SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 3, 1997
UACSC 1997 AUTO TRUSTS
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation)
333-06929 35-1937340
(Registration Number) (IRS Employer Identification No.)
250 N. Shadeland Avenue
Suite 210A
Indianapolis, IN 46219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 231-6466
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Item 5. Other Events.
Computational Materials
-----------------------
On September 3, 1997, Computational Materials were distributed to
potential investors in connection with a proposed offering of
asset-backed certificates under Reg. No. 333-06929. Under the proposed
pooling and servicing agreement (the "Proposed Agreement"), UAC
Securitization Corporation ("UACSC") will act as the proposed
depositor and establish the UACSC 1997-C Auto Trust (the "Proposed
Trust") by selling and assigning the proposed trust property to
trustee in exchange for certificates, each of which represents a
fractional and undivided interest in the Proposed Trust. Pursuant to
the Proposed Agreement, Union Acceptance Corporation will act as
servicer. Such Computational Materials are filed with this Current
Report on Form 8-K on the basis of the position of the Division of
Corporation Finance set forth in Kidder, Peabody Acceptance
Corporation I (available May 20, 1994), Public Securities Association
(available May 27, 1994), Public Securities Association (available
February 17, 1995) and subsequent related no-action letters.
Item 7. Financial Statements and Exhibits.
Exhibit
Number Description
------ -----------
99 Computational Materials
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized in the City of Indianapolis, State of
Indiana, on September 4, 1997.
UAC SECURITIZATION CORPORATION
as Depositor (Registrant)
/s/ Leeanne Graziani
----------------------------------------
By: Leeanne Graziani, Vice President
Computational Materials
UACSC 1997-C Auto Trust
$ 27,495,000.00 [____]% Class A-1 Money Market Automobile Receivable Backed
Certificates
$ 87,325,000.00 [____]% Class A-2 Automobile Receivable Backed Certificates
$103,570,162.24 [____]% Class A-3 Automobile Receivable Backed Certificates
Class I Interest Only Automobile Receivable Backed Certificates
UAC Securitization Corporation
Depositor
Union Acceptance Corporation
Servicer
Computational
Materials
Neither the Trust, the Depositor nor any of their affiliates make any
representation as to the accuracy or completeness of the information herein. The
information contained in the attached materials is referred to as the
"Information". The information herein is preliminary, and will be superseded by
the applicable prospectus supplement and by any other information subsequently
filed with the Securities and Exchange Commission. The information addresses
only certain aspects of the applicable security's characteristics and thus does
not provide a complete assessment. As such, the information may not reflect the
impact of all structural characteristics of the security. The assumptions
underlying the information, including structure and collateral, may be modified
from time to time to reflect changed circumstances. The attached term sheet is
not intended to be a prospectus and any investment decision with respect to the
Certificates should be made by you based solely upon all of the information
contained in the final prospectus. Under no circumstances shall the information
presented constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of the securities in any jurisdiction in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of such jurisdiction. The securities may
not be sold nor may an offer to buy be accepted prior to the delivery of a final
prospectus relating to the securities. All information described herein is
preliminary, limited in nature and subject to completion or amendment. No
representation is made that the above referenced securities will actually
perform as described in any scenario presented. The Depositor has not prepared,
reviewed or participated in the preparation hereof, is not responsible for the
accuracy hereof and has not authorized the dissemination hereof. A final
Prospectus and Prospectus Supplement may be obtained by contacting the Salomon
Brothers Syndicate Desk at (212) 783-3727.
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The attached Term Sheet has been prepared by Union Acceptance
Corporation. Neither Salomon Brothers Inc ("Salomon") nor Bear, Stearns & Co.
Inc. ("Bear, Stearns" and together with Salomon Brothers, the "Underwriters")
nor any of their respective affiliates makes any representation as to the
accuracy or completeness of the Information herein. The Information contained
herein is preliminary and will be superseded by the applicable prospectus
supplement and by any other information subsequently filed with the Securities
and Exchange Commission.
The Information addresses only certain aspects of the applicable
securities characteristics and thus does not provide a complete assessment. As
such, the Information may not reflect the impact of all structural
characteristics of the securities. The assumptions underlying the Information,
including structure, Trust property and collateral, may be modified from time to
time to reflect changed circumstances.
Although a registration statement (including the prospectus) relating
to the securities discussed in this communication has been filed with the
Securities and Exchange Commission and is effective, the final prospectus
supplement relating to the securities discussed in this communication has not
been filed with the Securities and Exchange Commission. Prospective purchasers
are referred to the final prospectus and prospectus supplement relating to the
securities discussed in this communication for definitive Information on any
matter discussed in this communication. Any investment decision should be based
only on the data in the prospectus and the prospectus supplement ("Offering
Documents") and the then current version of the Information. Offering Documents
contain data that is current as of their publication dates and after publication
may no longer be complete or current. A final prospectus and prospectus
supplement may be obtained by contacting the Salomon Syndicate Desk at
212-783-3727.
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materials. If you did not receive such a disclaimer please contact your Salomon
Brothers Financial Advisor immediately.
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UACSC 1997-C Auto Trust
UAC Securitization Corporation, Depositor
Union Acceptance Corporation, Servicer
Subject to Revision
Term Sheet dated September 3, 1997
Issuer ......................UACSC 1997-C Auto Trust (the "Trust").
Depositor.....................UAC Securitization Corporation (the "Depositor").
Servicer .....................Union Acceptance Corporation (in its capacity as
servicer, the "Servicer," otherwise "UAC").
Trustee .....................Harris Trust and Savings Bank.
Underwriters..................Salomon Brothers Inc (Lead) and Bear, Stearns &
Co. Inc.(Co).
The Certificates ............The Trust will be formed and will issue the
Certificates on or about September 12, 1997 (the
"Closing Date") pursuant to a pooling and
servicing agreement (the "Pooling and Servicing
Agreement"). The "Certificates" will consist of:
(i) _____% Class A-1 Money Market Automobile
Receivable Backed Certificates in the aggregate
principal amount of $27,495,000.00 (the "Class A-1
Certificates"); (ii) _____% Class A-2 Automobile
Receivable Backed Certificates in the aggregate
principal amount of $87,325,000.00 (the "Class A-2
Certificates"); (iii) _____% Class A-3 Automobile
Receivable Backed Certificates in the aggregate
principal amount of $103,570,162.24 (the "Class
A-3 Certificates" and together with the Class A-1
Certificates and the Class A-2 Certificates, the
"Class A Certificates"); (iv) the Class I Interest
Only Automobile Receivable Backed Certificates
(the "Class I Certificates"); and (v) the Class IC
Automobile Receivable Backed Certificate (the
"Class IC Certificate"). The Class I Certificates
are interest only certificates and will not
receive distributions of principal. The Class IC
Certificate will be issued to the Depositor on the
Closing Date and is not being offered hereby. The
Class A Certificates and the Class I Certificates
are referred to herein as the "Offered
Certificates."
Each of the Certificates will represent a
fractional undivided interest in the Trust. The
Trust assets will include a pool of simple and
precomputed interest installment sale and
installment loan contracts originated in various
states in the United States of America, secured by
new and used automobiles, light trucks and vans
(the "Receivables"), certain monies due thereunder
as of and after August 31, 1997 (the "Cutoff
Date"), security interests in the related vehicles
financed thereby (the "Financed Vehicles"), monies
on deposit in the account into which all payments
made in respect of the Receivables will be
deposited (the "Certificate Account") and the
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Brothers Financial Advisor immediately.
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proceeds thereof, any proceeds from claims on
certain insurance policies relating to the
Financed Vehicles or the related obligors (each,
an "Obligor"), any lender's single interest
insurance policy, the Spread Account (as defined
herein) for the benefit of the Class A
Certificateholders, the Class I Certificateholders
and the Surety Bond Issuer, the Surety Bond for
the benefit of the Class A Certificateholders and
Class I Certificateholders and certain rights
under the Pooling and Servicing Agreement.
Interest paid to the Certificateholders on the
first Distribution Date will be based upon the
amount of interest accruing from the Closing Date,
and will therefore not include a full month's
interest.
The Class A Certificates ....Interest. Interest will be distributable on the
third business day after the 5th day of each month
(each, a "Distribution Date") beginning October 8,
1997, to holders of record as of the last day of
the calendar month immediately preceding the
calendar month in which such Distribution Date
occurs (the "Record Date") of the Class A
Certificates (the "Class A Certificateholders,"
which includes the "Class A-1 Certificateholders,"
the "Class A-2 Certificateholders," and the "Class
A-3 Certificateholders"). The maximum amount of
interest distributable to the Class A-1
Certificateholders on any Distribution Date is the
product of 1/360th of the applicable pass-through
rate of _____% for the Class A-1 Certificates (the
"Class A-1 Pass-Through Rate"), the actual number
of days elapsed during the related Collection
Period and the aggregate outstanding principal
balance of the Class A-1 Certificates (the "Class
A-1 Certificate Balance") as of the preceding
Distribution Date (after giving effect to all
distributions to Certificateholders on such date)
or, in the case of the first Distribution Date, as
of the Closing Date. The maximum amount of
interest distributable to the Class A-2
Certificateholders and the Class A-3
Certificateholders on any Distribution Date is the
product of 1/12th of the applicable pass-through
rate of _____% for the Class A-2 Certificates (the
"Class A-2 Pass-Through Rate") and the applicable
pass-through rate of_____% for the Class A-3
Certificates (the "Class A-3 Pass-Through Rate")
multiplied by the aggregate outstanding principal
balance of the Class A-2 Certificates and Class
A-3 Certificates, respectively (the "Class A-2
Certificate Balance" and the "Class A-3
Certificate Balance," and together with the Class
A-1 Certificate Balance, the "Certificate
Balance") as of the preceding Distribution Date
(after giving effect to all distributions to
Certificateholders on such date) or, in the case
of the first Distribution Date, as of the Closing
Date. Interest on the Class A-1 Certificates will
be calculated on the basis of a 360-day year and
the actual number of days elapsed during the
preceding Collection Period or, in the case of the
first Distribution Date, the number of days from
the Closing Date remaining in the month of the
closing. Interest on the Class A-2 Certificates
and Class A-3 Certificates will be calculated on
the basis of a 360-day year consisting of twelve
30-day months or, in the case of the first
Distribution Date, the number of days from the
Closing Date remaining in the month of the closing
(assuming a 30-day month). See "The Offered
Certificates -- Distributions." The effective
yield on the Class A Certificates will be below
that otherwise produced by the applicable
Pass-Through Rate because the distribution of
Monthly Principal (as defined below) and Class A
Monthly Interest (as defined below) in respect of
any given month will not be made until the third
business day after the fifth calendar day of the
following month. See "Yield and Prepayment
Considerations" herein.
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Brothers Financial Advisor immediately.
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"Class A Monthly Interest" for any Distribution
Date will equal the sum of Class A-1 Monthly
Interest (as defined below), Class A-2 Monthly
Interest (as defined below) and Class A-3 Monthly
Interest (as defined below).
"Class A-1 Monthly Interest" will equal (i) for
the first Distribution Date, the product of the
following: (1/360th of the Class A-1 Pass-Through
Rate) multiplied by (the number of days remaining
in the month of the Closing Date multiplied by
(the Class A-1 Certificate Balance at the Closing
Date) and (ii) with respect to each subsequent
Distribution Date, the product of 1/360th of the
Class A-1 Pass-Through Rate, the number of days in
the preceding Collection Period and the Class A-1
Certificate Balance on the preceding Distribution
Date (after giving effect to any distribution of
Monthly Principal required to be made on such
preceding Distribution Date).
"Class A-2 Monthly Interest" will equal (i) for
the first Distribution Date, the product of the
following: (one-twelfth of the Class A-2
Pass-Through Rate) multiplied by (the number of
days remaining in the month of the Closing Date
(assuming a 30 day month) from the Closing Date
divided by 30) multiplied by (the Class A-2
Certificate Balance at the Closing Date) and (ii)
with respect to each subsequent Distribution Date,
the product of one-twelfth of the Class A-2
Pass-Through Rate and the Class A-2 Certificate
Balance on the preceding Distribution Date (after
giving effect to any distribution of Monthly
Principal required to be made on such preceding
Distribution Date).
"Class A-3 Monthly Interest" will equal (i) for
the first Distribution Date, the product of the
following: (one-twelfth of the Class A-3
Pass-Through Rate) multiplied by (the number of
days remaining in the month of the Closing Date
(assuming a 30 day month) from the Closing Date
divided by 30) multiplied by (the Class A-3
Certificate Balance at the Closing Date) and (ii)
with respect to each subsequent Distribution Date,
the product of one-twelfth of the Class A-3
Pass-Through Rate and the Class A-3 Certificate
Balance on the preceding Distribution Date (after
giving effect to any distribution of Monthly
Principal required to be made on such preceding
Distribution Date).
Principal. On each Distribution Date, the Trustee
will distribute as principal to the Class A
Certificateholders in a maximum aggregate amount
equal to the aggregate outstanding principal
amount of the Receivables (the "Pool Balance") on
the last day of the second preceding calendar
month (or, in the case of the first Distribution
Date, as of the Cutoff Date) less the Pool Balance
on the last day of the immediately preceding
calendar month ("Monthly Principal"). Monthly
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Brothers Financial Advisor immediately.
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Principal will be distributed sequentially to the
Class A Certificateholders as follows: (i) to the
Class A-1 Certificateholders until the Class A-1
Certificate Balance has been reduced to zero; (ii)
to the Class A-2 Certificateholders until the
Class A-2 Certificate Balance has been reduced to
zero and (iii) to the Class A-3 Certificateholders
until the Class A-3 Certificate Balance has been
reduced to zero (the "Principal Distribution
Sequence"). For purposes of determining Monthly
Principal, the unpaid principal balance of a
Defaulted Receivable or a Purchased Receivable
will be deemed to be zero on and after the date
such Receivable became a Defaulted Receivable or a
Purchased Receivable.
The final scheduled Distribution Date of the Class
A-1 Certificates will be September 10, 1998 (the
"Class A-1 Final Scheduled Distribution Date").
The final scheduled Distribution Date of the Class
A-2 Certificates will be April 10, 2001 (the
"Class A-2 Final Scheduled Distribution Date").
The final scheduled Distribution Date of the Class
A-3 Certificates will be January 10, 2005 (the
"Class A-3 Final Scheduled Distribution Date"). No
Monthly Principal will be distributed (i) to the
Class A-2 Certificateholders until the Class A-1
Certificate Balance has been reduced to zero or
(ii) to the Class A-3 Certificateholders until the
Class A-2 Certificate Balance has been reduced to
zero. Since the rate of payment of principal of
each class of Class A Certificates depends upon
the rate of payment of principal (including
prepayments) of the Receivables, the final
distribution in respect of each class of Class A
Certificates could occur significantly earlier
than the respective Final Scheduled Distribution
Dates. See "The Offered Certificates --
Distributions."
The Class I Certificates......Interest. The Class I Certificates are interest
only certificates which will not be entitled to
any principal distributions. Interest will accrue
on the Notional Principal Amount (defined below)
of the Class I Certificates at the rate of 1.55%
per annum (the "Class I Pass-Through Rate"). The
Notional Principal Amount represents a designated
principal component of the Receivables, originally
$176,276,554.86 (the "Original Notional Principal
Amount").
Interest with respect to the Class I Certificates
will accrue on the basis of a 360-day year
consisting of twelve 30-day months or, in the case
of the first Distribution Date, the number of days
from the Closing Date remaining in the month of
the closing (assuming a 30-day month). On each
Distribution Date, the Trustee shall distribute
pro rata to holders of Class I Certificates (the
"Class I Certificateholders") of record as of the
preceding Record Date, Class I Monthly Interest at
the Class I Pass-Through Rate on the Notional
Principal Amount outstanding on the immediately
preceding Distribution Date (after giving effect
to any reduction of the Notional Principal Amount
on such Distribution Date) or, in the case of the
first Distribution Date, as of the Closing Date.
Holders of the Class I Certificates will not be
entitled to any distributions after the Notional
Principal Amount thereof has been reduced to zero.
Planned Amortization Feature; Calculation of the
Class I Notional Principal Amount. The Class I
Certificates represent an interest-only planned
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Brothers Financial Advisor immediately.
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amortization class. The planned amortization
feature is intended to reduce the uncertainty to
investors in the Class I Certificates with respect
to prepayments. Because the Class I Certificates
will receive interest based on the Notional
Principal Amount, this is accomplished by basing
the reduction in the Notional Principal Amount on
a principal paydown schedule rather than on the
reduction in the actual principal balances of the
Receivables, as described below. The amount which
will be paid to the Class I Certificateholders is
expected to be derived from the excess of interest
earned on the Receivables over the Class A Monthly
Interest and the monthly Servicing Fee payable to
the Servicer (the "Monthly Servicing Fee"). Solely
for the purpose of calculating the amount payable
with respect to the Class I Certificates, the
Certificate Balance will be divided into two
principal components, the "PAC Component" and the
"Companion Component." The sum of the PAC
Component and the Companion Component will at all
times equal the then aggregate unpaid Certificate
Balance. The "Notional Principal Amount" of the
Class I Certificates at any time will be equal to
the principal balance of the PAC Component as
calculated based on the allocations of principal
payments described below, originally
$176,276,554.86.
The Pooling and Servicing Agreement establishes a
schedule (a "Planned Notional Principal Amount
Schedule") which is set forth herein under "The
Offered Certificates--The Class I
Certificates-Calculation of Notional Principal
Amount." On each Distribution Date, the Monthly
Principal will be allocated first to the PAC
Component in an amount up to the amount necessary
to reduce the amount thereof to the Planned
Notional Principal Amount for such Distribution
Date, as set forth in the Planned Notional
Principal Amount Schedule, second, to the
Companion Component until the outstanding amount
thereof is reduced to zero and third, to the PAC
Component, without regard to the Planned Notional
Principal Amount. As described above, the Notional
Principal Amount of the Class I Certificates will
be equal to the outstanding amount of the PAC
Component and thus will be reduced as the PAC
Component is reduced.
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Brothers Financial Advisor immediately.
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The Planned Notional Principal Amount Schedule has
been prepared on the basis of the assumption,
among other things, that the Receivables prepay at
a constant rate between 1.6% and 2.5% ABS (as
defined herein), an assumed annualized constant
rate of prepayments and the prepayment model used
in this Term Sheet. The yield to maturity of the
Class I Certificates will be sensitive to the rate
and timing of principal payments (including
prepayments) on the Receivables and may fluctuate
significantly from time to time. If the
Receivables prepay at a constant rate within the
range assumed in preparing the Planned Notional
Principal Amount Schedule, the PAC Component (and
the Notional Principal Amount of the Class I
Certificates) will be reduced in accordance with
the Planned Notional Principal Amount Schedule. If
the Receivables prepay at a constant rate higher
than 2.5% ABS, the amount of the Companion
Component will be reduced to zero more quickly,
and the amount of the PAC Component (and the
Notional Principal Amount of the Class I
Certificates) will be reduced more quickly than
provided in the Planned Notional Principal Amount
Schedule, thereby reducing the yield to holders of
the Class I Certificates. In general, a rapid rate
of principal prepayments (including liquidations
due to losses, repurchases and other dispositions)
will have a material negative effect on the yield
to maturity of the Class I Certificates.
The Planned Notional Principal Amount Schedule is
set forth herein under "The Offered Certificates
-- The Class I Certificates -- Calculation of
Notional Principal Amount." The Planned Notional
Principal Amount Schedule has been prepared on the
basis of certain assumptions, which are described
herein under "The Offered Certificates -- Class I
Yield Considerations." Prospective investors in
the Class I Certificates should fully consider the
associated risks, including the risk that a rapid
rate of prepayments could result in the failure of
investors in the Class I Certificates to recoup
their initial investment. See "Risk Factors --
Prepayment Risks Associated with the Class I
Certificates," "Yield and Prepayment
Considerations -- The Class I Certificates."
Subordination;
Spread Account................The Depositor will establish an account (the
"Spread Account") on the Closing Date. On each
Distribution Date thereafter, the Servicer will
deposit into the Spread Account any amounts
remaining in the Certificate Account after the
payment on such date of all amounts owing pursuant
to the Pooling and Servicing Agreement to the
Certificateholders (other than the Class IC
Certificateholder), the Surety Bond Issuer, the
Servicer for the Monthly Servicing Fee and any
permitted reimbursement of outstanding Advances.
In the event that Available Funds (as defined
below) are insufficient on any Distribution Date
prior to the termination of the Trust (after
payment of the Monthly Servicing Fee) to pay
Monthly Principal and Monthly Interest to the
Class A Certificateholders and the Class I
Certificateholders, draws will be made on the
Spread Account to the extent of the balance
thereof and, if necessary, the Surety Bond, in the
manner and to the extent described herein. The
Spread Account is solely for the benefit of the
Class A Certificateholders, the Class I
Certificateholders and the Surety Bond Issuer. In
the event the amount on deposit in the Spread
Account is zero after giving effect to any draws
thereon for the benefit of the Class A
Certificateholders and the Class I
Certificateholders, and there is a default under
the Surety Bond, any losses on the Receivables
will be borne directly pro rata by all classes of
Class A Certificateholders (to the extent of the
classes or class of Class A Certificates which are
outstanding at such time) and Class I
Certificateholders, as described herein. Any such
reduction of the principal balance of the
Receivables due to losses on the Receivables may
also result in a reduction of the Class I Notional
Principal Amount. See "The Offered Certificates--
Distributions."
"Available Funds" for any Distribution Date and
the related Collection Period will consist of all
payments on simple interest Receivables received
during such Collection Period, the scheduled
payments on Precomputed Receivables (as defined
below) received during such Collection Period, the
net amount to be transferred to the Certificate
Account in respect of add on interest on
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materials. If you did not receive such a disclaimer please contact your Salomon
Brothers Financial Advisor immediately.
<PAGE>
Precomputed Receivables for such Distribution
Date, all advances of funds in respect of
delinquent Receivables made by the Servicer for
such Collection Period (each, an "Advance"),
liquidation proceeds in respect of defaulted
receivables and the purchase amount for all
Receivables that UAC was required to purchase
during the preceding Collection Period.
"Precomputed Receivables" are rule of 78's
Receivables (as opposed to simple interest
Receivables) which will be amortized by the Trust
using the actuarial method. The Class A
Certificates and Class I Certificates will be
senior in right and interest to the Class IC
Certificate. The Class A Certificateholders and
the Class I Certificateholders will have equal
rights with respect to amounts collected on or
with respect to the Receivables and other assets
of the Trust in the event of a shortfall. The
Trustee will first withdraw funds from the Spread
Account on each Distribution Date to the extent of
any shortfall in the Monthly Servicing Fee,
permitted reimbursements of outstanding Advances,
Monthly Interest and Monthly Principal as
described above. Any amount on deposit in the
Spread Account on any Distribution Date in excess
of the Required Spread Amount (defined below)
after all other required deposits thereto and
withdrawals therefrom have been made, and after
payment therefrom of all amounts due the Surety
Bond Issuer will be distributed to the holder of
the Class IC Certificate (the "Class IC
Certificateholder"). Any amount so distributed to
the Class IC Certificateholder will no longer be
an asset of the Trust.
While it is intended that the amount on deposit in
the Spread Account grow over time, through the
deposit thereto of the excess collections, if any,
on the Receivables, to the Required Spread Amount,
there can be no assurance that such growth will
actually occur. The "Required Spread Amount" with
respect to any Distribution Date will equal _____%
of the initial Pool Balance. If the average
aggregate yield of the Receivables pool in excess
of losses falls below a prescribed level set forth
in the Insurance Agreement, the Required Spread
Amount will be increased to _____% of the Pool
Balance. Upon and during the continuance of an
Event of Default or upon the occurrence of certain
other events described in the Insurance Agreement
generally involving a failure of performance by
the Servicer or a material misrepresentation made
by the Servicer under the Pooling and Servicing
Agreement or the Insurance Agreement, the Required
Spread Amount shall be equal to the Surety Bond
Amount, as further described below.
Surety Bond...................The Depositor shall obtain an irrevocable surety
bond (the "Surety Bond") issued by the Surety Bond
Issuer (as specified below), for the benefit of
the Trustee on behalf of the Class A
Certificateholders and the Class I
Certificateholders. The Trustee shall draw on the
Surety Bond in the event that sufficient funds are
not available (after payment of the Monthly
Servicing Fee and after withdrawals from the
Spread Account to pay the Class A
Certificateholders and the Class I
Certificateholders on any Distribution Date in
accordance with the Pooling and Servicing
Agreement) to distribute Monthly Interest and
Monthly Principal, up to the Surety Bond Amount.
Surety Bond Amount............The term "Surety Bond Amount" means with respect
to any Distribution Date: (x) the sum of (A) the
lesser of (i) the Certificate Balance (after
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Brothers Financial Advisor immediately.
<PAGE>
giving effect to any distribution of Available
Funds and any funds withdrawn from the Spread
Account to pay Monthly Principal on such
Distribution Date) and (ii) the Net Principal
Surety Bond Amount, plus (B) Class A Monthly
Interest, plus (C) Class I Monthly Interest, plus
(D) the Monthly Servicing Fee; less (y) all
amounts on deposit in the Spread Account on such
Distribution Date. "Net Principal Surety Bond
Amount" means the Certificate Balance as of the
first Distribution Date minus all amounts
previously drawn on the Surety Bond or from the
Spread Account with respect to Monthly Principal.
Legal Investment..............The Class A-1 Certificates will be eligible
securities for purchase by money market funds
under Rule 2a-7 under the Investment Company Act
of 1940, as amended.
Surety Bond Issuer............Capital Markets Assurance Corporation.
Optional Sale.................The Class IC Certificateholder has the right to
cause the Trustee to sell all of the Receivables
(referred to herein as an "Optional Sale") as of
the last day of any Collection Period, at a
purchase price equal to the fair market value of
the Receivables (but not less than the sum of (i)
their aggregate outstanding principal balance plus
accrued and unpaid interest thereon and (ii) any
amounts due the Surety Bond Issuer), if (i) the
Certificate Balance as of the following
Distribution Date will equal 10% or less of the
initial Certificate Balance and (ii) the Notional
Principal Amount of the Class I Certificates has
been reduced to zero.
Tax Status....................In the opinion of special tax counsel to the
Depositor, the Trust will not be treated as an
association taxable as a corporation or as a
"publicly traded partnership" taxable as a
corporation. The Trustee and the
Certificateholders will agree to treat the Trust
as a partnership for federal income tax purposes,
which will not be subject to federal income tax at
the Trust level.
Ratings.......................As a condition to the issuance of the Offered
Certificates, the Class A Certificates and the
Class I Certificates must be rated in the highest
category by Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services, a Division of
The McGraw-Hill Companies (each a "Rating Agency"
and collectively, the "Rating Agencies"). The
ratings of the Class I Certificates do not address
the possibility that rapid rates of principal
prepayments, including prepayments resulting from
a sale of the Receivables upon an Insolvency Event
(as defined below) with respect to the Class IC
Certificateholder, could result in a failure of
the holders of the Class I Certificates to fully
recover their investment. A security rating is not
a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at
any time by the assigning rating agency. An
"Insolvency Event" includes the bankruptcy or
similar proceeding and the admission of the
inability to pay debts as they become due. See
"Risk Factors-- Certificate Rating."
ERISA Considerations..........Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the Class A Certificates and the Class
I Certificates may be eligible for purchase by
employee benefit plans subject to Title I of the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). Any benefit plan fiduciary
considering the purchase of an Offered Certificate
should, among other things, consult with
experienced legal counsel in determining whether
all required conditions for such purchase have
been satisfied.
- 10 -
This page must be accompanied by the disclaimer on the cover page of these
materials. If you did not receive such a disclaimer please contact your Salomon
Brothers Financial Advisor immediately.
<PAGE>
RISK FACTORS
Investors should carefully consider the information set forth below as
well as the other investment considerations described in this prospectus.
Limited Liquidity
There is currently no secondary market for the Offered Certificates.
The Underwriters currently intend to make a market in the Offered Certificates,
but are under no obligation to do so. There can be no assurance that a secondary
market will develop or, if one does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for the
life of the Offered Certificates.
Certificates Solely Obligations of the Trust
The Offered Certificates are interests in the Trust only and do not
represent the obligation of any other person. The Class A Certificateholders and
the Class I Certificateholders are senior in right and interest to the Class IC
Certificateholder (as described under "The Offered Certificates --
Distributions." The Trustee will withdraw funds from the Spread Account, up to
the full balance of the funds on deposit in such account, only in the event that
Available Funds are insufficient in accordance with the Pooling and Servicing
Agreement to distribute Monthly Interest and Monthly Principal (after payment of
the Monthly Servicing Fee). The amount on deposit in the Spread Account is
intended to increase over time to an amount equal to the Required Spread Amount.
There is no assurance that such growth will occur or that the balance in the
Spread Account will always be sufficient to assure payment in full of Monthly
Principal and Monthly Interest. If the amount on deposit in the Spread Account
is reduced to zero after giving effect to all amounts to be deposited to and
withdrawn from the Spread Account pursuant to the Pooling and Servicing
Agreement, on any Distribution Date prior to termination of the Trust, the
Trustee will draw on the Surety Bond, in an amount equal to the shortfall in
respect of Monthly Interest and Monthly Principal, up to the Surety Bond Amount.
If the Spread Account is reduced to zero and there is a default under the Surety
Bond, the Trust will depend solely on current distributions on the Receivables
to make distributions on the Offered Certificates and distributions of interest
and principal on the Offered Certificates may be made pro rata based on the
amounts to which Certificateholders of each class are entitled as set forth
under "The Offered Certificates -- Distributions." See "The Receivables Pool --
Delinquencies, Repossessions and Net Losses."
Prepayment Risks Associated with the Class I Certificates
If the Receivables prepay at a constant rate within the range assumed
in preparing the Planned Notional Principal Amount Schedule, the PAC Component
(and the Notional Principal Amount) will be reduced in accordance with the
Planned Notional Principal Amount Schedule. If the Receivables prepay at a
constant rate higher than 2.5% ABS, the Notional Principal Amount will be
reduced more quickly than provided in the Planned Notional Principal Amount
Schedule, thereby reducing the yield to holders of the Class I Certificates. In
general, a rapid rate of principal prepayments (including liquidations due to
losses, repurchases and other dispositions and prepayments resulting from any
sale of the Receivables upon an Insolvency Event with respect to the Class IC
Certificateholder) will have a material negative effect on the yield to maturity
of the Class I Certificates. Prospective investors should fully consider the
associated risks, including the risk that a rapid rate of prepayments could
result in the failure of investors in the Class I Certificates to recoup their
initial investment. See "Yield and Prepayment Considerations -- The Class I
Certificates" herein.
Termination Upon Insolvency Event of the Class IC Certificateholder
The Depositor will be the initial Class IC Certificateholder. If an
Insolvency Event occurs with respect to the Class IC Certificateholder, the
Receivables will be sold and the Trust will be liquidated unless, within the
period specified herein, holders of more than 51% of the Certificate Balance and
- 11 -
This page must be accompanied by the disclaimer on the cover page of these
materials. If you did not receive such a disclaimer please contact your Salomon
Brothers Financial Advisor immediately.
<PAGE>
holders of more than 51% of the Notional Principal Amount of the Class I
Certificates instruct the Trustee not to sell the Receivables and liquidate the
Trust or unless such sale and liquidation is otherwise prohibited by applicable
law. The Surety Bond will not be available to pay any shortfalls upon sale of
the Receivables on liquidation of the Trust. The Depositor is a special purpose
corporation the activities of which are circumscribed by its charter with a view
to reducing any risk of its bankruptcy; however no representation is made
concerning the financial condition of the Class IC Certificateholder or the
likelihood of an Insolvency Event with respect to such holder. In the event of
the sale of the Receivables and liquidation of the Trust following an Insolvency
Event, the proceeds may not be sufficient to pay all accrued and unpaid amounts
owing on the Certificates. The Surety Bond will not be available to cover any
such shortfall. Following such a sale, the Class I Certificateholders may be
entitled to receive a portion of the proceeds of sale based upon the amount
originally paid for the Class I Certificates (as reduced by prior returns of
such amount) as provided in the Pooling and Servicing Agreement. Furthermore,
any distributions of such proceeds will have an effect similar to a prepayment
of the Receivables and could affect the yield on the Class A Certificates and
may significantly affect the yield on the Class I Certificates. See "Yield and
Prepayment Considerations" herein.
Certificate Rating
It is a condition of issuance of the Offered Certificates that the
Class A Certificates and the Class I Certificates be rated in the highest
category by the Rating Agencies. Such ratings will reflect only the views of the
relevant rating agency. There is no assurance that any such rating will continue
for any period of time or that it will not be revised or withdrawn entirely by
such rating agency if, in its judgment, circumstances so warrant. A revision or
withdrawal of such rating may have an adverse effect on the market price of the
Offered Certificates. The ratings of the Class I Certificates do not address the
possibility that rapid rates of principal prepayments, including prepayments
resulting from a sale of the Receivables upon an Insolvency Event with respect
to the Class IC Certificateholder, could result in a failure of the holders of
the Class I Certificates to fully recover their investment. A security rating is
not a recommendation to buy, sell or hold securities.
FORMATION OF THE TRUST
The Depositor will establish the Trust by selling and assigning the
Trust property, as described below, to the Trustee in exchange for the Offered
Certificates. The Depositor will retain the Class IC Certificate. UAC will be
responsible for servicing the Receivables pursuant to the Pooling and Servicing
Agreement and will be compensated for acting as the Servicer. To facilitate
servicing and to minimize administrative burden and expense, the Servicer will
be appointed custodian of the Receivables by the Trustee, but will not stamp the
Receivables to reflect the sale and assignment of the Receivables to the Trust
or make any notation of the Trust's lien on the certificates of title of the
Financed Vehicles. In the absence of such notation on the certificates of title,
the Trustee may not have perfected security interests in the Financed Vehicles
securing the Receivables. Under the terms of the Pooling and Servicing
Agreement, UAC may delegate its duties as Servicer and custodian; however, any
such delegation will not relieve UAC of its liability and responsibility with
respect to such duties.
The Depositor will establish, for the benefit of the Class A
Certificateholders and the Class I Certificateholders and the Surety Bond
Issuer, the Spread Account and will obtain the Surety Bond. Withdrawals from the
Spread Account and, only after such withdrawals, draws on the Surety Bond will
be made in accordance with the Pooling and Servicing Agreement in the event that
sufficient funds are not available (after payment of the Monthly Servicing Fee)
to distribute, in the case of Class I Monthly Interest, Class A Monthly Interest
and Monthly Principal, up to the Surety Bond Amount. If the Spread Account is
exhausted and there is a default under the Surety Bond, the Trust will look only
to the Obligors on the Receivables and the proceeds from the repossession and
sale of Financed Vehicles that secure Defaulted Receivables for distributions of
interest and principal on the Certificates. In such event, certain factors, such
as the Trustee's not having perfected security interests in some of the Financed
Vehicles, may affect the Trust's ability to realize on the collateral securing
the Receivables, and thus may reduce the proceeds to be distributed to
Certificateholders.
- 12 -
This page must be accompanied by the disclaimer on the cover page of these
materials. If you did not receive such a disclaimer please contact your Salomon
Brothers Financial Advisor immediately.
<PAGE>
THE RECEIVABLES POOL
The Receivables were selected from the prime portfolio of Union
Acceptance Funding Corporation, a subsidiary of UAC, for purchase by the
Depositor by several criteria, including that each Receivable: (i) has an
original number of payments of not more than 84 payments and not less than 12
payments, (ii) has a remaining maturity of not more than 84 months and not less
than four months, (iii) provides for level monthly payments that fully amortize
the amount financed over the original term, and (iv) has a contract rate of
interest (a "Contract Rate") (exclusive of prepaid finance charges) of not less
than 6.90%. The weighted average remaining maturity of the Receivables will be
approximately 71 months as of the Cutoff Date.
Approximately 95.09% of the aggregate principal balance of the
Receivables as of the Cutoff Date are simple interest contracts which provide
for equal monthly payments. Approximately 4.91% of the aggregate principal
balance of the Receivables as of the Cutoff Date are Precomputed Receivables
originated in the State of California. Approximately 19.75% of the aggregate
principal balance of the Receivables as of the Cutoff Date represent financing
of new vehicles; the remainder of the Receivables represent financing of used
vehicles.
Receivables representing more than 10% of the aggregate principal
balance of the Receivables as of the Cutoff Date were originated in metropolitan
areas in the States of California and Texas. The performance of the Receivables
in the aggregate could be adversely affected in particular by the development of
adverse economic conditions in such metropolitan areas.
Composition of the Receivables as of the Cutoff Date
<TABLE>
<CAPTION>
Aggregate Original Weighted
Number of Principal Principal Average
Receivables Balance Balance Rate
----------- ---------------- --------------- ------
<S> <C> <C> <C> <C>
New Automobiles and Light-Duty Trucks............ 1,946 $ 37,747,313.04 $ 38,320,961.47 12.715%
Used Automobiles and Light-Duty Trucks........... 12,118 157,146,072.13 158,846,776.07 13.691%
New Vans (1)..................................... 224 5,385,744.06 5,475,974.55 12.422%
Used Vans (1).................................... 1,280 18,111,033.01 18,293,854.95 13.607%
------ --------------- --------------- ------
All Receivables.................................. 15,568 $218,390,162.24 $220,937,567.04 13.484%
====== =============== =============== ======
</TABLE>
<TABLE>
<CAPTION>
Weighted Weighted Percent of
Average Average Aggregate
Remaining Original Principal
Term(2) Term(2) Balance(3)
------- ------- ----------
<S> <C> <C> <C>
New Automobiles and Light-Duty Trucks.......... 77.765mos. 78.990mos. 17.28%
Used Automobiles and Light-Duty Trucks......... 68.802 69.901 71.96
New Vans (1)................................... 79.561 80.851 2.47
Used Vans (1).................................. 69.582 70.687 8.29
------ ------ ------
All Receivables................................ 70.682mos. 71.807mos. 100.00%
====== ====== ======
</TABLE>
(1) References to vans include minivans and van conversions.
(2) Based on scheduled maturity and assuming no prepayments of the Receivables.
(3) Sum may not equal 100% due to rounding.
- 13 -
This page must be accompanied by the disclaimer on the cover page of these
materials. If you did not receive such a disclaimer please contact your Salomon
Brothers Financial Advisor immediately.
<PAGE>
Geographic Distribution of the Receivables as of the Cutoff Date
Percent of Aggregate
State (1)(2) Principal Balance (3)
Arizona............................................ 3.91%
California......................................... 13.13
Colorado........................................... 2.31
Florida............................................ 7.76
Georgia............................................ 3.54
Illinois........................................... 7.03
Indiana............................................ 2.94
Iowa............................................... 2.11
Kansas............................................. 0.94
Kentucky........................................... 0.80
Maryland........................................... 2.07
Michigan........................................... 2.64
Minnesota.......................................... 0.86
Missouri........................................... 2.02
Nebraska........................................... 0.50
Nevada............................................. 0.46
New Mexico......................................... 0.31
North Carolina..................................... 8.29
Ohio............................................... 6.56
Oklahoma........................................... 3.50
Oregon............................................. 0.18
Pennsylvania....................................... 0.59
South Carolina..................................... 3.34
Tennessee.......................................... 1.96
Texas.............................................. 13.59
Utah............................................... 0.24
Virginia........................................... 6.51
Washington......................................... 0.88
Wisconsin.......................................... 1.02
Total ........................................ 100.00%
(1) Based on address of the Dealer selling the related Financed Vehicle.
(2) Receivables originated in Ohio were solicited by Dealers for direct
financing by UAC or the Predecessor. All other Receivables were
originated by Dealers and purchased from such Dealers by UAC or the
Predecessor.
(3) Sum may not equal to 100% due to rounding.
Distribution of the Receivables by Remaining Term as of the Cutoff Date
<TABLE>
<CAPTION>
Percentage of
Remaining Aggregate Average Aggregate
Scheduled Number of Principal Principal Principal
Term Range Receivables Balance Balance Balance(1)
---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C>
0 to 6 months....................... 3 $ 3,308.24 $ 1,102.75 0.00%
7 to 12 months....................... 28 92,811.42 3,314.69 0.04
13 to 24 months....................... 172 765,060.05 4,448.02 0.35
25 to 36 months....................... 514 3,339,506.02 6,497.09 1.53
37 to 48 months....................... 1,105 9,332,857.21 8,446.02 4.27
49 to 60 months....................... 3,182 36,831,122.67 11,574.83 16.86
61 to 66 months....................... 1,198 15,361,172.43 12,822.35 7.03
67 to 72 months....................... 3,732 53,741,337.40 14,400.14 24.61
73 to 84 months....................... 5,634 98,922,986.80 17,558.22 45.30
------ --------------- ---------- ------
Total....................... 15,568 $218,390,162.24 $14,028.15 100.00%
====== =============== ========== ======
</TABLE>
(1) Sum may not equal 100% due to rounding.
- 14 -
This page must be accompanied by the disclaimer on the cover page of these
materials. If you did not receive such a disclaimer please contact your Salomon
Brothers Financial Advisor immediately.
<PAGE>
Distribution of Receivables by Financed
Vehicle Model Year as of the Cutoff Date
Percentage Percentage
of Total Aggregate of Aggregate
Model Number of Number of Principal Principal
Year Receivables Receivables(1) Balance Balance(1)
- ---- ----------- -------------- ---------------- -------------
1978.......... 2 0.01% $ 16,444.50 0.01%
1982.......... 1 0.01 3,070.44 0.00
1983.......... 1 0.01 5,532.21 0.00
1984.......... 9 0.06 62,438.16 0.03
1985.......... 16 0.10 96,723.53 0.04
1986.......... 25 0.16 146,280.55 0.07
1987.......... 51 0.33 275,179.21 0.13
1988.......... 119 0.76 724,783.80 0.33
1989.......... 447 2.87 3,072,265.79 1.41
1990.......... 654 4.20 5,364,066.62 2.46
1991.......... 1,038 6.67 9,545,369.43 4.37
1992.......... 1,554 9.98 17,073,628.01 7.82
1993.......... 2,163 13.89 26,536,112.08 12.15
1994.......... 2,490 15.99 34,793,249.39 15.93
1995.......... 2,645 16.99 41,114,337.48 18.83
1996.......... 1,899 12.20 30,927,032.17 14.16
1997.......... 2,391 15.36 47,272,851.68 21.65
1998.......... 63 0.41 1,360,797.19 0.62
------ ------ --------------- ------
Total....... 15,568 100.00% $218,390,162.24 100.00%
====== ====== =============== ======
(1) Sum may not equal 100% due to rounding.
Distribution of the Receivables by Note Rate as of the Cutoff Date
<TABLE>
<CAPTION>
Percentage of
Aggregate Average Aggregate
Number of Principal Principal Principal
Note Rate Range Receivables Balance Balance Balance(1)
--------------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C>
6.000 to 6.999%...... 4 $ 52,914.14 $ 13,228.54 0.02%
7.000 to 7.999%...... 16 211,678.22 13,229.89 0.10
8.000 to 8.999%...... 131 1,987,012.17 15,168.03 0.91
9.000 to 9.999%...... 283 4,176,817.78 14,759.07 1.91
10.000 to 10.999%...... 625 9,895,670.77 15,833.07 4.53
11.000 to 11.999%...... 1,604 24,742,270.90 15,425.36 11.33
12.000 to 12.999%...... 3,168 47,446,268.72 14,976.73 21.73
13.000 to 13.999%...... 3,877 56,125,096.19 14,476.42 25.70
14.000 to 14.999%...... 2,869 38,457,326.38 13,404.44 17.61
15.000 to 15.999%...... 1,541 19,022,449.38 12,344.22 8.71
16.000 to 16.999%...... 722 8,648,808.55 11,978.96 3.96
17.000 to 17.999%...... 366 4,241,130.12 11,587.79 1.94
18.000 to 18.999%...... 219 2,198,498.65 10,038.81 1.01
19.000 to 19.999%...... 58 533,264.71 9,194.22 0.24
20.000 to 20.999%...... 64 521,181.35 8,143.46 0.24
21.000 to 21.999%...... 20 124,686.72 6,234.34 0.06
23.000 to 23.999%...... 1 5,087.49 5,087.49 0.00
------ --------------- ---------- ------
Total...... 15,568 $218,390,162.24 $14,028.15 100.00%
====== =============== ========== ======
</TABLE>
(1) Sum may not equal 100% due to rounding.
- 15 -
This page must be accompanied by the disclaimer on the cover page of these
materials. If you did not receive such a disclaimer please contact your Salomon
Brothers Financial Advisor immediately.
<PAGE>
Delinquencies, Repossessions and Net Losses
Set forth below is certain information concerning the experience of UAC
and the Predecessor pertaining to delinquencies, repossessions, and net losses
on its prime fixed rate retail automobile, light truck and van receivables
serviced by UAC and the Predecessor. There can be no assurance that the
delinquency, repossession, and net loss experience on the Receivables will be
comparable to that set forth below.
Delinquency Experience
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------------------------
1995 1996 1997
----------------------- ----------------------- -----------------------
(Dollars in thousands)
Number of Number of Number of
Receivables Amount Receivables Amount Receivables Amount
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Servicing portfolio........ 117,837 $1,159,349 147,722 $1,548,538 173,693 $1,860,272
------- ---------- ------- ---------- ------- ----------
Delinquencies
30-59 days.............. 1,169 $ 12,097 1,602 $ 17,030 2,487 $ 27,373
60-89 days.............. 377 4,124 694 7,629 1,646 18,931
90 days or more......... 0 0 333 3,811 723 8,826
Total delinquencies........ 1,546 $ 16,221 2,629 $ 28,470 4,856 $ 55,130
------- ---------- ------- ---------- ------- ----------
Total delinquencies as a
percent of servicing
portfolio............. 1.31% 1.40% 1.78% 1.84% 2.80% 2.96%
======= ========== ======= ========== ======= ==========
</TABLE>
Credit Loss Experience (1)
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------------
1995 1996 1997
--------------------- ----------------------- -----------------------
(Dollars in thousands)
Number of Number of Number of
Receivables Amount Receivables Amount Receivables Amount
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Avg. servicing portfolio(2) 104,455 $982,875 132,363 $1,343,770 164,858 $1,759,666
------- -------- ------- ---------- ------- ----------
Gross charge-offs.......... 3,493 $ 28,628 3,663 $ 40,815 6,280 70,830
Recoveries (4)............. 15,258 19,543 28,511
-------- ---------- ----------
Net losses................. $ 13,370 $ 21,272 $ 42,319
======== ========== ==========
Gross charge-offs as a % of
avg. servicing portfolio(3) 3.34% 2.91% 2.77% 3.04% 3.81% 4.03%
Recoveries as a % of gross
charge-offs............. 53.30% 47.88% 40.25%
Net losses as a % of avg.
servicing portfolio(4).. 1.36% 1.58% 2.40%
</TABLE>
(1) There is generally no recourse to Dealers under any of the receivables in
the portfolio serviced by UAC or the Predecessor, except to the extent of
representations and warranties made by Dealers in connection with such
receivables.
(2) Equals the monthly arithmetic average, and includes receivables sold in
prior securitization transactions.
(3) Variation in the size of the portfolio serviced by UAC will affect the
percentages in "Gross charge-offs as a percentage of average servicing
portfolio" and "Net losses as a percentage of average servicing portfolio."
(4) In fiscal 1995, the method by which recoveries are stated was changed.
Currently, recoveries include recoveries on receivables previously charged
off, cash recoveries and unsold repossessed assets carried at fair market
value. Under the previous method, reported recoveries excluded unsold
repossessed assets carried at fair market value. Prior period credit loss
experience has been restated to conform to current period classifications.
As indicated in the above Delinquency Experience table, delinquency
rates based upon outstanding loan balances of accounts 30 days past due and over
increased to 2.96% at June 30, 1997, from 1.84% at June 30, 1996, for UAC's
prime servicing portfolio. The increased delinquency from a year ago is
primarily due to the changes in consumer-credit trends as discussed below, and,
to a lesser extent, the tightening of UAC's deferral policy (effective in
February 1997) which applied more stringent standards for the deferment of
delinquent accounts. This tightening served to increase delinquency and
accelerated credit losses in the third and fourth quarters of the year ended
June 30, 1997.
- 16 -
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materials. If you did not receive such a disclaimer please contact your Salomon
Brothers Financial Advisor immediately.
<PAGE>
As indicated in the above Credit Loss Experience table, credit losses
on the prime auto portfolio totaled $42.3 million for the fiscal year ended June
30, 1997, or 2.40% as a percentage of the average servicing portfolio compared
to $21.3 million or 1.58% for the fiscal year ended June 30, 1996. Increased
credit losses are primarily a result of higher gross charge-off rates, as well
as a decline in recovery rates. Although recovery rates are down compared to
last fiscal year, there was a slight improvement in the quarter ending June 30,
1997 from the previous quarter.
There has been a general deterioration in the consumer credit markets
over the past year despite relatively good economic conditions. UAC believes
that this decline comes primarily as a result of higher consumer debt levels and
the consumer's increased readiness to declare bankruptcy. UAC has experienced
increased delinquency as well as increased net credit losses. UAC's prime
servicing portfolio is continuing to suffer deterioration since June 30, 1997 in
delinquency and losses especially among loans originated in 1995. UAC is making
improvements in both underwriting and collection processes to address the issue
of credit quality. UAC has tightened its credit standards and is utilizing new
computerized scoring tools to re-score existing portfolios enabling UAC to
identify areas for improvement on the underwriting side. UAC's collection staff
has been increased significantly since June 30, 1996. The new scoring tools also
allow UAC to focus its collection efforts in the most effective manner.
UAC's expectations with respect to delinquency and credit loss trends
constitute forward-looking statements and are subject to important factors that
could cause actual results to differ materially from those projected by UAC.
Such factors include, but are not limited to, general economic factors affecting
obligors' ability to make timely payments on their indebtedness such as
employment status, rates of consumer bankruptcy, consumer debt levels generally
and the interest rates applicable thereto. In addition, credit losses are
affected by UAC's ability to realize on recoveries of repossessed vehicles,
including, but not limited to, the market for used cars at any given time.
YIELD AND PREPAYMENT CONSIDERATIONS
General
Monthly Interest (as defined herein) on the Receivables will be
distributed to Certificateholders on each Distribution Date to the extent of the
pass-through rate applied to the applicable Certificate Balance or Notional
Principal Amount, as applicable, as of the preceding Distribution Date or the
Closing Date, as applicable (after giving effect to distributions of principal
on such preceding Distribution Date). See "The Offered Certificates --
Distributions." In the event of a full or partial prepayment on a Receivable,
Certificateholders will receive interest for the full month of such prepayment
either through the distribution of interest paid on other Receivables or from a
withdrawal from the Spread Account.
Although the Receivables will have different Contract Rates, each
Receivable's Contract Rate generally will exceed the sum of (a) the weighted
average of the Class A-1 Pass-Through Rate, the Class A-2 Pass-Through Rate and
the Class A-3 Pass-Through Rate, (b) the per annum rate used to calculate the
fee payable to the Surety Bond Issuer in respect of the Surety Bond, (c) the
Class I Pass-Through Rate and (d) the per annum rate used to calculate the
Servicing Fee. The Contract Rate on a small percentage of the Receivables,
however, will be less than the foregoing sum. Disproportionate rates of
prepayments between Receivables with higher and lower Contract Rates could
affect the ability of the Trust to distribute Monthly Interest to
Certificateholders.
The effective yield to Certificateholders will be below the yield
otherwise produced by the Pass-Through Rate because the distribution of Monthly
Principal and Monthly Interest in respect of any given month will not be made
until the related Distribution Date, which will not be earlier than the eighth
day of the following month.
The Class I Certificates
The Class I Certificates are interest only certificates. Although the
planned amortization feature of the Class I Certificates is intended to reduce
- 17 -
<PAGE>
the uncertainty of prepayments with respect to the Class I Certificates, if the
Receivables prepay sufficiently quickly, the Notional Principal Amount of the
Class I Certificates may be reduced more quickly than provided in the Planned
Notional Principal Amount Schedule, thereby reducing the yield to the holders of
the Class I Certificates. The yield to maturity on the Class I Certificates will
therefore be very sensitive to the rate of prepayments, including voluntary
prepayments, prepayments due to liquidations, repurchases and losses and
prepayments resulting from any sale of the Receivables upon an Insolvency Event
relating to the Class IC Certificateholder. Prospective investors should fully
consider the associated risks, including the risk that a rapid rate of
prepayments could result in the failure of investors in the Class I Certificates
to recoup their initial investment. See "Risk Factors" and "The Offered
Certificates -- The Class I Certificates -- Calculation of Notional Principal
Amount" and "-- Class I Yield Considerations."
THE DEPOSITOR AND UAC
UAC currently acquires loans from over 3,200 manufacturer franchised
automobile dealerships in 29 states. UAC is an Indiana corporation, formed in
December 1993 by UAC's predecessor to succeed to the indirect automobile finance
business of the Predecessor, which the Predecessor had operated since 1986. UAC
began purchasing and originating Receivables in April 1994. For the fiscal years
ended June 30, 1994, 1995, 1996 and 1997 UAC and/or its Predecessor acquired
prime loans aggregating $615 million, $767 million, $995 million and $1,076
million, respectively, representing annual increases of 25%, 30% and 8%,
respectively. Of the $1.9 billion of loans in the servicing portfolio of UAC and
its Predecessor (consisting of the principal balance of loans held for sale and
securitized loans) at June 30, 1997, approximately 75.43% represented loans on
used cars and approximately 24.57% represented loans on new cars.
THE SURETY BOND ISSUER
Capital Markets Assurance Corporation is the surety bond provider (the
"Surety Bond Issuer"). The Surety Bond Issuer is a New York-domiciled monoline
stock insurance company which engages only in the business of financial
guarantee and surety insurance. The Surety Bond Issuer is licensed in 50 states
in addition to the District of Columbia, the Commonwealth of Puerto Rico and the
territory of Guam. The Surety Bond Issuer insures structured asset-backed,
corporate, municipal and other financial obligations in the U.S. and
international capital markets. The Surety Bond Issuer also provides financial
guarantee reinsurance for structured asset-backed, corporate, municipal and
other financial obligations written by other major insurance companies.
The Surety Bond Issuer's claims-paying ability is rated "Aaa" by
Moody's Investors Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Ratings
Services ("Standard & Poor's"), "AAA" by Duff & Phelps Credit Rating Co. ("Duff
& Phelps") and "AAA" by Nippon Investors Service Inc. Such ratings reflect only
the views of the respective rating agencies, are not recommendations to buy,
sell or hold securities and are subject to revision or withdrawal at any time by
such rating agencies.
The Surety Bond Issuer is a wholly-owned subsidiary of CapMAC Holdings
Inc. ("Holdings"). Neither Holdings nor any of its stockholders is obligated to
pay any claims under any surety bond issued by the Surety Bond Issuer or any
debts of the Surety Bond Issuer or to make additional capital contributions to
the Surety Bond Issuer.
The Surety Bond Issuer is regulated by the Superintendent of Insurance
of the State of New York. In addition, the Surety Bond Issuer is subject to
regulation by the insurance laws and regulations of the other jurisdictions in
which it is licensed. Such insurance laws regulate, among other things, the
amount of net exposure per risk that the Surety Bond Issuer may retain, capital
transfers, dividends, investment of assets, changes in control, transactions
with affiliates and consolidations and acquisitions. The Surety Bond Issuer is
subject to periodic regulatory examinations by the same regulatory authorities.
The Surety Bond Issuer's obligations under the Surety Bond may be
reinsured. Such reinsurance does not relieve the Surety Bond Issuer of any of
its obligations under the Surety Bond.
THE SURETY BOND IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND
SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
As of December 31, 1996 and 1995, the Surety Bond Issuer had qualified
statutory capital (which consists of policyholders' surplus and contingency
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<PAGE>
reserve) of approximately $260 million and $240 million, respectively, and had
not incurred any debt obligations. Article 69 of the New York State Insurance
Law requires the Surety Bond Issuer to establish and maintain the contingency
reserve, which is available to cover claims under surety bonds issued by the
Surety Bond Issuer.
The Surety Bond Issuer is located at 885 Third Avenue, New York, New
York 10022, and its telephone number is (212) 755-1155.
THE OFFERED CERTIFICATES
The Offered Certificates will be issued pursuant to the Pooling and
Servicing Agreement. Copies of the Pooling and Servicing Agreement (without
exhibits) may be obtained by Certificateholders upon request in writing to the
Servicer. Citations to the relevant sections of the Pooling and Servicing
Agreement appear below in parentheses. The following summary does not purport to
be complete and is subject to and qualified in its entirety by reference to the
Pooling and Servicing Agreement.
Distributions
In general, it is intended that the Trustee distribute to the Class A
Certificateholders on each Distribution Date beginning October 8, 1997, the
aggregate principal payments, including full and partial prepayments (except
certain prepayments in respect of Precomputed Receivables), received on the
Receivables during the related Collection Period, plus the Class A Monthly
Interest. Principal to be distributed to the Class A Certificateholders will be
allocated on the basis of the Principal Distribution Sequence (as defined
herein). It is also intended that the Trustee distribute to the Class I
Certificateholders, on each Distribution Date beginning on October 8, 1997 and
continuing until the Distribution Date on which the Notional Principal Amount is
reduced to zero, the Class I Monthly Interest. (Section 9.04.) See "The Offered
Certificates-- Distributions." Interest to Certificateholders may be provided by
a payment made by or on behalf of the Obligor, by an Advance made by the
Servicer to cover interest due on a defaulted Receivable or by a withdrawal from
the Spread Account. If such interest represents Monthly Interest it may be
provided by a draw on the Surety Bond if there are not sufficient funds (after
payment of the Monthly Servicing Fee, permitted reimbursements of outstanding
Advances and after giving effect to any withdrawals from the Spread Account for
the benefit of the Class A Certificateholders and the Class I
Certificateholders) to pay Monthly Interest and Monthly Principal. Draws on the
Surety Bond to pay Monthly Interest and Monthly Principal will be limited to the
Surety Bond Amount.
The Class I Certificates -- Calculation of Notional Principal Amount
The Class I Certificates are interest only planned amortization
securities. The Class I Certificates are entitled to receive interest at the
Class I Pass-Through Rate on the Notional Principal Amount of the Class I
Certificates, initially $176,276,554.86. The planned amortization feature is
intended to reduce the uncertainty to investors in the Class I Certificates with
respect to prepayments because the Class I Certificates will receive interest
based on their Notional Principal Amount on a principal paydown schedule rather
than on the reduction in the actual Certificate Balance as a result of principal
payments and prepayments, as described below. Solely for the purpose of
calculating the amount payable with respect to the Class I Certificates, the
Certificate Balance will be divided into two principal components, the "PAC
Component" and the "Companion Component". The Notional Principal Amount will be
equal to the PAC Component, originally $176,276,554.86. The sum of the PAC
Component and the Companion Component will at all times equal the then aggregate
unpaid Certificate Balance.
The Pooling and Servicing Agreement establishes a schedule (the
"Planned Notional Principal Amount Schedule") pursuant to which principal will
be allocated to the PAC Component and the Companion Component, as described
below. As the PAC Component is reduced, the Notional Principal Amount and
payments to the holders of the Class I Certificates will also be reduced.
On each Distribution Date, the Monthly Principal will be allocated
first to the PAC Component up to the amount necessary to reduce the PAC
Component to the amount specified in the Planned Notional Principal Amount
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<PAGE>
Schedule (the "Planned Notional Principal Amount") for such Distribution Date,
second, to the Companion Component until the balance thereof is reduced to zero
and third, to the PAC Component, without regard to the Planned Notional
Principal Amount for such Distribution Date. The foregoing allocations will be
made solely for purposes of calculating the Notional Principal Amount and
correspondingly, the amount of interest payable with respect to the Class I
Certificates. The Class I Certificates are not entitled to receive any principal
payments. The foregoing calculations will not affect distributions of principal
with respect to the Class A Certificates.
Planned Notional Principal Amount Schedule
Planned Notional
Distribution Date in Principal Amount
Initial.......................................... $ 176,276,554.86
October 1997..................................... 170,604,250.70
November 1997.................................... 164,978,666.13
December 1997.................................... 159,400,728.11
January 1998..................................... 153,871,378.61
February 1998.................................... 148,391,574.74
March 1998....................................... 142,962,289.06
April 1998....................................... 137,584,509.73
May 1998......................................... 132,259,240.81
June 1998........................................ 126,987,502.42
July 1998........................................ 121,770,331.07
August 1998...................................... 116,608,779.78
September 1998................................... 111,503,918.44
October 1998..................................... 106,456,833.95
November 1998.................................... 101,468,630.54
December 1998.................................... 96,540,429.99
January 1999..................................... 91,673,371.94
February 1999.................................... 86,868,614.07
March 1999....................................... 82,127,332.36
April 1999....................................... 77,450,721.47
May 1999......................................... 72,839,994.90
June 1999........................................ 68,296,385.27
July 1999........................................ 63,821,144.70
August 1999...................................... 59,415,544.92
September 1999................................... 55,080,877.74
October 1999..................................... 50,818,455.23
November 1999.................................... 46,629,610.00
December 1999.................................... 42,515,695.55
January 2000..................................... 38,478,086.59
February 2000.................................... 34,518,179.28
March 2000....................................... 30,637,391.55
April 2000....................................... 26,837,163.45
May 2000......................................... 23,192,460.90
June 2000........................................ 19,626,543.38
July 2000........................................ 16,140,831.37
August 2000...................................... 12,736,767.35
September 2000................................... 9,415,816.07
October 2000..................................... 6,179,464.97
November 2000.................................... 3,029,224.39
December 2000.................................... 0.00
The Class I Certificates will not be entitled to any distributions after the
Notional Principal Amount has been reduced to zero.
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<PAGE>
Class I Yield Considerations
Although the planned amortization feature of the Class I Certificates
is intended to reduce the uncertainty relating to prepayments of the Receivables
with respect to the Class I Certificates, the yield to maturity of the Class I
Certificates will remain extremely sensitive to the prepayment experience of the
Receivables, including voluntary prepayments, prepayments due to liquidations,
repurchases and losses and prepayments resulting from any sale of the
Receivables upon an Insolvency Event relating to the Class IC Certificateholder.
Prospective investors should fully consider the associated risks, including the
risk that such investors may not fully recover their initial investment. In
particular, investors in the Class I Certificates should note that they will not
be entitled to any distributions after the Notional Principal Amount of the
Class I Certificates has been reduced to zero, and that Receivables may be
repurchased due to breaches of representations. See "Risk Factors."
The following tables illustrate the significant effect that prepayments
on the Receivables have upon the yield to maturity of the Class I Certificates.
The first table assumes that the Receivables have been aggregated into five
hypothetical pools having the characteristics described therein and that the
level scheduled monthly payment for each of the five pools (which is based on
its principal balance, weighted average Contract Rate, weighted average
remaining term as of the Cutoff Date and its weighted average original term)
will be such that such pool will be fully amortized by the end of its weighted
average remaining term. Based on such hypothetical pools, the second table shows
the approximate hypothetical pre-tax yields to maturity of the Class I
Certificates, stated on a corporate bond equivalent basis, under five different
prepayment assumptions based on the assumed purchase price and the ABS
prepayment model described below.
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Cutoff Date Weighted Average Remaining Term to Original Term to
Pool Principal Balance Note Rate Maturity (in Months) Maturity (in Months)
<S> <C> <C> <C> <C> <C>
1 $ 4,200,685.73 13.999% 31 35
2 9,332,857.21 14.122 46 47
3 36,831,122.67 13.514 58 59
4 72,256,006.06 13.477 70 71
5 95,769,490.57 13.393 80 81
</TABLE>
For purposes of the table, it is also assumed that (i) the purchase
price of the Class I Certificates is as set forth below, (ii) the Receivables
have the characteristics set forth under "The Receivables Pool" herein, (iii)
the Receivables prepay monthly at the specified percentages of ABS as set forth
in the table below, (iv) prepayments representing prepayments in full of
individual Receivables are received on the last day of the month and include a
full month's interest thereon, (v) the Closing Date for the Offered Certificates
is September 11, 1997, (vi) distributions on the Offered Certificates are made,
in cash, on the ninth day of each month, commencing on October 9, 1997, (vii) no
defaults or delinquencies in the payment of the Receivables are experienced, and
(viii) no Receivable is repurchased for breach of representation and warranty or
otherwise.
Sensitivity of the Yield on the Class I Certificates to Prepayments
1.0% 1.6% 1.8% 2.5% 3.0%
Price(1) ABS ABS ABS ABS ABS
-------- ------ ----- ----- ----- -----
2.145223% 25.927% 6.263% 6.263% 6.263% - 3.155%
(1) Expressed as a percentage of the original Notional Principal Amount.
Based on the assumptions described above and assuming a purchase price
of 2.145223% at approximately 2.867% ABS, the pre-tax yield to maturity of the
Class I Certificates would be approximately 0%.
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<PAGE>
It is highly unlikely that the Receivables will prepay at a constant
rate until maturity or that all of the Receivables will prepay at the same rate.
The foregoing table assumes that each Receivable bears interest at its specified
Contract Rate, has the same remaining amortization term, and prepays at the same
rate. In fact, receivables will prepay at different rates and have different
terms.
The yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed stream
of cash flows to be paid on the Class I Certificates, would cause the discounted
present value of such assumed cash flows to equal the assumed purchase price of
such Class I Certificates and by converting such monthly rates to corporate bond
equivalent rates. Such calculations do not take into account variations that may
occur in the interest rates at which investors may be able to reinvest funds
received by them as distributions on the Class I Certificates and consequently
do not purport to reflect the return on any investment in the Class I
Certificates when such reinvestment rates are considered.
The Receivables will not necessarily have the characteristics assumed
above, and there can be no assurance that (i) the Receivables will prepay at any
of the rates shown in the table or at any other particular rate or will prepay
proportionately, (ii) the pre-tax yield on the Class I Certificates will
correspond to any of the pre-tax yields shown above or (iii) the aggregate
purchase price of the Class I Certificates will be equal to the purchase price
assumed. Because the Receivables will include Receivables that have remaining
terms to stated maturity shorter or longer than those assumed and Contract Rates
higher or lower than those assumed, the pre-tax yield on the Class I
Certificates may differ from those set forth above, even if all of the
Receivables prepay at the indicated constant prepayment rates.
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
Absolute Prepayment Model ("ABS"), represents an assumed rate of prepayment each
month relative to the original number of receivables in a pool of receivables.
ABS further assumes that all the receivables are the same size and amortize at
the same rate and that each receivable in each month of its life will either be
paid as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
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