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as a conduit to make the financing pursuant to the Bonds available to HADC and the City had no <br />real interest in the transaction. As part of the Bond transaction the City assigned essentially all <br />of its rights under the Loan Agreement, including any rights to enforce transfer restrictions, to <br />the Trustee leaving the City without direct leverage under the Loan Agreement. <br />Although the Regulatory Agreement survives, nothing requires consent of the City to <br />assign HADC's obligations thereunder to the purchaser of Montreal Courts. In fact, because the <br />Regulatory Agreement is recorded against the land, the purchaser is subject to its provisions even <br />without an assignment. However, for its own protection, HADC is likely to seek assurances that <br />the purchaser intends to comply with the Regulatory Agreement. This is because failure of the <br />purchaser to comply with the Regulatory Agreement could result in a determination by the <br />Internal Revenue Service that the Bonds are retroactively taxable. In that event the bondholders <br />could potentially seek compensation from HADC. Among other arguments bondholders might <br />make is the argument that HADC's obligation to pay a 3% premium in the event the Bonds <br />become taxable survives the termination of the Loan Agreement. The risk of that penalty may <br />encourage HADC to ensure that the purchaser is liable for the operation of Montreal Courts in <br />compliance with the Regulatory Agreement. The only way to ensure that the purchaser is liable <br />is for the purchaser to assume the obligations under the Regulatory Agreement and for the other <br />parties to the Regulatory Agreement (the City and the Trustee) to accept the purchaser as the <br />responsible party. <br />While this proposed request for consent to the assignment of the Regulatory Agreement <br />provides a opportunity for the City to request resolution of certain issues with respect to <br />Montreal Courts, it is an opportunity where the City's leverage under the Bond documents is <br />somewhat uncertain. If HADC is unwilling or unable to cooperate with the City's requirements, <br />the City may ultimately have to rely on any applicable ordinances and licensing requirements <br />which may affect HADC or the purchaser. <br />2 <br />1706977v1 <br />6- <br />