Timbercorp as the Lessee The ability of the TAT Group to meet...

Timbercorp as the Lessee
The ability of the TAT Group to meet its obligations to the senior lenders (including the ANZ), the TAT Bond Holders and other creditors, as well as the level of distributions to Unit Holders, will be materially affected should the tenant of the TAT Group's assets, Timbercorp, be unable to meet its rent obligations under the Lease Agreements with the TAT Group.

Anything that affects the ability of Timbercorp to pay the rent due under the Lease Agreements will affect the ability of the TAT Group to meet its obligations to the senior lenders (including the ANZ), the TAT Bond Holders and other creditors, as well affecting the level of distributions to Unit Holders.
Any default by Timbercorp, as the sole lessee of the TAT Group's property assets, will have a material adverse impact on the TAT Group, particularly if the TAT Group is unable to find, or is delayed in finding, appropriate substitute lessees. Timbercorp’s business may be affected by any adverse changes in:
•
taxation laws governing the right of Growers (whether current or future) to claim a
tax deduction for the costs of participating in Timbercorp’s annual agribusiness
projects. These include plantation establishment costs and land rental in the case
of the hardwood plantations, and management and rent or licence fees in the case
of the Timbercorp’s horticultural projects. Other costs include insurance and
finance costs; and
•
other government regulations, including the Corporations Act, that affect the ability
of Timbercorp to offer interests in primary industry based projects, and to efficiently
establish and manage these projects and sell their produce.

Timbercorp has advised that it continually monitors these important areas and it is not aware of, nor does it expect, any changes that will have an adverse effect on Timbercorp’s business. All projects promoted by Timbercorp carry Australian Taxation Office Product Rulings, which provide Growers with tax certainty so long as the projects are carried out in accordance with the information provided to the Australian Taxation Office and described in the rulings.

The ability of Timbercorp to meet its obligations to the TAT Group may also be affected by the Growers’ failure to pay annual maintenance, management, licence and rental fees when due.
However, it should be noted that Timbercorp is an ASX/S&P 200 company.
The ability to find appropriate substitute lessees will be affected by rights granted to Growers under the relevant project documents. Refer to Section 5.6.

Loss of Key Personnel
OIML has assembled a key management team, in addition to engaging TAM and its management team, each of whom have a particular expertise in the Fund’s areas of operation and who play an important part in the Fund’s direction and prospects. None of the executive Directors of OIML or TAM are employed under service contracts.

Payment of Cash Distributions
The Senior Lender will have the right to prevent OIM #2 (as trustee of TOT #2 and TOT #3) paying cash distributions to OIML (which will prevent OIML paying cash distributions to Unit Holders) if certain financial covenants and other distribution tests are not met. In this situation the Directors may elect to pay the distribution in the form of Units. See Section 11.3.2 for a description of certain restrictions on distributions.

Refinancing Risk
If real long-term interest rates increase, Unit Holder returns may be adversely affected.
However, the interest rate on the Senior Debt will be hedged at a fixed rate for the term of the Senior Debt Facility and the TAT Bonds are a fixed facility, therefore Unit Holders are insulated from changes in interest rates for the respective periods.
The Senior Debt and the TAT Bonds will need to be refinanced on their respective maturity dates. There is a risk that the TAT Group will be unable to arrange refinancing facilities as and when required to repay these debt facilities on the terms expected, or that the terms of any refinancing are less favourable to the TAT Group than expected.
6.3
Documentation Risk
Unit Holders should be aware that due to the complexity of the legal documentation that exists in respect of the use and occupation of the TAT Group's properties and the large
number of parties involved, the risk of a dispute over interpretation or enforceability of this documentation may be higher than in a conventional equity investment.
In particular, should an insolvency event occur in respect of the Timbercorp Group, it will be necessary for the TAT Group to enforce its rights under various agreements to ensure that it obtains a direct relationship with the Growers who are occupying the Land. In doing so, the TAT Group may be required to take action against liquidators and receivers appointed to Timbercorp Group companies and assets.

The contracts between the TAT Group and other parties are fundamental to the success of the investment for Unit Holders. The terms of the documents in many cases contain various representations and indemnities given by the TAT Group to other parties. Any loss suffered by a party may lead to a claim against the TAT Group and losses incurred
may be paid out of the TAT Group assets and result in a reduction of the TAT Group assets. To better appreciate the risks associated with documentation, Unit Holders should also read the Summary of Material Agreements which is set out in Section 11.3.

Generally, the TAT Group has attempted to pass on risks to other parties where practicable. However, even where the TAT Group has passed risks through to other parties, there may be a mismatch as to terms, timing or amount. Timbercorp remains primarily responsible for obligations to the TAT Group under the Head Leases.

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