Issued on 24 July 2012 Responses due by 18 … · Issued on 24 July 2012 Prior to finalising the...

Market ConsultationIssued on 24 July 2012Responses due by 18 September 2012

CREFC EuropeMarket Principles for Issuing European CMBS 2.0

Market ConsultationIssued on24 July 2012

Prior to finalising the Market Principles for Issuing European CMBS 2.0, CREFC Europe and the CMBS 2.0 Committee are seekingcomments in relation to the document.

We encourage and welcome comments from all market participants and request that all comments be submitted on or before18 September 2012.

How to Submit Comments:To help process and review comments efficiently, we will only accept responses by our online response form. Online response form islocated at http://www.crefc.org/eucmbs20/

Comments received will be reviewed and will not be made publicly available.

Thank you,

CREFC Europe

http://www.crefc.org/eucmbs20/

Introduction .............................................................................2

The CMBS 2.0 Committee ......................................................2

Background for the Committee................................................2

Approach.................................................................................2

Best Practice Principles ...........................................................4

Part 1: Disclosure ....................................................................4

Part 2: Revenue Extraction: Excess Spread Monetisation ........8

Part 3: Investor Identification and Investor Forum ....................10

Part 4: Servicing, Transaction Counterparties and ControllingParty Rights .................................................................11

Part 5: Transaction Structural Features ....................................15

Part 6: Restructuring Issues.....................................................19

Part 7: Voting Issues................................................................21

Appendix 1 ..............................................................................22

Appendix 2 ..............................................................................23

Appendix 3 ..............................................................................27

Appendix 4 ..............................................................................33

Appendix 5 ..............................................................................35

cont

ents

This document (and its contents) contains only general information and is provided forinformation purposes only. This document (and its contents) does not constitute aninvitation or offer to buy or sell any investment or an official confirmation of anytransaction. None of CRE Finance Council Europe nor any of the participant firmsnamed herein nor any of its members nor any of its employees or officers are, by meansof this document (and its contents) or otherwise, rendering or providing (or could bedeemed to be rendering or providing) investment, legal, tax, accounting or otherprofessional advice or services. This document (and its contents) is not a substitute forsuch advice or services, nor should this document (and its contents) be used (and it isnot intended to be so used) as a basis for any investment decision or action orotherwise. Before making any investment decision or action or otherwise, you shouldconsult a qualified professional adviser. None of CRE Finance Council Europe, nor anyof the participant firms named herein nor any of its members nor any of its employeesor officers shall be responsible for any loss or liability whatsoever sustained or incurredby any person relating to the use of any information contained in this document or whootherwise relies on this document or its contents.

Market Principles for Issuing European CMBS 2.0 – Consultation Version24 July 2012

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The CMBS 2.0 CommitteeThe Commercial Real Estate FinanceCouncil (CREFC) Europe established theCMBS 2.0 Committee to explore bestpractice principles for CMBS transactionswith the goal of improving confidence inthe European CMBS industry. It is thebelief of CREFC that improvedconfidence by market participants inCMBS structures will encourage thefurther development of the CMBS marketin Europe, which in turn will assist withthe immediate need for capital for realestate transactions. The Committee hastaken into account the views of a cross-section of both historical and activeparticipants in the real estate capitalmarkets, and the group comprises seniorrepresentatives from issuing banks,investors, loan servicers, financialadvisers, borrowers, trustees, lawyersand other industry experts. Consensuswas not reached on all issues and assuch the principles reflect the majorityview of participants. CREFC would like tothank everyone that participated for theirvaluable time and contribution to theprocess. A list of certain participatingfirms and organisations is attached asAppendix 1.

Background for theCommitteeGiven the size of the commercial realestate funding gap facing the Europeanreal estate markets over the next fewyears and, to date, the limited availability ofalternative funding sources, the capitalmarkets are an essential source of capitalfor the real estate industry. However,macro-economic and broader marketissues aside, successful issuance of futuretransactions will be dependent upon thevarious market participants havingconfidence in, and a proper understandingof, CMBS structures and the roles of therelevant transaction counterparties.

The recent crisis has exposed some ofthe weaknesses in historical CMBS

transaction structures, the direction andcoordination of the various transactioncounterparties and the availability ofappropriate levels of information. Thereare also a number of positive structuralfeatures which have been identified andthese should be more widelyimplemented in future transactions.

In response to this background, theCMBS 2.0 Committee has produced aset of best practice principles in relationto some of the key features of CMBS.These areas include:

n Disclosure (including pre-issuancedisclosure, post-issuance disclosure,investor reporting and investor notices);

n Revenue Extraction in the form ofexcess spread monetisation(including Class X Note structures);

n Investor Identification and InvestorForum;

n The role of servicers, special servicersand other transaction counterparties(including trustees and cashmanagers); and

n CMBS structural features (includingcontrolling party rights, votingprovisions, liquidity facilities andsynthetic securitisations);

Approach The principles assume a certain degreeof existing knowledge and experience ofCMBS structures. They do not seek toincorporate all aspects of CMBSstructuring but instead focus on areasof particular importance that havereceived the attention of variousindustry participants with the purpose ofcreating market consensus in light ofrecent experience.

Each market participant approachesCMBS transactions from their ownperspective and the purpose of theseprinciples is to provide a balancedapproach to specific issues in order toprovide for the broadest marketparticipation. The principles are onlysuggestions of best practice and it willultimately be a matter for marketparticipants to decide whether or not toendorse them by applying them to theirtransactions. In certain instances theprinciples refer to a range of optionsrather than a preferred option. Again, inthese instances the participants shouldnegotiate the right option for theirtransaction and fully reflect that option byway of disclosure and in the pricing ofthe transaction. The European CMBSmarket benefits from a variety of realestate asset classes, deal types and

IntroductionBy Nassar Hussain, Chair of the CMBS 2.0 Committee


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jurisdictions and the principles will needto be adapted accordingly.

The principles make reference, in certaininstances, to the requirements of certainCentral Banks such as the Bank ofEngland for sterling denominatedtransactions and the European CentralBank for euro denominated transactionsin relation to their respective eligibilitycollateral frameworks (e.g. the Bank ofEngland CMBS Transaction OverviewTemplate). The ratings criteria ormethodology to be applied by the ratingagencies to new CMBS transactionscontinues to evolve. The potential ratingsimpact of any of the principles will needto be evaluated separately on atransaction by transaction basis with therelevant rating agencies.

The CMBS 2.0 Committee has tried notto overlap with the supplementary workcarried out by other CREFC Committees,

including the Lender, Servicer,Inter-Creditor, Hedging, Loan DueDiligence and E-IRP Committees. Thefocus has been on matters purely relatedto transaction structures, transactioncounterparties and disclosure ofappropriate levels of information. Theseprinciples do not cover matters relating toloan or property underwriting,assessment of credit risk or due diligencestandards or processes. Additionally, theprinciples do not endeavour to anticipatethe form of interest rate structure orduration and related changes that newCMBS investors may require as this willevolve over time.

The CMBS 2.0 Committee’s principlestake into consideration the current marketenvironment and shall be revisedperiodically through updates and theissuance of appendices to address newtopics as industry best practices continueto evolve.

CREFC will also operate an ongoingCMBS 2.0 Principles Comments Sectionon the CREFC Europe Website so thatindustry participants can continue toprovide feedback and receive updateson Principles.

These principles supplement andcompliment laws and regulationsapplicable to the issue of securities suchas CMBS as well as the rules of anyapplicable stock exchange. Issuers andarrangers of CMBS transactions shouldtake their own advice on such matters toensure that their CMBS transactionscomply with the same.


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Part 1: Disclosure1.1 Introduction

The purpose of this section is toencourage improved levels of pre- andpost-issuance disclosure andtransparency and to generate industryefficiencies. The guidelines in thissection seek to:

n Promote the consistency of corereporting and uniformity of minimuminformation levels in European CMBStransactions in order to create ahigher standard for reporting and abetter means of comparing CMBStransactions; and

n Reduce the time required by marketparticipants to reconcile reporting andthe time information providers arerequired to respond to follow-upqueries from investors.

Investors should be satisfied thatdisclosure matters are adequatelyaddressed in the documentation at thetime of issuance.

In addition to the disclosure principles setforth in this section, there are specific itemsof disclosure set out in each of the othersections contained in these principles.

1.2 Offering Circular Disclosuren In transactions with a single loan or

for any loans constituting more than5% of the total assets, there shouldbe detailed loan level disclosure in theOffering Circular and, whereapplicable, disclosure of any borrowerlevel hedging.

n In order to improve transparency andfacilitate comparison betweentransactions, information in respect ofthe loan(s), underlying property andnotes should be presented in astandardised format (the “BaseCase”). Summary tables should beused in the Offering Circular todisplay the Base Case in the form setout in Appendix 2.

n The Offering Circular should contain atransaction overview similar to orbased on the Bank of England’s

CMBS overview template (AFME/ESFversion for UK stand-alonetransactions), which is available at:http://www.crefc.org/eucmbs20/ butappropriately adapted on atransaction by transaction basis.

n Any transactions which incorporaterevenue extraction through excessspread monetisation (including class Xnotes) or otherwise (as set out inmore detail in Section 2.2) shouldinclude a separate section in theOffering Circular providing full detailsof such extraction.

n Conflicts of interest that are known toexist or are likely to or will exist in thefuture (e.g. on completion of thetransaction) at each level of thestructure should be clearly and fullydisclosed in the Offering Circular(including conflicts relating tonoteholders, junior and mezzaninelenders, the hedging provider, therevenue extraction holder, theservicer/special servicer and thetrustee), clearly specifying whichparties could be involved and how thepotential conflict of interest couldimpact investors. Appropriateprovision should be made in therelevant documentation so that if aconflict of interest arises in relation toa transaction counterparty after thedate of the Offering Circular it can bedisclosed in the periodicalinvestor reporting.

n If possible, information on the identityof the borrower and the ultimatesponsor(s) holding at least [10]% ofthe equity should be disclosed in theOffering Circular. This excludes limitedpartners in a fund managed by areputable and established investmentmanager. The purpose of the financingshould be disclosed (whetheracquisition or refinancing) togetherwith the amount of outstanding equityof each sponsor that remains at risk.However, these guidelinesacknowledge that the ability to makecertain of these disclosures will restwith the relevant sponsor, who may

have its own reasons for not wantingsuch detailed disclosure to be made inthe Offering Circular.

n The existence and amount of anyjunior debt (including B notes,mezzanine loans or othersubordinated loans or PIK typeinstruments), pari-passu debt andsuper-senior debt should bedisclosed in the Offering Circular.Further, all rights of such holders ofadditional debt should be disclosed inthe Offering Circular to the extent thatsuch rights relate to modifications,waivers or enforcement of thesecuritised debt setting out the rightsof the holders of such junior debt,whether the rights are entrenched(including consent rights, purchaseoptions, cure rights, enforcementrights, amendment rights). Also, thesecurity attached to such other debtshould also be disclosed.

n The Base Case and ongoing reporting(as described below) should specifywhether reported income is gross ornet (and what deductions are madebetween gross and net).

n The CMBS 2.0 Committee will workwith market participants in order toproduce and publish a base set ofbest practice representations andwarranties in the near future. The formof any representations and warrantiesshould be detailed and objective. Anydisclosure or exception to arepresentation and warranty shouldbe set out immediately below thespecific representation and warranty.For conduit and true sale transactionsthere should be detailed disclosure inthe Offering Circular of all therepresentations and warrantiescontained in the loan sale agreement.For all transactions there should bedetailed disclosure in the OfferingCircular of all the representations andwarranties relating to (i) disclosure ofall material information,accuracy/omissions of informationetc. to noteholders and (ii) generalmatters including due incorporation,

Best Practice Principles

http://www.crefc.org/eucmbs20/

authority, valid and binding obligationsand insolvency.

n The Offering Circular should disclosethe identity and key information inrespect of the transactioncounterparties including the business,experience, financial standing andownership of the key transactionparties including the servicer, specialservicer, trustee and cash manager. Inrelation to the servicer and specialservicer, there should be disclosureon their experience in relation to theloans and collateral (and the countryin which the collateral is located)which form part of the CMBS and theability of the servicer or specialservicer to implement potential work-out strategies with or without consent(e.g. restructuring, enforcement, saleof loan). There should also bedisclosure on the servicerreplacement mechanism and thecircumstances in which serviceradvances (if any) will be provided.

n The Offering Circular should disclosethe fees payable to such transactioncounterparties. CREFC is consciousof the potential sensitivity to thevarious transaction parties ofdisclosing such fees and, therefore, itwould be acceptable in respect ofonly the ordinary, annual fees of thetransaction parties (other than theservicer and special servicer) to onlydisclose an aggregated amount thatrepresents the total, annualcompensation for all of thetransaction parties.

n The Offering Circular should alsodisclose who receives the benefit ofany material ancillary cash flows suchas loan prepayment penalties, loanconsent fees, loan default interest orgains on hedge terminations.

1.3 Transaction Documents n All CMBS level transaction documents

(including the servicing agreements)should be made publicly availablethrough the issuer or the trustee inelectronic format on an investor

reporting website maintained by aparty to the transaction, a third partywebsite or both. The location of thewebsite should be disclosed in theOffering Circular and in each quarterlyinvestor report.

n In relation to loan documentation, thelevel of public disclosure will, to someextent, be determined by marketforces and reflect a balance betweenthe borrower’s need for privacy andthe note investors’ need to be able toevaluate the credit quality of thenotes. However, it is recommendedthat loan level documents which dealwith cash flows and security, whichhave a significant impact on theCMBS (e.g. the loan agreement,intercreditor agreement and hedgeagreements) should be madeavailable (in particular, there may bevariations for transactions with asingle loan or with large loans in thepool). In the absence of any of theabove documents being madepublicly available, the summaries inthe Offering Circular should bedetailed and should include allmaterial information

n Detailed disclosure of the hedginginstruments used should be madeand such disclosure should include,but should not be limited to, thefollowing information:

• The type of instruments andexplanation of the hedgingstructure;

• Borrower level or issuer level;

• The ranking(s) in the paymentwaterfall (both pre and postacceleration);

• Details of who the hedgingcounterparty is and any rights thatthey may have (including votingrights and the ability to terminatethe instrument);

• The notional profile of theinstrument;

• Payment dates including, inparticular, the maturity date;

• Whether the liquidity facility/serviceradvances are available to meethedging payments;

• Quarterly reporting of the mark-to-market valuation of the hedge bythe hedge counterparty toinvestors (through the investorreporting of the servicer or cashmanager, as the case may be);

• How changes in swap rates mayimpact the level of the mark tomarket valuation; and

• Ongoing disclosure of how muchcollateral under a credit supportannex has been posted atany time.

Any material amendments to the profile,other than partial terminations as a resultof partial redemptions, should bedisclosed as and when they occur.

In the absence of the underlying hedgedocumentation, (including the schedule,confirmations and any credit supportannex) being made publicly available, thesummaries in the Offering Circular shouldbe detailed and should include allmaterial information.

1.4 Investor Reporting, Data andCash flow Model

n Investor Reporting – The OfferingCircular should contain information onthe content, dates of availability,access (including any restrictions onaccess (such as registration of detailsor certification of interest)) and cost (ifany) of investor reporting and whichtransaction counterparty will beresponsible for each element of theinvestor reporting (e.g. servicer/specialservicer for loan and collateralinformation and cash manager fornote level information). The pro-formaform of the investor report should bedisclosed at the time of the noteissuance. A list of the recommendedinformation/data requirements forinvestor reporting is attached asAppendix 3. The investor reportshould be made publicly available in asuitable electronic format (.pdf, .xls or


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.csv file) on a reporting websitemaintained by an agent of the issueror on a third party website or both.

n Provision of Data – The OfferingCircular should contain information onthe content, dates of availability, access(including any restrictions on access(such as registration of details orcertification of interest) and cost (if any)of transaction data in the form/templateof CREFC Europe’s Investor ReportingPackage® (E-IRP®). The most recentversion of E-IRP is v2.0 contains theLoan Setup File; Loan Periodic File;Property File; and Bond File and isavailable at:http://www.crefc.org/Global/CMSA-Europe/Resources/E-IRP/European_Investor_Reporting_Package. The E-IRP is currently incompliance with the latest requirementsof the European Central Bank and theBank of England. The populatedversion should be made available in asuitable electronic format (.xls or .csvfile) on a reporting website maintainedby an agent of the issuer or a thirdparty website or both.

n The data used to compile the loaninformation in the Base Case is in thesame form as the E-IRP Loan SetupFile and should be made available atthe outset to appropriate transactioncounterparties including the servicer,to assist in their ongoing reporting. Allservicer quarterly reports and relevant

interim RIS notices issued on behalfof the servicer should be easilyreferable to the Base Case.

n Issuer Waterfall Cash flowModel – The Offering Circular shouldcontain information on the content,dates of availability, access (includingany restrictions on access (such asregistration of details or certification ofinterest)) and cost (if any) of an issuerwaterfall cash flow model in order thatinvestors can project future note levelcash flows until the notes are repaid.The model may be provided in avariety of formats (e.g. website-hosted, downloadable program orspreadsheet) but should enableinvestors to input key variables usinga recognisable spreadsheet format(e.g. .csv, .xls or .xlsx) and investorsshould be able to retain or record theresults. The form of cash flow modelshould contain the information andfunctionality outlined in Appendix 4and should at the outset encompassrelevant transaction features includingprovision for liquidity facility or serviceradvances, hedging structure andtransaction triggers impactingthe waterfall.

n The arranger of the CMBS issuanceshould arrange for such cash flowmodel to be provided directly orindirectly (through a delegated cashflow model provider) to the market atissuance and to the extent the base

transaction structure changes thearranger should update it at therelevant time.

n The quarterly investor reportingshould contain any relevant inputs forthe cash flow model which reflect thecurrent status of the transaction suchas note balances, note margins,loan/loan portfolio balance, currentliquidity facility drawing amount,balances of issuer level accounts andledgers, fixed inputs required tocalculate aggregate issuer costs andexpenses etc. and details of anytriggers that have been activated ordeactivated. Certain assumptioninputs required to operate the cashflow model to project future cashflows to the maturity or ultimaterepayment date of the notes shouldbe determined and entered by theinvestor. Details of the appropriateinputs are contained in Appendix 4.

n In addition, on an optional basis andat an appropriate cost, the arrangeror delegated cash flow modelprovider may provide to investors:

(i) An integrated or separate modelto project loan portfolio cash flowswhich incorporates the coupons,hedging structure, balances,maturity/extensions, scheduledamortisation, prepayments etc.The outputs of such model shouldbe capable of being used directlyas inputs into the issuer waterfallcash flow model; and

(ii) An integrated or separate modelto calculate the price of the notesbased on the note cash flowsproduced by the issuer waterfallcash flow model and a discountmargin determined and input bythe investor (or vice versa using aprice to determine the discountmargin of the notes).

n All information made available to theinvestors at primary issuance shouldalso be accessible by secondarymarket investors on the investorreporting website for the life of thetransaction (including investor reportsand investor marketing presentations).

http://www.crefc.org/Global/CMSA-Europe/Resources/E-IRP/European_Investor_Reporting_Package.




n Each of the updated investorreporting, data (E-IRP files) and cashflow model should be made availablefree of charge within 14 days of anote interest payment date.

1.5 RIS Noticesn RIS notices should be published as

soon as reasonably possible upon theservicer or cash manager (as the casemay be) becoming aware of a“Notifiable Event”. The servicer or cashmanager should notify the issuer of theNotifiable Event and (if appropriate)prepare the draft form of RIS and theissuer should then be responsible forissuing the RIS Notice on a promptbasis. A suggested list of NotifiableEvents is set out in Appendix 5.

n The publication of certain information inan RIS notice may be delayed for thereasons specified in section 1.9 below.

n Further detail on the Notifiable Eventmay be incorporated into thequarterly report when and whereappropriate, provided that all materialinformation has been disclosed in therelevant RIS notice.

n The filing requirements for an RISnotice will vary based upon thelocation of listing and issue for anyCMBS transaction.

n RIS notices should be distributedsimultaneously via the clearingsystems and any other methodrequired in the “Notices” condition inthe Offering Circular.

n In addition to the publication requiredby law for any RIS notices, otherinformation websites such as areporting website maintained by anagent to the issuer or a third partywebsite or both should be usedtogether with electronic messagingsystems such as Bloomberg (whenand where appropriate).

1.6 Borrower Reportingn In order to permit the transaction

counterparties to comply with theirdisclosure obligations as outlinedabove, the underlying loandocumentation should contain theappropriate information undertakingson the borrower and any other

relevant obligors to provide theinformation and data in a mannerconsistent with the timing, nature andformat of such reporting requirementsof such transaction counterparties. Astandardised form of borrowerreporting should be encouragedacross European CMBS transactions.The CREFC is working on appropriateborrower level reporting templates.

n Information and data provided by theborrower in its regular reportingshould be in a format that can beused in the loan level reportsprepared by the servicer (i.e. in anelectronic and downloadable format).

n Borrowers should be required toprovide information within a timeframethat enables servicers to preparereports with adequate time prior tothe note interest payment dates andin accordance with the principles setout in section 1.4.

n If borrowers have not agreed tocomplete certain basic fields, or haveagreed to provide enhancedreporting, or have not agreed toreport by the usual reporting dates,this should be disclosed so thatinvestors’ expectations as to ongoingdisclosure can be managed.

1.7 Valuations and PropertyInspections

n Pre-issuance: Recent valuationsdated up to six months prior to theissuance date should be madeavailable to investors. If the originalvaluation is more than six monthsold, a bring-down desk-top valuationshould also be provided to investorsin each case by the arranger.

n Post-issuance: Any valuationcompleted post-issuance should beprovided to investors by the serviceror special servicer.

n All valuations should be electronicformat copies of the full valuationreport or desk-top report (asappropriate), sanitised to reflect anyexceptions provided for in section 1.9.

n The servicer/special servicer shouldundertake appropriate periodicalproperty inspections usingappropriately experience staff. Anyrelevant material findings during a

property inspection should bedisclosed in the next quarterlyinvestor report or, if relevant, as aNotifiable Event.

1.8 Disclosure of and Reliance onDue Diligence Reports

n All material due diligence reports(including valuations, structuralsurveys, reports on title,environmental reports, legal opinionsetc.) should provide for reliance anddisclosure in a manner appropriatefor a CMBS transaction. In particular:

(i) Reliance should be provided toeach finance party under the facilityagreement as well as to any trusteewith respect to any securitiesissued by any such finance party inconnection with a securitisation ofthe loan or any part thereof.

(ii) Disclosure should clearly beavailable to:

• All successors and assignsof the addressees tothe report;

• Their agents and advisors;

• Their affiliates, employees,officers, directors, agents;

• Any actual or prospectivepurchaser, transferee orassignee of, or participant in,the facility;

• Any servicer or specialservicer of the facility;

• Any actual or prospectiveinvestor (including its agentsand advisers) in any securitiesissued in connection with anysecuritisation of the facility;

• Any rating agencies (actuallyor prospectively) rating suchsecurities issued inconnection with anysecuritisation of the facilityand their respective advisers;

• Any trustee of any financeparty; and

• Where disclosure is requiredby law, court order, regulation,public authority or in respectof legal proceedings.


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n In addition, the terms of due diligencereports should permit the report or areference to the report (and themethodologies and results on whichthe same is based) being included orquoted or otherwise summarised inany information memorandum,offering circular, private placementmemorandum, registration statement,prospectus or term sheet as may berequired to comply with anyapplicable laws, regulations or officialguidelines relating to the issuance ofany securitisation of the facility or forany investor or potential investor to bein compliance with any applicable law,regulation or requirements of anygovernmental, banking, taxation orsimilar body relating to maintaining aninvestment in, or the regulatory capitaltreatment of, any securities issued insuch securitisation.

1.9 Exceptions to Ongoing DueDiligence DisclosureRequirements

n Specific items of disclosure may bedelayed, withheld or redacted if:

• There is a legitimate reason underthe Market Abuse Directive orapplicable law (e.g. for bankingconfidentiality/data protectionreasons), to withhold theinformation and

• Where either:

• The release of informationwould prejudice ongoingcommercially sensitivenegotiations by the borrower(e.g. sale, lease renewal orregearing or rent reviewnegotiations) which in thereasonable opinion of theservicer would be materiallyprejudicial to noteholders; or

• Where the servicer, specialservicer or other transactionparty has received suchinformation pursuant to aconfidentiality or othersimilar agreement.

n The information should be releasedpromptly as soon as the legitimatereason or confidentiality nolonger applies.

Part 2: Revenue Extraction:Use of Excess SpreadMonetisation (IncludingClass X Notes) and OtherMechanisms 2.1 Introductionn A CMBS transaction is typically

structured so that the aggregateinterest that accrues on the loansexceeds the aggregate amount ofinterest that accrues on the CMBSnotes. This excess amount iscommonly referred to as the“Excess Spread”.

n Many CMBS transactions providerevenue for the originating orarranging bank through theextraction or sale of at least a portionof this Excess Spread (“RevenueExtraction”). Sometimes part of theRevenue Extraction is utilised torecover certain upfront transactioncosts of the CMBS transaction.

n Revenue Extraction can be structuredand defined in various ways includingclass X notes, deferred consideration,residual interest or retained interest.Revenue Extraction structures can besimple such as a skim on the loanmargin or more complicated as withClass X Note structures. However,these structures may have additionalimplications such as the shortfall ofnote interest due to extraneousexpenses not otherwise covered byExcess Spread.

n Revenue Extraction structurestypically allocate to the beneficiaryeither:

(i) An amount equal to the excess ofall interest earned on theunderlying loan or pool of loansover the costs of the CMBStransaction (these costs wouldtypically include the interestpayable on the CMBS notes andsome level of expenses for theCMBS transaction); or

(ii) A proportion of the loan marginoutside the CMBS structure(resulting in the loan marginpayable to the issuer beingreduced accordingly).

n A summary example of a Class XNote formula is set forth below:

“Class X Interest Amount” for anyperiod is equal to Loan Interestminus Bond Costs, with

“Loan Interest” for any period isequal to interest that has accrued orshould have accrued on the loan forsuch period at its margin; and

“Bond Costs” for any period isequal to the aggregate of: (a) certainspecified costs of the CMBStransaction; and (b) the aggregate ofinterest accrued on the notes at theirrespective margins.

n Other forms of Revenue Extractioncan be calculated in a number ofdifferent ways, which can includethe following:

• Two-Waterfall Structure: Allprincipal and all interest above athreshold amount are depositedinto a collection account, whichis then distributed to payexpenses, interest and principalon the CMBS notes. A thresholdamount of interest is thenretained as an excess amount ofinterest and paid to the RevenueExtraction holder. Typically, thisamount is stripped from the loanoutside of the CMBS structure.

• Single Waterfall Structure: Allamounts collected on the loan aredeposited into a collectionaccount which is distributed in aspecified priority to pay expenses,interest, principal and the RevenueExtraction from a single waterfall.

2.2 Revenue Extraction Disclosure n The Offering Circular should contain

clear and concise disclosure thatsets forth the existence and nature ofany Revenue Extraction structure,how it is calculated and whether it isto be retained by the originatingbank, servicer/special servicer or theborrower or their affiliates.

n This disclosure should be maderegardless of whether the RevenueExtraction is stripped from withinthe CMBS structure or outside ofthe CMBS structure at the loan levelor otherwise.

n Further, the disclosure in the OfferingCircular should provide the following:

(i) Expenses: There should be cleardetails as to which expenses willor will not be effectively absorbedby the Revenue Extraction. Thisshould result in a clear list ofitems that will be deducted or notdeducted in the calculation forthe Revenue Extraction fromthe cash flow.

(ii) Conflicts of Interest: There shouldbe clear disclosure as to anyconflicts of interest with respectto the Revenue Extraction atissuance, including, in particular,as to whether the servicer/specialservicer or any of its affiliates orthe borrower was the owner ofthe Revenue Extraction.

(iii) Priority of Payments: Thereshould be precise disclosure asto what payments are made tothe Revenue Extraction, oreffectively paid, senior orsubordinate to payments due onthe other CMBS notes.

(iv) Liquidity Facility/ServicerAdvances: There should be cleardisclosure as to whether theliquidity facility drawings orservicer advances can be used tosupport Revenue Extraction.

n The ongoing noteholder reporting forany CMBS transaction should clearly

set forth the full breakdown of thevarious components of thecalculation for the RevenueExtraction and provide preciseamounts for its various components,such as the available cash flow,expenses and other components ofsuch calculation.

2.3 Structural Recommendations The Revenue Extraction should clearlybe structured to take into accountthe following:

n Default Rate Interest: The RevenueExtraction should not increase in itscalculated payment solely as a resultof interest accruing at the defaultrate. The portion of the calculation ofsuch amounts that relate to theamount of interest earned on themortgage loan(s) should be limited tothe interest accrued at its standardrate (and exclude any interest thataccrues at the default rate).

n Modified Interest: The RevenueExtraction should not increase in itscalculated payment solely as aresult of an increase in margin thatis the result of any restructuring ofthe loan. Again, the portion of thecalculation of such amounts thatrelate to the amount of interestearned on the mortgage loan(s)should be limited to the interestaccrued at its original interest rate(and exclude any increase in interest

or margin that occurs after the initialissuance of the CMBS transactionto the extent that any such increaseis the result of a subsequentmodification or restructuring of themortgage loan(s)).

n Maturity Date: The Revenue Extractionshould not be entitled to receive anyportion of interest earned on amortgage loan after its original statedmaturity (or its extended maturity date,solely to the extent that suchextension is a result of application ofan extension option that is containedin the original mortgage loandocumentation at the time of the initialissuance of the CMBS transaction).

n Loan Default: The impact of a loandefault on Revenue Extraction shouldbe determined on a transaction bytransaction basis and be fullydisclosed and the CMBS issuancepriced accordingly. Various optionscan be considered from the RevenueExtraction no longer being entitled toreceive interest on specified defaultsof a loan or such defaults having noimpact until a loss on the loan iscrystallised and then the RevenueExtraction is adjusted accordingly asappropriate based on that loss.

To the extent that the CMBS transactionreceives any excess amounts on anymortgage loan as a result of the items setforth above, such excess amounts shouldonly be paid to the Revenue Extractionafter all of the CMBS notes (other thanany notes forming part of the RevenueExtraction) have been repaid in full. In themeantime these excess amounts can beapplied in a number of different ways tobe determined on a transaction bytransaction basis including:

n Paydown of the most senior noteseach quarter;

n Payment of a shortfall of any intereston the notes, for example, prior toand where a liquidity facility advanceor service advance would have beenapplicable (until all the collateral issold and then applied to cover anyshortfall of interest on the notes); or

n The build-up of a reserve fund whichcan be applied to cover principallosses on the notes.


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Any surplus residual cash amounts thatmay exist after all the CMBS notes(other than any notes forming part of theRevenue Extraction) have been paid infull as a result of the application of theseexcess amounts may be used for theRevenue Extraction.

Part 3: Investor Identificationand Investor Forum3.1 IntroductionThe clearing systems should beencouraged to devise and implement amore efficient mechanism for noteholdersto be identified so that interested partiesmay communicate with them in relationto their holdings. Pending theintroduction of such a mechanism, anoteholder forum (the “Forum”) shouldbe encouraged on a transaction bytransaction basis as an interim measureto facilitate the identification of andcommunications between noteholders.The participating noteholders would beprimarily responsible for the operation ofany meetings and subsequent actionsundertaken by the Forum.

3.2 Identification n A “Forum Coordinator” should be

appointed in connection with theissuance of the CMBS notes. TheForum Coordinator will have thoseresponsibilities set forth in thissection. The Forum Coordinatorshould be an entity with experienceof interacting with and/orrepresenting noteholders or theyshould be the party that managesthe relevant investor reportingwebsite (as described below),typically the cash manager.

n On the issue date of eachtransaction, the lead manager(s)should provide the ForumCoordinator with a list of the initialinvestors which would form the basisof the Forum.

n Noteholders should be invited toidentify themselves to the ForumCoordinator. Only the ForumCoordinator could use thisinformation to contact noteholdersfor the purposes of the Forum.

Noteholders should be made awarethat if they do not identifythemselves, they will not be able toreceive notices through the Forumand will instead have to rely onmethods such as RIS notices, theclearing systems and Bloomberg.

n In order to prevent any conflicts ofinterests, the Forum Coordinator willbe prohibited from taking on anyadvisory or other role relating to theCMBS transaction (other than purelyadministrative service functions suchas cash manager or calculation agent).

n Borrowers, lenders and transactioncounterparties and their affiliatesshould (promptly upon becomingaware) disclose to the ForumCoordinator holdings of notes inexcess of [three] per cent. of thePrincipal Amount Outstanding of anyclass. This information would only bemade available to the ForumCoordinator, the cash manager andtrustee and excludes holdings heldwithin other internal teams that areappropriately Chinese-walled such assecondary trading desks.

n The Offering Circular should containfull descriptions of the mechanismfor the appointment andresponsibilities of the ForumCoordinator (both in the riskfactors/investment considerationssection and in the terms andconditions of the notes) and explainthat there can be no assurance ofthe completeness or accuracy of theinformation maintained by the ForumCoordinator. The Offering Circularshould also attempt to identify risksto noteholders of participating or notparticipating in the Forum.

3.3 Website n The investor reporting website1 for

each transaction should require eachperson logging-on to certify whetherthey are a noteholder. All parties thatidentify themselves as a noteholdershould be requested to:

(i) Provide one or more emailaddresses at which they canbe contacted;

(ii) Either (a) certify that they are notaffiliated to the borrower or anyother noteholder or lender in thetransaction or (b) disclose thefact that they are affiliated to theborrower or a noteholder orlender but operate withappropriate Chinese walls inplace; and

(iii) Specify which class or classes ofnotes they hold (but not theamount of their holding).

Any noteholder who validlycompletes this certification will beconsidered a member of the Forumfor the transaction.

n Any noteholder not logging on to theinvestor reporting website for anagreed period of time will be sent anotice by email by the ForumCoordinator stating that unless theylog on within two weeks they will beremoved from the records and ceaseto be a member of the Forum.

3.4 Communications n All notices to noteholders from any

transaction party will be sent throughthe Forum in addition to any othermeans of communication required inthe terms and conditions of the notes.

n Subject to meeting the requirementsfor the form of the notice, anynoteholder that is a member of theForum or any transaction party(including the issuer, cash manager,trustee, servicer and specialservicer) will have the right torequest the Forum Coordinator tosend a notice on its behalf to theother members of the Forum. TheForum Coordinator should beobliged to send notices as quicklyas is practically possible.

n The Forum Coordinator should postsuch notices to the website andsend them by email to the Forummembers (or to Forum membersholding particular classes of notes)as well as through the othercommunication methodssanctioned by the transaction inquestion. Notices should also be

1 Where the website for a particular transaction is not capable of being used in this way, alternative arrangements should be made

forwarded to the issuer forpublication on the RIS system ofthe stock exchange on which thenotes are listed.

n Such notices should1:

(i) Have a short title which shouldseek to explain the subjectmatter of the notice;

(ii) Advise noteholders that they maysuffer losses (and the ForumCoordinator, cash manager, trustee,servicer and special servicer will notbe responsible for the same) if theyignore such notices;

(iii) Invite other Forum members toattend a meeting, conference callor website with appropriatedetails of the same;

(iv) Set out a short description of thepurpose of the same;

(v) Confirm that any discussionswith other noteholders willcommence with confirmation bythe party initiating thediscussions (or their advisers) asto whether any “price sensitiveinformation” is expected to bedisclosed and any proposedmechanism for “cleansing” thesame following which anynoteholders not wishing toreceive such information will begiven the opportunity to retirefrom the discussion;

(vi) Contain a warning to noteholdersparticipating in the discussionsthat they will be responsible forany “price sensitive information”they may disclose to any othernoteholders;

(vii) Be in such format or formats asare compatible with systemsmaintained by the stock exchangeon which the notes are listed andthe relevant clearing systems; and

(viii) In all other aspects comply withthe International CentralSecurities Depository standards.

n No notice may contain a statementof opinion on the CMBStransaction, any transaction partiesor otherwise. The ForumCoordinator will be instructed not todisseminate any notice containing astatement of opinion.

n Once the notice has been sent, theForum Coordinator will have nofurther role in relation to the subjectmatter of the notice (unlessrequested by noteholders and if theForum Coordinator is willing to do so)and it will be for the relevantnoteholders to make the necessaryarrangements.

n Prior to a meeting or conferencecall being held, any participatingnoteholder holding at least [10]% ofall the notes or the relevant class,as the case may be, may ask theForum Coordinator to request proofof holdings from the otherparticipating noteholders to ensurethey hold a position in theunderlying transaction. The ForumCoordinator will not be required todisclose the note amount or whichclass of notes any participatingnoteholder owns.

3.5 Protective Provisions n Forum Coordinators should be given

the benefit of protective provisionsrelieving them from any responsibilityfor the accuracy or completeness ofinformation provided to it for thepurposes of the Forum by anyperson, the contents of any suchnotice or the failure of any notice toreach any noteholder.

n Forum Coordinators will not beresponsible for the release of anyprice sensitive information byparticipating noteholders orresponsible for cleansing any suchprice sensitive information.

n Forum Coordinators should beentitled to charge an agreed fee fortheir work in establishing andmaintaining Forums.

Part 4: Servicing,Transaction Counterpartiesand Controlling Party Rights4.1 Servicer and Special Servicer

Considerations

4.1.1 Servicing Standardn The servicing standard should include

a duty to maximise recoveries at theloan level on a present value basistaking into account the interests ofthe CMBS noteholders (or all thelenders if they also service junior debt)as a collective whole as opposed toany individual tranche (other thantaking into account subordination).

n The interests of the RevenueExtraction holders should not beconsidered when analysing themaximisation of recoveries.

n The servicer and special servicershould have consistent principles forthe evaluation of any discount rate tobe applied for any PV calculation.

n The calculation of the maximisation ofrecoveries should take into accountany swap termination payments thatreduce or increase the level ofrecoveries but should not include theimpact of liquidity facility drawings,servicer advances, sequential paymenttriggers or similar note level mechanics.

n Whilst the servicer or special servicerneed not take into account suchnote level facilities or mechanisms indetermining and applying theirstrategy under the servicingstandard, they should be open tohearing representations fromnoteholders on the impact of theservicer’s proposed strategy on notelevel facilities or mechanisms.

4.1.2 Appointment, Function and Feesof Primary and Special Servicer

n A special servicer should always beappointed on the closing date andshould become active, automatically,upon the occurrence of prescribedtransfer events (“Servicing TransferEvents”). A Servicing Transfer Event


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1 Care will be needed to ensure that the content is not price sensitive, defamatory or otherwise problematic. The Forum Coordinator will have the right to decline to send outany notice the content of which it determines (in its sole discretion) to be problematic


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would typically occur when there is afailure to pay, insolvency event,enforcement or other material default.

n Depending on the nature of thetransaction, careful considerationshould be given to which defaults orother conditions should result in aServicing Transfer Event (for instancea breach of an ICR covenant may bea Servicing Transfer Event, a breachof an LTV covenant may not be aServicing Transfer Event but an LTVbeyond 90% may be a ServicingTransfer Event).

n The respective roles of the servicerand the special servicer should beclearly defined so there is noambiguity or overlap. Primary servicingand special servicing can be assignedto the same firm if the documentsallow for the replacement of thespecial servicer by the ControllingParty or Replacing Noteholders (asdefined in section 4.2.2 below).

n The remuneration of theservicer/special servicer should bedesigned to ensure that it alwaysacts in the interests of lenders andthe amount and basis of calculationsof such fees should always beadequately disclosed at the outset ofa transaction. All details with respectto the fees payable to the specialservicer, including liquidation andworkout fees should be negotiatedon a deal by deal basis taking intoaccount factors such as the size ofthe loan and the complexity, natureand jurisdictions of the assets.

n Any special servicer appointed by theControlling Party or ReplacingNoteholders should be required torepresent prior to its appointment that ithas not offered any inducement orother incentives to any ReplacingNoteholder, the Controlling Party or anytransaction counterparty or theiradvisers involved in the appointment ortheir representatives.

n For agented CMBS transactions itwould be preferable to have anindependent third party servicer andspecial servicer appointed ordesignated as part of the structure atthe outset.

4.1.3 Ability of Servicer/SpecialServicer to Raise Capital forEssential Capex or Opex

n The servicer/special servicer shouldhave the ability, subject to certaincontrols, limitations and caps, toraise additional capital (where it isnot already provided for in theliquidity facility or through a serviceradvance facility) to fund costs andexpenses necessary to improve orpreserve the value of the underlyingproperty (e.g. payment of propertyprotection expenses, buildingsinsurance, capex to reposition aproperty) or short term opex to avoidinsolvency in less creditor friendlyjurisdictions. There should be clearand detailed disclosure in the offeringcircular of the relevant provisions.

n Such ability to raise capital should be:

(i) Subject to the application of theservicing standard;

(ii) Based on analysis that clearlydemonstrates on a PV basis thatthe use and cost of the additionalcapital will improve recoverylevels by an amount whichexceeds the aggregate amountand cost of the additional capitalby at least [1.25x];

(iii) On arm’s length and marketterms after an appropriatebidding process;

(iv) Have an appropriate securitystructure; and

(v) Be subject to non-petitionlanguage where appropriate.

n The servicer should determine that itwould be in the better interests ofthe issuer, as either lender or ownerof any interest in any REO property,that such amounts were raised asopposed to such amounts not beingraised, taking into account therelevant circumstances, which willinclude, but not be limited to, therelated risks that the issuer would beexposed to if such amounts were notraised and whether any suchamounts would ultimately berecoverable from the obligors of therelated loan.

n Where it can be appropriatelystructured into the transaction at theoutset the Servicer should use themost efficient form of capital inaccordance with the servicingstandard (e.g. super senior debt,mezzanine or equity) available at thetime in relation to cost, terms andranking of repayment and return.

4.2 Controlling Party, Replacementof the Special Servicer andOther Rights

4.2.1 Determination of the ControllingParty

n Typically, a “Controlling Party” isappointed with respect to each loanin a CMBS transaction.

n The Controlling Party for a particularloan typically has certain rights, mostnotably the ability to appoint anoperating adviser, the ability toreplace the special servicer and haveconsultation rights in relation toamendments for such loan.

n Depending upon the particular loan,the Controlling Party might beanother lender (other than the issuerof the CMBS transaction) or anoteholder in the CMBS.

n If a lender, the Controlling Party istypically the holder of the most juniorloan which has a principal amountoutstanding at some specified level(typically 25% of original principalamount). It is typical for loan levelControlling Parties to have some orall of their rights subject to a ControlValuation Event (see below).

n If the Controlling Party is the portionof the loan which has beensecuritised, control is typically heldby the most subordinate class ofnotes (known as the “ControllingClass”). However, the ControllingClass may change upon a controlvaluation event.

n The calculation of which party is thecontrolling party should always bedynamic and based on:

(i) A specified valuation process; and

(ii) The principal amount outstandingof the relevant tranche whether

reduced due to amortisation,pre-payment or write-offs.

n Whilst precise definitions need tobe drafted on a transaction bytransaction basis, the following bestpractice principles shouldbe considered:

• The Controlling Class should bethe most junior ranking class ofnotes then outstanding which hasa principal amount outstanding ofat least [25%] of its principalamount outstanding at originationand which is not subject to aControl Valuation Event

• A Control Valuation Eventshould relate to the currentprincipal amount outstandingversus the current value of theproperties and is deemed to haveoccurred in respect of a particulartranche of the notes or the loan,as applicable, if:

(i) The sum of the currentprincipal amount outstandingof the relevant class or loanand all junior ranking classesor loans

LESS

(ii) The sum of any ValuationReduction Amounts and(without duplication) anylosses realised with respect toany enforcement of security inrespect of the relatedproperties is less than 25% ofthe current principal amountoutstanding of the relevantclass or loan

• A Valuation Reduction Amountequals;

(i) The outstanding principalbalance of the loan

LESS

(ii) The excess of

(a) 90% of the most recentvaluation (net of any priorsecurity interests butincluding all reserves andsimilar amounts whichcan be used to pay theloan) above

(b) The sum of all unpaidinterest on the loan, anyprior ranking fees andexpenses (including duebut unpaid ground rentsand insurance)

4.2.2 Controlling Class, Replacementof Special Servicer andReplacing Noteholders

n The concept of a Controlling Class isappropriate but it is important thatthe rights of the Controlling Class arereflective of its junior position and donot unduly empower the holder(s) ofa single tranche of debt.

n Accordingly, while the ControllingClass should benefit fromconsultation rights, a transactionshould consider (based on theimpact on demand for junior notesand loans) if the right to replace thespecial servicer should be vestedsolely in the Controlling Class orassigned more broadly to a widergroup or class of noteholders (the“Replacing Noteholders”).

n Several options have been proposedto define which noteholders shouldconstitute the ReplacingNoteholders. Prevailing marketconditions and the specifictransaction structure shoulddetermine which approach is used.

Potential options are as follows:

(a) A majority of the Controlling Classhas positive appointment rightsbut other classes, as defined byone of the options below, have a‘negative’ veto right:

(i) A majority of all classes(including out of the moneyclasses), in aggregate; or

(ii) A majority of all in-the-moneyClasses, in aggregate;

(b) The Controlling Class and anyrepresentative grouping ofnoteholders ([10]% of all notes)has nomination rights to putforward a candidate for the roleof special servicer. Multipleclasses (determined according tooptions (i) and (ii) above) thenvote on the basis of proposalsfrom the candidates. Options fora voting process with multiplecandidates could be:

(i) Simple majority, with aControlling Class ‘castingvote’ in case of insufficientquorum or failed vote;

(ii) Simple majority with decliningquorum, eventually with theControlling Class holding a‘casting vote’; or


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(iii) Quorum plus “AlternativeVote” mechanism to deal withlack of outright majority.

n The above concepts relate to therights of the Controlling Class ofNoteholders. To the extent the loanincludes a junior loan that is not part ofthe securitisation, the rights of theControlling Party should be consideredin line with these principles.

n If any borrower or equity sponsors orany (actual or prospective)transaction counterparty (in particulara special servicer) or their affiliatesacquire or otherwise control loans ornotes which have Controlling Partyor Controlling Class rights, therelevant holder of the loan or notesshould be restricted from exercisingany such rights.

n Cost of the relevant transactioncounterparties incurred in replacingthe special servicer should be borneby the new special servicer or theExcess Spread.

4.2.3 Conditions for Replacing aSpecial Servicer

n With respect to the replacement ofthe special servicer by the ControlParty or Replacing Noteholders, thetransaction documents shouldprovide for the following:

• No Elective Actions byOutgoing Special Servicer

The replaced special servicershould not have the ability toprevent or limit the transfer to thenew special servicer, on the basisthat all specified conditions fortermination and replacementhave been met. In particular:

(i) the outgoing special servicershould not have any right tonegotiate any furtherindemnities in connection withits termination andreplacement; and

(ii) the elective or votingprocedure along with thesatisfaction of the otherreplacement conditionsshould be sufficient action toterminate the rights and

obligations of the outgoingspecial servicer

• No New Servicing Agreement

(i) The new, replacement specialservicer should not berequired to execute a newservicing agreement. Instead,the process for accession bythe new special servicer tothe existing servicingagreement should be simpleand straightforward (forexample, by way of anaccession deed executedsolely by the replacementspecial servicer).

(ii) Documents should be draftedin a manner to permit asimple accession (e.g., therepresentations andwarranties should be draftedto permit repetition by anysuccessor special servicerand not drafted specifically forthe initial special servicer).

• No Conditions That Could beUtilised to Prevent Transfer byOutgoing Special Servicer

(i) Any conditions to be met bythe replacement specialservicer should be objective

4.2.4 Clarity around the appointmentand role of the Operating Advisor

n With respect to any transaction inwhich an operating advisor can beappointed by any class ofnoteholders, the transactiondocuments should clearly provide forthe following:

(i) The documents should permit theappointment of the operatingadviser without the requirementof a full bondholder meeting. Awritten resolution will beacceptable, provided that such awritten resolution does notrequire a 100 per cent.bondholder vote (although aquorum of 50 per cent. and avote of 75 per cent of suchquorum would be permissible);

(ii) If the appointment of theoperating adviser is to occur by

way of a written resolution ofnoteholders, the voting procedureshould permit the possibility ofonly one bondholder voting,provided such bondholder meetsa minimum holding threshold;

(iii) The transaction documentsshould clearly provide that theoperating adviser will not be heldresponsible to any party for itsactions taken as operatingadvisor, provided that theservicing agreement alsoprovides for a “servicing standardoverride” with respect to anydirection or consultation providedby the operating advisor to eitherthe servicer or special servicer;

(iv) There should not be anyrequirement for the operatingadvisor to accede to any of thetransaction documents in order forit to exercise any of its rights; and

(v) The documents should clearlyprovide that, if the operatingadvisor is not appointed or if theoperating advisor does notprovide any direction orconsultation to the servicer orspecial servicer, that theservicer/special servicer can takeany action consistent with theservicing standard without regardto any requirement toconsult/receive direction from theoperating advisor.

4.3 Replacement of TransactionParties with a Pure ServiceFunction

n If requested by more than 10% ofnoteholders in aggregate, a noteholdervote can take place to replace certaintransaction parties without cause(including the primary servicer, thecash manager, forum coordinator, thenote trustee and if appropriatemechanisms are put in place, thesecurity trustee). A resolution toreplace a transaction party may bepassed if approved by more than[50%] of each tranche of notes.

• No Elective Actions byOutgoing TransactionCounterparty

The replaced transactioncounterparty should not have theability to prevent or limit thetransfer to the new transactioncounterparty, on the basis that allspecified conditions fortermination and replacementhave been met. In particular:

(i) The outgoing transactioncounterparty should not haveany right to negotiate anyfurther indemnities inconnection with its terminationand replacement; and

(ii) The elective or votingprocedure along with thesatisfaction of the otherreplacement conditionsshould be sufficient action toterminate the rights andobligations of the outgoingtransaction counterparty

• No New Agreements

(i) If possible, the newreplacement transactioncounterparty should not berequired to execute a newagreement. Instead, theprocess for accession by thenew transaction counterpartyto the existing agreementshould be simple and straightforward (for example, by way ofan accession deed executedsolely by the replacementtransaction counterparty).

(ii) Documents should be draftedin a manner to permit asimple accession (e.g., therepresentations andwarranties should be draftedto permit repetition by anysuccessor transactioncounterparty and not draftedspecifically for the initialtransaction counterparty).

• No Conditions That Could beUtilised to Prevent Transfer byOutgoing TransactionCounterparty

Any conditions to be met by thereplacement transactioncounterparty should be clearand objective

4.4 Replacement of TransactionParties with a Credit Function

n Transaction documents should detailthe process for replacing parties (e.g.bank account provider, swapcounterparty, etc.) if they aredowngraded or become insolvent.This should also include clearreference for who needs to managethe process and which other partiesneed to provide approval.

4.5 Fees, Costs and Expenses ofTransaction Counterparties

n The Offering Circular should detailthe fees payable to any transactioncounterparty to the transaction andany ability to vary these fees orrequest additional fees on an ad-hocbasis. Ongoing investor reportingshould promptly detail any additionalfees invoiced by any transactioncounterparty to the transaction withsome brief narrative on the natureand the purpose of the workcompleted for the additional fees.

n The fees payable to any professionaladvisers out of transaction cash flowsby any of the transactioncounterparties including legal,financial, property/valuation orhedging should be promptlydisclosed on an aggregated basis foreach transaction counterparty in theongoing quarterly investor reportingwith some brief narrative on thenature and the purpose of the advice.The primary purpose of anyprofessional advice should be tosupport such transaction party withrespect to its obligations under thetransaction (but for the avoidance ofdoubt should not be primarilyfocussed on liability issues fortransaction counterparties).

n Transaction counterparties shouldavoid appointing affiliated entities toprovide services to the transactionincluding financial, property/valuation,agency, LPA receivership andasset/property management unlessthey are suitably qualified andcompetitively priced. If any affiliatedentities are utilised, full disclosure ofthis should be made together with allfees being received by the transactioncounterparty and the affiliates.

4.6 Trustee Considerations4.6.1 Action to be Taken by the Trustee n The role of the trustee should be

limited to oversight of mechanicalprocesses and passive monitoring ofprescribed objective criteria. Any suchprocesses should be clearly laid outand defined to limit any ambiguity.Trustees should generally not berequired to exercise any discretion, butwhere trustees are asked to exerciseany discretion then the trustees shouldhave the ability to obtain appropriateexpert advice including legal,accounting, financial or property adviceat a reasonable cost which is chargedto the transaction. The trustee shouldplace primary reliance on the use ofthe expert advice to make anydetermination and rely on the standardmarket liability terms of professionaladvisers rather than seeking additionalindemnities in addition to the standarddeal level senior ranking indemnityalready provided.

n The documentation should establish atthe outset, whether any role of thetrustee allows the trustee to requestadditional indemnification (and fromwhom). A trustee should only bepermitted to withhold exercisingdiscretion in the absence of anindemnification where both the relianceon expert professional advice and thestandard deal indemnity are clearlyinsufficient in relation to the level of anypotential claim they may face.

Part 5: TransactionStructural Features5.1 Principal Payments – Definitions

and Sequential Triggers n The Offering Circular should include

full disclosure of how different typesof principal receipts should beallocated in all scenarios includingapplication of both the allocated loanamounts and release premiumswhether due to property sales orproperty refinancings.

n The transaction documents shouldensure that the party responsible fordetermining the allocation receives allinformation required in order todetermine how to treat the allocationof the relevant principal.


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n In general, preference should begiven for simple waterfalls with alimited numbers of determinationsand triggers.

n Sequential payment triggers shouldbe based on the percentage (basedon the principal balance) of loanswhich have cumulatively entered andremain in special servicing (asopposed to separately defining thedifferent types of loan defaults thatwould apply). Loans which aresubject to the following scenariosshould typically be included towardsthe sequential trigger threshold:

(i) Loans that are subject to amaterial payment default afterany applicable grace or cureperiod; and

(ii) Loans that reach their originalmaturity date (unless an extension isspecifically provided for andpermitted in the original loandocumentation), regardless ofwhether a standstill or extension isagreed by all of the parties.

n The Offering Circular for atransaction should include a detaileddescription of the sequentialpayment trigger calculation. Inparticular, the Offering Circularshould disclose whether thesequential payment trigger has theability to “switch back”, or if once thesequential payment trigger has beenbreached, it is not subject to apossible cure.

n The responsibility for calculating,checking and reporting on thesequential payment trigger should beclearly allocated to a single party(either the servicer or cash manager)and reported to noteholders on aregular basis. If the sequentialpayment trigger is directly linked tothe definition of Servicing TransferEvent, it is suggested that theservicer undertakes the role of eitherdetermining whether a sequentialpayment trigger has occurred orproviding appropriate notification tothe cash manager. The servicer willnot be responsible for making anypayment calculations at note level.

5.2 Interest Shortfalls on Notesn Where an available funds cap applies

to particular tranches of notes, thistypically results in a shortfall ofinterest on those notes due to thelevel or order of prepayments of theunderlying loans. In such situations,there should be clear disclosure ofwhich classes of notes are potentiallyimpacted, whether the shortfall willever be recoverable (e.g. use ofdefault interest) or reversible, thelevel of prepayments required tocause a shortfall and theidentification of which loans (shouldthey prepay early) are most likely tocause the shortfall.

n There should also be disclosure ofany structural reasons why a shortfallof interest may occur on classes ofnotes such as the occurrence of asequential trigger event which maylead to an increased risk of non-payment of interest on junior notesdue to the weighted average cost ofthe notes increasing as the principalbalance of the senior notes reduceover time but the loan marginremains the same.

5.3 Liquidity Facilities n An appropriate mechanism should be

considered which restricts theamount that can be drawn from theliquidity facility to pay interest oncertain notes if there has been adecline in the collateralperformance/value. This may beconsidered appropriate sincepayments to notes that have beenvalued-out create a liability rankingsenior to all of the notes, for thebenefit of valued out junior noteswhich may in certain circumstancesincrease or cause a shortfall to seniornoteholders. The specific triggerlevels or structure can be determinedon a transaction by transaction basiswith due consideration to any ratingsimpact but may include:

(i) The liquidity facility may not beavailable to pay interest shortfallson any notes that have beenvalued out in accordance with thedefinition of Control ValuationEvent set out above (but basedon value alone and not due to the

principal amount outstandingbeing less than [25]%);

(ii) The liquidity facility may not beavailable to pay interest shortfallson any notes where on the basisof a calculation of estimatedrecovery proceeds from time totime they will suffer a principalloss of at least [90]% of theirprincipal amount outstanding;

(iii) The liquidity facility may not beavailable to pay interest shortfallson any notes that have beenwritten down (actually ornotionally) as a result of an actualloss suffered; or

(iv) If a Control Valuation Event orother event referred to above nolonger applies then liquidity maybe drawn again to pay interestshortfalls on notes there werevalued out including accrued butunpaid interest from previousinterest payment dates.

n The above restriction of paymentsonly applies to proceeds from theliquidity facility. In other words, if theloans pay sufficient interest, all ofthe notes should receiveinterest payments.

n Repayment of any principal amountoutstanding on the liquidity facilityshould be repaid from both principaland interest collections, rather thansolely from interest collections(subject to managing any mismatchbetween loan and note principalbalances and between loan/note andhedge notional principal balances).

n Provided appropriate mechanisms arein place to restrict the amount that canbe drawn from a liquidity facility basedon collateral performance/value themaximum principal amount availableunder the liquidity facility on eachpayment date from time to time shouldbe equal to the lower of the agreedamount as at the closing date and anagreed percentage of the aggregateprincipal amount outstanding of thenotes subject to a floor.

n The liquidity facility should beavailable to make payments of seniorexpenses, any interest rate swaps

(whether at borrower or issuer level),certain tax payments, propertyprotection expenses and certaintypes of essential capital expenditureor essential corporate expenditure toavoid insolvency.

n The procedure for renewing theliquidity facility should be clearly laidout in the documentation with clearresponsibility allocated to a singletransaction counterparty (typically thecash manager) to deal with therenewal process.

n The relevant provisions above wouldalso be applicable to serviceradvance facilities.

5.4 Hedging n In general, the instruments used

should be appropriate for the term,payment profile and structure ofthe transaction.

n To the extent possible under therelevant governing law, ensure thatpayments to the swap counterpartyare properly subordinated in the caseof a default by the swapcounterparty or a termination eventthat is the result of a downgrade ofthe swap counterparty.

n To the extent that the maturity date ofany hedging arrangements extendsbeyond loan maturity, considerationshould be given to including thehedging termination costs in thecalculation of any LTV or ControlValuation Event calculations.

n There should be full disclosure of thehedging details and structurepursuant to the principles in 1.3.

5.5 Note Maturity The CMBS transaction documentsshould contain adequate provisions toaddress what will happen if the notesare not repaid at their maturity date.The precise provision should bedetermined on a transaction bytransaction basis, but potentialsolutions may include the following;

(i) Note Maturity Plan: If a loan remainsoutstanding twelve months prior to thefinal maturity date of the CMBS notes,the special servicer should be charged

with providing various options fornoteholders to consider, includinganalysis of the optimum method ofenforcement and which type ofinsolvency procedure to use. Thetransaction will set forth how any suchproposed plan can be approved.

(ii) Appoint a Receiver/AdministrativeReceiver/Administrator (orequivalent insolvencypractitioner): If no option proposedby the special servicer receivesapproval by the requisite number ofnoteholders, the note trustee for theCMBS should be deemed to bedirected by the noteholders toappoint the relevant insolvencypractitioner based on the analysis ofthe special servicer, or, if none, itsown professional advisers, in orderto realise the secured assets of theissuer at such time as the securityfor the CMBS becomes enforceablein accordance with its terms. Thenote trustee should have no liabilityif, having used its reasonableendeavours, it is unable to find aperson who is willing to beappointed as insolvency practitionerwithout additional recourse back tothe note trustee.

5.6 Cash Management Considerations

5.6.1 Time Lag between Loan andNote IPD

n A balance should be struck betweenminimising basis swap costs andensuring that the time lag betweenthe loan IPD and note IPD is longenough to ensure the smoothrunning of the transaction cashflows. Suitable time periods (to bedetermined by the originating banktogether with the relevant transactioncounterparties) should be built inbetween the various key dates(calculation, drawdown of facilities,report production, payment dates,etc.) to avoid causing defaults inpayments and delivery of informationto noteholders.

5.6.2 Fee Netting Offn No party should perform any

netting off or similar arrangementoutside of the prescribed waterfalls

or the parameters of thetransaction documents.

5.6.3 Cure Periodsn Consideration should be given to

structuring and documenting anycure periods so that they do notoverlap with potential triggers ordefaults or that there is clarity on theimpact where they do overlap.

5.7 Asset and Property Management n An asset manager and a property

manager should be appointed withrespect to any property that securesa loan in a CMBS transaction. Suchmanagers should be reputable firmswith relevant experience inmanaging properties of a similarnature. The terms of theirappointments should be set out inseparate agreements and suchterms should be in line with marketstandards, particularly in relation tofees and the duties of the parties.

n It is recommended that should theasset management and propertymanagement be carried out by theborrower or one of its affiliates, theterms of such appointment are onan arm’s length basis and can beterminated on a loan event ofdefault occurring.

n Duty of Care agreements should beput in place, which should includethe provision of termination rights tothe finance parties, particularly inrelation to breach of duties under themanagement agreements. Wherepossible, the finance parties shouldhave the ability to terminate theagreements upon a loan event ofdefault (especially if the assetmanager or property manager is theborrower or one of its affiliates). If thefinance parties do not have the directability to terminate the agreementsthey should, at the very least, havethe ability to direct the borrower toterminate the agreements.

5.8 Frequency of Valuationsn Each transaction and underlying loan

agreement should provide for fullannual valuations commissioned bythe servicer. However, the servicer


17


18

should have the discretion to waivethe provision of an annual valuationpursuant to the servicing standard,provided the servicer sets out thereasons for the exercise of suchwaiver in the next quarterlynoteholder report. A valuation shouldalways be obtained every 12 monthswhere a loan event of default hasoccurred and is continuing.

n Whilst the potential identity of anyvaluer can be discussed with theborrower and the controlling partythe determination of which valuershould be used should ultimatelyonly be made by the servicer orspecial servicer.

n If the servicer or special servicerreasonably believes that there haspotentially been a material decline inthe value of the underlying property itmay also request an additionalvaluation (except within six months ofthe annual valuation), which should(unless an event of default hasoccurred) be a desktop valuation.

n Noteholders should be able to directthe servicer or the special servicer torequest either a desktop valuation ora full valuation if a valuation has notbeen obtained within 12 months,such direction effective upon requestby [25]% of the noteholders. In nocase should there be more than two

valuations, whether a full valuation ora desktop valuation, in any year.

n The costs of any such valuationsshould be borne as follows:

(i) The borrower should bear thecosts of:

(a) The initial valuation atorigination of the loan;

(b) The full annual valuationcommissioned by the servicer;

(c) any valuation in relation to acompulsory purchase order;and

(d) any valuation obtained at anytime when a default iscontinuing or is likely to occuras a result of the valuation;

(ii) The costs of any valuation notreferred to in (i) above should bepaid as a servicer expense as asenior item in the paymentwaterfall and should preferablybe absorbed by the ExcessSpread. The servicer should bemindful of not incurringunnecessary valuation costs andshould request desktopvaluations where appropriate.

n Loan-to-value testing should bedependent on the most recentfull valuation.

n Transactions should disclose whetherthe controlling party has the right toask the servicer or special servicer, ifapplicable, to instruct a furthervaluation at the respective controllingparty’s cost for the purpose ofdetermining whether they are thecontrolling party. In these cases, theservicer or special servicer, ifapplicable, should retain the ultimatediscretion acting reasonably as towhich valuation to accept. Also, untilthe new valuation is obtained andtested, the transaction documentsshould clarify who remains ascontrolling party during theintervening period.

5.9 Less Creditor Friendly Jurisdictions n Where properties are located in less

creditor-friendly jurisdictions thecorporate structure of the borrowergroup and the related securitystructure should be designed toprovide the lenders with an efficientand effective process for takingenforcement. In particular, off-shoreholding companies or trust orfiduciary structures should, ifpossible, be put in place togetherwith appropriate share pledges toallow enforcement proceedings totake place in creditor-friendlyjurisdictions. In addition, measuresshould be taken to ensure that theCentre of Main Interest of the holdingcompany will remain in the creditor-friendly jurisdiction. Further, allintercreditor agreements with othersubordinate creditors should containrelease provisions in order to allowthe servicer or special servicer toenforce over its security withoutobstruction as a result of these othersubordinate debt positions.

5.10 Synthetic Securitisations n Note that the scope of factors

which affect synthetic transactionsare very broad and this guideline islimited in scope

n The servicing arrangements forsynthetic CMBS securitisationsshould be structured to adequatelyprotect the parties with the economicinterest in the transaction, including inparticular the noteholders (and,

where applicable, the junior lender)as well as (if that be the case) thelender of record. The servicer shouldbe appointed by the issuer and thenote trustee (and, where applicable,the junior lender) under a servicingagreement conferring on the servicermarket standard rights to agreeamendments and waivers to theloan(s), rather than by the originator,so that the servicer will act in thebest interest of those parties and theservicer should be required to servicethe loans in accordance with aservicing standard similar to thatused on cash CMBS transactions. Asfar as possible, the servicingarrangements should be designed toclosely match the arrangements usedon cash CMBS and create adequateincentives for the servicer to act inthe best interests of the noteholders(and, where applicable, the juniorlender) without creating any conflictbetween the duties of the servicerand the interests of the lender ofrecord as swap counterparty, even

where the lender of record is itselfperforming servicing functions(whether as master servicer ordelegate servicer).

n The ability of the credit default swapprotection buyer (typically the lendingbank) to influence any amendmentsor modifications to a loan and thedefinition of credit events in thecredit default swap documentationshould be fully disclosed in detail. Inparticular, careful considerationshould be given to the definition ofrestructuring event so that it alsoreflects the nature of restructuringsthat have occurred in recent years,which have primarily involvedextensions where the determinationof future receipts of principal orinterest is not always certain.

5.11 Rating Agency Considerations

5.11.1 Rating Agency Confirmations n Careful consideration should be

given on a deal by deal basis as towhich events in a transaction shouldrequire a Rating Agency Confirmation(“RAC”) and based on the recentmarket practice of the ratingagencies, the number of scenarioswhich require a transactioncounterparty to obtain a RAC beforeacting should be limited.

n However, if a RAC is deemednecessary, that transaction shouldprovide that if the relevant ratingagency either fails to provide a RACwithin a specified number of days ofa request being made or provides awaiver or acknowledgement statingthat it will not provide a RAC, therequirement for a RAC will bedeemed to be waived.

Part 6: Restructuring Issues6.1 Amending the Trust Documentsn The process for amending the

commercial terms of the trustdocuments after issuance should bedetailed. In the event of manifesterrors in the documents, includingconforming the issuer documentsand the Offering Circular, the trusteewill be permitted to consent to therequired documentation changes to

correct such errors without referenceto noteholders.

6.2 The Role of the Servicer in MakingLoan Amendments/RestructuringDiscussions

n The servicing agreement shouldexplicitly state that the servicer, onbehalf of the issuer, can and isexpected to take such action toagree amendments to loandocumentation that the servicerbelieves are consistent with itsobligations under the servicingstandard. This authority should beclearly defined so that the servicer isconfident that it has the requisitepower to act on a range of clearlydefined matters through engagingappropriate professional advice andorganising and liaising withnoteholders. In so doing, theservicer’s liability concerns foractions it may take are addressedand the servicer may have to facegreater liability as a result of nottaking the action.

6.3 Restructuring Negotiationswithout the Servicer

n The servicer should be informed ofany meetings between the borrowerand noteholders and preferablyshould have the right (but not theobligation) to attend such meetings.The borrower has the right to meetwith the noteholders without theservicer being present, if the servicerdoes not confirm attendance within areasonable time frame.

6.4 Possible Event of Default n Historically, facility agreements have

stated that there will be an event ofdefault if the borrower “commencesdiscussions with one or more of itscreditors with a view to reschedulingany of its indebtedness”. Suchlanguage can inhibit discussionsbetween a borrower and a servicer asto potential restructuring strategies.

n Borrowers should approach theservicer in advance of anydiscussions and request a waiver ofthis clause in order to have an opendialogue. The servicing agreementshould clearly permit the servicer to


19


20

waive such a provision in advance ofsuch discussions or allow for “withoutprejudice” discussions to take place.

6.5 Realisation on Security n The transaction documents should

contain adequate provisions topermit the possibility for a loan saleor the holding of REO Property(rather than solely focusing on loanenforcement). The servicer or specialservicer should disclose the rationalefor the preferred strategy.

(i) Sale of Loan

The servicer or special servicer, asapplicable, should have the ability tosell a loan on behalf of the issuer ifthey determine that such action wouldbe consistent with the applicableservicing standard. The relevanttransaction documents for the CMBSshould consider the following:

(a) No Restrictive Covenantsof the Issuer: The negativecovenants of the issuer willneed to permit the potentialsale of the loan;

(b) Sales for Less Than Par:The servicer or special servicershould be permitted to sell aloan for less than itsoutstanding amount, providedthat it has determined that thesale of the loan would be theoptimal method afterconsidering the estimatedproceeds for all other potentialmethods of realisation alongwith the risks and costs withrespect to such other methods;

(c) Sales to InterestedPersons: Sales of a loan to anentity affiliated with a servicer,special servicer or anotherparty affiliated with any of thetransaction parties are onlypermitted if the note trusteehas determined that certainobjective criteria has been met(which can be based uponadvice received from anindependent advisor), such as:

• If appropriate a suitableperiod of public marketinghas passed;

• The purchase priceoffered is higher than anyother offer received; and

• The net proceeds exceedthe value of any othermethod of realisation orthe other methods ofrealisation are viewed as“high” risk;

(d) Highest Offer: The sale ofthe loan does not need to befor the highest offer if theservicer or special servicer, asapplicable, determines thatsuch action would beconsistent with the servicingstandard. An example of thissituation could arise where thelower offer is for cash whilethe highest offer would requirevendor financing from theissuer (thereby delaying thetime until the issuer can obtainfull realisation of theoffer price).

(ii) REO Property

The special servicer should havethe ability to take control over theproperty that is security for a loan,if it determines that such actionwould be consistent with theservicing standard. The relevanttransaction documents for the

CMBS should considerthe following:

(a) No Restrictive Covenants ofthe Issuer: The negativecovenants of the issuer shouldnot contain any restrictions onthe issuer holding an interest inany Property;

(b) Risks Related to PropertyOwnership: In making itsdetermination as to whether itwould be in the best interest ofthe transaction to take controlover the property, the specialservicer should consider allpotential risks and liabilities tothe issuer with respect to suchaction and should attempt tostructure such acquisition in amanner to eliminate or limit suchrisks and liabilities. The risks andliabilities to be considered shouldinclude the tax implications forthe CMBS issuer to hold aninterest in property instead of adebt instrument;

(c) Management of REO Property:The transaction documentsshould create clearresponsibilities for the specialservicer to be authorised andresponsible for arranging for themanagement of such REO

Property. Management of theREO Property should bearranged in a manner designedto maximise the net after-taxproceeds from the REO Property;

(d) Sale of REO Property: Theacquisition of an REO Propertyshould be coupled with the goalto achieve a quick disposition ofthe property. The transactiondocuments may contain a timeperiod for sale, as long as suchtime period is reasonable (e.g.,three years upon acquisition of theREO Property). In any event, suchREO Property should be sold priorto the final maturity date of thenotes. The sale procedure forREO Property should be similar tothe sale of any loan, as describedabove; and

(e) REO Loans: Upon acquisition ofany REO Property, thetransaction documents for theCMBS shall allocate all net after-tax proceeds from such REOProperty toward interest andprincipal based upon the terms ofthe loan as they existed on thedate prior to the acquisition ofsuch REO Property. The specialservicer will be required toallocate such amounts in suchmanner and report suchallocations to the cash managerfor proper distribution onthe notes.

6.6 Restructuring and EnforcementCosts of CMBS Parties

n The underlying loan facilityagreements should provide for aborrower indemnity in relation to thereimbursement of restructuring,enforcement and contingency costsof transaction counterparties andtheir professional advisers to be metby the borrower.

n The CMBS transaction documentsshould provide for the payment orreimbursement of restructuring orenforcement costs incurred bycertain transaction parties throughthe revenue waterfall on a seniorbasis and ahead of the payment ofRevenue Extraction where suchcosts cannot be recovered from therelevant borrowers.

n On multi-borrower CMBS transactionsthere should be a clear mechanismand disclosure for dealing with anycosts at issuer level which are notspecific to a single loan (e.g. out ofthe Excess Spread).

Part 7: Voting Issues7.1 Disclosure of Voting Provisions n Voting provisions, including details of

quorums and whether resolutionspassed by a certain tranche will bebinding on others should be clearlydisclosed. Where appropriate avoting diagram should be included.

7.2 Voting Rights: Negative Consentn A negative consent process should

be considered for certain limitedmatters to reduce the time taken topass resolutions, therefore savingtime and costs. In this process, ameeting of the noteholders does nottake place. A formal notice detailingthe resolution should be distributedsimultaneously as an RIS, throughthe clearing systems and throughother electronic mediums such asBloomberg. The notice will contain astatement requiring noteholders toinform the note trustee in writingwithin [30] calendar days if theyobject to such a resolution andstating that unless more than aspecified percentage makes a writtenobjection to the resolution, it will bedeemed to be passed. Somesuggestions for the specified

percentages are 25% for anextraordinary resolution and 50% foran ordinary resolution. Thesespecified percentages, together withthe process for negative consent,must be outlined in the disclosuresection of the offering circular and inthe relevant transaction documents.

n A negative consent process shouldonly be used for technical oradministrative matters by thetransaction counterparties or wherea servicer would prefer to obtainnoteholder input with respect to adifficult issue. The process shouldnot be used as a default method fora servicer to obtain consent fromnoteholders. These limitations shouldbe clearly defined in the servicingagreement and the trust deed.

n The following matters should not bedecided by negative consent:

(i) Basic Terms Modifications1;

(ii) Waiver of a Note Event of Default;

(iii) Acceleration of the notes;

(iv) Enforcement of the IssuerSecurity; and

(v) Loan maturity extensions.

7.3 Voting Rights of Connected Parties n If any borrower or equity sponsors

or any actual/prospectivetransaction counterparty or theiraffiliates acquire or otherwise controlnotes, the relevant holder of thenotes should be prohibited fromexercising any voting rights orattending any meeting of thenoteholders. In the case of an actualor prospective transactioncounterparty the same should applywhere the subject matter of the voteor meeting relates to their current orprospective appointment.


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1 Basic Terms Modifications shall include any modifications to the following; note maturity date, interest payment dates, interest rates, principal payment amounts andschedule, interest and principal priority of payments, security package, currency of payment, the definition of a Basic Terms Modification and the majority needed to passan extraordinary resolution. A Basic Terms Modification should not include any amendment, waiver of a loan that is permitted by the servicer or special servicer accordingto the terms of the servicing agreement

List of certain participant firms in The CMBS 2.0 Committeen Allen & Overy LLP

n Bank of America Merrill Lynch

n Barclays Capital

n Benson Elliot

n Berwin Leighton Paisner LLP

n Brookland Partners LLP

n Cairn Capital

n Capita Asset Services

n Capita Fiduciary

n CBRE Limited

n Chalkhill Partners LLP

n Clifford Chance LLP

n Cordea Savills

n Deutsche Bank AG, London

n Deutsche Trustee Company Limited

n Eurohypo AG

n European Credit Management

n Hatfield Philips International

n HSBC Bank Plc

n J.P. Morgan

n Lloyds Banking Group

n M&G Investment Management

n Neuberger Berman Europe Ltd

n Paul Hastings (Europe) LLP

n Realstar Group

n Rothschild

n Sidley Austin LLP


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Appendix 1

Appendix 2Base CasePre Issuance DisclosureLoan, Property and Note Information

Loan Information

Senior Junior Mezzanine/Other

Borrower

Borrower domicile

Sponsor(s) / Guarantors

Loan Purpose

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

Origination Date

Maturity Date

Cut-Off Date

Remaining Term

Extension Option(s) *Conditions

Interest Payment Dates

[•]

[•]

[•]

[•]

[•]

[•] [Jan, Apr, Jul, Oct]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

Original Loan Balance

Cut-Off Date Balance

Undrawn Balance (e.g. Capex) *Conditions

Expected Maturity Balance

Amortisation Type

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

Currency

Interest Rate Type

Hedging Type

Hedging Maturity

Swap / Cap Rate

Margin

Cut-off All in Rate / Fixed Rate Coupon

Day Count Basis

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]


23

The CRE Finance Council takes no responsibility for the following material which has been produced by a third party and isreproduced here for the purpose of reference only. The tables set out in this Appendix contain terms and concepts, themeaning and application of which may vary considerably in particular transactions. Care should be taken when using thisAppendix to disclose and explain transaction-specific features which affect the meanings or applications of the same.


24

Senior Junior Mezzanine/Other

Origination LTV

Cut-Off LTV

LTV Covenant

Cut-Off Debt Yield

Origination ICR / DSCR

Cut-Off ICR / DSCR

ICR / DSCR Covenant

Other Financial Covenant *Comment

[•]

[•]

[•]

[•]

[•] / [•]

[•] / [•]

[•] / [•]

[•]

[•]

[•]

[•]

[•]

[•] / [•]

[•] / [•]

[•] / [•]

[•]

[•]

[•]

[•]

[•]

[•] / [•]

[•] / [•]

[•] / [•]

[•]

Call Protection / Prepayment Penalty

Substitution / Disposal *Conditions

Disposals Release Premium *Conditions

Cash flow Control

n Lockbox

n Cash Sweep *Conditions

n Cash Trap *Conditions

n Dividend Trap *Conditions

Reserves / Escrow Accounts *Conditions

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

[•]

Primary Loan Security Mortgage

Pledged Rent Account

Assigned Property Insurance

[•]

[•] [•]

Governing Law

n Loan Agreement / Intercreditor

n Security Agreement

[•]

[•]

[•]

[•]

[•]

[•]

In addition the above data items should also be disclosed in respect of debt which ranks pari-passu or super senior to theCMBS (in the case of multiple super senior debt facilities summary aggregate portfolio information may be provided).

Property Information

Single Assets/Portfolio

Main Property Type(s)

Location

Tenure

Leasehold maturity (term) and annual fee

Year Built / Refurbished

Total Net Lettable Area

[Property Grading]

[•]

[•]

[•]

[•]

[•] / [•] p.a.

[•]

[•] sq. ft./sqm.

[Prime] [Secondary] [Tertiary]

Number of Leases / Number of Tenants

Weighted Average Lease Term (Years) to First Break/Expiry

Economic Occupancy (weighted average by ERV)

Physical Occupancy (by Area)

Total Gross Rental Income p.a.

Net Operating Income p.a.

[•] / [•]

[•]

[•]

[•]

[•]

[•]

Valuer

Valuation Date / Cut off Date

Estimated Rental Value p.a. (ERV per sq ft / sqm)

Appraised Value

Vacant Possession Value

Gross Yield / Net Initial Yield

[•]

[•] / [•]

[•] ([•] per sq.ft./sqm)

[•]

[•]

[•] / [•]

Total Cost (if acquisition financing)

Property Management

Asset Management

[•]

[•]

[•]

Top 5CommercialTenants

NLA Gross Rent p.a. % Total GrossRent

Rent ReviewType

Next RentReview Date

WeightedAverage LeaseExpiry Date

WeightedAverage NextBreak Date

[•] [•] [•] [•] [•] [•] [•] [•]

[•] [•] [•] [•] [•] [•] [•] [•]

[•] [•] [•] [•] [•] [•] [•] [•]

[•] [•] [•] [•] [•] [•] [•] [•]

[•] [•] [•] [•] [•] [•] [•] [•]

All Tenants [•] [•] 100%


25


26

Notes & Reporting Information

To include for example:

Class

Initial Principal Amount

Issue Price

Interest Rate

ISIN

CUSIP

Rating

Expected Maturity Date

Final Maturity Date

Expected Average Life

Day Count

Business Day Convention

Denomination

Note interest Payment Dates

Loan Interest Payment Dates

Collection Period

Calculation/Determination Date

Investor Reporting and Data Provision Dates

Appendix 3Post Issuance DisclosureInvestor Reporting

Investor reporting typically comprises loan and collateral reporting by the servicer and note level reporting by the cashmanager/note trustee

1. General1.1 Transaction Details (applicable to all reports)n Reporting date;

n Reporting period start;

n Reporting period end Accrual period;

n Next interest payment date;

n Transaction Party Contact details – names, addresses, email addresses and telephone numbers in case of queries related to boththe report and the transaction generally for the Servicer, Special Servicer, Issuer, Note Trustee, and Cash Manager or CalculationAgent; and

n Web link(s) to applicable transaction information (glossary, transaction documents, loan-level data, cash flow models).

1.2 GlossariesBoth the servicer and note level reports should contain a glossary of all definitions used in the report. Examples of terms that shouldbe defined include, but are not restricted to:

n Default definitions (e.g. 90/180/360 days or when a borrower is classified as insolvent);

n LTVs – whether these include capitalised interest or fees. For indexed LTVs, the method used for indexing;

n ICR (interest coverage ratio), DSCR (debt service coverage ratio) including details of whether they are calculated on a backward orforward basis and whether rent payments from delinquent tenants are included;

n Sequential payment triggers;

n Available funds caps;

n Control Valuation Events; and

n Appraisal Reduction Amounts.

2. Servicer ReportingServicer reporting should incorporate the relevant Base Case data at loan and property level (as referred to in Appendix 2) in order thateasy comparisons can be made between loans in the same transaction and loans in different transactions. This only encompassesbase data and the requirements below are more detailed.

Reporting on multi-conduit transactions should include:

(I) Portfolio level reporting, including a summary of the aggregated loan portfolio and property characteristics and performance, withportfolio level commentary; and

(II) Loan level reporting, including more detailed information/commentary on individual loan performance and the properties on whicheach loan is secured.

For single loan transactions, only certain sections of the portfolio level reporting may be pertinent (e.g. the loan summary table,portfolio redemptions, financial covenant performance tables and property summaries).

2.1 Portfolio Level Reporting Summary Loan Portfolio CharacteristicsSummary information on the loan pool should be provided, including tabular information on the following:

n Aggregate principal balance at the beginning and end of the period;

n Aggregate number of mortgage loans;

n A loan summary table setting out for each loan:

• The original and current whole and securitised loan balances;

• Current loan to value ratio and covenants;

• Current interest coverage ratios and covenants;

• Current debt service coverage ratios and covenants;


27

• Amortisation type;

• Margin and all in rate (securitised loan only);

• Loan maturity date / remaining loan term;

• Loan collateral country;

• Number of properties in the loan;

• Number of leases;

• Property type for the overall portfolio;

• Aggregate current/latest market value for properties in each loan;

• Weighted average occupancy rate for each loan; and

• Weighted average remaining lease term (to next break date)

n Portfolio loan stratification tables setting out in loan portfolio (by number of loans, % of number of loans in portfolio, by balanceand by % of total balance)1 : amortisation / repayment type; remaining loan term; interest rate; interest payment type;

n Portfolio property tables1/charts setting out in aggregate for the portfolio: the number of properties; portfolio net rental income;portfolio estimated rental value; current/latest portfolio market value; current/latest portfolio vacant possession value; currentweighted average seasoning; current weighted average remaining term to break and current weighted average yield;

n Portfolio property stratification tables1 (by current market value or net rental income and % of value/ net rental income asappropriate): Location; property type; tenure (freehold/leasehold); valuation date; remaining lease term; occupancy rate;

n Details of any other collateral / cash balances on a portfolio basis; and

n Portfolio lease maturity chart showing rent roll-off on the portfolio.

Portfolio Performance Tablesn Summary tables setting out the number and % of loans (by current balance):

• With covenant breaches;

• In payment default;

• Subject to a cash sweep;

• In special servicing;

• On the servicer watch list; and

• That have repaid.

n Current arrears stratification table setting out number of % (by current balance) of loans in arrears more than one month, one tothree months, three to six months, greater than six months;

n Summary financial covenant performance table setting out for each loan the last of quarters ICR, DCSR and LTV performance andincluding the covenant requirement;

n Details of loans currently on the servicer watchlist;

n Details of loans currently in special servicing; and

n Current period and cumulative defaults and losses (following any recoveries) (all by number and balance).

Portfolio Redemption InformationTabular information on any redemption related events including:n Aggregate loan collections (scheduled and unscheduled principal and interest) during the period for the portfolio;

n Details of any loan disposals or substitutions during the period, including the number and balances;

n The number, last reported market value and net rental income of any properties added to/removed from the pool during the periodand the name of the loan on which the property was secured;

n Loan event and related amortisation;

n Aggregate voluntary prepayments from cash and the method of allocation (pro-rata, sequential, reverse sequential);

n Application of disposal proceeds and the method of allocation;

n Release premium allocations and calculations; and


28

1 For all stratification tables with numerical values (e.g. principal balance, lease term) the maximum, minimum and weighted average values for the given variables should alsobe shown with the tables

n Any other recoveries (e.g. from proceeds from enforcement, insurance, legal claims etc.) and their allocation to repayment ofprincipal, rolled up interest, etc.).

Portfolio commentaryThe majority of commentary is anticipated to be completed at the loan level as this provides investors with the granular detail requiredto fully assess performance. However, relevant portfolio level commentary should be included providing up to date information tobondholders on the overall portfolio, including commentary on:

n Any significant changes to overall portfolio performance;

n Watch listed loans and events, including the reasons for transfer to the list;

n Specially serviced loans and events, including the reasons for transfer to the list; and

n Recoveries and application of proceeds on any property or loan disposals, including the application basis (i.e. pro-rata, sequentialor reverse sequential as between loans).

Loan Level Reporting:In addition to the overall portfolio reporting, servicers should report on the performance of each loan in the transaction and theassociated properties.

Summary information per LoanInformation relating to the loan, including:n A summary table setting out the securitised, junior and whole Loan balances at origination, currently and expected balance at maturity;

n Date of origination;

n Loan Maturity date and details of any loan extensions and any conditions/hurdles relating to such extensions and any change to theloan terms following extension;

n Details of any syndication of the whole loan or parts thereof;

n Details of any hedging arrangements, including any swap liabilities (i.e. current swap termination costs), swap maturity dates, swapfixed rates;

n Amortisation basis for the securitised loan;

n All in rate for the period and current securitised loan margin;

n Key covenants at the securitised and whole loan level (e.g. minimum interest cover and debt coverage ratios and maximum loan tovalue levels) and the definitions for such calculations per the transaction documents;

n Tables setting out for at the securitised and whole loan levels:

• The 12 month trailing interest cover and debt coverage ratios at origination and currently;

• The forward looking 12 month interest cover and debt coverage ratios at origination and currently; and

• The loan to value ratio (at origination, current and estimated exit); and

n Graphs/charts setting out for at the securitised and whole loan levels:

• The 12 month trailing interest cover and debt coverage ratios since origination;

• The forward looking 12 month interest cover and debt coverage ratios since origination; and

• The loan to value ratio since origination.

Property/Asset Details per Loan

Information relating to the underlying properties and leases for the relevant Loan, including:n A summary table setting out by property in the loan

• The property name, location (town and country), type;

• The property net rental income, estimated rental value;

• The top three tenants and their % contribution to net rental income;

• Occupancy by net lettable area;

• Original market value;

• Current / latest market value;

• Current/last vacant possession value;

• Date of last valuation and name of valuer; and

• Weighted average unexpired lease term


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n Summary lease information on either (i) all leases in the loan, including top 10 leases, setting out net rental income, % of total loanrental income; all (and not just the next) break dates; rent review dates and lease expiration dates; or if practical depending on thesize and granularity of the property portfolio (ii) summary lease information by property, including the top five leases in eachproperty setting out net rental income, % of total property net rental income, lease break dates, rent review dates and leaseexpiration dates

n Details of any properties added, substituted or sold in the period, including the name of the property; last reported marketvalue; date of addition or sale; % of last market value; and where such information is not confidential, the net disposal proceeds(for a sale);

n Details of any material lease events (e.g. breaks, renewals, maturities etc.);n Lease maturity summary for the loan broken down by percentage contribution to the total number of leases; n Details of any additional collateral (including cash held on deposit or trapped cash);n Details of Controlling Party (where there is an A/B structure) or Controlling Class; andn Details of any Control Valuation Events that may have occurred in the period (and details of the basis on which control passes from

the junior loan to the securitised loan.

Copy Valuation reports should be provided as per the recommendations in provision 1.7 of the CMBS 2.0 Market Principles

Loan and Property level commentaryRelevant servicer loan level commentary, providing up to date information to bondholders on individual loans, including commentary on:

n Any large variances in rental income, senior property costs paid and net collateral cash flow available to cover principal and interest;

n Action on key leases (to the extent agreed by the Borrower), including exercise of tenant breaks, rent review outcomes, leasematurities, new tenants;

n Any property disposals, substitutions or additions;

n Any capital expenditure projects announced or completed;

n Any property site visits undertaken by the Servicer;

n Loan covenant breaches and causes as well as any cures or remedies by the Borrower or junior lender (to the extent not covered inportfolio level reporting);

n Any recovery action taken in relation to a loan, including enforcement/foreclosure, loan sale(s) and restructurings/work-outs; rationalefor selecting a particular recovery option over another (all to the extent publically disclosable) (this may alternatively be included in theportfolio level commentary above);

n For worked-out loans, a detailed loss determination including cost items and distribution of recoveries. Breakdown of the collateralsale proceeds, e.g. sale price, sale costs, receiver cost, special servicer costs ( special/work out/liquidation fees) , legal costs, andallocation of the net sales proceeds in the waterfall of payment;

n Any loan extensions exercised (or exercisable) in the period or historically;

n Any previous restructurings agreed between the finance parties; and

n Any exceptional intercreditor level costs in the period.

Cash flow model inputs in the appropriate format as set out in Appendix 4 (if not already provided above)

3. Issuer Level (Cash Manager) ReportingTransaction DetailsIn addition to the general transaction details, details of the notes should be provided, including ISINs, stock exchange listing, CRD IIretained amount and method of retention (if applicable).

Issuer Loan / Asset DetailsSummary information on the loan pool, including tabular information on the following:

n Aggregate number of loans;

n Summary table(s) setting out by securitised loan and in aggregate for the issuer (on a weighted average basis) and showing the %by balance and number of:

• The original, period start and end loan balance;

• Current margin and all in rate; and

• Loan maturity date / remaining loan term;

n Details of any other collateral / cash balances on a portfolio basis; and

n Details of applicable exchange rates.


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Cash Reconciliation and Portfolio PerformanceIssuer cash reconciliation (i.e. cash flow sources and application of waterfalls) including:n Issuer receipts / sources, including:

• Interest and principal collections on the securitised loan (by type of collection, e.g. available interest receipts, principal recoveryfunds, prepayment redemption funds, final redemption funds etc.);

• Net swap payments /receipts;

• Interest on issuer accounts;

• Other cash receipts; and

• Liquidity facility drawings;

n Issuer payments / uses, including:

• Liquidity facility repayments;

• Issuer costs;

• Note interest payments;

• Note principal payments; and

• the various components of the calculation for the Revenue Extraction and precise amounts for its various components, such asthe available cash flow, expenses and other components of such calculation

n A list of all pertinent ledgers (e.g. current and cumulative appraisal reduction amount, prepayment penalty allocation), transactionaccounts, liquidity facilities and servicer advances, showing their opening balances, any aggregated debits/credits for each period,targeted values and closing balances;

n For any accounts from which eligible investments are made, the balance of investments in each of the eligible investment classesas opposed to cash, for example: sovereigns, own name securities, RMBS, ABS, commercial paper;

n A summary table setting out the umber and % (by current loan balance) which have repaid;

n Details of any loan interest shortfalls;

n List of all material triggers/events referred to in the Offering Circular, such as counterparty-related triggers, performance triggers, issuerevents of default and available funds caps, and in particular sequential payment triggers. This should include a brief summary of theconsequences if it is breached (referring to the Offering Circular for details if appropriate), and the current status of the trigger/event;

n Details of issuer level fees and costs in the period including transaction counterparties and professional advisers as recommendedin the CMBS 2.0 Market Principles; and

n Details of the controlling class noteholder.

Loan Redemption InformationInformation on any securitised loan redemption related events including:

n Loan collections (scheduled and unscheduled principal and interest) during the period;

n Application of any voluntary prepayments on the securitised loan and the method of allocation to the notes (pro-rata, sequential,reverse sequential);

n Application of any mandatory prepayments on the securitised loan and the method of allocation to the notes (pro-rata, sequential,reverse sequential); and

n A clear statement of which priority of payments is being applied in the current period.

Note Distribution and Rating Informationn Summary table(s) setting out by each Class of Note (including the Class X Note) and in aggregate for the issuer:

• Note class and ISIN;

• Current period coupon rate and any step up coupon and step up date;

• Original, period start and end loan balance and currency;

• Current period principal distribution;

• Current period interest distribution;

• Current pool factor;

• Any principal deficiency amounts or losses on the Notes;

• The original and current rating of the Notes;

• Expected maturity date and legal final maturity date;

• Bond structure (e.g. hard bullet/ soft bullet/ pass-through); and

• The credit enhancement and liquidity support derived from different supporting components (e.g. note subordination, over-collateralisation and reserve funds); and


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n The identity of any specific carve out classes such securitised interest-only classes and their method of payment (i.e. based uponwhat is due or what is received), residual class notes and any class of notes which are backed by different security to the rest ofthe CMBS capital structure (e.g. class V) including details of such different security and any subordinated loans which have a juniorlien on the CMBS assets.

Counterparty Information and their ratingsn List of all key parties and their current ratings (both short-term and long-term) together with any related trigger levels

n Examples of counterparties to be included are: issuer; servicer; cash manager; account bank(s); guaranteed investment contractprovider(s); liquidity facility provider(s); master servicer; special servicer; swap provider(s) and any related back-up/standbyproviders; and

n Details of any swaps, including: counterparty and notional, applicable rates, payments made/received, any collateral postings.

Conflicts of Interest of Transaction Counterpartiesn Details of any declared conflicts of interest of a transaction counterparty to the transaction.

Issuer Level CommentaryAppropriate Issuer level commentary including commentary on:

n Any liquidity facility drawings in the period;

n Any sequential payment mechanism triggers in the period;

n The application of any available funds caps, deferred interest or similar interest shortfall mechanisms; and

n Details of any rating action and a summary of the reasons for action taken in the period.

Cash flow Model Inputs in the appropriate format as set out in Appendix 4 (if not already provided above)


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Pre and Post Issuance DisclosureIssuer Waterfall Cash flow Model Functionality and Inputs

1 General1. Access to the model should preferably be free to all end-users.

2. The Cash flow model may be provided in a variety of formats (e.g. website-hosted, downloadable program or spreadsheet).

3. The model should enable the end-user to input key data from a pre-configured table of inputs and output results using arecognisable spreadsheet format (e.g. .csv, .xls or .xlsx) for the relevant notes to their legal final maturity date. The results of themodel should be capable of being retained or recorded by the end-user.

4. Whilst inputs and outputs are bespoke to each transaction, at a minimum the inputs should cover asset specific (e.g., principaland interest received, delinquencies and defaults), liability specific (e.g., note balances, trigger breaches) and sundry factors (e.g.,interest and exchange rates). The output of the cash flow model should clearly show the items such as the waterfall payments, theaccount balances, the note balances etc. for the life of the transaction.

5. The model should incorporate all the static features of the transaction (e.g., note interest margins, waterfall mechanisms, costs andfees of the transaction service providers, liquidity facility commitment amounts, and any appraisal reduction mechanism etc.).

6. The model itself will be required to be updated should there be any changes to the structure which may impact the cash flows. Forexample, updates to the model would not be required to reflect the amortisation of notes (note balances should be an input to themodel) or to reflect certain transaction features that may have occurred (e.g., the breach of a given trigger, liquidity facility standbydrawing) facility for which should already have been incorporated into the model structure. Updates will be required if there arechanges which impact core structural elements (e.g. issuance of tap notes, any amendments which affect the waterfall, changesto the liquidity facility structure or hedging structure).

7. The provider of the model can have reasonable legal liability disclaimers on the cash flow models.

8. Calculations being undertaken in the model should be transparent to the user (either in the model or through separate notes). Theprovider of the model may accompany the model with guidance notes, including instructions, assumptions made and furtherinformation as well as setting out in clear detail how the model operates.

2 Model Inputs and OutputsAll models will be expected to include the following example inputs and outputs where relevant to a given transaction. This list is notintended to be exhaustive and is expected to be used as a guide only.

2.1 Model InputsInputs can be classified generally as:n Current Inputs: Any inputs reflecting the current status of the transaction at the outset and on a quarterly basis, e.g., note

balances, note margins, loan portfolio balance, current liquidity facility drawing amount, balances of issuer level accounts andledgers, fixed inputs required to calculate aggregate issuer costs and expenses and details of any triggers that have beenactivated or deactivated

n Projected Inputs: Any inputs comprising future assumptions for each period of the cash flow run required to operate the cashflow model to project future cash flows to the maturity of the notes, e.g., projected principal amounts to be applied to the waterfall,projected revenue amounts to be applied to the waterfall, future Libor or exchange rates, future occurrence of any prepayments,stress events, trigger breaches, etc.

n The quarterly investor reporting should provide the input values for all the Current Inputs required by any end-user to operate thecash flow model.

n The input values for the Projected Inputs should be determined and entered by the end-user. The loan portfolio model, if provided,will facilitate with the generation of certain of the Projected Inputs for the end-user.

n Transaction related Inputs• Opening Balances; portfolio, outstanding notes, cash/account balances, ledgers, liquidity facility (ccy) commitment and drawn amounts

• Starting GIC / cash balances – reserve fund, accumulation (ccy)

• Inputs related to all the third party costs and expenses of the issuer

n Economic Variables• Interest rate (e.g. 3M Libor rate) (% per period)

• Currency exchange rates (e.g. £/$ or £/€ per period)

Appendix 4


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n Cash Flows• Underlying portfolio balances (ccy per period)

• Principal & revenue received by the issuer from the underlying collateral (ccy per period). The model should provide facility forseparate lines of inputs for different items of the principal and revenue streams if these different items are applied to the issuer’swaterfall differently (e.g., principal receipts from different loan buckets may be applied differently to note amortisation,prepayment fees on the loans may be applied in a different manner to the loan coupon and the default interest on the loansmay be applied in a different manner to the regular loan coupon).

• Losses allocated (ccy per period)

• Other income streams (e.g., recoveries, GIC interest etc.) in the event they are applied any differently in the waterfall (ccy per period).

• If applicable to the waterfall or structure, performance variables which may influence payment rules (e.g., CPR, arrears ordelinquency percentages, NAI amounts, etc.)

n Stress Events• Insolvency event or post enforcement waterfall trigger breach (Yes/No)

• Standby drawing of liquidity facility (Yes/No)

• Transaction specific trigger event dates – where such triggers may not be driven by the liabilities model (e.g., delinquencytrigger breach, sequential amortisation trigger breach) (Yes/No)

• Appraisal reduction amounts (%) – any mechanisms designed to reduce servicer advances or liquidity facility draws to loanswhich have had their value eroded.

n Counterparty• Counterparty Downgrade (e.g. AAA, A) or Default (Yes/No) (e.g. swap counterparty default occurring in a given period,

downgrade of any other counterparties such as liquidity facility provider, GIC provider or account bank) (Yes/ No)

• Downgrade event related to key tenant if the cash flow waterfall rules change due to such downgrade (Yes/No)

• Stressed service provider fees (e.g. servicer, account bank) ( ccy per month/year as applicable or as a % of the portfolio balance)

Model Outputsn Waterfall payments (currency per period);

n Note, account and ledger balances (currency per period);

n Interest due, paid and accrued on each class of Notes (currency per period)

n Principal payments on each class of notes (currency per period)

n Weighted Average Lives (WALs) of the Notes (years)

n Swap payments if such payments are outside the waterfall (currency per period)


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Post Issuance DisclosureNotifiable Events

1. The determination by the servicer that a Default has occurred;

2. The formal declaration by the servicer of an Event of Default;

3. The formal waiver of any Default or Event of Default;

4. The curing of any Default or Event of Default;

5. The appointment of a receiver or other insolvency practitioner or the commencement of insolvency proceedings in relation toany obligor;

6. A change of control in relation to any Obligor (regardless of change of control covenants);

7. A change of property manager (regardless of change of property manager covenants);

8. Any modification to the amount or date of any payment of principal or interest due to be made by a borrower under aloan agreement;

9. Any change to a financial covenant;

10. Any change to proscribed cash flows or payment waterfalls;

11. Any other loan amendments that relate to provisions described in the Base Case;

12. Any release of a property subject to the security in circumstances not expressly contemplated by the finance documents (e.g. therelease of a property for less than the specified release price);

13. The instigation of any legal proceedings against any professional adviser in connection with the origination of a Material Loan (toinclude details of party against whom a claim is being made and brief details of the claim);

14. Any prepayment of more than 10 per cent of a loan;

15. The surrender of any lease affecting more than 10 per cent. of the Net Lettable Area of all the Properties securing aparticular Loan;

16. A change in COMI of any obligor;

17. A failure of a major tenant;

18. The presence of a material environmental hazard at any Property;

19. Any material buildings insurance claims made by the Borrower in respect of a Property;

20. Any compulsory purchase orders in respect of a property;

21. Change of [10]% or more in the value of a Property (by reference to the last publicly-available valuation figure) of which theservicer becomes aware based on professional valuations commissioned by it in the course of performing its duties including:

(a) New Market Value

(b) Vacant Possession Value

Appendix 5


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36 Market Principles for Issuing European CMBS 2.0 – Consultation Version24 July 2012

(c) Date of Previous Value

(d) Date of New Market Value

(e) Reduction/Increase amount

(f) Any change in the Valuer;

(g) Changes in the assumptions upon which the last valuation was prepared;

(h) Number of properties being valued (if part of a portfolio) and also the actual property address(es)

(i) Any special conditions in the valuation

(j) Any special events occurred (such as a Subordinate Lender Control Valuation Event etc.)

22. Any legal proceedings launched against the issuer in its capacity as lender;

23. Control Valuation Events;

24. Appraisal Reductions;

25. Special Servicing Transfer Events;

26. The first liquidity facility drawing;

27. Sequential trigger switches; and

28. A loan becoming a Corrected Loan.


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