 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. If so specified in the related
Prospectus Supplement, some Mortgage Loans may be
delinquent or non-performing as of the date the
related Trust Fund is formed.
As and to the extent described in the related
Prospectus Supplement, a Mortgage Loan (i) 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, (ii) 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 negative amortization, (iii) may be fully
amortizing or partially amortizing or non-
amortizing, with a balloon payment due on its
stated maturity date, (iv) may prohibit over its
term or for a certain period prepayments and/or
require payment of a premium or a yield
maintenance penalty in connection with certain
prepayments and (v) may provide for payments of
principal, interest or both, on due dates that
occur monthly, quarterly, semi-annually or at
such other interval as is specified in the
related Prospectus Supplement. Unless otherwise
provided in the related Prospectus Supplement,
each Mortgage Loan will have had a principal
balance at origination of not less than $25,000
and an original term to maturity of not more than
40 years. Unless otherwise provided in the
related Prospectus Supplement, no Mortgage Loan
will have been originated by the Depositor;
however, some or all of the Mortgage Loans in any
Trust Fund may have been originated by an
affiliate of the Depositor. See "Description of
the Trust Funds--Mortgage Loans".
If and to the extent specified in the related
Prospectus Supplement, the Mortgage Assets with
respect to a series of Certificates may also
include, or consist of, (i) private mortgage
pass-through certificates or other mortgage-
backed securities or (ii) certificates 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") (collectively, the mortgage-backed
securities referred to in clauses (i) and (ii),
"MBS"), provided that each MBS will evidence an
interest in, or will be secured by a pledge of,
one or more mortgage loans that conform to the
descriptions of the Mortgage Loans contained
herein. See "Description of the Trust Funds--
MBS".
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B. Certificate Account...... Each Trust Fund will include one or more accounts
(collectively, the "Certificate Account")
established and maintained on behalf of the
Certificateholders into which the person or
persons designated in the related Prospectus
Supplement will, to the extent described herein
and in such Prospectus Supplement, deposit all
payments and other collections received or
advanced with respect to the Mortgage Assets and
other assets in such Trust Fund. A Certificate
Account may be maintained as an interest bearing
or a non-interest bearing account, and funds held
therein may be held as cash or invested in
certain obligations acceptable to each Rating
Agency (as defined below) rating one or more
classes of the related series of Offered
Certificates. See "Description of the Trust
Funds--Certificate Accounts" and "Description of
the Pooling Agreements--Certificate Account".
C. Credit Support........... If so provided in the related Prospectus
Supplement, 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 the
related series in the form of subordination of
one or more other classes of Certificates of such
series, which other classes may include one or
more classes of Offered Certificates, or by one
or more other types of credit support, such as a
letter of credit, insurance policy, guarantee,
reserve fund or another type of credit support
described in this Prospectus, or a combination
thereof (any such coverage with respect to the
Certificates of any series, "Credit Support").
The amount and types of any Credit Support, the
identification of the entity providing it (if
applicable) and related information will be set
forth in the Prospectus Supplement for a series
of Offered Certificates. See "Risk Factors--
Credit Support Limitations", "Description of the
Trust Funds--Credit Support" and "Description of
Credit Support".
D. Cash Flow Agreements..... If so provided in the related Prospectus
Supplement, a Trust Fund 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. The Trust Fund may also include
interest rate exchange agreements, interest rate
cap or floor agreements, or currency exchange
agreements, which agreements are designed to
reduce the effects of interest rate or currency
exchange rate fluctuations on the Mortgage Assets
or on one or more classes of Certificates. The
principal terms of any such guaranteed investment
contract or other 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 Prospectus Supplement
for the related series. In addition, the related
Prospectus Supplement will contain certain
information that pertains to the obligor or
counterparty under any such Cash Flow Agreement.
See "Description of the Trust Funds--Cash Flow
Agreements".
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Description of Each series of Certificates will be issued in one
Certificates................ or more classes pursuant to a pooling and
servicing agreement or other agreement specified
in the related Prospectus Supplement (in either
case, a "Pooling Agreement") and will represent
in the aggregate the entire beneficial ownership
interest in the related Trust Fund.
As described in the related Prospectus
Supplement, the Certificates of each series,
including the Offered Certificates of such
series, may consist of one or more classes of
Certificates that, among other things: (i) 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; (ii) are
entitled to distributions of principal, with
disproportionately small, nominal or no
distributions of interest (collectively,
"Stripped Principal Certificates"); (iii) are
entitled to distributions of interest, with
disproportionately small, nominal or no
distributions of principal (collectively,
"Stripped Interest Certificates"); (iv) 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; (v) 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; (vi) provide for
distributions of principal thereof to be made,
subject to available funds, based on a specified
principal payment schedule or other methodology;
or (vii) provide for distribution based on
collections on the Mortgage Assets in the related
Trust Fund attributable to prepayment premiums,
yield maintenance penalties or equity
participations.
Each class of Certificates, other than certain
classes of Stripped Interest Certificates and
certain classes of Residual Certificates (as
defined herein), will have a stated principal
amount (a "Certificate Balance"); and each class
of Certificates, other than certain classes of
Stripped Principal Certificates and certain
classes of Residual Certificates, will accrue
interest on its Certificate Balance or, in the
case of certain classes of Stripped Interest
Certificates, on a notional amount (a "Notional
Amount"), based on a fixed, variable or
adjustable interest rate (a "Pass-Through Rate").
The related Prospectus Supplement will specify
the Certificate Balance and/or Notional Amount
and the Pass-Through Rate (or, in the case of a
variable or adjustable Pass-Through Rate, the
method for determining such rate), as applicable,
for each class of Offered Certificates.
The Certificates will not be guaranteed or
insured by the Depositor or any of its
affiliates, by any governmental agency or
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instrumentality or by any other person or entity,
unless otherwise provided in the related
Prospectus Supplement. See "Risk Factors--Limited
Assets" and "Description of the Certificates".
Distributions of Interest
on the Certificates........
Interest on each class of Offered Certificates
(other than certain classes of Stripped Principal
Certificates and certain classes of Residual
Certificates) of each series will accrue at the
applicable Pass-Through Rate on the Certificate
Balance or, in the case of certain classes of
Stripped Interest Certificates, the Notional
Amount thereof outstanding from time to time and
will be distributed to Certificateholders as
provided in the related Prospectus Supplement
(each of the specified dates on which
distributions are to be made, a "Distribution
Date"). Distributions of interest with respect to
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, and interest accrued
with respect to a class of Accrual Certificates
prior to the occurrence of such an event will
either be added to the Certificate Balance
thereof or otherwise deferred. Distributions of
interest with respect to one or more classes of
Certificates may be reduced to the extent of
certain delinquencies, losses and other
contingencies described herein and in the related
Prospectus Supplement. See "Risk Factors--
Prepayments; Average Life of Certificates;
Yields", "Yield and Maturity Considerations" and
"Description of the Certificates--Distributions
of Interest on the Certificates".
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 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
thereof are then entitled to receive in respect
of principal from future cash flow on the assets
in the related Trust Fund. Unless otherwise
specified in the related Prospectus Supplement,
the initial aggregate Certificate Balance of all
classes of Certificates of a series will not be
greater than the 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. As and to the extent
described in each 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 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
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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 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 certain
limitations, based on a specified principal
payment schedule. Distributions of principal with
respect to one or more 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. See "Description of
the Certificates--Distributions of Principal of
the Certificates".
Advances.................... If and to the extent provided in the related
Prospectus Supplement, if a Trust Fund includes
Mortgage Loans, the Master Servicer, a Special
Servicer, the Trustee, any provider of Credit
Support and/or any other specified person may be
obligated to make, or have the option of making,
certain advances with respect to delinquent
scheduled payments of principal and/or interest
on such Mortgage Loans. Any such advances made
with respect to a particular Mortgage Loan will
be reimbursable from subsequent recoveries in
respect of such Mortgage Loan and otherwise to
the extent described herein and in the related
Prospectus Supplement. If and to the extent
provided in the Prospectus Supplement for a
series of Certificates, any entity making such
advances maybe entitled to receive interest
thereon for the period that such advances are
outstanding, payable from amounts in the related
Trust Fund. See "Description of the
Certificates--Advances in Respect of
Delinquencies". If a Trust Fund includes MBS, any
comparable advancing obligation of a party to the
related Pooling Agreement, or of a party to the
related MBS Agreement, will be described in the
related Prospectus Supplement.
Termination................. If so specified in the related Prospectus
Supplement, a series of Certificates may be
subject to optional early termination through
there purchase 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, a party specified
therein may be authorized or required to
15
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solicit bids for the purchase of all of 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. See "Description of the Certificates--
Termination".
Registration of Book-Entry
Certificates................
If so provided in the related Prospectus
Supplement, one or more classes of the Offered
Certificates of any series will be offered in
book-entry format (collectively, "Book-Entry
Certificates") through the facilities of The
Depository Trust Company ("DTC"). Each class of
Book-Entry Certificates will be initially
represented by one or more Certificates
registered in the name of a nominee of DTC. No
person acquiring an interest in a class of Book-
Entry Certificates (a "Certificate Owner") will
be entitled to receive Certificates of such class
in fully registered, definitive form ("Definitive
Certificates"), except under the limited
circumstances described herein. See "Risk
Factors--Book-Entry Registration" and
"Description of the Certificates--Book-Entry
Registration and Definitive Certificates".
Certain Federal Income Tax
Consequences................
The federal income tax consequences to
Certificateholders will vary depending on whether
one or more elections are made to treat the Trust
Fund or specified portions thereof as one or more
"real estate mortgage investment conduits" (each,
a "REMIC") under the provisions of the Internal
Revenue Code of 1986, as amended (the "Code").
The Prospectus Supplement for each series of
Certificates will specify whether one or more
such elections will be made. See "Certain Federal
Income Tax Consequences".
ERISA Considerations........ Fiduciaries of employee benefit plans and certain
other retirement plans and arrangements,
including individual retirement accounts,
individual retirement annuities, Keogh plans, and
collective investment funds and insurance company
general 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 ("ERISA"), or Section 4975 of the Code,
should carefully review with their legal advisors
whether the purchase and holding of Offered
Certificates could give rise to a transaction
that is prohibited or is not otherwise
permissible under either ERISA or Section 4975 of
the Code. See "ERISA Considerations" herein and
in the related Prospectus Supplement.
Legal Investment............ The Offered Certificates will constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA") only if so specified
in the related Prospectus Supplement. Investors
whose investment authority is subject to legal
restrictions should consult their own legal
advisors to determine whether and to what extent
the
16
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Offered Certificates constitute legal investments
for them. See "Legal Investment" herein and in
the related Prospectus Supplement.
Rating...................... At their respective dates of issuance, each class
of Offered Certificates will be rated not lower
than investment grade by one or more nationally
recognized statistical rating agencies (each, a
"Rating Agency"). See "Rating" herein and in the
related Prospectus Supplement.
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RISK FACTORS
In considering an investment in the Offered Certificates of any series,
investors should consider, among other things, the following risk factors and
any other factors set forth under the heading "Risk Factors" in the related
Prospectus Supplement. In general, to the extent that the factors discussed
below pertain to or are influenced by the characteristics or behavior of
Mortgage Loans included in a particular Trust Fund, they would similarly
pertain to and be influenced by the characteristics or behavior of the
mortgage loans underlying any MBS included in such Trust Fund.
Secondary Market
There can be no assurance that a secondary market for the Offered
Certificates of any series will develop or, if it does develop, that it will
provide holders with liquidity of investment or will continue for as long as
such Certificates remain outstanding. The Prospectus Supplement for any series
of Offered Certificates may indicate that an underwriter specified therein
intends to make a secondary market in such Offered Certificates; however, no
underwriter will be obligated to do so. Any such secondary market may provide
less liquidity to investors than any comparable market for securities that
evidence interests in single-family mortgage loans.
The primary source of ongoing information regarding the Offered Certificates
of any series, including information regarding the status of the related
Mortgage Assets and any Credit Support for such Certificates, will be the
periodic reports to Certificateholders to be delivered pursuant to the related
Pooling Agreement as described herein under the heading "Description of the
Certificates--Reports to Certificateholders". There can be no assurance that
any additional ongoing information regarding the Offered Certificates of any
series will be available through any other source. The limited nature of such
information in respect of a series of Offered Certificates may adversely
affect the liquidity thereof, even if a secondary market for such Certificates
does develop.
Insofar as a secondary market does develop with respect to any series of
Offered Certificates or class thereof, the market value of such Certificates
will be affected by several factors, including the perceived liquidity
thereof, the anticipated cash flow thereon (which may vary widely depending
upon the prepayment and default assumptions applied in respect of the
underlying Mortgage Loans) and prevailing interest rates. The price payable at
any given time in respect of certain classes of Offered Certificates (in
particular, a class with a relatively long average life, a Companion Class or
a class of Stripped Interest Certificates or Stripped Principal Certificates)
may be extremely sensitive to small fluctuations in prevailing interest rates;
and the relative change in price for an Offered Certificate in response to an
upward or downward movement in prevailing interest rates may not necessarily
equal the relative change in price for such Offered Certificate in response to
an equal but opposite movement in such rates. Accordingly, the sale of Offered
Certificates by a holder in any secondary market that may develop may be at a
discount from the price paid by such holder. The Depositor is not aware of any
source through which price information about the Offered Certificates will be
generally available on an ongoing basis.
Except to the extent described herein and in the related Prospectus
Supplement, Certificateholders will have no redemption rights, and the Offered
Certificates of each series are subject to early retirement only under certain
specified circumstances described herein and in the related Prospectus
Supplement. See "Description of the Certificates--Termination".
Limited Assets
Unless otherwise specified in the related Prospectus Supplement, neither the
Offered Certificates of any series nor the Mortgage Assets in the related
Trust Fund will be guaranteed or insured by the Depositor or any of its
affiliates, by any governmental agency or instrumentality or by any other
person or entity; and no Offered Certificate of any series will represent a
claim against or security interest in the Trust Funds for any other series.
Accordingly, if the related Trust Fund has insufficient assets to make
payments on a series of Offered Certificates, no other assets will be
available for payment of the deficiency. Additionally, certain amounts on
deposit from
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time to time in certain funds or accounts constituting part of a Trust Fund,
including the Certificate Account and any accounts maintained as Credit
Support, may be withdrawn under certain conditions, as described in the
related Prospectus Supplement, for purposes other than the payment of
principal of or interest on the related series of Certificates. If and to the
extent so provided in the Prospectus Supplement for a series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on
the Mortgage Assets have been incurred, all or a portion of the amount of such
losses or shortfalls will be borne first by one or more classes of the
Subordinate Certificates, and, thereafter, by the remaining classes of
Certificates in the priority and manner and subject to the limitations
specified in such Prospectus Supplement.
Prepayments; Average Life of Certificates; Yields
As a result of, among other things, prepayments on the Mortgage Loans in any
Trust Fund, the amount and timing of distributions of principal and/or
interest on the Offered Certificates of the related series may be highly
unpredictable. Prepayments on the Mortgage Loans in any Trust Fund 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. Thus, the prepayment experience on the Mortgage Loans in a Trust
Fund may affect the average life of one or more classes of Certificates of the
related series, including a class of Offered Certificates. 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, legal and other factors. For example, if prevailing interest
rates fall significantly below the Mortgage Rates borne by the Mortgage Loans
included in a Trust Fund, then, subject to, among other things, the particular
terms of the Mortgage Loans (e.g., provisions that prohibit voluntary
prepayments during specified periods or impose penalties in connection
therewith) and the ability of borrowers to get new financing, 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 a Trust Fund, then principal
prepayments on such Mortgage Loans are likely to be lower than if prevailing
interest rates remain at or below the rates borne by those Mortgage Loans.
There can be no assurance as to the actual rate of prepayment on the Mortgage
Loans in any Trust Fund or that such rate of prepayment will conform to any
model described herein or in any Prospectus Supplement. As a result, depending
on the anticipated rate of prepayment for the Mortgage Loans in any Trust
Fund, the retirement of any class of Certificates of the related series could
occur significantly earlier or later than expected.
The extent to which prepayments on the Mortgage Loans in any Trust Fund
ultimately affect the average life of any class of Certificates of the related
series will depend on the terms of such Certificates. A class of Certificates,
including a class of Offered Certificates, may provide that on any
Distribution Date the holders of such Certificates are entitled to a pro rata
share of the prepayments on the Mortgage Loans in the related Trust Fund that
are distributable on such date, to a disproportionately large share (which, in
some cases, may be all) of such prepayments, or to a disproportionately small
share (which, in some cases, may be none) of such prepayments. A class of
Certificates that entitles the holders thereof to a disproportionately large
share of the prepayments on the Mortgage Loans in the related Trust Fund
increases the likelihood of early retirement of such class ("call risk") if
the rate of prepayment is relatively fast; while a class of Certificates that
entitles the holders thereof to a disproportionately small share of the
prepayments on the Mortgage Loans in the related Trust Fund increases the
likelihood of an extended average life of such class ("extension risk") if the
rate of prepayment is relatively slow. As and to the extent described in the
related 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 related
Trust Fund 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 thereof 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
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generally provide a relatively stable cash flow so long as the actual rate of
prepayment on the Mortgage Loans in the related Trust Fund remains relatively
constant at the rate, or within the range of rates, 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 Companion Classes of the same
series, any of which Companion Classes may also be a class of Offered
Certificates. In general, and as more specifically described in the related
Prospectus Supplement, a Companion Class may entitle the holders thereof to a
disproportionately large share of prepayments on the Mortgage Loans in the
related Trust Fund when the rate of prepayment is relatively fast, and/or may
entitle the holders thereof to a disproportionately small share of prepayments
on the Mortgage Loans in the related Trust Fund when the rate of prepayment is
relatively slow. As and to the extent described in the related Prospectus
Supplement, 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
related Trust Fund were allocated on a pro rata basis.
A series of Certificates may include one or more classes of Offered
Certificates 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 related Trust Fund and, where 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 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 they are purchased at a discount or
premium and the amount and timing of distributions thereon. 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 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
could result in an actual yield to such investor that is lower than the
anticipated yield. See "Yield and Maturity Considerations" herein.
Limited Nature of Ratings
Any rating assigned by a Rating Agency to a class of Offered Certificates
will reflect only its assessment of the likelihood that holders of such
Offered Certificates will receive payments to which such Certificateholders
are entitled under the related Pooling Agreement. Such rating will not
constitute an assessment of the 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 related Trust Fund. Furthermore, such rating
will not address the possibility that prepayment of the related 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 that
purchases an Offered Certificate at a significant premium might fail to
recover its initial investment under certain prepayment scenarios.
The amount, type and nature of Credit Support, if any, provided with respect
to 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. However, 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 Mortgaged
Properties that provide security for the Mortgage Loans. However, no assurance
can be given that those values will not decline in the future. See
"Description of Credit Support" and "Rating".
Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage Loans--
General
General. A description of risks associated with investments in mortgage
loans is included herein under "Certain Legal Aspects of Mortgage Loans".
Mortgage loans made on the security of multifamily or commercial
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property may entail risks of delinquency and foreclosure, and risks of loss in
the event thereof, that are greater than similar risks associated with loans
made on the security of an owner-occupied single-family property. See
"Description of the Trust Funds--Mortgage Loans". 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; thus, 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 Mortgaged Properties or on Mortgaged Properties leased
to a single tenant or a small number of significant tenants. Accordingly, a
decline in the financial condition of the borrower or a significant tenant, as
applicable, may have a disproportionately greater effect on the net operating
income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants. Furthermore, the value of any
Mortgaged Property may be adversely affected by risks generally incident to
interests in real property, including changes in general or local economic
conditions and/or specific industry segments; declines in real estate values;
declines in rental or occupancy rates; increases in interest rates, real
estate tax rates and other operating expenses; changes in governmental rules,
regulations and fiscal policies, including environmental legislation; acts of
God; and other factors beyond the control of the Master Servicer. In the case
of Mortgage Loans that represent participation interests in a mortgage loan,
the Trustee's or the Master Servicer's enforcement rights may be limited in
the event of default by the related borrower.
In addition, additional risk may be presented by the type and use of a
particular Mortgaged Property. For instance, Mortgaged Properties that operate
as hospitals and nursing homes may present special risks to lenders due to the
significant governmental regulation of the ownership, operation, maintenance
and financing of health care institutions. Hotel and motel properties are
often operated pursuant to franchise, management or operating agreements that
may be terminable by the franchisor or operator. Moreover, the transferability
of a hotel's operating, liquor and other licenses upon a transfer of the
hotel, whether through purchase or foreclosure, is subject to local law
requirements. The ability of a borrower to repay a Mortgage Loan secured by
shares allocable to one or more cooperative dwelling units may be dependent
upon the ability of the dwelling units to generate sufficient rental income,
which may be subject to rent control or stabilization laws, to cover both debt
service on the loan as well as maintenance charges to the cooperative.
Further, a Mortgage Loan secured by cooperative shares is subordinate to the
mortgage, if any, on the cooperative apartment building.
Other multifamily and commercial properties located in the areas of the
Mortgaged Properties and of the same types as the Mortgaged Properties compete
with the Mortgaged Properties to attract residents and customers. The leasing
of real estate is highly competitive. The principal means of competition are
price, location and the nature and condition of the facility to be leased. A
borrower under a Mortgage Loan competes with all lessors and developers of
comparable types of real estate in the area in which the Mortgaged Property is
located. Such lessors or developers could have lower rentals, lower operating
costs, more favorable locations or better facilities. While a borrower under a
Mortgaged Property may renovate, refurbish or expand the Mortgaged Property to
maintain it and remain competitive, such renovation, refurbishment or
expansion may itself entail significant risk. Increased competition could
adversely affect income from and market value of the Mortgaged Properties. In
addition, the business conducted at each Mortgaged Property may face
competition from other industries and industry segments.
It is anticipated 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. As to any such Mortgage Loan, recourse in the
event of borrower default will be limited to the specific real property and
other assets, if any, 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 generally, there can be no assurance that
enforcement of such recourse provisions will be practicable, or that the
assets of the borrower will be sufficient to permit a recovery in respect of a
defaulted Mortgage Loan in excess of the liquidation value of the related
Mortgaged Property. See "Certain Legal Aspects of Mortgage Loans--
Foreclosure".
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Further, the concentration of default, foreclosure and loss risks in
individual Mortgage Loans in a particular Trust Fund will generally be greater
than for pools of single-family loans because Mortgage Loans in a Trust Fund
will generally consist of a smaller number of higher balance loans than would
a pool of single-family loans of comparable aggregate unpaid principal
balance.
Risks Particular to Multifamily Rental Properties. Adverse economic
conditions, either local, regional or national, may limit the amount of rent
that can be charged for rental units, may adversely affect tenants' ability to
pay rent and may result in a reduction in timely rent payments or a reduction
in occupancy levels without a corresponding decrease in expenses. Occupancy
and rent levels may also be affected by construction of additional housing
units, local military base closings, company relocations and closings and
national and local politics, including current or future rent stabilization
and rent control laws and agreements. Multifamily apartment units are
typically leased on a short-term basis, and consequently, the occupancy rate
of a multifamily rental property may be subject to rapid decline, including
for some of the foregoing reasons. In addition, the level of mortgage interest
rates may encourage tenants in multifamily rental properties to purchase
single-family housing rather than continue to lease housing or the
characteristics of a neighborhood may change over time or in relation to newer
developments. Further, the cost of operating a multifamily rental property may
increase, including the cost of utilities and the costs of required capital
expenditures. Also, multifamily rental properties may be subject to rent
control laws which could impact the future cash flows of such properties.
Certain multifamily rental properties are eligible to receive low-income
housing tax credits pursuant to Section 42 of the Code ("Section 42
Properties"). However, rent limitations associated therewith may adversely
affect the ability of the applicable borrowers to increase rents to maintain
such Mortgaged Properties in proper condition during periods of rapid
inflation or declining market value of such Mortgaged Properties. In addition,
the income restrictions on tenants imposed by Section 42 of the Code may
reduce the number of eligible tenants in such Mortgaged Properties and result
in a reduction in occupancy rates applicable thereto. Furthermore, some
eligible tenants may not find any differences in rents between the Section 42
Properties and other multifamily rental properties in the same area to be a
sufficient economic incentive to reside at a Section 42 Property, which may
have fewer amenities or otherwise be less attractive as a residence. All of
these conditions and events may increase the possibility that a borrower may
be unable to meet its obligations under its Mortgage Loan.
Risks Particular to Cooperatively-Owned Apartment Buildings. Generally, a
tenant-shareholder of a cooperative corporation must make a monthly
maintenance payment to the cooperative corporation that owns the subject
apartment building representing such tenant-shareholder's pro rata share of
the corporation's payments in respect of the Mortgage Loan secured by, and all
real property taxes, maintenance expenses and other capital and ordinary
expenses with respect to, such property, less any other income that the
cooperative corporation may realize. Adverse economic conditions, either local
regional or national, may adversely affect tenant-shareholders' ability to
make required maintenance payments, either because such adverse economic
conditions have impaired the individual financial conditions of such tenant-
shareholders or their ability to sub-let the subject apartments. To the extent
that a large number of tenant-shareholders in a cooperatively-owned apartment
building rely on sub-letting their apartments to make maintenance payments,
the lender on any mortgage loan secured by such building will be subject to
all the risks that it would have in connection with lending on the security of
a multifamily rental property. See "--Risks Particular to Multifamily Rental
Properties" above. In addition, if in connection with any cooperative
conversion of an apartment building, the sponsor holds the shares allocated to
a large number of the apartment units, any lender secured by a mortgage on
such building will be subject to a risk associated with such sponsor's
creditworthiness.
Risks Particular to Retail Properties. In addition to risks generally
associated with real estate, Mortgage Loans secured by retail properties are
also affected significantly by adverse 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
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shopping networks and selling through the Internet, which reduce the need for
retail space by retail companies), the quality and management philosophy of
management, the attractiveness of the properties and the surrounding
neighborhood to tenants and their customers, the public perception of the
safety of customers (at shopping malls and shopping centers, for example) and
the need to make major repairs or improvements to satisfy the needs of major
tenants.
Retail properties may be adversely affected if an anchor or other
significant tenant ceases operations at such locations (which may occur on
account of a decision not to renew a lease, bankruptcy or insolvency of such
tenant, such tenant's general cessation of business activities or for other
reasons). Significant tenants at a shopping center play an important part in
generating customer traffic and making the 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
ceases operations at such property.
Balloon Payments; Borrower Default
Certain of the Mortgage Loans included in a Trust Fund may be non-amortizing
or only partially amortizing over their terms to maturity and, thus, will
require substantial principal payments (that is, balloon payments) at their
stated maturity. Mortgage Loans of this type involve a greater degree of risk
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 Mortgaged Property. The ability of a borrower to
accomplish either of these goals will be affected by a number of factors,
including the value of the related Mortgaged Property, the level of available
mortgage rates at the time of sale or refinancing, the borrower's equity in
the related Mortgaged Property, the financial condition and operating history
of the borrower and the related Mortgaged Property, tax laws, rent control
laws (with respect to certain residential properties), Medicaid and Medicare
reimbursement rates (with respect to hospitals and nursing homes), prevailing
general economic conditions and the availability of credit for loans secured
by multifamily or commercial, as the case may be, real properties generally.
Neither the Depositor nor any of its affiliates will be required to refinance
any Mortgage Loan.
If and to the extent described herein and in the related Prospectus
Supplement, in order to maximize recoveries on defaulted Mortgage Loans, the
Master Servicer or a 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. While the Master Servicer or a Special Servicer
generally will be required to determine that any such extension or
modification is reasonably likely to produce a greater recovery, taking into
account the time value of money, than liquidation, there can be no assurance
that any such extension or modification will in fact increase the present
value of receipts from or proceeds of the affected Mortgage Loans.
Credit Support Limitations
The Prospectus Supplement for a series of Certificates will describe any
Credit Support provided with respect thereto. Use of Credit Support will be
subject to the conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such Credit Support may not cover all
potential losses or risks; for example, Credit Support may or may not cover
fraud or negligence by a mortgage loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce
the risk to holders of Senior Certificates of delinquent distributions or
ultimate losses, 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 limits with respect to the aggregate amount of claims under 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. As a result, the
impact of losses and
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shortfalls experienced with respect to the Mortgage Assets may fall primarily
upon those classes of Certificates having a later right of payment. Moreover,
if an instrument of Credit Support covers more than one series of
Certificates, holders of Certificates of one series will be subject to the
risk that such Credit Support will be exhausted by the claims of the holders
of Certificates of one or more other series.
The amount of any applicable Credit Support supporting one or more classes
of Offered Certificates, including the subordination of 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. There can, however, be no assurance that the loss
experience on the related Mortgage Assets will not exceed such assumed levels.
See "--Limited Nature of Ratings", "Description of the Certificates" and
"Description of Credit Support".
Leases and Rents
Each Mortgage Loan included in any Trust Fund secured by Mortgaged Property
that is subject to leases typically will be secured by an assignment of leases
and rents pursuant to which the borrower assigns to the lender its right,
title and interest as landlord under the leases of the related Mortgaged
Property, and the income derived therefrom, 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 Mortgaged 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. See "Certain Legal Aspects of Mortgage Loans--Leases and Rents".
Environmental Risks
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 various federal, state and local laws, ordinances
and regulations, an owner or operator of real estate may be liable for the
costs of removal or remediation of hazardous substances or toxic substances
on, in or beneath such property. Such liability may be imposed without regard
to whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The cost of any required remediation and the
owner or operator's liability therefor as to any property is generally not
limited under such laws, ordinances and regulations and could exceed the value
of the mortgaged property and the aggregate assets of the owner or operator.
In addition, as to the owners or operators of mortgaged properties that
generate hazardous substances that are disposed of at "off-site" locations,
such owners or operators may be held strictly, jointly and severally liable if
there are releases or threatened releases of hazardous substances at the off-
site locations where such person's hazardous substances were disposed.
Although the federal Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended ("CERCLA"), provides an exemption from the
definition of "owner" for lenders whose primary indicia of ownership in a
particular property is the holding of a security interest, lenders may
forfeit, as a result of their actions with respect to particular borrowers,
their secured creditor exemption and be deemed an owner or operator of
property such that they are liable for remediation costs. See "Certain Legal
Aspects of Mortgage Loans--Environmental Risks" herein. A lender also risks
such liability on foreclosure of the mortgage. Unless otherwise specified in
the related Prospectus Supplement, if a Trust Fund includes Mortgage Loans,
then the related Pooling Agreement will contain provisions generally to the
effect that the Master Servicer, acting on behalf of the Trust Fund, may not
acquire title to a Mortgaged Property or assume control of its operation
unless the Master Servicer, based upon 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 "Description of the Pooling
Agreements--Realization Upon Defaulted Mortgage Loans". See "Certain Legal
Aspects of Mortgage Loans--Environmental Risks". There can be no assurance
that any such requirements of a Pooling Agreement will
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effectively insulate the related Trust Fund from potential liability for a
materially adverse environmental condition at a Mortgaged Property.
Special Hazard Losses
Unless otherwise specified in a Prospectus Supplement, the Master Servicer
for the related Trust Fund will be required to cause the borrower on each
Mortgage Loan in such Trust Fund to maintain such insurance coverage in
respect of the related Mortgaged Property as is required under the related
Mortgage, including hazard insurance; provided that, as and to the extent
described herein and in the related Prospectus Supplement, the Master Servicer
may satisfy its obligation to cause hazard insurance to be maintained with
respect to any Mortgaged 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 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, domestic animals and certain other kinds of
risks. Unless the related 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 Offered
Certificates of the related series. See "Description of the Pooling
Agreements--Hazard Insurance Policies".
ERISA Considerations
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. In addition, certain other
retirement plans and arrangements, including individual retirement accounts
and Keogh plans, are subject to Section 4975 of the Code. Due to the
complexity of regulations that govern such plans, prospective investors that
are subject to ERISA or Section 4975 of the Code are urged to consult their
own counsel regarding the consequences under ERISA or the Code of acquisition,
ownership and disposition of the Offered Certificates of any series. See
"ERISA Considerations".
Certain Federal Tax Considerations Regarding Residual Certificates
Holders of Residual Certificates will be required to report on their federal
income tax returns as ordinary income their pro rata share of the taxable
income of the REMIC, regardless of the amount or timing of their receipt of
cash payments, as described in "Certain Federal Income Tax Consequences--
Federal Income Tax Consequences for REMIC Certificates". Accordingly, under
certain circumstances, holders of Offered Certificates that constitute
Residual Certificates may have taxable income and tax liabilities arising from
such investment during a taxable year in excess of the cash received during
such period. The requirement that holders of Residual Certificates report
their pro rata share of the taxable income and net loss of the REMIC will
continue until the Certificate Balances of all classes of Certificates of the
related series have been reduced to zero, even though holders of Residual
Certificates have received full payment of their stated interest and
principal. A portion (or, in certain circumstances, all) of such
Certificateholder's share of the REMIC taxable income may be treated as
"excess inclusion" income to such holder which (i) generally, will not be
subject to offset by losses from other activities, (ii) for a tax-exempt
holder, will be treated as unrelated business taxable income and (iii) for a
foreign holder, will not qualify for exemption from withholding tax.
Individual holders of Residual Certificates may be limited in their ability to
deduct servicing fees and other expenses of the REMIC. In addition, Residual
Certificates are subject to certain restrictions on transfer. Because of the
special tax treatment of Residual Certificates, the taxable income arising in
a given year on a Residual Certificate will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pre-tax yield. Therefore, the after-tax
yield on the Residual Certificate may be significantly less than that of a
corporate bond or stripped instrument having similar cash flow
characteristics.
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Certain Federal Tax Considerations Regarding Original Issue Discount
Accrual Certificates will be, and certain of the other Classes of
Certificates of a series may be, issued with "original issue discount" for
federal income tax purposes, which generally will result in recognition of
some taxable income in advance of the receipt of cash attributable to such
income. See "Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for REMIC Certificates--Taxation of Regular Certificates".
Book-Entry Registration
If so provided in the related Prospectus Supplement, one or more classes of
the Offered Certificates of any series will be issued as Book-Entry
Certificates. Each class of Book-Entry Certificates will be initially
represented by one or more Certificates registered in the name of a nominee
for DTC. As a result, unless and until corresponding Definitive Certificates
are issued, the Certificate Owners with respect to any class of Book-Entry
Certificates will be able to exercise the rights of Certificateholders only
indirectly through DTC and its participating organizations ("Participants").
In addition, the access of Certificate Owners to information regarding the
Book-Entry Certificates in which they hold interests may be limited.
Conveyance of notices and other communications by DTC to its Participants, and
directly and indirectly through such 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. Furthermore, as described
herein, Certificate Owners may suffer delays in the receipt of payments on the
Book-Entry Certificates, and the ability of any Certificate Owner to pledge or
otherwise take actions with respect to its interest in the Book-Entry
Certificates may be limited due to the lack of a physical certificate
evidencing such interest. See "Description of the Certificates--Book-Entry
Registration and Definitive Certificates".
Delinquent Mortgage Loans
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular Series of Certificates may include Mortgage Loans that are past-due
(i.e. beyond any applicable grace period); provided, however, that such
delinquent Mortgage Loans may only constitute up to, but not including, 20%
(by principal balance) of the Trust Fund. If so specified in the related
Prospectus Supplement, the servicing of such Mortgage Loans may be performed
by a Special Servicer. When a Mortgage Loan has a loan-to-value ratio of 100%
or more, the related borrower will have no equity in the related Mortgaged
Property. In such cases, the related borrower may not have an incentive to
continue to perform under the subject Mortgage Loan. In addition, when the
debt service coverage ratio of a Mortgage Loan is below 1.0x, the revenue
derived from the use and operation of the related Mortgaged Property is
insufficient to cover the operating expenses of such Mortgaged Property and to
pay debt service on such Mortgage Loan and all mortgage loans senior thereto.
In such cases, the related borrower will be required to pay a portion of such
items from sources other than cash flow from the related Mortgaged Property.
If the related borrower ceases to use such alternative cash sources at a time
when operating revenue from the related Mortgaged Property is still
insufficient to cover such items, deferred maintenance at the related
Mortgaged Property and/or a default under the subject Mortgage Loan may occur.
Credit Support provided with respect to a particular Series of Certificates
may not cover all losses related to delinquent Mortgage Loans and, 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 on
the Mortgage Assets in such Trust Fund and the yield on the Offered
Certificates of such series. See "Description of the Trust Funds--Mortgage
Loans--General".
DESCRIPTION OF THE TRUST FUNDS
General
The primary assets of each Trust Fund will consist of (i) various types of
multifamily or commercial mortgage loans or participations therein (the
"Mortgage Loans"), (ii) 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
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(collectively, "Mortgage Assets"). Each Trust Fund will be established by Bear
Stearns Commercial Mortgage Securities Inc. (the "Depositor"). Each Mortgage
Asset will be selected by 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 or other
evidences of indebtedness (the "Mortgage Notes") secured by 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") and mobile home parks,
(ii) commercial properties consisting of office buildings, retail facilities
related to the sale of goods and products and facilities related to providing
entertainment, recreation or personal services, hotels and motels, casinos,
health care-related facilities, recreational vehicle parks, warehouse
facilities, mini-warehouse facilities, self-storage facilities, industrial
facilities, parking lots, auto parks, golf courses, arenas and restaurants (or
cooperatively owned units therein) and (iii) mixed use properties (that is,
any combination of the foregoing) and unimproved land (the "Commercial
Properties"). The Multifamily Properties may include mixed commercial and
residential structures, apartment buildings owned by private cooperative
housing corporations ("Cooperatives"), and shares of the Cooperative allocable
to one or more dwelling units occupied by non-owner tenants or to vacant
units. Such liens may be created by mortgages, deeds of trust and similar
security instruments (the "Mortgages"). Each Mortgage will create a first
priority or junior 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 two 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 specified in the related Prospectus Supplement, Mortgage Assets for a
series of Certificates may include Mortgage Loans made on the security of real
estate projects under construction. In that case, the related Prospectus
Supplement will describe the procedures and timing for making disbursements
from construction reserve funds as portions of the related real estate project
are completed. In addition, some of the Mortgage Loans included in the Trust
Fund for a particular Series of Certificates may be delinquent or non-
performing 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 or non-performance,
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.
Mortgage Loans Secured by Multifamily Rental Properties. Significant factors
determining the value and successful operation of a multifamily rental
property are the location of the property, the number of competing residential
developments in the local market (such as apartment buildings, manufactured
housing communities and site-built single family homes), the physical
attributes of the multifamily building (such as its age and appearance) and
state and local regulations affecting such property. In addition, the
successful operation of an apartment building will depend upon other factors
such as its reputation, the ability of management to provide adequate
maintenance and insurance, and the types of services it provides.
Certain states regulate the relationship of an owner and its tenants.
Commonly, these laws require a written lease, good cause for eviction,
disclosure of fees, and notification to residents of changed land use, while
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prohibiting unreasonable rules, retaliatory evictions, and restrictions on a
resident's choice of unit vendors. Apartment building owners have been the
subject of suits under state "Unfair and Deceptive Practices Acts" and other
general consumer protection statutes for coercive, abusive or unconscionable
leasing and sales practices. A few states offer more significant protection.
For example, there are provisions that limit the basis on which a landlord may
terminate a tenancy or increase its rent or prohibit a landlord from
terminating a tenancy solely by reason of the sale of the owner's building.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on apartment
buildings. These ordinances may limit rent increases to fixed percentages, to
percentages of increases in the consumer price index, to increases set or
approved by a governmental agency, or to increases determined through
mediation or binding arbitration. In many cases, the rent control laws do not
provide for decontrol of rental rates upon vacancy of individual units. Any
limitations on a borrower's ability to raise property rents may impair such
borrower's ability to repay its Mortgage Loan from its net operating income or
the proceeds of a sale or refinancing of the related Mortgaged Property.
Adverse economic conditions, either local, regional or national, may limit
the amount of rent that can be charged, may adversely affect tenants' ability
to pay rent and may result in a reduction in timely rent payments or a
reduction in occupancy levels. Occupancy and rent levels may also be affected
by construction of additional housing units, local military base closings,
company relocations and closings and national and local politics, including
current or future rent stabilization and rent control laws and agreements.
Multifamily apartment units are typically leased on a short-term basis, and
consequently, the occupancy rate of a multifamily rental property may be
subject to rapid decline, including for some of the foregoing reasons. In
addition, the level of mortgage interest rates may encourage tenants to
purchase single-family housing rather than continue to lease housing. The
location and construction quality of a particular building may affect the
occupancy level as well as the rents that may be charged for individual units.
The characteristics of a neighborhood may change over time or in relation to
newer developments.
Mortgage Loans Secured by Cooperatively-Owned Apartment Buildings. A
cooperative apartment building and the land under the building are owned or
leased by a non-profit cooperative corporation. The cooperative corporation is
in turn owned by tenant-shareholders who, through ownership of stock, shares
or membership certificates in the corporation, receive proprietary leases or
occupancy agreements which confer exclusive rights to occupy specific
apartments or units. Generally, a tenant-shareholder of a cooperative
corporation must make a monthly maintenance payment to the corporation
representing such tenant-shareholder's pro rata share of the corporation's
payments in respect of any mortgage loan secured by, and all real property
taxes, maintenance expenses and other capital and ordinary expenses with
respect to, the real property owned by such cooperative corporation, less any
other income that the cooperative corporation may realize. Such payments to
the cooperative corporation are in addition to any payments of principal and
interest the tenant-shareholder must make on any loans of the tenant-
shareholder secured by its shares in the corporation.
A cooperative corporation is directly responsible for building management
and payment of real estate taxes and hazard and liability insurance premiums.
A cooperative corporation's ability to meet debt service obligations on a
mortgage loan secured by the real property owned by such corporation, as well
as all other operating expenses of such property, is dependent primarily upon
the receipt of maintenance payments from the tenant-shareholders, together
with any rental income from units or commercial space that the cooperative
corporation might control. Unanticipated expenditures may in some cases have
to be paid by special assessments on the tenant-shareholders. A cooperative
corporation's ability to pay the amount of any balloon payment due at the
maturity of a mortgage loan secured by the real property owned by such
cooperative corporation depends primarily on its ability to refinance the
mortgage loan. Neither the Depositor nor any other person will have any
obligation to provide refinancing for any of the Mortgage Loans.
In a typical cooperative conversion plan, the owner of a rental apartment
building contracts to sell the building to a newly formed cooperative
corporation. Shares are allocated to each apartment unit by the owner or
sponsor, and the current tenants have a certain period to subscribe at prices
discounted from the prices to be
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offered to the public after such period. As part of the consideration for the
sale, the owner or sponsor receives all the unsold shares of the cooperative
corporation. The sponsor usually also controls the corporation's board of
directors and management for a limited period of time.
Each purchaser of shares in the cooperative corporation generally enters
into a long-term proprietary lease which provides the shareholder with the
right to occupy a particular apartment unit. However, many cooperative
conversion plans are "non-eviction" plans. Under a non-eviction plan, a tenant
at the time of conversion who chooses not to purchase shares is entitled to
reside in the unit as a subtenant from the owner of the shares allocated to
such apartment unit. Any applicable rent control or rent stabilization laws
would continue to be applicable to such subtenancy, and the subtenant may be
entitled to renew its lease for an indefinite number of times, with continued
protection from rent increases above those permitted by any applicable rent
control and rent stabilization laws. The shareholder is responsible for the
maintenance payments to the cooperative without regard to its receipt or non-
receipt of rent from the subtenant, which may be lower than maintenance
payments on the unit. Newly-formed cooperative corporations typically have the
greatest concentration of non-tenant shareholders.
Mortgage Loans Secured by Retail Properties. Retail properties generally
derive all or a substantial percentage of their income from lease payments
from commercial tenants. Income from and the market value of retail properties
is dependent on various factors including, but not limited to, the ability to
lease space in such properties, the ability of tenants to meet their lease
obligations, the possibility of a significant tenant becoming bankrupt or
insolvent, as well as fundamental aspects of real estate such as location and
market demographics.
The correlation between the success of tenant businesses and property value
is more direct with respect to retail properties than other types of
commercial property because a significant component of the total rent paid by
retail tenants is often tied to a percentage of gross sales. Declines in
tenant sales will cause a corresponding decline in percentage rents and may
cause such tenants to become unable to pay their rent or other occupancy
costs. The default by a tenant under its lease could result in delays and
costs in enforcing the lessor's rights. Repayment of the related Mortgage
Loans will be affected by the expiration of space leases and the ability of
the respective borrowers to renew or relet the space on comparable terms. Even
if vacated space is successfully relet, the costs associated with reletting,
including tenant improvements, leasing commissions and free rent, could be
substantial and could reduce cash flow from the retail properties. The
correlation between the success of tenant businesses and property value is
increased when the property is a single tenant property.
Whether a shopping center is "anchored" or "unanchored" is also an important
distinction. Anchor tenants in shopping centers traditionally have been a
major factor in the public's perception of a shopping center. The anchor
tenants at a shopping center play an important part in generating customer
traffic and making a center a desirable location for other tenants of the
center. The failure of an anchor tenant to renew its leases, the termination
of an anchor tenant's lease, the bankruptcy or economic decline of an anchor
tenant, or the cessation of the business of an anchor tenant (notwithstanding
any continued payment of rent) can have a material negative effect on the
economic performance of a shopping center. Furthermore, the correlation
between the success of tenant businesses and property value is increased when
the property is a single tenant property.
Unlike certain other types of commercial properties, retail properties also
face competition from sources outside a given real estate market. Catalogue
retailers, home shopping networks, telemarketing, selling through the
Internet, and outlet centers all compete with more traditional retail
properties for consumer dollars. Continued growth of these alternative retail
outlets (which are often characterized by lower operating costs) could
adversely affect the retail properties.
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, some or all of the
Mortgage Loans included in a particular Trust Fund may be non-recourse loans,
which means that,
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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.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured
by income-producing property as an important factor in evaluating the risk 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 (i) the Net Operating Income derived from the related
Mortgaged Property for a twelve-month period to (ii) the annualized scheduled
payments 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 (i) non-cash items such as
depreciation and amortization, (ii) capital expenditures and (iii) 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
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 non-owner 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 the economy of the area in which the Mortgaged Property is
located or the industry that it services. In addition, properties typically
leased, occupied or used on a short-term basis, such as certain healthcare-
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 greater risks 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 risk of default on a Mortgage Loan. As
may be further described in the related Prospectus 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 risk 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 (i) the then outstanding principal balance of
the Mortgage Loan and any other loans senior thereto that are secured by the
related Mortgaged Property to (ii) the Value of the related Mortgaged
Property. The "Value" of a Mortgaged Property is generally its fair market
value determined in an appraisal obtained by the Originator at 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 risk 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 changes in economic conditions, the real estate market and other factors
described herein. 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
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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 default and loss risks, is even more difficult.
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--Risks Associated with
Certain Mortgage Loans and Mortgaged Properties" and "--Balloon Payments;
Borrower Default".
Payment Provisions of the Mortgage Loans. Unless otherwise specified in the
related Prospectus Supplement, all of the Mortgage Loans will (i) have had
individual principal balances at origination of not less than $25,000, (ii)
have had original terms to maturity of not more than 40 years and (iii)
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 (i) 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, (ii) 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 negative amortization, (iii) may be fully
amortizing or partially amortizing or non-amortizing, with a balloon payment
due on its stated maturity date, and (iv) 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 penalty (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. If holders of any class or
classes of Offered Certificates of a series will be entitled to all or a
portion of an Equity Participation in addition to payments of interest on
and/or principal of such Offered Certificates, the related Prospectus
Supplement will describe the Equity Participation and the method or methods by
which distributions in respect thereof will be made to such holders.
Mortgage Loan Information in Prospectus Supplements. Each Prospectus
Supplement will contain certain information pertaining to the Mortgage Loans
in the related Trust Fund, which will generally be current as of a date
specified in the related Prospectus Supplement and which, to the extent then
applicable and specifically known to the Depositor, will include the
following: (i) the aggregate outstanding principal balance and the largest,
smallest and average outstanding principal balance of the Mortgage Loans, (ii)
the type or types of property that provide security for repayment of the
Mortgage Loans, (iii) the earliest and latest origination date and maturity
date of the Mortgage Loans, (iv) 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, (v)
the original Loan-to-Value Ratios of the Mortgage Loans, or the range thereof,
and the weighted average original Loan-to-Value Ratio of the Mortgage Loans,
(vi) the Mortgage Rates borne by the Mortgage Loans, or range thereof, and the
weighted average Mortgage Rate borne by the Mortgage Loans, (vii) 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
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gross margin, and any limits on Mortgage Rate adjustments at the time of any
adjustment and over the life of the ARM Loan, (viii) information regarding the
payment characteristics of the Mortgage Loans, including, without limitation,
balloon payment and other amortization provisions, Lock-out Periods and
Prepayment Premiums, (ix) 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
(x) 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 tabulate 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.
MBS
MBS may include (i) private (that is, not guaranteed or insured by the
United States or any agency or instrumentality thereof) mortgage pass-through
certificates or other mortgage-backed securities or (ii) certificates insured
or guaranteed by FHLMC, FNMA, GNMA or 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.
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
have entered into the MBS Agreement, generally 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, (i) the aggregate
approximate initial and outstanding principal amount and type of the MBS to be
included in the Trust Fund, (ii) the original and remaining term to stated
maturity of the MBS, if applicable, (iii) the pass-through or bond rate of the
MBS or the formula for determining such rates, (iv) the payment
characteristics of the MBS, (v) the MBS Issuer, MBS Servicer and MBS Trustee,
as applicable, (vi) a description of the credit support, if any, (vii) the
circumstances under which the related underlying mortgage loans, or the MBS
themselves, may be purchased prior to their maturity, (viii) the terms on
which mortgage loans may be substituted for those originally underlying the
MBS, (ix) 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 (x)
the characteristics of any cash flow agreements that relate to the MBS.
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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 the person or persons designated in the related
Prospectus Supplement will, to the extent described herein and in such
Prospectus Supplement, deposit all payments and collections received or
advanced with respect to the Mortgage Assets and other assets in the Trust
Fund. A Certificate Account may be maintained as an interest bearing or a non-
interest bearing account, and funds held therein may be held as cash or
invested in certain obligations acceptable to each Rating Agency rating one or
more classes of the related series of Offered Certificates.
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 arrangements, such as letters of credit, insurance policies,
guarantees, surety bonds or reserve funds, among others, or a combination
thereof (any such coverage with respect to the Certificates of any series,
"Credit Support"). The amount and types of Credit Support, the identification
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 interest rate
exchange agreements, interest rate cap or floor agreements, or currency
exchange agreements, which agreements are designed to reduce the effects of
interest rate or currency exchange rate fluctuations on the Mortgage Assets on
one or more classes of Certificates. The principal terms of any such
guaranteed investment contract or other agreement (any such agreement, a "Cash
Flow Agreement"), and the identity of the Cash Flow Agreement obligor or
counterparty, will be described in the Prospectus Supplement for a series of
Certificates.
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--Prepayments;
Average Life of Certificates; Yields". The following discussion contemplates a
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 that the MBS payment characteristics 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
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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 or near 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. Unless otherwise specified
in the Prospectus Supplement for a series of Certificates, a "Due Period" is a
specified time period generally corresponding in length to the time 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 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 Prepayment Interest Shortfalls will be allocated among the
classes of such Certificates. If so specified in the Prospectus Supplement for
a series of Certificates, the Master Servicer for such series will be required
to apply some or all of its servicing compensation for the corresponding
period to offset the amount of any such Prepayment Interest Shortfalls. The
related Prospectus Supplement will also describe any other amounts available
to offset such shortfalls. See "Description of the Pooling Agreements--
Servicing Compensation and Payment of Expenses".
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
payments are due, and the rate of principal prepayments thereon (including for
this purpose, prepayments resulting from liquidations of Mortgage Loans due to
defaults, casualties or condemnations affecting the 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 more fully 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,
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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, the 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.
A class of Certificates, including a class of Offered Certificates, may
provide that on any Distribution Date the holders of such Certificates are
entitled to a pro rata share of the prepayments on the Mortgage Loans in the
related Trust Fund that are distributable on such date, to a
disproportionately large share (which, in some cases, may be all) of such
prepayments, or to a disproportionately small share (which, in some cases, may
be none) of such prepayments. As and to the extent described in the related
Prospectus Supplement, the respective entitlements of the various classes of
Certificates of any series to receive distributions in respect of payments
(and, in particular, prepayments) of principal of the Mortgage Loans in the
related Trust Fund 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).
In general, the Notional Amount of a class of Stripped Interest Certificates
will either (i) be based on the principal balances of some or all of the
Mortgage Assets in the related Trust Fund or (ii) 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 assumed levels of prepayment on
yields on such Certificates. Such tables will be intended to illustrate the
sensitivity of yields to various 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 Depositor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience
of a group of multifamily or commercial mortgage loans. However, 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 addition, the rate of
principal payments on the Mortgage Loans in any Trust Fund may 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.
The rate of prepayment on a pool of mortgage loans is also 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
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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 (i) converting to a fixed rate loan and thereby
"locking in" such rate or (ii) taking advantage of a different index, margin
or rate cap or floor on another adjustable rate mortgage loan.
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 will make 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. 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,
liquidations due to default 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 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 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 loans. Moreover, the
CPR and SPA models were developed based upon historical prepayment experience
for single-family 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 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 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.
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Controlled Amortization Classes and Companion Classes
A series of Certificates may include one or more Controlled Amortization
Classes, which will entitle the holders thereof to receive principal
distributions according to a specified principal payment schedule, which
schedule is supported by creating priorities, as and to the extent described
in the related Prospectus Supplement, to receive principal payments from the
Mortgage Loans in the related Trust Fund. Unless otherwise specified in the
related Prospectus Supplement, each Controlled Amortization Class will either
be a Planned Amortization Class (a "PAC") or a Targeted Amortization Class (a
"TAC"). In general, a PAC has a "prepayment collar" (that is, a range of
prepayment rates that can be sustained without disruption) that determines the
principal cash flow of such Certificates. Such a prepayment collar is not
static, and may expand or contract after the issuance of the PAC depending on
the actual prepayment experience for the underlying Mortgage Loans.
Distributions of principal on a PAC would be made in accordance with the
specified schedule so long as prepayments on the underlying Mortgage Loans
remain at a relatively constant rate within the prepayment collar and, as
described below, Companion Classes exist to absorb "excesses" or "shortfalls"
in principal payments on the underlying Mortgage Loans. If the rate of
prepayment on the underlying Mortgage Loans from time to time falls outside
the prepayment collar, or fluctuates significantly within the prepayment
collar, especially for any extended period of time, such an event may have
material consequences in respect of the anticipated weighted average life and
maturity for a PAC. A TAC is structured so that principal distributions
generally will be payable thereon in accordance with its specified principal
payments schedule so long as the rate of prepayments on the related Mortgage
Assets remains relatively constant at the particular rate used in establishing
such schedule. A TAC will generally afford the holders thereof some protection
against early retirement or some protection against an extended average life,
but not both.
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 related Trust Fund remains relatively constant at the
rate, or within the range of rates, 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 Companion Classes of the same series, any of which Companion
Classes may also be a class of Offered Certificates. In general, and as more
particularly described in the related Prospectus Supplement, a Companion Class
will entitle the holders thereof to a disproportionately large share of
prepayments on the Mortgage Loans in the related Trust Fund when the rate of
prepayment is relatively fast, and will entitle the holders thereof to a
disproportionately small share of prepayments on the Mortgage Loans in the
related Trust Fund when the rate of prepayment is relatively slow. A class of
Certificates that entitles the holders thereof to a disproportionately large
share of the prepayments on the Mortgage Loans in the related Trust Fund
enhances the risk of early retirement of such class ("call risk") if the rate
of prepayment is relatively fast; while a class of Certificates that entitles
the holders thereof to a disproportionately small share of the prepayments on
the Mortgage Loans in the related Trust Fund enhances the risk of an extended
average life of such class ("extension risk") if the rate of prepayment is
relatively slow. Thus, as and to the extent described in the related
Prospectus Supplement, 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 related Trust Fund were allocated on a pro rata basis.
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 risk 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
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Servicer or a 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.
A Mortgage Loan that provides for the payment of interest calculated at a rate
lower than the rate at which interest accrues thereon 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. In addition, negative amortization on one
or more Mortgage Loans in any Trust Fund may result in negative amortization
on the 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.
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 also may occur in respect of an ARM Loan that limits
the amount by which its scheduled payment may adjust in response to a change
in its Mortgage Rate, provides that its scheduled payment will adjust less
frequently than its Mortgage Rate or provides for constant scheduled payments
notwithstanding adjustments to its Mortgage Rate. Conversely, 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 (i) whether such Offered Certificate was
purchased at a premium or a discount and (ii) 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 a Stripped Interest
Certificate, delay or accelerate the amortization 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, 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
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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 a reduction in the entitlements to interest
and/or Certificate Balances of one or more such classes of Certificates, or by
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 (i) amounts attributable
to interest accrued but not currently distributable on one or more classes of
Accrual Certificates, (ii) Excess Funds or (iii) 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 (i) 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 (ii)
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 would have any material effect
on the rate at which such Certificates are amortized.
Optional Early 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, a party
specified therein may be authorized or required to solicit bids for the
purchase of all of 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. In the absence of
other factors, any such early retirement of a class of Offered Certificates
would shorten the weighted average life thereof and, if such Certificates were
purchased at premium, reduce the yield thereon.
THE DEPOSITOR
Bear Stearns Commercial Mortgage Securities Inc., the Depositor, is a
Delaware corporation organized on April 20, 1987. It has remained inactive
until the filing of the Registration Statement of which this Prospectus is a
part. The primary business of the Depositor is to acquire Mortgage Assets and
sell interests therein or bonds secured thereby. It is an affiliate of Bear,
Stearns & Co. Inc. The Depositor maintains its principal office at 245 Park
Avenue, New York, New York 10167. Its telephone number is (212) 272-2000. The
Depositor does not have, nor is it expected in the future to have, any
significant assets.
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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 for general corporate purposes. 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.
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 Agreement.
As described in the related Prospectus Supplement, the Certificates of each
series, including the Offered Certificates of such series, may consist of one
or more classes of Certificates that, among other things: (i) provide for the
accrual of interest thereon at a fixed, variable or adjustable rate; (ii) 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; (iii) are entitled
to distributions of principal, with disproportionately small, nominal or no
distributions of interest (collectively, "Stripped Principal Certificates");
(iv) are entitled to distributions of interest, with disproportionately small,
nominal or no distributions of principal (collectively, "Stripped Interest
Certificates"); (v) 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; (vi)
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; (vii) provide for
distributions of principal thereof to be made, subject to available funds,
based on a specified principal payment schedule or other methodology; or
(viii) provide for distributions based on collections on the Mortgage Assets
in the related Trust Fund attributable to Prepayment Premiums and Equity
Participations.
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 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 The Depository Trust Company ("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. See
"Risk Factors--Limited Liquidity" and "--Book-Entry Registration".
Distributions
Distributions on the Certificates of each series will be made by or on
behalf of the related Trustee or Master Servicer on each Distribution Date as
specified in the related Prospectus Supplement 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
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Amount for any series on each Distribution Date will be more specifically
described in the related Prospectus Supplement.
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. 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 (which may be
provided in the form of a standing order applicable to all subsequent
distributions) no later than the 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.
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 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. 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 certain classes of Certificates that will be entitled to distributions of
accrued interest commencing only on the Distribution Date, or under the
circumstances, specified in the related Prospectus Supplement ("Accrual
Certificates"), and other than any class of Stripped Principal Certificates or
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 the portion 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. With respect to each class of Certificates
(other than certain classes of Stripped Interest Certificates and certain
classes of Residual Certificates), the "Accrued Certificate Interest" for each
Distribution Date will be equal to interest at the applicable Pass-Through
Rate accrued for a specified period (generally equal to the time period
between Distribution Dates) 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 (i) based on the
principal balances of some or all of the Mortgage Assets in the related Trust
Fund or (ii) 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 will 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
(including, if and to the extent specified in the related Prospectus
Supplement, all or a
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portion of the Master Servicer's servicing compensation) 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--Prepayments; Average
Life of Certificates; Yields" and "Yield and Maturity Considerations".
Distributions of Principal on the Certificates
Each class of Certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of 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 in respect of 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 so provided
in the related Prospectus Supplement, will be further reduced 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). Unless otherwise provided in the
related Prospectus Supplement, 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 the
applicable 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
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 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.
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Distributions on the Certificates in Respect of Prepayment Premiums or in
Respect of 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.
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 a reduction in the entitlements to interest
and/or Certificate Balances of one or more such classes of Certificates, or by
establishing a priority of payments among such classes of Certificates.
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, a 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 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 received under any
instrument of 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,
collections on other Mortgage Loans 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 the Master
Servicer, a Special Servicer or the Trustee if, in the good faith judgment of
the Master Servicer, a Special Servicer or the 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 the Master Servicer, a Special Servicer or the
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.
If advances have been made by the 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 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 the 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 thereon for the
period that such advances are outstanding at the rate specified in such
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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 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 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, the Master Servicer 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:
(i) the amount of such distribution to holders of such class of Offered
Certificates that was applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of such class of Offered
Certificates that is allocable to Accrued Certificate Interest;
(iii) the amount, if any, of such distribution to holders of such class
of Offered Certificates that is allocable to (A) Prepayment Premiums and
(B) payments on account of Equity Participations;
(iv) the amount, if any, by which such distribution is less than the
amounts to which holders of such class of Offered Certificates are
entitled;
(v) if the related Trust Fund includes Mortgage Loans, the aggregate
amount of advances included in such distribution;
(vi) 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 such other customary information as the reporting
party deems necessary or desirable, or that a Certificateholder reasonably
requests, to enable Certificateholders to prepare their tax returns;
(vii) information regarding the aggregate principal balance of the
related Mortgage Assets on or about such Distribution Date;
(viii) if the related Trust Fund includes Mortgage Loans, information
regarding the number and aggregate principal balance of such Mortgage Loans
that are delinquent in varying degrees (including specific identification
of Mortgage Loans that are more than 60 days delinquent or in foreclosure);
(ix) 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 equal in length to the
time period between Distribution Dates, during which prepayments and other
unscheduled collections on the Mortgage Loans in the related Trust Fund
must be received in order to be distributed on a particular Distribution
Date);
(x) the Certificate Balance or Notional Amount, as the case may be, of
each class of Certificates (including any class of Certificates not offered
hereby) 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
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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;
(xi) 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;
(xii) 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;
(xiii) 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
(xiv) to the extent not otherwise reflected through the information
furnished pursuant to subclauses (x) and (xiii) above, the amount of Credit
Support being afforded by any classes of Subordinate Certificates.
In the case of information furnished pursuant to subclauses (i)-(iii) above,
the amounts will be expressed as a dollar amount per minimum denomination of
the relevant class of Offered Certificates or per a specified portion of such
minimum denomination. 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 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 subclauses (i)-(iii) 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, "Description of the Certificates--Book-Entry Registration and
Definitive Certificates".
If the Trust Fund for a series of Certificates includes MBS, the ability of
the related Master Servicer 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
Agreement and as otherwise specified in the related Prospectus Supplement. See
"Description of the Pooling 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. See "Description of the Pooling Agreements--
Events of Default", "--Rights Upon Event of Default" and "--Resignation and
Removal of the Trustee".
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Termination
The obligations created by the Pooling Agreement for each series of
Certificates will terminate following (i) 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 (ii) the payment to the Certificateholders of that series of all amounts
required to be paid to them pursuant to such Pooling Agreement. Written notice
of termination of a Pooling 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, 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 The Depository Trust Company
("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 interest 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.
To facilitate subsequent transfer, all Offered Certificates deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Offered Certificates with DTC and their
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registration with Cede & Co. effect no change in beneficial ownership. 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 or Master Servicer),
subject to any statutory or regulatory requirements as may be in effect from
time to time. 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 Agreement)
will be the nominee of DTC, and the Certificate Owners will not be recognized
as Certificateholders under the Pooling Agreement. Certificate Owners will be
permitted to exercise the rights of Certificateholders under the related
Pooling Agreement only indirectly through the Participants who in turn will
exercise their rights through DTC. The Depositor is informed that DTC will
take action permitted to be taken by a Certificateholder under a Pooling
Agreement only at the direction of one or more Participants to whose account
with DTC interests in the Book-Entry Certificates are credited.
Because DTC can act only on behalf of 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 (i) 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 (ii) 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 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 the related Pooling Agreement.
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DESCRIPTION OF THE POOLING 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 either case, a "Pooling Agreement"). In general, the parties to
a Pooling Agreement will include the Depositor, the Trustee, the Master
Servicer and, in some cases, a Special Servicer appointed as of the date of
the Pooling Agreement. However, a Pooling Agreement may include a Mortgage
Asset Seller as a party, and a Pooling Agreement that relates to a Trust Fund
that consists solely of MBS may not include the Master Servicer or other
servicer as a party. All parties to each Pooling 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 or Special Servicer. Any
party to a Pooling Agreement may own Certificates issued thereunder; however,
except with respect to required consents to certain amendments to a Pooling
Agreement, Certificates issued thereunder that are held by the Master Servicer
or a 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 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 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 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 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 Agreement for each series of
Certificates and the description of such provisions in the related Prospectus
Supplement. As used herein with respect to any series, the term "Certificate"
refers to all of the Certificates of that series, whether or not offered
hereby and by the related Prospectus Supplement, unless the context otherwise
requires. The Depositor will provide a copy of the Pooling 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 Bear
Stearns Commercial Mortgage Securities Inc., 245 Park Avenue, New York, New
York 10167, Attention: James G. Reichek.
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 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 original
amortization term; and the original and outstanding principal balance.
With respect to each Mortgage Loan to be included in a Trust Fund, the
Depositor will deliver (or cause to be delivered) to the related Trustee (or
to a custodian appointed by the Trustee) certain loan documents which, unless
otherwise specified in the related Prospectus Supplement, will include the
original Mortgage Note endorsed, without recourse, to the order of the
Trustee, the original Mortgage (or a certified copy thereof) with evidence of
recording indicated thereon and an assignment of the Mortgage to the Trustee
in recordable form.
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Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, the related Pooling Agreement will require that the Depositor or
another party thereto promptly cause each such assignment of Mortgage to be
recorded in the appropriate public office for real property records.
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 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 that will be specified in the related Prospectus
Supplement. 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 loan documentation and neither the Depositor nor, unless
it is the Mortgage Asset Seller, the Master Servicer will be obligated to
purchase or replace a Mortgage Loan if a Mortgage Asset Seller defaults on its
obligation to do so. Notwithstanding the foregoing, if a document has not been
delivered to the related Trustee (or to a custodian appointed by the Trustee)
because such document has been submitted for recording, and neither such
document nor a certified 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, unless otherwise specified in the related
Prospectus Supplement, the Mortgage Asset Seller will not be required to
repurchase or replace the affected Mortgage Loan on the basis of such missing
document so long as it continues in good faith to attempt to obtain such
document or such certified copy.
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: (i) 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 Agreement;
(ii) the enforceability of the related Mortgage Note and Mortgage and the
existence of title insurance insuring the lien priority of the related
Mortgage; (iii) the Warranting Party's title to the Mortgage Loan and the
authority of the Warranting Party to sell the Mortgage Loan; and (iv) 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, a 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
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 a price that
will be specified in the related Prospectus Supplement. If so provided in the
Prospectus
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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
The Master Servicer for any Trust Fund, directly or through Sub-Servicers,
will be required to make reasonable efforts to collect all scheduled payments
under the Mortgage Loans in such Trust Fund, and will be required to follow
such collection procedures as it would follow with respect to mortgage loans
that are comparable to the Mortgage Loans in such Trust Fund and held for its
own account, provided such procedures are consistent with (i) the terms of the
related Pooling Agreement and any related instrument of Credit Support
included in such Trust Fund, (ii) applicable law and (iii) the servicing
standard specified in the related Pooling Agreement and Prospectus Supplement
(the "Servicing Standard").
The Master Servicer for any Trust Fund, 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
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. 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".
Sub-Servicers
The Master 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 will remain obligated under the
related Pooling Agreement. A Sub-Servicer for any series of Certificates may
be an affiliate of the Depositor or Master Servicer. Unless otherwise provided
in the related Prospectus Supplement, each sub-servicing agreement between the
Master Servicer and a Sub-Servicer (a "Sub-Servicing Agreement") will provide
that, if for any reason the Master Servicer is no longer acting in such
capacity, the Trustee or any successor Master Servicer may assume the Master
Servicer's rights and obligations under such Sub-Servicing Agreement. The
Master Servicer will 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.
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Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will be solely liable for all fees owed by it to any Sub-Servicer,
irrespective of whether the Master Servicer's compensation pursuant to the
related Pooling Agreement is sufficient to pay such fees. Each Sub-Servicer
will be reimbursed by the Master Servicer that retained it for certain
expenditures which it makes, generally to the same extent the Master Servicer
would be reimbursed under a Pooling Agreement. See "--Certificate Account" and
"--Servicing Compensation and Payment of Expenses".
Special Servicers
To the extent so specified in the related Prospectus Supplement, one or more
special servicers (each, a "Special Servicer") may be a party to the related
Pooling Agreement or may be appointed by the Master Servicer or another
specified party. A Special Servicer for any series of Certificates may be an
affiliate of the Depositor or the Master Servicer. A Special Servicer may be
entitled to any of the rights, and subject to any of the obligations,
described herein in respect of the Master Servicer including the ability to
appoint subservicers to the extent specified in the related Prospectus
Supplement. The related Prospectus Supplement will describe the rights,
obligations and compensation of any Special Servicer for a particular Series
of Certificates. The Master Servicer will be liable for the performance of a
Special Servicer only if, and to the extent, set forth in the related
Prospectus Supplement.
Certificate Account
General. The Master Servicer, the Trustee and/or a Special Servicer will, as
to each Trust Fund that includes Mortgage Loans, establish and maintain or
cause to be established and maintained one or more separate accounts for the
collection of payments on or in respect of such Mortgage Loans (collectively,
the "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 non-interest-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 (if any) as additional compensation. A Certificate Account
may be maintained with the related Master Servicer, Special Servicer 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 and so specified in the related Prospectus Supplement, 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 (if any) or serviced by either on behalf of others.
Deposits. Unless otherwise provided in the related Pooling Agreement and
described in the related Prospectus Supplement, the Master Servicer, Trustee
or Special Servicer will be required to deposit or cause 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
Agreement, the following payments and collections received or made by the
Master Servicer, the Trustee or any Special Servicer subsequent to the Cut-off
Date (other than payments due on or before the Cut-off Date):
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans;
(ii) 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 any Special Servicer as its servicing
compensation or as compensation to the Trustee;
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(iii) 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 in
accordance with the customary servicing practices of the Master Servicer
(or, if applicable, a Special Servicer) and/or the terms and conditions of
the related Mortgage) (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 ("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;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates as
described under "Description of Credit Support";
(v) any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(vi) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds--Cash Flow Agreements";
(vii) 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 Defaulted Mortgage Loans", and all proceeds of
any Mortgage Asset purchased as described under "Description of the
Certificates--Termination" (all of the foregoing, also "Liquidation
Proceeds");
(viii) any amounts paid by the Master Servicer to cover Prepayment
Interest Shortfalls arising out of the prepayment of Mortgage Loans as
described under "--Servicing Compensation and Payment of Expenses";
(ix) to the extent that any such item does not constitute additional
servicing compensation to the Master Servicer or a Special Servicer, any
payments on account of modification or assumption fees, late payment
charges, Prepayment Premiums or Equity Participations with respect to the
Mortgage Loans;
(x) all payments required to be deposited in the Certificate Account with
respect to any deductible clause in any blanket insurance policy described
under "--Hazard Insurance Policies";
(xi) any amount required to be deposited by the Master Servicer or the
Trustee in connection with losses realized on investments for the benefit
of the Master Servicer or the Trustee, as the case may be, of funds held in
the Certificate Account; and
(xii) any other amounts required to be deposited in the Certificate
Account as provided in the related Pooling Agreement and described in the
related Prospectus Supplement.
Withdrawals. Unless otherwise provided in the related Pooling Agreement and
described in the related Prospectus Supplement, the 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:
(i) to make distributions to the Certificateholders on each Distribution
Date;
(ii) to pay the Master Servicer, the Trustee or a Special Servicer any
servicing fees not previously retained thereby, such payment to be made out
of payments on the particular Mortgage Loans as to which such fees were
earned;
(iii) to reimburse the Master Servicer, a Special Servicer, the Trustee
or any other specified person for any unreimbursed amounts advanced by it
as described under "Description of the Certificates--Advances in Respect of
Delinquencies", such reimbursement to be made out of amounts received that
were identified
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and applied by the Master Servicer or a Special Servicer, as applicable, as
late collections of interest on and principal of the particular Mortgage
Loans with respect to which the advances were made or out of amounts drawn
under any instrument of Credit Support with respect to such Mortgage Loans;
(iv) to reimburse the Master Servicer, the Trustee or a Special Servicer
for unpaid servicing fees earned 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 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 fees were earned or such expenses were incurred or
out of amounts drawn under any instrument of Credit Support with respect to
such Mortgage Loans and properties;
(v) to reimburse the Master Servicer, a Special Servicer, the Trustee or
other specified person for any advances described in clause (iii) above
made by it and/or any servicing expenses referred to in clause (iv) above
incurred by it that, in the good faith judgment of the Master Servicer,
Special Servicer, Trustee or other specified person, as applicable, will
not be recoverable from the amounts described in clauses (iii) and (iv),
respectively, 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 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;
(vi) if and to the extent described in the related Prospectus Supplement,
to pay the Master Servicer, a Special Servicer, the Trustee or any other
specified person interest accrued on the advances described in clause (iii)
above made by it and the servicing expenses described in clause (iv) above
incurred by it while such remain outstanding and unreimbursed;
(vii) 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";
(viii) to reimburse the Master Servicer, the Special Servicer, the
Depositor, 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 "--Certain Matters
Regarding the Master Servicer and the Depositor";
(ix) if and to the extent described in the related Prospectus Supplement,
to pay the fees of Trustee;
(x) to reimburse the Trustee or any of its 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 "--Certain Matters
Regarding the Trustee";
(xi) if and to the extent described in the related Prospectus Supplement,
to pay the fees of any provider of Credit Support;
(xii) if and to the extent described in the related Prospectus
Supplement, to reimburse prior draws on any instrument of Credit Support;
(xiii) to pay the Master Servicer, a Special Servicer or the Trustee, as
appropriate, interest and investment income earned in respect of amounts
held in the Certificate Account as additional compensation;
(xiv) to pay (generally from related income) for costs incurred in
connection with the operation, management and maintenance of any Mortgaged
Property acquired by the Trust Fund by foreclosure or otherwise;
(xv) 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--
Federal Income Tax Consequences for REMIC Certificates--Taxes That May Be
Imposed on the REMIC Pool";
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(xvi) to pay for the cost of an independent appraiser or other expert in
real estate matters retained to determine a fair sale price for a defaulted
Mortgage Loan or a property acquired in respect thereof in connection with
the liquidation of such Mortgage Loan or property;
(xvii) to pay for the cost of various opinions of counsel obtained
pursuant to the related Pooling Agreement for the benefit of
Certificateholders;
(xviii) to make any other withdrawals permitted by the related Pooling
Agreement and described in the related Prospectus Supplement; and
(xix) to clear and terminate the Certificate Account upon the termination
of the Trust Fund.
Modifications, Waivers and Amendments of Mortgage Loans
The Master Servicer may 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 (i) will not
affect the amount or timing of any scheduled payments of principal or interest
on the Mortgage Loan, (ii) will not, in the judgment of the Master Servicer,
materially impair the security for the Mortgage Loan or reduce the likelihood
of timely payment of amounts due thereon and (iii) will not adversely affect
the coverage under any applicable instrument of Credit Support. Unless
otherwise provided in the related Prospectus Supplement, the Master Servicer
also may agree to any other modification, waiver or amendment if, in its
judgment, (i) a material default on the Mortgage Loan has occurred or a
payment default is imminent, (ii) 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
(iii) such modification, waiver or amendment will not adversely affect the
coverage under any applicable instrument of Credit Support.
Realization Upon Defaulted Mortgage Loans
A borrower'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 borrower that is unable to make Mortgage Loan payments may also be
unable to make timely payment of taxes and insurance premiums and to otherwise
maintain the related Mortgaged Property. In general, the Special Servicer for
a series of Certificates will be required to monitor any Mortgage Loan in the
related Trust Fund 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 borrower if cure is likely, inspect the related
Mortgaged Property and take such other actions as are consistent with the
Servicing Standard. 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 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 may vary considerably
depending on the particular Mortgage Loan, the Mortgaged Property, the
borrower, 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
borrower files a bankruptcy petition, the Special Servicer may not be
permitted to accelerate the maturity of the related Mortgage Loan or to
foreclose on the related Mortgaged Property for a considerable period of time,
and such Mortgage Loan may be restructured in the resulting bankruptcy
proceedings. See "Certain Legal Aspects of Mortgage Loans".
A Pooling Agreement may grant to the Master Servicer, a 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 purchase price (which, if insufficient to
fully fund the entitlements of Certificateholders to principal and interest
thereon, will be specified in the related Prospectus
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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 the applicable Servicing Standard, 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. Unless otherwise provided
in the related Prospectus Supplement, the related Pooling Agreement will
require that the Special Servicer accept the highest cash bid received from
any person (including itself, the Depositor or any affiliate of either of them
or any Certificateholder) that constitutes a fair price for such defaulted
Mortgage Loan. In the absence of any bid determined in accordance with the
related Pooling Agreement to be fair, the Special Servicer will generally be
required to proceed against the related Mortgaged Property, subject to the
discussion below.
If a default on a Mortgage Loan has occurred or, in the Special Servicer's
judgment, a payment default is imminent, 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, if such action is consistent with the Servicing
Standard. 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 previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable environmental
laws and regulations or, if not, that taking such actions as are necessary
to bring the Mortgaged Property into compliance therewith is reasonably
likely to produce a greater recovery, taking into account the time value of
money, than not taking such actions; and
(ii) 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, if such
circumstances or conditions are present for which any such action could be
required, taking such actions with respect to the Mortgaged Property 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 Risks".
Unless otherwise provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which one or more
REMIC elections have been made, the Special Servicer, on behalf of the Trust
Fund, will be required to sell the Mortgaged Property within two years of
acquisition, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee receives an opinion of
independent counsel to the effect that the holding of the property by the
Trust Fund for more than two years after its acquisition 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, the
Special Servicer will generally be required to solicit bids for any Mortgaged
Property so acquired in such a manner as will be reasonably likely to realize
a fair price for 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 in a manner
consistent with the Servicing Standard.
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 in connection with such Mortgage
Loan, the Trust Fund
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will realize a loss in the amount of such shortfall. The Special 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, 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.
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, the Special Servicer will not be required to expend its own
funds to effect such restoration unless (and to the extent not otherwise
provided in the related Prospectus Supplement) it determines (i) that such
restoration will increase the proceeds to Certificateholders on liquidation of
the Mortgage Loan after reimbursement of the Special Servicer for its expenses
and (ii) that such expenses will be recoverable by it from related Insurance
and Condemnation Proceeds or Liquidation Proceeds.
Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will require the Master Servicer 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 requirements of the Servicing Standard. 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 the Master 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 the Master 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 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 Agreement may provide that the Master
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 all of the Mortgage Loans in a Trust Fund. If such blanket
policy contains a deductible clause, the Master Servicer will be required, in
the event of a casualty covered by such blanket policy, to deposit in the
related Certificate Account all sums that would have been deposited therein
but for 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, domestic animals and certain other kinds of
risks. 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
(i) the replacement cost of the improvements less physical depreciation and
(ii) such proportion of the loss as the amount of insurance carried bears to
the specified percentage of the full replacement cost of such improvements.
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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 will determine whether to exercise any right the Trustee may have
under any such provision in a manner consistent with the Servicing Standard.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer 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".
Servicing Compensation and Payment of Expenses
Unless otherwise specified in the related Prospectus Supplement, the 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 and
any Special Servicer's compensation with respect to a Series of Certificates
will come from payments or other collections on or with respect to Specially
Serviced Mortgage Loans and REO Properties. Because that compensation is
generally based on a percentage of the principal balance of each such Mortgage
Loan outstanding from time to time, it will decrease in accordance with the
amortization of the Mortgage Loans. The Prospectus Supplement with respect to
a series of Certificates may provide that, as additional compensation, the
Master Servicer may 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
Certificate Account. Any Sub-Servicer will receive a portion of the Master
Servicer's compensation as its sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, the Master 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 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, and the fees of any Special
Servicer, may be required to be borne by the Trust Fund.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing
compensation otherwise payable to it in respect of any period to Prepayment
Interest Shortfalls. See "Yield and Maturity Considerations--Certain
Shortfalls in Collections of Interest".
Evidence as to Compliance
Unless otherwise provided in the related Prospectus Supplement, each Pooling
Agreement will require, on or before a specified date in each year, the Master
Servicer to cause a firm of independent public accountants to furnish to the
Trustee a statement to the effect that, on the basis of the examination by
such firm conducted substantially in compliance with either the Uniform Single
Audit Program for Mortgage Bankers or the Audit Program for Mortgages serviced
for FHLMC, the servicing by or on behalf of the Master Servicer of mortgage
loans under pooling and servicing agreements substantially similar to each
other (which may include such Pooling Agreement) was conducted through the
preceding calendar year or other specified twelve month period in compliance
with the terms of such agreements except for any significant exceptions or
errors in records that, in the opinion of the firm, either the Audit Program
for Mortgages serviced for FHLMC, or paragraph 4 of the Uniform Single Audit
Program for Mortgage Bankers, requires it to report.
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Each Pooling Agreement will also require, on or before a specified date in
each year, the Master Servicer to furnish to the Trustee a statement signed by
one or more officers of the Master Servicer to the effect that the Master
Servicer has fulfilled its material obligations under such Pooling Agreement
throughout the preceding calendar year or other specified twelve month period.
Certain Matters Regarding the Master Servicer and the Depositor
The entity serving as Master Servicer under a Pooling 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
Agreement will permit the Master Servicer to resign from its obligations
thereunder only upon (a) the appointment of, and the acceptance of such
appointment by, a successor thereto and receipt by the Trustee of written
confirmation from each applicable Rating Agency that such resignation and
appointment will not have an adverse effect on the rating assigned by such
Rating Agency to any class of Certificates of such series or (b) 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 a successor servicer has assumed the Master Servicer's
obligations and duties under the Pooling Agreement. Unless otherwise specified
in the related Prospectus Supplement, the Master 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 Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Pooling Agreement will further provide that none of the Master Servicer, any
Special Servicer, the Depositor or any director, officer, employee or agent of
either 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 Agreement or for errors in judgment; provided, however, that
none of the Master Servicer, the Depositor or any such person will be
protected against any breach of a representation, warranty or covenant made in
such Pooling Agreement, or against any expense or liability that such person
is specifically required to bear pursuant to the terms of such Pooling
Agreement, or against any liability that would otherwise be imposed by reason
of willful 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 Agreement will further provide that the Master
Servicer, the Depositor and any director, officer, employee or agent of either
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 Agreement or the related series of Certificates;
provided, however, that such indemnification will not extend to any loss,
liability or expense (i) that such person is specifically required to bear
pursuant to the terms of such agreement, or is incidental to the performance
of obligations and duties thereunder and is not otherwise reimbursable
pursuant to such Pooling Agreement; (ii) incurred in connection with any
breach of a representation, warranty or covenant made in such Pooling
Agreement; (iii) incurred by reason of misfeasance, bad faith or gross
negligence in the performance of obligations or duties under such Pooling
Agreement, or by reason of reckless disregard of such obligations or duties;
or (iv) incurred in connection with any violation of any state or federal
securities law. In addition, each Pooling Agreement will provide that neither
the Master Servicer nor 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 Agreement and that in its
opinion may involve it in any expense or liability. However, each of the
Master Servicer 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 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 or the Depositor, as the case may
be, will be entitled to charge the related Certificate Account therefor.
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Any person into which the Master Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to
which the Master Servicer or the Depositor is a party, or any person
succeeding to the business of the Master Servicer or the Depositor, will be
the successor of the Master Servicer or the Depositor, as the case may be,
under the related Pooling Agreement.
Events of Default
Unless otherwise provided in the Prospectus Supplement for a series of
Certificates, "Events of Default" under the related Pooling Agreement will
include (i) 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, which failure continues unremedied for five days
after written notice thereof has been given to the Master Servicer by the
Trustee or the Depositor, or to the Master Servicer, the Depositor and the
Trustee 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; (ii) any failure by the Master Servicer duly to
observe or perform in any material respect any of its other covenants or
obligations under the related Pooling Agreement, which failure continues
unremedied for sixty days after written notice thereof has been given to the
Master Servicer by the Trustee or the Depositor, or to the Master Servicer,
the Depositor and the Trustee 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 (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities, or similar
proceedings in respect of or relating to the Master Servicer and certain
actions by or on behalf of the Master Servicer 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.
Rights Upon Event of Default
If an Event of Default occurs with respect to the Master Servicer under a
Pooling 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 Master
Servicer as master servicer under the Pooling Agreement, whereupon the Trustee
will succeed to all of the responsibilities, duties and liabilities of the
Master Servicer under the Pooling Agreement (except that if the Master
Servicer is required to make advances thereunder regarding delinquent Mortgage
Loans, but the Trustee is prohibited by law from obligating itself to do so,
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 that (unless otherwise provided in the related Prospectus
Supplement) is acceptable to each applicable Rating Agency to act as successor
to the Master Servicer under the Pooling Agreement. Pending such appointment,
the Trustee will be obligated to act in such capacity.
No Certificateholder will have the right under any Pooling Agreement to
institute any proceeding with respect thereto unless such holder previously
has given to the Trustee written notice of default and unless
Certificateholders of the same series entitled to not less than 25% (or such
other percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series shall have made written request upon the Trustee to
institute such proceeding in its own name as Trustee thereunder and shall have
offered to the Trustee reasonable indemnity, and the Trustee for sixty days
(or such other period specified in the related Prospectus Supplement) shall
have neglected or refused to institute any such proceeding. The Trustee,
however, will be under no obligation to exercise any of the trusts or powers
vested in it by the related Pooling Agreement or to make any investigation of
matters arising thereunder or to institute, conduct or defend any litigation
thereunder
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or in relation thereto at the request, order or direction of any of the
holders of Certificates of the related series, 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
Each Pooling Agreement may be amended by the respective parties thereto,
without the consent of any of the holders of the related series of
Certificates, (i) to cure any ambiguity, (ii) to correct a defective provision
therein or to correct, modify or supplement any provision therein that may be
inconsistent with any other provision therein, (iii) to add any other
provisions with respect to matters or questions arising under the Pooling
Agreement that are not inconsistent with the provisions thereof, (iv) to
comply with any requirements imposed by the Code, or (v) for any other
purpose; provided that such amendment (other than an amendment for the
specific purpose referred to in clause (iv) above) may not (as evidenced by an
opinion of counsel to such effect satisfactory to the Trustee) adversely
affect in any material respect the interests of any such holder; and provided
further that such amendment (other than an amendment for one of the specific
purposes referred to in clauses (i) through (iv) above) must be acceptable to
each applicable Rating Agency. Unless otherwise specified in the related
Prospectus Supplement, each Pooling Agreement may also be amended by the
respective parties thereto, with the consent of the holders of the related
series of Certificates entitled to not less than 51% (or such other percentage
specified in the related Prospectus Supplement) of the Voting Rights for such
series allocated to the affected classes, for any purpose; provided that,
unless otherwise specified in the related Prospectus Supplement, no such
amendment may (i) reduce in any manner the amount of, or delay the timing of,
payments received or advanced on Mortgage Loans that are required to be
distributed in respect of any Certificate without the consent of the holder of
such Certificate, (ii) adversely affect in any material respect the interests
of the holders of any class of Certificates, in a manner other than as
described in clause (i), without the consent of the holders of all
Certificates of such class or (iii) modify the provisions of the Pooling
Agreement described in this paragraph without the consent of the holders of
all Certificates of the related series. However, unless otherwise specified in
the related Prospectus Supplement, the Trustee will be prohibited from
consenting to any amendment of a Pooling Agreement pursuant to which one or
more REMIC elections are to be or have been made unless the Trustee shall
first have received an opinion of counsel to the effect that such amendment
will not result in the imposition of a tax on the related Trust Fund or cause
the related Trust Fund (or designated portion thereof) to fail to qualify as a
REMIC at any time that the related Certificates are outstanding.
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 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 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 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 or Special Servicer and its affiliates. If and to the extent
specified under the related Pooling Agreement, certain functions of the
Trustee may be performed by a fiscal agent under certain circumstances.
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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 Agreement, the
Certificates or any underlying Mortgage Loan or related document and will not
be accountable for the use or application by or on behalf of the Master
Servicer for such series of any funds paid to the Master Servicer or any
Special Servicer in respect of the Certificates or the underlying Mortgage
Loans, or any funds deposited into or withdrawn from the Certificate Account
or any other account for such series by or on behalf of the Master Servicer or
any Special Servicer. 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 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
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
Agreement; provided, however, that such indemnification will not extend to any
loss, liability or expense that constitutes a specific liability imposed on
the Trustee pursuant to the related Pooling Agreement, or 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, or as may arise from a breach of any
representation, warranty or covenant of the Trustee made therein.
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 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 gross negligence
on the part of any such agent or attorney appointed by it with due care.
Resignation and Removal of the Trustee
A Trustee will be permitted at any time to resign from its obligations and
duties under the related Pooling Agreement by giving written notice thereof to
the Depositor. Upon receiving such notice of resignation, the Depositor (or
such other person as may be specified in the related Prospectus Supplement)
will be required to use its best efforts to promptly appoint a successor
trustee. If no successor trustee shall have accepted an appointment within a
specified period after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction to appoint a
successor trustee.
If at any time a Trustee ceases to be eligible to continue as such under the
related Pooling Agreement, or if at any time the Trustee becomes incapable of
acting, or if certain events of (or proceedings in respect of) bankruptcy or
insolvency occur with respect to the Trustee, the Depositor will be authorized
to remove the Trustee and appoint a successor trustee. In addition, holders of
the Certificates of any series entitled to at least 51% (or such other
percentage specified in the related Prospectus Supplement) of the Voting
Rights for such series may at any time (with or without cause) remove the
Trustee under the related Pooling Agreement and appoint a successor trustee.
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Any resignation or removal of a Trustee and appointment of a successor
trustee will not become effective until acceptance of appointment by the
successor trustee.
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 letters of credit, overcollateralization,
the subordination of one or more classes of Certificates, insurance policies,
surety bonds, guarantees or reserve funds, or any combination of the
foregoing. If so provided in the related Prospectus Supplement, any instrument
of Credit Support may provide credit enhancement for more than one series of
Certificates to the extent described therein.
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 Agreement. If
losses or shortfalls occur that exceed the amount covered by the related
Credit Support or that are not covered by such Credit Support,
Certificateholders will bear their allocable share of deficiencies. Moreover,
if an instrument of Credit Support covers more than one series of
Certificates, holders of Certificates of one series will be subject to the
risk that such Credit Support will be exhausted by the claims of the holders
of Certificates of one or more other series before the former receive their
intended share of such coverage.
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 (i) the nature and
amount of coverage under such Credit Support, (ii) any conditions to payment
thereunder not otherwise described herein, (iii) 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 (iv) the
material provisions relating to such Credit Support. Additionally, the related
Prospectus Supplement will set forth certain information with respect to the
obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of its
business and (iv) its total assets, and its stockholders' equity or
policyholders' surplus, if applicable, as of a date that will be specified in
the Prospectus Supplement. 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 (or
may be limited to) 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.
Cross-Support Provisions
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 Mortgage Assets
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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 with Respect 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. To the extent deemed by the
Depositor to be material, a copy of each such instrument will accompany the
Current Report on Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the related series.
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 financial institution specified in such Prospectus Supplement (the
"L/C Bank"). Under a letter of credit, the L/C 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 the 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 L/C 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. A copy of any such letter of credit will accompany the Current
Report on Form 8-K to be filed with the Commission within 15 days of issuance
of the Certificates of the related series.
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 and/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 and/or full 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. A copy of any such instrument will
accompany the Current Report on Form 8-K to be filed with the Commission
within 15 days of issuance of the Certificates of the related series.
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 the collections received on the related Mortgage
Assets.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, 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.
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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 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.
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 instrument 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 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 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. The grantor (the borrower) conveys title to
the real property to the grantee (the 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 executes a separate undertaking to make
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payments on the related note. 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 (including, without limitation, the Soldiers' and
Sailors' Civil Relief Act of 1940, as amended) 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, 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 revenues are considered accounts
receivable under the Uniform Commercial Code ("UCC"); in cases where hotels or
motels constitute loan security, the revenues 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 revenues
and must file continuation statements, generally every five years, to maintain
perfection of such security interest. Even if the lender's security interest
in room revenues is perfected under the UCC, it may be required to commence a
foreclosure action or otherwise take possession of the property in order to
collect the room revenues following a default. See "--Bankruptcy Laws".
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.
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 non-judicial 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. Moreover, as discussed below, even a non-
collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court
determines that the sale was for less than fair consideration and such sale
occurred while the borrower was insolvent and within a specified period prior
to the borrower's filing for bankruptcy protection.
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
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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 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
that of the lenders 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 non-monetary 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.
Non-Judicial Foreclosure/Power of Sale. Foreclosure of a deed of trust is
generally accomplished by a non-judicial 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 non-judicial 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 value of such
property at the time of sale, due to, among other things, redemption rights
which may exist and the possibility of physical deterioration of the property
during the foreclosure proceedings. Potential buyers may be reluctant to
purchase property at a foreclosure sale as a result of the 1980 decision of
the United States Court of Appeals for the Fifth Circuit in Durrett v.
Washington National Insurance Company and other decisions that have followed
its reasoning. The court in Durrett held that even a non-collusive, regularly
conducted foreclosure sale was a fraudulent transfer under the federal
Bankruptcy Code, as amended from time to time (11 U.S.C.) and, therefore,
could be rescinded in favor of the bankrupt's estate, if (i) the foreclosure
sale was held while the debtor was insolvent and not more than one year prior
to the filing of the
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bankruptcy petition and (ii) the price paid for the foreclosed property did
not represent "fair consideration" ("reasonably equivalent value" under the
Bankruptcy Code). Although the reasoning and result of Durrett in respect of
the Bankruptcy Code was rejected by the United States Supreme Court in May
1994, the case could nonetheless be persuasive to a court applying a state
fraudulent conveyance law which has provisions similar to those construed in
Durrett. For these reasons, it is common for the lender to purchase the
mortgaged property for an amount equal to the lesser of fair market value and
the underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and
have both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. 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 costs of management and operation
of those mortgaged properties which are hotels, motels or nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's
and the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the amount of the mortgage against the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure and/or bankruptcy
proceedings. Furthermore, a few states require that any environmental
contamination at certain types of properties be cleaned up before a property
may be resold. In addition, a lender may be responsible under federal or state
law for the cost of cleaning up a mortgaged property that is environmentally
contaminated. See "--Environmental Risks". Generally state law controls the
amount of foreclosure expenses and costs, including attorneys' fees, that may
be recovered by a lender.
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.
The proceeds received by the referee or trustee from a foreclosure sale are
generally applied first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage under which the sale
was conducted. Any proceeds remaining after satisfaction of senior mortgage
debt are generally payable to the holders of junior mortgages and other liens
and claims in order of their priority, whether or not the borrower is in
default. Any additional proceeds are generally payable to the borrower. The
payment of the proceeds to the holders of junior mortgages may occur in the
foreclosure action of the senior mortgage or a subsequent ancillary proceeding
or may require the institution of separate legal proceedings by such holders.
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 (non-statutory) 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 Risks
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
would 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, 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. The ground leases that secure the Mortgage Loans
at issue may not contain some of these protective provisions, and the related
mortgages may not contain the other protections discussed in the next
paragraph. Protective ground lease provisions include the right of the
leasehold mortgagee to receive notices from the ground lessor of any defaults
by the borrower under the ground lease; the right to cure such defaults, with
adequate cure periods; if a default is not susceptible of cure by the
leasehold mortgagee, the right to acquire the leasehold estate through
foreclosure or otherwise; the ability of the ground lease to be assigned to
and by the leasehold mortgagee or purchaser at a foreclosure sale and for the
concomitant release of the ground lessee's liabilities thereunder; and the
right of the leasehold mortgagee to enter into a new ground lease with the
ground lessor on the same terms and conditions as the old ground lease in the
event of a termination of the ground lease.
In addition to the foregoing protections, a leasehold mortgagee may prohibit
the ground lessee from treating the ground lease as terminated in the event of
the ground lessor's bankruptcy and rejection of the ground lease in the
lessor's bankruptcy case. As further protection, a leasehold mortgage may
provide for the assignment of the debtor-ground lessee's right to reject the
lease in a ground lessee bankruptcy case, although the enforceability of such
a provision has not been established. Without the protections described in
this and the foregoing paragraph, a leasehold mortgagee may be more likely to
lose the collateral securing its leasehold mortgage. In addition, the
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terms and conditions of a leasehold mortgage are subject to the terms and
conditions of the ground lease. Although certain rights given to a ground
lessee can be limited by the terms of a leasehold mortgage, the rights of a
ground lessee or a leasehold mortgagee with respect to, among other things,
insurance, casualty and condemnation proceeds will ordinarily be governed by
the provisions of the ground lease, unless otherwise agreed to by the ground
lessee and leasehold mortgagee.
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 non-
owner 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
cancelled 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 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. If,
following payment to the lender, there are proceeds remaining, the lender must
account to the tenant-stockholder for the surplus. Conversely, if a portion of
the indebtedness remains unpaid, the tenant-stockholder may be responsible for
the deficiency. See "--Anti-Deficiency Legislation".
Bankruptcy Laws
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a secured 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. For
example, the lender's lien may be transferred to other collateral and/or the
outstanding amount of the secured loan may be reduced to the then-current
value of the property (with a corresponding partial reduction of the amount of
the 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. The priority of a mortgage loan may also be subordinated to
bankruptcy court-approved financing. Some bankruptcy courts
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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.
The bankruptcy court can also reinstate accelerated indebtedness and also,
in effect, invalidate due-on-sale clauses through confirmed Chapter 11 plans
of reorganization. Under Section 363(b) and (f) of the Bankruptcy Code, a
trustee for a lessor, or a lessor as debtor-in-possession, may, despite the
provisions of the related Mortgage Loan to the contrary, sell the Mortgaged
Property free and clear of all liens, which liens would then attach to the
proceeds of such sale.
The Bankruptcy Code provides that a lender's perfected pre-petition security
interest in leases, rents and hotel revenues continues in the post-petition
leases, rents and hotel revenues, unless a bankruptcy court orders to the
contrary "based on the equities of the case." Thus, unless a court orders
otherwise, revenues from a Mortgaged Property generated after the date the
bankruptcy petition is filed will constitute "cash collateral" under the
Bankruptcy Code. Debtors may only use cash collateral upon obtaining the
lender's consent or a prior court order finding that the lender's interest in
the Mortgaged Properties and the cash collateral is "adequately protected" and
such term is defined and interpreted under the Bankruptcy Code. It should be
noted, however, that the court may find that the lender has no security
interest in either pre-petition or post-petition revenues if the court finds
that the loan documents do not contain language covering accounts, room rents,
or other forms of personalty necessary for a security interest to attach to
hotel revenues.
Lessee bankruptcies at the Mortgaged Properties could have an adverse impact
on the borrowers' ability to meet their obligations. For example, Section
365(e) of the Bankruptcy Code provides generally that rights and obligations
under an unexpired lease may not be terminated or modified at any time after
the commencement of a case under the Bankruptcy Code solely because of a
provision in the lease conditioned upon the commencement of a case under the
Bankruptcy Code or certain other similar events. In addition, Section 362 of
the Bankruptcy Code operates as an automatic stay of, among other things, any
act to obtain possession of property of or from a debtor's estate, which may
delay the borrower's exercise of such remedies in the event that a lessee
becomes the subject of a proceeding under the Bankruptcy Code.
Section 365(a) of the Bankruptcy Code generally provides that a trustee or a
debtor-in-possession in a case under the Bankruptcy Code has the power to
assume or to reject an executory contract or an unexpired lease of the debtor,
in each case subject to the approval of the bankruptcy court administering
such case. If the trustee or debtor-in-possession rejects an executory
contract or an unexpired lease, such rejection generally constitutes a breach
of the executory contract or unexpired lease immediately before the date of
the filing of the petition. As a consequence, the other party or parties to
such executory contract or unexpired lease, such as the lessor or borrower, as
lessor under a lease, would have only an unsecured claim against the debtor
for damages resulting from such breach, which could adversely affect the
security for the related Mortgage Loan. Moreover, under Section 502(b)(6) of
the Bankruptcy Code, the claim of a lessor for such damages from the
termination of a lease of real property will be limited to the sum of (i) the
rent reserved by such lease, without acceleration, for the greater of one year
or 15 percent, not to exceed three years, of the remaining term of such lease,
following the earlier of the date of the filing of the petition and the date
on which such lender repossessed, or the lessee surrendered, the leased
property, and (ii) any unpaid rent due under such lease, without acceleration,
on the earlier of such dates.
Under Section 365(f) of the Bankruptcy Code, if a trustee or debtor-in-
possession assumes an executory contract or an unexpired lease of the debtor,
the trustee or debtor-in-possession generally may assign such executory
contract or unexpired lease, notwithstanding any provision therein or in
applicable law that prohibits, restricts or conditions such assignment,
provided that the trustee or debtor-in-possession provides "adequate assurance
of future performance" by the assignee. The Bankruptcy Code specifically
provides, however, that adequate assurance of future performance for purposes
of a lease of real property in a shopping center includes adequate assurance
of the source of rent and other consideration due under such lease, and in the
case of an
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assignment, that the financial condition and operating performance of the
proposed assignee and its guarantors, if any, shall be similar to the
financial condition and operating performance of the debtor and its
guarantors, if any, as of the time the debtor became the lessee under the
lease, that any percentage rent due under such lease will not decline
substantially, that the assumption and assignment of the lease is subject to
all the provisions thereof, including (but not limited to) provisions such as
a radius location, use or exclusivity provision, and will not breach any such
provision contained in any other lease, financing agreement, or master
agreement relating to such shopping center, and that the assumption or
assignment of such lease will not disrupt the tenant mix or balance in such
shopping center. Thus, an undetermined third party may assume the obligations
of the lessee under a lease in the event of commencement of a proceeding under
the Bankruptcy Code with respect to the lessee.
Under Section 365(h) of the Bankruptcy Code, if a trustee for a lessor as a
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative,
may remain in possession of the leasehold for the balance of such term and for
any renewal or extension of such term that is enforceable by the lessee under
applicable nonbankruptcy law. The Bankruptcy Code provides that if a lessee
elects to remain in possession after such a rejection of a lease, the lessee
may offset against rents reserved under the lease for the balance of the term
after the date of rejection of the lease, and any such renewal or extension
thereof, any damages occurring after such date caused by the nonperformance of
any obligation of the lessor under the lease after such date.
In a bankruptcy or similar proceeding, action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
under the related Mortgage Loan to the related Trust Fund. Payments on long-
term debt may be protected from recovery as preferences if they are payments
in the ordinary course of business made on debts incurred in the ordinary
course of business. Whether any particular payment would be protected depends
upon the facts specific to a particular transaction. In addition, some court
decisions suggest that even a non-collusive, regularly conducted foreclosure
sale could be challenged in a bankruptcy case as a "fraudulent conveyance,"
regardless of the parties' intent, if a bankruptcy court determines that the
mortgaged property has been sold for less than fair consideration while the
mortgagor was insolvent and within one year (or within any longer state
statutes of limitations periods if the trustee in bankruptcy elects to proceed
under state fraudulent conveyance law) of the filing of the bankruptcy.
A trustee in bankruptcy, in some cases, may be entitled to collect its costs
and expenses in preserving or selling the mortgaged property ahead of payment
to the lender. In certain circumstances, a debtor in bankruptcy may have the
power to grant liens senior to the lien of a mortgage, and analogous state
statutes and general principles of equity may also provide a mortgagor with
means to halt a foreclosure proceeding or sale and to force a restructuring of
a mortgage loan on terms a lender would not otherwise accept. Moreover, the
laws of certain states also give priority to certain tax liens over the lien
of a mortgage or deed of trust. Under the Bankruptcy Code, if the court finds
that actions of the mortgagee have been unreasonable, the lien of the related
mortgage may be subordinated to the claims of unsecured creditors.
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 may
be extended to the first and the rights of creditors of the first entity may
be impaired in the fashion set forth above in the discussion of bankruptcy
principles. Depending on facts and circumstances not wholly in existence at
the time a Mortgage Loan is originated or transferred to the related 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
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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 Risks
A lender may be subject to unforeseen environmental risks with respect to
loans secured by real or personal property, such as the Mortgage Loans. Such
environmental risks may give rise to (i) a diminution in value of property
securing a Mortgage Loan or the inability to foreclose against such property
or (ii) in certain circumstances as more fully described below, liability for
clean-up costs or other remedial actions, which liability could exceed the
value of such property or the principal balance of the related Mortgage Loan.
Under the laws of many states, contamination on a property may give rise to a
lien on the property for cleanup costs. In several states, such a lien has
priority over all existing liens (a "superlien"), including those of existing
mortgages; in these states, the lien of the mortgage for any Mortgage Loan may
lose its priority to such a superlien.
Under the federal Comprehensive Response Compensation and Liability Act
("CERCLA"), a lender may be liable either to the government or to private
parties for cleanup costs on a property securing a loan, even if the lender
does not cause or contribute to the contamination. CERCLA imposes strict, as
well as joint and several, liability on several classes of potentially
responsible parties ("PRPs"), including current owners and operators of the
property who did not cause or contribute to the contamination. Many states
have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators unless they
qualify for the secured creditor exemption to CERCLA. A 1990 decision of the
United States Court of Appeals for the Eleventh Circuit, United States v.
Fleet Factors Corp., 901 F.2d 1550 (11th Cir. 1990), narrowly construed the
security interest exemption under CERCLA to hold lenders liable if they had
the capacity to influence their borrower's management of hazardous waste. In
response to the Fleet Factors case, the Environmental Protection Agency
("EPA") promulgated a rule in 1992 intended to reduce interpretive
uncertainties that surrounded the scope of the secured lender exemption to
liability under CERCLA. The rule, which the EPA stated would be entitled to
deference in CERCLA cost recovery actions brought against lenders by private
parties, clarified the scope of the secured creditor exemption and identified
specific types of actions that, if taken by a lender, would preclude
application of the exemption. In the decision of Kelley v. EPA, 15 F.3d 1100
(D.C. Cir. 1994), the Court of Appeals for the District of Columbia vacated
the EPA's lender liability rule. On September 30, 1996, President Clinton
signed into law the "Asset Conservation, Lender Liability and Deposit
Insurance Protection Act of 1996" (the "Asset Conservation Act"), which
substantially protects lenders and fiduciaries from liability for the
environmental obligations of borrowers and beneficiaries. The Asset
Conservation Act includes amendments to CERCLA and to the underground storage
tank provisions of the Resource Conservation and Recovery Act and applies to
any claim that was not finally adjudicated as of September 30, 1996. The Act
offers substantial protection to lenders by defining the activities in which a
lender can engage and still have the benefit of a secured creditor exemption.
However, the secured creditor exemption is not available to a lender that
participates in management of mortgaged property prior to a foreclosure. 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 be deemed to have
participated in management and 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 all 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
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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.
Environment clean-up costs may be substantial. It is possible that such
costs could become a liability of the related Trust Fund and occasion a loss
to Certificateholders if such remedial costs were incurred.
In a few states, transfers of some types of properties are conditioned upon
cleanup of contamination prior to transfer. It is possible that a property
securing a Mortgage Loan could be subject to such transfer restrictions. In
such a case, if the lender becomes the owner upon foreclosure, it may be
required to clean up the contamination before selling the property.
The cost of remediating hazardous substance contamination at a property can
be substantial. If a lender is or becomes liable, it can bring an action for
contribution against the owner or operator that created the environmental
hazard, but that person or entity may be without substantial assets.
Accordingly, it is possible that such costs could become a liability of a
Trust Fund and occasion a loss to Certificateholders of the related series.
To reduce the likelihood of such a loss, and unless otherwise provided in
the related Prospectus Supplement, the related Pooling Agreement will provide
that the Master Servicer, acting on behalf of the related Trust Fund, may not
acquire title to a Mortgaged Property or take over its operation unless the
Master Servicer, based on a report prepared by a person who regularly conducts
environmental site assessments, has made the determination that it is
appropriate to do so, as described under "Description of the Pooling
Agreements--Realization Upon Defaulted Mortgage Loans". There can be no
assurance that any environmental site assessment obtained by the Master
Servicer will detect all possible environmental contamination or conditions or
that the other requirements of the related Pooling Agreement, even if fully
observed by the Master Servicer, will in fact insulate the related Trust Fund
from liability with respect to environmental matters.
Even when a lender is not directly liable for cleanup costs on property
securing loans, if a property securing a loan is contaminated, the value of
the security is likely to be affected. In addition, a lender bears the risk
that unanticipated cleanup costs may jeopardize the borrower's repayment.
Neither of these two issues is likely to pose risks exceeding the amount of
unpaid principal and interest of a particular loan secured by a contaminated
property, particularly if the lender declines to foreclose on a mortgage
secured by the property.
If a lender forecloses on a mortgage secured by a property the operations of
which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and
regulations. Compliance may entail some expense.
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 affected property and thereby lessen the ability of the lender to
recover its investment in a loan upon foreclosure.
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. By virtue, however, of the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn Act"), effective October 15, 1982 (which
purports to preempt state laws that prohibit the enforcement of due-on-sale
clauses by providing among other matters, that "due-on-sale" clauses in
certain loans made after the effective date of the Garn Act are enforceable,
within certain limitations, as set forth in the Garn Act and the regulations
promulgated thereunder), the 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
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in the property, regardless of the Master Servicer's ability to demonstrate
that a sale threatens its legitimate security interest.
Subordinate Financing
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.
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
Notes and mortgages may contain provisions that obligate the borrower to pay
a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
Adjustable Rate Loans
The laws of certain states may provide that mortgage notes relating to
adjustable rate loans are not negotiable instruments under the UCC. In such
event, the related Trust Fund will not be deemed to be a "holder in due
course" within the meaning of the UCC and may take such a mortgage note
subject to certain restrictions on the ability to foreclose and to certain
contractual defenses available to a mortgagor.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("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 under the laws of 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.
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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 any
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 instrument of Credit Support provided in connection with such
Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of the 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. Thus, in
the event such a Mortgage Loan goes into default, there may be delays and
losses occasioned by the inability to realize upon the Mortgaged Property in a
timely fashion.
Type of Mortgaged Property
The lender may be subject to additional risk depending upon the type and use
of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care institutions.
Mortgages on Mortgaged Properties which are owned by the borrower under a
condominium form of ownership are subject to the declaration, by-laws and
other rules and regulation of the condominium association. Mortgaged
Properties which are hotels or motels may present additional risk to the
lender in that: (i) hotels and motels are typically operated pursuant to
franchise, management and operating agreements which may be terminable by the
operator; and (ii) the transferability of the hotel's operating, liquor and
other licenses to the entity acquiring the hotel either through purchase or
foreclosure is subject to the vagaries of local law requirements. In addition,
Mortgaged Properties which are multifamily properties or cooperatively owned
multifamily properties may be subject to rent control laws, which could impact
the future cash flows of such properties.
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, 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, each 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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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
established that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) 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.
In addition, there may be other state or municipal laws providing for
forfeiture of mortgaged properties.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Certificates. The discussion below does not purport to address all federal
income tax consequences that may be applicable to particular categories of
investors, some of which may be subject to special rules. The authorities on
which this discussion is based are subject to change or differing
interpretations, and any such change or interpretation could apply
retroactively. This discussion reflects the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), as well as regulations
(the "REMIC Regulations") promulgated by the U.S. Department of Treasury (the
"Treasury"). Investors should consult their own tax advisors in determining
the federal, state, local and other tax consequences to them of the purchase,
ownership and disposition of Certificates.
For purposes of this discussion, (i) references to the Mortgage Loans
include references to the mortgage loans underlying MBS included in the
Mortgage Assets and (ii) where the applicable Prospectus Supplement provides
for a fixed retained yield with respect to the Mortgage Loans underlying a
series of Certificates, references to the Mortgage Loans will be deemed to
refer to that portion of the Mortgage Loans held by the Trust Fund which does
not include the Retained Interest. References to a "holder" or
"Certificateholder" in this discussion generally mean the beneficial owner of
a Certificate.
Federal Income Tax Consequences for REMIC Certificates
General. With respect to a particular Series of Certificates, an election
may be made to treat the Trust Fund or one or more segregated pools of assets
therein as one or more REMICs within the meaning of Code Section 860D. A Trust
Fund or a portion thereof as to which a REMIC election will be made will be
referred to as a "REMIC Pool". For purposes of this discussion, Certificates
of a series as to which one or more REMIC elections are made are referred to
as "REMIC Certificates" and will consist of one or more Classes of "Regular
Certificates" and one Class of "Residual Certificates" in the case of each
REMIC Pool. Qualification as a REMIC requires ongoing compliance with certain
conditions. With respect to each series of REMIC Certificates, O'Melveny &
Myers LLP, counsel to the Depositor, has advised the Depositor that in the
firm's opinion, assuming (i) the making of such an election, (ii) compliance
with the Pooling Agreement and (iii) compliance with any changes in the law,
including any amendments to the Code or applicable Treasury regulations
thereunder, each REMIC Pool will qualify as a REMIC. In such case, the Regular
Certificates will be considered to be "regular interests" in the REMIC Pool
and generally will be treated for federal income tax purposes as if they were
newly originated debt instruments, and the Residual Certificates will be
considered to be "residual interests" in the REMIC Pool. The Prospectus
Supplement for each series of Certificates will indicate whether one or more
REMIC elections will be made with respect to the related Trust Fund, in which
event references to "REMIC" or "REMIC Pool" herein shall be deemed to refer to
each such REMIC Pool. If so specified in the applicable Prospectus Supplement,
the portion of a Trust Fund as to which a REMIC election is not made may be
treated as either a financial asset securitization investment trust (a
"FASIT") or a grantor trust for federal income tax purposes. See "--Federal
Income Tax Consequences for FASIT Certificates" and "--Federal Income Tax
Consequences for Certificates as to Which No REMIC Election Is Made".
Status of REMIC Certificates. REMIC Certificates held by a domestic building
and loan association will constitute "a regular or residual interest in a
REMIC" within the meaning of Code Section 7701(a)(19)(C)(xi), but only in the
same proportion that the assets of the REMIC Pool would be treated as "loans...
secured by an interest in real property which is... residential real property''
(such as single family or multifamily properties, but not commercial
properties) within the meaning of Code Section 7701(a)(19)(C)(v) or as other
assets described in Code Section 7701(a)(19)(C), and otherwise will not
qualify for such treatment. REMIC 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 Regular Certificates and income
with respect to Residual 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 assets of the
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REMIC Pool would be so treated. If at all times 95% or more of the assets of
the REMIC Pool qualify for each of the foregoing respective treatments, the
REMIC 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
holders of REMIC Certificates qualify for such treatment. Where two REMIC
Pools are a part of a tiered structure they will be treated as one REMIC for
purposes of the tests described above respecting asset ownership of more or
less than 95%. In addition, if the assets of the REMIC include Buy-Down
Mortgage Loans, it is possible that the percentage of such assets constituting
"loans... secured by an interest in real property which is.... residential real
property'' for purposes of Code Section 7701(a)(19)(C)(v) may be required to
be reduced by the amount of the related Buy-Down Funds. REMIC Certificates
held by a regulated investment company will not constitute ""Government
Securities'' within the meaning of Code Section 851(b)(3)(A)(i). REMIC
Certificates held 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 (the ""SBJPA 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. The requirement in the SBJPA of 1996
that such institutions must ""recapture'' a portion of their existing bad debt
reserves is suspended if a certain portion of their assets are maintained in
""residential loans'' under Code Section 7701(a)(19)(C)(v), but only if such
loans were made to acquire, construct or improve the related real property and
not for the purpose of refinancing. However, no effort will be made to
identify the portion of the Mortgage Loans of any Series meeting this
requirement, and no representation is made in this regard.
Qualification as a REMIC. In order for the REMIC Pool to qualify as a REMIC,
there must be ongoing compliance on the part of the REMIC Pool with the
requirements set forth in the Code. The REMIC Pool must fulfill an asset test,
which requires that no more than a de minimis portion of the assets of the
REMIC Pool, as of the close of the third calendar month beginning after the
"Startup Day" (which for purposes of this discussion is the date of issuance
of the REMIC Certificates) and at all times thereafter, may consist of assets
other than "qualified mortgages" and "permitted investments". The REMIC
Regulations provide a safe harbor pursuant to which the de minimis requirement
is met if at all times the aggregate adjusted basis of the nonqualified assets
is less than 1% of the aggregate adjusted basis of all the REMIC Pool's
assets. An entity that fails to meet the safe harbor may nevertheless
demonstrate that it holds no more than a de minimis amount of nonqualified
assets. A REMIC also must provide "reasonable arrangements" to prevent its
residual interest from being held by "disqualified organizations" and must
furnish applicable tax information to transferors or agents that violate this
requirement. The Pooling Agreement for each Series will contain a provision
designed to meet this requirement. See "Taxation of Residual Certificates--
Tax-Related Restrictions on Transfer of Residual Certificates--Disqualified
Organizations".
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day in exchange for Regular Certificates or Residual Certificates
or is purchased by the REMIC Pool within a three-month period thereafter
pursuant to a fixed price contract in effect on the Startup Day. Qualified
mortgages include whole mortgage loans, such as the Mortgage Loans,
certificates of beneficial interest in a grantor trust that holds mortgage
loans, including certain of the MBS, regular interests in another REMIC, such
as MBS in a trust as to which a REMIC election has been made, loans secured by
timeshare interests and loans secured by shares held by a tenant stockholder
in a cooperative housing corporation, provided, in general, (i) the fair
market value of the real property securing the mortgage (including buildings
and structural components thereof) is at least 80% of the principal balance of
the related Mortgage Loan or mortgage loan underlying the Mortgage Certificate
either at origination of the relevant loan or as of the Startup Day (an
original loan-to-value ratio of not more than 125% with respect to the real
property securing the mortgage) or (ii) substantially all the proceeds of the
Mortgage Loan or the underlying mortgage loan were used to acquire, improve or
protect an interest in real property that, at the origination date, was the
only security for the Mortgage Loan or underlying mortgage loan. If the
Mortgage Loan has been substantially modified other than in connection with a
default or reasonably foreseeable default, it must meet the loan-to-value test
in (i) of the preceding sentence as of the date of the last such modification
or at closing. A qualified mortgage includes a
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qualified replacement mortgage, which is any property that would have been
treated as a qualified mortgage if it were transferred to the REMIC Pool on
the Startup Day and that is received either (i) in exchange for any qualified
mortgage within a three-month period thereafter or (ii) in exchange for a
"defective obligation" within a two-year period thereafter. A "defective
obligation" includes (i) a mortgage in default or as to which default is
reasonably foreseeable, (ii) a mortgage as to which a customary representation
or warranty made at the time of transfer to the REMIC Pool has been breached,
(iii) a mortgage that was fraudulently procured by the mortgagor, and (iv) a
mortgage that was not in fact principally secured by real property (but only
if such mortgage is disposed of within 90 days of discovery). A Mortgage Loan
that is "defective" as described in clause (iv) that is not sold or, if within
two years of the Startup Day, exchanged, within 90 days of discovery, ceases
to be a qualified mortgage after such 90-day period. A qualified mortgage also
includes any regular interest in a FASIT transferred to the REMIC Pool on the
Startup Day in exchange for Regular Certificates or Residual Certificates, or
purchased by the REMIC Pool within three months after the Startup Day pursuant
to a fixed price contract in effect on the Startup Day, provided that at least
95% of the value of the FASIT assets is at all times attributable to
obligations principally secured by interests in real property and which are
transferred to, or purchased by, a REMIC as provided in this sentence.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13
months, until distributed to holders of interests in the REMIC Pool. A
qualified reserve asset is any intangible property (other than a REMIC
residual interest) held for investment that is part of any reasonably required
reserve maintained by the REMIC Pool to provide for payments of expenses of
the REMIC Pool or amounts due on the regular or residual interests in the
event of defaults (including delinquencies) on the qualified mortgages, lower
than expected reinvestment returns, prepayment interest shortfalls and certain
other contingencies. The reserve fund will be disqualified if more than 30% of
the gross income from the assets in such fund for the year is derived from the
sale or other disposition of property held for less than three months, unless
required to prevent a default on the regular interests caused by a default on
one or more qualified mortgages. A reserve fund must be reduced "promptly and
appropriately" as payments on the Mortgage Loans are received. Foreclosure
property is real property acquired by the REMIC Pool in connection with the
default or imminent default of a qualified mortgage and generally held beyond
the close of the third calendar year following the acquisition of the property
by REMIC Pool for not more than two years, with possible extensions granted by
the Internal Revenue Service (the "Service") of up to an additional four
years.
In addition to the foregoing requirements, the various interests in a REMIC
Pool also must meet certain requirements. All of the interests in a REMIC Pool
must be either of the following: (i) one or more classes of regular interests
or (ii) a single class of residual interests on which distributions, if any,
are made pro rata. A regular interest is an interest in a REMIC Pool that is
issued on the Startup Day with fixed terms, is designated as a regular
interest, and unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), and provides that interest
payments (or other similar amounts), if any, at or before maturity either are
payable based on a fixed rate or a qualified variable rate, or consist of a
specified, nonvarying portion of the interest payments on qualified mortgages.
Such a specified portion may consist of a fixed number of basis points, a
fixed percentage of the total interest, or a fixed or qualified variable or
inverse variable rate on some or all of the qualified mortgages minus a
different fixed or qualified variable rate. The specified principal amount of
a regular interest that provides for interest payments consisting of a
specified, nonvarying portion of interest payments on qualified mortgages may
be zero. A residual interest is an interest in a REMIC Pool other than a
regular interest that is issued on the Startup Day and that is designated as a
residual interest. An interest in a REMIC Pool may be treated as a regular
interest even if payments of principal with respect to such interest are
subordinated to payments on other regular interests or the residual interest
in the REMIC Pool, and are dependent on the absence of defaults or
delinquencies on qualified mortgages or permitted investments, lower than
reasonably expected returns on permitted investments, unanticipated expenses
incurred by the REMIC Pool or prepayment interest shortfalls. Accordingly, the
Regular Certificates of a series will constitute one or more
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classes of regular interests, and the Residual Certificates with respect to
that series will constitute a single class of residual interests on which
distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for such year
and thereafter. In this event, an entity with multiple classes of ownership
interests may be treated as a separate association taxable as a corporation
under Treasury regulations, and the Regular Certificates may be treated as
equity interests therein. The Code, however, authorizes the Treasury
Department to issue regulations that address situations where failure to meet
one or more of the requirements for REMIC status occurs inadvertently and in
good faith, and disqualification of the REMIC Pool would occur absent
regulatory relief. Investors should be aware, however, that the Conference
Committee Report to the Tax Reform Act of 1986 (the "1986 Act") indicates that
the relief may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the REMIC Pool's income for the period of
time in which the requirements for REMIC status are not satisfied.
Taxation of Regular Certificates
General
In general, interest, original issue discount and market discount on a
Regular Certificate will be treated as ordinary income to a holder of the
Regular Certificate (the "Regular Certificateholder") as they accrue, and
principal payments on a Regular Certificate will be treated as a return of
capital to the extent of the Regular Certificateholder's basis in the Regular
Certificate allocable thereto. Regular Certificateholders must use the accrual
method of accounting with regard to Regular Certificates, regardless of the
method of accounting otherwise used by such Regular Certificateholders.
Original Issue Discount
Accrual Certificates and principal-only Certificates will be, and other
Classes of Regular Certificates may be, issued with "original issue discount"
within the meaning of Code Section 1273(a). Holders of any Class of Regular
Certificates having original issue discount generally must include original
issue discount in ordinary income for federal income tax purposes as it
accrues, in accordance with the constant yield method that takes into account
the compounding of interest, in advance of receipt of the cash attributable to
such income. The following discussion is based in part on temporary and final
Treasury regulations issued on February 2, 1994, as amended on June 14, 1996,
(the "OID Regulations") under Code Sections 1271 through 1273 and 1275 and in
part on the provisions of the 1986 Act. Regular Certificateholders should be
aware, however, that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the Regular Certificates. To
the extent such issues are not addressed in such regulations, the Depositor
intends to apply the methodology described in the Conference Committee Report
to the 1986 Act. No assurance can be provided that the Service will not take a
different position as to those matters not currently addressed by the OID
Regulations. Moreover, the OID Regulations include an anti-abuse rule allowing
the Service to apply or depart from the OID Regulations where necessary or
appropriate to ensure a reasonable tax result in light of the applicable
statutory provisions. A tax result will not be considered unreasonable under
the anti-abuse rule in the absence of a substantial effect on the present
value of a taxpayer's tax liability. Investors are advised to consult their
own tax advisors as to the discussion herein and the appropriate method for
reporting interest and original issue discount with respect to the Regular
Certificates.
Each Regular Certificate (except to the extent described below with respect
to a Regular Certificate on which principal is distributed by random lot
("Random Lot Certificates")) will be treated as a single installment
obligation for purposes of determining the original issue discount includible
in a Regular Certificateholder's income. The total amount of original issue
discount on a Regular Certificate is the excess of the "stated redemption
price at maturity" of the Regular Certificate over its "issue price". The
issue price of a Class of Regular Certificates offered pursuant to this
Prospectus generally is the first price at which a substantial amount
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of Regular Certificates of that Class is sold to the public (excluding bond
houses, brokers and underwriters). Although unclear under the OID Regulations,
the Depositor intends to treat the issue price of a Class as to which there is
no substantial sale as of the issue date or that is retained by the Depositor
as the fair market value of that Class as of the issue date. The issue price
of a Regular Certificate also includes the amount paid by an initial Regular
Certificateholder for accrued interest that relates to a period prior to the
issue date of the Regular Certificate, unless the Regular Certificateholder
elects on its federal income tax return to exclude such amount from the issue
price and to recover it on the first Distribution Date. The stated redemption
price at maturity of a Regular Certificate always includes the original
principal amount of the Regular Certificate, but generally will not include
distributions of stated interest if such interest distributions constitute
"qualified stated interest". Under the OID Regulations, qualified stated
interest generally means interest payable at a single fixed rate or a
qualified variable rate (as described below) provided that such interest
payments are unconditionally payable at intervals of one year or less during
the entire term of the Regular Certificate. Because there is no penalty or
default remedy in the case of nonpayment of interest with respect to a Regular
Certificate, it is possible that no interest on any Class of Regular
Certificates will be treated as qualified stated interest. However, except as
provided in the following three sentences or in the applicable Prospectus
Supplement, because the underlying Mortgage Loans provide for remedies in the
event of default, the Depositor intends to treat interest with respect to the
Regular Certificates as qualified stated interest. Distributions of interest
on an Accrual Certificate, or on other Regular Certificates with respect to
which deferred interest will accrue, will not constitute qualified stated
interest, in which case the stated redemption price at maturity of such
Regular Certificates includes all distributions of interest as well as
principal thereon. Likewise, the Depositor intends to treat an "interest only"
class, or a class on which interest is substantially disproportionate to its
principal amount (a so-called "super-premium" class) as having no qualified
stated interest. Where the interval between the issue date and the first
Distribution Date on a Regular Certificate is shorter than the interval
between subsequent Distribution Dates, the interest attributable to the
additional days will be included in the stated redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if such original issue discount is less than
0.25% of the stated redemption price at maturity of the Regular Certificate
multiplied by the weighted average maturity of the Regular Certificate. For
this purpose, the weighted average maturity of the Regular Certificate is
computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until all
distributions in reduction of are scheduled to be made by a fraction, the
numerator of which is the amount of each distribution included in the stated
redemption price at maturity of the Regular Certificate and the denominator of
which is the stated redemption price at maturity of the Regular Certificate.
The Conference Committee Report to the 1986 Act provides that the schedule of
such distributions should be determined in accordance with the assumed rate of
prepayment of the Mortgage Loans (the "Prepayment Assumption") and the
anticipated reinvestment rate, if any, relating to the Regular Certificates.
The Prepayment Assumption with respect to a Series of Regular Certificates
will be set forth in the related Prospectus Supplement. Holders generally must
report de minimis original issue discount pro rata as principal payments are
received, and such income will be capital gain if the Regular Certificate is
held as a capital asset. However, under the OID Regulations, Regular
Certificateholders may elect to accrue all de minimis original issue discount
as well as market discount and market premium under the constant yield method.
See "Election to Treat All Interest Under the Constant Yield Method".
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the
original issue discount on the Regular Certificate accrued during an accrual
period for each day on which it holds the Regular Certificate, including the
date of purchase but excluding the date of disposition. The Depositor will
treat the monthly period ending on the day before each Distribution Date as
the accrual period. With respect to each Regular Certificate, a calculation
will be made of the original issue discount that accrues during each
successive full accrual period (or shorter period from the date of original
issue) that ends on the day before the related Distribution Date on the
Regular Certificate. The Conference Committee Report to the 1986 Act states
that the rate of accrual of original issue discount is intended to be based on
the Prepayment Assumption. Other than as discussed below with respect to a
Random Lot Certificate, the original issue discount accruing in a full accrual
period would be the excess, if any, of (i) the sum
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of (a) the present value of all of the remaining distributions to be made on
the Regular Certificate as of the end of that accrual period that are included
in the Regular Certificate's stated redemption price at maturity and (b) the
distributions made on the Regular Certificate during the accrual period that
are included in the Regular Certificate's stated redemption price at maturity,
over (ii) the adjusted issue price of the Regular Certificate at the beginning
of the accrual period. The present value of the remaining distributions
referred to in the preceding sentence is calculated based on (i) the yield to
maturity of the Regular Certificate at the issue date, (ii) events (including
actual prepayments) that have occurred prior to the end of the accrual period
and (iii) the Prepayment Assumption. For these purposes, the adjusted issue
price of a Regular Certificate at the beginning of any accrual period equals
the issue price of the Regular Certificate, increased by the aggregate amount
of original issue discount with respect to the Regular Certificate that
accrued in all prior accrual periods and reduced by the amount of
distributions included in the Regular Certificate's stated redemption price at
maturity that were made on the Regular Certificate in such prior periods. The
original issue discount accruing during any accrual period (as determined in
this paragraph) will then be divided by the number of days in the period to
determine the daily portion of original issue discount for each day in the
period. With respect to an initial accrual period shorter than a full accrual
period, the daily portions of original issue discount must be determined
according to an appropriate allocation under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Loans that exceed the
Prepayment Assumption, and generally will decrease (but not below zero for any
period) if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the Mortgage Loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain Classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
In the case of a Random Lot Certificate, the Depositor intends to determine
the yield to maturity of such Certificate based upon the anticipated payment
characteristics of the Class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Random Lot Certificate
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire Class, as determined in accordance with
the preceding paragraph. However, in the case of a distribution in retirement
of the entire unpaid principal balance of any Random Lot Certificate (or
portion of such unpaid principal balance), (a) the remaining unaccrued
original issue discount allocable to such Certificate (or to such portion)
will accrue at the time of such distribution, and (b) the accrual of original
issue discount allocable to each remaining Certificate of such Class (or the
remaining unpaid principal balance of a partially redeemed Random Lot
Certificate after a distribution of principal has been received) will be
adjusted by reducing the present value of the remaining payments on such Class
and the adjusted issue price of such Class to the extent attributable to the
portion of the unpaid principal balance thereof that was distributed. The
Depositor believes that the foregoing treatment is consistent with the "pro
rata prepayment" rules of the OID Regulations, but with the rate of accrual of
original issue discount determined based on the Prepayment Assumption for the
Class as a whole. Investors are advised to consult their tax advisors as to
this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over such adjusted
issue price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively,
such a subsequent purchaser may elect to treat all such acquisition premium
under the constant yield method, as described below under the heading
"Election to Treat All Interest Under the Constant Yield Method".
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Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate
if, generally, (i) the issue price does not exceed the original principal
balance by more than a specified de minimis amount and (ii) the interest
compounds or is payable at least annually at current values of (a) one or more
"qualified floating rates", (b) a single fixed rate and one or more qualified
floating rates, (c) a single "objective rate", or (d) a single fixed rate and
a single objective rate that is a "qualified inverse floating rate". A
floating rate is a qualified floating rate if variations in the rate can
reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds, or where such rate is subject to a fixed multiple that
is greater than 0.65, but not more than 1.35. Such rate may also be increased
or decreased by a fixed spread or subject to a fixed cap or floor, or a cap or
floor that is not reasonably expected as of the issue date to affect the yield
of the instrument significantly. Two or more qualified floating rates will be
treated as a single qualified floating rate if all such qualified floating
rates can reasonably be expected to have approximately the same values
throughout the terms of the instrument. This requirement will be conclusively
presumed to be satisfied if the values of all such qualified floating rates
are within 0.25% of each other on the issue date. An objective rate (other
than a qualified floating rate) is a rate that is determined using a single
fixed formula and that is based on objective financial or economic
information, provided that such information is not (i) within the control of
the issuer or a related party or (ii) unique to the circumstances of the
issuer or a related party. A qualified inverse floating rate is an objective
rate that is equal to a fixed rate minus a qualified floating rate that
inversely reflects contemporaneous variations in the cost of newly borrowed
funds; an inverse floating rate that is not a qualified floating rate may
nevertheless be an objective rate. A Class of Regular Certificates may be
issued under this Prospectus that does not have a variable rate under the OID
Regulations, for example, a Class that bears different rates at different
times during the period it is outstanding such that it is considered
significantly "front-loaded" or "back-loaded" within the meaning of the OID
Regulations. It is possible that such a Class may be considered to bear
"contingent interest" within the meaning of the OID Regulations. The OID
Regulations, as they relate to the treatment of contingent interest, are by
their terms not applicable to Regular Certificates. However, if final
regulations dealing with contingent interest with respect to Regular
Certificates apply the same principles as the OID Regulations, such
regulations may lead to different timing of income inclusion than would be the
case under the OID Regulations. Furthermore, application of such principles
could lead to the characterization of gain on the sale of contingent interest
Regular Certificates as ordinary income. Investors should consult their tax
advisors regarding the appropriate treatment of any Regular Certificate that
does not pay interest at a fixed rate or variable rate as described in this
paragraph.
Under the REMIC Regulations, a Regular Certificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates), including a rate based on the average cost of funds of one or
more financial institutions, or a positive or negative multiple of such a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the Mortgage Loans which bear
interest at a fixed rate or at a qualifying variable rate under the REMIC
Regulations, including such a rate that is subject to one or more caps or
floors, or (ii) bearing one or more such variable rates for one or more
periods or one or more fixed rates for one or more periods, and a different
variable rate or fixed rate for other periods qualifies as a regular interest
in a REMIC. Accordingly, unless otherwise indicated in the applicable
Prospectus Supplement, the Depositor intends to treat Regular Certificates
that qualify as regular interests under this rule in the same manner as
obligations bearing a variable rate for original issue discount reporting
purposes.
The amount of original issue discount with respect to a Regular Certificate
bearing a variable rate of interest will accrue in the manner described above
under "Original Issue Discount" with the yield to maturity and future payments
on such Regular Certificate generally to be determined by assuming that
interest will be payable for the life of the Regular Certificate based on the
initial rate (or, if different, the value of the applicable variable rate as
of the pricing date) for the relevant Class. Unless otherwise specified in the
applicable Prospectus Supplement, the Depositor intends to treat such variable
interest as qualified stated interest, other than variable interest on an
interest-only or super-premium Class, which will be treated as non-qualified
stated interest
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includible in the stated redemption price at maturity. Ordinary income
reportable for any period will be adjusted based on subsequent changes in the
applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, the Depositor intends to treat Regular
Certificates bearing an interest rate that is a weighted average of the net
interest rates on Mortgage Loans or Mortgage Certificates having fixed or
adjustable rates, as having qualified stated interest, except to the extent
that initial "teaser" rates cause sufficiently "back-loaded" interest to
create more than de minimis original issue discount. The yield on such Regular
Certificates for purposes of accruing original issue discount will be a
hypothetical fixed rate based on the fixed rates, in the case of fixed rate
Mortgage Loans, and initial "teaser rates" followed by fully indexed rates, in
the case of adjustable rate Mortgage Loans. In the case of adjustable rate
Mortgage Loans, the applicable index used to compute interest on the Mortgage
Loans in effect on the pricing date (or possibly the issue date) will be
deemed to be in effect beginning with the period in which the first weighted
average adjustment date occurring after the issue date occurs. Adjustments
will be made in each accrual period either increasing or decreasing the amount
of ordinary income reportable to reflect the actual Pass-Through Rate on the
Regular Certificates.
Deferred Interest
Under the OID Regulations, all interest on a Regular Certificate as to which
there may be Deferred Interest is includible in the stated redemption price at
maturity thereof. Accordingly, any Deferred Interest that accrues with respect
to a Class of Regular Certificates may constitute income to the holders of
such Regular Certificates prior to the time distributions of cash with respect
to such Deferred Interest are made.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Section 1276 through 1278. Under these Code sections
and the principles applied by the OID Regulations in the context of original
issue discount, "market discount" is the amount by which the purchaser's
original basis in the Regular Certificate (i) is exceeded by the then-current
principal amount of the Regular Certificate or (ii) in the case of a Regular
Certificate having original issue discount, is exceeded by the adjusted issue
price of such Regular Certificate at the time of purchase. Such purchaser
generally will be required to recognize ordinary income to the extent of
accrued market discount on such Regular Certificate as distributions
includible in the stated redemption price at maturity thereof are received, in
an amount not exceeding any such distribution. Such market discount would
accrue in a manner to be provided in Treasury regulations and should take into
account the Prepayment Assumption. The Conference Committee Report to the 1986
Act provides that until such regulations are issued, such market discount
would accrue either (i) on the basis of a constant interest rate or (ii) in
the ratio of stated interest allocable to the relevant period to the sum of
the interest for such period plus the remaining interest as of the end of such
period, or in the case of a Regular Certificate issued with original issue
discount, in the ratio of original issue discount accrued for the relevant
period to the sum of the original issue discount accrued for such period plus
the remaining original issue discount as of the end of such period. Such
purchaser also generally will be required to treat a portion of any gain on a
sale or exchange of the Regular 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 as partial distributions in reduction of the stated redemption
price at maturity were received. Such purchaser will be required to defer
deduction of a portion of the excess of the interest paid or accrued on
indebtedness incurred to purchase or carry a Regular Certificate over the
interest distributable thereon. The deferred portion of such interest expense
in any taxable year generally will not exceed the accrued market discount on
the Regular Certificate for such year. Any such deferred interest expense is,
in general, allowed as a deduction not later than the year in which the
related market discount income is recognized or the Regular Certificate is
disposed of. As an alternative to the inclusion of market discount in income
on the foregoing basis, the Regular Certificateholder may elect to include
market discount in income currently as it accrues on all market discount
instruments acquired by such Regular Certificateholder in that taxable year or
thereafter, in which case the interest deferral rule will not apply. See
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"Election to Treat All Interest Under the Constant Yield Method" below
regarding an alternative manner in which such election may be deemed to be
made.
Market discount with respect to a Regular Certificate will be considered to
be zero if such market discount is less than 0.25% of the remaining stated
redemption price at maturity of such Regular Certificate multiplied by the
weighted average maturity of the Regular Certificate (determined as described
above in the third paragraph under "Original Issue Discount") remaining after
the date of purchase. It appears that de minimis market discount should be
reported in a manner similar to de minimis original issue discount. See
"Original Issue Discount" above. Treasury regulations implementing the market
discount rules have not yet been issued, and therefore investors should
consult their own tax advisors regarding the application of these rules.
Investors should also consult Revenue Procedure 92-67 concerning the elections
to include market discount in income currently and to accrue market discount
on the basis of the constant yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining stated
redemption price at maturity generally is considered to be purchased at a
premium. If the Regular Certificateholder holds such Regular Certificate as a
"capital asset" within the meaning of Code Section 1221, the Regular
Certificateholder may elect under Code Section 171 to amortize such premium
under the constant yield method. The Conference Committee Report to the 1986
Act indicates a Congressional intent that the same rules that will apply to
the accrual of market discount on installment obligations will also apply to
amortizing bond premium under Code Section 171 on installment obligations such
as the Regular Certificates, although it is unclear whether the alternatives
to the constant yield method described above under "Market Discount" are
available. Amortizable bond premium will be treated as an offset to interest
income on a Regular Certificate rather than as a separate deduction item. See
"Election to Treat All Interest Under the Constant Yield Method" below
regarding an alternative manner in which the Code Section 171 election may be
deemed to be made.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument
subject to such an election, (i) "interest" includes stated interest, original
issue discount, de minimis original issue discount, market discount and de
minimis market discount, as adjusted by any amortizable bond premium or
acquisition premium and (ii) the debt instrument is treated as if the
instrument were issued on the holder's acquisition date in the amount of the
holder's adjusted basis immediately after acquisition. It is unclear whether,
for this purpose, the initial Prepayment Assumption would continue to apply or
if a new prepayment assumption as of the date of the holder's acquisition
would apply. A holder generally may make such an election on an instrument by
instrument basis or for a class or group of debt instruments. However, if the
holder makes such an election with respect to a debt instrument with
amortizable bond premium or with market discount, the holder is deemed to have
made elections to amortize bond premium or to report market discount income
currently as it accrues under the constant yield method, respectively, for all
debt instruments acquired by the holder in the same taxable year or
thereafter. The election is made on the holder's federal income tax return for
the year in which the debt instrument is acquired and is irrevocable except
with the approval of the Service. Investors should consult their own tax
advisors regarding the advisability of making such an election.
Sale or Exchange of Regular Certificates
If a Regular Certificateholder sells or exchanges a Regular Certificate, the
Regular Certificateholder will recognize gain or loss equal to the difference,
if any, between the amount received and its adjusted basis in the Regular
Certificate. The adjusted basis of a Regular Certificate generally will equal
the cost of the Regular Certificate to the seller, increased by any original
issue discount or market discount previously included in the seller's gross
income with respect to the Regular Certificate and reduced by amounts included
in the stated
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redemption price at maturity of the Regular Certificate that were previously
received by the seller, by any amortized premium and by previously recognized
losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate
as a capital asset will be capital gain or loss and will be long-term or
short-term depending on whether the Regular Certificate has been held for the
long-term capital gain holding period (currently more than one year). Such
gain will be treated as ordinary income (i) if a Regular Certificate is held
as part of a "conversion transaction" as defined in Code Section 1258(c), up
to the amount of interest that would have accrued on the Regular
Certificateholder's net investment in the conversion transaction at 120% of
the appropriate applicable Federal rate under Code Section 1274(d) in effect
at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior distribution
of property that was held as a part of such transaction, (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary rates, or (iii) to the extent that such gain does not exceed the
excess, if any, of (a) the amount that would have been includible in the gross
income of the holder if its yield on such Regular Certificate were 110% of the
applicable Federal rate as of the date of purchase, over (b) the amount of
income actually includible in the gross income of such holder with respect to
the Regular Certificate. In addition, gain or loss recognized from the sale of
a Regular Certificate by certain banks or thrift institutions will be treated
as ordinary income or loss pursuant to Code Section 582(c). Long-term capital
gains of certain non-corporate taxpayers are subject to a lower maximum tax
rate (20%) than ordinary income of such taxpayers (39.6%). The maximum tax
rate for corporations is the same with respect to both ordinary income and
capital gains.
Treatment of Losses
Holders of Regular Certificates will be required to report income with
respect to Regular Certificates on the accrual method of accounting, without
giving effect to delays or reductions in distributions attributable to
defaults or delinquencies on the Mortgage Loans allocable to a particular
class of Regular Certificates, except to the extent it can be established that
such losses are uncollectible. Accordingly, the holder of a Regular
Certificate may have income, or may incur a diminution in cash flow as a
result of a default or delinquency, but may not be able to take a deduction
(subject to the discussion below) for the corresponding loss until a
subsequent taxable year. In this regard, investors are cautioned that while
they may generally cease to accrue interest income if it reasonably appears
that the interest will be uncollectible, the Internal Revenue Service may take
the position that original issue discount must continue to be accrued in spite
of its uncollectibility until the debt instrument is disposed of in a taxable
transaction or becomes worthless in accordance with the rules of Code Section
166. To the extent the rules of Code Section 166 regarding bad debts are
applicable, it appears that holders of Regular Certificates that are
corporations or that otherwise hold the Regular Certificates in connection
with a trade or business should in general be allowed to deduct as an ordinary
loss any such loss sustained during the taxable year on account of any such
Regular Certificates becoming wholly or partially worthless, and that, in
general, holders of Regular Certificates that are not corporations and do not
hold the Regular Certificates in connection with a trade or business will be
allowed to deduct as a short-term capital loss any loss with respect to
principal sustained during the taxable year on account of a portion of any
class or subclass of such Regular Certificates becoming wholly worthless.
Although the matter is not free from doubt, non-corporate holders of Regular
Certificates should be allowed a bad debt deduction at such time as the
principal balance of any class or subclass of such Regular Certificates is
reduced to reflect losses resulting from any liquidated Mortgage Loans. The
Service, however, could take the position that non-corporate holders will be
allowed a bad debt deduction to reflect such losses only after all Mortgage
Loans remaining in the Trust Fund have been liquidated or such class of
Regular Certificates has been otherwise retired. The Service could also assert
that losses on the Regular Certificates are deductible based on some other
method that may defer such deductions for all holders, such as reducing future
cash flow for purposes of computing original issue discount. This may have the
effect of creating "negative" original issue discount which would be
deductible only against future positive original issue discount
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or otherwise upon termination of the Class. Holders of Regular Certificates
are urged to consult their own tax advisors regarding the appropriate timing,
amount and character of any loss sustained with respect to such Regular
Certificates. While losses attributable to interest previously reported as
income should be deductible as ordinary losses by both corporate and non-
corporate holders, the Internal Revenue Service may take the position that
losses attributable to accrued original issue discount may only be deducted as
short-term capital losses by non-corporate holders not engaged in a trade or
business. Special loss rules are applicable to banks and thrift institutions,
including rules regarding reserves for bad debts. Such taxpayers are advised
to consult their tax advisors regarding the treatment of losses on Regular
Certificates.
Taxation of Residual Certificates
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will be
includible as ordinary income or loss in determining the federal taxable
income of holders of Residual Certificates ("Residual Certificateholders"),
and will not be taxed separately to the REMIC Pool. The daily portions of
REMIC taxable income or net loss of a Residual Certificateholder are
determined by allocating the REMIC Pool's taxable income or net loss for each
calendar quarter ratably to each day in such quarter and by allocating such
daily portion among the Residual Certificateholders in proportion to their
respective holdings of Residual Certificates in the REMIC Pool on such day.
REMIC taxable income is generally determined in the same manner as the taxable
income of an individual using the accrual method of accounting, except that
(i) the limitations on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will be
deductible as business bad debts and (iii) the limitation on the deductibility
of interest and expenses related to tax-exempt income will apply. The REMIC
Pool's gross income includes interest, original issue discount income and
market discount income, if any, on the Mortgage Loans, reduced by amortization
of any premium on the Mortgage Loans, plus income from amortization of issue
premium, if any, on the Regular Certificates, plus income on reinvestment of
cash flows and reserve assets, plus any cancellation of indebtedness income
upon allocation of realized losses to the Regular Certificates. The REMIC
Pool's deductions include interest and original issue discount expense on the
Regular Certificates, servicing fees on the Mortgage Loans, other
administrative expenses of the REMIC Pool and realized losses on the Mortgage
Loans. The requirement that Residual Certificateholders report their pro rata
share of taxable income or net loss of the REMIC Pool will continue until
there are no Certificates of any class of the related series outstanding.
The taxable income recognized by a Residual Certificateholder in any taxable
year will be affected by, among other factors, the relationship between the
timing of recognition of interest and original issue discount or market
discount income or amortization of premium with respect to the Mortgage Loans,
on the one hand, and the timing of deductions for interest (including original
issue discount) on the Regular Certificates or income from amortization of
issue premium on the Regular Certificates, on the other hand. In the event
that an interest in the Mortgage Loans is acquired by the REMIC Pool at a
discount, and one or more of such Mortgage Loans is prepaid, the Residual
Certificateholder may recognize taxable income without being entitled to
receive a corresponding amount of cash because (i) the prepayment may be used
in whole or in part to make distributions in reduction of principal on the
Regular Certificates and (ii) the discount on the Mortgage Loans which is
includible in income may exceed the deduction allowed upon such distributions
on those Regular Certificates on account of any unaccrued original issue
discount relating to those Regular Certificates. When there is more than one
class of Regular Certificates that distribute principal sequentially, this
mismatching of income and deductions is particularly likely to occur in the
early years following issuance of the Regular Certificates when distributions
in reduction of principal are being made in respect of earlier classes of
Regular Certificates to the extent that such classes are not issued with
substantial discount. If taxable income attributable to such a mismatching is
realized, in general, losses would be allowed in later years as distributions
on the later classes of Regular Certificates are made. Taxable income may also
be greater in earlier years than in later years as a result of the fact that
interest expense deductions, expressed as a percentage of the outstanding
principal amount of such a series of Regular Certificates, may increase over
time as distributions in reduction of principal are made on the lower yielding
classes of Regular Certificates, whereas to the extent that the REMIC Pool
includes fixed rate
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Mortgage Loans, interest income with respect to any given Mortgage Loan will
remain constant over time as a percentage of the outstanding principal amount
of that loan. Consequently, Residual Certificateholders must have sufficient
other sources of cash to pay any federal, state or local income taxes due as a
result of such mismatching or unrelated deductions against which to offset
such income, subject to the discussion of "excess inclusions" below under
"Limitations on Offset or Exemption of REMIC Income". The timing of such
mismatching of income and deductions described in this paragraph, if present
with respect to a series of Certificates, may have a significant adverse
effect upon the Residual Certificateholder's after-tax rate of return. In
addition, a Residual Certificateholder's taxable income during certain periods
may exceed the income reflected by such Residual Certificateholder for such
periods in accordance with generally accepted accounting principles. Investors
should consult their own accountants concerning the accounting treatment of
their investment in Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into account
by the Residual Certificateholder is limited to the adjusted basis of the
Residual Certificate as of the close of the quarter (or time of disposition of
the Residual Certificate if earlier), determined without taking into account
the net loss for the quarter. The initial adjusted basis of a purchaser of a
Residual Certificate is the amount paid for such Residual Certificate. Such
adjusted basis will be increased by the amount of taxable income of the REMIC
Pool reportable by the Residual Certificateholder and will be decreased (but
not below zero), first, by a cash distribution from the REMIC Pool and,
second, by the amount of loss of the REMIC Pool reportable by the Residual
Certificateholder. Any loss that is disallowed on account of this limitation
may be carried over indefinitely with respect to the Residual
Certificateholder as to whom such loss was disallowed and may be used by such
Residual Certificateholder only to offset any income generated by the same
REMIC Pool.
A Residual Certificateholder will not be permitted to amortize directly the
cost of its Residual Certificate as an offset to its share of the taxable
income of the related REMIC Pool. However, that taxable income will not
include cash received by the REMIC Pool that represents a recovery of the
REMIC Pool's basis in its assets. Such recovery of basis by the REMIC Pool
will have the effect of amortization of the issue price of the Residual
Certificates over their life. However, in view of the possible acceleration of
the income of Residual Certificateholders described above under "Taxation of
REMIC Income", the period of time over which such issue price is effectively
amortized may be longer than the economic life of the Residual Certificates.
A Residual Certificate may have a negative value if the net present value of
anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a
residual interest as zero rather than such negative amount for purposes of
determining the REMIC Pool's basis in its assets. The preamble to the REMIC
Regulations states that the Service may provide future guidance on the proper
tax treatment of payments made by a transferor of such a residual interest to
induce the transferee to acquire the interest, and Residual Certificateholders
should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in the Residual Certificate
is greater that the corresponding portion of the REMIC Pool's basis in the
Mortgage Loans, the Residual Certificateholder will not recover a portion of
such basis until termination of the REMIC Pool unless future Treasury
regulations provide for periodic adjustments to the REMIC income otherwise
reportable by such holder. The REMIC Regulations currently in effect do not so
provide. See "Treatment of Certain Items of REMIC Income and Expense--Market
Discount" below regarding the basis of Mortgage Loans to the REMIC Pool and
"Sale or Exchange of a Residual Certificate" below regarding possible
treatment of a loss upon termination of the REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Depositor intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Depositor makes no representation as to the
specific method that it will
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use for reporting income with respect to the Mortgage Loans and expenses with
respect to the Regular Certificates, and different methods could result in
different timing of reporting of taxable income or net loss to Residual
Certificateholders or differences in capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's deductions
for original issue discount and income from amortization of issue premium will
be determined in the same manner as original issue discount income on Regular
Certificates as described above under "Taxation of Regular Certificates--
Original Issue Discount" and "--Variable Rate Regular Certificates", without
regard to the de minimis rule described therein, and "--Premium".
Deferred Interest. Any Deferred Interest that accrues with respect to any
adjustable rate Mortgage Loans held by the REMIC Pool will constitute income
to the REMIC Pool and will be treated in a manner similar to the Deferred
Interest that accrues with respect to Regular Certificates as described above
under "Taxation of Regular Certificates--Deferred Interest".
Market Discount. The REMIC Pool will have market discount income in respect
of Mortgage Loans if, in general, the basis of the REMIC Pool allocable to
such Mortgage Loans is exceeded by their unpaid principal balances. The REMIC
Pool's basis in such Mortgage Loans is generally the fair market value of the
Mortgage Loans immediately after the transfer thereof to the REMIC Pool. The
REMIC Regulations provide that such basis is equal in the aggregate to the
issue prices of all regular and residual interests in the REMIC Pool (or the
fair market value thereof at the Closing Date, in the case of a retained
Class). In respect of Mortgage Loans that have market discount to which Code
Section 1276 applies, the accrued portion of such market discount would be
recognized currently as an item of ordinary income in a manner similar to
original issue discount. Market discount income generally should accrue in the
manner described above under "Taxation of Regular Certificates--Market
Discount".
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Loans at a premium equal to the
amount of such excess. As stated above, the REMIC Pool's basis in Mortgage
Loans is the fair market value of the Mortgage Loans, based on the aggregate
of the issue prices (or the fair market value of retained Classes) of the
regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of Regular Certificates--Premium", a REMIC Pool that
holds a Mortgage Loan as a capital asset under Code Section 1221 may elect
under Code Section 171 to amortize premium on whole mortgage loans or mortgage
loans underlying MBS that were originated after September 27, 1985 or MBS that
are REMIC regular interests under the constant yield method. Amortizable bond
premium will be treated as an offset to interest income on the Mortgage Loans,
rather than as a separate deduction item. To the extent that the mortgagors
with respect to the Mortgage Loans are individuals, Code Section 171 will not
be available for premium on Mortgage Loans (including underlying mortgage
loans) originated on or prior to September 27, 1985. Premium with respect to
such Mortgage Loans may be deductible in accordance with a reasonable method
regularly employed by the holder thereof. The allocation of such premium pro
rata among principal payments should be considered a reasonable method;
however, the Service may argue that such premium should be allocated in a
different manner, such as allocating such premium entirely to the final
payment of principal.
Limitations on Offset or Exemption of REMIC Income
A portion or all of the REMIC taxable income includible in determining the
federal income tax liability of a Residual Certificateholder will be subject
to special treatment. That portion, referred to as the "excess inclusion", is
equal to the excess of REMIC taxable income for the calendar quarter allocable
to a Residual Certificate over the daily accruals for such quarterly period of
(i) 120% of the long-term applicable Federal rate that would have applied to
the Residual Certificate (if it were a debt instrument) on the Startup Day
under Code Section 1274(d), multiplied by (ii) the adjusted issue price of
such Residual Certificate at the beginning of such quarterly period. For this
purpose, the adjusted issue price of a Residual Certificate at the beginning
of a quarter
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is the issue price of the Residual Certificate, plus the amount of such daily
accruals of REMIC income described in this paragraph for all prior quarters,
decreased by any distributions made with respect to such Residual Certificate
prior to the beginning of such quarterly period. Accordingly, the portion of
the REMIC Pool's taxable income that will be treated as excess inclusions will
be a larger portion of such income as the adjusted issue price of the Residual
Certificates diminishes.
The portion of a Residual Certificateholder's REMIC taxable income
consisting of the excess inclusions generally may not be offset by other
deductions, including net operating loss carry forwards, on such Residual
Certificateholder's return. However, net operating loss carryovers are
determined without regard to excess inclusion income. Further, if the Residual
Certificateholder is an organization subject to the tax on unrelated business
income imposed by Code Section 511, the Residual Certificateholder's excess
inclusions will be treated as unrelated business taxable income of such
Residual Certificateholder for purposes of Code Section 511. In addition,
REMIC taxable income is subject to 30% withholding tax with respect to certain
persons who are not U.S. Persons (as defined below under "Tax-Related
Restrictions on Transfer of Residual Certificates--Foreign Investors"), and
the portion thereof attributable to excess inclusions is not eligible for any
reduction in the rate of withholding tax (by treaty or otherwise). See
"Taxation of Certain Foreign Investors--Residual Certificates" below. Finally,
if a real estate investment trust or a regulated investment company owns a
Residual Certificate, a portion (allocated under Treasury regulations yet to
be issued) of dividends paid by the real estate investment trust or a
regulated investment company could not be offset by net operating losses of
its shareholders, would constitute unrelated business taxable income for tax-
exempt shareholders, and would be ineligible for reduction of withholding to
certain persons who are not U.S. Persons. The SBJPA of 1996 has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to
use net operating losses and other allowable deductions to offset their excess
inclusion income from Residual Certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to Residual
Certificates continuously held by thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Certificateholder. First, alternative minimum taxable income for a
Residual Certificateholder is determined without regard to the special rule,
discussed above, that taxable income cannot be less than excess inclusions.
Second, a Residual Certificateholder's alternative minimum taxable income for
a taxable year cannot be less than the excess inclusions for the year. Third,
the amount of any alternative minimum tax net operating loss deduction must be
computed without regard to any excess inclusions. These rules are effective
for taxable years beginning after December 31, 1996, unless a Residual
Certificateholder elects to have such rules apply only to taxable years
beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below) other than in connection with the formation of a REMIC Pool, if the
Disqualified Organization is required, pursuant to a binding contract, to sell
such Residual Certificate, which sale occurs within seven days after the
Startup Days, a tax would be imposed in an amount equal to the product of (i)
the present value of the total anticipated excess inclusions with respect to
such Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
Federal rate under Code Section 1274(d) as of the date of the transfer for a
term ending with the last calendar quarter in which excess inclusions are
expected to accrue. Such a tax generally would be imposed on the transferor of
the Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for 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
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such affidavit is false. The tax also may be waived by the Treasury Department
if the Disqualified Organization promptly disposes of the residual interest
and the transferor pays income tax at the highest corporate rate on the excess
inclusions for the period the Residual Certificate is actually held by the
Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are allocable
to the interest in the Pass-Through Entity during the period such interest is
held by such Disqualified Organization, and (ii) the highest marginal federal
corporate income tax rate. Such tax would be deductible from the ordinary
gross income of the Pass-Through Entity for the taxable year. The Pass-Through
Entity would not be liable for such tax if it has received an affidavit from
such record holder that it is not a Disqualified Organization or stating such
holder's taxpayer identification number and, during the period such person is
the record holder of the Residual Certificate, the Pass-Through Entity does
not have actual knowledge that such affidavit is false.
For these purposes, (i) "Disqualified Organization" means the United States,
any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and, except in the case of the Federal
Home Loan Mortgage Corporation, a majority of its board of directors is not
selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, and (ii) "Pass-Through
Entity" means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust or estate and certain corporations
operating on a cooperative basis. Except as may be provided in Treasury
regulations, any person holding an interest in a Pass-Through Entity as a
nominee for another will, with respect to such interest, be treated as a Pass-
Through Entity.
The Pooling Agreement with respect to a series of Certificates will provide
that no legal or beneficial interest in a Residual Certificate may be
transferred unless (i) the proposed transferee provides to the transferor and
the Trustee an affidavit providing its taxpayer identification number and
stating that such transferee is the beneficial owner of the Residual
Certificate, is not a Disqualified Organization and is not purchasing such
Residual Certificates on behalf of a Disqualified Organization (i.e., as a
broker, nominee or middleman thereof), and (ii) the transferor provides a
statement in writing to the Depositor and the Trustee that it has no actual
knowledge that such affidavit is false. Moreover, the Pooling Agreement will
provide that any attempted or purported transfer in violation of these
transfer restrictions will be null and void and will vest no rights in any
purported transferee. Each Residual Certificate with respect to a series will
bear a legend referring to such restrictions on transfer, and each Residual
Certificateholder will be deemed to have agreed, as a condition of ownership
thereof, to any amendments to the related Pooling Agreement required under the
Code or applicable Treasury regulations to effectuate the foregoing
restrictions. Information necessary to compute an applicable excise tax must
be furnished to the Service and to the requesting party within 60 days of the
request, and the Depositor or the Trustee may charge a fee for computing and
providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus
would continue to be subject to tax on its allocable portion of the net income
of the REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic
residual interest" (as defined below) to a Residual Certificateholder (other
than a Residual Certificateholder who is not a U.S. Person, as defined below
under "Foreign Investors") is disregarded for all federal income tax purposes
if a significant purpose of the transferor is to impede the assessment or
collection of tax. A residual interest in a REMIC (including a residual
interest with a positive value at issuance) is a "noneconomic residual
interest" unless, at the time of the transfer, (i) the present value of the
expected future distributions on the residual interest at least equals the
product of the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which
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the transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The anticipated excess inclusions and
the present value rate are determined in the same manner as set forth above
under "Disqualified Organizations". The REMIC Regulations explain that a
significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation
of the financial condition of the transferee and found that the transferee
historically had paid its debts as they came due and found no significant
evidence to indicate that the transferee would not continue to pay its debts
as they came due in the future, and (ii) the transferee represents to the
transferor that it understands that, as the holder of the noneconomic residual
interest, the transferee may incur tax liabilities in excess of cash flows
generated by the interest and that the transferee intends to pay taxes
associated with holding the residual interest as they become due. The Pooling
Agreement with respect to each series of Certificates will require the
transferee of a Residual Certificate to certify to the matters in the
preceding sentence as part of the affidavit described above under the heading
"Disqualified Organizations". The transferor must have no actual knowledge or
reason to know that such statements are false.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended
to apply to a transferee who is not a "U.S. Person" (as defined below), unless
such transferee's income is effectively connected with the conduct of a trade
or business within the United States or not otherwise subject to a withholding
tax. A Residual Certificate is deemed to have tax avoidance potential unless,
at the time of the transfer, (i) the future value of expected distributions
equals at least 30% of the anticipated excess inclusions after the transfer,
and (ii) the transferor reasonably expects that the transferee will receive
sufficient distributions from the REMIC Pool at or after the time at which the
excess inclusions accrue and prior to the end of the next succeeding taxable
year for the accumulated withholding tax liability to be paid. If the non-U.S.
Person transfers the Residual Certificate back to a U.S. Person, the transfer
will be disregarded and the foreign transferor will continue to be treated as
the owner unless arrangements are made so that the transfer does not have the
effect of allowing the transferor to avoid tax on accrued excess inclusions.
The Prospectus Supplement relating to a series of Certificates may provide
that a Residual Certificate may not be purchased by or transferred to any
person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any State, an estate that is subject to United States federal
income tax regardless of the source of its income or a trust if (A) for
taxable years beginning after December 31, 1996 (or for taxable years ending
after August 20, 1996, if the trustee has made an applicable election), a
court within the United States is able to exercise primary supervision over
the administration of such trust, and one or more United States persons have
the authority to control all substantial decisions of such trust, or (B) for
all other taxable years, such trust is subject to United States federal income
tax regardless of the source of its income (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).
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual
Certificateholder will recognize gain or loss equal to the excess, if any, of
the amount realized over the adjusted basis (as described above under
"Taxation of Residual Certificates--Basis and Losses") of such Residual
Certificateholder in such Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Certificateholder will have taxable income to the extent that any
cash distribution to it from the REMIC Pool exceeds such adjusted basis on
that Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC Pool may be treated as a sale or exchange of a Residual
Certificateholder's Residual Certificate, in which case, if the Residual
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Certificateholder has an adjusted basis in such Residual Certificateholder's
Residual Certificate remaining when its interest in the REMIC Pool terminates,
and if such Residual Certificateholder holds such Residual Certificate as a
capital asset under Code Section 1221, then such Residual Certificateholder
will recognize a capital loss at that time in the amount of such remaining
adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as ordinary
income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Certificateholder's net investment in
the conversion transaction at 120% of the appropriate applicable Federal rate
in effect at the time the taxpayer entered into the transaction minus any
amount previously treated as ordinary income with respect to any prior
disposition of property that was held as a part of such transaction or (ii) in
the case of a non-corporate taxpayer, to the extent such taxpayer has made an
election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates. In addition, gain or loss
recognized from the sale of a Residual Certificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code
Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six
months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a Residual
Certificate.
Mark-to-Market Regulations
The Service has issued regulations (the "Mark-to-Market Regulations") under
Code Section 475 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 of 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, a Residual Certificate is not treated as a security and thus may
not be marked-to-market. The Mark-to-Market Regulations apply to all Residual
Certificates acquired on or after January 4, 1995.
Taxes That May Be Imposed on the REMIC Pool
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Certificateholders, but rather
will be taxed directly to the REMIC Pool at a 100% rate. Prohibited
transactions generally include (i) the disposition of a qualified mortgage
other than pursuant to a (a) substitution within two years of the Startup Day
for a defective (including a defaulted) obligation (or repurchase in lieu of
substitution of a defective (including a defaulted) obligation at any time) or
for any qualified mortgage within three months of the Startup Day, (b)
foreclosure, default or imminent default of a qualified mortgage, (c)
bankruptcy or insolvency of the REMIC Pool or (d) qualified (complete)
liquidation, (ii) the receipt of income from assets that are not the type of
mortgages or investments that the REMIC Pool is permitted to hold, (iii) the
receipt of compensation for services or (iv) the receipt of gain from
disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction
to sell REMIC Pool property to prevent a default on Regular Certificates as a
result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination to save administrative costs when no more
than a small percentage of the Certificates is outstanding). The REMIC
Regulations indicate that the modification of a Mortgage Loan generally will
not be treated as a disposition if it is occasioned by a default or reasonably
foreseeable default, an assumption of the Mortgage Loan, the waiver of a due-
on-sale or due-on-encumbrance clause or the conversion of an interest rate by
a mortgagor pursuant to the terms of a convertible adjustable rate Mortgage
Loan.
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Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (i) during
the three months following the Startup Day, (ii) made to a qualified reserve
fund by a Residual Certificateholder, (iii) in the nature of a guarantee, (iv)
made to facilitate a qualified liquidation or clean-up call and (v) as
otherwise permitted in Treasury regulations yet to be issued.
Net Income from Foreclosure Property
The REMIC Pool will be 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. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period ending with the third calendar year
following the year of acquisition, with possible extensions of up to an
additional three years. 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.
It is not anticipated that the REMIC Pool will receive income or
contributions subject to tax under the preceding three paragraphs, except as
described in the applicable Prospectus Supplement with respect to net income
from foreclosure property on a commercial or multifamily residential property
that secured a Mortgage Loan. In addition, unless otherwise disclosed in the
applicable Prospectus Supplement, it is not anticipated that any material
state income or franchise tax will be imposed on a REMIC Pool.
Liquidation of the REMIC Pool
If a REMIC Pool adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC Pool's final tax return a date on which such adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on the date of the adoption of the plan of liquidation, the REMIC
Pool will not be subject to the prohibited transaction rules on the sale of
its assets, provided that the REMIC Pool credits or distributes in liquidation
all of the sale proceeds plus its cash (other than amounts retained to meet
claims) to holders of Regular Certificates and Residual Certificateholders
within the 90-day period.
Administrative Matters
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes
in a manner similar to a partnership. The form for such income tax return is
Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. The
Trustee will be required to sign the REMIC Pool's returns. Treasury
regulations provide that, except where there is a single Residual
Certificateholder for an entire taxable year, the REMIC Pool will be subject
to the procedural and administrative rules of the Code applicable to
partnerships, including the determination by the Service of any adjustments
to, among other things, items of REMIC income, gain, loss, deduction or credit
in a unified administrative proceeding. The Residual Certificateholder owning
the largest percentage interest in the Residual Certificates will be obligated
to act as "tax matters person", as defined in applicable Treasury regulations,
with respect to the REMIC Pool. Each Residual Certificateholder will be
deemed, by acceptance of such Residual Certificates, to have agreed (i) to the
appointment of the tax matters person as provided in the preceding sentence
and (ii) to the irrevocable designation of the Master Servicer as agent for
performing the functions of the tax matters person.
Limitations on Deduction of Certain Expenses
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code
Section 67, to the extent that such itemized deductions, in the aggregate, do
not exceed 2% of the investor's adjusted gross income. In addition, Code
Section 68 provides that itemized deductions otherwise allowable for a taxable
year of an individual taxpayer will be reduced by the lesser of (i)
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3% of the excess, if any, of adjusted gross income over $126,600 for the
taxable year beginning in 1999 ($63,300 in the case of a married individual
filing a separate return) (subject to adjustments for inflation in subsequent
years) or (ii) 80% of the amount of itemized deductions otherwise allowable
for such year. In the case of a REMIC Pool, such deductions may include
deductions under Code Section 212 for the servicing fee and all administrative
and other expenses relating to the REMIC Pool, or any similar expenses
allocated to the REMIC Pool with respect to a regular interest it holds in
another REMIC. Such investors who hold REMIC Certificates either directly or
indirectly through certain pass-through entities may have their pro rata share
of such expenses allocated to them as additional gross income, but may be
subject to such limitation on deductions. In addition, such expenses are not
deductible at all for purposes of computing the alternative minimum tax, and
may cause such investors to be subject to significant additional tax
liability. Temporary Treasury regulations provide that the additional gross
income and corresponding amount of expenses generally are to be allocated
entirely to the holders of Residual Certificates in the case of a REMIC Pool
that would not qualify as a fixed investment trust in the absence of a REMIC
election. However, such additional gross income and limitation on deductions
will apply to the allocable portion of such expenses to holders of Regular
Certificates, as well as holders of Residual Certificates, where such Regular
Certificates are issued in a manner that is similar to pass-through
certificates in a fixed investment trust. In general, such allocable portion
will be determined based on the ratio that a REMIC Certificateholder's income,
determined on a daily basis, bears to the income of all holders of Regular
Certificates and Residual Certificates with respect to a REMIC Pool. As a
result, individuals, estates or trusts holding REMIC Certificates (either
directly or indirectly through a grantor trust, partnership, S corporation,
REMIC, or certain other pass-through entities described in the foregoing
temporary Treasury regulations) may have taxable income in excess of the
interest income at the pass-through rate on Regular Certificates that are
issued in a single Class or otherwise consistently with fixed investment trust
status or in excess of cash distributions for the related period on Residual
Certificates. Unless otherwise indicated in the applicable Prospectus
Supplement, all such expenses will be allocable to the Residual Certificates.
Taxation of Certain Foreign Investors
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered "portfolio interest"
and, therefore, generally will not be subject to 30% United States withholding
tax, provided that such Non-U.S. Person (i) is not a "10-percent shareholder"
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign
corporation described in Code Section 881(c)(3)(C) and (ii) provides the
Trustee, or the person who would otherwise be required to withhold tax from
such distributions under Code Section 1441 or 1442, with an appropriate
statement, signed under penalties of perjury, identifying the beneficial owner
and stating, among other things, that the beneficial owner of the Regular
Certificate is a Non-U.S. Person. If such statement, or any other required
statement, is not provided, 30% withholding will apply unless reduced or
eliminated pursuant to an applicable tax treaty or unless the interest on the
Regular Certificate is effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Person. In the latter case,
such Non-U.S. Person will be subject to United States federal income tax at
regular rates. Prepayment Premiums distributable to Regular Certificateholders
who are Non-U.S. Persons may be subject to 30% United States withholding tax.
Investors who are Non-U.S. Persons should consult their own tax advisors
regarding the specific tax consequences to them of owning a Regular
Certificate. The term "Non-U.S. Person" means any person who is not a U.S.
Person.
Final withholding regulations (the "New Regulations") affect the
documentation required from non-U.S. Persons having validly existing IRS
Forms, such as IRS Forms W-8, 1001 or 4224. The New Regulations, which will be
effective January 1, 2001, will replace a number of current tax certification
forms (including IRS Forms W-8, 1001 and 4224, as discussed above) with a new
series of IRS Forms W-8 and generally will standardize the period of time for
which withholding agents can rely on such forms (although certain of the new
forms may remain valid indefinitely if a Regular Certificateholder provides a
United States taxpayer identification number and the information on the form
does not change). Existing forms and statements will remain valid until the
earlier of their expiration or December 31, 2000.
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Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts paid
to Residual Certificateholders who are Non-U.S. Persons are treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Certificateholders may qualify as "portfolio interest", subject to
the conditions described in "Regular Certificates" above, but only to the
extent that (i) the Mortgage Loans (including mortgage loans underlying MBS)
were issued after July 18, 1984 and (ii) the Trust Fund or segregated pool of
assets therein (as to which a separate REMIC election will be made), to which
the Residual Certificate relates, consists of obligations issued in
"registered form" within the meaning of Code Section 163(f)(1). Generally,
whole mortgage loans will not be, but MBS and regular interests in another
REMIC Pool will be, considered obligations issued in registered form.
Furthermore, a Residual Certificateholder will not be entitled to any
exemption from the 30% withholding tax (or lower treaty rate) to the extent of
that portion of REMIC taxable income that constitutes an "excess inclusion".
See "Taxation of Residual Certificates--Limitations on Offset or Exemption of
REMIC Income". If the amounts paid to Residual Certificateholders who are Non-
U.S. Persons are effectively connected with the conduct of a trade or business
within the United States by such Non-U.S. Persons, 30% (or lower treaty rate)
withholding will not apply. Instead, the amounts paid to such Non-U.S. Persons
will be subject to United States federal income tax at regular rates. If 30%
(or lower treaty rate) withholding is applicable, such amounts generally will
be taken into account for purposes of withholding only when paid or otherwise
distributed (or when the Residual Certificate is disposed of) under rules
similar to withholding upon disposition of debt instruments that have original
issue discount. See "Tax-Related Restrictions on Transfer of Residual
Certificates--Foreign Investors" above concerning the disregard of certain
transfers having "tax avoidance potential". Investors who are Non-U.S. Persons
should consult their own tax advisors regarding the specific tax consequences
to them of owning Residual Certificates.
Backup Withholding
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and,
under certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to
the Trustee, its agent or the broker who effected the sale of the Regular
Certificate, or such Certificateholder is otherwise an exempt recipient under
applicable provisions of the Code. Any amounts to be withheld from
distribution on the Regular Certificates would be refunded by the Service or
allowed as a credit against the Regular Certificateholder's federal income tax
liability.
Reporting Requirements
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of any market discount on the Regular
Certificates will be made annually to the Service and to individuals, estates,
non-exempt and non-charitable trusts, and partnerships who are either holders
of record of Regular Certificates or beneficial owners who own Regular
Certificates through a broker or middleman as nominee. All brokers, nominees
and all other non-exempt holders of record of Regular Certificates (including
corporations, non-calendar year taxpayers, securities or commodities dealers,
real estate investment trusts, investment companies, common trust funds,
thrift institutions and charitable trusts) may request such information for
any calendar quarter by telephone or in writing by contacting the person
designated in Service Publication 938 with respect to a particular Series of
Regular Certificates. Holders through nominees must request such information
from the nominee.
The Service's Form 1066 has an accompanying Schedule Q, Quarterly Notice to
Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC Pool to
each Residual Certificateholder by the end of the month following the close of
each calendar quarter (41 days after the end of a quarter under proposed
Treasury regulations) in which the REMIC Pool is in existence.
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Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the Service concerning Code Section 67
expenses (see "Limitations on Deduction of Certain Expenses" above) allocable
to such holders. Furthermore, under such regulations, information must be
furnished quarterly to Residual Certificateholders, furnished annually to
holders of Regular Certificates, and filed annually with the Service
concerning the percentage of the REMIC Pool's assets meeting the qualified
asset tests described above under "Status of REMIC Certificates".
Federal Income Tax Consequences For Certificates as to Which No REMIC Election
Is Made
Standard Certificates
General
In the event that no election is made to treat a Trust Fund (or a segregated
pool of assets therein) with respect to a series of Certificates that are not
designated as "Stripped Certificates", as described below, as a REMIC
(Certificates of such a series hereinafter referred to as "Standard
Certificates"), the Trust Fund will be classified as a grantor trust under
subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of
Code Section 7701(i). Where there is no fixed retained yield with respect to
the Mortgage Loans underlying the Standard Certificates, the holder of each
such Standard Certificate (a "Standard Certificateholder") in such series will
be treated as the owner of a pro rata undivided interest in the ordinary
income and corpus portions of the Trust Fund represented by its Standard
Certificate and will be considered the beneficial owner of a pro rata
undivided interest in each of the Mortgage Loans, subject to the discussion
below under "Recharacterization of Servicing Fees". Accordingly, the holder of
a Standard Certificate of a particular series will be required to report on
its federal income tax return its pro rata share of the entire income from the
Mortgage Loans represented by its Standard Certificate, including interest at
the coupon rate on such Mortgage Loans, original issue discount (if any),
prepayment fees, assumption fees, and late payment charges received by the
Master Servicer, in accordance with such Standard Certificateholder's method
of accounting. A Standard Certificateholder generally will be able to deduct
its share of the servicing fee and all administrative and other expenses of
the Trust Fund in accordance with its method of accounting, provided that such
amounts are reasonable compensation for services rendered to that Trust Fund.
However, investors who are individuals, estates or trusts who own Standard
Certificates, either directly or indirectly through certain pass-through
entities, will be subject to limitation with respect to certain itemized
deductions described in Code Section 67, including deductions under Code
Section 212 for the servicing fee and all such administrative and other
expenses of the Trust Fund, to the extent that such deductions, in the
aggregate, do not exceed two percent of an investor's adjusted gross income.
In addition, Code Section 68 provides that itemized deductions otherwise
allowable for a taxable year of an individual taxpayer will be reduced by the
lesser of (i) 3% of the excess, if any, of adjusted gross income over $124,500
for the taxable year beginning in 1998 ($62,250 in the case of a married
individual filing a separate return) (subject to adjustments for inflation in
subsequent years), or (ii) 80% of the amount of itemized deductions otherwise
allowable for such year. As a result, such investors holding Standard
Certificates, directly or indirectly through a pass-through entity, may have
aggregate taxable income in excess of the aggregate amount of cash received on
such Standard Certificates with respect to interest at the pass-through rate
on such Standard Certificates. In addition, such expenses are not deductible
at all for purposes of computing the alternative minimum tax, and may cause
such investors to be subject to significant additional tax liability.
Moreover, where there is fixed retained yield with respect to the Mortgage
Loans underlying a series of Standard Certificates or where the servicing fee
is in excess of reasonable servicing compensation, the transaction will be
subject to the application of the "stripped bond" and "stripped coupon" rules
of the Code, as described below under "Stripped Certificates" and
"Recharacterization of Servicing Fees", respectively.
Tax Status
Standard Certificates will have the following status for federal income tax
purposes:
1. A Standard Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be
considered to represent "loans...... secured by an interest in real property
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which is..... residential real property'' within the meaning of Code Section
7701(a)(19)(C)(v), provided that the real property securing the Mortgage
Loans represented by that Standard Certificate is of the type described in
such section of the Code.
2. A Standard Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code
Section 856(c)(4)(A) to the extent that the assets of the related Trust
Fund consist of qualified assets, and interest income on such assets will
be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
3. A Standard Certificate owned by a REMIC will be considered to
represent an "obligation..... which is principally secured by an interest in
real property'' within the meaning of Code Section 860G(a)(3)(A) to the
extent that the assets of the related Trust Fund consist of ""qualified
mortgages'' within the meaning of Code Section 860G(a)(3).
Premium and Discount
Standard Certificateholders are advised to consult with their tax advisors
as to the federal income tax treatment of premium and discount arising either
upon initial acquisition of Standard Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a Standard
Certificate will be determined generally as described above under "Certain
Federal Income Tax Consequences for REMIC Certificates--Taxation of Residual
Certificates--Treatment of Certain Items of REMIC Income and Expense--
Premium".
Original Issue Discount. The original issue discount rules will be
applicable to a Standard Certificateholder's interest in those Mortgage Loans
as to which the conditions for the application of those sections are met.
Rules regarding periodic inclusion of original issue discount income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984.
Under the OID Regulations, such original issue discount could arise by the
charging of points by the originator of the mortgages in an amount greater
than a statutory de minimis exception, including a payment of points currently
deductible by the borrower under applicable Code provisions or, under certain
circumstances, by the presence of "teaser rates" on the Mortgage Loans.
Original issue discount must generally be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
Unless indicated otherwise in the applicable Prospectus Supplement, no
prepayment assumption will be assumed for purposes of such accrual. However,
Code Section 1272 provides for a reduction in the amount of original issue
discount includible in the income of a holder of an obligation that acquires
the obligation after its initial issuance at a price greater than the sum of
the original issue price and the previously accrued original issue discount,
less prior payments of principal. Accordingly, if such Mortgage Loans acquired
by a Standard Certificateholder are purchased at a price equal to the then
unpaid principal amount of such Mortgage Loans, no original issue discount
attributable to the difference between the issue price and the original
principal amount of such Mortgage Loans (i.e., points) will be includible by
such holder.
Market Discount. Standard Certificateholders also will be subject to the
market discount rules to the extent that the conditions for application of
those sections are met. Market discount on the Mortgage Loans will be
determined and will be reported as ordinary income generally in the manner
described above under "Certain Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Market Discount", except that
the ratable accrual methods described therein will not apply and it is unclear
whether a Prepayment Assumption would apply. Rather, the holder will accrue
market discount pro rata over the life of the Mortgage Loans, unless the
constant yield method is elected. Unless indicated otherwise in the applicable
Prospectus Supplement, no prepayment assumption will be assumed for purposes
of such accrual.
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Recharacterization of Servicing Fees. If the servicing fee paid to the
Master Servicer were deemed to exceed reasonable servicing compensation, the
amount of such excess would represent neither income nor a deduction to
Certificateholders. In this regard, there are no authoritative guidelines for
federal income tax purposes as to either the maximum amount of servicing
compensation that may be considered reasonable in the context of this or
similar transactions or whether, in the case of the Standard Certificate, the
reasonableness of servicing compensation should be determined on a weighted
average or loan-by-loan basis. If a loan-by-loan basis is appropriate, the
likelihood that such amount would exceed reasonable servicing compensation as
to some of the Mortgage Loans would be increased. Service guidance indicates
that a servicing fee in excess of reasonable compensation ("excess servicing")
will cause the Mortgage Loans to be treated under the "stripped bond" rules.
Such guidance provides safe harbors for servicing deemed to be reasonable and
requires taxpayers to demonstrate that the value of servicing fees in excess
of such amounts is not greater than the value of the services provided.
Accordingly, if the Service's approach is upheld, a servicer who receives a
servicing fee in excess of such amounts would be viewed as retaining an
ownership interest in a portion of the interest payments on the Mortgage
Loans. Under the rules of Code Section 1286, the separation of ownership of
the right to receive some or all of the interest payments on an obligation
from the right to receive some or all of the principal payments on the
obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds". Subject to the de minimis rule discussed below
under "--Stripped Certificates", each stripped bond or stripped coupon could
be considered for this purpose as a non-interest bearing obligation issued on
the date of issue of the Standard Certificates, and the original issue
discount rules of the Code would apply to the holder thereof. While Standard
Certificateholders would still be treated as owners of beneficial interests in
a grantor trust for federal income tax purposes, the corpus of such trust
could be viewed as excluding the portion of the Mortgage Loans the ownership
of which is attributed to the Master Servicer, or as including such portion as
a second class of equitable interest. Applicable Treasury regulations treat
such an arrangement as a fixed investment trust, since the multiple classes of
trust interests should be treated as merely facilitating direct investments in
the trust assets and the existence of multiple classes of ownership interests
is incidental to that purpose. In general, such a recharacterization should
not have any significant effect upon the timing or amount of income reported
by a Standard Certificateholder, except that the income reported by a cash
method holder may be slightly accelerated. See "Stripped Certificates" below
for a further description of the federal income tax treatment of stripped
bonds and stripped coupons.
Sale or Exchange of Standard Certificates. Upon sale or exchange of a
Standard Certificate, a Standard Certificateholder will recognize gain or loss
equal to the difference between the amount realized on the sale and its
aggregate adjusted basis in the Mortgage Loans and the other assets
represented by the Standard Certificate. In general, the aggregate adjusted
basis will equal the Standard Certificateholder's cost for the Standard
Certificate, increased by the amount of any income previously reported with
respect to the Standard Certificate and decreased by the amount of any losses
previously reported with respect to the Standard Certificate and the amount of
any distributions received thereon. Except as provided above with respect to
market discount on any Mortgage Loans, and except for certain financial
institutions subject to the provisions of Code Section 582(c), any such gain
or loss would be capital gain or loss if the Standard Certificate was held as
a capital asset. However, gain on the sale of a Standard Certificate will be
treated as ordinary income (i) if a Standard Certificate is held as part of a
"conversion transaction" as defined in Code Section 1258(c), up to the amount
of interest that would have accrued on the Standard Certificateholder's net
investment in the conversion transaction at 120% of the appropriate applicable
Federal rate in effect at the time the taxpayer entered into the transaction
minus any amount previously treated as ordinary income with respect to any
prior disposition of property that was held as a part of such transaction or
(ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxed
as investment income at ordinary income rates. Capital gains of certain non-
corporate taxpayers are subject to a lower maximum tax rate (28%) than
ordinary income of such taxpayers (39.6%) for property held for more than one
year but not more than 18 months, and a still lower maximum rate (20%) for
property held for more than 18 months. The maximum tax rate for corporations
is the same with respect to both ordinary income and capital gains.
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Stripped Certificates
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates that are subject to those rules will be referred to as "Stripped
Certificates". Stripped Certificates include "Stripped Interest Certificates"
and "Stripped Principal Certificates" (as defined in this Prospectus) as to
which no REMIC election is made.
The Certificates will be subject to those rules if (i) the Depositor or any
of its affiliates retains (for its own account or for purposes of resale), in
the form of fixed retained yield or otherwise, an ownership interest in a
portion of the payments on the Mortgage Loans, (ii) the Master Servicer is
treated as having an ownership interest in the Mortgage Loans to the extent it
is paid (or retains) servicing compensation in an amount greater than
reasonable consideration for servicing the Mortgage Loans (see "Standard
Certificates--Recharacterization of Servicing Fees" above) and (iii)
Certificates are issued in two or more classes or subclasses representing the
right to non-pro-rata percentages of the interest and principal payments on
the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Mortgage Loan and/or "stripped coupons" with
respect to its pro rata share of all or a portion of the interest payments on
each Mortgage Loan, including the Stripped Certificate's allocable share of
the servicing fees paid to the Master Servicer, to the extent that such fees
represent reasonable compensation for services rendered. See discussion above
under "Standard Certificates--Recharacterization of Servicing Fees". Although
not free from doubt, for purposes of reporting to Stripped Certificateholders,
the servicing fees will be allocated to the Stripped Certificates in
proportion to the respective entitlements to distributions of each class (or
subclass) of Stripped Certificates for the related period or periods. The
holder of a Stripped Certificate generally will be entitled to a deduction
each year in respect of the servicing fees, as described above under "Standard
Certificates--General", subject to the limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon as an
obligation issued at an original issue discount on the date that such stripped
interest is purchased. Although the treatment of Stripped Certificates for
federal income tax purposes is not clear in certain respects at this time,
particularly where such Stripped Certificates are issued with respect to a
Mortgage Pool containing variable-rate Mortgage Loans, the Depositor has been
advised by counsel that (i) the Trust Fund will be treated as a grantor trust
under subpart E, Part 1 of subchapter J of the Code and not as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of
Code Section 7701(i), and (ii) each Stripped Certificate should be treated as
a single installment obligation for purposes of calculating original issue
discount and gain or loss on disposition. This treatment is based on the
interrelationship of Code Section 1286, Code Sections 1272 through 1275, and
the OID Regulations. While under Code Section 1286 computations with respect
to Stripped Certificates arguably should be made in one of the ways described
below under "Taxation of Stripped Certificates--Possible Alternative
Characterizations," the OID Regulations state, in general, that two or more
debt instruments issued by a single issuer to a single investor in a single
transaction should be treated as a single debt instrument for original issue
discount purposes. The Pooling Agreement requires that the Trustee make and
report all computations described below using this aggregate approach, unless
substantial legal authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992, assume that a
Stripped Certificate will be treated as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount
and that the interest component of such a Stripped Certificate would be
treated as qualified stated interest under the OID Regulations. Further
pursuant to these final regulations the purchaser of such a Stripped
Certificate will be required to account for any discount as market discount
rather than original issue discount unless either (i) the initial discount
with respect to the Stripped Certificate was treated as zero under the de
minimis rule of Code Section 1273(a)(3), or (ii) no more than 100 basis points
in excess of reasonable servicing
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is stripped off the related Mortgage Loans. Any such market discount would be
reportable as described under "Certain Federal Income Tax Consequences for
REMIC Certificates--Taxation of Regular Certificates--Market Discount,"
without regard to the de minimis rule therein, assuming that a prepayment
assumption is employed in such computation.
Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as
that of the Mortgage Loans. Although the issue is not free from doubt, counsel
has advised the Depositor that Stripped Certificates owned by applicable
holders should be considered to represent "real estate assets" within the
meaning of Code Section 856(c)(4)(A), "obligation[s] principally secured by an
interest in real property" within the meaning of Code Section 860G(a)(3)(A),
and "loans.............. secured by an interest in real property which is . . .
residential real property'' within the meaning of Code Section
7701(a)(19)(C)(v), and interest (including original issue discount) income
attributable to Stripped Certificates should be considered to represent
""interest on obligations secured by mortgages on real property'' within the
meaning of Code Section 856(c)(3)(B), provided that in each case the Mortgage
Loans and interest on such Mortgage Loans qualify for such treatment.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "General", each
Stripped Certificate will be considered to have been issued at an original
issue discount for federal income tax purposes. Original issue discount with
respect to a Stripped Certificate must be included in ordinary income as it
accrues, in accordance with a constant interest method that takes into account
the compounding of interest, which may be prior to the receipt of the cash
attributable to such income. Based in part on the OID Regulations and the
amendments to the original issue discount sections of the Code made by the
1986 Act, the amount of original issue discount required to be included in the
income of a holder of a Stripped Certificate (referred to in this discussion
as a "Stripped Certificateholder") in any taxable year likely will be computed
generally as described above under "Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Original Issue Discount" and
"--Variable Rate Regular Certificates". However, with the apparent exception
of a Stripped Certificate qualifying as a market discount obligation, as
described above under "General", the issue price of a Stripped Certificate
will be the purchase price paid by each holder thereof, and the stated
redemption price at maturity will include the aggregate amount of the
payments, other than qualified stated interest to be made on the Stripped
Certificate to such Stripped Certificateholder, presumably under the
Prepayment Assumption.
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition of
original issue discount will be either accelerated or decelerated and the
amount of such original issue discount will be either increased or decreased
depending on the relative interests in principal and interest on each Mortgage
Loan represented by such Stripped Certificateholder's Stripped Certificate.
While the matter is not free from doubt, the holder of a Stripped Certificate
should be entitled in the year that it becomes certain (assuming no further
prepayments) that the holder will not recover a portion of its adjusted basis
in such Stripped Certificate to recognize an ordinary loss equal to such
portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not be
made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of
contingent interest, are by their terms not applicable to prepayable
securities such as the Stripped Certificates. However, if final regulations
dealing with contingent interest with respect to the Stripped Certificates
apply the same principles as the OID Regulations, such regulations may lead to
different timing of income inclusion that would be the case under the OID
Regulations. Furthermore, application of such principles could lead to the
characterization of gain on the sale of contingent interest Stripped
Certificates as ordinary income. Investors should consult their tax advisors
regarding the appropriate tax treatment of Stripped Certificates.
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Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "Certain Federal Income Tax Consequences for REMIC Certificates--
Taxation of Regular Certificates--Sale or Exchange of Regular Certificates".
To the extent that a subsequent purchaser's purchase price is exceeded by the
remaining payments on the Stripped Certificates, such subsequent purchaser
will be required for federal income tax purposes to accrue and report such
excess as if it were original issue discount in the manner described above. It
is not clear for this purpose whether the assumed prepayment rate that is to
be used in the case of a Stripped Certificateholder other than an original
Stripped Certificateholder should be the Prepayment Assumption or a new rate
based on the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. Where an investor
purchases more than one class of Stripped Certificates, it is currently
unclear whether for federal income tax purposes such classes of Stripped
Certificates should be treated separately or aggregated for purposes of the
rules described above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible
interpretations of the applicable Code provisions. For example, the Stripped
Certificateholder may be treated as the owner of (i) one installment
obligation consisting of such Stripped Certificate's pro rata share of the
payments attributable to principal on each Mortgage Loan and a second
installment obligation consisting of such Stripped Certificate's pro rata
share of the payments attributable to interest on each Mortgage Loan, (ii) as
many stripped bonds or stripped coupons as there are scheduled payments of
principal and/or interest on each Mortgage Loan or (iii) a separate
installment obligation for each Mortgage Loan, representing the Stripped
Certificate's pro rata share of payments of principal and/or interest to be
made with respect thereto. Alternatively, the holder of one or more classes of
Stripped Certificates may be treated as the owner of a pro rata fractional
undivided interest in each Mortgage Loan to the extent that such Stripped
Certificate, or classes of Stripped Certificates in the aggregate, represent
the same pro rata portion of principal and interest on each such Mortgage
Loan, and a stripped bond or stripped coupon (as the case may be), treated as
an installment obligation or contingent payment obligation, as to the
remainder. Final regulations issued on December 28, 1992 regarding original
issue discount on stripped obligations make the foregoing interpretations less
likely to be applicable. The preamble to those regulations states that they
are premised on the assumption that an aggregation approach is appropriate for
determining whether original issue discount on a stripped bond or stripped
coupon is de minimis, and solicits comments on appropriate rules for
aggregating stripped bonds and stripped coupons under Code Section 1286.
Because of these possible varying characterizations of Stripped Certificates
and the resultant differing treatment of income recognition, Stripped
Certificateholders are urged to consult their own tax advisors regarding the
proper treatment of Stripped Certificates for federal income tax purposes.
Federal Income Tax Consequences for FASIT Certificates
If and to the extent set forth in the Prospectus Supplement relating to a
particular Series of Certificates, an election may be made to treat the
related Trust Fund or one or more segregated pools of assets therein as one or
more financial asset securitization investment trusts ("FASITs") within the
meaning of Code Section 860L(a). Qualification as a FASIT requires ongoing
compliance with certain conditions. With respect to each series of FASIT
Certificates, O'Melveny & Myers LLP, counsel to the Depositor, will advise the
Depositor that in the firm's opinion, assuming (i) the making of such an
election, (ii) compliance with the Pooling Agreement and (iii) compliance with
any changes in the law, including any amendments to the Code or applicable
Treasury Regulations thereunder, each FASIT Pool will qualify as a FASIT. In
such case, the Regular Certificates will be considered to be "regular
interests" in the FASIT and will be treated for federal income tax purposes as
if they were newly originated debt instruments, and the Residual Certificate
will be considered the "ownership interest"
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in the FASIT Pool. The Prospectus Supplement for each series of Certificates
will indicate whether one or more FASIT elections will be made with respect to
the related Trust Fund.
FASIT treatment has become available pursuant to recently enacted
legislation, and no Treasury Regulations have as yet been issued detailing the
circumstances under which a FASIT election may be made or the consequences of
such an election. If a FASIT election is made with respect to any Trust Fund
or as to any segregated pool of assets therein, the related Prospectus
Supplement will describe the Federal income tax consequences of such election.
Reporting Requirements and Backup Withholding
The Trustee will furnish, within a reasonable time after the end of each
calendar year, to each Standard Certificateholder or Stripped
Certificateholder at any time during such year, such information (prepared on
the basis described above) as the Trustee deems to be necessary or desirable
to enable such Certificateholders to prepare their federal income tax returns.
Such information will include the amount of original issue discount accrued on
Certificates held by persons other than Certificateholders exempted from the
reporting requirements. The amounts required to be reported by the Trustee may
not be equal to the proper amount of original issue discount required to be
reported as taxable income by a Certificateholder, other than an original
Certificateholder that purchased at the issue price. In particular, in the
case of Stripped Certificates, unless provided otherwise in the applicable
Prospectus Supplement, such reporting will be based upon a representative
initial offering price of each class of Stripped Certificates. The Trustee
will also file such original issue discount information with the Service. If a
Certificateholder fails to supply an accurate taxpayer identification number
or if the Secretary of the Treasury determines that a Certificateholder has
not reported all interest and dividend income required to be shown on his
federal income tax return, 31% backup withholding may be required in respect
of any reportable payments, as described above under "Certain Federal Income
Tax Consequences for REMIC Certificates--Backup Withholding".
Taxation of Certain Foreign Investors
To the extent that a Certificate evidences ownership in Mortgage Loans that
are issued on or before July 18, 1984, interest or original issue discount
paid by the person required to withhold tax under Code Section 1441 or 1442 to
nonresident aliens, foreign corporations, or other Non-U.S. Persons generally
will be subject to 30% United States withholding tax, or such lower rate as
may be provided for interest by an applicable tax treaty. Accrued original
issue discount recognized by the Standard Certificateholder or Stripped
Certificateholder on original issue discount recognized by the Standard
Certificateholder or Stripped Certificateholders on the sale or exchange of
such a Certificate also will be subject to federal income tax at the same
rate.
Treasury regulations provide that interest or original issue discount paid
by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will
be subject to the same certification requirements, described above under
"Certain Federal Income Tax Consequences for REMIC Certificates--Taxation of
Certain Foreign Investors--Regular Certificates".
STATE AND OTHER TAX CONSIDERATIONS
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 own tax
advisors with respect to the various tax consequences of investments in the
Offered Certificates.
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ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain requirements on employee benefit
plans, and on certain other retirement plans and arrangements, including
individual retirement accounts and annuities, Keogh plans, collective
investment funds, insurance company separate accounts and some insurance
company general accounts in which such plans, accounts or arrangements are
invested (all of which are hereinafter referred to as "Plans"), and on persons
who are fiduciaries with respect to Plans in connection with the investment of
Plan assets.
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, ERISA and the Code prohibit a broad
range of transactions involving assets of a Plan and persons ("Parties in
Interest") who have certain specified relationships to the Plan, unless a
statutory or administrative exemption is available. Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax
imposed pursuant to Section 4975 of the Code, 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. Special
caution should be exercised before the assets of a Plan are used to purchase a
Certificate if, with respect to such assets, the Depositor, the Master
Servicer, a Special Servicer or any Sub-Servicer or the Trustee or an
affiliate thereof, either: (a) has discretionary authority or control with
respect to the investment of such assets of such Plan; or (b) has authority or
responsibility to give, or regularly gives, investment advice with respect to
such assets of such Plan for a fee and pursuant to an agreement or
understanding that such advice will serve as a primary basis for investment
decisions with respect to such assets and that such advice will be based on
the particular investment needs of the Plan.
Before purchasing any Offered Certificates, a Plan fiduciary should consult
with its counsel and determine whether there exists any prohibition to such
purchase under the requirements of ERISA, whether any prohibited transaction
class exemption or any individual prohibited transaction exemption (as
described below) applies, including whether the appropriate conditions set
forth therein would be met, or whether any statutory prohibited transaction
exemption is applicable, and further should consult the applicable Prospectus
Supplement relating to such Series of Certificates.
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 governmental and
church 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.
Plan Asset Regulations
A Plan's investment in Offered Certificates may cause the Trust Assets to be
deemed Plan assets. Section 2510.3-101 of the regulations ("Plan Asset
Regulations") of the United States Department of Labor ("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 to
this discussion apply, or unless the equity participation in the entity by
"benefit plan investors" (that is, Plans, certain employee benefit plans not
subject to ERISA, and entities whose underlying assets include plan assets) is
not "significant". For this purpose, the Plan Asset Regulations provide, in
general, that participation in an entity, such as a Trust Fund, is
"significant" if, immediately after the most recent acquisition of any equity
interest, 25% or more of any class of equity interests, such as Certificates,
is held by benefit plan investors. Unless restrictions on ownership of and
transfer to Plans apply with respect to a Series of Certificates, there can be
no assurance that benefit plan investors will not own at least 25% of a class
of Certificates.
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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 Trust Assets constitute Plan assets, then any party
exercising management or discretionary control regarding those assets, such as
a Master Servicer, a Special Servicer or any Sub-Servicer, may be deemed to be
a Plan "fiduciary" with respect to the investing Plan, and thus subject to the
fiduciary responsibility provisions and prohibited transaction provisions of
ERISA and the Code. In addition, if the Trust Assets constitute Plan assets,
the purchase of Certificates by a Plan, as well as the operation of the Trust
Fund, may constitute or involve one or more prohibited transactions under
ERISA and the Code.
Administrative Exemptions
Several underwriters of mortgage-backed securities have applied for and
obtained from DOL individual prohibited transaction exemptions that apply to
the purchase and holding of mortgage-backed securities which, among other
conditions, are sold in an offering with respect to which such underwriter
serves as the sole or a managing underwriter or as a selling or placement
agent. If such an exemption may be applicable to a Series of Certificates, the
related Prospectus Supplement will refer to such possibility, as well as
provide a summary of the conditions to the exemption's applicability.
Unrelated Business Taxable Income; Residual Certificates
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code
Section 501(a), including most varieties of ERISA plans, may give rise to
"unrelated business taxable income" as described in Code Sections 511-515 and
860E. Further, prior to the purchase of Residual Certificates, a prospective
transferee may be required to provide an affidavit to a transferor that it is
not, nor is it purchasing a Residual Certificate on behalf of, a "Disqualified
Organization," which term as defined above includes certain tax-exempt
entities not subject to Code Section 511 including certain governmental plans,
as discussed above under the caption "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates--Taxation
of Residual Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations."
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in prohibited transactions, it is particularly important
that potential investors who are Plan fiduciaries consult with their counsel
regarding the consequences under ERISA of their acquisition and ownership of
Certificates.
The sale of Certificates to an employee benefit 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 by any particular plan, or that this investment is appropriate for plans
generally or for any particular plan.
LEGAL INVESTMENT
The Offered Certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA"), only if so specified in the related Prospectus Supplement. The
appropriate characterization of those Certificates not qualifying as "mortgage
related securities" ("Non-SMMEA Certificates") under various legal investment
restriction, and thus the ability of investors subject to these restrictions
to purchase such 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 (i) are rated in one of
the two highest rating categories by one or more Rating Agencies, (ii) are
part of a series evidencing interests in a Trust Fund consisting of loans
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originated by certain types of Originators as specified in SMMEA and (iii) are
part of a series evidencing interests in a Trust Fund consisting of mortgage
loans each of which is secured by a first lien on (a) a single parcel of real
estate on which is located a residential and/or mixed residential and
commercial structure or (b) one or more parcels of real estate upon which are
located one or more commercial structures will be "mortgage related
securities" for purposes of SMMEA. As "mortgage related securities," such
classes will constitute legal investments, for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including
depository institutions, insurance companies, trustees 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
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 applicable law. Under SMMEA, a number of states
enacted legislation on or prior to the October 3, 1991 cut-off for such
enactments limiting to various extends 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, states are
authorized to enact legislation, on or before September 23, 2001, prohibiting
or restricting the purchase, holding or investment by state regulated entities
in 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. Accordingly,
the investors affected by such legislation 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. Section 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe. In
this connection, effective December 31, 1996, the Office of the Comptroller of
the Currency (the "OCC") has amended 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. ss.1.5 concerning "safety and
soundness" and retention of credit information), certain "Type IV securities,"
defined in 12 C.F.R. ss.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 Certificates will qualify as "commercial mortgage-related
securities," and thus as "Type IV securities," for investment by national
banks, federal credit unions should review NCUA Letter to Credit Unions No.
96, as modified by Letter to Credit Unions No. 108, which includes guidelines
to assist federal credit unions in making investment decisions for mortgage
related securities. The NCUA has adopted rules, codified as 12 C.F.R.
ss.ss.703.5(f)-(k), which prohibit federal credit unions from investing in
certain mortgage related securities (including securities such as certain
classes of the Offered Certificates), except under limited circumstances.
Effective January 1, 1998, the NCUA has amended its rules governing
investments by federal credit unions at 12 C.F.R. Part 703; the revised rules
will permit investments in "mortgage related securities" under certain limited
circumstances, but will prohibit investments in 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. (S) 703.140.
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All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Securities
Activities" dated January 28, 1992, as revised April 15, 1994 (the "Policy
Statement") of the Federal Financial Institutions Examination Council (the
"FFIEC"). The Policy Statement, which has been adopted by the Board of
Governors of the Federal Reserve System, the OCC, the Federal Depository
Insurance Company and the Office of Thrift Supervision, and by the NCUA (with
certain modifications), prohibits depository institutions from investing in
certain "high-risk mortgage securities" (including securities such as certain
classes of the Offered Certificates), except under limited circumstances, and
sets forth certain investment practices deemed to be unsuitable for regulated
institutions. On September 29, 1997, the FFEIC released for public comment a
proposed "Supervisory Policy Statement on Investment Securities and End-User
Derivatives Activities" (the "1997 Statement"), which would replace the Policy
Statement. As proposed, the 1997 Statement would delete the specific "high-
risk mortgage securities" tests, and substitute general guidelines which
depository institutions should follow in managing risks (including market,
credit, liquidity, operational (transactional), 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 class of
the Offered Certificates, as certain 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 class of
the 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 any class of Offered Certificates for legal investment
purposes, financial institution regulatory purposes, or other purposes, or as
to the ability of particular investors to purchase any class of Offered
Certificates under applicable legal investment restrictions. These
uncertainties (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the Offered
Certificates) may adversely affect the liquidity of any class of 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 own 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.
METHOD OF DISTRIBUTION
The Offered Certificates offered hereby and by Prospectus Supplements hereto
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
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a particular Series of Offered Certificates may be made through a combination
of two or more of these methods. Such methods are as follows:
1. by negotiated firm commitment underwriting and public offering by one
or more underwriters specified in the related Prospectus Supplement;
2. by placements through one or more placement agents specified in the
related Prospectus Supplement primarily with institutional investors and
dealers; and
3. through direct offerings by the Depositor.
If specified in the Prospectus Supplement relating to a Series of Offered
Certificates, the Depositor, any affiliate thereof or any other person or
persons specified therein (including Originators of Mortgage Loans) may
purchase some or all of one or more Classes of Offered Certificates of such
Series from the underwriter or underwriters or such other person or persons
specified in such Prospectus Supplement. Pursuant to this Prospectus and the
related Prospectus Supplement, such purchaser may thereafter from time to time
offer and sell some or all of such Certificates directly, or through one or
more underwriters to be designated at the time of the offering of such
Certificates, or through dealers (whether acting as agent or as principal) or
in such other manner as may be specified in the related Prospectus Supplement.
Such offering may be restricted in the manner specified in the related
Prospectus Supplement. Such transactions may be effected at market prices
prevailing at the time of sale, at negotiated prices or at fixed prices.
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 a particular Series of Offered Certificates
will be set forth in 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 the 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 Offered
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 (the "Securities Act").
It is anticipated that the underwriting agreement pertaining to the sale of
any series of Certificates will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all Offered Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that the Depositor will indemnify the several underwriters, and
each person, if any, who controls any such underwriter within the meaning of
Section 15 of the Securities Act, against certain civil liabilities, including
liabilities under the Securities Act, or will contribute to payments required
to be made in respect thereof.
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 offered hereby 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 in connection with
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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.
As to each series of Certificates, only those classes rated in an investment
grade rating category by any Rating Agency will be offered hereby. Any unrated
class may be initially retained by the Depositor, and may be sold by the
Depositor at any time to one or more institutional investors.
If and to the extent required by applicable law or regulation, this
Prospectus will be used by Bear, Stearns & Co. Inc., an affiliate of the
Depositor, in connection with offers and sales related to market-making
transactions in the Offered Certificates previously offered hereunder in
transactions in which Bear, Stearns & Co. Inc. acts as principal. Bear,
Stearns & Co. Inc. may also act as agent in such transactions. Sales may be
made at negotiated prices determined at the time of sale.
LEGAL MATTERS
The validity of the Certificates of each series will be passed upon for the
Depositor by O'Melveny & Myers LLP, New York, New York.
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.
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 in extreme cases might fail to recoup their
initial investments.
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.
109
<PAGE>
Index of Significant Definitions
<TABLE>
<S> <C>
1986 Act.......................................................... 79
1997 Statement.................................................... 105
A
Accrual Certificates.............................................. 13, 40
Accrued Certificate Interest...................................... 40
ADA............................................................... 74
ARM Loans......................................................... 31
Asset Conservation Act............................................ 71
B
Book-Entry Certificates........................................... 15, 39
call risk......................................................... 18, 36
capital asset..................................................... 84
C
Cash Flow Agreement............................................... 11, 32
Cash Flow Agreements.............................................. 1
CERCLA............................................................ 23, 71
Certificate....................................................... 47
Certificate Account............................................... 11, 32, 50
Certificate Balance............................................... 2, 12
Certificate Owner................................................. 15, 45
Certificateholders................................................ 2
Certificates...................................................... 9
Code.............................................................. 15, 76
commercial mortgage-related securities............................ 105
Commercial Properties............................................. 10, 26
Commission........................................................ 3
Companion Class................................................... 14, 41
Controlled Amortization Class..................................... 14, 41
Cooperatives...................................................... 26
CPR............................................................... 35
Credit Support.................................................... 1, 11, 32
Crime Control Act................................................. 74
Cut-Off Date...................................................... 13
D
Debt Service Coverage Ratio....................................... 29
defective obligation.............................................. 78
Definitive Certificates........................................... 15, 39
Depositor......................................................... 26
Determination Date................................................ 33, 40
Direct Participants............................................... 45
Disqualified Organization......................................... 90
Distribution Date................................................. 13
Distribution Date Statement....................................... 43
DOL............................................................... 103
DTC............................................................... 3, 15, 39, 45
Due Dates......................................................... 30
Due Period........................................................ 33
</TABLE>
110
<PAGE>
<TABLE>
<S> <C>
E
EPA.................................................................... 71
Equity Participation................................................... 30
ERISA.................................................................. 15, 102
Events of Default...................................................... 58
excess inclusion....................................................... 24
Exchange Act........................................................... 3
extension risk......................................................... 18, 36
F
FAMC................................................................... 10
FASIT.................................................................. 76
FASITs................................................................. 101
FFIEC.................................................................. 105
FHLMC.................................................................. 10
FNMA................................................................... 10
Foreign Investors...................................................... 90
G
Garn Act............................................................... 72
GNMA................................................................... 10
I
Indirect Participants.................................................. 45
Insurance and Condemnation Proceeds.................................... 51
L
L/C Bank............................................................... 62
Limitations on Deduction of Certain Expenses........................... 95
Liquidation Proceeds................................................... 51
Loan-to-Value Ratio.................................................... 29
Lock-out Date.......................................................... 30
Lock-out Period........................................................ 30
M
Mark-to-Market Regulations............................................. 92
Master Servicer........................................................ 3, 9
MBS.................................................................... 1, 25
MBS Agreement.......................................................... 31
MBS Issuer............................................................. 31
MBS Servicer........................................................... 31
MBS Trustee............................................................ 31
Mortgage Asset Pool.................................................... 1
Mortgage Asset Seller.................................................. 26
Mortgage Assets........................................................ 26
Mortgage Loans......................................................... 1, 9, 25
Mortgage Notes......................................................... 26
Mortgage Rate.......................................................... 10, 30
mortgage related securities............................................ 16, 104
mortgage related security.............................................. 105
Mortgaged Properties................................................... 26
Mortgaged Property..................................................... 1
mortgagee-in-possession................................................ 54
Mortgages.............................................................. 26
Multifamily Properties................................................. 9, 26
</TABLE>
111
<PAGE>
<TABLE>
<S> <C>
N
Net Leases............................................................... 29
net of expense........................................................... 29
Net Operating Income..................................................... 29
noneconomic residual interest............................................ 90
Nonrecoverable Advance................................................... 42
Non-SMMEA Certificates................................................... 104
Non-U.S. Person.......................................................... 94
Notional Amount.......................................................... 12, 40
numerous obligors........................................................ 105
O
OCC...................................................................... 105
Offered Certificates..................................................... 1
OID Regulations.......................................................... 79
operator................................................................. 54
Original Issue Discount.................................................. 84
Originator............................................................... 26
P
PAC...................................................................... 36
Participants............................................................. 25, 45
Parties in Interest...................................................... 103
Pass-Through Entity...................................................... 89
Pass-Through Rate........................................................ 2, 12
Permitted Investments.................................................... 50
Plan Asset Regulations................................................... 103
Plans.................................................................... 102
Policy Statement......................................................... 105
Pooling Agreement........................................................ 12, 47
portfolio interest....................................................... 94
prepayment............................................................... 35
Prepayment Assumption.................................................... 80
Prepayment Interest Shortfall............................................ 33
Prepayment Premium....................................................... 30
Prospectus Supplement.................................................... 1
PRPs..................................................................... 71
R
Random Lot Certificates.................................................. 79
Rating Agency............................................................ 16
real estate mortgage investment conduit.................................. 2
real estate mortgage investment conduits................................. 15
Record Date.............................................................. 40
Regular Certificateholder................................................ 79
Regular Certificates..................................................... 76
Related Proceeds......................................................... 42
Relief Act............................................................... 73
REMIC.................................................................... 2, 15
REMIC Certificates....................................................... 76
REMIC Pool............................................................... 76
REMIC Regulations........................................................ 76
REO Property............................................................. 49
Residual Certificateholders.............................................. 86
</TABLE>
112
<PAGE>
<TABLE>
<S> <C>
Residual Certificates.................................................. 76
RICO................................................................... 74
S
SBJPA of 1996.......................................................... 77
Section 42 Properties.................................................. 21
Securities Act......................................................... 107
Senior Certificates.................................................... 12, 39
Series................................................................. 1
Service................................................................ 78
Servicing Standard..................................................... 49
SMMEA.................................................................. 16, 104
SPA.................................................................... 35
Special Servicer....................................................... 3, 9, 50
Standard Certificateholder............................................. 96
Standard Certificates.................................................. 96
Stripped Certificateholder............................................. 100
Stripped Certificates.................................................. 96, 98
Stripped Interest Certificates......................................... 12, 39
Stripped Principal Certificates........................................ 12, 39
Subordinate Certificates............................................... 12, 39
Sub-Servicer........................................................... 49
Sub-Servicing Agreement................................................ 49
superlien.............................................................. 71
super-premium.......................................................... 80
T
TAC.................................................................... 36
Title V................................................................ 73
Treasury............................................................... 76
Trust Assets........................................................... 2
Trust Fund............................................................. 1
Trustee................................................................ 3, 9
U
UCC.................................................................... 64
U.S. Person............................................................ 91
V
Voting Rights.......................................................... 44
W
Warranting Party....................................................... 48
</TABLE>
113
<PAGE>
This diskette contains one spreadsheet file (the "Spreadsheet File") that
can be put on a user-specified hard drive or network drive. The Spreadsheet
File "BSC99CLF1.XLS" is a Microsoft Excel,/1/ Version 5.0 spreadsheet. The
Spreadsheet File provides, in electronic format, all of the information shown
in Annex A of the Prospectus Supplement dated August 3, 1999 (the "Prospectus
Supplement"). The information contained in this diskette appears elsewhere in
paper form in this Prospectus Supplement and must be considered as part of,
and together with, the information contained elsewhere in this Prospectus
Supplement and the Prospectus. Defined terms used in this diskette but not
otherwise defined therein shall have the respective meanings assigned to them
in the paper portion of the Prospectus Supplement and Prospectus. All of the
information contained in this diskette is subject to the same limitations and
qualifications contained elsewhere in this Prospectus Supplement and the
Prospectus. Prospectus investors are strongly urged to read the paper portion
of this Prospectus Supplement and the Prospectus in its entirety prior to
accessing this diskette. If this diskette was not received in a sealed
package, there can be no assurances that it remains in its original format and
should not be relied upon for any purpose. Prospective investors may contact
Bear, Stearns & Co. Inc. at (212) 272-4192 to receive an original copy of the
diskette. As a precautionary measure, scan this diskette for computer viruses
before opening. Upon opening the Microsoft Excel file contained on this
diskette, a legend will be displayed, which should be read carefully.
Open the file as you would normally open any Spreadsheet File in Microsoft
Excel. After the Spreadsheet File is opened, a legend will be displayed. READ
THE LEGEND CAREFULLY. The data in the Spreadsheet File that corresponds to the
information shown in Annex A is in the worksheet labeled "ANNEX A".
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/1/ Microsoft Excel is a registered trademark of Microsoft Corporation.
<PAGE>
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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 autho-
rized anyone to provide you with different information.
We are not offering the certificates in any state where the offer is not per-
mitted.
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 un-
sold allotments or subscriptions. In addition, all dealers selling the certifi-
cates will deliver a prospectus supplement and the accompanying prospectus un-
til November , 1999.
-------------------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Table of Contents....................................................... S-3
Important Notice About this Prospectus Supplement and the Accompanying
Prospectus............................................................. S-5
Executive Summary....................................................... S-7
Summary of Prospectus Supplement........................................ S-10
Risk Factors............................................................ S-24
Description of the Loan Pool............................................ S-45
The Credit Leases....................................................... S-73
Servicing of the Loans.................................................. S-80
Description of the Certificates......................................... S-92
The Trustee and the Fiscal Agent........................................ S-113
The Enhancement Insurer................................................. S-114
The Extension Insurer................................................... S-114
The Residual Value Insurer.............................................. S-114
Description of the MBIA Policy.......................................... S-115
The Certificate Insurer................................................. S-116
Yield and Maturity Considerations....................................... S-119
Use of Proceeds......................................................... S-127
Certain Federal Income Tax Consequences................................. S-127
Certain ERISA Considerations............................................ S-128
Legal Investment........................................................ S-131
Method of Distribution.................................................. S-132
Legal Matters........................................................... S-132
Ratings................................................................. S-133
Index of Principal Definitions.......................................... S-134
Annex A................................................................. A-1
Annex B................................................................. B-1
Annex C................................................................. C-1
Annex D................................................................. D-1
Prospectus
Prospectus Supplement................................................... 2
Available Information................................................... 3
Incorporation of Certain Information by Reference....................... 4
Summary of Prospectus................................................... 10
Risk Factors............................................................ 18
Description of the Trust Funds.......................................... 26
Yield and Maturity Considerations....................................... 33
The Depositor........................................................... 39
Use of Proceeds......................................................... 40
Description of the Certificates......................................... 40
Description of the Pooling Agreements................................... 48
Description of Credit Support........................................... 62
Certain Legal Aspects of Mortgage Loans................................. 64
Certain Federal Income Tax Consequences................................. 77
State and Other Tax Consequences........................................ 103
ERISA Considerations.................................................... 104
Legal Investment........................................................ 105
Method of Distribution.................................................. 107
Legal Matters........................................................... 109
Financial Information................................................... 109
Rating.................................................................. 109
Index of Principal Definitions.......................................... 110
</TABLE>
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$320,591,000
(Approximate)
Bear Stearns Commercial Mortgage Securities Inc.
Depositor
Corporate Lease-Backed Certificates,
Series 1999-CLF1
<TABLE>
<S> <C>
Class A-1 Certificates............................................ $
Class A-2 Certificates............................................ $
Class A-3 Certificates............................................ $
Class A-4 Certificates............................................ $
</TABLE>
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PROSPECTUS SUPPLEMENT
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Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Prudential Securities
August , 1999
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