(1) Number of
third-party purchasers. At any time, there are no more than two
third-party purchasers of an eligible horizontal residual interest.
If there are two third-party purchasers, each third-party purchaser’s
interest must be pari passu with the other third-party purchaser’s
interest.
(2) Composition of collateral. The securitization
transaction is collateralized solely by commercial real estate loans
and servicing assets.
(3) Source of funds.
(i) Each
third-party purchaser pays for the eligible horizontal residual interest
in cash at the closing of the securitization transaction.
(ii) No third-party purchaser
obtains financing, directly or indirectly, for the purchase of such
interest from any other person that is a party to, or an affiliate
of a party to, the securitization transaction (including, but not
limited to, the sponsor, depositor, or servicer other than a special
servicer affiliated with the third-party purchaser), other than a
person that is a party to the transaction solely by reason of being
an investor.
(4) Third-party review. Each third-party
purchaser conducts an independent review of the credit risk of each
securitized asset prior to the sale of the asset-backed securities
in the securitization transaction that includes, at a minimum, a review
of the underwriting standards, collateral, and expected cash flows
of each commercial real estate loan that is collateral for the asset-backed
securities.
(5) Affiliation and control rights.
(i) Except
as provided in paragraph (b)(5)(ii) of this section, no third-party
purchaser is affiliated with any party to the securitization transaction
(including, but not limited to, the sponsor, depositor, or servicer)
other than investors in the securitization transaction.
(ii) Notwithstanding paragraph
(b)(5)(i) of this section, a third-party purchaser may be affiliated
with:
(A) The special servicer for the securitization
transaction; or
(B) One
or more originators of the securitized assets, as long as the assets
originated by the affiliated originator or originators collectively
comprise less than 10 percent of the unpaid principal balance of the
securitized assets included in the securitization transaction at the
cut-off date or similar date for establishing the composition of the
securitized assets collateralizing the asset-backed securities issued
pursuant to the securitization transaction.
(6) Operating Advisor. The underlying securitization transaction
documents shall provide for the following:
(i) The appointment
of an operating advisor (the Operating Advisor) that:
(A) Is not affiliated
with other parties to the securitization transaction;
(B) Does not directly or indirectly
have any financial interest in the securitization transaction other
than in fees from its role as Operating Advisor; and
(C) Is required to act in the best interest
of, and for the benefit of, investors as a collective whole;
(ii) Standards with
respect to the Operating Advisor’s experience, expertise and financial
strength to fulfill its duties and responsibilities under the applicable
transaction documents over the life of the securitization transaction;
(iii) The terms of
the Operating Advisor’s compensation with respect to the securitization
transaction;
(iv)
When the eligible horizontal residual interest has been reduced by
principal payments, realized losses, and appraisal reduction amounts
(which reduction amounts are determined in accordance with the applicable
transaction documents) to a principal balance of 25 percent or less
of its initial principal balance, the special servicer for the securitized
assets must consult with the Operating Advisor in connection with,
and prior to, any material decision in connection with its servicing
of the securitized assets, including, without limitation:
(A) Any material
modification of, or waiver with respect to, any provision of a loan
agreement (including a mortgage, deed of trust, or other security
agreement);
(B) Foreclosure
upon or comparable conversion of the ownership of a property; or
(C) Any acquisition of a
property.
(v) The Operating Advisor shall have adequate and timely access to
information and reports necessary to fulfill its duties under the
transaction documents, including all reports made available to holders
of ABS interests and third-party purchasers, and shall be responsible
for:
(A) Reviewing the actions of the special servicer;
(B) Reviewing all reports
provided by the special servicer to the issuing entity or any holder
of ABS interests;
(C) Reviewing
for accuracy and consistency with the transaction documents calculations
made by the special servicer; and
(D) Issuing a report to investors (including
any third-party purchasers) and the issuing entity on a periodic basis
concerning:
(1) Whether the Operating
Advisor believes, in its sole discretion exercised in good faith,
that the special servicer is operating in compliance with any standard
required of the special servicer in the applicable transaction documents;
and
(2) Which,
if any, standards the Operating Advisor believes, in its sole discretion
exercised in good faith, the special servicer has failed to comply.
(vi) (A) The Operating Advisor
shall have the authority to recommend that the special servicer be
replaced by a successor special servicer if the Operating Advisor determines,
in its sole discretion exercised in good faith, that:
(1) The special servicer has failed
to comply with a standard required of the special servicer in the
applicable transaction documents; and
(2) Such replacement would be in the
best interest of the investors as a collective whole; and
(B) If a recommendation described
in paragraph (b)(6)(vi)(A) of this section is made, the special servicer
shall be replaced upon the affirmative vote of a majority of the outstanding
principal balance of all ABS interests voting on the matter, with
a minimum of a quorum of ABS interests voting on the matter. For purposes
of such vote, the applicable transaction documents shall specify the
quorum and may not specify a quorum of more than the holders of 20
percent of the outstanding principal balance of all ABS interests
in the issuing entity, with such quorum including at least three ABS
interest holders that are not affiliated with each other.
(7) Disclosures. The sponsor provides, or causes
to be provided, to potential investors a reasonable period of time
prior to the sale of the asset-backed securities as part of the securitization
transaction and, upon request, to the Commission and its appropriate
Federal banking agency, if any, the following disclosure in written
form under the caption “Credit Risk Retention”:
(i) The
name and form of organization of each initial third-party purchaser
that acquired an eligible horizontal residual interest at the closing
of a securitization transaction;
(ii) A description of each initial third-party
purchaser’s experience in investing in commercial mortgage-backed
securities;
(iii)
Any other information regarding each initial third-party purchaser
or each initial third-party purchaser’s retention of the eligible
horizontal residual interest that is material to investors in light
of the circumstances of the particular securitization transaction;
(iv) The fair value
(expressed as a percentage of the fair value of all of the ABS interests
issued in the securitization transaction and dollar amount (or corresponding
amount in the foreign currency in which the ABS interests are issued,
as applicable)) of the eligible horizontal residual interest that
will be retained (or was retained) by each initial third-party purchaser,
as well as the amount of the purchase price paid by each initial third-party
purchaser for such interest;
(v) The fair value (expressed as a percentage
of the fair value of all of the ABS interests issued in the securitization
transaction and dollar amount (or corresponding amount in the foreign
currency in which the ABS interests are issued, as applicable)) of
the eligible horizontal residual interest in the securitization transaction
that the sponsor would have retained pursuant to section 244.4 if
the sponsor had relied on retaining an eligible horizontal residual
interest in that section to meet the requirements of section 244.3
with respect to the transaction;
(vi) A description of the material terms
of the eligible horizontal residual interest retained by each initial
third-party purchaser, including the same information as is required
to be disclosed by sponsors retaining horizontal interests pursuant
to section 244.4;
(vii) The material terms of the applicable transaction documents
with respect to the Operating Advisor, including without limitation:
(A) The name and form of organization of the Operating Advisor;
(B) A description of any
material conflict of interest or material potential conflict of interest
between the Operating Advisor and any other party to the transaction;
(C) The standards required
by paragraph (b)(6)(ii) of this section and a description of how the
Operating Advisor satisfies each of the standards; and
(D) The terms of the Operating
Advisor’s compensation under paragraph (b)(6)(iii) of this section; and
(viii)
The representations and warranties concerning the securitized assets,
a schedule of any securitized assets that are determined not to comply
with such representations and warranties, and what factors were used
to make the determination that such securitized assets should be included
in the pool notwithstanding that the securitized assets did not comply
with such representations and warranties, such as compensating factors
or a determination that the exceptions were not material.
(8) Hedging, transfer and pledging.
(i) General rule. Except as set forth in paragraph
(b)(8)(ii) of this section, each third-party purchaser and its affiliates
must comply with the hedging and other restrictions in section 244.12
as if it were the retaining sponsor with respect to the securitization
transaction and had acquired the eligible horizontal residual interest
pursuant to section 244.4; provided that, the hedging and other restrictions
in section 244.12 shall not apply on or after the date that each CRE
loan (as defined in section 244.14) that serves as collateral for
outstanding ABS interests has been defeased. For purposes of this
section, a loan is deemed to be defeased if:
(A) cash or cash
equivalents of the types permitted for an eligible horizontal cash
reserve account pursuant to section 244.4 whose maturity corresponds
to the remaining debt service obligations, have been pledged to the
issuing entity as collateral for the loan and are in such amounts
and payable at such times as necessary to timely generate cash sufficient
to make all remaining debt service payments due on such loan; and
(B) the issuing entity has
an obligation to release its lien on the loan.
(ii) Exceptions.
(A) Transfer by initial third-party purchaser or sponsor. An initial
third-party purchaser that acquired an eligible horizontal residual
interest at the closing of a securitization transaction in accordance
with this section, or a sponsor that acquired an eligible horizontal
residual interest at the closing of a securitization transaction in
accordance with this section, may, on or after the date that is five
years after the date of the closing of the securitization transaction,
transfer that interest to a subsequent third-party purchaser that
complies with paragraph (b)(8)(ii)(C) of this section. The initial
third-party purchaser shall provide the sponsor with complete identifying
information for the subsequent third-party purchaser.
(B) Transfer by subsequent third-party purchaser. At any time, a
subsequent third-party purchaser that acquired an eligible horizontal
residual interest pursuant to this section may transfer its interest
to a different third-party purchaser that complies with paragraph
(b)(8)(ii)(C) of this section. The transferring third-party purchaser
shall provide the sponsor with complete identifying information for
the acquiring third-party purchaser.
(C) Requirements
applicable to subsequent third-party purchasers. A subsequent
third-party purchaser is subject to all of the requirements of paragraphs
(b)(1), (b)(3) through (5), and (b)(8) of this section applicable
to third-party purchasers, provided that obligations under paragraphs
(b)(1), (b)(3) through (5), and (b)(8) of this section that apply
to initial third-party purchasers at or before the time of closing
of the securitization transaction shall apply to successor third-party
purchasers at or before the time of the transfer of the eligible horizontal
residual interest to the successor third-party purchaser.
