Filed Pursuant to Rule 424B5
Registration File No.: 333-89322
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 1, 2004)
$1,051,930,069 (APPROXIMATE)
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
DEPOSITOR
BANK OF AMERICA, N.A.
MASTER SERVICER
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES SERIES 2004-2
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CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-23 IN THIS PROSPECTUS
SUPPLEMENT AND PAGE 11 IN THE ACCOMPANYING PROSPECTUS.
Neither the certificates nor the underlying mortgage loans are insured or
guaranteed by any governmental agency.
The certificates will represent interests only in the trust and will not
represent interests in or obligations of Banc of America Commercial Mortgage
Inc. or any of its affiliates, including Bank of America Corporation.
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The Series 2004-2 Commercial Mortgage Pass-Through Certificates will consist of
the following classes:
o senior certificates consisting of the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5, Class XC and Class XP Certificates;
o junior certificates consisting of the Class B, Class C, Class D, Class E,
Class F, Class G, Class H, Class J, Class K, Class L, Class M, Class N,
Class O and Class P Certificates; and
o the residual certificates consisting of the Class R-I and Class R-II
Certificates.
Only the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class XP,
Class B, Class C, Class D and Class E Certificates are offered hereby.
The trust's assets will consist primarily of 95 mortgage loans and other
property described in this prospectus supplement and the accompanying
prospectus. The mortgage loans are secured by first liens on commercial and
multifamily properties. This prospectus supplement more fully describes the
offered certificates, as well as the characteristics of the mortgage loans and
the related mortgaged properties.
---------------------
Certain characteristics of the offered certificates include:
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APPROXIMATE
PASS-
THROUGH
CERTIFICATE BALANCE RATE AS OF ASSUMED FINAL RATINGS RATED FINAL
AS OF DELIVERY DELIVERY DISTRIBUTION MOODY'S/ DISTRIBUTION
CLASS DATE(1) DATE DATE(2) S&P(3) DATE(4)
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Class A-1 ......... $ 76,756,000 2.7640% November 10, 2008 Aaa/AAA November 10, 2038
Class A-2 ......... $ 236,527,000 3.5200% May 10, 2009 Aaa/AAA November 10, 2038
Class A-3 ......... $ 283,402,000 4.0500% January 10, 2011 Aaa/AAA November 10, 2038
Class A-4 ......... $ 125,682,000 4.1530% March 10, 2013 Aaa/AAA November 10, 2038
Class A-5 ......... $ 254,120,181 4.5800% February 10, 2014 Aaa/AAA November 10, 2038
Class XP .......... $ 1,104,576,380(6) 1.1614%(7) April 10, 2011 Aaa/AAA November 10, 2038
Class B ........... $ 27,045,564 4.6650%(5) March 10, 2014 Aa2/AA November 10, 2038
Class C ........... $ 12,811,056 4.7060%(5) March 10, 2014 Aa3/AA- November 10, 2038
Class D ........... $ 24,198,662 4.7450%(5) March 10, 2014 A2/A November 10, 2038
Class E ........... $ 11,387,606 4.8440%(5) March 10, 2014 A3/A- November 10, 2038
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(Footnotes to table on page S-5)
With respect to the offered certificates, Banc of America Securities LLC
and Bear, Stearns & Co. Inc. are acting as joint lead managers. Banc of America
Securities LLC will be the sole bookrunner for all classes of the certificates.
Banc of America Securities LLC, Bear, Stearns & Co. Inc., Goldman, Sachs & Co.
and Wachovia Capital Markets, LLC will purchase the offered certificates from
Banc of America Commercial Mortgage 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 April 14, 2004. Banc
of America Commercial Mortgage Inc. expects to receive from this offering
approximately 106.17% of the initial principal amount of the offered
certificates, plus accrued interest from April 1, 2004 before deducting
expenses payable by Banc of America Commercial Mortgage Inc.
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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.
---------------------
BANC OF AMERICA SECURITIES LLC BEAR, STEARNS & CO. INC.
---------------------
GOLDMAN, SACHS & CO. WACHOVIA SECURITIES
April 1, 2004
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2004-2
GEOGRAPHIC OVERVIEW OF MORTGAGE POOL
[GRAPHIC OMITTED]
PENNSYLVANIA MARYLAND MISSOURI OREGON
2 properties 1 property 4 properties 1 property
$127,680,136 $17,200,000 $25,380,675 $10,355,000
11.2% of total 1.5% of total 2.2% of total 0.9% of total
NEW YORK VIRGINIA TEXAS WASHINGTON
19 properties 4 properties 3 properties 3 properties
$133,214,738 $36,244,683 $35,506,150 $20,241,520
11.7% of total 3.2% of total 3.1% of total 1.8% of total
NEW HAMPSHIRE NORTH CAROLINA COLORADO UTAH
3 properties 2 properties 1 property 1 property
$16,375,201 $9,346,125 $3,353,384 $8,467,129
1.4% of total 0.8% of total 0.3% of total 0.7% of total
MASSACHUSETTS SOUTH CAROLINA ARIZONA MINNESOTA
2 properties 3 properties 1 property 2 properties
$34,800,147 $15,000,000 $24,654,705 $105,000,000
3.1% of total 1.3% of total 2.2% of total 9.2% of total
CONNECTICUT GEORGIA HAWAII WISCONSIN
7 properties 5 properties 1 property 1 property
$34,630,704 $28,885,000 $42,000,000 $4,037,850
3.0% of total 2.5% of total 3.7% of total 0.4% of total
NEW JERSEY FLORIDA CALIFORNIA ILLINOIS
6 properties 10 properties 14 properties 1 property
$62,231,918 $144,082,507 $126,438,611 $6,177,540
5.5% of total 12.7% of total 11.1% of total 0.5% of total
DELAWARE TENNESSEE NEVADA INDIANA
2 properties 4 properties 1 property 1 property
$33,993,930 $20,934,117 $9,731,114 $2,797,679
3.0% of total 1.8% of total 0.9% of total 0.2% of total
MORTGAGED PROPERTIES BY PROPERTY TYPE
Office 39.2%
Retail 37.3%
Multifamily 10.0%
Manufactured Housing 8.9%
Self Storage 3.4%
Industrial 0.6%
Hotel 0.5%
< 1.0% of Initial Pool Balance
1.1%-5.0% of Initial Pool Balance
5.1%-10.0% of Initial Pool Balance
> 10.0% of Initial Pool Balance
NOTE REGARDING PIE CHART ON OPPOSITE PAGE: NUMBERS MAY NOT TOTAL TO 100% DUE TO
ROUNDING.
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FOR MORE INFORMATION
Banc of America Commercial Mortgage Inc. has filed with the SEC additional
registration materials relating to the certificates. You may read and copy any
of these materials at the SEC's Public Reference Room at the following
locations:
o SEC Public Reference Section
450 Fifth Street, N.W.
Room 1204
Washington, D.C. 20549
o SEC Midwest Regional Offices
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy and information statements, and other information that
has been filed electronically with the SEC.
The Internet address is http://www.sec.gov.
You may also contact Banc of America Commercial Mortgage Inc. in writing at 214
North Tryon Street, Charlotte, North Carolina 28255, or by telephone at (704)
386-2400.
See also the sections captioned "Available Information" and "Incorporation of
Certain Information by Reference" appearing at the end of the accompanying
prospectus.
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TABLE OF CONTENTS
IMPORTANT NOTICE ABOUT INFORMATION
PRESENTED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS ............................ S-6
EXECUTIVE SUMMARY ............................................ S-7
SUMMARY OF PROSPECTUS SUPPLEMENT ............................. S-10
RISK FACTORS ................................................. S-23
Risks Related to the Certificates .......................... S-23
Risks Related to the Mortgage Loans ........................ S-32
DESCRIPTION OF THE MORTGAGE POOL ............................. S-69
General .................................................... S-69
Certain Terms and Conditions of the Mortgage Loans ......... S-70
Due Dates ................................................ S-70
Mortgage Rates; Calculations of Interest ................. S-70
Hyperamortization ........................................ S-71
Amortization of Principal ................................ S-71
Prepayment Provisions .................................... S-71
Defeasance ............................................... S-72
"Due-on-Sale" and "Due-on-Encumbrance"
Provisions ............................................ S-74
Significant Mortgage Loans ................................. S-75
Additional Mortgage Loan Information ....................... S-112
General .................................................. S-112
Delinquencies ............................................ S-112
Tenant Matters ........................................... S-112
Ground Leases and Other Non-Fee Interests ................ S-112
Subordinate Financing .................................... S-112
Lender/Borrower Relationships ............................ S-113
Certain Underwriting Matters ............................... S-113
Environmental Assessments ................................ S-113
Generally ................................................ S-113
Property Condition Assessments ........................... S-115
Appraisals and Market Studies ............................ S-115
Zoning and Building Code Compliance ...................... S-115
Hazard, Liability and Other Insurance .................... S-116
The Mortgage Loan Sellers .................................. S-117
Assignment of the Mortgage Loans; Repurchases and
Substitutions ............................................ S-117
Representations and Warranties; Repurchases and
Substitutions ............................................ S-120
Changes in Mortgage Pool Characteristics ................... S-123
SERVICING OF THE MORTGAGE LOANS .............................. S-124
General .................................................... S-124
The Master Servicer ........................................ S-129
The Special Servicer ....................................... S-129
Sub-Servicers .............................................. S-129
Servicing and Other Compensation and Payment of
Expenses ................................................. S-130
Evidence as to Compliance .................................. S-134
Modifications, Waivers, Amendments and Consents ............ S-135
Defaulted Mortgage Loans; Purchase Option .................. S-137
REO Properties ............................................. S-139
Inspections; Collection of Operating Information ........... S-140
Termination of the Special Servicer ........................ S-140
DESCRIPTION OF THE CERTIFICATES .............................. S-141
General .................................................... S-141
Registration and Denominations ............................. S-141
Certificate Balances and Notional Amount ................... S-142
S-3
Pass-Through Rates ......................................... S-145
Distributions .............................................. S-148
General ................................................. S-148
The Available Distribution Amount ....................... S-148
Application of the Available Distribution Amount ........ S-149
Distributable Certificate Interest ...................... S-153
Principal Distribution Amount ........................... S-154
Excess Interest ......................................... S-155
Distributions of Prepayment Premiums .................... S-155
Treatment of REO Properties ............................. S-156
Subordination; Allocation of Losses and Certain
Expenses ................................................ S-156
Excess Interest Distribution Account ....................... S-158
Interest Reserve Account ................................... S-158
P&I Advances ............................................... S-159
Appraisal Reductions ....................................... S-161
Reports to Certificateholders; Certain Available
Information ............................................. S-163
Trustee Reports ......................................... S-163
Servicer Reports ........................................ S-164
Other Information ....................................... S-166
Voting Rights .............................................. S-167
Termination ................................................ S-167
THE TRUSTEE AND THE FISCAL AGENT ............................. S-168
The Trustee ................................................ S-168
Indemnification ............................................ S-169
YIELD AND MATURITY CONSIDERATIONS ............................ S-169
Yield Considerations ....................................... S-169
General ................................................. S-169
Rate and Timing of Principal Payments ................... S-169
Losses and Shortfalls ................................... S-170
Certain Relevant Factors ................................ S-171
Weighted Average Lives ..................................... S-171
Yield Sensitivity of the Class XP Certificates ............. S-176
USE OF PROCEEDS .............................................. S-177
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ...................... S-177
General .................................................... S-177
Discount and Premium; Prepayment Premiums .................. S-178
Characterization of Investments in Offered Certificates..... S-178
Possible Taxes on Income From Foreclosure Property ......... S-179
Reporting and Other Administrative Matters ................. S-179
CERTAIN ERISA CONSIDERATIONS ................................. S-180
LEGAL INVESTMENT ............................................. S-182
METHOD OF DISTRIBUTION ....................................... S-183
LEGAL MATTERS ................................................ S-184
RATINGS ...................................................... S-184
INDEX OF PRINCIPAL DEFINITIONS ............................... S-185
ANNEX A ...................................................... A-1
ANNEX B ...................................................... B-1
ANNEX C ...................................................... C-1
ANNEX D ...................................................... D-1
ANNEX E ...................................................... E-1
S-4
FOOTNOTES TO TABLE ON COVER OF PROSPECTUS SUPPLEMENT
(1) Subject to a variance of plus or minus 10%.
(2) As of the delivery date, 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 mortgage loan is prepaid, in whole or in part, prior to
its stated maturity, any mortgage loan with an anticipated repayment date
is not prepaid prior to, but is paid in its entirety on its anticipated
repayment date and otherwise based on the maturity assumptions (described
in this prospectus supplement), if any. The actual performance and
experience of the mortgage loans will likely differ from such
assumptions. See "Yield and Maturity Considerations" in this prospectus
supplement.
(3) It is a condition to their issuance that the classes of offered
certificates be assigned ratings by Moody's Investors Service, Inc.
and/or Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., no lower than those set forth above. The ratings on the
offered certificates do not represent any assessments of (i) the
likelihood or frequency of voluntary or involuntary principal prepayments
on the mortgage 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.
(4) The "rated final distribution date" for each class of offered
certificates has been set at the first distribution date that follows two
years after the end of the amortization term for the mortgage loan that,
as of the cut-off date, has the longest remaining amortization term,
irrespective of its scheduled maturity. See "Ratings" in this prospectus
supplement.
(5) The Class B, Class C, Class D and Class E Certificates will accrue
interest at fixed per annum rates equal to 4.6650%, 4.7060%, 4.7450%, and
4.8440%, respectively, subject to a cap at the weighted average net
mortgage rate.
(6) The Class XP Certificates will not have a certificate balance but will
instead have a notional amount.
(7) The Class XP Certificates will accrue interest on their related notional
amount as described in this prospectus supplement under "Description of
the Certificates--Pass-Through Rates".
S-5
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the offered certificates; and (b) this prospectus supplement, which describes
the specific terms of the offered certificates. If the terms of the offered
certificates vary between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this prospectus supplement.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus. The information in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement begins with several introductory sections
describing the Series 2004-2 Certificates 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 2004-2 and the mortgage loans; and
Risk Factors, which begins on page S-23 of this prospectus supplement
and describes risks that apply to Series 2004-2 which are in addition to
those described in the accompanying 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
accompanying 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-185 in this prospectus
supplement. The capitalized terms used in the accompanying prospectus are
defined under the caption "Glossary" beginning on page 107 in the prospectus.
In this prospectus supplement, "we" refers to the depositor, and "you"
refers to a prospective investor in the offered certificates.
---------------------
Until July 13, 2004, all dealers that buy, sell or trade the offered
certificates, whether or not participating in this offering, may be required to
deliver a prospectus supplement and the accompanying prospectus. This is in
addition to the dealers' obligation to deliver a prospectus supplement and the
accompanying prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
If and to the extent required by applicable law or regulation, this
prospectus supplement and the accompanying prospectus will be used by the
underwriter in connection with offers and sales related to market-making
transactions in the offered certificates with respect to which the underwriter
is a principal. The underwriter may also act as agent in such transactions.
Such sales will be made at negotiated prices at the time of sale.
S-6
EXECUTIVE SUMMARY
The following executive summary does not include all relevant information
relating to the offered certificates and the mortgage loans. In particular, the
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. The executive summary also describes the certificates
that are not offered by this prospectus supplement (other than the Class R-I
and Class R-II Certificates) which have not been registered under the
Securities Act of 1933, as amended, and which will be sold to investors in
private transactions. Certain capitalized terms used in this executive summary
may be defined elsewhere in this prospectus supplement, including in Annex A
hereto, or in the prospectus. An "Index of Principal Definitions" is included
at the end of this prospectus supplement. A "Glossary" is included at the end
of the prospectus. Terms that are used but not defined in this prospectus
supplement will have the meanings specified in the prospectus.
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CERTIFICATE APPROXIMATE
BALANCE OR PERCENTAGE APPROXIMATE
NOTIONAL OF POOL CREDIT
CLASS RATINGS(1) AMOUNT(2) BALANCE SUPPORT
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Offered Certificates
A-1 Aaa/AAA $ 76,756,000 6.740% 14.250%
A-2 Aaa/AAA $ 236,527,000 20.771% 14.250%
A-3 Aaa/AAA $ 283,402,000 24.887% 14.250%
A-4 Aaa/AAA $ 125,682,000 11.037% 14.250%
A-5 Aaa/AAA $ 254,120,181 22.316% 14.250%
XP Aaa/AAA $1,104,576,380(7) N/A N/A
B Aa2/AA $ 27,045,564 2.375% 11.875%
C Aa3/AA- $ 12,811,056 1.125% 10.750%
D A2/A $ 24,198,662 2.125% 8.625%
E A3/A- $ 11,387,606 1.000% 7.625%
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Private Certificates -- Not Offered Hereby(6)
F Baa1/BBB+ $ 15,657,957 1.375% 6.250%
G Baa2/BBB $ 9,964,155 0.875% 5.375%
H Baa3/BBB- $ 15,657,958 1.375% 4.000%
J Ba1/BB+ $ 4,270,352 0.375% 3.625%
K Ba2/BB $ 5,693,803 0.500% 3.125%
L Ba3/BB- $ 5,693,803 0.500% 2.625%
M B1/B+ $ 7,117,253 0.625% 2.000%
N B2/B $ 2,846,901 0.250% 1.750%
O B3/B- $ 2,846,901 0.250% 1.500%
P NR/NR $ 17,081,410 1.500% 0.000%
XC Aaa/AAA $1,138,760,562(8) N/A N/A
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APPROXIMATE
INITIAL
PASS-
THROUGH WEIGHTED
RATE AS AVERAGE
OF DELIVERY LIFE PRINCIPAL
CLASS RATE TYPE DATE (YEARS)(3) WINDOW(3)
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Offered Certificates
A-1 Fixed 2.76400% 2.903 05/10/2004-11/10/2008
A-2 Fixed 3.52000% 4.827 11/10/2008-05/10/2009
A-3 Fixed 4.05000% 6.610 05/10/2009-01/10/2011
A-4 Fixed 4.15300% 7.087 01/10/2011-03/10/2013
A-5 Fixed 4.58000% 9.643 03/10/2013-02/10/2014
XP Variable Rate(7) 1.16140%(7) (7) N/A
B Fixed(4) 4.66500%(4) 9.827 02/10/2014-03/10/2014
C Fixed(4) 4.70600%(4) 9.906 03/10/2014-03/10/2014
D Fixed(4) 4.74500%(4) 9.906 03/10/2014-03/10/2014
E Fixed(4) 4.84400%(4) 9.906 03/10/2014-03/10/2014
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Private Certificates -- Not Offered Hereby(6)
F Fixed(4) 4.99200%(4) 10.140 03/10/2014-09/10/2015
G Fixed(4) 5.23900%(4) 11.438 09/10/2015-11/10/2015
H WAC(5) 5.27632%(5) 11.572 11/10/2015-11/10/2015
J Fixed(4) 4.89600%(4) 11.572 11/10/2015-11/10/2015
K Fixed(4) 4.89600%(4) 11.572 11/10/2015-11/10/2015
L Fixed(4) 4.89600%(4) 11.572 11/10/2015-11/10/2015
M Fixed(4) 4.89600%(4) 11.572 11/10/2015-11/10/2015
N Fixed(4) 4.89600%(4) 11.572 11/10/2015-11/10/2015
O Fixed(4) 4.89600%(4) 11.572 11/10/2015-11/10/2015
P Fixed(4) 4.89600%(4) 11.811 11/10/2015-01/10/2019
XC Variable Rate(8) 0.04816%(8) (8) N/A
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(1) Ratings shown are those of Moody's Investors Service, Inc. and Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.,
respectively.
(2) As of the delivery date. Subject to a variance of plus or minus 10%.
(3) Based on the maturity assumptions (as defined under "Yield and Maturity
Considerations" in this prospectus supplement). As of the delivery date,
calculations for the certificates assume no prepayments will be made on
the mortgage loans prior to their related maturity dates (or, in the case
of the mortgage loan with an anticipated repayment date, the related
anticipated repayment date).
(4) The Class B, Class C, Class D, Class E, Class F and Class G. Certificates
will accrue interest at fixed per annum rates equal to 4.6650%, 4.7060%,
4.7450%, 4.8440%, 4.9920%, and 5.2390%, respectively, subject to a cap at
the weighted average net mortgage rate. The Class J, Class K, Class L,
Class M, Class N, Class O and Class P Certificates will accrue interest
at a fixed per annum rate equal to 4.8960%, subject to a cap at the
weighted average net mortgage rate.
S-7
(5) The Class H Certificates will accrue interest at the weighted average net
mortgage rate.
(6) Not offered by this prospectus supplement. Any information we provide
herein regarding the terms of these certificates is provided only to
enhance your understanding of the offered certificates.
(7) The Class XP Certificates will not have a certificate balance and their
holders will not receive distributions of principal, but such holders are
entitled to receive payments of the aggregate interest accrued on the
notional amount of the Class XP Certificates, as described in this
prospectus supplement. The interest rate applicable to the Class XP
Certificates for each distribution date will be as described in this
prospectus supplement. See "Description of the Certificates--Pass-Through
Rates" in this prospectus supplement.
(8) The Class XC Certificates are not offered by this prospectus supplement.
Any information we provide herein regarding the terms of these
certificates is provided only to enhance your understanding of the
offered certificates. The Class XC Certificates will not have certificate
balances and their holders will not receive distributions of principal,
but such holders are entitled to receive payments of the aggregate
interest accrued on the notional amount of the Class XC Certificates, as
the case may be, as described in this prospectus supplement. The interest
rates applicable to the Class XC Certificates for each distribution date
will be as described in this prospectus supplement. See "Description of
the Certificates--Pass-Through Rates" in this prospectus supplement.
S-8
Below is certain information regarding the mortgage loans and the
mortgaged properties in the mortgage pool, as of the cut-off date. All weighted
averages set forth below are based on the respective cut-off date balances (as
defined in this prospectus supplement) of the mortgage loans in the mortgage
pool. This information is described, and additional information regarding the
mortgage loans and the mortgaged properties is described, under "Description of
the Mortgage Pool" in this prospectus supplement, in Annex A to this prospectus
supplement and in Annex E to this prospectus supplement.
MORTGAGE POOL CHARACTERISTICS
CHARACTERISTICS
- ---------------
Initial principal balance(1) ...................................... $1,138,760,562
Number of mortgage loans .......................................... 95
Number of mortgaged properties .................................... 105
Number of balloon mortgage loans(2) ............................... 76
Number of ARD loans ............................................... 1
Number of full period interest only mortgage loans(3) ............. 18
Number of Fully Amortizing Loans .................................. 1
Average cut-off date balance ...................................... $ 11,986,953
Range of cut-off date balances .................................... $ 1,100,000 to
$ 115,704,055
Weighted average mortgage rate .................................... 5.355%
Weighted average remaining lock-out period ........................ 81 months
Range of remaining terms to maturity(4) ........................... 53 to 177 months
Weighted average remaining term to maturity(4) .................... 93 months
Weighted average underwritten debt service coverage ratio ......... 1.72x
Weighted average cut-off date loan-to-value ratio ................. 68.5%
- ---------
(1) Subject to a variance of plus or minus 10%.
(2) Excludes mortgage loans that are interest only until maturity or until
the anticipated repayment date and fully amortizing mortgage loans.
(3) Includes the mortgage loan that has an anticipated repayment date.
(4) In the case of the mortgage loan that has an anticipated repayment date,
the maturity is based on the related anticipated repayment date.
"Cut-off date loan-to-value ratio" and "underwritten debt service coverage
ratio" are calculated as described in Annex A to this prospectus supplement.
S-9
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
Banc of America Commercial Mortgage Inc. The depositor, a Delaware
corporation, is a subsidiary of Bank of America, N.A. The depositor maintains
its principal office at 214 North Tryon Street, Charlotte, North Carolina
28255. See "The Depositor" in the accompanying prospectus. Neither the
depositor nor any of its affiliates has insured or guaranteed the offered
certificates.
TRUSTEE
LaSalle Bank National Association. The Trustee, a national banking
association, will also act as REMIC administrator. See "The Trustee and the
Fiscal Agent" in this prospectus supplement.
FISCAL AGENT
ABN AMRO Bank N.V. See "The Trustee and the Fiscal Agent."
MASTER SERVICER
Bank of America, N.A., a national banking association. The master servicer
will be responsible for the primary servicing of all of the mortgage loans
pursuant to the terms of the pooling and servicing agreement. See "Servicing of
the Mortgage Loans--The Master Servicer" in this prospectus supplement.
SPECIAL SERVICER
Midland Loan Services, Inc., a Delaware corporation. See "Servicing of the
Mortgage Loans--The Special Servicer" in this prospectus supplement.
MORTGAGE LOAN SELLERS
Bank of America, N.A. is a national banking association. Bank of America,
N.A. is the parent of Banc of America Commercial Mortgage Inc. and a
wholly-owned subsidiary of NB Holdings Corporation, which in turn is a
wholly-owned subsidiary of Bank of America Corporation. Bank of America, N.A.
maintains its principal office at Bank of America Corporate Center, 100 North
Tryon Street Charlotte, North Carolina 28255.
Bear Stearns Commercial Mortgage, Inc. is a wholly-owned subsidiary of
Bear Stearns Mortgage Capital Corporation, and is a New York corporation and an
affiliate of Bear, Stearns & Co. Inc., one of the underwriters. Bear Stearns
Commercial Mortgage, Inc. maintains its principal office at 383 Madison Avenue,
New York, New York 10179.
CUT-OFF DATE
April 1, 2004 except that with respect to 1 mortgage loan, representing
4.1% of the initial pool balance, the Cut-off Date is April 10, 2004.
DELIVERY DATE
On or about April 14, 2004.
S-10
RECORD DATE
With respect to each class of offered certificates and each distribution
date, the last business day of the calendar month immediately preceding the
month in which such distribution date occurs.
DISTRIBUTION DATE
The 10th day of each month or, if any such 10th day is not a business day,
the next succeeding business day. The first distribution date with respect to
the offered certificates will occur in May 2004.
DETERMINATION DATE
The earlier of (i) the sixth day of the month in which the related
distribution date occurs, or if such sixth day is not a business day, then the
immediately preceding business day, and (ii) the fourth business day prior to
the related distribution date.
COLLECTION PERIOD
With respect to any distribution date, the period that begins immediately
following the determination date in the calendar month preceding the month in
which such distribution date occurs and ends on and includes the determination
date in the calendar month in which such distribution date occurs. The first
collection period applicable to the offered certificates will begin immediately
following the cut-off date and end on the determination date in May 2004.
MORTGAGE LOANS
THE MORTGAGE POOL
The pool of mortgage loans consists of 95 multifamily and commercial
mortgage loans. Forty-eight of the mortgage loans were (a) originated by Bank
of America, N.A. or its conduit participants or (b) acquired by Bank of
America, N.A. from various third party originators (other than Bridger
Commercial Funding LLC). Fourteen mortgage loans were acquired by Bank of
America, N.A. from Bridger Commercial Funding LLC. Thirty-three of the mortgage
loans were originated by Bear Stearns Commercial Mortgage, Inc. The mortgage
loans have an aggregate cut-off date balance of approximately $1,138,760,562
which is referred to as the initial pool balance, subject to a variance of plus
or minus 10%.
All numerical information provided in this prospectus supplement with
respect to the mortgage loans is provided on an approximate basis. The
principal balance of each mortgage loan as of the cut-off date assumes the
timely receipt of all principal scheduled to be paid on or before the cut-off
date and assumes no defaults, delinquencies or prepayments on any mortgage loan
on or before the cut-off date. All weighted average information provided in
this prospectus supplement, unless otherwise stated, reflects weighting by
related cut-off date balance. All percentages of the mortgage pool, or of any
specified sub-group thereof, referred to in this prospectus supplement without
further description are approximate percentages by aggregate cut-off date
balance. The sum of the numerical data in any column of any table presented in
this prospectus supplement may not equal the indicated total due to rounding.
See "Description of the Mortgage Pool--Changes in Mortgage Pool
Characteristics" in this prospectus supplement.
The cut-off date balance of each mortgage loan is the unpaid principal
balance thereof as of the cut-off date, after application of all payments of
principal due on or before such date, whether or not received. The cut-off date
balances of the mortgage loans in the mortgage pool range from $1,100,000 to
$115,704,055, and the average cut-off date balance is $11,986,953.
S-11
As of the cut-off date, the mortgage loans had the following additional
characteristics.
SELECTED MORTGAGE LOAN CHARACTERISTICS
Range of mortgage rates .............................................. 3.452% per annum to
6.836% per annum
Weighted average mortgage rate ....................................... 5.355% per annum
Range of remaining terms to stated maturity(1) ....................... 53 months to
177 months
Weighted average remaining term to stated maturity(1) ................ 93 months
Range of remaining amortization terms(2) ............................. 177 months to
360 months
Weighted average remaining amortization term(2) ...................... 351 months
Range of remaining lock-out periods .................................. 0 months to
173 months
Range of cut-off date loan-to-value ratios ........................... 44.5% to 80.4%
Weighted average cut-off date loan-to-value ratio .................... 68.5%
Range of maturity date loan-to-value ratios(1)(3) .................... 40.7% to 74.1%
Weighted average maturity date loan-to-value ratio(1)(3) ............. 61.2%
Range of underwritten debt service coverage ratios(3) ................ 1.20x to 3.20x
Weighted average underwritten debt service coverage ratio(3) ......... 1.72x
- ----------
(1) In the case of the mortgage loan that has an anticipated repayment date,
the maturity is based on the related anticipated repayment date.
(2) Excludes mortgage loans that are interest only until maturity or until
the anticipated repayment date.
(3) Excludes the mortgage loan that is fully amortizing.
Set forth below are the number of mortgaged properties, and the
approximate percentage of the initial pool balance secured by such mortgaged
properties, located in the five states with the highest concentrations:
GEOGRAPHIC CONCENTRATION
NUMBER OF PERCENTAGE OF
MORTGAGED INITIAL POOL
STATE PROPERTIES BALANCE(1)
- ------------------------- ------------ --------------
Florida .............. 10 12.7%
New York ............. 19 11.7%
Pennsylvania ......... 2 11.2%
California ........... 14 11.1%
Minnesota ............ 2 9.2%
- ----------
(1) With respect to mortgage loans secured by multiple properties in multiple
states, the cut-off date balance is allocated among such states based
upon amounts set forth in the related mortgage loan documents. Those
amounts are set forth in Annex A to this prospectus supplement.
The remaining mortgaged properties are located throughout 23 other states,
with no more than 5.5% of the initial pool balance secured by mortgaged
properties located in any such other jurisdiction.
S-12
Set forth below are the number of mortgaged properties, and the
approximate percentage of the initial pool balance secured by such mortgaged
properties, operated for each indicated purpose:
PROPERTY TYPE
NUMBER OF PERCENTAGE OF
MORTGAGED INITIAL POOL
PROPERTY TYPE PROPERTIES BALANCE
- --------------------------------------------- ------------ --------------
Office ................................... 26 39.2%
Retail ................................... 40 37.3%
Multifamily .............................. 21 10.0%
Manufactured Housing Communities ......... 6 8.9%
Self Storage ............................. 10 3.4%
Industrial and Warehouse ................. 1 0.6%
Hotel .................................... 1 0.5%
FOR MORE DETAILED STATISTICAL INFORMATION REGARDING THE MORTGAGE POOL, SEE
ANNEX A HERETO.
On or before the delivery date, each mortgage loan seller will transfer
all of its mortgage loans, without recourse, to the depositor, or at the
direction of the depositor to the trustee for the benefit of holders of the
certificates. In connection with such transfer, each mortgage loan seller will
make certain representations and warranties regarding the characteristics of
the mortgage loans transferred by it. As described in more detail later in this
prospectus supplement, each mortgage loan seller will be obligated to cure any
material breach of any such representation or warranty made by it or either
repurchase the affected mortgage loan or, in the period and manner described in
this prospectus supplement, substitute a qualified substitute mortgage loan for
the affected mortgage loan and pay any substitution shortfall amount. See
"Description of the Mortgage Pool--Assignment of the Mortgage Loans;
Repurchases and Substitution" and "--Representations and Warranties;
Repurchases and Substitutions" in this prospectus supplement.
Each mortgage loan seller will sell each of its respective mortgage loans
without recourse and has no obligations with respect to the offered
certificates other than pursuant to such representations, warranties and
repurchase or substitution obligations. The depositor has made no
representations or warranties with respect to the mortgage loans and will have
no obligation to repurchase or replace mortgage loans with deficient
documentation or which are otherwise defective. See "Description of the
Mortgage Pool" and "Risk Factors--Risks Related to the Mortgage Loans" in this
prospectus supplement and "Description of the Trust Funds" and "Certain Legal
Aspects of Mortgage Loans" in the accompanying prospectus.
The master servicer and, if circumstances require, the special servicer,
will service and administer the mortgage loans pursuant to the pooling and
servicing agreement among the depositor, the master servicer, the special
servicer, the trustee and the REMIC administrator and the fiscal agent. See
"Servicing of the Mortgage Loans" in this prospectus supplement and "The
Pooling and Servicing Agreements" in the accompanying prospectus. The
compensation to be received by the master servicer (including certain master
servicing fees) and the special servicer (including special servicing fees,
liquidation fees and workout fees) for their services is described in this
prospectus supplement under "Servicing of the Mortgage Loans--Servicing and
Other Compensation and Payment of Expenses."
OFFERED SECURITIES
THE OFFERED CERTIFICATES; CERTIFICATE BALANCES AND PASS-THROUGH RATES
The offered certificates consist of 10 classes of the depositor's
Commercial Mortgage Pass-Through Certificates as part of Series 2004-2, namely
the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class XP, Class B,
Class C, Class D and Class E Certificates. As of the delivery date, your
certificates will have the approximate aggregate principal amount or notional
amount indicated in the chart on the cover
S-13
of this prospectus supplement, subject to a variance of plus or minus 10%, and
will accrue interest at an annual rate referred to as a pass-through rate
indicated in the chart on the cover of this prospectus supplement and the
accompanying footnotes. Interest on the offered certificates will be calculated
based on a 360-day year consisting of twelve 30-day months, or a 30/360 basis.
Series 2004-2 consists of a total of 23 classes of certificates, the
following 13 of which are not being offered through this prospectus supplement
and the accompanying prospectus: Class XC, Class F, Class G, Class H, Class J,
Class K, Class L, Class M, Class N, Class O, Class P, Class R-I and Class R-II.
The pass-through rates applicable to each of the Class F, Class G, Class H,
Class J, Class K, Class L, Class M, Class N, Class O and Class P Certificates
for each distribution date are set forth on pages S-146 and S-147 of this
prospectus supplement. The Class R-I and Class R-II Certificates will not have
a certificate balance, a notional amount or a pass-through rate.
CLASS X CERTIFICATES
Notional Amount
The Class XC and Class XP Certificates will not have certificate balances.
For purposes of calculating the amount of accrued interest, however, each of
those classes will have a notional amount.
The notional amount of the Class XC Certificates will equal the aggregate
certificate balances of the Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class J,
Class K, Class L, Class M, Class N, Class O and Class P Certificates
outstanding from time to time. The initial notional amount of the Class XC
Certificates will be approximately $1,138,760,562, although it may be as much
as 10% larger or smaller.
The notional amount of the Class XP Certificates will equal:
o during the period following the initial issuance of the certificates
through and including the distribution date in October 2004, the sum of
(a) the lesser of $72,464,283 and the certificate balance of the Class
A-1 Certificates outstanding from time to time and (b) the aggregate
certificate balances of the Class A-2, Class A-3, Class A-4, Class A-5,
Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class J,
Class K and Class L Certificates outstanding from time to time;
o during the period following the distribution date in October 2004
through and including the distribution date in April 2005, the sum of
(a) the lesser of $66,716,269 and the certificate balance of the Class
A-1 Certificates outstanding from time to time and (b) the aggregate
certificate balances of the Class A-2, Class A-3, Class A-4, Class A-5,
Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class J,
Class K and Class L Certificates outstanding from time to time;
o during the period following the distribution date in April 2005 through
and including the distribution date in October 2005, the sum of (a) the
lesser of $42,607,383 and the certificate balance of the Class A-1
Certificates outstanding from time to time and (b) the aggregate
certificate balances of the Class A-2, Class A-3, Class A-4, Class A-5,
Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class J,
Class K and Class L Certificates outstanding from time to time;
o during the period following the distribution date in October 2005
through and including the distribution date in April 2006, the sum of
(a) the lesser of $15,028,613 and the certificate balance of the Class
A-1 Certificates outstanding from time to time and (b) the aggregate
certificate balances of the Class A-2, Class A-3, Class A-4, Class A-5,
Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class J,
Class K and Class L Certificates outstanding from time to time;
o during the period following the distribution date in April 2006 through
and including the distribution date in October 2006, the sum of (a) the
lesser of $225,015,768 and the certificate balance of the Class A-2
Certificates outstanding from time to time, (b) the lesser of
$2,344,987 and the certificate balance of the Class L Certificates
outstanding from time to time and (c) the aggregate certificate
balances of the Class A-3, Class A-4, Class A-5, Class B, Class C,
Class D, Class E, Class F, Class G, Class H, Class J, and Class K
Certificates outstanding from time to time;
S-14
o during the period following the distribution date in October 2006
through and including the distribution date in April 2007, the sum of
(a) the lesser of $198,685,243 and the certificate balance of the Class
A-2 Certificates outstanding from time to time, (b) the lesser of
$1,363,962 and the certificate balance of the Class J Certificates
outstanding from time to time and (c) the aggregate certificate
balances of the Class A-3, Class A-4, Class A-5, Class B, Class C,
Class D, Class E, Class F, Class G, and Class H Certificates
outstanding from time to time;
o during the period following the distribution date in April 2007 through
and including the distribution date in October 2007, the sum of (a) the
lesser of $173,380,941 and the certificate balance of the Class A-2
Certificates outstanding from time to time, (b) the lesser of
$6,471,267 and the certificate balance of the Class H Certificates
outstanding from time to time and (c) the aggregate certificate
balances of the Class A-3, Class A-4, Class A-5, Class B, Class C,
Class D, Class E, Class F, and Class G Certificates outstanding from
time to time;
o during the period following the distribution date in October 2007
through and including the distribution date in April 2008, the sum of
(a) the lesser of $148,573,805 and the certificate balance of the Class
A-2 Certificates outstanding from time to time, (b) the lesser of
$6,265,323 and the certificate balance of the Class G Certificates
outstanding from time to time and (c) the aggregate certificate
balances of the Class A-3, Class A-4, Class A-5, Class B, Class C,
Class D, Class E, and Class F Certificates outstanding from time to
time;
o during the period following the distribution date in April 2008 through
and including the distribution date in October 2008, the sum of (a) the
lesser of $110,130,414 and the certificate balance of the Class A-2
Certificates outstanding from time to time, (b) the lesser of
$12,127,058 and the certificate balance of the Class F Certificates
outstanding from time to time and (c) the aggregate certificate
balances of the Class A-3, Class A-4, Class A-5, Class B, Class C,
Class D and Class E Certificates outstanding from time to time;
o during the period following the distribution date in October 2008
through and including the distribution date in April 2009, the sum of
(a) the lesser of $190,391,820 and the certificate balance of the Class
A-3 Certificates outstanding from time to time, (b) the lesser of
$3,206,981 and the certificate balance of the Class F Certificates
outstanding from time to time and (c) the aggregate certificate
balances of the Class A-4, Class A-5, Class B, Class C, Class D and
Class E Certificates outstanding from time to time;
o during the period following the distribution date in April 2009 through
and including the distribution date in October 2009, the sum of (a) the
lesser of $172,730,366 and the certificate balance of the Class A-3
Certificates outstanding from time to time, (b) the lesser of
$7,540,026 and the certificate balance of the Class E Certificates
outstanding from time to time and (c) the aggregate certificate
balances of the Class A-4, Class A-5, Class B, Class C and Class D
Certificates outstanding from time to time;
o during the period following the distribution date in October 2009
through and including the distribution date in April 2010, the sum of
(a) the lesser of $155,405,341 and the certificate balance of the Class
A-3 Certificates outstanding from time to time, (b) the lesser of
$802,545 and the certificate balance of the Class E Certificates
outstanding from time to time and (c) the aggregate certificate
balances of the Class A-4, Class A-5, Class B, Class C and Class D
Certificates outstanding from time to time;
o during the period following the distribution date in April 2010 through
and including the distribution date in October 2010, the sum of (a) the
lesser of $40,170,798 and the certificate balance of the Class A-3
Certificates outstanding from time to time, (b) the lesser of
$18,520,181 and the certificate balance of the Class D Certificates
outstanding from time to time and (c) the aggregate certificate
balances of the Class A-4, Class A-5, Class B and Class C Certificates
outstanding from time to time;
S-15
o during the period following the distribution date in October 2010
through and including the distribution date in April 2011, the sum of
(a) the lesser of $243,219,920 and the certificate balance of the Class
A-5 Certificates outstanding from time to time, (b) the lesser of
$13,247,701 and the certificate balance of the Class D Certificates
outstanding from time to time and (c) the aggregate certificate
balances of the Class B and Class C Certificates outstanding from time
to time; and
o following the distribution date in April 2011, $0.
The total initial notional amount of the Class XP Certificates will be
approximately $1,104,576,380, although it may be as much as 10% larger or
smaller.
Pass Through Rate
The pass-through rate applicable to the Class XP Certificates for the
initial distribution date will equal approximately 1.16140% per annum. The
pass-through rate for the Class XP Certificates, for each distribution date
subsequent to the initial distribution date and through and including the April
2011 distribution date will equal the weighted average of the respective strip
rates, which we refer to as Class XP strip rates, at which interest accrues
from time to time on the respective components of the notional amount of the
Class XP Certificates outstanding immediately prior to the related distribution
date, with the relevant weighting to be done based upon the relative sizes of
those components. Each of those components will be comprised of all or a
designated portion of the certificate balance of a specified class of
Certificates. If all or a designated portion of the certificate balance of any
class of Certificates is identified under "--Notional Amount" above as being
part of the notional amount of the Class XP Certificates immediately prior to
any distribution date, then that certificate balance (or designated portion
thereof) will represent one or more separate components of the notional amount
of the Class XP Certificates for purposes of calculating the accrual of
interest during the related interest accrual period. For purposes of accruing
interest during any interest accrual period, through and including the April
2011 distribution date, on any particular component of the notional amount of
the Class XP Certificates immediately prior to the related distribution date,
the applicable Class XP strip rate will equal with respect to each class of
certificates having a certificate balance (or a designated portion thereof)
that comprises such component, the excess, if any, of:
(1) the lesser of (a) the reference rate specified on Annex D to this
prospectus supplement for such interest accrual period and (b) the
weighted average net mortgage rate for such interest accrual period,
over
(2) the pass-through rate in effect during such interest accrual period for
such class of certificates.
Following the April 2011 distribution date, the Class XP Certificates will
cease to accrue interest. In connection therewith, the Class XP Certificates
will have a 0% pass-through rate for the May 2011 distribution date and for
each distribution date thereafter.
The pass-through rate applicable to the Class XC Certificates for the
initial distribution date will equal approximately 0.04816% per annum. The
pass-through rate for the Class XC Certificates for any interest accrual period
subsequent to the initial distribution date will equal the weighted average of
the respective strip rates, which we refer to as Class XC strip rates, at which
interest accrues from time to time on the respective components of the notional
amount of the Class XC Certificates outstanding immediately prior to the
related distribution date, with the relevant weighting to be done based upon
the relative sizes of those components. Each of those components will be
comprised of all or a designated portion of the certificate balance of one of
the classes of Certificates. In general, the certificate balance of certain
classes of Certificates will constitute a separate component of the notional
amount of the Class XC Certificates; provided that, if a portion, but not all,
of the certificate balance of any particular class of Certificates is
identified under "--Notional Amount" above as being part of the notional amount
of the Class XP Certificates immediately prior to any distribution date, then
that identified portion of such certificate balance will represent one or more
separate components of the notional amount of the Class XC Certificates for
purposes of calculating the accrual of interest during the related interest
accrual
S-16
period, and the remaining portion of such certificate balance will also
represent one or more other separate components of the Class XC Certificates
for purposes of calculating the accrual of interest during the related interest
accrual period. For purposes of accruing interest for each distribution date
prior to May 2011 on any particular component of the notional amount of the
Class XC Certificates immediately prior to the related distribution date, the
applicable Class XC strip rate will be calculated as follows:
(1) if such particular component consists of the entire certificate balance
of any class of Certificates, and if such certificate balance also
constitutes, in its entirety, a component of the notional amount of the
Class XP Certificates immediately prior to the related distribution
date, then the applicable Class XC strip rate will equal the excess, if
any, of (a) the weighted average net mortgage rate for such interest
accrual period, over (b) for each applicable class of certificates, the
greater of (i) the reference rate specified on Annex D to this
prospectus supplement for such interest accrual period and (ii) the
pass-through rate in effect during such interest accrual period for
such class of certificates;
(2) if such particular component consists of a designated portion (but not
all) of the certificate balance of any class of Certificates, and if
such designated portion of such certificate balance also constitutes a
component of the notional amount of the Class XP Certificates
immediately prior to the related distribution date, then the applicable
Class XC strip rate will equal the excess, if any, of (a) the weighted
average net mortgage rate for such interest accrual period, over (b)
for each applicable class of certificates, the greater of (i) the
reference rate specified on Annex D to this prospectus supplement for
such interest accrual period and (ii) the pass-through rate in effect
during such interest accrual period for such distribution date for such
class of certificates;
(3) if such particular component consists of the entire certificate balance
of any class of certificates, and if such certificate balance for such
distribution date does not, in whole or in part, also constitute a
component of the notional amount of the Class XP Certificates
immediately prior to the related distribution date, then the applicable
Class XC strip rate will equal the excess, if any, of (a) the weighted
average net mortgage rate for such interest accrual period, over (b)
the pass-through rate in effect during such interest accrual period for
such class of certificates; and
(4) if such particular component consists of a designated portion (but not
all) of the certificate balance of any class of certificates, and if
such designated portion of such certificate balance does not also
constitute a component of the notional amount of the Class XP
Certificates immediately prior to the related distribution date, then
the applicable Class XC strip rate will equal the excess, if any, of
(a) the weighted average net mortgage rate for such interest accrual
period, over (b) the pass-through rate in effect during such interest
accrual period for such class of certificates.
For purposes of the accrual of interest on the Class XC Certificates for
each distribution date subsequent to the April 2011 distribution date, the
certificate balance of each class of Certificates (other than the Class R-I,
Class R-II, Class XC and Class XP Certificates) will constitute one or more
separate components of the notional amount of the Class XC Certificates, and
the applicable Class XC strip rate with respect to each such component for each
such interest accrual period will equal the excess, if any, of (a) the weighted
average net mortgage rate for such interest accrual period, over (b) the
pass-through rate in effect during such interest accrual period for the class
of certificates corresponding to such component.
DISTRIBUTIONS
The total of all payments or other collections (or advances in lieu
thereof) on or in respect of the mortgage loans (but excluding prepayment
premiums and excess interest, each as described in this prospectus supplement)
that are available for distributions of interest on and principal of the
certificates on any distribution date is herein referred to as the available
distribution amount for such date. For the one mortgage loan that has a due
date on the 10th of each month, the master servicer has generally agreed to
advance the monthly payment each month on the related master servicer
remittance date;
S-17
therefore, each monthly payment under such mortgage loan will generally be
deemed to be received within the collection period that ends in the month in
which the related due date occurs. See "Description of the Certificates--
Distributions--The Available Distribution Amount" in this prospectus
supplement. On each distribution date, the trustee will apply the available
distribution amount for such date for the following purposes and in the
following order of priority:
A. Amount and Order of Distributions
First, Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class XC and
Class XP: To interest on the Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class XC and Class XP pro rata, in accordance with their interest
entitlements.
Second, Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5: To the
extent of funds available for principal sequentially on, the Class A-1, Class
A-2, Class A-3, Class A-4 and Class A-5 Certificates, until each class is
reduced to zero.
Third, Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5: To
reimburse Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 pro rata,
for any previously unreimbursed losses on the mortgage loans allocable to
principal that were previously borne by those classes.
Fourth, Class B: To Class B as follows: (a) to interest on Class B in the
amount of its interest entitlement; (b) to the extent of funds available for
principal, to principal on Class B until reduced to zero; and (c) to reimburse
Class B for any previously unreimbursed losses on the mortgage loans allocable
to principal that were previously borne by that class.
Fifth, Class C: To Class C in a manner analogous to the Class B
allocations of the fourth step.
Sixth, Class D: To Class D in a manner analogous to the Class B
allocations of the fourth step.
Seventh, Class E: To Class E in a manner analogous to the Class B
allocations in the fourth step.
Finally, Private Certificates: To the Private Certificates (other than the
Class XC Certificates) in the amounts and order of priority provided for in the
Pooling Agreement.
The distributions referred to in priority Second above, will be made, pro
rata, among the Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates, Class A-4 Certificates and Class A-5 Certificates when the
certificate balances of all other certificates having certificate balances have
been reduced to zero and in any event on the final distribution date as
described under "Description of the Certificates--
Distributions--The Available Distribution Amount" in this prospectus
supplement.
B. Interest and Principal Entitlements
A description of each class's interest entitlement can be found in
"Description of the Certificates--
Distributions--Distributable Certificate Interest" in this prospectus
supplement. As described in such section, there are circumstances in which your
interest entitlement for a distribution date could be less than one full
month's interest at the pass-through rate on your certificate's principal
amount.
The amount of principal required to be distributed to the classes entitled
to principal on a particular distribution date also can be found in
"Description of the Certificates--Distributions--Principal Distribution Amount"
in this prospectus supplement.
C. Prepayment Premiums
The manner in which any prepayment consideration and yield maintenance
premiums received during a particular collection period will be allocated to
one or more of the classes of offered certificates is described in "Description
of the Certificates--Distributions--Distributions of Prepayment Premiums" in
this prospectus supplement.
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SUBORDINATION
A. General
The chart below describes the manner in which the rights of various
classes will be senior to the rights of other classes. Entitlement to receive
principal and interest on any distribution date is depicted in descending
order. The manner in which mortgage loan losses are allocated is depicted in
ascending order; provided that mortgage loan losses will not be allocated to
any class of the Class R-I or Class R-II Certificates. No principal payments or
loan losses will be allocated to the Class XC and Class XP Certificates.
However, the notional amount on the Class XC and Class XP Certificates (which
is used to calculate interest due on the Class XC and Class XP Certificates)
will effectively be reduced by the allocation of principal payments and loan
losses to the other classes of certificates, the principal balances of which
correspond to the notional amount of the Class XC and Class XP Certificates.
[GRAPHIC OMITTED]
-------------------------------------------------
CLASS A-1 CERTIFICATES, CLASS A-2 CERTIFICATES,
CLASS A-3 CERTIFICATES, CLASS A-4 CERTIFICATES,
CLASS A-5 CERTIFICATES, CLASS XC CERTIFICATES
AND CLASS XP CERTIFICATES*
-------------------------------------------------
----------------------
CLASS B CERTIFICATES
----------------------
----------------------
CLASS C CERTIFICATES
----------------------
----------------------
CLASS D CERTIFICATES
----------------------
----------------------
CLASS E CERTIFICATES
----------------------
----------------------------------------
PRIVATE CERTIFICATES
(other than the Class XC Certificates)
----------------------------------------
* The Class XC and Class XP Certificates will only be senior with respect
to payments of interest and will not be entitled to receive any
payments in respect of principal.
No other form of credit enhancement will be available for the benefit of
the holders of the offered certificates.
See "Description of the Certificates--Subordination; Allocation of Losses
and Certain Expenses" in this prospectus supplement.
B. Shortfalls in Available Funds
The following types of shortfalls in available funds will be allocated in
the same manner as mortgage loan losses:
S-19
o shortfalls resulting from additional compensation which the master
servicer or special servicer is entitled to receive;
o shortfalls resulting from interest on advances of principal and
interest or property expenses made by the master servicer, the special
servicer, the trustee or the fiscal agent;
o shortfalls resulting from extraordinary expenses of the trust;
o shortfalls resulting from a reduction of a mortgage loan's interest
rate or principal amount by a bankruptcy court or from other
unanticipated or default-related expenses of the trust; and
o shortfalls due to nonrecoverable advances being reimbursed from
principal and/or interest collections.
See "Description of the Certificates--Distributions" in this prospectus
supplement.
ADVANCES OF PRINCIPAL AND INTEREST
A. P&I Advances
The master servicer (or the trustee or the fiscal agent, if applicable) is
required to advance delinquent monthly mortgage loan payments if it determines
that the advance will be recoverable. The master servicer will not advance
balloon payments due at maturity, late payment charges or default interest. 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
servicing fee, but will advance the trustee's fee.
B. Property Protection Advances
The master servicer, (or the trustee or the fiscal agent, if applicable)
may also be required to make advances to pay delinquent real estate taxes,
assessments and hazard insurance premiums and similar expenses necessary to
protect and maintain the mortgaged property, to maintain the lien on the
mortgaged property or enforce the related mortgage loan documents.
C. Interest on Advances
The master servicer, the trustee and the fiscal agent, as applicable, will
be entitled to interest as described in this prospectus supplement on any of
the advances referenced in the two immediately preceding paragraphs above,
other than for advances referenced under the above Paragraph A of payments not
delinquent past applicable grace periods. Interest accrued on any of these
outstanding advances may result in reductions in amounts otherwise payable on
the certificates.
See "Description of the Certificates--P&I Advances" and "Servicing of the
Mortgage Loans-- Servicing and Other Compensation and Payment of Expenses" in
this prospectus supplement and "Description of the Certificates--Advances in
Respect of Delinquencies" and "The Pooling and Servicing
Agreements--Certificate Account" in the accompanying prospectus.
OTHER ASPECTS OF THE OFFERED CERTIFICATES
A. Denominations
The Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates
will be offered in minimum denominations of $10,000 initial principal amount.
The Class XP Certificates will be offered in minimum denominations of
$1,000,000 initial notional amount. The Class B, Class C, Class D, and Class E
Certificates will be offered in minimum denominations of $100,000 initial
principal amount. Investments in excess of the minimum denominations may be
made in multiples of $1.
B. Registration, Clearance and Settlement
Each class of offered certificates will be registered in the name of Cede
& Co., as nominee of The Depository Trust Company. The book-entry system
through The Depository Trust Company may be terminated with respect to all or
any portion of any class of the offered certificates.
S-20
See "Description of the Certificates--Registration and Denominations" in
this prospectus supplement and "Description of the Certificates--Book-Entry
Registration and Definitive Certificates" in the accompanying prospectus.
OPTIONAL TERMINATION
At its option, any holder or holders (other than the depositor or a
mortgage loan seller) of certificates representing a majority interest in the
controlling class may purchase, and if such holder or holders fail to purchase,
the master servicer may purchase, and if the master servicer fails to purchase,
the special servicer may purchase, all of the mortgage loans and REO
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 stated principal balance of the mortgage pool is less than
1% of the initial pool balance. See "Description of the
Certificates--Termination" in this prospectus supplement and in the
accompanying prospectus.
TAX STATUS
Elections will be made to treat designated portions of the trust (other
than excess interest) as two separate real estate mortgage investment conduits,
referred to in this prospectus supplement as REMICs--REMIC I and REMIC II--for
federal income tax purposes. In the opinion of counsel, such portions of the
trust will qualify for this treatment. The portion of the trust consisting of
the excess interest will be treated as a grantor trust for federal income tax
purposes.
Pertinent federal income tax consequences of an investment in the offered
certificates include:
o Each class of offered certificates will constitute "regular interests"
in REMIC II.
o The regular interests will be treated as newly originated debt
instruments for federal income tax purposes.
o Beneficial owners will be required to report income on the offered
certificates in accordance with the accrual method of accounting.
o The Class XP Certificates will be issued with original issue discount.
o It is anticipated that the offered certificates, other than the Class
XP Certificates, will be issued at a premium for federal income tax
purposes.
See "Certain Federal Income Tax Consequences" in this prospectus
supplement and in the accompanying prospectus.
ERISA CONSIDERATIONS
Subject to important considerations described under "Certain ERISA
Considerations" in this prospectus supplement and in the accompanying
prospectus, the depositor expects that the offered certificates are eligible
for purchase by persons investing assets of employee benefit plans or
individual retirement accounts. A benefit plan fiduciary considering the
purchase of any offered certificates should consult with its counsel to
determine whether all required conditions have been satisfied.
See "Certain ERISA Considerations" in this prospectus supplement and in
the accompanying prospectus.
LEGAL INVESTMENT
The offered certificates will not constitute "mortgage related securities"
within the meaning of the Secondary Mortgage Market Enhancement Act of 1984, as
amended. If your investment activities are subject to legal investment laws and
regulations, regulatory capital requirements, or review by regulatory
authorities, then you may be subject to restrictions on investment in the
offered certificates. You should consult your own legal advisors for assistance
in determining the suitability of and consequences to you of the purchase,
ownership, and sale of the offered certificates.
S-21
See "Legal Investment" in this prospectus supplement and in the
accompanying prospectus.
CERTIFICATE RATINGS
It is a requirement for issuance of the offered certificates that they
receive credit ratings no lower than the following credit ratings from Moody's
Investors Service, Inc. and Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.:
MOODY'S S&P
--------- ----
Class A-1 .......... Aaa AAA
Class A-2 .......... Aaa AAA
Class A-3 .......... Aaa AAA
Class A-4 .......... Aaa AAA
Class A-5 .......... Aaa AAA
Class XP ........... Aaa AAA
Class B ............ Aa2 AA
Class C ............ Aa3 AA-
Class D ............ A2 A
Class E ............ A3 A-
The ratings of the offered certificates address the likelihood of the
timely payment of interest and the ultimate repayment of principal by the rated
final distribution date. A security rating does not address the frequency of
prepayments (either voluntary or involuntary) 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 the
collection of excess 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. See "Ratings" in this prospectus supplement and "Rating" in the
accompanying prospectus for a discussion of the basis upon which ratings are
assigned, the limitations and restrictions on ratings, and conclusions that
should not be drawn from a rating.
S-22
RISK FACTORS
o 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
MORTGAGE LOANS. THEREFORE, YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS
RELATING TO THE MORTGAGE LOANS AND THE MORTGAGED PROPERTIES.
o 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.
o IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, YOUR INVESTMENT COULD BE
MATERIALLY AND ADVERSELY AFFECTED.
o 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
YOUR LACK OF CONTROL OVER THE
TRUST FUND CAN CREATE RISK... 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 Mortgage Loans--
General" in this prospectus supplement. Such
decisions are generally made, subject to the
express terms of the pooling 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.
POTENTIAL CONFLICTS
OF INTEREST................... The special servicer will have latitude in
determining whether to liquidate or modify
defaulted mortgage loans. See "Servicing of the
Mortgage Loans--Modifications, Waivers,
Amendments and Consents" in this prospectus
supplement.
The master servicer, the special servicer or an
affiliate of either may purchase certain of the
certificates. This could cause a conflict
between the master servicer's or the special
servicer's duties to the trust under the
pooling and servicing agreement and its
interest as a holder of a certificate. In
addition, the master servicer is a mortgage
loan seller. This could cause a conflict
between the master servicer's duty to the trust
under the pooling and servicing agreement and
its interest as the mortgage loan seller.
However, the pooling and servicing agreement
provides that the mortgage loans shall be
administered in accordance with the servicing
standards without regard to ownership of any
certificate by the master servicer, the special
servicer or any affiliate of the master
servicer or the special servicer. See
"Servicing of the Mortgage Loans --General" in
this prospectus supplement.
S-23
In addition, certain of the mortgage loans
included in the trust fund may have been
refinancings of debt previously held by an
affiliate of a mortgage loan seller.
The related property managers and borrowers may
experience conflicts of interest in the
management and/or ownership of the real
properties securing the mortgage loans because
o a substantial number of the mortgaged real
properties are managed by property managers
affiliated with the respective borrowers;
o these property managers also may manage
and/or franchise additional properties,
including properties that may compete with
the mortgaged real properties; and
o affiliates of the property managers and/or
the borrowers, or the property managers
and/or the borrowers themselves also may own
other properties, including competing
properties.
PREPAYMENTS WILL AFFECT
DISTRIBUTIONS AND YIELD
CONSIDERATIONS............... The yield on any offered certificate will
depend on (a) the price at which such
certificate is purchased by an investor and (b)
the rate, timing and amount of distributions on
such certificate. The rate, timing and amount
of distributions on any offered certificate
will, in turn, depend on, among other things:
o the pass-through rate for such certificate;
o the rate and timing of principal payments
(including principal prepayments) and other
principal collections on or in respect of
the mortgage loans and the extent to which
such amounts are to be applied or otherwise
result in a reduction of the certificate
balance of the class of certificates to
which such certificate belongs;
o the rate, timing and severity of realized
losses and additional trust fund expenses
(each as described in this prospectus
supplement) and the extent to which such
losses and expenses result in the failure to
pay interest on, or a reduction of the
certificate balance of, the class of
certificates to which such certificate
belongs;
o the timing and severity of any net aggregate
prepayment interest shortfalls (each as
described in this prospectus supplement) and
the extent to which such shortfalls are
allocated in reduction of the distributable
certificate interest payable on the class of
certificates to which such certificate
belongs; and
S-24
o the extent to which prepayment premiums are
collected and, in turn, distributed on the
class of certificates to which such
certificate belongs.
It is impossible to predict with certainty any
of the factors described in the preceding
paragraph. Accordingly, investors may find it
difficult to analyze the effect that such
factors might have on the yield to maturity of
any class of offered certificates. See
"Description of the Mortgage Pool",
"Description of the Certificates--
Distributions" 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.
PREPAYMENT AND REPURCHASES MAY
AFFECT THE YIELD TO MATURITY
OF YOUR CERTIFICATES......... The yield to maturity on your certificates
will depend, in significant part, upon the rate
and timing of principal payments on the
mortgage 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,
purchases or repurchases upon breaches of
representations and warranties.
The investment performance of your certificates
may vary materially and adversely from your
expectations if the actual rate of prepayment
on the mortgage loans is higher or lower than
you anticipate.
Voluntary prepayments, if permitted, generally
require payment of a prepayment premium.
Nevertheless, we cannot assure you that the
related borrowers will refrain from prepaying
their mortgage loans due to the existence of a
prepayment premium. Also, we cannot assure you
that involuntary prepayments will not occur.
The rate at which voluntary prepayments occur
on the mortgage loans will be affected by a
variety of factors, including:
o the terms of the mortgage loans;
o the length of any prepayment lockout period;
o the level of prevailing interest rates;
o the availability of mortgage credit;
o the applicable yield maintenance charges or
prepayment premiums;
S-25
o the master servicer's or special servicer's
ability to enforce those charges or
premiums;
o the occurrence of casualties or natural
disasters; and
o economic, demographic, tax, legal or other
factors.
No yield maintenance charge or prepayment
premium will be generally required for
prepayments in connection with a casualty or
condemnation. In addition, if a mortgage loan
seller repurchases any mortgage loan from the
trust due to a material breach of
representations or warranties or a material
document defect, the repurchase price paid will
be passed through to the holders of the
certificates with the same effect as if the
mortgage loan had been prepaid in part or in
full, except that no prepayment premium or
yield maintenance charge would be payable. The
repurchase price paid by a mortgage loan seller
may not include a liquidation fee. Such a
repurchase may therefore adversely affect the
yield to maturity on your certificates.
The yield to maturity of the Class XP
Certificates will be highly sensitive to the
rate and timing of principal payments
(including by reason of prepayments, loan
extensions, defaults and liquidations) and
losses on the mortgage loans. Investors in the
Class XP Certificates should fully consider the
associated risks, including the risk that an
extremely rapid rate of amortization,
prepayment or other liquidation of the mortgage
loans could result in the failure of such
investors to recoup fully their initial
investments. No representation is made as to
the anticipated rate of prepayments on the
mortgage loans or as to the anticipated yield
to maturity of any Certificate. See "Yield and
Maturity Considerations--Yield Sensitivity of
the Class XP Certificates" herein.
In the case of the Class XP Certificates, and
any class of certificates purchased at a
premium, if principal payments on the mortgage
loans occur at a rate faster than anticipated
at the time of purchase, then (to the extent
that the required prepayment premiums are not
received or are distributable to a different
class of certificates) the investors' actual
yield to maturity will be lower than that
assumed at the time of purchase.
BORROWER DEFAULTS MAY ADVERSELY
AFFECT YOUR YIELD............ The rate and timing of delinquencies or
defaults on the mortgage loans will affect:
o the aggregate amount of distributions on the
offered certificates;
o their yield to maturity;
S-26
o the rate of principal payments; and
o their weighted average life.
If losses on the mortgage loans exceed the
aggregate principal amount of the classes of
certificates subordinated to a particular
class, such class will suffer a loss equal to
the full amount of such excess (up to the
outstanding principal amount of such
certificate).
If you calculate your anticipated yield based
on assumed rates of defaults and losses that
are lower than the default rate and losses
actually experienced and such losses are
allocable to your certificates, your actual
yield to maturity will be lower than the
assumed yield. Under certain extreme scenarios,
such yield could be negative. In general, the
earlier a loss borne by you on your
certificates occurs, the greater the effect on
your yield to maturity.
Even if losses on the mortgage 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 those losses lead to your certificates
having a higher percentage ownership interest
in the trust and related distributions of
principal payments on the mortgage loans than
would otherwise have been the case. The effect
on the weighted average life and yield to
maturity of your certificates will depend upon
the characteristics of the remaining mortgage
loans.
Additionally, delinquencies and defaults on the
mortgage loans may significantly delay the
receipt of distributions by you on your
certificates, unless certain 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.
THE BORROWER'S FORM OF ENTITY
MAY CAUSE SPECIAL RISKS...... Most of the borrowers are legal entities
rather than individuals. Mortgage loans made to
legal entities may entail risks of loss greater
than those of mortgage loans made to
individuals. For example, a legal entity, as
opposed to an individual, may be more inclined
to seek legal protection from its creditors
under the bankruptcy laws. Unlike individuals
involved in bankruptcies, most of the entities
generally do not have personal assets and
creditworthiness at stake. The terms of the
mortgage loans generally require that the
borrowers covenant to be single-purpose
entities, although in many cases the borrowers
are not required to observe all covenants and
conditions which typically are required in
order for them to be viewed under standard
rating agency criteria as "special purpose
entities." In general, borrowers'
S-27
organizational documents or the terms of the
mortgage loans limit their activities to the
ownership of only the related mortgaged
property or properties and limit the
borrowers' ability to incur additional
indebtedness. These provisions are designed to
mitigate the possibility that the borrowers'
financial condition would be adversely
impacted by factors unrelated to the mortgaged
property and the mortgage loan in the pool.
However, we cannot assure you that the related
borrowers will comply with these requirements.
The bankruptcy of a borrower, or a general
partner or managing member of a borrower, may
impair the ability of the lender to enforce
its rights and remedies under the related
mortgage.
Many of the borrowers are not special purpose
entities structured to limit the possibility of
becoming insolvent or bankrupt, and therefore
may be more likely to become insolvent or the
subject of a voluntary or involuntary
bankruptcy proceeding because such borrowers
may be:
o operating entities with businesses distinct
from the operation of the property with the
associated liabilities and risks of
operating an ongoing business; or
o individuals that have personal liabilities
unrelated to the property.
However, any borrower, even a special purpose
entity structured to be bankruptcy-remote, as
an owner of real estate will be subject to
certain potential liabilities and risks. We
cannot provide assurances that any borrower
will not file for bankruptcy protection or that
creditors of a borrower or a corporate or
individual general partner or managing member
of a borrower will not initiate a bankruptcy or
similar proceeding against such borrower or
corporate or individual general partner or
managing member.
Furthermore, with respect to any related
borrowers, creditors of a common parent in
bankruptcy may seek to consolidate the assets
of such borrowers with those of the parent.
Consolidation of the assets of such borrowers
would likely have an adverse effect on the
funds available to make distributions on your
certificates, and may lead to a downgrade,
withdrawal or qualification of the ratings of
your certificates. In this respect, eight
groups of mortgage loans, representing 37.7%,
of the initial pool balance are made to
affiliated borrowers. See "Certain Legal
Aspects of Mortgage Loans--Bankruptcy Laws" in
the accompanying prospectus.
S-28
BANKRUPTCY PROCEEDINGS
ENTAIL CERTAIN RISK.......... Under the federal bankruptcy law, the filing
of a petition in bankruptcy by or against a
borrower will stay the sale of the real
property owned by that borrower, as well as the
commencement or continuation of a foreclosure
action. In addition, even if a court determines
that the value of the mortgaged property is
less than the principal balance of the mortgage
loan it secures, the court may prevent a lender
from foreclosing on the mortgaged property
(subject to certain protections available to
the lender). As part of a restructuring plan, a
court also may reduce the amount of secured
indebtedness to the then-value of the mortgaged
property, which action would make the lender a
general unsecured creditor for the difference
between the then-current 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
mortgage loan; (2) reduce periodic payments due
under a mortgage loan; (3) change the rate of
interest due on a mortgage loan; or (4)
otherwise alter the mortgage 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 securitization trustee may be
subordinated to financing obtained by a
debtor-in-possession subsequent to its
bankruptcy.
Under the federal bankruptcy law, the lender
will be stayed from enforcing a borrower's
assignment of rents and leases. The federal
bankruptcy law also may interfere with the
master servicer's or special servicer's
ability to enforce lockbox requirements. The
legal proceedings necessary to resolve these
issues can be time consuming and may
significantly delay or diminish the receipt of
rents. Rents also may escape an assignment to
the extent they are used by the borrower to
maintain the mortgaged property or for other
court authorized expenses.
As a result of the foregoing, the trustee's
recovery with respect to borrowers in
bankruptcy proceedings may be significantly
delayed, and the aggregate amount ultimately
collected may be substantially less than the
amount owed.
Certain of the mortgage loans may have
sponsors that have previously filed
bankruptcy, which in some cases may have
involved the same property which currently
secures the mortgage loan. In each case, the
related entity
S-29
or person has emerged from bankruptcy.
However, we cannot assure you that such
sponsors will not be more likely than other
sponsors to utilize their rights in bankruptcy
in the event of any threatened action by the
mortgagee to enforce its rights under the
related loan documents.
ADDITIONAL COMPENSATION TO THE
SERVICER WILL AFFECT YOUR RIGHT
TO RECEIVE DISTRIBUTIONS..... 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 mortgage
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 offered certificates. The payment of
interest on advances and the payment of
compensation to the special servicer may lead
to shortfalls in amounts otherwise
distributable on your certificates.
LIQUIDITY FOR CERTIFICATES MAY
BE LIMITED................... Your certificates will not be listed on any
securities exchange or traded on the NASDAQ
Stock Market, and there is currently no
secondary market for your certificates. While
the underwriters currently intend to make a
secondary market in the offered certificates,
they are not obligated to do so. Accordingly,
you may not have an active or liquid secondary
market for your certificates. Lack of liquidity
could result in a substantial decrease in the
market value of your certificates. Many other
factors may affect the market value of your
certificates including the then-prevailing
interest rates.
MORTGAGE LOAN AMORTIZATION
WILL AFFECT PAYMENT.......... As principal payments or prepayments are made
on a mortgage loan that is part of a pool of
mortgage loans, the pool will be subject to
more concentrated risks with respect to the
diversity of mortgaged properties, types of
mortgaged properties and number of borrowers,
as described above. Classes that have a later
sequential designation or a lower payment
priority are more likely to be exposed to this
concentration risk than are classes with an
earlier sequential designation or a higher
priority. This is the case because principal on
the offered certificates is generally payable
in sequential order, and no class entitled to
distribution of principal generally
S-30
receives principal until the principal amount
of the preceding class or classes entitled to
receive principal have been reduced to zero.
SUBORDINATION CREATES SPECIAL
CONSIDERATIONS FOR INVESTORS IN
SUBORDINATE OFFERED
CERTIFICATES.................. As described in this prospectus supplement,
unless your certificates are Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5, Class XC
or Class XP Certificates, your rights to
receive distributions of amounts collected or
advanced on or in respect of the mortgage loans
will be subordinated to those of the holders of
the offered certificates with an earlier
alphabetical designation.
GRACE PERIODS UNDER THE MORTGAGE
LOANS MAY IMPACT THE MASTER
SERVICER'S OBLIGATION
TO ADVANCE.................... The mortgage loans have grace periods for
monthly payments ranging from 0 to 10 days. In
some cases, such grace periods may run past the
determination date. If borrowers pay at the end
of such grace periods rather than on the due
dates for such monthly payments, the master
servicer will be required to make an advance
for such monthly payment (and monthly servicing
reports will show significant advances as a
result) even though the borrower is not
technically delinquent under the terms of its
mortgage loan. No interest will accrue on these
advances made by the master servicer until
after the end of the related grace period. For
purposes of the foregoing discussions, a grace
period is the number of days before a late
payment charge is due on a mortgage loan, which
may be different from the date an event of
default would occur under the mortgage loan.
RISKS TO THE MORTGAGED
PROPERTIES RELATING TO RECENT
TERRORIST ATTACKS AND FOREIGN
CONFLICTS.................... On September 11, 2001, the United States was
subjected to multiple terrorist attacks which
resulted in considerable uncertainty in the
world financial markets. The terrorist attacks
on the World Trade Center and the Pentagon
suggest an increased likelihood that large
public areas such as shopping malls or large
office buildings could become the target of
terrorist attacks in the future. The
possibility of such attacks could (i) lead to
damage to one or more of the mortgaged
properties if any such attacks occur, (ii)
result in higher costs for insurance premiums
and such higher premiums could adversely affect
the cash flow at such mortgaged properties or
(iii) impact leasing patterns or shopping
patterns which could adversely impact leasing
revenue and mall traffic and percentage rent.
As a result, the ability of the mortgaged
properties to generate cash flow may be
adversely affected. In addition, the United
States is engaged in continuing military
operations in Iraq, Afghanistan and elsewhere.
It is uncertain what effect these operations
will have on
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domestic and world financial markets,
economies, real estate markets, insurance costs
or business segments. The full impact of these
events is not yet known but could include,
among other things, increased volatility in the
price of securities including the certificates.
The terrorist attacks may also adversely affect
the revenues or costs of operation of the
mortgaged properties. With respect to shopping
patterns, such events have significantly
reduced air travel throughout the United States
and, therefore, have had a negative effect on
revenues in areas heavily dependent on tourism.
The decrease in air travel may have a negative
effect on certain of the mortgaged properties
that are dependent on tourism or that are
located in areas heavily dependent on tourism
which could reduce the ability of the affected
mortgaged properties to generate cash flow. The
attacks also could result in higher costs for
insurance or for security, particularly for
larger properties. See "--Property Insurance
May Not Protect Your Certificates from Loss in
the Event of Casualty or Loss" below.
Accordingly, these disruptions, uncertainties
and costs could materially and adversely affect
your investment in the certificates.
RISKS RELATED TO THE MORTGAGE LOANS
RISKS ASSOCIATED WITH COMMERCIAL
LENDING MAY BE DIFFERENT THAN
FOR RESIDENTIAL LENDING...... The mortgaged properties consist solely of
multifamily rental and commercial properties.
Commercial and multifamily lending is generally
viewed as exposing a lender to a greater risk
of loss than residential one to four family
lending because it usually involves larger
loans to a single borrower or a group of
related borrowers.
The repayment of a commercial or multifamily
loan is typically dependent upon the ability
of the applicable property to produce cash
flow through the collection of rents or other
operating revenues. Even the liquidation value
of a commercial property is determined, in
substantial part, by the capitalization of the
property's cash flow. However, net operating
income can be volatile and may be insufficient
to cover debt service on the loan at any given
time.
The net operating incomes and property values
of the mortgaged properties may be adversely
affected by a large number of factors. Some of
these factors relate to the properties
themselves, such as:
o the age, design and construction quality of
the properties;
o perceptions regarding the safety,
convenience and attractiveness of the
properties;
o the proximity and attractiveness of
competing properties;
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o the adequacy of the property's management
and maintenance;
o increases in operating expenses;
o an increase in the capital expenditures
needed to maintain the properties or make
improvements;
o dependence upon a single tenant and
concentration of tenant in a particular
business;
o a decline in the financial condition of a
major tenant;
o an increase in vacancy rates; and
o a decline in rental rates as leases are
renewed or entered into with new tenants.
Other factors are more general in nature, such
as:
o national, regional or local economic
conditions, including plant closings,
military base closings, industry slowdowns
and unemployment rates;
o local real estate conditions, such as an
oversupply of retail space, office space or
multifamily housing;
o demographic factors;
o changes or continued weakness in specific
industry segments;
o the public perception of safety for
customers and clients;
o consumer confidence;
o consumer tastes and preferences;
o retroactive changes in building codes;
o conversion of a property to an alternative
use;
o new construction in the market; and
o number and diversity of tenants.
The volatility of net operating income will be
influenced by many of the foregoing factors,
as well as by:
o the length of tenant leases;
o the creditworthiness of tenants;
o in the case of rental properties, the rate
at which new rentals occur;
o tenant defaults;
o the property's "operating leverage" which is
generally the percentage of total property
expenses in relation to revenue, the ratio
of fixed operating expenses to those that
vary with revenues, and the level of capital
expenditures required to maintain the
property and to retain or replace tenants;
and
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o in the case of government sponsored tenants,
the right of the tenant in some instances to
cancel a lease due to a lack of
appropriations.
A decline in the real estate market or in the
financial condition of a major tenant will
tend to have a more immediate effect on the
net operating income of properties with
short-term revenue sources, such as short-term
or month-to-month leases, and may lead to
higher rates of delinquency or defaults.
Commercial properties represent security for
81.1% of the initial pool balance. Manufactured
housing communities represent security for 8.9%
of the initial pool balance. Lending on
commercial properties and manufactured housing
communities is generally perceived as involving
greater risk than lending on the security of
multifamily residential properties. Certain
types of commercial properties and manufactured
housing communities are exposed to particular
kinds of risks. See "Risk Factors-- Risks
Related to the Mortgage Loans--Particular
Property Types Present Special Risks--Risks
Particular to Retail Properties", "--Office
Properties", "--Industrial and Warehouse
Properties", "--Self-Storage Properties",
"--Manufactured Housing Communities" and
"--Hotel Properties" in this prospectus
supplement.
POOR PROPERTY MANAGEMENT WILL
LOWER THE PERFORMANCE OF THE
RELATED MORTGAGE PROPERTY.... The successful operation of a real estate
project depends upon the property manager's
performance and viability. The property manager
is responsible for:
o responding to changes in the local market;
o planning and implementing the rental
structure;
o operating the property and providing
building services;
o managing operating expenses; and
o assuring that maintenance and capital
improvements are carried out in a timely
fashion.
Properties deriving revenues primarily from
short-term sources, such as short-term or
month-to-month leases, are generally more
management intensive than properties leased to
creditworthy tenants under long-term leases.
Good management, by controlling costs,
providing services to tenants and seeing to
property maintenance and upkeep, can, in some
cases, improve cash flow, reduce vacancy,
leasing and repair costs and preserve property
value. Poor management could impair short term
cash flow and the long term viability of a
property.
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We make no representation or warranty as to the
skills of any present or future managers.
Additionally, we cannot assure you that the
property managers will be in a financial
condition to fulfill their management
responsibilities throughout the terms of their
respective management agreements.
Furthermore, we cannot assure you that the
mortgaged properties will not have related
management which in the event that a related
management company is incapable of performing
its duties may affect one or more groups of
mortgaged properties.
BALLOON LOANS MAY PRESENT GREATER
RISK THAN FULLY
AMORTIZING LOANS.............. Seventy-six of the mortgage loans, excluding
those mortgage loans that are interest only
until maturity or the anticipated repayment
date, representing 81.7% of the initial pool
balance, as of the cut-off date, will have
substantial payments (that is, balloon
payments) due at their respective stated
maturities unless the mortgage loan is
previously prepaid. Forty-four of the mortgage
loans representing in the aggregate 34.9% of
the initial pool balance as of the cut-off
date, will have balloon payments due during the
period from August 1, 2013, through March 1,
2014. In addition, 18 of the mortgage loans
representing 18.0% of the initial pool balance
as of the cut-off date, will provide for
payments of interest only until maturity or the
anticipated repayment date.
Mortgage loans with balloon payments or
substantial scheduled principal balances
involve a greater risk to the lender than fully
amortizing loans, because the borrower's
ability to repay a mortgage loan on its
maturity date or anticipated repayment date
typically will depend upon its ability either
to refinance the loan or to sell the related
mortgaged property at a price sufficient to
permit repayment. In addition, fully amortizing
mortgage loans which accrue interest on an
"actual/360" basis but have fixed monthly
payments, may, in fact, have a small balloon
payment due at maturity. Circumstances that
will affect the ability of the borrower to
accomplish either of these goals at the time of
attempted sale or refinancing include:
o the prevailing mortgage rates;
o the fair market value of the property;
o the borrower's equity in the related
property;
o the financial condition of the borrower and
operating history of the property;
o the operating history of the property and
occupancy levels of the property;
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o reduction in applicable government
assistance/rent subsidy programs;
o tax laws;
o prevailing general and regional economic
conditions; and
o the availability of, and competition for,
credit for multifamily or commercial
properties, as the case may be.
We cannot assure you that each borrower will
have the ability to repay the remaining
principal balance on the pertinent date. See
"Description of the Mortgage Pool--Certain
Terms and Conditions of the Mortgage
Loans"and"--Additional Mortgage Loan
Information" in this prospectus supplement and
"Risk Factors--Certain Factors Affecting
Delinquency, Foreclosure and Loss of the
Mortgage Loans--Increased Risk of Default
Associated with Balloon Payments" in the
accompanying prospectus.
The availability of funds in the mortgage and
credit markets fluctuates over time. None of
the mortgage loan sellers, none of the parties
to the pooling and servicing agreement, and no
third party is obligated to refinance any
mortgage loan.
PARTICULAR PROPERTY TYPES PRESENT
SPECIAL RISKS:
OFFICE PROPERTIES............. Office properties secure 23 of the mortgage
loans, representing 39.2% of the initial pool
balance as of the cut-off date.
A large number of factors may adversely affect
the value of office properties, including:
o the number and quality of an office
building's tenants;
o the physical attributes of the building in
relation to competing buildings (e.g., age,
condition, design, access to transportation
and ability to offer certain amenities, such
as sophisticated building systems);
o the desirability of the area as a business
location;
o the strength and nature of the local economy
(including labor costs and quality, tax
environment and quality of life for
employees);
o an adverse change in population, patterns of
telecommuting or sharing of office space;
o local competitive conditions, including the
supply of office space or the existence or
construction of new competitive office
buildings;
o quality of management;
o changes in population and employment
affecting the demand for office space;
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o properties not equipped for modern business
may become functionally obsolescent; and
o declines in the business of tenants,
especially single tenanted property.
In addition, there may be significant costs
associated with tenant improvements, leasing
commissions and concessions in connection with
reletting office space. Moreover, the cost of
refitting office space for a new tenant is
often higher than the cost of refitting other
types of property.
Included in the office properties references
above are 3 medical office properties
representing 1.3% of the initial pool balance.
The performance of a medical office property
may depend on the proximity of such property to
a hospital or other health care establishment
and on reimbursements for patient fees from
private or government-sponsored insurance
companies. The sudden closure of a nearby
hospital may adversely affect the value of a
medical office property. In addition, the
performance of a medical office property may
depend on reimbursements for patient fees from
private or government-sponsored insurers and
issues related to reimbursement (ranging from
non-payment to delays in payment) from such
insurers could adversely impact cash flow at
such mortgaged properties. Moreover, medical
office properties appeal to a narrow market of
tenants and the value of a medical office
property may be adversely affected by the
availability of competing medical office
properties.
RETAIL PROPERTIES............. Retail properties secure 33 of the mortgage
loans, representing 37.3% of the initial pool
balance as of the cut-off date.
Several factors may adversely affect the value
and successful operation of a retail property,
including:
o 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);
o 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);
o the quality and philosophy of management;
o the safety, convenience and attractiveness
of the property to tenants and their
customers or clients;
o the public perception of the safety of
customers at shopping malls and shopping
centers;
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o the need to make major repairs or
improvements to satisfy the needs of major
tenants; and
o traffic patterns and access to major
thoroughfares.
The general strength of retail sales also
directly affects retail properties. The
retailing industry is currently undergoing
consolidation due to many factors, including
growth in discount and alternative forms of
retailing. If the sales by tenants in the
mortgaged properties that contain retail space
were to decline, the rents that are based on a
percentage of revenues may also decline, and
tenants may be unable to pay the fixed portion
of their rents or other occupancy costs. The
cessation of business by a significant tenant
can adversely affect a retail property, not
only because of rent and other factors specific
to such tenant, but also because significant
tenants at a retail property play an important
part in generating customer traffic and making
a retail property a desirable location for
other tenants at such property. In addition,
certain tenants at retail properties may be
entitled to terminate their leases if an anchor
tenant fails to renew or terminates its lease,
becomes the subject of a bankruptcy proceeding
or ceases operations at such property.
The presence or absence of an "anchor tenant"
or a "shadow anchor" in or near a shopping
center also can be important because anchors
play a key role in generating customer traffic
and making a shopping center desirable for
other tenants. An "anchor tenant" is usually
proportionately larger in size than most other
tenants in the mortgaged property, is vital in
attracting customers to a retail property and
is located on or adjacent to the related
mortgaged property. A "shadow anchor" is
usually proportionally larger in size than
most tenants in the mortgaged property, is
important in attracting customers to a retail
property and is located sufficiently close and
convenient to the mortgaged property, but not
on the mortgaged property, so as to influence
and attract potential customers. Thirty-two of
the mortgaged properties, securing mortgage
loans representing approximately 34.8% of the
aggregate principal balance of the pool of
mortgage loans as of the cut-off date are
secured by retail properties that are
considered by the applicable mortgage loan
seller to have an "anchor tenant." One of the
mortgaged properties, securing mortgage loans
representing approximately 0.3% of the
aggregate principal balance of the pool of
mortgage loans as of the cut-off date, are
retail properties that are considered by the
applicable mortgage loan seller to be "shadow
anchored." Seven of the mortgaged properties,
securing mortgage loans representing
approximately 2.2% of the aggregate principal
balance of the pool of mortgage loans as of
the cut-off date, are retail properties that
are
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considered by the applicable mortgage loan
seller to be "unanchored."
If anchor stores in a mortgaged property were
to close, the related borrower may be unable
to replace those anchors in a timely manner or
without suffering adverse economic
consequences. Certain of the tenants or anchor
stores of the retail properties may have
co-tenancy clauses and/or operating covenants
in their leases or operating agreements which
permit those tenants or anchor stores to cease
operating under certain conditions, including,
without limitation, certain other stores not
being open for business at the mortgaged
property or a subject store not meeting the
minimum sales requirement under its lease. In
addition, in the event that a "shadow anchor"
fails to renew its lease, terminates its lease
or otherwise ceases to conduct business within
a close proximity to the mortgaged property,
customer traffic at the mortgaged property may
be substantially reduced. We cannot assure you
that such space will be occupied or that the
related mortgaged property will not suffer
adverse economic consequences.
MULTIFAMILY PROPERTIES........ Multifamily properties secure 21 of the
mortgage loans, representing 10.0% of the
initial pool balance as of the cut-off date.
Several factors may adversely affect the value
and successful operation of a multifamily
property, including:
o the physical attributes of the apartment
building (e.g., its age, appearance and
construction quality);
o the location of the property (e.g., a change
in the neighborhood over time);
o the ability and willingness of management to
provide adequate maintenance and insurance;
o the types of services or amenities the
property provides;
o the property's reputation;
o the level of mortgage interest rates (which
may encourage tenants to purchase rather
than lease housing);
o the tenant mix, such as the tenant
population being predominantly students or
being heavily dependent on workers from a
particular business or personnel from a
local military base;
o the presence of competing properties;
o dependence on governmental programs that
provide rental subsidies to tenants pursuant
to tenant voucher programs, which vouchers
may be used at other properties to influence
tenant mobility;
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o adverse local or national economic
conditions which may limit the amount of
rent that may be charged and may result in a
reduction of timely rent payments or a
reduction in occupancy levels; and
o state and local regulations which may affect
the building owner's ability to increase
rent to market rent for an equivalent
apartment.
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
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
bases 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. Any limitations on a
borrower's ability to raise property rents may
impair such borrower's ability to repay its
multifamily loan from its net operating income
or the proceeds of a sale or refinancing of
the related multifamily property.
Certain of the mortgage loans are secured by
mortgaged properties that are eligible (or
become eligible in the future) for and have
received low income housing tax credits
pursuant to Section 42 of the Internal Revenue
Code in respect of various units within the
mortgaged property or have tenants that rely
on rent subsidies under various
government-funded programs, including the
Section 8 Tenant-Based Assistance Rental
Certificate Program of the United States
Department of Housing and Urban Development.
We can give you no assurance that such
programs will be continued in their present
form or that the level of assistance provided
will be sufficient to generate enough revenues
for the related borrower to meet its
obligations under the related mortgage loans.
Certain of the mortgage loans are secured or
may be secured in the future by mortgaged
properties that are
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subject to certain affordable housing
covenants, in respect of various units within
the mortgaged properties.
In this respect, 14 multifamily properties,
which secure mortgage loans representing 3.7%
of the initial pool balance, are subject to
New York City's rent stabilization laws.
MANUFACTURED HOUSING
COMMUNITIES.................. Manufactured housing communities secure 6 of
the mortgage loans representing 8.9% of the
initial pool balance as of the cut-off date.
Significant factors determining the value of
such properties are generally similar to the
factors affecting the value of multifamily
residential properties. In addition, these
properties are special purpose properties that
could not be readily converted to general
residential, retail or office use. In fact,
certain states also regulate changes in
manufactured housing communities and require
that the landlord give written notice to its
tenants a substantial period of time prior to
the projected change. Consequently, if the
operation of any of such properties becomes
unprofitable such that the borrower becomes
unable to meet its obligation on the related
mortgage loan, the liquidation value of the
related property may be substantially less,
relative to the amount owing on the mortgage
loan, than would be the case if such properties
were readily adaptable to other uses.
SELF-STORAGE PROPERTIES....... Self-storage properties secure 10 of the
mortgage loans, representing 3.4% of the
initial pool balance as of the cut-off date.
Self-storage properties are considered
vulnerable to competition, because both
acquisition costs and break-even occupancy are
relatively low. The conversion of self-storage
facilities to alternative uses would generally
require substantial capital expenditures. Thus,
if the operation of any of the self-storage
mortgaged properties becomes unprofitable due
to
o decreased demand;
o competition;
o age of improvements; or
o other factors so that the borrower becomes
unable to meet its obligations on the
related mortgage loan;
the liquidation value of that self-storage
mortgaged property may be substantially less,
relative to the amount owing on the mortgage
loan, than if the self-storage mortgaged
property were readily adaptable to other uses.
Tenant privacy, anonymity and efficient access
may heighten environmental risks. No
environmental assessment of a mortgaged
property included an inspection of the
contents of the self-storage units included in
the self-storage mortgaged properties and
there is no assurance that all of the units
included in the
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self-storage mortgaged properties are free
from hazardous substances or other pollutants
or contaminants or will remain so in the
future.
INDUSTRIAL AND
WAREHOUSE PROPERTIES.......... Industrial and warehouse properties secure 1 of
the mortgage loans representing 0.6% of the
initial pool balance as of the cut-off date
Among the significant factors determining the
value of industrial and warehouse properties
are
o the quality of tenants;
o building design and adaptability (e.g.,
clear heights, column spacing, zoning
restrictions, number of bays and bay depths,
divisibility and truck turning radius); and
o the location of the property (e.g.,
proximity to supply sources and customers,
availability of labor and accessibility to
distribution channels).
In addition, industrial and warehouse
properties may be adversely affected by reduced
demand for industrial and warehouse space
occasioned by a decline in a particular
industrial site or occasioned by a decline in a
particular industry segment, and a particular
industrial and warehouse property may be
difficult to release to another tenant or may
become functionally obsolete relative to newer
properties.
HOTEL PROPERTIES.............. Hotel properties secure 1 of the mortgage
loans representing 0.5% of the initial pool
balance.
Various factors may adversely affect the
economic performance of a hotel, including:
o 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);
o the construction of competing hotels or
resorts;
o continuing expenditures for modernizing,
refurbishing and maintaining existing
facilities prior to the expiration of their
anticipated useful lives;
o a deterioration in the financial strength or
managerial capabilities of the owner and
operator of a hotel; and
o changes in travel patterns (including, for
example, the decline in air travel following
the terrorist attacks in New York City,
Washington, D.C. and Pennsylvania and the
current military operations in Iraq) caused
by changes in access, energy prices,
strikes, relocation of highways, the
construction of additional highways or other
factors.
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Because hotel rooms generally are rented for
short periods of time, the financial
performance of hotels tends to be affected by
adverse economic conditions and competition
more quickly than other commercial properties.
Moreover, the hotel and lodging industry is
generally seasonal in nature and different
seasons affect different hotels depending on
type and location. This seasonality can be
expected to cause periodic fluctuations in a
hotel property's room and restaurant revenues,
occupancy levels, room rates and operating
expenses.
When applicable, the liquor licenses for most
of the mortgaged properties are commonly held
by affiliates of the mortgagors, unaffiliated
managers and operating lessees. The laws and
regulations relating to liquor licenses
generally prohibit the transfer of such
licenses to any person. In the event of a
foreclosure of a hotel property that holds a
liquor license, the trustee or a purchaser in
a foreclosure sale would likely have to apply
for a new license, which might not be granted
or might be granted only after a delay which
could be significant. There can be no
assurance that a new license could be obtained
promptly or at all. The lack of a liquor
license in a full-service hotel could have an
adverse impact on the revenue from the related
mortgaged property or on the hotel's occupancy
rate.
Hotels may be operated under franchise,
management or operating agreements that may be
terminated by the franchisor, manager or
operator. It may be difficult to terminate a
manager of a hotel after foreclosure of a
mortgage.
AFFILIATIONS WITH A FRANCHISE
OR HOTEL MANAGEMENT COMPANY
PRESENT CERTAIN RISKS........ The mortgage loan secured by a hotel
property, representing approximately 0.5% of
the initial pool balance as of the cut-off
date, is affiliated with a franchise or hotel
management company through a franchise or
management agreement. The performance of a
hotel property affiliated with a franchise or
hotel management company depends in part on:
o the continued existence and financial
strength of the franchisor or hotel
management company;
o the public perception of the franchise or
hotel chain service mark; and
o the duration of the franchise licensing or
management agreements.
Any provision in a franchise agreement or
management agreement providing for termination
because of a bankruptcy of a franchisor or
manager generally will not be enforceable.
Replacement franchises may require
significantly higher fees.
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The transferability of a franchise license
agreement is generally restricted. In the
event of a foreclosure, the lender or its
agent may not have the right to use the
franchise license without the franchisor's
consent. Conversely, in the case of certain
mortgage loans, the lender may be unable to
remove a franchisor or a hotel management
company that it desires to replace following a
foreclosure.
SUBORDINATE FINANCING MAY MAKE
RECOVERY DIFFICULT IN THE
EVENT OF LOSS................ The terms of certain mortgage loans permit or
require the borrowers to post letters of credit
and/or surety bonds for the benefit of the
mortgage loan, which may constitute a
contingent reimbursement obligation of the
related borrower or an affiliate. The issuing
bank or surety will not typically agree to
subordination and standstill protection
benefiting the mortgagee.
Additionally, although the mortgage loans
generally restrict the pledging of general
partnership and managing member equity
interests in a borrower subject to certain
exceptions, the terms of the mortgages
generally permit, subject to certain
limitations, the pledging of less than a
controlling portion of the limited partnership
or non-managing membership equity interest in a
borrower. Moreover, in general, any borrower
that does not meet special purpose entity
criteria may not be restricted in any way from
incurring unsecured subordinate debt or
mezzanine debt. We are aware that 5 mortgage
loans representing 17.7% of the initial pool
balance provides that the members of the
borrower have the right to incur mezzanine debt
under specified circumstances set forth in the
related loan documents. The borrowers under 2
of those 5 mortgage loans, which represent
approximately 13.0% of the initial pool
balance, have existing mezzanine debt. With
respect to each of the mortgage loans that have
existing mezzanine debt, the mortgagee and the
related mezzanine lender have entered into a
mezzanine intercreditor agreement which sets
forth the rights of the parties. Pursuant to
such mezzanine intercreditor agreement, the
mezzanine lender among other things (x) has
agreed, under certain circumstances, not to
enforce its rights to realize upon collateral
securing the mezzanine loan or take any
enforcement action with respect to the
mezzanine loan without written confirmation
from the rating agencies that such enforcement
action would not cause the downgrade,
withdrawal or qualification of the current
ratings of the certificates and (y) has the
option to purchase the related mortgage loans
if such mortgage loans become defaulted or cure
the default.
Although the mortgage loans generally either
prohibit the related borrower from encumbering
the mortgaged
S-44
property with additional secured debt or
require the consent of the holder of the first
lien prior to so encumbering such property, a
violation of such prohibition may not become
evident until the related mortgage loan
otherwise defaults. In addition, the related
borrower may be permitted to incur additional
indebtedness secured by furniture, fixtures and
equipment, and to incur additional unsecured
indebtedness. When a mortgage loan borrower (or
its constituent members) also has one or more
other outstanding loans (even if subordinated
unsecured loans or loans secured by property
other than the mortgaged property), the trust
is subjected to additional risk. The borrower
may have difficulty servicing and repaying
multiple loans. The existence of another loan
generally will make it more difficult for the
borrower to obtain refinancing of the mortgage
loan or sell the related mortgaged property,
and may jeopardize the borrower's ability to
make any balloon payment due at maturity.
Moreover, the need to service additional debt
may reduce the cash flow available to the
borrower to operate and maintain the mortgaged
property. We are aware that (i) 1 mortgage loan
representing 0.8% of the initial pool balance,
permits additional unsecured debt under certain
circumstances, and (ii) 1 mortgage loan
representing 0.4% of the initial pool balance,
permits future subordinate debt secured by the
mortgaged property subject to certain
conditions.
Additionally, if the borrower (or its
constituent members) defaults on the mortgage
loan and/or any other loan, actions taken by
other lenders such as a foreclosure or an
involuntary petition for bankruptcy against the
borrower could impair the security available to
the trust, including the mortgaged property, or
stay the trust's ability to foreclose during
the course of the bankruptcy case. The
bankruptcy of another lender also may operate
to stay foreclosure by the trust. The trust may
also be subject to the costs and administrative
burdens of involvement in foreclosure or
bankruptcy proceedings or related litigation.
See "Certain Legal Aspects of Mortgage Loans
--Subordinate Financing" in the accompanying
prospectus.
The debt service requirements of mezzanine debt
reduce cash flow available to the borrower that
could otherwise be used to make capital
improvements as a result of which the value of
the property may be adversely affected. The
depositor makes no representation whether any
other subordinate financing encumbers any
mortgaged property, any borrower has incurred
material unsecured debt other than trade
payables in the ordinary course of business, or
any third party holds debt secured by a pledge
of an equity interest in a borrower.
S-45
YOUR INVESTMENT IS NOT INSURED
OR GUARANTEED................ The mortgage loans are not insured or
guaranteed by any person or entity,
governmental or otherwise.
The mortgage loans are generally non-recourse
loans. If a default occurs under any mortgage
loan, recourse generally may be had only
against the specific properties and other
assets that have been pledged to secure the
loan. Payment prior to maturity is consequently
dependent primarily on the sufficiency of the
net operating income of the mortgaged property.
Payment at maturity is primarily dependent upon
the market value of the mortgaged property or
the borrower's ability to refinance the
property. The depositor has not undertaken an
evaluation of the financial condition of any
borrower.
ADVERSE ENVIRONMENTAL CONDITIONS
MAY REDUCE CASHFLOW FROM A
MORTGAGED PROPERTY........... The trust could become liable for a material
adverse environmental condition at an
underlying real property. Any such potential
liability could reduce or delay payments on the
offered certificates.
All of the mortgaged properties were subject to
environmental site assessments in connection
with origination, including Phase I site
assessments or updates of previously performed
Phase I site assessments, had a transaction
screen performed in lieu of a Phase I site
assessment or was required to have
environmental insurance in lieu of an
environmental site assessment. In some cases,
Phase II site assessments also have been
performed. Although those assessments involved
site visits and other types of review, we
cannot assure you that all environmental
conditions and risks were identified.
The environmental investigations described
above, as of the date of the report relating to
the environmental investigation, did not reveal
any material violation of applicable
environmental laws with respect to any known
circumstances or conditions concerning the
related mortgaged property, or, if the
environmental investigation report revealed any
such circumstances or conditions with respect
to the related mortgaged property, then--
o the circumstances or conditions were
subsequently remediated in all material
respects; or
o generally, with certain exceptions, one or
more of the following was the case:
1. a party not related to the related
borrower was identified as a
responsible party for such conditions
or circumstances;
S-46
2. the related borrower was required to
provide additional security and/or to
obtain and, for the period contemplated
by the related mortgage loan documents,
maintain an operations and maintenance
plan;
3. the related borrower provided a "no
further action" letter or other evidence
that applicable federal, state or local
governmental authorities had no current
intention of taking any action, and are
not requiring any action, in respect of
such conditions or circumstances;
4. such conditions or circumstances were
investigated further and based upon such
additional investigation, an
environmental consultant recommended no
further investigation or remediation;
5. the expenditure of funds reasonably
estimated to be necessary to effect such
remediation was the lesser of (a) an
amount equal to 10 percent of the
outstanding principal balance of the
related mortgage loan and (b) two
million dollars;
6. an escrow of funds exists reasonably
estimated to be sufficient for purposes
of effecting such remediation;
7. the related borrower or other
responsible party is currently taking
such actions, if any, with respect to
such circumstances or conditions as have
been required by the applicable
governmental regulatory authority;
8. the related mortgaged property is
insured under a policy of insurance,
subject to certain per occurrence and
aggregate limits and a deductible,
against certain losses arising from such
circumstances and conditions; or
9. a responsible party provided a guaranty
or indemnity to the related borrower to
cover the costs of any required
investigation, testing, monitoring or
remediation.
In some cases, the environmental consultant did
not recommend that any action be taken with
respect to a potential adverse environmental
condition at a mortgaged real property securing
a mortgage loan that we intend to include in
the trust fund because a responsible party with
respect to that condition had already been
identified. There can be no assurance, however,
that such a responsible party will be
financially able to address the subject
condition or compelled to do so.
S-47
Furthermore, any particular environmental
testing may not have covered all potential
adverse conditions. For example, testing for
lead-based paint, lead in water and radon was
done only if the use, age and condition of the
subject property warranted that testing.
There can be no assurance that--
o the environmental testing referred to above
identified all material adverse
environmental conditions and circumstances
at the subject properties;
o the recommendation of the environmental
consultant was, in the case of all
identified problems, the appropriate action
to take;
o any of the environmental escrows established
with respect to any of the mortgage loans
that we intend to include in the trust fund
will be sufficient to cover the recommended
remediation or other action; or
o an environmental insurance policy will cover
all or part of a claim asserted against it
because such policies are subject to various
deductibles, terms, exclusions, conditions
and limitations, and have not been
extensively interpreted by the courts.
With respect to 1 of the mortgage loans,
representing 2.2% of the initial pool balance,
there is a source of contamination from
chlorine solvents adjacent to the mortgaged
property, which through migration, has
impacted the mortgaged property. Although
there appears to be an identified independent
responsible party, such designation has not
been confirmed by regulatory authorities. We
cannot assure you that the owner of mortgaged
property will not be responsible for the costs
of cleaning up the contaminates.
With respect to 1 of the mortgaged properties
securing 1 of the mortgage loans, representing
1.7% of the initial outstanding pool balance,
based upon the historical uses of such
mortgaged property involving various uses of
hazardous substances (among others, former
drycleaner establishments) a Secured Creditor
Impaired Property Policy environmental
insurance policy was obtained. The policy is
for an amount equal to the lesser of clean-up
costs on such mortgaged property or
$12,375,000.
THE BENEFITS PROVIDED BY
CROSS-COLLATERALIZATION MAY BE
LIMITED...................... As described under "Description of the
Mortgage Pool--General" in this prospectus
supplement, the mortgage pool includes 4 sets
of cross-collateralized mortgage loans, which
represent 4.6% of the initial pool balance as
of the cut-off date. Cross-collateralization
arrangements may be terminated with respect to
some mortgage loan groups under the terms of
the related mortgage loan documents.
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Cross-collateralization arrangements seek to
reduce the risk that the inability of one or
more of the mortgaged properties securing any
such set of cross-collateralized mortgage
loans (or any such mortgage loan with multiple
notes and/or mortgaged properties) to generate
net operating income sufficient to pay debt
service will result in defaults and ultimate
losses.
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:
o such borrower was insolvent when granting
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
o 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 mortgage 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:
o subordinate all or part of the pertinent
mortgage loan to existing or future
indebtedness of that borrower;
o recover payments made under that mortgage
loan; or
o take other actions detrimental to the
holders of the certificates, including,
under certain circumstances, invalidating
the mortgage loan or the mortgages securing
such cross-collateralization.
MORTGAGE LOANS TO RELATED
BORROWERS AND CONCENTRATIONS
OF RELATED TENANTS MAY
RESULT IN MORE SEVERE LOSSES
ON YOUR CERTIFICATES.......... Certain groups of borrowers under the
mortgage loans are affiliated or under common
control with one another. However, no group of
affiliated borrowers are obligors on mortgage
loans representing more than 11.3% of the
initial pool balance. In addition, tenants in
certain mortgaged properties also may be
tenants in other mortgaged properties, and
certain tenants may be owned by affiliates of
the borrowers or otherwise related to or
affiliated with a borrower. There are also
several cases in which a particular entity is a
tenant at multiple
S-49
mortgaged properties, and although it may not
be a major tenant (as described in the
prospectus supplement) at any such property,
it may be significant to the successful
performance of such properties.
In such circumstances, any adverse
circumstances relating to a borrower or tenant
or a respective affiliate and affecting one of
the related mortgage loans or mortgaged
properties could arise in connection with the
other related mortgage loans or mortgaged
properties. In particular, the bankruptcy or
insolvency of any such borrower or tenant or
respective affiliate could have an adverse
effect on the operation of all of the related
mortgaged properties and on the ability of
such related mortgaged properties to produce
sufficient cash flow to make required payments
on the related mortgage loans. For example, if
a person that owns or directly or indirectly
controls several mortgaged properties
experiences financial difficulty at one
mortgaged property, it could defer maintenance
at one or more other mortgaged properties in
order to satisfy current expenses with respect
to the mortgaged property experiencing
financial difficulty. It could also attempt to
avert foreclosure by filing a bankruptcy
petition that might have the effect of
interrupting monthly payments for an
indefinite period on all the related mortgage
loans. See "Certain Legal Aspects of Mortgage
Loans--Bankruptcy Laws" in the accompanying
prospectus.
In addition, a number of the borrowers under
the mortgage loans are limited or general
partnerships. Under certain circumstances, the
bankruptcy of the general partner in a
partnership may result in the dissolution of
such partnership. The dissolution of a
borrower partnership, the winding-up of its
affairs and the distribution of its assets
could result in an acceleration of its payment
obligations under the related mortgage loan.
THE GEOGRAPHIC CONCENTRATION
OF MORTGAGED PROPERTIES MAY
ADVERSELY AFFECT PAYMENT ON
YOUR CERTIFICATES............ A concentration of mortgaged properties in a
particular state or region increases the
exposure of the mortgage 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 mortgage loans are located, changes
in governmental rules and fiscal polices, acts
of nature, including floods, tornadoes and
earthquakes (which may result in uninsured
losses), and other factors which are beyond the
control of the borrowers. In this regard as of
the cut-off date:
o Ten of the mortgaged properties, which
constitute security for 12.7% of the initial
pool balance, are located in Florida;
S-50
o Nineteen of the mortgaged properties, which
constitute security for 11.7% of the initial
pool balance, are located in New York;
o Two of the mortgaged properties, which
constitute security for 11.2% of the initial
pool balance, are located in Pennsylvania;
o Fourteen of the mortgaged properties, which
constitute security for 11.1% of the initial
pool balance, are located in California; and
o Two of the mortgaged properties, which
constitute security for 9.2% of the initial
pool balance, are located in Minnesota.
MORTGAGE LOANS WITH HIGHER THAN
AVERAGE PRINCIPAL BALANCES MAY
CREATE MORE RISK OF LOSS..... Concentrations in a pool of mortgage loans
with larger than average balances can result in
losses that are more severe, relative to the
size of the pool, than would be the case if the
aggregate balance of such pool were more evenly
distributed. In this regard:
o twenty-six mortgage loans have cut-off date
balances that are higher than the average
cut-off date balance;
o the largest single mortgage loan, by cut-off
date balance, represents approximately 10.2%
of the initial pool balance, and the 4
groups of cross-collateralized mortgage
loans represent in the aggregate
approximately 4.6% of the initial pool
balance; and
o the ten largest mortgage loans or crossed
pools have cut-off date balances that
represent in the aggregate 41.9% of the
initial pool balance.
CHANGES IN CONCENTRATION MAY
SUBJECT YOUR CERTIFICATES TO
GREATER RISK OF LOSS......... As payments in respect of principal (including
payments in the form of voluntary principal
prepayments, liquidation proceeds (as described
in this prospectus supplement) and the
repurchase prices for any mortgage loans
repurchased due to breaches of representations
or warranties) are received with respect to the
mortgage loans, the remaining mortgage loans as
a group may exhibit increased concentration
with respect to the type of properties,
property characteristics, number of borrowers
and affiliated borrowers and geographic
location. Because principal on the certificates
(other than the Class XC, Class XP, Class R-I
and Class R-II Certificates) is payable in
sequential order, classes that have a lower
priority with respect to the payment of
principal are relatively more likely to be
exposed to any risks associated with changes in
concentrations.
S-51
PREPAYMENT PREMIUMS PRESENT
SPECIAL RISKS................ Ninety-two of the mortgage loans, representing
98.9% of the initial pool balance as of the
cut-off date generally prohibit any voluntary
prepayment of principal prior to the final 1 to
6 scheduled monthly payments which includes any
payment that is due upon the stated maturity
date or anticipated repayment date, as
applicable of the related mortgage loan;
however, these mortgage loans generally permit
defeasance. In addition, 28 of the mortgage
loans representing 16.2% of the initial pool
balance, (a) have an initial lock-out period,
(b) are then subject after expiration of the
initial lock-out period to a period where the
borrower has an option to prepay the loan
subject to a prepayment premium, and (c)
becomes thereafter prepayable without an
accompanying prepayment premium prior to its
maturity. In addition, 3 of the mortgage loans,
representing 2.1% of the initial pool balance
as of the cut-off date, are prepayable at any
time subject to a prepayment premium. See
"Description of the Mortgage Pool--Certain
Terms and Conditions of the Mortgage
Loans--Prepayment Provisions" in this
prospectus supplement. Any prepayment premiums
actually collected on the remaining mortgage
loans, which generally permit voluntary
prepayments during particular periods and,
depending on the period, require the payment of
a prepayment premium with such prepayment, 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" in this prospectus
supplement. The depositor, however, makes no
representation as to the collectibility of any
prepayment premium.
See "Servicing of the Mortgage
Loans--Modifications, Waivers, Amendments and
Consents" in this prospectus supplement and
"Certain Legal Aspects of Mortgage
Loans--Default Interest and Limitations on
Prepayments" in the accompanying prospectus.
See "Description of the Mortgage
Pool--Assignment of the Mortgage Loans;
Repurchases" and "--Representations and
Warranties; Repurchases and Substitutions",
"Servicing of the Mortgage Loans--Defaulted
Mortgage Loans; Purchase Option" and
"Description of the Certificates-- Termination"
in this prospectus supplement.
Generally. 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
S-52
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 or usurious
under applicable law.
We also note the following with respect to
prepayment premiums
o liquidation proceeds (as described in this
prospectus supplement) recovered in respect
of any defaulted mortgage loan will, in
general, be applied to cover outstanding
advances prior to being applied to cover any
prepayment premium due in connection with
the liquidation of such mortgage loan;
o the special servicer may waive a prepayment
premium in connection with obtaining a
pay-off of a defaulted mortgage loan;
o no prepayment premium will be payable in
connection with any repurchase of a mortgage
loan resulting from a material breach of
representation or warranty or a material
document defect by the mortgage loan seller;
o no prepayment premium will be payable in
connection with the purchase of all of the
mortgage loans and any REO properties by the
special servicer, 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;
o no prepayment premium will be payable in
connection with the purchase of defaulted
mortgage loans by the master servicer,
special servicer, or any holder or holders
of certificates evidencing a majority
interest in the controlling class; and
o in general, no prepayment premium is payable
with respect to a prepayment due to casualty
or condemnation.
See "Servicing of the Mortgage Loans--
Modifications, Waivers, Amendments and
Consents" in this prospectus supplement and
"Certain Legal Aspects of Mortgage Loans--
Default Interest and Limitations on
Prepayments" in the accompanying prospectus.
See "Description of the Mortgage Pool--
Assignment of the Mortgage Loans; Repurchases
and Substitutions" and "--Representations and
Warranties; Repurchases and Substitutions",
"Servicing of the Mortgage Loans--Defaulted
Mortgage Loans; Purchase Option" and
"Description of the Certificates--Termination"
in this prospectus supplement.
S-53
THE OPERATION OF THE MORTGAGED
PROPERTY UPON FORECLOSURE OF
THE MORTGAGE LOAN MAY AFFECT
TAX STATUS................... If the trust were to acquire a mortgaged
property subsequent to a default on the related
mortgage loan pursuant to a foreclosure or deed
in lieu of foreclosure, the special servicer
would be required to retain an independent
contractor to operate and manage the mortgaged
property. Among other things, the independent
contractor would not be permitted to perform
construction work on the mortgaged property
unless such construction generally was at least
10% complete at the time default on the related
mortgage loan became imminent. In addition, any
net income from such operation and management,
other than qualifying "rents from real
property" (as defined in Section 856(d) of the
Internal Revenue Code of 1986, as amended), or
any rental income based on the net profits of a
tenant or sub-tenant or allocable to a service
that is non-customary in the area and for the
type of building involved, will subject the
trust fund to federal (and possibly state or
local) tax on such income at the highest
marginal corporate tax rate (currently 35%),
thereby reducing net proceeds available for
distribution to certificateholders. In
addition, if the trust were to acquire one or
more mortgaged properties pursuant to a
foreclosure or deed in lieu of foreclosure,
upon acquisition of those mortgaged properties,
the trust may in certain jurisdictions,
particularly in New York, be required to pay
state or local transfer or excise taxes upon
liquidation of such mortgaged properties. Such
state or local taxes may reduce net proceeds
available for distribution to the
certificateholders.
PROPERTY VALUE MAY BE ADVERSELY
AFFECTED EVEN WHEN CURRENT
OPERATING INCOME IS NOT...... Various factors may adversely affect the
value of a mortgaged property without affecting
the property's current net operating income.
These factors include, among others:
o the existence of, or changes in,
governmental regulations, fiscal policy,
zoning or tax laws;
o potential environmental legislation or
liabilities or other legal liabilities;
o the availability of refinancing;
o changes in interest rate levels; and
o reduction in, or loss of, real estate tax
abatements, exemptions, tax incremental
financing arrangements, or similar benefits.
S-54
LEASEHOLD INTERESTS ARE SUBJECT
TO TERMS OF THE GROUND LEASE.. Three mortgaged properties, representing
approximately 5.5% of the initial pool balance,
are secured, in whole or in part, by a mortgage
on a ground lease. Leasehold mortgages are
subject to certain risks not associated with
mortgage loans secured by the fee estate of the
mortgagor. The most significant of these risks
is that the ground lease may terminate if,
among other reasons, the ground lessee breaches
or defaults in its obligations under the ground
lease or there is a bankruptcy of the ground
lessee or the ground lessor. Accordingly, a
leasehold mortgagee may lose the collateral
securing its leasehold mortgage. In addition,
although the consent of the ground lessor
generally will not be required for foreclosure,
the terms and conditions of a leasehold
mortgage may be subject to the terms and
conditions of the ground lease, and the rights
of a ground lessee or a leasehold mortgagee
with respect to, among other things, insurance,
casualty and condemnation may be affected by
the provisions of the ground lease.
With respect to 1 mortgaged property,
representing approximately 0.9% of the initial
pool balance, in the event of a condemnation
by certain governmental authorities, the
tenant does not have the express right to
claim the value of the leasehold estate.
Instead, the applicable ground lease provides
that condemnation proceeds would be
distributed first, to the applicable
governmental authority in an amount equal to
the fair market value of the land, then to the
borrower in an amount equal to the value of
the improvements. We cannot assure you that
the property will not be condemned, or if
condemned by certain authorities, that the
borrower would have sufficient funds to repay
the mortgage loan.
CONDOMINIUM OWNERSHIP
MAY LIMIT USE AND
IMPROVEMENTS................. We are aware that 1 mortgage loan representing
2.5% of the initial pool balance is secured by
property that consists of the related
borrower's interest in condominium interests in
buildings and/or other improvements, the
related percentage interests in the common area
and the related voting rights in the
condominium association. In the case of
condominiums, a board of managers generally has
discretion to make decisions affecting the
condominium building and there may be no
assurance that the borrower under a mortgage
loan secured by one or more interests in that
condominium will have any control over
decisions made by the related board of
managers. Thus, decisions made by that related
board of managers, including regarding
assessments to be paid by the unit owners,
insurance to be maintained on the condominium
building and many
S-55
other decisions affecting the maintenance,
repair and, in the event of a casualty or
condemnation, restoration of that building,
may have a significant impact on the mortgage
loans in the trust fund that are secured by
mortgaged real properties consisting of such
condominium interests. There can be no
assurance that the related board of managers
will always act in the best interests of the
borrower under those mortgage loans. Further,
due to the nature of condominiums, a default
under the related mortgage loan will not allow
the special servicer the same flexibility in
realizing on the collateral as is generally
available with respect to properties that are
not condominiums. The rights of other unit
owners, the documents governing the management
of the condominium units and the state and
local laws applicable to condominium units
must be considered. In addition, in the event
of a casualty with respect to such a mortgaged
property, due to the possible existence of
multiple loss payees on any insurance policy
covering that mortgaged property, there could
be a delay in the allocation of related
insurance proceeds, if any. Consequently,
servicing and realizing upon the collateral
described above could subject the
certificateholders to a greater delay, expense
and risk than with respect to a mortgage loan
secured by a property that is not a
condominium.
INFORMATION REGARDING THE
MORTGAGE LOANS IS LIMITED.... The information set forth in this prospectus
supplement with respect to the mortgage loans
is derived principally from one or more of the
following sources:
o a review of the available credit and legal
files relating to the mortgage loans;
o inspections of each mortgaged property with
respect to the applicable mortgage loan
undertaken by or on behalf of a mortgage
loan seller;
o generally, unaudited operating statements
for the mortgaged properties related to the
mortgage loans supplied by the borrowers;
o appraisals for the mortgaged properties
related to the mortgage loans that generally
were performed in connection with
origination (which appraisals were used in
presenting information regarding the values
of such mortgaged properties as of the
cut-off date under "Description of the
Mortgage Pool", under Annex A and under
Annex E for illustrative purposes only);
o engineering reports and environmental
reports for the mortgaged properties related
to the mortgage loans that generally were
prepared in connection with origination; and
S-56
o information supplied by entities from which
the mortgage loan seller acquired, or which
currently service, certain of the mortgage
loans.
Also, several mortgage loans constitute
acquisition financing. Accordingly, limited or
no operating information is available with
respect to the related mortgaged property. All
of the mortgage loans were originated during
the preceding 8 months.
BORROWER LITIGATION MAY AFFECT
TIMING OR PAYMENT ON YOUR
CERTIFICATES................. Certain borrowers and the principals of
certain borrowers and/or managers 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.
RELIANCE ON A SINGLE TENANT OR A
SMALL GROUP OF TENANTS MAY
INCREASE THE RISK OF LOSS.... A deterioration in the financial condition of
a tenant can be particularly significant if a
mortgaged property is leased to a single tenant
or a small number of tenants. Mortgaged
properties leased to a single tenant or a small
number of tenants also are more susceptible to
interruptions of cash flow if a tenant fails to
renew its lease. This is because the financial
effect of the absence of rental income may be
severe; more time may be required to relet the
space; and substantial capital costs may be
incurred to make the space appropriate for
replacement tenants. In this regard, see "Risk
Factors--Risks Related to the Mortgage
Loans--Risks Related to Retail Properties" and
"--Risks Related to Office Properties" in this
prospectus supplement.
Retail and office properties also may be
adversely affected if there is a concentration
of particular tenants among the mortgaged
properties or of tenants in a particular
business or industry. With respect to one
single tenant mortgaged property leased to
Eckerd, the parent company of Eckerd, the
single tenant, announced on April 5, 2004 that
it intends to sell Eckerd. We cannot assure you
the related purchaser will continue to operate
the mortgaged property as an Eckerd.
S-57
MORTGAGED PROPERTIES WITH
TENANTS PRESENT SPECIAL
RISK......................... The income from, and market value of, the
mortgaged properties leased to various tenants
would be adversely affected if:
o space in the mortgaged properties could not
be leased or relet;
o tenants were unable to meet their lease
obligations;
o leasing or re-leasing is restricted by
exclusive rights of tenants to lease the
mortgaged properties or other covenants not
to lease space for certain uses or
activities, or covenants limiting the types
of tenants to which space may be leased;
o substantial re-leasing costs were required
and/or the cost of performing landlord
obligations under existing leases materially
increased;
o a significant tenant were to become a debtor
in a bankruptcy case; or
o rental payments could not be collected for
any other reason.
Repayment of the mortgage loans secured by
retail, offices and industrial and warehouse
properties will be affected by the expiration
of leases and the ability of the respective
borrowers to renew the leases or relet the
space on comparable terms. For example, one
mortgage loan representing 2.5% of the initial
pool balance, has had recent decreases in
occupancy. See "Description of the Mortgage
Pool--Significant Mortgage Loans--1995
Broadway" in this prospectus supplement. In
addition if a significant portion of tenants
have leases which expire near or at maturity of
the related mortgage loan, then it may make it
more difficult for the related borrower to seek
refinancing or make any applicable balloon
payment. Certain of the mortgaged properties
may be leased in whole or in part by
government-sponsored tenants who have the right
to cancel their leases at any time or for lack
of appropriations. Additionally, mortgage loans
may have concentrations of leases expiring at
varying rates in varying percentages. In this
respect, the largest tenant at the mortgaged
property securing one mortgage loan,
representing 2.8% of the initial pool balance,
is the State of California. The tenant leases
100% of the gross leasable area at the related
mortgaged property and has the right to
terminate its lease at any time after January
1, 2005 upon 6 months notice. The lender
required a reserve in the amount of $1,000,000
to cover costs of re-letting and tenant
improvements. Additionally, tenants at the
mortgaged properties securing 2 mortgage loans,
representing 4.1% and 2.8%, respectively of the
initial pool balance, lease 10.1% and 100.0%
(which is 1 of 2 properties securing the
mortgage loan), respectively of the gross
leasable area of those mortgaged properties and
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have the right to terminate their leases under
certain conditions. In each case, the lender
required reserves to be established to cover
the cost of re-letting and tenant improvements;
however, we cannot assure you that any of these
reserves will be sufficient to cover all costs
if any tenant exercises a termination option or
that the space will be able to be re-let on
comparable terms.
Even if vacated space is successfully relet,
the costs associated with reletting, including
tenant improvements and leasing commissions,
could be substantial and could reduce cash flow
from the mortgaged properties. Moreover, if a
tenant defaults in its obligations to a
borrower, the borrower may incur substantial
costs and experience significant delays
associated with enforcing its rights and
protecting its investment, including costs
incurred in renovating and reletting the
property.
Additionally, in certain jurisdictions, if
tenant leases are subordinated to the liens
created by the mortgage but do not contain
attornment provisions (provisions requiring the
tenant to recognize as landlord under the lease
a successor owner following foreclosure), the
leases may terminate upon the transfer of the
property to a foreclosing lender or purchaser
at foreclosure. Accordingly, if a mortgaged
property is located in such a jurisdiction and
is leased to one or more desirable tenants
under leases that are subordinate to the
mortgage and do not contain attornment
provisions, such mortgaged property could
experience a further decline in value if such
tenants' leases were terminated.
With respect to certain of the mortgage loans,
the related borrower has given to certain
tenants or others an option to purchase, a
right of first refusal or a right of first
offer to purchase all or a portion of the
mortgaged property in the event a sale is
contemplated, and such right is not subordinate
to the related mortgage. This may impede the
mortgagee's ability to sell the related
mortgaged property at foreclosure, or, upon
foreclosure, this may affect the value and/or
marketability of the related mortgaged
property.
MORTGAGED PROPERTIES WITH
MULTIPLE TENANTS MAY INCREASE
RELETTING COSTS AND REDUCE
CASH FLOW.................... If a mortgaged property has multiple tenants,
reletting expenditures may be more frequent
than in the case of mortgaged properties with
fewer tenants, thereby reducing the cash flow
available for debt service payments.
Multi-tenanted mortgaged properties also may
experience higher continuing vacancy rates and
greater volatility in rental expenses.
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TENANCIES IN COMMON MAY HINDER
OR DELAY RECOVERY............ With respect to 4 mortgage loans, representing
2.7% of the initial pool balance, the borrowers
own the related mortgaged property as tenants
in common. These mortgage loans may be subject
to prepayment, including during periods when
prepayment might otherwise be prohibited, as a
result of partition. Although some of the
related borrowers have purported to waive any
right of partition, we cannot assure you that
any such waiver would be enforced by a court of
competent jurisdiction.
In general, with respect to a tenant in common
ownership structure, each tenant in common
owns an undivided share in the property and if
such tenant in common desires to sell its
interest in the property (and is unable to
find a buyer or otherwise needs to force a
partition) such tenant in common has the
ability to request that a court order a sale
of the property and distribute the proceeds to
each tenant in common proportionally. As a
result, if a borrower exercises such right of
partition, the related mortgage loans may be
subject to prepayment. In addition, the tenant
in common structure may cause delays in the
enforcement of remedies; this may occur, for
example, because of procedural or substantive
issues resulting from the existence of
multiple borrowers under the related loan,
such as the in bankruptcy, in which
circumstance, each time a tenant in common
borrower files for bankruptcy, the bankruptcy
court stay will be reinstated.
TENANT BANKRUPTCY ADVERSELY
AFFECTS PROPERTY
PERFORMANCE.................. The bankruptcy or insolvency of a major
tenant, or a number of smaller tenants, in
retail, office, industrial and warehouse
properties may adversely affect the income
produced by a mortgaged property. Under the
federal bankruptcy code a tenant has the option
of assuming or rejecting any unexpired lease.
If the tenant rejects the lease, the landlord's
claim for breach of the lease would be a
general unsecured claim against the tenant
(absent collateral securing the claim). The
claim would be limited to 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
reserved rent (but not more than three year's
rent). There are several cases in which one or
more tenants at a mortgaged property have
declared bankruptcy, although no tenant in
bankruptcy represents more than 5.22% of the
net rentable area at any mortgaged property.
Generally, these tenants have not yet affirmed
or rejected their leases. We cannot assure you
that any such tenant will affirm its lease.
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ONE ACTION RULES MAY LIMIT
REMEDIES..................... Several states (including California) have
laws that prohibit more than one "judicial
action" to enforce a mortgage obligation, and
some courts have construed the term "judicial
action" broadly. Accordingly, the special
servicer is required to obtain advice of
counsel prior to enforcing any of the trust
fund's rights under any of the mortgage loans
that include mortgaged properties where the
rule could be applicable.
PROPERTY INSURANCE MAY NOT
PROTECT YOUR CERTIFICATES
FROM LOSS IN THE EVENT OF
CASUALTY OR LOSS............. The loan documents for each of the mortgage
loans generally require the borrower to
maintain, or cause to be maintained, specified
property and liability insurance. The mortgaged
properties may suffer casualty losses due to
risks which were not covered by insurance or
for which insurance coverage is inadequate. We
cannot assure you that borrowers will be able
to maintain adequate insurance. Moreover, if
reconstruction or any major repairs are
required, changes in laws may materially affect
the borrower's ability to effect any
reconstruction or major repairs or may
materially increase the costs of the
reconstruction or repairs. In addition certain
of the mortgaged properties are located in
California, Washington, Texas, Oregon, Utah,
Nevada, Hawaii and along the Southeastern
coastal areas of the United States. These areas
have historically been at greater risk
regarding acts of nature (such as earthquakes,
floods and hurricanes) than other states. The
loans do not generally require the borrowers to
maintain earthquake or windstorm insurance.
In light of the September 11, 2001 terrorist
attacks in New York City and the Washington,
D.C. area, many reinsurance companies (which
assume some of the risk of the policies sold by
primary insurers) have indicated that they
intend to eliminate coverage for acts of
terrorism from their reinsurance policies.
Without that reinsurance coverage, primary
insurance companies would have to assume that
risk themselves, which may cause them to
eliminate such coverage in their policies,
increase the amount of deductible for acts of
terrorism or charge higher premiums for such
coverage. In order to offset this risk,
Congress passed the Terrorism Risk Insurance
Act of 2002, which established the Terrorism
Insurance Program. The Terrorism Insurance
Program is administered by the Secretary of the
Treasury and will provide financial assistance
from the United States government to insurers
in the event of another terrorist attack that
is the subject of an insurance claim. The
Treasury Department will establish procedures
for the Terrorism Insurance Program under which
the federal share of compensation will be equal
to 90% of that portion of insured losses that
exceeds
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an applicable insurer deductible required to be
paid during each program year. The federal
share in the aggregate in any program year may
not exceed $100 billion. An insurer that has
paid its deductible is not liable for the
payment of any portion of total annual United
States-wide losses that exceed $100 billion,
regardless of the terms of the individual
insurance contracts. The Terrorism Risk
Insurance Act of 2002 does not require insureds
to purchase the coverage nor does it stipulate
the pricing of the coverage. In addition, there
can be no assurance that all of the borrowers
under the mortgage loans have accepted the
continued coverage. The Terrorism Insurance
Program requires that each insurer for policies
in place prior to November 26, 2002 provide its
insureds with a statement of the proposed
premiums for terrorism coverage, identifying
the portion of the risk that the federal
government will cover, within 90 days after
November 26, 2002. Insureds will have 30 days
to accept the continued coverage and pay the
premium. If an insured does not pay the
premium, insurance for acts of terrorism may be
excluded from the policy. All policies for
insurance issued after November 26, 2002 must
make similar disclosure. Through December 2004,
insurance carriers are required under the
program to provide terrorism coverage in their
basic "all-risk" policies. By September 1,
2004, the Secretary of the Treasury shall
determine whether mandatory participation
should be extended through December 2005. Any
commercial property and casualty terrorism
insurance exclusion that was in force on
November 26, 2002 is automatically voided to
the extent that it excludes losses that would
otherwise be insured losses, subject to the
immediately preceding paragraph. Any state
approval of such types of exclusions in force
on November 26, 2002 is also voided. However,
it is unclear what acts will fall under the
category of "terrorism" as opposed to "acts of
war" or "natural disasters," which may not be
covered by such program. In addition, coverage
under such program will only be available for
terrorist acts that are committed by an
individual or individuals acting on behalf of a
foreign person or foreign interest. In
addition, the Terrorism Insurance Program
applies to United States risks only and to acts
that are committed by an individual or
individuals acting on behalf of a foreign
person or foreign interest as an effort to
influence or coerce United States civilians or
the United States government. It remains
unclear what acts will fall under the purview
of the Terrorism Insurance Program.
Furthermore, because the Terrorism Insurance
Program has only been recently passed into law,
there can be no assurance that it or state
legislation will substantially lower the cost
of obtaining terrorism insurance.
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Finally, the Terrorism Insurance Program
terminates on December 31, 2004 (with a
potential to extend to December 31, 2005).
There can be no assurance that such temporary
program will create any long-term changes in
the availability and cost of such insurance.
Moreover, there can be no assurance that such
program will be renewed or subsequent terrorism
insurance legislation will be passed upon its
expiration.
In the event that such casualty losses are not
covered by standard casualty insurance
policies, the loan documents may not
specifically require the borrowers to obtain
this form of coverage. Although the mortgage
loan documents relating to the remaining
mortgage loans contain general provisions which
permit the lender to require other reasonable
insurance and which do not expressly forbid the
lender from requiring terrorism insurance, we
cannot assure you whether requiring terrorism
insurance would be reasonable or otherwise
permissible under the general provisions for
any particular mortgage loan.
If the loan documents require insurance
covering terrorist or similar acts, the master
servicer or the special servicer, pursuant to
the pooling and servicing agreement, may not be
required to maintain insurance covering
terrorist or similar acts, nor will it be
required to call a default under a mortgage
loan, if the related borrower fails to maintain
such insurance and the special servicer
consents. In determining whether to require
insurance for terrorist or similar acts or to
call a default, each of the master servicer and
the special servicer will consider the
following two factors following due inquiry in
accordance with the servicing standard:
o such insurance is not available at
commercially reasonable rates; and
o at that time, the risks relating to
terrorist or similar acts were not commonly
insured against for properties similar to
the mortgaged property and located in or
around the region in which the mortgaged
property is located.
However, if the special servicer determines
following due inquiry, in accordance with the
servicing standard, that it is in the best
interests of the certificateholders not to call
a default, the master servicer and the special
servicer may, in certain circumstances, waive
the default regardless of such factors.
Any losses incurred with respect to mortgage
loans included in the trust fund due to
uninsured risks or insufficient hazard
insurance proceeds could adversely affect
distributions on your certificates.
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ZONING LAWS AND USE RESTRICTIONS,
MAY AFFECT THE OPERATION OF A
MORTGAGED PROPERTY OR THE
ABILITY TO REPAIR OR RESTORE
A MORTGAGED PROPERTY......... Certain of the mortgaged properties may not
comply with current zoning laws, including
density, use, parking and set back
requirements, due to changes in zoning
requirements after such mortgaged properties
were constructed. These properties, as well as
those for which variances or special permits
were issued, are considered to be a "legal
non-conforming use" and/or the improvements are
considered to be "legal non-conforming
structures". This means that the borrower is
not required to alter the use or structure to
comply with the existing or new law; however,
the borrower may not be able to rebuild the
premises "as is" in the event of a casualty
loss. This may adversely affect the cash flow
of the property following the casualty. If a
casualty were to occur, we cannot assure you
that insurance proceeds would be available to
pay the mortgage loan in full. In addition, if
the property were repaired or restored in
conformity with the current law, the value of
the property or the revenue-producing potential
of the property may not be equal to that which
existed before the casualty.
In addition, certain of the mortgaged
properties which are non-conforming may not be
"legal non-conforming uses" or "legal
non-conforming structures". The failure of a
mortgaged property to comply with zoning laws
or to be a "legal non-conforming use" or "legal
non-conforming structure" may adversely affect
market value of the mortgaged property or the
borrower's ability to continue to use it in the
manner it is currently being used.
In addition, certain of the mortgaged
properties may be subject to certain use
restrictions imposed pursuant to reciprocal
easement agreements or operating agreements.
Such use restrictions could include, for
example, limitations on the character of the
improvements of the properties, limitations
affecting noise and parking requirements, among
other things, and limitations on the borrowers'
right to operate certain types of facilities
within a prescribed radius. These limitations
could adversely affect the ability of the
related borrower to lease the mortgaged
property on favorable terms, thus adversely
affecting the borrower's ability to fulfill its
obligations under the related mortgage loan.
In addition, certain of the mortgaged
properties are subject to certain use
restrictions imposed pursuant to restrictive
covenants, reciprocal easement agreements or
operating agreements. Such use restrictions
include, for example, limitations on the
character of the improvements or the
properties, limitations affecting noise and
parking
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requirements, among other things, and
limitations on the borrowers' right to operate
certain types of facilities within a prescribed
radius. These limitations could adversely
affect the ability of the related borrower to
lease the mortgaged property on favorable
terms, thus adversely affecting the borrower's
ability to fulfill its obligations under the
related mortgage loan.
SOME MORTGAGED PROPERTIES MAY
NOT BE READILY CONVERTIBLE TO
ALTERNATIVE USES............. Some of the mortgaged properties may not be
readily convertible to alternative uses if
those properties were to become unprofitable
for any reason or if those properties were
designated as historic sites. Converting
commercial properties and manufactured housing
communities to alternate uses generally
requires substantial capital expenditures. The
liquidation value of a mortgaged property
consequently may be substantially less than
would be the case if the property were readily
adaptable to other uses.
Zoning or other restrictions also may prevent
alternative uses. See "Risk Factors--Risks
Related to the Mortgage Loans--Zoning Laws and
Use Restrictions" in this prospectus
supplement.
APPRAISALS ARE LIMITED IN
REFLECTING THE VALUE OF A
MORTGAGED PROPERTY............ Appraisals were obtained with respect to each
of the mortgaged properties in connection with
the origination of the applicable mortgage
loan. In general, appraisals represent the
analysis and opinion of qualified appraisers
and are not guarantees of present or future
value. One appraiser may reach a different
conclusion than the conclusion that would be
reached if a different appraiser were
appraising that property. Moreover, appraisals
seek to establish the amount a typically
motivated buyer would pay a typically motivated
seller and, in certain cases, may have taken
into consideration the purchase price paid by
the borrower. That amount could be
significantly higher than the amount obtained
from the sale of a mortgaged property under a
distress or liquidation sale. We cannot assure
you that the information set forth in this
prospectus supplement regarding appraised
values or loan-to-value ratios accurately
reflects past, present or future market values
of the mortgaged properties.
MORTGAGE LOAN SELLERS MAY NOT
BE ABLE TO MAKE A REQUIRED
REPURCHASE OR SUBSTITUTION OF
A DEFECTIVE MORTGAGE LOAN.... Each mortgage loan seller is the sole
warranting party in respect of the mortgage
loans sold by such mortgage loan seller to us.
Neither we nor any of our affiliates (except,
in certain circumstances, for Bank of America
N.A. in its
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capacity as a mortgage loan seller) are
obligated to repurchase or substitute any
mortgage loan in connection with either a
breach of any mortgage loan seller's
representations and warranties or any document
defects, if such mortgage loan seller defaults
on its obligation to do so. We cannot provide
assurances that the mortgage loan sellers will
have the financial ability to effect such
repurchases or substitutions. Any mortgage loan
that is not repurchased or substituted and that
is not a "qualified mortgage" for a REMIC may
cause the trust fund to fail to qualify as one
or more REMICs or cause the trust fund to incur
a tax. See "Description of the Mortgage Pool--
The Mortgage Loan Sellers" and "Representations
and Warranties; Repurchases and Substitutions"
in this prospectus supplement and "The Pooling
and Servicing Agreements--Representations and
Warranties; Repurchases" in the prospectus.
RISKS RELATED
TO ENFORCEABILITY............. All of the mortgages permit the lender to
accelerate the debt upon default by the
borrower. The courts of all states will enforce
acceleration clauses in the event of a material
payment default. Courts, however, may refuse to
permit foreclosure or acceleration if a default
is deemed immaterial or the exercise of those
remedies would be unjust or unconscionable.
If a mortgaged property has tenants, the
borrower typically assigns its income as
landlord to the lender as further security,
while retaining a license to collect rents as
long as there is no default. If the borrower
defaults, the license terminates and the
lender is entitled to collect rents. In
certain jurisdictions, such assignments may
not be perfected as security interests until
the lender takes actual possession of the
property's cash flow. In some jurisdictions,
the lender may not be entitled to collect
rents until the lender takes possession of the
property and secures the appointment of a
receiver. In addition, as previously
discussed, if bankruptcy or similar
proceedings are commenced by or for the
borrower, the lender's ability to collect the
rents may be adversely affected.
POTENTIAL ABSENCE OF ATTORNMENT
PROVISIONS ENTAILS RISKS..... In some jurisdictions, if tenant leases are
subordinate to the liens created by the
mortgage and do not contain attornment
provisions (i.e., provisions requiring the
tenant to recognize a successor owner following
foreclosure as landlord under the lease), the
leases may terminate upon the transfer of the
property to a foreclosing lender or purchaser
at foreclosure. Not all leases were reviewed to
ascertain the existence of attornment or
subordination provisions. Accordingly, if a
mortgaged property is located in such a
jurisdiction and is leased to one or more
desirable tenants under leases that are
subordinate to the
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mortgage and do not contain attornment
provisions, such mortgaged property could
experience a further decline in value if such
tenants' leases were terminated. This is
particularly likely if such tenants were
paying above-market rents or could not be
replaced.
If a lease is not subordinate to a mortgage,
the trust will not possess the right to
dispossess the tenant upon foreclosure of the
mortgaged property (unless otherwise agreed to
with the tenant). If the lease contains
provisions inconsistent with the mortgage
(e.g., provisions relating to application of
insurance proceeds or condemnation awards) or
which could affect the enforcement of the
lender's rights (e.g., a right of first
refusal to purchase the property), the
provisions of the lease will take precedence
over the provisions of the mortgage.
RISKS RELATING TO COSTS OF
COMPLIANCE WITH APPLICABLE
LAWS AND REGULATIONS......... A borrower may be required to incur costs to
comply with various existing and future
federal, state or local laws and regulations
applicable to the related mortgaged property,
for example, zoning laws and the Americans with
Disabilities Act of 1990, as amended, which
requires all public accommodations to meet
certain federal requirements related to access
and use by persons with disabilities. See
"Certain Legal Aspects of Mortgage Loans--
Americans with Disabilities Act" in the
prospectus. The expenditure of these costs or
the imposition of injunctive relief, penalties
or fines in connection with the borrower's
noncompliance could negatively impact the
borrower's cash flow and, consequently, its
ability to pay its mortgage loan.
NO MORTGAGE LOAN INCLUDED IN
THE TRUST FUND HAS BEEN
REUNDERWRITTEN............... We have not reunderwritten the mortgage loans.
Instead, we have relied on the representations
and warranties made by each mortgage loan
seller, and the related mortgage loan seller's
obligation to repurchase or substitute a
mortgage loan or cure the breach in the event
of a material breach of a representation or
warranty. These representations and warranties
do not cover all of the matters that we would
review in underwriting a mortgage loan and you
should not view them as a substitute for
reunderwriting the mortgage loans. If we had
reunderwritten the mortgage loans, it is
possible that the reunderwriting process may
have revealed problems with a mortgage loan not
covered by a representation or warranty. In
addition, we can give no assurance that a
mortgage loan seller will be able to repurchase
or substitute a mortgage loan or cure the
breach in the event of a material breach of a
representation or warranty. See "Description of
the Mortgage Pool--Representations and
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Warranties; Repurchases and Substitutions" in
this prospectus supplement.
BOOK-ENTRY SYSTEM FOR
CERTIFICATES MAY DECREASE
LIQUIDITY AND DELAY PAYMENT.. The offered certificates 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 The
Depository Trust Company, or DTC. Since
transactions in the classes of book-entry
certificates generally can be effected only
through The Depository Trust Company, and its
participating organizations:
o the liquidity of book-entry certificates in
secondary trading market that may develop
may be limited because investors may be
unwilling to purchase certificates for which
they cannot obtain physical certificates;
o your ability to pledge certificates to
persons or entities that do not participate
in the DTC system, or otherwise to take
action in respect of the certificates, may
be limited due to the lack of a physical
security representing the certificates;
o your access to information regarding the
certificates may be limited since conveyance
of notices and other communications by The
Depository Trust Company to its
participating organizations, and directly
and indirectly through those participating
organizations to you, will be governed by
arrangements among them, subject to any
statutory or regulatory requirements as may
be in effect at that time; and
o you may experience some delay in receiving
distributions of interest and principal on
your certificates because distributions will
be made by the trustee to DTC and DTC will
then be required to credit those
distributions to the accounts of its
participating organizations and only then
will they be credited to your account either
directly or indirectly through DTC's
participating organizations.
See "Description of the Certificates--
Registration and Denomination" in this
prospectus supplement.
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 MORTGAGE LOANS.
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DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The pool of mortgage loans (the "Mortgage Pool") consists of 95
multifamily and commercial mortgage loans. Forty-eight of the mortgage loans
were (a) originated by Bank of America, N.A. ("Bank of America") or its conduit
participants or (b) acquired by Bank of America from various third party
originators, other than (i) Bridger Commercial Funding LLC ("Bridger"). Bridger
is a real estate financial services company organized in 1998 under the laws of
the State of Missouri that originates and acquires commercial and multifamily
real estate loans through its own origination offices working in conjunction
with various commercial banks in local markets across the United States.
Bridger's loan underwriting and quality control procedures are undertaken
principally at its headquarters located at 100 Shoreline Highway, Suite 100,
Mill Valley, California 94941. Through February 29, 2004, Bridger has
originated in excess of $1.6 billion in loans secured by commercial real
estate. The mortgage loans described in the first sentence of this paragraph
are referred to in this prospectus supplement as the "BOA-Originated Mortgage
Loans". Fourteen mortgage loans were acquired by Bank of America from Bridger
(such mortgage loans, the "BOA-Bridger Mortgage Loans"). The BOA-Originated
Mortgage Loans and the BOA-Bridger Mortgage Loans together constitute the "Bank
of America Mortgage Loans". Thirty-three of the mortgage loans were originated
by Bear Stearns Commercial Mortgage, Inc. ("BSCMI"). The mortgage loans
described in the immediately preceding sentence are referred to in this
prospectus supplement as the "Bear Mortgage Loans". The Bear Mortgage Loans
together with the Bank of America Mortgage Loans constitute the "Mortgage
Loans". The Mortgage Loans have an aggregate Cut-off Date Balance of
$1,138,760,562 (the "Initial Pool Balance"), subject to a variance of plus or
minus 10%. See "Description of the Trust Funds" and "Certain Legal Aspects of
Mortgage Loans" in the accompanying prospectus.
The "Cut-off Date Balance" of each Mortgage Loan is the unpaid principal
balance thereof as of 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 in this prospectus supplement with respect to the Mortgage
Loans is provided on an approximate basis. The principal balance of each
mortgage loan as of the cut-off date assumes the timely receipt of all
principal scheduled to be paid on or before the cut-off date and assumes no
defaults, delinquencies or prepayments on any mortgage loan on or before the
cut-off date. All weighted average information provided in this prospectus
supplement, unless otherwise stated, reflects weighting by related Cut-off Date
Balance. All percentages of the Mortgage Pool, or of any specified sub-group
thereof, referred to herein without further description are approximate
percentages of the Initial Pool Balance. The sum of the numerical data in any
column of any table presented in this prospectus supplement may not equal the
indicated total due to rounding.
Each Mortgage Loan is evidenced by one or more promissory notes (a
"Mortgage Note") and secured by one or more mortgages, deeds of trust or other
similar security instruments (a "Mortgage") that create a first mortgage lien
on a fee simple and/or leasehold interest in real property (a "Mortgaged
Property"). Each Mortgage Loan is secured by (i) a manufactured housing
community or complex consisting of five or more rental living units or one or
more apartment buildings each consisting of five or more rental living units (a
"Multifamily Mortgaged Property", and any Mortgage Loan secured thereby, a
"Multifamily Loan") (27 Mortgage Loans representing 18.9% of the Initial Pool
Balance), or (ii) a hotel, retail shopping mall or center, an office building
or complex, an industrial or warehouse building, a self-storage facility or a
health club (a "Commercial Mortgaged Property", and any Mortgage Loan secured
thereby, a "Commercial Loan") (68 Mortgage Loans representing 81.1% of the
Initial Pool Balance).
With respect to any Mortgage for which the related assignment of mortgage,
assignment of assignment of leases, security agreements and/or UCC financing
statements has been recorded in the name of Mortgage Electronic Registration
Systems, Inc. ("MERS") or its designee, no assignment of mortgage, assignment
of assignment of leases, security agreements and/or UCC financing statements in
favor of the Trustee will be required to be prepared or delivered and instead,
the
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Master Servicer, at the direction of the related Mortgage Loan Seller, shall
take all actions as are necessary to cause the Trustee on behalf of the Trust
to be shown as, and the Trustee shall take all actions necessary to confirm
that the Trustee on behalf of the Trust is shown as, the owner of the related
Mortgage Loan on the records of MERS for purposes of the system of recording
transfers of beneficial ownership of mortgages maintained by MERS. The Trustee
shall include the foregoing confirmation in the Certification required to be
delivered by the Trustee after the Delivery Date pursuant to the Pooling
Agreement.
There are four sets of cross-collateralized and cross-defaulted Mortgage
Loans (each, a "Cross-Collateralized Mortgage Loan"). These sets represent
2.5%, 1.3%, 0.5% and 0.3% of the Initial Pool Balance. Each of the
Cross-Collateralized Mortgage Loans is evidenced by a separate Mortgage Note
and secured by a separate Mortgage, which Mortgage or separate
cross-collateralization agreement as the case may be, contains provisions
creating the relevant cross-collateralization and cross-default arrangements.
See Annex A hereto for information regarding the Cross-Collateralized Mortgage
Loans and see "Risk Factors--Risks Related to the Mortgage Loans--The Benefits
Provided by Cross-Collateralization May Be Limited" in this prospectus
supplement.
The Mortgage Loans generally constitute non-recourse obligations of the
related borrower. Upon any such borrower's default in the payment of any amount
due under the related Mortgage Loan, the holder thereof may look only to the
related Mortgaged Property or Properties for satisfaction of the borrower's
obligation. In the case of certain Mortgage Loans where the loan documents
permit recourse to a borrower or guarantor, the Depositor has generally not
undertaken an evaluation of the financial condition of any such entity or
person, and prospective investors should thus consider all of the Mortgage
Loans to be nonrecourse. None of the Mortgage Loans are insured or guaranteed
by any person or entity, governmental or otherwise. See "Risk Factors--Risks
Related to the Mortgage Loans--Limited Recourse" in this prospectus supplement.
Ten of the Mortgaged Properties, which constitute security for
approximately 12.7% of the Initial Pool Balance are located in Florida; 19 of
the Mortgaged Properties, which constitute security for 11.7% of the Initial
Pool Balance, are located in New York; 2 of the Mortgaged Properties, which
constitute security for 11.2% of the Initial Pool Balance, are located in
Pennsylvania; 14 of the Mortgaged Properties, which constitute security for
11.1% of the Initial Pool Balance, are located in California; and 2 of the
Mortgaged Properties, which constitute security for 9.2% of the Initial Pool
Balance, are located in Minnesota. The remaining Mortgaged Properties are
located throughout 23 other states with no more than 5.5% of the Initial Pool
Balance secured by Mortgaged Properties located in any such other jurisdiction.
On or about the Delivery Date, each Mortgage Loan Seller will transfer the
related Mortgage Loans, to or at the direction of the Depositor, without
recourse, to the Trustee for the benefit of the Certificateholders. See
"Description of the Mortgage Pool--The Mortgage Loan Seller" and "--Assignment
of the Mortgage Loans; Repurchases and Substitutions" in this prospectus
supplement.
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
Due Dates. Each of the Mortgage Loans, other than 18 Mortgage Loans which
are interest only until maturity or the anticipated repayment date, provides
for scheduled payments of principal and interest ("Monthly Payments"). Each of
the Mortgage Loans, other than 1 Mortgage Loan, representing 4.1% of the
Initial Pool Balance, which provides for payments to be due on the tenth day of
each month, provides for payments to be due on the first day of each month (as
to each such Mortgage Loan, the "Due Date"). In addition, 9 Mortgage Loans
representing 13.1% of the Initial Pool Balance provide for periods of interest
only payments for a portion of the loan term.
Mortgage Rates; Calculations of Interest. All of the Mortgage Loans bear
interest at a rate per annum (a "Mortgage Rate") that is fixed for the
remaining term of the Mortgage Loan, except that as described below, the ARD
Loan will accrue interest at a higher rate after its respective Anticipated
Repayment Date. As used in this prospectus supplement, the term Mortgage Rate
does not include the incremental increase in rate at which interest may accrue
on the ARD Loan after the
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Anticipated Repayment Date. As of the Cut-off Date, the Mortgage Rates of the
Mortgage Loans ranged from 3.452% per annum to 6.836% per annum, and the
weighted average Mortgage Rate of the Mortgage Loans was 5.355%.
Hyperamortization. One of the Mortgage Loans (an "ARD Loan"), which
represents 1.7% of the Initial Pool Balance, provides for changes in its
payments and its accrual of interest if it is not paid in full by a specified
date (the "Anticipated Repayment Date"). Commencing on the Anticipated
Repayment Date, the ARD Loan will generally bear interest at a fixed per annum
rate equal to the related Mortgage Rate plus a rate set forth in the related
Mortgage Note extending until final maturity (the "Revised Rate"). The "Excess
Interest Rate" means the difference in rate of the Revised Rate over the
Mortgage Rate. Interest accrued at the Excess Interest Rate is referred to in
this prospectus supplement as "Excess Interest". In addition to paying interest
(at the Revised Rate) from and after the Anticipated Repayment Date, the
borrower generally will be required to apply all remaining monthly cash flow
("Excess Cash Flow") from the related Mortgaged Property, if any, after paying
all permitted operating expenses and capital expenditures, to pay accrued
interest at the Revised Rate and then to principal on the ARD Loan as called
for in the related Mortgage Loan documents.
Seventy-nine of the Mortgage Loans, representing 87.7% of the Initial Pool
Balance accrue interest on the basis of the actual number of days elapsed in
the relevant month of accrual and a 360-day year (an "Actual/360 Basis"). The
total amount of the Monthly Payment for each Mortgage Loan accruing interest on
an Actual/360 Basis (an "Actual/360 Mortgage Loan") is determined as though the
Mortgage Loan accrued interest on the basis of a 360-day year consisting of
twelve 30-day months (a "30/360 Basis"), and the portion of such Monthly
Payment allocated to interest is determined based on interest accrued in the
preceding month on an Actual/360 Basis with the balance allocated to amortized
principal. As a result, the full amortization term is longer than would be the
case if calculated on a 30/360 Basis, and the Balloon Payment on any such
Mortgage Loan will be larger than would be the case if interest accrued on a
30/360 Basis. Sixteen Mortgage Loans, representing 12.3% of the Initial Pool
Balance accrue interest on a 30/360 Basis and are referred to in this
prospectus supplement as "30/360 Mortgage Loans".
Amortization of Principal. Seventy-six Mortgage Loans, which represent
81.7% of the Initial Pool 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. In addition, 18 of the Mortgage
Loans, including the ARD Loan, representing 18.0% of the Initial Pool Balance,
provide for payments of interest only through to the end of their respective
loan terms. One Mortgage Loan which represents 0.3% of the Initial Pool Balance
is a fully amortizing Mortgage Loan.
The original term to stated maturity of each Mortgage Loan or in the case
of the ARD Loan, to its Anticipated Repayment Date was between 57 and 180
months. The original amortization schedules of the Mortgage Loans, other than
18 Mortgage Loans which are interest only for their entire term, ranged from
180 to 360 months. As of the Cut-off Date, the remaining term to stated
maturity of the Mortgage Loans, or in the case of the ARD Loan, its Anticipated
Repayment Date, will range from 53 to 177 months. As of the Cut-off Date, the
remaining amortization terms of the Mortgage Loans, other than 18 Mortgage
Loans which are interest only for their entire term, (calculated on a 30/360
Basis for the accrual of interest) will range from 177 to 360 months, and the
weighted average remaining amortization term (calculated on a 30/360 Basis for
purposes of the accrual of interest) of the Mortgage Loans will be 351 months.
See "Risk Factors--Risks Related to the Mortgage Loans--Balloon Loans May
Present Greater Risk than Fully Amortizing Loans" in this prospectus
supplement.
Prepayment Provisions. With the exception of 3 Mortgage Loans, which are
prepayable at any time subject to a prepayment premium, the Mortgage Loans,
representing 97.9% of the initial pool balance; provided as of origination
either (a) that voluntary prepayments are prohibited until the
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final 1 to 36 scheduled monthly payments by the borrower under the related
Mortgage Loan documents including any payment due on the stated maturity date
of the related Mortgage Loan, during which voluntary prepayments can be made
without penalty, or (b) for a sequence of three periods as follows:
(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 is to be accompanied by a premium, penalty,
charge or fee (a "Prepayment Premium"), followed by
(3) a period (an "Open Period") during which voluntary principal
prepayments may be made without an accompanying Prepayment Premium.
Voluntary principal prepayments (after any Lock-out Period) may be made in
full or in some cases in part, subject to certain limitations and, during a
Prepayment Premium Period, payment of the applicable Prepayment Premium. As of
the Cut-off Date, the remaining Lock-out Periods ranged from 0 to 173 scheduled
monthly payments. As of the Cut-off-Date the weighted average remaining
Lock-out Period was 81 scheduled monthly payments. As of the Cut-off Date, the
Open Period ranged from 1 to 36 scheduled monthly payments prior to and
including the final scheduled monthly payment at maturity. The weighted average
Open Period was 3 scheduled monthly payments. Prepayment Premiums on the
Mortgage Loans are generally calculated on the basis of a yield maintenance
formula (subject, in certain instances, to a minimum equal to a specified
percentage of the principal amount prepaid). The prepayment terms of each of
the Mortgage Loans are more particularly described in Annex A to this
prospectus supplement.
As more fully described in this prospectus supplement, Prepayment Premiums
actually collected on the Mortgage Loans will be distributed to the respective
Classes of Certificateholders in the amounts and priorities described under
"Description of the Certificates--Distributions-- Distributions of Prepayment
Premiums" in this prospectus supplement. The Depositor makes no representation
as to the enforceability of the provision of any Mortgage Loan requiring the
payment of a Prepayment Premium or as to the collectibility of any Prepayment
Premium. See "Risk Factors --Risks Related to the Mortgage 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. Sixty-four Mortgage Loans, representing 81.7% of the Initial
Pool 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 Mortgage Loan and all other loan documents executed
in connection therewith; and
(3) an amount (the "Collateral Substitution Deposit") that will be
sufficient to (a) purchase U.S. government obligations (or in some
instances the applicable Mortgage Loan documents may require the borrower
to deliver the U.S. government obligations referenced in this clause (3))
providing for payments on or prior to, but as close as possible to, all
successive scheduled payment dates from the Release Date to the related
maturity date (or Anticipated Repayment Date) in amounts sufficient to pay
the scheduled payments due on such dates under the Mortgage Loan or the
defeased amount thereof in the case of a partial defeasance and (b) pay any
costs and expenses incurred in connection with the purchase of such U.S.
government obligations.
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In addition, the borrower must deliver a security agreement granting the
Trust Fund a first priority lien on the U.S. government obligations or the
Collateral Substitution Deposit and, generally, an opinion of counsel to such
effect. Simultaneously with such actions, the related Mortgaged Property will
be released from the lien of the Mortgage 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
Mortgage 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 Mortgage Loan
and the borrower will be relieved of all of the defeased obligations
thereunder. Under the Pooling Agreement, the Master Servicer is required to
enforce any provisions of the related Mortgage Loan documents that require, as
a condition to the exercise by the mortgagor of any defeasance rights, that the
mortgagor pay any costs and expenses associated with such exercise.
The Depositor makes no representation as to the enforceability of the
defeasance provisions of any Mortgage Loan.
The Mortgage Loans secured by more than one Mortgaged Property that permit
release of one or more of the Mortgaged Properties generally require that: (1)
prior to the release of a related Mortgaged Property, 125% of the allocated
loan amount for the Mortgaged Property be defeased, (2) certain debt service
coverage ratio and LTV Ratio tests be satisfied with respect to the remaining
Mortgaged Properties after the defeasance and (3) receipt by the lender of
confirmation from the Rating Agencies that the substitution will not result in
a withdrawal, qualification or downgrade of any of the then current ratings of
the certificates; provided, however, with respect the property identified on
Annex A as 2155 Iron Point Road, the related borrower is not permitted at any
time to defease as described above.
Additionally, the terms of 1 Mortgage Loan, representing 2.2% of the
Initial Pool Balance, permits the borrower to treat the Mortgaged Property with
respect to certain outparcels as if it were a multiple property loan and
permits the borrower to release one or more of certain outparcels provided
that: (1) prior to the release of an outparcel, 125% of the allocated loan
amount for the outparcel be defeased and (2) certain debt service coverage
ratio and LTV Ratio tests be satisfied with respect to the remaining Mortgaged
Properties after the defeasance.
RELEASE OR SUBSTITUTION OF PROPERTIES.
The terms of 1 of the Mortgage Loans, representing approximately 2.8% of
the Initial Pool Balance, which is secured by mortgages on 2 mortgaged real
properties permits the related borrower to obtain a release of 1 of the
properties from the related mortgage lien by substituting another property of
like kind and quality owned or acquired by the borrower, subject, among other
things, to:
o receipt by the lender of confirmation from the Rating Agencies that the
substitution will not result in a withdrawal, qualification or
downgrade of any of the then current ratings of the certificates;
o the fair market value of the substitute property is not less than 105%
of the greater of the fair market value of the substituted property as
of the date of origination and the fair market value of the substituted
property as of the date immediately preceding the substitution, based
on the appraised value of the substituted property performed by an
appraiser acceptable to the Rating Agencies;
o after giving effect to the substitution, the debt service coverage
ratio for the mortgaged properties for the prior 12 month period is
equal to or greater than the debt-service coverage ratio as of the
origination of the date of the mortgage loan or the date immediately
preceding the substitution;
o the net operating income for the substituted property does not show a
downward trend for the three years prior to substitution;
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o the net operating income and debt service coverage ratio (for the prior
12 month period) for the substitute property is greater than 105% of
the net operating income and debt service coverage ratio (for the prior
12 month period) for the substituted property; and
o the related borrower is not permitted at any time to substitute as
described above for the property identified on Annex A as 2155 Iron
Point Road.
Two groups of Mortgage Loans, each consisting of 2 Mortgage Loans,
representing 0.8% of the Initial Pool Balance, are cross-collateralized and
cross-defaulted within each such group, permit the release of either of the
Mortgaged Properties from the lien of the mortgage and the release from the
cross-collateralization upon prepayment of an amount equal to at least 115% of
the amount of the Mortgage Loan being released, subject to payment of a yield
maintenance charge on the full amount of the prepayment. Any amount prepaid in
excess of the amount required to prepay in full, with yield maintenance charge,
the Mortgage Loan being released, will be applied pro rata to partially prepay
the remaining Mortgage Loan in the crossed mortgage loan group.
The terms of 2 Mortgage Loans, representing 1.7% and 1.7% of the Initial
Pool Balance, which are secured by mulitple properties, permit the release of a
Mortgaged Property from the lien of the mortgage upon, among other things, the
payment of 115% of the allocated loan amount for that Mortgaged Property. Upon
such prepayment, the excess over the allocated loan amount for the released
property will be applied pro rata to reduce the allocated loan amount for each
remaining Mortgaged Property.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions. The Mortgage Loans
generally 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 Mortgage Loan if the
borrower sells or otherwise transfers or encumbers the related Mortgaged
Property or prohibit the borrower from doing so without the consent of the
mortgagee. See "--Additional Mortgage Loan Information--Subordinate Financing"
herein. Certain of the Mortgage Loans permit the transfer or further
encumbrance of the related Mortgaged Property if certain specified conditions
are satisfied or if the transfer is to a borrower reasonably acceptable to the
mortgagee. The Master Servicer and/or the Special Servicer, as applicable, will
determine, in a manner consistent with the Servicing Standard and with the
REMIC provisions, whether to exercise any right the mortgagee may have under
any such clause to accelerate payment of the related Mortgage Loan upon, or to
withhold its consent to, any transfer or further encumbrance of the related
Mortgaged Property; provided that the Master Servicer will not waive any right
that it may have, or grant any consent that it may otherwise withhold without
obtaining the consent of the Special Servicer. The Special Servicer's consent
will be deemed given if it does not respond within ten Business Days following
receipt by the Special Servicer of the Master's Servicer's request for such
consent and all information reasonably requested by the Special Servicer as
such time frame may be extended if the Special Servicer is required to seek the
consent of the Directing Certificateholder or any Rating Agency, as described
below. In addition, the Special Servicer will not 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 for any Non-Specially Serviced
Mortgage Loan that has a then Stated Principal Balance that exceeds $2,500,000
or any Specially Serviced Mortgage Loan unless the Directing Certificateholder
has approved such waiver and consent, which approval will be deemed given if
the Directing Certificateholder does not respond within ten Business Days after
the Special Servicer has given a written notice of the matter and a written
explanation of the surrounding circumstances and a request for approval of a
waiver or consent related to the "due-on-encumbrance" or "due-on-sale clause"
to the Directing Certificateholder.
Notwithstanding the foregoing, with respect to any Mortgage Loan that (i)
represents greater than 5% of the outstanding principal balance of the Mortgage
Pool, (ii) has an outstanding principal balance of greater than $20,000,000, or
(iii) is one of the ten largest Mortgage Loans based on outstanding principal
balance, neither the Master Servicer nor Special Servicer may waive any right
it has, or grant any consent it is otherwise entitled to withhold, under any
related "due-on-sale" clause until it has received written confirmation from
each Rating Agency (as set forth in the
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Pooling Agreement) that such action would not result in the downgrade,
qualification (if applicable) or withdrawal of the rating then assigned by such
Rating Agency to any Class of Certificates. In addition, with respect to any
Mortgage Loan that represents greater than 2% of the outstanding principal
balance of the Mortgage Pool or is one of the ten largest Mortgage Loans based
on outstanding principal balance, neither the Master Servicer nor the Special
Servicer may waive any right it has, or grant any consent it is otherwise
entitled to withhold, under any related "due-on-encumbrance" clause until it
has received written confirmation from each Rating Agency (as set forth in the
Pooling Agreement) that such action would not result in the downgrade,
qualification (if applicable) or withdrawal of the rating then assigned by such
Rating Agency to any Class of Certificates if, after taking into consideration
any additional indebtedness secured by the Mortgaged Property, the loan to
value ratio for such Mortgage Loan would be greater than 85% or the debt
service coverage ratio would be less than 1.20x. Notwithstanding the foregoing,
the existence of any additional indebtedness may increase the difficulty of
refinancing the related mortgage loan at maturity or the Anticipated Repayment
Date and the possibility that reduced cash flow could result in deferred
maintenance. Also, if the holder of the additional debt has filed for
bankruptcy or been placed in involuntary receivership, foreclosure of the
related mortgage loan could be delayed. See "The Pooling and Servicing
Agreements--Due-on-Sale and Due-on-Encumbrance Provisions" and "Certain Legal
Aspects of Mortgage Loans--Due-on-Sale and Due-on-Encumbrance" in the
accompanying prospectus.
SIGNIFICANT MORTGAGE LOANS
Certain of the larger Mortgage Loans (by outstanding principal balance)
are described below in the following table and text. Terms used below relating
to underwriting or property characteristics have the meaning assigned to such
term in Annex A.
The following table and summaries describe the ten largest Mortgage Loans
or sets of Cross-Collateralized Mortgage Loans in the Mortgage Pools by Cut-off
Date Balance:
PERCENT
OF
CUT-OFF INITIAL
DATE POOL PROPERTY
LOAN NAME BALANCE BALANCE TYPE
- --------------------------- --------------- --------- ---------------------
PPG Place ................. $115,704,055 10.2% Office
Eden Praire Mall .......... $ 87,000,000 7.6% Retail
Broward Financial
Center .................... $ 46,500,000 4.1% Office
Prince Kuhio Plaza ........ $ 42,000,000 3.7% Retail
104 West 40th Street ...... $ 36,467,173 3.2% Office
Evergreen Portfolio C ..... $ 32,432,442 2.8% Office
MHC Portfolio -- Manufactured
Waterford Estates ......... $ 30,953,930 2.7% Housing Communities
MHC Portfolio -- Lake Manufactured
Fairways Country Club ..... $ 30,460,183 2.7% Housing Communities
MHC Portfolio --
The Meadows at
Countrywood and The Manufactured
Lakes at Countrywood**..... $ 28,015,043 2.5% Housing Communities
1995 Broadway ............. $ 27,917,752 2.5% Office
------------ ----
TOTAL/WTD. AVG ............ $477,450,578 41.9%
============ ====
LOAN CUT-OFF LTV
BALANCE PER DATE RATIO AT
SF/UNIT/ LTV MATURITY UNDERWRITTEN MORTGAGE
LOAN NAME ROOM/PADS RATIO OR ARD DSCR RATE
- --------------------------- ------------- --------- ---------- -------------- -----------
PPG Place ................. $ 76 55.1% 50.4% 2.20x 5.343%
Eden Praire Mall .......... $ 225 67.2% 59.2% 1.69x 4.670%
Broward Financial
Center .................... $ 143 69.9% 69.9% 2.19x 4.836%
Prince Kuhio Plaza ........ $ 118 66.1% 59.6% 2.07x 3.452%
104 West 40th Street ...... $ 186 75.2% 63.4% 1.24x 5.684%
Evergreen Portfolio C ..... $ 153 73.2% 66.0% 1.55x 5.570%
MHC Portfolio --
Waterford Estates ......... $42,345 79.8% 69.9% 1.20x 6.327%
MHC Portfolio -- Lake
Fairways Country Club ..... $33,996 78.7% 69.0% 1.20x 6.327%
MHC Portfolio --
The Meadows at
Countrywood and The
Lakes at Countrywood**..... $24,172 79.4% 72.8% 1.23x 5.715%
1995 Broadway ............. $ 293 79.8% 67.6% 1.31x 5.830%
TOTAL/WTD. AVG ............ 68.5% 61.5% 1.74X 5.223%
** For crossed pools, the information printed is a weighte d average of the
information for the loans in the crossed pool.
Summaries of certain additional information with respect to each of the
ten largest mortgage loans or crossed pools of mortgage loans detailed above
can be found on Annex E to this prospectus supplement.
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PPG PLACE
LOAN INFORMATION
ORIGINAL PRINCIPAL BALANCE: $116,000,000
FIRST PAYMENT DATE: February 1, 2004
TERM/AMORTIZATION: 84/360 months
SHADOW RATING (S&P/MOODY'S): AA+/A2
MATURITY DATE: January 1, 2011
EXPECTED MATURITY BALANCE: $105,939,516
BORROWING ENTITY: Market Associates
Limited Partnership
INTEREST CALCULATION: Actual/360
CALL PROTECTION: Lockout/defeasance:
78 payments
Open: 6 payments
UP-FRONT RESERVES:
TAX/INSURANCE RESERVE: Yes
TI/LC: $5,000,000
IMMEDIATE REPAIR RESERVES: $734,360
ONGOING MONTHLY RESERVE:
TAX/INSURANCE RESERVE: Yes
REPLACEMENT RESERVE: $26,233
TI/LC: $160,000
LOCKBOX: Hard
FINANCIAL INFORMATION
CUT-OFF DATE BALANCE: $115,704,055
CUT-OFF DATE LTV: 55.1%
MATURITY DATE LTV: 50.4%
UNDERWRITTEN DSCR*: 2.20x
MORTGAGE RATE: 5.343%
* DSCR figures based on net cash flow unless
otherwise noted.
PROPERTY INFORMATION
PROPERTY TYPE: Office
PROPERTY SUB-TYPE: CBD
LOCATION: Pittsburgh, PA
YEAR BUILT/RENOVATED: 1983/NA
NET RENTABLE SQUARE FEET: 1,524,435
CUT-OFF BALANCE PER SF: $76
OCCUPANCY AS OF 12/15/03: 89.6%
OWNERSHIP INTEREST: Fee
PROPERTY MANAGEMENT: Grubb & Ellis
Management Services,
Inc. and Grubb &
Ellis Company
U/W NET CASH FLOW: $ 16,496,042
APPRAISED VALUE: $210,000,000
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ANNUALIZED
MOST RECENT FULL YEAR FULL YEAR FULL YEAR
UNDERWRITTEN (9/30/03) (12/31/02) (12/31/01) (12/31/00)
---------------- ---------------- ---------------- ---------------- ----------------
EFFECTIVE GROSS INCOME ............. $ 35,885,730 $ 34,347,729 $ 35,622,169 $ 35,265,180 $ 34,378,538
TOTAL EXPENSES ..................... $ 17,122,691 $ 16,721,487 $ 16,914,154 $ 17,034,421 $ 15,770,378
NET OPERATING INCOME (NOI) ......... $ 18,763,039 $ 17,626,243 $ 18,708,015 $ 18,230,759 $ 18,608,160
CASH FLOW (CF) ..................... $ 16,496,042 $ 14,530,873 $ 17,119,805 $ 15,780,652 $ 16,125,355
DSCR ON NOI ........................ 2.50x 2.35x 2.50x 2.43x 2.48x
DSCR ON CF ......................... 2.20x 1.94x 2.28x 2.11x 2.15x
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- --------------------------------------------------------------------------------
TENANT INFORMATION
- --------------------------------------------------------------------------------
RATINGS TENANT % TOTAL POTENTIAL % POTENTIAL LEASE
TOP TENANTS+ S&P/MOODY'S TOTAL SF SF RENT PSF RENT RENT EXPIRATION
- --------------------------- --------------------- ---------- ----------- ---------- -------------- ------------- -----------
PPG Industries ........... A/A2 432,988 28.25% $ 24.80 $10,739,875 29.11% 6/1/2011
Deloitte & Touche ........ Not Rated/Not Rated 120,934 7.89% $ 25.00 $ 3,023,350 8.20% 4/1/2005
Dicky McCamey &
Chilcote ................ Not Rated/Not Rated 91,752 5.99% $ 22.97 $ 2,107,897 5.71% 3/1/2005
Marsh & McLennan
Companies ............... AA-/A2 88,903 5.80% $ 24.57 $ 2,165,221 5.87% 7/1/2005
Ketchum Communication..... A-/Baa1 77,708 5.07% $ 21.50 $ 1,660,577 4.50% 11/1/2010
------- ----- ----------- -----
TOTALS ................... 812,285 53.00% $19,696,920 53.39%
+ Information obtained from Underwritten Rent Roll except for Ratings
(S&P/Moody's) and unless otherwise stated. Credit Ratings are of the
parent company whether or not the parent guarantees the lease.
Calculations with respect to Rent PSF, Potential Rent and % of Potential
Rent include base rent only and exclude common area maintenance expense
and reimbursement.
- --------------------------------------------------------------------------------
LEASE ROLLOVER SCHEDULE
- --------------------------------------------------------------------------------
NUMBER OF EXPIRING % TOTAL CUMULATIVE CUMULATIVE
YEAR OF EXPIRATION++ LEASES EXPIRING SF SF TOTAL SF % TOTAL SF
- ---------------------- ----------------- ------------ ----------- ------------ -----------
2004 ................ 15 98,018 6.42% 98,018 6.42%
2005 ................ 14 286,553 18.77% 384,571 25.19%
2006 ................ 12 82,478 5.40% 467,049 30.60%
2007 ................ 15 142,764 9.35% 609,813 39.95%
2008 ................ 9 90,100 5.90% 699,913 45.85%
2009 ................ 5 18,823 1.23% 718,736 47.08%
2010 ................ 5 108,503 7.11% 827,239 54.19%
2011 ................ 5 432,638 28.34% 1,259,877 82.53%
2012 ................ 1 44,496 2.91% 1,304,373 85.45%
2013 ................ 1 46,546 3.05% 1,350,919 88.50%
2023 ................ 1 2,863 0.19% 1,353,782 88.69%
Vacant .............. 172,705 11.31% 1,526,487 100.00%
-- ------- ------
TOTAL ............... 83 1,526,487 100.00%
++ Information obtained from Underwritten Rent Roll.
SUMMARY OF SIGNIFICANT TENANTS
o The subject property is 89.6% leased by approximately 38 office tenants at
an average lease rate of $24/square feet and approximately 22 retail
tenants at an average lease rate of $25/square feet. The five largest
tenants, representing 53.0% of total net rentable area, are:
o PPG Industries ("PPG") (Rated "A" by S&P and "A2" by Moody's), a
multinational manufacturer, occupies 432,988 square feet (28.2%), on a
12-year lease expiring in June 2011 with two five-year renewal options
and one three-year renewal option. Incorporated in 1883, PPG Industries,
Inc. operates in three business segments: coatings, glass and chemicals.
The coatings segment supplies a variety of protective and decorative
coatings and finishes along with adhesives, sealants and metal
pretreatment products for a variety of applications. The glass segment
supplies flat glass, fabricated glass and continuous-strand fiberglass
for residential and commercial construction, automotive original and
replacement markets and industrial applications. The chemicals segment
supplies chlor-alkali and specialty chemicals products. For the year
ended December 31, 2003, PPG had total revenues of approximately $8.8
billion and net income of approximately $494 million. As of December 31,
2003, the company had total assets of approximately $8.4 billion and
shareholders' equity of approximately $2.9 billion. The subject complex
has served as PPG's world headquarters since its construction in 1983.
S-77
o Deloitte & Touche (Not Rated), a professional services firm, occupies
120,934 square feet (7.9%) on two leases: (1) a 12-year lease of 75,318
square feet expiring in April 2005 with one five-year renewal option and
(2) a ten-year lease of 45,616 square feet expiring in December 2007 with
two five-year renewal options. Founded in 1895, Deloitte provides
assurance and advisory, tax, and management consulting services through
nearly 30,000 people in more than 80 U.S. cities. Deloitte is the primary
auditor for PPG and has been a tenant in the building since 1984. For its
most recent fiscal year ended May 31, 2003, the firm's U.S. operation
recorded approximately $6.5 billion in revenues. The subject location
serves as the firm's Pittsburgh offices.
o Dickie McCamey & Chilcote (Not Rated), a law firm, occupies 91,752
square feet (6.0%) on two leases: (1) a 20-year lease of 83,525 square
feet expiring in March 2005 with two five-year renewal options and (2) a
two and one-half year lease of 8,227 square feet expiring in March 2005
with no renewal options. Dickie, McCamey & Chilcote, founded a century
ago, is one of Western Pennsylvania's oldest law firms. Some of the
primary areas of litigation in which the firm has been involved are
antitrust; aviation; technology; contracts; employment law; environmental
law; insurance defense; product liability; medical, legal and other
professional liability defense; personal injury; securities; and workers
compensation. Dickie, McCamey & Chilcote's headquarters is located in
Pittsburgh at the subject complex, with other offices in Harrisburg,
Philadelphia, Washington D.C., New Jersey, North Carolina, Ohio, and West
Virginia.
o Marsh & McLennan Companies, Inc. ("MMC") (Rated "AA-" by S&P and "A2" by
Moody's), a global professional services firm, occupies 88,903 square
feet (5.8%) on three leases: (1) a 13-year lease of 44,914 square feet
expiring in July 2005 with one five-year renewal option, (2) a seven-year
lease of 23,664 square feet expiring in July 2005 with no renewal
options, and (3) a six-year lease of 20,325 square feet expiring in July
2005 with one five-year renewal option. Founded in 1871 and headquartered
in New York City, MMC is the parent company of various subsidiaries and
affiliates that provide clients with analysis, advice and transactional
capabilities in the fields of risk and insurance services, investment
management and consulting. For the year ended December 31, 2003, MMC had
total revenue of approximately $11.6 billion and net income of
approximately $1.5 billion. As of December 31, 2003, the company had
total assets of approximately $15.1 billion and stockholders' equity of
approximately $5.5 billion. The subject location houses general offices
for MMC's JH Marsh & McLennan subsidiary and its Mercer, Inc. subsidiary.
o Ketchum Communications ("Ketchum") (Not Rated), a global public
relations agency, occupies 77,708 square feet (5.1%) on a ten-year lease
expiring in November 2010 with no renewal options. Founded in 1923 and
headquartered in New York City, Ketchum is a full-service communications
company with more than approximately 1,100 people whose services include
a network of global practices--Brand Marketing, Corporate, Food &
Nutrition, Healthcare, Technology and Ketchum Inside, its workplace
communications group. Ketchum is a subsidiary of Omnicom Group Inc.
(NYSE: "OMC") (Rated "A-" by S&P and "Baa1" by Moody's), a holding
company whose business is conducted through its subsidiaries. Omnicom is
principally a marketing and corporate communications company. It was
formed through a combination of three marketing and corporate
communications networks: BBDO, Doyle Dane Bernbach and Needham Harper.
Since then, Omnicom has grown its strategic holdings to over 1,500
subsidiary agencies operating in virtually all markets worldwide. For the
year ended December 31, 2003, Omincom had total revenues of approximately
$8.6 billion and net income of approximately $676 million. As of
September 30, 2003, the company had total assets of approximately $12.7
billion and shareholders' equity of approximately $3.1 billion.
S-78
ADDITIONAL INFORMATION
THE LOAN:
o The PPG Place Mortgage Loan is secured by a first mortgage on a central
business district office complex containing 1,524,435 net rentable square
feet located in Pittsburgh, Pennsylvania.
o There is also a subordinate PPG Place Mezzanine Loan of $59,000,000 held
outside of the trust which is subject to an intercreditor agreement between
the mortgagee and the mezzanine lender as described below.
THE BORROWER:
o The borrower, Market Associates Limited Partnership (the "PPG Place
Borrower"), is a single-purpose, bankruptcy-remote entity with one
independent director for which the PPG Place Borrower's legal counsel
delivered a non-consolidation opinion at loan closing.
o The PPG Place Borrower is owned 1% by its sole general partner, Fourth
Avenue LLC, a Delaware limited liability company, and 99% by its sole
limited partner, Fourth Avenue Limited Partnership, a Delaware limited
partnership. The borrower principal is Wilmington Investments, Inc., a
wholly owned subsidiary of The Hillman Company.
o All entities in the various tiers of ownership of the property are
ultimately controlled by The Hillman Company, a privately owned
Pittsburgh-based company, which is engaged in diversified investments and
operations. Major areas of the company's investment focus (public and
private companies) include technology, telecommunications, life sciences,
healthcare, manufacturing, product distribution, energy and natural
resources, medical products, medical services and real estate.
o As an affiliate of The Hillman Company, Hillman Properties is a development,
investment, and management company involved with a range of diversified real
estate projects throughout the United States. The company has been in
business since the 1970's and has been directly or indirectly involved in
the development or acquisition of approximately 16 million square feet of
office space, 27 million square feet of retail space, 11 million square feet
of industrial and office/service space, six million square feet of R&D
space, 5,500 residential units, and 1,100 hotel rooms. In 1994, the company
sold the majority of its real estate holdings to the Whitehall IV Real
Estate Fund, a Goldman Sachs-sponsored fund. Since that time, Hillman
Properties has continued to manage and develop its remaining portfolio as
well as invest in new opportunities. Its current portfolio contains 8.3
million square feet of office, over 8,000 multifamily units, 1,500 hotel
rooms, and 600,000 square feet of retail space.
o The PPG Place Mortgage Loan is non-recourse, except that it is fully
recourse (or recourse to the extent of resulting losses) to the PPG Place
Borrower under certain limited circumstances, including (but not limited
to): (i) fraud or intentional misrepresentation by the PPG Place Borrower or
certain of its affiliates in connection with the execution and delivery of
the PPG Place Mortgage Loan documents, (ii) actual physical waste or arson
of the PPG Place Mortgaged Property by the PPG Place Borrower or certain
affiliates, (iii) misapplication or misappropriation by the PPG Place
Borrower of insurance proceeds, condemnation awards, or following an event
of default under the PPG Place Mortgage Loan, rents, (iv) any activity in
violation of the "due on sale" clause that is set forth in the loan
agreement, and (v) failure to maintain the PPG Place Borrower's status as a
special purpose entity as more specifically set forth in the loan agreement.
THE PROPERTY:
o The collateral for the Mortgage Loan consists of the fee simple interest in
six architecturally distinct multi-tenanted central business district office
buildings totaling approximately 1,524,435 square feet. The PPG Place
Mortgaged Property includes one 40-story tower and five mid-sized
S-79
buildings ranging from six to 14 stories (known as One PPG Place, Two PPG
Place, Three PPG Place, Four PPG Place, Five PPG Place, and Six PPG Place,
respectively) interconnected within a centrally located three-level
underground parking garage (with spaces for approximately 707 vehicles)
surrounding a one-acre open landscaped plaza. Completed in 1983-1985 and
situated on a 4.4-acre site, the property was acquired by the sponsor in
1999.
INSURANCE:
o The PPG Place Borrower, at its sole cost and expense, is required to keep
the PPG Place Mortgaged Property insured up to an amount equal to 100% of
the actual replacement value (exclusive of the costs of excavations,
underground utilities and foundations) against loss or damage by fire and
other risks addressed by coverage of a comprehensive all risk insurance
policy, provided that no deductible will exceed $50,000. In addition, the
PPG Place Borrower, at its sole cost and expense, will also be required to
obtain and maintain such other policies of insurance as called for under the
PPG Place Mortgage Loan documents, which include (but are not limited to):
flood insurance (if located on a flood hazard area), comprehensive public
liability insurance, rental loss or business interruption insurance for a
period of up to 18 months (as called for in the PPG Place Mortgage Loan
documents), statutory worker's compensation insurance, and insurance
covering acts of terrorism. All policies of insurance described above are
required to be issued by an insurer having a claims paying ability rating,
as the case may be, of "A" (or its equivalent) or better by S&P and contain
the standard non-contribution clause naming the Trustee on behalf of the
Trust Fund as the person or entity to which all payments made by that
insurance company will be paid, or may be covered under an all risk
insurance policy meeting the requirements set forth in the PPG Place
Mortgage Loan documents.
CASUALTY AND CONDEMNATION:
o The PPG Place Mortgage Loan documents generally require that, if the PPG
Place Mortgaged Property is damaged or destroyed, in whole or in part, by
fire, or other casualty, or if it is taken by a government authority via
eminent domain or otherwise, the PPG Place Borrower must promptly proceed
with the repair or rebuilding of the improvements so as to be of
substantially the same equivalent quality to the PPG Place Mortgaged
Property as of the date of origination. The mortgagee will disburse monies,
casualty or condemnation proceeds for such restoration provided that, among
other requirements, (i) no event of default has occurred and is continuing,
and (ii) less than 25% of each of (A) the fair market value of the property
and (B) the rentable area of the improvements on the property has been
damaged. Any proceeds from insurance, casualty or condemnation which are not
required to be applied to the restoration and/or repair of the PPG Place
Mortgaged Property pursuant to the PPG Place Mortgage Loan Document may be
applied at the sole discretion of the mortgagee to the repayment of the PPG
Place Mortgage Loan.
TRANSFER OF PROPERTY AND INTEREST IN THE PPG PLACE BORROWER:
o The PPG Place Mortgage Loan documents generally provide that no direct or
indirect transfer of greater than a 49% interest in the PPG Place Mortgaged
Property is permitted without the prior written consent of the mortgagee,
which may not be unreasonably withheld unless the PPG Place Borrower and/or
its transferee satisfy certain conditions that are set forth in the PPG
Place Mortgage Loan documents, which generally include payment of an
assumption and/or transfer fee, the satisfaction by the transferee of
certain single purpose entity requirements and Rating Agency approval.
PROPERTY MANAGEMENT:
o Grubb & Ellis Management Services, Inc. ("GEMS"), a wholly owned subsidiary
of Grubb & Ellis Company (OTC: "GEBL.OB") and Grubb & Ellis Company ("Grubb
& Ellis") collectively manage the complex. Grubb & Ellis is a Delaware
corporation organized in 1980 and the
S-80
successor by merger to a real estate brokerage company first established in
California in 1958. Grubb & Ellis is a commercial real estate company that
provides services to real estate owners/investors and tenants, including
transaction services involving leasing, acquisitions and dispositions, and
property and facilities management services. The management services
segment of Grubb & Ellis provides property management and related services
for owners of investment properties and facilities management services for
corporate users. GEMS has approximately 150 million square feet of property
under management (including 5.5 million square feet in the Pittsburgh
sub-market).
EXISTING MEZZANINE DEBT:
o On the date of origination, Bank of America, N.A. in its capacity as
mezzanine lender (the "PPG Place Mezzanine Lender") made a loan in the
original principal amount of $59,000,000.00 (the "PPG Place Mezzanine Loan")
to FOAGP LLC and Fourth Avenue Limited Partnership, (collectively, the "PPG
Place Mezzanine Borrower") evidenced by a promissory note from the PPG Place
Mezzanine Borrower to the PPG Place Mezzanine Lender and is secured by
(among other things) the PPG Place Mezzanine Borrower's ownership interest
in the PPG Place Borrower (the "PPG Place Mezzanine Collateral"). The
relationship between the PPG Place Mezzanine Lender and the mortgagee is set
forth in that certain mezzanine intercreditor agreement dated as of December
22, 2003 by and between the mortgagee and the PPG Place Mezzanine Lender
(the "PPG Place Mezzanine Intercreditor Agreement"). The PPG Place Mezzanine
Intercreditor Agreement (among other things) generally provides that the
loan documents for the PPG Place Mezzanine Loan are subordinate in all
respects to the loan documents for the PPG Place Mortgage Loan. In addition
it restricts the ability of the PPG Place Mezzanine Lender from transferring
its interests without meeting certain criteria set forth in the PPG Place
Mezzanine Intercreditor Agreement. It provides that each of the PPG Place
Mezzanine Lender and the mortgagee will have the right to modify the PPG
Place Mezzanine Loan and the PPG Place Loan, respectively, without the
other's consent provided there is no change in, among other things, interest
rate, principal amount, maturity, the voluntary prepayment period, cross
default provisions and default provisions; provided that the mortgagee may
make any such modifications without consent of the PPG Place Mezzanine
Lender, except for changes in the principal amount of the loan and
extensions in the voluntary prepayment period, in the event of a default or
work-out of the PPG Place Mortgage Loan. It also provides the PPG Place
Mezzanine Lender a right to cure defaults by the PPG Place Borrower; and
provides that the PPG Place Mezzanine Lender a limited right to purchase the
PPG Place Mortgage Loan at a purchase price generally equal to the
outstanding principal balance of the PPG Place Mortgage Loan as of the date
of purchase together with all accrued interest (including late charges,
default interest, exit fees, advances and post petition interest), any
protective advances and monthly payment advances (in each case with any
interest charged thereon) made by the mortgagee, and all costs and expenses
(including reasonable legal fees and expenses incurred by the mortgagee)
actually incurred by the mortgagee in enforcing the terms of the PPG Place
Mortgage Loan documents. On March 31, 2004, Bank of America, N.A. sold the
entire PPG Place Mezzanine Loan to NYLIM-GCR Fund I-2002, L.P. (an affiliate
of New York Life Insurance Company).
FUTURE MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o Not allowed.
AMORTIZATION SCHEDULE:
o The amortization schedule for the PPG Loan is set forth in Annex E to this
prospectus supplement.
S-81
EDEN PRAIRIE MALL
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL BALANCE: $87,000,000
FIRST PAYMENT DATE: May 1, 2004
TERM/AMORTIZATION: 84/360 months
MATURITY DATE: April 1, 2011
EXPECTED MATURITY BALANCE: $76,587,076
BORROWING ENTITY: Eden Prairie Mall L.L.C.
INTEREST CALCULATION: Actual/360
CALL PROTECTION: Lockout/defeasance:
80 payments
Open: 4 payments
ONGOING RESERVES:
TAX/INSURANCE RESERVE: Springing(1)
REPLACEMENT RESERVE: Springing(2)
LOCKBOX: Hard
- --------------------------------------------------------------------------------
(1) The tax and insurance reserves will spring if the borrower fails to provide
evidence of payment or upon the Trigger Events below in footnote 2.
(2) The replacement reserve ($6,458.33/monthly) will spring upon the following
Trigger Events: 1) Event of Default; and/or 2) DSCR is less than 1.10x. The
reserve is capped at $77,500.
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CUT-OFF DATE BALANCE: $87,000,000
CUT-OFF DATE LTV: 67.2%
MATURITY DATE LTV: 59.2%
UNDERWRITTEN DSCR*: 1.69x
MORTGAGE RATE: 4.670%
* DSCR figures based on net cash flow unless otherwise noted.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
PROPERTY TYPE: Retail
PROPERTY SUB-TYPE: Anchored
LOCATION: Eden Prairie, MN
YEAR BUILT/RENOVATED: 1976/2002
NET RENTABLE SQUARE FEET: 387,377
CUT-OFF BALANCE PER SF: $225
OCCUPANCY AS OF 3/5/04: 94.9%
OWNERSHIP INTEREST: Fee
PROPERTY MANAGEMENT: A General Growth Properties, Inc.
affiliate
U/W NET CASH FLOW: $9,108,988
APPRAISED VALUE: $129,400,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
FULL YEAR FULL YEAR
UNDERWRITTEN (12/31/2003) (12/31/2002)
--------------- ---------------- ---------------
EFFECTIVE GROSS INCOME ......... $ 16,960,514 $ 15,115,781 $ 12,703,739
TOTAL EXPENSES ................. $ 7,516,973 $ 6,345,881 $ 4,433,469
NET OPERATING INCOME (NOI) ..... $ 9,443,542 $ 8,769,900 $ 8,270,270
CASH FLOW (CF) ................. $ 9,108,988 $ 8,769,900 $ 8,270,270
DSCR ON NOI .................... 1.75x 1.63x 1.53x
DSCR ON CF ..................... 1.69x 1.63x 1.53x
- --------------------------------------------------------------------------------
S-82
- -----------------------------------------------------------------------------------------------------------------
ANCHOR TENANT INFORMATION+
- -----------------------------------------------------------------------------------------------------------------
TOTAL 2002 TOTAL 2003
RATINGS TOTAL 2002 SALES 2003 SALES
ANCHOR TENANTS S&P/MOODY'S+++ TENANT SF SALES PSF SALES PSF
- ------------------- --------------------- ----------- --------------- ------- --------------- ------
Sears++ .......... BBB/Baa1 204,566 $27.8 million $169 $28.6 million $174
Target ........... A+/A2 152,133 $55.0 million $362 $56.7 million $373
Von Maur ......... Not Rated/Not Rated 150,000 $21.0 million $140 $21.7 million $145
Mervyn's ......... A+/A2 130,126 $8.5 million $ 65 $8.7 million $ 67
Kohl's ........... A-/A3 95,382 $22.5 million $236 $23.2 million $243
- -----------------------------------------------------------------------------------------------------------------
+ The above anchor tenants own their own pads and improvements except for Von
Maur which owns its improvements but operates under a ground lease that
expires in July 2020 to the subject borrower. Von Maur has the right to
terminate its ground lease in July 2006 if sales do not exceed $160psf.
++ Sales PSF for Sears are calcuated after subtracting 40,913 square feet from
the Total Tenant SF because this space is used as non-retail distribution
space.
+++ Credit Ratings are of the parent company whether or not the parent
guarantees the lease.
- --------------------------------------------------------------------------------------------------------------------------
TENANT INFORMATION
- --------------------------------------------------------------------------------------------------------------------------
RATINGS TOTAL % OF RENT POTENTIAL % POTENTIAL LEASE
TOP TENANTS S&P/MOODY'S TENANT SF TOTAL SF PSF RENT RENT EXPIRATION
- -------------------------- ------------- ----------- ---------- ----------- ------------- ------------- -----------
AMC Theatres ............ B/B2 77,500 20.0% $ 18.97 $1,470,000 16.9% 4/30/2017
Barnes & Noble .......... BB/Ba2 25,000 6.5% $ 21.00 $ 525,000 6.0% 1/31/2012
Old Navy+ ............... BB+/Ba3 19,720 5.1% $ 10.71 $ 211,200 2.4% 1/31/2006
- --------------------------------------------------------------------------------------------------------------------------
+ Except with respect to Old Navy which pays % rent, calculations with
respect to Rent PSF. Potential Rent and % of Potential Rent include base
rent only and exclude common area maintenance expense and reimbursement.
Credit Ratings are of the parent company whether or not the parent
guarantees the lease.
- -------------------------------------------------------------------------------------------
LEASE ROLLOVER SCHEDULE
- -------------------------------------------------------------------------------------------
NUMBER CUMULATIVE
OF LEASES EXPIRING % OF TOTAL CUMULATIVE % OF TOTAL
YEAR OF EXPIRATION EXPIRING SF SF TOTAL SF SF
- -------------------- ----------- ---------- ------------ ------------ -----------
M-T-M+ ............ 6 7,120 1.8% 7,120 1.8%
2006 .............. 2 28,737 7.4% 35,857 9.3%
2007 .............. 2 7,945 2.1% 43,802 11.3%
2008 .............. 4 2,217 0.6% 46,019 11.9%
2009 .............. 7 17,812 4.6% 63,831 16.5%
2010 .............. 4 4,420 1.1% 68,251 17.6%
2011 .............. 9 26,986 7.0% 95,237 24.6%
2012 .............. 42 151,823 39.2% 247,060 63.8%
2013 .............. 4 7,608 2.0% 254,668 65.7%
2014 .............. 6 19,397 5.0% 274,065 70.7%
2015 .............. 1 5,904 1.5% 279,969 72.3%
2016 .............. 1 10,169 2.6% 290,138 74.9%
2017 .............. 1 77,500 20.0% 367,638 94.9%
Vacant ............ 19,739 5.1% 387,377 100.0%
-- ------- -----
TOTAL ............. 89 387,377 100.0% 387,377 100.0%
- -------------------------------------------------------------------------------------------
+ Includes 5 temporary tenants occupying 5,737 square feet.
S-83
SUMMARY OF SIGNIFICANT TENANTS
o The Mortgaged Property is 94.9% leased to a mix of national and regional
retail tenants. The regional mall is anchored by Sears, Target, Kohl's, Von
Maur and Mervyn's, each of which owns their own land and improvements, with
the exception of Von Maur, which ground leases its pad from the borrower.
Sears, Target, Kohl's and Mervyn's are not part of the collateral. The major
tenants of the Mortgaged Property consist of the ground lease to Von Maur,
AMC Theatres (an 18-screen theater with stadium seating), Barnes & Noble, Old
Navy, Gap, Express, Victoria's Secret and Ann Taylor. The mall had 2002 and
2003 comparable inline tenant sales and occupancy costs of $283psf/13.4% and
$293psf/13.1%, respectively. Information concerning the three largest
collateral tenants is as follows:
o Von Maur, owns their own improvements and operates under a ground lease to
the borrower. Von Maur, founded in 1872, is a privately-held, family-owned
fashion department store that has served its customer base for over 125
years. Von Maur reported 2003 sales of $145 per square foot at the Mortgaged
Property.
o AMC Theatres, a subsidiary of AMC Entertainment Inc. (AMEX: "AEN") (Rated "B"
by S&P and "B2" by Moody's), occupies 77,500 square feet (20.0% of the net
rentable area) on a lease expiring in April 2017. Their parent company, AMC
Entertainment Inc. (AEN), which was incorporated in June 1983, is a holding
company that, through its direct and indirect subsidiaries, is principally
involved in movie theaters throughout North America, Portugal, Spain, France,
Japan, Sweden, China (Hong Kong) and the United Kingdom. As of April 3, 2003,
AMC Entertainment Inc. operated 239 theatres with a total of 3,524 screens,
with 93%, or 3,280, of its screens in North America. Twenty-six of the top 50
theatres in fiscal 2003, ranked by admissions revenue, were AMC theatres. AMC
had 2003 fiscal year end sales of approximately $1.8 billion or
$508,391/screen. AMC reported 2003 sales of $461,167/screen at the Mortgaged
Property.
o Barnes & Noble, Inc. (NYSE: "BKS") (Rated "BB" by S&P and "Ba2" by Moody's),
one of the nation's largest bookstore, video game and entertainment software
retailers, occupies 25,000 square feet (6.5% of the net rentable area) on a
lease expiring in January 2012. Headquartered in New York, New York, Barnes &
Noble, Inc. operated 886 bookstores and 1,231 video game and entertainment
software stores as of February 1, 2003. For the fiscal year ended February 1,
2003, Barnes & Noble, Inc. reported revenues of $5.3 billion and net income
of $100 million. As of November 1, 2003, Barnes & Noble, Inc. reported total
assets of $3.5 billion and stockholders' equity of $1.1 billion. Barnes &
Noble, Inc. reported 2003 sales of $275 per square foot at the Mortgaged
Property.
o Old Navy, a subsidiary of The Gap (NYSE: "GPS") (Rated "BB+" by S&P and "Ba3"
by Moody's), occupies 19,720 square feet (5.1% of the net rentable area) on a
lease expiring in January 2006. Founded in 1969 and headquartered in San
Francisco, California, The Gap operated 4,147 stores as of January 31, 2004.
The Gap launched Old Navy in 1994 and operated 840 Old Navy stores as of
January 31, 2004. For the fiscal year ended January 31, 2004, The Gap
reported revenues of $15.9 billion and net income of $1.0 billion. As of
January 31, 2004, The Gap reported total assets of $10.3 billion and
stockholders' equity of $4.8 billion. Old Navy reported 2003 sales of $269
per square foot at the Mortgaged Property.
S-84
ADDITIONAL INFORMATION
THE LOAN:
o The Eden Prairie Mall Mortgage Loan is secured by a first mortgage on 387,377
square feet of a 1.1 million square foot regional mall (plus the
ground-leased fee interest in the Von Maur store) located in Eden Prairie,
Minnesota, approximately 18 miles southwest of the Minneapolis CBD.
THE BORROWER:
o The borrower, Eden Prairie Mall L.L.C., a Delaware limited liability company,
is a single-purpose, bankruptcy-remote entity with at least two independent
directors for which borrower's legal counsel delivered a non-consolidation
opinion at loan closing.
o The sponsor of the borrower is General Growth Properties Inc. (NYSE: "GGP"),
a self-administered and self-managed publicly traded real estate investment
trust rated "BBB-" by S&P. GGP owns, leases, manages, acquires and develops
regional shopping malls and single tenant retail properties in the United
States. As of December 31, 2003, GGP had ownership interests in and/or
management responsibility for 171 regional shopping malls totaling more than
148 million square feet of retail space and including over 16,000 retailers
nationwide. For the year ended December 31, 2003, GGP had total revenues of
$1.3 billion and net income of $263.5 million. As of December 31, 2003, GGP
reported liquidity of $10.7 million, total assets of $9.6 billion, and
stockholders' equity of $1.7 billion.
PROPERTY MANAGEMENT:
o The property is self-managed by the borrower, who is controlled by General
Growth Properties, Inc.
THE PROPERTY:
o The collateral for the Eden Prairie Mall Mortgage Loan consists of the fee
interest in 387,377 square feet of a 1.1 million square foot regional mall,
plus the ground-leased fee interest in the Von Maur store. Eden Prairie Mall
was 94.9% occupied as of March 5, 2004 and had in-place rents ranging from
$13 to $188 per square foot. The Eden Prairie Mall was built in 1976 and
renovated, repositioned and retenanted in 2002. The Mortgaged Property
underwent a reconstruction and repositioning at a total cost of $117.8
million. The following additions were made to the mall during the renovation:
a major entertainment component was added to the facility, which includes an
18-screen AMC Theatres with stadium seating, a 25,000 square foot Barnes &
Noble, 4 sit-down restaurants, a 150,000 square foot Von Maur and additional
bridges and walkways to improve shopper access. Nearly every building finish
has been replaced or upgraded, and nearly every mall tenant occupies a newly
built-out shop space.
o The Eden Prairie Mall is located along US Highway 212, just south of
Interstate 494 in a dense market. The population in the Eden Prairie Trade
Area increased at an average compounded annual rate of 2.0% from 1990 to
2002, approximately 67% quicker than the national average. Per the appraisal,
the population and average household income in a 3 and 5 mile radius of the
property is 47,023/$130,610 and 143,031/$117,308, respectively.
o The Eden Prairie Mall has three primary competitors, Southdale Shopping
Center, Ridgedale Center and Burnsville Center. The Mall of America is not
considered a primary competitor due to it's amusement park theme and
different anchor mix. The Southdale Shopping Center, located five miles
northeast of the Mortgaged Property, had reported mall shop sales of $415 per
square foot. As of February 2004, Southdale Shopping Center's mall shops were
89% occupied and had in-place rents ranging from $15 to $150 per square foot.
The Ridgedale Center is located eight miles north of the Mortgaged Property
and had reported mall shop sales of $475 per square foot. As of February
2004, Ridgedale Center's mall shops were 98% occupied and had in-place rents
ranging from $15 to $85 per square foot. The Burnsville Center is located ten
miles southeast of the Mortgaged Property and had reported mall shop sales of
$350 per square foot. As of February 2004, Burnsville Center's mall shops
were 90% occupied and had in-place rents ranging from $10 to $100 per square
foot.
S-85
ADDITIONAL INFORMATION
TAX INCENTIVE NOTE:
o The Eden Prairie Mall Borrower holds a $10,000,000 note (the "Tax Incentive
Note") from the Housing and Redevelopment Agency in and for the City of Eden
Prairie, Minnesota that entitles the Eden Prairie Mall Borrower to receive
semi-annual payments under certain circumstances, which payments correspond
to a percentage of increases in real estate taxes resulting from the
redevelopment of the Eden Prairie Mall Property. Payments due under the note
are required to be paid only from increased property taxes; any shortfalls in
payments due will accrue and, if not paid in full by the maturity date of the
Tax Incentive Note in February 1, 2018, such accrued amounts, together with
any remaining principal balance of the note will be deemed to have been paid
in full. Because payments required under the Tax Incentive Note are based on
projected increases in real estate taxes, the amounts of which are uncertain,
there can be no assurance as to the amount, if any, that the Eden Prairie
Mall Borrower will ultimately receive therefrom.
CURRENT MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o None.
FUTURE MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o Not allowed.
RELEASE OF PARCELS:
o Vacant, non-income producing and unimproved portions of the Eden Prairie Mall
Property may be released from the lien of the mortgage upon satisfaction of
certain conditions set forth in the loan documents, including a no-downgrade
confirmation from the rating agencies.
S-86
BROWARD FINANCIAL CENTER
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL BALANCE: $46,500,000
FIRST PAYMENT DATE: March 10, 2004
TERM/AMORTIZATION: 61/0 months
INTEREST ONLY PERIOD: 61 months
MATURITY DATE: March 1, 2009
EXPECTED MATURITY BALANCE: $46,500,000
BORROWING ENTITY: CTA Partners, L.P.
INTEREST CALCULATION: Actual/360
CALL PROTECTION: Lockout/defeasance:
60 payments
Open: 1 payment
UP-FRONT RESERVES:
TAX/INSURANCE RESERVE: Yes
REPLACEMENT RESERVE: $5,426
TI/LC: $27,083
ONGONG MONTHLY RESERVES:
TAX/INSURANCE RESERVE: Yes
REPLACEMENT RESERVE: $5,426
TI/LC(1): $27,083
LOCKBOX: Hard
- --------------------------------------------------------------------------------
1) Capped at $1,100,000.
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CUT-OFF DATE BALANCE: $46,500,000
CUT-OFF DATE LTV: 69.9%
MATURITY DATE LTV: 69.9%
UNDERWRITTEN DSCR*: 2.19x
MORTGAGE RATE: 4.836%
* DSCR was derived by dividing the underwritten net cash flow by the first
twelve scheduled interest only payments. Based upon (a) the related
Mortgage Rate, (b) a 360 month amortization term and (c) the original
principal balance, the resulting DSCR would have been 1.70x.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
PROPERTY TYPE: Office
PROPERTY SUB-TYPE: Urban
LOCATION: Fort Lauderdale, FL
YEAR BUILT/RENOVATED: 1985/2002
NET RENTABLE SQUARE FEET: 325,583
CUT-OFF BALANCE PER SF: $143
OCCUPANCY AS OF 1/9/04: 87.6%
OWNERSHIP INTEREST: Fee
PROPERTY MANAGEMENT: Koger Management,
LLC
U/W NET CASH FLOW: $ 5,008,593
APPRAISED VALUE: $66,500,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
FULL YEAR FULL YEAR
UNDERWRITTEN (12/31/2003) (12/31/2002)
-------------- -------------- ---------------
EFFECTIVE GROSS INCOME ........ $ 9,482,763 $ 9,951,286 $ 9,580,180
TOTAL EXPENSES ................ $ 4,090,801 $ 4,362,020 $ 3,807,284
NET OPERATING INCOME (NOI) .... $ 5,391,962 $ 5,589,266 $ 5,772,897
CASH FLOW (CF) ................ $ 5,008,593 $ 5,589,266 $ 5,772,897
DSCR ON NOI ................... 2.36x 2.45x 2.53x
DSCR ON CF .................... 2.19x 2.45x 2.53x
- --------------------------------------------------------------------------------
S-87
- ---------------------------------------------------------------------------------------------------------------------------
TENANT INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------
RATINGS TENANT % OF POTENTIAL % POTENTIAL LEASE
TOP TENANTS+ S&P/MOODY'S TOTAL SF TOTAL SF RENT PSF RENT RENT EXPIRATION
- ---------------------------- --------------------- ---------- ---------- ---------- ------------- ------------- -----------
Franklin Templeton ........ A/A2 138,049 42.4% $ 28.10 $3,879,177 48.3% 6/30/2011
US Govt GSA (US
Attorney's Office)++ ..... AAA/Aaa 32,785 10.1% $ 28.68 $ 940,382 11.7% 9/26/2006
Gunster Yoakley ........... Not Rated/Not Rated 28,060 8.6% $ 26.44 $ 741,995 9.2% 12/31/2007
Gordon Hargrove &
James .................... Not Rated/Not Rated 18,695 5.7% $ 31.00 $ 579,545 7.2% 9/30/2005
- ---------------------------------------------------------------------------------------------------------------------------
+ Credit Ratings are of the parent company whether or not the parent
guarantees the lease. Calculations with respect to Rent PSF, Potential Rent
and % of Potential Rent include base rent only and exclude common area
maintenance expense and reimbursement.
++ The US Attorney's Office has the right to terminate this lease at any time
upon 180 days notice. The US Attorney's Office has been at the Mortgaged
Property since 1991 and took additional space in 1996.
- ---------------------------------------------------------------------------------------
LEASE ROLLOVER SCHEDULE
- ---------------------------------------------------------------------------------------
NUMBER OF % TOTAL CUMULATIVE CUMULATIVE
YEAR OF EXPIRATION LEASES EXPIRING EXPIRING SF SF TOTAL SF % TOTAL SF
- -------------------- ----------------- ------------- --------- ------------ -----------
2004 .............. 1 9,990 3.1% 9,990 3.1%
2005 .............. 11 52,558 16.1% 62,548 19.2%
2006 .............. 2 40,938 12.6% 103,486 31.8%
2007 .............. 7 36,649 11.3% 140,135 43.0%
2008 .............. 3 6,935 2.1% 147,070 45.2%
2011 .............. 2 138,049 42.4% 285,119 87.6%
Vacant ............ 40,464 12.4% 325,583 100.0%
-- ------- ----- ------- -----
TOTAL ............. 26 325,583 100.0% 325,583 100.0%
- ---------------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT TENANTS
o The Mortgaged Property is currently 87.6% leased by over 20 tenants in
finance, law, hospitality, accounting, and health and fitness. Investment
grade tenants account for approximately 57% of the net rentable area and 56%
of the gross potential rent. The largest tenants are Franklin Templeton, a
financial services tenant, and two law firms, Gunster Yoakley and the US
Attorney's office. Other tenants include two law firms as well as 15 other
tenants in finance, law, hospitality, accounting, and health and fitness.
Information concerning the four largest collateral tenants is as follows:
o Franklin Templeton, a subsidiary of Franklin Resources Inc. (NYSE: "BEN")
(Rated "A" by S&P and "A2" by Moody's), occupies 138,049 square feet
(42.4% of the net rentable area) on a lease expiring in June 2011 with two
5-year extension options at a rent of 95% of market rent. Franklin
Resources, Inc. is a financial services company which has over 50 years of
investing experience. Headquartered in San Mateo, California, Franklin
Templeton employs 6,500 people, has offices in 28 countries, and offers
investment products and services in more than 100 countries. The company
currently has a market capitalization of over $13.7 billion.
o US Govt GSA (US Attorney's Office) (Implied Ratings of "AAA" by S&P and
"Aaa" by Moody's), occupies 32,785 square feet (10.1% of the net rentable
area) on a lease expiring in September 2006. Broward Financial Center is
home to the Central Region of the Southern District of Florida office of
the U.S. District Attorney. The Southern District of Florida encompasses a
geographic area south to Key West and north to Sebastian and west to
Sebring. The United States Attorney has a staff of approximately 233
assistant United States attorneys and 227 support personnel. The US
Attorney's Office has the right to terminate
S-88
this lease at any time upon 180 days notice. The US Attorney's Office has
been at the Mortgaged Property since 1991 and took additional space in
1996. Furthermore, the loan is structured with TI/LC reserves of $325,000
per year.
o Gunster Yoakley, occupies 28,060 square feet (8.6% of the net rentable
area) on various leases expiring in December 2007 with various extension
options. Gunster, Yoakley was founded in 1925 and since that time, the
firm has expanded into a 130-attorney practice in six offices throughout
Florida. Gunster now maintains offices in Fort Lauderdale, Palm Beach,
Vero Beach, Miami, Stuart, and West Palm Beach. The firm is centered on
four main practice areas: corporate, private wealth services, litigation,
and real estate.
o Gordon Hargrove & James, occupies 18,695 square feet (5.7% of the net
rentable area) on a lease expiring in September 2005 with one 5-year
extension option at market rent. Gordon Hargrove & James specializes in a
variety of civil practice areas and has offices in Fort Lauderdale, Palm
Beach, Vero Beach, Miami, Stuart, and West Palm Beach. The firm has
clients in banking, construction, insurance, media, pharmaceuticals and
telecommunications.
ADDITIONAL INFORMATION
THE LOAN:
o The Broward Financial Center Mortgage Loan is secured by a first mortgage on
a 24-story, 325,583 square foot Class "A" office building and a six-story
parking garage that is located in the central business district (CBD) of Fort
Lauderdale, Florida. The equity interests in the borrower were purchased in
January 2004 for approximately $61.3 million (including closing costs),
resulting in a loan-to-cost ratio of 75.8% and cash equity of $14.8 million
(24.2%).
THE BORROWER:
o The borrower, CTA Partners, L.P., a Delaware limited liability company, is a
single-purpose, bankruptcy-remote entity with at least one independent
director for which borrower's legal counsel delivered a non-consolidation
opinion at loan closing.
o The sponsors of the borrower are Koger Equity, Inc. and Investcorp Properties
Limited, a subsidiary of Investcorp (Rated "Baa2" by Moody's). Koger Equity,
Inc. (NYSE: KE) is a Boca Raton, Florida-based, self-managed real estate
investment trust (REIT), which owns, operates, and manages suburban office
buildings. Koger Equity, Inc. owns and operates 130 office buildings,
containing 10.2 million square feet, located primarily in 19 suburban office
projects in 11 cities in the Southeastern United States and Texas. As of
September 30, 2003, Koger had total assets of over $836 million. Investcorp
was founded in 1982 and has six core businesses: corporate investments,
technology investments, real estate, asset management, investment placement,
and financial management. Since being founded, Investcorp has arranged
investments with a combined value of nearly $25 billion.
PROPERTY MANAGEMENT:
o Koger Management, LLC, an affiliate of Koger Equity, Inc., manages the
Mortgaged Property.
THE PROPERTY:
o The collateral for the Broward Financial Center Mortgage Loan consists of the
fee interest in a 24-story, 325,583 square foot Class "A" office building and
a six-story parking garage with 822 spaces. The Broward Financial Center was
built in 1985 and renovated in 2002. The property is currently approximately
87.6% occupied by over 20 tenants.
S-89
o The property is located within the Fort Lauderdale CBD on East Broward
Boulevard, a major thoroughfare that provides access to Interstate 95, the
major conduit for the Tri-County Region (Miami-Dade County, Broward County,
and West Palm Beach County). Additionally, the property is located one block
from the Federal Courthouse and City Hall. According to the appraiser, 2nd
Quarter 2003 Class "A" rents in the Fort Lauderdale CBD submarket were $28.71
per square foot which is slightly above the subject property's in-place rents
of $28.39 per square foot.
CURRENT MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o None.
FUTURE MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o Not allowed.
S-90
PRINCE KUHIO PLAZA
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL BALANCE: $42,000,000
FIRST PAYMENT DATE: May 1, 2004
TERM/AMORTIZATION: 60/360 months
SHADOW RATING
(S&P, MOODY'S): BBB/Baa2
MATURITY DATE: April 1, 2009
EXPECTED MATURITY
BALANCE: $37,825,632
BORROWING ENTITY: HO Retail Properties I
Limited Partnership
INTEREST CALCULATION: Actual/360
CALL PROTECTION: Lockout/defeasance:
56 payments
Open: 4 payments
LOCKBOX: Hard
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CUT-OFF DATE BALANCE: $42,000,000
CUT-OFF DATE LTV: 66.1%
MATURITY DATE LTV: 59.6%
UNDERWRITTEN DSCR*: 2.07x
MORTGAGE RATE: 3.452%
* DSCR figures based on net cash flow unless otherwise noted.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
PROPERTY TYPE: Retail
PROPERTY SUB-TYPE: Anchored
LOCATION: Hilo, HI
YEAR BUILT/RENOVATED: 1985/1994
NET RENTABLE SQUARE FEET: 355,630
CUT-OFF BALANCE PER SF: $118.10
OCCUPANCY AS OF 3/8/04: 89.3%
OWNERSHIP INTEREST: Leasehold
PROPERTY MANAGEMENT: General Growth
Management, Inc.
U/W NET CASH FLOW: $ 4,652,711
APPRAISED VALUE: $63,500,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ANNUALIZED
MOST RECENT FULL YEAR
UNDERWRITTEN (12/31/03) (12/31/02)
-------------- --------------- ---------------
EFFECTIVE GROSS INCOME ......... $ 8,165,134 $ 7,808,643 $ 8,033,408
TOTAL EXPENSES ................. $ 3,217,853 $ 2,780,477 $ 2,521,843
NET OPERATING INCOME (NOI) ..... $ 4,947,281 $ 5,028,166 $ 5,511,565
CASH FLOW (CF) ................. $ 4,652,711 $ 5,028,166 $ 5,511,565
DSCR ON NOI .................... 2.20x 2.24x 2.45x
DSCR ON CF ..................... 2.07x 2.24x 2.45x
- --------------------------------------------------------------------------------
S-91
- --------------------------------------------------------------------------------------------------------------------
TENANT INFORMATION
- --------------------------------------------------------------------------------------------------------------------
RATINGS TENANT % TOTAL POTENTIAL % POTENTIAL LEASE
TOP TENANTS+ S&P/MOODY'S TOTAL SF SF RENT PSF RENT RENT EXPIRATION
- ---------------------- --------------------- ---------- ----------- ---------- ----------- ------------- -----------
Sears ............... BBB/Baa1 74,070 20.83% $ 1.88 $139,252 3.05% 4/30/2013
Macy's .............. BBB+/Baa1 50,477 14.19% $ 2.18 $110,040 2.41% 3/14/2015
Prince Kuhio Megaplex
Cinema ............. Not Rated/Not Rated 20,533 5.77% $ 10.20 $209,641 4.59% 1/31/2019
------ ----- -------- -----
TOTALS .............. 145,080 40.80% $458,932 11.35%
- --------------------------------------------------------------------------------------------------------------------
+ Information obtained from Underwritten Rent Roll except for Ratings
(S&P/Moody's) and unless otherwise stated. Credit Ratings are of the parent
company whether or not the parent guarantees the lease. Calculations with
respect to Rent PSF, Potential Rent and % of Potential Rent include base
rent only and exclude common area maintenance expense and reimbursement.
- ----------------------------------------------------------------------------------------
LEASE ROLLOVER SCHEDULE
- ----------------------------------------------------------------------------------------
NUMBER OF EXPIRING % TOTAL CUMULATIVE CUMULATIVE
YEAR OF EXPIRATION++ LEASES EXPIRING SF SF TOTAL SF % TOTAL SF
- ---------------------- ----------------- ---------- ----------- ------------ -----------
MTM ................. 4 16,647 4.68% 16,647 4.68%
2004 ................ 6 10,158 2.86% 26,805 7.54%
2005 ................ 15 37,279 10.48% 64,084 18.02%
2006 ................ 13 25,283 7.11% 89,367 25.13%
2007 ................ 9 9,546 2.68% 98,913 27.81%
2008 ................ 7 13,094 3.68% 112,007 31.50%
2009 ................ 2 5,966 1.68% 117,973 33.17%
2010 ................ 2 5,322 1.50% 123,295 34.67%
2011 ................ 4 9,858 2.77% 133,153 37.44%
2012 ................ 3 7,120 2.00% 140,273 39.44%
2013 ................ 7 83,585 23.50% 223,858 62.95%
2014 ................ 3 6,691 1.88% 230,549 64.83%
2015 ................ 1 50,477 14.19% 281,026 79.02%
2019 ................ 1 20,553 5.78% 301,579 84.80%
Vacant .............. 54,051 15.20% 355,630 100.00%
--
TOTAL ............... 77 355,630 100.00%
- ----------------------------------------------------------------------------------------
++ Information obtained from Underwritten Rent Roll.
SUMMARY OF SIGNIFICANT TENANTS
o The Prince Kuhio Plaza Mortgaged Property is 89.3% leased (on total gross
leasable area) by a mix of national, regional, and local tenants, including
two anchor tenants, 81 in-line tenants, and five out-parcel tenants (with
ground leases). The Mortgaged Property is also shadow-anchored by a 61,873
square foot Macy's Men's Store, which is not part of the collateral. The
three largest tenants, representing 40.8% of total net rentable area are:
o Sears ("Sears") (Rated "BBB" by S&P and "Baa1" by Moody's), a multi-line
retailer that offers a wide array of merchandise and related services,
occupies 74,070 square feet (20.8%) on a 28-year lease expiring in April
2013. Established in 1886 and headquartered in Hoffman Estates, Illinois
(a suburb of Chicago), the Company is organized into four principal
business segments: retail and related services, credit and financial
products, corporate and other, and Sears Canada. The Company operates 871
full-line stores and approximately 1,100 specialty stores spread across
the United States. The company employs approximately 201,000 people in the
United States and 48,000 people in Canada, including part-time employees.
For the fiscal year ended January 3, 2004, Sears reported revenues of
approximately $36.4 billion and net income of approximately $3.4 billion.
As of January 3, 2004, the Company reported total assets of approximately
$27.7 billion and shareholders' equity of approximately $6.4 billion.
S-92
o Macy's (Not Rated), a national department store retailer, occupies 50,477
square feet (14.2%) on a 30-year lease expiring in March 2015. Founded in
1858, Macy's is a division of Federated Department Stores, Inc. (Rated
"BBB+" by S&P and "Baa1" by Moody's), and has sales of approximately $15.3
billion (fiscal year ended 1/31/04). Federated operated 458 stores in 34
states, Guam and Puerto Rico as of February 28, 2004. The Macy's divisions
of Federated operate more than 430 department stores in 33 states, Guam
and Puerto Rico, as well as macys.com. As of February 28, 2004, Macy's
West had 144 stores, with square footage of approximately 23.3 million as
of May 2003. Fiscal 2002 sales for Macy's West were approximately $4.2
billion.
o Wallace Theaters dba Prince Kuhio Megaplex Cinema (Not Rated), a movie
theater chain operator, occupies 20,553 sq. ft. (5.8%) on a 19-year lease
expiring in January 2019. Headquartered in Portland, Oregon, Wallace
Theaters, a privately held company, operates approximately 350 screens in
56 locations across 13 states and four Pacific Rim countries. The subject
location contains nine screens.
ADDITIONAL INFORMATION
THE LOAN:
o The Prince Kuhio Plaza Mortgage Loan is secured by a first mortgage on a
355,630 square foot portion of a larger 504,628 square foot regional mall
located in Hilo, Hawaii.
THE BORROWER:
o The borrower, HO Retail Properties I Limited Partnership, an Illinois limited
partnership (the "Prince Kuhio Plaza Borrower"), is a single-purpose,
bankruptcy-remote entity with at least one independent director for which
borrower's legal counsel delivered a non-consolidation opinion at loan
closing. The borrower is 1% owned by its General Partner, Prince Kuhio Plaza,
Inc., a Delaware corporation, and 99% owned by its Limited Partner, GGP
Limited Partnership, a Delaware limited partnership. There is no borrower
principal.
o The Prince Kuhio Plaza Borrower is controlled by General Growth Properties,
Inc. (NYSE: "GGP") (Rated "BBB-" by S&P), a Chicago-based real estate
investment trust (a "REIT") primarily engaged in the ownership, operation,
management, leasing, acquisition, development, and expansion of regional mall
and community shopping centers in the United States.
o As of December 31, 2003, the Company either directly or through GGP Limited
Partnership (the "Operating Partnership") and subsidiaries (collectively, the
"Company") owned 120 operating retail properties (regional malls and
community centers) (collectively, the "Consolidated Centers"), as well as
100% of General Growth Management, Inc. ("GGMI") and certain other
miscellaneous mixed-use commercial business properties and potential
development sites. As of December 31, 2003, the Company holds ownership
interests in eight joint ventures comprising 43 regional mall shopping
centers (42 operating and one under development) collectively referred to as
the "Unconsolidated Centers" and, together with the Consolidated Centers,
comprise the "Company Portfolio". Total Gross Leasable Area for the Company
Portfolio is approximately 122.3 million square feet. For the year ended
December 31, 2003, GGP had total revenues of $1.3 billion and net income of
$263.5 million. As of December 31, 2003, GGP reported liquidity of $10.7
million, total assets of $9.6 billion, and stockholders' equity of $1.7
billion.
THE PROPERTY:
o The collateral for the Mortgage Loan consists of the leasehold interest in a
355,630 square foot portion of a regional mall totaling 504,628 gross
leasable square feet. The Prince Kuhio Plaza Mortgaged Property was completed
in 1985, remodeled or expanded in 1994 and is situated on 46.3 acres in the
block between Makaala Street and Puainako Street and Ohuoho Street and
Kanoelehua Avenue (State Highway 11) in Hilo, Hawaii.
S-93
o The Prince Kuhio Plaza Borrower, at its sole cost and expense, is required to
keep the Prince Kuhio Plaza Mortgaged Property insured against loss or damage
by fire and other risks addressed by coverage of a comprehensive all risk
insurance policy. The Prince Kuhio Plaza Borrower is also required to
maintain an insurance policy with coverage against loss or damage from acts
of terrorism provided that such insurance (a) is commercially available and
(b) can be obtained at a commercially reasonable cost, if the all risk
insurance provides an exclusion for terrorism.
GROUND LEASE:
o The Prince Kuhio Plaza Mortgaged Property is encumbered by a ground lease
between the Department of Hawaiian Home Lands (the ground lessor) and the
Prince Kuhio Plaza Borrower as successor or assignee of Orchid Isle Group
(the ground lessee). The ground lease expires on September 30, 2042 and the
ground lease rent is payable from the cash flow of the Prince Kuhio Plaza
Mortgaged Property prior to debt service.
PROPERTY MANAGEMENT:
o GGMI, an affiliate of the Prince Kuhio Plaza Borrower, manages the property.
Headquartered in Chicago, Illinois and in business for approximately 50
years, GGMI performs day-to-day property management functions including
leasing, construction management, data processing, maintenance, accounting,
marketing, promotional services and security oversight for all of the GGP
Company Portfolio, except two centers owned by GGP/Homart through joint
ventures (i.e. 161 properties). As of December 31, 2003, GGMI also performs
and receives fees for similar property management and/or leasing functions
for 36 regional malls owned by unaffiliated third parties. As of January
2004, GGP reported that GGMI had management responsibility for more than 149
million square feet of retail space throughout the United States. GGMI is one
of the largest third-party managers for owners of regional malls.
CURRENT MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o None.
FUTURE MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o Not allowed.
S-94
104 WEST 40TH STREET
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL BALANCE: $36,500,000
FIRST PAYMENT DATE: April 1, 2004
TERM/AMORTIZATION: 120/360 months
MATURITY DATE: March 1, 2014
EXPECTED MATURITY BALANCE: $30,739,761
104 West 40th Street
BORROWING ENTITY: Associates LLC
INTEREST CALCULATION: Actual/360
CALL PROTECTION: Lockout/defeasance:
117 payments
Open: 3 payments
UP-FRONT RESERVES:
OTHER RESERVE: $1,340,537
TAX RESERVE: Yes
ONGOING MONTHLY RESERVES:
REPLACEMENT RESERVE: $1,979
TAX RESERVE: Yes
TI/LC: $41,667
LOCKBOX: Hard
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CUT-OFF DATE BALANCE: $36,467,173
CUT-OFF DATE LTV: 75.2%
MATURITY DATE LTV: 63.4%
UNDERWRITTEN DSCR*: 1.24 x
MORTGAGE RATE: 5.684%
* DSCR figures based on net cash flow unless otherwise noted.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
PROPERTY TYPE: Office
PROPERTY SUB-TYPE: CBD
LOCATION: New York, NY
YEAR BUILT/RENOVATED: 1962/NA
UNITS: 196,034
CUT-OFF BALANCE PER UNIT: $186
OCCUPANCY AS OF 2/8/04: 96.7%
OWNERSHIP INTEREST: Fee
PROPERTY MANAGEMENT: RFR Realty LLC
U/W NET CASH FLOW: $ 3,153,101
APPRAISED VALUE: $48,500,000
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------
ANNUALIZED
MOST RECENT FULL YEAR
UNDERWRITTEN (10/31/03) (12/31/02)
-------------- --------------- ---------------
EFFECTIVE GROSS INCOME ............. $ 6,634,526 $ 6,863,489 $ 6,704,605
TOTAL EXPENSES ..................... $ 3,153,326 $ 3,464,508 $ 2,891,026
NET OPERATING INCOME (NOI) ......... $ 3,481,200 $ 3,398,981 $ 3,813,579
CASH FLOW (CF) ..................... $ 3,153,101 $ 3,398,981 $ 3,813,579
DSCR ON NOI ........................ 1.37x 1.34x 1.50x
DSCR ON CF ......................... 1.24x 1.34x 1.50x
- ------------------------------------------------------------------------------------------
S-95
- ----------------------------------------------------------------------------------------------------------------------------
TENANT INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------
RATINGS TENANT POTENTIAL % POTENTIAL LEASE
TOP TENANTS+ S&P/MOODY'S TOTAL SF % TOTAL SF RENT PSF RENT RENT EXPIRATION
- ------------------------- --------------------- ---------- ------------ ---------- ------------- ------------- -------------
Springs Industries ..... WR/Ba2 86,834 43.87% $ 28.58 $2,481,348 38.62% 8/31/2009
National Geographic..... Not Rated/Not Rated 12,590 6.36% $ 46.00 $ 579,140 9.01% 12/31/2010
Molod Spitz &
DeSantis .............. Not Rated/Not Rated 11,558 5.84% $ 40.00 $ 462,320 7.20% 12/31/2010
------ ----- ---------- -----
TOTALS ................. 110,982 56.07% $3,522,808 54.83%
- ----------------------------------------------------------------------------------------------------------------------------
+ Credit Ratings are of the parent company whether or not the parent
guarantees the lease. Calculations with respect to Rent PSF, Potential Rent
and % of Potential Rent include base rent only and exclude common area
maintenance expense and reimbursement.
- -------------------------------------------------------------------------------------------
LEASE ROLLOVER SCHEDULE
- -------------------------------------------------------------------------------------------
NUMBER OF
LEASES EXPIRING % TOTAL CUMULATIVE CUMULATIVE
YEAR OF EXPIRATION++ EXPIRING SF SF TOTAL SF % TOTAL SF
- ---------------------- ---------- ---------- ----------- ------------ -----------
2004 ................ 4 6,630 3.35% 6,630 3.35%
2005 ................ 1 3,416 1.73% 10,046 5.08%
2006 ................ 2 12,925 6.53% 22,971 11.61%
2007 ................ 1 2,627 1.33% 25,598 12.93%
2009 ................ 4 100,150 50.60% 125,748 63.53%
2010 ................ 3 30,443 15.38% 156,191 78.92%
2011 ................ 3 16,990 8.58% 173,181 87.50%
2013 ................ 1 6,719 3.39% 179,900 90.89%
2014 ................ 1 4,606 2.33% 184,506 93.22%
2020 ................ 1 4,300 2.17% 188,806 95.39%
Vacant .............. 9,117 4.61% 197,923 100.00%
- ------- ------
TOTAL ............... 21 197,923 100.00%
- -------------------------------------------------------------------------------------------
++ Information obtained from Underwritten Rent Roll.
SUMMARY OF SIGNIFICANT TENANTS
o The subject property is 96.7% leased by eighteen office tenants at an average
lease rate of $32/square foot and two retail tenants at an average lease rate
of $61/square foot. The three largest tenants, representing 56.1% of total
net rentable area, are:
o Springs Industries (Rated "Ba2" by Moody's), a home furnishings and
apparel manufacturer, occupies 86,834 square feet (43.9%) on a ten-year
lease expiring in August 2009 with one five-year renewal option. The
company was the original owner of the subject property until 1999 when the
property was sold to RFR, the borrower sponsor, in a sale/leaseback
transaction. Founded in 1887 with headquarters in Ft. Mill, SC, Springs
Industries supplies retailers with a line of coordinated home furnishings.
Since its founding, the company has grown from a single mill to a company
with approximately 40 manufacturing facilities in 12 U.S. states, Canada
and Mexico. Springs Industries employs about 17,000 people, led by
Chairman and CEO Crandall Bowles, fifth generation of the Springs family
to lead the private company. The subject building serves as showroom space
and general office space for Springs Industries in Manhattan.
o National Geographic (Not Rated), a global scientific and educational
institution, occupies 12,590 square feet (6.4%) on a ten-year lease
expiring in December 2010 with no renewal options. The subject location
serves as general office space.
S-96
o Molod Spitz & DeSantis (Not Rated), a law firm, occupies 11,558 square
feet (5.9%) on a ten-year lease expiring in December 2010. With 15
attorneys, the firm focuses on civil litigation. The subject location
serves as the headquarters for the firm.
ADDITIONAL INFORMATION
THE LOAN:
o The 104 West 40th Street Mortgage Loan is secured by a first mortgage on a
20-story, 197,923 square foot office building (the "Springs Building")
located between Sixth Avenue and Broadway in Midtown Manhattan in New York
City.
THE BORROWER:
o The borrower, 104 West 40th Street Associates LLC (the "104 West 40th Street
Borrower"), is a single-purpose, bankruptcy-remote entity which pursuant to
its' organizational documents is required to have at least one independent
manager. At loan closing, the borrower's legal counsel delivered a
non-consolidation opinion. 830 Third Avenue Associates, L.P., a New York
limited partnership, owns 100% of the 104 West 40th Street Borrower as its
sole member. The borrower sponsor is RFR, a privately held, Manhattan-based,
real estate investment, development and management company owned by Aby Rosen
and Michael Fuchs, the borrower principals. The Rosen and Fuchs families,
from Frankfurt, Germany, have been involved in real estate investment and
development throughout Europe for the past 50 years. RFR established its
operation in the United States in 1991 and through various affiliates,
presently controls approximately five million square feet of office and
retail space plus approximately 2,500 luxury residential apartments.
THE PROPERTY:
o The collateral for the Mortgage Loan consists of the fee simple interest in
one 20-story central business district office building totaling 197,923
square feet. Built in 1962 and situated on a 0.3-acre site, the property was
acquired by RFR, the borrower sponsor, in a sale/leaseback transaction in
1999.
o The 104 West 40th Street Borrower, at its sole cost and expense, is required
to keep the 104 West 40th Street Mortgaged Property insured against loss or
damage by fire and other risks addressed by coverage of a comprehensive all
risk insurance policy without an exclusion for acts of terrorism or similar
acts of sabotage
PROPERTY MANAGEMENT:
o RFR Realty LLC, an affiliate of the borrower, manages the property.
CURRENT MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o None.
FUTURE MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o Not allowed.
S-97
EVERGREEN PORTFOLIO C
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL BALANCE: $32,600,000
FIRST PAYMENT DATE: December 1, 2003
TERM/AMORTIZATION: 84/360 months
MATURITY DATE: November 1, 2010
EXPECTED MATURITY BALANCE: $29,255,331
BORROWING ENTITIES: CAFT, LLC and
KAIS, LLC
INTEREST CALCULATION: Actual/360
CALL PROTECTION: Lockout/defeasance:
83 payments
Open: 1 payment
UP-FRONT RESERVES:
TAX/INSURANCE RESERVE: Yes
REPLACEMENT RESERVE: $1,127
TI/LC: $1,000,000
ONGOING RESERVES:
TAX/INSURANCE RESERVE: Yes
REPLACEMENT RESERVE: $1,127
TI/LC: Springing(1)
LOCKBOX: Soft
- --------------------------------------------------------------------------------
1) Commencing on July 1, 2008 if one of the following occurs (i) State of
California does not renew its lease for its entire leased premises prior to
July 1, 2008 or (ii) another tenant acceptable to lender has not entered
into one or more leases of such premises in its entirety for at least 5
years, then borrower is required to deposit $125,000/month into a reserve
that is capped at $1,000,000.
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CUT-OFF DATE BALANCE: $32,432,442
CUT-OFF DATE LTV: 73.2%
MATURITY DATE LTV: 66.0%
UNDERWRITTEN DSCR*: 1.55x
MORTGAGE RATE: 5.570%
* DSCR figures based on net cash flow unless otherwise noted.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
PROPERTY TYPE: Office
PROPERTY SUB-TYPE: Urban
LOCATION:
2155 IRON POINT ROAD: Folsom, CA
11120 INTERNATIONAL DRIVE: Rancho Cordova, CA
YEAR BUILT/RENOVATED:
2155 IRON POINT ROAD: 2002/NA
11120 INTERNATIONAL DRIVE: 1999/NA
NET RENTABLE SQUARE FEET: 211,527
CUT-OFF BALANCE PER SF: $153
OCCUPANCY AS OF 10/6/03: 100.0%
2155 IRON POINT ROAD: 100.0%
11120 INTERNATIONAL DRIVE: 100.0%
OWNERSHIP INTEREST: Fee
PROPERTY MANAGEMENT: Evergreen
Management
Company, LLC
U/W NET CASH FLOW: $ 3,463,090
APPRAISED VALUE: $44,300,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ANNUALIZED
MOST RECENT FULL YEAR
UNDERWRITTEN (06/01/2003) (12/31/2002)
-------------- -------------- --------------
EFFECTIVE GROSS INCOME ........... $ 4,388,160 $ 4,383,138 $ 3,230,277
TOTAL EXPENSES ................... $ 727,274 $ 664,120 $ 451,437
NET OPERATING INCOME (NOI) ....... $ 3,660,887 $ 3,719,018 $ 2,778,840
CASH FLOW (CF) ................... $ 3,463,090 $ 3,719,018 $ 2,778,840
DSCR ON NOI ...................... 1.64x 1.66x 1.24x
DSCR ON CF ....................... 1.55x 1.66x 1.24x
- --------------------------------------------------------------------------------
S-98
- ----------------------------------------------------------------------------------------------------------------------
TENANT INFORMATION
- ----------------------------------------------------------------------------------------------------------------------
2155 IRON POINT ROAD++
----------------------
RATINGS TOTAL % OF POTENTIAL % POTENTIAL LEASE
TOP TENANTS S&P/MOODY'S TENANT SF TOTAL SF RENT PSF RENT RENT EXPIRATION
- -------------------------- ------------- ----------- ---------- ---------- ------------- ------------- -----------
Kaiser Foundation Health
Plan, Inc.+ ............ A/Not Rated 121,378 100.0% $ 16.70 $2,026,812 100.0% 6/30/2017
- ----------------------------------------------------------------------------------------------------------------------
+ The ratings for Kaiser Foundation Health Plan, Inc. are the ratings of
their parent company, Kaiser Permanente which is also rated "A" by Fitch.
++ Calculations with respect to Rent PSF, Potential Rent and % of Potential
Rent include base rent only and exclude common area maintenance expense and
reimbursement.
- --------------------------------------------------------------------------------------------------------------------
TENANT INFORMATION
- --------------------------------------------------------------------------------------------------------------------
11120 INTERNATIONAL DRIVE++
---------------------------
RATINGS TOTAL % OF POTENTIAL % POTENTIAL LEASE
TOP TENANTS S&P/MOODY'S TENANT SF TOTAL SF RENT PSF RENT RENT EXPIRATION
- ------------------------ ------------- ----------- ---------- ---------- ------------- ------------- -----------
State of California+ .. BBB/Baa1 90,149 100.0% $ 20.21 $1,822,212 99.7% 6/30/2009
- --------------------------------------------------------------------------------------------------------------------
+ The State of California has a one-time termination option on their lease on
1/1/2005 with six months notice.
++ Calculations with respect to Rent PSF, Potential Rent and % of Potential
Rent include base rent only and exclude common area maintenance expense and
reimbursement.
- -------------------------------------------------------------------------------------------
LEASE ROLLOVER SCHEDULE
- -------------------------------------------------------------------------------------------
2155 IRON POINT ROAD
--------------------
NUMBER OF EXPIRING % OF TOTAL CUMULATIVE CUMULATIVE
YEAR OF EXPIRATION LEASES EXPIRING SF SF TOTAL SF % OF TOTAL SF
- -------------------- ----------------- ---------- ------------ ------------ --------------
2017 .............. 1 121,378 100.0% 121,378 100.0%
Vacant ............ -- 0.0% 121,378 100.0%
- ------- ----- ------- -----
TOTAL ............. 1 121,378 100.0% 121,378 100.0%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
LEASE ROLLOVER SCHEDULE
- -------------------------------------------------------------------------------------------
11120 INTERNATIONAL DRIVE
-------------------------
NUMBER OF EXPIRING % OF TOTAL CUMULATIVE CUMULATIVE
YEAR OF EXPIRATION LEASES EXPIRING SF SF TOTAL SF % OF TOTAL SF
- -------------------- ----------------- ---------- ------------ ------------ --------------
2009 .............. 1 90,149 100.0% 90,149 100.0%
Vacant ............ -- 0.0% 90,149 100.0%
- ------ ----- ------ -----
TOTAL ............. 1 90,149 100.0% 90,149 100.0%
- -------------------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT TENANTS
2155 IRON POINT ROAD
o Kaiser Foundation Health Plan, Inc., a subsidiary of Kaiser Permanente (Rated
"A" by S&P and "A" by Fitch) occupies 100% of a 121,378 square foot office
building on a lease expiring in June 2017 with four 5-year extensions at
market rent. Kaiser Permanente, founded in 1945, is a non-profit,
group-practice health maintenance organization (HMO) with headquarters in
Oakland, California. Kaiser Permanente serves the health care needs of more
than 8 million members in 9 states and the District of Columbia. Today, it
encompasses Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals,
and the Permanente Medical Groups, and is affiliated with Group Health
Cooperative based in Seattle, Washington. As of December 31, 2003, Kaiser
Permanente had 11,000 physicians, 431 medical offices, and 30 medical centers
in the United States.
S-99
11120 INTERNATIONAL DRIVE
o State of California (Implied Rating of "BBB" by S&P and "Baa1" by Moody's)
occupies 100% of a 90,149 square foot office building on a lease expiring in
June 2009. The department occupying the property is a newly-formed,
joint-venture between the Franchise Tax Board and the Child Services Division
aimed at identifying and collecting unpaid child support payments owed to
families. The State of California has a one-time termination option effective
January 1, 2005 subject to six months notice on July 1, 2004. The loan is
structured with an upfront TI/LC reserves of $1,000,000.
ADDITIONAL INFORMATION
THE LOAN:
o The Evergreen Portfolio C loan is secured by a first mortgage on a two Class
"B" office buildings containing a total of 211,527 square feet and located in
Folsom (2155 Iron Point Road) and Rancho Cordova (11120 International Drive),
California. The properties were purchased by the borrower in October 2003 for
an allocated amount of approximately $44.6 million.
THE BORROWER:
o The borrowers, CAFT, LLC and KAIS, LLC, are both single-purpose,
bankruptcy-remote entities with at least two independent directors for which
borrowers' legal counsel delivered a non-consolidation opinion at loan
closing. The borrowers are 50% owned and controlled by the GFW Trust, an
entity controlled by and created for the benefit of the Wehba family. The
Managing Members of the borrowers are Chad W. Wehba and C. Frederick Wehba
II.
o The sponsors of the borrowers, Chad W. Wehba and C. Frederick Wehba II, are
the President and COO, respectively, of Bentley Forbes. Bentley Forbes is a
national privately held real estate investment firm with over $1 billion of
transactions completed by its principals throughout the United States since
1993. Bentley Forbes' current portfolio includes 36 properties totaling 5.5
million square feet, and generates approximately $50 million of annual NOI.
THE PROPERTY:
o The security for the loan consists of two single tenant office buildings
located in the Sacramento MSA.
o The 2155 Iron Point Road is a 1-building, 3-story, Class "B" office building
containing 121,378 square feet on a 11.280-acre parcel of land. The property
was constructed in 2002 and is 100% occupied by Kaiser Foundation Health
Plan, Inc. The property is located in Folsom, California, on the north side
of U.S. Highway 50, west of the East Bidwell Exit. The property includes 580
parking spaces (4.78 spaces per 1,000 SF).
o The 11120 International Drive property consists of 1-building, 2-story, Class
"B" office building containing 90,149 square feet on a 6.543-acre parcel of
land. The property was constructed in 1999 and is 100% occupied by the State
of California. The property is located in Rancho Cordova, California with
U.S. Highway 50 to the north, International Drive to the south, Sunrise
Boulevard to the east, and Mather Field Road to the west. The property
includes 413 parking spaces (4.58 spaces per 1,000 SF).
o According to a market study by CB Richard Ellis, dated 4th Quarter 2003, the
Sacramento metropolitan area has approximately 43.0 million square feet of
existing office inventory, up approximately 13% from an inventory of 38.2
million square feet at the end of 2000. 2155 Iron Point Road is located in
the Folsom submarket, which is comprised of just under 2.0 million square
feet of office space with average asking rents of $21.00psf vs. $16.70psf at
the Mortgaged Property. 11120 International Drive is located in the Highway
50 Corridor submarket, which is comprised of approximately 10.5 million
square feet of office space with average asking rents of $19.80psf vs.
$20.21psf at the Mortgaged Property.
S-100
PROPERTY MANAGEMENT:
o The properties are managed by Evergreen Management Company, LLC. Evergreen
Management Company ("EMC") is a development and property management company
established in 1983. Since being established, EMC has developed in excess of
4.4 million square feet of office and retail space (including the Mortgaged
Properties), and, in addition, currently has 330,000 square feet under
construction. EMC currently manages 27 properties (41 buildings) totaling in
excess of 2.4 million square feet with office buildings making up 89% of the
total square footage.
CURRENT MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o Each Borrowers' parent is a co-borrower with three other affiliated entities
on $45,200,000 of mezzanine debt. The amount of mezzanine debt allocated to
the Mortgaged Properties is approximately $7,019,494. The mezzanine debt,
which is allocated among the Mortgaged Properties as well as seven other
properties that are not part of the collateral, is subject to an
intercreditor agreement and is not secured by the Mortgaged Properties. The
Mezzanine lender may not exercise enforcement actions under the intercreditor
agreement without confirmation from the rating agencies that such enforcement
would not cause the downgrade of the ratings of the certificates.
FUTURE MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o Not allowed.
RELEASE OR SUBSTITUTION OF PROPERTY:
o The borrower is permitted to defease the 11120 International Drive property
subject to, among other things, (1) 125% of the allocated loan amount is
defeased, (2) after the defeasance, the debt service coverage ratio for the
mortgaged property for the prior 12 month period is equal to or greater than
the debt-service coverage ratio as of the origination of the date of the
mortgage loan or the date immediately preceding the defeasance; (3) after the
defeasance, the loan to value ratio for the property remaining is no greater
than 75%, and (4) written confirmation from each rating agency that the
release would not result in a downgrade of any of the then current rating of
any certificate.
o The borrower is permitted to obtain a release of the 11120 International
Drive property from the related mortgage lien by substituting another
property of like kind and quality owned or acquired by the borrower, subject
to, among other things: 1) confirmation from each rating agency that the
substitution will not result in a downgrade of any of the then current
ratings of any certificate; 2) the fair market value of the substitute
property is not less than 105% of the value of the substituted property; and
3) the debt service coverage ratio for the new mortgaged properties is equal
to or greater than the debt-service coverage ratio as of the origination date
or the date immediately preceding the substitution.
S-101
MHC PORTFOLIO -- WATERFORD ESTATES
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL BALANCE: $30,953,930
FIRST PAYMENT DATE: December 1, 2003
TERM/AMORTIZATION: 144/360 months
IO PERIOD: 36 months
MATURITY DATE: November 1, 2015
EXPECTED MATURITY BALANCE: $27,126,127
MHC Waterford
BORROWING ENTITY: Estates, LLC
INTEREST CALCULATION: Actual/360
CALL PROTECTION: Lockout/defeasance:
141 payments
Open: 3 payments
LOCKBOX: Soft
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CUT-OFF DATE BALANCE: $30,953,930
CUT-OFF DATE LTV: 79.8%
MATURITY DATE LTV: 69.9%
UNDERWRITTEN DSCR*: 1.20x
MORTGAGE RATE: 6.327%
* DSCR figures based on net cash flow unless otherwise noted.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
PROPERTY TYPE: Manufactured Housing
Communities
PROPERTY SUB-TYPE: Manufactured Housing
Communities
LOCATION: Bear, DE
YEAR BUILT/RENOVATED: 1988/1997
NET RENTABLE UNITS: 731
CUT-OFF BALANCE PER UNIT: $42,345
OCCUPANCY AS OF 12/16/03: 95.4%
OWNERSHIP INTEREST: Fee
PROPERTY MANAGEMENT: MHC Operating
Limited
Partnership
U/W NET CASH FLOW: $ 2,766,910
APPRAISED VALUE: $38,800,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ANNUALIZED
MOST RECENT FULL YEAR
UNDERWRITTEN (9/30/03) (12/31/02)
-------------- --------------- ---------------
EFFECTIVE GROSS INCOME .......... $ 3,835,291 $ 3,701,859 $ 3,607,317
TOTAL EXPENSES .................. $ 1,031,831 $ 891,043 $ 984,710
NET OPERATING INCOME (NOI) ...... $ 2,803,460 $ 2,810,816 $ 2,622,607
CASH FLOW (CF) .................. $ 2,766,910 $ 2,810,816 $ 2,622,607
DSCR ON NOI ..................... 1.22x 1.22x 1.14x
DSCR ON CF ...................... 1.20x 1.22x 1.14x
- --------------------------------------------------------------------------------
S-102
ADDITIONAL INFORMATION
THE LOANS:
o The "MHC Portfolio Loans" consist of the following Mortgage Loans which are
secured by manufactured housing community properties (each an "MHC Portfolio
Property") and are owned by affiliates of Manufactured Home Communities, Inc.
("MHC"): the "MHC Portfolio -- Waterford Estates Loan", "MHC Portfolio --
Lake Fairways Country Club Loan", "MHC Portfolio -- The Lakes at Countrywood
Loan", and "MHC Portfolio -- The Meadows at Countrywood Loan". The MHC
Portfolio -- Waterford Estates Loan is secured by a first mortgage on a
731-pad manufactured housing community located in Bear, New Castle County,
Delaware and has a Cut-off Date Balance of $30,953,930. The MHC Portfolio --
Lake Fairways Country Club is secured by a first mortgage on an 896-pad
manufactured housing community located in North Fort Myers, Florida and has a
Cut-off Date Balance of $30,460,183. The MHC Portfolio -- The Meadows at
Countrywood Loan is secured by a first mortgage on a 736-pad manufactured
housing community located in Plant City, Florida and has a Cut-off Date
Balance of $18,292,718. The MHC Portfolio -- The Lakes at Countrywood Loan is
secured by a first mortgage on a 423-pad manufactured housing community
located in Plant City, Florida and has a Cut-off Date Balance of $9,722,325.
In addition, the MHC Portfolio Loans also consists of the "MHC Portfolio --
Sweetbriar Loan" which has a Cut-off Date Balance of $3,040,000. For purposes
of each of the descriptions in this section, references to the "MHC Portfolio
Loans" will not include the MHC Portfolio -- Sweetbriar Loan.
o The MHC Portfolio -- The Lakes at Countrywood Loan is cross-collateralized
and cross-defaulted with the MHC Portfolio -- The Meadows at Countrywood
Loan. None of the other MHC Portfolio Loans are either cross-collateralized
and/or cross-defaulted.
THE BORROWERS:
o Each of the loans in the MHC Portfolio feature separate borrowers
(collectively, the "MHC Portfolio Borrowers"). Each MHC Portfolio Borrower is
a Delaware limited liability company that is a single-purpose,
bankruptcy-remote entity and features at least one independent director. In
addition, each MHC Portfolio Borrower's legal counsel delivered a
non-consolidation opinion at the closing of the related MHC Portfolio Loan.
o MHC Operating Limited Partnership, an Illinois limited partnership
("MHCOLP"), owns 100% of each the MHC Portfolio Borrowers as its sole member
except with respect to the MHC Portfolio -- The Meadows at Countrywood Loan
which features two borrowers and for which MHCOLP owns 100% of one of the
related borrowers as its sole member and MHC Financing Limited Partnership
Two, a Delaware limited partnership owns the other related borrower 100% as
its sole member.
o The borrower principal for each of the MHC Portfolio Borrowers is MHC.
Operating as a publicly traded (NYSE: "MHC"), self-administered and
self-managed real estate investment trust with headquarters in Chicago,
Illinois and regional offices in Florida, Colorado, Arizona and California,
MHC is a fully integrated company that owns and operates manufactured home
communities ("MHC Communities") and park model communities ("MHC Resorts")
(collectively known as "MHC Properties"). As of December 31, 2003, MHC owned
or had an ownership interest in a portfolio of approximately 142 MHC
Communities and MHC Resorts located throughout the United States containing
51,715 residential sites. The MHC Properties are located in approximately 19
states. For the year ended December 31, 2003, MHC had an approximate total
revenue of $271 million and an approximate net income of $27 million. As of
December 31, 2003, the company had liquidity of approximately $326 million,
total assets of approximately $1.5 billion, and stockholders' equity of
approximately $6 million.
S-103
THE PROPERTIES:
o The collateral for each MHC Portfolio Loan generally consists of the fee
simple interest in the related MHC Portfolio Property. The MHC Portfolio
Properties related to the MHC Portfolio -- Lake Fairways Country Club Loan,
the MHC Portfolio -- The Meadows at Countrywood Loan, the MHC Portfolio --
The Lakes at Countrywood Loan, and the MHC Portfolio -- Sweetbriar Loan are
age-qualified communities requiring residents to be at least 55 years old.
The MHC Portfolio Property related to the MHC Portfolio -- Waterford Estates
Loan is not an age-qualified community. Each MHC Portfolio Property features
certain amenities which generally include tennis courts, basketball courts,
volleyball courts, swimming pools and laundry facilities. Each MHC Portfolio
Property features access to water/sewer service.
o Each MHC Portfolio Borrower is generally required at its sole cost and
expense to keep the related MHC Portfolio Property insured against loss or
damage by fire and other risks addressed by coverage of a comprehensive all
risk insurance policy. Each MHC Portfolio Borrower is generally also required
to reserve for three months of debt service payments under the related MHC
Portfolio Loan upon the occurrence of an act of terror in which the related
MHC Portfolio Loan is involved.
PROPERTY MANAGEMENT:
o MHCOLP manages each MHC Portfolio Property. Founded in 1969 and headquartered
in Chicago, Illinois, MHCOLP currently manages a portfolio of approximately
142 manufactured home communities and resorts located throughout the United
States containing approximately 51,715 residential sites. These properties
are located in approximately 19 states, including seven communities located
in Delaware.
CURRENT MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o None.
FUTURE MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o Not allowed.
S-104
MHC PORTFOLIO -- LAKE FAIRWAYS COUNTRY CLUB
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL BALANCE: $30,460,183
FIRST PAYMENT DATE: December 1, 2003
TERM/AMORTIZATION: 144/360 months
INTEREST ONLY PERIOD: 36 months
MATURITY DATE: November 1, 2015
EXPECTED MATURITY BALANCE: $26,693,437
BORROWING ENTITY: MHC Lake
Fairways, L.L.C.
INTEREST CALCULATION: Actual/360
CALL PROTECTION: Lockout/defeasance: 141
payments
Open: 3 payments
LOCKBOX: Soft
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CUT-OFF DATE BALANCE: $30,460,183
CUT-OFF DATE LTV: 78.7%
MATURITY DATE LTV: 69.0%
UNDERWRITTEN DSCR*: 1.20x
MORTGAGE RATE: 6.327%
* DSCR figures based on net cash flow unless otherwise noted.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
Manufactured Housing
PROPERTY TYPE: Communities
Manufactured Housing
PROPERTY SUB-TYPE: Communities
LOCATION: North Fort Myers, FL
YEAR BUILT/RENOVATED: 1972/1982
PADS: 896
CUT-OFF BALANCE PER UNIT: $33,996
OCCUPANCY AS OF 12/16/03: 99.6%
OWNERSHIP INTEREST: Fee
PROPERTY MANAGEMENT: MHC Operating Limited
Partnership
U/W NET CASH FLOW: $2,722,704
APPRAISED VALUE: $38,700,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ANNUALIZED
MOST RECENT FULL YEAR
UNDERWRITTEN (9/30/03) (12/31/02)
-------------- --------------- ---------------
EFFECTIVE GROSS INCOME .......... $ 4,338,919 $ 4,322,609 $ 4,206,776
TOTAL EXPENSES .................. $ 1,571,415 $ 1,447,929 $ 1,455,987
NET OPERATING INCOME (NOI) ...... $ 2,767,504 $ 2,874,680 $ 2,750,787
CASH FLOW (CF) .................. $ 2,722,704 $ 2,874,680 $ 2,750,787
DSCR ON NOI ..................... 1.22x 1.27x 1.21x
DSCR ON CF ...................... 1.20x 1.27x 1.21x
- --------------------------------------------------------------------------------
S-105
MHC PORTFOLIO -- THE MEADOWS AT COUNTRYWOOD
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL BALANCE: $18,292,718
FIRST PAYMENT DATE: December 1, 2003
TERM/AMORTIZATION: 84/360 months
INTEREST ONLY PERIOD: 12 months
MATURITY DATE: November 1, 2010
EXPECTED MATURITY BALANCE: $16,772,074
BORROWING ENTITY: MHC The Meadows at
Countrywood, L.L.C. and
CW Utility Systems, L.L.C.
INTEREST CALCULATION: Actual/360
CALL PROTECTION: Lockout/defeasance: 81
Payments
Open: 3 Payments
LOCKBOX: Soft
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CUT-OFF DATE BALANCE: $18,292,718
CUT-OFF DATE LTV: 79.5%
MATURITY DATE LTV: 72.9%
UNDERWRITTEN DSCR*: 1.25x
MORTGAGE RATE: 5.715%
* DSCR figures based on net cash flow unless otherwise noted.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
PROPERTY TYPE: Manufactured Housing
Communities
PROPERTY SUB-TYPE: Manufactured Housing
Communities
LOCATION: Plant City, FL
YEAR BUILT/RENOVATED: 1986/NA
PADS: 736
CUT-OFF BALANCE PER SF: $24,854
OCCUPANCY AS OF 12/16/03: 98.4%
OWNERSHIP INTEREST: Fee
PROPERTY MANAGEMENT: MHC Operating Limited
Partnership
U/W NET CASH FLOW: $1,595,173
APPRAISED VALUE: $23,000,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ANNUALIZED
MOST RECENT FULL YEAR
UNDERWRITTEN (9/30/03) (12/31/02)
--------------- -------------- -------------
EFFECTIVE GROSS INCOME ........... $ 2,710,318 $ 2,859,541 $ 2,788,596
TOTAL EXPENSES ................... $ 1,078,345 $ 812,253 $ 980,673
NET OPERATING INCOME (NOI) ....... $ 1,631,973 $ 2,047,288 $ 1,807,923
CASH FLOW (CF) ................... $ 1,595,173 $ 2,047,288 $ 1,807,923
DSCR ON NOI ...................... 1.28x 1.60x 1.42x
DSCR ON CF ....................... 1.25x 1.60x 1.42x
- --------------------------------------------------------------------------------
S-106
MHC PORTFOLIO -- THE LAKES AT COUNTRYWOOD
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL BALANCE: $9,722,325
FIRST PAYMENT DATE: December 1, 2003
TERM/AMORTIZATION: 84/360 months
INTEREST ONLY PERIOD: 12 months
MATURITY DATE: November 1, 2010
EXPECTED MATURITY BALANCE: $8,914,123
BORROWING ENTITY: MHC Golden
Lakes, L.L.C.
INTEREST CALCULATION: Actual/360
CALL PROTECTION: Lockout/
defeasance:
81 payments
Open: 3 payments
LOCKBOX: Soft
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CUT-OFF DATE BALANCE: $9,722,325
CUT-OFF DATE LTV: 79.0%
MATURITY DATE LTV: 72.5%
UNDERWRITTEN DSCR*: 1.20x
MORTGAGE RATE: 5.715%
* DSCR figures based on net cash flow unless otherwise noted.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
PROPERTY TYPE: Manufactured Housing
Communities
PROPERTY SUB-TYPE: Manufactured Housing
Communities
LOCATION: Plant City, FL
YEAR BUILT/RENOVATED: 1986/NA
PADS: 423
CUT-OFF BALANCE PER UNIT: $22,984
OCCUPANCY AS OF 12/16/03: 93.6%
OWNERSHIP INTEREST: Fee
PROPERTY MANAGEMENT: MHC Operating Limited
Partnership
U/W NET CASH FLOW: $814,364
APPRAISED VALUE: $12,300,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ANNUALIZED
MOST RECENT FULL YEAR
UNDERWRITTEN (9/30/03) (12/31/02)
--------------- --------------- ---------------
EFFECTIVE GROSS INCOME ......... $ 1,451,534 $ 1,428,046 $ 1,412,882
TOTAL EXPENSES ................. $ 616,020 $ 479,311 $ 547,708
NET OPERATING INCOME (NOI) ..... $ 835,514 $ 948,735 $ 865,174
CASH FLOW (CF) ................. $ 814,364 $ 948,735 $ 865,174
DSCR ON NOI .................... 1.23x 1.40x 1.28x
DSCR ON CF ..................... 1.20x 1.40x 1.28x
- --------------------------------------------------------------------------------
S-107
1995 BROADWAY
- --------------------------------------------------------------------------------
LOAN INFORMATION
- --------------------------------------------------------------------------------
ORIGINAL PRINCIPAL BALANCE: $28,000,000
FIRST PAYMENT DATE: February 1, 2004
TERM/AMORTIZATION: 120/360 months
MATURITY DATE: January 1, 2014
EXPECTED MATURITY BALANCE: $23,673,409
BORROWING ENTITY: 1995 CAM LLC
INTEREST CALCULATION: Actual/360
CALL PROTECTION: Lockout/defeasance:
117 payments
Open: 3 payments
UP-FRONT RESERVES:
TAX RESERVE: Yes
TI/LC: $700,000
IMMEDIATE REPAIR
RESERVE: $3,750
ONGOING MONTHLY RESERVES:
TAX RESERVE: Yes
REPLACEMENT RESERVE: $3,162
LOCKBOX: Hard
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CUT-OFF DATE BALANCE: $27,917,752
CUT-OFF DATE LTV: 79.8%
MATURITY DATE LTV: 67.6%
UNDERWRITTEN DSCR*: 1.31x
MORTGAGE RATE: 5.830%
* DSCR figures based on net cash flow unless otherwise noted.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPERTY INFORMATION
- --------------------------------------------------------------------------------
PROPERTY TYPE: Office
PROPERTY SUB-TYPE: CBD
LOCATION: New York, NY
YEAR BUILT/RENOVATED: 1974/1997
NET RENTABLE SQUARE FEET: 95,290
CUT-OFF BALANCE PER SF: $293
OCCUPANCY AS OF 11/3/03: 92.6%
OWNERSHIP INTEREST: Fee
PROPERTY MANAGEMENT: Cammeby's Management
Company LLC
U/W NET CASH FLOW: $2,595,033
APPRAISED VALUE: $35,000,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ANNUALIZED
MOST RECENT FULL YEAR
UNDERWRITTEN (9/30/03) (12/31/02)
-------------- --------------- ---------------
EFFECTIVE GROSS INCOME ......... $ 4,855,471 $ 4,972,939 $ 4,445,258
TOTAL EXPENSES ................. $ 2,059,402 $ 2,164,077 $ 1,918,139
NET OPERATING INCOME (NOI) ..... $ 2,796,069 $ 2,808,861 $ 2,527,119
CASH FLOW (CF) ................. $ 2,595,033 $ 2,808,861 $ 2,306,572
DSCR ON NOI .................... 1.41x 1.42x 1.28x
DSCR ON CF ..................... 1.31x 1.42x 1.17x
- --------------------------------------------------------------------------------
S-108
- ---------------------------------------------------------------------------------------------------------------------------------
TENANT INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
RATINGS TENANT % TOTAL POTENTIAL % POTENTIAL LEASE
TOP TENANTS+ S&P/MOODY'S TOTAL SF SF RENT PSF RENT RENT EXPIRATION(++)
- ----------------------------- --------------------- ---------- ----------- ---------- ------------- ------------- ---------------
Millenium Partners ......... Not Rated/Not Rated 16,565 17.10% $ 34.50 $ 571,488 12.57% 5/31/2004
Associated Press ........... Not Rated/Not Rated 12,300 12.69% $ 44.46 $ 546,828 12.02% 8/31/2004
Commerce Bank .............. A--/A2 8,125 8.39% $ 98.82 $ 802,941 17.66% 2/28/2018
Leroy Adventures Inc. ...... Not Rated/Not Rated 6,285 6.49% $ 43.70 $ 274,634 6.04% 12/31/2009
Virage Ing. ................ Not Rated/Not Rated 5,200 5.37% $ 41.52 $ 215,923 4.75% 3/31/2005
------ ----- ---------- -----
TOTALS ..................... 48,475 50.03% $2,411,814 53.04%
- ---------------------------------------------------------------------------------------------------------------------------------
+ Information obtained from Underwritten Rent Roll except for Ratings
(S&P/Moody's) and unless otherwise stated. Credit Ratings are of the parent
company whether or not the parent guarantees the lease. Calculations with
respect to Rent PSF, Potential Rent and % of Potential Rent include base
rent only and exclude common area maintenance expense and reimbursement.
++ Bank of America has been advised that upon expiration of Millenium
Partners' lease in May 2004, Millenium Partners will vacate part of its
space and renew for approximately 9,700 square feet. The Associated Press
tenant has also indicated that upon expiration of its lease in August 2004
it will vacate its space. In addition, another tenant recently vacated
approximately 2,645 square feet prior to its lease expiration in May 2005.
An existing tenant may take approximately 5,000 square feet of such vacated
space. However, if neither such space nor other vacated space is leased,
approximately 27,500 square feet will be vacant and debt service coverage
will be adversely affected.
- ------------------------------------------------------------------------------------------
LEASE ROLLOVER SCHEDULE
- ------------------------------------------------------------------------------------------
NUMBER OF EXPIRING % TOTAL CUMULATIVE CUMULATIVE
YEAR OF EXPIRATION+++ LEASES EXPIRING SF SF TOTAL SF % TOTAL SF
- ----------------------- ----------------- ---------- ----------- ------------ -----------
2004 ................. 12 40,996 42.31% 40,996 42.31%
2005 ................. 4 14,355 14.82% 55,351 57.13%
2007 ................. 3 4,120 4.25% 59,471 61.38%
2008 ................. 1 4,100 4.23% 63,571 65.61%
2009 ................. 2 9,885 10.20% 73,456 75.81%
2012 ................. 2 7,430 7.67% 80,886 83.48%
2015 ................. 1 1 0.00% 80,887 83.48%
2017 ................. 1 2,700 2.79% 83,587 86.27%
2018 ................. 2 8,126 8.39% 91,713 94.65%
Vacant ............... 5,181 5.35% 96,894 100.00%
-- ------ ------
TOTAL ................ 28 96,894 100.00%
- ------------------------------------------------------------------------------------------
+++ Information obtained from Underwritten Rent Roll.
SUMMARY OF SIGNIFICANT TENANTS
o The subject property is 92.6% leased by nineteen office tenants at an average
lease rate of $43/square foot and one retail tenant at a lease rate of
$99/square foot. The five largest tenants, representing 49.0% of total net
rentable area, are:
o Millenium Partners (Not Rated), a real estate development company,
occupies 16,565 square feet (17.1%), on a ten-year lease expiring in May
2004 with no renewal options. Founded in 1989, the company's first project
was the revitalization of three underutilized blocks adjacent to Lincoln
Center in New York City. Millennium Partners' Lincoln Square development
totals more than 1.7 million square feet and houses outstanding facilities
such as the Reebok Sports Club/NY, Loews Theatres/IMAX Lincoln Square and
multilevel Barnes & Noble and Tower Records stores. Other Millenium
Partners' projects include The Ritz-Carlton Hotel & Residences New York
(Battery Park); The Ritz-Carlton Hotel & Residences, Washington D.C.; The
Ritz-Carlton Hotel & Residences, Georgetown; Four Seasons Hotel &
Residences and
S-109
Metreon Entertainment Center in San Francisco; Four Seasons Hotel & Tower
in Miami; and The Ritz-Carlton Hotel & Towers. The subject serves as the
corporate headquarters for Millenium Partners.
o The Associated Press ("AP") (Not Rated), the oldest and largest news
organization in the world, occupies 12,300 square feet (12.7%) on a
five-year lease expiring in August 2004 with no renewal options. AP
operates as a not-for-profit cooperative with its subscribing member
organizations. The business and corporate television division, Associated
Press Television News ("APTN"), the world's largest agency for the
gathering, production, and support of news video, operates at the subject
property. The global provider of news content for print, audio, video, and
on-line, APTN distributes breaking news and production support to
broadcasters throughout the world. AP took assignment of an existing lease
when it acquired Worldwide Television News Corporation on September 17,
1998. The original lease commenced in April 1985 and expired in June 1995;
the first extension was through August 2000, and the current modification
expires in August 2004.
o Commerce Bank, N.A. occupies 8,125 square feet (8.4%) on an over 16-year
lease expiring February 2018. Founded in 1973, Commerce Bank, N.A. (NYSE:
"CBH") (Rated "A-" by S&P and "A2" by Moody's) serves as the holding
company for four nationally chartered bank subsidiaries, Commerce Bank,
N.A. (Commerce NJ), Commerce Bank/Pennsylvania, N.A., Commerce Bank/Shore,
N.A. and Commerce Bank/Delaware, N.A., as well as one state-chartered bank
subsidiary, Commerce Bank/North (collectively, the Banks). The Banks, as
of December 31, 2002, had over 224 full-service retail branch offices
located in the states of New Jersey, Pennsylvania, Delaware and New York.
For the year ended December 31, 2002, CBH had total revenues of
approximately $1.0 billion and net income of approximately $144.8 million.
As of September 30, 2003, the company had total assets of approximately
$21.4 billion and shareholders' equity of approximately $1.2 billion. The
subject property serves as a full-service retail branch office.
o Leroy Adventures Inc. (Not Rated), a limited partner, administrator, and
manager for New York's Tavern on the Green restaurant, occupies 6,285
square feet (6.8%) on a nine-year lease expiring in December 2009 with no
renewal options.
o Virage Inc. (Not Rated), a company that provides pre-packaged computer
software, occupies 5,200 square feet (5.6%) on a five-year lease expiring
in March 2005 with no renewal options.
ADDITIONAL INFORMATION
THE LOAN:
o The 1995 Broadway loan is secured by a first mortgage on a Class A, 17-story,
95,290 square foot office building located on the Upper West Side of
Manhattan in New York City.
THE BORROWER:
o The borrower, 1995 CAM LLC (the "1995 Broadway Borrower"), is a
single-purpose, bankruptcy-remote entity with one independent director. The
borrower; its sole Member, 1995 CAM Mezzanine LLC; and all other entities in
the various tiers of ownership of the property are ultimately controlled by
Mr. Rubin Schron (as president of the borrower and borrower
principal/sponsor), with equity interests of less than 20% held by various
immediate family members, other individuals/entities, and/or trusts and
estates established for the benefit thereof. Mr. Schron is the founder of
Cammeby's International Limited ("Cammeby's and has more than 40 years of
real estate experience. The company owns, develops, operates, and manages
real estate (both for its own account and in partnership with others)
throughout the United States. Cammeby's headquarters and main office are
located at 42 Broadway in New York City. Currently, the company also owns
several projects in Manhattan including 71 Broadway and 866 Third Avenue.
Other commercial holdings include 240 West 40th Street, 80-90
S-110
Maiden Lane, 65 Broadway, 220 East 42nd Street (the "News Building"), Bush
Terminal/Industry City in Brooklyn, Decatur Industrial Building in
Glendale, Queens, the Syosset Industrial Park, The Bloomingdale's Building
in Long Island City, and The Woolworth Building in lower Manhattan.
THE PROPERTY:
o The collateral for the Mortgage Loan consists of the fee simple interest in
one 17-story central business district office building totaling 96,895 square
feet. Completed in 1974, renovated in 1997, and situated on a 0.2-acre site,
the property was acquired by the sponsor in phases, with the office portion,
floors 2 through 18 (no 13th floor), acquired in 1997 and the first floor
retail portion acquired in 2002.
o The 1995 Broadway Borrower, at its sole cost and expense, is required to keep
the 1995 Broadway Mortgaged Property insured against loss or damage by fire
and other risks addressed by coverage of a comprehensive all risk insurance
policy. The 1995 Broadway Borrower is also required to maintain a
comprehensive all risk insurance policy without an exclusion for terrorist
acts.
PROPERTY MANAGEMENT:
o Cammeby's Management Company LLC, an affiliate of the borrower/borrower
principal, manages the property. In business for over 40 years, Cammeby's
Management Company LLC manages over 10 million square feet of commercial
property and over 14,000 residential units, primarily in the greater New York
Metropolitan area.
CURRENT MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o None.
FUTURE MEZZANINE OR SUBORDINATE INDEBTEDNESS:
o Mezzanine financing shall be permitted during the term of the 1995 Broadway
Mortgage Loan provided (a) it is extended by a qualified financial
institution, (b) it is secured by 1995 CAM Mezzanine LLC's equity interest in
the 1995 Broadway Borrower; (c) it shall be subject to the mortgagee's prior
written consent and provided further that, (d) the mezzanine lender executes
a subordination and intercreditor agreement satisfactory to mortgagee, (e)
the aggregate principal amount of such mezzanine financing shall not exceed
an amount which, when combined with the outstanding principal balance of the
1995 Broadway Mortgage Loan, has a loan-to-value ratio greater than 80% or a
debt service coverage ratio less than 1.25x, each as determined by the first
mortgage lender based upon its standard underwriting criteria, (f) the
proceeds of such mezzanine financing shall be used to make capital
contributions to the 1995 Broadway Borrower for the purpose of funding
operating and/or capital expenditures related to the property and (g) the
1995 Broadway Borrower shall deliver to the first mortgagee confirmation from
the rating agencies that such mezzanine financing shall not result in a
downgrade, withdrawal or qualification of any ratings issued, or to be
issued, in connection with a securitization involving the 1995 Broadway
Mortgage Loan.
S-111
ADDITIONAL MORTGAGE LOAN INFORMATION
General. For a detailed presentation of certain characteristics of the
Mortgage Loans and Mortgaged Properties, on an individual basis and in tabular
format, see Annex A hereto. Certain capitalized terms that appear herein are
defined in Annex A. See Annex B hereto for certain information with respect to
capital improvement, replacement, tax, insurance and tenant improvement reserve
accounts, as well as certain other information with respect to Multifamily
Mortgaged Properties, other than Manufactured Housing Communities.
Delinquencies. As of the Cut-off Date, none of the Mortgage Loans will have
been 30 days or more delinquent in respect of any Monthly Payment during the
past 12 months. All of the Mortgage Loans were originated during the 8 months
prior to the Cut-off Date.
Tenant Matters. Sixty-seven of the retail, office, industrial and warehouse
Mortgaged Properties, which represent security for 77.2% of the Initial Pool
Balance, are leased in part to one or more Major Tenants. The top three
concentrations of Major Tenants with respect to more than one property (groups
of Mortgage Loans where the same company is a Major Tenant of each Mortgage Loan
in the group) represent 3.0%, 1.6% and 0.9% of the Initial Pool Balance. In
addition, there are several cases in which a particular entity is a tenant at
multiple Mortgaged Properties, and although it may not be a Major Tenant at any
such property, it may be significant to the success of such properties. "Major
Tenants" means any tenant at a Commercial Mortgaged Property that rents at least
20% of the Leasable Square Footage (as defined in Annex A) at such property.
Certain of the Multifamily Mortgaged Properties have material
concentrations of student tenants.
Ground Leases and Other Non-Fee Interests. Three Mortgaged Properties,
which represent 5.5% of the Initial Pool Balance, are, in each such case,
secured in whole or in part by a Mortgage on the applicable borrower's leasehold
interest in the related Mortgaged Property. Generally, 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 Mortgage Loan or (ii) the
ground lessor has agreed to give the holder of the Mortgage Loan notice of, and
has granted such holder the right to cure, any default or breach by the lessee.
See "Certain Legal Aspects of Mortgage Loans--Foreclosure--Leasehold
Considerations" in the accompanying prospectus.
Subordinate Financing. The existence of subordinated indebtedness
encumbering a mortgaged property may increase the difficulty of refinancing the
related mortgage loan at maturity and the possibility that reduced cash flow
could result in deferred maintenance. Also, in the event that the holder of the
subordinated debt files for bankruptcy or is placed in involuntary receivership,
foreclosure on the mortgaged property could be delayed. In general, the Mortgage
Loans either prohibit the related borrower from encumbering the Mortgaged
Property with additional secured debt or require the consent of the holder of
the first lien prior to so encumbering such property other than 1 Mortgage Loan
representing 0.4% of the Initial Pool Balance permits future secured subordinate
debt subject to certain conditions. Regardless of whether the terms of a
mortgage loan prohibit the incurrence of subordinate debt, the related borrower
may be permitted to incur additional indebtedness secured by furniture, fixtures
and equipment, and to incur additional unsecured indebtedness. In addition, 5 of
the Mortgage Loans representing 17.7% of the Initial Pool Balance permit the
members of the related borrower to incur mezzanine debt under the circumstances
set forth in the related loan agreement. Two of those 5 Mortgage Loans,
representing 13.0% of the Initial Pool Balance, have existing mezzanine debt.
With respect to these Mortgage Loans, the related mezzanine lender has entered
into a mezzanine intercreditor agreement with the mortgagee, pursuant to which,
among other things, the related mezzanine lender among other things (x) has
agreed under certain circumstances, not to enforce its rights to realize upon
collateral securing the mezzanine loan or take any exercise enforcement action
with respect to the mezzanine loan without written confirmation from the Rating
Agencies that such enforcement action would not cause the downgrade, withdrawal
or qualification of the ratings of the Certificates, and (y) has the option to
cure purchase the related Mortgage Loans if the Mortgage Loans become defaulted
as set forth in such mezzanine intercreditor agreement or cure the default.
S-112
Except as described above, we do not know whether the respective borrowers
under the Mortgage Loans have any other debt outstanding. See "Certain Legal
Aspects of Mortgage Loans--Subordinate Financing" in the accompanying
prospectus.
Lender/Borrower Relationships. The Mortgage Loan Sellers, the Depositor or
any of their affiliates may maintain certain banking or other relationships with
borrowers under the Mortgage Loans or their affiliates, and proceeds of the
Mortgage Loans may, in certain limited cases, be used by such borrowers or their
affiliates in whole or in part to pay indebtedness owed to the Mortgage Loan
Seller, the Depositor or such other entities.
CERTAIN UNDERWRITING MATTERS
Environmental Assessments. Each of the Mortgaged Properties was subject to
an environmental site assessment, an environmental site assessment update or a
transaction screen that was performed by an independent third-party
environmental consultant with respect to each Mortgaged Property securing a
Mortgage Loan in connection with the origination of such Mortgage Loan. In some
cases, a third-party consultant also conducted a Phase II environmental site
assessment of a Mortgaged Property. The report of each such assessment, update
or screen is referred to herein as an "Environmental Report". With respect to an
Environmental Report, if any, (i) no such Environmental Report provides that as
of the date of the report there is a material violation of applicable
environmental laws with respect to any known circumstances or conditions
relating to the related Mortgaged Property; or (ii) if any such Environmental
Report does reveal any such circumstances or conditions with respect to the
related Mortgaged Property and such circumstances or conditions have not been
subsequently remediated in all material respects, then generally, with certain
exceptions, one or more of the following was the case: (A) the related borrower
was required to provide additional security and/or to obtain an operations and
maintenance plan, (B) the related borrower provided a "no further action" letter
or other evidence acceptable to the related Mortgage Loan Seller, in its sole
discretion, that applicable federal, state or local governmental authorities had
no current intention of taking any action, and are not requiring any action, in
respect of such condition or circumstance, (C) such conditions or circumstances
were investigated further and based upon such additional investigation, and
independent environmental consultant recommended no further investigation or
remediation, (D) the expenditure of funds reasonably estimated to be necessary
to effect such remediation is the lesser of (a) 10% of the outstanding principal
balance of the related Mortgage Loan and (b) two million dollars, (E) there
exists an escrow of funds reasonably estimated to be sufficient for purposes of
effecting such remediation, (F) the related borrower or another responsible
party is currently taking such actions, if any, with respect to such
circumstances or conditions as have been required by the applicable governmental
regulatory authority, (G) the related Mortgaged Property is insured under a
policy of insurance, subject to certain per occurrence and aggregate limits and
a deductible, against certain losses arising from such circumstances and
conditions or (H) a responsible party provided a guaranty or indemnity to the
related borrower to cover the costs of any required investigation, testing,
monitoring or remediation. There can be no assurance, however, that a
responsible party will be financially able to address the subject condition or
compelled to do so. See "Risk Factors--Adverse Environmental Conditions May
Reduce Cashflow from a Mortgaged Property" for more information regarding the
environmental condition of certain Mortgaged Properties.
The Mortgage Loan Sellers will not make any representation or warranty with
respect to environmental conditions arising after the Delivery Date, and will
not be obligated to repurchase or substitute for any Mortgage Loan due to any
such condition.
Generally. 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, 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.
Owners of residential housing constructed prior to 1978 are required by
federal law to disclose to potential residents or purchasers any known
lead-based paint hazards and violations can incur
S-113
treble damages for any failure to so notify. In addition, the ingestion of
lead-based paint chips or dust particles by children can result in lead
poisoning, and the owner of a property where such circumstances exist may be
held liable for such injuries and for the costs of removal or encapsulation of
the lead-based paint. Testing for lead-based paint or lead in the water was
conducted with respect to certain of the Mortgaged Properties, generally based
on the age and/or condition thereof.
The Environmental Protection Agency has identified certain health risks
associated with elevated radon gas in buildings, and has recommended that
certain mitigating measures be considered.
When recommended by environmental site assessments, operations and
maintenance plans (addressing in some cases ACMs, lead-based paint, and/or
radon) were generally 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). In certain instances where related Mortgage Loan documents required
the submission of operations and maintenance plans, these plans have yet to be
received. There can be no assurance that recommended operations and maintenance
plans have been or will continue to be implemented. In many cases, certain
potentially adverse environmental conditions were not tested for. For example,
lead based paint and radon were tested only with respect to Multifamily
Mortgaged Properties and only if, in the case of lead based paint, the age of
the Mortgaged Property warranted such testing and, in the case of radon, radon
is prevalent in the geographic area where the Mortgaged Property is located;
however, at several Multifamily Mortgaged Properties located in geographic areas
where radon is prevalent, radon testing was not conducted. None of the testing
referenced in the preceding sentence was conducted in connection with a
Manufactured Housing Community.
Certain of the Mortgaged Properties have off-site leaking underground
storage tank ("UST") sites located nearby which the environmental assessments
either have indicated are not likely to contaminate the related Mortgaged
Properties but may require future monitoring or have 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 regulatory
levels or otherwise are indicative of conditions typically not of regulatory
concern and are not likely to require any further action. In some cases, there
was no further investigation of a potentially adverse environmental condition.
In certain instances where related Mortgage Loan documents required UST repair
or removal and the submission of a confirmation that this work has been
performed, the confirmations have yet to be received.
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 Mortgage Loan Sellers, the
Underwriters, the Master Servicer, the Special Servicer, the Trustee, the Fiscal
Agent, 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.
The Pooling Agreement requires that the Special Servicer obtain an
environmental site assessment of a Mortgaged Property prior to acquiring title
thereto or assuming its operation. In the event a Phase I assessment already
exists that is less than 12 months old, a new assessment will not be required
under the Pooling Agreement. In the event a Phase I assessment already exists
that is between 12 and 18 months old, only an updated data base search will be
required. Such requirement precludes enforcement of the security for the related
Mortgage 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 Agreement will effectively insulate the Trust from
potential liability for a materially
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adverse environmental condition at any Mortgaged Property. See "Servicing of the
Mortgage Loans" in this prospectus supplement and "The Pooling and Servicing
Agreements--Realization Upon Defaulted Mortgage Loans", "Risk Factors--Certain
Factors Affecting Delinquency, Foreclosure and Loss of the Mortgage
Loans--Adverse Environmental Conditions May Subject a Mortgage Loan to
Additional Risk" and "Certain Legal Aspects of Mortgage Loans--Environmental
Considerations" in the accompanying prospectus.
Property Condition Assessments. Inspections of each of the Mortgaged
Properties were conducted by independent licensed engineers in connection with
or subsequent to the origination of the related Mortgage Loan, except that in
connection with certain Mortgage Loans having an initial principal balance of
$2,000,000 or less, a site inspection may not have been performed in connection
with the origination of any such Mortgage Loan. Such inspections were generally
commissioned to inspect the exterior walls, roofing, interior construction,
mechanical and electrical systems and general condition of the site, buildings
and other improvements located at a Mortgaged Property. With respect to certain
of the Mortgage Loans, the resulting reports indicated a variety of deferred
maintenance items and recommended capital improvements. The estimated cost of
the necessary repairs or replacements at a Mortgaged Property was included in
the related property condition assessment; and, in the case of certain Mortgaged
Properties, such estimated cost exceeded $100,000. In general, with limited
exception, cash reserves were established, or other security obtained, to fund
or secure the payment of such estimated deferred maintenance or replacement
items. In addition, various Mortgage Loans require monthly deposits into cash
reserve accounts to fund property maintenance expenses.
Appraisals and Market Studies. An independent appraiser that was 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 the origination of each Mortgage Loan in order to
establish the appraised value of the related Mortgaged Property or Properties.
Such appraisal, appraisal update or property valuation was prepared on or about
the "Appraisal Date" indicated on Annex A hereto, and except for certain
mortgaged properties involving operating businesses, the appraiser represented
in such appraisal or in a letter or other agreement that the appraisal conformed
to the appraisal guidelines set forth in the Uniform Standards of Professional
Appraisal Practice ("USPAP"). In general, such appraisals represent the analysis
and opinions of the respective appraisers at or before the time made, and are
not guarantees of, and may not be indicative of, present or future value. There
can be no assurance that another appraiser would not have arrived at a different
valuation, even if such appraiser used the same general approach to and same
method of appraising the property. In addition, appraisals seek to establish the
amount a typically motivated buyer would pay a typically motivated seller. Such
amount could be significantly higher than the amount obtained from the sale of a
Mortgaged Property under a distress or liquidation sale.
None of the Depositor, either Mortgage Loan Seller, the Underwriters, the
Master Servicer, the Special Servicer, the Trustee, the Fiscal Agent, 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. Each Mortgage Loan Seller has
generally examined whether the use and operation of the related Mortgaged
Properties were in material compliance with all zoning, land-use, ordinances,
rules, regulations and orders applicable to such Mortgaged Properties at the
time such Mortgage Loans were originated. Each Mortgage Loan Seller may have
considered, among other things, legal opinions, certifications from government
officials, zoning consultant's reports and/or representations by the related
borrower contained in the related Mortgage Loan documents and information which
is contained in appraisals and surveys, title insurance endorsements, or
property condition assessments undertaken by independent licensed engineers.
Certain violations may exist; however, neither Mortgage Loan Seller has notice
of any material existing violations with respect to the Mortgaged Properties
securing such Mortgage Loans which materially and adversely affect (i) the value
of the related Mortgaged Property as determined
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by the appraisal performed in connection with the origination of the related
Mortgage Loan or (ii) the principal use of the Mortgaged Property as of the date
of the related Mortgage Loan's origination.
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, the related Mortgage Loan Seller has
determined that in the event of a material casualty affecting the Mortgaged
Property that:
(1) the extent of the nonconformity is not material;
(2) insurance proceeds together with the value of the remaining
property would be available and sufficient to pay off the related Mortgage
Loan in full;
(3) the Mortgaged Property, if permitted to be repaired or restored in
conformity with current law, would constitute adequate security for the
related Mortgage Loan; or
(4) 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 each Mortgage Loan Seller expects insurance proceeds to be
available for application to the related Mortgage Loan in the event of a
material casualty, no assurance can be given that such proceeds would be
sufficient to pay off such Mortgage Loan in full. 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 Mortgage Loan or what would be the revenue-producing
potential of the property.
Hazard, Liability and Other Insurance. The Mortgage Loans generally require
that each Mortgaged Property be insured by a hazard insurance policy in an
amount (subject to an approved deductible) at least equal to the lesser of the
outstanding principal balance of the related Mortgage Loan and 100% of the
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 Mortgage Loans, the hazard insurance may be in such other amounts as was
required by the related originators.
In addition, if any material improvements on any portion of a Mortgaged
Property securing any Mortgage Loan was, at the time of the origination of such
Mortgage Loan, in an area identified in the Federal Register by the Federal
Emergency Management Agency as having special flood hazards, and flood insurance
was available, a flood insurance policy meeting any requirements of the
then-current guidelines of the Federal Insurance Administration is required to
be in effect with a generally acceptable insurance carrier, in an amount
representing coverage generally not less than the least of (a) the outstanding
principal balance of the related Loan, (b) the full insurable value of the
related Mortgaged Property, (c) the maximum amount of insurance available under
the National Flood Insurance Act of 1973, as amended, or (d) 100% of the
replacement cost of the improvements located on the related Mortgaged Property.
In general, the standard form of hazard insurance policy covers physical
damage to, or destruction of, the improvements on the Mortgaged Property by
fire, lightning, explosion, smoke, windstorm and hail, riot or strike and civil
commotion, subject to the conditions and exclusions set forth in each policy.
Each Mortgage Loan generally also requires the related borrower to maintain
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 generally equal to at least $1,000,000.
Each Mortgage Loan generally further requires the related borrower to
maintain business interruption insurance in an amount not less than
approximately 100% of the gross rental income
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from the related Mortgaged Property for not less than 12 months, except that
business interruption insurance may not be required in cases where the tenant is
required to continue paying rent in the event of a casualty.
With respect to two of the Mortgage Loans representing 0.5% of the Initial
Pool Balance, the related borrower does not maintain insurance for the Mortgaged
Property. Rather, the tenants of the Mortgaged Property maintain hazard and
liability insurance sufficient to satisfy the requirements of the related
Mortgage Loan documents.
In general, the Mortgage Loans (including those secured by Mortgaged
Properties located in California) do not require earthquake insurance. 21 of the
Mortgaged Properties, securing 19.1% of the Initial Pool Balance, are located in
areas that are considered a high earthquake risk. These areas include all or
parts of the states of Washington, Oregon, California, Utah, Hawaii and Nevada.
No Mortgaged Property has a "probable maximum loss" ("PML") in excess of 20%.
THE MORTGAGE LOAN SELLERS
Bank of America is a national banking association. The principal office of
Bank of America is in Charlotte, North Carolina. Bank of America is a
wholly-owned subsidiary of NB Holdings Corporation, which in turn is a
wholly-owned subsidiary of Bank of America Corporation.
The information set forth herein concerning Bank of America has been
provided by Bank of America. Neither the Depositor nor any Underwriter makes any
representation or warranty as to the accuracy or completeness of such
information.
BSCMI is a wholly-owned subsidiary of Bear Stearns Mortgage Capital
Corporation, and is a New York corporation and an affiliate of Bear, Stearns &
Co. Inc., one of the underwriters. The principal offices of BSCMI are located at
383 Madison Avenue, New York, New York 10179.
The information set forth herein concerning BSCMI has been provided by
BSCMI. Neither the Depositor nor any Underwriter makes any representation or
warranty as to the accuracy or completeness of such information.
ASSIGNMENT OF THE MORTGAGE LOANS; REPURCHASES AND SUBSTITUTIONS
On or prior to the Delivery Date, by agreement with the Depositor, each
Mortgage Loan Seller with respect to the Mortgage Loans it is selling to the
Depositor (except as described in the next paragraph) will assign and transfer
such Mortgage Loans, without recourse, to or at the direction of the Depositor,
to the Trustee for the benefit of the Certificateholders. In connection with
such assignment, each of the Mortgage Loan Sellers will be required to deliver
the following documents, among others, to the Trustee with respect to each of
its related Mortgage Loans:
(1) the original Mortgage Note, endorsed (without recourse) to the
order of the Trustee or a lost note affidavit and an indemnity with a copy
of such Mortgage Note;
(2) the original or a copy of the related Mortgage(s) and, if
applicable, originals or copies of any intervening assignments of such
document(s), in each case (unless the particular document has not been
returned from the applicable recording office) with evidence of recording
thereon;
(3) the original or a copy of any related assignment(s) of leases and
rents (if any such item is a document separate from the Mortgage) and, if
applicable, 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 (except for, solely with respect to Mortgages sent for
recording but not yet returned, any missing recording information with
respect to such Mortgage) (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 (except for any missing recording information
with respect to such Mortgage) (or a certified copy of such assignment as
sent for recording);
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(6) a title insurance policy (or copy thereof) effective as of the
date of the recordation of the Mortgage Loan, together with all
endorsements or riders thereto (or if the policy has not yet been issued,
an original or copy or a written commitment "marked-up" at the closing of
such Mortgage Loan, interim binder or the pro forma title insurance policy
evidencing a binding commitment to issue such policy);
(7) 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);
(8) in those cases where applicable, the original or a copy of the
related ground lease; and
(9) in those cases where applicable, a copy of any letter of credit
relating to a Mortgage Loan;
provided, however, that with respect to any Mortgage for which the related
assignment of mortgage, assignment of assignment of leases, security agreements
and/or UCC financing statements have been recorded in the name of MERS or its
designee, no assignment of mortgage, assignment of leases, security agreements
and/or UCC financing statements in favor of the Trustee will be required to be
prepared or delivered and instead, the Master Servicer, at the direction of the
related Mortgage Loan Seller, shall take all actions as are necessary to cause
the Trustee on behalf of the Trust to be shown as, and the Trustee shall take
all actions necessary to confirm that the Trustee on behalf of is shown as, the
owner of the related Mortgage Loan on the records of MERS for purposes of the
system of recording transfers of beneficial ownership of mortgages maintained by
MERS.
The Trustee is required to review the documents delivered thereto by each
Mortgage Loan Seller with respect to each Mortgage Loan within a specified
period following such delivery, and the Trustee will hold the related documents
in trust. If there exists a breach of any of the delivery obligations made by a
Mortgage Loan Seller as generally described in items (1) through (9) in the
preceding paragraph, and that breach materially and adversely affects the
interests of the Certificateholders with respect to the affected loan, then the
related Mortgage Loan Seller 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 (1) deliver the missing
documents or cure the defect in all material respects, as the case may be, (2)
repurchase (or cause the repurchase of) the affected Mortgage Loan at a price
(the "Purchase Price") generally equal to the unpaid principal balance of such
Mortgage Loan, plus any accrued but unpaid interest thereon (other than Excess
Interest) at the related Mortgage Rate to but not including the Due Date in the
Collection Period of repurchase, plus any related unreimbursed Master Servicing
Fees, Special Servicing Fees, Trustee Fees and Servicing Advances (as defined
herein), any interest on any Advances and any related Additional Trust Fund
Expenses (including any Additional Trust Fund Expense previously reimbursed or
paid by the Trust Fund but not so reimbursed by the related mortgagor or other
party from Insurance Proceeds, Condemnation Proceeds or otherwise), and any
Liquidation Fees if purchased outside of the time frame set forth in the Pooling
Agreement or (3) substitute a Qualified Substitute Mortgage Loan (as defined
below) for such Mortgage Loan and pay the Trustee a shortfall amount equal to
the difference between the Purchase Price of the deleted Mortgage Loan
calculated as of the date of substitution and the Stated Principal Balance of
such Qualified Substitute Mortgage Loan as of the date of substitution (the
"Substitution Shortfall Amount"). If such defect or breach is capable of being
cured but not within the 90 day period and the related Mortgage Loan Seller has
commenced and is diligently proceeding with the cure of such defect or breach
within such 90 day period, then the related Mortgage Loan Seller shall have,
with respect to such Mortgage Loans only, an additional 90 days to complete such
cure or, failing such cure, to repurchase (or cause the repurchase of) or
substitute for the related Mortgage Loan (such possible additional cure period
shall not apply in the event of a defect that causes the Mortgage 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 customary prepayment penalties
or permissible defeasance). A "Qualified Substitute Mortgage Loan" in connection
with the replacement of a defective Mortgage Loan as contemplated by the Pooling
Agreement, is any other mortgage loan which, on the date of substitution, (i)
has a principal
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balance, after deduction of the principal portion of any unpaid Monthly Payment
due on or before the date of substitution, not in excess of the Stated Principal
Balance of the defective Mortgage Loan; (ii) is accruing interest at a fixed
rate of interest at least equal to that of the defective Mortgage Loan; (iii)
has the same Due Date as, and a grace period for delinquent Monthly Payments
that is no longer than, the Due Date and grace period, respectively, of the
defective Mortgage Loan; (iv) is accruing interest on the same basis as the
defective Mortgage Loan (for example, on the basis of a 360-day year consisting
of twelve 30-day months); (v) has a remaining term to stated maturity not
greater than, and not more than two years less than, that of the defective
Mortgage Loan; (vi) has a then current loan-to-value ratio not higher than, and
a then current debt service coverage ratio not lower than, the loan-to-value
ratio and debt service coverage ratio, respectively, of the defective Mortgage
Loan as of the Delivery Date; (vii) has comparable prepayment restrictions to
those of the defective Mortgage Loan, (viii) will comply (except in a manner
that would not be adverse to the interests of the Certificateholders (as a
collective whole) in or with respect to such mortgage loan), as of the date of
substitution, with all of the representations relating to the defective Mortgage
Loan set forth in or made pursuant to the Mortgage Loan Purchase and Sale
Agreement; (ix) has a Phase I Environmental Assessment and a property condition
report relating to the related Mortgage Property in its Servicing File, which
Phase I Environmental Assessment will evidence that there is no material adverse
environmental condition or circumstance at the related Mortgage Property for
which further remedial action may be required under applicable law, and which
property condition report will evidence that the related Mortgage Property is in
good condition with no material damage or deferred maintenance; and (x)
constitutes a "qualified replacement mortgage" within the meaning of Section
860G(a)(4) of the Code; provided, however, that if more than one mortgage loan
is to be substituted for any defective Mortgage Loan, then all such proposed
replacement mortgage loans shall, in the aggregate, satisfy the requirement
specified in clause (i) of this definition and each such proposed replacement
mortgage loan shall, individually, satisfy each of the requirements specified in
clauses (ii) through (x) of this definition; and provided, further, that no
mortgage loan shall be substituted for a defective Mortgage Loan unless (x) such
prospective replacement mortgage loan shall be acceptable to the Directing
Certificateholder (or, if there is no Directing Certificateholder then serving,
to the Holders of Certificates representing a majority of the Voting Rights
allocated to the Controlling Class), in its (or their) sole discretion, and (y)
each Rating Agency shall have confirmed in writing to the Trustee that such
substitution will not in and of itself result in an Adverse Rating Event with
respect to any Class of Rated Certificates (such written confirmation to be
obtained by, and at the expense of, the related Mortgage Loan Seller effecting
the substitution).
If (x) any Mortgage Loan is required to be repurchased or substituted as
contemplated in this prospectus supplement, (y) such Mortgage Loan is a
Crossed-Collateralized Mortgage Loan or part of a portfolio of Mortgaged
Properties (which provides that a property may be uncrossed from the other
Mortgaged Properties) and (z) the applicable defect or breach does not
constitute a defect or breach, as the case may be, as to any related
Crossed-Collateralized Mortgage Loan or applies to only specific Mortgaged
Properties included in such portfolio (without regard to this paragraph), then
the applicable defect or breach (as the case may be) will be deemed to
constitute a defect or breach (as the case may be) as to any related
Crossed-Collateralized Mortgage Loan and to each other Mortgaged Property
included in such portfolio and the Mortgage Loan Seller which sold the loan to
the Depositor will be required to repurchase or substitute for any related
Crossed-Collateralized Mortgage Loan in the manner described above unless, in
the case of a breach or defect, both of the following conditions would be
satisfied if such Mortgage Loan Seller were to repurchase or substitute for only
the affected Crossed-Collateralized Mortgage Loans or affected Mortgaged
Properties as to which a breach had occurred without regard to this paragraph:
(i) the debt service coverage ratio for any remaining Cross-Collateralized
Mortgage Loans or Mortgaged Properties for the four calendar quarters
immediately preceding the repurchase or substitution is not less than the
greater of (a) the debt service coverage ratio immediately prior to the
repurchase, and (b) 1.25x and (ii) the loan-to-value ratio for any remaining
Crossed-Collateralized Mortgage Loans or Mortgaged Properties is not greater
than the lesser of (a) the loan-to-value ratio immediately prior to the
repurchase, and (b) 75%. In the event that both of the conditions set forth in
the preceding
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sentence would be so satisfied, such Mortgage Loan Seller may elect either to
repurchase or substitute for only the affected Crossed-Collateralized Mortgage
Loan or Mortgaged Properties as to which the defect or breach exists or to
repurchase or substitute for the aggregate Crossed-Collateralized Mortgage Loans
or Mortgaged Properties.
To the extent that the related Mortgage Loan Seller repurchases or
substitutes for an affected Cross-Collateralized Mortgage Loan or Mortgaged
Property in the manner prescribed above while the Trustee continues to hold any
related Cross-Collateralized Mortgage Loans, the related Mortgage Loan Seller
and the Depositor have agreed in the related Mortgage Loan Purchase and Sale
Agreement to either uncross the repurchased Cross-Collateralized Mortgage Loan
or affected property provided the Depositor has received a tax opinion that
uncrossing the repurchased Cross-Collateralized Mortgage Loan will not adversely
affect the status of either REMIC I or REMIC II as a REMIC under the Code, or,
in the case of a Cross-Collateralized Loan, to forbear from enforcing any
remedies against the other's Primary Collateral (as defined below), but each is
permitted to exercise remedies against the Primary Collateral securing its
respective affected Cross-Collateralized Mortgage Loans or Mortgaged Properties,
including, with respect to the Trustee, the Primary Collateral securing Mortgage
Loans still held by the Trustee, so long as such exercise does not impair the
ability of the other party to exercise its remedies against its Primary
Collateral. If the exercise of remedies by one party would impair the ability of
the other party to exercise its remedies with respect to the Primary Collateral
securing the Cross-Collateralized Mortgage Loans or Mortgaged Properties held by
such party, then both parties have agreed in the Mortgage Loan Purchase and Sale
Agreement to forbear from exercising such remedies until the loan documents
evidencing and securing the Mortgage Loans can be modified in a manner that
complies with the Mortgage Loan Purchase and Sale Agreement to remove the threat
of impairment as a result of the exercise of remedies. "Primary Collateral"
shall mean the Mortgaged Property directly securing a Cross-Collateralized
Mortgage Loan or Mortgaged Property and excluding any property as to which the
related lien may only be foreclosed upon by exercise of cross-collateralization
of such loans.
The respective repurchase, substitution or cure obligations of each
Mortgage Loan Seller described in this prospectus supplement will constitute the
sole remedies available to the Certificateholders for any failure on the part of
the related Mortgage Loan Seller to deliver any of the above-described documents
with respect to any Mortgage Loan or for any defect in any such document, and
neither the Depositor nor any other person will be obligated to repurchase the
affected Mortgage Loan if the related Mortgage Loan Seller defaults on its
obligation to do so. Notwithstanding the foregoing, if any of the
above-described documents is not delivered with respect to any Mortgage 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 the related Mortgage Loan Seller will not be required to repurchase
(or cause the repurchase of) the related affected Mortgage Loan on the basis of
such missing document so long as the related Mortgage Loan Seller continues in
good faith to attempt to obtain such document or such copy.
The Pooling Agreement requires that, unless recorded in the name of MERS,
the assignments in favor of the Trustee with respect to each Mortgage Loan
described in clauses (4), (5) and (7) of the first paragraph under this heading
be submitted for recording in the real property records or filing with the
Secretary of State, as applicable, of the appropriate jurisdictions within a
specified number of days following the delivery at the expense of the related
Mortgage Loan Seller. See "The Pooling and Servicing Agreements--Assignment of
Mortgage Loans; Repurchases" in the accompanying prospectus.
REPRESENTATIONS AND WARRANTIES; REPURCHASES AND SUBSTITUTIONS
Mortgage Loans. The Depositor will acquire the Mortgage Loans from each
Mortgage Loan Seller pursuant to separate mortgage loan purchase and sale
agreements (each a "Mortgage Loan Purchase and Sale Agreement") to be dated as
of the Delivery Date. Pursuant to each Mortgage Loan Purchase and Sale
Agreement, each Mortgage Loan Seller will represent and warrant solely
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with respect to the Mortgage Loans transferred by such Mortgage Loan Seller in
each case as of the Delivery Date or as of such earlier date specifically
provided in the related representation or warranty (subject to certain
exceptions specified in each Mortgage Loan Purchase and Sale Agreement) among
other things, substantially as follows:
(1) the information set forth in the schedule of Mortgage Loans (the
"Mortgage Loan Schedule") attached to the Pooling Agreement (which will
contain a limited portion of the information set forth in Annex A) with
respect to the Mortgage Loans is true, complete and correct in all material
respects as of the Delivery Date;
(2) based on the related lender's title insurance policy (or, if not
yet issued, a pro forma title policy or a "marked-up" commitment) each
Mortgage related to and delivered in connection with each Mortgage Loan
constitutes a valid and subject to (3) below enforceable first lien on the
related Mortgaged Property subject only to (a) the lien of current real
estate taxes, ground rents, water charges, sewer rents and assessments not
yet due and payable, (b) covenants, conditions and restrictions, rights of
way, easements and other matters that are of public record and/or are
referred to in the related lender's title insurance policy (or, if not yet
issued, referred to in a pro forma title policy or "marked-up" commitment),
none of which materially interferes with the security intended to be
provided by such Mortgage, the current principal use and operation of the
related Mortgaged Property or the current ability of the related Mortgaged
Property to generate income sufficient to service such Mortgage Loan, (c)
exceptions and exclusions specifically referred to in such lender's title
insurance policy (or, if not yet issued, referred to in a pro forma title
policy or "marked-up" commitment), none of which materially interferes with
the security intended to be provided by such Mortgage, the current
principal use of the related Mortgaged Property or the current ability of
the related Mortgaged Property to generate income sufficient to service
such Mortgage Loan, (d) other matters to which like properties are commonly
subject, none of which materially interferes with the security intended to
be provided by such Mortgage, the current principal use of the related
Mortgaged Property or the current ability of the related Mortgaged Property
to generate income sufficient to service the related Mortgage Loan, (e) the
rights of tenants (as tenants only) under leases (including subleases)
pertaining to the related Mortgaged Property which the Mortgage Loan Seller
did not require to be subordinated to the lien of such Mortgage and which
do not materially interfere with the security intended to be provided by
such Mortgage, the current principal use of the related Mortgaged Property
or the current ability of the related Mortgaged Property to generate income
sufficient to service the related Mortgage Loan, and (f) if such Mortgage
Loan constitutes a Cross-Collateralized Mortgage Loan, the lien of the
Mortgage for another Mortgage Loan contained in the same
cross-collateralized group (the foregoing items (a) through (f) being
herein referred to as the "Permitted Encumbrances");
(3) the Mortgage(s) and Mortgage Note for each Mortgage Loan and all
other documents executed by or on behalf of the related borrower with
respect to each Mortgage 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 or similar laws 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 Mortgage Loan was as of the Delivery Date, or during the
twelve-month period prior thereto, 30 days or more past due in respect of
any Monthly Payment, without giving effect to any applicable grace period;
(5) to the Mortgage Loan Seller's knowledge, there is no valid right
of offset abatement, diminution or rescission, defense or counterclaim
available to the related borrower with respect to any Mortgage Loan or
Mortgage Note or other agreements executed in connection therewith;
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(6) there exists no material default, breach, violation or event of
acceleration existing under any Mortgage Note or Mortgage in any such case
to the extent the same materially and adversely affects the value of the
Mortgage Loan and related Mortgaged Property;
(7) in the case of each Mortgage Loan, the related Mortgage Property
is (a) not the subject of any proceeding pending for the condemnation of
all or any material portion of any Mortgaged Property, and, (b) free and
clear of any damage caused by fire or other casualty which would materially
and adversely affect its value as security for such Mortgaged Loan (except
in any such case where an escrow of Funds or insurance coverage exists that
is reasonably estimated to be sufficient to effect the necessary repairs
and maintenance);
(8) at origination, each Mortgage Loan complied with or was exempt
from, all applicable usury laws;
(9) in connection with or subsequent to the origination of the related
Mortgage Loan, one or more environmental site assessments, an update of a
previously conducted assessment or had a transaction screen has been
performed with respect to each Mortgaged Property and the Mortgage Loan
Seller has no knowledge of any material and adverse environmental condition
or circumstance affecting such Mortgaged Property that was not disclosed in
an Environmental Report or Borrower questionnaire;
(10) each Mortgaged Property securing a Mortgage Loan is covered by a
title insurance policy (or, if not yet issued a pro forma title policy or a
"marked-up" commitment in the original principal amount of such Mortgage
Loan after all advances of principal, insuring that the related Mortgage is
a valid fast priority lien on such Mortgaged Property subject only to the
exceptions stated therein;
(11) the proceeds of each Mortgage Loan have been fully disbursed
(except in those cases where the full amount of the Mortgage Loan has been
disbursed but a portion thereof is being held in escrow or reserve accounts
pending the satisfaction of certain conditions relating to leasing, repairs
or other matters with respect to the related Mortgaged Property), and there
is no obligation for future advances with respect thereto;
(12) the terms of the Mortgage has not been impaired, waived, altered,
satisfied, canceled, subordinated, rescinded or modified in any manner
which would materially interfere with the benefits of the security intended
to be provided by such Mortgage, except as specifically set forth in a
written instrument in the related Mortgage File;
(13) there are no delinquent taxes, assessments or other outstanding
charges affecting any Mortgaged Property;
(14) the related borrower's interest in each Mortgaged Property
securing a Mortgage Loan includes of a fee simple and/or leasehold estate
or interest in real property and the improvements thereon;
(15) no Mortgage Loan contains any equity participation by the
mortgagee, is convertible by its terms into an equity ownership interest in
the related Mortgaged Property or the related borrower, 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 except for an ARD Loan to the extent described
under "--Certain Terms and Conditions of the Mortgage
Loans--Hyperamortization"; and
(16) the appraisal obtained in connection with the origination of each
Mortgage Loan based upon the representation of the appraiser in a
supplemental letter or in the related appraisal, satisfies the appraisal
guidelines set forth in Title XI of the Financial Institutions Reform
Recovery and Enforcement Act of 1989 (as amended).
In each Mortgage Loan Purchase and Sale Agreement, the related Mortgage
Loan Seller will make certain representations concerning the priority and
certain terms of ground leases securing those Mortgage Loans transferred by it.
Each Mortgage Loan Seller will represent and warrant as of
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the Delivery Date, that, immediately prior to the transfer of its Mortgage
Loans, such Mortgage Loan Seller had good and marketable title to, and was the
sole owner of, its related Mortgage Loan and had full right and authority to
sell, assign and transfer such Mortgage Loan.
If a Mortgage Loan Seller discovers or is notified of a breach of any of
the foregoing representations and warranties with respect to any Mortgage Loan
and that breach materially and adversely affects the interests of the
Certificateholders with respect to the affected loan, then the related Mortgage
Loan Seller will be obligated, within a period of 90 days following the earlier
of its discovery or receipt of notice of such defect or breach to cure such
breach in all material respects, repurchase such Mortgage Loan at the applicable
Purchase Price or substitute a Qualified Substitute Mortgage Loan and pay any
Substitution Shortfall Amount as described in this prospectus supplement.
However, if such defect or breach is capable of being cured (but not within the
90 day period) and the related Mortgage Loan Seller, has commenced and is
diligently proceeding with cure of such defect or breach within 90 day period,
the related Mortgage Loan Seller shall have an additional 90 days to complete
such cure or, failing such cure, to repurchase the related Mortgage Loan or
substitute a Qualified Substitute Mortgage Loan and pay any Substitution
Shortfall Amount as described in this prospectus supplement (such possible
additional cure period shall not apply on the event of a defect that causes the
Mortgage 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 customary prepayment penalties or permissible defeasance). With
respect to any Cross-Collateralized Mortgage Loan or Mortgage Loan secured by
multiple properties, the provisions regarding repurchase, and substitution set
forth above for document defects as described under "Assignment of the Mortgage
Loans--Repurchase and Substitutions" shall also be permitted.
The foregoing cure, substitution or repurchase obligations described in the
immediately preceding paragraph will constitute the sole remedy available to the
Certificateholders for any breach of any of the foregoing representations and
warranties, and neither the Depositor nor any other person will be obligated to
repurchase any affected Mortgage Loan in connection with a breach of such
representations and warranties if a Mortgage Loan Seller defaults on its
obligation to do so. Each Mortgage Loan Seller will be the sole Warranting Party
(as defined in the accompanying prospectus) in respect of the Mortgage Loans
transferred by it. See "The Pooling and Servicing Agreements--Representations
and Warranties; Repurchases" in the accompanying prospectus. In addition, each
of the foregoing representations and warranties by each Mortgage Loan Seller is
made as of the Delivery Date or such earlier date specifically provided in the
related representation and warranty, a Mortgage Loan Seller will not be
obligated to cure or repurchase any Mortgage Loan or substitute a Qualified
Substitute Mortgage Loan and pay any Substitution Shortfall Amount as described
in this prospectus supplement due to any breach arising from events subsequent
to the date as of which such representation or warranty was made.
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this prospectus supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted on the
Cut-off Date, as adjusted for the scheduled principal payments due on the
Mortgage Loans on or before the Cut-off Date. Prior to the issuance of the
Offered Certificates, a Mortgage Loan may be removed from the Mortgage Pool if
the Depositor deems such removal necessary or appropriate or if it is prepaid.
The Depositor believes that the information set forth herein is representative
of the characteristics of the Mortgage Pool as constituted as of the Cut-off
Date, although the range of Mortgage Rates and maturities, as well as the other
characteristics of the Mortgage Loans described herein, may vary.
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 Agreement, with the Securities and
Exchange Commission within fifteen days after the initial issuance of the
Offered Certificates. In the event Mortgage Loans are removed from the Mortgage
Pool as set forth in the proceeding paragraph, such removal will be noted in the
Form 8-K.
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SERVICING OF THE MORTGAGE 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
Mortgage Loans for which it is responsible on behalf of the Trust, in the best
interests and for the benefit of the Certificateholders (as a collective whole),
in accordance with any and all applicable laws, the terms of the Pooling
Agreement, and the respective Mortgage Loans and, to the extent consistent with
the foregoing, the following standard (the "Servicing Standard"): (a) with the
same care, skill, prudence and diligence as is normal and usual in its general
mortgage servicing and REO property management activities on behalf of third
parties or on behalf of itself, whichever is higher, with respect to mortgage
loans and REO properties that are comparable to those for which it is
responsible hereunder; (b) with a view to the timely collection of all scheduled
payments of principal and interest under the Mortgage Loans, the full collection
of all Prepayment Premiums that may become payable under the Mortgage Loans and,
in the case of the Special Servicer, if a Mortgage Loan comes into and continues
in default and if, in the reasonable judgment of the Special Servicer, no
satisfactory arrangements can be made for the collection of the delinquent
payments (including payments of Prepayment Premiums), the maximization of the
recovery on such Mortgage Loan to the Certificateholders, as a collective whole,
on a net present value basis; and (c) without regard to: (i) any known
relationship that the Master Servicer (or any affiliate thereof) or the Special
Servicer (or any affiliate thereof), as the case may be, may have with the
related mortgagor or with any other party to the Pooling Agreement; (ii) the
ownership of any Certificate by the Master Servicer (or any affiliate thereof)
or the Special Servicer (or any affiliate thereof), as the case may be; (iii)
the obligation of the Master Servicer to make Advances, (iv) the obligation of
the Special Servicer to direct the Master Servicer to make Servicing Advances;
(v) the right of the Master Servicer (or any affiliate thereof) or the Special
Servicer (or any affiliate thereof), as the case may be, to receive
reimbursement of costs, or the sufficiency of any compensation payable to it,
hereunder or with respect to any particular transaction; (vi) any ownership,
servicing and/or management by the Master Servicer (or any affiliate thereof) or
the Special Servicer (or any affiliate thereof), as the case may be, of any
other mortgage loans or real property and (8) any obligation of the Master
Servicer or Special Servicer, or any affiliate thereof, to repurchase or
substitute for a Mortgage Loan as a Mortgage Loan Seller.
In general, the Master Servicer will be responsible for the servicing and
administration of all the Mortgage Loans pursuant to the terms of the Pooling
Agreement as to which no Servicing Transfer Event (as defined herein) has
occurred and all Corrected Mortgage Loans (as defined herein), and the Special
Servicer will be obligated to service and administer each Mortgage Loan (other
than a Corrected Mortgage Loan) as to which a Servicing Transfer Event has
occurred (each, a "Specially Serviced Mortgage Loan") and each Mortgaged
Property acquired on behalf of the Certificateholders in respect of a Defaulted
Mortgage Loan through foreclosure, deed-in-lieu of foreclosure or otherwise
(upon acquisition, an "REO Property"). A "Servicing Transfer Event" with respect
to any Mortgage Loan consists of any of the following events:
(a) the related mortgagor has failed to make when due any Monthly
Payment (including a Balloon Payment) or any other payment required under
the related loan documents, which failure continues, or the Master Servicer
determines, in its reasonable judgment, will continue, unremedied (i)
except in the case of a delinquent Balloon Payment, for 60 days beyond the
date on which the subject payment was due, and (ii) solely in the case of a
delinquent Balloon Payment, for one Business Day beyond the related
maturity date or, if the related Mortgagor has delivered to the Master
Servicer, on or before the related maturity date, a refinancing commitment
reasonably acceptable to the Master Servicer, for such longer period, not
to exceed 60 days beyond the related maturity date, during which the
refinancing would occur; or
(b) the Master Servicer has determined, in its reasonable judgment,
that a default in the making of a Monthly Payment (including a Balloon
Payment) or any other material payment required under the related loan
documents is likely to occur within 30 days and either (i) the
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related mortgagor has requested a material modification of the payment
terms of the loan or (ii) such default is likely to remain unremedied for
at least the period contemplated by clause (a) of this definition; or
(c) the Master Servicer has determined, in its reasonable judgment,
that a default, other than as described in clause (a) or (b) of this
definition, has occurred that may materially impair the value of the
related Mortgaged Property as security for the loan, which default has
continued unremedied for the applicable cure period under the terms of the
loan (or, if no cure period is specified, for 60 days); or
(d) a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises in an involuntary action against the
related mortgagor under any present or future federal or state bankruptcy,
insolvency or similar law or the appointment of a conservator, receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceeding, or for the winding-up or liquidation
of its affairs, shall have been entered against the related mortgagor and
such decree or order shall have remained in force undismissed, undischarged
or unstayed; or
(e) the related mortgagor shall have consented to the appointment of a
conservator, receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceeding of or
relating to such mortgagor or of or relating to all or substantially all of
its property; or
(f) the related mortgagor 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
(g) the Master Servicer shall have received notice of the commencement
of foreclosure or similar proceedings with respect to the related Mortgaged
Property.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan (and
will become a "Corrected Mortgage 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 loan to be characterized as a Specially Serviced Mortgage Loan (and
provided that no other Servicing Transfer Event then exists):
(w) in the case of the circumstances described in clause (a) above, if
and when the related mortgagor has made three consecutive full and timely
Monthly Payments under the terms of such loan (as such terms may be changed
or modified in connection with a bankruptcy or similar proceeding involving
the related mortgagor or by reason of a modification, waiver or amendment
granted or agreed to by the Master Servicer or the Special Servicer
pursuant to the Pooling Agreement);
(x) in the case of the circumstances described in clauses (b), (d),
(e) and (f) above, if and when such circumstances cease to exist in the
reasonable judgment of the Special Servicer;
(y) in the case of the circumstances described in clause (c) above, if
and when such default is cured in the reasonable judgment of the Special
Servicer; and
(z) in the case of the circumstances described in clause (g) above, if
and when such proceedings are terminated.
The Master Servicer shall continue to collect information and prepare all
reports to the Trustee required under the Pooling Agreement with respect to any
Specially Serviced Mortgage Loans and REO Properties, and further to render
incidental services with respect to any Specially Serviced Mortgage Loans and
REO Properties as are specifically provided for in the Pooling 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
Agreement.
The Special Servicer will prepare a report (an "Asset Status Report") for
each Mortgage Loan which becomes a Specially Serviced Mortgage Loan not later
than 45 days after the servicing of such
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Mortgage 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 and the Rating Agencies. The Directing
Certificateholder, may object in writing via facsimile or e-mail to any
applicable Asset Status Report within 10 business days of receipt; provided,
however, the Special Servicer (i) will, following the occurrence of an
extraordinary event with respect to the related Mortgaged Property, take any
action set forth in such Asset Status Report before the expiration of a 10
business day period if it has reasonably determined that failure to take such
action would materially and adversely affect the interests of the
Certificateholders and it has made a reasonable effort to contact the Directing
Certificateholder and (ii) in any case, will determine whether such disapproval
is not in the best interests of all the Certificateholders as a collective
whole, pursuant to the Servicing Standard. In connection with making such
affirmative determination, the Special Servicer may request (but is not required
to request) a vote by all Certificateholders, but shall in any event take the
recommended action after making such affirmative determination. If the Directing
Certificateholder, does not disapprove an applicable Asset Status Report within
10 business days, the Special Servicer shall implement the recommended action as
outlined in such Asset Status Report. However, the Special Servicer may not take
any action that is contrary to applicable law or the terms of the applicable
loan documents. 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 earliest to occur of (i) the Special
Servicer, in accordance with the Servicing Standard, makes a determination that
such objection is not in the best interests of the Certificateholders, as a
collective whole, (ii) following the occurrence of an extraordinary event with
respect to the related Mortgaged Property, the failure to take any action set
forth in such Asset Status Report before the expiration of a 10 business day
period would materially and adversely affect the interests of the
Certificateholders, as a collective whole, and it has made a reasonable effort
to contact the Directing Certificateholder, and (iii) the passage of 90 days
from the date of preparation of the initial version of the Asset Status Report.
Following the earliest of such events, the Special Servicer will implement the
recommended action as outlined in the most recent version of such Asset Status
Report. In addition as more fully set forth in the Pooling Agreement, any action
which is required to be taken (or not to be taken) by the Special Servicer in
connection with an Asset Status Report (or otherwise) will be in each and every
case in accordance with the Servicing Standard and applicable law, and the
Special Servicer will be required to disregard the direction, or any failure to
approve or consent, of any party that would cause the Special Servicer to
violate the Servicing Standard or applicable law.
The "Directing Certificateholder" is the Controlling Class
Certificateholder selected by the majority Certificateholder of the Controlling
Class, as certified by the Trustee from time to time; provided, however, that
(i) absent such selection, or (ii) until a Directing Certificateholder is so
selected, or (iii) upon receipt of a notice from a majority of the Controlling
Class, by Certificate Balance, that a Directing Certificateholder is no longer
designated, the Controlling Class Certificateholder that owns the largest
aggregate Certificate Balance of the Controlling Class will be the Directing
Certificateholder.
A "Controlling Class Certificateholder" is each Holder (or Certificate
Owner, if applicable) of a Certificate of the Controlling Class as certified to
the Trustee from time to time by such Holder (or Certificate Owner).
The "Controlling Class" will be, as of any date of determination, the
outstanding Class of Sequential Pay Certificates with the lowest payment
priority (the Class A Certificates being treated as a single class for this
purpose) that has a then outstanding Certificate Balance at least equal to 25%
of its initial Certificate Balance (or, if no Class of Sequential Pay
Certificates has a Certificate Balance at least equal to 25% of its initial
Certificate Balance, then the Controlling Class shall be the outstanding Class
of Sequential Pay Certificates with the then largest outstanding Class principal
balance). The Controlling Class as of the Delivery Date will be the Class P
Certificates.
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Subject to the limitations below, the Directing Certificateholder is
entitled to advise the Special Servicer and Master Servicer with respect to the
following actions (the "Special Actions"). Neither the Special Servicer nor the
Master Servicer, as applicable, will be permitted to take any of the following
actions without complying with the Approval Provisions (as defined below)
(provided that if such response has not been received within such time period by
the Special Servicer or the Master Servicer, as applicable, then the required
party's approval will be deemed to have been given):
(i) any foreclosure upon or comparable conversion (which may include
acquisitions of an REO Property) of the ownership of properties securing
such of the Specially Serviced Mortgaged Loans as come into and continue in
default;
(ii) any modification or waiver of a term of a mortgage loan;
(iii) any proposed sale of a defaulted Mortgage Loan or REO Property
(other than in connection with the termination of the Trust Fund as
described under "Description of the Certificates--Termination" or pursuant
to a Purchase Option as described below under "--Defaulted Mortgage Loans;
Purchase Option" in this prospectus supplement);
(iv) any determination to bring an REO Property into compliance with
applicable environmental laws or to otherwise address hazardous materials
located at an REO Property;
(v) any acceptance of substitute or additional collateral for a
mortgage loan unless required by the underlying loan documents;
(vi) any waiver of a "due-on-sale" or "due-on-encumbrance" clause
(subject to certain exceptions set forth in the Pooling Agreement);
(vii) any acceptance or approval of acceptance or consent to
acceptance of an assumption agreement releasing a borrower from liability
under a mortgage loan (subject to certain exceptions set forth in the
Pooling Agreement);
(viii) any acceptance of any discounted payoffs;
(ix) any release of earnout reserve funds that are not automatic based
on the satisfaction of any requirements set forth in the related underlying
Mortgage Loan documentation; and
(x) the release of any letters of credit that are not automatic based
on the satisfaction of any requirements set forth in the related underlying
Mortgage Loan documentation.
The "Approval Provisions" mean the approvals and consents necessary in
connection with a Special Action or the extension of the maturity date of a
mortgage loan as described below:
(i) with respect to any Non-Specially Serviced Mortgage Loan, the
Master Servicer will be required to obtain the approval or consent of the
Special Servicer in connection with a Special Action;
(ii) with respect to (A) any Non-Specially Serviced Mortgage Loan that
involves an extension of the maturity date of such mortgage loan or (B) in
connection with a Special Action for any Mortgage Loan which is a
Non-Specially Serviced Mortgage Loan with a then Stated Principal Balance
in excess of $2,500,000, the Master Servicer will be required to obtain the
approval and consent of the Special Servicer and the Special Servicer will
be required to obtain the approval and consent of the Directing
Certificateholder; and
(iii) with respect to any Specially Serviced Mortgage Loan, the
Special Servicer will be required to seek the approval and consent of the
Directing Certificateholder in connection with a Special Action.
With respect to any extension or Special Action described in clause (ii) above,
the Special Servicer will respond to the Master Servicer of its decision to
grant or deny the Master Servicer's request for approval and consent within ten
Business Days of its receipt of such request and all information reasonably
requested by the Special Servicer as such time frame may be extended if the
Special Servicer is required to seek the consent of the Directing
Certificateholder or, if the consent of the
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Rating Agencies may be required. If the Special Servicer so fails to respond to
the Master Servicer within the time period referenced in the preceding sentence,
such approval and consent will be deemed granted. In addition in connection with
clause (ii), the Directing Certificateholder will respond to the Special
Servicer of its decision to grant or deny the Special Servicer's request for
approval and consent within ten Business Days of its receipt of such request.
With respect to any Special Action described in clause (iii) above, the
Directing Certificateholder will respond to the Special Servicer within ten
Business Days of its receipt of such request and such request will be deemed
granted if the Directing Certificateholder does not respond in such time frame.
The Directing Certificateholder may direct the Special Servicer to take, or
to refrain from taking, certain actions as the Directing Certificateholder, as
applicable, may deem advisable or as to which provision is otherwise made in the
Pooling Agreement; provided that no such direction and no objection contemplated
above or in this paragraph may require or cause the Special Servicer or the
Master Servicer, as applicable, to violate any REMIC provisions, any provision
of the Pooling Agreement or applicable law, including the Special Servicer's or
the Master Servicer's, as applicable, obligation to act in accordance with the
Servicing Standard or expose the Master Servicer, the Special Servicer, the
Trust Fund or the Trustee to liability, or materially expand the scope of the
Special Servicer's responsibilities under the Pooling Agreement or cause the
Special Servicer to act or fail to act in a manner which, in the reasonable
judgment of the Special Servicer, is not in the best interests of the
Certificateholders in which event the Special Servicer or the Master Servicer,
as applicable, shall disregard any such direction or objection.
The Directing Certificateholder will have no liability to the
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Pooling Agreement, or for errors in
judgment; provided, however, that the Directing Certificateholder, will not be
protected against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations or duties. By its acceptance of a
Certificate, each Certificateholder confirms its understanding that the
Directing Certificateholder may take actions that favor the interests of one or
more Classes of the Certificates over other Classes of the Certificates, and
that the Directing Certificateholder, may have special relationships and
interests that conflict with those of holders of some Classes of the
Certificates; and, absent willful misfeasance, bad faith or negligence on the
part of the Directing Certificateholder, each Certificateholder agrees to take
no action against the Directing Certificateholder or any of their respective
officers, directors, employees, principals or agents as a result of such a
special relationship or conflict.
At any time that there is no Directing Certificateholder, or that any such
party has not been properly identified to the Master Servicer Servicer and/or
the Special Servicer each such servicer will not have any duty to provide any
notice to or seek the consent or approval of such party with respect to any
matter.
The Master Servicer and Special Servicer will each be required to service
and administer any group of related Cross-Collateralized Mortgage Loans as a
single Mortgage Loan as and when it deems necessary and appropriate, consistent
with the Servicing Standard. If any Cross-Collateralized Mortgage Loan becomes a
Specially Serviced Mortgage Loan, then each other Mortgage Loan that is
cross-collateralized with it shall also become a Specially Serviced Mortgage
Loan. Similarly, no Cross-Collateralized Mortgage Loan shall subsequently become
a Corrected Mortgage Loan, unless and until all Servicing Transfer Events in
respect of each other Mortgage 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 Agreement relating to the servicing of the Mortgage Loans. Reference is
also made to the accompanying prospectus, in particular to the section captioned
"The Pooling and Servicing Agreements," for additional important information
regarding the terms and conditions of the Pooling Agreement as such terms and
conditions relate to the rights and obligations of the Master Servicer and the
Special Servicer thereunder.
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THE MASTER SERVICER
Bank of America, N.A. will be the Master Servicer. Bank of America, N.A.
will be the Master Servicer through its Capital Markets Servicing Group
("BOA-CMSG"), a division of Bank of America, N.A. BOA-CMSG's principal offices
are located at 555 S. Flower Street, 6th Floor, Los Angeles, California 90071.
BOA-CMSG was formed in 1994 as a result of the Security Pacific National Bank
and Bank of America NT&SA merger, combining term loan portfolios from bank
units, affiliates and the CMBS portfolio from the Bank of America NT&SA's trust
group. As a result of the merger between Bank of America NT&SA and NationsBank,
N.A., BOA-CMSG was reorganized to perform warehouse and primary servicing for
Bank of America N.A.'s conduit platform. As of December 31, 2003, BOA-CMSG acted
as a full, master or primary servicer on approximately 3,219 loans which total
approximately $17.8 billion. Bank of America, N.A. has been approved as a master
servicer by S&P, Moody's and Fitch.
The information set forth herein concerning the Master Servicer has been
provided by the Master Servicer. Neither the Depositor nor any Underwriter or
other person other than the Master Servicer makes any representation or warranty
as to the accuracy or completeness of such information.
THE SPECIAL SERVICER
Midland Loan Services, Inc. ("Midland") will be the Special Servicer under
the Pooling and Servicing Agreement, Midland, a wholly owned subsidiary of PNC
Bank, National Association was incorporated under the laws of the State of
Delaware in 1998. Its principle servicing offices are located at 10851 Mastin
Street Building 82, Suite 700, Overland Park, Kansas 66210. As of January 31,
2004, Midland was servicing approximately 13,219 commercial and multifamily
loans with an aggregate principal balance of approximately $84.4 billion. The
collateral for such loans is located in all 50 states, the District of Columbia,
Puerto Rico, Guam and Canada. With respect to those loans, approximately 8,629
of the loans, with an aggregate principal balance of approximately $61.4
billion, pertain to commercial and multifamily mortgage-backed securities. The
related loan pools include multifamily, office, retail, hospitality and other
income-producing properties. As of January 31, 2004, Midland was the named
special servicer in approximately 76 commercial mortgage-backed securities
transactions with an aggregate outstanding principal balance of approximately
$42.6 billion. With respect to such transactions as of such date, Midland was
administering approximately 136 assets with an outstanding principal balance of
approximately $944.5 million. Midland is approved as a master servicer, special
servicer and primary servicer for investment-grade rated commercial and
multifamily mortgage-backed securities rated by Moody's, Fitch and S&P and has
received the highest rankings as a master, primary and special servicer from S&P
and Fitch.
The information set forth herein concerning the Special Servicer has been
provided by the Special Servicer and neither the Depositor nor any Underwriter
makes any representation or warranty as to the accuracy or completeness of such
information.
SUB-SERVICERS
The Master Servicer and Special Servicer may each delegate its servicing
obligations in respect of the Mortgage 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 Agreement for such delegated duties. A majority of the Mortgage
Loans are currently being primary serviced by third-party servicers that are
entitled to and will become Sub-Servicers of such loans on behalf of the Master
Servicer. Each sub-servicing agreement between the Master Servicer or Special
Servicer, as the case may be, and a Sub-Servicer (each, a "Sub-Servicing
Agreement") must provide that, if for any reason the Master Servicer or Special
Servicer, as the case may be, is no longer acting in such capacity, the Trustee
or any successor to such Master Servicer or Special Servicer will assume such
party's rights and obligations under such Sub-Servicing Agreement if the
Sub-Servicer meets certain conditions set forth in the Pooling Agreement. The
Master Servicer and Special Servicer will each be required to monitor the
performance of Sub-Servicers retained by it.
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The Trust will not be responsible for any fees owed to any Sub-Servicer
retained by the Master Servicer or the Special Servicer. 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 Agreement. See "Servicing of the Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses" in this prospectus supplement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect of
its master servicing activities will be the Master Servicing Fee. Accordingly,
the Master Servicer or the Special Servicer, as the case may be, will be
entitled to receive the servicing fees and other forms of compensation as
described below.
The "Master Servicing Fee" will be payable monthly on a loan-by-loan basis
from amounts received in respect of interest on each Mortgage Loan (including
Specially Serviced Mortgage Loans, and Mortgage Loans as to which the related
Mortgaged Property has become an REO Property), for each calendar month
commencing with April 2004 or any applicable portion thereof, will accrue at the
applicable Master Servicing Fee Rate and will be computed on the same principal
amount as interest accrues from time to time during such calendar month (or
portion thereof) on such Mortgage Loan, or is deemed to accrue from time to time
during such calendar month (or portion thereof) on such REO Loan, as the case
may be, and shall be calculated on the same Interest Accrual Basis as is
applicable for such Mortgage Loan or REO Loan, as the case may be and without
giving effect to any Excess Interest that may accrue on the ARD Loan on or after
its Anticipated Repayment Date. The "Master Servicing Fee Rate" will range from
approximately 0.0300% to 0.1200% per annum, on a loan-by-loan basis, with a
weighted average Master Servicing Fee Rate of 0.0767% per annum as of the
Cut-off Date. As additional servicing compensation, the Master Servicer will be
entitled to retain Prepayment Interest Excesses (as described below) collected
on the Mortgage Loans. In addition, the Master Servicer will be authorized to
invest or direct the investment of funds held in any and all accounts maintained
by it that constitute part of the Certificate Account, in certain government
securities and other investment grade obligations specified in the Pooling
Agreement ("Permitted Investments"), and the Master 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,
except to the extent such losses are incurred solely as the result of the
insolvency of the federal or state chartered depository institution or trust
company that holds such investment accounts, so long as such depository
institution or trust company satisfied the qualifications set forth in the
Pooling Agreement in the definition of "eligible account" at the time such
investment was made.
If a borrower prepays a Mortgage 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 any Excess Interest)
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 Mortgage 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 Excess Interest)
on such prepayment will constitute a "Prepayment Interest Shortfall". Prepayment
Interest Excesses (to the extent not offset by Prepayment Interest Shortfalls)
collected on the Mortgage Loans will be retained by the Master Servicer as
additional servicing compensation. The Master Servicer will deliver to the
Trustee for deposit in the Distribution Account on each Master Servicer
Remittance Date, without any right of reimbursement thereafter, a cash payment
(a "Compensating Interest Payment") in an amount equal to the sum of (i) the
aggregate amount of Balloon Payment Interest Shortfalls, if any, incurred in
connection with Balloon Payments received in respect of the Mortgage Loans
during the most recently ended Collection Period, plus (ii) the lesser of (A)
the aggregate amount of Prepayment Interest Shortfalls, if any, incurred in
connection with principal prepayments
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received in respect of the Mortgage Loan during the most recently ended
Collection Period, and (B) the aggregate of (1) that portion of its Master
Servicing Fees for the related Collection Period that is, in the case of each
and every Mortgage Loan and REO Loan for which such Master Servicing Fees are
being paid in such Collection Period, calculated at 0.01% per annum, and (2) all
Prepayment Interest Excesses received in respect of the Mortgage Loans during
the most recently ended Collection Period, plus (iii) in the event that any
principal prepayment was received on the last Business Day of the second most
recently ended Collection Period, but for any reason was not included as part of
the Master Servicer Remittance Amount for the preceding Master Servicer
Remittance Date (other than because of application of the subject principal
prepayment for another purpose), the total of all interest and other income
accrued or earned on the amount of such principal prepayment while it is on
deposit with the Master Servicer. A "Balloon Payment Interest Shortfall" is,
with respect to any Balloon Loan with a Maturity Date that occurs after, or that
provides for a grace period for its Balloon Payment that runs past, the
Determination Date in any calendar month, and as to which the Balloon Payment is
actually received after the Determination Date in such calendar month (but no
later than its Maturity Date or, if there is an applicable grace period, beyond
the end of such grace period), the amount of interest, to the extent not
collected from the related Determination Date, that would have accrued on the
principal portion of such Balloon Payment during the period from the related
Maturity Date to, but not including, the first day of the calendar month
following the month of maturity (less the amount of related Master Servicing
Fees that would have been payable from that uncollected interest and, if
applicable, exclusive of any portion of that uncollected interest that would
have been Default Interest). In no event will the rights of the
Certificateholders to offset of the aggregate Prepayment Interest Shortfalls be
cumulative.
The principal compensation to be paid to the Special Servicer in respect of
its special servicing activities will be the Special Servicing Fee, the Workout
Fee and the Liquidation Fee. The "Special Servicing Fee" for any particular
calendar month or applicable portion thereof will accrue with respect to each
Specially Serviced Mortgage Loan and each Mortgage Loan as to which the related
Mortgaged Property has become an REO Property, at a rate equal (i) to 0.25% (25
basis points) per annum with respect to Mortgage Loans which have a then
outstanding Stated Principal Balance of less than twenty million dollars and
(ii) 0.15% (15 basis points) per annum with respect to Mortgage Loans which have
a then outstanding Stated Principal Balance equal to or greater than twenty
million dollars (the "Special Servicing Fee Rate"), on the same principal amount
as interest accrues from time to time during such calendar month (or portion
thereof) on such Specially Serviced Mortgage Loan or is deemed to accrue from
time to time during such calendar month (or portion thereof) on such REO Loan,
as the case may be, and shall be calculated on the same Interest Accrual Basis
as is applicable for such Specially Serviced Mortgage Loan or REO Loan, as the
case may be and without giving effect to any Excess Interest that may accrue on
the ARD Loan on or after its Anticipated Repayment Date. All such Special
Servicing Fees will be payable monthly from general collections on the Mortgage
Loans and any REO Properties on deposit in the Certificate Account from time to
time. A "Workout Fee" will in general be payable with respect to each Corrected
Mortgage Loan. As to each Corrected Mortgage Loan, the Workout Fee will be
payable out of, and will be calculated by application of a "Workout Fee Rate" of
(i) 1.0% (100 basis points) with respect to Mortgage Loans which have a then
outstanding Stated Principal Balance of less than twenty million dollars and
(ii) 0.75% (75 basis points) with respect to Mortgage Loans which have a then
outstanding Stated Principal Balance equal to or greater than twenty million
dollars to, each collection of interest (other than Default Interest (as defined
below)) and principal (including scheduled payments, prepayments, Balloon
Payments, Liquidation Proceeds (other than in connection with Liquidation
Proceeds paid by the Master Servicer, the Special Servicer, or the holder or
holders of Certificates evidencing a majority interest in such Controlling
Class) and payments at maturity) received on such Mortgage Loan for so long as
it remains a Corrected Mortgage Loan. The Workout Fee with respect to any
Corrected Mortgage Loan will cease to be payable if such loan again becomes a
Specially Serviced Mortgage 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 Mortgage Loan. If the Special
Servicer is terminated, resigns or is
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replaced, it shall retain the right to receive any and all Workout Fees payable
with respect to (i) any Mortgage Loans serviced by it that became Corrected
Mortgage Loans during the period that it acted as Special Servicer and were
still such at the time of such termination or resignation and (ii) (other than
if it was terminated for cause in which case only the preceding clause (i) shall
apply) any Specially Serviced Mortgage Loans for which the Special Servicer has
resolved all of the circumstances and/or conditions causing any such Mortgage
Loan to be a Specially Serviced Mortgage Loan but which had not as of the time
the Special Servicer was terminated become a Corrected Mortgage Loan solely
because the related mortgagor had not made three consecutive timely Monthly
Payments and which subsequently becomes a Corrected Mortgage Loan as a result of
the related mortgagor making such three consecutive timely monthly payments (and
the successor to the 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 Mortgage Loan as to
which the Special Servicer obtains a full or discounted payoff or unscheduled or
partial payments in lieu thereof with respect thereto from the related borrower
and, except as otherwise described below, with respect to any Specially Serviced
Mortgage Loan or REO Property as to which the Special Servicer receives any
Liquidation Proceeds, Insurance Proceeds or Condemnation Proceeds. As to each
such Specially Serviced Mortgage Loan and REO Property, the Liquidation Fee will
be payable from, and will be calculated by application of a "Liquidation Fee
Rate" of (i) 1.0% (100 basis points) with respect to Mortgage Loans which have a
then outstanding Stated Principal Balance of less than twenty million dollars
and (ii) 0.75% (75 basis points) with respect to Mortgage Loans which have a
then outstanding Stated Principal Balance equal to or greater than twenty
million dollars to, the related payment or proceeds (other than any portion
thereof that represents accrued but unpaid Excess Interest or Default Interest).
Notwithstanding anything to the contrary described above, no Liquidation Fee
will be payable based on, or out of, Liquidation Proceeds received in connection
with (i) the repurchase of any Mortgage Loan by the Mortgage Loan Seller, for a
breach of representation or warranty or for defective or deficient Mortgage Loan
documentation so long as such repurchase occurs within the time frame set forth
in the Pooling Agreement, (ii) the purchase of any Specially Serviced Mortgage
Loan by the Master Servicer, the Special Servicer, any holder or holders of
Certificates evidencing a majority interest in the Controlling Class, or any
mezzanine lender which purchase occurs not later than 90 days following the
Special Servicer's determination of fair value, as discussed below in
"--Defaulted Mortgage Loans; Purchase Option", or (iii) the purchase of all of
the Mortgage Loans and REO Properties by the Master Servicer, the Special
Servicer or any holder or holders of Certificates evidencing a majority interest
in the Controlling Class in connection with the termination of the Trust. The
Special Servicer will be authorized to invest or direct the investment of funds
held in any accounts maintained by it that constitute part of the Certificate
Account, in Permitted Investments, and the Special Servicer will be entitled to
retain any interest or other income earned on such funds, but will be required
to cover any losses from its own funds without any right to reimbursement.
The Master Servicer and the Special Servicer will each be responsible for
the fees of any Sub-Servicers retained by it (without right of reimbursement
therefor). As additional servicing compensation, the Master Servicer and the
Special Servicer, as set forth in the Pooling Agreement, generally will be
entitled to retain all assumption and modification fees, 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 Mortgage Loans (and, accordingly,
such amounts will not be available for distribution to Certificateholders). In
addition, the Master Servicer as to Non-Specially Serviced Mortgage Loans and
the Special Servicer as to Specially Serviced Mortgage Loans will also be
entitled to retain as additional servicing compensation "Default Interest" (that
is, interest (other than Excess Interest) in excess of interest at the related
Mortgage Rate accrued as a result of a default) and late payment charges (late
payment charges and Default Interest are referred to in this prospectus
supplement as "Default Charges") only after such Default Charges has been
applied: (1) to pay the Master Servicer, the Special Servicer, the Trustee or
the Fiscal Agent, as applicable, any unpaid interest on advances made by that
party with respect to any REO Loan or Mortgage Loan in the Mortgage Pool, (2) to
reimburse the Trust Fund for any interest on advances that were made
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with respect to any Mortgage Loan, since the Delivery Date during the 12-month
period preceding receipt of such Default Charges, which interest was paid to the
Master Servicer, the Special Servicer, the Trustee or the Fiscal Agent, as
applicable, from a source of funds other than Default Charges collected on the
Mortgage Pool, (3) to reimburse the Special Servicer for Servicing Advances made
for the cost of inspection on a Specially Serviced Mortgage Loan and (4) to pay,
or to reimburse the Trust Fund for, any other Additional Trust Fund Expenses
incurred with respect to any Mortgage Loan during the 12-month period preceding
receipt of such Default Charges, which expense if paid from a source of funds
other than Default Charges collected on the Mortgage Pool, is or will be an
Additional Trust Fund Expense. Any Default Charges remaining after the
application described in the immediately preceding clause (1) through (4) will
be allocated as Additional Servicing Compensation between the Master Servicer
and the Special Servicer as set forth in the Pooling Agreement. The Master
Servicer (except to the extent the Sub-Servicers are entitled thereto pursuant
to the applicable Sub-Servicing Agreement) (or, with respect to accounts held by
the Special Servicer, the Special Servicer) shall be entitled to receive all
amounts collected for checks returned for insufficient funds with respect to the
Mortgage Loans as additional servicing compensation. In addition, collections on
a Mortgage Loan are to be applied to interest (at the related Mortgage Rate) and
principal then due and owing prior to being applied to Default Charges. The
Master Servicer (or if applicable a Sub-Servicer) may grant a one time waiver of
Default Charges in connection with a late payment by a borrower provided that
for any waiver thereafter with respect to any loan that is 30 days or more past
due and with respect to which Advances, Advance Interest or Additional Trust
Fund Expenses (including any Additional Trust Fund Expense previously reimbursed
or paid by the Trust Fund, but not so reimbursed by the related mortgagor or
other party from Insurance Proceeds, Condemnation Proceeds or otherwise) that
have been incurred and are outstanding, the Master Servicer must seek the
consent of the Directing Certificateholder.
The Master Servicer and the Special Servicer will, in general, each be
required to pay its expenses incurred by it in connection with its servicing
activities under the Pooling Agreement, and neither will be entitled to
reimbursement therefor except as expressly provided in the Pooling 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 Mortgage 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 (subject to recoverability), 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 Mortgage 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 Special Servicer will be required to direct the Master Servicer to
make Servicing Advances (which include certain Servicing Advances that must be
made within five Business Days in order to avoid a material adverse consequence
to the Trust Fund (any such Advance, an "Emergency Advance")); provided that the
Special Servicer may, at its option, make such Servicing Advance itself
(including Emergency Advances). The Special Servicer is, however, obligated to
make any Servicing Advance with respect to Specially Serviced Mortgage Loans and
REO Properties which it fails to timely request the Master Servicer to make. The
Special Servicer may no more than once per calendar month require the Master
Servicer to reimburse it for any Servicing Advance (including an Emergency
Advance) made by the Special Servicer (after reimbursement, such Servicing
Advance will be deemed to have been made by the Master Servicer) to the extent
such Servicing Advance is not a Nonrecoverable Advance. The Special Servicer
will be relieved of any obligations with respect to a Servicing Advance that it
timely requests the Master Servicer to make (regardless of whether or not the
Master Servicer makes that Advance).
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If the Master Servicer or the Special Servicer is required under the
Pooling Agreement to make a Servicing Advance, but neither does so within 10
days after such Advance is required to be made, then the Trustee will, if it has
actual knowledge of such failure, be required to give the Master Servicer or
Special Servicer, as the case may be, notice of such failure and, if such
failure continues for three more business days, the Trustee will be required to
make such Servicing Advance. If the Trustee fails to make such Servicing
Advance, then the Fiscal Agent will make such Servicing Advance.
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 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 Trustee and the Fiscal
Agent will be permitted to rely on any nonrecoverability determination made by
the Master Servicer or the Special Servicer.
The foregoing paragraph notwithstanding, the Master Servicer may, including
at the direction of the Special Servicer, if a Specially Serviced Mortgage Loan
or an REO Property is involved, 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 Mortgage Loan or an
REO Property is involved) has determined in accordance with the Servicing
Standard that making such payment is in the best interests of the
Certificateholders (as a collective whole), as evidenced by an officer's
certificate delivered promptly to the Trustee, the Depositor and the Rating
Agencies, setting forth the basis for such determination and accompanied by any
supporting information the Master Servicer or the Special Servicer may have
obtained.
As and to the extent described herein, the Master Servicer, the Special
Servicer, the Trustee and the Fiscal Agent are each entitled to receive interest
at the Reimbursement Rate (compounded monthly) on Servicing Advances made
thereby. See "The Pooling and Servicing Agreements-- Certificate Account" and
"--Servicing Compensation and Payment of Expenses" in the accompanying
prospectus and "Description of the Certificates--P&I Advances" in this
prospectus supplement.
EVIDENCE AS TO COMPLIANCE
On or before April 30 of each year, beginning 2005 (or, as to any such
year, such earlier date as is contemplated by the Pooling Agreement), each of
the Master Servicer and the Special Servicer, at its expense, shall cause a firm
of independent public accountants (which may also render other Services to the
Master Servicer or the Special Servicer, as the case may be) and that is a
member of the American Institute of Certified Public Accountants, to furnish a
statement to the Depositor and the Trustee to the effect that (i) it has
obtained a letter of representation regarding certain matters from the
management of the Master Servicer and the Special Servicer, as the case may be,
which includes an assertion that the Master Servicer and the Special Servicer,
as the case may be, has complied with certain minimum mortgage loan servicing
standards (to the extent applicable to commercial and multifamily mortgage
loans) identified in the Uniform Single Association Program for Mortgage Bankers
established by the Mortgage Bankers Association of America, with respect to the
servicing of commercial and multifamily mortgage loans during the most recently
completed calendar year and (ii) on the basis of an examination conducted by
such firm in accordance with standards established by the American Institute of
Certified Public Accountants, such representation is fairly stated in all
material respects, subject to such exceptions and other qualifications that may
be appropriate. In rendering its report such firm may rely, as to matters
relating to the direct servicing of commercial and multifamily 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 (rendered within one year of such report) with respect to
those sub-servicers.
The Pooling Agreement also requires that, on or before a specified date in
each year, commencing in 2005, each of the Master Servicer and the Special
Servicer deliver to the Trustee a
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statement signed by one or more officers thereof to the effect that the Master
Servicer or Special Servicer, as the case may be, has fulfilled its material
obligations under the Pooling Agreement in all material respects throughout the
preceding calendar year or the portion thereof during which the Certificates
were outstanding.
MODIFICATIONS, WAIVERS, AMENDMENTS AND CONSENTS
The Master Servicer (as to Mortgage Loans which are not Specially Serviced
Mortgage Loans (each a "Non-Specially Serviced Mortgage Loan")) subject to
obtaining the consent of the Special Servicer and the Special Servicer (as to
Specially Serviced Mortgage Loans subject to the requirements regarding the
resolution of Defaulted Mortgage Loans described below under "--Defaulted
Mortgage Loans; Purchase Option" in this prospectus supplement) 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
Mortgage Loan it is required to service and administer, without the consent of
the Trustee, subject, however, to the rights of consent provided to the
Directing Certificateholder and to each of the following limitations, conditions
and restrictions:
(i) with limited exception (including as described below with respect
to Excess Interest) the Master Servicer shall not agree to any
modification, waiver or amendment of any term of, or take any of the other
above referenced acts with respect to, any Mortgage Loan, that would affect
the amount or timing of any related payment of principal, interest or other
amount payable under such Mortgage Loan or affect the security for such
Mortgage Loan, unless the Master Servicer has obtained the consent of the
Special Servicer (it being understood and agreed that (A) the Master
Servicer shall promptly provide the Special Servicer with notice of any
borrower request for such modification, waiver or amendment, the Master
Servicer's recommendations and analysis, and with all information
reasonably available to the Master Servicer that the Special Servicer may
reasonably request in order to withhold or grant any such consent, each of
which shall be provided reasonably promptly in accordance with the
Servicing Standard, (B) the Special Servicer shall decide whether to
withhold or grant such consent in accordance with the Servicing Standard
and (C) if any such consent has not been expressly responded to within ten
business days of the Special Servicer's receipt from the Master Servicer of
the Master Servicer's recommendations and analysis and all information
reasonably requested thereby as such time frame may be extended if the
Special Servicer is required to seek the consent of the Directing
Certificateholder, or the Rating Agencies, as the case may be in order to
make an informed decision (or, if the Special Servicer did not request any
information, within ten business days from such notice), such consent shall
be deemed to have been granted);
(ii) with limited exception the Special Servicer may not agree to (or
in the case of a Non-Specially Serviced Mortgage Loan, consent to the
Master Servicer's agreeing to) any modification, waiver or amendment of any
term of, or take (or in the case of a Non-Specially Serviced Mortgage Loan,
consent to the Master Servicer's taking) any of the other above referenced
actions with respect to, any Mortgage 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
reasonable judgment of the Special Servicer would materially impair the
security for such Mortgage Loan, unless a material default on such Mortgage
Loan has occurred or, in the reasonable judgment of the Special Servicer, a
default in respect of payment on such Mortgage Loan is reasonably
foreseeable, and such modification, waiver, amendment or other action is
reasonably likely to produce a greater recovery to Certificateholders
(collectively) on a net present value basis than would liquidation as
certified to the Trustee in an officer's certificate;
(iii) the Special Servicer shall not extend (or in the case of a
Non-Specially Serviced Mortgage Loan, consent to the Master Servicer's
extending) the date on which any Balloon Payment is scheduled to be due on
any Mortgage Loan beyond the earliest of (A) two years
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prior to the Rated Final Distribution Date and (B) if such Mortgage Loan is
secured by a Mortgage solely or primarily on the related mortgagor's
leasehold interest in the related Mortgaged Property, 20 years (or, to the
extent consistent with the Servicing Standard, giving due consideration to
the remaining term of the ground lease, 10 years) prior to the end of the
then current term of the related ground lease (plus any unilateral options
to extend);
(iv) neither the Master Servicer nor the Special Servicer shall 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 Mortgage Loan
that would result in an adverse REMIC event with respect to either REMIC I
or REMIC II;
(v) subject to applicable law, the related Mortgage Loan documents and
the Servicing Standard, neither the Master Servicer nor the Special
Servicer shall permit any modification, waiver or amendment of any term of
any Mortgage Loan or Whole Loan unless all related fees and expenses are
paid by the related borrower;
(vi) except for substitutions contemplated by the terms of the
Mortgage Loans, the Special Servicer shall not permit (or, in the case of a
Non-Specially Serviced Mortgage Loan, consent to the Master Servicer's
permitting) any borrower to add or substitute real estate collateral for
its Mortgage Loan unless the Special Servicer shall have first determined
in its reasonable judgment, based upon a Phase I environmental assessment
(and any 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;
(vii) with limited exceptions, including a permitted defeasance as
described above under "Description of the Mortgage Pool--Certain Terms and
Conditions of the Mortgage Loans-- Defeasance" in this prospectus
supplement and specific releases contemplated by the terms of the mortgage
loans in effect on the Delivery Date, the Special Servicer shall not
release (or, in the case of a Non-Specially Serviced Mortgage Loan, consent
to the Master Servicer's releasing), including in connection with a
substitution contemplated by clause (vi) above, any collateral securing an
outstanding Mortgage Loan; except where a Mortgage Loan (or, in the case of
a group of Cross-Collateralized Mortgage Loans, where such entire group of
Cross-Collateralized Mortgage Loans) is satisfied, or except in the case of
a release where (A) either (1) the use of the collateral to be released
will not, in the reasonable judgment of the Special Servicer, materially
and adversely affect the net operating income being generated by or the use
of the related Mortgaged Property, or (2) there is a corresponding
principal pay down of such Mortgage Loan in an amount at least equal to the
appraised value of the collateral to be released (or substitute collateral
with an appraised value at least equal to that of the collateral to be
released, is delivered), (B) the remaining Mortgaged Property (together
with any substitute collateral) is, in the Special Servicer's reasonable
judgment, adequate security for the remaining Mortgage Loan and (C) such
release would not, in and of itself, result in an adverse rating event with
respect to any Class of Offered Certificates (as confirmed in writing to
the Trustee by each Rating Agency);
provided that the limitations, conditions and restrictions set forth in clauses
(i) through (vii) above shall not apply to any act or event (including, without
limitation, a release, substitution or addition of collateral) in respect of any
Mortgage Loan that either occurs automatically, or results from the exercise of
a unilateral option by the related mortgagor within the meaning of Treasury
Regulations Section 1.1001-3(c)(2)(iii), in any event under the terms of such
Mortgage Loan in effect on the Delivery Date (or, in the case of a replacement
Mortgage Loan, on the related date of substitution); and provided, further,
that, notwithstanding clauses (i) through (vii) above, neither the Master
Servicer nor the Special Servicer shall be required to oppose the confirmation
of a plan in any bankruptcy or similar proceeding involving a mortgagor if, in
its reasonable judgment, such
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opposition would not ultimately prevent the confirmation of such plan or one
substantially similar; and provided, further, that, notwithstanding clause (vii)
above, neither the Master Servicer nor the Special Servicer shall be required to
obtain any confirmation of the Certificate ratings from the Rating Agencies in
order to grant easements that do not materially affect the use or value of a
Mortgaged Property or the mortgagor's ability to make any payments with respect
to the related Mortgage Loan.
With respect to the ARD Loan, the Master Servicer will be permitted to
waive all or any accrued Excess Interest if, prior to the related maturity date,
the related borrower has requested the right to prepay such Mortgage Loan in
full together with all other payments required by such Mortgage Loan in
connection with such prepayment except for all or a portion of accrued Excess
Interest, provided that the Master Servicer's determination to waive the right
to such accrued Excess Interest is reasonably likely to produce a greater
payment to Certificateholders on a present value basis than a refusal to waive
the right to such Excess Interest. Any such waiver will not be effective until
such prepayment is tendered. The Master Servicer will have no liability to the
Trust, the Certificateholders or any other person so long as such determination
is based on such criteria. Notwithstanding the foregoing, pursuant to the
Pooling Agreement, the Master Servicer will be required to seek the consent of
the Directing Certificateholder prior to waiving any Excess Interest. The
Directing Certificateholder's consent to a waiver request will be deemed granted
if the Directing Certificateholder fails to respond to such request within ten
business days of its receipt of such request. Except as permitted by clauses (i)
through (vi) of the preceding paragraph, the Special Servicer will have no right
to waive the payment or Excess Interest.
The Master Servicer will not be required to seek the consent of any
Certificateholder in order to approve certain minor or routine modifications,
waivers or amendments of the Mortgage Loans, including waivers of minor covenant
defaults, releases of non-material parcels of a Mortgaged Property, grants of
easements that do not materially affect the use or value of a Mortgaged Property
or a borrower's ability to make any payments with respect to the related
Mortgage Loan and other routine approvals including the granting of
subordination, non-disturbance and attornment agreements and leasing consents,
typically performed by a master servicer on a routine basis; provided that any
such modification, waiver or amendment may not affect a payment term of the
Certificates, constitute a "significant modification" of such Mortgage Loan
pursuant to Treasury Regulations Section 1.860G-2(b) or otherwise have an
adverse REMIC effect, be inconsistent with the Servicing Standard, or violate
the terms, provisions or limitations of the Pooling Agreement.
DEFAULTED MORTGAGE LOANS; PURCHASE OPTION
Within 30 days after a Mortgage Loan becomes a Defaulted Mortgage Loan, the
Special Servicer will be required to determine the fair value of the Mortgage
Loan in accordance with the Servicing Standard. The Special Servicer will be
permitted to change, from time to time thereafter, its determination of the fair
value of a Defaulted Mortgage Loan based upon changed circumstances, or new
information, in accordance with the Servicing Standard. A "Defaulted Mortgage
Loan" is a Mortgage Loan (i) that is delinquent 60 days or more in respect to a
Monthly Payment (not including the Balloon Payment) or (ii) is delinquent in
respect of its Balloon Payment unless the Master Servicer has, on or prior to
the due date of such Balloon Payment, received written evidence from an
institutional lender of such lender's binding commitment to refinance such
Mortgage Loan within 60 days after the due date of such Balloon Payment
(provided that if such refinancing does not occur during such time specified in
the commitment, the related Mortgage Loan will immediately become a Defaulted
Mortgage Loan), in either case such delinquency to be determined without giving
effect to any grace period permitted by the related Mortgage or Mortgage Note
and without regard to any acceleration of payments under the related Mortgage
and Mortgage Note, or (iii) as to which the Master Servicer or Special Servicer
has, by written notice to the related mortgagor, accelerated the maturity of the
indebtedness evidenced by the related Mortgage Note.
In the event a Mortgage Loan becomes a Defaulted Mortgage Loan, any
majority Certificateholder of the Controlling Class or the Special Servicer will
each have an assignable option (such option will only be assignable after such
option arises) (a "Purchase Option") to purchase the
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Defaulted Mortgage Loan from the Trust Fund at a price (the "Option Price")
generally equal to (i) the unpaid principal balance of the Defaulted Mortgage
Loan, plus accrued and unpaid interest on such balance, all related unreimbursed
Advances (and interest on Advances), and all accrued Master Servicing Fees,
Special Servicing Fees, Trustee Fees and Additional Trust Fund Expenses
allocable to such Defaulted Mortgage Loan whether paid or unpaid, if the Special
Servicer has not yet determined the fair value of the Defaulted Mortgage Loan,
or (ii) the fair value of the Defaulted Mortgage Loan as determined by the
Special Servicer, if the Special Servicer has made such fair value
determination. The Special Servicer will, from time to time, but not less often
than every ninety (90) days, adjust its fair value determination based upon
changed circumstances, new information, and other relevant factors, in each
instance in accordance with the Servicing Standard. The majority
Certificateholder of the Controlling Class may have an exclusive right to
exercise the Purchase Option for a specified period of time.
Unless and until the Purchase Option with respect to a Defaulted Mortgage
Loan is exercised, the Special Servicer will be required to pursue such other
resolution strategies available under the Pooling Agreement, consistent with the
Servicing Standard, but the Special Servicer will not be permitted to sell the
Defaulted Mortgage Loan other than pursuant to the exercise of the Purchase
Option.
If not exercised sooner, the Purchase Option with respect to any Defaulted
Mortgage Loan will automatically terminate upon (i) the related mortgagor's cure
of all related defaults on the Defaulted Mortgage Loan, (ii) the acquisition on
behalf of the Trust Fund of title to the related Mortgaged Property by
foreclosure or deed in lieu of foreclosure or (iii) the modification or pay-off
(full or discounted) of the Defaulted Mortgage Loan in connection with a
workout. In addition, the Purchase Option with respect to a Defaulted Mortgage
Loan held by any person will terminate upon the exercise of the Purchase Option
by any other holder of a Purchase Option.
If (a) a Purchase Option is exercised with respect to a Defaulted Mortgage
Loan and the person expected to acquire the Defaulted Mortgage Loan pursuant to
such exercise is the majority Certificateholder of the Controlling Class, the
Special Servicer, or any affiliate of any of them (in other words, the Purchase
Option has not been assigned to another unaffiliated person) and (b) the Option
Price is based on the Special Servicer's determination of the fair value of the
Defaulted Mortgage Loan, then the determination of whether the Option Price
represents a fair value of the Defaulted Mortgage Loan will be made in the
manner set forth in the Pooling Agreement.
If title to any Mortgaged Property is acquired by the Trustee on behalf of
the Certificateholders pursuant to foreclosure proceedings instituted by the
Special Servicer or otherwise, the Special Servicer, after notice to the
Directing Certificateholder, shall use its reasonable efforts to sell any REO
Property as soon as practicable in accordance with the Servicing Standard but
prior to the end of the 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) it obtains an opinion of counsel generally
to the effect that the holding of the property for more than three years after
the end of the calendar year in which it was acquired will not result in the
imposition of a tax on the Trust Fund or cause any REMIC created pursuant to the
Pooling Agreement to fail to qualify as a REMIC under the Code. If the Special
Servicer on behalf of the Trustee has not received an REO Extension or such
Opinion of Counsel and the Special Servicer is not able to sell such REO
Property within the period specified above, or if an REO Extension has been
granted and the Special Servicer is unable to sell such REO Property within the
extended time period, the Special Servicer shall auction the property pursuant
to the auction procedure set forth below.
The Special Servicer shall give the Directing Certificateholder, the Master
Servicer, the Trustee and the Fiscal Agent not less than five days' prior
written notice of its intention to sell any such REO Property, and shall sell
the REO Property to the highest offeror (which may be the Special Servicer) in
accordance with the Servicing Standard; provided, however, that the Master
Servicer, Special Servicer, holder (or holders) of Certificates evidencing a
majority interest in the Controlling Class, any independent contractor engaged
by the Master Servicer or the Special Servicer pursuant to the Pooling Agreement
(or any officer or affiliate thereof) shall not be permitted to purchase the
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REO Property at a price less than the outstanding principal balance of such
Mortgage Loan as of the date of purchase, plus all accrued but unpaid interest
and related fees and expenses, except in limited circumstances set forth in the
Pooling Agreement; and provided, further that if the Special Servicer intends to
make an offer on any REO Property, (i) the Special Servicer shall notify the
Trustee of such intent, (ii) the Trustee or an agent on its behalf shall
promptly obtain, at the expense of the Trust an appraisal of such REO Property
and (iii) the Special Servicer shall not offer less than (x) the fair market
value set forth in such appraisal or (y) the outstanding principal balance of
such Mortgage Loan, plus all accrued but unpaid interest and related fees and
expenses and unreimbursed Advances and interest on Advances.
Subject to the REMIC provisions, the Special Servicer shall act on behalf
of the Trust in negotiating and taking any other action necessary or appropriate
in connection with the sale of any REO Property or the exercise of the Purchase
Option, including the collection of all amounts payable in connection therewith.
Notwithstanding anything to the contrary herein, neither the Trustee, in its
individual capacity, nor any of its Affiliates may bid for any REO Property or
purchase any Defaulted Mortgage Loan. Any sale of a Defaulted Mortgage Loan
(pursuant to the Purchase Option) or REO Property shall be without recourse to,
or representation or warranty by, the Trustee, the Fiscal Agent, the Depositor,
any Mortgage Loan Seller, the Special Servicer, the Master Servicer or the Trust
other than customary representations and warranties of title, condition and
authority (if liability for breach thereof is limited to recourse against the
Trust). Notwithstanding the foregoing, nothing herein shall limit the liability
of the Master Servicer, the Special Servicer, the Fiscal Agent or the Trustee to
the Trust and the Certificateholders for failure to perform its duties in
accordance herewith. None of the Special Servicer, the Master Servicer, the
Depositor, the Fiscal Agent or the Trustee shall have any liability to the Trust
or any Certificateholder with respect to the price at which a Defaulted Mortgage
Loan is sold if the sale is consummated in accordance with the terms of the
Pooling Agreement.
REO PROPERTIES
In general, the Special Servicer will be obligated to cause any Mortgaged
Property acquired as REO Property to be operated and managed 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, would not constitute
"rents from real property," or that all of such income would fail to so qualify
if a separate charge is not stated for such non-customary services or such
services are not performed by an independent contractor. In addition to the
foregoing, any net income from a trade or business operated or managed by an
independent contractor on a Mortgaged Property owned by REMIC I, such as a hotel
or self-storage facility, 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 such REMIC 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
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the Net REO Proceeds available for distribution to holders of Certificates. See
"Certain Federal Income Tax Consequences--REMICs--Prohibited Transactions Tax
and Other Taxes" in the accompanying prospectus.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
Commencing in 2005, 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 Mortgage Loans)
at least once every two years (or, if the related Mortgage Loan has a
then-current balance greater than $2,000,000, at least once every year) (or an
entity employed by the Master Servicer for such purpose). 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
Mortgage Loan is transferred thereto and will be required to perform a yearly
physical inspection of each such Mortgaged Property so long as the related
Mortgage Loan is a Specially Serviced Mortgage Loan. The Special Servicer will
be entitled to receive reimbursement for such expense as a Servicing Advance
payable, first from Default Charges and then from general collections. The
Special Servicer and the Master Servicer will each be required to prepare (or
cause to be prepared) as soon as reasonably possible a written report of each
such inspection performed thereby describing the condition of the Mortgaged
Property.
With respect to each Mortgage Loan that requires the borrower to deliver
quarterly, annual or other periodic operating statements with respect to the
related Mortgaged Property, the Master Servicer or the Special Servicer,
depending on which is obligated to service such Mortgage 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 Mortgage Loan.
TERMINATION OF THE SPECIAL SERVICER
The holder or holders of Certificates evidencing a majority interest in the
Controlling Class may at any time replace any Special Servicer. Such holder(s)
shall designate a replacement to so serve by the delivery to the Trustee of a
written notice stating such designation. The Trustee shall, promptly after
receiving any such notice, so notify the Rating Agencies. 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 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 Agreement, that the designated replacement will
be bound by the terms of the Pooling Agreement and that the Pooling 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 Agreement.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Depositor will issue its Commercial Mortgage Pass-Through Certificates,
Series 2004-2, on or about April 14, 2004 (the "Delivery Date") pursuant to a
Pooling and Servicing Agreement, dated as of April 1, 2004, among the Depositor,
the Master Servicer, the Special Servicer, the Trustee, the REMIC Administrator
and the Fiscal Agent (the "Pooling Agreement").
The Offered Certificates, together with the Private Certificates, will
represent in the aggregate the entire beneficial interest in a trust (the
"Trust"), the assets of which (such assets collectively, the "Trust Fund")
include: (i) the Mortgage Loans and all payments thereunder and proceeds thereof
due or received after the Cut-off Date (exclusive of payments of principal,
interest and other amounts due thereon on or before the Cut-off Date); (ii) any
REO Properties; and (iii) such funds or assets as from time to time are
deposited in the Certificate Account, the Interest Reserve Account and the
Excess Interest Distribution Account (see "The Pooling and Servicing
Agreements-- Certificate Account" in the accompanying prospectus).
The Certificates will consist of 23 classes to be designated as: (i) the
Class A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates,
the Class A-4 Certificates and the Class A-5 Certificates (collectively, the
"Class A Certificates" and together with the Class XC Certificates and the Class
XP Certificates, the "Senior Certificates"); (ii) the Class B Certificates, the
Class C Certificates, the Class D Certificates, the Class E Certificates, the
Class F Certificates, the Class G Certificates, the Class H Certificates, the
Class J Certificates, the Class K Certificates, the Class L Certificates, the
Class M Certificates, the Class N Certificates, the Class O Certificates and the
Class P Certificates (collectively with the Class A Certificates, the
"Sequential Pay Certificates"); (iii) the Class XC Certificates and the Class XP
Certificates (collectively, the "Class X Certificates", and collectively with
the Sequential Pay Certificates, the "REMIC II Certificates"); and (iv) the
Class R-I Certificates and the Class R-II Certificates, (the Class R-I and Class
R-II Certificates collectively, the "REMIC Residual Certificates"). Only the
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class XP, Class B, Class
C, Class D and Class E Certificates (collectively, the "Offered Certificates")
are offered hereby. Each Class of Certificates is sometimes referred to in this
prospectus supplement as a "Class".
The Class XC, Class F, Class G, Class H, Class J, Class K, Class L, Class
M, Class N, Class O, Class P, and the REMIC Residual Certificates (collectively,
the "Private Certificates") have not been registered under the Securities Act
and are not offered hereby. Accordingly, to the extent this prospectus
supplement contains information regarding the terms of the Private Certificates,
such information is provided because of its potential relevance to a prospective
purchaser of an Offered Certificate.
REGISTRATION AND DENOMINATIONS
The Offered Certificates will be issued in book-entry format in
denominations of: (i) in the case of the Class A-1, Class A-2, Class A-3, Class
A-4 and Class A-5 Certificates, $10,000 actual principal amount and in any whole
dollar denomination in excess thereof (ii) in the case of the Class XP
Certificates, $1,000,000 notional amount and in any whole dollar denomination in
excess thereof and (iii) in the case of the other Offered Certificates, $100,000
actual principal amount and in any whole dollar denomination in excess thereof.
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"). The Depositor has been informed by DTC 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
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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 its participating organizations (its
"Participants"), and 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, and 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 to 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 receipt of payments by an investor and
may restrict an investor's ability to pledge its securities. See "Description of
the Certificates--Book-Entry Registration and Definitive Certificates" in the
accompanying prospectus.
The Trustee will initially serve as registrar (in such capacity, the
"Certificate Registrar") for purposes of recording and otherwise providing for
the registration of the Offered Certificates, and of transfers and exchanges of
the Offered Certificates.
CERTIFICATE BALANCES AND NOTIONAL AMOUNT
On the Delivery Date, the respective classes of Certificates described
below will have the following characteristics as described in the immediately
below table (in each case, subject to a variance of plus or minus 10%):
APPROXIMATE
CERTIFICATE PERCENTAGE OF APPROXIMATE
BALANCE OR POOL CREDIT
CLASS NOTIONAL AMOUNT BALANCE SUPPORT
- -------------------- ----------------------- --------------- ------------
A-1 .............. $ 76,756,000 6.740% 14.250%
A-2 .............. $ 236,527,000 20.771% 14.250%
A-3 .............. $ 283,402,000 24.887% 14.250%
A-4 .............. $ 125,682,000 11.037% 14.250%
A-5 .............. $ 254,120,181 22.316% 14.250%
XP ............... $ 1,104,576,380(1) N/A N/A
B ................ $ 27,045,564 2.375% 11.875%
C ................ $ 12,811,056 1.125% 10.750%
D ................ $ 24,198,662 2.125% 8.625%
E ................ $ 11,387,606 1.000% 7.625%
F ................ $ 15,657,957 1.375% 6.250%
G ................ $ 9,964,155 0.875% 5.375%
H ................ $ 15,657,958 1.375% 4.000%
J ................ $ 4,270,352 0.375% 3.625%
K ................ $ 5,693,803 0.500% 3.125%
L ................ $ 5,693,803 0.500% 2.625%
M ................ $ 7,117,253 0.625% 2.000%
N ................ $ 2,846,901 0.250% 1.750%
O ................ $ 2,846,901 0.250% 1.500%
P ................ $ 17,081,410 1.500% 0.000%
XC ............... $ 1,138,760,562(1) N/A N/A
- ------------
(1) Notional Amount.
The "Certificate Balance" of any Class of Sequential Pay Certificates
outstanding at any time will be the then aggregate stated principal amount
thereof. On each Distribution Date, the Certificate Balance of each Class of
Sequential Pay Certificates will be reduced by any distributions of principal
actually made on such Class on such Distribution Date, and will be further
reduced by any Realized Losses and certain Additional Trust Fund Expenses
allocated to such Class on such Distribution Date. See "--Distributions" and
"--Subordination; Allocation of Losses and Certain Expenses" below.
The Class XC and Class XP Certificates will not have Certificate Balances.
For purposes of calculating the amount of accrued interest, however, each of
those classes will have a Notional Amount (a "Notional Amount").
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The Notional Amount of the Class XC Certificates will equal the aggregate
Certificate Balances of the Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class B, Class C, Class D, Class E, Class F, Class G, Class H, Class J,
Class K, Class L, Class M, Class N, Class O and Class P Certificates outstanding
from time to time. The total initial Notional Amount of the Class XC
Certificates will be approximately $1,138,760,562, although it may be as much as
10% larger or smaller.
The Notional Amount of the Class XP Certificates will equal:
o during the period following the initial issuance of the Certificates
through and including the Distribution Date in October 2004, the sum
of (a) the lesser of $72,464,283 and the Certificate Balance of the
Class A-1 Certificates outstanding from time to time and (b) the
aggregate Certificate Balances of the Class A-2, Class A-3, Class A-4,
Class A-5, Class B, Class C, Class D, Class E, Class F, Class G, Class
H, Class J, Class K and Class L Certificates outstanding from time to
time;
o during the period following the Distribution Date in October 2004
through and including the Distribution Date in April 2005, the sum of
(a) the lesser of $66,716,269 and the Certificate Balance of the Class
A-1 Certificates outstanding from time to time and (b) the aggregate
Certificate Balances of the Class A-2, Class A-3, Class A-4, Class
A-5, Class B, Class C, Class D, Class E, Class F, Class G, Class H,
Class J, Class K and Class L Certificates outstanding from time to
time;
o during the period following the Distribution Date in April 2005
through and including the distribution date in October 2005, the sum
of (a) the lesser of $42,607,383 and the Certificate Balance of the
Class A-1 Certificates outstanding from time to time and (b) the
aggregate Certificate Balances of the Class A-2, Class A-3, Class A-4,
Class A-5, Class B, Class C, Class D, Class E, Class F, Class G, Class
H, Class J, Class K and Class L Certificates outstanding from time to
time;
o during the period following the Distribution Date in October 2005
through and including the Distribution Date in April 2006, the sum of
(a) the lesser of $15,028,613 and the Certificate Balance of the Class
A-1 Certificates outstanding from time to time and (b) the aggregate
Certificate Balances of the Class A-2, Class A-3, Class A-4, Class
A-5, Class B, Class C, Class D, Class E, Class F, Class G, Class H,
Class J, Class K and Class L Certificates outstanding from time to
time;
o during the period following the Distribution Date in April 2006
through and including the Distribution Date in October 2006, the sum
of (a) the lesser of $225,015,768 and the Certificate Balance of the
Class A-2 Certificates outstanding from time to time, (b) the lesser
of $2,344,987 and the Certificate Balance of the Class L Certificates
outstanding from time to time and (c) the aggregate Certificate
Balances of the Class A-3, Class A-4, Class A-5, Class B, Class C,
Class D, Class E, Class F, Class G, Class H, Class J and Class K
Certificates outstanding from time to time;
o during the period following the Distribution Date in October 2006
through and including the Distribution Date in April 2007, the sum of
(a) the lesser of $198,685,243 and the Certificate Balance of the
Class A-2 Certificates outstanding from time to time, (b) the lesser
of $1,363,962 and the Certificate Balance of the Class J Certificates
outstanding from time to time and (c) the aggregate Certificate
Balances of the Class A-3, Class A-4, Class A-5, Class B, Class C,
Class D, Class E, Class F, Class G and Class H Certificates
outstanding from time to time;
o during the period following the Distribution Date in April 2007
through and including the distribution date in October 2007, the sum
of (a) the lesser of $173,380,941 and the Certificate Balance of the
Class A-2 Certificates outstanding from time to time, (b) the lesser
of $6,471,267 and the Certificate Balance of the Class H Certificates
outstanding from time to time and (c) the aggregate Certificate
Balances of the Class A-3, Class A-4, Class A-5, Class B, Class C,
Class D, Class E, Class F and Class G Certificates outstanding from
time to time;
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o during the period following the Distribution Date in October 2007
through and including the Distribution Date in April 2008, the sum of
(a) the lesser of $148,573,805 and the Certificate Balance of the
Class A-2 Certificates outstanding from time to time, (b) the lesser
of $6,265,323 and the Certificate Balance of the Class G Certificates
outstanding from time to time and (c) the aggregate Certificate
Balances of the Class A-3, Class A-4, Class A-5, Class B, Class C,
Class D, Class E and Class F Certificates outstanding from time to
time;
o during the period following the Distribution Date in April 2008
through and including the Distribution Date in October 2008, the sum
of (a) the lesser of $110,130,414 and the Certificate Balance of the
Class A-2 Certificates outstanding from time to time, (b) the lesser
of $12,127,058 and the Certificate Balance of the Class F Certificates
outstanding from time to time and (c) the aggregate Certificate
Balances of the Class A-3, Class A-4, Class A-5, Class B, Class C,
Class D and Class E Certificates outstanding from time to time;
o during the period following the Distribution Date in October 2008
through and including the Distribution Date in April 2009, the sum of
(a) the lesser of $190,391,820 and the Certificate Balance of the
Class A-3 Certificates outstanding from time to time, (b) the lesser
of $3,206,981 and the Certificate Balance of the Class F Certificates
outstanding from time to time and (c) the aggregate Certificate
Balances of the Class A-4, Class A-5, Class B, Class C, Class D and
Class E Certificates outstanding from time to time;
o during the period following the Distribution Date in April 2009
through and including the Distribution Date in October 2009, the sum
of (a) the lesser of $172,730,366 and the Certificate Balance of the
Class A-3 Certificates outstanding from time to time, (b) the lesser
of $7,540,026 and the Certificate Balance of the Class E Certificates
outstanding from time to time and (c) the aggregate Certificate
Balances of the Class A-4, Class A-5, Class B, Class C and Class D
Certificates outstanding from time to time;
o during the period following the Distribution Date in October 2009
through and including the Distribution Date in April 2010, the sum of
(a) the lesser of $155,405,341 and the Certificate Balance of the
Class A-3 Certificates outstanding from time to time, (b) the lesser
of $802,545 and the Certificate Balance of the Class E Certificates
outstanding from time to time and (c) the aggregate Certificate
Balances of the Class A-4, Class A-5, Class B, Class C and Class D
Certificates outstanding from time to time;
o during the period following the Distribution Date in April 2010
through and including the Distribution Date in October 2010, the sum
of (a) the lesser of $40,170,798 and the Certificate Balance of the
Class A-3 Certificates outstanding from time to time, (b) the lesser
of $18,520,181 and the Certificate Balance of the Class D Certificates
outstanding from time to time and (c) the aggregate Certificate
Balances of the Class A-4, Class A-5, Class B and Class C Certificates
outstanding from time to time;
o during the period following the Distribution Date in October 2010
through and including the Distribution Date in April 2011, the sum of
(a) the lesser of $243,219,920 and the Certificate Balance of the
Class A-5 Certificates outstanding from time to time, (b) the lesser
of $13,247,701 and the Certificate Balance of the Class D Certificates
outstanding from time to time and (c) the aggregate Certificate
Balances of the Class B and Class C Certificates outstanding from time
to time; and
o following the Distribution Date in April 2011, $0.
The total initial Notional Amount of the Class XP Certificates will be
approximately $1,104,576,380, although it may be as much as 10% larger or
smaller.
The REMIC Residual Certificates will not have a Certificate Balance or a
Notional Amount.
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A Class of Offered Certificates will be considered to be outstanding until
its Certificate Balance is reduced to zero; provided, however, that, under very
limited circumstances, reimbursement of any previously allocated Realized Losses
and Additional Trust Fund Expenses may thereafter be made with respect thereto.
PASS-THROUGH RATES
The Pass-Through Rates applicable to the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class B, Class C, Class D and Class E Certificates on any
Distribution Date will be the Pass-Through Rates indicated on the cover page of
this prospectus supplement.
The Pass-Through Rate applicable to the Class XP Certificates for the
initial Distribution Date will equal approximately 1.16140% per annum. The
Pass-Through Rate for the Class XP Certificates, for each Distribution Date
subsequent to the initial Distribution Date and through and including the April
2011 Distribution Date, will equal the weighted average of the respective strip
rates, which we refer to as "Class XP Strip Rates", at which interest accrues
from time to time on the respective components of the Notional Amount of the
Class XP Certificates outstanding immediately prior to the related Distribution
Date, with the relevant weighting to be done based upon the relative size of
those components. Each of those components will be comprised of all or a
designated portion of the Certificate Balance of a specified Class of
Certificates. If all or a designated portion of the Certificate Balance of any
Class of Certificates is identified under "--Certificate Balance and Notional
Amounts" above as being part of the Notional Amount of the Class XP Certificates
immediately prior to any Distribution Date, then that Certificate Balance (or
designated portion thereof) will represent one or more separate components of
the Notional Amount of the Class XP Certificates for purposes of calculating the
accrual of interest during the related interest accrual period. For purposes of
accruing interest during any interest accrual period, through and including the
April 2011 Distribution Date on any particular component of the Notional Amount
of the Class XP Certificates immediately prior to the related Distribution Date,
the applicable Class XP Strip Rate will equal with respect to each applicable
class of Certificates having a Certificate Balance (or a designated portion
thereof) that comprises such component, the excess, if any of:
(1) the lesser of (a) the reference rate specified on Annex D to this
prospectus supplement for such interest accrual period and (b) the Weighted
Average Net Mortgage Rate for such interest accrual period, over
(2) the Pass-Through Rate in effect during such interest accrual
period for such class of Certificates.
Following the April 2011 Distribution Date, the Class XP Certificates will
cease to accrue interest. In connection therewith, the Class XP Certificates
will have a 0% Pass-Through Rate for the May 2011 Distribution Date and for each
Distribution Date thereafter.
The Pass-Through Rate applicable to the Class XC Certificates for the
initial Distribution Date will equal approximately 0.04816% per annum. The
Pass-Through Rate for the Class XC Certificates for any interest accrual period
subsequent to the initial Distribution Date will equal the weighted average of
the respective strip rates, which we refer to as "Class XC Strip Rates", at
which interest accrues from time to time on the respective components of the
Notional Amount of the Class XC Certificates outstanding immediately prior to
the related Distribution Date, with the relevant weighting to be done based upon
the relative sizes of those components. Each of those components will be
comprised of all or a designated portion of the Certificate Balance of certain
Classes of Certificates. In general, the Certificate Balance of certain Classes
of Certificates will constitute a separate component of the Notional Amount of
the Class XC Certificates; provided that, if a portion, but not all, of the
Certificate Balance of any particular Class of Certificates is identified under
"--Certificate Balances and Notional Amounts" above as being part of the
Notional Amount of the Class XP Certificates immediately prior to any
Distribution Date, then that identified portion of such Certificate Balance will
also represent one or more separate components of the Notional Amount of the
Class XC Certificates for purposes of calculating the accrual of interest during
the related interest accrual period, and the remaining portion of such
Certificate Balance will represent one or
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more other separate components of the Class XC Certificates for purposes of
calculating the accrual of interest during the related interest accrual period.
For purposes of accruing interest for each Distribution Date prior to May 2011
on any particular component of the Notional Amount of the Class XC Certificates
immediately prior to the related Distribution Date, the applicable Class XC
Strip Rate will be calculated as follows:
(1) if such particular component consists of the entire Certificate
Balance of any class of Certificates, and if such Certificate Balance also
constitutes, in its entirety, a component of the Notional Amount of the
Class XP Certificates immediately prior to the related Distribution Date,
then the applicable Class XC Strip Rate will equal the excess, if any, of
(a) the Weighted Average Net Mortgage Rate for such interest accrual
period, over (b) for each applicable class of Certificates, the greater of
(i) the reference rate specified on Annex D to this prospectus supplement
for such interest accrual period and (ii) the Pass-Through Rate in effect
during such interest accrual period for such Class of Certificates;
(2) if such particular component consists of a designated portion (but
not all) of the Certificate Balance of any Class of Certificates, and if
such designated portion of such Certificate Balance also constitutes a
component of the Notional Amount of the Class XP Certificates immediately
prior to the related Distribution Date, then the applicable Class XC Strip
Rate will equal the excess, if any, of (a) the Weighted Average Net
Mortgage Rate for such interest accrual period, over (b) for each
applicable class of Certificates, the greater of (i) the reference rate
specified on Annex D to this prospectus supplement for such interest
accrual period and (ii) the Pass-Through Rate in effect during such
interest accrual period for such Class of Certificates;
(3) if such particular component consists of the entire Certificate
Balance of any Class of Certificates, and if such Certificate Balance does
not, in whole or in part, also constitute a component of the Notional
Amount of the Class XP Certificates immediately prior to the related
Distribution Date, then the applicable Class XC Strip Rate will equal the
excess, if any, of (a) the Weighted Average Net Mortgage Rate for such
interest accrual period, over (b) the Pass-Through Rate in effect during
such interest accrual period for such Class of Certificates; and
(4) if such particular component consists of a designated portion (but
not all) of the Certificate Balance of any Class of Certificates, and if
such designated portion of such Certificate Balance does not also
constitute a component of the Notional Amount of the Class XP Certificates
immediately prior to the related Distribution Date, then the applicable
Class XC Strip Rate will equal the excess, if any, of (a) the Weighted
Average Net Mortgage Rate for such interest accrual period, over (b) the
Pass-Through Rate in effect during such interest accrual period for such
Class of Certificates.
For purposes of the accrual of interest on the Class XC Certificates for
each Distribution Date subsequent to the April 2011 Distribution Date, the
Certificate Balance of each Class of Certificates (other than the Class R-I,
Class R-II, Class XP and Class XC Certificates will constitute one or more
separate components of the Notional Amount of the Class XC Certificates, and the
applicable Class XC Strip Rate with respect to each such Component for each such
interest period will equal the excess, if any, of (a) the Weighted Average Net
Mortgage Rate for such interest accrual period, over (b) the Pass-Through Rate
in effect during such interest accrual period for the Class of Certificates
whose Certificate Balance makes up such component.
For purpose of calculating the Class XC and Class XP Strip Rates, the
Pass-Through Rate of each component will be the Pass-Through Rate of the
corresponding Class of Certificates.
The Pass-Through Rates on the Class A-1, Class A-2, Class A-3, Class A-4
and Class A-5 Certificates are fixed per annum rates equal to 2.7640%, 3.5200%,
4.0500%, 4.1530% and 4.5800%, respectively. The approximate initial Pass-Through
Rates for the Class B, Class C, Class D, Class E, Class F and Class G
Certificates are per annum rates equal to 4.6650%, 4.7060%, 4.7450%, 4.8440%,
4.9920%, and 5.2390%, respectively. For any subsequent date, the Class B, Class
C, Class D, Class E,
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Class F and Class G Certificates will accrue interest at fixed per annum rates
equal to 4.6650%, 4.7060%, 4.7450%, 4.8440%, 4.9920%, and 5.2390%, respectively,
subject to a cap at the Weighted Average Net Mortgage Rate.
The approximate initial Pass-Through Rate for the Class H Certificates is
5.27632%. For any subsequent date, the Class H Certificates will accrue interest
at the Weighted Average Net Mortgage Rate.
The approximate initial Pass-Through Rates on the Class J, Class K, Class
L, Class M, Class N, Class O, and Class P Certificates are per annum rates equal
to 4.8960%, 4.8960%, 4.8960%, 4.8960%, 4.8960%, 4.8960% and 4.8960%,
respectively. For any subsequent date, the Class J, Class K, Class L, Class M,
Class N, Class O and Class P Certificates will accrue interest at the lesser of
a fixed per annum rate equal to 4.8960% and the Weighted Average Net Mortgage
Rate.
"Weighted Average Net Mortgage Rate" for any Distribution Date means the
weighted average of the Net Mortgage Rates for all the Mortgage Loans
immediately following the preceding Distribution Date (weighted on the basis of
their respective Stated Principal Balances (as defined in this prospectus
supplement) immediately following the preceding Distribution Date).
The "Net Mortgage Rate" with respect to any Mortgage Loan is, in general, a
per annum rate equal to the related Mortgage Rate minus the Administrative Fee
Rate; provided, however, that for purposes of calculating the Pass-Through Rate
for each Class of REMIC II Certificates from time to time, the Net Mortgage Rate
for any Mortgage Loan will be calculated without regard to any modification,
waiver or amendment of the terms of such Mortgage Loan subsequent to the
Delivery Date; and provided, further, however, that if any Mortgage 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 II
Certificates, then the Net Mortgage Rate of such Mortgage 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); provided, however, that with respect to such Mortgage Loans, the Mortgage
Rate for the one month period (a) prior to the due dates in January and February
in any year which is not a leap year or in February in any year which is a leap
year will be the per annum rate stated in the related Mortgage Note and (b)
prior to the due date in March will be determined inclusive of one day of
interest retained for the one month period prior to the due dates in January and
February in any year which is not a leap year or February in any year which is a
leap year. As of the Cut-off Date (without regard to the adjustment described
above), the Net Mortgage Rates for the Mortgage Loans ranged from 3.390% per
annum to 6.754% per annum, with a weighted average Net Mortgage Rate of 5.276%
per annum. See "Servicing of the Mortgage Loans--Servicing and Other
Compensation and Payment of Expenses" in this prospectus supplement. The
"Administrative Fee Rate" is the sum of the applicable Master Servicing Fee Rate
and the per annum rate at which the monthly Trustee Fee is calculated.
The "Stated Principal Balance" of each Mortgage Loan will initially equal
the outstanding principal balance of the Mortgage Loans as of the Cut-off Date
and will be permanently reduced (to not less than zero) on each Distribution
Date by (i) any payments or other collections (or advances in lieu thereof) of
principal on such Mortgage Loan that have been distributed on the Certificates
on such date, and (ii) the principal portion of any Realized Loss incurred in
respect of such Mortgage Loan during the related Collection Period.
The "Collection Period" for each Distribution Date is the period that
begins immediately following the Determination Date in the calendar month
preceding the month in which such Distribution Date occurs and ending on and
including the Determination Date in the calendar month in which such
Distribution Date occurs. The first Collection Period applicable to the Offered
Certificates will begin immediately following the Cut-off Date and will end on
the Determination Date in May 2004. The "Determination Date" for each
Distribution Date will be the earlier of (i) the
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sixth day of the month in which the related Distribution Date occurs, or if such
sixth day is not a Business Day, then the immediately preceding Business Day,
and (ii) the fourth Business Day prior to the related Distribution Date.
DISTRIBUTIONS
General. Distributions on or with respect to the Certificates will be made
by the Trustee, to the extent of available funds, on the 10th day of each month
or, if any such 10th day is not a business day, then on the next succeeding
business day (each, a "Distribution Date"). For the one Mortgage Loan that has a
Due Date on the 10th of each month, the Master Servicer has generally agreed to
advance the Monthly Payment each month on the related Master Servicer Remittance
Date; therefore, each Monthly Payment under such Mortgage Loan will generally be
deemed to be received within the Collection Period that ends in the month in
which the related Due Date occurs. The first Distribution Date with respect to
the Offered Certificates will occur in May 2004. Except as otherwise described
below, all such distributions will be made to the persons in whose names the
Certificates are registered at the close of business on the related Record Date
and, as to each such person, will be made by wire transfer in immediately
available funds to the account specified by the Certificateholder at a bank or
other entity having appropriate facilities therefor. Until Definitive
Certificates are issued in respect thereof, Cede & Co. will be the registered
holder of the Offered Certificates. See "--Registration and Denominations"
above. The final distribution on any Certificate (determined without regard to
any possible future reimbursement of any Realized Losses or Additional Trust
Fund Expense previously allocated to such Certificate) will be made in like
manner, but only upon presentation and surrender of such Certificate at the
location that will be specified in a notice of the pendency of such final
distribution. Any distribution that is to be made with respect to a Certificate
in reimbursement of a Realized Loss or Additional Trust Fund Expense previously
allocated thereto, which reimbursement is to occur after the date on which such
Certificate is surrendered as contemplated by the preceding sentence (the
likelihood of any such distribution being remote), will be made by check mailed
to the Certificateholder that surrendered such Certificate. All distributions
made on or with respect to a Class of Certificates will be allocated pro rata
among such Certificates based on their respective percentage interests in such
Class.
With respect to any Distribution Date and any Class of Certificates, the
"Record Date" will be the last business day of the calendar month immediately
preceding the month in which such Distribution Date occurs.
The Available Distribution Amount. With respect to any Distribution Date,
distributions of interest on and principal of the Certificates will be made from
the Available Distribution Amount for such Distribution Date. 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 but due on a Due Date subsequent
to the related Collection Period;
(ii) any payments of principal and interest, Liquidation Proceeds
and Insurance and Condemnation Proceeds received after the end of the
related Collection Period;
(iii) Prepayment Premiums (which are separately distributable on
the Certificates as hereinafter described);
(iv) Excess Interest (which is distributable to the Class P
Certificates as described in this prospectus supplement);
(v) amounts that are payable or reimbursable to any person other
than the Certificateholders (including amounts payable to the Master
Servicer, the Special Servicer, any Sub-Servicers or the Trustee as
compensation (including Trustee Fees, Master Servicing
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Fees, Special Servicing Fees, Workout Fees, Liquidation Fees and
Default Charges) (to the extent Default Charges are not otherwise
applied to cover interest on Advances or other expenses), 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);
(vi) amounts deposited in the Certificate Account in error; and
(vii) with respect to each Mortgage Loan which accrues interest
on an Actual/360 Basis and any Distribution Date relating to the one
month period preceding the Distribution Date in each February (and in
any January of a year which is not a leap year), an amount equal to
the related Withheld Amount.
(b) to the extent not already included in clause (a), any P&I Advances
made with respect to such Distribution Date, any Compensating Interest
Payments made by the Master Servicer to cover Prepayment Interest
Shortfalls incurred during the related Collection Period and for the
Distribution Date occurring in each March, the related Withheld Amounts
remitted to the Trustee for distribution to the Certificateholders as
described under "Description of the Certificates--Interest Reserve
Account."
See "The Pooling and Servicing Agreements--Certificate Account" in the
accompanying prospectus.
Application of the Available Distribution Amount. On each Distribution
Date, the Trustee will apply the Available Distribution Amount 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 Certificates,
Class A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates,
Class A-5 Certificates, Class XC Certificates and Class XP Certificates up
to an amount equal to, and pro rata, among such Classes in accordance with,
all Distributable Certificate Interest in respect of each such Class for
such Distribution Date and, to the extent not previously paid, for all
prior Distribution Dates;
(2) to pay principal sequentially first to the holders of the
Certificates to Class A-1 Certificates, second to the holders of the Class
A-2 Certificates, third to the holders of the Class A-3 Certificates,
fourth to the holders of the Class A-4 Certificates and fifth to the
holders of the Class A-5 Certificates up to an amount equal to the lesser
of (a) the then-outstanding certificate balance of such Class and (b) the
remaining portion of the Principal Distribution Amount (as defined below)
for such Distribution Date;
(3) to reimburse the holders of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates and Class A-5
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 and for which no reimbursement has previously been paid; and
(4) to make payments on the other Classes of Certificates
(collectively, the "Subordinate Certificates") as contemplated below;
provided that, on each Distribution Date as of which the aggregate Certificate
Balance of the Subordinate Certificates has been reduced to zero, and in any
event on the final Distribution Date in connection with a termination of the
Trust (see "--Termination" below), the payments of principal to be made as
contemplated by clause (2) above with respect to the Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates and Class
A-5 Certificates will be so made (subject to available funds) to the holders of
such Classes, up to an amount equal to, and pro rata as between such Classes in
accordance with, the respective then outstanding Certificate Balances of such
Classes.
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 for such date for the following purposes
and in the following order of priority:
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(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-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates and Class
A-5 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-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates 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-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates and Class C Certificates have been
reduced to zero, to pay principal to the holder 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-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates, Class C Certificates 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;
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(13) to pay interest to the holders of the Class F Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(14) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates, Class C Certificates, Class D
Certificates and Class E Certificates have been reduced to zero, to pay
principal to the holders of the Class F Certificates, up to an amount equal
to the lesser of (a) the then outstanding Certificate Balance of such Class
of Certificates and (b) the remaining portion of the Principal Distribution
Amount for such Distribution Date;
(15) to reimburse the holders of the Class F Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(16) to pay interest to the holders of the Class G Certificates, up to
an amount equal to all Distributable Certificate Interest in respect of
such Class of Certificates for such Distribution Date and, to the extent
not previously paid, for all prior Distribution Dates;
(17) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates, Class C Certificates, Class D
Certificates, Class E Certificates and Class F Certificates have been
reduced to zero, to pay principal to the holders of the Class G
Certificates, up to an amount equal to the lesser of (a) the then
outstanding Certificate Balance of such Class of Certificates and (b) the
remaining portion of the Principal Distribution Amount for such
Distribution Date;
(18) to reimburse the holders of the Class G Certificates, up to an
amount equal to all Realized Losses and Additional Trust Fund Expenses, if
any, previously allocated to the Certificate Balance of such Class of
Certificates and for which no reimbursement has previously been received;
(19) to pay interest to the holders of the Class H 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;
(20) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates, Class C Certificates, Class D
Certificates, Class E Certificates, Class F Certificates and Class G
Certificates have been reduced to zero, to pay principal to the holders of
the Class H 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;
(21) to reimburse the holders of the Class H 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;
(22) to pay interest to the holders of the Class J 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;
(23) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates, Class C Certificates, Class D
Certificates, Class E Certificates, Class F Certificates, Class G
Certificates and Class H Certificates have been reduced to zero, to pay
principal to the holders of the Class J 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;
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(24) to reimburse the holders of the Class J 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;
(25) to pay interest to the holders of the Class K 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;
(26) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates, Class C Certificates, Class D
Certificates, Class E Certificates, Class F Certificates, Class G
Certificates, Class H Certificates and Class J Certificates have been
reduced to zero, to pay principal to the holders of the Class K
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;
(27) to reimburse the holders of the Class K 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;
(28) to pay interest to the holders of the Class L 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;
(29) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates, Class C Certificates, Class D
Certificates, Class E Certificates, Class F Certificates, Class G
Certificates, Class H Certificates, Class J Certificates and Class K
Certificates have been reduced to zero, to pay principal to the holders of
the Class L 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;
(30) to reimburse the holders of the Class L 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;
(31) to pay interest to the holders of the Class M 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;
(32) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates, Class C Certificates, Class D
Certificates, Class E Certificates, Class F Certificates, Class G
Certificates, Class H Certificates, Class J Certificates, Class K
Certificates and Class L Certificates have been reduced to zero, to pay
principal to the holders of the Class M 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;
(33) to reimburse the holders of the Class M 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;
(34) to pay interest to the holders of the Class N 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;
(35) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates, Class C
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Certificates, Class D Certificates, Class E Certificates, Class F
Certificates, Class G Certificates, Class H Certificates, Class J
Certificates, Class K Certificates, Class L Certificates and Class M
Certificates have been reduced to zero, to pay principal to the holders of
the Class N 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;
(36) to reimburse the holders of the Class N 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;
(37) to pay interest to the holders of the Class O 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;
(38) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates, Class C Certificates, Class D
Certificates, Class E Certificates, Class F Certificates, Class G
Certificates, Class H Certificates, Class J Certificates, Class K
Certificates, Class L Certificates, Class M Certificates and Class N
Certificates have been reduced to zero, to pay principal to the holders of
the Class O 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;
(39) to reimburse the holders of the Class O 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;
(40) to pay interest to the holders of the Class P 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;
(41) if the Certificate Balances of the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class B Certificates, Class C Certificates, Class D
Certificates, Class E Certificates, Class F Certificates, Class G
Certificates, Class H Certificates, Class J Certificates, Class K
Certificates, Class L Certificates, Class M Certificates, Class N
Certificates and Class O Certificates have been reduced to zero, to pay
principal to the holders of the Class P 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;
(42) to reimburse the holders of the Class P 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;
(43) to pay to the holders of the Class R-II Certificates, the
balance, if any, of the Available Distribution Amount for such Distribution
Date;
provided that, on the final Distribution Date in connection with a termination
of the Trust, the payments of principal to be made as contemplated by any of
clauses (2), (5), (8), (11), (14), (17), (20), (23), (26), (29), (32), (35),
(38) and (41) 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 II Certificates for each
Distribution Date is equal to the Accrued Certificate Interest in respect of
such Class of Certificates for such Distribution Date, reduced, in the case of
the Sequential
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Pay Certificates, by such Class' 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 II
Certificates for each Distribution Date is equal to one calendar 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 for each of the Classes of Certificates.
The Master Servicer will be required to make Compensating Interest Payments
in connection with Prepayment Interest Shortfalls as described in this
prospectus supplement. 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 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. See "Servicing
of the Mortgage Loans--Servicing and Other Compensation and Payment of Expenses"
in this prospectus supplement. The Net Aggregate Prepayment Interest Shortfall,
if any, for each Distribution Date will be allocated on such Distribution Date
to the respective Classes of Sequential Pay 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 Sequential Pay
Certificates (other than the Senior Certificates) in reverse sequential 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 Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates, the Class A-4 Certificates and the Class A-5
Certificates, up to, and pro rata in accordance with, the respective amounts of
Accrued Certificate Interest for each such Class for such Distribution Date.
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 Mortgage Loans for their respective Due Dates
occurring during the related Collection Period;
(b) all voluntary principal prepayments received on the Mortgage Loans
during the related Collection Period;
(c) with respect to any Balloon Loan as applicable 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 Mortgage Loan on a Due Date during or prior to the related
Collection Period and not previously recovered;
(d) all Liquidation Proceeds and Insurance and Condemnation Proceeds
received on the Mortgage Loans during the related Collection Period that
were identified and applied by the Master Servicer as recoveries of
principal thereof, in each case net of any portion of such amounts that
represents a recovery of the principal portion of any Monthly Payment
(other than a Balloon Payment) due, or the principal portion of any Assumed
Monthly Payment deemed due, in respect of the related Mortgage Loan on a
Due Date during or prior to the related Collection Period and not
previously recovered; and
(e) the excess, if any, of (i) the Principal Distribution Amount, as
the case may be for the immediately preceding Distribution Date, over (ii)
the aggregate distributions of principal made
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on the Sequential Pay Certificates in respect of the Principal Distribution
Amount, be on such immediately preceding Distribution Date.
For purposes of the foregoing, the Monthly Payment due on any Mortgage Loan
on any related Due Date will reflect any waiver, modification or amendment of
the terms of such Mortgage 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
Mortgage 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 Mortgage Loan as to which the related Mortgaged Property has become an
REO Property. The Assumed Monthly Payment deemed due on any such Mortgage 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 Mortgage 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 Mortgage 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.
Excess Interest. On each Distribution Date, Excess Interest received in the
related Collection Period will be distributed solely to the Class P Certificates
to the extent set forth in the Pooling Agreement, and will not be available for
distribution to holders of the Offered Certificates.
Distributions of Prepayment Premiums. On any Distribution Date, Prepayment
Premiums collected during the related Collection Period are required to be
distributed to the holders of the Classes of Offered Certificates, the Class F
Certificates, the Class G Certificates, the Class H Certificates and the Class
XC Certificates as described below.
On each Distribution Date, Prepayment Premiums collected on the Mortgage
Loans during the related Prepayment Period will be distributed by the Trustee to
the following Classes: to the Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates, in an amount equal to the product of (a) a fraction, not greater
than 1, whose numerator is the amount distributed as principal to such Class on
such Distribution Date, and whose denominator is the total amount distributed as
principal to the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class B,
Class C, Class D, Class E, Class F, Class G, Class H, Class J, Class K, Class L,
Class M, Class N, Class O and Class P Certificates on such Distribution Date,
(b) the Base Interest Fraction for the related principal payment on such Class
of Certificates, and (c) the amount of Prepayment Premium collected on such
principal prepayment during the related Prepayment Period. Any Prepayment
Premiums collected during the related Prepayment Period remaining after such
distributions will be distributed (i) to the holders of the Class XC and Class
XP Certificates, 70% and 30%, respectively until and including the Distribution
Date in April 2011 and (ii) following such Distribution Date entirely to the
holders of the Class XC Certificates.
The "Base Interest Fraction" with respect to any principal prepayment on
any Mortgage Loan and with respect to any class of Offered Certificates is a
fraction (a) whose numerator is the amount, if any, by which (i) the
Pass-Through Rate on such Class of Certificates exceeds (ii) the discount rate
used in accordance with the related Mortgage Loan documents in calculating the
Prepayment Premium with respect to such Principal Prepayment and (b) whose
denominator is the amount, if any, by which (i) the Mortgage Rate on such
Mortgage Loan exceeds (ii) the discount rate used in accordance with the related
Mortgage Loan documents in calculating the yield maintenance charge with respect
to such principal prepayment. However, under no circumstances shall the Base
Interest Fraction be greater than one. If such discount rate is greater than or
equal to the lesser of (x) the
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Mortgage Rate on such Mortgage Loan and (y) the Pass-Through Rate described in
the preceding sentence, then the Base Interest Fraction will equal zero.
No Prepayment Premiums will be distributed to the holders of the Class J,
Class K, Class L, Class M, Class N, Class O or Class P Certificates. Instead,
after the Certificate Balances of the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5, Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates have been reduced to zero, (i) 70% and 30% of the Prepayment
Premiums with respect to the Mortgage Loans will be distributed to the holders
of the Class XC and Class XP Certificates, respectively, until and including the
Distribution Date in April 2011; and (ii) following such Distribution Date, all
Prepayment Premiums will be distributed entirely to the holders of the Class XC
Certificates.
Prepayment Premiums will be distributed on any Distribution Date only to
the extent they are received in respect of the Mortgage Loans in the related
Prepayment Period.
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 "Description of the
Mortgage Pool--Certain Terms and Conditions of the Mortgage Loans--Prepayment
Provisions" and "Risk Factors--Risks Related to the Mortgage Loans-- Prepayment
Premiums" 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 Mortgage Loan will be treated, for
purposes of, among other things, determining distributions on the Certificates,
allocations of Realized Losses and Additional Trust Fund Expenses to the
Certificates, and the amount of Master Servicing Fees, Special Servicing Fees
and Trustee Fees payable under the Pooling Agreement, as having remained
outstanding until such REO Property is liquidated. Among other things, such
Mortgage Loan will be taken into account when determining the 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 Mortgage Loan; and, subject to the recoverability
determination described below (see "--P&I Advances"), the Master Servicer and
the Trustee will be required to make P&I Advances in respect of such Mortgage
Loan, in all cases as if such Mortgage Loan had remained outstanding.
SUBORDINATION; ALLOCATION OF LOSSES AND CERTAIN EXPENSES
As and to the extent described herein, the rights of holders of the
Subordinate Certificates to receive distributions of amounts collected or
advanced on the Mortgage Loans will, in the case of each Class thereof, be
subordinated to the rights of holders of the Senior Certificates and, further,
to the rights of holders of each other Class of Subordinate Certificates, if
any, with an earlier alphabetical Class designation. This subordination provided
by the Subordinate Certificates is intended to enhance the likelihood of timely
receipt by holders of the respective Classes of Senior Certificates of the full
amount of Distributable Certificate Interest payable in respect of their
Certificates on each Distribution Date, and the ultimate receipt by holders of
the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates,
Class A-4 Certificates and Class A-5 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 Classes of Offered Certificates of the full
amount of Distributable Certificate Interest payable in respect of their
Certificates on each Distribution Date, and the ultimate receipt by holders of
the other Classes of Offered Certificates of principal equal to, in each such
case, the entire related Certificate Balance. The subordination of any Class of
Subordinate Certificates will be accomplished by, among other things, the
application of the Available Distribution Amount on each Distribution Date in
the order of priority described under "--Distributions--The Available
Distribution Amount" above. No other form of credit support will be available
for the benefit of holders of the Offered Certificates.
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This subordination provided by the Subordinate Certificates is intended to
enhance the likelihood of timely receipt by holders of the respective Classes of
Senior Certificates of the full amount of Distributable Certificate Interest
payable in respect of their Certificates on each Distribution Date, and the
ultimate receipt by holders of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates and Class A-5
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 Classes of Offered Certificates of the full amount of Distributable
Certificate Interest payable in respect of their Certificates on each
Distribution Date, and the ultimate receipt by holders of the other Classes of
Offered Certificates of principal equal to, in each such case, the entire
related Certificate Balance. The subordination of any Class of Subordinate
Certificates will be accomplished by, among other things, the application of the
Available Distribution Amount on each Distribution Date in the order of priority
described under "--Distributions--The Available Distribution Amount" above. No
other form of credit support will be available for the benefit of holders of the
Offered Certificates. If, following the distributions to be made in respect of
the Certificates on any Distribution Date, the aggregate Stated Principal
Balance of the Mortgage Pool that will be outstanding immediately following such
Distribution Date is less than the then aggregate Certificate Balance of the
Sequential Pay Certificates, the Certificate Balances of the Class P, Class O,
Class N, Class M, Class L, Class K, Class J, Class H, Class G, Class F, Class E,
Class D, Class C and Class B Certificates will be reduced, sequentially in that
order, in the case of each such Class until such deficit (or the related
Certificate Balance) is reduced to zero (whichever occurs first). If any portion
of such deficit remains at such time as the Certificate Balances of such Classes
of Certificates are reduced to zero, then the respective Certificate Balances of
the Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates,
Class A-4 Certificates and Class A-5 Certificates will be reduced, pro rata in
accordance with the relative sizes of the remaining Certificate Balances of such
Classes until such deficit (or each such Certificate Balance) is reduced to
zero. Any such deficit will, in general, be the result of Realized Losses
incurred in respect of the Mortgage Loans and/or Additional Trust Fund Expenses
to the extent paid from funds which would otherwise have been used to make
distributions of principal. Accordingly, the foregoing reductions in the
Certificate Balances of the respective Classes of the Sequential Pay
Certificates will constitute an allocation of any such Realized Losses and
Additional Trust Fund Expenses.
"Realized Losses" are losses on or in respect of the Mortgage Loans arising
from the inability of the Master Servicer and/or the Special Servicer to collect
all amounts due and owing under any such Mortgage 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 any Defaulted Mortgage Loan (or any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property (an "REO Loan")) as to which a
final recovery determination has been made is an amount generally equal to (i)
the unpaid principal balance of such Mortgage Loan (or REO Loan) as of the Due
Date related to the Collection Period in which the final recovery determination
was made, plus (ii) all accrued but unpaid interest (excluding Excess Interest)
on such Mortgage Loan (or REO Loan) at the related Mortgage Rate to but not
including the Due Date related to the Collection Period in which the final
recovery determination was made, plus (iii) any related unreimbursed Servicing
Advances as of the commencement of the Collection Period in which the final
recovery determination was made, together with any new related Servicing
Advances made during such Collection Period, minus (iv) all payments and
proceeds, if any, received in respect of such Collection Period related to the
Mortgage Loan or REO Loan during the Collection Period in which such final
recovery determination was made (net of any related Liquidation Expenses paid
therefrom). If any portion of the debt due under a Mortgage 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.
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"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 Fiscal Agent and/or the Trustee 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 Mortgage Loans and the administration of
the Trust Fund, (iv) property inspection costs incurred by the Special Servicer
for Specially Serviced Mortgage Loans to the extent paid out of general
collections, (v) certain unanticipated, non-Mortgage Loan specific expenses of
the Trust, including certain reimbursements and indemnifications to the Trustee
or the Fiscal Agent as described under "The Trustee and the Fiscal
Agent--Indemnification" and under "The Pooling and Servicing Agreements--Certain
Matters Regarding the Trustee" in the accompanying prospectus, certain
reimbursements to the Master Servicer, the Special Servicer, the REMIC
Administrator and the Depositor as described under "The Pooling and Servicing
Agreements--Certain Matters Regarding the Master Servicer, the Special Servicer,
the REMIC Administrator and the Depositor" in the accompanying prospectus and
certain federal, state and local taxes, and certain tax-related expenses,
payable out of the Trust Fund as described under "Certain Federal Income Tax
Consequences--Possible Taxes on Income From Foreclosure Property and Other
Taxes" herein and "Certain Federal Income Tax Consequences--REMICs--Prohibited
Transactions Tax and Other Taxes" in the accompanying prospectus, (vi) 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 Mortgage Loan (see "The Pooling and Servicing
Agreements--Realization Upon Defaulted Mortgage Loans" in the accompanying
prospectus), 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.
EXCESS INTEREST DISTRIBUTION ACCOUNT
The Trustee is required to establish and maintain an "Excess Interest
Distribution Account" (which may be a sub-account of the Distribution Account)
in the name of the Trustee for the benefit of the Class P Certificateholders.
Prior to the applicable Distribution Date, the Master Servicer is required to
remit to the Trustee for deposit into the Excess Interest Distribution Account
an amount equal to the Excess Interest received during the related Collection
Period. Amounts on deposit in the Excess Interest Distribution Account may be
invested only in Permitted Investments. The Trustee will have no obligation to
invest the funds on deposit in the Excess Interest Distribution Account.
INTEREST RESERVE ACCOUNT
The Master Servicer will be required to establish and maintain an "Interest
Reserve Account" (which may be a sub-account of the Certificate Account) in the
name of the Trustee for the benefit of the holders of the Certificates. On each
Master Servicer Remittance Date occurring in February and in January of any year
which is not a leap year, an amount will be required to be withdrawn from the
Certificate Account, in respect of each Mortgage Loan, that accrues interest on
an Actual/360 Basis, for deposit into the Interest Reserve Account, equal to one
day's interest at the related Net Mortgage Rate on the respective Stated
Principal Balance, as of the Due Date in the month preceding the month in which
such Master Servicer Remittance Date occurs, of each such Mortgage Loan, to the
extent a Monthly Payment or P&I Advance is made in respect thereof (all amounts
so withdrawn in any consecutive January (if applicable) and February, the
"Withheld Amount"). The "Master Servicer Remittance Date" for any month is the
business day preceding each Distribution Date. On each Master Servicer
Remittance Date occurring in March, the Master Servicer will be required to
withdraw from the Interest Reserve Account an amount equal to the Withheld
Amounts from the preceding January (if applicable) and February, if any, and
deposit such amount into the Certificate Account. The Master Servicer may invest
amounts on deposit in the Interest Reserve Account in Permitted Investments for
its own account.
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P&I ADVANCES
With respect to each Distribution Date, the Master Servicer will be
obligated, subject to the recoverability determination described below, to make
advances (each, a "P&I Advance") out of its own funds or, subject to the
replacement thereof as and to the extent provided in the Pooling Agreement,
funds held in the Certificate Account that are not required to be part of the
Available Distribution Amount for such Distribution Date, in an amount generally
equal to the aggregate of all Monthly Payments (other than Balloon Payments and
Excess Interest) and any Assumed Monthly Payments, in each case net of related
Master Servicing Fees that were due or deemed due, as the case may be, in
respect of the Mortgage 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 Business Day prior to the Master Servicer
Remittance Date. The Master Servicer's obligations to make P&I Advances in
respect of any Mortgage Loan will continue through liquidation of such Mortgage
Loan or disposition of any REO Property acquired in respect thereof.
Notwithstanding the foregoing, if it is determined that an Appraisal Reduction
Amount (as defined below) exists with respect to any Required Appraisal Loan (as
defined below), then, with respect to the Distribution Date immediately
following the date of such determination and with respect to each subsequent
Distribution Date for so long as such Appraisal Reduction Amount exists, in the
event of subsequent delinquencies on such Mortgage Loan, the interest portion of
the P&I Advance required to be made in respect of such Mortgage Loan will be
reduced (no reduction to be made in the principal portion, however) to an amount
equal to the product of (i) 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 (ii) a fraction (expressed as a
percentage), the numerator of which is equal to the Stated Principal Balance of
such Mortgage Loan, net of such Appraisal Reduction Amount, and the denominator
of which is equal to the Stated Principal Balance of such Mortgage 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 or the Fiscal
Agent will be required to make such P&I Advance. See "The Trustee--The Trustee"
in this prospectus supplement.
The Master Servicer, the Trustee and the Fiscal Agent will each be entitled
to recover any P&I Advance made out of its own funds from any Related Proceeds.
Notwithstanding the foregoing, neither the Master Servicer nor the Trustee nor
the Fiscal Agent will be obligated to make any P&I Advance that it determines in
its reasonable good faith judgment would, if made, not be recoverable out of
Related Proceeds (a "Nonrecoverable P&I Advance"; and, together with a
"Nonrecoverable Servicing Advance", "Nonrecoverable Advances"). The Trustee and
the Fiscal Agent will be entitled to rely on any non-recoverability
determination made by the Master Servicer. Neither the Master Servicer nor the
Trustee nor the Fiscal Agent will make a P&I Advance for Excess Interest or a
Prepayment Premium. The Master Servicer, the Special Servicer, the Trustee and
the Fiscal Agent, as applicable, will be entitled to recover any Advance that at
any time is determined to be a Nonrecoverable Advance (and interest thereon) out
of funds received on or in respect of other Mortgage Loans. Upon the
determination that a previously made Advance is a Nonrecoverable Advance,
instead of obtaining reimbursement out of general collections immediately, the
Master Servicer, the Special Servicer, the Fiscal Agent or the Trustee, as
applicable, may, in its sole discretion, elect to obtain reimbursement for such
Nonrecoverable Advance over time and the unreimbursed portion of such Advance
will accrue interest at the Reimbursement Rate. If such an election to obtain
reimbursement over time is made, the Master Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as applicable, will, during the first six months
after such nonrecoverability determination was made, only seek reimbursement for
such Nonrecoverable Advance from collections of principal (with such
Nonrecoverable Advances being reimbursed before Workout-Delayed Reimbursement
Amounts (as defined below)). After such initial six months, the Master Servicer,
the Special Servicer, the Fiscal Agent or the Trustee, as applicable, may
continue to seek reimbursement for such Nonrecoverable Advance solely from,
collections of principal or may seek reimbursement for such Nonrecoverable
Advance from general collections, in each case for a period of time not to
exceed an additional six months (with such Nonrecoverable Advances being
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reimbursed before Workout-Delayed Reimbursement Amounts). In the event that the
Master Servicer, the Special Servicer the Trustee or the Fiscal Agent, as
applicable, wishes to seek reimbursement over time after the second six-month
period discussed in the preceding sentence, then the Master Servicer, the
Special Servicer, the Fiscal Agent or Trustee, as applicable, may continue to
seek reimbursement for such Nonrecoverable Advance solely from collections of
principal or may seek reimbursement for such Nonrecoverable Advance from general
collections, in either case for such a longer period of time as agreed to by the
Master Servicer, the Special Servicer, the Fiscal Agent or the Trustee, as
applicable, and the Directing Certificateholder, each in its sole discretion
(with such Nonrecoverable Advances being reimbursed before Workout-Delayed
Reimbursement Amounts). Notwithstanding the foregoing, at any time after such a
determination to obtain reimbursement over time, the Master Servicer, the
Special Servicer, the Fiscal Agent or the Trustee, as applicable, may, in its
sole discretion, decide to obtain reimbursement immediately. The fact that a
decision to recover such Nonrecoverable Advances over time, or not to do so,
benefits some Classes of Certificateholders to the detriment of other Classes
shall not, with respect to the Master Servicer, constitute a violation of the
Servicing Standard and/or with respect to the Trustee, constitute a violation of
any fiduciary duty to Certificateholders or contractual duty hereunder. The
Master Servicer, the Special Servicer, the Fiscal Agent or the Trustee, as
applicable, will give each Rating Agency three weeks prior notice of its intent
to obtain reimbursement of Nonrecoverable Advances from interest collections as
described above unless (1) the Master Servicer or Special Servicer (or Trustee
or Fiscal Agent, if applicable) determines in its sole discretion that waiting
15 days after such a notice could jeopardize the Master Servicer's or the
Special Servicer's (or Trustee's or Fiscal Agent's, if applicable) ability to
recover Nonrecoverable Advances, (2) changed circumstances or new or different
information becomes known to the Master Servicer or Special Servicer (or Trustee
or Fiscal Agent, if applicable) that could affect or cause a determination of
whether any Advance is a Nonrecoverable Advance, whether to defer reimbursement
of a Nonrecoverable Advance or the determination in clause (1) above, or (3) the
Master Servicer or Special Servicer has not timely received from the Trustee
information requested by the Master Servicer or Special Servicer to consider in
determining whether to defer reimbursement of a Nonrecoverable Advance; provided
that, if clause (1), (2) or (3) apply, the Master Servicer or Special Servicer
(or Trustee or Fiscal Agent, if applicable) shall give each Rating Agency notice
of an anticipated reimbursement to it of Nonrecoverable Advances from amounts in
the Certificate Account allocable to interest on the Mortgage Loans as soon as
reasonably practicable in such circumstances. The Master Servicer or Special
Servicer (or Trustee or Fiscal Agent, if applicable) shall have no liability for
any loss, liability or expense resulting from any notice provided to each Rating
Agency contemplated by the immediately preceding sentence.
If the Master Servicer, Special Servicer, the Fiscal Agent or the Trustee,
as applicable, is reimbursed out of general collections for any unreimbursed
Advances that are determined to be Nonrecoverable Advances (together with any
interest accrued and payable thereon), then (for purposes of calculating
distributions on the Certificates) such reimbursement and payment of interest
shall be deemed to have been made: first, out of the Principal Distribution
Amount, which, but for its application to reimburse a Nonrecoverable Advance
and/or to pay interest thereon, would be included in the Available Distribution
Amount for any subsequent Distribution Date, and second, out of other amounts
which, but for their application to reimburse a Nonrecoverable Advance and/or to
pay interest thereon, would be included in the Available Distribution Amount for
any subsequent Distribution Date.
If and to the extent that any payment is deemed to be applied as
contemplated in the paragraph above to reimburse a Nonrecoverable Advance or to
pay interest thereon, then the Principal Distribution Amount for such
Distribution Date shall be reduced, to not less than zero, by the amount of such
reimbursement. If and to the extent (i) any Advance is determined to be a
Nonrecoverable Advance, (ii) such Advance and/or interest thereon is reimbursed
out of the Principal Distribution Amount as contemplated above and (iii) the
particular item for which such Advance was originally made is subsequently
collected out of payments or other collections in respect of the related
Mortgage Loan, then the Principal Distribution Amount for the Distribution
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date that corresponds to the Due Period in which such item was recovered shall
be increased by an amount equal to the lesser of (A) the amount of such item and
(B) any previous reduction in the Principal Distribution Amount for a prior
Distribution Date as contemplated in the paragraph above resulting from the
reimbursement of the subject Advance and/or the payment of interest thereon.
If one or more unreimbursed Workout-Delayed Reimbursement Amounts (as
defined below) exist, then such Workout-Delayed Reimbursement Amounts will be
reimbursable only from amounts in the Certificate Account that represent
collections of principal on the Mortgage Loans; provided, however, that on any
Distribution Date when (1) less than 10% of the initial aggregate Stated
Principal Balance of the Mortgage Pool is outstanding and (2) the sum of the
aggregate unpaid Nonrecoverable Advances plus the aggregate unpaid
Workout-Delayed Reimbursement Amounts, which have not been reimbursed to the
Master Servicer, Special Servicer, Fiscal Agent or Trustee, as applicable,
exceeds 20% of the aggregate Stated Principal Balance of the Mortgage Pool then
outstanding, then the Master Servicer, the Special Servicer, the Fiscal Agent or
the Trustee, as applicable, may obtain reimbursement of any outstanding
Workout-Delayed Reimbursement Amount from principal collections or any other
amounts in the Certificate Account, including but not limited to interest
collected on the Mortgage Loans, if principal is not sufficient to pay such
amounts; provided, further, however, that the foregoing shall not in any manner
limit the right of the Master Servicer, Special Servicer, Fiscal Agent or
Trustee, as applicable, to choose voluntarily to seek reimbursement of
Workout-Delayed Reimbursement Amounts solely from collections of principal. The
Master Servicer, Special Servicer, Fiscal Agent or Trustee, as applicable, will
give each Rating Agency three weeks prior notice of its intent to obtain
reimbursement of Workout-Delayed Reimbursement Amounts from interest collections
as described in the preceding sentence. As used in the second preceding
sentence, "Workout-Delayed Reimbursement Amount" means, with respect to any
Mortgage Loan, the amount of any Advance made with respect to such mortgage loan
on or before the date such mortgage loan becomes (or, but for the making of 3
monthly payments under its modified terms, would then constitute) a Corrected
Mortgage Loan, together with (to the extent accrued and unpaid) interest on such
Advances, to the extent that (i) such Advance is not reimbursed to the person
who made such Advance on or before the date, if any, on which such mortgage loan
becomes a Corrected Mortgage Loan and (ii) the amount of such Advance becomes an
obligation of the related borrower to pay such amount under the terms of the
modified loan documents. That any amount constitutes all or a portion of any
Workout-Delayed Reimbursement Amount will not in any manner limit the right of
any person hereunder to determine that such amount instead constitutes a
Nonrecoverable Advance recoverable in the same manner as any other
Nonrecoverable Advance. See "Description of the Certificates--Advances in
Respect of Delinquencies" and "The Pooling and Servicing Agreements--Certificate
Account" in the accompanying prospectus.
The Master Servicer, the Fiscal Agent and the Trustee will each be entitled
with respect to any Advance made thereby, and the Special Servicer will be
entitled with respect to any Servicing Advance made thereby, to 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" as published in the
"Money Rates" section of The Wall Street Journal, as such "prime rate" may
change from time to time except that no interest will be payable with respect to
any P&I Advance of a payment due on a Mortgage Loan during the applicable grace
period. The interest referred to in the immediately preceding sentence is
referred to in this Prospectus Supplement as "Advance Interest". Such interest
on any Advance will be payable to the Master Servicer, the Special Servicer, the
Fiscal Agent or the Trustee, as the case may be, first, out of Default Charges
collected on the related Mortgage Loan and, second, at any time coinciding with
or following the reimbursement of such Advance, out of any amounts then on
deposit in the Certificate Account. To the extent not offset by Default Charges
accrued and actually collected on the related Mortgage Loan as described above,
interest accrued on outstanding Advances will result in a reduction in amounts
payable on the Certificates.
APPRAISAL REDUCTIONS
Promptly following the occurrence of any of the following events: (1) any
Mortgage Loan becoming a Modified Mortgage Loan; (2) any Monthly Payment with
respect to any Mortgage Loan
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remains unpaid for 60 days past the Due Date for such payment; (3) the passage
of 60 days after the Special Servicer receives notice that the mortgagor under
such Mortgage Loan becomes the subject of bankruptcy, insolvency or similar
proceedings, which remain undischarged and undismissed; (4) the passage of 60
days after the Special Servicer receives notice that a receiver or similar
official is appointed with respect to the related Mortgaged Property; (5) the
related Mortgaged Property becoming an REO Property or (6) if a Mortgage Loan
has been extended three times upon the 60th day after the third extension (an
"Appraisal Trigger Event") with respect to any Mortgage Loan (each such loan, a
"Required Appraisal Loan"), the Special Servicer will be required to obtain (or,
if such Mortgage Loan has a Stated Principal Balance of $2,000,000 or less, at
its discretion, conduct) an appraisal of the related Mortgaged Property from an
independent MAI-designated appraiser, unless such an appraisal had previously
been obtained (or if applicable, conducted) within the prior twelve months and
there has been no subsequent material change in the circumstances surrounding
the related Mortgaged Property that, in the Special Servicer's judgment, would
materially affect the value of the Mortgaged Property, and shall deliver a copy
of such appraisal to the Trustee, the Master Servicer and the Directing
Certificateholder. If such appraisal is obtained from a qualified appraiser, the
cost of such appraisal will be covered by, and reimbursable as a Servicing
Advance. As a result of any such appraisal, it may be determined that an
Appraisal Reduction Amount exists with respect to the related Required Appraisal
Loan. The "Appraisal Reduction Amount" for any Required Appraisal Loan will, in
general, be an amount (calculated as of the Determination Date immediately
following the later of the date on which the most recent relevant appraisal was
obtained by the Special Servicer pursuant to the Pooling Agreement and the date
of the most recent Appraisal Trigger Event with respect to such Required
Appraisal Loan) equal to the excess, if any, of:
(1) the sum of (a) the Stated Principal Balance of such Required
Appraisal Loan as of such Determination Date, (b) to the extent not
previously advanced by or on behalf of the Master Servicer, or the Trustee,
all unpaid interest (net of Default Interest) accrued on such Required
Appraisal Loan through the most recent Due Date prior to such Determination
Date, (c) all unpaid Master Servicing Fees, Special Servicing Fees, Trustee
Fees and Additional Trust Fund Expenses accrued with respect to such
Required Appraisal Loan, (d) all related unreimbursed Advances made by or
on behalf of the Master Servicer, the Special Servicer or, the Trustee with
respect to such Required Appraisal Loan and reimbursable out of the Trust
Fund, together with all unpaid Advance Interest accrued on such Advances,
and (e) all currently due but unpaid real estate taxes and assessments,
insurance premiums and, if applicable, ground rents in respect of the
related Mortgaged Property or REO Property, as applicable, for which
neither the Master Servicer nor the Special Servicer holds any escrow
payments or Reserve Funds; over
(2) the sum of (x) the excess, if any, of (i) 90% of the Appraisal
Value of the related Mortgaged Property or REO Property, as applicable, as
determined by the most recent relevant appraisal acceptable for purposes of
the Pooling Agreement, over (ii) the amount of any obligation(s) secured by
any liens on such Mortgaged Property or REO Property, as applicable, that
are prior to the lien of such Required Appraisal Loan, and (y) any escrow
payments reserve funds and/or letters of credit held by the Master Servicer
or the Special Servicer with respect to such Required Appraisal Loan, the
related Mortgaged Property or any related REO Property (exclusive of any
such items that are to be applied to real estate taxes, assessments,
insurance premiums and/or ground rents or that were taken into account in
determining the Appraised Value of the related Mortgaged Property or REO
Property, as applicable, referred to in clause (2)(x)(i) above).
If the Special Servicer has not obtained a new appraisal (or performed an
internal valuation, if applicable) within the time limit described above, the
Appraisal Reduction Amount for the related Mortgage Loan will equal 25% of the
principal balance of such Mortgage Loan, to be adjusted upon receipt of the new
appraisal (or internal valuation, if applicable).
For so long as any Mortgage Loan or REO Loan remains 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 obtain (or, if
such Required Appraisal Loan has a Stated Principal
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Balance of $2,000,000 or less, at its discretion, conduct) an update of the
prior appraisal, and shall deliver a copy of such update to the Trustee, the
Master Servicer and the Directing Certificateholder. If such update is obtained
from a qualified appraiser, the cost thereof shall be covered by, and be
reimbursed as, a Servicing Advance. Promptly following the receipt of, and based
upon, such update, the Special Servicer shall redetermine and report to the
Trustee, the Master Servicer and the Directing Certificateholder the then
applicable Appraisal Reduction Amount, if any, with respect to the subject
Required Appraisal Loan.
The Directing Certificateholder will have the right at any time within six
months of the date of the receipt of any appraisal to require that the Special
Servicer obtain a new appraisal of the subject Mortgaged Property in accordance
with MAI standards, at the expense of the Controlling Class Certificateholder.
Upon receipt of such appraisal the Special Servicer will deliver a copy thereof
to the Trustee, the Master Servicer and the Directing Certificateholder.
Promptly following the receipt of, and based upon, such appraisal, the Special
Servicer will redetermine and report to the Trustee, the Master Servicer and the
Directing Certificateholder the then applicable Appraisal Reduction Amount, if
any, with respect to the subject Required Appraisal Loan.
A "Modified Mortgage Loan" is any Mortgage 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 Mortgage 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 reasonable judgment
of the Special Servicer, otherwise materially impairs the security for such
Mortgage Loan or reduces the likelihood of timely payment of amounts due
thereon.
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
Trustee Reports. Based 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 deliver or make available
electronically each month to each Certificateholder and Certificate Owner (so
long as such Certificate Owner provides the Trustee with a certification which
discloses such Certificate Owner's status as a holder), the following statements
and reports (collectively, the "Distribution Date Statement") substantially in
the forms set forth in Annex C (although such forms may be subject to change
over time) and substantially containing the information 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 II 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 II
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 Determination Date, the aggregate amount of P&I
Advances made as of the Master Servicer Remittance Date ("Payment After
Determination Date Report"), the aggregate amount of P&I Advances and other
Servicing Advances made in respect of the immediately preceding
Distribution Date; (v) the aggregate Stated Principal Balance of the
Mortgage 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 Mortgage Rate of
the Mortgage Pool as of the end of the Collection Period for the prior
Determination Date; (vii) as of the end of the Collection Period for the
immediately preceding Distribution Date, the number and aggregate ending
scheduled principal balance of Mortgage Loans (A) delinquent 30-59 days,
(B) delinquent 60-89 days, (C) delinquent 90 days or more, (D) as to which
foreclosure proceedings have been commenced (except with respect to REO
Properties) and (E) any bankruptcy by a borrower; (viii) with respect to
any REO Property included in the Trust Fund as of the end of the
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Collection Period for such Distribution Date, the principal balance of the
Mortgage Loan as of the date such Mortgage Loan became delinquent; (ix) the
Accrued Certificate Interest and Distributable Certificate Interest in
respect of each Class of REMIC II Certificates for such Distribution Date;
(x) the aggregate amount of Distributable Certificate Interest payable in
respect of each Class of REMIC II 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 II
Certificates after giving effect to the distributions made on such
Distribution Date; (xii) the Pass-Through Rate for each Class of REMIC II
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 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 II Certificates outstanding immediately before and immediately
after such Distribution Date, separately identifying any reduction therein
due to the allocation of Realized Losses and Additional Trust Fund Expenses
on such Distribution Date; (xvi) the aggregate amount of servicing fees
paid to the Master Servicer and the Special Servicer, collectively and
separately, during the Collection Period for the prior Distribution Date;
(xvii) a brief description of any material waiver, modification or
amendment of any Mortgage Loan entered into by the Master Servicer or
Special Servicer pursuant to the Pooling Agreement during the related
Collection Period; (xviii) current and cumulative outstanding Advances;
(xix) current prepayments and curtailments; (xx) the number and aggregate
principal balance of Mortgage Loans as to which foreclosure proceedings
have been commenced as to the related Mortgage Property; and (xxi) the
ratings from all Rating Agencies for all Classes of Certificates. 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 Mortgage 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 Mortgage Loans set forth in this prospectus supplement in the
tables under the caption "Annex A: Certain Characteristics of the Mortgage
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, occupancy, actual revenues and actual net
operating income for the respective Mortgaged Properties and a debt service
coverage ratio calculated on the basis thereof).
Servicer Reports. The Master Servicer is required to deliver to the Trustee
on the second Business Day following each Determination Date, and the Trustee is
to provide or make available on each Distribution Date, either in electronic
format or by first-class mail (if requested in writing) to each
Certificateholder, and any potential investor in the Certificates, on each
Distribution Date, a CMSA loan setup file, a CMSA loan periodic update file, a
CMSA property file, and a CMSA financial file (in electronic format and
substance provided by the Master Servicer and/or the Special Servicer) setting
forth certain information with respect to the Mortgage Loans and the Mortgaged
Properties, and certain CMSA supplemental reports set forth in the Pooling
Agreement containing certain information regarding the Mortgage Loans and the
Mortgaged Properties all of which will be made available electronically (i) to
any interested party including the Rating Agencies, the Underwriters and any
party to the Pooling Agreement via the Trustee's Website or, (ii) to authorized
persons identified by the Trustee to the Master Servicer and parties to the
Pooling Agreement, via the Master Servicer's Website, if the Master Servicer
elects to maintain a website, in its sole
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discretion, with the use of a username and a password provided by the Master
Servicer to such Person upon delivery to the Trustee with a copy to the Master
Servicer of a certification in the form attached to the Pooling Agreement.
The servicer reports will not include any information that the Master
Servicer or the Special Servicer, as applicable, deems to be confidential. The
information that pertains to Specially Serviced Mortgage 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.
Within 60 days after receipt by the Master Servicer from the related
borrowers or otherwise, as to Non-Specially Serviced Mortgage Loans, and within
45 days after receipt by the Master Servicer from the Special Servicer or
otherwise, as to Specially Serviced Mortgage Loans and REO Properties, of any
annual operating statements or rent rolls with respect to any Mortgaged Property
or REO Property, the Master Servicer (or the Special Servicer, with respect to
Specially Serviced Mortgage Loan) shall, based upon such operating statements or
rent rolls, prepare (or, if previously prepared, update) a report (the "CMSA
Operating Statement Analysis Report") and the Master Servicer shall remit a copy
of each CMSA Operating Statement Analysis Report prepared or updated by it
(within 10 days following initial preparation and each update thereof), together
with, if so requested, the underlying operating statements and rent rolls, to
the Special Servicer in a format reasonably acceptable to the Trustee and
Special Servicer.
Within 60 days after receipt by the Master Servicer (or 30 days in the case
of items received by the Special Servicer with respect to Specially Serviced
Mortgage Loans and REO Properties) of any quarterly or annual operating
statements with respect to any Mortgaged Property or REO Property, the Master
Servicer (or the Special Servicer, with respect to Specially Serviced Mortgage
Loans) shall prepare or update and forward to the Special Servicer and the
Directing Certificateholder (in an electronic format reasonably acceptable to
the Special Servicer) a report (the "CMSA NOI Adjustment Worksheet") to
normalize the full year net operating income and debt service coverage numbers
for such Mortgaged Property or REO Property, together with, if so requested, the
related operating statements.
All CMSA Operating Statement Analysis Reports and CMSA NOI Adjustment
Worksheets will be prepared substantially in the form as set forth in the
Pooling Agreement and will be maintained by the Master Servicer with respect to
each Mortgaged Property and REO Property, and the Master Servicer will forward
electronic copies (to the extent available) to the Directing Certificateholder,
the Trustee upon request, each Rating Agency upon request, and any
Certificateholder, upon request, or to the extent a beneficial owner of an
Offered Certificate (a "Certificate Owner") has confirmed its ownership interest
in the Certificates held thereby, such Certificate Owner, together with the
related operating statement or rent rolls. Each CMSA Operating Statement
Analysis Report and CMSA NOI Adjustment Worksheet will be prepared using
normalized year-to-date CMSA methodology as in effect on the Delivery Date and
as modified and reasonably agreeable to the Master Servicer from time to time.
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 Mortgage Loan Seller 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 the general public, the
Distribution Date Statement (and any additional files containing the same
information in an alternative format), the servicer reports, Mortgage Loan
information as presented in the CMSA loan setup file, CMSA loan periodic update
file, all other CMSA reports provided to it by the Master Servicer and any other
item at the request of the Depositor to any interested party via the Trustee's
Website initially located at "www.etrustee.net". In addition, pursuant to the
Pooling Agreement, the Trustee will make
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available, as a convenience to the general public (and not in furtherance of the
distribution of the accompanying prospectus or the prospectus supplement under
the securities laws), the Pooling Agreement, the accompanying prospectus and the
prospectus supplement via the Trustee's Website. For assistance with the
above-referenced services, interested parties may call (714) 238-6701. 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, 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 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 Agreement requires that the Trustee make
available at its offices, during normal business hours, upon reasonable advance
written notice, for review by any holder or Certificate Owner of an Offered
Certificate or any person identified to the 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 to the extent in its possession: (a) all officer's certificates delivered
to the Trustee since the Delivery Date as described under "Servicing of the
Mortgage 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 Mortgage Loans--Evidence as to Compliance" in
this prospectus supplement, and (c) the Mortgage Note, Mortgage and other legal
documents relating to each Mortgage Loan, including any and all modifications,
waivers and amendments of the terms of a Mortgage Loan entered into by the
Master Servicer or the Special Servicer and delivered to the Trustee. In
addition, the Master Servicer is required to make available, during normal
business hours, upon reasonable advance written notice, for review by any holder
or Certificate Owner of an Offered Certificate (as confirmed to the Master
Servicer by the Trustee) or any person identified to the Master Servicer by the
Trustee 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 Mortgage 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 "Description of the
Certificates--Reports to Certificateholders; Certain Available
Information--Trustee Reports" in this prospectus supplement; provided that,
until the Trustee has either disclosed such information to all
Certificateholders along with the Distribution Date Statement or has properly
filed such information with the Securities and Exchange Commission on behalf of
the Trust under the Securities Exchange Act of 1934, the Master Servicer is
entitled to withhold such item of information from any Certificateholder or
Certificate Owner or prospective transferee of a Certificate or an interest
therein; and, provided, further, that the Master Servicer is not required to
make information contained in any servicing file available to any person to the
extent that doing so is prohibited by applicable law or by any documents related
to a Mortgage Loan.
The Trustee, subject to the last sentence of the prior paragraph, will make
available, upon reasonable advance written notice and at the expense of the
requesting party, originals or copies of the items referred to in the prior
paragraph that are maintained thereby, to Certificateholders, Certificate Owners
and prospective purchasers of Certificates and interests therein; provided that
the Trustee may 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 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
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person or entity, in a form reasonably acceptable to the Trustee 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, 98% 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 2% of the Voting Rights
shall be allocated to the holders of the Class X Certificates (allocated, pro
rata, between the Classes of Class X Certificates based on Notional Amount) in
proportion to their Notional Amounts. No Voting Rights will be assigned to the
REMIC Residual Certificates. See "Description of the Certificates--Voting
Rights" in the accompanying prospectus.
TERMINATION
The obligations created by the Pooling Agreement will terminate following
the earliest of (i) the final payment (or advance in respect thereof) or other
liquidation of the last Mortgage Loan or related REO Property remaining in the
Trust Fund, and (ii) the purchase or exchange of all of the Mortgage Loans that
constitute the Initial Pool Balance and REO Properties remaining in the Trust
Fund by the Master Servicer, Special Servicer or by any holder or holders (other
than the Depositor or the Mortgage Loan Seller) 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, Special Servicer or the majority
holder(s) of the Controlling Class of all the Mortgage 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 Mortgage Loans that
constitute the Initial Pool Balance then included in the Trust Fund (other than
any Mortgage Loans as to which the related Mortgaged Properties have become REO
Properties) and (ii) the fair market value of all REO Properties then included
in the Trust Fund, as determined by an appraiser mutually agreed upon by the
Master Servicer and the Trustee, minus (b) (solely in the case of a purchase by
the Master Servicer) the aggregate of all amounts payable or reimbursable to the
Master Servicer under the Pooling Agreement. Such purchase will effect early
retirement of the then outstanding Certificates, but the right of the Master
Servicer, Special 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 Mortgage Pool be less than 1.0% of the Initial
Pool Balance as of the Delivery Date. The purchase price paid by the Master
Servicer, Special 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.
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THE TRUSTEE AND THE FISCAL AGENT
THE TRUSTEE
LaSalle Bank National Association ("LaSalle"), a national banking
association with its principal offices located in Chicago, Illiniois, 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, 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 determines 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, Suite 1625 Chicago, Illinois 60603, Attention:
Asset-Backed Securities Trust Services Group--Banc of America Commercial
Mortgage Inc. 2004-2.
The Trustee will make no representation as to the validity or sufficiency
of the Pooling Agreement, the certificates, the Mortgage 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 "Aa3" by Moody's and "A+" by
S&P.
The information set forth herein concerning the Trustee has been provided
by the Trustee and neither the Depositor nor any Underwriter makes any
representation or warranty as to the accuracy or completeness of such
information.
Pursuant to the Pooling Agreement, the Trustee will be entitled to a
monthly fee (the "Trustee Fee"; and, together with the Master Servicing Fee the
"Administrative Fees") payable out of general collections on the Mortgage Loans
and any REO Properties. The Administrative Fees will be computed for the same
period for which interest payments on the Mortgage Loans are computed.
The Trustee will also have certain duties with respect to REMIC
administration (in such capacity the "REMIC Administrator"). See "Certain
Federal Income Tax Consequences--REMICs-- Reporting and Other Administrative
Matters" and "The Pooling and Servicing Agreements--Certain Matters Regarding
the Master Servicer, the Special Servicer, the REMIC Administrator and the
Depositor", "--Events of Default" and "--Rights Upon Event of Default" in the
accompanying prospectus.
In the event that the Master Servicer and the Trustee fail to make a
required 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 determines 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.
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The Fiscal Agent will make no representation as to the validity or
sufficiency of the Pooling Agreement, the certificates, the Mortgage 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.
INDEMNIFICATION
Each of the Trustee and the Fiscal Agent 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 or the Fiscal Agent. Any such
indemnification payments will be Additional Trust Fund Expenses that will reduce
the amount available to be distributed to Certificateholders as described under
"Description of the Certificates--Subordination; Allocation of Losses and
Certain Expenses" in this prospectus supplement.
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
General. The yield on any Offered Certificate will depend on (a) the price
at which such Certificate is purchased by an investor and (b) the rate, timing
and amount of distributions on such Certificate. The rate, timing and amount of
distributions on any Offered Certificate will in turn depend on, among other
things, (v) the Pass-Through Rate for such Certificate, (w) the rate and timing
of principal payments (including principal prepayments) and other principal
collections on or in respect of the Mortgage 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, (x) the
rate, timing and severity of Realized Losses on or in respect of the Mortgage
Loans and of Additional Trust Fund Expenses and Appraisal Reductions and the
extent to which such losses, expenses and reductions are allocable to or
otherwise result in the nonpayment or deferred payment of interest on, or
reduction of the Certificate Balance or Notional Amount, the Class of
Certificates to which such Certificate belongs, (y) 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 (z)
the extent to which Prepayment Premiums are collected and, in turn, distributed
on the Class of Certificates to which such Certificate belongs.
Rate and Timing of Principal Payments. The yield to holders of any Class of
Offered Certificates that are Sequential Pay Certificates purchased at a
discount or premium will be affected by the rate and timing of reductions of the
Certificate Balances of such Class of Certificates. As described in this
prospectus supplement, the Principal Distribution Amount for each Distribution
Date will be distributable entirely in respect of the Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates and Class
A-5 Certificates until the related Certificate Balances thereof are reduced to
zero. Following retirement of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates and Class A-5
Certificates, the Principal Distribution Amount for each Distribution Date will
be distributable entirely in respect of the remaining 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 Offered Certificates will depend on the rate and timing of
principal payments on or in respect of the Mortgage Loans, which will in turn be
affected by the amortization schedules thereof, the dates on which any Balloon
Payments are due and the rate and timing of principal prepayments and other
unscheduled collections thereon (including for this purpose, collections made in
connection with liquidations of Mortgage Loans due to defaults, casualties or
condemnations affecting the Mortgaged Properties, or purchases of Mortgage Loans
out of the Trust Fund). Prepayments and, assuming the respective stated maturity
dates therefor have not occurred, liquidations of the Mortgage Loans will result
in distributions on
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the Sequential Pay Certificates of amounts that would otherwise be distributed
over the remaining terms of the Mortgage Loans and will tend to shorten the
weighted average lives of those Certificates. Defaults on the Mortgage Loans,
particularly in the case of Balloon Loans at or near their stated maturity
dates, may result in significant delays in payments of principal on the Mortgage
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. Failure of the borrower under
an ARD Loan to repay its respective Mortgage Loan by or shortly after its
Anticipated Repayment Date, for whatever reason, will also tend to lengthen the
weighted average lives of the Sequential Pay Certificates. Although the ARD Loan
includes incentives for the related borrower to repay the Mortgage Loan by its
Anticipated Repayment Date (e.g., an increase in the interest rate of the loan
above the Mortgage Rate and the application of all excess cash (net of approved
property expenses and any required reserves) from the related Mortgaged Property
to pay down the Mortgage loan, in each case following the passage of such date),
there can be no assurance that the related borrower will want, or be able, to
repay the Mortgage Loan in full. See "Servicing of the Mortgage
Loans--Modifications, Waivers, Amendments and Consents" herein and "The Pooling
and Servicing Agreements--Realization Upon Defaulted Mortgage Loans" and
"Certain Legal Aspects of Mortgage Loans--Foreclosure" in the accompanying
prospectus.
The extent to which the yield to maturity of any Class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which such Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on or in respect of the Mortgage 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 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 on the Mortgage 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 Mortgage
Loans is distributed or otherwise results in reduction of the principal balance
of any other Offered Certificate purchased at a discount or premium, the greater
will be the effect on an investor's yield to maturity. As a result, the effect
on an investor's yield of principal payments occurring at a rate higher (or
lower) than the rate anticipated by the investor during any particular period
may not be fully offset by a subsequent like reduction (or increase) in the rate
of principal payments. Because the rate of principal payments on or in respect
of the Mortgage 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 mortgage loans comparable
to the Mortgage Loans.
Losses and Shortfalls. The yield to holders of the Offered Certificates
will also depend on the extent to which such holders are required to bear the
effects of any losses or shortfalls on the Mortgage Loans. As to the extent
described in this prospectus supplement, 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 Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates, Class A-4
Certificates and Class A-5 Certificates, pro rata in accordance with their
respective remaining Certificate Balances, until the remaining Certificate
Balance of each such Class 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 Sequential Pay
Certificates (in each case, to reduce the amount of interest otherwise payable
thereon on such Distribution Date) as follows: first, to the respective
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Classes of Sequential Pay 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 Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates, Class A-4
Certificates and Class A-5 Certificates, up to, and pro rata in accordance with,
the respective amounts of Accrued Certificate Interest for each such Class for
such Distribution Date.
Certain Relevant Factors. The rate and timing of principal payments and
defaults and the severity of losses on or in respect of the Mortgage Loans may
be affected by a number of factors, including, without limitation, prevailing
interest rates, the terms of the Mortgage 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, rental apartments, hotel rooms, industrial or warehouse
space, health care facility beds, senior living units 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
Mortgage Loans", "Description of the Mortgage Pool" and "Servicing of the
Mortgage Loans" herein and "The Pooling and Servicing Agreements" and "Yield and
Maturity Considerations--Yield and Prepayment Considerations" in the
accompanying prospectus.
The rate of prepayment on the Mortgage Loans is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below the Mortgage
Rate at which a Mortgage Loan accrues interest, a borrower may have an increased
incentive to refinance such Mortgage Loan. Conversely, to the extent prevailing
market interest rates exceed the applicable Mortgage Rate for any Mortgage Loan,
such Mortgage Loan may be less likely to prepay. Accordingly, there can be no
assurance that a Mortgage Loan will be prepaid prior to maturity.
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 Mortgage Loan is not in a Lock-out Period, any Prepayment Premium in
respect of such Mortgage 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 Mortgage Pool--Certain Terms and Conditions of the Mortgage
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
Mortgage Loans, as to the relative importance of such factors, as to the
percentage of the principal balance of the Mortgage 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 Mortgage 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.
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Accordingly, the weighted average life of any such Offered Certificate will be
influenced by, among other things, the rate at which principal of the Mortgage
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 in this prospectus supplement, the
Principal Distribution Amount for each Distribution Date will be distributable
entirely in respect of the Class A-1 Certificates, Class A-2 Certificates, Class
A-3 Certificates, Class A-4 Certificates and Class A-5 Certificates until the
Certificate Balances thereof are reduced to zero, and will thereafter be
distributable entirely in respect of the remaining 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-1
Certificates, Class A-2 Certificates, Class A-3 Certificates, Class A-4
Certificates and Class A-5 Certificates may be shorter, and the weighted average
lives of the Class B, Class C, Class D, Class E, Class F, Class G, Class H,
Class J, Class K, Class L, Class M, Class N, Class O and Class P Certificates
may be longer, than would otherwise be the case if the Principal Distribution
Amount for each Distribution Date was being distributed on a pro rata basis
among the respective Classes of Sequential Pay Certificates.
Prepayments on mortgage 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 Mortgage Loans is
prepaid before maturity. The columns headed "25%", "50%", "75%", "100%" assume
that no prepayments are made on any Mortgage Loan during such Mortgage Loan's
Lock-out Period, if any, or during such Mortgage Loan's yield maintenance
period, if any, and are otherwise made on each of the Mortgage Loans at the
indicated CPRs.
There is no assurance, however, that prepayments of the Mortgage 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 Mortgage Loans
will prepay in accordance with the assumptions at any of the CPRs shown or at
any other particular prepayment rate, that all the Mortgage Loans will prepay in
accordance with the assumptions at the same rate or that Mortgage 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 Mortgage 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-1, Class A-2, Class A-3, Class A-4, Class A-5, Class B,
Class C, Class D and Class E 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 Mortgage Loans have the characteristics set forth on
Annex A as of the Cut-off Date, (ii) the Pass-Through Rate and the initial
Certificate Balance (such initial Certificate Balance referred to herein for
purposes of the Maturity Assumptions as the "Initial Certificate Balance"), as
the case may be, of each Class of Offered Certificates are as described herein,
(iii) the scheduled Monthly Payments for each Mortgage Loan that accrues
interest on the basis of actual number of days elapsed during the month of
accrual in a 360-day year are the actual contractual Monthly Payments (adjusted
to take into account the addition or subtraction of any Withheld Amounts as
described under "Description of the Certificates--Interest Reserve Account"),
(iv) there are no delinquencies or losses in respect of the Mortgage Loans,
there are no modifications, extensions, waivers or amendments affecting the
payment by borrowers of principal or interest on the Mortgage Loans, there are
no Appraisal Reduction Amounts with respect to the Mortgage Loans and there are
no casualties or condemnations affecting the Mortgaged Properties, (v) scheduled
Monthly Payments on the Mortgage Loans are timely received, (vi) no voluntary or
involuntary prepayments are received as to any Mortgage Loan during such
Mortgage Loan's Lock-out Period ("LOP"), if any, or, yield maintenance period
("YMP"), if any, and, the ARD Loan is paid in full on its Anticipated Repayment
Date, otherwise, prepayments are made on each of the Mortgage Loans at the
indicated CPRs set forth in the tables (without regard to any limitations in
such Mortgage
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Loans on partial voluntary principal prepayments), (vii) none of the Master
Servicer, the Special Servicer nor any majority holder(s) of the Controlling
Class exercises its or exercise their right of optional termination described
herein, (viii) no Mortgage Loan is required to be repurchased by the Mortgage
Loan Seller, (ix) no Prepayment Interest Shortfalls are incurred, (x) there are
no Additional Trust Fund Expenses, (xi) distributions on the Offered
Certificates are made on the 10th day of each month, commencing in May 2004 and
(xii) the Offered Certificates are settled on April 14, 2004 (the "Settlement
Date"). To the extent that the Mortgage Loans have characteristics that differ
from those assumed in preparing the tables set forth below, Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5, Class B, Class C, Class D, Class E
Certificates may mature earlier or later than indicated by the tables. It is
highly unlikely that the Mortgage Loans will prepay in accordance with the above
assumptions at any of the specified CPRs until maturity or that all the Mortgage
Loans will so prepay at the same rate. The indicated prepayment speeds were
assumed for each Mortgage Loan for any period for which a fixed prepayment
premium would apply under such Mortgage Loan. In addition, variations in the
actual prepayment experience and the balance of the Mortgage Loans that prepay
may increase or decrease the percentages of the Initial Certificate Balances
(and weighted average lives) shown in the following tables. Such variations may
occur even if the average prepayment experience of the Mortgage 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 Mortgage Loans
may be expected to prepay.
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-1 CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- -- --- --- --- ----
Initial Percentage .................... 100.00% 100.00% 100.00% 100.00% 100.00%
April 10, 2005 ........................ 85.76 85.76 85.76 85.76 85.76
April 10, 2006 ........................ 69.99 69.99 69.99 69.99 69.99
April 10, 2007 ........................ 52.46 52.46 52.46 52.46 52.46
April 10, 2008 ........................ 33.59 33.03 32.27 31.03 10.14
April 10, 2009 ........................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) ......... 2.90 2.90 2.89 2.87 2.80
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-2 CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- -- --- --- --- ----
Initial Percentage .................... 100.00% 100.00% 100.00% 100.00% 100.00%
April 10, 2005 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2006 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2007 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2008 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2009 ........................ 0.05 0.05 0.05 0.05 0.05
April 10, 2010 ........................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) ......... 4.83 4.82 4.82 4.81 4.74
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PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-3 CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- -- --- --- --- ----
Initial Percentage .................... 100.00% 100.00% 100.00% 100.00% 100.00%
April 10, 2005 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2006 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2007 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2008 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2009 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2010 ........................ 95.37 95.37 95.37 95.37 95.37
April 10, 2011 ........................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) ......... 6.61 6.60 6.58 6.56 6.40
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-4 CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- -- --- --- --- ----
Initial Percentage .................... 100.00% 100.00% 100.00% 100.00% 100.00%
April 10, 2005 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2006 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2007 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2008 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2009 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2010 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2011 ........................ 13.85 13.41 12.84 11.99 7.48
April 10, 2012 ........................ 6.48 4.59 2.86 1.33 0.23
April 10, 2013 ........................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) ......... 7.09 7.05 7.02 6.98 6.79
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS A-5 CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- -- --- --- --- ----
Initial Percentage .................... 100.00% 100.00% 100.00% 100.00% 100.00%
April 10, 2005 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2006 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2007 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2008 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2009 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2010 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2011 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2012 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2013 ........................ 99.31 97.87 96.92 96.42 96.28
April 10, 2014 ........................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) ......... 9.64 9.62 9.59 9.57 9.41
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PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS B CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- -- --- --- --- ----
Initial Percentage .................... 100.00% 100.00% 100.00% 100.00% 100.00%
April 10, 2005 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2006 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2007 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2008 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2009 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2010 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2011 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2012 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2013 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2014 ........................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) ......... 9.83 9.82 9.82 9.82 9.73
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS C CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- -- --- --- --- ----
Initial Percentage .................... 100.00% 100.00% 100.00% 100.00% 100.00%
April 10, 2005 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2006 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2007 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2008 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2009 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2010 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2011 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2012 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2013 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2014 ........................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) ......... 9.91 9.90 9.87 9.84 9.74
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PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS D CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- -- --- --- --- ----
Initial Percentage .................... 100.00% 100.00% 100.00% 100.00% 100.00%
April 10, 2005 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2006 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2007 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2008 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2009 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2010 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2011 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2012 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2013 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2014 ........................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) ......... 9.91 9.91 9.91 9.91 9.74
PERCENTAGES OF THE INITIAL CERTIFICATE BALANCE OF
THE CLASS E CERTIFICATES UNDER THE SPECIFIED CPRS
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------------------------
DATE 0% 25% 50% 75% 100%
- ---- -- --- --- --- ----
Initial Percentage .................... 100.00% 100.00% 100.00% 100.00% 100.00%
April 10, 2005 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2006 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2007 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2008 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2009 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2010 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2011 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2012 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2013 ........................ 100.00 100.00 100.00 100.00 100.00
April 10, 2014 ........................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years) ......... 9.91 9.91 9.91 9.91 9.81
YIELD SENSITIVITY OF THE CLASS XP CERTIFICATES
The yield to maturity of the Class XP Certificates will be highly sensitive
to the rate and timing of principal payments (including by reason of
prepayments, loan extensions, defaults and liquidations) and losses on or in
respect of the Mortgage Loans. Investors in the Class XP Certificates should
fully consider the associated risks, including the risk that an extremely rapid
rate of amortization, prepayment or other liquidation of the Mortgage Loans
could result in the failure of such investors to recoup fully their initial
investments.
The following table indicates the approximate pre-tax yield to maturity on
a corporate bond equivalent ("CBE") basis on the Class XP Certificates for the
specified CPRs based on the Maturity Assumptions. It was further assumed (i)
that the purchase price of the Class XP Certificates is as specified below,
expressed as a percentage of the initial Notional Amount of such Certificates,
which price does not include accrued interest and (ii) the Master Servicer, the
Special Servicer or a holder or holders of Certificates representing a majority
interest in the Controlling Class purchased all of the Mortgage Loans and REO
Properties as described under "Description of the Certificates-- Termination;
Retirement of Certificates" in this prospectus supplement.
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The yields set forth in the following table were calculated by determining
the monthly discount rates that, when applied to the assumed streams of cash
flows to be paid on the Class XP Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed purchase
price thereof, and by converting such monthly rates to semi-annual corporate
bond equivalent rates. Such calculation does not take into account shortfalls in
collection of interest due to prepayments (or other liquidations) of the
Mortgage Loans or the interest rates at which investors may be able to reinvest
funds received by them as distributions on the Class XP Certificates (and,
accordingly, does not purport to reflect the return on any investment in the
Class XP Certificates when such reinvestment rates are considered).
The characteristics of the Mortgage Loans may differ from those assumed in
preparing the table below. In addition, there can be no assurance that the
Mortgage Loans will prepay in accordance with the above assumptions at any of
the rates shown in the table or at any other particular rate, that the cash
flows on the Class XP Certificates will correspond to the cash flows shown
herein or that the aggregate purchase price of the Class XP Certificates will
correspond to the cash flows shown herein or that the aggregate purchase price
of the Class XP Certificates will be assumed. In addition, it is unlikely that
the Mortgage Loans will prepay in accordance with the above assumptions at any
of the specified. CPRs until maturity or that all of the Mortgage Loans will so
prepay at the same rate. Timing of changes in the rate of prepayments may
significantly affect the actual yield to maturity to investors, even if the
average rate of principal prepayments is consistent with the expectations of
investors. Investors must make their own decisions as to the appropriate
prepayment assumption to be used in deciding whether to purchase Class XP
Certificates.
PRE-TAX TO MATURITY (CBE)
OF THE CLASS XP CERTIFICATES
(PREPAYMENTS LOCKED OUT THROUGH LOP AND YMP, THEN THE FOLLOWING CPR)
PREPAYMENT ASSUMPTION (CPR)
--------------------------------------------------------------
ASSUMED PURCHASE PRICE 0% 25% 50% 75% 100%
- ------------------------ ---------- ---------- ---------- ---------- ----------
5.414818% .............. 3.36% 3.36% 3.36% 3.36% 3.36%
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Offered Certificates
will be used by the Depositor to purchase the Mortgage Loans as described under
"Description of the Certificates-- General" in this prospectus supplement, and
to pay certain expenses in connection with the issuance of the Certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
For federal income tax purposes, two separate "real estate mortgage
investment conduit" ("REMIC") elections will be made with respect to designated
portions of the Trust Fund, the resulting REMICs being herein referred to as the
"REMIC I" and "REMIC II" respectively. The assets of REMIC I generally will
include the Mortgage Loans, any REO Properties acquired on behalf of the
Certificateholders and amounts with respect thereto contained in the Certificate
Account, the Interest Reserve Account and the REO Accounts (each as defined in
the accompanying prospectus). The assets of REMIC II will consist of certain
uncertificated "regular interests" in REMIC I and amounts in the Certificate
Account with respect thereto. For federal income tax purposes, (i) the REMIC II
Certificates will evidence the "regular interests" in, and generally will be
treated as debt obligations of, REMIC II (other than the portion of the Class P
Certificates representing Excess Interest) and (ii) the Class R-II Certificates
will represent the sole class of "residual interest" in REMIC II and (iii) the
Class R-I Certificates will represent the sole class of "residual interests" in
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REMIC I. Upon issuance of the Offered Certificates, Cadwalader, Wickersham &
Taft LLP, special tax counsel to the Depositor, will deliver its opinion
generally to the effect that, assuming compliance with all provisions of the
Pooling Agreement for federal income tax purposes, each of REMIC I and REMIC II
will qualify as a REMIC under the Code. In addition, in the opinion of
Cadwalader, Wickersham & Taft LLP, the portion of the trust fund consisting of
the Excess Interest and the Excess Interest Distribution Account will be treated
as a grantor trust for federal income tax purposes under subpart E, Part I of
subchapter J of the Code, and the Class P Certificates, in addition to
evidencing a regular interest in REMIC II, will evidence beneficial ownership of
such Excess Interest and the Excess Interest Distribution Account. See "Certain
Federal Income Tax Consequences--REMICs" in the accompanying prospectus.
DISCOUNT AND PREMIUM; PREPAYMENT PREMIUMS
The Offered Certificates generally will be treated as newly originated debt
instruments originated on the related Startup Day for federal income tax
purposes. The "Startup Day" of REMIC I and REMIC II is the Delivery Date.
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 Offered Certificates, other than the Class XP
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" and "--Premium" in the
accompanying prospectus.
Although unclear for federal income tax purposes, it is anticipated that
the Class XP Certificates will be considered to be issued with original issue
discount in an amount equal to the excess of all distributions of interest
expected to be received thereon (assuming the Weighted Average Net Mortgage Rate
changes in accordance with the Prepayment Assumption (as described above)), over
their issue price (including accrued interest, if any). Any "negative" amounts
of original issue discount on the Class XP Certificates attributable to rapid
prepayments with respect to the Mortgage Loans will not be deductible currently,
but may be offset against future positive accruals of original issue discount,
if any. Finally, a holder of any Class XP Certificate may be entitled to a loss
deduction to the extent it becomes certain that such holder will not recover a
portion of its basis in such Certificate, assuming no further prepayments. In
the alternative, it is possible that rules similar to the "noncontingent bond
method" of the OID Regulations may be promulgated with respect to the
Certificates.
For purposes of accruing original issue discount, if any, determining
whether such original issue discount is de minimis and amortizing any premium on
the Offered Certificates, the Prepayment Assumption will be 0% CPR (except that
the ARD Loan will be assumed to be repaid in full on its Anticipated Repayment
Date). See "Yield and Maturity Considerations--Weighted Average Lives" herein.
No representation is made as to the rate, if any, at which the Mortgage Loans
will prepay.
Prepayment Premiums actually collected will be distributed among the
holders of the respective classes of Certificates as described under
"Description of the Certificates--Allocation of Prepayment Premiums" in this
prospectus supplement. It is not entirely clear under the Code when the amount
of Prepayment Premiums so allocated should be taxed to the holder of an Offered
Certificate, but it is not expected, for federal income tax reporting purposes,
that Prepayment Premiums will be treated as giving rise to any income to the
holder of an Offered Certificate prior to the Master Servicer's actual receipt
of a Prepayment Premium. Prepayment Premiums, if any, may be treated as ordinary
income, although authority exists for treating such amounts as capital gain if
they are treated as paid upon the retirement or partial retirement of an offered
Certificate. Certificateholders should consult their own tax advisers concerning
the treatment of Prepayment Premiums.
CHARACTERIZATION OF INVESTMENTS IN OFFERED CERTIFICATES
Generally, except to the extent noted below, the Offered Certificates will
be "real estate assets" within the meaning of Section 856(c)(5)(B) of the Code
for a real estate investment trust ("REIT") in
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the same proportion that the assets of the Trust would be so treated. In
addition, interest (including original issue discount, if any) on the Offered
Certificates will be interest described in Section 856(c)(3)(B) of the Code for
a REIT to the extent that such Certificates are treated as "real estate assets"
within the meaning of Section 856(c)(5)(B) of the Code. If 95% or more of the
Mortgage Loans are treated as assets described in Section 856(c)(5)(B) of the
Code, the Offered Certificates will be treated as such assets in their entirety.
The Offered Certificates will generally only be considered assets described in
Section 7701(a)(19)(C) of the Code for a domestic building and loan association
to the extent that the Mortgage Loans are secured by residential property. It is
anticipated that as of the Cut-off Date, 10.0% and 8.9%, of the Initial Pool
Balance will represent Mortgage Loans secured by multifamily properties and
manufactured housing communities, respectively. None of the foregoing
characterizations will apply to the extent of any Mortgage Loans that have been
defeased. Accordingly, an investment in the Offered Certificates may not be
suitable for some thrift institutions. The Offered Certificates will be treated
as "qualified mortgages" for another REMIC under Section 860G(a)(3)(C) of the
Code. The Offered Certificates will be treated as "permitted assets" for a
financial asset securitization investment trust under Section 860L(c) of the
Code. See "Description of the Mortgage Pool" in this prospectus supplement and
"Certain Federal Income Tax Consequences--REMICs--Characterization of
Investments in REMIC Certificates" in the accompanying prospectus.
POSSIBLE TAXES ON INCOME FROM FORECLOSURE PROPERTY
In general, the Special Servicer will be obligated to operate and manage
any Mortgaged Property acquired as REO Property in a manner that would, to the
extent commercially feasible, maximize the Trust's net after-tax proceeds from
such property. 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. These considerations will be of particular
relevance with respect to any health care facilities or hotels that become 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 AND OTHER ADMINISTRATIVE MATTERS
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 the Offered
Certificates and the IRS; holders of REMIC II 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. Reporting
regarding qualification of the REMIC's assets as set forth above under
"--Characterization of Investments in Offered Certificates" will be made as
required under the Treasury regulations, generally on an annual basis.
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,
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the reports will include information required by regulations with respect to
computing the accrual of any market discount. Because exact computation of the
accrual of market discount on a constant yield method would require information
relating to the holder's purchase price that the REMIC Administrator may not
have, such regulations only require that information pertaining to the
appropriate proportionate method of accruing market discount be provided.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences--REMICs" in the accompanying prospectus.
CERTAIN ERISA CONSIDERATIONS
A fiduciary of any retirement plan or other employee benefit plan or
arrangement, including individual retirement accounts and individual retirement
annuities, Keogh plans and collective investment funds and separate accounts in
which such plans, accounts or arrangements are invested, including insurance
company general accounts, that is subject to Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
(each, a "Plan") should carefully 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 or Section
4975 of the Code or whether there exists any statutory or administrative
exemption applicable thereto. Certain fiduciary and prohibited transaction
issues arise only if the assets of the Trust constitute "plan assets" for
purposes of Part 4 of Title I of ERISA and Section 4975 of the Code ("Plan
Assets"). Whether the assets of the Trust will constitute Plan Assets at any
time will depend on a number of factors, including the portion of any Class of
Certificates that are held by "benefit plan investors" (as defined in U.S.
Department of Labor Regulation Section 2510.3-101).
The U.S. Department of Labor issued individual prohibited transaction
exemptions to NationsBank Corporation (predecessor in interest to Bank of
America Corporation), Prohibited Transaction Exemption ("PTE") 93-31, to Bear,
Stearns & Co. Inc., PT 90-30, to Goldman, Sachs & Co., PTE 89-88 and to Wachovia
Capital Markets, LLC, PTE 96-22, each as amended by PTE 97-34, PTE 2000-58 and
PTE 2002-41 (collectively, the "Exemption"), which generally exempt from the
application of the prohibited transaction provisions of Sections 406(a) and (b)
and 407(a) of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Sections 4975(a) and (b) of the Code, certain
transactions, among others, relating to the servicing and operation of mortgage
pools, such as the Mortgage Pool, and the purchase, sale and holding of mortgage
pass-through certificates, such as the Offered Certificates, underwritten by an
Exemption-Favored Party (as hereinafter defined), provided that certain
conditions set forth in the Exemption are satisfied. "Exemption-Favored Party"
shall include (a) Bank of America Corporation, (b) each of the Underwriters, (c)
any person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with Bank of America
Corporation (such as Banc of America Securities LLC) or any other Underwriter,
and (d) any member of the underwriting syndicate or selling group of which a
person described in (a), (b) or (c) is a manager or co-manager with respect to
the Offered Certificates.
The Exemption sets forth five general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of an Offered
Certificate to be eligible for exemptive relief thereunder. First, the
acquisition of such Offered Certificate 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, such Offered Certificate at the time of
acquisition by the Plan must be rated in one of the four highest generic rating
categories by Fitch Ratings ("Fitch"), Moody's or S&P. Third, the Trustee cannot
be an affiliate of any other member of the Restricted Group other than an
underwriter; the "Restricted Group" consists of any Exemption-Favored Party, the
Trustee, the Depositor, the Master Servicer, the Special Servicer, any
sub-servicer, the Mortgage Loan Seller, any borrower with respect to Mortgage
Loans constituting more than 5% of the aggregate unamortized principal balance
of the Mortgage Pool as of the date of initial issuance of the Certificates and
any affiliate of any of the aforementioned persons. Fourth, the sum of all
payments made to and retained
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by the Exemption-Favored Parties must represent not more than reasonable
compensation for underwriting the Offered Certificates; the sum of all payments
made to and retained by the Depositor pursuant to the assignment of the Mortgage
Loans to the Trust must represent not more than the fair market value of such
obligations; and the sum of all payments made to and retained by the Master
Servicer, the Special Servicer and any sub-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.
Fifth, 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.
A fiduciary of a Plan contemplating a purchase of any Class of Offered
Certificates in the secondary market must make its own determination that, at
the time of such purchase, such Certificate continues to satisfy the second and
third general conditions set forth above. A fiduciary of a Plan contemplating
purchasing any Class of Offered Certificates, whether in the initial issuance of
such Certificate or in the secondary market, must make its own determination
that the first and fourth general conditions set forth above will be satisfied
with respect to such Certificates as of the date of such purchase. A Plan's
authorizing fiduciary will be deemed to make a representation regarding
satisfaction of the fifth general condition set forth above in connection with
the purchase of any Class of Offered Certificates.
The Exemption also requires that the Trust meet the following requirements:
(i) the Trust Fund must consist solely of assets of the type that have been
included in other investment pools; (ii) certificates evidencing interests in
such other investment pools must have been rated in one of the four highest
categories of Fitch, Moody's or S&P for at least one year prior to the Plan's
acquisition of an Offered Certificate; and (iii) certificates evidencing
interests 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 such
Certificate. The Depositor has confirmed to its satisfaction that such
requirements have been satisfied as of the date hereof.
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 in the initial issuance of Offered Certificates between the
Depositor or an Exemption-Favored Party and a Plan when the Depositor, an
Exemption-Favored Party, the Trustee, the Master Servicer, the Special Servicer,
a sub-servicer, the Mortgage Loan Seller or a borrower is a party in interest
(within the meaning of Section 3(14) of ERISA) or a disqualified person (within
the meaning of Section 4975(e)(2) of the Code) (a "Party in Interest") with
respect to the investing Plan, (ii) the direct or indirect acquisition or
disposition in the secondary market of the Offered Certificates by a Plan and
(iii) the continued holding of the 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 (as defined in the next sentence) 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.
Moreover, if the general conditions of the Exemption, as well as certain
other specific conditions set forth in the Exemption, are satisfied, the
Exemption may also provide an exemption from the restrictions imposed by
Sections 406(b)(1) and (b)(2) of ERISA, and the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code, in
connection with (1) the direct or indirect sale, exchange or transfer of the
Offered Certificates in the initial issuance of the Offered Certificates between
the Depositor or an Exemption-Favored Party and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of Plan assets in such Certificates is (a) a borrower with respect to
5% or less of the fair market value of the Mortgage Pool or (b) an affiliate of
such a person, (2) the direct or indirect acquisition or disposition in the
secondary market of an Offered Certificates by a Plan and (3) the continued
holding of the Offered Certificates by a Plan.
S-181
Further, if the general conditions of the Exemption, as well as certain
other conditions set forth in 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 excise 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 Mortgage Pool.
Lastly, if the general conditions of the Exemption are satisfied, the
Exemption also may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and 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, if such restrictions are deemed to otherwise apply merely because a
person is deemed to be a Party in Interest with respect to an investing Plan by
virtue of providing services to the Plan (or by virtue of having certain
specified relationships to such a person) solely as a result of the Plan's
ownership of Offered Certificates.
Before purchasing an Offered Certificate, a fiduciary of a Plan should
itself confirm that (i) the Offered Certificates constitute "securities" 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 class exemptions. See "Certain ERISA
Considerations" in the accompanying prospectus. There can be no assurance that
any such class exemptions will apply with respect to any particular Plan
investment in the Offered Certificates or, even if it were deemed to apply, that
any exemption would apply to all transactions that may occur in connection with
such investment.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
Title I of ERISA or Section 4975 of the Code. However, such a governmental plan
may be subject to a federal, state or local law which is, to a material extent,
similar to the foregoing provisions of ERISA or the Code ("Similar Law"). A
fiduciary of a governmental plan should make its own determination as to the
need for and the availability of any exemptive relief under Similar Law.
Any Plan fiduciary considering whether to purchase an Offered Certificate
on behalf of a Plan should consult with its counsel 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 Underwriters 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 not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as
amended. The appropriate characterization of the offered certificates under
various legal investment restrictions, and thus the ability of investors subject
to these restrictions to purchase certificates, is subject to significant
interpretive uncertainties.
No representations are made as to the proper characterization of the
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.
The uncertainties described above (and any unfavorable future determinations
concerning the legal investment or financial institution regulatory
characteristics of the offered certificates) may adversely affect the liquidity
of the offered certificates.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their 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.
S-182
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") among the Depositor and Banc of America
Securities LLC ("Banc of America"), Bear, Stearns & Co. Inc. ("Bear Stearns"),
Goldman, Sachs & Co. ("Goldman Sachs") and Wachovia Capital Markets, LLC
("Wachovia") (collectively, the "Underwriters"), the Depositor has agreed to
sell to each of Banc of America, Bear Stearns, Goldman Sachs and Wachovia and
each of Banc of America, Bear Stearns, Goldman Sachs and Wachovia has agreed to
purchase, severally but not jointly, the respective Certificate Balances as
applicable, of each Class of the Offered Certificates as set forth below subject
in each case to a variance of 10%.
BANC OF AMERICA BEAR STEARNS GOLDMAN SACHS WACHOVIA
----------------- -------------- --------------- -------------
Class A-1 ........ $ 52,104,153 $ 24,651,847 $ 0 $ 0
Class A-2 ........ $160,561,246 $ 75,965,754 $ 0 $ 0
Class A-3 ........ $175,410,617 $ 82,991,383 $10,000,000 $15,000,000
Class A-4 ........ $ 85,316,511 $ 40,365,489 $ 0 $ 0
Class A-5 ........ $155,533,287 $ 73,586,894 $15,000,000 $10,000,000
Class XP ......... $749,817,820 $354,758,560 $ 0 $ 0
Class B .......... $ 18,359,297 $ 8,686,267 $ 0 $ 0
Class C .......... $ 8,696,509 $ 4,114,547 $ 0 $ 0
Class D .......... $ 16,426,739 $ 7,771,923 $ 0 $ 0
Class E .......... $ 7,730,230 $ 3,657,376 $ 0 $ 0
With respect to the Offered Certificates, Banc of America and Bear Stearns
are acting as joint lead managers. Goldman Sachs and Wachovia are each acting as
a co-manager, and Banc of America will be the sole bookrunner for all Classes of
Certificates.
Banc of America 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 106.17% of the initial
aggregate Certificate Balance of the Offered Certificates, plus accrued interest
on all of the Offered Certificates, before deducting expenses payable by the
Depositor.
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, the Underwriters have no obligation to do so, any market making may be
discontinued at any time and there can be no assurance that an active public
market for the Offered Certificates will develop. See "Risk Factors--Risks
Related to the Certificates--Liquidity for Certificates May Be Limited and
Market Value" in this prospectus supplement and "Risk Factors--Limited Liquidity
of Certificates" in the accompanying prospectus.
The Depositor and each Mortgage Loan Seller have agreed to indemnify the
Underwriters and each person, if any, who controls the Underwriters within the
meaning of Section 15 of the
S-183
Securities Act against, or make contributions to the Underwriters and the such
controlling person with respect to, certain liabilities, including certain
liabilities under the Securities Act. Each Mortgage Loan Seller 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
those Mortgage Loans sold by such Mortgage Loan Seller.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Cadwalader,
Wickersham & Taft LLP, Charlotte, North Carolina and for the Underwriters by
Thacher Proffitt & Wood LLP, New York, New York.
RATINGS
It is a condition to their issuance that the Offered Certificates receive
the credit ratings indicated below from Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. ("S&P" and, together with Moody's, the "Rating Agencies"):
CLASS MOODY'S S&P
----- ------- ---
Class A-1 .......................................... Aaa AAA
Class A-2 .......................................... Aaa AAA
Class A-3 .......................................... Aaa AAA
Class A-4 .......................................... Aaa AAA
Class A-5 .......................................... Aaa AAA
Class XP ........................................... Aaa AAA
Class B ............................................ Aa2 AA
Class C ............................................ Aa3 AA-
Class D ............................................ A2 A
Class E ............................................ A3 A-
The ratings of the Offered Certificates address the likelihood of the
timely receipt by holders thereof of all payments of interest to which they are
entitled on each Distribution Date and the ultimate receipt by holders thereof
of all payments of principal to which they are entitled by the Distribution Date
in November 2038 (the "Rated Final Distribution Date"). The ratings take into
consideration the credit quality of the Mortgage Pool, structural and legal
aspects associated with the Certificates, and the extent to which the payment
stream from the Mortgage Pool is adequate to make payments of principal and/or
interest, as applicable, required under the Offered Certificates. The ratings of
the Offered Certificates do not, however, represent any assessments of (i) the
likelihood or frequency of voluntary or involuntary principal prepayments on the
Mortgage 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 collected on the Mortgage Loans in connection with such
prepayments or the corresponding effect on yield to investors, (iv) whether and
to what extent Default Interest will be received or Net Aggregate Prepayment
Interest Shortfalls will be realized or (v) payments of Excess Interest.
There is no assurance that any rating assigned to the Offered Certificates
by a Rating Agency will not be lowered, qualified (if applicable) or withdrawn
by such Rating Agency, if, in its judgment, circumstances so warrant. There can
be no assurance as to whether any rating agency not requested to rate the
Offered Certificates will nonetheless issue a rating to any Class thereof and,
if so, what such rating would be. In this regard, a rating assigned to any Class
of Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the ratings assigned thereto by Moody's or
S&P.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. 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. See "Risk
Factors--Limited Nature of Ratings" in the accompanying prospectus.
S-184
INDEX OF PRINCIPAL DEFINITIONS
PAGE
----
104 West 40th Street Borrower .................................... S-97
1995 Broadway Borrower ........................................... S-110
30/360 Basis ..................................................... S-71
30/360 Mortgage Loans ............................................ S-71
Accrued Certificate Interest ..................................... S-154
ACMs ............................................................. S-113
Actual/360 Basis ................................................. S-71
Actual/360 Mortgage Loan ......................................... S-71
Additional Trust Fund Expenses ................................... S-158
Administrative Fee Rate .......................................... A-1
Administrative Fees .............................................. S-168
Advance Interest ................................................. S-161
Advances ......................................................... S-133
Annual Debt Service .............................................. A-1
Annualized Most Recent ........................................... A-3
Anticipated Repayment Date ....................................... S-71
AP ............................................................... S-110
Appraisal Reduction Amount ....................................... S-162
Appraisal Trigger Event .......................................... S-162
Appraisal Value .................................................. A-1
Approval Provisions .............................................. S-127
APTN ............................................................. S-110
ARD Loan ......................................................... S-71
Asset Status Report .............................................. S-125
Assumed Monthly Payment .......................................... S-155
Available Distribution Amount .................................... S-148
Balloon .......................................................... A-1
Balloon Loan ..................................................... S-71
Balloon Payment .................................................. S-71
Balloon Payment Interest Shortfall ............................... S-131
Banc of America .................................................. S-183
Bank of America .................................................. S-69
Bank of America Mortgage Loans ................................... S-69
Base Interest Fraction ........................................... S-155
Bear Mortgage Loans .............................................. S-69
Bear Stearns ..................................................... S-183
BOA-Bridger Mortgage Loans ....................................... S-69
BOA-CMSG ......................................................... S-129
BOA-Originated Mortgage Loans .................................... S-69
Bridger .......................................................... S-69
BSCMI ............................................................ S-69
Cash Flow ........................................................ A-1
CBE .............................................................. S-176
Certificate Balance .............................................. S-142
Certificate Owner ................................................ S-141, S-165
Certificate Registrar ............................................ S-142
Class ............................................................ S-141
Class A Certificates ............................................. S-141
Class X Certificates ............................................. S-141
Class XC Strip Rates ............................................. S-145
PAGE
----
Class XP Strip Rates ............................................. S-145
CMSA NOI Adjustment Worksheet .................................... S-165
CMSA Operating Statement Analysis Report ......................... S-165
Code ............................................................. S-118
Collateral Substitution Deposit .................................. S-72
Collection Period ................................................ S-11, S-147
Commercial Loan .................................................. S-69
Commercial Mortgaged Property .................................... S-69
Company .......................................................... S-93
Company Portfolio ................................................ S-93
Compensating Interest Payment .................................... S-130
Consolidated Centers ............................................. S-93
Controlling Class ................................................ S-126
Controlling Class Certificateholder .............................. S-126
Corrected Mortgage Loan .......................................... S-125
Cross-Collateralized Mortgage Loan................................ S-70
Cut-off Date ..................................................... S-10
Cut-off Date Balance ............................................. S-69
Cut-off Date Loan-to-Value Ratio ................................. A-2
Cut-off Date LTV ................................................. A-2
Cut-off Date LTV Ratio ........................................... A-2
Default Charges .................................................. S-132
Default Interest ................................................. S-132
Defaulted Mortgage Loan .......................................... S-137
DEFEASANCE ....................................................... A-2
Defeasance Lock-Out Period ....................................... S-72
Defeasance Option ................................................ S-72
Definitive Certificate ........................................... S-141
Delivery Date .................................................... S-10, S-141
Depositor ........................................................ S-10
Determination Date ............................................... S-11, S-147
Directing Certificateholder ...................................... S-126
Discount Rate .................................................... A-2
Distributable Certificate Interest ............................... S-153
Distribution Date ................................................ S-11, S-148
Distribution Date Statement ...................................... S-163
DTC .............................................................. S-141
Due Date ......................................................... S-70
EMC .............................................................. S-101
Emergency Advance ................................................ S-133
ERISA ............................................................ S-180
Excess Cash Flow ................................................. S-71
Excess Interest .................................................. S-71
Excess Interest Distribution Account.............................. S-158
Excess Interest Rate ............................................. S-71
Excluded Plan .................................................... S-181
Exemption ........................................................ S-180
Exemption-Favored Party .......................................... S-180
Expenses ......................................................... A-1
S-185
PAGE
----
Fiscal Agent ..................................................... S-10
Fitch ............................................................ S-180
Form 8-K ......................................................... S-123
Full Year ........................................................ A-3
Full Year Cash Flow .............................................. A-2
Full Year End Date ............................................... A-2
Full Year Expenses ............................................... A-2
Full Year Revenues ............................................... A-2
Fully Amortizing ................................................. A-2
GAAP ............................................................. A-2
GEMS ............................................................. S-80
GGMI ............................................................. S-93
GGP .............................................................. S-93
Goldman Sachs .................................................... S-183
Grubb & Ellis .................................................... S-80
Hyper Amortizing ................................................. A-2
Initial Certificate Balance ...................................... S-172
Initial Pool Balance ............................................. S-69
Int Diff (BEY) - B ............................................... A-3
Interest Only .................................................... A-2
Interest Reserve Account ......................................... S-158
I/O Balloon ...................................................... A-2
Ketchum .......................................................... S-78
LaSalle .......................................................... S-168
Leasable Square Footage .......................................... A-2
Liquidation Fee .................................................. S-132
Liquidation Fee Rate ............................................. S-132
Lock-out Period .................................................. S-72
LOP .............................................................. S-172
MAI .............................................................. S-115
Major Tenants .................................................... S-112
Master Servicer .................................................. S-10
Master Servicer Remittance Date .................................. S-158
Master Servicing Fee ............................................. S-130
Master Servicing Fee Rate ........................................ S-130
Maturity ......................................................... A-2
Maturity Assumptions ............................................. S-172
Maturity Date .................................................... A-2
Maturity Date Balance ............................................ A-3
Maturity Date Loan-to-Value Ratio ................................ A-3
Maturity Date LTV ................................................ A-3
MERS ............................................................. S-69
MHC .............................................................. S-103
MHC Communities .................................................. S-103
MHC Portfolio Borrowers .......................................... S-103
MHC Portfolio Loans .............................................. S-103
MHC Portfolio Property ........................................... S-103
MHC Portfolio -- Lake Fairways
Country Club Loan ................................................ S-103
MHC Portfolio -- The Lakes at
Countrywood Loan ................................................. S-103
PAGE
----
MHC Portfolio -- The Meadows at Countrywood Loan ................. S-103
MHC Portfolio -- Waterford Estates Loan .......................... S-103
MHC Properties ................................................... S-103
MHC Resorts ...................................................... S-103
MHCOLP ........................................................... S-103
Midland .......................................................... S-129
MMC .............................................................. S-78
Modified Mortgage Loan ........................................... S-163
Money Rates ...................................................... S-161
Monthly Payments ................................................. S-70
Mortgage ......................................................... S-69
Mortgage Loan Purchase and Sale Agreement ........................ S-120
Mortgage Loan Schedule ........................................... S-121
Mortgage Loan Sellers ............................................ S-10
Mortgage Loans ................................................... S-69
Mortgage Note .................................................... S-69
Mortgage Pool .................................................... S-69
Mortgage Rate .................................................... S-70
Mortgaged Property ............................................... S-69
Most Recent Cash Flow ............................................ A-3
Most Recent DSCR ................................................. A-3
Most Recent End Date ............................................. A-3
Most Recent Expenses ............................................. A-3
Most Recent Revenues ............................................. A-3
Most Recent Statement Type ....................................... A-3
Multifamily Loan ................................................. S-69
Multifamily Mortgaged Property ................................... S-69
Net Aggregate Prepayment Interest Shortfall ...................... S-154
Net Mortgage Rate ................................................ S-147
Net Rentable Area (SF) ........................................... A-2
News Building .................................................... S-111
Nonrecoverable Advances .......................................... S-159
Nonrecoverable P&I Advance ....................................... S-159
Nonrecoverable Servicing Advance ................................. S-134, S-159
Non-Specially Serviced Mortgage Loan ............................. S-135
Notional Amount .................................................. S-142
NPV (MEY) ........................................................ A-3
Occupancy Percent ................................................ A-4
Occupancy % ...................................................... A-4
Offered Certificates ............................................. S-141
OPEN ............................................................. A-4
Open Period ...................................................... S-72
Operating Partnership ............................................ S-93
Option Price ..................................................... S-138
Participants ..................................................... S-142
Party in Interest ................................................ S-181
S-186
PAGE
----
Payment After Determination Date Report ........................... S-163
Periodic Treasury Yield ........................................... A-4
Permitted Encumbrances ............................................ S-121
Permitted Investments ............................................. S-130
P&I Advance ....................................................... S-159
Plan .............................................................. S-180
Plan Assets ....................................................... S-180
PML ............................................................... S-117
Pooling Agreement ................................................. S-141
PPG ............................................................... S-77
PPG Place Borrower ................................................ S-79
PPG Place Mezzanine Borrower ...................................... S-81
PPG Place Mezzanine Collateral .................................... S-81
PPG Place Mezzanine Intercreditor Agreement ....................... S-81
PPG Place Mezzanine Lender ........................................ S-81
PPG Place Mezzanine Loan .......................................... S-81
Prepayment Interest Excess ........................................ S-130
Prepayment Interest Shortfall ..................................... S-130
Prepayment Premium ................................................ S-72
Prepayment Premium Period ......................................... S-72
Primary Collateral ................................................ S-120
Prince Kuhio Plaza Borrower ....................................... S-93
Principal Distribution Amount ..................................... S-154
Private Certificates .............................................. S-141
PTE ............................................................... S-180
Purchase Option ................................................... S-137
Purchase Price .................................................... S-118
Qualified Substitute Mortgage Loan................................. S-118
Rated Final Distribution Date ..................................... S-184
Rating Agencies ................................................... S-184
Realized Losses ................................................... S-157
Record Date ....................................................... S-11, S-148
Reimbursement Rate ................................................ S-161
REIT .............................................................. S-93, S-178
Related Loans ..................................................... A-4
Related Proceeds .................................................. S-133
Release Date ...................................................... S-72
REMIC ............................................................. S-177
REMIC Administrator ............................................... S-168
REMIC I ........................................................... S-177
REMIC II .......................................................... S-177
REMIC II Certificates ............................................. S-141
REMIC Residual Certificates ....................................... S-141
REO Extension ..................................................... S-138
REO Loan .......................................................... S-157
REO Property ...................................................... S-124
REO Tax ........................................................... S-179
Required Appraisal Loan ........................................... S-162
Restricted Group .................................................. S-180
PAGE
Revenues .......................................................... A-1
Revised Rate ...................................................... S-71
Sears ............................................................. S-92
Senior Certificates ............................................... S-141
Sequential Pay Certificates ....................................... S-141
Servicing Advances ................................................ S-133
Servicing Standard ................................................ S-124
Servicing Transfer Event .......................................... S-124
Settlement Date ................................................... S-173
Similar Law ....................................................... S-182
S&P ............................................................... S-184
Special Actions ................................................... S-127
Special Servicer .................................................. S-10
Special Servicing Fee ............................................. S-131
Special Servicing Fee Rate ........................................ S-131
Specially Serviced Mortgage Loan .................................. S-124
Springs Building .................................................. S-97
Startup Day ....................................................... S-178
Stated Principal Balance .......................................... S-147
Subordinate Certificates .......................................... S-149
Sub-Servicer ...................................................... S-129
Sub-Servicing Agreement ........................................... S-129
Substitution Shortfall Amount ..................................... S-118
Tax Incentive Note ................................................ S-86
Trailing 12 ....................................................... A-3
Trust ............................................................. S-141
Trust Fund ........................................................ S-141
Trustee ........................................................... S-10
Trustee Fee ....................................................... S-168
Unconsolidated Centers ............................................ S-93
Underwriters ...................................................... S-183
Underwriting Agreement ............................................ S-183
Underwriting Cash Flow ............................................ A-4
Underwritten Debt Service Coverage Ratio .......................... A-4
Underwritten DSCR ................................................. A-4
Units ............................................................. A-4
UPB ............................................................... A-4
USPAP ............................................................. S-115
UST ............................................................... S-114
U/W Cash Flow ..................................................... A-4
U/W DSCR .......................................................... A-4
U/W Expenses ...................................................... A-5
U/W Replacement Reserves .......................................... A-5
U/W Replacement Reserves Per Unit ................................. A-5
U/W Revenues ...................................................... A-4
Voting Rights ..................................................... S-167
Wachovia .......................................................... S-183
Weighted Average Net Mortgage Rate ................................ S-147
S-187
PAGE
----
Withheld Amount ................................................... S-158
Workout Fee ....................................................... S-131
Workout Fee Rate .................................................. S-131
PAGE
----
YM ................................................................ A-5
YMP ............................................................... S-172
S-188
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The schedule and tables appearing in this Annex A set forth certain
information with respect to the Mortgage Loans and 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.
For purposes of the prospectus supplement, including the schedule and
tables in this Annex A, the indicated terms shall have the following meanings
and the schedules and tables in this Annex A will be qualified by the following:
1. "Administrative Fee Rate" means the sum of the Master Servicing Fee
Rate (including the per annum rates at which the monthly sub-servicing fee
is payable to the related Sub-Servicer (the "Sub-Servicing Fee Rate")),
plus the per annum rate applicable to the calculation of the Trustee Fee.
2. "Annual Debt Service" means the amount derived by multiplying the
Monthly Payment set forth for each Mortgage Loan in this Annex A by twelve.
For purposes of calculating the "Monthly Payment" for Loan Nos. 57707,
57706 and 57469, the amount of the Monthly Payment is calculated based upon
(a) the related interest rate, (b) a 360 month amortization term and (c)
the related original principal balance. For purposes of calculating the
"Monthly Payment" for Loan Nos. 38549, 38898, 39083, 39085, 39086, 39179,
39207, 39219, 39328, 39439, 39444, 39463, 39564, 39566, 39568 amount as
shown on Annex A represents the average interest payment for the first 12
interest payment periods on such mortgage loans.
3. "Appraisal Value" means, for any Mortgaged Property, the
appraiser's value as stated in the appraisal available to the Depositor as
of the date specified on the schedule.
4. "Balloon" means a loan that has a significant outstanding balance
at maturity.
5. "Cash Flow" means with respect to any Mortgaged Property, the total
cash flow available for Annual Debt Service on the related Mortgage Loan,
generally calculated as the excess of Revenues over Expenses, capital
expenditures and tenant improvements and leasing commissions.
(i) "Revenues" generally consist of certain revenues received in
respect of a Mortgaged Property, including, for example, (A) for the
Multifamily Mortgaged Properties, rental and other revenues; (B) for
the Commercial Mortgaged Properties, base rent (less mark-to-market
adjustments in some cases), percentage rent, expense reimbursements
and other revenues; and (C) for hotel Mortgaged Properties, guest room
rates, food and beverage charges, telephone charges and other
revenues.
(ii) "Expenses" generally consist of all expenses incurred for a
Mortgaged Property, including for example, salaries and wages, the
costs or fees of utilities, repairs and maintenance, marketing,
insurance, management, landscaping, security (if provided at the
Mortgaged Property) and the amount of real estate taxes, general and
administrative expenses, ground lease payments, and other costs but
without any deductions for debt service, depreciation and amortization
or capital expenditures therefor. In the case of hotel Mortgaged
Properties, Expenses include, for example, expenses relating to guest
rooms (hotels only), food and beverage costs, telephone bills, and
rental and other expenses, and such operating expenses as general and
administrative, marketing and franchise fees.
In certain cases, Full Year Cash Flow, Most Recent Cash Flow and/or U/W
Cash Flow have been adjusted by removing certain non-recurring expenses and
revenue or by certain other normalizations. Such Cash Flow does not necessarily
reflect accrual of certain costs such as capital
A-1
expenditures and leasing commissions and does not reflect non-cash items such as
depreciation or amortization. In some cases, capital expenditures and
non-recurring items may have been treated by a borrower as an expense but were
deducted from Most Recent Expenses, Full Year Expenses or U/W Expenses to
reflect normalized Most Recent Cash Flow, Full Year Cash Flow or U/W Cash Flow,
as the case may be. The Depositor has not made any attempt to verify the
accuracy of any information provided by each borrower or to reflect changes that
may have occurred since the date of the information provided by each borrower
for the related Mortgaged Property. Such Cash Flow was not necessarily
determined in accordance with generally accepted accounting principles ("GAAP").
Such Cash Flow is not a substitute for net income determined in accordance with
GAAP as a measure of the results of a Mortgaged Property's operations or a
substitute for cash flows from operating activities determined in accordance
with GAAP as a measure of liquidity. Moreover, in certain cases such Cash Flow
may reflect partial-year annualizations.
6. "Cut-off Date Loan-to-Value Ratio", "Cut-off Date LTV Ratio" or
"Cut-off Date LTV" means, with respect to any Mortgage Loan, the Cut-off
Date Balance of such Mortgage Loan divided by the Appraisal Value of the
related Mortgaged Property.
7. "DEFEASANCE" means, with respect to any Mortgage Loan, that such
Mortgage Loan is subject to a Defeasance Option.
8. "Discount Rate" means, with respect to any prepayment premium
calculation, the yield on the U.S. Treasury issue with a maturity date
closest to the maturity date for the Mortgage Loan being prepaid, or an
interpolation thereof.
9. "Full Year End Date" means, with respect to each Mortgage Loan, the
date indicated on Annex A as the "Full Year End Date" with respect to such
Mortgage Loan, which date is generally the end date with respect to the
period covered by the latest available annual operating statement provided
by the related borrower.
10. "Full Year Cash Flow" means, with respect to any Mortgaged
Property, the Cash Flow derived therefrom that was available for debt
service, calculated as Full Year Revenues less Full Year Expenses, Full
Year capital expenditures and Full Year tenant improvements and leasing
commissions. See also "Cash Flow" above.
(i) "Full Year Revenues" are the Revenues received (or annualized
or estimated in certain cases) in respect of a Mortgaged Property for
the 12-month period ended as of the Full Year End Date, based upon the
latest available annual operating statement and other information
furnished by the borrower for its most recently ended fiscal year.
(ii) "Full Year Expenses" are the Expenses incurred (or
annualized or estimated in certain cases) for a Mortgaged Property for
the 12-month period ended as of the Full Year End Date, based upon the
latest available annual operating statement and other information
furnished by the borrower for its most recently ended fiscal year.
11. "Fully Amortizing" means fully amortizing Mortgage Loan; except
that such Mortgage Loan may have a payment due at its maturity in excess of
its scheduled Monthly Payment.
12. "Hyper Amortizing" means ARD Loan.
13. "Interest Only": Any Mortgage Loan which requires scheduled
payments of interest only until the related Maturity Date or Anticipated
Repayment Date.
14. "I/O Balloon": Any Mortgage Loan which requires only scheduled
payments of interest for some (but not all) of the term of the related
Mortgage Loan and that has a significant outstanding balance at maturity.
15. "Leasable Square Footage" or "Net Rentable Area (SF)" means, in
the case of a Mortgaged Property operated as a retail center, office
complex or industrial or warehouse facility, the square footage of the net
leasable area.
16. "Maturity" or "Maturity Date" means, with respect to any Mortgage
Loan, the date specified in the related Mortgage Note as its stated
maturity date or, with respect to the ARD Loan, its Anticipated Repayment
Date.
A-2
17. "Maturity Date Balance" means, with respect to any Mortgage Loan,
the balance due at maturity or in the case of an ARD Loan, the Anticipated
Repayment Date, assuming no prepayments, defaults or extensions.
18. "Maturity Date Loan-to-Value Ratio" or "Maturity Date LTV" means,
with respect to any Mortgage Loan, the Maturity Date Balance, divided by
the Appraisal Value of the related Mortgaged Property.
19. "Most Recent Cash Flow" means, with respect to any Mortgaged
Property, the Cash Flow derived therefrom that was available for debt
service, calculated as Most Recent Revenues less Most Recent Expenses, Most
Recent capital expenditures and Most Recent tenant improvements and leasing
commissions. See also "Cash Flow" above.
(i) "Most Recent Revenues" are the Revenues received (or
annualized or estimated in certain cases) in respect of a Mortgaged
Property for the 12-month period ended on the Most Recent Date, based
upon operating statements and other information furnished by the
related borrower.
(ii) "Most Recent Expenses" are the Expenses incurred (or
annualized or estimated in certain cases) for a Mortgaged Property for
the 12-month period ended on the Most Recent Date, based upon
operating statements and other information furnished by the related
borrower.
20. "Most Recent DSCR" means, with respect to any Mortgage Loan, (a)
the Most Recent Cash Flow for the related Mortgaged Property, divided by
(b) the Annual Debt Service for such Mortgage Loan.
21. "Most Recent End Date" means, with respect to any Mortgage Loan,
the date indicated on Annex A as the "Most Recent End Date" with respect to
such Mortgage Loan which date is generally the end date with respect to the
period covered by the latest available operating statement provided by the
related borrower.
22. "Most Recent Statement Type" means certain financial information
with respect to the Mortgaged Properties as set forth in the three
categories listed in (i) through (iii) immediately below.
(i) "Full Year" means certain financial information regarding the
Mortgaged Properties presented as of the fiscal year ending on the
related date set forth under the heading entitled "Full Year End Date"
on Annex A to this prospectus supplement.
(ii) "Annualized Most Recent" means certain financial information
regarding the Mortgaged Properties which has been annualized based
upon one month or more of financial data.
(iii) "Trailing 12" means certain financial information regarding
a Mortgaged Properties which is presented for the trailing 12 months
prior to the Most Recent End Date.
23. "NPV (MEY)" refers to a method of calculation of a yield
maintenance premium. Under this method prepayment premiums are generally
equal to the greater of (i) one percent (1%) of the principal balance being
prepaid, and (ii) 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 (including any balloon payment)
determined by discounting such payments at a discount rate based on a
treasury rate converted to a monthly compounded nominal yield as provided
in the underlying note less the amount of the outstanding principal balance
on the date of prepayment (after subtracting the scheduled principal
payment on such date of prepayment).
24. "Int Diff (BEY) - B" refers to a method of calculation of a yield
maintenance premium. Under this method prepayment premiums are generally
equal to an amount equal to the greater of (a) one percent (1%) of the
principal amount being prepaid or (b) the product obtained by multiplying
(x) the principal amount being prepaid, times (y) the difference obtained
by
A-3
subtracting (I) the Yield Rate from (II) the mortgage rate of the related
Mortgage Note, times (z) the present value factor calculated using the
following formula:
1-(1+r)-n
---------
r
where r is equal to the Yield Rate and n is equal to the number of years
and any fraction thereof, remaining between the date the prepayment is made
and the maturity date of the related Mortgage Note.
As used in this definition, "Yield Rate" means the yield rate for the
specified United States Treasury security, as reported in The Wall Street
Journal on the fifth business day preceding the date the prepayment is required
in the related Mortgage Loan documents.
25. "Occupancy %" or "Occupancy Percent" means the percentage of
Leasable Square Footage or Total Units/Rooms/Pads, as the case may be, of
the Mortgaged Property that was occupied as of a specified date, as
specified by the borrower or as derived from the Mortgaged Property's rent
rolls, which generally are calculated by physical presence or,
alternatively, collected rents as a percentage of potential rental
revenues.
26. "OPEN" means, with respect to any Mortgage Loan that such Mortgage
Loan may be voluntarily prepaid without a Prepayment Premium.
27. "Periodic Treasury Yield" means (a) the annual yield to maturity
of the actively traded noncallable United States Treasury fixed interest
rate security (other than such security which can be surrendered at the
option of the holder at face value in payment of federal estate tax or
which was issued at a substantial discount) that has a maturity closest to
(whether before, on or after) the maturity date (or if two or more
securities have maturity dates equally close to the maturity date, the
average annual yield to maturity of all such securities), as reported in
The Wall Street Journal or other authoritative publication or news
retrieval service on the fifth Business Day preceding the prepayment date,
divided by (b) twelve, if scheduled payment dates are monthly, or four, if
scheduled payment dates are quarterly.
28. "Related Loans" means two or more Mortgage Loans with respect to
which the related Mortgaged Properties are either owned by the same entity
or owned by two or more entities controlled by the same key principals.
29. "UPB" means, with respect to any Mortgage Loan, its unpaid
principal balance.
30. "Units", "Rooms" and "Pads" respectively, mean: (i) in the case of
a Mortgaged Property operated as multifamily housing, the number of
apartments, regardless of the size of or number of rooms in such apartment
(referred to in the schedule as "Units"); (ii) in the case of a Mortgaged
Property operated as a hotel, the number of rooms (referred to in the
schedule as "Rooms"); and (iii) in the case of a Mortgaged Property
operated as a Manufactured Housing Community, the number of pads (referred
to in the schedule as "Pads").
31. "U/W DSCR", "Underwritten DSCR" or "Underwritten Debt Service
Coverage Ratio" means, with respect to any Mortgage Loan, (a) the U/W Cash
Flow for the related Mortgaged Property divided by (b) the Annual Debt
Service for such Mortgage Loan.
32. "U/W Cash Flow" or "Underwriting Cash Flow" means, with respect to
any Mortgaged Property, the Cash Flow derived therefrom that was available
for debt service, calculated as U/W Revenues less U/W Expenses, U/W
Reserves and U/W tenant improvements and leasing commissions. See also
"Cash Flow" above.
(i) "U/W Revenues" are the anticipated Revenues in respect of a
Mortgaged Property, generally determined by means of an estimate made
at the origination of such Mortgage Loan or, as in some instances, as
have been subsequently updated. U/W Revenues have generally been
calculated (a) assuming that the occupancy rate for the Mortgaged
Property was consistent with the Mortgaged Property's current or
historical rate, or the relevant market rate, if such rate was less
than the occupancy rate reflected in the most recent rent roll or
operating statements, as the case may be, furnished by the related
borrower, and (b) in the case of retail, office, industrial and
warehouse Mortgaged Properties, assuming a level of reimbursements
from tenants consistent with the terms of the related leases or
historical trends at the Mortgaged Property, and in certain cases,
assuming that a specified
A-4
percentage of rent will become defaulted or otherwise uncollectible.
In addition, in the case of retail, office, industrial and warehouse
Mortgaged Properties, upward adjustments may have been made with
respect to such revenues to account for all or a portion of the rents
provided for under any new leases scheduled to take effect later in
the year. Also, in the case of certain Mortgaged Properties that are
operated as nursing home or hotel properties and are subject to an
operating lease with a single operator, U/W Revenues were calculated
based on revenues received by the operator rather than rental payments
received by the related borrower under the operating lease.
(ii) "U/W Expenses" are the anticipated Expenses in respect of a
Mortgaged Property, generally determined by means of an estimate made
at the origination of such Mortgage Loan or as in some instances as
may be updated. U/W Expenses were generally assumed to be equal to
historical annual expenses reflected in the operating statements and
other information furnished by the borrower, except that such expenses
were generally modified by (a) if there was no management fee or a
below market management fee, assuming that a management fee was
payable with respect to the Mortgaged Property in an amount
approximately equal to a percentage of assumed gross revenues for the
year, (b) adjusting certain historical expense items upwards or
downwards to amounts that reflect industry norms for the particular
type of property and/or taking into consideration material changes in
the operating position of the related Mortgaged Property (such as
newly signed leases and market data) and (c) adjusting for
non-recurring items (such as capital expenditures) and tenant
improvement and leasing commissions, if applicable (in the case of
certain retail, office, industrial and warehouse Mortgaged Properties,
adjustments may have been made to account for tenant improvements and
leasing commissions at costs consistent with historical trends or
prevailing market conditions and, in other cases, operating expenses
did not include such costs).
Actual conditions at the Mortgaged Properties will differ, and may differ
substantially, from the assumed conditions used in calculating U/W Cash Flow. In
particular, the assumptions regarding tenant vacancies, tenant improvements and
leasing commissions, future rental rates, future expenses and other conditions
if and to the extent used in calculating U/W Cash Flow for a Mortgaged Property,
may differ substantially from actual conditions with respect to such Mortgaged
Property. There can be no assurance that the actual costs of reletting and
capital improvements will not exceed those estimated or assumed in connection
with the origination or purchase of the Mortgage Loans.
In most cases, U/W Cash Flow describes the cash flow available after
deductions for capital expenditures such as tenant improvements, leasing
commissions and structural reserves. In those cases where such "reserves" were
so included, no cash may have been actually escrowed. No representation is made
as to the future net cash flow of the properties, nor is U/W Cash Flow set forth
herein intended to represent such future net cash flow.
33. "U/W Replacement Reserves" means, with respect to any Mortgaged
Property, the aggregate amount of on-going reserves (generally for capital
improvements and replacements) assumed to be maintained with respect to
such Mortgaged Property. In each case, actual reserves, if any, may be less
than the amount of U/W Reserves.
34. "U/W Replacement Reserves Per Unit" means, with respect to any
Mortgaged Property, (a) the related U/W Reserves, divided by (b) the number
of Units, Rooms, Leasable Square Feet or Pads, as applicable.
35. "YM" means, with respect to any Mortgage Loan, a yield maintenance
premium.
A-5
[THIS PAGE INTENTIONALLY LEFT BLANK]
ANNEX A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
SE- LOAN
QUENCE NUMBER PROPERTY NAME PROPERTY ADDRESS
- ------ ------ ------------- ----------------
1 57797 Sunterra Apartments 3851 Sherbourne Drive
2 6120 Manor Homes of Fox Crest 3151 NW 90th Street
3 57799 Overlook Apartments 4934 Woodstone Drive
4 7750 Marina Bay Apartments 939 and 969 East Flamingo Road
5 39285 1230 Teller Avenue 1230 Teller Avenue
6 39287 111 Mount Hope Place 111 Mount Hope Place
SUB-TOTAL CROSSED LOANS
7 39677 2300 Grand Concourse 2300 Grand Concourse
8 39284 690 Gerard Avenue 690 Gerard Avenue
9 8096 Golf View Estates Apartments 230 Whispering Springs Drive
10 39376 230 East 167th Street 230 East 167th Street
11 39283 111 East 167th Street 111 East 167th Street
12 39286 610 Trinity Avenue 610 Trinity Avenue
13 8165 Orchard on the Green Apartments 2250 Sidney Road
14 39670 1210 Sherman Avenue 1210 Sherman Avenue
15 39674 1344 University Avenue 1344 University Avenue
16 39673 1354 Commonwealth Avenue 1354 Commonwealth Avenue
SUB-TOTAL CROSSED LOANS
17 39669 3371 Decatur Avenue 3371 Decatur Avenue
18 39279 2765 Kingsbridge Terrace 2765 Kingbridge Terrace
19 39676 2264 Creston Avenue 2264 Creston Avenue
20 39282 2773-2779 Briggs Avenue 2773-2779 Briggs Avenue
21 57563 Brookview Court Apartments 3 Brookview Drive
22 40255 Eden Prairie Mall 125 Eden Prairie Center
23 57995 Prince Kuhio Plaza 111 East Puainako Street
24 57746 Springfield Plaza Shopping Center 1225-1395 Liberty Street
25 38460 Linden Plaza 1601 West Edgar Road
26.1 38898 Shops at Park Place 6401 West Plano Parkway
26.2 38898 Shaw's New Britain 1045 West Main Street
26 38898 INLAND TX-CT RETAIL PORTFOLIO (ROLL UP) Various
27.1 39083 Sandy Plains Village 4651 Woodstock Road
27.2 39083 Clearwater Crossing 7380 Spout Springs Road
27.3 39083 Goody's Family Clothing 2630 Georgetown Drive
27 39083 INLAND GEORGIA RETAIL PORTFOLIO (ROLL UP) Various
28 39444 Largo Towne Center 806 Largo Center Drive
29 57575 Tawa Irvine Plaza 5392-5414 Walnut Avenue
30.1 57748 970 Farmington Avenue 970 Farmington Avenue
30.2 57748 27-43 LaSalle Road 27-43 LaSalle Road
30.3 57748 1253 New Britain Avenue 1253 New Britain Avenue
30.4 57748 967 Farmington Avenue 967 Farmington Avenue
30 57748 WEST HARTFORD PORTFOLIO (ROLL UP) Various
31.1 57720 Colony Mill Marketplace 222 West Street
31.2 57720 Center at Keene 149 Emerald Street
31 57720 COLONY MILL MARKETPLACE AND CENTER AT KEENE (ROLL UP) Various
32 57380 Dickson City Commons 1118 Commerce Boulevard
33 57765 Bouquet Canyon Plaza 26501 Bouquet Canyon Road
34 39207 Denbigh Village Center 14346 Warwick Boulevard
35 39085 Hillsboro Market Center 880 North East 25th Avenue
36 39564 Crossroads Plaza 1520 Route 38
37 57786 Timpany Plaza 360 Timpany Boulevard
38 39179 Anderson Central Shopping Center 651 Highway By Pass 28
39 39086 Killian Hill Center 4051 Stone Mountain Highway
40 39328 Manchester Stop & Shop 286 Broad Street
41 57768 Dewey & Madison Market Place 5410 & 5540 Dewey Drive
42 57607 Alton Corners Shopping Center 309-319 Homer Adams Parkway
43 57707 Bellevue Place Shopping Center 7657 Highway 70 South
44 57706 Spring Mall Shopping Center 6717 Spring Mall Drive
45 39568 Lexington Place 5454 Sunset Boulevard
46 39219 Camfield Corners 8610 - 8650 Camfield Street
47 38608 1454 State Route 9 1454 State Route 9
48 57742 Woodford Square Shopping Center 701 North Battlefield Boulevard
49 39439 Kensington Place 1715 - 1741 South Rutherford Boulevard
50 8317 Walgreens - Loveland 3690 North Garfield Avenue
51 57774 Citrus Park Shops 6160-6182 Gunn Highway
52 57749 Walgreens - Bluffton, IN 1975 North Main Street
53 39566 Houston Square 215 Russell Parkway
54 38549 Eckerd Piedmont 915 Anderson Street
55 57698 PPG Place One-Six PPG Place
56 39463 Broward Financial Center 500 East Broward Boulevard
57 57770 104 West 40th Street 104 West 40th Street
58.1 39550 2155 Iron Point Road 2155 Iron Point Road
58.2 39550 11120 International Drive 11120 International Drive
58 39550 EVERGREEN PORTFOLIO C (ROLL UP) Various
59 57580 1995 Broadway 1995 Broadway
60 57718 Paradise Valley Corporate Center 4835 East Cactus Road
61 57526 The Forbes Building 60 Fifth Avenue
62 57469 Cargill Office Building 12700 Whitewater Drive
63 5952 Somerville NJ Office Portfolio (Franklin Bldg.) 92 East Main Street
64 7373 Somerville NJ Office Portfolio (Hamon Bldg.) 58 East Main Street
SUB-TOTAL CROSSED LOANS
65 57945 Lakeside III 21355 Ridgetop Circle
66 57777 Enea Square 1450, 1465 & 1470 Enea Circle and 1485 Enea Court
67 57443 DeVry Institute 4000 Millenia Boulevard
68 57767 Galleria at Red Bank 2-40 Bridge Ave.
69 57909 4040 North Central Expressway 4040 North Central Expressway
70 57691 Federal Way Building II 3455 South 344th Way
71 57011 River Park One 10653 South River Front Parkway
72 57573 Cross Street Medical Building 40 Cross Street
73 55600 Nextel Office Building - Bremerton, WA 6455 State Highway 303
74.1 57524 Clayton Tower 7751 Carondelet Avenue
74.2 57524 Town & Country 7745 Carondelet Avenue
74.3 57524 The Plaza 7755 Carondelet Avenue
74 57524 MEHLMAN/KAPLAN OFFICE PORTFOLIO (ROLL UP) 7745, 7751 and 7755 Carondelet Avenue
75 56659 Atrium Memorial Professional Building 1949 Gunbarrel Road
76 57421 Opera Block 18-72 Hanover Street
77 7376 Warren Hills Office Building 315 Route 31 South
78 57427 Southport Business Park 2928, 2934 and 2940 Ramco Street
79 57660 MHC Portfolio - Waterford Estates 205 Joan Drive
80 57678 MHC Portfolio - Lake Fairways Country Club 19371 Tamiami Trail
81 57663 MHC Portfolio - The Meadows at Countrywood 723 West Sam Allen Road
82 57662 MHC Portfolio - The Lakes at Countrywood 606 East Sam Allen Road
SUB-TOTAL CROSSED LOANS
83 6468 Holiday Ranch MHC-Happy Landings MHC 1375 South Military Trail
84 57659 MHC Portfolio - Sweetbriar Sweetbriar Road, Country Road 261
85 57687 The Store Room 747 NE Third Avenue
86 57551 Best Florida Mini Storage 2290 NW 19th Street
87 57689 A-1 Paramount Self Storage 14908 Downey Avenue
88 57740 Storgard Self Storage and RV 1200 North Benson Avenue
89 8419 Martin SS - Fayetteville, NC 108 Skateway Drive
90 57688 A-1 La Habra Self Storage 420 East Lambert Road
91 57717 Access Self Storage 4345 South Street
92 8306 Leave it/Lock it Self Storage 1825 Service Court
93 8309 Allsafe Freeway Storage 1807 Columbia Avenue
94 7580 Compton Self Storage 1450 East Compton Boulevard
95 7847 Hampton Inn - Southwind II 3579 Hacks Cross Road
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS/WEIGHTED AVERAGE 95 LOANS
====================================================================================================================================
SE- LOAN ZIP PROPERTY ORIGINAL
QUENCE NUMBER COUNTY CITY STATE CODE TYPE BALANCE
- ------ ------ ------ ---- ----- ---- ---- -------
1 57797 San Diego Oceanside CA 92056 Multifamily $20,000,000
2 6120 Platte Kansas City MO 64154 Multifamily 19,910,023
3 57799 Bexar San Antonio TX 78230 Multifamily 12,400,000
4 7750 Clark Las Vegas NV 89119 Multifamily 9,760,000
5 39285 Bronx Bronx NY 10456 Multifamily 3,617,000
6 39287 Bronx Bronx NY 10453 Multifamily 2,465,000
---------
6,082,000
7 39677 Bronx Bronx NY 10458 Multifamily 4,210,000
8 39284 Bronx Bronx NY 10451 Multifamily 4,112,000
9 8096 Fond Du Lac Fond Du Lac WI 54935 Multifamily 4,050,000
10 39376 Bronx Bronx NY 10456 Multifamily 3,981,000
11 39283 Bronx Bronx NY 10452 Multifamily 3,692,000
12 39286 Bronx Bronx NY 10455 Multifamily 3,654,000
13 8165 Kitsap Port Orchard WA 98366 Multifamily 3,600,000
14 39670 Bronx Bronx NY 10456 Multifamily 3,347,000
15 39674 Bronx Bronx NY 10452 Multifamily 1,969,000
16 39673 Bronx Bronx NY 10472 Multifamily 1,150,000
---------
3,119,000
17 39669 Bronx Bronx NY 10467 Multifamily 2,936,000
18 39279 Bronx Bronx NY 10463 Multifamily 2,914,000
19 39676 Bronx Bronx NY 10453 Multifamily 2,230,000
20 39282 Bronx Bronx NY 10458 Multifamily 1,989,000
21 57563 Schenectady Rotterdam NY 12306 Multifamily 1,675,000
22 40255 Hennepin Eden Prairie MN 55344 Retail 87,000,000
23 57995 Hawaii Hilo HI 96720 Retail 42,000,000
24 57746 Hampden Springfield MA 01104 Retail 26,000,000
25 38460 Union Linden NJ 07036 Retail 25,250,000
26.1 38898 Collin Plano TX 75093 Retail 13,127,000
26.2 38898 Hartford New Britain CT 06053 Retail 6,450,000
26 38898 Various Various Various Various Retail 19,577,000
27.1 39083 Cobb Roswell GA 30075 Retail 9,900,000
27.2 39083 Hall Flowery Branch GA 30542 Retail 7,800,000
27.3 39083 Richmond Augusta GA 30906 Retail 1,185,000
27 39083 Various Various GA Various Retail 18,885,000
28 39444 Prince George's Largo MD 20774 Retail 17,200,000
29 57575 Orange Irvine CA 92604 Retail 16,000,000
30.1 57748 Hartford West Hartford CT 06107 Retail 5,538,462
30.2 57748 Hartford West Hartford CT 06107 Retail 2,846,154
30.3 57748 Hartford West Hartford CT 06107 Retail 2,846,154
30.4 57748 Hartford West Hartford CT 06107 Retail 1,769,231
30 57748 Hartford West Hartford CT 06107 Retail 13,000,000
31.1 57720 Cheshire Keene NH 03431 Retail 7,077,778
31.2 57720 Cheshire Keene NH 03431 Retail 5,522,222
31 57720 Cheshire Keene NH 03431 Retail 12,600,000
32 57380 Lackawanna Dickson City PA 18519 Retail 12,000,000
33 57765 Los Angeles Santa Clarita CA 91350 Retail 12,000,000
34 39207 Newport News City Newport News VA 23602 Retail 11,457,000
35 39085 Washington Hillsboro OR 97124 Retail 10,355,000
36 39564 Burlington Lumberton NJ 08048 Retail 9,900,000
37 57786 Worcester Gardner MA 01440 Retail 8,900,000
38 39179 Anderson Anderson SC 29624 Retail 8,600,000
39 39086 Gwinnett Lilburn GA 30047 Retail 7,250,000
40 39328 Hartford Manchester CT 06040 Retail 7,205,000
41 57768 Sacramento Fair Oaks CA 95628 Retail 7,000,000
42 57607 Madison Alton IL 62002 Retail 6,200,000
43 57707 Davidson Bellevue TN 37221 Retail 5,985,000
44 57706 Fairfax Springfield VA 22150 Retail 5,765,000
45 39568 Lexington Lexington SC 29072 Retail 5,300,000
46 39219 Mecklenburg Charlotte NC 28277 Retail 5,150,000
47 38608 Warren Lake George NY 12845 Retail 4,000,000
48 57742 Chesapeake City Chesapeake VA 23320 Retail 3,920,000
49 39439 Rutherford Murfreesboro TN 37130 Retail 3,750,000
50 8317 Larimer Loveland CO 80537 Retail 3,363,000
51 57774 Hillsborough Tampa FL 33625 Retail 3,000,000
52 57749 Wells Bluffton IN 46714 Retail 2,800,000
53 39566 Houston Warner Robins GA 31088 Retail 2,750,000
54 38549 Anderson Piedmont SC 29673 Retail 1,100,000
55 57698 Allegheny Pittsburgh PA 15222 Office 116,000,000
56 39463 Broward Fort Lauderdale FL 33312 Office 46,500,000
57 57770 New York New York NY 10018 Office 36,500,000
58.1 39550 Sacramento Folsom CA 95630 Office 21,400,000
58.2 39550 Sacramento Rancho Cordova CA 95670 Office 11,200,000
58 39550 Sacramento Various CA Various Office 32,600,000
59 57580 New York New York NY 10023 Office 28,000,000
60 57718 Maricopa Phoenix AZ 85254 Office 24,750,000
61 57526 New York New York NY 10011 Office 21,000,000
62 57469 Hennepin Minnetonka MN 55343 Office 18,000,000
63 5952 Somerset Somerville NJ 08876 Office 9,200,000
64 7373 Somerset Somerville NJ 08876 Office 6,100,000
----------
15,300,000
65 57945 Loudoun Dulles VA 20166 Office 15,120,000
66 57777 Contra Costa Concord CA 94520 Office 12,900,000
67 57443 Orange Orlando FL 32839 Office 11,450,000
68 57767 Monmouth Red Bank NJ 07701 Office 10,500,000
69 57909 Dallas Dallas TX 75204 Office 10,000,000
70 57691 King Federal Way WA 98001 Office 9,900,000
71 57011 Salt Lake South Jordan UT 84095 Office 8,500,000
72 57573 Fairfield Norwalk CT 06851 Office 8,000,000
73 55600 Kitsap Bremerton WA 98311 Office 6,800,000
74.1 57524 St. Louis Clayton MO 63105 Office 3,672,924
74.2 57524 St. Louis Clayton MO 63105 Office 1,047,308
74.3 57524 St. Louis Clayton MO 63105 Office 779,768
74 57524 St. Louis Clayton MO 63105 Office 5,500,000
75 56659 Hamilton Chattanooga TN 37421 Office 5,250,000
76 57421 Hillsborough Manchester NH 03101 Office 3,840,000
77 7376 Warren Washington NJ 07882 Office 1,500,000
78 57427 Yolo West Sacramento CA 95691 Industrial 7,350,000
79 57660 New Castle Bear DE 19701 Manufactured Housing Communities 30,953,930
80 57678 Lee North Fort Myers FL 33903 Manufactured Housing Communities 30,460,183
81 57663 Hillsborough Plant City FL 33565 Manufactured Housing Communities 18,292,718
82 57662 Hillsborough Plant City FL 33565 Manufactured Housing Communities 9,722,325
----------
28,015,043
83 6468 Palm Beach West Palm Beach FL 33415 Manufactured Housing Communities 8,951,936
84 57659 Sussex Lewes DE 19958 Manufactured Housing Communities 3,040,000
85 57687 Broward Fort Lauderdale FL 33304 Self Storage 7,250,000
86 57551 Broward Fort Lauderdale FL 33311 Self Storage 5,512,000
87 57689 Los Angeles Paramount CA 90723 Self Storage 4,840,000
88 57740 San Bernardino Upland CA 91786 Self Storage 4,500,000
89 8419 Cumberland Fayetteville NC 28304 Self Storage 4,200,000
90 57688 Orange La Habra CA 90631 Self Storage 3,825,000
91 57717 Brevard Titusville FL 32780 Self Storage 3,100,000
92 8306 Riverside Riverside CA 92507 Self Storage 2,200,000
93 8309 Riverside Riverside CA 92507 Self Storage 1,900,000
94 7580 Los Angeles Compton CA 90221 Self Storage 1,800,000
95 7847 Shelby Memphis TN 38125 Hotel 6,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
$1,140,731,114
====================================================================================================================================
CUT-OFF MATURITY ADMINI- SUB- NET
SE- LOAN DATE DATE LOAN MORTGAGE STRATIVE SERVICING MORTGAGE
QUENCE NUMBER BALANCE BALANCE TYPE RATE FEE RATE (I) FEE RATE RATE
- ------ ------ ------- ------- ---- ---- ------------ -------- ----
1 57797 $19,977,938 $18,436,456 Balloon 4.840% 0.122% 0.100% 4.718%
2 6120 19,910,023 16,682,907 Balloon 5.398% 0.052% 0.030% 5.346%
3 57799 12,400,000 11,480,714 IO, Balloon 5.131% 0.122% 0.100% 5.009%
4 7750 9,731,114 8,243,049 Balloon 5.794% 0.052% 0.030% 5.742%
5 39285 3,604,663 3,346,184 Balloon 5.101% 0.032% 0.010% 5.069%
6 39287 2,456,592 2,280,438 Balloon 5.101% 0.032% 0.010% 5.069%
------------------------------------------
6,061,256 5,626,622
7 39677 4,205,429 3,884,877 Balloon 4.908% 0.032% 0.010% 4.876%
8 39284 4,101,820 3,789,867 Balloon 4.851% 0.032% 0.010% 4.819%
9 8096 4,037,850 3,413,890 Balloon 5.729% 0.112% 0.090% 5.617%
10 39376 3,971,144 3,669,129 Balloon 4.851% 0.032% 0.010% 4.819%
11 39283 3,682,859 3,402,769 Balloon 4.851% 0.032% 0.010% 4.819%
12 39286 3,641,537 3,380,414 Balloon 5.101% 0.032% 0.010% 5.069%
13 8165 3,560,428 66,698 Fully Am 5.146% 0.052% 0.030% 5.094%
14 39670 3,343,317 3,085,810 Balloon 4.850% 0.032% 0.010% 4.818%
15 39674 1,966,833 1,815,345 Balloon 4.850% 0.032% 0.010% 4.818%
16 39673 1,148,734 1,060,257 Balloon 4.850% 0.032% 0.010% 4.818%
------------------------------------------
3,115,567 2,875,603
17 39669 2,932,812 2,709,263 Balloon 4.908% 0.032% 0.010% 4.876%
18 39279 2,910,803 2,687,131 Balloon 4.863% 0.032% 0.010% 4.831%
19 39676 2,227,546 2,055,978 Balloon 4.850% 0.032% 0.010% 4.818%
20 39282 1,986,818 1,834,147 Balloon 4.863% 0.032% 0.010% 4.831%
21 57563 1,667,998 1,398,586 Balloon 5.410% 0.122% 0.100% 5.288%
22 40255 87,000,000 76,587,076 Balloon 4.670% 0.032% 0.010% 4.638%
23 57995 42,000,000 37,825,632 Balloon 3.452% 0.062% 0.040% 3.390%
24 57746 25,924,931 22,035,763 Balloon 5.912% 0.122% 0.100% 5.790%
25 38460 25,164,292 23,367,671 Balloon 5.125% 0.072% 0.050% 5.053%
26.1 38898 13,127,000 13,127,000
26.2 38898 6,450,000 6,450,000
26 38898 19,577,000 19,577,000 IO, Hyper Am 4.684% 0.032% 0.010% 4.652%
27.1 39083 9,900,000 9,900,000
27.2 39083 7,800,000 7,800,000
27.3 39083 1,185,000 1,185,000
27 39083 18,885,000 18,885,000 Interest Only 5.000% 0.032% 0.010% 4.968%
28 39444 17,200,000 17,200,000 Interest Only 4.900% 0.032% 0.010% 4.868%
29 57575 15,884,422 12,333,875 Balloon 5.770% 0.122% 0.100% 5.648%
30.1 57748 5,538,462 5,166,859
30.2 57748 2,846,154 2,655,191
30.3 57748 2,846,154 2,655,191
30.4 57748 1,769,231 1,650,524
30 57748 13,000,000 12,127,766 IO, Balloon 5.670% 0.122% 0.100% 5.548%
31.1 57720 7,052,166 6,028,007
31.2 57720 5,502,240 4,703,170
31 57720 12,554,406 10,731,177 Balloon 6.070% 0.122% 0.100% 5.948%
32 57380 11,976,081 10,198,453 Balloon 6.010% 0.122% 0.100% 5.888%
33 57765 11,964,232 10,124,622 Balloon 5.760% 0.122% 0.100% 5.638%
34 39207 11,457,000 11,457,000 Interest Only 4.940% 0.032% 0.010% 4.908%
35 39085 10,355,000 10,355,000 Interest Only 4.757% 0.032% 0.010% 4.725%
36 39564 9,900,000 9,900,000 Interest Only 4.581% 0.032% 0.010% 4.549%
37 57786 8,875,216 7,580,702 Balloon 6.083% 0.122% 0.100% 5.961%
38 39179 8,600,000 8,600,000 Interest Only 4.940% 0.032% 0.010% 4.908%
39 39086 7,250,000 7,250,000 Interest Only 4.600% 0.032% 0.010% 4.568%
40 39328 7,205,000 7,205,000 Interest Only 4.755% 0.032% 0.010% 4.723%
41 57768 6,993,259 5,846,011 Balloon 5.410% 0.122% 0.100% 5.288%
42 57607 6,177,540 5,279,655 Balloon 6.065% 0.122% 0.100% 5.943%
43 57707 5,985,000 5,985,000 Interest Only 5.130% 0.122% 0.100% 5.008%
44 57706 5,765,000 5,765,000 Interest Only 4.660% 0.122% 0.100% 4.538%
45 39568 5,300,000 5,300,000 Interest Only 4.960% 0.032% 0.010% 4.928%
46 39219 5,150,000 5,150,000 Interest Only 5.040% 0.032% 0.010% 5.008%
47 38608 3,980,908 3,578,430 Balloon 5.190% 0.032% 0.010% 5.158%
48 57742 3,916,123 3,262,522 Balloon 5.300% 0.122% 0.100% 5.178%
49 39439 3,750,000 3,750,000 Interest Only 4.910% 0.032% 0.010% 4.878%
50 8317 3,353,384 2,854,091 Balloon 5.958% 0.052% 0.030% 5.906%
51 57774 2,993,963 2,545,899 Balloon 5.960% 0.122% 0.100% 5.838%
52 57749 2,797,679 2,380,395 Balloon 6.000% 0.122% 0.100% 5.878%
53 39566 2,750,000 2,750,000 Interest Only 4.740% 0.032% 0.010% 4.708%
54 38549 1,100,000 1,100,000 Interest Only 5.170% 0.032% 0.010% 5.138%
55 57698 115,704,055 105,939,516 Balloon 5.343% 0.042% 0.020% 5.301%
56 39463 46,500,000 46,500,000 Interest Only 4.836% 0.032% 0.010% 4.804%
57 57770 36,467,173 30,739,761 Balloon 5.684% 0.122% 0.100% 5.562%
58.1 39550 21,290,008 19,204,420
58.2 39550 11,142,434 10,050,911
58 39550 32,432,442 29,255,331 Balloon 5.570% 0.032% 0.010% 5.538%
59 57580 27,917,752 23,673,409 Balloon 5.830% 0.122% 0.100% 5.708%
60 57718 24,654,705 22,312,719 Balloon 5.790% 0.122% 0.100% 5.668%
61 57526 21,000,000 18,194,816 IO, Balloon 5.883% 0.122% 0.100% 5.760%
62 57469 18,000,000 18,000,000 Interest Only 5.470% 0.122% 0.100% 5.348%
63 5952 9,140,613 6,211,245 Balloon 5.879% 0.052% 0.030% 5.827%
64 7373 6,060,624 4,118,326 Balloon 5.879% 0.052% 0.030% 5.827%
------------------------------------------
15,201,236 10,329,571
65 57945 15,106,560 12,751,593 Balloon 5.730% 0.122% 0.100% 5.608%
66 57777 12,872,986 10,879,624 Balloon 5.750% 0.122% 0.100% 5.628%
67 57443 11,362,451 8,989,872 Balloon 5.280% 0.122% 0.100% 5.158%
68 57767 10,476,341 8,750,772 Balloon 5.360% 0.072% 0.050% 5.288%
69 57909 9,979,150 8,439,609 Balloon 5.773% 0.122% 0.100% 5.651%
70 57691 9,900,000 8,675,589 IO, Balloon 5.446% 0.122% 0.100% 5.324%
71 57011 8,467,129 7,175,613 Balloon 5.770% 0.122% 0.100% 5.648%
72 57573 7,975,704 6,731,531 Balloon 5.670% 0.122% 0.100% 5.548%
73 55600 6,781,092 5,464,909 Balloon 6.090% 0.122% 0.100% 5.968%
74.1 57524 3,653,325 3,412,125
74.2 57524 1,041,720 972,944
74.3 57524 775,607 724,400
74 57524 5,470,652 5,109,468 Balloon 5.390% 0.122% 0.100% 5.268%
75 56659 5,220,907 4,462,328 Balloon 6.000% 0.122% 0.100% 5.878%
76 57421 3,820,795 3,234,123 Balloon 5.700% 0.122% 0.100% 5.578%
77 7376 1,490,049 976,201 Balloon 5.659% 0.052% 0.030% 5.607%
78 57427 7,328,613 6,222,551 Balloon 5.875% 0.122% 0.100% 5.753%
79 57660 30,953,930 27,126,127 IO, Balloon 6.327% 0.122% 0.100% 6.205%
80 57678 30,460,183 26,693,437 IO, Balloon 6.327% 0.122% 0.100% 6.205%
81 57663 18,292,718 16,772,074 IO, Balloon 5.715% 0.122% 0.100% 5.593%
82 57662 9,722,325 8,914,123 IO, Balloon 5.715% 0.122% 0.100% 5.593%
------------------------------------------
28,015,043 25,686,197
83 6468 8,951,936 7,673,209 Balloon 6.129% 0.062% 0.040% 6.067%
84 57659 3,040,000 2,664,070 IO, Balloon 6.327% 0.122% 0.100% 6.205%
85 57687 7,215,840 6,156,986 Balloon 5.980% 0.122% 0.100% 5.858%
86 57551 5,491,785 4,686,281 Balloon 6.010% 0.122% 0.100% 5.888%
87 57689 4,812,445 3,732,765 Balloon 5.777% 0.122% 0.100% 5.654%
88 57740 4,479,200 4,038,765 Balloon 5.390% 0.082% 0.060% 5.308%
89 8419 4,196,125 3,526,252 Balloon 5.582% 0.102% 0.080% 5.480%
90 57688 3,803,788 2,965,325 Balloon 5.930% 0.122% 0.100% 5.808%
91 57717 3,091,307 2,637,949 Balloon 6.050% 0.122% 0.100% 5.928%
92 8306 2,197,027 1,692,897 Balloon 5.704% 0.072% 0.050% 5.632%
93 8309 1,897,429 1,461,747 Balloon 5.698% 0.072% 0.050% 5.626%
94 7580 1,794,830 1,400,470 Balloon 6.050% 0.072% 0.050% 5.978%
95 7847 5,978,211 4,788,638 Balloon 6.836% 0.082% 0.060% 6.754%
- ------------------------------------------------------------------------------------------------------------------------------------
$1,138,760,562 $1,017,352,668 5.355% 0.079% 0.057% 5.276%
====================================================================================================================================
ORIGINAL ORIGINAL
FIRST INTEREST TERM TO AMORTIZATION INTEREST
SE- LOAN NOTE PAYMENT ACCRUAL MONTHLY MATURITY TERM ONLY SEASONING
QUENCE NUMBER DATE DATE METHOD PAYMENT (MONTHS) (MONTHS) (II) PERIOD (MONTHS)
------ ------ ---- ---- ------ ------- -------- ------------- ------ --------
1 57797 2/9/2004 4/1/2004 ACT/360 $105,417 60 360 1
2 6120 11/10/2003 5/1/2004 ACT/360 112,281 116 356
3 57799 2/4/2004 4/1/2004 ACT/360 67,562 84 360 24 1
4 7750 12/23/2003 2/1/2004 ACT/360 57,230 120 360 3
5 39285 12/31/2003 2/1/2004 ACT/360 19,641 60 360 3
6 39287 12/31/2003 2/1/2004 ACT/360 13,385 60 360 3
7 39677 2/20/2004 4/1/2004 ACT/360 22,364 60 360 1
8 39284 1/14/2004 3/1/2004 ACT/360 21,701 60 360 2
9 8096 12/11/2003 2/1/2004 ACT/360 23,581 120 360 3
10 39376 1/14/2004 3/1/2004 ACT/360 21,010 60 360 2
11 39283 1/14/2004 3/1/2004 ACT/360 19,485 60 360 2
12 39286 12/31/2003 2/1/2004 ACT/360 19,842 60 360 3
13 8165 12/24/2003 2/1/2004 ACT/360 28,743 180 180 3
14 39670 2/20/2004 4/1/2004 ACT/360 17,662 60 360 1
15 39674 2/11/2004 4/1/2004 ACT/360 10,390 60 360 1
16 39673 2/11/2004 4/1/2004 ACT/360 6,068 60 360 1
17 39669 2/20/2004 4/1/2004 ACT/360 15,596 60 360 1
18 39279 2/11/2004 4/1/2004 ACT/360 15,400 60 360 1
19 39676 2/20/2004 4/1/2004 ACT/360 11,768 60 360 1
20 39282 2/11/2004 4/1/2004 ACT/360 10,511 60 360 1
21 57563 11/18/2003 1/1/2004 ACT/360 9,416 120 360 4
22 40255 3/10/2004 5/1/2004 ACT/360 449,647 84 360
23 57995 3/12/2004 5/1/2004 ACT/360 187,475 60 360
24 57746 12/19/2003 2/1/2004 ACT/360 154,415 120 360 3
25 38460 12/9/2003 2/1/2004 ACT/360 137,483 60 360 3
26.1 38898
26.2 38898
26 38898 1/28/2004 3/1/2004 30/360 76,416 57 57 2
27.1 39083
27.2 39083
27.3 39083
27 39083 11/13/2003 1/1/2004 30/360 78,688 84 84 4
28 39444 11/21/2003 1/1/2004 30/360 70,233 84 84 4
29 57575 10/28/2003 12/1/2003 ACT/360 100,850 120 300 5
30.1 57748
30.2 57748
30.3 57748
30.4 57748
30 57748 12/18/2003 2/1/2004 ACT/360 78,877 60 320 12 3
31.1 57720
31.2 57720
31 57720 12/1/2003 1/1/2004 ACT/360 76,111 120 360 4
32 57380 1/16/2004 3/1/2004 ACT/360 72,023 120 360 2
33 57765 12/19/2003 2/1/2004 ACT/360 70,105 120 360 3
34 39207 11/4/2003 1/1/2004 30/360 47,165 84 84 4
35 39085 1/30/2004 3/1/2004 30/360 41,049 84 84 2
36 39564 1/28/2004 3/1/2004 30/360 37,793 60 60 2
37 57786 12/19/2003 2/1/2004 ACT/360 53,836 120 360 3
38 39179 11/6/2003 1/1/2004 30/360 35,403 84 84 4
39 39086 11/21/2003 1/1/2004 30/360 27,792 84 84 4
40 39328 11/7/2003 1/1/2004 30/360 28,550 60 60 4
41 57768 2/19/2004 4/1/2004 ACT/360 39,351 120 360 1
42 57607 11/14/2003 1/1/2004 ACT/360 37,432 120 360 4
43 57707 11/25/2003 1/1/2004 30/360 120 120 4
44 57706 11/25/2003 1/1/2004 30/360 84 84 4
45 39568 12/12/2003 2/1/2004 30/360 21,907 84 84 3
46 39219 11/4/2003 1/1/2004 30/360 21,630 84 84 4
47 38608 12/8/2003 2/1/2004 ACT/360 23,829 60 300 3
48 57742 2/26/2004 4/1/2004 ACT/360 21,768 120 360 1
49 39439 12/12/2003 2/1/2004 30/360 15,344 84 84 3
50 8317 12/12/2003 2/1/2004 ACT/360 20,072 120 360 3
51 57774 1/6/2004 3/1/2004 ACT/360 17,909 120 360 2
52 57749 2/4/2004 4/1/2004 ACT/360 16,787 120 360 1
53 39566 12/8/2003 2/1/2004 30/360 10,863 60 60 3
54 38549 9/16/2003 11/1/2003 30/360 4,739 84 84 6
55 57698 12/22/2003 2/1/2004 ACT/360 624,479 84 360 3
56 39463 1/12/2004 3/10/2004 ACT/360 190,518 61 61 2
57 57770 2/11/2004 4/1/2004 ACT/360 211,472 120 360 1
58.1 39550
58.2 39550
58 39550 10/30/2003 12/1/2003 ACT/360 186,534 84 360 5
59 57580 12/4/2003 2/1/2004 ACT/360 164,826 120 360 3
60 57718 11/26/2003 1/1/2004 ACT/360 145,064 84 360 4
61 57526 9/30/2003 11/1/2003 ACT/360 127,624 120 336 24 6
62 57469 8/21/2003 10/1/2003 ACT/360 60 60 7
63 5952 12/23/2003 2/1/2004 ACT/360 65,271 115 240 3
64 7373 12/23/2003 2/1/2004 ACT/360 43,278 115 240 3
65 57945 2/24/2004 4/1/2004 ACT/360 88,044 120 360 1
66 57777 1/16/2004 3/1/2004 ACT/360 75,281 120 360 2
67 57443 8/26/2003 10/1/2003 ACT/360 63,440 144 360 7
68 57767 1/22/2004 3/1/2004 ACT/360 58,699 120 360 2
69 57909 1/14/2004 3/1/2004 ACT/360 58,503 120 360 2
70 57691 10/30/2003 12/1/2003 ACT/360 55,876 120 360 24 5
71 57011 11/20/2003 1/1/2004 ACT/360 49,712 120 360 4
72 57573 12/12/2003 2/1/2004 ACT/360 46,280 120 360 3
73 55600 12/3/2003 2/1/2004 ACT/360 41,164 147 360 3
74.1 57524
74.2 57524
74.3 57524
74 57524 10/29/2003 12/1/2003 ACT/360 30,850 60 360 5
75 56659 9/18/2003 11/1/2003 ACT/360 31,476 120 360 6
76 57421 10/30/2003 12/1/2003 ACT/360 22,287 120 360 5
77 7376 12/23/2003 2/1/2004 ACT/360 10,453 120 240 3
78 57427 12/5/2003 2/1/2004 ACT/360 43,478 120 360 3
79 57660 10/17/2003 12/1/2003 ACT/360 192,142 144 360 36 5
80 57678 10/17/2003 12/1/2003 ACT/360 189,077 144 360 36 5
81 57663 10/17/2003 12/1/2003 ACT/360 106,345 84 360 12 5
82 57662 10/17/2003 12/1/2003 ACT/360 56,521 84 360 12 5
83 6468 9/22/2003 5/1/2004 ACT/360 54,747 114 354
84 57659 10/17/2003 12/1/2003 ACT/360 18,870 144 360 36 5
85 57687 10/24/2003 12/1/2003 ACT/360 43,374 120 360 5
86 57551 11/6/2003 1/1/2004 ACT/360 33,083 120 360 4
87 57689 11/12/2003 1/1/2004 ACT/360 30,526 120 300 4
88 57740 12/15/2003 2/1/2004 ACT/360 27,339 60 300 3
89 8419 2/11/2004 4/1/2004 ACT/360 24,064 120 360 1
90 57688 11/7/2003 1/1/2004 ACT/360 24,481 120 300 4
91 57717 12/5/2003 2/1/2004 ACT/360 18,686 120 360 3
92 8306 2/12/2004 4/1/2004 ACT/360 13,779 120 300 1
93 8309 2/12/2004 4/1/2004 ACT/360 11,893 120 300 1
94 7580 1/13/2004 3/1/2004 ACT/360 11,653 120 300 2
95 7847 12/8/2003 2/1/2004 ACT/360 41,781 120 300 3
- ------------------------------------------------------------------------------------------------------------------------------------
96 353 3
====================================================================================================================================
REMAINING
TERM TO
SE- LOAN MATURITY MATURITY CROSS-COLLATERALIZED RELATED LOCKOUT
QUENCE NUMBER (MONTHS) DATE LOANS LOANS EXPIRATION PREPAYMENT PENALTY DESCRIPTION (MONTHS)
- ------ ------ -------- ---- ----- ----- ---------- ---------------------------------------
1 57797 59 3/1/2009 No No 11/1/2008 LO(56)/OPEN(4)/DEFEASANCE
2 6120 116 12/1/2013 No No 8/31/2013 LO(112)/OPEN(4)/DEFEASANCE
3 57799 83 3/1/2011 No No 12/1/2010 LO(81)/OPEN(3)/DEFEASANCE
4 7750 117 1/1/2014 No No 9/30/2013 LO(116)/OPEN(4)/DEFEASANCE
5 39285 57 1/1/2009 Yes(BACM 04-2-C) Yes(BACM 04-2-G) 12/31/2006 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
6 39287 57 1/1/2009 Yes(BACM 04-2-C) Yes(BACM 04-2-G) 12/31/2006 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
7 39677 59 3/1/2009 No Yes(BACM 04-2-G) 2/28/2007 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
8 39284 58 2/1/2009 No No 1/31/2007 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
9 8096 117 1/1/2014 No No 9/30/2013 LO(116)/OPEN(4)/DEFEASANCE
10 39376 58 2/1/2009 No Yes(BACM 04-2-G) 1/31/2007 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
11 39283 58 2/1/2009 No Yes(BACM 04-2-G) 1/31/2007 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
12 39286 57 1/1/2009 No Yes(BACM 04-2-G) 12/31/2006 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
13 8165 177 1/1/2019 No No 9/30/2018 LO(176)/OPEN(4)/DEFEASANCE
14 39670 59 3/1/2009 No Yes(BACM 04-2-G) 2/28/2007 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
15 39674 59 3/1/2009 Yes(BACM 04-2-D) Yes(BACM 04-2-G) 2/28/2007 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
16 39673 59 3/1/2009 Yes(BACM 04-2-D) Yes(BACM 04-2-G) 2/28/2007 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
17 39669 59 3/1/2009 No Yes(BACM 04-2-G) 2/28/2007 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
18 39279 59 3/1/2009 No Yes(BACM 04-2-G) 2/28/2007 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
19 39676 59 3/1/2009 No Yes(BACM 04-2-G) 2/28/2007 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
20 39282 59 3/1/2009 No Yes(BACM 04-2-G) 2/28/2007 LO(35)/GRTR1%PPMTorYM(24)/OPEN(1)
21 57563 116 12/1/2013 No No 9/1/2013 LO(117)/OPEN(3)/DEFEASANCE
22 40255 84 4/1/2011 No Yes(BACM 04-2-H) 12/31/2010 LO(80)/OPEN(4)/DEFEASANCE
23 57995 60 4/1/2009 No Yes(BACM 04-2-H) 12/1/2008 LO(56)/OPEN(4)/DEFEASANCE
24 57746 117 1/1/2014 No No 5/1/2006 LO(28)/GRTR1%PPMTorYM(87)/OPEN(5)
25 38460 57 1/1/2009 No No 12/31/2008 LO(59)/OPEN(1)/DEFEASANCE
26.1 38898 No
26.2 38898 No
26 38898 55 11/1/2008 No Yes(BACM 04-2-B) 1/31/2007 LO(35)/GRTR1%PPMTorYM(20)/OPEN(2)
27.1 39083 No
27.2 39083 No
27.3 39083 No
27 39083 80 12/1/2010 No Yes(BACM 04-2-B) 11/30/2006 LO(35)/GRTR1%PPMTorYM(47)/OPEN(2)
28 39444 80 12/1/2010 No Yes(BACM 04-2-B) 11/30/2006 LO(35)/GRTR1%PPMTorYM(47)/OPEN(2)
29 57575 115 11/1/2013 No No 9/1/2013 LO(118)/OPEN(2)/DEFEASANCE
30.1 57748 No
30.2 57748 No
30.3 57748 No
30.4 57748 No
30 57748 57 1/1/2009 No No 10/1/2008 LO(57)/OPEN(3)/DEFEASANCE
31.1 57720 No
31.2 57720 No
31 57720 116 12/1/2013 No No 10/1/2013 LO(118)/OPEN(2)/DEFEASANCE
32 57380 118 2/1/2014 No No 12/1/2013 LO(118)/OPEN(2)/DEFEASANCE
33 57765 117 1/1/2014 No No 10/1/2013 LO(117)/OPEN(3)/DEFEASANCE
34 39207 80 12/1/2010 No Yes(BACM 04-2-B) 11/30/2006 LO(35)/GRTR1%PPMTorYM(47)/OPEN(2)
35 39085 82 2/1/2011 No Yes(BACM 04-2-I) LO(0)/GRTR1%PPMTorYM(80)/OPEN(4)
36 39564 58 2/1/2009 No Yes(BACM 04-2-B) 1/31/2007 LO(35)/GRTR1%PPMTorYM(23)/OPEN(2)
37 57786 117 1/1/2014 No No 1/1/2011 LO(84)/OPEN(36)/DEFEASANCE
38 39179 80 12/1/2010 No Yes(BACM 04-2-B) 11/30/2006 LO(35)/GRTR1%PPMTorYM(47)/OPEN(2)
39 39086 80 12/1/2010 No Yes(BACM 04-2-I) LO(0)/GRTR1%PPMTorYM(80)/OPEN(4)
40 39328 56 12/1/2008 No Yes(BACM 04-2-B) 11/30/2006 LO(35)/GRTR1%PPMTorYM(23)/OPEN(2)
41 57768 119 3/1/2014 No No 1/1/2014 LO(118)/OPEN(2)/DEFEASANCE
42 57607 116 12/1/2013 No No 9/1/2013 LO(117)/OPEN(3)/DEFEASANCE
43 57707 116 12/1/2013 No Yes(BACM 04-2-B) 11/30/2006 LO(35)/GRTR1%PPMTorYM(82)/OPEN(3)
44 57706 80 12/1/2010 No Yes(BACM 04-2-B) LO(0)/GRTR1%PPMTorYM(81)/OPEN(3)
45 39568 81 1/1/2011 No Yes(BACM 04-2-B) 12/31/2006 LO(35)/GRTR1%PPMTorYM(47)/OPEN(2)
46 39219 80 12/1/2010 No Yes(BACM 04-2-B) 11/30/2006 LO(35)/GRTR1%PPMTorYM(47)/OPEN(2)
47 38608 57 1/1/2009 No No 12/31/2008 LO(59)/OPEN(1)/DEFEASANCE
48 57742 119 3/1/2014 No No 1/1/2014 LO(118)/OPEN(2)/DEFEASANCE
49 39439 81 1/1/2011 No Yes(BACM 04-2-B) 12/31/2006 LO(35)/GRTR1%PPMTorYM(47)/OPEN(2)
50 8317 117 1/1/2014 No No 9/30/2013 LO(116)/OPEN(4)/DEFEASANCE
51 57774 118 2/1/2014 No No 11/1/2013 LO(117)/OPEN(3)/DEFEASANCE
52 57749 119 3/1/2014 No No 12/1/2013 LO(117)/OPEN(3)/DEFEASANCE
53 39566 57 1/1/2009 No Yes(BACM 04-2-B) 12/31/2006 LO(35)/GRTR1%PPMTorYM(23)/OPEN(2)
54 38549 78 10/1/2010 No Yes(BACM 04-2-B) 9/30/2006 LO(35)/GRTR1%PPMTorYM(47)/OPEN(2)
55 57698 81 1/1/2011 No No 7/1/2010 LO(78)/OPEN(6)/DEFEASANCE
56 39463 59 3/1/2009 No No 2/28/2009 LO(60)/OPEN(1)/DEFEASANCE
57 57770 119 3/1/2014 No No 12/1/2013 LO(117)/OPEN(3)/DEFEASANCE
58.1 39550 No
58.2 39550 No
58 39550 79 11/1/2010 No No 10/31/2010 LO(83)/OPEN(1)/DEFEASANCE
59 57580 117 1/1/2014 No No 10/1/2013 LO(117)/OPEN(3)/DEFEASANCE
60 57718 80 12/1/2010 No No 10/1/2010 LO(82)/OPEN(2)/DEFEASANCE
61 57526 114 10/1/2013 No No 4/1/2013 LO(114)/OPEN(6)/DEFEASANCE
62 57469 53 9/1/2008 No No 3/1/2008 LO(54)/OPEN(6)/DEFEASANCE
63 5952 112 8/1/2013 Yes(BACM 04-2-B) Yes(BACM 04-2-D) 4/30/2013 LO(111)/OPEN(4)/DEFEASANCE
64 7373 112 8/1/2013 Yes(BACM 04-2-B) Yes(BACM 04-2-D) 4/30/2013 LO(111)/OPEN(4)/DEFEASANCE
65 57945 119 3/1/2014 No No 1/1/2014 LO(118)/OPEN(2)/DEFEASANCE
66 57777 118 2/1/2014 No No 12/1/2013 LO(118)/OPEN(2)/DEFEASANCE
67 57443 137 9/1/2015 No No 7/1/2015 LO(142)/OPEN(2)/DEFEASANCE
68 57767 118 2/1/2014 No No 11/1/2013 LO(117)/OPEN(3)/DEFEASANCE
69 57909 118 2/1/2014 No No 12/1/2013 LO(118)/OPEN(2)/DEFEASANCE
70 57691 115 11/1/2013 No No 8/1/2013 LO(117)/OPEN(3)/DEFEASANCE
71 57011 116 12/1/2013 No No 10/1/2013 LO(118)/OPEN(2)/DEFEASANCE
72 57573 117 1/1/2014 No No 11/1/2013 LO(118)/OPEN(2)/DEFEASANCE
73 55600 144 4/1/2016 No No 1/1/2016 LO(144)/OPEN(3)/DEFEASANCE
74.1 57524 No
74.2 57524 No
74.3 57524 No
74 57524 55 11/1/2008 No No 9/1/2008 LO(58)/OPEN(2)/DEFEASANCE
75 56659 114 10/1/2013 No No 7/31/2013 LO(117)/OPEN(3)/DEFEASANCE
76 57421 115 11/1/2013 No No 8/1/2013 LO(117)/OPEN(3)/DEFEASANCE
77 7376 117 1/1/2014 No Yes(BACM 04-2-D) 9/30/2013 LO(116)/OPEN(4)/DEFEASANCE
78 57427 117 1/1/2014 No No 11/1/2013 LO(118)/OPEN(2)/DEFEASANCE
79 57660 139 11/1/2015 No Yes(BACM 04-2-A) 8/1/2015 LO(141)/OPEN(3)/DEFEASANCE
80 57678 139 11/1/2015 No Yes(BACM 04-2-A) 8/1/2015 LO(141)/OPEN(3)/DEFEASANCE
81 57663 79 11/1/2010 Yes(BACM 04-2-A) Yes(BACM 04-2-A) 8/1/2010 LO(81)/OPEN(3)/DEFEASANCE
82 57662 79 11/1/2010 Yes(BACM 04-2-A) Yes(BACM 04-2-A) 8/1/2010 LO(81)/OPEN(3)/DEFEASANCE
83 6468 114 10/1/2013 No No 6/30/2013 LO(110)/OPEN(4)/DEFEASANCE
84 57659 139 11/1/2015 No Yes(BACM 04-2-A) 8/1/2015 LO(141)/OPEN(3)/DEFEASANCE
85 57687 115 11/1/2013 No No 9/1/2013 LO(118)/OPEN(2)/DEFEASANCE
86 57551 116 12/1/2013 No No 10/1/2013 LO(118)/OPEN(2)/DEFEASANCE
87 57689 116 12/1/2013 No Yes(BACM 04-2-C) 10/1/2013 LO(118)/OPEN(2)/DEFEASANCE
88 57740 57 1/1/2009 No No 9/1/2008 LO(56)/OPEN(4)/DEFEASANCE
89 8419 119 3/1/2014 No No 11/30/2013 LO(116)/OPEN(4)/DEFEASANCE
90 57688 116 12/1/2013 No Yes(BACM 04-2-C) 10/1/2013 LO(118)/OPEN(2)/DEFEASANCE
91 57717 117 1/1/2014 No No 11/1/2013 LO(118)/OPEN(2)/DEFEASANCE
92 8306 119 3/1/2014 No Yes(BACM 04-2-E) 8/31/2013 LO(113)/OPEN(7)/DEFEASANCE
93 8309 119 3/1/2014 No Yes(BACM 04-2-E) 8/31/2013 LO(113)/OPEN(7)/DEFEASANCE
94 7580 118 2/1/2014 No No 10/31/2013 LO(116)/OPEN(4)/DEFEASANCE
95 7847 117 1/1/2014 No No 9/30/2013 LO(116)/OPEN(4)/DEFEASANCE
- ------------------------------------------------------------------------------------------------------------------------------------
93
====================================================================================================================================
TOTAL
UNITS/ UNITS/
CUT-OFF SF/ SF/ NET
SE- LOAN APPRAISAL APPRAISAL DATE LTV YEAR BUILT/ PADS/ PADS/ RENTABLE
QUENCE NUMBER YIELD MAINTENANCE TYPE VALUE DATE RATIO RENOVATED ROOMS ROOMS AREA (SF)
- ------ ------ ---------------------- ----- ---- ----- --------- ----- ----- ---------
1 57797 $27,700,000 12/4/2003 72.1% 1974/2003 240 Units 218,944
2 6120 26,290,000 2/1/2004 75.7% 2002 272 Units 300,572
3 57799 15,500,000 11/19/2003 80.0% 1984 411 Units 294,405
4 7750 12,200,000 9/15/2003 79.8% 1973/2003 192 Units 194,110
5 39285 NPV (MEY) 4,600,000 10/13/2003 78.4% 1941/1998 79 Units
6 39287 NPV (MEY) 3,500,000 10/13/2003 70.2% 1937/1995 55 Units
---------------
8,100,000
7 39677 NPV (MEY) 5,600,000 12/4/2003 75.1% 1940/2000 68 Units
8 39284 NPV (MEY) 5,200,000 10/13/2003 78.9% 1936/1998 83 Units
9 8096 5,150,000 11/5/2003 78.4% 2001 72 Units 86,400
10 39376 NPV (MEY) 5,200,000 10/13/2003 76.4% 1936/1998 74 Units
11 39283 NPV (MEY) 4,800,000 10/13/2003 76.7% 1937/1995 68 Units
12 39286 NPV (MEY) 4,800,000 10/13/2003 75.9% 1938/1999 104 Units
13 8165 8,000,000 11/13/2003 44.5% 1975/2003 198 Units 136,900
14 39670 NPV (MEY) 4,500,000 12/4/2003 74.3% 1934/1985 48 Units
15 39674 NPV (MEY) 2,700,000 12/4/2003 72.8% 1932/2003 50 Units
16 39673 NPV (MEY) 1,700,000 12/4/2003 67.6% 1928/2002 29 Units
---------------
4,400,000
17 39669 NPV (MEY) 3,900,000 12/4/2003 75.2% 1927/2002 56 Units
18 39279 NPV (MEY) 4,200,000 10/13/2003 69.3% 1930/2002 74 Units
19 39676 NPV (MEY) 3,400,000 12/4/2003 65.5% 1938/1997 59 Units
20 39282 NPV (MEY) 3,000,000 10/13/2003 66.2% 1930/2002 41 Units
21 57563 2,100,000 8/14/2003 79.4% 1985 82 Units 54,956
22 40255 129,400,000 2/12/2004 67.2% 1976/2002 387,377 SF 387,377
23 57995 63,500,000 3/10/2004 66.1% 1985/1994 355,630 SF 355,630
24 57746 Int Diff (BEY)-B 33,000,000 10/28/2003 78.6% 1960/2000 428,914 SF 428,914
25 38460 33,500,000 8/1/2003 75.1% 1993 278,043 SF 278,043
26.1 38898 21,830,000 8/27/2003 2001 112,479 SF 112,479
26.2 38898 13,700,000 12/3/2003 1995 65,658 SF 65,658
26 38898 NPV (MEY) 35,530,000 Various 55.1% Various 178,137 SF 178,137
27.1 39083 18,400,000 10/10/2003 1977/1991 179,034 SF 179,034
27.2 39083 13,400,000 10/29/2003 2003 90,566 SF 90,566
27.3 39083 2,200,000 10/9/2003 1999 22,560 SF 22,560
27 39083 NPV (MEY) 34,000,000 Various 55.5% Various 292,160 SF 292,160
28 39444 NPV (MEY) 30,500,000 11/3/2003 56.4% 1991 260,797 SF 260,797
29 57575 26,400,000 9/16/2003 60.2% 1976 95,407 SF 95,407
30.1 57748 7,200,000 10/31/2003 1927/1985 33,922 SF 33,922
30.2 57748 3,700,000 10/31/2003 1931/1985 9,946 SF 9,946
30.3 57748 3,700,000 10/31/2003 1990 9,800 SF 9,800
30.4 57748 2,300,000 10/31/2003 1931/1966 8,613 SF 8,613
30 57748 16,900,000 10/31/2003 76.9% Various 62,281 SF 62,281
31.1 57720 9,100,000 10/27/2003 1810/1983 91,224 SF 91,224
31.2 57720 7,100,000 10/27/2003 1866/1984 95,775 SF 95,775
31 57720 16,200,000 10/27/2003 77.5% Various 186,999 SF 186,999
32 57380 14,900,000 6/12/2003 80.4% 2002 110,024 SF 110,024
33 57765 16,300,000 11/10/2003 73.4% 1995 102,538 SF 102,538
34 39207 NPV (MEY) 21,500,000 10/2/2003 53.3% 1971/1996 334,787 SF 334,787
35 39085 NPV (MEY) 20,000,000 12/14/2003 51.8% 2000 150,355 SF 150,355
36 39564 NPV (MEY) 18,250,000 9/24/2003 54.2% 2003 89,627 SF 89,627
37 57786 11,200,000 11/14/2003 79.2% 1973/1989 183,775 SF 183,775
38 39179 NPV (MEY) 17,400,000 9/23/2003 49.4% 1998 223,211 SF 223,211
39 39086 NPV (MEY) 13,800,000 11/11/2003 52.5% 1985/2003 113,216 SF 113,216
40 39328 NPV (MEY) 13,100,000 9/18/2003 55.0% 1995/2002 68,509 SF 68,509
41 57768 13,860,000 11/18/2003 50.5% 2003 77,778 SF 77,778
42 57607 7,750,000 8/14/2003 79.7% 2002 50,053 SF 50,053
43 57707 Int Diff (BEY)-B 10,900,000 9/30/2003 54.9% 2002 76,778 SF 76,778
44 57706 Int Diff (BEY)-B 10,650,000 10/30/2003 54.1% 1995/2000 56,511 SF 56,511
45 39568 NPV (MEY) 9,125,000 11/11/2003 58.1% 2003 83,167 SF 83,167
46 39219 NPV (MEY) 9,575,000 10/23/2003 53.8% 1994/2003 69,910 SF 69,910
47 38608 8,200,000 8/13/2003 48.5% 1986/2000 73,779 SF 73,779
48 57742 6,200,000 11/12/2003 63.2% 1984 85,323 SF 85,323
49 39439 NPV (MEY) 7,820,000 12/4/2003 48.0% 1998 70,624 SF 70,624
50 8317 4,600,000 12/10/2003 72.9% 2003 13,650 SF 13,650
51 57774 4,000,000 11/7/2003 74.8% 2003 15,800 SF 15,800
52 57749 3,525,000 11/2/2003 79.4% 2003 14,521 SF 14,521
53 39566 NPV (MEY) 5,225,000 11/28/2003 52.6% 1993 60,799 SF 60,799
54 38549 NPV (MEY) 2,100,000 8/1/2003 52.4% 2000 10,908 SF 10,908
55 57698 210,000,000 11/5/2003 55.1% 1983 1,524,435 SF 1,524,435
56 39463 66,500,000 11/1/2003 69.9% 1985/2002 325,583 SF 325,583
57 57770 48,500,000 11/6/2003 75.2% 1962 196,034 SF 196,034
58.1 39550 26,800,000 8/18/2003 2002 121,378 SF 121,378
58.2 39550 17,500,000 8/18/2003 1999 90,149 SF 90,149
58 39550 44,300,000 8/18/2003 73.2% Various 211,527 SF 211,527
59 57580 35,000,000 9/16/2003 79.8% 1974/1997 95,290 SF 95,290
60 57718 33,000,000 9/19/2003 74.7% 2002 198,452 SF 198,452
61 57526 30,000,000 9/1/2003 70.0% 1926/2000 109,500 SF 109,500
62 57469 26,000,000 6/26/2003 69.2% 1998 148,220 SF 148,220
63 5952 13,500,000 10/31/2003 67.7% 2002 96,329 SF 96,329
64 7373 8,500,000 10/31/2003 71.3% 1999 62,015 SF 62,015
---------------
22,000,000
65 57945 18,900,000 1/12/2004 79.9% 2001 101,875 SF 101,875
66 57777 18,300,000 11/10/2003 70.3% 1979/2000 137,931 SF 137,931
67 57443 15,000,000 7/2/2003 75.7% 2000 71,580 SF 71,580
68 57767 17,500,000 12/4/2003 59.9% 1905/1994 141,194 SF 102,612
69 57909 13,500,000 12/15/2003 73.9% 1966/1999 148,898 SF 148,898
70 57691 18,100,000 9/19/2003 54.7% 1999 114,769 SF 114,769
71 57011 11,350,000 7/8/2003 74.6% 2002 86,621 SF 86,621
72 57573 11,450,000 8/20/2003 69.7% 1988 69,131 SF 69,131
73 55600 11,600,000 7/11/2003 58.5% 2001 60,200 SF 60,200
74.1 57524 4,674,630 9/1/2003 1961 49,505 SF 49,505
74.2 57524 1,332,938 9/1/2003 1961 14,116 SF 14,116
74.3 57524 992,432 9/1/2003 1950 10,510 SF 10,510
74 57524 7,000,000 9/1/2003 78.2% Various 74,131 SF 74,131
75 56659 7,500,000 8/8/2003 69.6% 1991 57,874 SF 57,874
76 57421 4,800,000 6/4/2003 79.6% 1876/1986 71,594 SF 71,594
77 7376 2,400,000 10/31/2003 62.1% 1999 16,840 SF 16,840
78 57427 9,650,000 6/11/2003 75.9% 2001 191,100 SF 191,100
79 57660 38,800,000 8/28/2003 79.8% 1988/1997 731 Pads 6,914,714
80 57678 38,700,000 9/10/2003 78.7% 1972/1982 896 Pads 11,660,576
81 57663 23,000,000 9/8/2003 79.5% 1986 736 Pads 6,816,704
82 57662 12,300,000 9/8/2003 79.0% 1986 423 Pads 3,743,546
---------------
35,300,000
83 6468 11,380,000 2/12/2004 78.7% 1956 271 Pads
84 57659 3,800,000 8/28/2003 80.0% 1969 146 Pads 1,663,992
85 57687 10,870,000 9/17/2003 66.4% 1998 950 Units 94,275
86 57551 7,350,000 8/21/2003 74.7% 1970/1992 1,023 Units 113,805
87 57689 8,100,000 9/29/2003 59.4% 2001 855 Units 97,835
88 57740 6,150,000 11/4/2003 72.8% 1985/2002 706 Units 67,992
89 8419 5,650,000 1/15/2004 74.3% 2001 663 Units 79,725
90 57688 5,720,000 9/29/2003 66.5% 2001 777 Units 74,837
91 57717 4,000,000 10/29/2003 77.3% 2000 471 Units 50,124
92 8306 3,000,000 1/10/2004 73.2% 1979/2003 444 Units 44,360
93 8309 2,600,000 1/10/2004 73.0% 1986/2003 385 Units 39,157
94 7580 2,400,000 12/9/2003 74.8% 2003 219 Units 21,884
95 7847 8,600,000 10/29/2003 69.5% 1999 133 Rooms 47,000
- ------------------------------------------------------------------------------------------------------------------------------------
68.5%
====================================================================================================================================
LOAN
BALANCE PER OCCUPANCY U/W
SE- LOAN UNIT/SF/ OCCUPANCY AS OF U/W U/W U/W U/W REPLACEMENT
QUENCE NUMBER PAD PERCENT DATE REVENUES EXPENSES CASH FLOW DSCR RESERVES
- ------ ------ --- ------- ---- -------- -------- --------- ---- --------
1 57797 $83,241 95.8% 2/4/2004 $2,898,448 $1,209,938 $1,628,030 1.29x $60,480
2 6120 73,199 89.7% 12/1/2003 2,872,281 1,031,637 1,772,644 1.32 68,000
3 57799 30,170 91.5% 12/1/2003 2,532,476 1,412,811 1,016,915 1.25 102,750
4 7750 50,683 94.3% 11/30/2003 1,533,876 518,035 965,345 1.41 50,496
5 39285 45,629 97.5% 12/31/2003 648,632 289,545 339,338 1.44 19,750
6 39287 44,665 100.0% 12/31/2003 478,732 231,894 233,089 1.45 13,750
7 39677 61,845 97.1% 1/5/2004 792,171 373,702 396,051 1.48 22,418
8 39284 49,420 98.8% 1/13/2004 754,014 346,319 386,944 1.49 20,750
9 8096 56,081 97.2% 11/30/2003 610,717 228,056 364,661 1.29 18,000
10 39376 53,664 98.6% 1/13/2004 746,414 347,107 376,607 1.49 22,700
11 39283 54,160 100.0% 1/13/2004 736,491 350,573 359,993 1.54 25,926
12 39286 35,015 97.1% 12/31/2003 742,215 372,062 343,653 1.44 26,500
13 8165 17,982 97.5% 12/23/2003 1,241,693 646,596 544,607 1.58 50,490
14 39670 69,652 100.0% 1/5/2004 580,973 248,184 314,901 1.49 17,888
15 39674 39,337 98.0% 1/5/2004 418,355 221,681 184,174 1.48 12,500
16 39673 39,612 93.1% 1/5/2004 246,079 130,522 108,307 1.49 7,250
17 39669 52,372 94.6% 1/5/2004 580,246 288,883 274,130 1.46 17,232
18 39279 39,335 100.0% 1/14/2004 653,276 359,456 275,319 1.49 18,500
19 39676 37,755 94.9% 1/5/2004 486,180 261,097 210,333 1.49 14,750
20 39282 48,459 90.2% 1/14/2004 404,921 207,078 187,343 1.49 10,500
21 57563 20,341 96.3% 10/31/2003 504,449 314,488 169,461 1.50 20,500
22 40255 225 94.9% 3/5/2004 16,960,514 7,516,973 9,108,988 1.69 77,475
23 57995 118 89.3% 3/8/2004 8,165,134 3,217,853 4,652,711 2.07 71,126
24 57746 60 100.0% 12/1/2003 4,117,134 1,409,845 2,471,371 1.33 107,229
25 38460 91 98.7% 12/4/2003 4,299,967 1,526,034 2,638,783 1.60 41,706
26.1 38898 100.0% 10/30/2003
26.2 38898 100.0% 2/1/2004
26 38898 110 100.0% Various 3,471,233 736,184 2,678,653 2.92 26,721
27.1 39083 91.7% 1/28/2004
27.2 39083 95.4% 1/22/2004
27.3 39083 100.0% 2/1/2004
27 39083 65 93.5% Various 3,481,984 764,892 2,548,927 2.70 86,792
28 39444 66 97.9% 12/31/2003 3,840,690 964,437 2,698,850 3.20 39,120
29 57575 166 100.0% 12/31/2003 2,544,291 595,215 1,837,007 1.52 23,852
30.1 57748 95.2% 12/10/2003
30.2 57748 100.0% 12/10/2003
30.3 57748 100.0% 12/10/2003
30.4 57748 100.0% 12/10/2003
30 57748 209 97.4% 12/10/2003 1,723,209 537,876 1,135,963 1.20 12,456
31.1 57720 99.1% 12/10/2003
31.2 57720 98.3% 12/10/2003
31 57720 67 98.7% 12/10/2003 2,595,615 1,199,035 1,197,948 1.31 66,761
32 57380 109 90.6% 1/12/2004 1,660,106 398,625 1,190,349 1.38 11,068
33 57765 117 100.0% 12/15/2003 1,599,129 421,092 1,122,396 1.33 17,944
34 39207 34 90.7% 12/31/2003 2,518,609 747,215 1,600,560 2.83 47,743
35 39085 69 92.5% 1/29/2004 2,405,083 927,404 1,412,379 2.87 22,553
36 39564 110 100.0% 12/9/2003 1,950,042 636,544 1,254,683 2.77 13,444
37 57786 48 95.8% 12/18/2003 1,328,992 385,876 854,073 1.32 36,755
38 39179 39 97.8% 12/31/2003 1,562,439 192,191 1,314,156 3.09 33,482
39 39086 64 97.5% 1/20/2004 1,408,372 304,757 1,049,926 3.15 16,982
40 39328 105 100.0% 1/31/2004 968,586 43,586 914,723 2.67 10,276
41 57768 90 90.7% 1/19/2004 1,230,619 473,913 735,904 1.56 3,086
42 57607 123 97.0% 1/16/2004 798,720 193,609 570,216 1.27 7,508
43 57707 78 93.8% 12/31/2003 1,006,833 224,524 725,646 1.85 7,725
44 57706 102 100.0% 12/31/2003 1,044,403 258,688 740,243 2.07 11,302
45 39568 64 100.0% 12/31/2003 1,000,550 272,212 701,190 2.67 12,475
46 39219 74 100.0% 2/9/2004 1,015,428 261,835 685,273 2.64 18,177
47 38608 54 94.9% 2/9/2004 1,132,132 434,982 582,745 2.04 14,756
48 57742 46 95.9% 2/1/2004 908,176 283,718 505,885 1.94 25,597
49 39439 53 95.4% 12/31/2003 820,606 206,900 566,678 3.08 10,594
50 8317 246 100.0% 12/18/2003 332,678 10,680 319,950 1.33 2,048
51 57774 189 100.0% 12/15/2003 421,320 100,593 307,184 1.43 1,889
52 57749 193 100.0% 12/19/2003 261,000 5,366 254,178 1.26 1,456
53 39566 45 98.0% 1/19/2004 558,138 134,083 399,059 3.06 9,120
54 38549 101 100.0% 1/31/2004 162,947 4,888 149,403 2.63 1,636
55 57698 76 89.6% 12/15/2003 35,885,730 17,122,691 16,496,042 2.20 383,122
56 39463 143 87.6% 1/9/2004 9,482,763 4,090,801 5,008,593 2.19 65,117
57 57770 186 96.7% 2/8/2004 6,634,526 3,153,326 3,153,101 1.24 49,481
58.1 39550 100.0% 10/6/2003
58.2 39550 100.0% 10/6/2003
58 39550 153 100.0% 10/6/2003 4,388,160 727,274 3,463,090 1.55 31,729
59 57580 293 92.6% 11/3/2003 4,855,471 2,059,402 2,595,033 1.31 37,950
60 57718 124 86.0% 12/31/2003 3,920,212 1,416,817 2,193,910 1.26 19,845
61 57526 192 100.0% 11/26/2003 5,296,407 3,054,188 2,095,411 1.37 21,900
62 57469 121 100.0% 10/29/2003 3,747,966 1,614,965 1,742,505 1.43 22,233
63 5952 95 100.0% 12/23/2003 1,893,320 780,788 956,293 1.22 14,449
64 7373 98 96.1% 12/23/2003 1,299,938 530,644 677,389 1.30 9,302
65 57945 148 81.0% 3/1/2004 2,256,686 699,957 1,421,937 1.35 13,583
66 57777 93 88.7% 1/7/2004 2,768,309 1,248,896 1,335,161 1.48 34,483
67 57443 159 100.0% 8/3/2003 1,190,894 61,723 1,120,939 1.47 8,232
68 57767 74 100.0% 1/1/2004 2,386,595 977,658 1,208,949 1.72 21,622
69 57909 67 91.4% 2/1/2004 2,452,324 1,296,416 967,026 1.38 29,227
70 57691 86 100.0% 10/15/2003 2,079,985 701,230 1,195,009 1.78 11,477
71 57011 98 100.0% 12/18/2003 1,463,221 477,786 808,156 1.35 12,993
72 57573 115 100.0% 9/1/2003 1,841,765 906,008 810,039 1.46 17,283
73 55600 113 100.0% 12/11/2003 905,703 110,876 767,782 1.55 6,923
74.1 57524 99.4% 2/1/2004
74.2 57524 100.0% 2/1/2004
74.3 57524 100.0% 2/1/2004
74 57524 74 99.6% 2/1/2004 1,337,974 740,345 490,025 1.32 14,826
75 56659 90 87.3% 1/1/2004 968,131 459,240 454,424 1.20 11,573
76 57421 53 95.4% 12/31/2003 838,360 403,391 374,288 1.40 21,185
77 7376 88 100.0% 12/17/2003 254,041 72,116 159,212 1.27 2,526
78 57427 38 91.1% 1/1/2004 1,003,263 289,918 659,667 1.26 19,110
79 57660 42,345 95.4% 12/16/2003 3,835,291 1,031,831 2,766,910 1.20 36,550
80 57678 33,996 99.6% 12/16/2003 4,338,919 1,571,415 2,722,704 1.20 44,800
81 57663 24,854 98.4% 12/16/2003 2,710,318 1,078,345 1,595,173 1.25 36,800
82 57662 22,984 93.6% 12/16/2003 1,451,534 616,020 814,364 1.20 21,150
83 6468 33,033 97.1% 1/22/2004 1,243,496 347,631 882,315 1.34 13,550
84 57659 20,822 94.5% 12/16/2003 412,890 124,239 281,351 1.24 7,300
85 57687 7,596 86.1% 10/20/2003 1,331,810 659,343 659,167 1.27 13,300
86 57551 5,368 94.4% 10/21/2003 977,395 455,505 504,812 1.27 17,078
87 57689 5,629 95.9% 1/31/2004 955,554 378,266 562,613 1.54 14,675
88 57740 6,344 96.4% 10/31/2003 728,619 227,430 490,990 1.50 10,199
89 8419 6,329 76.0% 2/5/2004 599,283 184,778 402,571 1.39 11,934
90 57688 4,895 87.3% 1/31/2004 692,970 288,755 392,990 1.34 11,225
91 57717 6,563 98.8% 12/4/2003 543,593 205,298 330,272 1.47 8,023
92 8306 4,948 95.0% 12/31/2003 383,495 147,824 229,011 1.39 6,660
93 8309 4,928 97.7% 12/31/2003 334,274 139,096 189,403 1.33 5,775
94 7580 8,196 99.1% 12/1/2003 323,491 93,098 227,034 1.62 3,359
95 7847 44,949 67.1% 12/31/2003 2,789,537 2,003,171 786,366 1.57
- ------------------------------------------------------------------------------------------------------------------------------------
1.72x
====================================================================================================================================
U/W
REPLACEMENT
RESERVES MOST MOST MOST FULL FULL
SE- LOAN PER UNIT/ RECENT RECENT RECENT YEAR YEAR
UENCE NUMBER SF/ PAD STATEMENT TYPE END DATE NOI END DATE NOI
- ----- ------ ------- -------------- -------- --- -------- ---
1 57797 $252.00 Annualized Most Recent 11/30/2003 $1,932,728 8/31/2003 $1,520,275
2 6120 250.00 Annualized Most Recent 11/30/2003 1,280,937
3 57799 250.00 Annualized Most Recent 11/30/2003 1,160,054 12/31/2002 1,237,050
4 7750 263.00 Annualized Most Recent 11/30/2003 1,123,546 12/31/2002 909,863
5 39285 250.00 Full Year 12/31/2003 354,811 12/31/2002 355,515
6 39287 250.00 Full Year 12/31/2003 260,229 12/31/2002 245,592
7 39677 329.68 Full Year 12/31/2003 378,951 12/31/2002 363,772
8 39284 250.00 Full Year 12/31/2003 412,860 12/31/2002 351,602
9 8096 250.00 Annualized Most Recent 11/30/2003 328,735 12/31/2002 128,917
10 39376 306.76 Full Year 12/31/2003 405,267 12/31/2002 399,481
11 39283 381.26 Full Year 12/31/2003 399,148 12/31/2002 377,669
12 39286 254.81 Full Year 12/31/2003 372,656 12/31/2002 396,608
13 8165 255.00 Annualized Most Recent 10/31/2003 596,642 12/31/2002 487,760
14 39670 372.67 Full Year 12/31/2003 359,260 12/31/2002 326,331
15 39674 250.00 Full Year 12/31/2003 186,193 12/31/2002 154,733
16 39673 250.00 Full Year 12/31/2003 125,119 12/31/2002 127,531
17 39669 307.71 Full Year 12/31/2003 296,608 12/31/2002 308,980
18 39279 250.00 Full Year 12/31/2003 266,376 12/31/2002 281,909
19 39676 250.00 Full Year 12/31/2003 225,764 12/31/2002 216,987
20 39282 256.10 Full Year 12/31/2003 171,636 12/31/2002 183,770
21 57563 250.00 Annualized Most Recent 10/31/2003 109,594 12/31/2002 124,107
22 40255 0.20 Full Year 12/31/2003 8,769,900 12/31/2002 8,270,270
23 57995 0.20 Full Year 12/31/2003 5,028,166 12/31/2002 5,511,565
24 57746 0.25 Annualized Most Recent 9/30/2003 2,808,820 12/31/2002 2,665,113
25 38460 0.15 Full Year 11/30/2003 2,742,872 12/31/2002 3,124,166
26.1 38898 Annualized Most Recent 6/30/2003 1,861,620 12/31/2002 1,678,119
26.2 38898 Annualized Most Recent 11/30/2003 1,020,728
26 38898 0.15 Annualized Most Recent Various 2,882,348 Various 1,678,119
27.1 39083 Annualized Most Recent 4/30/2003 1,684,276 12/31/2002 1,634,709
27.2 39083
27.3 39083 Full Year 12/31/2003 178,100 12/31/2002 178,100
27 39083 0.30 Various Various 1,862,376 Various 1,812,809
28 39444 0.15 Annualized Most Recent 12/31/2003 2,789,221 12/31/2002 2,666,102
29 57575 0.25 Full Year 12/31/2003 2,210,674 12/31/2002 2,024,111
30.1 57748
30.2 57748
30.3 57748
30.4 57748
30 57748 0.20 Annualized Most Recent 9/30/2003 1,086,472 12/31/2002 1,012,600
31.1 57720
31.2 57720
31 57720 0.36 Full Year 12/31/2002 1,510,516 12/31/2001 1,561,136
32 57380 0.10
33 57765 0.17 Annualized Most Recent 12/17/2003 1,418,892 12/31/2002 1,216,347
34 39207 0.14 Annualized Most Recent 12/31/2003 2,209,774 12/31/2002 1,443,045
35 39085 0.15 Annualized Most Recent 11/30/2003 1,579,155 12/31/2002 648,727
36 39564 0.15
37 57786 0.20 Annualized Most Recent 10/31/2003 882,422 12/31/2002 744,929
38 39179 0.15 Full Year 12/31/2003 1,412,908 12/31/2002 1,370,346
39 39086 0.15 Full Year 12/31/2003 566,334 12/31/2002 99,921
40 39328 0.15
41 57768 0.04 Annualized Most Recent 12/31/2003 449,609
42 57607 0.15 Annualized Most Recent 9/30/2003 496,587
43 57707 0.10 Annualized Most Recent 12/31/2003 575,001
44 57706 0.20 Annualized Most Recent 12/31/2003 558,101 12/31/2002 486,219
45 39568 0.15
46 39219 0.26 Annualized Most Recent 12/31/2003 357,859 12/31/2002 457,237
47 38608 0.20 Full Year 12/31/2003 664,909 12/31/2002 600,750
48 57742 0.30 Full Year 1/31/2004 626,192 12/31/2002 648,559
49 39439 0.15 Full Year 12/31/2002 688,457 12/31/2001 555,417
50 8317 0.15
51 57774 0.12
52 57749 0.10
53 39566 0.15 Full Year 12/31/2002 467,764 12/31/2001 423,471
54 38549 0.15
55 57698 0.25 Annualized Most Recent 9/30/2003 17,626,243 12/31/2002 18,708,015
56 39463 0.20 Full Year 12/31/2003 5,589,266 12/31/2002 5,772,897
57 57770 0.25 Annualized Most Recent 10/31/2003 3,398,981 12/31/2002 3,813,579
58.1 39550 Annualized Most Recent 6/1/2003 1,946,870 12/31/2002 1,024,656
58.2 39550 Annualized Most Recent 6/1/2003 1,772,148 12/31/2002 1,754,184
58 39550 0.15 Annualized Most Recent 6/1/2003 3,719,018 12/31/2002 2,778,840
59 57580 0.40 Annualized Most Recent 9/30/2003 2,808,861 12/31/2002 2,527,119
60 57718 0.10 Annualized Most Recent 10/31/2003 764,567 12/31/2002 278,058
61 57526 0.20
62 57469 0.15 Annualized Most Recent 9/30/2003 2,260,329
63 5952 0.15 12/31/2003 1,628,402
64 7373 0.15 12/31/2003 822,171
65 57945 0.13 Full Year 12/31/2003 1,241,742 12/31/2002 960,446
66 57777 0.25 Annualized Most Recent 11/30/2003 1,477,831 12/31/2002 1,707,707
67 57443 0.12 Annualized Most Recent 9/30/2003 999,393
68 57767 0.15 Annualized Most Recent 10/31/2003 1,564,564 12/31/2002 1,449,546
69 57909 0.20 Annualized Most Recent 11/30/2003 635,368 12/31/2002 292,689
70 57691 0.10 Annualized Most Recent 9/30/2003 1,681,595 12/31/2002 1,534,924
71 57011 0.15 Annualized Most Recent 9/30/2003 487,357 12/31/2002 116,822
72 57573 0.25 Annualized Most Recent 9/30/2003 966,060 12/31/2002 1,219,165
73 55600 0.12 Annualized Most Recent 9/30/2003 937,595 12/31/2002 938,689
74.1 57524
74.2 57524
74.3 57524
74 57524 0.20 Annualized Most Recent 9/30/2003 804,461 12/31/2002 634,947
75 56659 0.20 Annualized Most Recent 9/30/2003 691,157 12/31/2002 525,863
76 57421 0.30 Annualized Most Recent 12/31/2003 507,313 12/31/2002 449,846
77 7376 0.15 12/31/2003 219,963
78 57427 0.10 Annualized Most Recent 9/30/2003 621,223 12/31/2002 229,712
79 57660 50.00 Annualized Most Recent 9/30/2003 2,810,816 12/31/2002 2,622,607
80 57678 50.00 Annualized Most Recent 9/30/2003 2,874,680 12/31/2002 2,750,787
81 57663 50.00 Annualized Most Recent 9/30/2003 2,047,288 12/31/2002 1,807,924
82 57662 50.00 Annualized Most Recent 9/30/2003 948,735 12/31/2002 865,175
83 6468 50.00 Annualized Most Recent 11/30/2003 854,824 12/31/2002 781,911
84 57659 50.00 Annualized Most Recent 9/30/2003 303,968 12/31/2002 263,791
85 57687 14.00 Annualized Most Recent 10/31/2003 680,492 12/31/2002 625,389
86 57551 16.69 Annualized Most Recent 9/30/2003 546,416 12/31/2002 434,594
87 57689 17.16 Annualized Most Recent 12/31/2003 615,013 12/31/2002 361,904
88 57740 14.45 Annualized Most Recent 10/31/2003 501,840 12/31/2002 378,761
89 8419 18.00 12/31/2003 371,328
90 57688 14.45 Full Year 12/31/2003 399,279 12/31/2002 198,285
91 57717 17.03 Annualized Most Recent 9/30/2003 372,535 12/31/2002 352,891
92 8306 15.00 12/31/2003 243,574
93 8309 15.00 12/31/2003 201,446
94 7580 15.34 Annualized Most Recent 11/30/2003 257,731
95 7847 12/31/2003 1,054,899
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
LARGEST LARGEST SECOND
LARGEST TENANT TENANT LARGEST
TENANT % OF LEASE TENANT
SE- LOAN LEASED TOTAL EXPIRA- LEASED
QUENCE NUMBER LARGEST TENANT SF SF TION SECOND LARGEST TENANT SF
- ------ ------ -------------- -- -- ---- --------------------- --
1 57797
2 6120
3 57799
4 7750
5 39285
6 39287
7 39677
8 39284
9 8096
10 39376
11 39283
12 39286
13 8165
14 39670
15 39674
16 39673
17 39669
18 39279
19 39676
20 39282
21 57563
22 40255 AMC Theatres 77,500 20% 4/30/2017 Barnes & Noble 25,000
23 57995 Sears 74,070 21% 4/30/2013 Macy's 50,477
24 57746 K-Mart 88,425 21% 11/30/2011 Super Stop & Shop 59,287
25 38460 Wal-Mart 114,660 41% 1/1/2022 Stop N Shop 49,986
26.1 38898 Bed, Bath & Beyond 25,000 22% 1/31/2012 Michaels Stores 24,133
26.2 38898 Shaw's Supermarket 65,658 100% 4/30/2016
26 38898
27.1 39083 Kroger 60,009 34% 8/31/2010 Stein Mart 37,500
27.2 39083 Kroger 54,166 60% 9/30/2023 Green Tea Chinese 3,150
27.3 39083 Goody's Family Clothing 22,560 100% 7/31/2014
27 39083
28 39444 Regency Furniture 71,042 27% 5/1/2017 Shoppers Food 49,840
29 57575 99 Ranch Market 27,722 29% 12/31/2015 Mulbery Child Care Center 8,267
30.1 57748 Path PC 4,625 14% 5/31/2004 Xando/Cosi 3,425
30.2 57748 Charles Schwab 3,200 32% 6/30/2008 Henry Miller Clothier 1,483
30.3 57748 Blockbuster Video 6,000 61% 12/31/2006 Dunkin Donuts 2,950
30.4 57748 Kaplan 4,300 50% 6/30/2006 Ten Thousand Villages 1,153
30 57748
31.1 57720 Toadstool 14,071 15% 6/30/2007 ES3, LLC 6,273
31.2 57720 National Grange Mutual 17,604 18% 10/31/2005 Golds Gym 17,000
31 57720
32 57380 Marshall's 30,060 27% 11/30/2012 Michael's 23,838
33 57765 Best Buy 45,180 44% 1/31/2011 Petco 20,000
34 39207 Burlington Coat Factory 98,605 30% 8/1/2008 Kroger 49,791
35 39085 Albertson's 57,370 38% 5/31/2026 Marshall's 30,450
36 39564 ShopRite 60,795 68% 6/30/2024 Wawa 5,740
37 57786 Stop and Shop 59,947 33% 12/1/2009 Big Lots 28,027
38 39179 Wal-Mart 183,211 82% 1/1/2019 Dollar Tree 4,800
39 39086 Publix 54,340 48% 2/28/2023 Eckerd's (sub-Dollar Gen) 9,720
40 39328 Stop & Shop 68,509 100% 7/31/2028
41 57768 Safeway 54,997 71% 5/30/2023 Round Table Pizza 4,000
42 57607 Petco 13,000 26% 1/31/2013 Deal Nothing under $1.00 8,000
43 57707 Michaels 23,852 31% 7/1/2012 Bed Bath & Beyond 20,402
44 57706 Bassett Furniture Direct 30,145 53% 10/1/2013 Michaels 24,866
45 39568 Ross Dress For Less 30,187 36% 1/1/2014 TJ Maxx 30,000
46 39219 Bi-Lo 42,680 61% 11/1/2014 Tire Kingdom 8,900
47 38608 Dress Barn 7,992 11% 1/31/2004 Famous Footwear 7,050
48 57742 Farm Fresh 40,848 48% 5/31/2013 Dollar General 9,375
49 39439 Bi-Lo, Inc. 46,624 66% 2/28/2019 Ginger's Hallmark 5,400
50 8317 Walgreens 13,650 100% 4/30/2023
51 57774 Hollywood Video 5,600 35% 11/30/2013 Payless Shoes 2,800
52 57749 Walgreens 14,560 100% 9/30/2028
53 39566 Publix 55,999 92% 2/1/2014 Cuts by Us 1,200
54 38549 Eckerd 10,908 100% 11/1/2020
55 57698 PPG Industries 432,988 28% 6/1/2011 Deloitte & Touche 120,934
56 39463 Franklin Templeton 138,049 42% 6/30/2011 US Govt GSA Region 4 32,785
57 57770 Springs Industries 86,834 44% 8/31/2009 National Geographic 12,590
58.1 39550 Kaiser Foundation Health Plan, Inc. 121,378 100% 6/30/2017
58.2 39550 State of California 90,149 100% 6/30/2009
58 39550
59 57580 Millenium Partners 16,565 17% 5/31/2004 The Associated Press 12,300
60 57718 Berkley Risk Admins. Co. 15,354 8% 3/31/2007 AGIA, Inc. 14,639
61 57526 Forbes Inc. 109,500 100% 10/31/2018
62 57469 Cargill, Incorporated 148,220 100% 11/29/2008
63 5952 County of Somerset 38,406 40% 5/31/2012 Hamon 20,150
64 7373 Hamon Corporation 34,000 55% 1/31/2009 Somerset Valley Bank 12,681
65 57945 Verisign 55,614 55% 4/30/2011 Natek 8,626
66 57777 Contra Costa Country 24,352 18% 9/30/2006 Beverages and More 17,288
67 57443 DeVry Institute 71,580 100% 10/31/2015
68 57767 Homewares Retail 8500 8% 7/31/2004 Rumson Capital MGT Office 7,050
69 57909 General Services Admin 66,044 44% 7/31/2011 Methodist Hospitals of Dallas 23,022
70 57691 Financial Pacific Corp. 50,000 44% 8/24/2009 National Semiconductor Corp. 16,230
71 57011 Headwaters 31,025 36% 7/18/2008 Kindred Healthcare 11,386
72 57573 Norwalk Medical Group, PC 18,048 26% 12/31/2012 Coastal Orthopedics 10,678
73 55600 Teletech (subtenant of Nextel Communications) 60,200 100% 5/14/2016
74.1 57524 Flash Oil 6,872 14% 6/30/2009 Colarelli, Meyer & Associates 6,005
74.2 57524 Weintraub & Assoc. 8,195 58% 8/31/2005 Powersgroup 5,439
74.3 57524 Flash Oil 6,081 58% 6/30/2009 Mehlman Realty, Inc. 2,754
74 57524
75 56659 Southeast Eye Specialists 11,198 19% 3/31/2018 Center for Sports Medicine 9,492
76 57421 Manchester Elderly Services 5,154 7% 10/31/2004 Devine and Nyquist 4,884
77 7376 Warren Hospital 16,840 100% 9/30/2019
78 57427 Girard Mgmt. (CHEP, USA) 52,800 28% 8/31/2005 Pasha Industries 27,203
79 57660
80 57678
81 57663
82 57662
83 6468
84 57659
85 57687
86 57551
87 57689
88 57740
89 8419
90 57688
91 57717
92 8306
93 8309
94 7580
95 7847
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
SECOND SECOND THIRD THIRD
LARGEST LARGEST THIRD LARGEST LARGEST
TENANT TENANT LARGEST TENANT TENANT
% OF LEASE TENANT % OF LEASE
SE- LOAN TOTAL EXPIRA- LEASED TOTAL EXPIRA-
QUENCE NUMBER SF TION THIRD LARGEST TENANT SF SF TION
- ------ ------ -- ---- -------------------- -- -- ----
1 57797
2 6120
3 57799
4 7750
5 39285
6 39287
7 39677
8 39284
9 8096
10 39376
11 39283
12 39286
13 8165
14 39670
15 39674
16 39673
17 39669
18 39279
19 39676
20 39282
21 57563
22 40255 7% 1/31/2012 Old Navy 19,720 5% 1/31/2006
23 57995 14% 3/14/2015 Prince Kuhio Megaplex Cinema 20,553 6% 1/31/2019
24 57746 14% 3/31/2014 AMF Bowling 39,466 9% 5/31/2012
25 38460 18% 11/29/2013 Pay Half 20,786 8% 11/30/2008
26.1 38898 22% 10/31/2011 Office Max 23,429 21% 11/30/2016
26.2 38898
26 38898
27.1 39083 21% 4/30/2009 Cosmos Fitness 8,450 5% 4/30/2004
27.2 39083 4% 12/31/2008 High Energy Fitness 2,800 3% 12/31/2008
27.3 39083
27 39083
28 39444 19% 9/1/2009 Marshall's 26,975 10% 12/1/2006
29 57575 9% 12/31/2006 Kim Art 4,839 5% 8/31/2005
30.1 57748 10% 11/30/2010 Fote, DiStefano MD 3,018 9% 12/31/2006
30.2 57748 15% 6/30/2005 Central Optica 1,400 14% 9/30/2007
30.3 57748 30% 12/1/2018 Munsons Chocolate 850 9% Month-to-Month
30.4 57748 13% 8/31/2004 Glee 1,129 13% 8/31/2008
30 57748
31.1 57720 7% 9/30/2005 Impact Sports 4,763 5% 5/31/2008
31.2 57720 18% 10/31/2004 Toy City 6,017 6% 2/28/2006
31 57720
32 57380 22% 4/30/2013 Famous Footwear 10,850 10% 3/31/2008
33 57765 20% 1/31/2006 Urban Home 15,660 15% 12/31/2007
34 39207 15% 4/1/2017 TJ Maxx 24,000 7% 1/1/2005
35 39085 20% 10/31/2012 PetsMart 18,875 13% 1/31/2018
36 39564 6% 8/31/2018 Teddy's Hallmark 4,988 6% 2/28/2014
37 57786 15% 1/31/2011 Garden Theater 27,576 15% 5/31/2009
38 39179 2% 2/1/2007 Cato Fashions 4,720 2% 1/1/2009
39 39086 9% 7/31/2005 The Little Gym of Snellville 5,683 5% 11/30/2008
40 39328
41 57768 5% 12/24/2013 Pick Up Sticks 2,619 3% 12/24/2013
42 57607 16% 10/31/2009 Applebees 5,053 10% 11/28/2017
43 57707 27% 1/1/2012 Petco 12,195 16% 1/1/2013
44 57706 44% 10/31/2010 Subway 1,500 3% 3/1/2007
45 39568 36% 7/1/2013 Dress Barn 7,700 9% 6/1/2013
46 39219 13% 5/1/2023 Step 'N Motion 3,600 5% 10/1/2006
47 38608 10% 1/31/2006 Champion 6,800 9% Month-to-Month
48 57742 11% 7/31/2007 All About Scrapbooks 3,600 4% 9/30/2006
49 39439 8% 2/28/2005 Hobby Town USA 3,000 4% 11/30/2005
50 8317
51 57774 18% 8/31/2013 Sacino's Formalwear 1,200 8% 11/30/2008
52 57749
53 39566 2% 1/1/2006 Eagle Nails 1,200 2% 1/1/2005
54 38549
55 57698 8% 4/1/2005 Dicky McCamey & Chilcote 91,752 6% 3/1/2005
56 39463 10% 9/26/2006 Gunster Yoakley 28,060 9% 12/31/2007
57 57770 6% 12/31/2010 Molod Spitz & DeSantis 11,558 6% 12/31/2010
58.1 39550
58.2 39550
58 39550
59 57580 13% 8/31/2004 Commerce Bank 8,125 9% 2/28/2018
60 57718 7% 11/30/2008 Progressive Casualty 12,444 6% 2/29/2008
61 57526
62 57469
63 5952 21% 2/28/2007 Franklin Group 18,950 20% 7/31/2007
64 7373 20% 4/30/2009 Barson Group 4,285 7% 7/31/2012
65 57945 8% 7/31/2008 Recourse Tech - Tadpole 5,060 5% 7/31/2004
66 57777 13% 5/31/2008 State Department of Phy Rehab 9,672 7% 12/31/2004
67 57443
68 57767 7% 5/31/2007 Cline Davis Mann Office 7,000 7% 8/31/2007
69 57909 15% 6/30/2009 Fogarty & Klein 10,230 7% 3/1/2007
70 57691 14% 6/22/2005 Travelers Indemnity Co. 12,071 11% 4/30/2006
71 57011 13% 12/31/2007 New England Life Ins. Co. 8,193 9% 3/31/2005
72 57573 15% 12/31/2008 Health South-Surgery 10,260 15% 11/30/2006
73 55600
74.1 57524 12% 10/31/2008 Ahlquist 3,421 7% 1/31/2004
74.2 57524 39% 2/28/2005 Sales Development Associates 5,280 37% 9/30/2006
74.3 57524 26% 9/30/2006 Care Source 1,675 16% 8/31/2008
74 57524
75 56659 16% 12/31/2007 Memorial Hospital 5,317 9% 12/31/2006
76 57421 7% 5/31/2004 Sylvan Learning Center 3,498 5% 10/31/2004
77 7376
78 57427 14% 10/31/2008 Raley's 25,597 13% 2/15/2007
79 57660
80 57678
81 57663
82 57662
83 6468
84 57659
85 57687
86 57551
87 57689
88 57740
89 8419
90 57688
91 57717
92 8306
93 8309
94 7580
95 7847
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
(i) Administrative Fee Rate includes the Sub-Servicing Fee Rate.
(ii) For Mortgage Loans which accrue interest on the basis of actual days elapsed each calendar month and a 360-day yr. or a 365-day
yr., the amortization term is the term over which the Mortgage Loans would amortize if interest accrued and was paid on the
basis of a 360-day yr. consisting of twelve 30-day months. The actual amortization would be longer.
PREPAYMENT LOCK-OUT/PREPAYMENT ANALYSIS
BASED ON OUTSTANDING PRINCIPAL BALANCE(1)(2)(3)
ALL MORTGAGE LOANS
APRIL-04 APRIL-05 APRIL-06 APRIL-07
-------- -------- -------- --------
Locked Out ............... 97.95% 97.93% 97.91% 81.36%
Yield
Maintenance(4) .......... 2.05% 2.07% 2.09% 18.64%
Open ..................... 0.00% 0.00% 0.00% 0.00%
---------- ---------- ---------- ----------
Total .................... 100.00% 100.00% 100.00% 100.00%
---------- ---------- ---------- ----------
Total Balance as of
the Cut-off Date
(in millions) ........... $ 1,138.76 $ 1,127.83 $ 1,115.73 $ 1,102.27
---------- ---------- ---------- ----------
Percent of
Mortgage Pool
Balance ................. 100.00% 99.04% 97.98% 96.80%
---------- ---------- ---------- ----------
APRIL-08 APRIL-09 APRIL-10 APRIL-11 APRIL-12 APRIL-13 APRIL-14
-------- -------- -------- -------- -------- -------- --------
Locked Out ............... 79.56% 84.86% 84.67% 91.39% 91.35% 91.30% 100.00%
Yield
Maintenance(4) .......... 18.79% 15.14% 15.33% 6.76% 6.80% 6.84% 0.00%
Open ..................... 1.65% 0.00% 0.00% 1.85% 1.85% 1.86% 0.00%
---------- -------- -------- -------- -------- -------- ---------
Total .................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
---------- -------- -------- -------- -------- -------- ---------
Total Balance as of
the Cut-off Date
(in millions) ........... $ 1,087.79 $ 825.58 $ 812.36 $ 433.81 $ 424.54 $ 414.65 $ 74.73
---------- -------- -------- -------- -------- -------- ---------
Percent of
Mortgage Pool
Balance ................. 95.52% 72.50% 71.34% 38.09% 37.28% 36.41% 6.56%
---------- -------- -------- -------- -------- -------- ---------
APRIL-15 APRIL-16 APRIL-17 APRIL-18 APRIL-19
-------- -------- -------- -------- --------
Locked Out ............... 100.00% 100.00% 100.00% 100.00% 0.00%
Yield
Maintenance(4) .......... 0.00% 0.00% 0.00% 0.00% 0.00%
Open ..................... 0.00% 0.00% 0.00% 0.00% 0.00%
--------- --------- --------- --------- -------
Total .................... 100.00% 100.00% 100.00% 100.00% 0.00%
--------- --------- --------- --------- -------
Total Balance as of
the Cut-off Date
(in millions) ........... $ 72.95 $ 0.91 $ 0.61 $ 0.29 $ 0.00
--------- --------- --------- --------- -------
Percent of
Mortgage Pool
Balance ................. 6.41% 0.08% 0.05% 0.03% 0.00%
--------- --------- --------- --------- -------
- -------
(1) Prepayment provisions in effect as a percentage of outstanding loan
balances as of the indicated date assuming no prepayments on the Mortgage
Loans (except that an ARD Loan will be repaid on its Anticipated Repayment
Date), if any.
(2) As of the Cut-off Date.
(3) Numbers may not total to 100% due to rounding.
(4) As of the Cut-off Date, 28 Mortgage Loans, representing 16.2% of the
initial pool balance, are subject to yield maintenance prepayment
provisions after the lockout period. Three Mortgage Loans, representing
2.1% of the initial pool balance, have no lockout period but are subject to
yield maintenance prepayment provisions. The remaining Mortgage Loans,
representing 81.7% of the initial pool balance, are subject to defeasance
after an initial restriction period.
A-6
MORTGAGE POOL PROPERTY TYPE(1)
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE MIN/MAX AVERAGE MIN/MAX AVERAGE
MORTGAGED CUT-OFF DATE POOL UNDERWRITING UNDERWRITING CUT-OFF DATE CUT-OFF DATE MORTGAGE
PROPERTY TYPE PROPERTIES BALANCE BALANCE DSCR DSCR LTV RATIO LTV RATIO RATE
------------- ---------- ------- ------- ---- ---- --------- --------- ----
Office ................ 26 $ 446,801,180 39.2% 1.69x 1.20x/2.20x 67.7% 54.7%/79.9% 5.512%
Retail ................ 40 424,785,434 37.3 2.00x 1.20x/3.20x 65.0% 48.0%/80.4% 4.991%
Anchored ............. 32 396,658,397 34.8 2.04x 1.26x/3.20x 64.5% 48.0%/80.4% 4.939%
Unanchored ........... 7 25,133,074 2.2 1.43x 1.20x/2.63x 71.5% 48.5%/77.5% 5.684%
Shadow
Anchored ........... 1 2,993,963 0.3 1.43x 1.43x/1.43x 74.8% 74.8%/74.8% 5.960%
Multifamily ........... 21 113,466,258 10.0 1.38x 1.25x/1.58x 74.5% 44.5%/80.0% 5.131%
Manufactured
Housing .............. 6 101,421,092 8.9 1.22x 1.20x/1.34x 79.3% 78.7%/80.0% 6.140%
Self Storage .......... 10 38,979,775 3.4 1.39x 1.27x/1.62x 70.3% 59.4%/77.3% 5.823%
Industrial ............ 1 7,328,613 0.6 1.26x 1.26x/1.26x 75.9% 75.9%/75.9% 5.875%
Hotel ................. 1 5,978,211 0.5 1.57x 1.57x/1.57x 69.5% 69.5%/69.5% 6.836%
-- -------------- -----
Total/Wtd Avg ......... 105 $1,138,760,562 100.0% 1.72x 1.20x/3.20x 68.5% 44.5%/80.4% 5.355%
=== ============== =====
MORTGAGE POOL CUT-OFF DATE BALANCES
% OF WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
CUT-OFF DATE MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
BALANCES LOANS BALANCE BALANCE DSCR LTV RATIO RATE
-------- ----- ------- ------- ---- --------- ----
$1,100,000 -- $1,999,999....... 8 13,052,692 1.1% 1.55x 69.5% 5.331%
$2,000,000 -- $2,999,999....... 8 21,266,422 1.9 1.64x 70.2% 5.270%
$3,000,000 -- $3,999,999....... 14 50,560,252 4.4 1.64x 68.3% 5.354%
$4,000,000 -- $4,999,999....... 6 25,832,868 2.3 1.45x 72.8% 5.382%
$5,000,000 -- $7,499,999....... 16 99,373,522 8.7 1.79x 63.7% 5.540%
$7,500,000 -- $9,999,999....... 11 101,243,187 8.9 1.67x 69.1% 5.610%
$10,000,000 -- $14,999,999..... 10 118,418,496 10.4 1.65x 70.5% 5.493%
$15,000,000 -- $19,999,999..... 9 162,833,661 14.3 1.89x 67.0% 5.256%
$20,000,000 -- $29,999,999..... 5 124,661,680 10.9 1.37x 75.9% 5.706%
$30,000,000 -- $49,999,999..... 6 218,813,728 19.2 1.64x 73.2% 5.239%
$50,000,000 -- $99,999,999..... 1 87,000,000 7.6 1.69x 67.2% 4.670%
$100,000,000 --
$115,704,055.................. 1 115,704,055 10.2 2.20x 55.1% 5.343%
-- ----------- -----
Total/Wtd Avg ................. 95 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
== ============== =====
A-7
MORTGAGE POOL GEOGRAPHIC DISTRIBUTION(1)
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
MORTGAGED CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
PROPERTY LOCATION PROPERTIES BALANCE BALANCE DSCR LTV RATIO RATE
- ------------------------ ------------ ----------------- --------- -------------- -------------- -----------
Florida ................ 10 $ 144,082,507 12.7% 1.57x 74.9% 5.589%
New York ............... 19 133,214,738 11.7 1.38x 74.2% 5.486%
Pennsylvania ........... 2 127,680,136 11.2 2.12x 57.5% 5.406%
California ............. 14 126,438,611 11.1 1.45x 69.3% 5.548%
Minnesota .............. 2 105,000,000 9.2 1.64x 67.6% 4.807%
New Jersey ............. 6 62,231,918 5.5 1.71x 67.5% 5.275%
Hawaii ................. 1 42,000,000 3.7 2.07x 66.1% 3.452%
Virginia ............... 4 36,244,683 3.2 1.99x 65.6% 5.264%
Texas .................. 3 35,506,150 3.1 1.91x 69.1% 5.146%
Massachusetts .......... 2 34,800,147 3.1 1.33x 78.7% 5.956%
Connecticut ............ 7 34,630,704 3.0 1.89x 66.6% 5.296%
Delaware ............... 2 33,993,930 3.0 1.20x 79.8% 6.327%
Georgia ................ 5 28,885,000 2.5 2.85x 54.5% 4.875%
Missouri ............... 4 25,380,675 2.2 1.32x 76.3% 5.396%
Arizona ................ 1 24,654,705 2.2 1.26x 74.7% 5.790%
Tennessee .............. 4 20,934,117 1.8 1.83x 61.5% 5.795%
Washington ............. 3 20,241,520 1.8 1.67x 54.2% 5.609%
Maryland ............... 1 17,200,000 1.5 3.20x 56.4% 4.900%
New Hampshire .......... 3 16,375,201 1.4 1.33x 78.0% 5.984%
South Carolina ......... 3 15,000,000 1.3 2.91x 52.7% 4.964%
Oregon ................. 1 10,355,000 0.9 2.87x 51.8% 4.757%
Nevada ................. 1 9,731,114 0.9 1.41x 79.8% 5.794%
North Carolina ......... 2 9,346,125 0.8 2.08x 63.0% 5.283%
Utah ................... 1 8,467,129 0.7 1.35x 74.6% 5.770%
Illinois ............... 1 6,177,540 0.5 1.27x 79.7% 6.065%
Wisconsin .............. 1 4,037,850 0.4 1.29x 78.4% 5.729%
Colorado ............... 1 3,353,384 0.3 1.33x 72.9% 5.958%
Indiana ................ 1 2,797,679 0.2 1.26x 79.4% 6.000%
-- -------------- -----
Total Wtd/Avg .......... 105 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
=== ============== =====
- ----------
(1) States in which the respective Mortgaged Properties are located.
[X] The Mortgaged Properties are located throughout 28 states.
A-8
MORTGAGE POOL UNDERWRITTEN DEBT SERVICE COVERAGE RATIO
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
RANGE OF MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
UNDERWRITTEN DSCR(S) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ------------------------ ----------- ----------------- --------- -------------- -------------- -----------
1.20x -- 1.24x ......... 9 $ 156,297,849 13.7% 1.22x 77.1% 5.975%
1.25x -- 1.29x ......... 10 91,571,999 8.0 1.27x 74.7% 5.549%
1.30x -- 1.34x ......... 13 151,790,932 13.3 1.33x 77.3% 5.814%
1.35x -- 1.39x ......... 7 61,636,306 5.4 1.37x 74.3% 5.836%
1.40x -- 1.49x ......... 22 110,672,770 9.7 1.46x 73.3% 5.362%
1.50x -- 1.59x ......... 9 105,289,451 9.2 1.56x 67.5% 5.559%
1.60x -- 1.69x ......... 2 88,794,830 7.8 1.69x 67.4% 4.698%
1.70x -- 1.79x ......... 2 20,376,341 1.8 1.75x 57.4% 5.402%
1.80x -- 1.89x ......... 1 5,985,000 0.5 1.85x 54.9% 5.130%
1.90x -- 1.99x ......... 1 3,916,123 0.3 1.94x 63.2% 5.300%
2.00x -- 2.99x ......... 14 302,878,962 26.6 2.35x 58.6% 4.837%
3.00x -- 3.20x ......... 5 39,550,000 3.5 3.15x 53.1% 4.844%
-- -------------- -----
Total Wtd/Avg .......... 95 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
== ============== =====
MORTGAGE POOL CUT-OFF DATE LOAN-TO-VALUE RATIO
% OF WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
CUT-OFF DATE MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
LTV RATIO(S) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ------------------------ ----------- ----------------- --------- -------------- -------------- -----------
44.5% -- 49.9% ......... 4 $ 19,891,336 1.7% 2.61x 48.1% 5.021%
50.0% -- 59.9% ......... 20 282,546,192 24.8 2.39x 55.1% 5.142%
60.0% -- 64.9% ......... 3 21,290,593 1.9 1.58x 60.9% 5.676%
65.0% -- 69.9% ......... 14 241,108,962 21.2 1.77x 67.9% 4.777%
70.0% -- 74.9% ......... 20 181,579,690 15.9 1.39x 72.8% 5.615%
75.0% -- 79.9% ......... 31 364,927,707 32.0 1.32x 77.9% 5.751%
80.0% -- 80.4% ......... 3 27,416,081 2.4 1.31x 80.2% 5.648%
-- -------------- -----
Total Wtd/Avg .......... 95 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
== ============== =====
MORTGAGE POOL MATURITY DATE LOAN-TO-VALUE RATIO
% OF WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
MATURITY DATE MORTGAGE CUT-OFF DATE POOL UNDERWRITING MATURITY DATE MORTGAGE
LTV RATIO(S) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ---------------------- ----------- ----------------- --------- -------------- --------------- -----------
Fully Amortizing ..... 1 $ 3,560,428 0.3% 1.58x 0.8% 5.146%
40.7% -- 49.9% ....... 11 77,393,412 6.8 1.78x 46.6% 5.580%
50.0% -- 59.9% ....... 29 447,294,689 39.3 2.14x 55.2% 4.953%
60.0% -- 64.9% ....... 15 139,425,476 12.2 1.32x 62.7% 5.674%
65.0% -- 69.9% ....... 28 390,158,838 34.3 1.46x 68.1% 5.642%
70.0% -- 74.1% ....... 11 80,927,719 7.1 1.30x 72.4% 5.439%
-- -------------- -----
Total Wtd/Avg(a) ..... 95 $1,138,760,562 100.0% 1.72x 61.0% 5.355%
== ============== =====
- ----------
(a) Excludes the mortgage loan that is fully amortizing with respect to
calculating weighted average Maturity Date LTV Ratio.
A-9
MORTGAGE POOL MORTGAGE RATES
% OF WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
MORTGAGE MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
RATES LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- -------------------------- ----------- ----------------- --------- -------------- -------------- -----------
3.452% -- 4.499% ......... 1 $ 42,000,000 3.7% 2.07x 66.1% 3.452%
4.500% -- 4.749% ......... 6 132,242,000 11.6 2.08x 62.8% 4.663%
4.750% -- 4.999% ......... 20 162,823,052 14.3 2.24x 64.6% 4.859%
5.000% -- 5.249% ......... 11 85,928,420 7.5 1.89x 66.1% 5.095%
5.250% -- 5.499% ......... 11 207,880,100 18.3 1.89x 60.8% 5.366%
5.500% -- 5.749% ......... 13 150,636,197 13.2 1.34x 75.9% 5.667%
5.750% -- 5.999% ......... 18 213,105,690 18.7 1.35x 73.0% 5.835%
6.000% -- 6.249% ......... 11 73,712,779 6.5 1.35x 76.0% 6.057%
6.250% -- 6.499% ......... 3 64,454,113 5.7 1.20x 79.3% 6.327%
6.500% -- 6.836% ......... 1 5,978,211 0.5 1.57x 69.5% 6.836%
-- -------------- -----
Total Wtd/Avg ............ 95 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
== ============== =====
MORTGAGE POOL ORIGINAL TERM TO MATURITY
% OF WEIGHTED WEIGHTED WEIGHTED
ORIGINAL TERM NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
TO MATURITY MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
(MONTHS) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ----------------------- ----------- ----------------- --------- -------------- -------------- -----------
57 -- 83 .............. 27 $ 260,185,896 22.8% 1.89x 68.6% 4.742%
84 -- 99 .............. 18 395,018,245 34.7 2.04x 62.7% 5.152%
100 -- 120 ............ 44 397,398,337 34.9 1.38x 72.7% 5.792%
121 -- 179 ............ 5 82,597,656 7.3 1.27x 77.1% 6.164%
180 ................... 1 3,560,428 0.3 1.58x 44.5% 5.146%
-- -------------- -----
Total Wtd/Avg ......... 95 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
== ============== =====
MORTGAGE POOL ORIGINAL AMORTIZATION TERM (1)
ORIGINAL % OF WEIGHTED WEIGHTED WEIGHTED
AMORTIZATION NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
TERM MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
(MONTHS) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ----------------------- ----------- ----------------- --------- -------------- -------------- -----------
Interest Only ......... 18 $ 204,729,000 18.0% 2.55x 59.0% 4.894%
180 -- 239 ............ 1 3,560,428 0.3 1.58x 44.5% 5.146%
240 -- 299 ............ 3 16,691,286 1.5 1.26x 68.5% 5.859%
300 -- 359 ............ 13 107,690,217 9.5 1.41x 70.1% 5.771%
360 ................... 60 806,089,631 70.8 1.56x 70.8% 5.407%
-- -------------- -----
Total Wtd/Avg ......... 95 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
== ============== =====
- ------------
(1) For Mortgage Loans which accrue interest on the basis of actual days
elapsed during each calendar month and a 360-day year, the amortization
term is the term in which the loan would amortize if interest is paid on
the basis of a 30-day month and a 360-day year. The actual amortization
term would be longer.
A-10
MORTGAGE POOL REMAINING TERM TO MATURITY
RANGE OF
REMAINING % OF WEIGHTED WEIGHTED WEIGHTED
TERMS TO NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
MATURITY MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
(MONTHS) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ----------------------- ----------- ----------------- --------- -------------- -------------- -----------
53 -- 59 .............. 26 $ 218,185,896 19.2% 1.86x 69.0% 4.990%
60 -- 79 .............. 5 103,547,485 9.1 1.68x 71.8% 4.746%
80 -- 109 ............. 14 333,470,760 29.3 2.15x 60.3% 5.064%
110 -- 119 ............ 44 397,398,337 34.9 1.38x 72.7% 5.792%
120 -- 139 ............ 4 75,816,564 6.7 1.24x 78.8% 6.170%
140 -- 159 ............ 1 6,781,092 0.6 1.55x 58.5% 6.090%
160 -- 177 ............ 1 3,560,428 0.3 1.58x 44.5% 5.146%
-- -------------- -----
Total Wtd/Avg ......... 95 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
== ============== =====
MORTGAGE POOL REMAINING STATED AMORTIZATION TERMS
REMAINING % OF WEIGHTED WEIGHTED WEIGHTED
STATED NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
AMORTIZATION MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
TERMS (MONTHS) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ----------------------- ----------- ----------------- --------- -------------- -------------- -----------
Interest Only ......... 18 $ 204,729,000 18.0% 2.55x 59.0% 4.894%
177 -- 224 ............ 1 3,560,428 0.3 1.58x 44.5% 5.146%
225 -- 274 ............ 3 16,691,286 1.5 1.26x 68.5% 5.859%
275 -- 299 ............ 9 44,828,259 3.9 1.54x 63.9% 5.842%
300 -- 324 ............ 1 13,000,000 1.1 1.20x 76.9% 5.670%
325 -- 349 ............ 1 21,000,000 1.8 1.37x 70.0% 5.883%
350 -- 360 ............ 62 834,951,590 73.3 1.55x 71.0% 5.415%
-- -------------- -----
Total Wtd/Avg ......... 95 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
== ============== =====
MORTGAGE POOL SEASONING
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
SEASONING MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
(MONTHS) LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ----------------------- ----------- ----------------- --------- -------------- -------------- -----------
0 -- 4 ................ 79 $ 914,883,898 80.3% 1.81x 67.3% 5.236%
5 -- 7 ................ 16 223,876,664 19.7 1.37x 73.3% 5.840%
-- -------------- -----
Total Wtd/Avg ......... 95 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
== ============== =====
MORTGAGE POOL YEAR OF MORTGAGE ORIGINATION
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
YEAR OF MORTGAGE CUT-OFF-DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
ORIGINATION LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ----------------------- ----------- ----------------- --------- -------------- -------------- -----------
2003 .................. 62 $ 734,907,783 64.5% 1.69x 68.3% 5.597%
2004 .................. 33 403,852,779 35.5 1.77x 68.9% 4.916%
-- -------------- -----
Total Wtd/Avg ......... 95 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
== ============== =====
A-11
MORTGAGE POOL YEAR OF MORTGAGE MATURITY
% OF WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE INITIAL AVERAGE AVERAGE AVERAGE
YEAR OF MORTGAGE CUT-OFF DATE POOL UNDERWRITING CUT-OFF DATE MORTGAGE
MATURITY LOANS BALANCE BALANCE DSCR LTV RATIO RATE
- ----------------------- ----------- ----------------- --------- -------------- -------------- -----------
2008 .................. 4 $ 50,252,652 4.4 2.18x 62.7% 5.053%
2009 .................. 23 209,933,244 18.4 1.83x 70.0% 4.668%
2010 .................. 12 160,509,190 14.1 2.07x 65.6% 5.315%
2011 .................. 6 234,509,055 20.6 2.01x 60.7% 5.041%
2013 .................. 18 156,065,248 13.7 1.39x 69.7% 5.784%
2014 .................. 26 241,333,089 21.2 1.38x 74.6% 5.798%
2015 .................. 4 75,816,564 6.7 1.24x 78.8% 6.170%
2016 .................. 1 6,781,092 0.6 1.55x 58.5% 6.090%
2019 .................. 1 3,560,428 0.3 1.58x 44.5% 5.146%
-- -------------- -----
Total Wtd/Avg ......... 95 $1,138,760,562 100.0% 1.72x 68.5% 5.355%
== ============== =====
A-12
[THIS PAGE INTENTIONALLY LEFT BLANK]
ANNEX B
CAPITAL IMPROVEMENT, REPLACEMENT RESERVE AND ESCROW ACCOUNTS
SEQUENCE LOAN NUMBER PROPERTY NAME PROPERTY TYPE
- ------------------------------------------------------------------------------------------------------------------------------------
1 57797 Sunterra Apartments Multifamily
2 6120 Manor Homes of Fox Crest Multifamily
3 57799 Overlook Apartments Multifamily
4 7750 Marina Bay Apartments Multifamily
5 39285 1230 Teller Avenue Multifamily
6 39287 111 Mount Hope Place Multifamily
7 39677 2300 Grand Concourse Multifamily
8 39284 690 Gerard Avenue Multifamily
9 7712 Golf View Estates Apartments Multifamily
10 39376 230 East 167th Street Multifamily
11 39283 111 East 167th Street Multifamily
12 39286 610 Trinity Avenue Multifamily
13 8165 Orchard on the Green Apartments Multifamily
14 39670 1210 Sherman Avenue Multifamily
15 39674 1344 University Avenue Multifamily
16 39673 1354 Commonwealth Avenue Multifamily
17 39669 3371 Decatur Avenue Multifamily
18 39279 2765 Kingsbridge Terrace Multifamily
19 39676 2264 Creston Avenue Multifamily
20 39282 2773-2779 Briggs Avenue Multifamily
21 57563 Brookview Court Apartments Multifamily
22 40255 Eden Prairie Mall Retail
23 57995 Prince Kuhio Plaza Retail
24 57746 Springfield Plaza Shopping Center Retail
25 38460 Linden Plaza Retail
26 38898 Inland TX-CT Retail Portfolio (Roll Up) Retail
27 39083 Inland Georgia Retail Portfolio (Roll UP) Retail
28 39444 Largo Towne Center Retail
29 57575 Tawa Irvine Plaza Retail
30 57748 West Hartford Portfolio (Roll Up) Retail
31 57720 Colony Mill Marketplace and Center at Keene (Roll Up) Retail
32 57380 Dickson City Commons Retail
33 57765 Bouquet Canyon Plaza Retail
34 39207 Denbigh Village Center Retail
35 39085 Hillsboro Market Center Retail
36 39564 Crossroads Plaza Retail
37 57786 Timpany Plaza Retail
38 39179 Anderson Central Shopping Center Retail
39 39086 Killian Hill Center Retail
40 39328 Manchester Stop & Shop Retail
41 57768 Dewey & Madison Market Place Retail
42 57607 Alton Corners Shopping Center Retail
43 57707 Bellevue Place Shopping Center Retail
44 57706 Spring Mall Shopping Center Retail
45 39568 Lexington Place Retail
46 39219 Camfield Corners Retail
47 38608 1454 State Route 9 Retail
48 57742 Woodford Square Shopping Center Retail
49 39439 Kensington Place Retail
50 8317 Walgreens - Loveland Retail
51 57774 Citrus Park Shops Retail
52 57749 Walgreens - Bluffton, IN Retail
53 39566 Houston Square Retail
54 38549 Eckerd Piedmont Retail
55 57698 PPG Place Office
56 39463 Broward Financial Center Office
57 57770 104 West 40th Street Office
58 39550 Evergreen Portfolio C (Roll Up) Office
59 57580 1995 Broadway Office
60 57718 Paradise Valley Corporate Center Office
61 57526 The Forbes Building Office
62 57469 Cargill Office Building Office
63 5952 Somerville NJ Office Portfolio (Franklin Bldg.) Office
64 7373 Somerville NJ Office Portfolio (Hamon Bldg.) Office
65 57945 Lakeside III Office
66 57777 Enea Square Office
67 57443 DeVry Institute Office
68 57767 Galleria at Red Bank Office
69 57909 4040 North Central Expressway Office
70 57691 Federal Way Building II Office
71 57011 River Park One Office
72 57573 Cross Street Medical Building Office
73 55600 Nextel Office Building - Bremerton, WA Office
74 57524 Mehlman/Kaplan Office Portfolio (Roll Up) Office
75 56659 Atrium Memorial Professional Building Office
76 57421 Opera Block Office
77 7376 Warren Hills Office Building Office
78 57427 Southport Business Park Industrial
79 57660 MHC Portfolio - Waterford Estates Manufactured Housing Communities
80 57678 MHC Portfolio - Lake Fairways Country Club Manufactured Housing Communities
81 57663 MHC Portfolio - The Meadows at Countrywood Manufactured Housing Communities
82 57662 MHC Portfolio - The Lakes at Countrywood Manufactured Housing Communities
83 6468 Holiday Ranch MHC-Happy Landings MHC Manufactured Housing Communities
84 57659 MHC Portfolio - Sweetbriar Manufactured Housing Communities
85 57687 The Store Room Self Storage
86 57551 Best Florida Mini Storage Self Storage
87 57689 A-1 Paramount Self Storage Self Storage
88 57740 Storgard Self Storage and RV Self Storage
89 8419 Martin SS - Fayetteville, NC Self Storage
90 57688 A-1 La Habra Self Storage Self Storage
91 57717 Access Self Storage Self Storage
92 8306 Leave it/Lock it Self Storage Self Storage
93 8309 Allsafe Freeway Storage Self Storage
94 7580 Compton Self Storage Self Storage
95 7847 Hampton Inn - Southwind II Hotel
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS
INITIAL DEPOSIT INITIAL ANNUAL
TO CAPITAL INITIAL DEPOSIT ANNUAL DEPOSIT TAX AND DEPOSIT DEPOSIT
IMPROVEMENT TO REPLACEMENT TO REPLACEMENT INSURANCE TO TI/LC TO TI/LC
SEQUENCE RESERVES RESERVES RESERVES ESCROW ESCROW ESCROW
- -----------------------------------------------------------------------------------------------------------------------
1 Tax Only
2 $68,000 Yes
3 $300,000 102,750 Yes
4 50,496 Yes
5 $35,825 1,646 19,750 Yes
6 15,063 1,146 13,750 Yes
7 42,563 1,438 17,250 Yes
8 50,349 1,729 20,750 Yes
9 18,000 Yes
10 23,953 1,542 18,500 Yes
11 39,063 1,438 17,250 Yes
12 53,938 2,208 26,500 Yes
13 No
14 41,844 1,000 12,000 Yes
15 51,125 1,042 12,500 Yes
16 5,325 604 7,250 Yes
17 28,206 1,167 14,000 Yes
18 32,500 1,542 18,500 Yes
19 27,875 1,229 14,750 Yes
20 30,359 889 10,668 Yes
21 31,875 20,256 Yes
22 No
23 No
24 57,250 107,229 Tax Only
25 8,750 3,476 41,706 Yes $4,167 $50,000
26 No
27 No
28 No
29 20,710 23,856 Yes
30 114,600 12,456 Yes $33,336
31 65,086 Yes
32 6,641 Yes
33 5,000 10,254 Tax Only
34 No
35 No
36 No
37 12,500 29,412 Tax Only $40,008
38 No
39 No
40 No
41 Tax Only
42 No
43 No
44 No
45 No
46 No
47 1,230 14,756 Yes
48 75,000 35,832 Yes
49 No
50 No
51 2,052 Yes
52 No
53 No
54 No
55 734,360 314,794 Yes 5,000,000 $1,920,000
56 5,426 65,117 Yes 27,083 $325,000
57 23,748 Tax Only $500,004
58 1,127 13,522 Yes 1,000,000
59 3,750 37,944 Tax Only 700,000
60 19,848 Yes $202,980
61 Tax Only
62 22,500 No 1,400,000 $65,004
63 18,750 9,660 Yes 200,000 $150,996
64 9,300 Yes 100,000 $125,004
65 10,188 Yes 320,000 $60,000
66 22,563 34,483 Yes
67 No
68 21,622 Yes
69 29,227 Yes 24,142 $42,857
70 No
71 12,996 Yes $86,532
72 17,280 Yes
73 No
74 8,040 Yes $150,000
75 2,125 19,092 Yes 50,000
76 21,185 Yes
77 2,016 No $20,184
78 9,555 Yes 75,000 $58,696
79 No
80 No
81 No
82 No
83 110,000 Yes
84 No
85 13,308 Yes
86 6,144 Yes
87 Tax Only
88 1,790 6,804 Yes
89 11,964 Yes
90 Tax Only
91 4,824 Yes
92 6,660 Yes
93 5,775 Yes
94 3,500 3,360 Yes
95 28,812 Yes
- -----------------------------------------------------------------------------------------------------------------------
$1,501,470 $580,227 $1,570,656 $8,900,392 $3,830,601
B-2
(This Page Intentionally Left Blank)
ANNEX C
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
135 S. LaSalle Street Suite 1625 SERIES 2004-2 Prior Payment: N/A
Chicago, IL 60603 Next Payment: 06/10/2004
Record Date: 04/30/2004
ABN AMRO ACCT: XXXXXX
Administrator: Analyst:
REPORTING PACKAGE TABLE OF CONTENTS
====================================================================================================================================
================================ ==================================================== ======================================
Page(s)
Issue Id: BACM0402 REMIC Certificate Report Closing Date:
Monthly Data File Name: Bond Interest Reconciliation First Payment Date: 05/10/2004
BACM0402_YYYYMM_3.zip Cash Reconciliation Summary Assumed Final Payment Date: 05/10/2034
================================ 15 Month Historical Loan Status Summary ======================================
15 Month Historical Payoff/Loss Summary
Historical Collateral Level Prepayment Report
Delinquent Loan Detail
Mortgage Loan Characteristics
Loan Level Detail
Specially Serviced Report
Modified Loan Detail
Realized Loss Detail
Appraisal Reduction Detail
====================================================
======================================================================================================
PARTIES TO THE TRANSACTION
------------------------------------------------------------------------------------------------------
DEPOSITOR: Banc of America Commerical Mortgage Inc.
UNDERWRITER: Banc of America Securities LLC/Bear, Stearns & Co., Inc.
MASTER SERVICER: Bank of America, N.A.
SPECIAL SERVICER: Midland Loan Services, Inc.
RATING AGENCY: Moody's Investors Service, Inc. /Standard & Poor's Ratings Services/Fitch, Inc.
======================================================================================================
==========================================================================
INFORMATION IS AVAILABLE FOR THIS ISSUE FROM THE FOLLOWING SOURCES
--------------------------------------------------------------------------
LaSalle Web Site www.etrustee.net
Servicer Website
LaSalle Factor Line (800) 246-5761
==========================================================================
====================================================================================================================================
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-1
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
WAC: Next Payment: 06/10/2004
WA Life Term: Record Date: 04/30/2004
WA Amort Term: ABN AMRO ACCT: XXXXXX
Current Index:
Next Index: REMIC CERTIFICATE REPORT
====================================================================================================================================
ORIGINAL OPENING PRINCIPAL PRINCIPAL NEGATIVE CLOSING INTEREST INTEREST PASS-THROUGH
CLASS FACE VALUE (1) BALANCE PAYMENT ADJ. OR LOSS AMORTIZATION BALANCE PAYMENT (2) ADJUSTMENT RATE
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) Accrued Interest plus/minus Interest Adjustment minus Deferred
Interest equals Interest Payment (3) Estimated
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-2
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
BOND INTEREST RECONCILIATION
====================================================================================================================================
Deductions Additions
--------------------------------- ----------------------------------------------------
Pass Accrued Deferred & Prior Int Accrual Prepay- Other
Accrual Thru Certificate Allocable Accretion Interest Int. Short- on prior ment Interest
Class Method Days Rate Interest PPIS Interest Loss/Exp falls Due Shortfall (3) Penalties Proceeds (1)
====================================================================================================================================
------------------------------------------------------------------------------------------------------
0.00 0.00 0.00 0.00 0.00 0.00 0.00
====================================================================================================================================
======================================================== ======================
Remaining
Distributable Interest Current Period Outstanding Credit Support
Certificate Payment (Shortfall)/ Interest ----------------------
Interest (2) Amount Recovery Shortfalls Original Current (4)
======================================================== ======================
- --------------------------------------------------------
0.00 0.00 0.00
======================================================== ======================
(1) Other Interest Proceeds are additional interest amounts specifically allocated to the bond(s) and used in determining the
Distributable Interest of the bonds.
(2) Accrued - Deductions + Additional Interest.
(3) Where applicable.
(4) Determined as follows: (A) the ending balance of all the classes less (B) the sum of (i) the ending balance of the class and
(ii) the ending balance of all classes which are not subordinate to the class divided by (A).
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-3
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
CASH RECONCILIATION SUMMARY
====================================================================================================================================
- ------------------------------------------- ------------------------------------------- ------------------------------------------
INTEREST SUMMARY PRINCIPAL SUMMARY SERVICING FEE SUMMARY
- ------------------------------------------- ------------------------------------------- ------------------------------------------
Current Scheduled Interest SCHEDULED PRINCIPAL: Current Servicing Fees
Less Deferred Interest Current Scheduled Principal Plus Fees Advanced for PPIS
Less PPIS Reducing Scheduled Int Advanced Scheduled Principal Less Reduction for PPIS
Plus Gross Advance Interest ------------------------------------------- Plus Delinquent Servicing Fees
Less ASER Interest Adv Reduction Scheduled Principal ------------------------------------------
Less Other Interest Not Advanced ------------------------------------------- Total Servicing Fees
Less Other Adjustment UNSCHEDULED PRINCIPAL: ------------------------------------------
- ------------------------------------------- Curtailments
Total Advanced Scheduled Principal
- ------------------------------------------- Liquidation Proceeds
UNSCHEDULED INTEREST: Repurchase Proceeds
- ------------------------------------------- Other Principal Proceeds
Prepayment Penalties -------------------------------------------
Yield Maintenance Penalties Total Unscheduled Principal
Other Interest Proceeds -------------------------------------------
- ------------------------------------------- Remittance Principal
Total -------------------------------------------
- ------------------------------------------- Remittance P&I Due Trust
Less Fees Paid to Servicer -------------------------------------------
Less Fee Strips Paid by Servicer Remittance P&I Due Certs
- ------------------------------------------- -------------------------------------------
LESS FEES & EXPENSES PAID BY/TO SERVICER
- ------------------------------------------- ------------------------------------------- ------------------------------------------
Special Servicing Fees POOL BALANCE SUMMARY PPIS SUMMARY
Workout Fees ------------------------------------------- ------------------------------------------
Liquidation Fees Balance Count Gross PPIS
Interest Due Serv on Advances ------------------------------------------- Reduced by PPIE
Non Recoverable Advances Beginning Pool Reduced by Shortfalls in Fees
Misc. Fees & Expenses Scheduled Principal Reduced by Other Amounts
- ------------------------------------------- Unscheduled Principal ------------------------------------------
Plus Trustee Fees Paid by Servicer Deferred Interest PPIS Reducing Scheduled Interest
- ------------------------------------------- Liquidations ------------------------------------------
Total Unscheduled Fees & Expenses Repurchases PPIS Reducing Servicing Fee
- ------------------------------------------- ------------------------------------------- ------------------------------------------
Total Interest Due Trust Ending Pool PPIS Due Certificate
- ------------------------------------------- ------------------------------------------- ------------------------------------------
LESS FEES & EXPENSES PAID BY/TO TRUST
- ------------------------------------------- ------------------------------------------
Trustee Fee ADVANCE SUMMARY (ADVANCE MADE BY SERVICER)
Fee Strips ------------------------------------------
Misc. Fees Principal Interest
Interest Reserve Withholding ------------------------------------------
Plus Interest Reserve Deposit Prior Outstanding
- ------------------------------------------- Plus Current Period
Total Less Recovered
- ------------------------------------------- Less Non Recovered
Total Interest Due Certs ------------------------------------------
- ------------------------------------------- Ending Outstanding
------------------------------------------
====================================================================================================================================
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-4
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
ASSET BACKED FACTS ~ 15 MONTH HISTORICAL LOAN STATUS SUMMARY
============ ================================================================== ================================================
Delinquency Aging Categories Special Event Categories (1)
------------------------------------------------------------------ ------------------------------------------------
Delinq Delinq Delinq
Distribution 1 Month 2 Months 3+ Months Foreclosure REO Modifications Specially Serviced Bankruptcy
Date # Balance # Balance # Balance # Balance # Balance # Balance # Balance # Balance
============ ================================================================== ================================================
05/10/04
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
- ------------ ------------------------------------------------------------------ ------------------------------------------------
============ ================================================================== ================================================
(1) Modification, Specially Serviced & Bankruptcy Totals are Included in the Appropriate Delinquency Aging Category.
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-5
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
ASSET BACKED FACTS ~ 15 MONTH HISTORICAL PAYOFF/LOSS SUMMARY
====================================================================================================================================
Appraisal Realized Curr
Ending Pool (1) Payoffs(2) Penalties Reduct. (2) Liquidations (2) Losses (2) Remaining Term Weighted Avg.
Distribution ----------------------------------------------------------------------------------------------------------------------
Date # Balance # Balance # Amount # Balance # Balance # Amount Life Amort. Coupon Remit
====================================================================================================================================
05/10/04
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
(1) Percentage based on pool as of cutoff.
(2) Percentage based on pool as of beginning of period.
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-6
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
HISTORICAL COLLATERAL LEVEL PREPAYMENT REPORT
====================================================================================================================================
Disclosure Payoff Initial Payoff Penalty Prepayment Maturity Property Geographic
Control # Period Balance Type Amount Amount Date Date Type Location
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
CURRENT 0 0
CUMULATIVE
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-7
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
DELINQUENT LOAN DETAIL
====================================================================================================================================
Paid Outstanding Out. Property Special
Disclosure 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 1. P&I Advance - Loan delinquent 1 month
B. P&I Advance - Late Payment but < 1 month delinq 2. P&I Advance - Loan delinquent 2 months
3. P&I Advance - Loan delinquent 3 months or More
4. Matured Balloon/Assumed Scheduled Payment
7. P&I Advance (Foreclosure)
9. P&I Advance (REO)
====================================================================================================================================
** Outstanding P&I Advances include the current period P&I Advance
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-8
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
MORTGAGE LOAN CHARACTERISTICS
====================================================================================================================================
DISTRIBUTION OF PRINCIPAL BALANCES DISTRIBUTION OF MORTGAGE INTEREST RATES
================================================================= =================================================================
Weighted Average Weighted Average
Current Scheduled # of Scheduled % of ------------------ Current Mortgage # of Scheduled % of ------------------
Balances Loans Balance Balance Term Coupon DSCR Interest Rate Loans Balance Balance Term Coupon DSCR
================================================================= =================================================================
=================================================================
0 0 0.00%
=================================================================
Minimum Mortgage Interest Rate 10.0000%
Maximum Mortgage Interest Rate 10.0000%
=================================================================
0 0 0.00%
=================================================================
Average Scheduled Balance DISTRIBUTION OF REMAINING TERM (BALLOON)
Maximum Scheduled Balance =================================================================
Minimum Scheduled Balance Weighted Average
- ------------------------- Balloon # of Scheduled % of --------------------
Mortgage Loans Loans Balance Balance Term Coupon DSCR
DISTRIBUTION OF REMAINING TERM (FULLY AMORTIZING) =================================================================
================================================================= 0 to 60
Weighted Average 61 to 120
Fully Amortizing # of Scheduled % of ------------------ 121 to 180
Mortgage Loans Loans Balance Balance Term Coupon DSCR 181 to 240
================================================================= 241 to 360
================================================================= =================================================================
0 0 0.00% 0 0 0.00%
================================================================= =================================================================
Minimum Remaining Term Minimum Remaining Term 0
Maximum Remaining Term Maximum Remaining Term 0
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-9
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date:
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date:
SERIES 2004-2 Prior Payment:
Next Payment:
ABN AMRO ACCT: XXXXXX Record Date:
MORTGAGE LOAN CHARACTERISTICS
====================================================================================================================================
DISTRIBUTION OF DSCR (CURRENT) GEOGRAPHIC DISTRIBUTION
=========================================================== ================================================================
Debt Service # of Scheduled % of # of Scheduled % of
Coverage Ratio Loans Balance Balance WAMM WAC DSCR Geographic Location Loans Balance Balance WAMM WAC DSCR
=========================================================== ================================================================
===========================================================
0 0 0.00%
===========================================================
Maximum DSCR 0.000
Minimum DSCR 0.000
DISTRIBUTION OF DSCR (CUTOFF)
===========================================================
Debt Service # of Scheduled % of
Coverage Ratio Loans Balance Balance WAMM WAC DSCR
===========================================================
=========================================================== ================================================================
0 0 0.00% 0 0.00%
=========================================================== ================================================================
Maximum DSCR 0.00
Minimum DSCR 0.00
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-10
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date:
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date:
SERIES 2004-2 Prior Payment:
Next Payment:
ABN AMRO ACCT: XXXXXX Record Date:
MORTGAGE LOAN CHARACTERISTICS
====================================================================================================================================
DISTRIBUTION OF PROPERTY TYPES DISTRIBUTION OF LOAN SEASONING
=========================================================== ===========================================================
# of Scheduled % of # of Scheduled % of
Property Types Loans Balance Balance WAMM WAC DSCR Number of Years Loans Balance Balance WAMM WAC DSCR
=========================================================== ===========================================================
=========================================================== ===========================================================
0 0 0.00% 0 0 0.00%
=========================================================== ===========================================================
DISTRIBUTION OF AMORTIZATION TYPE DISTRIBUTION OF YEAR LOANS MATURING
=========================================================== ===========================================================
=========================================================== ===========================================================
Amortization # of Scheduled % of # of Scheduled % of
Type Loans Balance Balance WAMM WAC DSCR Year Loans Balance Balance WAMM WAC DSCR
=========================================================== ===========================================================
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 & Longer
=========================================================== ===========================================================
0 0 0.00%
=========================================================== ===========================================================
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-11
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
LOAN LEVEL DETAIL
=================================================================================================================================
Operating Ending Spec.
Disclosure Property Statement Maturity Principal Note Scheduled Mod. Serv
Control # Grp Type State DSCR NOI Date Date Balance Rate P&I Flag Flag
=================================================================================================================================
=================================================================================================================================
W/Avg 0.00 0 0 0
=================================================================================================================================
===========================================
Loan Prepayment
ASER Status -------------------------
Flag Code(1) Amount Penalty Date
===========================================
===========================================
0 0
===========================================
* NOI and DSCR, if available and reportable under the terms of the Pooling and Servicing 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 7. Foreclosure
B. P&I Adv - < one month delinq 2. P&I Adv - delinquent 2 months 8. Bankruptcy
3. P&I Adv - delinquent 3+ months 9. REO
4. Mat. Balloon/Assumed P&I 10. DPO
5. Prepaid in Full 11. Modification
6. Specially Serviced
====================================================================================================================================
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-12
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
SPECIALLY SERVICED (PART I) ~ LOAN DETAIL
====================================================================================================================================
Balance Remaining Term
Disclosure Transfer Loan Status ------------------- Note Maturity -------------- Property NOI
Control # Date Code (1) Scheduled Actual Rate Date Life Amort. Type State NOI DSCR Date
====================================================================================================================================
====================================================================================================================================
(1) Legend: A. P&I Adv - in Grace Period 1. P&I Adv - delinquent 1 month
B. P&I Adv - < 1 month delinq. 2. P&I Adv - delinquent 2 months
3. P&I Adv - delinquent 3+ months
4. Mat. Balloon/Assumed P&I
7. Foreclosure
9. REO
====================================================================================================================================
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-13
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
SPECIALLY SERVICED LOAN DETAIL (PART II) ~ SERVICER COMMENTS
====================================================================================================================================
Disclosure Resolution
Control # Strategy Comments
====================================================================================================================================
====================================================================================================================================
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-14
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
MODIFIED LOAN DETAIL
====================================================================================================================================
Cutoff Modified
Disclosure Modification Maturity Maturity Modification
Control # Date Date Date Description
====================================================================================================================================
====================================================================================================================================
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-15
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
REALIZED LOSS DETAIL
====================================================================================================================================
Beginning Gross Proceeds Aggregate Net Net Proceeds
Disclosure Appraisal Appraisal Scheduled Gross as a % of Liquidation Liquidation as a % of Realized
Period 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
====================================================================================================================================
* Aggregate liquidation expenses also include outstanding P&I advances and unpaid servicing fees, unpaid trustee fees, etc.
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-16
ABN AMRO BANC OF AMERICA COMMERCIAL MORTGAGE INC. Statement Date: 05/10/2004
LaSalle Bank N.A. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Payment Date: 05/10/2004
SERIES 2004-2 Prior Payment: N/A
Next Payment: 06/10/2004
ABN AMRO ACCT: XXXXXX Record Date: 04/30/2004
APPRAISAL REDUCTION DETAIL
====================================================================================================================================
Remaining Term Appraisal
Disclosure Appraisal Scheduled ARA Current P&I Note Maturity -------------- Property ------------
Control # Red. Date Balance Amount Advance ASER Rate Date Life Amort. Type State DSCR Value Date
====================================================================================================================================
====================================================================================================================================
03/17/2004 - 12:14 (MXXX-MXXX) (c) 2000 LaSalle Bank N.A.
C-17
(This Page Intentionally Left Blank)
ANNEX D
CLASS XP REFERENCE RATE SCHEDULE
INTEREST CLASS XP INTEREST CLASS XP
ACCRUAL DISTRIBUTION REFERENCE ACCRUAL DISTRIBUTION REFERENCE
PERIOD DATE RATE PERIOD DATE RATE
- ---------- -------------- ----------- ---------- -------------- ----------
1 5/10/2004 5.24630% 43 11/10/2007 5.40200%
2 6/10/2004 5.40250% 44 12/10/2007 5.24650%
3 7/10/2004 5.24630% 45 1/10/2008 5.40180%
4 8/10/2004 5.40250% 46 2/10/2008 5.24650%
5 9/10/2004 5.40250% 47 3/10/2008 5.24660%
6 10/10/2004 5.24650% 48 4/10/2008 5.40160%
7 11/10/2004 5.40260% 49 5/10/2008 5.24510%
8 12/10/2004 5.24650% 50 6/10/2008 5.39990%
9 1/10/2005 5.24660% 51 7/10/2008 5.24500%
10 2/10/2005 5.24660% 52 8/10/2008 5.39980%
11 3/10/2005 5.24700% 53 9/10/2008 5.39970%
12 4/10/2005 5.40260% 54 10/10/2008 5.24490%
13 5/10/2005 5.24670% 55 11/10/2008 5.39950%
14 6/10/2005 5.40270% 56 12/10/2008 5.25660%
15 7/10/2005 5.24670% 57 1/10/2009 5.26050%
16 8/10/2005 5.40270% 58 2/10/2009 5.26710%
17 9/10/2005 5.40270% 59 3/10/2009 5.29410%
18 10/10/2005 5.24680% 60 4/10/2009 5.49030%
19 11/10/2005 5.40270% 61 5/10/2009 5.42060%
20 12/10/2005 5.24680% 62 6/10/2009 5.58240%
21 1/10/2006 5.24680% 63 7/10/2009 5.42050%
22 2/10/2006 5.24690% 64 8/10/2009 5.58220%
23 3/10/2006 5.24730% 65 9/10/2009 5.58210%
24 4/10/2006 5.40270% 66 10/10/2009 5.42020%
25 5/10/2006 5.24690% 67 11/10/2009 5.58190%
26 6/10/2006 5.40270% 68 12/10/2009 5.42010%
27 7/10/2006 5.24690% 69 1/10/2010 5.42000%
28 8/10/2006 5.40270% 70 2/10/2010 5.41990%
29 9/10/2006 5.40270% 71 3/10/2010 5.42060%
30 10/10/2006 5.24700% 72 4/10/2010 5.58130%
31 11/10/2006 5.40260% 73 5/10/2010 5.41960%
32 12/10/2006 5.24700% 74 6/10/2010 5.58110%
33 1/10/2007 5.24690% 75 7/10/2010 5.41950%
34 2/10/2007 5.24690% 76 8/10/2010 5.58080%
35 3/10/2007 5.24740% 77 9/10/2010 5.58070%
36 4/10/2007 5.40240% 78 10/10/2010 5.41920%
37 5/10/2007 5.24680% 79 11/10/2010 5.58110%
38 6/10/2007 5.40230% 80 12/10/2010 5.41110%
39 7/10/2007 5.24670% 81 1/10/2011 5.46970%
40 8/10/2007 5.40210% 82 2/10/2011 5.51910%
41 9/10/2007 5.40210% 83 3/10/2011 5.57210%
42 10/10/2007 5.24660% 84 4/10/2011 5.73190%
D-1
ANNEX E
AMORTIZATION SCHEDULE
OF THE PPG PLACE MORTGAGE LOAN
PERIOD DATE BEGINNING BALANCE PRINCIPAL
1 2/1/2004 116,000,000.00 84,169.12
2 3/1/2004 115,915,830.88 126,430.36
3 4/1/2004 115,789,400.52 85,345.99
4 5/1/2004 115,704,054.53 106,680.18
5 6/1/2004 115,597,374.35 86,419.07
6 7/1/2004 115,510,955.28 107,724.45
7 8/1/2004 115,403,230.83 87,503.98
8 9/1/2004 115,315,726.85 87,992.97
9 10/1/2004 115,227,733.88 109,256.08
10 11/1/2004 115,118,477.80 89,095.23
11 12/1/2004 115,029,382.57 110,328.75
12 1/1/2005 114,919,053.81 90,209.65
13 2/1/2005 114,828,844.17 90,713.76
14 3/1/2005 114,738,130.41 153,270.10
15 4/1/2005 114,584,860.31 92,077.18
16 5/1/2005 114,492,783.13 113,230.64
17 6/1/2005 114,379,552.49 93,224.48
18 7/1/2005 114,286,328.01 114,347.13
19 8/1/2005 114,171,980.88 94,384.43
20 9/1/2005 114,077,596.45 94,911.86
21 10/1/2005 113,982,684.59 115,989.21
22 11/1/2005 113,866,695.38 96,090.42
23 12/1/2005 113,770,604.96 117,136.12
24 1/1/2006 113,653,468.84 97,281.96
25 2/1/2006 113,556,186.88 97,825.59
26 3/1/2006 113,458,361.29 159,729.59
27 4/1/2006 113,298,631.70 99,264.86
28 5/1/2006 113,199,366.84 120,225.32
29 6/1/2006 113,079,141.52 100,491.41
30 7/1/2006 112,978,650.11 121,418.94
31 8/1/2006 112,857,231.16 101,731.48
32 9/1/2006 112,755,499.68 102,299.98
33 10/1/2006 112,653,199.70 123,178.95
34 11/1/2006 112,530,020.75 103,559.99
35 12/1/2006 112,426,460.76 124,405.14
36 1/1/2007 112,302,055.61 104,833.91
37 2/1/2007 112,197,221.71 105,419.74
38 3/1/2007 112,091,801.97 166,627.15
39 4/1/2007 111,925,174.82 106,939.98
40 5/1/2007 111,818,234.83 127,694.37
41 6/1/2007 111,690,540.46 108,251.16
42 7/1/2007 111,582,289.30 128,970.34
43 8/1/2007 111,453,318.96 109,576.80
44 9/1/2007 111,343,742.16 110,189.14
45 10/1/2007 111,233,553.02 130,856.29
46 11/1/2007 111,102,696.73 111,536.14
47 12/1/2007 110,991,160.59 132,167.12
48 1/1/2008 110,858,993.47 112,897.99
49 2/1/2008 110,746,095.48 113,528.89
50 3/1/2008 110,632,566.59 154,049.43
51 4/1/2008 110,478,517.17 115,024.17
52 5/1/2008 110,363,493.00 135,561.50
53 6/1/2008 110,227,931.50 116,424.49
54 7/1/2008 110,111,507.01 136,924.21
55 8/1/2008 109,974,582.80 117,840.24
56 9/1/2008 109,856,742.56 118,498.76
57 10/1/2008 109,738,243.80 138,942.79
58 11/1/2008 109,599,301.01 119,937.38
59 12/1/2008 109,479,363.62 140,342.79
60 1/1/2009 109,339,020.83 121,391.88
61 2/1/2009 109,217,628.95 122,070.24
62 3/1/2009 109,095,558.71 181,750.36
63 4/1/2009 108,913,808.35 123,768.04
64 5/1/2009 108,790,040.31 144,070.59
65 6/1/2009 108,645,969.72 125,264.77
66 7/1/2009 108,520,704.94 145,527.14
E-1
ANNEX E
AMORTIZATION SCHEDULE
OF THE PPG PLACE MORTGAGE LOAN
PERIOD DATE BEGINNING BALANCE PRINCIPAL
67 8/1/2009 108,375,177.80 126,778.01
68 9/1/2009 108,248,399.79 127,486.47
69 10/1/2009 108,120,913.33 147,689.18
70 11/1/2009 107,973,224.15 129,024.19
71 12/1/2009 107,844,199.95 149,185.62
72 1/1/2010 107,695,014.33 130,578.89
73 2/1/2010 107,564,435.44 131,308.58
74 3/1/2010 107,433,126.86 190,141.30
75 4/1/2010 107,242,985.56 133,104.90
76 5/1/2010 107,109,880.66 153,156.76
77 6/1/2010 106,956,723.90 134,704.58
78 7/1/2010 106,822,019.32 154,713.49
79 8/1/2010 106,667,305.83 136,321.91
80 9/1/2010 106,530,983.92 137,083.70
81 10/1/2010 106,393,900.22 157,028.72
82 11/1/2010 106,236,871.50 138,727.25
83 12/1/2010 106,098,144.25 158,628.14
84 1/1/2011 105,939,516.11 105,939,516.11
E-2
Prospectus
BANC OF AMERICA COMMERCIAL MORTGAGE INC.
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
- --------------------------------------------------------------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 11 IN THIS PROSPECTUS.
Neither the certificates nor the underlying mortgage loans are insured by any
governmental agency.
The certificates will represent interests only in the related trust and will not
represent interests in or obligations of Banc of America Commercial Mortgage
Inc. or any of its affiliates, including Bank of America Corporation.
This prospectus may be used to offer and sell any series of certificates only if
accompanied by the prospectus supplement for that series.
- --------------------------------------------------------------------------------
THE TRUST --
o may periodically issue mortgage pass-through certificates in one or more
series with one or more classes; and
o will own --
o multifamily and commercial mortgage loans;
o mortgage-backed securities; and
o other property described in the accompanying prospectus supplement.
THE CERTIFICATES --
o will represent interests in the trust and will be paid only from the trust
assets;
o provide for the accrual of interest based on a fixed, variable or
adjustable interest rate;
o may be offered through underwriters, which may include Banc of America
Securities LLC, an affiliate of Banc of America Commercial Mortgage Inc.;
and
o will not be listed on any securities exchange.
THE CERTIFICATEHOLDERS --
o will receive interest and principal payments based on the rate of payment
of principal and the timing of receipt of payments on mortgage loans.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
April 1, 2004
(This Page Intentionally Left Blank)
2
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
Banc of America Commercial Mortgage Inc. has filed with the SEC additional
registration materials relating to the certificates. You may read and copy any
of these materials at the SEC's Public Reference Room at the following
locations:
o SEC Public Reference Section
450 Fifth Street, N.W.
Room 1204
Washington, D.C. 20549
o SEC Midwest Regional Offices
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy and information statements, and other information that
has been filed electronically with the SEC. The Internet address is
http://www.sec.gov.
You may also contact Banc of America Commercial Mortgage Inc. in writing at
Bank of America Corporate Center, 214 North Tryon Street, Charlotte, North
Carolina 28255, or by telephone at (704) 386-2400.
See also the sections captioned "Available Information" and "Incorporation of
Certain Information by Reference" appearing at the end of this prospectus.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
-----
SUMMARY OF PROSPECTUS ....................................... 6
RISK FACTORS ................................................ 11
The Limited Liquidity of Your Certificates May Have
an Adverse Impact on Your Ability to Sell Your
Certificates ........................................... 11
The Limited Assets of Each Trust May Adversely
Impact Your Ability To Recover Your Investment in
the Event of Loss on the Underlying Mortgage
Assets ................................................. 11
Credit Support is Limited and May Not Be Sufficient
to Prevent Loss on Your Certificates ................... 12
Prepayments on the Underlying Mortgage Loans
Will Affect the Average Life of Your Certificates,
and the Rate and Timing of those Prepayments
May Be Highly Unpredictable ............................ 12
Certificates Purchased at a Premium or a Discount
Will Be Sensitive to the Rate of Principal Payment...... 13
The Nature of Ratings Are Limited and Will Not
Guarantee that You Will Receive Any Projected
Return on Your Certificates ............................ 14
Certain Factors Affecting Delinquency, Foreclosure
and Loss of the Mortgage Loans ......................... 14
Inclusion of Delinquent Mortgage Loans in a
Mortgage Asset Pool .................................... 18
PROSPECTUS SUPPLEMENT ....................................... 18
CAPITALIZED TERMS USED IN THIS PROSPECTUS ................... 18
DESCRIPTION OF THE TRUST FUNDS .............................. 19
General ................................................... 19
Mortgage Loans ............................................ 19
MBS ....................................................... 23
Certificate Accounts ...................................... 24
Credit Support ............................................ 24
Cash Flow Agreements ...................................... 24
YIELD AND MATURITY CONSIDERATIONS ........................... 25
General ................................................... 25
Pass-Through Rate ......................................... 25
Payment Delays ............................................ 25
Certain Shortfalls in Collections of Interest ............. 25
Yield and Prepayment Considerations ....................... 25
Weighted Average Life and Maturity ........................ 27
Other Factors Affecting Yield, Weighted Average Life
and Maturity ........................................... 28
THE DEPOSITOR ............................................... 30
DESCRIPTION OF THE CERTIFICATES ............................. 30
General ................................................... 30
Distributions ............................................. 31
Distributions of Interest on the Certificates ............. 31
Distributions of Principal of the Certificates ............ 32
3
PAGE
-----
Distributions on the Certificates Concerning
Prepayment Premiums or Concerning Equity
Participations ........................................ 33
Allocation of Losses and Shortfalls ..................... 33
Advances in Respect of Delinquencies .................... 33
Reports to Certificateholders ........................... 34
Voting Rights ........................................... 36
Termination ............................................. 36
Book-Entry Registration and Definitive Certificates ..... 36
THE POOLING AND SERVICING AGREEMENTS ....................... 38
General ................................................. 38
Assignment of Mortgage Loans; Repurchases ............... 38
Representations and Warranties; Repurchases ............. 40
Collection and Other Servicing Procedures ............... 41
Sub-Servicers ........................................... 43
Certificate Account ..................................... 43
Modifications, Waivers and Amendments of
Mortgage Loans ........................................ 46
Realization Upon Defaulted Mortgage Loans ............... 46
Hazard Insurance Policies ............................... 48
Due-on-Sale and Due-on-Encumbrance Provisions ........... 49
Servicing Compensation and Payment of Expenses .......... 49
Evidence as to Compliance ............................... 50
Certain Matters Regarding the Master Servicer, the
Special Servicer, the REMIC Administrator and the
Depositor ............................................. 51
Events of Default ....................................... 52
Rights Upon Event of Default ............................ 53
Amendment ............................................... 53
List of Certificateholders .............................. 54
The Trustee ............................................. 54
Duties of the Trustee ................................... 55
Certain Matters Regarding the Trustee ................... 55
Resignation and Removal of the Trustee .................. 55
DESCRIPTION OF CREDIT SUPPORT .............................. 55
General ................................................. 55
Subordinate Certificates ................................ 56
Insurance or Guarantees Concerning to Mortgage
Loans ................................................. 56
Letter of Credit ........................................ 57
Certificate Insurance and Surety Bonds .................. 57
Reserve Funds ........................................... 57
Cash Collateral Account ................................. 58
Credit Support with respect to MBS ...................... 58
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS..................... 59
General ................................................. 59
Types of Mortgage Instruments ........................... 59
Leases and Rents ........................................ 59
Personalty .............................................. 60
Foreclosure ............................................. 60
4
PAGE
-----
Bankruptcy Laws ..................................... 63
Environmental Considerations ........................ 65
Due-on-Sale and Due-on-Encumbrance Provisions ....... 67
Junior Liens; Rights of Holders of Senior Liens ..... 67
Subordinate Financing ............................... 68
Default Interest and Limitations on Prepayments ..... 68
Applicability of Usury Laws ......................... 69
Certain Laws and Regulations ........................ 69
Americans with Disabilities Act ..................... 69
Servicemembers Civil Relief Act and the California
Military and Veterans Code ........................ 70
Forfeiture for Drug and Money Laundering
Violations ........................................ 70
Federal Deposit Insurance Act; Commercial
Mortgage Loan Servicing ........................... 70
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................. 71
General ............................................. 71
REMICs .............................................. 72
Grantor Trust Funds ................................. 89
STATE AND OTHER TAX CONSEQUENCES ....................... 98
CERTAIN ERISA CONSIDERATIONS ........................... 99
General ............................................. 99
Plan Asset Regulations .............................. 99
Insurance Company General Accounts .................. 100
Consultation With Counsel ........................... 101
Tax Exempt Investors ................................ 101
LEGAL INVESTMENT ....................................... 101
USE OF PROCEEDS ........................................ 103
METHOD OF DISTRIBUTION ................................. 103
LEGAL MATTERS .......................................... 104
FINANCIAL INFORMATION .................................. 104
RATING ................................................. 104
AVAILABLE INFORMATION .................................. 105
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE ........................................... 106
GLOSSARY ............................................... 107
5
SUMMARY OF PROSPECTUS
This summary highlights selected information from this prospectus. It does
not contain all the information you need to consider in making your investment
decision. You should carefully review this prospectus and the related
prospectus supplement in their entirety before making any investment in the
certificates of any series. As used in this prospectus, "you" refers to a
prospective investor in certificates, and "we" refers to the depositor, Banc of
America Commercial Mortgage Inc. A "Glossary" appears at the end of this
prospectus.
SECURITIES OFFERED
Mortgage pass-through certificates.
DEPOSITOR
Banc of America Commercial Mortgage Inc., a Delaware corporation and a
subsidiary of Bank of America, N.A., has its principal executive offices at 214
North Tryon Street, Charlotte, North Carolina 28255, and its telephone number
is (704) 386-2400.
TRUSTEE
The trustee for each series of certificates will be named in the related
prospectus supplement.
MASTER SERVICER
If the trust includes mortgage loans, the master servicer for the corresponding
series of certificates will be named in the prospectus supplement.
SPECIAL SERVICER
If the trust includes mortgage loans, the special servicer for the
corresponding series of certificates will be named, or the circumstances under
which a special servicer may be appointed, will be described in the prospectus
supplement.
MBS ADMINISTRATOR
If the trust includes mortgage-backed securities, the entity responsible for
administering the mortgage-backed securities will be named in the prospectus
supplement.
REMIC ADMINISTRATOR
The person responsible for the various tax-related administration duties for a
series of certificates concerning real estate mortgage investment conduits will
be named in the prospectus supplement.
THE MORTGAGE LOANS
Each series of certificates will, in general, consist of a pool of mortgage
loans referred to as a mortgage asset pool secured by first or junior liens
on--
o residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden
apartment buildings or other residential structures; or
o office buildings, retail stores, hotels or motels, nursing homes,
hospitals or other health care-related facilities, recreational vehicle
and mobile home parks, warehouse facilities, mini-warehouse facilities,
self-storage facilities, industrial plants, parking lots, entertainment or
sports arenas, restaurants, marinas, mixed use or various other types of
income-producing properties or unimproved land.
6
However, no one of the following types of properties will be overly-represented
in the trust at the time the trust is formed:
(1) restaurants; (2) entertainment or sports arenas; (3) marinas; or (4)
nursing homes, hospitals or other health care-related facilities.
The mortgage loans will not be guaranteed or insured by Banc of America
Commercial Mortgage Inc. or any of its affiliates or, unless otherwise provided
in the prospectus supplement, by any governmental agency or by any other
person.
If specified in the prospectus supplement, some mortgage loans may be
delinquent as of the date the trust is formed.
As described in the prospectus supplement, a mortgage loan may--
o provide for no accrual of interest or for accrual of interest at an
interest rate that is fixed over its term or that adjusts from time to
time, or that may be converted at the borrower's election from an
adjustable to a fixed mortgage rate, or from a fixed to an adjustable
mortgage rate;
o 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;
o be fully amortizing or may be partially amortizing or nonamortizing, with
a balloon payment due on its stated maturity date;
o may prohibit over its term or for a certain period prepayments and/or
require payment of a premium or a yield maintenance payment in connection
with certain prepayments; and
o provide for payments of principal, interest or both, on due dates that
occur monthly, quarterly, semi-annually or at any other interval as
specified in the prospectus supplement.
Each mortgage loan will have had an original term to maturity of not more than
40 years. No mortgage loan will have been originated by Banc of America
Commercial Mortgage Inc., although one of its affiliates may have originated
some of the mortgage loans.
If any mortgage loan, or group of related mortgage loans, involves unusual
credit risk, financial statements or other financial information concerning the
related mortgaged property will be included in the related prospectus
supplement.
As described in the prospectus supplement, the trust may also consist of
mortgage participations, mortgage pass-through certificates and/or other
mortgage-backed securities that evidence an interest in, or are secured by a
pledge of, one or more mortgage loans similar to the other mortgage loans in
the trust and which may or may not be issued, insured or guaranteed by the
United States or any governmental agency.
THE CERTIFICATES
Each series of certificates will be issued in one or more classes pursuant to a
pooling and servicing agreement or other agreement specified in the prospectus
supplement and will represent in total the entire beneficial ownership interest
in the trust.
As described in the prospectus supplement, the certificates of each series may
consist of one or more classes that--
o are senior or subordinate to one or more other classes of certificates in
entitlement to certain distributions on the certificates;
o are "stripped principal certificates" entitled to distributions of
principal, with disproportionate, nominal or no distributions of interest;
o are "stripped interest certificates" entitled to distributions of
interest, with disproportionate, nominal or no distributions of principal;
7
o provide for distributions of interest or principal that commence only
after the occurrence of certain events, such as the retirement of one or
more other classes of certificates of that series;
o provide for distributions of principal to be made, from time to time or
for designated periods, at a rate that is faster (and, in some cases,
substantially faster) or slower (and, in some cases, substantially slower)
than the rate at which payments or other collections of principal are
received on the mortgage assets in the trust;
o provide for distributions of principal to be made, subject to available
funds, based on a specified principal payment schedule or other
methodology; or
o provide for distribution based on collections on the mortgage assets in
the trust attributable to prepayment premiums, yield maintenance payments
or equity participations.
If specified in the prospectus supplement, a series of certificates may include
one or more "controlled amortization classes," which will entitle the holders
to receive principal distributions according to a specified principal payment
schedule. Although prepayment risk cannot be eliminated entirely for any class
of certificates, a controlled amortization class will generally provide a
relatively stable cash flow so long as the actual rate of prepayment on the
mortgage loans in the trust remains relatively constant at the rate of
prepayment used to establish the specific principal payment schedule for those
certificates. Prepayment risk with respect to a given mortgage asset pool does
not disappear, however, and the stability afforded to a controlled amortization
class comes at the expense of one or more other classes of the same series.
Each class of certificates, other than certain classes of stripped interest
certificates and certain classes of REMIC residual certificates will have an
initial stated principal amount. Each class of certificates, other than certain
classes of stripped principal certificates and certain classes of REMIC
residual certificates, will accrue interest on its certificate balance or, in
the case of certain classes of stripped interest certificates, on a notional
amount, based on a pass-through rate which may be fixed, variable or
adjustable. The prospectus supplement will specify the certificate balance,
notional amount and/or pass-through rate for each class of certificates.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Interest on each class of certificates (other than certain classes of stripped
principal certificates and certain classes of REMIC residual certificates) of
each series will accrue at the applicable pass-through rate on the certificate
balance and will be paid on a distribution date. However, in the case of
certain classes of stripped interest certificates, the notional amount
outstanding from time to time will be paid to certificateholders as provided in
the prospectus supplement on a specified distribution date.
Distributions of interest concerning 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. Interest accrued concerning a class
of accrual certificates prior to the occurrence of such an event will either be
added to the certificate balance or otherwise deferred as described in the
prospectus supplement. Distributions of interest concerning one or more classes
of certificates may be reduced to the extent of certain delinquencies, losses
and other contingencies described in this prospectus and in the prospectus
supplement.
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of certificates of each series (other than certain classes of
stripped interest certificates and certain classes of REMIC residual
certificates) will have a certificate balance. The certificate balance of a
class of certificates outstanding from time to time will represent the maximum
amount that the holders are then entitled to receive in respect of principal
from future cash flow on the assets in the trust. The initial total certificate
balance of all classes of a series of certificates will not be greater
8
than the outstanding principal balance of the related mortgage assets as of a
specified cut-off date, after application of scheduled payments due on or
before that date, whether or not received. As described in the prospectus
supplement, distributions of principal with respect to the related series of
certificates will be made on each distribution date to the holders of the class
certificates of the series then entitled until the certificate balances of
those certificates have been reduced to zero. Distributions of principal with
respect to one or more classes of certificates--
o may be made at a rate that is faster (and, in some cases, substantially
faster) or slower (and, in some cases, substantially slower) than the rate
at which payments or other collections of principal are received on the
assets in the trust;
o 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;
o may be made, subject to certain limitations, based on a specified
principal payment schedule; or
o may be contingent on the specified principal payment schedule for another
class of the same series and the rate at which payments and other
collections of principal on the mortgage assets in the trust are received.
Unless otherwise specified in the prospectus supplement, distributions of
principal of any class of certificates will be made on a pro rata basis
among all of the certificates of that class.
CREDIT SUPPORT AND CASH FLOW AGREEMENTS
If specified in the prospectus supplement, partial or full protection against
certain defaults and losses on the assets in the trust may be provided to one
or more classes of certificates by (1) subordination of one or more other
classes of certificates to classes in the same series, or by (2) one or more
other types of credit support, such as a letter of credit, insurance policy,
guarantee, reserve fund, cash collateral account, overcollateralization or
other credit support. If so provided in the prospectus supplement, the trust
may include--
o guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at
a specified rate; or
o certain other agreements, such as interest rate exchange agreements,
interest rate cap or floor agreements, or other agreements designed to
reduce the effects of interest rate fluctuations on the mortgage assets or
on one or more classes of certificates.
Certain relevant information regarding any applicable credit support or cash
flow agreement will be set forth in the prospectus supplement for a series of
certificates.
ADVANCES
As specified in the prospectus supplement, if the trust includes mortgage
loans, the master servicer, the special servicer, the trustee, any provider of
credit support, and/or another specified person may be obligated to make, or
have the option of making, certain advances concerning delinquent scheduled
payments of principal and/or interest on mortgage loans. Any advances made
concerning a particular mortgage loan will be reimbursable from subsequent
recoveries relating to the particular mortgage loan and as described in the
prospectus supplement. If specified in the prospectus supplement, any entity
making advances may be entitled to receive interest for a specified period
during which those advances are outstanding, payable from amounts in the trust.
If the trust includes mortgaged-backed securities, any comparable advancing
obligation of a party to the related pooling and servicing agreement, or of a
party to the related mortgage-backed securities agreement, will be described in
the prospectus supplement.
OPTIONAL TERMINATION
If specified in the prospectus supplement, a series of certificates may be
subject to optional early termination through the repurchase of the mortgage
assets in the trust. If provided in the related
9
prospectus supplement, upon the reduction of the certificate balance of a
specified class or classes of certificates by a specified percentage or amount,
a specified party may be authorized or required to solicit bids for the
purchase of all of the assets of the trust, or of a sufficient portion of those
assets to retire that class or classes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The certificates of each series will constitute or evidence ownership of
either--
o "regular interests" and "residual interests" in the trust, or a
designated portion of the trust, treated as a REMIC under Sections 860A
through 860G of the Code; or
o certificates in a trust treated as a grantor trust under applicable
provisions of the Code.
Investors are advised to consult their tax advisors and to review "Certain
Federal Income Tax Consequences" in this prospectus and in the prospectus
supplement.
CERTAIN ERISA CONSIDERATIONS
Fiduciaries of retirement plans and certain other employee benefit plans and
arrangements, including individual retirement accounts, individual retirement
annuities, Keogh plans, and collective investment funds and separate individual
retirement 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, Section 4975 of the Internal Revenue Code of 1986, or any
materially similar provisions of federal, state or local law should review with
their legal advisors whether the purchase or holding of certificates could give
rise to a transaction that is prohibited.
LEGAL INVESTMENT
If so specified in the prospectus supplement, certain classes of certificates
will constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984, as amended. 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 for assistance in determining whether and
to what extent the certificates constitute legal investments for them.
See "Legal Investment" in this prospectus.
RATING
At their respective dates of issuance, each class of certificates will be rated
as of investment grade by one or more nationally recognized statistical rating
agencies.
10
RISK FACTORS
In considering an investment in the certificates of any series, you should
consider carefully the following risk factors and the risk factors in the
prospectus supplement.
THE LIMITED LIQUIDITY OF YOUR CERTIFICATES MAY HAVE AN ADVERSE IMPACT ON YOUR
ABILITY TO SELL YOUR CERTIFICATES.
The certificates of any series may have limited or no liquidity. You may
be forced to bear the risk of investing in the certificates for an indefinite
period of time. In addition, you may have no redemption rights, and the
certificates are subject to early retirement only under certain circumstances.
Lack of a Secondary Market May Limit the Liquidity of Your Certificate. We
cannot assure you that a secondary market for the certificates will develop or,
if it does develop, that it will provide certificateholders with liquidity of
investment or that it will continue for as long as the certificates remain
outstanding.
The prospectus supplement may indicate that an underwriter intends to
establish a secondary market in the certificates, although no underwriter will
be obligated to do so. Any secondary market may provide less liquidity to
investors than any comparable market for securities relating to single-family
mortgage loans. Unless specified in the prospectus supplement, the certificates
will not be listed on any securities exchange.
The Limited Nature of Ongoing Information Regarding Your Certificate May
Adversely Affect Liquidity. The primary source of ongoing information regarding
the certificates, including information regarding the status of the related
mortgage assets and any credit support for the certificates, will be the
periodic reports to certificateholders to be delivered pursuant to the related
pooling and servicing agreement.
We cannot assure you that any additional ongoing information regarding the
certificates will be available through any other source. The limited nature of
the information concerning a series of certificates may adversely affect
liquidity, even if a secondary market for the certificates does develop.
The Liquidity of Your Certificate May Be Affected by External Sources
Including Interest Rate Movement. If a secondary market does develop for the
certificates, the market value of the certificates will be affected by several
factors, including--
o perceived liquidity;
o the anticipated cash flow (which may vary widely depending upon the
prepayment and default assumptions concerning the underlying mortgage
loans); and
o prevailing interest rates.
The price payable at any given time for certain classes of certificates
may be extremely sensitive to small fluctuations in prevailing interest rates.
The relative change in price for a certificate in response to an upward or
downward movement in prevailing interest rates may not necessarily equal the
relative change in price for the certificate in response to an equal but
opposite movement in those rates. Therefore, the sale of certificates by a
holder in any secondary market that may develop may be at a discount from the
price paid by the holder. We are not aware of any source through which price
information about the certificates will be generally available on an ongoing
basis.
THE LIMITED ASSETS OF EACH TRUST MAY ADVERSELY IMPACT YOUR ABILITY TO RECOVER
YOUR INVESTMENT IN THE EVENT OF LOSS ON THE UNDERLYING MORTGAGE ASSETS.
Unless specified in the prospectus supplement, neither the certificates
nor the mortgage assets in the trust will be guaranteed or insured by Banc of
America Commercial Mortgage Inc. or any of its affiliates, by any governmental
agency or by any other person or entity. No certificate will
11
represent a claim against or security interest in the trust funds for any other
series. Therefore, if the related trust fund has insufficient assets to make
payments, no other assets will be available for payment of the deficiency, and
the holders of one or more classes of the certificates will be required to bear
the consequent loss.
Amounts on deposit from time to time in certain accounts constituting part
of the trust, including the certificate account and any accounts maintained as
credit support, may be withdrawn for purposes other than the payment of
principal of or interest on the related series of certificates under certain
conditions. On any distribution occurring after losses or shortfalls in
collections on the mortgage assets have been incurred, all or a portion of
those losses or shortfalls will be borne on a disproportionate basis among
classes of certificates.
CREDIT SUPPORT IS LIMITED AND MAY NOT BE SUFFICIENT TO PREVENT LOSS ON YOUR
CERTIFICATES.
The prospectus supplement for a series of certificates will describe any
credit support. The credit support may not cover all potential losses. For
example, credit support may or may not cover loss by reason of fraud or
negligence by a mortgage loan originator or other parties. Any losses not
covered by credit support may, at least in part, be allocated to one or more
classes of certificates.
A series of certificates may include one or more classes of subordinate
certificates, if provided in the prospectus supplement. Although subordination
is intended to reduce the likelihood of temporary shortfalls and ultimate
losses to holders of senior certificates, the amount of subordination will be
limited and may decline under certain circumstances. In addition, if principal
payments on one or more classes of certificates of a series are made in a
specified order of priority, any related credit support may be exhausted before
the principal of the later-paid classes of certificates of that series have
been repaid in full.
The impact of losses and shortfalls experienced with respect to the
mortgage assets may fall primarily upon those classes of certificates having a
later right of payment.
If a form of credit support covers the certificates of more than one
series and losses on the related mortgage assets exceed the amount of the
credit support, it is possible that the holders of certificates of one (or
more) series will disproportionately benefit from that credit support, to the
detriment of the holders of certificates of one (or more) other series.
The amount of any applicable credit support supporting one or more classes
of certificates will be determined on the basis of criteria established by each
rating agency rating such classes of certificates based on an assumed level of
defaults, delinquencies and losses on the underlying mortgage assets and
certain other factors. However, we cannot assure you that the loss experience
on the related mortgage assets will not exceed such assumed levels. If the
losses on the related mortgage assets do exceed such assumed levels, the
holders of one or more classes of certificates will be required to bear such
additional losses.
PREPAYMENTS ON THE UNDERLYING MORTGAGE LOANS WILL AFFECT THE AVERAGE LIFE OF
YOUR CERTIFICATES, AND THE RATE AND TIMING OF THOSE PREPAYMENTS MAY BE HIGHLY
UNPREDICTABLE.
As a result of prepayments on the mortgage loans in the trust, the amount
and timing of distributions of principal and/or interest on the certificates of
the related series may be highly unpredictable. Prepayments on the mortgage
loans in the trust will result in a faster rate of principal payments on one or
more classes of the related series of certificates than if payments on those
mortgage loans were made as scheduled. Therefore, the prepayment experience on
the mortgage loans in the trust may affect the average life of one or more
classes of certificates of the related series.
The rate of principal payments on pools of mortgage loans varies among
pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax and legal factors. For example, if
prevailing interest rates fall significantly below the mortgage rates borne by
the mortgage loans included in the trust, principal prepayments on those
mortgage loans are likely
12
to be higher than if prevailing interest rates remain at or above the rates
borne by those mortgage loans. Conversely, if prevailing interest rates rise
significantly above the mortgage rates borne by the mortgage loans included in
the trust, then principal prepayments on those mortgage loans are likely to be
lower than if prevailing interest rates remain at or below the mortgage rates
borne by those mortgage loans.
We cannot assure you what as to the actual rate of prepayment on the
mortgage loans in the trust will be, or that the rate of prepayment will
conform to any model in any prospectus supplement. As a result, depending on
the anticipated rate of prepayment for the mortgage loans in the trust, the
retirement of any class of certificates of the related series could occur
significantly earlier or later, and its average life could be significantly
shorter or longer, than expected.
The extent to which prepayments on the mortgage loans in trust ultimately
affect the average life of any class of certificates of the related series will
depend on the terms and provisions of the certificates. A class of certificates
may provide that on any distribution date the holders of the certificates are
entitled to a pro rata share of the prepayments on the mortgage loans in the
trust fund that are distributable on that date.
A class of certificates that entitles the holders to a disproportionately
large share of the prepayments on the mortgage loans in the trust increases the
likelihood of early retirement of that class if the rate of prepayment is
relatively fast. This type of early retirement risk is sometimes referred to as
"call risk."
A class of certificates that entitles its holders to a disproportionately
small share of the prepayments on the mortgage loans in the trust increases the
likelihood of an extended average life of that class if the rate of prepayment
is relatively slow. This type of prolonged retirement risk is sometimes
referred to as "extension risk."
As described in the prospectus supplement, the respective entitlements of
the various classes of certificate-holders of any series to receive payments
(and, in particular, prepayments) of principal of the mortgage loans in the
trust may vary based on the occurrence of certain events (e.g., the retirement
of one or more classes of certificates of that series) or subject to certain
contingencies (e.g., prepayment and default rates with respect to those
mortgage loans).
A series of certificates may include one or more controlled amortization
classes, which will entitle the holders to receive principal distributions
according to a specified principal payment schedule. Although prepayment risk
cannot be eliminated entirely for any class of certificates, a controlled
amortization class will generally provide a relatively stable cash flow so long
as the actual rate of prepayment on the mortgage loans in the trust remains
relatively constant at the rate of prepayment used to establish the specific
principal payment schedule for the certificates. Prepayment risk concerning a
given mortgage asset pool does not disappear, however, and the stability
afforded to a controlled amortization class comes at the expense of one or more
companion classes of the same series.
As described in the prospectus supplement, a companion class may entitle
the holders to a disproportionately large share of prepayments on the mortgage
loans in the trust when the rate of prepayment is relatively fast, and/or may
entitle the holders to a disproportionately small share of prepayments on the
mortgage loans in the trust when the rate of prepayment is relatively slow. A
companion class absorbs some (but not all) of the call risk and/or extension
risk that would otherwise belong to the related controlled amortization class
if all payments of principal of the mortgage loans in the trust were allocated
on a pro rata basis.
CERTIFICATES PURCHASED AT A PREMIUM OR A DISCOUNT WILL BE SENSITIVE TO THE RATE
OF PRINCIPAL PAYMENT.
A series of certificates may include one or more classes offered at a
premium or discount. Yields on those classes of certificates will be sensitive,
and in some cases extremely sensitive, to prepayments on the mortgage loans in
the trust fund. If the amount of interest payable with respect to a class is
disproportionately large as compared to the amount of principal, as with
certain classes
13
of stripped interest certificates, a holder might fail to recover its original
investment under some prepayment scenarios. The yield to maturity of any class
of certificates may vary from the anticipated yield due to the degree to which
the certificates are purchased at a discount or premium and the amount and
timing of distributions.
You should consider, in the case of any certificate purchased at a
discount, the risk that a slower than anticipated rate of principal payments on
the mortgage loans could result in an actual yield to such investor that is
lower than the anticipated yield. In the case of any certificate purchased at a
premium, you should consider the risk that a faster than anticipated rate of
principal payments could result in an actual yield to such investor that is
lower than the anticipated yield.
THE NATURE OF RATINGS ARE LIMITED AND WILL NOT GUARANTEE THAT YOU WILL RECEIVE
ANY PROJECTED RETURN ON YOUR CERTIFICATES.
Any rating assigned by a rating agency to a class of certificates will
reflect only its assessment of the likelihood that holders of the certificates
will receive payments to which the certificateholders are entitled under the
related pooling and servicing agreement. Such rating will not constitute an
assessment of the likelihood that--
o principal prepayments on the related mortgage loans will be made;
o the degree to which the rate of such prepayments might differ from that
originally anticipated; or
o the likelihood of early optional termination of the trust.
Any rating will not address the possibility that prepayment of the
mortgage loans at a higher or lower rate than anticipated by an investor may
cause such investor to experience a lower than anticipated yield or that an
investor purchasing a certificate at a significant premium might fail to
recover its initial investment under certain prepayment scenarios. Therefore, a
rating assigned by a rating agency does not guarantee or ensure the realization
of any anticipated yield on a class of certificates.
The amount, type and nature of credit support given a series of
certificates will be determined on the basis of criteria established by each
rating agency rating classes of the certificates of such series. Those criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage
loans in a larger group. There can be no assurance that the historical data
supporting any such actuarial analysis will accurately reflect future
experience, or that the data derived from a large pool of mortgage loans will
accurately predict the delinquency, foreclosure or loss experience of any
particular pool of mortgage loans. In other cases, such criteria may be based
upon determinations of the values of the properties that provide security for
the mortgage loans. However, we cannot assure you that those values will not
decline in the future. As a result, the credit support required in respect of
the certificates of any series may be insufficient to fully protect the holders
of such certificates from losses on the related mortgage asset pool.
CERTAIN FACTORS AFFECTING DELINQUENCY, FORECLOSURE AND LOSS OF THE MORTGAGE
LOANS.
Mortgage loans made on the security of multifamily or commercial property
may have a greater likelihood of delinquency and foreclosure, and a greater
likelihood of loss than loans made on the security of an owner-occupied
single-family property. The ability of a borrower to repay a loan secured by an
income-producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent income
or assets of the borrower. Therefore, the value of an income-producing property
is directly related to the net operating income derived from such property.
If the net operating income of the property is reduced (for example, if
rental or occupancy rates decline or real estate tax rates or other operating
expenses increase), the borrower's ability to repay the loan may be impaired. A
number of the mortgage loans may be secured by liens on owner-occupied
properties or on properties leased to a single tenant or in which only a few
tenants
14
produce a material amount of the rental income. As the primary component of the
net operating income of a property, rental income (and maintenance payments
from tenant stockholders of a Cooperative) and the value of any property are
subject to the vagaries of the applicable real estate market and/or business
climate. Properties typically leased, occupied or used on a short-term basis,
such as health care-related facilities, hotels and motels, and mini-warehouse
and self-storage facilities, tend to be affected more rapidly by changes in
market or business conditions than do properties leased, occupied or used for
longer periods, such as (typically) warehouses, retail stores, office buildings
and industrial plants. Commercial Properties may be secured by owner-occupied
properties or properties leased to a single tenant. Therefore, a decline in the
financial condition of the borrower or a single tenant may have a
disproportionately greater effect on the net operating income from such
properties than would be the case with respect to properties with multiple
tenants.
Changes in the expense components of the net operating income of a
property due to the general economic climate or economic conditions in a
locality or industry segment, such as (1) increases in interest rates, real
estate and personal property tax rates and other operating expenses including
energy costs, (2) changes in governmental rules, regulations and fiscal
policies, including environmental legislation, and (3) acts of God may also
affect the net operating income and the value of the property and the risk of
default on the related mortgage loan. In some cases leases of properties may
provide that the lessee, rather than the mortgagor, is responsible for payment
of certain of these expenses. However, because leases are subject to default
risks as well as when a tenant's income is insufficient to cover its rent and
operating expenses, the existence of such "net of expense" provisions will only
temper, not eliminate, the impact of expense increases on the performance of
the related mortgage loan.
Additional considerations may be presented by the type and use of a
particular property. For instance, properties that operate as hospitals and
nursing homes are subject to significant governmental regulation of the
ownership, operation, maintenance and financing of health care institutions.
Hotel, motel and restaurant properties are often operated pursuant to
franchise, management or operating agreements that may be terminable by the
franchisor or operator. The transferability of a hotel's or restaurant's
operating, liquor and other licenses upon a transfer of the hotel or the
restaurant, whether through purchase or foreclosure, is subject to local law
requirements.
In addition, the concentration of default, foreclosure and loss risks in
mortgage loans in the trust will generally be greater than for pools of
single-family loans because mortgage loans in the trust generally will consist
of a smaller number of higher balance loans than would a pool of single-family
loans of comparable aggregate unpaid principal balance.
Limited Recourse Nature of the Mortgage Loans May Make Recovery Difficult
in the Event that a Mortgage Loan Defaults. We anticipate that some or all of
the mortgage loans included in any trust fund will be nonrecourse loans or
loans for which recourse may be restricted or unenforceable. In this type of
mortgage loan, recourse in the event of borrower default will be limited to the
specific real property and other assets that were pledged to secure the
mortgage loan. However, even with respect to those mortgage loans that provide
for recourse against the borrower and its assets, we cannot assure you that
enforcement of such recourse provisions will be practicable, or that the assets
of the borrower will be sufficient to permit a recovery concerning a defaulted
mortgage loan in excess of the liquidation value of the related property.
Cross-Collateralization Provisions May Have Limitations on Their
Enforceability. A mortgage pool may include groups of mortgage loans which are
cross-collateralized and cross-defaulted. These arrangements are designed
primarily to ensure that all of the collateral pledged to secure the respective
mortgage loans in a cross-collateralized group. Cash flows generated on these
type of mortgage loans are available to support debt service on, and ultimate
repayment of, the total indebtedness. These arrangements seek to reduce the
risk that the inability of one or more of the mortgaged properties securing any
such group of mortgage loans to generate net operating income sufficient to pay
debt service will result in defaults and ultimate losses.
15
If the properties securing a group of mortgage loans which are
cross-collateralized are not all owned by the same entity, creditors of one or
more of the related borrowers could challenge the cross-collateralization
arrangement as a fraudulent conveyance. Under federal and state fraudulent
conveyance statutes, the incurring of an obligation or the transfer of property
by a person will be subject to avoidance under certain circumstances if the
person did not receive fair consideration or reasonably equivalent value in
exchange for such obligation or transfer and was then insolvent, was rendered
insolvent by such obligation or transfer or had unreasonably small capital for
its business. A creditor seeking to enforce remedies against a property subject
to such cross-collateralization to repay such creditor's claim against the
related borrower could assert that--
o such borrower was insolvent at the time the cross-collateralized
mortgage loans were made; and
o such borrower did not, when it allowed its property to be encumbered by
a lien securing the indebtedness represented by the other mortgage loans
in the group of cross-collateralized mortgage loans, receive fair
consideration or reasonably equivalent value for, in effect,
"guaranteeing" the performance of the other borrowers.
Although the borrower making such "guarantee" will be receiving
"guarantees" from each of the other borrowers in return, we cannot assure you
that such exchanged "guarantees" would be found to constitute fair
consideration or be of reasonably equivalent value.
The cross-collateralized mortgage loans may be secured by mortgage liens
on properties located in different states. Because of various state laws
governing foreclosure or the exercise of a power of sale and because
foreclosure actions are usually brought in state court, and the courts of one
state cannot exercise jurisdiction over property in another state, it may be
necessary upon a default under any such mortgage loan to foreclose on the
related mortgaged properties in a particular order rather than simultaneously
in order to ensure that the lien of the related mortgages is not impaired or
released.
Increased Risk of Default Associated With Balloon Payments. Some of the
mortgage loans included in the trust may be nonamortizing or only partially
amortizing over their terms to maturity. These types of mortgage loans will
require substantial payments of principal and interest (that is, balloon
payments) at their stated maturity. These loans involve a greater likelihood of
default than self-amortizing loans because the ability of a borrower to make a
balloon payment typically will depend upon its ability either to refinance the
loan or to sell the related property. The ability of a borrower to accomplish
either of these goals will be affected by--
o the value of the related property;
o the level of available mortgage rates at the time of sale or
refinancing;
o the borrower's equity in the related property;
o the financial condition and operating history of the borrower and the
related property;
o tax laws;
o rent control laws (pertaining to certain residential properties);
o Medicaid and Medicare reimbursement rates (pertaining to hospitals and
nursing homes);
o prevailing general economic conditions; and
o the availability of credit for loans secured by multifamily or
commercial property.
Neither Banc of America Commercial Mortgage Inc. nor any of its affiliates
will be required to refinance any mortgage loan.
As specified in the prospectus supplement, the master servicer or the
special servicer will be permitted (within prescribed limits) to extend and
modify mortgage loans that are in default or as to which a payment default is
imminent. Although the master servicer or the special servicer generally will
be required to determine that any such extension or modification is reasonably
likely
16
to produce a greater recovery than liquidation, taking into account the time
value of money, we cannot assure you that any such extension or modification
will in fact increase the present value of receipts from or proceeds of the
affected mortgage loans.
The Lender Under a Mortgage Loan May Have Difficulty Collecting Rents Upon
the Default and/or Bankruptcy of the Related Borrower. Each mortgage loan
included in the trust secured by property that is subject to leases typically
will be secured by an assignment of leases and rents. Under such an assignment,
the mortgagor assigns to the mortgagee its right, title and interest as lessor
under the leases of the related property, and the income derived, as further
security for the related mortgage loan, while retaining a license to collect
rents for so long as there is no default. If the borrower defaults, the license
terminates and the lender is entitled to collect rents. Some state laws may
require that the lender take possession of the property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect
of the borrower, the lender's ability to collect the rents may be adversely
affected.
The Enforceability of Due-on-Sale and Debt-Acceleration Clauses May Be
Limited in Certain Situations. Mortgages may contain a due-on-sale clause,
which permits the lender to accelerate the maturity of the mortgage loan if the
borrower sells, transfers or conveys the related property or its interest in
the property. Mortgages also may include a debt-acceleration clause, which
permits the lender to accelerate the debt upon a monetary or nonmonetary
default of the mortgagor. Such clauses are generally enforceable subject to
certain exceptions. The courts of all states will enforce clauses providing for
acceleration in the event of a material payment default. The equity courts of
any state, however, may refuse the foreclosure of a mortgage or deed of trust
when an acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable.
Adverse Environmental Conditions May Subject a Mortgage Loan to Additional
Risk. Under the laws of certain states, contamination of real property may give
rise to a lien on the property to assure the costs of cleanup. In several
states, such a lien has priority over an existing mortgage lien on such
property. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, a lender may be liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances at a
property, if agents or employees of the lender have become sufficiently
involved in the operations of the borrower, regardless of whether the
environmental damage or threat was caused by the borrower or a prior owner. A
lender also risks such liability on foreclosure of the mortgage.
Certain Special Hazard Losses May Subject Your Certificates to an
Increased Risk of Loss. Unless otherwise specified in a prospectus supplement,
the master servicer and special servicer for the trust will be required to
cause the borrower on each mortgage loan in the trust to maintain such
insurance coverage in respect of the property as is required under the related
mortgage, including hazard insurance. As described in the prospectus
supplement, the master servicer and the special servicer may satisfy its
obligation to cause hazard insurance to be maintained with respect to any
property through acquisition of a blanket policy.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the properties will be underwritten by different
insurers under different state laws in accordance with different applicable
state forms, and therefore will not contain identical terms and conditions,
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water- related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry
rot, vermin, domestic animals and certain other kinds of risks. Unless the
mortgage specifically requires the mortgagor to insure against physical damage
arising from such causes, then, to the extent any consequent losses are not
covered by credit support, such losses may be borne, at least in part, by the
holders of one or more classes of certificates of the related series.
17
INCLUSION OF DELINQUENT MORTGAGE LOANS IN A MORTGAGE ASSET POOL.
If provided in the prospectus supplement, the trust fund for a particular
series of certificates may include mortgage loans that are past due. As
specified in the related prospectus supplement, the servicing of such mortgage
loans will be performed by the special servicer. The same entity may act as
both master servicer and special servicer. Credit support provided with respect
to a particular series of certificates may not cover all losses related to such
delinquent mortgage loans, and investors should consider the risk that the
inclusion of such mortgage loans in the trust fund may adversely affect the
rate of defaults and prepayments concerning the subject mortgage asset pool and
the yield on the certificates of such series.
PROSPECTUS SUPPLEMENT
To the extent appropriate, the prospectus supplement relating to each
series of offered certificates will contain--
o a description of the class or classes of such offered certificates,
including the payment provisions with respect to each such class, the
aggregate principal amount (if any) of each such class, the rate at which
interest accrues from time to time (if at all), with respect to each such
class or the method of determining such rate, and whether interest with
respect to each such class will accrue from time to time on its aggregate
principal amount (if any) or on a specified notional amount (if at all);
o information with respect to any other classes of certificates of the
same series;
o the respective dates on which distributions are to be made;
o information as to the assets, including the mortgage assets,
constituting the related trust fund;
o the circumstances, if any, under which the related trust fund may be
subject to early termination;
o additional information with respect to the method of distribution of
such offered certificates;
o whether one or more REMIC elections will be made and the designation of
the "regular interests" and "residual interests" in each REMIC to be
created and the identity of the person responsible for the various
tax-related duties in respect of each REMIC to be created;
o the initial percentage ownership interest in the related trust fund to
be evidenced by each class of certificates of such series;
o information concerning the trustee of the related trust fund;
o if the related trust fund includes mortgage loans, information
concerning the master servicer and any special servicer of such mortgage
loans and the circumstances under which all or a portion, as specified,
of the servicing of a mortgage loan would transfer from the master
servicer to the special servicer;
o information as to the nature and extent of subordination of any class of
certificates of such series, including a class of offered certificates;
and
o whether such offered certificates will be initially issued in definitive
or book-entry form.
CAPITALIZED TERMS USED IN THIS PROSPECTUS
From time to time we use capitalized terms in this prospectus. Each of
those capitalized terms will have the meaning assigned to it in the "Glossary"
attached to this prospectus.
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DESCRIPTION OF THE TRUST FUNDS
GENERAL
The primary assets of each trust fund will consist of mortgage assets
which will include--
o various types of multifamily or commercial mortgage loans;
o mortgage participations, pass-through certificates or other
mortgage-backed securities that evidence interests in, or that are
secured by pledges of, one or more of various types of multifamily or
commercial mortgage loans; or
o a combination of such mortgage loans and mortgage backed securities.
We will establish each trust fund and select each mortgage asset. We will
purchase mortgage assets to be included in the trust fund and select each
mortgage asset from the Mortgage Asset Seller who may not have originated the
mortgage asset or issued the MBS and may be our affiliate.
We will not insure or guaranty the mortgage assets nor will 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
(referred to in this prospectus as mortgage notes) notes secured by mortgages,
deeds of trust or similar security instruments (referred to in this prospectus
as mortgages) that create first or junior liens on fee or leasehold estates in
properties consisting of--
o residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or garden
apartment buildings or other residential structures; or
o office buildings, retail stores and establishments, hotels or motels,
nursing homes, hospitals or other health care-related facilities,
recreational vehicle and mobile home parks, warehouse facilities,
mini-warehouse facilities, self-storage facilities, industrial plants,
parking lots, entertainment or sports arenas, restaurants, marinas, mixed
use or various other types of income-producing properties or unimproved
land.
These multifamily properties may include mixed commercial and residential
structures and apartment buildings owned by private cooperative housing
corporations. However, no one of the following types of commercial properties
will represent security for a material concentration of the mortgage loans in
any trust fund, based on principal balance at the time such trust fund is
formed: (1) restaurants; (2) entertainment or sports arenas; (3) marinas; or
(4) nursing homes, hospitals or other health care-related facilities. Unless
otherwise specified in the related prospectus supplement, each mortgage will
create a first priority mortgage lien on a borrower's fee estate in a mortgaged
property. If a mortgage creates a lien on a borrower's leasehold estate in a
property, then, unless otherwise specified in the related prospectus
supplement, the term of any such leasehold will exceed the term of the mortgage
note by at least ten years. Unless otherwise specified in the related
prospectus supplement, each mortgage loan will have been originated by a person
other than us; however, such person may be or may have been our affiliate.
If so provided in the related prospectus supplement, mortgage assets for a
series of certificates may include mortgage loans secured by junior liens, and
the loans secured by the related senior liens may not be included in the
mortgage pool. The primary risk to holders of mortgage loans secured by junior
liens is the possibility that adequate funds will not be received in connection
with a foreclosure of the related senior liens to satisfy fully both the senior
liens and the mortgage loan. In the event that a holder of a senior lien
forecloses on a mortgaged property, the proceeds of the foreclosure or similar
sale will be applied first to the payment of court costs and fees in connection
19
with the foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any
other sums due and owing to the holder of the senior liens. The claims of the
holders of the senior liens will be satisfied in full out of proceeds of the
liquidation of the related mortgaged property, if such proceeds are sufficient,
before the trust fund as holder of the junior lien receives any payments in
respect of the mortgage loan. If the master servicer were to foreclose on any
mortgage loan, it would do so subject to any related senior liens. In order for
the debt related to such mortgage loan to be paid in full at such sale, a
bidder at the foreclosure sale of such mortgage loan would have to bid an
amount sufficient to pay off all sums due under the mortgage loan and any
senior liens or purchase the mortgaged property subject to such senior liens.
In the event that such proceeds from a foreclosure or similar sale of the
related mortgaged property are insufficient to satisfy all senior liens and the
mortgage loan in the aggregate, the trust fund, as the holder of the junior
lien, and, accordingly, holders of one or more classes of the certificates of
the related series bear--
o the risk of delay in distributions while a deficiency judgment against
the borrower is obtained; and
o the risk of loss if the deficiency judgment is not obtained and
satisfied. Moreover, deficiency judgments may not be available in certain
jurisdictions, or the particular mortgage loan may be a nonrecourse loan,
which means that, absent special facts, recourse in the case of default
will be limited to the mortgaged property and such other assets, if any,
that were pledged to secure repayment of the mortgage loan.
If so specified in the related prospectus supplement, the mortgage assets
for a particular series of certificates may include mortgage loans that are
delinquent as of the date such certificates are issued. In that case, the
related prospectus supplement will set forth, as to each such mortgage loan,
available information as to the period of such delinquency, any forbearance
arrangement then in effect, the condition of the related mortgaged property and
the ability of the mortgaged property to generate income to service the
mortgage debt.
Default and Loss Considerations with Respect to the Mortgage
Loans. Mortgage loans secured by liens on income-producing properties are
substantially different from loans made on the security of owner-occupied
single-family homes. The repayment of a loan secured by a lien on an
income-producing property is typically dependent upon the successful operation
of such property (that is, its ability to generate income). Moreover, as noted
above, some or all of the mortgage loans included in a particular trust fund
may be nonrecourse loans.
Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important factor in evaluating the
likelihood of default on such a loan. The Net Operating Income of a mortgaged
property will generally fluctuate over time and may or may not be sufficient to
cover debt service on the related mortgage loan at any given time. As the
primary source of the operating revenues of a nonowner occupied,
income-producing property, rental income (and, with respect to a mortgage loan
secured by a cooperative apartment building, maintenance payments from
tenant-stockholders of a Cooperative) may be affected by the condition of the
applicable real estate market and/or area economy. In addition, properties
typically leased, occupied or used on a short-term basis, such as certain
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in market
or business conditions than do properties typically leased for longer periods,
such as warehouses, retail stores, office buildings and industrial plants.
Commercial Properties may be owner-occupied or leased to a small number of
tenants. Thus, the Net Operating Income of such a mortgaged property may depend
substantially on the financial condition of the borrower or a tenant, and
mortgage loans secured by liens on such properties may pose a greater
likelihood of default and loss than loans secured by liens on Multifamily
Properties or on multi-tenant Commercial Properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
20
fiscal policies, may also affect the likelihood 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. However,
the existence of such "net of expense" provisions will result in stable Net
Operating Income to the borrower/landlord only to the extent that the lessee is
able to absorb operating expense increases while continuing to make rent
payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a
factor in evaluating the likelihood of loss if a property must be liquidated
following a default. The lower the Loan-to-Value Ratio, the greater the
percentage of the borrower's equity in a mortgaged property, and thus (a) the
greater the incentive of the borrower to perform under the terms of the related
mortgage loan (in order to protect such equity) and (b) the greater the cushion
provided to the lender against loss on liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure
of the likelihood of liquidation loss in a pool of mortgage loans. For example,
the value of a mortgaged property as of the date of initial issuance of the
related series of certificates may be less than the value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
certain factors including changes in economic conditions and the real estate
market. Moreover, even when current, an appraisal is not necessarily a reliable
estimate of value. Appraised values of income-producing properties are
generally based on--
o the market comparison method (recent resale value of comparable
properties at the date of the appraisal), the cost replacement method
(the cost of replacing the property at such date);
o the income capitalization method (a projection of value based upon the
property's projected net cash flow); and
o or upon a selection from or interpolation of the values derived from
such methods.
Each of these appraisal methods can present analytical difficulties. It is
often difficult to find truly comparable properties that have recently been
sold; the replacement cost of a property may have little to do with its current
market value; and income capitalization is inherently based on inexact
projections of income and expense and the selection of an appropriate
capitalization rate and discount rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate
determination of value and, correspondingly, a reliable analysis of the
likelihood of default and loss, is even more difficult.
Although there may be multiple methods for determining the value of a
mortgaged property, value will in all cases be affected by property
performance. As a result, if a mortgage loan defaults because the income
generated by the related mortgaged property is insufficient to cover operating
costs and expenses and pay debt service, then the value of the mortgaged
property will reflect that and a liquidation loss may occur.
While we believe that the foregoing considerations are important factors
that generally distinguish loans secured by liens on income-producing real
estate from single-family mortgage loans, there can be no assurance that all of
such factors will in fact have been prudently considered by the originators of
the mortgage loans, or that, for a particular mortgage loan, they are complete
or relevant. See "Risk Factors--Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage Loans--General" and "--Certain Factors
Affecting Delinquency, Foreclosure and Loss of the Mortgage Loans--Increased
Risk of Default Associated With Balloon Payments".
Payment Provisions of the Mortgage Loans. All of the mortgage loans will
(1) have had original terms to maturity of not more than 40 years and (2)
provide for scheduled payments of principal, interest or both, to be made on
specified dates that occur monthly, quarterly, semi-annually or annually. A
mortgage loan may--
o provide for no accrual of interest or for accrual of interest at an
interest rate that is fixed over its term or that adjusts from time to
time, or that may be converted at the borrower's election from an
adjustable to a fixed Mortgage Rate, or from a fixed to an adjustable
Mortgage Rate;
21
o provide for level payments to maturity or for payments that adjust from
time to time to accommodate changes in its interest rate or to reflect
the occurrence of certain events, and may permit negative amortization;
o may be fully amortizing or may be partially amortizing or nonamortizing,
with a balloon payment due on its stated maturity date; and
o may prohibit over its term or for a certain period prepayments and/or
require payment of a premium or a yield maintenance payment in connection
with certain prepayments, 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, as described in the
related prospectus supplement. See "Certain Legal Aspects of the Mortgage
Loans--Default Interest and Limitations on Prepayments" in the prospectus
regarding the enforceability of prepayment premiums and yield maintenance
charges.
Mortgage Loan Information in Prospectus Supplements. Each prospectus
supplement will contain certain information pertaining to the mortgage loans in
the related trust fund, which, to the extent then applicable, will generally
include the following:
o the aggregate outstanding principal balance and the largest, smallest
and average outstanding principal balance of the mortgage loans;
o the type or types of property that provide security for repayment of the
mortgage loans;
o the earliest and latest origination date and maturity date of the
mortgage loans;
o the original and remaining terms to maturity of the mortgage loans, or
the respective ranges of such terms to maturity, and the weighted average
original and remaining terms to maturity of the mortgage loans;
o the Loan-to-Value Ratios of the mortgage loans (either at origination or
as of a more recent date), or the range of the Loan-to-Value-Ratios, and
the weighted average of such Loan-to-Value Ratios;
o the Mortgage Rates borne by the mortgage loans, or the range of the
Mortgage Rate, and the weighted average Mortgage Rate borne by the
mortgage loans;
o with respect to mortgage loans with adjustable Mortgage Rates, the index
or indices upon which such adjustments are based, the adjustment dates,
the range of gross margins and the weighted average gross margin, and any
limits on Mortgage Rate adjustments at the time of any adjustment and
over the life of such mortgage loan;
o information regarding the payment characteristics of the mortgage loans,
including, without limitation, balloon payment and other amortization
provisions, Lock-out Periods and Prepayment Premiums;
o the Debt Service Coverage Ratios of the mortgage loans (either at
origination or as of a more recent date), or the range Debt Service
Coverage Ratios, and the weighted average of such Debt Service Coverage
Ratios, and
o 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 us that
pertains to the provisions of leases and the nature of tenants of the
mortgaged properties. If we are unable to provide the specific
information described above at the time any 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 their initial
issuance and will be filed as part of a Current Report on Form 8-K with
the Securities and Exchange Commission within fifteen days following
their issuance.
22
If any mortgage loan, or group of related mortgage loans, constitutes a
concentration of credit risk, financial statements or other financial
information with respect to the related mortgaged property or mortgaged
properties will be included in the related prospectus supplement.
If and to the extent available and relevant to an investment decision in
the offered certificates of the related series, information regarding the
prepayment experience of a master servicer's multifamily and/or commercial
mortgage loan servicing portfolio will be included in the related prospectus
supplement. However, many servicers do not maintain records regarding such
matters or, at least, not in a format that can be readily aggregated. In
addition, the relevant characteristics of a master servicer's servicing
portfolio may be so materially different from those of the related mortgage
asset pool that such prepayment experience would not be meaningful to an
investor. For example, differences in geographic dispersion, property type
and/or loan terms (e.g., mortgage rates, terms to maturity and/or prepayment
restrictions) between the two pools of loans could render the master servicer's
prepayment experience irrelevant. Because of the nature of the assets to be
serviced and administered by a special servicer, no comparable prepayment
information will be presented with respect to the special servicer's
multifamily and/or commercial mortgage loan servicing portfolio.
MBS
MBS may include (1) private-label (that is, not issued, insured or
guaranteed by the United States or any agency or instrumentality of the United
States) mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities or (2) certificates issued and/or insured or
guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association, the Governmental National Mortgage Association or the
Federal Agricultural Mortgage Corporation, 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 in this prospectus.
Except in the case of a pro rata mortgage participation in a single
mortgage loan or a pool of mortgage loans, each MBS included in a mortgage
asset pool: (a) either will (1) have been previously registered under the
Securities Act of 1933, as amended, (2) be exempt from such registration
requirements or (3) have been held for at least the holding period specified in
Rule 144(k) under the Securities Act of 1933, as amended; and (b) will have
been acquired (other than from us or any of our affiliates) in bona fide
secondary market transactions.
Any MBS will have been issued pursuant to a MBS agreement which is a
participation and servicing agreement, a pooling and servicing agreement, an
indenture or similar agreement. The issuer of the MBS and/or the servicer of
the underlying mortgage loans will be parties to the MBS agreement, generally
together with a 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 the offered certificates described in this
prospectus. Distributions in respect of the MBS will be made by the issuer of
the MBS, the servicer of the MBS, or the trustee of the MBS agreement or the
MBS trustee on the dates specified in the related prospectus supplement. The
issuer of the MBS 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 offered 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.
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The prospectus supplement for a series of certificates that evidence
interests in MBS will specify, to the extent available--
o the aggregate approximate initial and outstanding principal amount(s)
and type of the MBS to be included in the trust fund;
o the original and remaining term(s) to stated maturity of the MBS, if
applicable;
o the pass-through or bond rate(s) of the MBS or the formula for
determining such rate(s);
o the payment characteristics of the MBS;
o the issuer of the MBS, servicer of the MBS and trustee of the MBS, as
applicable, of each of the MBS;
o a description of the related credit support, if any;
o the circumstances under which the related underlying mortgage loans, or
the MBS themselves, may be purchased prior to their maturity;
o the terms on which mortgage loans may be substituted for those
originally underlying the MBS;
o the type of mortgage loans underlying the MBS and, to the extent
available 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
o the characteristics of any cash flow agreements that relate to the MBS.
CERTIFICATE ACCOUNTS
Each trust fund will include one or more accounts established and
maintained on behalf of the certificateholders into which all payments and
collections received or advanced with respect to the mortgage assets and other
assets in the trust fund will be deposited to the extent described in this
prospectus and in the related prospectus supplement. See "The Pooling and
Servicing Agreements-- Certificate Account".
CREDIT SUPPORT
If so provided in the prospectus supplement for a series of certificates,
partial or full protection against certain defaults and losses on the mortgage
assets in the related trust fund may be provided to one or more classes of
certificates of such series in the form of subordination of one or more other
classes of certificates of such series or by one or more other types of credit
support, such as a letter of credit, insurance policy, guarantee or reserve
fund, among others, or a combination of subordination and credit support. The
amount and types of credit support, the identity of the entity providing it (if
applicable) and related information with respect to each type of credit
support, if any, will be set forth in the prospectus supplement for a series of
certificates. See "Risk Factors-- Credit Support Limitations" and "Description
of Credit Support".
CASH FLOW AGREEMENTS
If so provided in the prospectus supplement for a series of certificates,
the related trust fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for such series will be
invested at a specified rate. The related trust fund may also include certain
other agreements, such as interest rate exchange agreements, interest rate cap
or floor agreements, or other agreements designed to reduce the effects of
interest rate fluctuations on the mortgage assets on one or more classes of
certificates. The principal terms of any such cash flow agreement, including,
without limitation, provisions relating to the timing, manner and amount of
payments and provisions relating to the termination of the cash flow agreement,
will be described in the related prospectus supplement. The related prospectus
supplement will also identify the obligor under any such cash flow agreement.
24
YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on any offered certificate will depend on the price paid by the
certificateholder, the pass-through rate of the certificate and the amount and
timing of distributions on the Certificate. See "Risk Factors--Effect of
Prepayments on Average Life of Certificates". The following discussion
contemplates a trust fund that consists solely of mortgage loans. While the
characteristics and behavior of mortgage loans underlying an MBS can generally
be expected to have the same effect on the yield to maturity and/or weighted
average life of a class of certificates as will the characteristics and
behavior of comparable mortgage loans, the effect may differ due to the payment
characteristics of the MBS. If a trust fund includes MBS, the related
prospectus supplement will discuss the effect, if any, that the payment
characteristics of the MBS may have on the yield to maturity and weighted
average lives of the offered certificates of the related series.
PASS-THROUGH RATE
The certificates of any class within a series may have a fixed, variable
or adjustable pass-through rate, which may or may not be based upon the
interest rates borne by the mortgage loans in the related trust fund.
The prospectus supplement with respect to any series of certificates will
specify the pass-through rate for each class of offered certificates of such
series or, in the case of a class of offered certificates with a variable or
adjustable pass-through rate, the method of determining the pass-through rate;
the effect, if any, of the prepayment of any mortgage loan on the pass-through
rate of one or more classes of offered certificates; and whether the
distributions of interest on the offered certificates of any class will be
dependent, in whole or in part, on the performance of any obligor under a cash
flow agreement.
PAYMENT DELAYS
With respect to any series of certificates, a period of time will elapse
between the date upon which payments on the mortgage loans in the related trust
fund are due and the Distribution Date on which such payments are passed
through to certificateholders. That delay will effectively reduce the yield
that would otherwise be produced if payments on such mortgage loans were
distributed to certificateholders on the date they were due.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full or in part is made on a mortgage loan,
the borrower is generally charged interest on the amount of such prepayment
only through the date of such prepayment, instead of through the Due Date for
the next succeeding scheduled payment. However, interest accrued on any series
of certificates and distributable on any Distribution Date will generally
correspond to interest accrued on the mortgage loans to their respective Due
Dates during the related Due Period. If a prepayment on any mortgage loan is
distributable to Certificateholders on a particular Distribution Date, but such
prepayment is not accompanied by interest 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 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 will be adversely affected. The prospectus
supplement for each series of certificates will describe the manner in which
any such shortfalls will be allocated among the classes of such certificates.
The related prospectus supplement will also describe any amounts available to
offset such shortfalls.
YIELD AND PREPAYMENT CONSIDERATIONS
A certificate's yield to maturity will be affected by the rate of
principal payments on the mortgage loans in the related trust fund and the
allocation the principal payments to reduce the
25
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 of the mortgage loans (which, in the
case of mortgage loans, may change periodically to accommodate adjustments to
the corresponding Mortgage Rates), the dates on which any balloon payments are
due, and the rate of principal prepayments (including for this purpose,
voluntary prepayments by borrowers and also prepayments resulting from
liquidations of mortgage loans due to defaults, casualties or condemnations
affecting the related mortgaged properties, or purchases of mortgage loans out
of the related trust fund). Because the rate of principal prepayments on the
mortgage loans in any trust fund will depend on future events and a variety of
factors (as described below), no assurance can be given as to such rate.
The extent to which the yield to maturity of a class of offered
certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and
to what degree, payments of principal on the mortgage loans in the related
trust fund are in turn distributed on such certificates (or, in the case of a
class of Stripped Interest Certificates, result in the reduction of the
notional amount of the Stripped Interest Certificates). An investor should
consider, in the case of any offered certificate purchased at a discount, the
risk that a slower than anticipated rate of principal payments on the mortgage
loans in the related trust fund could result in an actual yield to such
investor that is lower than the anticipated yield and, in the case of any
offered certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments on such mortgage loans could result in
an actual yield to such investor that is lower than the anticipated yield. In
addition, if an investor purchases an offered certificate at a discount (or
premium), and principal payments are made in reduction of the principal balance
or notional amount of such investor's offered certificates at a rate slower (or
faster) than the rate anticipated by the investor during any particular period,
any consequent adverse effects on such investor's yield would not be fully
offset by a subsequent increase (or decrease) in the rate of principal
payments.
In general, the notional amount of a class of Stripped Interest
Certificates will either--
o be based on the principal balances of some or all of the mortgage assets
in the related trust fund; or
o equal the Certificate Balances of one or more of the other classes of
certificates of the same series.
Accordingly, the yield on such Stripped Interest Certificates will be
inversely related to the rate at which payments and other collections of
principal are received on such mortgage assets or distributions are made in
reduction of the Certificate Balances of such classes of certificates, as the
case may be.
Consistent with the foregoing, if a class of certificates of any series
consists of Stripped Interest Certificates or Stripped Principal Certificates,
a lower than anticipated rate of principal prepayments on the mortgage loans in
the related trust fund will negatively affect the yield to investors in
Stripped Principal Certificates, and a higher than anticipated rate of
principal prepayments on such mortgage loans will negatively affect the yield
to investors in Stripped Interest Certificates. If the offered certificates of
a series include any such certificates, the related prospectus supplement will
include a table showing the effect of various constant assumed levels of
prepayment on yields on such certificates. Such tables will be intended to
illustrate the sensitivity of yields to various constant assumed prepayment
rates and will not be intended to predict, or to provide information that will
enable investors to predict, yields or prepayment rates.
The extent of prepayments of principal of the mortgage loans in any trust
fund may be affected by a number of factors, including, without limitation--
o the availability of mortgage credit, the relative economic vitality of
the area in which the mortgaged properties are located;
o the quality of management of the mortgaged properties;
26
o the servicing of the mortgage loans; and
o possible changes in tax laws and other opportunities for investment.
In general, those factors which increase the attractiveness of selling a
mortgaged property or refinancing a mortgage loan or which enhance a borrower's
ability to do so, as well as those factors which increase the likelihood of
default under a mortgage loan, would be expected to cause the rate of
prepayment in respect of any mortgage asset pool to accelerate. In contrast,
those factors having an opposite effect would be expected to cause the rate of
prepayment of any mortgage asset pool to slow.
The rate of principal payments on the mortgage loans in any trust fund may
also be affected by the existence of Lock-out Periods and requirements that
principal prepayments be accompanied by prepayment premiums, and by the extent
to which such provisions may be practicably enforced. To the extent
enforceable, such provisions could constitute either an absolute prohibition
(in the case of a Lock-out Period) or a disincentive (in the case of a
Prepayment Premium) to a borrower's voluntarily prepaying its mortgage loan,
thereby slowing the rate of prepayments.
The rate of prepayment on a pool of mortgage loans is likely to be
affected by prevailing market interest rates for mortgage loans of a comparable
type, term and risk level. When the prevailing market interest rate is below a
mortgage coupon, a borrower may have an increased incentive to refinance its
mortgage loan. Even in the case of adjustable rate mortgage loans, as
prevailing market interest rates decline, and without regard to whether the
Mortgage Rates on such adjustable rate mortgage loans decline in a manner
consistent with the prevailing market interest rates, the related borrowers may
have an increased incentive to refinance for purposes of either (1) converting
to a fixed rate loan and thereby "locking in" such rate or (2) taking advantage
of a different index, margin or rate cap or floor on another adjustable rate
mortgage loan. Therefore, as prevailing market interest rates decline,
prepayment speeds would be expected to accelerate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
mortgaged properties in order to realize their equity in the mortgaged
properties, 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. We 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. Unless otherwise
specified in the related prospectus supplement, weighted average life refers to
the average amount of time that will elapse from the date of issuance of an
instrument until each dollar allocable as principal of such instrument is
repaid to the investor.
The weighted average life and maturity of a class of certificates of any
series will be influenced by the rate at which principal on the related
mortgage loans, whether in the form of scheduled amortization or prepayments
(for this purpose, the term "prepayment" includes voluntary prepayments by
borrowers and also prepayments resulting from liquidations of mortgage loans
due to default, casualties or condemnations affecting the related mortgaged
properties and purchases of mortgage loans out of the related trust fund), is
paid to such class. Prepayment rates on loans are commonly measured relative to
a prepayment standard or model, such as the CPR prepayment model or the SPA
prepayment model. CPR represents an assumed constant rate of prepayment each
month (expressed as an annual percentage) relative to the then outstanding
principal balance of a pool of mortgage loans for the life of such loans. SPA
represents an assumed variable rate of prepayment each month (expressed as an
annual percentage) relative to the then outstanding
27
principal balance of a pool of mortgage loans, with different prepayment
assumptions often expressed as percentages of SPA. For example, a prepayment
assumption of 100% of SPA assumes prepayment rates of 0.2% per annum of the
then outstanding principal balance of such loans in the first month of the life
of the loans and an additional 0.2% per annum in each month thereafter until
the thirtieth month. Beginning in the thirtieth month, and in each month
thereafter during the life of the loans, 100% of SPA assumes a constant
prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical
prepayment experience for single-family mortgage loans. Thus, it is unlikely
that the prepayment experience of the mortgage loans included in any trust fund
will conform to any particular level of CPR or SPA.
The prospectus supplement with respect to each series of certificates will
contain tables, if applicable, setting forth the projected weighted average
life of each class of offered certificates of such series with a Certificate
Balance, and the percentage of the initial Certificate Balance of each such
class that would be outstanding on specified Distribution Dates, based on the
assumptions stated in such prospectus supplement, including assumptions that
prepayments on the related mortgage loans are made at rates corresponding to
various percentages of CPR or SPA, or at such other rates specified in such
prospectus supplement. Such tables and assumptions will illustrate the
sensitivity of the weighted average lives of the certificates to various
assumed prepayment rates and will not be intended to predict, or to provide
information that will enable investors to predict, the actual weighted average
lives of the certificates.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Some or all of the mortgage
loans included in a particular trust fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related mortgaged property, there is a possibility that mortgage loans that
require balloon payments may default at maturity, or that the maturity of such
a mortgage loan may be extended in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the borrower or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted mortgage loans,
the master servicer or the special servicer, to the extent and under the
circumstances set forth in this prospectus 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.
Negative Amortization. The weighted average life of a class of
certificates can be affected by mortgage loans that permit negative
amortization to occur (that is, mortgage loans that provide for the current
payment of interest calculated at a rate lower than the rate at which interest
accrues, with the unpaid portion of such interest being added to the related
principal balance). Negative amortization on one or more mortgage loans in any
trust fund may result in negative amortization on the offered certificates of
the related series. The related prospectus supplement will describe, if
applicable, the manner in which negative amortization in respect of the
mortgage loans in any trust fund is allocated among the respective classes of
certificates of the related series. The portion of any mortgage loan negative
amortization allocated to a class of certificates may result in a deferral of
some or all of the interest payable, which deferred interest may be added to
the Certificate Balance of the certificates. In addition, an adjustable rate
mortgage loan that permits negative amortization would be expected during a
period of increasing interest rates to amortize at a slower rate (and perhaps
not at all) than if interest rates were declining or were remaining constant.
Such slower rate of mortgage loan amortization would correspondingly be
reflected in a slower rate of amortization for one or more classes of
certificates of the related series. Accordingly, the weighted average lives
28
of mortgage loans that permit negative amortization (and that of the classes of
certificates to which any such negative amortization would be allocated or that
would bear the effects of a slower rate of amortization on such mortgage loans)
may increase as a result of such feature.
Negative amortization may occur in respect of an adjustable rate mortgage
loan that--
o limits the amount by which its scheduled payment may adjust in response
to a change in its Mortgage Rate;
o provides that its scheduled payment will adjust less frequently than its
Mortgage Rate; or
o provides for constant scheduled payments notwithstanding adjustments to
its Mortgage Rate.
Accordingly, during a period of declining interest rates, the scheduled
payment on such a mortgage loan may exceed the amount necessary to amortize the
loan fully over its remaining amortization schedule and pay interest at the
then applicable Mortgage Rate, thereby resulting in the accelerated
amortization of such mortgage loan. Any such acceleration in amortization of
its principal balance will shorten the weighted average life of such mortgage
loan and, correspondingly, the weighted average lives of those classes of
certificates entitled to a portion of the principal payments on such mortgage
loan.
The extent to which the yield on any offered certificate will be affected
by the inclusion in the related trust fund of mortgage loans that permit
negative amortization, will depend upon (1) whether such offered certificate
was purchased at a premium or a discount and (2) the extent to which the
payment characteristics of such mortgage loans delay or accelerate the
distributions of principal on such certificate (or, in the case of a Stripped
Interest Certificate, delay or accelerate the reduction of the notional amount
of a Stripped Interest Certificate). See "--Yield and Prepayment
Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the mortgage loans that are foreclosed in relation to the
number and principal amount of mortgage loans that are repaid in accordance
with their terms will affect the weighted average lives of those mortgage loans
and, accordingly, the weighted average lives of and yields on the certificates
of the related series. Servicing decisions made with respect to the mortgage
loans, including the use of payment plans prior to a demand for acceleration
and the restructuring of mortgage loans in bankruptcy proceedings or otherwise,
may also have an effect upon the payment patterns of particular mortgage loans
and thus the weighted average lives of and yields on the certificates of the
related series.
Losses and Shortfalls on the Mortgage Assets. The yield to holders of the
offered certificates of any series will directly depend on the extent to which
such holders are required to bear the effects of any losses or shortfalls in
collections arising out of defaults on the mortgage loans in the related trust
fund and the timing of such losses and shortfalls. In general, the earlier that
any such loss or shortfall occurs, the greater will be the negative effect on
yield for any class of certificates that is required to bear the effects of
such loss or shortfall.
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit support) will be allocated among
the respective classes of certificates of the related series in the priority
and manner, and subject to the limitations, specified in the related prospectus
supplement. As described in the related prospectus supplement, such allocations
may be effected by (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of certificates and/or (2)
establishing a priority of payments among such classes of certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the mortgage
loans in the related trust fund.
Additional Certificate Amortization. In addition to entitling the holders
to a specified portion (which may during specified periods range from none to
all) of the principal payments received on
29
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 from--
o amounts attributable to interest accrued but not currently distributable
on one or more classes of Accrual Certificates;
o Excess Funds; or
o any other amounts described in the related prospectus supplement.
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. The related prospectus supplement will discuss the relevant factors to
be considered in determining whether distributions of principal of any class of
certificates out of such sources is likely to have any material effect on the
rate at which such certificates are amortized and the consequent yield with
respect thereto.
THE DEPOSITOR
We are Banc of America Commercial Mortgage Inc., a Delaware corporation
and were organized on December 13, 1995 for the limited purpose of acquiring,
owning and transferring mortgage assets and selling interests in the mortgage
assets or bonds secured by the mortgage assets. We are a subsidiary of Bank of
America, N.A. We maintain our principal office at 214 North Tryon Street,
Charlotte, North Carolina 28255. Our telephone number is (704) 386-2400.
Unless otherwise noted in the related prospectus supplement, neither we
nor any of our affiliates will insure or guarantee distributions on the
certificates of any series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of certificates will represent the entire beneficial ownership
interest in the trust fund created pursuant to the related pooling and
servicing agreement. As described in the related prospectus supplement, the
certificates of each series, including the certificates of such series being
offered for sale, may consist of one or more classes of certificates that,
among other things:
o provide for the accrual of interest on the Certificate Balance or
Notional Amount at a fixed, variable or adjustable rate;
o constitute Senior Certificates or Subordinate Certificates;
o constitute Stripped Interest Certificates or Stripped Principal
Certificates;
o provide for distributions of interest or principal that commence only
after the occurrence of certain events, such as the retirement of one or
more other classes of certificates of such series;
o provide for distributions of principal to be made, from time to time or
for designated periods, at a rate that is faster (and, in some cases,
substantially faster) or slower (and, in some cases, substantially
slower) than the rate at which payments or other collections of principal
are received on the mortgage assets in the related trust fund;
o provide for distributions of principal to be made, subject to available
funds, based on a specified principal payment schedule or other
methodology; or
o provide for distributions based on collections on the mortgage assets in
the related trust fund attributable to Prepayment Premiums and Equity
Participations.
If so specified in the related prospectus supplement, a class of
certificates may have two or more component parts, each having characteristics
that are otherwise described in this prospectus as
30
being attributable to separate and distinct classes. For example, a class of
certificates may have a Certificate Balance on which it accrues interest at a
fixed, variable or adjustable rate. Such class of certificates may also have
certain characteristics attributable to Stripped Interest Certificates insofar
as it may also entitle the holders of Stripped Interest Certificates to
distributions of interest accrued on a Notional Amount at a different fixed,
variable or adjustable rate. In addition, a class of certificates may accrue
interest on one portion of its Certificate Balance at one fixed, variable or
adjustable rate and on another portion of its Certificate Balance at a
different fixed, variable or adjustable rate.
Each class of offered certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of Stripped Interest Certificates or REMIC Residual Certificates,
notional amounts or percentage interests, specified in the related prospectus
supplement. As provided in the related prospectus supplement, one or more
classes of offered certificates of any series may be issued in fully
registered, definitive form or may be offered in book-entry format through the
facilities of DTC. The offered certificates of each series (if issued in fully
registered definitive form) 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 with that transfer or exchange. Interests in a class of certificates
offered in book-entry format will be transferred on the book-entry records of
DTC and its participating organizations. If so specified in the related
prospectus supplement, arrangements may be made for clearance and settlement
through Clearstream Banking, societe anonyme, or the Euroclear System (in
Europe) if they are participants in DTC.
DISTRIBUTIONS
Distributions on the certificates of each series will be made on each
Distribution Date from the Available Distribution Amount for such series and
such Distribution Date. The particular components of the Available Distribution
Amount for any series and Distribution Date will be more specifically described
in the related prospectus supplement. Except as otherwise specified in the
related prospectus supplement, the Distribution Date for a series of
certificates will be the 11th day of each month (or, if any such 11th day is
not a business day, the next succeeding business day), commencing in the month
immediately following the month in which such series of certificates is issued.
Except as otherwise specified in the related prospectus supplement,
distributions on the certificates of each series (other than the final
distribution in retirement of any such certificate) will be made to the persons
in whose names such certificates are registered at the close of business on the
Record Date, and the amount of each distribution will be determined as of the
close of business on the date specified in the related prospectus supplement.
All distributions with respect to each class of certificates on each
Distribution Date will be allocated pro rata among the outstanding certificates
in such class in proportion to the respective percentage interests evidenced by
those certificates unless otherwise specified in the related prospectus
supplement. Payments will be made either by wire transfer in immediately
available funds to the account of a certificateholder at a bank or other entity
having appropriate facilities therefor, if such certificateholder has provided
the person required to make such payments with wiring instructions no later
than the related Record Date or such other date specified in the related
prospectus supplement (and, if so provided in the related prospectus
supplement, such certificate-holder holds certificates in the requisite amount
or denomination specified in the prospectus supplement), 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 issued in fully registered definitive form or in
book-entry format) 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 REMIC Residual
Certificates that have no pass-through rate) may
31
have a different pass-through rate, which in each case may be fixed, variable
or adjustable. The related prospectus supplement will specify the pass-through
rate or, in the case of a variable or adjustable pass-through rate, the method
for determining the pass-through rate, for each class of offered certificates.
Unless otherwise specified in the related prospectus supplement, interest on
the certificates of each series will be calculated on the basis of a 360-day
year consisting of twelve 30-day months.
Distributions of interest in respect of any class of certificates (other
than a class of Accrual Certificates, which will be entitled to distributions
of accrued interest commencing only on the Distribution Date or under the
circumstances specified in the related prospectus supplement, and other than
any class of Stripped Principal Certificates or REMIC Residual Certificates
that is not entitled to any distributions of interest) will be made on each
Distribution Date based on the Accrued Certificate Interest for such class and
such Distribution Date, subject to the sufficiency of that portion, if any, of
the Available Distribution Amount allocable to such class on such Distribution
Date. Prior to the time interest is distributable on any class of Accrual
Certificates, the amount of Accrued Certificate Interest otherwise
distributable on such class will be added to the Certificate Balance of such
Accrual Certificates on each Distribution Date or otherwise deferred as
described in the related prospectus supplement. 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. Reference
to a Notional Amount with respect to a class of Stripped Interest Certificates
is solely for convenience in making certain calculations and does not represent
the right to receive any distributions of principal. If so specified in the
related prospectus supplement, the amount of Accrued Certificate Interest that
is otherwise distributable on (or, in the case of Accrual Certificates, that
may otherwise be added to the Certificate Balance of) one or more classes of
the certificates of a series may be reduced to the extent that any Prepayment
Interest Shortfalls, as described under "Yield and Maturity
Considerations--Certain Shortfalls in Collections of Interest", exceed the
amount of any sums that are applied to offset the amount of such shortfalls.
The particular manner in which such shortfalls will be allocated among some or
all of the classes of certificates of that series will be specified in the
related prospectus supplement. The related prospectus supplement will also
describe the extent to which the amount of Accrued Certificate Interest that is
otherwise distributable on (or, in the case of Accrual Certificates, that may
otherwise be added to the Certificate Balance of) a class of offered
certificates may be reduced as a result of any other contingencies, including
delinquencies, losses and deferred interest on or in respect of the mortgage
assets in the related trust fund. Unless otherwise provided in the related
prospectus supplement, any reduction in the amount of Accrued Certificate
Interest otherwise distributable on a class of certificates by reason of the
allocation to such class of a portion of any deferred interest on or in respect
of the mortgage assets in the related trust fund will result in a corresponding
increase in the Certificate Balance of such class. See "Risk Factors--Effect of
Prepayments on Average Life of Certificates" and "--Effect of Prepayments on
Yield of Certificates" and "Yield and Maturity Considerations--Certain
Shortfalls in Collections of Interest".
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
Each class of certificates of each series (other than certain classes of
Stripped Interest Certificates and certain classes of REMIC Residual
Certificates) will have a Certificate Balance, which, at any time, will equal
the then maximum amount that the holders of certificates of such class will be
entitled to receive as principal out of the future cash flow on the mortgage
assets and other assets included in the related trust fund. The outstanding
Certificate Balance of a class of certificates will be reduced by distributions
of principal made from time to time and, if and to the extent so provided in
the related prospectus supplement, further by any losses incurred in respect of
the related mortgage assets allocated thereto from time to time. In turn, the
outstanding Certificate Balance of a class of certificates may be increased as
a result of any deferred interest on or in respect of the related mortgage
assets being allocated thereto from time to time, and will be increased, in the
case of a class of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, by the amount of any
Accrued Certificate Interest in respect of
32
such Accrual Certificate (reduced as described above). The initial aggregate
Certificate Balance of all classes of a series of certificates will not be
greater than the aggregate outstanding principal balance of the related
mortgage assets as of a specified date, 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
Controlled Amortization Classes may be made, subject to available funds, based
on a specified principal payment schedule. Distributions of principal with
respect to Companion Classes may be contingent on the specified principal
payment schedule for a Controlled Amortization Class of the same series and the
rate at which payments and other collections of principal on the mortgage
assets in the related trust fund are received. Unless otherwise specified in
the related prospectus supplement, distributions of principal of any class of
offered certificates will be made on a pro rata basis among all of the
certificates of such class.
DISTRIBUTIONS ON THE CERTIFICATES CONCERNING PREPAYMENT PREMIUMS OR CONCERNING
EQUITY PARTICIPATIONS
If so provided in the related prospectus supplement, Prepayment Premiums
or payments in respect of Equity Participations received on or in connection
with the mortgage assets in any trust fund will be distributed on each
Distribution Date to the holders of the class of certificates of the related
series entitled thereto in accordance with the provisions described in such
prospectus supplement. Alternatively, we or any of our affiliates may retain
such items or by any other specified person and/or may be excluded as trust
assets.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust fund (to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit support) will be allocated among
the respective classes of certificates of the related series in the priority
and manner, and subject to the limitations, specified in the related prospectus
supplement. As described in the related prospectus supplement, such allocations
may be effected by (1) a reduction in the entitlements to interest and/or the
Certificate Balances of one or more such classes of certificates and/or (2)
establishing a priority of payments among such classes of certificates. See
"Description of Credit Support".
ADVANCES IN RESPECT OF DELINQUENCIES
If and to the extent provided in the related prospectus supplement, if a
trust fund includes mortgage loans, the master servicer, the special servicer,
the trustee, any provider of credit support and/or any other specified person
may be obligated to advance, or have the option of advancing, on or before each
Distribution Date, from its or their own funds or from excess funds held in the
related Certificate Account that are not part of the Available Distribution
Amount for the related series of certificates for such Distribution Date, an
amount up to the aggregate of any payments of principal (other than the
principal portion of any balloon payments) and interest that were due on or in
respect of such mortgage loans during the related Due Period and were
delinquent on the related Determination Date.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of certificates entitled
thereto, rather than to guarantee or insure
33
against losses. Accordingly, all advances made out of a specific entity's own
funds will be reimbursable out of related recoveries on the mortgage loans
(including amounts drawn under any fund or instrument constituting credit
support) respecting which such advances were made and such other specific
sources as may be identified in the related prospectus supplement, including,
in the case of a series that includes one or more classes of Subordinate
Certificates, if so identified, collections on other mortgage assets in the
related trust fund that would otherwise be distributable to the holders of one
or more classes of such Subordinate Certificates. No advance will be required
to be made by a master servicer, special servicer or trustee if, in the
judgment of the master servicer, special servicer or trustee, as the case may
be, such advance would not be recoverable from recoveries on the mortgage loans
or another specifically identified source; and, if previously made by a master
servicer, special servicer or trustee, such an 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 a master servicer, special servicer, trustee
or other entity from excess funds in a Certificate Account, such master
servicer, special servicer, trustee or other entity, as the case may be, will
be required to replace such funds in such Certificate Account on or prior to
any future Distribution Date to the extent that funds in such Certificate
Account on such Distribution Date are less than payments required to be made to
the related series of Certificateholders on such date. If so specified in the
related prospectus supplement, the obligation of a master servicer, special
servicer, trustee or other entity to make advances may be secured by a cash
advance reserve fund or a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related prospectus supplement.
If and to the extent so provided in the related prospectus supplement, any
entity making advances will be entitled to receive interest on certain or all
of such advances for a specified period during which such advances are
outstanding at the rate specified in such prospectus supplement, and such
entity will be entitled to payment of such interest periodically from general
collections on the mortgage loans in the related trust fund prior to any
payment to the related series of Certificateholders or as otherwise provided in
the related pooling and servicing agreement and described in such prospectus
supplement.
The prospectus supplement for any series of certificates evidencing an
interest in a trust fund that includes MBS will describe any comparable
advancing obligation of a party to the related pooling and servicing agreement
or of a party to the agreement pursuant to which the MBS was issued.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, together with the distribution to the holders
of each class of the offered certificates of a series, a master servicer,
manager or trustee, as provided in the related prospectus supplement, will
forward to each such holder, a 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:
o the amount of such distribution to holders of such class of offered
certificates that was applied to reduce the Certificate Balance of such
class;
o the amount of such distribution to holders of such class of offered
certificates that was applied to pay Accrued Certificate Interest;
o the amount, if any, of such distribution to holders of such class of
offered certificates that was allocable to (A) Prepayment Premiums and
(B) payments on account of Equity Participations;
o the amount, if any, by which such distribution is less than the amounts
to which holders of such class of offered certificates are entitled;
o if the related trust fund includes mortgage loans, the aggregate amount
of advances included in such distribution;
34
o if the related trust fund includes mortgage loans, the amount of
servicing compensation received by the related master servicer (and, if
payable directly out of the related trust fund, by any special servicer
and any sub-servicer) and, if the related trust fund includes MBS, the
amount of administrative compensation received by the MBS Administrator;
o information regarding the aggregate principal balance of the related
mortgage assets on or about such Distribution Date;
o if the related trust fund includes mortgage loans, information regarding
the number and aggregate principal balance of such mortgage loans that
are delinquent;
o 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 specified period,
generally corresponding in length to the 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);
o the Certificate Balance or Notional Amount, as the case may be, of such
class of certificates at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance or
Notional Amount due to the allocation of any losses in respect of the
related mortgage assets, any increase in such Certificate Balance or
Notional Amount due to the allocation of any negative amortization in
respect of the related mortgage assets and any increase in the
Certificate Balance of a class of Accrual Certificates, if any, in the
event that Accrued Certificate Interest has been added to such balance;
o 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;
o 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;
o 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
o the amount of credit support being afforded by any classes of
Subordinate Certificates.
In the case of information furnished pursuant to the first 3 bulleted
items above, the amounts will be expressed as a dollar amount per specified
denomination of the relevant class of offered certificates or as a percentage.
The prospectus supplement for each series of certificates may describe
additional information to be included in reports to the holders of the offered
certificates of such series.
Within a reasonable period of time after the end of each calendar year,
the master servicer, manager or trustee for a series of certificates, as the
case may be, will be required to furnish to each person who at any time during
the calendar year was a holder of an offered certificate of such series a
statement containing the information set forth in the first 3 bulleted items
above, aggregated for such calendar year or the applicable portion 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 Internal Revenue Code of 1986, as
amended, are from time to time in force. See, however, "--Book-Entry
Registration and Definitive Certificates" below.
If the trust fund for a series of certificates includes MBS, the ability
of the related master servicer, manager or trustee, as the case may be, to
include in any Distribution Date Statement information regarding the mortgage
loans underlying such MBS will depend on the reports received with respect to
such MBS. In such cases, the related prospectus supplement will describe the
35
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 will be
allocated among the respective classes of such series in the manner described
in the related prospectus supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the related pooling and
servicing agreement and as otherwise specified in the related prospectus
supplement. See "The Pooling and Servicing Agreements--Amendment". The holders
of specified amounts of certificates of a particular series will have the right
to act as a group to remove the related trustee and also upon the occurrence of
certain events which if continuing would constitute an Event of Default on the
part of the related master servicer, special servicer or REMIC administrator.
See "The Pooling and Servicing Agreements-- Events of Default", "--Rights Upon
Event of Default" and "--Resignation and Removal of the Trustee".
TERMINATION
The obligations created by the pooling and servicing agreement for each
series of certificates will terminate following (1) the final payment or other
liquidation of the last mortgage asset subject thereto or the disposition of
all property acquired upon foreclosure of any mortgage loan subject thereto and
(2) the payment (or provision for payment) to the Certificateholders of that
series of all amounts required to be paid to them pursuant to such pooling and
servicing agreement. Written notice of termination of a pooling and servicing
agreement will be given to each certificateholder of the related series, and
the final distribution will be made only upon presentation and surrender of the
certificates of such series at the location to be specified in the notice of
termination.
If so specified in the related prospectus supplement, a series of
certificates may be subject to optional early termination through the
repurchase of the mortgage assets in the related trust fund by the party or
parties specified in the prospectus supplement, under the circumstances and in
the manner set forth in the prospectus supplement. If so provided in the
related prospectus supplement upon the reduction of the Certificate Balance of
a specified class or classes of certificates by a specified percentage or
amount or upon a specified date, a party designated in the prospectus
supplement 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 in the prospectus supplement.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the prospectus supplement for a series of certificates,
one or more classes of the offered certificates of such series will be offered
in book-entry format through the facilities of DTC, and each such class will be
represented by one or more global certificates registered in the name of DTC or
its nominee.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations and
facilitate the clearance and settlement of securities transactions between its
participating organizations through electronic computerized book-entry changes
in their accounts, thereby eliminating the need for physical movement of
securities certificates. 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. The rules applicable to
DTC and its participating organizations are on file with the Securities and
Exchange Commission.
36
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 is in turn to be recorded on the Direct and
Indirect Participants' records. Certificate Owners will not receive written
confirmation from DTC of their purchases, but Certificate Owners are expected
to receive written confirmations providing details of such transactions, as
well as periodic statements of their holdings, from the Direct or Indirect
Participant through which each Certificate Owner entered into the transaction.
Transfers of ownership interests in the book-entry certificates are to be
accomplished by entries made on the books of DTC's participating organizations
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.
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. DTC's participating organizations 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 DTC's participating organizations 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 participating organization (and not of DTC, the depositor or any
trustee, master servicer, special servicer or Manager), subject to any
statutory or regulatory requirements as may be in effect from time to time.
Accordingly, under a book-entry system, Certificate Owners may receive payments
after the related Distribution Date.
Unless otherwise provided in the related prospectus supplement, the only
Certificateholder of book-entry certificates will be the nominee of DTC, and
the Certificate Owners will not be recognized as certificateholders under the
pooling and servicing agreement. Certificate Owners will be permitted to
exercise the rights of certificateholders under the related pooling and
servicing agreement only indirectly through DTC's participating organization
who in turn will exercise their rights through DTC. We have been informed that
DTC will take action permitted to be taken by a certificateholder under a
pooling and servicing agreement only at the direction of one or more Direct
Participants to whose account with DTC interests in the book-entry certificates
are credited.
Because DTC can act only on behalf of Direct Participants, who in turn act
on behalf of Indirect Participants and certain Certificate Owners, the ability
of a Certificate Owner to pledge its interest in book-entry certificates to
persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of its interest in book-entry certificates, may be
limited due to the lack of a physical certificate evidencing such interest.
Unless otherwise specified in the related prospectus supplement,
certificates initially issued in book-entry form will be issued in fully
registered definitive form to Certificate Owners or their nominees, rather than
to DTC or its nominee, only if (1) the depositor advises the trustee in writing
that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such certificates and the
depositor is unable to locate a qualified successor or (2) the depositor, at
its option, elects to terminate the book-entry system through DTC with respect
to such certificates. Upon the occurrence of either of the events described in
the preceding sentence, DTC will be required to notify all Direct Participants
of the availability through DTC of Certificates in fully registered form. Upon
surrender by DTC of the certificate or certificates representing a class of
37
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
Certificates in fully registered definitive form to which they are entitled,
and thereafter the holders of such Definitive Certificates will be recognized
as "certificateholders" under and within the meaning of the related pooling and
servicing agreement.
THE POOLING AND SERVICING AGREEMENTS
GENERAL
The certificates of each series will be issued pursuant to a Pooling and
Servicing Agreement. In general, the parties to a Pooling and Servicing
Agreement will include the depositor, the trustee, the master servicer, the
special servicer and, if one or more REMIC elections have been made with
respect to the trust fund, the REMIC administrator. However, a Pooling and
Servicing Agreement that relates to a trust fund that includes MBS may include
a manager as a party, but may not include a master servicer, special servicer
or other servicer as a party. All parties to each Pooling and Servicing
Agreement under which certificates of a series are issued will be identified in
the related prospectus supplement. If so specified in the related prospectus
supplement, an affiliate of the depositor, or the mortgage asset seller may
perform the functions of master servicer, special servicer, manager or REMIC
administrator. If so specified in the related prospectus supplement, the master
servicer may also perform the duties of special servicer, and the master
servicer, the special servicer or the trustee may also perform the duties of
REMIC administrator. Any party to a Pooling and Servicing Agreement or any
affiliate of any party may own certificates issued under the Pooling and
Servicing Agreement; however, unless other specified in the related prospectus
supplement, except with respect to required consents to certain amendments to a
Pooling and Servicing Agreement, certificates issued under the Pooling and
Servicing Agreement that are held by the master servicer or special servicer
for the related Series will not be allocated Voting Rights.
A form of a pooling and servicing agreement has been filed as an exhibit
to the Registration Statement of which this prospectus is a part. However, the
provisions of each Pooling and Servicing Agreement will vary depending upon the
nature of the certificates to be issued under the Pooling and Servicing
Agreement and the nature of the related trust fund. The following summaries
describe certain provisions that may appear in a Pooling and Servicing
Agreement under which certificates that evidence interests in mortgage loans
will be issued. The prospectus supplement for a series of certificates will
describe any provision of the related Pooling and Servicing Agreement that
materially differs from the description of the Pooling and Servicing Agreement
contained in this prospectus and, if the related trust fund includes MBS, will
summarize all of the material provisions of the related agreement that provided
for the issuance of the MBS. The summaries in this prospectus do not purport to
be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Pooling and Servicing Agreement for
each series of certificates and the description of such provisions in the
related prospectus supplement. We will provide a copy of the Pooling and
Servicing Agreement (without exhibits) that relates to any series of
certificates without charge upon written request of a holder of a certificate
of such series addressed to it at its principal executive offices specified in
this prospectus under "The Depositor".
ASSIGNMENT OF MORTGAGE LOANS; REPURCHASES
At the time of issuance of any series of certificates, we 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 our
direction in exchange for the mortgage loans and the other assets to be
included in the trust fund for such series. Each mortgage loan will be
identified in a schedule appearing as an exhibit to the related Pooling and
Servicing Agreement. Such schedule generally will include detailed information
that pertains to each mortgage loan included in the related trust
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fund, which information will typically include the address of the related
mortgaged property and type of such property; the Mortgage Rate and, if
applicable, the applicable index, gross margin, adjustment date and any rate
cap information; the original and remaining term to maturity; the amortization
term; and the original and outstanding principal balance.
In addition, unless otherwise specified in the related prospectus
supplement, we will, as to each mortgage loan to be included in a trust fund,
deliver, or cause to be delivered, to the related trustee (or to a custodian
appointed by the trustee as described below) the mortgage note endorsed,
without recourse, either in blank or to the order of such trustee (or its
nominee), the mortgage with evidence of recording indicated (except for any
mortgage not returned from the public recording office), an assignment of the
mortgage in blank or to the trustee (or its nominee) in recordable form,
together with any intervening assignments of the mortgage with evidence of
recording (except for any such assignment not returned from the public
recording office), and, if applicable, any riders or modifications to such
mortgage note and mortgage, together with certain other documents at such times
as set forth in the related Pooling and Servicing Agreement. Such assignments
may be blanket assignments covering mortgages on mortgaged properties located
in the same county, if permitted by law. Notwithstanding the foregoing, a trust
fund may include mortgage loans where the original mortgage note is not
delivered to the trustee if we deliver or cause to be delivered, to the related
trustee (or such custodian) a copy or a duplicate original of the mortgage
note, together with an affidavit certifying that the original mortgage note has
been lost or destroyed. In addition, if we cannot deliver, with respect to any
mortgage loan, the mortgage or any intervening assignment with evidence of
recording concurrently with the execution and delivery of the related Pooling
and Servicing Agreement because of a delay caused by the public recording
office, we will deliver, or cause to be delivered, to the related trustee (or
such custodian) a true and correct photocopy of such mortgage or assignment as
submitted for recording. We will deliver, or cause to be delivered, to the
related trustee (or such custodian) such mortgage or assignment with evidence
of recording indicated after receipt of such mortgage from the public recording
office. If we cannot deliver, with respect to any mortgage loan, the mortgage
or any intervening assignment with evidence of recording concurrently with the
execution and delivery of the related Pooling and Servicing Agreement because
such mortgage or assignment has been lost, we will deliver, or cause to be
delivered, to the related trustee (or such custodian) a true and correct
photocopy of such mortgage or assignment with evidence of recording. Unless
otherwise specified in the related prospectus supplement, assignments of
mortgage to the trustee (or its nominee) will be recorded in the appropriate
public recording office, except in states where, in the opinion of counsel
acceptable to the trustee, such recording is not required to protect the
trustee's interests in the mortgage loan against the claim of any subsequent
transferee or any successor to or creditor of us or the originator of such
mortgage loan. Notwithstanding the foregoing, with respect to any mortgage for
which the related assignment of mortgage, assignment of assignment of leases,
security agreements and/or UCC financing statements has been recorded in the
name of Mortgage Electronic Registration Systems, Inc. ("MERS") or its
designee, no assignment of mortgage, assignment of assignment of leases,
security agreements and/or UCC financing statements in favor of the trustee
will be required to be prepared or delivered and instead, the mortgage loan
seller shall take all actions as are necessary to cause the Trust to be shown
as, and the trustee shall take all actions necessary to confirm that it is
shown as, the owner of the related Mortgage Loan on the records of MERS for
purposes of the system or recording transfers of beneficial ownership of
mortgages maintained by MERS.
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 of the mortgage loan
documents, and the trustee (or such custodian) will hold such documents in
trust for the benefit of the certificateholders of such series. Unless
otherwise specified in the related prospectus supplement, if any such document
is found to be missing or defective, and such omission or defect, as the case
may be, materially and adversely affects the interests of the
certificateholders of the related series, the trustee (or such custodian) will
be required to notify the master servicer, the special servicer and the
depositor, and one of such persons will be required to
39
notify the relevant mortgage asset seller. In that case, and if the mortgage
asset seller cannot deliver the document or cure the defect within a specified
number of days after receipt of such notice, then, except as otherwise
specified below or in the related prospectus supplement, the mortgage asset
seller will be obligated to repurchase the related mortgage loan from the
trustee at a price generally equal to the Purchase Price, or at such other
price as 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 mortgage loan documentation, and
neither we nor, unless it is the mortgage asset seller, the master servicer or
the special servicer will be obligated to purchase or replace a mortgage loan
if a mortgage asset seller defaults on its obligation to do so.
The trustee will be authorized at any time to appoint one or more
custodians pursuant to a custodial agreement to hold title to the mortgage
loans in any trust fund and to maintain possession of and, if applicable, to
review the documents relating to such mortgage loans, in any case as the agent
of the trustee. The identity of any such custodian to be appointed on the date
of initial issuance of the certificates will be set forth in the related
prospectus supplement. Any such custodian may be one of our affiliates.
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 covering, by way of example--
o the accuracy of the information set forth for such mortgage loan on the
schedule of mortgage loans appearing as an exhibit to the related Pooling
and Servicing Agreement;
o the enforceability of the related mortgage note and mortgage and the
existence of title insurance insuring the lien priority of the related
mortgage;
o the Warranting Party's title to the mortgage loan and the authority of
the Warranting Party to sell the mortgage loan; and
o the payment status of the mortgage loan.
It is expected that in most cases the Warranting Party will be the
mortgage asset seller; however, the Warranting Party may also be an affiliate
of the mortgage asset seller, the depositor or an affiliate of the depositor,
the master servicer, the special servicer or another person acceptable to the
depositor. The Warranting Party, if other than the mortgage asset seller, will
be identified in the related prospectus supplement.
Unless otherwise provided in the related prospectus supplement, each
Pooling and Servicing Agreement will provide that the master servicer and/or
trustee will be required to notify promptly any Warranting Party of any breach
of any representation or warranty made by it in respect of a mortgage loan that
materially and adversely affects the interests of the Certificateholders of the
related series. If such Warranting Party cannot cure such breach within a
specified period following the date on which it was notified of such breach,
then, unless otherwise provided in the related prospectus supplement, it will
be obligated to repurchase such mortgage loan from the trustee at the
applicable Purchase Price. If so provided in the prospectus supplement for a
series of certificates, a Warranting Party, in lieu of repurchasing a mortgage
loan as to which a breach has occurred, will have the option, exercisable upon
certain conditions and/or within a specified period after initial issuance of
such series of certificates, to replace such mortgage loan with one or more
other mortgage loans, in accordance with standards that will be described in
the prospectus supplement.
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Unless otherwise specified in the related prospectus supplement, this
repurchase or substitution obligation will constitute the sole remedy available
to holders of the certificates of any series or to the related trustee on their
behalf for a breach of representation and warranty by a Warranting Party, and
neither the depositor nor the master servicer, in either case unless it is the
Warranting Party, will be obligated to purchase or replace a mortgage loan if a
Warranting Party defaults on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a mortgage loan as of a date prior to the date upon which the
related series of certificates is issued, and thus may not address events that
may occur following the date as of which they were made. However, the depositor
will not include any mortgage loan in the trust fund for any series of
certificates if anything has come to the depositor's attention that would cause
it to believe that the representations and warranties made in respect of such
mortgage loan will not be accurate in all material respects as of the date of
issuance. The date as of which the representations and warranties regarding the
mortgage loans in any trust fund were made will be specified in the related
prospectus supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
Unless otherwise specified in the related prospectus supplement, the
master servicer and the special servicer for any mortgage pool, directly or
through sub-servicers, will each be obligated under the related Pooling and
Servicing Agreement to service and administer the mortgage loans in such
mortgage pool for the benefit of the related certificateholders, in accordance
with applicable law and further in accordance with the terms of such Pooling
and Servicing Agreement, such mortgage loans and any instrument of credit
support included in the related trust fund. Subject to the foregoing, the
master servicer and the special servicer will each have full power and
authority to do any and all things in connection with such servicing and
administration that it may deem necessary and desirable.
As part of its servicing duties, each of the master servicer and the
special servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the mortgage loans that
it services and will be obligated to follow such collection procedures as it
would follow with respect to mortgage loans that are comparable to such
mortgage loans and held for its own account, provided (1) such procedures are
consistent with the terms of the related Pooling and Servicing Agreement and
(2) do not impair recovery under any instrument of credit support included in
the related trust fund. Consistent with the foregoing, the master servicer and
the special servicer will each be permitted, in its discretion, unless
otherwise specified in the related prospectus supplement, to waive any
Prepayment Premium, late payment charge or other charge in connection with any
mortgage loan.
The master servicer and the special servicer for any trust fund, either
separately or jointly, directly or through sub-servicers, will also be required
to perform as to the mortgage loans in such trust fund various other customary
functions of a servicer of comparable loans, including maintaining escrow or
impound accounts, if required under the related Pooling and Servicing
Agreement, for payment of taxes, insurance premiums, ground rents and similar
items, or otherwise monitoring the timely payment of those items; attempting to
collect delinquent payments; supervising foreclosures; negotiating
modifications; conducting property inspections on a periodic or other basis;
managing (or overseeing the management of) mortgaged properties acquired on
behalf of such trust fund through foreclosure, deed-in-lieu of foreclosure or
otherwise; and maintaining servicing records relating to such mortgage loans.
The related prospectus supplement will specify when and the extent to which
servicing of a mortgage loan is to be transferred from the master servicer to
the special servicer. In general, and subject to the discussion in the related
prospectus supplement, a special servicer will be responsible for the servicing
and administration of--
o mortgage loans that are delinquent in respect of a specified number of
scheduled payments;
o mortgage loans as to which the related borrower has entered into or
consented to bankruptcy, appointment of a receiver or conservator or
similar insolvency proceeding, or
41
the related borrower has become the subject of a decree or order for such
a proceeding which shall have remained in force undischarged or unstayed
for a specified number of days; and
o REO Properties.
If so specified in the related prospectus supplement, a Pooling and
Servicing Agreement also may provide that if a default on a mortgage loan has
occurred or, in the judgment of the related master servicer, a payment default
is reasonably foreseeable, the related master servicer may elect to transfer
the servicing of the mortgage loan, in whole or in part, to the related special
servicer. Unless otherwise provided in the related prospectus supplement, when
the circumstances no longer warrant a special servicer's continuing to service
a particular mortgage loan (e.g., the related borrower is paying in accordance
with the forbearance arrangement entered into between the special servicer and
such borrower), the master servicer will resume the servicing duties with
respect thereto. If and to the extent provided in the related Pooling and
Servicing Agreement and described in the related prospectus supplement, a
special servicer may perform certain limited duties in respect of mortgage
loans for which the master servicer is primarily responsible (including, if so
specified, performing property inspections and evaluating financial
statements); and a master servicer may perform certain limited duties in
respect of any mortgage loan for which the special servicer is primarily
responsible (including, if so specified, continuing to receive payments on such
mortgage loan (including amounts collected by the special servicer)), making
certain calculations with respect to such mortgage loan and making remittances
and preparing certain reports to the trustee and/or certificateholders with
respect to such mortgage loan. Unless otherwise specified in the related
prospectus supplement, the master servicer will be responsible for filing and
settling claims in respect of particular mortgage loans under any applicable
instrument of credit support. See "Description of Credit Support".
A mortgagor's failure to make required mortgage loan payments may mean
that operating income is insufficient to service the mortgage debt, or may
reflect the diversion of that income from the servicing of the mortgage debt.
In addition, a mortgagor that is unable to make mortgage loan payments may also
be unable to make timely payment of taxes and otherwise to maintain and insure
the related mortgaged property. In general, the related special servicer will
be required to monitor any mortgage loan that is in default, evaluate whether
the causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related mortgaged property, initiate
corrective action in cooperation with the Mortgagor if cure is likely, inspect
the related mortgaged property and take such other actions as it deems
necessary and appropriate. A significant period of time may elapse before the
special servicer is able to assess the success of any such corrective action or
the need for additional initiatives. The time within which the special servicer
can make the initial determination of appropriate action, evaluate the success
of corrective action, develop additional initiatives, institute foreclosure
proceedings and actually foreclose (or accept a deed to a mortgaged property in
lieu of foreclosure) on behalf of the certificateholders of the related series
may vary considerably depending on the particular mortgage loan, the mortgaged
property, the mortgagor, the presence of an acceptable party to assume the
mortgage loan and the laws of the jurisdiction in which the mortgaged property
is located. If a mortgagor files a bankruptcy petition, the special servicer
may not be permitted to accelerate the maturity of the mortgage loan or to
foreclose on the related mortgaged property for a considerable period of time.
See "Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws."
Mortgagors may, from time to time, request partial releases of the
mortgaged properties, easements, consents to alteration or demolition and other
similar matters. In general, the master servicer may approve such a request if
it has determined, exercising its business judgment in accordance with the
applicable servicing standard, that such approval will not adversely affect the
security for, or the timely and full collectibility of, the related mortgage
loan. Any fee collected by the master servicer for processing such request will
be retained by the master servicer as additional servicing compensation.
In the case of mortgage loans secured by junior liens on the related
mortgaged properties, unless otherwise provided in the related prospectus
supplement, the master servicer will be
42
required to file (or cause to be filed) of record a request for notice of any
action by a superior lienholder under a senior lien for the protection of the
related trustee's interest, where permitted by local law and whenever
applicable state law does not require that a junior lienholder be named as a
party defendant in foreclosure proceedings in order to foreclose such junior
lienholder's equity of redemption. Unless otherwise specified in the related
prospectus supplement, the master servicer also will be required to notify any
superior lienholder in writing of the existence of the mortgage loan and
request notification of any action (as described below) to be taken against the
mortgagor or the mortgaged property by the superior lienholder. If the master
servicer is notified that any superior lienholder has accelerated or intends to
accelerate the obligations secured by the related senior lien, or has declared
or intends to declare a default under the mortgage or the promissory note
secured by that senior lien, or has filed or intends to file an election to
have the related mortgaged property sold or foreclosed, then, unless otherwise
specified in the related prospectus supplement, the master servicer and the
special servicer will each be required to take, on behalf of the related trust
fund, whatever actions are necessary to protect the interests of the related
certificateholders and/or to preserve the security of the related mortgage
loan, subject to the application of the REMIC Provisions. Unless otherwise
specified in the related prospectus supplement, the master servicer or special
servicer, as applicable, will be required to advance the necessary funds to
cure the default or reinstate the senior lien, if such advance is in the best
interests of the related certificateholders and the master servicer or special
servicer, as applicable, determines such advances are recoverable out of
payments on or proceeds of the related mortgage loan.
SUB-SERVICERS
A master servicer or special servicer may delegate its servicing
obligations in respect of the mortgage loans to one or more third-party
sub-servicers; provided that, unless otherwise specified in the related
prospectus supplement, such master servicer or special servicer will remain
obligated under the related Pooling and Servicing Agreement. A sub-servicer for
any series of certificates may be an affiliate of the depositor. Unless
otherwise provided in the related prospectus supplement, each subservicing
agreement between a master servicer and a sub-servicer must provide for
servicing of the applicable mortgage loans consistent with the related Pooling
and Servicing Agreement. Unless otherwise provided in the related prospectus
supplement, the master servicer and special servicer in respect of any mortgage
asset pool will each be required to monitor the performance of sub-servicers
retained by it and will have the right to remove a sub-servicer retained by it
at any time it considers such removal to be in the best interests of
certificateholders.
Unless otherwise provided in the related prospectus supplement, a master
servicer or special servicer will be solely liable for all fees owed by it to
any sub-servicer, irrespective of whether the master servicer's or special
servicer's compensation pursuant to the related Pooling and Servicing Agreement
is sufficient to pay such fees. Each Sub-Servicer will be reimbursed by the
master servicer or special servicer, as the case may be, that retained it for
certain expenditures which it makes, generally to the same extent such master
servicer or special servicer would be reimbursed under a Pooling and Servicing
Agreement. See "--Certificate Account" and "--Servicing Compensation and
Payment of Expenses".
CERTIFICATE ACCOUNT
General. The master servicer, the trustee and/or the special servicer
will, as to each trust fund that includes mortgage loans, establish and
maintain or cause to be established and maintained the corresponding
Certificate Account, which will be established so as to comply with the
standards of each rating agency that has rated any one or more classes of
certificates of the related series. A Certificate Account may be maintained as
an interest-bearing or a noninterest-bearing account and the funds held in the
Certificate Account 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. Unless otherwise provided in the related
prospectus supplement, any interest or other income earned on funds in a
43
Certificate Account will be paid to the related master servicer, trustee or
special servicer as additional compensation. A Certificate Account may be
maintained with the related master servicer, special servicer, trustee or
mortgage asset seller or with a depository institution that is an affiliate of
any of the foregoing or of the depositor, provided that it complies with
applicable rating agency standards. If permitted by the applicable rating
agency, a Certificate Account may contain funds relating to more than one
series of mortgage pass-through certificates and may contain other funds
representing payments on mortgage loans owned by the related master servicer or
special servicer or serviced by either on behalf of others.
Deposits. Unless otherwise provided in the related Pooling and Servicing
Agreement and described in the related prospectus supplement, the following
payments and collections received or made by the master servicer, the trustee
or the special servicer subsequent to the Cut-off Date (other than payments due
on or before the Cut-off Date) are to be deposited in the Certificate Account
for each trust fund that includes mortgage loans, within a certain period
following receipt (in the case of collections on or in respect of the mortgage
loans) or otherwise as provided in the related Pooling and Servicing
Agreement--
o all payments on account of principal, including principal prepayments,
on the mortgage loans;
o all payments on account of interest on the mortgage loans, including any
default interest collected, in each case net of any portion of such
default interest retained by the master servicer or the special servicer
as its servicing compensation or as compensation to the trustee;
o 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) and all
other amounts received and retained in connection with the liquidation of
defaulted mortgage loans or property acquired in respect of such
defaulted mortgage loans, by foreclosure or otherwise, 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;
o any amounts paid under any instrument or drawn from any fund that
constitutes credit support for the related series of certificates;
o any advances made with respect to delinquent scheduled payments of
principal and interest on the mortgage loans;
o any amounts paid under any cash flow agreement;
o all proceeds of the purchase of any mortgage loan, or property acquired
in respect of a mortgage loan, 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";
o to the extent that any such item does not constitute additional
servicing compensation to the master servicer or the special servicer and
is not otherwise retained by the depositor or another specified person,
any payments on account of modification or assumption fees, late payment
charges, Prepayment Premiums or Equity Participations with respect to the
mortgage loans;
o all payments required to be deposited in the Certificate Account with
respect to any deductible clause in any blanket insurance policy as
described under "--Hazard Insurance Policies";
44
o any amount required to be deposited by the master servicer, the special
servicer or the trustee in connection with losses realized on investments
for the benefit of the master servicer, the special servicer or the
trustee, as the case may be, of funds held in the Certificate Account;
and
o any other amounts required to be deposited in the Certificate Account as
provided in the related Pooling and Servicing Agreement and described in
the related prospectus supplement.
Withdrawals. Unless otherwise provided in the related Pooling and
Servicing Agreement and described in the related prospectus supplement, a
master servicer, trustee or special servicer may make withdrawals from the
Certificate Account for each trust fund that includes mortgage loans for any of
the following purposes--
o to make distributions to the certificateholders on each Distribution
Date;
o to pay the master servicer or the special servicer any servicing fees
not previously retained by the master servicer or special servicer, such
payment to be made out of payments and other collections of interest on
the particular mortgage loans as to which such fees were earned;
o to reimburse the master servicer, the special servicer or any other
specified person for unreimbursed advances of delinquent scheduled
payments of principal and interest made by it, and certain unreimbursed
servicing expenses incurred by it, with respect to particular mortgage
loans in the trust fund and particular properties acquired in respect of
the trust fund. Reimbursement for advances made or expenses incurred that
are related to particular mortgage loans or properties will normally only
be made out of amounts that represent late payments collected on those
mortgage loans, Liquidation Proceeds, Insurance and Condemnation Proceeds
collected on those mortgage loans and properties, any form of credit
support related to those mortgage loans and net income collected on those
properties. However, if in the judgment of the master servicer, the
special servicer or such other person, as applicable, the advances and/or
expenses will not be recoverable from the above amounts, the
reimbursement will be made from amounts collected on other mortgage loans
in the same trust fund or, if and to the extent so provided by the
related Pooling and Servicing Agreement and described in the related
prospectus supplement, only from that portion of amounts collected on
such other mortgage loans that is otherwise distributable on one or more
classes of Subordinate Certificates of the related series;
o if and to the extent described in the related prospectus supplement, to
pay the master servicer, the special servicer or any other specified
person interest accrued on the advances and servicing expenses described
in the bulleted clause immediately listed above incurred by it while such
remain outstanding and unreimbursed;
o 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";
o to reimburse the master servicer, the special servicer, the REMIC
administrator, the depositor, the trustee, or any of their respective
directors, officers, employees and agents, as the case may be, for
certain expenses, costs and liabilities incurred thereby, as and to the
extent described under "--Certain Matters Regarding the Master Servicer,
the Special Servicer, the REMIC Administrator and the Depositor" and
"--Certain Matters Regarding the Trustee";
o if and to the extent described in the related prospectus supplement, to
pay the fees of the trustee, the REMIC administrator and any provider of
credit support;
o if and to the extent described in the related prospectus supplement, to
reimburse prior draws on any form of credit support;
45
o to pay the master servicer, the special servicer or the trustee, as
appropriate, interest and investment income earned in respect of amounts
held in the Certificate Account as additional compensation;
o to pay any servicing expenses not otherwise required to be advanced by
the master servicer, the special servicer or any other specified person;
o if one or more elections have been made to treat the trust fund or
designated portions of the trust fund as a REMIC, to pay any federal,
state or local taxes imposed on the trust fund or its assets or
transactions, as and to the extent described under "Certain Federal
Income Tax Consequences--REMICs--Prohibited Transactions Tax and Other
Taxes";
o to pay for the cost of various opinions of counsel obtained pursuant to
the related Pooling and Servicing Agreement for the benefit of
certificateholders;
o to make any other withdrawals permitted by the related Pooling and
Servicing Agreement and described in the related prospectus supplement;
and
o to clear and terminate the Certificate Account upon the termination of
the trust fund.
MODIFICATIONS, WAIVERS AND AMENDMENTS OF MORTGAGE LOANS
The master servicer and the special servicer may each agree to modify,
waive or amend any term of any mortgage loan serviced by it in a manner
consistent with the applicable "Servicing Standard" as defined in the related
prospectus supplement; provided that, unless otherwise set forth in the related
prospectus supplement, the modification, waiver or amendment will--
o not affect the amount or timing of any scheduled payments of principal
or interest on the mortgage loan;
o will not, in the judgment of the master servicer or the special
servicer, as the case may be, materially impair the security for the
mortgage loan or reduce the likelihood of timely payment of amounts due;
and
o will not adversely affect the coverage under any applicable instrument
of credit support.
Unless otherwise provided in the related prospectus supplement, the
special servicer also may agree to any other modification, waiver or amendment
if, in its judgment,--
o a material default on the mortgage loan has occurred or a payment
default is reasonably foreseeable or imminent;
o 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
o unless inconsistent with the applicable "servicing standard", such
modification, waiver or amendment will not materially adversely affect
the coverage under any applicable instrument of credit support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
If a default on a mortgage loan has occurred, the special servicer, on
behalf of the trustee, may at any time institute foreclosure proceedings,
exercise any power of sale contained in the related mortgage, obtain a deed in
lieu of foreclosure, or otherwise comparably convert ownership of, or acquire
title to the related mortgaged property, by operation of law or otherwise. In
connection with such foreclosure or other conversion of ownership, the special
servicer shall follow the servicing standard. A Pooling and Servicing Agreement
may grant the special servicer the right to direct the master servicer to
advance costs and expenses to be incurred in any such proceedings, and such
advances may be subject to reimbursement requirements. A Pooling and Servicing
Agreement may require the special servicer to consult with independent counsel
regarding the order and manner
46
should foreclose upon or comparably proceed against such properties if a
mortgage loan or group of cross-collateralized mortgage loans are secured by
real properties in multiple states including certain states with a statute,
rule or regulation comparable to California's "one action" rule. Unless
otherwise provided in the related prospectus supplement, when applicable state
law permits the special servicer to select between judicial and non-judicial
foreclosure in respect of any mortgaged property, a special servicer may make
such selection so long as the selection is made in a manner 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 received a
report prepared by a person who regularly conducts environmental audits (which
report will be an expense of the trust fund) and either:
(1) such report indicates that (a) the mortgaged property is in
compliance with applicable environmental laws and regulations and (b)
there are no circumstances or conditions present at the mortgaged property
that have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(2) the special servicer, based solely (as to environmental matters and
related costs) on the information set forth in such report, determines
that taking such actions as are necessary to bring the mortgaged property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (1)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value
of money, than not taking such actions. See "Certain Legal Aspects of
Mortgage Loans--Environmental Considerations".
A Pooling and Servicing Agreement may grant to the master servicer, the
special servicer, a provider of credit support and/or the holder or holders of
certain classes of the related series of certificates a right of first refusal
to purchase from the trust fund, at a predetermined price (which, if less than
the Purchase Price, will be specified in the related prospectus supplement),
any mortgage loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related prospectus
supplement, the special servicer may offer to sell any defaulted mortgage loan
if and when the special servicer determines, consistent with its normal
servicing procedures, that such a sale would produce a greater recovery, taking
into account the time value of money, than would liquidation of the related
mortgaged property. In the absence of any such sale, the special servicer will
generally be required to proceed against the related mortgaged property,
subject to the discussion above.
Unless otherwise provided in the related prospectus supplement, if title
to any mortgaged property is acquired by a trust fund as to which a REMIC
election has been made, the special servicer, on behalf of the trust fund, will
be required to sell the mortgaged property before the close of the third
calendar year following the year of acquisition, unless (1) the IRS grants an
extension of time to sell such property or (2) the trustee receives an opinion
of independent counsel to the effect that the holding of the property by the
trust fund for longer than such period will not result in the imposition of a
tax on the trust fund or cause the trust fund (or any designated portion of the
trust fund) to fail to qualify as a REMIC under the Code at any time that any
certificate is outstanding. Subject to the foregoing and any other tax-related
limitations, the special servicer will generally be required to attempt to sell
any mortgaged property so acquired on the same terms and conditions it would if
it were the owner. Unless otherwise provided in the related prospectus
supplement, if title to any mortgaged property is acquired by a trust fund as
to which a REMIC election has been made, the special servicer will also be
required to ensure that the mortgaged property is administered so that it
constitutes "foreclosure property" within the meaning of Code Section
860G(a)(8) at all times, that the sale of such property does not result in the
receipt by the trust fund of any income from nonpermitted assets as described
in Code Section 860F(a)(2)(B), and that the
47
trust fund does not derive any "net income from foreclosure property" within
the meaning of Code Section 860G(c)(2), with respect to such property unless
the method of operation that produces such income would produce a greater
after-tax return than a different method of operation of such property. If the
trust fund acquires title to any mortgaged property, the special servicer, on
behalf of the trust fund, may be required to retain an independent contractor
to manage and operate such property. The retention of an independent
contractor, however, will not relieve the special servicer of its obligation to
manage such mortgaged property as required under the related Pooling and
Servicing Agreement.
If Liquidation Proceeds collected with respect to a defaulted mortgage
loan are less than the outstanding principal balance of the defaulted mortgage
loan plus interest accrued plus the aggregate amount of reimbursable expenses
incurred by the special servicer and/or the master servicer in connection with
such mortgage loan, then, to the extent that such shortfall is not covered by
any instrument or fund constituting credit support, the trust fund will realize
a loss in the amount of such shortfall. The special servicer and/or the master
servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any defaulted mortgage loan, prior to the distribution of such
Liquidation Proceeds to certificateholders, any and all amounts that represent
unpaid servicing compensation in respect of the mortgage loan, unreimbursed
servicing expenses incurred with respect to the mortgage loan and any
unreimbursed advances of delinquent payments made with respect to the mortgage
loan. In addition, if and to the extent set forth in the related prospectus
supplement, amounts otherwise distributable on the certificates may be further
reduced by interest payable to the master servicer and/or special servicer on
such servicing expenses and advances.
Except as otherwise provided in the prospectus supplement, if any
mortgaged property suffers damage such that the proceeds, if any, of the
related hazard insurance policy are insufficient to restore fully the damaged
property, neither the special servicer nor the master servicer will be required
to expend its own funds to effect such restoration.
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will require the master servicer (or the
special servicer with respect to mortgage loans serviced by the special
servicer) to use reasonable efforts to cause each mortgage loan borrower to
maintain a hazard insurance policy that provides for such coverage as is
required under the related mortgage or, if the mortgage permits the holder to
dictate to the borrower the insurance coverage to be maintained on the related
mortgaged property, such coverage as is consistent with the master servicer's
(or special servicer's) normal servicing procedures. Unless otherwise specified
in the related prospectus supplement, such coverage generally will be in an
amount equal to the lesser of the principal balance owing on such mortgage loan
and the replacement cost of the related mortgaged property. The ability of a
master servicer (or special servicer) to assure that hazard insurance proceeds
are appropriately applied may be dependent upon its being named as an
additional insured under any hazard insurance policy and under any other
insurance policy referred to below, or upon the extent to which information
concerning covered losses is furnished by borrowers. All amounts collected by a
master servicer (or special servicer) under any such policy (except for amounts
to be applied to the restoration or repair of the mortgaged property or
released to the borrower in accordance with the master servicer's (or special
servicer's) normal servicing procedures and/or to the terms and conditions of
the related mortgage and mortgage note) will be deposited in the related
Certificate Account. The Pooling and Servicing Agreement may provide that the
master servicer (or special servicer) may satisfy its obligation to cause each
borrower to maintain such a hazard insurance policy by maintaining a blanket
policy insuring against hazard losses on the mortgage loans in a trust fund,
which may contain a deductible clause (not in excess of a customary amount). If
such blanket policy contains a deductible clause, the master servicer (or
special servicer) will be required, in the event of a casualty covered by such
blanket policy, to deposit in the related Certificate Account all additional
sums that would have been deposited in the Certificate Account under an
individual policy but were not because of such deductible clause.
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In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies covering the mortgaged properties will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, most such policies typically do not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), wet or dry rot, vermin and domestic animals. Accordingly, a
mortgaged property may not be insured for losses arising from any such cause
unless the related mortgage specifically requires, or permits the holder to
require, such coverage.
The hazard insurance policies covering the mortgaged properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage (generally 80% to 90%) of
the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clauses generally provide that the
insurer's liability in the event of partial loss does not exceed the lesser of
(1) the replacement cost of the improvements less physical depreciation and (2)
such proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of such improvements.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the mortgage loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the mortgage loan upon any sale or
other transfer of the related mortgaged property made without the lender's
consent. Certain of the mortgage loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the mortgage loan
upon the creation of any other lien or encumbrance upon the mortgaged property.
Unless otherwise provided in the related prospectus supplement, the master
servicer (or special servicer) will determine whether to exercise any right the
trustee may have under any such provision in a manner consistent with the
master servicer's (or special servicer's) normal servicing procedures. Unless
otherwise specified in the related prospectus supplement, the master servicer
or special servicer, as applicable, will be entitled to retain as additional
servicing compensation any fee collected in connection with the permitted
transfer of a mortgaged property. See "Certain Legal Aspects of Mortgage
Loans--Due-on-Sale and Due-on-Encumbrance Provisions".
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related prospectus supplement, a master
servicer's primary servicing compensation with respect to a series of
certificates will come from the periodic payment to it of a specified portion
of the interest payments on each mortgage loan in the related trust fund,
including mortgage loans serviced by the related special servicer. If and to
the extent described in the related prospectus supplement, a special servicer's
primary compensation with respect to a series of certificates may consist of
any or all of the following components--
o a specified portion of the interest payments on each mortgage loan in
the related trust fund, whether or not serviced by it;
o an additional specified portion of the interest payments on each
mortgage loan then currently serviced by it; and
o subject to any specified limitations, a fixed percentage of some or all
of the collections and proceeds received with respect to each mortgage
loan which was at any time serviced by it, including mortgage loans for
which servicing was returned to the master servicer.
Insofar as any portion of the master servicer's or special servicer's
compensation consists of a specified portion of the interest payments on a
mortgage loan, such compensation will generally be based on a percentage of the
principal balance of such mortgage loan outstanding from time to time
49
and, accordingly, will decrease with the amortization of the mortgage loan. As
additional compensation, a master servicer or special servicer may be entitled
to retain all or a portion of late payment charges, Prepayment Premiums,
modification fees and other fees collected from borrowers and any interest or
other income that may be earned on funds held in the related Certificate
Account. A more detailed description of each master servicer's and special
servicer's compensation will be provided in the related prospectus supplement.
Any sub-servicer will receive as its sub-servicing compensation a portion of
the servicing compensation to be paid to the master servicer or special
servicer that retained such sub-servicer.
In addition to amounts payable to any sub-servicer, a master servicer or
special servicer may be required, to the extent provided in the related
prospectus supplement, to pay from amounts that represent its servicing
compensation certain expenses incurred in connection with the administration of
the related trust fund, including, without limitation, payment of the fees and
disbursements of independent accountants, payment of fees and disbursements of
the trustee and any custodians appointed by the trustee 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 in the
prospectus supplement, may be required to be borne by the trust fund.
EVIDENCE AS TO COMPLIANCE
Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will provide that on or before a specified date
in each year, beginning the first such date that is at least a specified number
of months after the Cut-off Date, there will be furnished to the related
trustee a report of a firm of independent certified public accountants stating
that (1) it has obtained a letter of representation regarding certain matters
from the management of the master servicer which includes an assertion that the
master servicer has complied with certain minimum mortgage loan servicing
standards (to the extent applicable to commercial and multifamily mortgage
loans), identified in the Uniform Single Attestation Program for Mortgage
Bankers established by the Mortgage Bankers Association of America, with
respect to the master servicer's servicing of commercial and multifamily
mortgage loans during the most recently completed calendar year and (2) on the
basis of an examination conducted by such firm in accordance with standards
established by the American Institute of Certified Public Accountants, such
representation is fairly stated in all material respects, subject to such
exceptions and other qualifications that, in the opinion of such firm, such
standards require it to report. In rendering its report such firm may rely, as
to the matters relating to the direct servicing of commercial and multifamily
mortgage loans by sub-servicers, upon comparable reports of firms of
independent public accountants rendered on the basis of examinations conducted
in accordance with the same standards (rendered within one year of such report)
with respect to those sub-servicers. The prospectus supplement may provide that
additional reports of independent certified public accountants relating to the
servicing of mortgage loans may be required to be delivered to the trustee.
Each Pooling and Servicing Agreement will also provide that, on or before
a specified date in each year, beginning the first such date that is at least a
specified number of months after the Cut-off Date, the master servicer and
special servicer shall each deliver to the related trustee an annual statement
signed by one or more officers of the master servicer or the special servicer,
as the case may be, to the effect that, to the best knowledge of each such
officer, the master servicer or the special servicer, as the case may be, has
fulfilled in all material respects its obligations under the Pooling and
Servicing Agreement throughout the preceding year or, if there has been a
material default in the fulfillment of any such obligation, such statement
shall specify each such known default and the nature and status of such
default. Such statement may be provided as a single form making the required
statements as to more than one Pooling and Servicing Agreement.
Unless otherwise specified in the related prospectus supplement, copies of
the annual accountants' statement and the annual statement of officers of a
master servicer or special servicer may be obtained by certificateholders upon
written request to the trustee.
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CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE SPECIAL SERVICER, THE REMIC
ADMINISTRATOR AND THE DEPOSITOR
Any entity serving as master servicer, special servicer or REMIC
administrator under a Pooling and Servicing Agreement may be an affiliate of
the depositor and may have other normal business relationships with the
depositor or the depositor's affiliates. Unless otherwise specified in the
prospectus supplement for a series of certificates, the related Pooling and
Servicing Agreement will permit the master servicer, the special servicer and
any REMIC administrator to resign from its obligations under the Pooling and
Servicing Agreement only upon a determination that such obligations are no
longer permissible under applicable law or are in material conflict by reason
of applicable law with any other activities carried on by it. No such
resignation will become effective until the trustee or other successor has
assumed the obligations and duties of the resigning master servicer, special
servicer or REMIC administrator, as the case may be, under the Pooling and
Servicing Agreement. The master servicer and special servicer for each trust
fund will be required to maintain a fidelity bond and errors and omissions
policy or their equivalent that provides coverage against losses that may be
sustained as a result of an officer's or employee's misappropriation of funds
or errors and omissions, subject to certain limitations as to amount of
coverage, deductible amounts, conditions, exclusions and exceptions permitted
by the related Pooling and Servicing Agreement.
Unless otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement will further provide that none of the master
servicer, the special servicer, the REMIC administrator, the depositor, any
extension adviser or any director, officer, employee or agent of any of them
will be under any liability to the related trust fund or Certificateholders for
any action taken, or not taken, in good faith pursuant to the Pooling and
Servicing Agreement or for errors in judgment; provided, however, that none of
the master servicer, the special servicer, the REMIC administrator, the
depositor, any extension adviser or any such person will be protected against
any liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of obligations or duties under
the Pooling and Servicing Agreement or by reason of reckless disregard of such
obligations and duties. Unless otherwise specified in the related prospectus
supplement, each Pooling and Servicing Agreement will further provide that the
master servicer, the special servicer, the REMIC administrator, the depositor,
any extension adviser and any director, officer, employee or agent of any of
them will be entitled to indemnification by the related trust fund against any
loss, liability or expense incurred in connection with any legal action that
relates to such Pooling and Servicing Agreement or the related series of
certificates; provided, however, that such indemnification will not extend to
any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or negligence in the performance of obligations or duties under such
Pooling and Servicing Agreement, or by reason of reckless disregard of such
obligations or duties. In addition, each Pooling and Servicing Agreement will
provide that none of the master servicer, the special servicer, the REMIC
administrator, any extension adviser or the depositor will be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its respective responsibilities under the Pooling and Servicing
Agreement and that in its opinion may involve it in any expense or liability.
However, each of the master servicer, the special servicer, the REMIC
administrator, any extension adviser and the depositor will be permitted, in
the exercise of its discretion, to undertake any such action that it may deem
necessary or desirable with respect to the enforcement and/or protection of the
rights and duties of the parties to the Pooling and Servicing Agreement and the
interests of the related series of certificateholders under the Pooling and
Servicing Agreement. In such event, the legal expenses and costs of such
action, and any liability resulting from such action, will be expenses, costs
and liabilities of the related series of certificateholders, and the master
servicer, the special servicer, the REMIC administrator, any extension adviser
or the depositor, as the case may be, will be entitled to charge the related
Certificate Account for this expense.
Any person into which the master servicer, the special servicer, the REMIC
administrator or the depositor may be merged or consolidated, or any person
resulting from any merger or consolidation to which the master servicer, the
special servicer, the REMIC administrator or the depositor is a
51
party, or any person succeeding to the business of the master servicer, the
special servicer, the REMIC administrator or the depositor, will be the
successor of the master servicer, the special servicer, the REMIC administrator
or the depositor, as the case may be, under the related Pooling and Servicing
Agreement.
Unless otherwise specified in the related prospectus supplement, a REMIC
administrator will be entitled to perform any of its duties under the related
Pooling and Servicing Agreement either directly or by or through agents or
attorneys, and the REMIC administrator will not be responsible for any willful
misconduct or gross negligence on the part of any such agent or attorney
appointed by it with due care.
EVENTS OF DEFAULT
Unless otherwise provided in the prospectus supplement for a series of
certificates, Events of Default under the related Pooling and Servicing
Agreement will include, without limitation--
o any failure by the master servicer to distribute or cause to be
distributed to the certificateholders of such series, or to remit to the
trustee for distribution to such certificateholders, any amount required
to be so distributed or remitted, pursuant to, and at the time specified
by, the terms of the Pooling and Servicing Agreement;
o any failure by the special servicer to remit to the master servicer or
the trustee, as applicable, any amount required to be so remitted,
pursuant to, and at the time specified by, the terms of the Pooling and
Servicing Agreement;
o any failure by the master servicer or the special servicer duly to
observe or perform in any material respect any of its other covenants or
obligations under the related Pooling and Servicing Agreement, which
failure continues unremedied for thirty days after written notice of such
failure has been given to the master servicer or the special servicer, as
the case may be, by any other party to the related Pooling and Servicing
Agreement, or to the master servicer or the special servicer, as the case
may be, with a copy to each other party to the related Pooling and
Servicing Agreement, by certificateholders entitled to not less than 25%
(or such other percentage specified in the related prospectus supplement)
of the Voting Rights for such series;
o any failure by a REMIC administrator (if other than the trustee) duly to
observe or perform in any material respect any of its covenants or
obligations under the related Pooling and Servicing Agreement, which
failure continues unremedied for thirty days after written notice of such
notice has been given to the REMIC administrator by any other party to
the related Pooling and Servicing Agreement, or to the REMIC
administrator, with a copy to each other party to the related Pooling and
Servicing Agreement, by certificateholders entitled to not less than 25%
(or such other percentage specified in the related prospectus supplement)
of the Voting Rights for such series;
o certain events involving a determination by a rating agency that the
master servicer or the special servicer is no longer approved by such
rating agency to serve in such capacity; and
o certain events of insolvency, readjustment of debt, marshaling of assets
and liabilities, or similar proceedings in respect of or relating to the
master servicer, the special servicer or the REMIC administrator (if
other than the trustee), and certain actions by or on behalf of the
master servicer, the special servicer or the REMIC administrator (if
other than the trustee) indicating its insolvency or inability to pay its
obligations.
Material variations to the foregoing Events of Default (other than to add
thereto or shorten cure periods or eliminate notice requirements) will be
specified in the related prospectus supplement. Unless otherwise specified in
the related prospectus supplement, when a single entity acts as master
servicer, special servicer and REMIC administrator, or in any two of the
foregoing capacities, for any trust fund, an Event of Default in one capacity
will (except where related only to a Rating Agency's evaluation of the
acceptability of such entity to act in a particular capacity) constitute an
event of default in each capacity.
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RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the master servicer, the
special servicer or a REMIC administrator under a Pooling and Servicing
Agreement, then, in each and every such case, so long as the Event of Default
remains unremedied, the depositor or the trustee will be authorized, and at the
direction of certificateholders of the related series entitled to not less than
51% (or such other percentage specified in the related prospectus supplement)
of the Voting Rights for such series, the trustee will be required, to
terminate all of the rights and obligations of the defaulting party as master
servicer, special servicer or REMIC administrator, as applicable, under the
Pooling and Servicing Agreement, whereupon the trustee will succeed to all of
the responsibilities, duties and liabilities of the defaulting party as master
servicer, special servicer or REMIC administrator, as applicable, under the
Pooling and Servicing Agreement (except that if the defaulting party is
required to make advances under the Pooling and Servicing Agreement regarding
delinquent mortgage loans, but the trustee is prohibited by law from obligating
itself to make such advances, or if the related prospectus supplement so
specifies, the trustee will not be obligated to make such advances) and will be
entitled to similar compensation arrangements. Unless otherwise specified in
the related prospectus supplement, if the trustee is unwilling or unable so to
act, it may (or, at the written request of Certificateholders of the related
series entitled to not less than 51% (or such other percentage specified in the
related prospectus supplement) of the Voting Rights for such series, it will be
required to) appoint, or petition a court of competent jurisdiction to appoint,
a loan servicing institution or other entity that (unless otherwise provided in
the related prospectus supplement) is acceptable to each applicable rating
agency to act as successor to the master servicer, special servicer or REMIC
administrator, as the case may be, under the Pooling and Servicing Agreement.
Pending such appointment, the trustee will be obligated to act in such
capacity.
If the same entity is acting as both trustee and REMIC administrator, it
may be removed in both such capacities as described under "--Resignation and
Removal of the Trustee" below.
No certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and
Servicing Agreement unless such holder previously has given to the trustee
written notice of default and the continuance of such default and unless the
holders of certificates of any class evidencing not less than 25% of the
aggregate Percentage Interests constituting such class have made written
request upon the trustee to institute such proceeding in its own name as
trustee under the Pooling and Servicing Agreement and have offered to the
trustee reasonable indemnity and the trustee for sixty days after receipt of
such request and indemnity has neglected or refused to institute any such
proceeding. However, the trustee will be under no obligation to exercise any of
the trusts or powers vested in it by the Pooling and Servicing Agreement or to
institute, conduct or defend any litigation under the Pooling and Servicing
Agreement or in relation thereto at the request, order or direction of any of
the holders of certificates covered by such Pooling and Servicing Agreement,
unless such certificateholders have offered to the trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be incurred
in connection with such litigation.
AMENDMENT
Except as otherwise specified in the related prospectus supplement, each
Pooling and Servicing Agreement may be amended by the parties thereto, without
the consent of any of the holders of certificates covered by such Pooling and
Servicing Agreement, (1) to cure any ambiguity, (2) to correct or supplement
any provision in the Pooling and Servicing Agreement which may be inconsistent
with any other provision in the Pooling and Servicing Agreement or to correct
any error, (3) to change the timing and/or nature of deposits in the
Certificate Account, provided that (A) such change would not adversely affect
in any material respect the interests of any Certificateholder, as evidenced by
an opinion of counsel, and (B) such change would not result in the withdrawal,
downgrade or qualification of any of the then-current ratings on the
certificates, as evidenced by a letter from each applicable rating agency, (4)
if a REMIC election has been made with respect to the related trust fund, to
modify, eliminate or add to any of its provisions (A) to such extent as shall
be necessary to maintain the qualification of the trust fund (or any designated
53
portion of the trust fund) as a REMIC or to avoid or minimize the risk of
imposition of any tax on the related trust fund, provided that the trustee has
received an opinion of counsel to the effect that (1) such action is necessary
or desirable to maintain such qualification or to avoid or minimize such risk,
and (2) such action will not adversely affect in any material respect the
interests of any holder of certificates covered by the Pooling and Servicing
Agreement, or (B) to restrict the transfer of the REMIC Residual Certificates,
provided that the depositor has determined that the then-current ratings of the
classes of the certificates that have been rated will not be withdrawn,
downgraded or qualified, as evidenced by a letter from each applicable rating
agency, and that any such amendment will not give rise to any tax with respect
to the transfer of the REMIC Residual Certificates to a non-permitted
transferee (See "Certain Federal Income Tax Consequences--REMICs--Tax and
Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations" in this prospectus supplement), (5) to make any other provisions
with respect to matters or questions arising under such Pooling and Servicing
Agreement or any other change, provided that such action will not adversely
affect in any material respect the interests of any certificateholder, or (6)
to amend specified provisions that are not material to holders of any class of
certificates offered by this prospectus.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of certificates of each class affected
by an amendment evidencing, in each case, not less than 662/3% (or such other
percentage specified in the related prospectus supplement) of the aggregate
Percentage Interests constituting such class for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Pooling and Servicing Agreement or of modifying in any manner the rights
of the holders of certificates covered by such Pooling and Servicing Agreement,
except that no such amendment may (1) reduce in any manner the amount of, or
delay the timing of, payments received on mortgage loans which are required to
be distributed on a certificate of any class without the consent of the holder
of such certificate or (2) reduce the aforesaid percentage of certificates of
any class the holders of which are required to consent to any such amendment
without the consent of the holders of all certificates of such class covered by
such Pooling and Servicing Agreement then outstanding.
Notwithstanding the foregoing, if one or more REMIC elections have been
made with respect to the related trust fund, the trustee will not be required
to consent to any amendment to a Pooling and Servicing Agreement without having
first received an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the master servicer, the special servicer, the
depositor, the trustee or any other specified person in accordance with such
amendment will not result in the imposition of a tax on the related trust fund
or cause such trust fund (or any designated portion of the trust fund) to fail
to qualify as a REMIC.
LIST OF CERTIFICATEHOLDERS
Unless otherwise specified in the related prospectus supplement, upon
written request of three or more certificateholders of record made for purposes
of communicating with other holders of certificates of the same series with
respect to their rights under the related Pooling and Servicing Agreement, the
trustee or other specified person will afford such certificateholders access
during normal business hours to the most recent list of certificateholders of
that series held by such person. If such list is as of a date more than 90 days
prior to the date of receipt of such certificateholders' request, then such
person, if not the registrar for such series of certificates, will be required
to request from such registrar a current list and to afford such requesting
certificateholders access thereto promptly upon receipt.
THE TRUSTEE
The trustee under each Pooling and Servicing Agreement will be named in
the related prospectus supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as trustee may
have typical banking relationships with the depositor and its affiliates and
with any master servicer, special servicer or REMIC administrator and its
affiliates.
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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 and Servicing Agreement,
such certificates or any underlying mortgage asset or related document and will
not be accountable for the use or application by or on behalf of any master
servicer or special servicer of any funds paid to the master servicer or
special servicer in respect of the certificates or the underlying mortgage
assets. If no Event of Default has occurred and is continuing, the trustee for
each series of certificates will be required to perform only those duties
specifically required under the related Pooling and Servicing Agreement.
However, upon receipt of any of the various certificates, reports or other
instruments required to be furnished to it pursuant to the related Pooling and
Servicing Agreement, a trustee will be required to examine such documents and
to determine whether they conform to the requirements of such agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
As and to the extent described in the related prospectus supplement, the
fees and normal disbursements of any trustee may be the expense of the related
master servicer or other specified person or may be required to be borne by the
related trust fund.
Unless otherwise specified in the related prospectus supplement, the
trustee for each series of certificates will be entitled to indemnification,
from amounts held in the Certificate Account for such series, for any loss,
liability or expense incurred by the trustee in connection with the trustee's
acceptance or administration of its trusts under the related Pooling and
Servicing Agreement; provided, however, that such indemnification will not
extend to any loss liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence on the part of the trustee in the
performance of its obligations and duties under the Pooling and Servicing
Agreement, or by reason of its reckless disregard of such obligations or
duties.
Unless otherwise specified in the related prospectus supplement, the
trustee for each series of certificates will be entitled to execute any of its
trusts or powers under the related Pooling and Servicing Agreement or perform
any of its duties under the Pooling and Servicing Agreement either directly or
by or through agents or attorneys, and the trustee will not be responsible for
any willful misconduct or negligence on the part of any such agent or attorney
appointed by it with due care.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The trustee may resign at any time, in which event the depositor will be
obligated to appoint a successor trustee. The depositor may also remove the
trustee if the trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the trustee becomes insolvent. Upon
becoming aware of such circumstances, the depositor will be obligated to
appoint a successor trustee. The trustee may also be removed at any time by the
holders of certificates of the applicable series evidencing not less than
33 1/3% (or such other percentage specified in the related prospectus
supplement) of the Voting Rights for such series. Any resignation or removal of
the trustee and appointment of a successor trustee will not become effective
until acceptance of the appointment by the successor trustee. Notwithstanding
anything in this prospectus to the contrary, if any entity is acting as both
trustee and REMIC administrator, then any resignation or removal of such entity
as the trustee will also constitute the resignation or removal of such entity
as REMIC administrator, and the successor trustee will serve as successor to
the REMIC administrator as well.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
Credit support may be provided with respect to one or more classes of the
certificates of any series or with respect to the related mortgage assets.
Credit support may be in the form of a letter of credit, the subordination of
one or more classes of certificates, the use of a pool insurance policy or
guarantee insurance, the establishment of one or more reserve funds and/or cash
collateral
55
accounts, overcollateralization, or another method of credit support described
in the related prospectus supplement, or any combination of the foregoing. If
and to the extent so provided in the related prospectus supplement, any of the
foregoing forms of credit support may provide credit enhancement for more than
one series of certificates.
Unless otherwise provided in the related prospectus supplement for a
series of certificates, the credit support will not provide protection against
all risks of loss and will not guarantee payment to certificateholders of all
amounts to which they are entitled under the related Pooling and Servicing
Agreement. If losses or shortfalls occur that exceed the amount covered by the
related credit support or that are of a type not covered by such credit
support, certificateholders will bear their allocable share of deficiencies.
Moreover, if a form of credit support covers the offered certificates of more
than one series and losses on the related mortgage assets exceed the amount of
such credit support, it is possible that the holders of offered certificates of
one (or more) such series will be disproportionately benefited by such credit
support to the detriment of the holders of offered certificates of one (or
more) other such series.
If credit support is provided with respect to one or more classes of
certificates of a series, or with respect to the related mortgage assets, the
related prospectus supplement will include a description of--
o the nature and amount of coverage under such credit support;
o any conditions to payment under the credit support not otherwise
described in this prospectus;
o 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
o the material provisions relating to such credit support.
Additionally, the related prospectus supplement will set forth certain
information with respect to the obligor, if any, under any instrument of credit
support. See "Risk Factors--Credit Support Limitations".
SUBORDINATE CERTIFICATES
If so specified in the related prospectus supplement, one or more classes
of certificates of a series may be Subordinate Certificates. To the extent
specified in the related prospectus supplement, the rights of the holders of
Subordinate Certificates to receive distributions from the Certificate Account
on any Distribution Date will be subordinated to the corresponding rights of
the holders of Senior Certificates. If so provided in the related prospectus
supplement, the subordination of a class may apply only in the event of certain
types of losses or shortfalls. The related prospectus supplement will set forth
information concerning the method and amount of subordination provided by a
class or classes of Subordinate Certificates in a series and the circumstances
under which such subordination will be available.
If the mortgage assets in any trust fund are divided into separate groups,
each supporting a separate class or classes of certificates of the related
series, credit support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of mortgage assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of mortgage assets within the trust
fund. The prospectus supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES CONCERNING TO MORTGAGE LOANS
If so provided in the prospectus supplement for a series of certificates,
mortgage loans included in the related trust fund will be covered for certain
default risks by insurance policies or guarantees. The related prospectus
supplement will describe the nature of such default risks and the extent of
such coverage.
56
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 of certificates will be covered by one or more letters of credit,
issued by a bank or other financial institution (which may be an affiliate of
the depositor) specified in such prospectus supplement. Under a letter of
credit, the providing institution will be obligated to honor draws in an
aggregate fixed dollar amount, net of unreimbursed payments under the letter of
credit, generally equal to a percentage specified in the related prospectus
supplement of the aggregate principal balance of some or all of the related
mortgage assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of certificates. If so specified in
the related prospectus supplement, the letter of credit may permit draws only
in the event of certain types of losses and shortfalls. The amount available
under the letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments under the letter of credit and may otherwise be reduced
as described in the related prospectus supplement. The obligations of the
providing institution under the letter of credit for each series of
certificates will expire at the earlier of the date specified in the related
prospectus supplement or the termination of the trust fund.
CERTIFICATE INSURANCE AND SURETY BONDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on such certificates or certain
classes of certificates will be covered by insurance policies or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of certificates of the related
series, timely distributions of interest or distributions of principal on the
basis of a schedule of principal distributions set forth in or determined in
the manner specified in the related prospectus supplement. The related
prospectus supplement will describe any limitations on the draws that may be
made under any such instrument.
RESERVE FUNDS
If so provided in the prospectus supplement for a series of certificates,
deficiencies in amounts otherwise payable on such certificates or certain
classes 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 will be deposited, in the amounts specified in
such prospectus supplement. If so specified in the related prospectus
supplement, the reserve fund for a series may also be funded over time by a
specified amount of certain collections received on the related mortgage
assets.
Amounts on deposit in any reserve fund for a series will be applied for
the purposes, in the manner, and to the extent specified in the related
prospectus supplement. If so specified in the related prospectus supplement,
reserve funds may be established to provide protection only against certain
types of losses and shortfalls. Following each Distribution Date, amounts in a
reserve fund in excess of any amount required to be maintained in such reserve
funds may be released from the reserve fund under the conditions and to the
extent specified in the related prospectus supplement.
If so specified in the related prospectus supplement, amounts deposited in
any reserve fund will be invested in Permitted Investments. Unless otherwise
specified in the related prospectus supplement, any reinvestment income or
other gain from such investments will be credited to the related reserve fund
for such series, and any loss resulting from such investments will be charged
to such reserve fund. However, such income may be payable to any related master
servicer or another service provider as additional compensation 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.
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CASH COLLATERAL ACCOUNT
If so specified in the related prospectus supplement, all or any portion
of credit enhancement for a series of certificates may be provided by the
establishment of a cash collateral account. A cash collateral account will be
similar to a reserve fund except that generally a cash collateral account is
funded initially by a loan from a cash collateral lender, the proceeds of which
are invested with the cash collateral lender or other eligible institution. The
loan from the cash collateral lender will be repaid from such amounts as are
specified in the related prospectus supplement. Amounts on deposit in the cash
collateral account will be available in generally the same manner described
above with respect to a reserve fund. As specified in the related prospectus
supplement, a cash collateral account may be deemed to be part of the assets of
the related Trust, may be deemed to be part of the assets of a separate cash
collateral trust or may be deemed to be property of the party specified in the
related prospectus supplement and pledged for the benefit of the holders of one
or more classes of certificates of a series.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the prospectus supplement for a series of certificates,
any MBS included in the related trust fund and/or the related underlying
mortgage loans may be covered by one or more of the types of credit support
described in this prospectus. The related prospectus supplement will specify,
as to each such form of credit support, the information indicated above with
respect thereto, to the extent such information is material and available.
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CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of mortgage loans secured by commercial and multifamily residential
properties. Because such legal aspects are governed by applicable state law
(which laws may differ substantially), the summaries do not purport to be
complete, to reflect the laws of any particular state, or to encompass the laws
of all states in which the security for the mortgage loans (or mortgage loans
underlying any MBS) is situated. Accordingly, the summaries are qualified in
their entirety by reference to the applicable laws of those states. See
"Description of the Trust Funds--Mortgage Loans". For purposes of the following
discussion, "mortgage loan" includes a mortgage loan underlying an MBS.
GENERAL
Each mortgage loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related mortgaged property is
located. mortgages, deeds of trust and deeds to secure debt are in this
prospectus collectively referred to as "mortgages". A mortgage creates a lien
upon, or grants a title interest in, the real property covered by that
mortgage, 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, pursuant to which the borrower, or grantor, conveys title to the
real property to the grantee, or lender, generally with a power of sale, until
such time as the debt is repaid. In a case where the borrower is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the borrower.
At origination of a mortgage loan involving a land trust, the borrower may
execute a separate undertaking to make payments on the mortgage note. In no
event is the land trustee personally liable for the mortgage note obligation.
The mortgagee's authority under a mortgage, the trustee's authority under a
deed of trust and the grantee's authority under a deed to secure debt are
governed by the express provisions of the related instrument, the law of the
state in which the real property is located, certain federal laws and, in some
deed of trust transactions, the directions of the beneficiary.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease
and the income derived from such leases and rents, 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.
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In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code; in cases where hotels or motels
constitute loan security, the rates are generally pledged by the borrower as
additional security for the loan. In general, the lender must file financing
statements in order to perfect its security interest in the room rates and must
file continuation statements, generally every five years, to maintain
perfection of such security interest. In certain cases, mortgage loans secured
by hotels or motels may be included in a trust fund even if the security
interest in the room rates was not perfected or the requisite UCC filings were
allowed to lapse. Even if the lender's security interest in room rates is
perfected under applicable nonbankruptcy law, it will generally be required to
commence a foreclosure action or otherwise take possession of the property in
order to enforce its rights to collect the room rates following a default. In
the bankruptcy setting, however, the lender will be stayed from enforcing its
rights to collect room rates, but those room rates (in light of certain
revisions to the Bankruptcy Code which are effective for all bankruptcy cases
commenced on or after October 22, 1994) constitute "cash collateral" and
therefore cannot be used by the bankruptcy debtor without lender's consent or a
hearing at which the lender's interest in the room rates is given adequate
protection (e.g., the lender receives cash payments from otherwise unencumbered
funds or a replacement lien on unencumbered property, in either case equal in
value to the amount of room rates that the debtor proposes to use, or other
similar relief). See "--Bankruptcy Laws".
In the case of office and retail properties, the bankruptcy or insolvency
of a major tenant or a number of smaller tenants may have an adverse impact on
the mortgaged properties affected and the income produced by such mortgaged
properties. Under bankruptcy law, a tenant has the option of assuming
(continuing), or rejecting (terminating) or, subject to certain conditions,
assigning to a third party any unexpired lease. If the tenant assumes its
lease, the tenant must cure all defaults under the lease and provide the
landlord with adequate assurance of its future performance under the lease. If
the tenant rejects the lease, the landlord's claim for breach of the lease
would (absent collateral securing the claim) be treated as a general unsecured
claim. The amount of the claim would be limited to the amount owed for unpaid
pre-petition lease payments unrelated to the rejection, plus the greater of one
year's lease payments or 15% of the remaining lease payments payable under the
lease (but not to exceed three years' lease payments). If the tenant assigns
its lease, the tenant must cure all defaults under the lease and the proposed
assignee must demonstrate adequate assurance of future performance under the
lease.
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 in the
mortgage loan, and must file continuation statements, generally every five
years, to maintain that perfection. In certain cases, mortgage loans secured in
part by personal property may be included in a trust fund even if the security
interest in such personal property was not perfected or the requisite UCC
filings were allowed to lapse.
FORECLOSURE
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and nonjudicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
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A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes requires several years to complete.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action is
initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Such sales are made in accordance with
procedures that vary from state to state.
Equitable and Other Limitations on Enforceability of Certain
Provisions. United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure actions.
These principles are generally designed to relieve borrowers from the effects
of mortgage defaults perceived as harsh or unfair. Relying on such principles,
a court may alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression or overreaching,
or may require the lender to undertake affirmative actions to determine the
cause of the borrower's default and the likelihood that the borrower will be
able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's and have required that lenders reinstate loans or
recast payment schedules in order to accommodate borrowers who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose in the case of a nonmonetary default, such as
a failure to adequately maintain the mortgaged property or an impermissible
further encumbrance of the mortgaged property. Finally, some courts have
addressed the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that a borrower
receive notice in addition to statutorily-prescribed minimum notice. For the
most part, these cases have upheld the reasonableness of the notice provisions
or have found that a public sale under a mortgage providing for a power of sale
does not involve sufficient state action to trigger constitutional protections.
In addition, some states may have statutory protection such as the right
of the borrower to reinstate mortgage loans after commencement of foreclosure
proceedings but prior to a foreclosure sale.
Nonjudicial Foreclosure/Power of Sale. In states permitting nonjudicial
foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a nonjudicial trustee's sale pursuant to a power of sale
typically granted in the deed of trust. A power of sale may also be contained
in any other type of mortgage instrument if applicable law so permits. A power
of sale under a deed of trust allows a nonjudicial public sale to be conducted
generally following a request from the beneficiary/lender to the trustee to
sell the property upon default by the borrower and after notice of sale is
given in accordance with the terms of the mortgage and applicable state law. In
some states, prior to such sale, the trustee under the deed of trust must
record a notice of default and notice of sale and send a copy to the borrower
and to any other party who has recorded a request for a copy of a notice of
default and notice of sale. In addition, in some states the trustee must
provide notice to any other party having an interest of record in the real
property, including junior lienholders. A notice of sale must be posted in a
public place and, in most states, published for a specified period of time in
one or more newspapers. The borrower or junior lienholder may then have the
right, during a reinstatement period required in some states, to cure the
default by paying the entire actual amount in arrears (without regard to the
acceleration of the indebtedness), plus the lender's expenses incurred in
enforcing the obligation. In other states, the borrower or the junior
lienholder is not provided a period to reinstate the loan, but has only the
right to pay off the entire debt to prevent the foreclosure sale. Generally,
state law governs the procedure for public sale, the parties entitled to
notice, the method of giving notice and the applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the exact
status of title to the property (due to, among other
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things, redemption rights that may exist) and because of the possibility that
physical deterioration of the property may have occurred during the foreclosure
proceedings. Therefore, it is common for the lender to purchase the mortgaged
property for an amount equal to the secured indebtedness and accrued and unpaid
interest plus the expenses of foreclosure, in which event the borrower's debt
will be extinguished, or for a lesser amount in order to preserve its right to
seek a deficiency judgment if such is available under state law and under the
terms of the mortgage loan documents. (The mortgage loans, however, may be
nonrecourse. See "Risk Factors--Certain Factors Affecting Delinquency,
Foreclosure and Loss of the Mortgage Loans--Limited Recourse Nature of the
Mortgage Loans".) Thereafter, subject to the borrower's right in some states to
remain in possession during a redemption period, the lender will become the
owner of the property and have both the benefits and burdens of ownership,
including the obligation to pay debt service on any senior mortgages, to pay
taxes, to obtain casualty insurance and to make such repairs as are necessary
to render the property suitable for sale. The costs of operating and
maintaining a commercial or multifamily residential property may be significant
and may be greater than the income derived from that property. The lender also
will commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale or lease of the property. Depending upon
market conditions, the ultimate proceeds of the sale of the property may not
equal the lender's investment in the property. Moreover, because of the
expenses associated with acquiring, owning and selling a mortgaged property, a
lender could realize an overall loss on a mortgage loan even if the mortgaged
property is sold at foreclosure, or resold after it is acquired through
foreclosure, for an amount equal to the full outstanding principal amount of
the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all
persons who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (nonstatutory) right which should
be distinguished from post-sale statutory rights of redemption. In some states,
after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property because the exercise of a right of
redemption would defeat the title of any purchaser through a foreclosure.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has expired. In some states, a post-sale statutory right of
redemption may exist following a judicial foreclosure, but not following a
trustee's sale under a deed of trust.
Anti-Deficiency Legislation. Some or all of the mortgage loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the mortgaged property and such other assets, if any, that were pledged to
secure the mortgage loan. However, even if a mortgage loan by its terms
provides for recourse to the borrower's other assets, a lender's ability to
realize upon those assets may be limited by state law. For example, in some
states a lender cannot obtain a deficiency
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judgment against the borrower following foreclosure or sale under a deed of
trust. A deficiency judgment is a personal judgment against the former borrower
equal to the difference between the net amount realized upon the public sale of
the real property and the amount due to the lender. Other statutes may require
the lender to exhaust the security afforded under a mortgage before bringing a
personal action against the borrower. In certain other states, the lender has
the option of bringing a personal action against the borrower on the debt
without first exhausting such security; however, in some of those states, the
lender, following judgment on such personal action, may be deemed to have
elected a remedy and thus may be precluded from foreclosing upon the security.
Consequently, lenders in those states where such an election of remedy
provision exists will usually proceed first against the security. Finally,
other statutory provisions, designed to protect borrowers from exposure to
large deficiency judgments that might result from bidding at below-market
values at the foreclosure sale, limit any deficiency judgment to the excess of
the outstanding debt over the fair market value of the property at the time of
the sale.
Leasehold Considerations. Mortgage loans may be secured by a mortgage on
the borrower's leasehold interest in a ground lease. Leasehold mortgage loans
are subject to certain risks not associated with mortgage loans secured by a
lien on the fee estate of the borrower. The most significant of these risks is
that if the borrower's leasehold were to be terminated upon a lease default,
the leasehold mortgagee could lose its security. This risk may be lessened if
the ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, requires the lessor to grant
the mortgagee a new lease if the existing lease is rejected in a bankruptcy
proceeding, permits the leasehold estate to be assigned to and by the leasehold
mortgagee or the purchaser at a foreclosure sale, and contains certain other
protective provisions typically included in a "mortgageable" ground lease.
Certain mortgage loans, however, may be secured by ground leases which do not
contain these provisions.
Cooperative Shares. Mortgage loans may be secured by a security interest
on the borrower's ownership interest in shares, and the proprietary leases
appurtenant thereto, allocable to cooperative dwelling units that may be vacant
or occupied by nonowner tenants. Such loans are subject to certain risks not
associated with mortgage loans secured by a lien on the fee estate of a
borrower in real property. Such a loan typically is subordinate to the
mortgage, if any, on the cooperative's building which, if foreclosed, could
extinguish the equity in the building and the proprietary leases of the
dwelling units derived from ownership of the shares of the cooperative.
Further, transfer of shares in a cooperative are subject to various regulations
as well as to restrictions under the governing documents of the cooperative,
and the shares may be canceled in the event that associated maintenance charges
due under the related proprietary leases are not paid. Typically, a recognition
agreement between the lender and the cooperative provides, among other things,
the lender with an opportunity to cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner,
which may be dependent upon, among other things, the notice given the debtor
and the method, manner, time, place and terms of the sale. Article 9 of the UCC
provides that the proceeds of the sale will be applied first to pay the costs
and expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. A recognition agreement, however, generally
provides that the lender's right to reimbursement is subject to the right of
the cooperative to receive sums due under the proprietary leases.
BANKRUPTCY LAWS
Operation of the Bankruptcy Code and related state laws may interfere with
or affect the ability of a lender to realize upon collateral and/or to enforce
a deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) to
collect a debt are automatically stayed upon the filing of the bankruptcy
petition and, often, no interest or principal payments are made during the
course of the bankruptcy case. The delay and the consequences caused by such
automatic stay can be significant. Also, under the
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Bankruptcy Code, the filing of a petition in bankruptcy by or on behalf of a
junior lienor may stay the senior lender from taking action to foreclose out
such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards protective of the lender are met, the amount and terms of a mortgage
loan secured by a lien on property of the debtor may be modified under certain
circumstances. For example, the outstanding amount of the loan may be reduced
to the then-current value of the property (with a corresponding partial
reduction of the amount of lender's security interest) pursuant to a confirmed
plan or lien avoidance proceeding, thus leaving the lender a general unsecured
creditor for the difference between such value and the outstanding balance of
the loan. Other modifications may include the reduction in the amount of each
scheduled payment, by means of a reduction in the rate of interest and/or an
alteration of the repayment schedule (with or without affecting the unpaid
principal balance of the loan), and/or by an extension (or shortening) of the
term to maturity. Some bankruptcy courts have approved plans, based on the
particular facts of the reorganization case, that effected the cure of a
mortgage loan default by paying arrearages over a number of years. Also, a
bankruptcy court may permit a debtor, through its rehabilitative plan, to
reinstate a loan mortgage payment schedule even if the lender has obtained a
final judgment of foreclosure prior to the filing of the debtor's petition.
Federal bankruptcy law may also have the effect of interfering with or
affecting the ability of a secured lender to enforce the borrower's assignment
of rents and leases related to the mortgaged property. Under the Bankruptcy
Code, a lender may be stayed from enforcing the assignment, and the legal
proceedings necessary to resolve the issue could be time-consuming, with
resulting delays in the lender's receipt of the rents. Recent amendments to the
Bankruptcy Code, however, may minimize the impairment of the lender's ability
to enforce the borrower's assignment of rents and leases. In addition to the
inclusion of hotel revenues within the definition of "cash collateral" as noted
previously in the Section entitled "-- Leases and Rents", the amendments
provide that a pre-petition security interest in rents or hotel revenues
extends (unless the bankruptcy court orders otherwise based on the equities of
the case) to such post-petition rents or revenues and is intended to overrule
those cases that held that a security interest in rents is unperfected under
the laws of certain states until the lender has taken some further action, such
as commencing foreclosure or obtaining a receiver prior to activation of the
assignment of rents.
If a borrower's ability to make payment on a mortgage loan is dependent on
its receipt of rent payments under a lease of the related property, that
ability may be impaired by the commencement of a bankruptcy case relating to a
lessee under such lease. Under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a lessee results in a stay in bankruptcy against
the commencement or continuation of any state court proceeding for past due
rent, for accelerated rent, for damages or for a summary eviction order with
respect to a default under the lease that occurred prior to the filing of the
lessee's petition. In addition, the Bankruptcy Code generally provides that a
trustee or debtor-in-possession may, subject to approval of the court, (1)
assume the lease and retain it or assign it to a third party or (2) reject the
lease. If the lease is assumed, the trustee or debtor-in-possession (or
assignee, if applicable) must cure any defaults under the lease, compensate the
lessor for its losses and provide the lessor with "adequate assurance" of
future performance. Such remedies may be insufficient, and any assurances
provided to the lessor may, in fact, be inadequate. If the lease is rejected,
the lessor will be treated as an unsecured creditor with respect to its claim
for damages for termination of the lease. The Bankruptcy Code also limits a
lessor's damages for lease rejection to the rent reserved by the lease (without
regard to acceleration) for the greater of one year, or 15%, not to exceed
three years, of the remaining term of the lease.
Pursuant to the federal doctrine of "substantive consolidation" or to the
(predominantly state law) doctrine of "piercing the corporate veil", a
bankruptcy court, in the exercise of its equitable powers, also has the
authority to order that the assets and liabilities of a related entity be
consolidated with those of an entity before it. Thus, property ostensibly the
property of one entity may be determined to be the property of a different
entity in bankruptcy, the automatic stay applicable to the second entity
extended to the first and the rights of creditors of the first entity impaired
in the fashion set forth above in the discussion of ordinary bankruptcy
principles.
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Depending on facts and circumstances not wholly in existence at the time a loan
is originated or transferred to the trust fund, the application of any of these
doctrines to one or more of the mortgagors in the context of the bankruptcy of
one or more of their affiliates could result in material impairment of the
rights of the Certificateholders.
For each mortgagor that is described as a "special purpose entity",
"single purpose entity" or "bankruptcy remote entity" in the related prospectus
supplement, the activities that may be conducted by such mortgagor and its
ability to incur debt are restricted by the applicable mortgage or the
organizational documents of such mortgagor in such manner as is intended to
make the likelihood of a bankruptcy proceeding being commenced by or against
such mortgagor remote, and such mortgagor has been organized and is designed to
operate in a manner such that its separate existence should be respected
notwithstanding a bankruptcy proceeding in respect of one or more affiliated
entities of such mortgagor. However, the depositor makes no representation as
to the likelihood of the institution of a bankruptcy proceeding by or in
respect of any mortgagor or the likelihood that the separate existence of any
mortgagor would be respected if there were to be a bankruptcy proceeding in
respect of any affiliated entity of a mortgagor.
ENVIRONMENTAL CONSIDERATIONS
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties
that are or have been used for industrial, manufacturing, military or disposal
activity. Such environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In certain circumstances, a lender
may decide to abandon a contaminated mortgaged property as collateral for its
loan rather than foreclose and risk liability for clean-up costs.
Superlien Laws. Under the laws of many states, contamination on a property
may give rise to a lien on the property for clean-up costs. In several states,
such a lien has priority over all existing liens, including those of existing
mortgages. In these states, the lien of a mortgage may lose its priority to
such a "superlien".
CERCLA. CERCLA, imposes strict liability on present and past "owners" and
"operators" of contaminated real property for the costs of clean-up. A secured
lender may be liable as an "owner" or "operator" of a contaminated mortgaged
property if agents or employees of the lender have become sufficiently involved
in the management of such mortgaged property or the operations of the borrower.
Such liability may exist even if the lender did not cause or contribute to the
contamination and regardless of whether or not the lender has actually taken
possession of a mortgaged property through foreclosure, deed in lieu of
foreclosure or otherwise. Moreover, such liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Excluded from CERCLA's definition of "owner" or
"operator", however, is a person "who without participating in the management
of the facility, holds indicia of ownership primarily to protect his security
interest". This is the so-called "secured creditor exemption."
The Asset Conservation, Lender Liability and Deposit Insurance Act of
1996, amended, among other things, the provisions of CERCLA with respect to
lender liability and the secured creditor exemption. The Act offers substantial
protection of lenders by defining the activities in which a lender can engage
and still have the benefit of the secured creditor exemption. In order for a
lender to be deemed to have participated in the management of a mortgaged
property, the lender must actually participate in the operational affairs of
the property of the borrower. The Asset Conservation, Lender Liability and
Deposit Insurance Act of 1996 provides that "merely having the capacity to
influence, or unexercised right to control" operations does not constitute
participation in management. A lender will lose the protection of the secured
creditor exemption only if it exercises decision making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of operational functions
of the
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mortgaged property. The Asset Conservation, Lender Liability and Deposit
Insurance Act of 1996 also provides that a lender will continue to have the
benefit of the secured-creditor exemption even if it forecloses on a mortgaged
property, purchases it at a foreclosure sale or accepts a deed-in-lieu of
foreclosure provided that the lender seeks to sell the mortgaged property at
the earliest practicable commercially reasonable time on commercially
reasonable terms.
Certain Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all those statutes provide for a secured creditor exemption. In
addition, under federal law, there is potential liability relating to hazardous
wastes and underground storage tanks under the federal Resource Conservation
and Recovery Act.
In addition, the definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Subtitle I of the Resource
Conservation and Recovery Act governs underground petroleum storage tanks.
Under the Asset Conservation, Lender Liability and Deposit Insurance Act of
1996, the protections accorded to lenders under CERCLA are also accorded to the
holders of security interests in underground storage tanks. It should be noted,
however, that liability for cleanup of petroleum contamination may be governed
by state law, which may not provide for any specific protection of secured
creditors.
In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of
foreclosure or otherwise, may be required to clean up the contamination before
selling or otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold
a lender liable in such cases, unanticipated or uninsured liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard, but that individual or entity may be without
substantial assets. Accordingly, it is possible that such costs could become a
liability of the trust fund and occasion a loss to the certificateholders of
the related series.
To reduce the likelihood of such a loss, unless otherwise specified in the
related prospectus supplement, the Pooling and Servicing Agreement will provide
that neither the master servicer nor the special servicer, acting on behalf of
the trustee, may acquire title to a mortgaged property or take over its
operation unless the special servicer, based solely (as to environmental
matters) on a report prepared by a person who regularly conducts environmental
audits, has made the determination that it is appropriate to do so, as
described under "The Pooling and Servicing Agreements--Realization Upon
Defaulted Mortgage Loans".
If a lender forecloses on a mortgage secured by a property, the operations
on which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Such compliance may entail substantial expense, especially in the case of
industrial or manufacturing properties.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers
(including prospective buyers at a foreclosure sale or following foreclosure).
Such disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property, sometimes substantially, and thereby decrease
the ability of the lender to recoup its investment in a loan upon foreclosure.
Environmental Site Assessments. In most cases, an environmental site
assessment of each mortgaged property will have been performed in connection
with the origination of the related mortgage loan or at some time prior to the
issuance of the related certificates. Environmental site assessments, however,
vary considerably in their content, quality and cost. Even when adhering to
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good professional practices, environmental consultants will sometimes not
detect significant environmental problems because to do an exhaustive
environmental assessment would be far too costly and time-consuming to be
practical.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the mortgage loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate
the maturity of the loan if the borrower transfers or encumbers the related
mortgaged property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. However, the Garn Act generally preempts state laws that
prohibit the enforcement of due-on-sale clauses and permits lenders to enforce
these clauses in accordance with their terms, subject to certain limitations as
set forth in the Garn Act and the regulations promulgated under the Garn Act.
Accordingly, a master servicer may nevertheless have the right to accelerate
the maturity of a mortgage loan that contains a "due-on-sale" provision upon
transfer of an interest in the property, without regard to the master
servicer's ability to demonstrate that a sale threatens its legitimate security
interest.
JUNIOR LIENS; RIGHTS OF HOLDERS OF SENIOR LIENS
If so provided in the related prospectus supplement, mortgage assets for a
series of certificates may include mortgage loans secured by junior liens, and
the loans secured by the related senior liens may not be included in the
mortgage pool. In addition to the risks faced by the holder of a first lien,
holders of mortgage loans secured by junior liens also face the risk that
adequate funds will not be received in connection with a foreclosure on the
related mortgaged property to satisfy fully both the senior liens and the
mortgage loan. In the event that a holder of a senior lien forecloses on a
mortgaged property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any
other sums due and owing to the holder of the senior liens. The claims of the
holders of the senior liens will be satisfied in full out of proceeds of the
liquidation of the related mortgaged property, if such proceeds are sufficient,
before the trust fund as holder of the junior lien receives any payments in
respect of the mortgage loan. In the event that such proceeds from a
foreclosure or similar sale of the related mortgaged property are insufficient
to satisfy all senior liens and the mortgage loan in the aggregate, the trust
fund, as the holder of the junior lien, and, accordingly, holders of one or
more classes of the certificates of the related series bear (1) the risk of
delay in distributions while a deficiency judgment against the borrower is
obtained and (2) the risk of loss if the deficiency judgment is not realized
upon. Moreover, deficiency judgments may not be available in certain
jurisdictions or the mortgage loan may be nonrecourse.
The rights of the trust fund (and therefore the certificateholders), as
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive rents, hazard insurance and condemnation
proceeds and to cause the property securing the mortgage loan to be sold upon
default of the mortgagor or trustor, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the master servicer asserts its
subordinate interest in a property in foreclosure litigation or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee or beneficiary may satisfy a defaulted senior loan in full, adding
the amounts expended to the balance due on the junior loan. Absent a provision
in the senior mortgage, no notice of default is required to be given to the
junior mortgagee.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order
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as the mortgage or beneficiary may determine. Thus, in the event improvements
on the property are damaged or destroyed by fire or other casualty, or in the
event the property is taken by condemnation, the mortgagee or beneficiary under
the senior mortgage or deed of trust will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation and to apply the same to the
indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed to the extent
the junior mortgage or deed of trust so provides. The laws of certain states
may limit the ability of mortgagees or beneficiaries to apply the proceeds of
hazard insurance and partial condemnation awards to the secured indebtedness.
In such states, the mortgagor or trustor must be allowed to use the proceeds of
hazard insurance to repair the damage unless the security of the mortgagee or
beneficiary has been impaired. Similarly, in certain states, the mortgagee or
beneficiary is entitled to the award for a partial condemnation of the real
property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinate to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
SUBORDINATE FINANCING
The terms of certain of the mortgage loans may not restrict the ability of
the borrower to use the mortgaged property as security for one or more
additional loans, or such restrictions may be unenforceable. Where a borrower
encumbers a mortgaged property with one or more junior liens, the senior lender
is subjected to additional risk. First, the borrower may have difficulty
servicing and repaying multiple loans. Moreover, if the subordinate financing
permits recourse to the borrower (as is frequently the case) and the senior
loan does not, a borrower may have more incentive to repay sums due on the
subordinate loan. Second, acts of the senior lender that prejudice the junior
lender or impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the senior lender
agree to an increase in the principal amount of or the interest rate payable on
the senior loan, the senior lender may lose its priority to the extent any
existing junior lender is harmed or the borrower is additionally burdened.
Third, if the borrower defaults on the senior loan and/or any junior loan or
loans, the existence of junior loans and actions taken by junior lenders can
impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if
payments are not timely made, and in some
68
circumstances may provide for prepayment fees or yield maintenance penalties if
the obligation is paid prior to maturity or prohibit such prepayment for a
specified period. In certain states, there are or may be specific limitations
upon the late charges which a lender may collect from a mortgagor for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a mortgagor as an additional charge if the loan is prepaid. The
enforceability under the laws of a number of states and the Bankruptcy Code of
provisions providing for prepayment fees of penalties upon, or prohibition of,
an involuntary prepayment is unclear, and no assurance can be given that, at
the time a prepayment premium is required to be made on a mortgage loan in
connection with an involuntary prepayment, the obligation to make such payment,
or the provisions of any such prohibition, will be enforceable under applicable
state law. The absence of a restraint on prepayment, particularly with respect
to mortgage loans having higher Mortgage Rates, may increase the likelihood of
refinancing or other early retirements of the mortgage loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 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 of the Depository Institutions
Deregulation and Monetary Control Act of 1980 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 of the Depository Institutions Deregulation and Monetary
Control Act of 1980 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 of the Depository Institutions Deregulation and Monetary
Control Act of 1980. 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
of the Depository Institutions Deregulation and Monetary Control Act of 1980
has been expressly rejected or a provision limiting discount points or other
charges has been adopted, will (if originated after that rejection or adoption)
be eligible for inclusion in a trust fund unless (i) such mortgage loan
provides for such interest rate, discount points and charges as are permitted
in such state or (ii) such mortgage loan provides that the terms are to be
construed in accordance with the laws of another state under which such
interest rate, discount points and charges would not be usurious and the
borrower's counsel has rendered an opinion that such choice of law provision
would be given effect.
CERTAIN LAWS AND REGULATIONS
The mortgaged properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a mortgaged property which could, together with the
possibility of limited alternative uses for a particular mortgaged property
(i.e., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related mortgage loan.
AMERICANS WITH DISABILITIES ACT
Under the ADA, in order to protect individuals with disabilities, public
accommodations (such as hotels, restaurants, shopping centers, hospitals,
schools and social service center establishments) must remove architectural and
communication barriers which are structural in nature from existing places of
public accommodation to the extent "readily achievable." In addition, under the
ADA, alterations to a place of public accommodation or a commercial facility
are to be made so that, to the maximum extent feasible, such altered portions
are readily accessible to and usable by disabled individuals. The "readily
achievable" standard takes into account, among other factors, the financial
resources of the affected site, owner, landlord or other applicable person. In
addition to imposing a possible financial burden on the borrower in its
capacity as owner or landlord, the ADA may also impose such requirements on a
foreclosing lender who succeeds to the interest of the borrower as
69
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.
SERVICEMEMBERS CIVIL RELIEF ACT
Under the terms of 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), upon notification by such borrower, shall not be charged
interest, including fees and charges, in excess of 6% per annum during the
period of such borrower's active duty status. Unless a court or administrative
agency 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 or
the National Oceanic and Atmospheric Administration assigned to duty with the
military. The California Military and Veterans Code provides protection
equivalent to that provided by the Relief Act to California national guard
members called up to active service by the Governor of California, California
national guard members called up to active service by the President and
reservists called to active duty. Because the Relief Act and the California
Military Code apply to borrowers who enter military service, no information can
be provided as to the number of mortgage loans that may be affected by the
Relief Act or the California Military and Veterans Code. Application of the
Relief Act or the California Military and Veterans Code would adversely affect,
for an indeterminate period of time, the ability of a master servicer or
special servicer to collect full amounts of interest on certain of the mortgage
loans. Any shortfalls in interest collections resulting from the application of
the Relief Act or the California Military and Veterans Code would result in a
reduction of the amounts distributable to the holders of the related series of
certificates, and would not be covered by advances or, unless otherwise
specified in the related prospectus supplement, any form of credit support
provided in connection with such certificates. In addition, application of the
Relief Act or the California Military and Veterans Code imposes limitations
that would impair the ability of the master servicer or special servicer to
foreclose on an affected mortgage loan during the borrower's period of active
duty status, and, under certain circumstances, during an additional three month
period thereafter.
FORFEITURE FOR DRUG AND MONEY LAUNDERING VIOLATIONS
Federal law provides that property purchased or improved with assets
derived from criminal activity or otherwise tainted, or used in the commission
of certain offenses, can be seized and ordered forfeited to the United States
of America. The offenses which can trigger such a seizure and forfeiture
include, among others, violations of the Racketeer Influenced and Corrupt
Organizations Act, the Bank Secrecy Act, the anti-money laundering laws and
regulations, including the USA Patriot Act of 2001 and the regulations issued
pursuant to that Act, as well as the narcotic drug laws. In many instances, the
United States may seize the property even before a conviction occurs.
In the event of a forfeiture proceeding, a lender may be able to establish
its interest in the property by proving that (1) its mortgage was executed and
recorded before the commission of the illegal conduct from which the assets
used to purchase or improve the property were derived or before the commission
of any other crime upon which the forfeiture is based, or (2) the lender, at
the time of the execution of the mortgage, "did not know or was reasonably
without cause to believe that the property was subject to forfeiture." However,
there is no assurance that such a defense will be successful.
FEDERAL DEPOSIT INSURANCE ACT; COMMERCIAL MORTGAGE LOAN SERVICING
Under the Federal Deposit Insurance Act, federal bank regulatory
authorities, including the Office of the Comptroller of the Currency (OCC),
have the power to determine if any activity or contractual obligation of a bank
constitutes an unsafe or unsound practice or violates a law, rule or
70
regulation applicable to such bank. If Bank of America, N.A. or another bank is
a servicer and/or a mortgage loan seller for a series and the OCC, which has
primary regulatory authority over Bank of America, N.A. and other banks, were
to find that any obligation of Bank of America, N.A. or such other bank under
the related pooling and servicing agreement or other agreement or any activity
of Bank of America, N.A. or such other bank constituted an unsafe or unsound
practice or violated any law, rule or regulation applicable to it, the OCC
could order Bank of America, N.A. or such other bank among other things to
rescind such contractual obligation or terminate such activity.
In March 2003, the OCC issued a temporary cease and desist order against a
national bank (as to which no conservator or receiver had been appointed)
asserting that, contrary to safe and sound banking practices, the bank was
receiving inadequate servicing compensation in connection with several credit
card securitizations sponsored by its affiliates because of the size and
subordination of the contractual servicing fee, and ordered the bank, among
other things, to immediately resign as servicer, to cease all servicing
activity within 120 days and to immediately withhold funds from collections in
an amount sufficient to compensate if for its actual costs and expenses of
servicing (notwithstanding the priority of payments in the related
securitization agreements).
While the depositor does not believe that the OCC would consider, with
respect to any series, (i) provisions relating to Bank of America, N.A. or
another bank acting as a servicer under the related pooling and servicing
agreement, (ii) the payment or amount of the servicing compensation payable to
Bank of America, N.A. or another bank or (iii) any other obligation of Bank of
America, N.A. or another bank under the related pooling and servicing agreement
or other contractual agreement under which the depositor may purchase mortgage
loans from Bank of America, N.A. or another bank, to be unsafe or unsound or
violative of any law, rule or regulation applicable to it, there can be no
assurance that the OCC in the future would not conclude otherwise. If the OCC
did reach such a conclusion, and ordered Bank of America, N.A. or another bank
to rescind or amend any such agreement, payments on certificates could be
delayed or reduced.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of offered
certificates of any series thereof, to the extent it relates to matters of law
or legal conclusions with respect thereto, represents the opinion of counsel to
the depositor with respect to that series on the material matters associated
with such consequences, subject to any qualifications set forth in this
prospectus. Counsel to the depositor for each series will be Cadwalader,
Wickersham & Taft LLP, and a copy of the legal opinion of such counsel rendered
in connection with any series of certificates will be filed by the depositor
with the Securities and Exchange Commission on a Current Report on Form 8-K
within 15 days after the Closing Date for such series of certificates. This
discussion is directed primarily to certificateholders that hold the
certificates as "capital assets" within the meaning of Section 1221 of the Code
(although portions thereof may also apply to certificateholders who do not hold
certificates as capital assets) and it does not purport to discuss all federal
income tax consequences that may be applicable to the individual circumstances
of particular investors, some of which (such as banks, insurance companies and
foreign investors) may be subject to special treatment under the Code. Further,
the authorities on which this discussion, and the opinion referred to below,
are based are subject to change or differing interpretations, which could apply
retroactively. Prospective investors should note that no rulings have been or
will be sought from the IRS with respect to any of the federal income tax
consequences discussed below, and no assurance can be given the IRS will not
take contrary positions. In addition to the federal income tax consequences
described in this prospectus, potential investors are advised to consider the
state and local tax consequences, if any, of the purchase, ownership and
disposition of offered certificates. See "State and Other Tax Consequences".
Certificateholders are advised to consult their tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of offered certificates.
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The following discussion addresses securities of two general types: (1)
REMIC Certificates representing interests in a trust fund, or a portion
thereof, that the REMIC administrator will elect to have treated as a REMIC
under the REMIC Provisions of the Code, and (2) Grantor Trust Certificates
representing interests in a Grantor Trust Fund as to which no such election
will be made. The prospectus supplement for each series of certificates will
indicate whether a REMIC election (or elections) will be made for the related
trust fund and, if such an election is to be made, will identify all "regular
interests" and "residual interests" in the REMIC. For purposes of this tax
discussion, references to a "Certificateholder" or a "holder" are to the
beneficial owner of a certificate.
The following discussion is limited in applicability to offered
certificates. Moreover, this discussion applies only to the extent that
mortgage assets held by a trust fund consist solely of mortgage loans. To the
extent that other mortgage assets, including REMIC certificates and mortgage
pass-through certificates, are to be held by a trust fund, the tax consequences
associated with the inclusion of such assets will be disclosed in the related
prospectus supplement. In addition, if cash flow agreements other than
guaranteed investment contracts are included in a trust fund, the anticipated
material tax consequences associated with such cash flow agreements also will
be discussed in the related prospectus supplement. See "Description of the
Trust Funds--Cash Flow Agreements".
Furthermore, the following discussion is based in part upon the rules
governing original issue discount that are set forth in Sections 1271-1273 and
1275 of the Code and in the OID Regulations, and in part upon the REMIC
Provisions and the REMIC Regulations. The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they are
not applicable to, securities such as the certificates.
REMICS
Classification of REMICs. Upon the issuance of each series of REMIC
Certificates, counsel to the depositor will give its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement and any other governing documents, the related trust fund
(or each applicable portion thereof) will qualify as one or more REMICs and the
REMIC Certificates offered with respect thereto will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in a
REMIC within the meaning of the REMIC Provisions. The following general
discussion of the anticipated federal income tax consequences of the purchase,
ownership and disposition of REMIC Certificates, to the extent it relates to
matters of law or legal conclusions with respect thereto, represents the
opinion of counsel to the depositor for the applicable series as specified in
the related prospectus supplement, subject to any qualifications set forth in
this prospectus. In addition, counsel to the depositor have prepared or
reviewed the statements in this prospectus under the heading "Certain Federal
Income Tax Consequences -- REMICs," and are of the opinion that such statements
are correct in all material respects. Such statements are intended as an
explanatory discussion of the possible effects of the classification of any
trust fund (or applicable portion thereof) as one or more REMICs for federal
income tax purposes on investors generally and of related tax matters affecting
investors generally, but do not purport to furnish information in the level of
detail or with the attention to an investor's specific tax circumstances that
would be provided by an investor's own tax advisor. Accordingly, each investor
is advised to consult its own tax advisors with regard to the tax consequences
to it of investing in REMIC Certificates.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for such status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In that event, such entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described below. Although the
Code authorizes the Treasury Department to issue regulations providing relief
in the event of an inadvertent termination of REMIC status, no such regulations
have been issued. Any such relief, moreover, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the trust
72
fund's income for the period in which the requirements for such status are not
satisfied. The Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the trust fund's status as a REMIC
under the REMIC Provisions. It is not anticipated that the status of any trust
fund as a REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Certificates. In general, unless
otherwise provided in the related prospectus supplement, the REMIC Certificates
will be "real estate assets" within the meaning of Section 856(c)(5)(B) of the
Code and assets described in Section 7701(a)(19)(C) of the Code in the same
proportion that the assets of the REMIC underlying such certificates would be
so treated. However, to the extent that the REMIC assets constitute mortgages
on property not used for residential or certain other prescribed purposes, the
REMIC Certificates will not be treated as assets qualifying under Section
7701(a)(19)(C). Moreover, if 95% or more of the assets of the REMIC qualify for
any of the foregoing characterizations at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in their entirety
for that calendar year. Interest (including original issue discount) on the
REMIC Regular Certificates and income allocated to the REMIC Residual
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such certificates are treated as "real estate assets" within
the meaning of Section 856(c)(5)(B) of the Code. In addition, except as
otherwise provided in the applicable prospectus supplement, the REMIC Regular
Certificates will be "qualified mortgages" for a REMIC within the meaning of
Section 860G(a)(3) of the Code and "permitted assets" for a financial asset
securitization investment trust within the meaning of Section 860L(c) of the
Code. The determination as to the percentage of the REMIC's assets that
constitute assets described in the foregoing sections of the Code will be made
with respect to each calendar quarter based on the average adjusted basis of
each category of the assets held by the REMIC during such calendar quarter. The
REMIC Administrator will report those determinations to Certificateholders in
the manner and at the times required by applicable Treasury regulations.
Tiered REMIC Structures. For certain series of REMIC Certificates, two or
more separate elections may be made to treat designated portions of the related
trust fund as REMICs for federal income tax purposes. As to each such series of
REMIC Certificates, in the opinion of counsel to the depositor, assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the Tiered REMICs will each qualify as a REMIC and the REMIC Certificates
issued by the Tiered REMICs, will be considered to evidence ownership of REMIC
Regular Certificates or REMIC Residual Certificates in the related REMIC within
the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"real estate assets" within the meaning of Section 856(c)(5)(B) of the Code and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
Taxation of Owners of REMIC Regular Certificates.
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC or
its assets. Moreover, holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
Original Issue Discount. Certain REMIC Regular Certificates may be issued
with "original issue discount" within the meaning of Section 1273(a) of the
Code. Any holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in
income as it accrues, in accordance with the "constant yield" method described
below, in advance of the receipt of the cash attributable to such income. In
addition, Section 1272(a)(6) of the Code provides special rules applicable to
REMIC Regular Certificates and certain other debt instruments issued with
original issue discount. Regulations have not been issued under that section.
73
The Code requires that a reasonable prepayment assumption be used with
respect to mortgage loans held by a REMIC in computing the accrual of original
issue discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner
prescribed in Treasury regulations; as noted above, those regulations have not
been issued. The Committee Report indicates that the regulations will provide
that the prepayment assumption used with respect to a REMIC Regular Certificate
must be the same as that used in pricing the initial offering of such REMIC
Regular Certificate. The Prepayment Assumption used in reporting original issue
discount for each series of REMIC Regular Certificates will be consistent with
this standard and will be disclosed in the related prospectus supplement.
However, neither the depositor nor any other person will make any
representation that the mortgage loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will
be the excess of its stated redemption price at maturity over its issue price.
The issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold (excluding sales to bond houses, brokers and underwriters).
If less than a substantial amount of a particular class of REMIC Regular
Certificates is sold for cash on or prior to the Closing Date, the issue price
for such class will be the fair market value of such class on the Closing Date.
Under the OID Regulations, the stated redemption price of a REMIC Regular
Certificate is equal to the total of all payments to be made on such
Certificate other than "qualified stated interest". "Qualified stated interest"
is interest that is unconditionally payable at least annually (during the
entire term of the instrument) at a single fixed rate, or, as discussed below
under "Variable Rate REMIC Regular Certificates," at a qualified variable rate.
If the accrued interest to be paid on the first Distribution Date is
computed with respect to a period that begins prior to the Closing Date, a
portion of the purchase price paid for a REMIC Regular Certificate will reflect
such accrued interest. In such cases, information returns provided to the
Certificateholders and the IRS will be based on the position that the portion
of the purchase price paid for the interest accrued with respect to periods
prior to the Closing Date is treated as part of the overall cost of such REMIC
Regular Certificate (and not as a separate asset the cost of which is recovered
entirely out of interest received on the next Distribution Date) and that
portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the
stated redemption price of such REMIC Regular Certificate. However, the OID
Regulations state that all or some portion of such accrued interest may be
treated as a separate asset the cost of which is recovered entirely out of
interest paid on the first Distribution Date. It is unclear how an election to
do so would be made under the OID Regulations and whether such an election
could be made unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
de minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average maturity. For this
purpose, the weighted average maturity of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment included in
the stated redemption price of such REMIC Regular Certificate, by multiplying
(i) the number of complete years (rounding down for partial years) from the
issue date until such payment is expected to be made (presumably taking into
account the Prepayment Assumption) by (ii) a fraction, the numerator of which
is the amount of the payment, and the denominator of which is the stated
redemption price at maturity of such REMIC Regular Certificate. Under the OID
Regulations, original issue discount of only a de minimis amount (other than de
minimis original issue discount attributable to a so-called "teaser" interest
rate or an initial interest holiday) will be included in income as each payment
of stated principal is made, based on the product of the total amount of such
de minimis original issue discount and a fraction, the numerator of which is
the amount of such principal payment and the denominator of which is the
outstanding stated principal amount of the REMIC Regular Certificate. The OID
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Regulations also would permit a Certificateholder to elect to accrue de minimis
original issue discount into income currently based on a constant yield method.
See "--Taxation of Owners of REMIC Regular Certificates--Market Discount" below
for a description of such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of
a de minimis amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for
each day during its taxable year on which it held such REMIC Regular
Certificate, including the purchase date but excluding the disposition date. In
the case of an original holder of a REMIC Regular Certificate, the daily
portions of original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related prospectus supplement, each period that begins on a date that
corresponds to a Distribution Date (or in the case of the first such period,
begins on the Closing Date) and ends on the day preceding the immediately
following Distribution Date, a calculation will be made of the portion of the
original issue discount that accrued during such accrual period. The portion of
original issue discount that accrues in any accrual period will equal the
excess, if any, of (1) the sum of (a) the present value, as of the end of the
accrual period, of all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (b) the distributions made
on such REMIC Regular Certificate during the accrual period of amounts included
in the stated redemption price, over (2) the adjusted issue price of such REMIC
Regular Certificate at the beginning of the accrual period. The present value
of the remaining distributions referred to in the preceding sentence will be
calculated (1) assuming that distributions on the REMIC Regular Certificate
will be received in future periods based on the mortgage loans being prepaid at
a rate equal to the Prepayment Assumption, (2) using a discount rate equal to
the original yield to maturity of the Certificate and (3) taking into account
events (including actual prepayments) that have occurred before the close of
the accrual period. For these purposes, the original yield to maturity of the
Certificate will be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual periods based on
the mortgage loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with respect to such
Certificate in prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
of amounts included in the stated redemption price. The original issue discount
accruing during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to determine the daily
portion of original issue discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of
any original issue discount with respect to such Certificate. However, each
such daily portion will be reduced, if such cost is in excess of its "adjusted
issue price", in proportion to the ratio such excess bears to the aggregate
original issue discount remaining to be accrued on such REMIC Regular
Certificate. The adjusted issue price of a REMIC Regular Certificate on any
given day equals the sum of (1) the adjusted issue price (or, in the case of
the first accrual period, the issue price) of such Certificate at the beginning
of the accrual period which includes such day and (2) the daily portions of
original issue discount for all days during such accrual period prior to such
day.
Variable Rate REMIC Regular Certificates. REMIC 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, (1) the issue
price does not exceed the original principal balance by more than a specified
amount and (2) 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
75
can reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds, where the rate is subject to a fixed multiple that is
greater than 0.65, but not more than 1.35. The 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. 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 the
information is not (1) within the control of the issuer or a related party or
(2) unique to the circumstances of the issuer or a related party. A qualified
inverse floating rate is a rate 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 REMIC 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 so that it is considered
significantly "front-loaded" or "back-loaded" within the meaning of the OID
Regulations. It is possible that a class of this type 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 REMIC Regular Certificates. However, if final
regulations dealing with contingent interest with respect to REMIC Regular
Certificates apply the same principles as the OID Regulations, those
regulations may lead to different timing of income inclusion than would be the
case under the OID Regulations. Furthermore, application of those principles
could lead to the characterization of gain on the sale of contingent interest
REMIC Regular Certificates as ordinary income. Investors should consult their
tax advisors regarding the appropriate treatment of any REMIC Regular
Certificate that does not pay interest at a fixed rate or variable rate as
described in this paragraph.
Under the REMIC Regulations, a REMIC Regular Certificate (1) 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 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, including a
rate that is subject to one or more caps or floors, or (2) bearing one or more
of these 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, REMIC Regular
Certificates that qualify as regular interests under this rule will be treated
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 REMIC 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 that REMIC Regular Certificate generally to be
determined by assuming that interest will be payable for the life of the REMIC
Regular Certificate based on the initial rate for the relevant class. Unless
otherwise specified in the applicable prospectus supplement, variable interest
will be treated as qualified stated interest, other than variable interest on
an interest-only class, which will be treated as non-qualified stated interest
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, REMIC Regular Certificates bearing an interest
rate that is a weighted average of the net interest rates on mortgage loans
having fixed or adjustable rates, will be treated 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 those REMIC 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
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adjustable rate mortgage loans, the applicable index used to compute interest
on the mortgage loans for the initial interest accrual period 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 interest rate on the REMIC
Regular Certificates.
Market Discount. A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC Regular
Certificate issued without original issue discount, at a purchase price less
than its remaining stated principal amount, or in the case of a REMIC Regular
Certificate issued with original issue discount, at a purchase price less than
its adjusted issue price will recognize gain upon receipt of each distribution
representing stated redemption price. In particular, under Section 1276 of the
Code such a Certificateholder generally will be required to allocate the
portion of each such distribution representing stated redemption price first to
accrued market discount not previously included in income, and to recognize
ordinary income to that extent. A Certificateholder may elect to include market
discount in income currently as it accrues rather than including it on a
deferred basis in accordance with the foregoing. If made, such election will
apply to all market discount bonds acquired by such Certificateholder on or
after the first day of the first taxable year to which such election applies.
In addition, the OID Regulations permit a Certificateholder to elect to accrue
all interest and discount (including de minimis market or original issue
discount) in income as interest, and to amortize premium, based on a constant
yield method. If such an election were made with respect to a REMIC Regular
Certificate with market discount, the Certificateholder would be deemed to have
made an election to include currently market discount in income with respect to
all other debt instruments having market discount that such Certificateholder
acquires during the taxable year of the election or thereafter, including de
minimis market discount discussed in the following paragraph. Similarly, a
Certificateholder that made this election for a Certificate that is acquired at
a premium would be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "--Taxation of Owners of REMIC Regular
Certificates--Premium" below. Each of these elections to accrue interest,
discount and premium with respect to a Certificate on a constant yield method
or as interest would be irrevocable except with the approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if such
market discount is less than 0.25% of the remaining stated redemption price of
such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect
to market discount, presumably taking into account the Prepayment Assumption.
If market discount is treated as de minimis under this rule, it appears that
the actual discount would be treated in a manner similar to original issue
discount of a de minimis amount. See "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than
one installment. Until regulations are issued by the Treasury Department,
certain rules described in the Committee Report apply. The Committee Report
indicates that in each accrual period market discount on REMIC Regular
Certificates should accrue, at the Certificateholder's option: (1) on the basis
of a constant yield method, (2) in the case of a REMIC Regular Certificate
issued without original issue discount, in an amount that bears the same ratio
to the total remaining market discount as the stated interest paid in the
accrual period bears to the total amount of stated interest remaining to be
paid on the REMIC Regular Certificate as of the beginning of the accrual
period, or (3) in the case of a REMIC Regular Certificate issued with original
issue discount, in an amount that bears the same ratio to the total remaining
market
77
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining on the REMIC Regular Certificate at
the beginning of the accrual period. Moreover, the Prepayment Assumption used
in calculating the accrual of original issue discount is also used in
calculating the accrual of market discount. Because the regulations referred to
in this paragraph have not been issued, it is not possible to predict what
effect such regulations might have on the tax treatment of a REMIC Regular
Certificate purchased at a discount in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC
Regular Certificate generally will be required to treat a portion of any gain
on the sale or exchange of such Certificate as ordinary income to the extent of
the market discount accrued to the date of disposition under one of the
foregoing methods, less any accrued market discount previously reported as
ordinary income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased
at a premium. The holder of such a REMIC Regular Certificate may elect under
Section 171 of the Code to amortize such premium under the constant yield
method over the life of the Certificate. If made, such an election will apply
to all debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to
interest income on the related debt instrument, rather than as a separate
interest deduction. The OID Regulations also permit Certificateholders to elect
to include all interest, discount and premium in income based on a constant
yield method, further treating the Certificateholder as having made the
election to amortize premium generally. See "--Taxation of Owners of REMIC
Regular Certificates-- Market Discount" above. Although final Treasury
regulations issued under Section 171 of the Code do not by their terms apply to
prepayable obligations such as REMIC Regular Certificates, the Committee Report
states that the same rules that apply to accrual of market discount (which
rules will require use of a Prepayment Assumption in accruing market discount
with respect to REMIC Regular Certificates without regard to whether such
certificates have original issue discount) will also apply in amortizing bond
premium.
Realized Losses. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire such certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their certificates become wholly or partially
worthless as the result of one or more realized losses on the mortgage loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its Certificate Balance has been reduced
to zero) and that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in
78
distributions attributable to defaults or delinquencies on the mortgage loans
or the Underlying Certificates until it can be established that any such
reduction ultimately will not be recoverable. As a result, the amount of
taxable income reported in any period by the holder of a REMIC Regular
Certificate could exceed the amount of economic income actually realized by the
holder in such period. Although the holder of a REMIC Regular Certificate
eventually will recognize a loss or reduction in income attributable to
previously accrued and included income that, as the result of a realized loss,
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level taxation, except
with regard to prohibited transactions and certain other transactions. See
"--Prohibited Transactions Tax and Other Taxes" below. Rather, the taxable
income or net loss of a REMIC is generally taken into account by the holder of
the REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates
will be subject to tax rules that differ significantly from those that would
apply if the REMIC Residual Certificates were treated for federal income tax
purposes as direct ownership interests in the mortgage loans or as debt
instruments issued by the REMIC.
A REMIC Residual Certificateholder generally will be required to report
its daily portion of the taxable income or, subject to the limitations noted in
this discussion, the net loss of the REMIC for each day during a calendar
quarter that such holder owned such REMIC Residual Certificate. For this
purpose, the taxable income or net loss of the REMIC will be allocated to each
day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
prospectus supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "--Taxable Income
of the REMIC" and will be taxable to the REMIC Residual Certificateholders
without regard to the timing or amount of cash distributions by the REMIC until
the REMIC's termination. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to limitations under Section 469 of the Code on the
deductibility of "passive losses".
A holder of a REMIC Residual Certificate that purchased such Certificate
from a prior holder of such Certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income (or net loss) of the REMIC for each day that it holds such REMIC
Residual Certificate. Those daily amounts generally will equal the amounts of
taxable income or net loss determined as described above. The Committee Report
indicates that certain modifications of the general rules may be made, by
regulations, legislation or otherwise to reduce (or increase) the income of a
REMIC Residual Certificateholder that purchased such REMIC Residual Certificate
from a prior holder of such Certificate at a price greater than (or less than)
the adjusted basis (as defined below) such REMIC Residual Certificate would
have had in the hands of an original holder of such Certificate. The REMIC
Regulations, however, do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate from the
seller of such Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it is possible that any
such payment would be includible in income immediately upon its receipt, the
IRS might assert that such payment should be included in income over time
according to an amortization schedule or according to some other method.
Because of the uncertainty concerning the treatment of such payments, holders
of REMIC Residual Certificates should consult their tax advisors concerning the
treatment of such payments for income tax purposes.
79
The amount of income REMIC Residual Certificateholders will be required to
report (or the tax liability associated with such income) may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to "excess inclusions" and
"noneconomic" residual interests discussed below. The fact that the tax
liability associated with the income allocated to REMIC Residual
Certificateholders may exceed the cash distributions received by such REMIC
Residual Certificateholders for the corresponding period may significantly
adversely affect such REMIC Residual Certificateholders' after-tax rate of
return. Such disparity between income and distributions may not be offset by
corresponding losses or reductions of income attributable to the REMIC Residual
Certificateholder until subsequent tax years and, then, may not be completely
offset due to changes in the Code, tax rates or character of the income or
loss.
Taxable Income of the REMIC. The taxable income of the REMIC will equal
the income from the mortgage loans (including interest, market discount and, if
applicable, original issue discount and less premium) and other assets of the
REMIC plus any cancellation of indebtedness income due to the allocation of
realized losses to REMIC Regular Certificates, less the deductions allowed to
the REMIC for interest (including original issue discount and reduced by any
premium on issuance) on the REMIC Regular Certificates (and any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby), amortization of any premium on the mortgage loans, bad debt losses
with respect to the mortgage loans and, except as described below, for
servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, such Class's fair market value). Such aggregate basis will be
allocated among the mortgage loans and the other assets of the REMIC in
proportion to their respective fair market values. The issue price of any REMIC
Certificates offered hereby will be determined in the manner described above
under "--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount". The issue price of a REMIC Certificate received in exchange for an
interest in the mortgage loans or other property will equal the fair market
value of such interests in the mortgage loans or other property. Accordingly,
if one or more classes of REMIC Certificates are retained initially rather than
sold, the REMIC Administrator may be required to estimate the fair market value
of such interests in order to determine the basis of the REMIC in the mortgage
loans and other property held by the REMIC.
The method of accrual by the REMIC of original issue discount income and
market discount income with respect to mortgage loans that it holds will be
equivalent to the method for accruing original issue discount income for
holders of REMIC Regular Certificates (that is, under the constant yield method
taking into account the Prepayment Assumption), but without regard to the de
minimis rule applicable to REMIC Regular Certificates. However, a REMIC that
acquires loans at a market discount must include such market discount in income
currently, as it accrues, on a constant yield basis. See "--Taxation of Owners
of REMIC Regular Certificates" above, which describes a method for accruing
such discount income that is analogous to that required to be used by a REMIC
as to mortgage loans with market discount that it holds.
A mortgage loan will be deemed to have been acquired with discount (or
premium) to the extent that the REMIC's basis in that mortgage loan, determined
as described in the preceding paragraph, is less than (or greater than) its
stated redemption price. Any such discount will be includible in the income of
the REMIC as it accrues, in advance of receipt of the cash attributable to such
income, under a method similar to the method described above for accruing
original issue discount on the REMIC Regular Certificates. It is anticipated
that each REMIC will elect under Section 171 of the Code to amortize any
premium on the mortgage loans. Premium on any mortgage loan to which such
election applies may be amortized under a constant yield method, presumably
taking into account a Prepayment Assumption. Further, such an election would
not apply to any mortgage loan originated on or before September 27, 1985.
Instead, premium on such a
80
mortgage loan should be allocated among the principal payments thereon and be
deductible by the REMIC as those payments become due or upon the prepayment of
such mortgage loan.
A REMIC will be allowed deductions for interest (including original issue
discount) on the REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
equal to the deductions that would be allowed if the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) were indebtedness of the REMIC.
Original issue discount will be considered to accrue for this purpose as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount", except that the de minimis rule and the
adjustments for subsequent holders of REMIC Regular Certificates (including any
other class of REMIC Certificates constituting "regular interests" in the REMIC
not offered hereby) described in that section will not apply.
If a class of REMIC Regular Certificates is issued with an Issue Premium,
the REMIC will have additional income in each taxable year in an amount equal
to the portion of the Issue Premium that is considered to be amortized or
repaid in that year. Although the matter is not entirely certain, it is likely
that Issue Premium would be amortized under a constant yield method in a manner
analogous to the method of accruing original issue discount described above
under "--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount".
As a general rule, the taxable income of a REMIC will be determined in the
same manner as if the REMIC were an individual having the calendar year as its
taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "--Prohibited Transactions Tax and Other Taxes" below.
Further, the limitation on miscellaneous itemized deductions imposed on
individuals by Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's adjusted
gross income) will not be applied at the REMIC level so that the REMIC will be
allowed deductions for servicing, administrative and other noninterest expenses
in determining its taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to the limitation
of Section 67 of the Code. See "--Possible Pass-Through of Miscellaneous
Itemized Deductions" below. If the deductions allowed to the REMIC exceed its
gross income for a calendar quarter, such excess will be the net loss for the
REMIC for that calendar quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for such REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by distributions made, and
by net losses allocated, to such REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent such net loss exceeds such
REMIC Residual Certificateholder's adjusted basis in its REMIC Residual
Certificate as of the close of such calendar quarter (determined without regard
to such net loss). Any loss that is not currently deductible by reason of this
limitation may be carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income from the
REMIC Residual Certificate. The ability of REMIC Residual Certificateholders to
deduct net losses may be subject to additional limitations under the Code, as
to which REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
nontaxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds such adjusted basis, it will be treated
as gain from the sale of such REMIC Residual Certificate. Holders of certain
REMIC Residual Certificates may be entitled to distributions early in the term
of the related REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such distributions
will be treated as nontaxable returns of capital. Their bases in such REMIC
Residual Certificates will initially equal the amount paid for such REMIC
Residual Certificates and will be increased by their allocable shares of
taxable income of the REMIC.
81
However, such bases increases may not occur until the end of the calendar
quarter, or perhaps the end of the calendar year, with respect to which such
REMIC taxable income is allocated to the REMIC Residual Certificateholders. To
the extent such REMIC Residual Certificateholders' initial bases are less than
the distributions to such REMIC Residual Certificateholders, and increases in
such initial bases either occur after such distributions or (together with
their initial bases) are less than the amount of such distributions, gain will
be recognized to such REMIC Residual Certificateholders on such distributions
and will be treated as gain from the sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder see "--Taxation of Owners of REMIC
Residual Certificates--General" above.
Regulations have been proposed addressing the federal income tax treatment
of "inducement fees" received by transferees of non-economic residual
interests. The proposed regulations would require inducement fees to be
included in income over a period reasonably related to the period in which the
related residual interest is expected to generate taxable income or net loss to
its holder. Under two proposed safe harbor methods, inducement fees would be
permitted to be included in income (i) in the same amounts and over the same
period that the taxpayer uses for financial reporting purposes, provided that
such period is not shorter than the period the REMIC is expected to generate
taxable income or (ii) ratably over the remaining anticipated weighted average
life of all the regular and residual interests issued by the REMIC, determined
based on actual distributions projected as remaining to be made on such
interests under the Prepayment Assumption. If the holder of a non-economic
residual interest sells or otherwise disposes of the non-economic residual
interest, any unrecognized portion of the inducement fee would be required to
be taken into account at the time of the sale of disposition.
If these rules are adopted without change, they will apply to taxable
years ending on or after the date that they are published as final regulations,
and consequently these rules may govern the treatment of any inducement fee
received in connection with the purchase of the REMIC Residual Certificates.
Prospective purchasers of the REMIC Residual Certificates should consult with
their tax advisors regarding the effect of these proposed regulations.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC
Residual Certificate will be subject to federal income tax in all events. In
general, the "excess inclusions" with respect to a REMIC Residual Certificate
for any calendar quarter will be the excess, if any, of (1) the daily portions
of REMIC taxable income allocable to such REMIC Residual Certificate over (2)
the sum of the "daily accruals" (as defined below) for each day during such
quarter that such REMIC Residual Certificate was held by such REMIC Residual
Certificateholder. The daily accruals of a REMIC Residual Certificateholder
will be determined by allocating to each day during a calendar quarter its
ratable portion of the product of the "adjusted issue price" of the REMIC
Residual Certificate at the beginning of the calendar quarter and 120% of the
"long-term Federal rate" in effect on the Closing Date. For this purpose, the
adjusted issue price of a REMIC Residual Certificate as of the beginning of any
calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to
such REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of the
REMIC Residual Certificates were sold. The "long-term Federal rate" is an
average of current yields on Treasury securities with a remaining term of
greater than nine years, computed and published monthly by the IRS.
82
For REMIC Residual Certificateholders, an excess inclusion (1) will not be
permitted to be offset by deductions, losses or loss carryovers from other
activities, (2) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (3) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "--Foreign
Investors in REMIC Certificates" below.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule
to regulated investment companies, common trust funds and certain cooperatives;
the REMIC Regulations currently do not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates will be disregarded for
all federal income tax purposes if "a significant purpose of the transfer was
to enable the transferor to impede the assessment or collection of tax". If
such transfer is disregarded, the purported transferor will continue to remain
liable for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment Assumption and on
any required or permitted clean up calls, or required liquidation provided for
in the REMIC's organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal rate" for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the IRS) on the
REMIC Residual Certificate equals at least the present value of the expected
tax on the anticipated excess inclusions, and (2) the transferor reasonably
expects that the transferee will receive distributions with respect to the
REMIC Residual Certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. 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. Under the REMIC Regulations, a safe harbor is provided if (1) 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, (2) 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 and (3) the transferee
represents to the transferor that it will not cause income from the REMIC
Residual Certificate to be attributable to a foreign permanent establishment or
fixed base (within the meaning of an applicable income tax treaty) of the
transferee or any other person. Accordingly, all transfers of REMIC Residual
Certificates that may constitute noneconomic residual interests will be subject
to certain restrictions under the terms of the related Pooling and Servicing
Agreement that are intended to reduce the possibility of any such transfer
being disregarded. Such restrictions will require the transferee to provide an
affidavit to certify to the matters in the preceding sentence. The transferor
must have no actual knowledge or reason to know that those statements are
false.
In addition to the three conditions set forth above, the REMIC Regulations
contain a fourth requirement that must be satisfied in one of two alternative
ways for the transferor to have a "safe harbor" against ignoring the transfer:
83
(1) the present value of the anticipated tax liabilities associated with
holding the noneconomic residual interest not exceed the sum of:
(i) the present value of any consideration given to the transferee to
acquire the interest;
(ii) the present value of the expected future distributions on the
interest; and
(iii) the present value of the anticipated tax savings associated with
holding the interest as the REMIC generates losses.
For purposes of the computations under this "minimum transfer price"
alternative, the transferee is assumed to pay tax at the highest rate of tax
specified in Section 11(b)(1) of the Code (currently 35%) or, in certain
circumstances, the minimum tax rate specified in Section 55 of the Code.
Further, present values generally are computed using a discount rate equal to
the short-term Federal rate set forth in Section 1274(d) of the Code for the
month of the transfer and the compounding period used by the transferee; or
(2) (i) the transferee must be a domestic "C" corporation (other than a
corporation exempt from taxation of a regulated investment company or real
estate investment trust) that meets certain gross and net asset tests
(generally, $100 million of gross assets and $10 million of net assets for the
current year and the two preceding fiscal years);
(ii) the transferee must agree in writing that it will transfer the
REMIC Residual Certificate only to a subsequent transferee that is an
eligible corporation and meets the requirements for a safe harbor transfer;
and
(iii) the facts and circumstances known to the transferor on or before
the date of the transfer must not reasonably indicate that the taxes
associated with ownership of the REMIC Residual Certificate will not be
paid by the transferee.
The related prospectus supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "--Foreign Investors in REMIC Certificates" below
for additional restrictions applicable to transfers of certain REMIC Residual
Certificates to foreign persons.
Mark-to-Market Rules. The IRS has issued regulations, relating to the
requirement that a securities dealer mark to market securities held for sale to
customers. This mark-to-market requirement applies to all securities owned by a
dealer, except to the extent that the dealer has specifically identified a
security as held for investment. The mark-to-market regulations provide that
for purposes of this requirement, a REMIC Residual Certificate will not be
treated as a security and thus generally may not be marked to market.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and
expenses of a REMIC generally will be allocated to certain types of holders of
the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single
class grantor trust, all or a portion of such fees and expenses should be
allocated to such types of holders of the related REMIC Regular Certificates.
Unless otherwise stated in the related prospectus supplement, such fees and
expenses will be allocated to the related REMIC Residual Certificates in their
entirety and not to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate
or trust, or a "pass-through entity" beneficially owned by one or more
individuals, estates or trusts, (1) an amount equal to such individual's,
estate's or trust's share of such fees and expenses will be added to the gross
income of such holder and (2) such individual's, estate's or trust's share of
such fees and expenses will be treated as a miscellaneous
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itemized deduction allowable subject to the limitation of Section 67 of the
Code, which permits such deductions only to the extent they exceed in the
aggregate 2% of a taxpayer's adjusted gross income. In addition, Section 68 of
the Code provides that the amount of itemized deductions otherwise allowable
for an individual whose adjusted gross income exceeds a specified amount will
be reduced by the lesser of (1) 3% of the excess of the individual's adjusted
gross income over such amount or (2) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by REMIC Certificateholders that are subject to the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of such a
holder of a REMIC Certificate that is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for such holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of such fees and other deductions will be
included in such holder's gross income. Accordingly, such REMIC Certificates
may not be appropriate investments for individuals, estates, or trusts, or
pass-through entities beneficially owned by one or more individuals, estates or
trusts. Such prospective investors should consult with their tax advisors prior
to making an investment in such certificates.
Under tax legislation enacted in 2001, the limitations on deductions under
Section 68 will be phased out beginning in 2006 and will be eliminated after
2009.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its adjusted basis in the REMIC
Certificate. The adjusted basis of a REMIC Regular Certificate generally will
equal the cost of such REMIC Regular Certificate to such Certificateholder,
increased by income reported by such Certificateholder with respect to such
REMIC Regular Certificate (including original issue discount and market
discount income) and reduced (but not below zero) by distributions on such
REMIC Regular Certificate received by such Certificateholder and by any
amortized premium. The adjusted basis of a REMIC Residual Certificate will be
determined as described above under "--Taxation of Owners of REMIC Residual
Certificates--Basis Rules, Net Losses and Distributions". Except as provided in
the following four paragraphs, any such gain or loss will be capital gain or
loss, provided such REMIC Certificate is held as a capital asset (generally,
property held for investment) within the meaning of Section 1221 of the Code.
The Code as of the date of this prospectus provides for tax rates for
individuals on ordinary income that are higher than the tax rates for long-term
capital gains of individuals for property held for more than one year. No such
rate differential exists for corporations. In addition, the distinction between
a capital gain or loss and ordinary income or loss remains relevant for other
purposes. Investors that recognize a loss on a sale or exchange of a REMIC
Regular Certificate for federal income tax purposes in excess of certain
threshold amounts should consult their tax advisors as to the need to file IRS
Form 8886 (disclosing certain potential tax shelters) on their federal income
tax returns.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
a capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (1) the amount that would have been
includible in the seller's income with respect to such REMIC Regular
Certificate assuming that income had accrued thereon at a rate equal to 110% of
the "applicable Federal rate" (generally, a rate based on an average of current
yields on treasury securities having a maturity comparable to that of the
certificate based on the application of the Prepayment Assumption to such
certificate), determined as of the date of purchase of such REMIC Regular
Certificate, over (2) the amount of ordinary income actually includible in the
seller's income prior to such sale. In addition, gain recognized on the sale of
a REMIC Regular Certificate by a seller who purchased such REMIC Regular
Certificate at a market discount will be taxable as ordinary income in an
amount not exceeding the portion of such discount that accrued during the
period such REMIC Certificate was held by such holder, reduced by any market
discount included in income under the rules described above under "--Taxation
of Owners of REMIC Regular Certificates-- Market Discount" and "--Premium".
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REMIC Certificates will be "evidences of indebtedness" within the meaning
of Section 582(c)(1) of the Code, so that gain or loss recognized from the sale
of a REMIC Certificate by a bank or thrift institution to which such Section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not
exceed the amount of interest that would have accrued on the taxpayer's net
investment at 120% of the appropriate "applicable Federal rate" at the time the
taxpayer enters into the conversion transaction, subject to appropriate
reduction for prior inclusion of interest and other ordinary income items from
the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for the taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury Department regulations yet to be
issued, if the seller of a REMIC Residual Certificate reacquires such REMIC
Residual Certificate, or acquires any other residual interest in a REMIC or any
similar interest in a "taxable mortgage pool" (as defined in Section 7701(i) of
the Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale"
rules of Section 1091 of the Code. In that event, any loss realized by the
REMIC Residual Certificateholder on the sale will not be deductible, but
instead will be added to such REMIC Residual Certificateholder's adjusted basis
in the newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Code imposes a tax on
REMICs equal to 100% of the net income derived from "prohibited transactions".
In general, subject to certain specified exceptions a prohibited transaction
means the disposition of a mortgage loan, the receipt of income from a source
other than a mortgage loan or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an asset
purchased with the payments on the mortgage loans for temporary investment
pending distribution on the REMIC Certificates. It is not anticipated that any
REMIC will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax
on the REMIC equal to 100% of the value of the contributed property. Each
Pooling and Servicing Agreement will include provisions designed to prevent the
acceptance of any contributions that would be subject to such tax.
REMICs also are subject to federal income tax at the highest corporate
rate on "net income from foreclosure property", determined by reference to the
rules applicable to real estate investment trusts. "Net income from foreclosure
property" generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment
trust. As provided in each Pooling and Servicing Agreement, a REMIC may
recognize "net income from foreclosure property" subject to federal income tax
to the extent that the REMIC Administrator determines that such method of
operation will result in a greater after-tax return to the trust fund than any
other method of operation.
Unless otherwise disclosed in the related prospectus supplement, it is not
anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related prospectus supplement, and to the
extent permitted by then applicable laws, any prohibited transactions tax or
contributions tax will be borne by the
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related REMIC administrator, master servicer, special servicer, manager or
trustee, in any case out of its own funds, provided that such person has
sufficient assets to do so, and provided further that such tax arises out of a
breach of such person's obligations under the related Pooling and Servicing
Agreement and in respect of compliance with applicable laws and regulations.
Any such tax not borne by a REMIC administrator, a master servicer, special
servicer, manager or trustee will be charged against the related trust fund
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to
Certain Organizations. If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be imposed in an
amount (determined under the REMIC Regulations) equal to the product of (1) the
present value (discounted using the "applicable Federal rate" for obligations
whose term ends on the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual Certificate) of the total
anticipated excess inclusions with respect to such REMIC Residual Certificate
for periods after the transfer and (2) the highest marginal federal income tax
rate applicable to corporations. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred
and must be based on events that have occurred up to the time of such transfer,
the Prepayment Assumption and any required or permitted clean up calls or
required liquidation provided for in the REMIC's organizational documents. Such
a tax generally would be imposed on the transferor of the REMIC Residual
Certificate, except that where such transfer is through an agent for a
disqualified organization, the tax would instead be imposed on such agent.
However, a transferor of a REMIC Residual Certificate would in no event be
liable for such tax with respect to a transfer if the transferee furnishes to
the transferor an affidavit that the transferee is not a disqualified
organization and, as of the time of the transfer, the transferor does not have
actual knowledge that such affidavit is false. Moreover, an entity will not
qualify as a REMIC unless there are reasonable arrangements designed to ensure
that (1) residual interests in such entity are not held by disqualified
organizations and (2) information necessary for the application of the tax
described herein will be made available. Restrictions on the transfer of REMIC
Residual Certificates and certain other provisions that are intended to meet
this requirement will be included in each Pooling and Servicing Agreement, and
will be discussed in any prospectus supplement relating to the offering of any
REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (1) the
amount of excess inclusions on the REMIC Residual Certificate that are
allocable to the interest in the pass-through entity held by such disqualified
organization and (2) the highest marginal federal income tax rate imposed on
corporations. A pass-through entity will not be subject to this tax for any
period, however, if each record holder of an interest in such pass-through
entity furnishes to such pass-through entity (1) such holder's social security
number and a statement under penalties of perjury that such social security
number is that of the record holder or (2) a statement under penalties of
perjury that such record holder is not a disqualified organization.
If an "electing large partnership" holds a REMIC Residual Certificate, all
interests in the electing large partnership are treated as held by disqualified
organizations for purposes of the tax imposed upon a pass-through entity by
Section 860E(c) of the Code. An exception to this tax, otherwise available to a
pass-through entity that is furnished certain affidavits by record holders of
interests in the entity and that does not know such affidavits are false, is
not available to an electing large partnership.
For these purposes, a "disqualified organization" means (1) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (2) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (3) any organization described in Section 1381(a)(2)(C) of the
Code. In addition, a "pass-through entity" means any
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regulated investment company, real estate investment trust, trust, partnership
or certain other entities described in Section 860E(e)(6) of the Code. In
addition, a person holding an interest in a pass-through entity as a nominee
for another person will, with respect to such interest, be treated as a
pass-through entity. For these purposes, an "electing large partnership" means
a partnership (other than a service partnership or certain commodity pools)
having more than 100 members that has elected to apply certain simplified
reporting provisions under the Code.
Termination. A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in respect of the
mortgage loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in such Certificate, such REMIC Residual
Certificateholder should (but may not) be treated as realizing a loss equal to
the amount of such difference, and such loss may be treated as a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
Unless otherwise stated in the related prospectus supplement, the holder of the
largest percentage interest in a class of REMIC Residual Certificates will be
the "tax matters person" with respect to the related REMIC, and the REMIC
administrator will file REMIC federal income tax returns on behalf of the
related REMIC, and will be designated as and will act as agent of, and
attorney-in-fact for, the tax matters person with respect to the REMIC in all
respects.
As the tax matters person, the REMIC administrator, subject to certain
notice requirements and various restrictions and limitations, generally will
have the authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders generally will be required to
report such REMIC items consistently with their treatment on the related
REMIC's tax return and may in some circumstances be bound by a settlement
agreement between the REMIC Administrator, as tax matters person, and the IRS
concerning any such REMIC item. Adjustments made to the REMIC tax return may
require a REMIC Residual Certificateholder to make corresponding adjustments on
its return, and an audit of the REMIC's tax return, or the adjustments
resulting from such an audit, could result in an audit of a REMIC Residual
Certificateholder's return. No REMIC will be registered as a tax shelter
pursuant to Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable years of its
existence. Any person that holds a REMIC Residual Certificate as a nominee for
another person may be required to furnish to the related REMIC, in a manner to
be provided in Treasury Department regulations, the name and address of such
person and other information.
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury Department regulations. These information
reports generally are required to be sent to individual holders of REMIC
Regular Interests and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other nonindividuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance
with the requirements of the applicable regulations. The information must be
provided by the later of 30 days after the end of the quarter for which the
information was requested, or two weeks after the receipt of the request.
Reporting with respect to REMIC Residual Certificates, including income, excess
inclusions, investment expenses and relevant information regarding
qualification of the REMIC's assets will be made as required under the Treasury
Department regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular
Certificate at the beginning of each accrual period. In addition, the reports
will include information required by regulations with respect to computing the
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accrual of any market discount. Because exact computation of the accrual of
market discount on a constant yield method would require information relating
to the holder's purchase price that the REMIC may not have, such regulations
only require that information pertaining to the appropriate proportionate
method of accruing market discount be provided. See "--Taxation of Owners of
REMIC Regular Certificates--Market Discount".
Unless otherwise specified in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne
by the REMIC administrator.
Backup Withholding with Respect to REMIC Certificates. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the "backup withholding tax" under Section 3406
of the Code at a rate of 28% (which rate will be increased to 31% after 2010)
if recipients of such payments fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise fail
to establish an exemption from such tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed
by the IRS on a recipient of payments that is required to supply information
but that does not do so in the proper manner. Certificateholders are urged to
contact their own tax advisors regarding the application to them of backup
withholding and information reporting.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder
that is not a U.S. Person and is not subject to federal income tax as a result
of any direct or indirect connection to the United States in addition to its
ownership of a REMIC Regular Certificate will not, unless otherwise disclosed
in the related prospectus supplement, be subject to United States federal
income or withholding tax in respect of a distribution on a REMIC Regular
Certificate, provided that the holder complies to the extent necessary with
certain identification requirements (including delivery of a statement, signed
by the Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a U.S. Person and providing the name and address of
such Certificateholder). It is possible that the IRS may assert that the
foregoing tax exemption should not apply with respect to a REMIC Regular
Certificate held by a REMIC Residual Certificateholder that owns directly or
indirectly a 10% or greater interest in the REMIC Residual Certificates. If the
holder does not qualify for exemption, distributions of interest, including
distributions in respect of accrued original issue discount, to such holder may
be subject to a tax rate of 30%, subject to reduction under any applicable tax
treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on such United
States shareholder's allocable portion of the interest income received by such
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a nonresident alien individual and would not be subject to
United States estate taxes. However, Certificateholders who are nonresident
alien individuals should consult their tax advisors concerning this question.
Treasury regulations provide new methods of satisfying the beneficial
ownership certification requirement described above, including a new series of
forms. These regulations require, in the case of REMIC Regular Certificates
held by a foreign partnership, that (x) the certification described above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule applies in the case of tiered
partnerships. Non-U.S. Persons should consult their own tax advisors concerning
the application of the certification requirements in the regulations.
Unless otherwise stated in the related prospectus supplement, transfers of
REMIC Residual Certificates to investors that are not United States Persons
will be prohibited under the related Pooling and Servicing Agreement.
GRANTOR TRUST FUNDS
Classification of Grantor Trust Funds. With respect to each series of
Grantor Trust Certificates, in the opinion of counsel to the depositor for such
series, assuming compliance with all provisions of
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the related Pooling and Servicing Agreement, the related Grantor Trust Fund
will be classified as a grantor trust under subpart E, part I of subchapter J
of the Code and not as a partnership or an association taxable as a
corporation. The following general discussion of the anticipated federal income
tax consequences of the purchase, ownership and disposition of Grantor Trust
Certificates, to the extent it relates to matters of law or legal conclusions
with respect thereto, represents the opinion of counsel to the depositor for
the applicable series as specified in the related prospectus supplement,
subject to any qualifications set forth in this prospectus. In addition,
counsel to the depositor has prepared or reviewed the statements in this
prospectus under the heading "Certain Federal Income Tax Consequences--Grantor
Trust Funds," and is of the opinion that such statements are correct in all
material respects. Such statements are intended as an explanatory discussion of
the possible effects of the classification of any Grantor Trust Fund as a
grantor trust for federal income tax purposes on investors generally and of
related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to an
investor's specific tax circumstances that would be provided by an investor's
own tax advisor. Accordingly, each investor is advised to consult its own tax
advisors with regard to the tax consequences to it of investing in Grantor
Trust Certificates.
Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. In the case of Grantor
Trust Fractional Interest Certificates, unless otherwise disclosed in the
related prospectus supplement, counsel to the depositor will deliver an opinion
that, in general, Grantor Trust Fractional Interest Certificates will represent
interests in (1) "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Code; (2) "obligation[s]
(including any participation or certificate of beneficial ownership therein)
which . . . [are] principally secured by an interest in real property" within
the meaning of Section 860G(a)(3) of the Code; and (3) "real estate assets"
within the meaning of Section 856(c)(5)(B) of the Code. In addition, counsel to
the depositor will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of mortgage loans that
are "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code and "real estate assets" within the
meaning of Section 856(c)(5)(B) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and the income therefrom, will be so characterized.
However, the policies underlying such sections (namely, to encourage or require
investments in mortgage loans by thrift institutions and real estate investment
trusts) may suggest that such characterization is appropriate. Counsel to the
depositor will not deliver any opinion on these questions. Prospective
purchasers to which such characterization of an investment in Grantor Trust
Strip Certificates is material should consult their tax advisors regarding
whether the Grantor Trust Strip Certificates, and the income therefrom, will be
so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including any
participation or Certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates.
General. Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on their federal
income tax returns their shares of the entire income from the mortgage loans
(including amounts used to pay reasonable servicing fees and other expenses)
and will be entitled to deduct their shares of any such reasonable servicing
fees and other expenses. Because of stripped interests, market or original
issue discount, or premium, the amount includible in income on account of a
Grantor Trust Fractional Interest Certificate may differ
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significantly from the amount distributable thereon representing interest on
the mortgage loans. Under Section 67 of the Code, an individual, estate or
trust holding a Grantor Trust Fractional Interest Certificate directly or
through certain pass-through entities will be allowed a deduction for such
reasonable servicing fees and expenses only to the extent that the aggregate of
such holder's miscellaneous itemized deductions exceeds two percent of such
holder's adjusted gross income. In addition, Section 68 of the Code provides
that the amount of itemized deductions otherwise allowable for an individual
whose adjusted gross income exceeds a specified amount will be reduced by the
lesser of (1) 3% of the excess of the individual's adjusted gross income over
such amount or (2) 80% of the amount of itemized deductions otherwise allowable
for the taxable year. The amount of additional taxable income reportable by
holders of Grantor Trust Fractional Interest Certificates who are subject to
the limitations of either Section 67 or Section 68 of the Code may be
substantial. Further, Certificateholders (other than corporations) subject to
the alternative minimum tax may not deduct miscellaneous itemized deductions in
determining such holder's alternative minimum taxable income. Under tax
legislation enacted in 2001, this limitation on deductions under Section 68
will be phased out beginning in 2006 and will be eliminated after 2009.
Although it is not entirely clear, it appears that in transactions in which
multiple classes of Grantor Trust Certificates (including Grantor Trust Strip
Certificates) are issued, such fees and expenses should be allocated among the
classes of Grantor Trust Certificates using a method that recognizes that each
such class benefits from the related services. In the absence of statutory or
administrative clarification as to the method to be used, it currently is
intended to base information returns or reports to the IRS and
Certificateholders on a method that allocates such expenses among classes of
Grantor Trust Certificates with respect to each period based on the
distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (1) a class of Grantor
Trust Strip Certificates is issued as part of the same series of certificates
or (2) the depositor or any of its affiliates retains (for its own account or
for purposes of resale) a right to receive a specified portion of the interest
payable on a mortgage asset. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon.
The related prospectus supplement will include information regarding servicing
fees paid to a master servicer, a special servicer, any sub-servicer or their
respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of Section 1273(a) of
the Code, subject, however, to the discussion below regarding the treatment of
certain stripped bonds as market discount bonds and the discussion regarding de
minimis market discount. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates --Market Discount" below. Under the stripped bond rules,
the holder of a Grantor Trust Fractional Interest Certificate (whether a cash
or accrual method taxpayer) will be required to report interest income from its
Grantor Trust Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month calculated under a
constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser of the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified
stated interest", if any, as well as such certificate's share of reasonable
servicing fees and other expenses. See "--Taxation of Owners of Grantor Trust
Fractional Interest Certificates--If Stripped Bond Rules Do Not Apply" for a
definition of "qualified stated interest". In general, the amount of such
income that accrues in any month would equal the product of such holder's
adjusted basis in such Grantor Trust Fractional Interest Certificate at the
beginning of such month
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(see "--Sales of Grantor Trust Certificates" below) and the yield of such
Grantor Trust Fractional Interest Certificate to such holder. Such yield would
be computed as the rate (compounded based on the regular interval between
payment dates) that, if used to discount the holder's share of future payments
on the mortgage loans, would cause the present value of those future payments
to equal the price at which the holder purchased such Certificate. In computing
yield under the stripped bond rules, a Certificateholder's share of future
payments on the mortgage loans will not include any payments made in respect of
any ownership interest in the mortgage loans retained by the depositor, the
master servicer, the special servicer, any sub-servicer or their respective
affiliates, but will include such Certificateholder's share of any reasonable
servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (1) the use of a reasonable
prepayment assumption in accruing original issue discount and (2) adjustments
in the accrual of original issue discount when prepayments do not conform to
the prepayment assumption, with respect to certain categories of debt
instruments, and regulations could be adopted applying those provisions to the
Grantor Trust Fractional Interest Certificates. It is unclear whether those
provisions would be applicable to the Grantor Trust Fractional Interest
Certificates or whether use of a reasonable prepayment assumption may be
required or permitted without reliance on these rules. It is also uncertain, if
a prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Grantor
Trust Fractional Interest Certificate or, with respect to any holder, at the
time of purchase of the Grantor Trust Fractional Interest Certificate by that
holder. Certificateholders are advised to consult their tax advisors concerning
reporting original issue discount in general and, in particular, whether a
prepayment assumption should be used in reporting original issue discount with
respect to Grantor Trust Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the mortgage loans allocable to such
Certificate, the use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of interest
income. In the case, however, of a Grantor Trust Fractional Interest
Certificate acquired at a discount or premium (that is, at a price less than or
greater than such principal amount, respectively), the use of a reasonable
prepayment assumption would increase or decrease such yield, and thus
accelerate or decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a mortgage loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the mortgage loan that is allocable to such Certificate and the portion of the
adjusted basis of such Certificate that is allocable to such
Certificateholder's interest in the mortgage loan. If a prepayment assumption
is used, it appears that no separate item of income or loss should be
recognized upon a prepayment. Instead, a prepayment should be treated as a
partial payment of the stated redemption price of the Grantor Trust Fractional
Interest Certificate and accounted for under a method similar to that described
for taking account of original issue discount on REMIC Regular Certificates.
See "--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount" above. It is unclear whether any other adjustments would be required
to reflect differences between an assumed prepayment rate and the actual rate
of prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
Prepayment Assumption that will be disclosed in the related prospectus
supplement and on a constant yield computed using a representative initial
offering price for each class of certificates. However, neither the depositor
nor any other person will make any representation that the mortgage loans will
in fact prepay at a rate conforming to such Prepayment Assumption or any other
rate and Certificateholders should bear in mind that the use of a
representative initial offering price will mean that such information returns
or reports, even if otherwise accepted as accurate by the IRS, will in any
event be accurate only as to the initial Certificateholders of each series who
bought at that price.
Under Treasury regulations Section 1.1286-1, certain stripped bonds are to
be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the
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bond as market discount rather than original issue discount. This treatment
only applies, however, if immediately after the most recent disposition of the
bond by a person stripping one or more coupons from the bond and disposing of
the bond or coupon (1) there is no original issue discount (or only a de
minimis amount of original issue discount) or (2) the annual stated rate of
interest payable on the original bond is no more than one percentage point
lower than the gross interest rate payable on the original mortgage loan
(before subtracting any servicing fee or any stripped coupon). If interest
payable on a Grantor Trust Fractional Interest Certificate is more than one
percentage point lower than the gross interest rate payable on the mortgage
loans, the related prospectus supplement will disclose that fact. If the
original issue discount or market discount on a Grantor Trust Fractional
Interest Certificate determined under the stripped bond rules is less than
0.25% of the stated redemption price multiplied by the weighted average
maturity of the mortgage loans, then such original issue discount or market
discount will be considered to be de minimis. Original issue discount or market
discount of only a de minimis amount will be included in income in the same
manner as de minimis original issue and market discount described in
"--Taxation of Owners of Grantor Trust Fractional Interest Certificates--If
Stripped Bond Rules Do Not Apply" and "--Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the Certificateholder will be required
to report its share of the interest income on the mortgage loans in accordance
with such Certificateholder's normal method of accounting. The original issue
discount rules will apply, even if the stripped bond rules do not apply, to a
Grantor Trust Fractional Interest Certificate to the extent it evidences an
interest in mortgage loans issued with original issue discount.
The original issue discount, if any, on the mortgage loans will equal the
difference between the stated redemption price of such mortgage loans and their
issue price. For a definition of "stated redemption price," see "--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount" above. In
general, the issue price of a mortgage loan will be the amount received by the
borrower from the lender under the terms of the mortgage loan, less any
"points" paid by the borrower, and the stated redemption price of a mortgage
loan will equal its principal amount, unless the mortgage loan provides for an
initial "teaser," or below-market interest rate. The determination as to
whether original issue discount will be considered to be de minimis will be
calculated using the same test as in the REMIC discussion. See "--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount" above.
In the case of mortgage loans bearing adjustable or variable interest
rates, the related prospectus supplement will describe the manner in which such
rules will be applied with respect to those mortgage loans by the trustee or
master servicer, as applicable, in preparing information returns to the
Certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a mortgage loan will be required to be
accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption in transactions not
subject to the stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield with respect to
all mortgage-backed securities. Certificateholders are advised to consult their
own tax advisors concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates. Certificateholders should refer to the related
prospectus supplement with respect to each series to determine whether and in
what manner the original issue discount rules will apply to mortgage loans in
such series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less
than such certificate's allocable portion of the aggregate
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remaining stated redemption price of the mortgage loans held in the related
trust fund will also be required to include in gross income such certificate's
daily portions of any original issue discount with respect to such mortgage
loans. However, each such daily portion will be reduced, if the cost of such
Grantor Trust Fractional Interest Certificate to such purchaser is in excess of
such Certificate's allocable portion of the aggregate "adjusted issue prices"
of the mortgage loans held in the related trust fund, approximately in
proportion to the ratio such excess bears to such Certificate's allocable
portion of the aggregate original issue discount remaining to be accrued on
such mortgage loans. The adjusted issue price of a mortgage loan on any given
day equals the sum of (1) the adjusted issue price (or, in the case of the
first accrual period, the issue price) of such mortgage loan at the beginning
of the accrual period that includes such day and (2) the daily portions of
original issue discount for all days during such accrual period prior to such
day. The adjusted issue price of a mortgage loan at the beginning of any
accrual period will equal the issue price of such mortgage loan, increased by
the aggregate amount of original issue discount with respect to such mortgage
loan that accrued in prior accrual periods, and reduced by the amount of any
payments made on such mortgage loan in prior accrual periods of amounts
included in its stated redemption price.
Unless otherwise provided in the related prospectus supplement, the
trustee or master servicer, as applicable, will provide to any holder of a
Grantor Trust Fractional Interest Certificate such information as such holder
may reasonably request from time to time with respect to original issue
discount accruing on Grantor Trust Fractional Interest Certificates. See
"--Grantor Trust Reporting" below.
Market Discount. If the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, a Certificateholder may be subject to
the market discount rules of Sections 1276 through 1278 of the Code to the
extent an interest in a mortgage loan is considered to have been purchased at a
"market discount", that is, in the case of a mortgage loan issued without
original issue discount, at a purchase price less than its remaining stated
redemption price (as defined above), or in the case of a mortgage loan issued
with original issue discount, at a purchase price less than its adjusted issue
price (as defined above). If market discount is in excess of a de minimis
amount (as described below), the holder generally will be required to include
in income in each month the amount of such discount that has accrued (under the
rules described in the next paragraph) through such month that has not
previously been included in income, but limited, in the case of the portion of
such discount that is allocable to any mortgage loan, to the payment of stated
redemption price on such mortgage loan that is received by (or, in the case of
accrual basis Certificateholders, due to) the trust fund in that month. A
Certificateholder may elect to include market discount in income currently as
it accrues (under a constant yield method based on the yield of the Certificate
to such holder) rather than including it on a deferred basis in accordance with
the foregoing under rules similar to those described in "--Taxation of Owners
of REMIC Regular Interests--Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those rules, in each
accrual period market discount on the mortgage loans should accrue, at the
holder's option: (1) on the basis of a constant yield method, (2) in the case
of a mortgage loan issued without original issue discount, in an amount that
bears the same ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total stated interest
remaining to be paid on the mortgage loan as of the beginning of the accrual
period, or (3) in the case of a mortgage loan issued with original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining at the beginning of the accrual
period. The prepayment assumption, if any, used in calculating the accrual of
original issue discount is to be used in calculating the accrual of market
discount. The effect of using a prepayment assumption could be to accelerate
the reporting of such discount income. Because the regulations referred to in
this
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paragraph have not been issued, it is not possible to predict what effect such
regulations might have on the tax treatment of a mortgage loan purchased at a
discount in the secondary market.
Because the mortgage loans will provide for periodic payments of stated
redemption price, such discount may be required to be included in income at a
rate that is not significantly slower than the rate at which such discount
would be included in income if it were original issue discount.
Market discount with respect to mortgage loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above within the exception that it is
less likely that a prepayment assumption will be used for purposes of such
rules with respect to the mortgage loans.
Further, under the rules described above in "--REMICs--Taxation of Owners
of REMIC Regular Certificates--Market Discount", any discount that is not
original issue discount and exceeds a de minimis amount may require the
deferral of interest expense deductions attributable to accrued market discount
not yet includible in income, unless an election has been made to report market
discount currently as it accrues. This rule applies without regard to the
origination dates of the mortgage loans.
Premium. If a Certificateholder is treated as acquiring the underlying
mortgage loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to mortgage loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to mortgage loans originated before September 28, 1985 or to mortgage
loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the mortgage loan and be allowed as
a deduction as such payments are made (or, for a Certificateholder using the
accrual method of accounting, when such payments of stated redemption price are
due).
It is unclear whether a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a prepayment assumption and a mortgage loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss equal to the difference between
the portion of the prepaid principal amount of the mortgage loan that is
allocable to the Certificate and the portion of the adjusted basis of the
Certificate that is allocable to the mortgage loan. If a prepayment assumption
is used to amortize such premium, it appears that such a loss would be
unavailable. Instead, if a prepayment assumption is used, a prepayment should
be treated as a partial payment of the stated redemption price of the Grantor
Trust Fractional Interest Certificate and accounted for under a method similar
to that described for taking account of original issue discount on REMIC
Regular Certificates. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped
coupon" rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "--Taxation of Owners of Grantor
Trust Fractional Interest Certificates--If Stripped Bond Rules Apply", no
regulations or published rulings under Section 1286 of the Code have been
issued and some uncertainty exists as to how it will be applied to securities
such as the Grantor Trust Strip Certificates. Accordingly, holders of Grantor
Trust Strip Certificates should consult their tax advisors concerning the
method to be used in reporting income or loss with respect to such
Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "--Possible Application of Proposed Contingent Payment Rules"
below and assumes that the holder of a Grantor Trust Strip Certificate will not
own any Grantor Trust Fractional Interest Certificates.
95
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of
Grantor Trust Strip Certificates would include as interest income in each month
an amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the mortgage loans. See "--Taxation of Owners of Grantor Trust Fractional
Interest Certificates--If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment
assumption be used in computing the accrual of original issue discount with
respect to certain categories of debt instruments, and that adjustments be made
in the amount and rate of accrual of such discount when prepayments do not
conform to such prepayment assumption. Regulations could be adopted applying
those provisions to the Grantor Trust Strip Certificates. It is unclear whether
those provisions would be applicable to the Grantor Trust Strip Certificates or
whether use of a prepayment assumption may be required or permitted in the
absence of such regulations. It is also uncertain, if a prepayment assumption
is used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Strip Certificate
or, with respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related prospectus supplement and on a constant
yield computed using a representative initial offering price for each class of
certificates. However, neither the depositor nor any other person will make any
representation that the mortgage loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate and Certificateholders should
bear in mind that the use of a representative initial offering price will mean
that such information returns or reports, even if otherwise accepted as
accurate by the IRS, will in any event be accurate only as to the initial
Certificateholders of each series who bought at that price. Prospective
purchasers of the Grantor Trust Strip Certificates should consult their tax
advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
mortgage loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete mortgage loans) and the effect
of prepayments is taken into account in computing yield with respect to such
Grantor Trust Strip Certificate, it appears that no loss may be available as a
result of any particular prepayment unless prepayments occur at a rate faster
than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate
is treated as an interest in discrete mortgage loans, or if the Prepayment
Assumption is not used, then when a mortgage loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of the Grantor Trust Strip Certificate that
is allocable to such mortgage loan.
Possible Application of Contingent Payment Rules. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Grantor Trust Strip Certificates would cease if the mortgage loans were
prepaid in full, the Grantor Trust Strip Certificates could be considered to be
debt instruments providing for contingent payments. Under the OID Regulations,
debt instruments providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments. Treasury
Department regulations have been promulgated regarding contingent payment debt
instruments, but it appears that Grantor Trust Strip Certificates, due to their
similarity to other mortgage-backed securities (such as REMIC regular interests
and
96
debt instruments subject to Section 1272(a)(6) of the Code) that are expressly
excepted from the application of such Regulations, may also be excepted from
such regulations. Like the OID Regulations, the contingent payment regulations
do not specifically address securities, such as the Grantor Trust Strip
Certificates, that are subject to the stripped bond rules of Section 1286 of
the Code.
If the contingent payment rules similar to those under the OID Regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be
required to apply a "noncontingent bond method." Under the "noncontingent bond
method," the issuer of a Grantor Trust Strip Certificate determines a projected
payment schedule. Holders of Grantor Trust Strip Certificates are bound by the
issuer's projected payment schedule. The projected payment schedule consists of
all noncontingent payments and a projected amount for each contingent payment
based on the comparable yield (as described below) of the Grantor Trust Strip
Certificate. The projected amount of each payment is determined so that the
projected payment schedule reflects the projected yield. The projected amount
of each payment must reasonably reflect the relative expected values of the
payments to be received by the holders of a Grantor Trust Strip Certificate.
The comparable yield referred to above is a rate that, as of the issue date,
reflects the yield at which the issuer would issue a fixed rate debt instrument
with terms and conditions similar to the contingent payment debt instrument,
including general market conditions, the credit quality of the issuer, and the
terms and conditions of the mortgage loans. The holder of a Grantor Trust Strip
Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the comparable yield.
Certificateholders should consult their tax advisors concerning the
possible application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales of Grantor Trust Certificates. Any gain or loss, equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis, recognized on such sale or exchange
of a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any
income reported by the seller (including original issue discount and market
discount income) and reduced (but not below zero) by any previously reported
losses, any amortized premium and by any distributions with respect to such
Grantor Trust Certificate. The Code as of the date of this prospectus generally
provides for tax rates of noncorporate taxpayers on ordinary income that are
higher than the rates on long-term capital gains (generally, property held for
more than one year). No such rate differential exists for corporations. In
addition, the distinction between a capital gain or loss and ordinary income or
loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in certain circumstances. Gain attributable
to accrued and unrecognized market discount will be treated as ordinary income,
as will gain or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of any gain that
might otherwise be capital gain may be treated as ordinary income to the extent
that the Grantor Trust Certificate is held as part of a "conversion
transaction" within the meaning of Section 1258 of the Code. A conversion
transaction generally is one in which the taxpayer has taken two or more
positions in the same or similar property that reduce or eliminate market risk,
if substantially all of the taxpayer's return is attributable to the time value
of the taxpayer's net investment in such transaction. The amount of gain
realized in a conversion transaction that is recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued on the
taxpayer's net investment at 120% of the appropriate "applicable Federal rate"
(which rate is computed and published monthly by the IRS) at the time the
taxpayer enters into the conversion transaction, subject to appropriate
reduction for prior inclusion of interest and other ordinary income items from
the transaction.
97
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include such net
capital gain in total net investment income for that taxable year, for purposes
of the rule that limits the deduction of interest on indebtedness incurred to
purchase or carry property held for investment to a taxpayer's net investment
income.
Investors that recognize a loss on a sale or exchange of a Grantor Trust
Certificate for federal income tax purposes in excess of certain threshold
amounts should consult their tax advisors as to the need to file IRS Form 8886
(disclosing certain potential tax shelters) on their federal income tax
returns.
Grantor Trust Reporting. Unless otherwise provided in the related
prospectus supplement, the trustee or master servicer, as applicable, will
furnish to each holder of a Grantor Trust Certificate with each distribution a
statement setting forth the amount of such distribution allocable to principal
on the underlying mortgage loans and to interest thereon at the related
pass-through rate. In addition, the trustee or master servicer, as applicable,
will furnish, within a reasonable time after the end of each calendar year, to
each holder of a Grantor Trust Certificate who was such a holder at any time
during such year, information regarding the amount of servicing compensation
received by the master servicer, the special servicer or any sub-servicer, and
such other customary factual information as the depositor or the reporting
party deems necessary or desirable to enable holders of Grantor Trust
Certificates to prepare their tax returns and will furnish comparable
information to the IRS as and when required by law to do so. Because the rules
for accruing discount and amortizing premium with respect to the Grantor Trust
Certificates are uncertain in various respects, there is no assurance the IRS
will agree with the trustee's or master servicer's, as the case may be,
information reports of such items of income and expense. Moreover, such
information reports, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial Certificateholders that bought
their certificates at the representative initial offering price used in
preparing such reports.
Backup Withholding. In general, the rules described above in "--REMICs--
Backup Withholding with Respect to REMIC Certificates" will also apply to
Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC
Regular Certificates in "--REMICs--Foreign Investors in REMIC Certificates"
above applies to Grantor Trust Certificates except that Grantor Trust
Certificates will, unless otherwise disclosed in the related prospectus
supplement, be eligible for exemption from U.S. withholding tax, subject to the
conditions described in such discussion, only to the extent the related
mortgage loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
Certificateholder's trade or business in the United States, such Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of
a nonresident alien individual.
On June 20, 2002, the IRS published proposed regulations which will, when
effective, establish a reporting framework for interests in "widely held fixed
investment trusts" that will place the responsibility of reporting on the
person in the ownership chain who holds an interest for a beneficial owner. A
widely-held investment trust is defined as an entity classified as a "trust"
under Treasury Regulations Section 301.7701-4(c), in which any interest is held
by a middleman, which includes, but is not limited to (i) a custodian of a
person's account, (ii) a nominee and (iii) a broker holding an interest for a
customer in "street name." These regulations were proposed to be effective
beginning January 1, 2004, but such date passed and the regulations have not
been finalized. It is unclear when, or if, these regulations will become final.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences of the acquisition, ownership, and disposition of
the offered certificates. State tax law may differ
98
substantially from the corresponding federal law, and the discussion above does
not purport to describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should consult their tax
advisors with respect to the various tax consequences of investments in the
offered certificates.
CERTAIN ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended, and the
Code impose certain requirements on retirement plans, and on certain other
employee benefit plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and
separate accounts (and as applicable, insurance company general accounts) in
which such plans, accounts or arrangements are invested that are subject to the
fiduciary responsibility provisions of ERISA and Section 4975 of the Code
("Plans"), and on persons who are fiduciaries with respect to such Plans, in
connection with the investment of Plan assets. Certain employee benefit plans,
such as governmental plans (as defined in ERISA Section 3(32)), and, if no
election has been made under Section 410(d) of the Code, church plans (as
defined in Section 3(33) of ERISA) are not subject to ERISA requirements.
However, such plans may be subject to the provisions of other applicable
federal and state law materially similar to ERISA or the Code. Moreover, any
such plan which is qualified and exempt from taxation under Sections 401(a) and
501(a) of the Code is subject to the prohibited transaction rules set forth in
Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and
the requirement that a Plan's investments be made in accordance with the
documents governing the Plan. In addition, Section 406 of ERISA and Section
4975 of the Code prohibit a broad range of transactions involving assets of a
Plan and persons who have certain specified relationships to the Plan, unless a
statutory or administrative exemption is available. Certain Parties in Interest
that participate in a prohibited transaction may be subject to an excise tax
imposed pursuant to Section 4975 of the Code or a penalty imposed pursuant to
Section 502(i) of ERISA, unless a statutory or administrative exemption is
available. These prohibited transactions generally are set forth in Section 406
of ERISA and Section 4975 of the Code.
PLAN ASSET REGULATIONS
A Plan's investment in offered certificates may cause the underlying
mortgage assets and other assets included in a related trust fund to be deemed
assets of such Plan. The Plan Asset Regulations provide that when a Plan
acquires an equity interest in an entity, the Plan's assets include both such
equity interest and an undivided interest in each of the underlying assets of
the entity, unless certain exceptions not applicable here apply, or unless the
equity participation in the entity by "benefit plan investors" (i.e., Plans and
certain employee benefit plans not subject to ERISA) is not "significant", both
as defined in the Plan Asset Regulations. For this purpose, in general, equity
participation by benefit plan investors will be "significant" on any date if
25% or more of the value of any class of equity interests in the entity is held
by benefit plan investors. Equity participation in a trust fund will be
significant on any date if immediately after the most recent acquisition of any
Certificate, 25% or more of any class of certificates is held by benefit plan
investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides
investment advice with respect to such assets for a fee, is a fiduciary of the
investing Plan. If the mortgage assets and other assets included in a trust
fund constitute Plan assets, then any party exercising management or
discretionary control regarding those assets, such as the master servicer, any
special servicer, any sub-servicer, the trustee, the obligor under any credit
enhancement mechanism, or certain affiliates thereof may be deemed to be a Plan
"fiduciary" and thus subject to the fiduciary responsibility provisions and
prohibited transaction provisions of ERISA and the Code with respect to the
investing Plan. In addition, if the
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mortgage assets and other assets included in a trust fund constitute Plan
assets, the purchase of certificates by a Plan, as well as the operation of the
trust fund, may constitute or involve a prohibited transaction under ERISA or
the Code.
The Plan Asset Regulations provide that where a Plan acquires a
"guaranteed governmental mortgage pool certificate", the Plan's assets include
such certificate but do not solely by reason of the Plan's holdings of such
certificate include any of the mortgages underlying such certificate. The Plan
Asset Regulations include in the definition of a "guaranteed governmental
mortgage pool certificate" Ginnie Mae, Freddie Mac, Farmer Mac and Fannie Mae
Certificates. Accordingly, even if such MBS included in a trust fund were
deemed to be assets of Plan investors, the mortgages underlying such MBS would
not be treated as assets of such Plans. Private label mortgage participations,
mortgage pass-through certificates or other mortgage-backed securities are not
"guaranteed governmental mortgage pool certificates" within the meaning of the
Plan Asset Regulations; potential Plan investors should consult their counsel
and review the ERISA discussion in the related prospectus supplement before
purchasing certificates if such MBS are included in the trust fund.
The DOL has granted to certain underwriters administrative exemptions,
each an "Exemption", for certain mortgage-backed and asset-backed certificates
underwritten in whole or in part by the underwriters. An Exemption might be
applicable to the initial purchase, the holding, and the subsequent resale by a
Plan of certain certificates, such as the offered certificates, underwritten by
the underwriters, representing interests in pass-through trusts that consist of
certain receivables, loans and other obligations, provided that the conditions
and requirements of the Exemption are satisfied. The loans described in the
Exemptions include mortgage loans such as the mortgage assets. However, it
should be noted that in issuing the Exemptions, the DOL may not have considered
interests in pools of the exact nature as some of the offered certificates. If
all of the conditions of an Exemption are met, whether or not a Plan's assets
would be deemed to include an ownership interest in the mortgage assets, the
acquisition, holding and resale of the offered certificates by Plans would be
exempt from certain of the prohibited transaction provisions of ERISA and the
Code.
INSURANCE COMPANY GENERAL ACCOUNTS
Sections I and III of PTCE 95-60 exempt from the application of the
prohibited transaction provisions of Sections 406(a), 406(b) and 407(a) of
ERISA and Section 4975 of the Code transactions in connection with the
servicing, management and operation of a trust (such as the Trust) in which an
insurance company general account has an interest as a result of its
acquisition of certificates issued by the trust, provided that certain
conditions are satisfied. If these conditions are met, insurance company
general accounts would be allowed to purchase certain classes of certificates
which do not meet the requirements of any of the Exemptions solely because they
(1) are subordinated to other classes of certificates in the trust and/or (2)
have not received a rating at the time of the acquisition in one of the four
highest rating categories from a nationally recognized statistical rating
agency. All other conditions of one of the Exemptions would have to be
satisfied in order for PTCE 95-60 to be available. Before purchasing such class
of certificates, an insurance company general account seeking to rely on
Sections I and III of PTCE 95-60 should itself confirm that all applicable
conditions and other requirements have been satisfied.
The Small Business Job Protection Act of 1996 added a new Section 401(c)
to ERISA, which provides certain exemptive relief from the provisions of Part 4
of Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL has issued final regulations
providing guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets. Any assets of an insurance company general account
which support insurance policies issued to a Plan after December 31, 1998 or
issued to Plans on or before December 31, 1998 for which the insurance company
does not comply with the 401(c) Regulations
100
may be treated as Plan assets. In addition, because Section 401(c) does not
relate to insurance company separate accounts, separate account assets are
still treated as Plan assets of any Plan invested in such separate account.
Insurance companies contemplating the investment of general account assets in
the offered certificates should consult with their legal counsel with respect
to the applicability of Section 401(c) of ERISA.
CONSULTATION WITH COUNSEL
Any Plan fiduciary which proposes to purchase offered certificates on
behalf of or with assets of a Plan should consider its general fiduciary
obligations under ERISA and should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investment and the
availability of any prohibited transaction exemption in connection with any
planned purchase.
TAX EXEMPT INVESTORS
A Plan that is exempt from federal income taxation pursuant to Section 501
of the Code nonetheless will be subject to federal income taxation to the
extent that its income is "unrelated business taxable income" within the
meaning of Section 512 of the Code. All "excess inclusions" of a REMIC
allocated to a REMIC Residual Certificate held by a Plan will be considered
unrelated business taxable income and thus will be subject to federal income
tax. See "Certain Federal Income Tax Consequences--REMICs--Taxation of Owners
of REMIC Residual Certificates--Excess Inclusions".
LEGAL INVESTMENT
If so specified in the related prospectus supplement, certain classes of
the offered certificates will constitute "mortgage related securities" for
purposes of SMMEA. Generally, the only classes of the offered certificates
which will qualify as "mortgage related securities" will be those that (1) are
rated in one of two highest rating categories by at least one nationally
recognized statistical rating organization; and (2) are part of a series
evidencing interests in a trust fund consisting of loans originated by certain
types of originators specified in SMMEA and secured by first liens on real
estate. The appropriate characterization of those offered certificates not
qualifying as "mortgage related securities" for purposes of SMMEA ("Non-SMMEA
Certificates") under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase such offered
certificates, may be subject to significant interpretive uncertainties.
Accordingly, 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 Non-SMMEA Certificates constitute
legal investments for them.
Those Classes of offered certificates qualifying as "mortgage related
securities" will constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business
entities, including depository institutions, insurance companies, 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, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any of its agencies or
instrumentalities constitute legal investments for those entities.
Under SMMEA, a number of states enacted legislation, on or before the
October 3, 1991 cutoff for those enactments, limiting to various extents the
ability of certain entities (in particular, insurance companies) to invest in
"mortgage related securities" secured by liens on residential, or mixed
residential and commercial properties, in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Pursuant to
Section 347 of the Riegle Community Development and Regulatory Improvement Act
of 1994, which amended the definition of "mortgage related security" to
include, in relevant part, offered certificates satisfying the rating and
qualified originator requirements for "mortgage related securities," but
evidencing interests in a
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trust fund consisting, in whole or in part, of first liens on one or more
parcels of real estate upon which are located one or more commercial
structures, states were authorized to enact legislation, on or before September
23, 2001, specifically referring to Section 347 and prohibiting or restricting
the purchase, holding or investment by state-regulated entities in those types
of offered certificates. Accordingly, the investors affected by any state
legislation overriding the preemptive effect of SMMEA will be authorized to
invest in offered certificates qualifying as "mortgage related securities" only
to the extent provided in that 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 those securities, and national
banks may purchase those 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 those regulations as the
applicable federal regulatory authority may prescribe. In this connection, 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. Section 1.5 concerning "safety and soundness" and retention of credit
information), certain "Type IV securities," defined in 12 C.F.R. Section 1.2(m)
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 of the offered certificates will
qualify as "commercial mortgage-related securities," and thus as "Type IV
securities," for investment by national banks. The NCUA has adopted rules,
codified at 12 C.F.R. Part 703, which permit federal credit unions to invest in
"mortgage related securities", other than stripped mortgage related securities,
residual interests in mortgage related securities, and commercial mortgage
related securities, subject to compliance with general rules governing
investment policies and practices; however, credit unions approved for the
NCUA's "investment pilot program" under 12 C.F.R. Section 703.19 may be able to
invest in those prohibited forms of securities, while "RegFlex credit unions"
may invest in commercial mortgage related securities under certain conditions
pursuant to 12 C.F.R. Section 742.4(b)(2). The OTS has issued Thrift Bulletin
13a (December 1, 1998), "Management of Interest Rate Risk, Investment
Securities, and Derivatives Activities," and Thrift Bulletin 73a (December 18,
2001), "Investing in Complex Securities," which thrift institutions subject to
the jurisdiction of the OTS should consider before investing in any of the
offered certificates.
All depository institutions considering an investment in the offered
certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" of the Federal Financial
Institutions Examination Council, which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and the OTS, effective May 26, 1998, and by the NCUA,
effective October 1, 1998. That 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.
Investors whose investment activities are subject to regulation by federal
or state authorities should review rules, policies and guidelines adopted from
time to time by those authorities before purchasing any offered certificates,
as certain series or classes may be deemed unsuitable investments, or may
otherwise be restricted, under those rules, policies or guidelines (in certain
instances irrespective of SMMEA).
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The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions
which may restrict or prohibit investment in securities which are not
"interest-bearing" or "income-paying," and, with regard to any offered
certificates issued in book-entry form, provisions which may restrict or
prohibit investments in securities which are issued in book-entry form.
Except as to the status of certain classes of offered certificates as
"mortgage related securities," no representations are made as to the proper
characterization of the offered certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase offered certificates under
applicable legal investment restrictions. The uncertainties described above
(and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the offered certificates)
may adversely affect the liquidity of the offered certificates.
Accordingly, all investors whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their own legal advisors
in determining whether and to what extent the offered certificates of any class
or series constitute legal investments or are subject to investment, capital,
or other restrictions and, if applicable, whether SMMEA has been overridden in
any jurisdiction relevant to that investor.
USE OF PROCEEDS
The net proceeds to be received from the sale of the certificates of any
series will be applied by the depositor to the purchase of trust assets or will
be used by the depositor to cover expenses related thereto. The depositor
expects to sell the certificates from time to time, but the timing and amount
of offerings of certificates will depend on a number of factors, including the
volume of mortgage assets acquired by the depositor, prevailing interest rates,
availability of funds and general market conditions.
METHOD OF DISTRIBUTION
The certificates offered hereby and by the related prospectus supplements
will be offered in series through one or more of the methods described below.
The prospectus supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
depositor from such sale.
The depositor intends that offered certificates will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
offered certificates of a particular series may be made through a combination
of two or more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters, which may include Banc of America Securities
LLC, an affiliate of the depositor;
2. By placements by the depositor with institutional investors through
dealers; and
3. By direct placements by the depositor with institutional investors.
In addition, if specified in the related prospectus supplement, the
offered certificates of a series may be offered in whole or in part to the
seller of the related mortgage assets that would comprise the trust fund for
such certificates.
If underwriters are used in a sale of any offered certificates (other than
in connection with an underwriting on a best efforts basis), such certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the
103
depositor whose identities and relationships to the depositor will be as set
forth in the related prospectus supplement. The managing underwriter or
underwriters with respect to the offer and sale of offered certificates of a
particular series will be set forth on the cover of the prospectus supplement
relating to such series and the members of the underwriting syndicate, if any,
will be named in such prospectus supplement.
In connection with the sale of offered certificates, underwriters may
receive compensation from the depositor or from purchasers of the offered
certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the offered certificates may
be deemed to be underwriters in connection with such certificates, and any
discounts or commissions received by them from the depositor and any profit on
the resale of offered certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale
of the offered certificates of any series will provide that the obligations of
the underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the depositor will indemnify the
several underwriters and the underwriters will indemnify the depositor against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
to such liabilities.
The prospectus supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the depositor and purchasers of
offered certificates of such series.
The depositor anticipates that the offered certificates will be sold
primarily to institutional investors. Purchasers of offered certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with reoffers and sales by them of
offered certificates. Holders of offered certificates should consult with their
legal advisors in this regard prior to any such reoffer or sale.
If and to the extent required by applicable law or regulation, this
prospectus will be used by Banc of America Securities LLC in connection with
offers and sales related to market-making transactions in offered certificates
previously offered hereunder in transactions with respect to which Banc of
America Securities LLC acts as principal. Banc of America Securities LLC may
also act as agent in such transactions. Sales may be made at negotiated prices
determined at the time of sale.
LEGAL MATTERS
Certain legal matters relating to the certificates will be passed upon for
the depositor by Cadwalader, Wickersham & Taft LLP. Certain legal matters
relating to the certificates will be passed upon for the underwriter by the
counsel described in the related prospectus supplement under "Legal Matters".
Certain federal income tax matters and other matters will be passed upon for
the depositor by Cadwalader, Wickersham & Taft LLP.
FINANCIAL INFORMATION
A new trust fund will be formed with respect to each series of
certificates, and no trust fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
certificates. Accordingly, no financial statements with respect to any trust
fund will be included in this prospectus or in the related prospectus
supplement. The depositor has determined that its financial statements will not
be material to the offering of any offered certificates.
RATING
It is a condition to the issuance of any class of offered certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest rating categories, by at least one rating agency.
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Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders of all collections on the underlying mortgage assets to
which such holders are entitled. These ratings address the structural, legal
and issuer-related aspects associated with such certificates, the nature of the
underlying mortgage assets and the credit quality of the guarantor, if any.
Ratings on mortgage pass-through certificates do not represent any assessment
of the likelihood of principal prepayments by borrowers or of the degree by
which such prepayments might differ from those originally anticipated. As a
result, certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of Stripped Interest Certificates might, in extreme cases
fail to recoup their initial investments. Furthermore, ratings on mortgage
pass-through certificates do not address the price of such certificates or the
suitability of such certificates to the investor.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
rating organization. Each security rating should be evaluated independently of
any other security rating.
AVAILABLE INFORMATION
The depositor has filed with the Securities and Exchange Commission a
Registration Statement (of which this prospectus forms a part) under the
Securities Act of 1933, as amended, with respect to the offered certificates.
This prospectus and the prospectus supplement relating to each series of
offered certificates contain summaries of the material terms of the documents
referred to in this prospectus or in such prospectus supplement, but do not
contain all of the information set forth in the Registration Statement pursuant
to the rules and regulations of the Commission. For further information,
reference is made to such Registration Statement and the exhibits thereto. Such
Registration Statement and exhibits can be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at its
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at its Midwest Regional Offices located as follows: Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an internet site that contains reports,
proxy and information statements, and other information that has been filed
electronically with the SEC. The Internet address is http://www.sec.gov.
No dealer, salesman, or other person has been authorized to give any
information, or to make any representations, other than those contained in this
prospectus or any related prospectus supplement, and, if given or made, such
information or representations must not be relied upon as having been
authorized by the depositor or any other person. Neither the delivery of this
prospectus or any related prospectus supplement nor any sale made under this
prospectus or any related prospectus supplement shall under any circumstances
create an implication that there has been no change in the information in this
prospectus since the date of this prospectus or in such prospectus supplement
since the date of the prospectus supplement. This prospectus and any related
prospectus supplement are not an offer to sell or a solicitation of an offer to
buy any security in any jurisdiction in which it is unlawful to make such offer
or solicitation.
The master servicer, the trustee or another specified person will cause to
be provided to registered holders of the offered certificates of each series
periodic unaudited reports concerning the related trust fund. If beneficial
interests in a class or series of offered certificates are being held and
transferred in book-entry format through the facilities of The DTC as described
in this prospectus, then unless otherwise provided in the related prospectus
supplement, such reports will be sent on behalf of the related trust fund to a
nominee of DTC as the registered holder of the offered certificates. Conveyance
of notices and other communications by DTC to its participating organizations,
and directly or indirectly through such participating organizations to the
beneficial owners of the applicable offered certificates, will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. See "Description of the
Certificates--Reports to Certificateholders" and "--Book-Entry Registration and
Definitive Certificates".
105
The depositor will file or cause to be filed with the Securities and
Exchange Commission such periodic reports with respect to each trust fund as
are required under the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission. The depositor intends to
make a written request to the staff of the Securities and Exchange Commission
that the staff either (1) issue an order pursuant to Section 12(h) of the
Securities Exchange Act of 1934, as amended, exempting the depositor from
certain reporting requirements under the Securities Exchange Act of 1934, as
amended, with respect to each trust fund or (2) state that the staff will not
recommend that the Commission take enforcement action if the depositor fulfills
its reporting obligations as described in its written request. If such request
is granted, the depositor will file or cause to be filed with the Securities
and Exchange Commission as to each trust fund the periodic unaudited reports to
holders of the offered certificates referenced in the preceding paragraph;
however, because of the nature of the trust funds, it is unlikely that any
significant additional information will be filed. In addition, because of the
limited number of certificateholders expected for each series, the depositor
anticipates that a significant portion of such reporting requirements will be
permanently suspended following the first fiscal year for the related trust
fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The depositor hereby incorporates by reference all documents and reports
filed or caused to be filed by the depositor with respect to a trust fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, prior to the termination of an offering of offered
certificates evidencing interests in that trust fund. The depositor will
provide or cause to be provided without charge to each person to whom this
prospectus is delivered in connection with the offering of one or more classes
of offered certificates, upon written or oral request of such person, a copy of
any or all documents or reports incorporated in this prospectus by reference,
in each case to the extent such documents or reports relate to one or more of
such classes of such offered certificates, other than the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Such requests to the depositor should be directed in writing
to its principal executive offices at 214 North Tryon Street, Charlotte, North
Carolina 28255, or by telephone at (704) 386-2400.
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GLOSSARY
The following capitalized terms will have the respective meanings assigned
to them in this "Glossary" section whenever they are used in this prospectus.
"401(c) Regulations" means those regulations issued by the DOL which
provide guidance for the purpose of determining, in cases where insurance
policies supported by an insurer's general account are issued to or for the
benefit of a Plan on or before December 31, 1998, which general account assets
constitute Plan assets.
"Accrued Certificate Interest" means for each Distribution Date an amount
equal to interest at the applicable pass-through rate accrued for a specified
period (generally the most recently ended calendar month) on the outstanding
Certificate Balance of such class of certificates immediately prior to such
Distribution Date.
"Accrual Certificates" means one or more classes of certificates that may
not be entitled to distributions of interest until the occurrence of certain
events, such as the retirement of one or more other classes of certificates.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"Available Distribution Amount" means unless otherwise provided in the
related prospectus supplement for any series of certificates and any
Distribution Date the total of all payments or other collections (or advances
in lieu of such collections and advances) 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.
"Bankruptcy Code" means the U.S. Bankruptcy Code.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Certificate Account" means for the trust fund one or more established and
maintained on behalf of the certificateholders into which all payments and
collections received or advanced with respect to the mortgage assets and other
assets in the trust fund will be deposited to the extent described this
prospectus and the related prospectus supplement.
"Certificate Balance" means the initial stated principal amount of each
individual class of certificates for a given series other than real estate
mortgage investment conduit residual certificates or certain classes of
stripped interest certificates.
"Certificate Owner" means the actual purchaser of a book-entry
certificate.
"Closing Date" means date of the initial issuance of the certificates of a
given series.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Property" means office buildings, retail stores and
establishments, hotels or motels, nursing homes, hospitals or other health
care-related facilities, recreational vehicle and mobile home parks, warehouse
facilities, mini-warehouse facilities, self-storage facilities, industrial
plants, parking lots, entertainment or sports arenas, restaurants, marinas,
mixed use or various other types of income-producing properties or unimproved
land comprising some or all of the mortgaged properties included in the trust
fund.
"Committee Report" means the Conference Committee Report accompanying the
Tax Reform Act of 1986.
"Companion Class" means one or more classes of certificate where
distributions of principal with respect to one or more other classes of
certificates 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.
"Controlled Amortization Class" means one or more classes of certificates
where distributions of principal may be made, subject to available funds, based
on a specified principal payment schedule.
107
"CPR" means the constant prepayment rate model representing an assumed
constant rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of mortgage loans
for the life of such mortgage loans.
"Cut-off Date" means the specified date initial aggregate outstanding
principal balance of the related mortgage assets as of a specified date.
"Debt Service Coverage Ratio" means at any given time for a mortgage loan
the ratio of--
o the Net Operating Income derived from the related mortgaged property for
a twelve-month period to
o the annualized scheduled payments of principal and/or interest on the
mortgage loan and any other loans senior to it that are secured by the
related mortgaged property.
"Determination Date" means the date upon which that all scheduled payments
on the mortgage loans in the trust fund are received or advanced by the master
servicer, special servicer or other specified person will be distributed to
certificateholders of the related series on the next succeeding Distribution
Date.
"Direct Participant" means the securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations that maintain accounts with DTC.
"Distribution Date" means the date as described in the prospectus
supplement upon which distributions on or with respect to the certificates will
be made.
"DOL" means the United States Department of Labor.
"DTC" means The Depository Trust Company.
"Due Date" means a specified date upon which scheduled payments of
interest, principal or both are to be made under a mortgage loan and may occur
monthly, quarterly, semi-annually or annually.
"Due Period" means a specified time period (generally corresponding in
length to the period between Distribution Dates).
"Equity Participation" means a provision under a mortgage loan 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.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Funds" means in general that portion of the amounts distributable
in respect of the certificates of any series on any Distribution Date that
represent--
o interest received or advanced on the mortgage assets in the trust fund
that is in excess of the interest currently accrued on the certificates
of such series; or
o Prepayment Premiums, payments from Equity Participations or any other
amounts received on the mortgage assets in the trust fund that do not
constitute payments of interest or principal.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fannie Mae" means Federal National Mortgage Association.
"Freddie Mac" means Federal Home Loan Mortgage Corporation.
"Garn Act" means the Garn-St Germain Depository Institutions Act of 1982.
"Ginnie Mae" means Governmental National Mortgage Association.
"Grantor Trust Certificates" means certificates in a trust treated as a
grantor trust under applicable provisions of the Code.
108
"Grantor Trust Fractional Interest Certificate" means a Grantor Trust
Certificate representing an undivided equitable ownership interest in the
principal of the mortgage loans constituting the related Grantor Trust Fund,
together with interest at a pass-through rate.
"Grantor Trust Fund" means that portion of the trust fund as to which no
REMIC election has been made.
"Grantor Trust Strip Certificate" means a Grantor Trust Certificate
representing ownership of all or a portion of the difference between interest
paid on the mortgage loans constituting the related Grantor Trust Fund (net of
normal administration fees) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such Grantor Trust
Fund.
"Indirect Participant" means those banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly.
"Insurance and Condemnation Proceeds" means proceeds applied to the
restoration of a mortgaged property or released to the related borrower in
connection with the full or partial condemnation of such mortgaged property.
"IRS" means the Internal Revenue Service.
"Issue Premium" means, in the case of a class of REMIC Regular
Certificates issued at a price in excess of the stated redemption price of that
class, the amount of such excess.
"Liquidation Proceeds" means all proceeds received under any hazard, title
or other insurance policy (other than 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 of such defaulted
mortgage loans, by foreclosure or otherwise.
"Loan-to-Value Ratio" means for a mortgage loan the ratio (expressed as a
percentage) of--
o the then outstanding principal balance of the mortgage loan and any
other loans senior that are secured by the related mortgaged property to
o its fair market value as determined by an appraisal of such property
conducted by or on behalf of the originator in connection with the
origination of the mortgage loan.
"Lock-out Period" means the period in which prepayments are prohibited
under a mortgage loan.
"MBS" means mortgage participations, pass-through certificates or other
mortgage-backed securities that may comprise the assets of the trust fund.
"MERS" means Mortgage Electronic Registration Systems, Inc.
"Mortgage Asset Seller" means the entity from whom the depositor purchased
a mortgage asset either directly or indirectly, included in the trust fund. The
Mortgage Asset Seller may or may not be the originator of the related mortgage
loan or the issuer of the MBS and may be an affiliate of the depositor.
"Mortgage Rate" means the rate at which a mortgage loan accrues interest
which may be fixed over its term or that adjusts from time to time, converted
at the borrower's election from an adjustable to a fixed rate, or from a fixed
to an adjustable rate.
"Multifamily Properties" means 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 comprising some or
all of the mortgaged properties included in the trust fund.
"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--
o noncash items such as depreciation and amortization;
o capital expenditures; and
109
o debt service on the related mortgage loan or on any other loans that are
secured by such mortgaged property.
"NCUA" means the National Credit Union Administration.
"Notional Amount" means the amount upon which a Stripped Interest
Certificate is calculated to accrue interest which is either--
o based on the principal balances of some or all of the mortgage assets in
the related trust fund; or
o equal to the Certificate Balances of one or more other classes of
certificates of the same series.
"OCC" means the Office of the Comptroller of the Currency.
"OID Regulations" means the Treasury Department regulations issued under
Sections 1271-1273 and 1275 of the Code.
"OTS" means the Office of Thrift Supervision.
"Parties in Interest" means "parties in interest" as defined in ERISA and
"disqualified person" as defined in Section 4975 of the Code.
"Percentage Interest" means the undivided percentage interest represented
by an offered certificate of a particular class which will be equal to the
percentage obtained by dividing the initial principal balance or notional
amount of such certificate by the initial Certificate Balance or Notional
Amount of such class.
"Permitted Investments" means 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 into which funds from the
Certificate Account may be invested.
"Plan" means retirement plans, and on certain other employee benefit plans
and arrangements, including individual retirement accounts, individual
retirement annuities, Keogh plans and collective investment funds and separate
accounts (and as applicable, insurance company general accounts) in which such
plans, accounts or arrangements are invested that are subject to the fiduciary
responsibility provisions of ERISA or Section 4975 of the Code.
"Plan Asset Regulations" means Section 2510.3-101 of the regulations
issued by the DOL, concerning what constitutes assets of a Plan.
"Pooling and Servicing Agreement" means pooling and servicing agreement or
other agreement specified in the related prospectus supplement pursuant to
which certificates of each series will be issued.
"Prepayment Assumption" means the prepayment assumption used in reporting
original issue discount for each series of REMIC Regular Certificates or, if
applicable, Grantor Trust Certificates, as disclosed in the related prospectus
supplement.
"Prepayment Interest Shortfall" means the result when 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 than the corresponding amount of interest accrued and otherwise payable
on the certificates of the related series.
"Prepayment Premium" means the payment of any premium or yield maintenance
charge in connection with certain prepayments under a mortgage loan.
"PTCE 95-60" means Prohibited Transaction Class Exemption 95-60.
"Purchase Price" means the price as specified in the prospectus supplement
at which a Mortgage Asset Seller will be required to repurchase a mortgage loan
under the conditions set forth in the prospectus supplement.
110
"Record Date" means last business day of the month preceding the month in
which the applicable Distribution Date occurs.
"Relief Act" means the Servicemembers Relief Act.
"REMIC" means a real estate mortgage investment conduit, within the
meaning of, and formed in accordance with, the REMIC Provisions of the Code.
"REMIC Certificates" means certificates representing interests in a trust
fund, or a portion of the trust fund, that the REMIC administrator will elect
to have treated as REMIC.
"REMIC Provisions" means Sections 860A through 860G of the Code.
"REMIC Regular Certificates" means certificates evidencing or constituting
ownership of "regular interests" in the trust fund or a designated portion of
the trust under the REMIC Provisions.
"REMIC Regulations" means the Treasury Department regulations issued under
the REMIC Provisions.
"REMIC Residual Certificateholder" means the holder of a REMIC Residual
Certificate.
"REMIC Residual Certificates" means certificates evidencing or
constituting ownership of "residual interests" in the trust or a designated
portion of the trust under the REMIC Provisions.
"REO Properties" means mortgaged properties acquired on behalf of the
trust fund through foreclosure, deed-in-lieu of foreclosure or otherwise.
"RICO" means the Racketeer Influenced and Corrupt Organizations statute.
"Senior Certificates" means certificates in a given series that are senior
to one or more other classes of certificates in entitlement to certain
distributions;
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984, as
amended.
"SPA" means the standard prepayment assumption representing an assumed
variable rate of prepayment each month (expressed as an annual percentage)
relative to the then outstanding principal balance of a pool of mortgage loans.
"Stripped Interest Certificate" means those certificates entitled to
distributions of interest, with disproportionate, nominal or no distributions
of principal.
"Stripped Principal Certificate" means entitled to distributions of
principal, with disproportionate, nominal or no distributions of interest;
"Subordinate Certificates" means certificates in a given series that are
subordinate to one or more other classes of certificates in entitlement to
certain distributions;
"Tiered REMIC" means designated portions of the trust fund treated as two
or more REMICs.
"Treasury Department" means the United States Treasury Department.
"UCC" means for any jurisdiction the Uniform Commercial Code as in effect
in that jurisdiction.
"U.S. Person" means--
o a citizen or resident of the United States;
o a corporation or partnership created or organized in, or under the laws
of, the United States, any state or the District of Columbia, including
an entity treated as a corporation or partnership for federal income tax
purposes;
o an estate whose income is subject to United States federal income tax
purposes regardless of the source of its income; or
o a trust as to which--
1. a court in the United States is able to exercise primary supervision
over the administration of the trust, and
111
2. one or more United States persons have the authority to control all
substantial decisions of the trust.
In addition, to the extent provided in the Treasury Department
regulations, a trust will be a U.S. Person if it was in existence on August 20,
1996 and it elected to be treated as a U.S. Person.
"Voting Rights" means the voting rights evidenced by each series of
certificates.
"Warranting Party" means a party that makes certain representations and
warranties regarding the mortgage loans.
112
NOTES CONCERNING INFORMATION
PRESENTED IN THE ATTACHED
COMPUTER DISKETTE
This diskette contains a spreadsheet file that can be put on a user-specified
hard drive or network drive. The file is "BACM2004_2.xls" The file
"BACM2004_2.xls" is a Microsoft Excel(1) spreadsheet. The file provides, in
electronic format, certain loan level information shown in ANNEX A of the
Prospectus Supplement.
Open the file as you would normally open any spreadsheet in Microsoft Excel.
After the file is opened, a securities law legend will be displayed. READ THE
LEGEND CAREFULLY. To view the ANNEX A data, "click" on the worksheet labeled
"ANNEX A."
- ----------
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
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YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE CERTIFICATES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
WE DO NOT CLAIM THE ACCURACY OF THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AS OF ANY DATE OTHER THAN THE DATES
STATED ON THEIR RESPECTIVE COVERS.
DEALERS WILL DELIVER A PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS WHEN ACTING AS UNDERWRITERS OF THE CERTIFICATES AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. IN ADDITION, ALL DEALERS SELLING THE
CERTIFICATES WILL DELIVER A PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS UNTIL JULY 13, 2004.
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TABLE OF CONTENTS
PAGE
------
PROSPECTUS SUPPLEMENT
Table of Contents ....................................................... S-3
Important Notice About Information Presented in this Prospectus
Supplement and the Accompanying Prospectus ............................ S-6
Executive Summary ....................................................... S-7
Summary of Prospectus Supplement ........................................ S-10
Risk Factors ............................................................ S-23
Description of the Mortgage Pool ........................................ S-69
Servicing of the Mortgage Loans ......................................... S-124
Description of the Certificates ......................................... S-141
The Trustee and The Fiscal Agent ........................................ S-168
Yield and Maturity Considerations ....................................... S-169
Use of Proceeds ......................................................... S-177
Certain Federal Income Tax Consequences ................................. S-177
Certain ERISA Considerations ............................................ S-180
Legal Investment ........................................................ S-182
Method of Distribution .................................................. S-183
Legal Matters ........................................................... S-184
Ratings ................................................................. S-184
Index of Principal Definitions .......................................... S-185
ANNEX A ................................................................. A-1
ANNEX B ................................................................. B-1
ANNEX C ................................................................. C-1
ANNEX D ................................................................. D-1
ANNEX E ................................................................. E-1
PROSPECTUS
Summary of Prospectus ................................................... 6
Risk Factors ............................................................ 11
Prospectus Supplement ................................................... 18
Capitalized Terms Used in This Prospectus ............................... 18
Description of the Trust Funds .......................................... 19
Yield and Maturity Considerations ....................................... 25
The Depositor ........................................................... 30
Description of the Certificates ......................................... 30
The Pooling and Servicing Agreements .................................... 38
Description of Credit Support ........................................... 55
Certain Legal Aspects of Mortgage Loans ................................. 59
Certain Federal Income Tax Consequences ................................. 71
State and Other Tax Consequences ........................................ 98
Certain ERISA Considerations ............................................ 99
Legal Investment ........................................................ 101
Use of Proceeds ......................................................... 103
Method of Distribution .................................................. 103
Legal Matters ........................................................... 104
Financial Information ................................................... 104
Rating .................................................................. 104
Available Information ................................................... 105
Incorporation of Certain Information by Reference ....................... 106
Glossary ................................................................ 107
$1,051,930,069
(APPROXIMATE)
BANC OF AMERICA
COMMERCIAL MORTGAGE INC.
DEPOSITOR
CLASS A-1, CLASS A-2, CLASS A-3, CLASS A-4,
CLASS A-5, CLASS XP, CLASS B, CLASS C, CLASS D AND CLASS E
BANC OF AMERICA
COMMERCIAL MORTGAGE INC.
COMMERCIAL MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 2004-2
---------------------
PROSPECTUS SUPPLEMENT
---------------------
BANC OF AMERICA SECURITIES LLC
BEAR, STEARNS & CO. INC.
GOLDMAN, SACHS & CO.
WACHOVIA SECURITIES
APRIL 1, 2004
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